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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
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For the fiscal year ended Commission File Number
December 31, 1997 0-14903
Baldwin Piano & Organ Company
(Exact name of registrant as specified in its charter)
Delaware 31-1091812
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
422 Wards Corner Road
Loveland, Ohio 45140-8390
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (513) 576-4500
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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 .
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) 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-K or any amendment to this Form 10-K. {X}
The aggregate market value of the voting stock held by non-affiliates
of the registrant is $43,628,970 based upon the $17.00 per share price at which
the Common Stock was last sold as reported on the Nasdaq National Market through
March 20, 1998.
The number of outstanding shares of Common Stock of Baldwin Piano &
Organ Company ("Company"), as of March 20, 1998, is
3,445,710.
DOCUMENTS INCORPORATED BY REFERENCE
All of the information required by Items 6-8 of Part II of this Form
10-K is incorporated by reference from the Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1997 ("1997 Annual Report to
Shareholders"). All of the information required by Items 10-13 of Part III of
this Form 10-K is incorporated by reference from the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission in April, 1998
relating to the Company's 1998 Annual Meeting of Shareholders ("1998 Proxy
Statement").
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TABLE OF CONTENTS
<TABLE>
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PART I. Page
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Item 1. Business 1
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of 13
Security Holders
PART II.
Item 5. Market for Registrant's Common Equity 13
and Related Stockholder Matters
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of 14
Financial Condition and Results of Operation
Item 7A. Quantitative and Qualitative Disclosures 14
about Market Risk
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants 14
on Accounting and Financial Disclosure
PART III.
Item 10. Directors and Executive Officers of the 14
Registrant
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial 14
Owners and Management
Item 13. Certain Relationships and Related 14
Transactions
</TABLE>
(i)
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<TABLE>
<CAPTION>
PART IV.
<S> <C> <C>
Item 14. Exhibits, Financial Statement Schedules, 15
and Reports on Form 8-K
SIGNATURES 22
</TABLE>
(ii)
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PART I
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ITEM 1. BUSINESS
As used herein, the terms "Company" or "Baldwin" refer to Baldwin Piano
& Organ Company and its subsidiaries and the Company's predecessors, unless the
context otherwise indicates.
As a leader in the U.S. keyboard market, the Company's core business,
Baldwin manufactures and markets a full range of high quality keyboard
instruments featuring the Baldwin(R), Wurlitzer(R), Chickering(TM),
ConcertMaster(TM) and Pianovelle(TM) trademarks. From artist-accepted concert
grand pianos to innovative digital keyboards, renowned Baldwin instruments are
found in homes, churches, academic institutions and concert halls across the
nation.
Baldwin expands on its core business by providing in-house consumer
installment financing of musical products through its wholly-owned subsidiary
Keyboard Acceptance Corporation ("Finance"). With an emphasis on superior
service, revenues generated by Finance continue to grow significantly,
increasing 21% in 1997. Baldwin is the only U.S. musical products manufacturer
to offer direct consumer financing of its instruments. In late 1997 Baldwin
formed Signature Leasing Company to give piano buyers another financing option.
Through its Contract Electronics Division, Baldwin offers printed
circuit board assemblies, design, engineering, testing, electromechanical and
mechanical assembly, post-production repair and order fulfillment services for
original equipment manufacturers.
Sales of the Company's products and other revenue are set forth by
industry segment in the following table:
<TABLE>
<CAPTION>
(dollars in millions)
Year Ended December 31,
-----------------------------------------
1997 1996 1995
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<S> <C> <C> <C>
Musical Products and other:
Musical Products........... $107.4 $ 82.9 $ 85.1
Contract Furniture and
Music....................... 2.1 4.5 10.6
-------- -------- ------
Total Segment......... 109.5 87.4 95.7
Electronic Contracting ........ 35.6 30.9 30.7
Finance........................ 8.9 7.4 6.1
-------- -------- ------
Total ....... $154.0 $125.7 $132.5
======== ======== ======
</TABLE>
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During 1997 the Company phased out its consignment inventory program. Under
Baldwin's historical consignment inventory program, the Company's pianos in the
dealer's possession remained part of Baldwin's inventory until actually sold by
the dealer. In 1997 the Company, in conjunction with a third party, provided a
more attractive floor plan to its dealers to finance the dealers' purchase of
products from the Company. As a result, the dealers opted out of the existing
consignment program and most Company inventory in each of these dealers'
possession was immediately sold to the dealers. This transfer of title was a
sale by the Company to the dealer and created a large one-time increase in
Baldwin's sales of $14.6 million in 1997.
Financial information regarding industry segments is shown in this Form
10-K in Note 15 to the Consolidated Financial Statements of the Company,
attached hereto as Exhibit 13.1.
MUSICAL PRODUCTS
Since 1862, Baldwin's keyboard products have been recognized for their
high quality, value and performance by professional musicians, educators and
consumers. Today, Baldwin's keyboard products are consistent with the Company's
fine heritage and represent a broad range of acoustic and electronic instruments
aimed at a broad consumer base. Baldwin's musical products are sold through
domestic wholesale dealers (80%), Company-owned retail stores (9%), factory
direct sales (5%) and an international dealer network (6%).
ACOUSTIC PIANOS
The Company's premier product is the Baldwin(R) concert grand
piano, a product which is widely accepted for concert performances.
Baldwin is the only domestic manufacturer of concert grand pianos which
also produces a full line of vertical pianos. The Company has
successfully incorporated a number of enhancements and construction
techniques originally designed for Baldwin(R) grand pianos into its
vertical piano lines. The Company believes that the quality and
durability of the Baldwin(R) concert grand pianos enhance the
reputation and marketability of its entire line of acoustic keyboard
instruments.
Baldwin offers three brands of pianos, under the Baldwin(R),
Chickering(TM) and Wurlitzer(R) names, each earmarked for a different
segment of the market on the basis of price and product positioning.
Together, these three brands have represented nearly 50% of all
domestic new piano sales over the past four decades and provide a
significant competitive advantage to the Company. Product development
activity is
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focused on the development of improved designs, periodic cabinetry
changes, other aesthetic features and electronic enhancements.
Overall, the Company's product line offering covers all key
price points, piano styles and finishes, and sizes -- ranging from
37-inch vertical pianos to 9-foot concert grand pianos.
DIGITAL KEYBOARDS
Baldwin distributes a broad range of electronic keyboard
instruments. Baldwin's products compete in those digital keyboard
market segments that represent over 90% of the market for digital
keyboard products used in the home. To gain a greater share of this
growing segment, Baldwin introduced its digital product line, Baldwin
Pianovelle(TM), in September 1995, and completed the rollout in August
1996. Overall, the line includes seven models.
Pianovelle(TM) products are manufactured to Baldwin's
specifications in Italy by GeneralMusic, Europe's largest digital
keyboard manufacturer. Baldwin is working with GeneralMusic in
designing new generation product lines with superior piano tone and
touch. Baldwin plans to continue to introduce new products to address
changing consumer needs.
PRODUCT DEVELOPMENT
The Company's research staff, in conjunction with outside
consulting and design services, engage in ongoing efforts to refine
existing products and develop new products.
In electronic-based products, the Company uses outside sources
for the development and production of its products, under strict
specifications developed by the Company. Outsourcing has enabled the
Company to benefit from other companies' expertise in advanced
electronic technology and new material development and minimize
operating costs.
In 1996, the Company completed development of a unique digital
player system for acoustic pianos. This system, called Baldwin
ConcertMaster(TM), was introduced in January 1997 and began shipments
during the second quarter of 1997. It employs multi-media storage of
music and recording capabilities and is available for factory or field
installation only on acoustic pianos with the Company's brand names.
During 1997, the demand for Baldwin grand pianos increased due to the
consumer appeal of ConcertMaster(TM). Additional features, software and
other capabilities are under
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development to further enhance the competitiveness of
ConcertMaster(TM).
MARKETING AND DISTRIBUTION
The Company distributes its keyboard musical instruments in
North America through approximately 400 independent dealers. The
Company also operates 14 Company-owned stores in six large metropolitan
areas.
In 1997, no single dealer accounted for more than 5% of the
Company's keyboard musical instrument sales. The top ten dealers in
terms of net sales accounted for approximately 19% of the Company's
keyboard musical instrument sales.
The Company's domestic unit sales leadership is attributable,
in part, to its excellent dealer network. The Company believes that it
has been able to attract and maintain dealers by offering a superior
product line and numerous programs and services designed to assist
dealers and promote the Company's products, including:
* An artist endorsement program in which over 375 well-known
pianists, composers, conductors, vocalists and musical
institutions endorse Baldwin grand pianos, providing dealers
with extensive national and local product publicity and a
method of product differentiation. This promotes wide use of
Baldwin's pianos in broadcast media and provides for in-store
merchandising materials which promote these endorsements.
* A dealer support program, providing training, promotional
programs and assistance, and sales incentives.
* Institutional loan programs, which provide for short term
piano loans to universities followed by selling events at the
end of the loan term.
* Sponsorship of educational activities, including piano
competitions.
* An installment finance program offering retail customers a
source of credit and assurance of the Company's continued
interest and commitment to product performance. This program
was further enhanced by the opening in late 1997 of a
Company-owned retail store for the resale of repossessed
pianos. This store's purpose is to sell the small number of
repossessed instruments and thereby allow the elimination of
recourse to the dealers--improving dealer relations.
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CONSIGNMENT CONVERSION TO THIRD PARTY FINANCING
Over the last three quarters of 1997, the Company phased out
its consignment inventory program and developed the Baldwin Inventory
Finance Program in conjunction with Deutsche Financial Services, a
premier financier of musical instrument inventory. Some Baldwin dealers
chose to arrange other third-party financing. The 1997 impact of this
conversion was a one-time increase in sales of $14.6 million,
reflecting the transfer of title for inventory at dealer locations from
Baldwin to the dealers.
Baldwin was the sole piano manufacturer operating in the
United States under a consignment program, which placed Baldwin-owned
inventory in dealers' retail showrooms. Baldwin charged dealers
interest for use of the inventory after 90 days.
The new Baldwin Inventory Finance Program provides better
financial terms to dealers than the previous consignment program and is
cost-neutral to the Company. Dealer reaction to this new program has
been favorable.
TRUCKING
The Company ceased its Company-managed trucking of pianos to
dealers during 1997, and converted these operations to an independent
contractor who specializes in piano transport. Via a contractual
arrangement, this independent trucking company absorbed the Company's
leased fleet and provides cartage at rates competitive with the
Company's. The benefits to the Company were three-fold: (1) the
Company's delivery time to dealers was improved dramatically,
particularly to dealers on the west coast of the U.S. because the
transport company ships full loads on a more frequent basis, made
possible by the economies of scale of shipping pianos for many piano
manufacturers; (2) the specialized expertise of the independent
contractor reduced in-transit damage to the Company's pianos; and (3)
the Company reduced administrative costs and increased business focus
by outsourcing trucking to an independent supplier.
RETAIL STORES
The 14 Company-owned retail outlets are located in Atlanta,
Georgia; Cincinnati, Ohio; Indianapolis and Fort Wayne, Indiana; and
Louisville and Lexington, Kentucky. These Company-owned retail outlets
sell only Company piano lines and are generally situated in areas where
they do not compete directly with the Company's independent dealers.
The Company believes that the existence of Company-owned stores has not
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adversely affected the Company's good relationships with its
independent dealers.
In addition to accounting for approximately 9% of the
Company's total keyboard sales in 1997, Baldwin's retail stores provide
the Company with the opportunity to test new retailing concepts and
dealer promotional ideas. Baldwin's retail stores also provide a better
understanding of dealer issues and provide a source of future
management talent.
FACTORY DIRECT SALES
Baldwin introduced the Factory Direct Sales program in 1994,
to access customers outside the geographic reach of the Company's
independent dealer network and Company-owned stores, and also to
cooperatively increase sales within those areas, working in conjunction
with independent dealers. This program accounted for approximately 6%
of the Company's total keyboard sales in 1997.
INTERNATIONAL SALES
The Company's products are distributed in Canada through
approximately 30 independent dealers representing approximately 4% of
the Company's total keyboard sales in 1997. The Company markets
products through a number of other international distributors in
markets such as Mexico, France, Taiwan, Japan and England representing
approximately 2% of the Company's total keyboard sales in 1997.
MARKETS AND COMPETITION
The principal targets for the Company's acoustic and
electronic pianos are families with children aged 6 to 12, young
adults, and educational institutions.
The domestic acoustic piano market appears to have stabilized
in unit sales during 1997, following several years of contraction. The
digital piano category grew slightly in 1997, in line with growth
trends generally experienced over the past several years. The Company
believes that consumer interest in keyboard products remains strong,
and that the outlook for sales is good. This belief is based on: (1)
birthrates, which indicate that the target consumer base will continue
to grow through the year 2010; and (2) increased public focus on the
intellectual and self-esteem benefits of music, and specifically music
keyboard study. These findings have been confirmed by numerous
independent research studies, and have been broadly publicized by the
national media.
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Sales of the Company's keyboard products are affected by the
market for used keyboard instruments, particularly used acoustic
instruments, although the Company is unaware of any reliable data for
evaluating the size or impact of these used instruments on the sales of
new products. Company sales data includes the sales of new instruments,
as well as a small number of used and non-Baldwin instruments sold by
the Company's retail stores. The revenue represented by these used or
non-Baldwin instruments is nominal.
The Company competes with a number of domestic and foreign
acoustic piano manufacturers based on price relative to tone quality,
performance characteristics, styling, finish options and electronic
enhancement options. Based on industry statistics, foreign piano
manufacturers' combined market share for acoustic pianos in the
domestic market stands at about 55%. Foreign competition in the piano
market is most heavily concentrated in the market for small grand
pianos, electronically enhanced pianos, and, to a lesser extent, in the
market for large vertical pianos.
The Company believes that its domestic unit market share for
new acoustic pianos was approximately 25% in 1995, approximately 26% in
1996 and approximately 28% in 1997. The Company believes that no single
manufacturer has a domestic market share larger than the Company's. The
Company's domestic market share for digital pianos was approximately 3%
in 1995, 4% in 1996 and 6% in 1997.
CHURCH ORGANS
In early 1997, the Company reached agreement to sell its
church organ business, the sale of which was completed in the fourth
quarter of 1997. The church organ business was considered a non-core
business because of its unique dealer and customer base. Exit from this
business was consistent with the Company's focus on its core piano
business aimed at the consumer market.
FINANCING OPERATIONS
The Company's installment financing subsidiary, Finance, provides
point-of-sale consumer financing through keyboard dealers located throughout the
United States. It has been doing so for nearly a century. Baldwin is the only
keyboard manufacturer that provides its own consumer financing for its musical
instruments. The Company believes that this long-term, strongly focused
attention to the music industry provides Baldwin with a distinct competitive
advantage.
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Over the last few years Finance has expanded its focus. In addition to
financing keyboard products sold by Baldwin dealers, Finance makes its consumer
financing available through music dealers that do not carry the Company's
keyboard products. During 1997, many new dealers were added to the Finance
client base as a result of this strategy.
Finance offers music dealers consumer financing programs which include
competitive interest rates, rent-to-own options and prompt credit approval. In
addition to these continuing services, Finance both originates and cooperates in
special promotional programs with dealers.
Finance maintains agreements with an independent entity to sell
substantially all of its installment receivable contracts up to a maximum
outstanding principal amount of $150 million. Certain installment receivables
are not eligible for sale and are retained by Finance. Finance continues to
service all installment receivables sold.
At the time of each installment receivable sale, Finance receives cash
equal to the unpaid balance of the contracts, less a purchase discount applied
to the principal balance of the contracts sold. The purchase discount is
adjusted at each receivable sale and is determined using the loss experience and
effective yield of the portfolio. The buyer of the installment receivables earns
interest on the outstanding principal balance of the contracts based upon a
floating interest rate provision. Over the duration of the contracts, the
difference between the actual yield on the installment contracts sold, and the
amount retained by the buyer under the floating interest rate provision, is
remitted to Finance as a service fee.
Under the sale agreement with the independent entity, Finance is
required to repurchase accounts that become more than 120 days past due or
accounts that are deemed uncollectible by the independent purchaser. The
repurchase price is equal to the remaining unpaid principal balance of the
contract on the date repurchased, less the related purchase discount. At
December 31, 1997, Finance remains contingently liable on approximately $89
million of installment receivables. Finance is responsible for all credit losses
associated with the sold receivables. Historically, credit losses have not been
significant. Installment receivables are secured by the keyboard instruments.
Prior to the fourth quarter of 1997, in the event of repossession of an
instrument financed by Finance, the dealer originally selling the instrument
bore some risk of the bad debt loss, but had the right to sell the repossessed
product. The dealer's potential liability to the Company is known as recourse.
In the fourth quarter, in order to increase the number of contracts entered
into, Finance initiated a program of acquiring receivables without recourse, and
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the Company began selling repossessed pianos through its own retail
stores--primarily through a repossession center located in the Atlanta
metropolitan area. The Company believes an adequate allowance has been provided
for any uncollectible receivables.
In late 1997 Baldwin formed a leasing subsidiary to give piano buyers
another financing option. Early results are encouraging as dealers' and the
Company's own sales forces begin to offer piano leasing as an alternative method
to increase piano sales. Baldwin will continue to educate both its sales force
and its dealer network about the benefits and selling points of leasing.
ELECTRONIC CONTRACTING
In 1984, the Company began manufacturing printed circuit board
assemblies for original equipment manufacturers outside the music industry.
Currently, the Baldwin Contract Electronics Division provides electronic and
electromechanical products and services to a broad range of original equipment
manufacturers. Final applications include commercial and industrial power
controls, heating and air conditioning systems, vending machines, mail handling
systems, exercise equipment and semiconductor fabrication equipment.
The Contract Electronics Division has increased resource investment,
improved its work systems and expanded the customer/supplier partnerships. In
1996, this Division entered into strategic partnerships with two of its top five
customers. In one strategic partnership, Baldwin enjoys preferred supplier
status increasing the likelihood for preferential access to new business being
outsourced by this customer. In the other, Baldwin has entered into long term
supply arrangements that give the Company preferred supplier status for new
business.
The Contract Electronics Division is a full-service contract supplier
offering a complete line of engineering, design, testing, repair and rework
services, and assembly of electronic and electromechanical products. Baldwin
engineering and operations personnel work closely with customers to take a
concept or design, develop it, test it and turn it into a manufactured circuit
board assembly or finished product component.
The Company sells electronic assemblies to manufacturers through
Company representatives and electronics manufacturers' representatives with
territories covering 28 states. There are many contract manufacturers of
electronic assemblies and the Company does not have a significant share of the
market of such products. In terms of sales, the Company believes that this
Division is ranked in the top 60 out of approximately 1,000 contract electronics
manufacturers in the U.S. The industry remains highly fragmented with
predominantly small players and a
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few large ones. Baldwin has established a niche in low-to-medium volume
assembly. This Division has developed a strong reputation among its customers in
the consistency of its quality and flexibility in meeting rapidly changing
customer demands.
MANUFACTURING
The Company has integrated acoustic piano manufacturing capability
beginning with the treatment of raw lumber; proceeding through the fabrication
and finishing of the cabinetry and assembly of the inner workings; and
culminating in the creation of a completed keyboard instrument. Starting in
1996 and continuing in 1997, the Company began implementing an aggressive
initiative to modernize and simplify its piano manufacturing operations.
Utilizing synchronous manufacturing techniques, the Company is gaining greater
process efficiencies, reducing manufacturing costs and inventories, improving
cycle times and producing consistently higher-quality pianos for its dealer
network and consumers.
Synchronous manufacturing principles have been refined and proven by
advanced Japanese, U.S. and European manufacturers in many industries. For
Baldwin, this approach enables greater efficiency in its continuous flow piano
assembly line. It replaces the older batch production method and its inherent
problems, such as less process control and higher work-in-process and finished
product inventories.
The Company's contract electronics manufacturing facility utilizes
specialized, computer-controlled production and testing equipment to assemble
and test printed circuit boards and electromechanical assemblies for its
original equipment manufacturing customers.
RAW MATERIALS
Raw materials required for the Company's acoustic piano manufacturing
operations are primarily purchased in the United States. Due to the Company's
unique products, a limited number of vendors are available for certain
specialized parts needed for keyboard instruments. The Company has not
experienced significant difficulties in obtaining adequate supplies of raw
materials. However, the failure of one or more such vendors to continue to
supply its products could cause delays in the Company's manufacturing process
until suitable alternate sources could be obtained.
In electronic contracting, electronic components are purchased from
major electronic parts manufacturers and distributors. To minimize costs and
facilitate availability of major components, the
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Company designs products to employ standard components wherever possible.
SEASONALITY
The Company's business is somewhat seasonal in nature with fourth
quarter musical products sales generally increasing during the holiday season.
In 1997, without the one-time sales related to the phase-out of Baldwin's music
consignment inventory program, the fourth quarter accounted for approximately
31% of net sales. This is consistent with fourth quarter results in the previous
three years.
BACKLOG
At December 31, 1997, the Company had sales orders for keyboard
products of approximately $5 million. At December 31, 1996, the Company had no
significant backlog of sales of keyboard products because the majority of
Baldwin's keyboard products were consigned to its dealers at that time. The
sales orders for electronic contracting totaled approximately $33 million and
$25 million at December 31, 1997 and 1996, respectively. These sales orders are
not firm sales orders and are subject to cancellation by the ordering customers.
The Company anticipates that all such 1997 orders will be filled during 1998.
WORKING CAPITAL
The Company requires significant working capital to support its
operations. The Company builds inventory levels during the year to support its
high fourth quarter seasonal sales demand.
The Company finances its working capital needs under a $40 million
revolving Credit Facility. The Company can terminate this Credit Facility at any
time with sixty days notice. Under the Credit Facility, the lenders have made
available a line of credit based upon certain percentages of the carrying value
of the Company's inventories and accounts receivable. Finance has entered into
agreements with an independent entity to sell substantially all of its
installment receivable contracts up to a maximum outstanding principal amount of
$150 million, subject to certain repurchase provisions described above under the
caption "Financing Operations".
For more information about the Company's credit facilities, see
"Management's Discussion and Analysis of Financial Condition
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and Results of Operation - Liquidity and Capital Resources" attached hereto as
Exhibit 13.1.
EMPLOYEES
As of December 31, 1997, the Company had approximately 1,520 full-time
employees. Approximately 235 hourly workers at the Company's Greenwood,
Mississippi facility are represented by the International Chemical Workers
Union, Local Union No. 800 and approximately 260 hourly workers at Fabricantes
Tecnicos, S.A. (wholly-owned subsidiary of the Company) Juarez, Mexico facility
are represented by the National Labor Union of Workers of Electronic Products.
All other employees are not represented by collective bargaining units. The
Company considers its relations with its employees to be good.
ITEM 2. PROPERTIES
The Company operates the following manufacturing facilities, all of
which are owned. These properties are pledged as collateral under the Company's
various credit facilities.
<TABLE>
<CAPTION>
Location Industry Segment Principal Products
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<S> <C> <C>
Greenwood, Mississippi Music and other Piano cases and wood
components
Conway, Arkansas Music and other Grand pianos
Fayetteville, Arkansas Electronic Circuit boards and
Contracting electromechanical and
mechanical assemblies
Trumann, Arkansas Music and other Vertical pianos
Juarez, Mexico Music and other Keys and actions
</TABLE>
The Company's corporate offices and a retail showroom are located in a
50,000 square foot leased facility in a suburban office park in the greater
Cincinnati, Ohio metropolitan area. Generally, properties are utilized at normal
capacity levels on a single shift basis.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings arising in its normal
course of business. The Company does not believe that any existing claim or suit
will have a material adverse effect on the business or financial condition of
the Company.
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The operations of the Company and its predecessors are subject to
federal, state and local laws regulating the discharge of pollutants into the
environment. The Company does not anticipate that any environmental matters
currently known to the Company will result in proceedings against the Company or
in any material liability.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company submitted no matters to a vote of its shareholders during
the fourth quarter of the Company's 1997 fiscal year.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's common stock is not listed on any national securities
exchange and its principal United States trading market is through the Nasdaq
Stock Market's National Market. Quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
Year 1997 Year 1996
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Common Stock Bid Range Common Stock Bid Range
- ---------------------------- ------------------------------
Quarter High Low Quarter High Low
- ---------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First $14 $11 1/2 First $14 1/2 $12 1/4
Second $14 1/2 $12 3/4 Second $15 1/2 $12 3/4
Third $18 $13 1/4 Third $16 1/2 $14 1/2
Fourth $19 15/16 $15 5/8 Fourth $16 1/4 $11
</TABLE>
As of March 20, 1998, the number of outstanding shares of the Company's
common stock was 3,445,710. The approximate number of record holders of such
shares was 114.
The Company has paid no dividends since its inception and intends to
continue its policy of retaining earnings to finance future growth.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference to page 37 of Baldwin's 1997 Annual Report to
Shareholders under the heading of "Baldwin Piano & Organ Company and
Subsidiaries Five-Year Summary."
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Incorporated by reference to pages 38 to 40 of Baldwin's 1997 Annual
Report to Shareholders under the heading "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference to pages 18 to 36 of Baldwin's 1997 Annual
Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
No change in the Company's auditors has taken place within the
twenty-four months prior to, or in any period subsequent to, the Company's
December 31, 1997 consolidated financial statements.
PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to Baldwin's Proxy Statement for the 1998
Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to Baldwin's Proxy Statement for the 1998
Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Incorporated by reference to Baldwin's Proxy Statement for the 1998
Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to Baldwin's Proxy Statement for the 1998
Annual Meeting of Shareholders.
14
<PAGE> 19
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
1.1 The following Consolidated Financial Statements of Baldwin Piano &
Organ Company and Subsidiaries are incorporated by reference to
Baldwin's 1997 Annual Report to Shareholders.
Independent Auditors' Report.
Consolidated Statements of Earnings, years ended December 31,
1997, 1996 and 1995.
Consolidated Statements of Shareholders' Equity, years ended
December 31, 1997, 1996 and 1995.
Consolidated Balance Sheets, as of December 31, 1997 and 1996.
Consolidated Statements of Cash Flows, years ended December
31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements, years ended
December 31, 1997 1996 and 1995.
2.1 Consolidated Financial Statement Schedules of
Baldwin Piano & Organ Company and Subsidiaries:
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
Independent Auditors' Report on Schedule 23
Schedule for the years ended December 31, 1997, 1996 and 1995.
VIII. Valuation and Qualifying Accounts. 24
All other schedules are omitted, as the required information
is inapplicable or the information is presented in the
consolidated financial statements or related notes.
3.1 Certificate of Incorporation of the Company, as amended. (1)
3.2 Amended and Restated Bylaws of Baldwin Piano & Organ Company
dated as of February 10,1997. (15)
</TABLE>
15
<PAGE> 20
<TABLE>
<S> <C>
4.1 Rights Agreement between the Company and The Provident Bank
dated as of September 4, 1996. (16)
MANAGEMENT CONTRACTS, COMPENSATORY PLANS AND ARRANGEMENTS
=========================================================
10.1 Baldwin Piano & Organ Company 1986 Incentive Stock Option
Plan adopted on June 30, 1986. (1)
10.2 Baldwin Piano & Organ Company Retirement Plan for Salaried
Employees, as amended. (1)
10.3 Baldwin Piano & Organ Company Retirement Trust for Salaried
Employees dated September 28, 1984. (1)
10.4 Form of Indemnification Agreements between the Company and
the Company's Officers and Directors dated June 30, 1986 and
accompanying schedule. (1)
10.5 Baldwin Piano & Organ Company Deferred Directors Fee
Plan. (5)
10.6 Baldwin Piano & Organ Company Non-Qualified Deferred
Compensation Plan. (5)
10.7 Baldwin Piano & Organ Company Non-Qualified Deferred
Compensation Rabbi Trust Agreement as amended and restated
as of October 4, 1993. (5)
10.8 Baldwin Piano & Organ Company 1994 Incentive Stock Option
Plan. (7)
10.9 Baldwin Piano & Organ Company 1994 Management Incentive
Plan. (8)
10.10 Baldwin Piano & Organ Company 1994 Long Term Incentive Plan.
(8)
10.11 Change in Control Agreement between Baldwin Piano & Organ
Company and Karen L. Hendricks dated June 26, 1996. (13)
10.12 Change in Control Agreement between Baldwin Piano & Organ
Company and Stephen P. Brock dated June 11, 1996. (13)(14).
10.13 Agreement of Employment between Baldwin Piano & Organ
Company and Perry H. Schwartz dated as of November 5, 1996,
as amended on November 11, 1996. (19)
10.14 Agreement of Employment between Baldwin Piano & Organ Company and
Karen L. Hendricks dated as of June 19, 1997.
(17)
</TABLE>
16
<PAGE> 21
<TABLE>
<S> <C>
10.15 Agreement of Employment between Baldwin Piano & Organ
Company and Randy R. Marks as Executive Vice President,
Piano Operations, dated as of July 29, 1997. (18)
============================
10.16 Office Space Lease Agreement between Wards Corner Associates
Limited Partnership and the Company dated as of June 16,
1986. (1)
10.17 Guaranty by BPO Finance Corporation in favor of General
Electric Capital Corporation dated October 25, 1990. (3)
10.18 Guaranty Agreement among the Company, BPO Finance Corporation,
Retailer Funding Corporation and General Electric Capital
Corporation dated as of October 1, 1990.
(3)
10.19 Indemnification Agreement among BPO Finance Corporation,
General Electric Capital Corporation and Kidder Peabody &
Co. Incorporated as of October 1, 1990. (3)
10.20 Retail Accounts Receivable Purchase Agreement among the
Company, BPO Finance Corporation and The Wurlitzer Company
dated as of October 1, 1990. (3)
10.21 Amendment dated as of February 15, 1994 to the October 1,
1990 Guaranty Agreement among the Company, Keyboard
Acceptance Corporation, Retailer Funding Corporation and
General Electric Capital Corporation. (6)
10.22 Amended and Restated General Loan and Security Agreement
dated as of February 24, 1994 between the Company and The
Fifth Third Bank. (6)
10.23 Irrevocable Standby Letter of Credit issued August 13, 1993
by The Fifth Third Bank on behalf of the Company in favor of
Harold S. Smith. (6)
10.24 Letter of Credit Reimbursement Agreement dated as of August
13, 1993 between the Company and The Fifth Third Bank. (6)
10.25 Amendment to Office Space Lease Agreement between Baldwin
Piano & Organ Company and Nooney Management Company dated as
of June 11, 1991. (4)
10.26 Indemnification agreement dated as of December 1, 1994 among
General Electric Capital Corporation, Lehman Commercial
Paper, Inc. and Keyboard Acceptance Corporation (formerly
BPO Finance Corporation). (9)
</TABLE>
17
<PAGE> 22
<TABLE>
<S> <C>
10.27 Amendment No. 1 dated as of April 3, 1995 to that certain
Amended and Restated General Loan and Security Agreement
dated as of February 24, 1994 between the Company and The
Fifth Third Bank. (10)
10.28 Distribution Agreement between Baldwin Piano & Organ Company
and GeneralMusic S.p.A. dated as of July 1, 1995. (11)
10.29 Amendment No. 2 dated as of October 1, 1995 to that certain
Amended and Restated General Loan and Security Agreement
dated as of February 24, 1994 between the Company and The
Fifth Third Bank. (12)
10.30 Amendment to Office Space Lease Agreement between Baldwin
Piano & Organ Company and Nooney Krombach Company dated as
of February 16, 1996. (12)
10.31 Land Lease Agreement between Fabricantes Tecnicos, S.A. DE
C.V. and Delphi Automotive Systems, S.A. DE C.V. dated as of
December 13, 1996. (19)
10.32 Amended and Restated Amendment and Supplemental Agreement
between Baldwin Piano & Organ Company and GeneralMusic
S.p.A. dated as of January 1, 1997. (19)
10.33 Credit Agreement by and between Baldwin Piano & Organ Company as
Borrower, the Fifth Third Bank as Agent and The Fifth Third Bank
and NBD Bank, N.A. as Lenders dated October 16, 1997 (excluding
nonmaterial exhibits).
10.34 First Amendment dated October 16, 1997, to the Credit Agreement by
and between Baldwin Piano & Organ Company as Borrower, the Fifth
Third Bank as Agent and The Fifth Third Bank and NBD Bank, N.A. as
Lenders dated October 16, 1997.
10.35 Form of Subsidiary Security Agreement dated October 16, 1997
between The Fifth Third Bank and certain subsidiaries of
Baldwin Piano & Organ Company. (20)
10.36 Form of Subsidiary Guaranty dated October 16, 1997 by certain
subsidiaries of Baldwin Piano & Organ Company in favor of The Fifth
Third Bank and NBD Bank, N.A. (21)
10.37 Amended and Restated Purchase and Administration Agreement dated as
of October 31, 1997 among Retailer Funding Corporation, Keyboard
Acceptance Corporation, Baldwin Piano & Organ Company and General
Electric Capital Corporation as a consenting party (excluding
nonmaterial exhibits).
10.38 First Amendment dated October 31, 1997 to the Guaranty Agreement
dated as of October 1, 1990 among Retailer Funding
</TABLE>
18
<PAGE> 23
<TABLE>
<CAPTION>
<S> <C>
Corporation, Keyboard Acceptance Corporation, Baldwin Piano & Organ
Company and General Electric Capital Corporation.
10.39 First Amendment dated October 24, 1997 to the Retail Accounts
Receivable Purchase Agreement dated as of October 1, 1990 among
Baldwin Piano & Organ Company, The Wurlitzer Company and Keyboard
Acceptance Corporation.
11.1 Statement regarding computation of per share earnings.
13.1 Information incorporated by reference to Baldwin's 1997 Annual
Report to Shareholders for the year ended December 31, 1997:
"Independent Auditors' Report", "Financial Statements" (including
Notes thereto), "Five Year Summary" and "Management's Discussion
and Analysis of Financial Condition and Results of Operation".
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule.
99.1 Baldwin Stock Repurchase Plan. (2)
99.2 Amendment No. 1 to Baldwin Stock Repurchase Plan. (3)
99.3 Amendment No. 2 to Baldwin Stock Repurchase Plan. (4)
99.4 Press Release dated October 27, 1997.
99.5 Press Release dated November 3, 1997.
99.6 Press Release dated February 23, 1998.
(1) Incorporated by reference from the Company's Form S-1 Registration
Statement as declared effective by the Commission on October 8,
1986.
(2) Incorporated by reference from the Company's Form 10-Q for the
period ended September 30, 1987.
(3) Incorporated by reference from the Company's Form 8-K dated
October 25, 1990 as filed with the Commission on November 9, 1990.
(4) Incorporated by reference from the Company's Form 10-K for the
period ended December 31, 1991.
(5) Incorporated by reference from the Company's Form 10-Q for the
period ended September 30, 1993.
</TABLE>
19
<PAGE> 24
<TABLE>
<CAPTION>
<S> <C>
(6) Incorporated by reference from the Company's Form 10-K for the period
ended December 31, 1993.
(7) Incorporated by reference from the Company's proxy statement relating
to its May 10, 1994 Annual Meeting of Shareholders.
(8) Incorporated by reference from the Company's Form 10-Q for the period
ended June 30, 1994.
(9) Incorporated by reference from the Company's Form 10-K for the period
ended December 31, 1994.
(10) Incorporated by reference from the Company's Form 10-Q for the period
ended March 31, 1995.
(11) Incorporated by reference from the Company's Form 10-Q for the period
ended September 30, 1995.
(12) Incorporated by reference from the Company's Form 10-K for the period
ended December 31, 1995.
(13) Incorporated by reference from the Company's Form 10-Q for the period
ended June 30, 1996.
(14) Substantially identical documents were entered into by Baldwin Piano &
Organ Company with George C. Huebner, Perry Schwartz, Ronald P. Geguzys
and Randolph Marks dated June 18, 1996, November 12, 1996, December 18,
1997 and January 1, 1998, respectively.
(15) Incorporated by reference from the Company's Form 8-K dated February
10, 1997 as filed with the Commission on February 27, 1997.
(16) Incorporated by reference from the Company's Form 8-K dated September
3, 1996 as filed with the Commission on September 13, 1996.
(17) Incorporated by reference from the Company's Form 10-Q for the period
ended June 30, 1997.
(18) Incorporated by reference from the Company's Form 10-Q for the period
ended September 30, 1997.
(19) Incorporated by reference from the Company's Form 10-K for the period
ended December 31, 1996.
(20) Subsidiary Security Agreements with The Fifth Third Bank were entered
into by The Wurlitzer Company, Baldwin Trading Company, Signature
Leasing Company and The Baldwin Piano Company Limited.
</TABLE>
20
<PAGE> 25
<TABLE>
<CAPTION>
<S> <C>
(21) Subsidiary Guaranty was executed by each of The Wurlitzer Company,
Baldwin Trading Company, Signature Leasing Company and The Baldwin
Company Limited.
</TABLE>
Index to Exhibits - page 25
REPORTS ON FORM 8-K
During the fourth quarter of 1997, the Company filed no reports on
Form 8-K.
21
<PAGE> 26
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
BALDWIN PIANO & ORGAN COMPANY
<S> <C>
By: /s/ Karen L. Hendricks
---------------------------------------
Karen L. Hendricks, Chairman,
Chief Executive Officer and President
Date: March 27, 1998
-------------------------------------
</TABLE>
Pursuant to the requirements of 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.
Principal Executive Officer:
<TABLE>
<S> <C>
Date: March 27, 1998 /s/ Karen L. Hendricks
--------------- ---------------------------------------
Karen L. Hendricks, Chairman, Chief
Executive Officer, President
and Director
Date: March 27, 1998 /s/ George E. Castrucci
--------------- ---------------------------------------
George E. Castrucci, Director
Date: March 27, 1998 /s/ William B. Connell
--------------- ---------------------------------------
William B. Connell, Director
Date: March 27, 1998 /s/ Joseph H. Head, Jr.
--------------- ---------------------------------------
Joseph H. Head, Jr., Director
Date: March 27, 1998 /s/ Roger L. Howe
--------------- ---------------------------------------
Roger L. Howe, Director
Date: March 27, 1998
--------------- ---------------------------------------
John H. Gutfreund, Director
Principal Financial and Accounting
Officer:
Date: March 27, 1998 /s/ Perry H. Schwartz
--------------- ---------------------------------------
Perry H. Schwartz, Executive Vice
President and Chief Financial Officer
</TABLE>
22
<PAGE> 27
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
----------------------------------------
The Board of Directors
Baldwin Piano & Organ Company:
Under date of February 23, 1998, we reported on the consolidated
balance sheets of Baldwin Piano & Organ Company and subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997, as contained in the 1997 annual report to
shareholders. These consolidated financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K for the year 1997.
In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule as listed in the index under Part IV, item 14 (2.1) of this Form 10-K.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Cincinnati, Ohio
February 23, 1998
23
<PAGE> 28
SCHEDULE VIII
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
--------
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additions
---------
Charged Charged
Balance at to cost to other Balance at
beginning and accounts Deductions end of
Description of period expenses describe describe period
----------- --------- --------- -------- --------- --------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
- --------------------------------
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1997 $3,538,123 $ 512,588 $ - $ 2,512,979(1) $1,537,732
========== ========= ======== ============== ==========
Year ended
December 31, 1996 $4,004,192 $ 549,867 $ - $1,015,936(1) $3,538,123
========== ========= ======== ============= ==========
Year ended
December 31, 1995 $4,299,567 $ 845,288 $ - $1,140,663(1) $4,004,192
========== ========= ======== ============= ==========
RESERVE FOR INSTALLMENT RECEIVABLES
- -----------------------------------
SOLD WITH RECOURSE:
-------------------
Year ended
December 31, 1997 $1,407,000 $ 953,000 $ - $ 550,000(2) $1,810,000
========== ========= ======== ============= ==========
Year ended
December 31, 1996 $1,510,000 $ 700,000 $ - $ 803,000(2) $1,407,000
========== ========= ======== ============= ==========
Year ended
December 31, 1995 $2,296,000 $ 120,000 $ - $ 906,000(2) $1,510,000
========== ========== ======== ============= ==========
RESERVE FOR RECOURSE OBLIGATION:
- --------------------------------
Year ended
December 31, 1997 $ - $1,368,173(3) $ - $ - $1,368,173
======== ============= ======== ======== ==========
- --------------------
<FN>
(1) Represents adjustments and accounts charged off, less recoveries.
(2) Represents reserve related to accounts repurchased.
(3) Represents reserve related to implementation of FASB 125
"Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities."
</FN>
</TABLE>
24
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ --------
<S> <C> <C>
3.1 Certificate of Incorporation of the Company, *
as amended. (1)
3.2 Amended and Restated Bylaws of Baldwin *
Piano & Organ Company dated as of February
10,1997. (15)
4.1 Rights Agreement between the Company and *
The Provident Bank dated as of September
4, 1996. (16)
10.1 Baldwin Piano & Organ Company 1986 Incentive *
Stock Option Plan adopted on June 30, 1986. (1)
10.2 Baldwin Piano & Organ Company Retirement Plan *
for Salaried Employees, as amended. (1)
10.3 Baldwin Piano & Organ Company Retirement Trust *
for Salaried Employees dated September 28,
1984. (1)
10.4 Form of Indemnification Agreements between *
the Company and the Company's Officers and
Directors dated June 30, 1986 and accompanying
schedule. (1)
10.5 Baldwin Piano & Organ Company Deferred *
Directors Fee Plan. (5)
10.6 Baldwin Piano & Organ Company Non-Qualified *
Deferred Compensation Plan. (5)
10.7 Baldwin Piano & Organ Company Non-Qualified *
Deferred Compensation Rabbi Trust Agreement
as amended and restated as of October 4,
1993. (5)
10.8 Baldwin Piano & Organ Company 1994 Incentive *
Stock Option Plan. (7)
</TABLE>
25
<PAGE> 30
<TABLE>
<S> <C> <C>
10.9 Baldwin Piano & Organ Company 1994 Management *
Incentive Plan. (8)
10.10 Baldwin Piano & Organ Company 1994 Long Term *
Incentive Plan. (8)
10.11 Change in Control Agreement between Baldwin *
Piano & Organ Company and Karen L. Hendricks
dated June 26, 1996. (13)
10.12 Change in Control Agreement between Baldwin *
Piano & Organ Company and Stephen P. Brock
dated June 11, 1996. (13)(14)
10.13 Agreement of Employment between Baldwin Piano *
& Organ Company and Perry H. Schwartz dated as
of November 5, 1996, as amended on November
11, 1996. (19)
10.14 Agreement of Employment between Baldwin Piano *
& Organ Company and Karen L. Hendricks
dated as of June 19, 1997. (17)
10.15 Agreement of Employment between Baldwin Piano *
& Organ Company and Randy R. Marks as
Executive Vice President, Piano Operations,
dated as of July 29, 1997. (18)
10.16 Office Space Lease Agreement between Wards *
Corner Associates Limited Partnership and the
Company dated as of June 16, 1986. (1)
10.17 Guaranty by BPO Finance Corporation in favor *
of General Electric Capital Corporation dated
October 25, 1990. (3)
10.18 Guaranty Agreement among the Company, *
BPO Finance Corporation, Retailer Funding
Corporation and General Electric Capital
Corporation dated as of October 1, 1990. (3)
10.19 Indemnification Agreement among BPO Finance *
Corporation, General Electric Capital Corpo-
ration and Kidder Peabody & Co. Incorporated
as of October 1, 1990. (3)
10.20 Retail Accounts Receivable Purchase Agreement *
among the Company, BPO Finance Corporation
and The Wurlitzer Company dated as of October
1, 1990. (3)
</TABLE>
26
<PAGE> 31
<TABLE>
<S> <C> <C>
10.21 Amendment dated as of February 15, 1994 to *
the October 1, 1990 Guaranty Agreement among
the Company, Keyboard Acceptance Corporation,
Retailer Funding Corporation and General
Electric Capital Corporation. (6)
10.22 Amended and Restated General Loan and Security *
Agreement dated as of February 24, 1994 between
the Company and The Fifth Third Bank. (6)
10.23 Irrevocable Standby Letter of Credit issued *
August 13, 1993 by The Fifth Third Bank on
behalf of the Company in favor of Harold
S. Smith. (6)
10.24 Letter of Credit Reimbursement Agreement *
dated as of August 13, 1993 between the
Company and The Fifth Third Bank. (6)
10.25 Amendment to Office Space Lease Agreement *
between Baldwin Piano & Organ Company and
Nooney Management Company dated as of
June 11, 1991. (4)
10.26 Indemnification Agreement dated as of Decem- *
ber 1, 1994 among General Electric Capital
Corporation, Lehman Commercial Paper, Inc.
and Keyboard Acceptance Corporation (formerly
BPO Finance Corporation). (9)
10.27 Amendment No. 1 dated as of April 3, 1995 *
to that certain Amended and Restated General
Loan and Security Agreement dated as of
February 24, 1994 between the Company and
The Fifth Third Bank. (10)
10.28 Distribution Agreement between Baldwin Piano *
& Organ Company and GeneralMusic S.p.A.
dated as of July 1, 1995. (11)
10.29 Amendment No. 2 dated as of October 1, 1995 *
to that certain Amended and Restated General
Loan and Security Agreement dated as of
February 24, 1994 between the Company and
The Fifth Third Bank. (12)
10.30 Amendment to Office Space Lease Agreement *
between Baldwin Piano & Organ Company and
Nooney Krombach Company dated as of
February 16, 1996. (12)
</TABLE>
27
<PAGE> 32
<TABLE>
<S> <C> <C>
10.31 Land Lease Agreement between Fabricantes *
Tecnicos, S.A. DE C.V. and Delphi Automotive
Systems, S.A. DE C.V. dated as of December
13, 1996. (19)
10.32 Amended and Restated Amendment and Supplemental *
Agreement between Baldwin Piano & Organ Company
and GeneralMusic S.p.A. dated as of January
1, 1997. (19)
10.33 Credit Agreement by and between Baldwin Piano
& Organ Company as Borrower, the Fifth Third
Bank as Agent and The Fifth Third Bank and
NBD Bank, N.A. as Lenders dated October 16,
1997 (excluding nonmaterial exhibits).
10.34 First Amendment dated October 16, 1997 to the
Credit Agreement by and between Baldwin Piano
& Organ Company as Borrower, the Fifth Third
Bank as Agent and The Fifth Third Bank and
NBD Bank, N.A. as Lenders dated October 16,
1997.
10.35 Form of Subsidiary Security Agreement dated
October 16, 1997 between The Fifth Third Bank
and certain subsidiaries of Baldwin Piano &
Organ Company. (20)
10.36 Form of Subsidiary Guaranty dated October 16,
1997 by certain subsidiaries of Baldwin Piano
& Organ Company in favor of The Fifth Third
Bank and NBD Bank, N.A. (21)
10.37 Amended and Restated Purchase and Administration
Agreement dated as of October 31, 1997 among
Retailer Funding Corporation, Keyboard
Acceptance Corporation, Baldwin Piano & Organ
Company and General Electric Capital
Corporation as a consenting party (excluding
nonmaterial exhibits).
10.38 First Amendment dated October 31, 1997 to the
Guaranty Agreement dated as of October 1,
1990 among Retailer Funding Corporation,
Keyboard Acceptance Corporation Baldwin
Piano& Organ Company and General Electric
Capital Corporation.
</TABLE>
28
<PAGE> 33
<TABLE>
<S> <C> <C>
10.39 First Amendment dated October 24, 1997 to the
Retail Accounts Receivable Purchase Agreement
dated as of October 1, 1990 among Baldwin
Piano & Organ Company, The Wurlitzer Company
and Keyboard Acceptance Corporation.
11.1 Statement regarding computation of per share
earnings.
13.1 Information incorporated by reference to
Baldwin's 1997 Annual Report to Shareholders
for the year ended December 31, 1997:
"Independent Auditors' Report", "Financial
Statements" (including Notes thereto), "Five
Year Summary", and "Management's Discussion
and Analysis of Financial Condition and Results
of Operation".
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule.
99.1 Baldwin Stock Repurchase Plan. (2) *
99.2 Amendment No. 1 to Baldwin Stock Repurchase *
Plan. (3)
99.3 Amendment No. 2 to Baldwin Stock Repurchase *
Plan. (4)
99.4 Press Release dated October 27, 1997.
99.5 Press Release dated November 3, 1997.
99.6 Press Release dated February 23, 1998.
* Incorporated by reference as indicated in the
applicable footnote.
(1) Incorporated by reference from the Company's Form
S-1 Registration Statement as declared effective
by the Commission on October 8, 1986.
(2) Incorporated by reference from the Company's Form 10-Q for the
period ended September 30, 1987.
(3) Incorporated by reference from the Company's Form
8-K dated October 25, 1990 as filed with the
Commission on November 9, 1990.
</TABLE>
29
<PAGE> 34
<TABLE>
<S> <C> <C>
(4) Incorporated by reference from the Company's Form 10-K for the
period ended December 31, 1991.
(5) Incorporated by reference from the Company's Form 10-Q for the
period ended September 30, 1993.
(6) Incorporated by reference from the Company's Form 10-K for the
period ended December 31, 1993.
(7) Incorporated by reference from the Company's proxy
statement relating to its May 10, 1994 Annual
Meeting of Shareholders.
(8) Incorporated by reference from the Company's Form
10-Q for the period ended June 30, 1994.
(9) Incorporated by reference from the Company's Form 10-K for the
period ended December 31, 1994.
(10) Incorporated by reference from the Company's Form 10-Q for the
period ended March 31, 1995.
(11) Incorporated by reference from the Company's Form 10-Q for the
period ended September 30, 1995.
(12) Incorporated by reference from the Company's Form 10-K for the
period ended December 31, 1995.
(13) Incorporated by reference from the Company's Form
10-Q for the period ended June 30, 1996.
(14) Substantially identical documents were entered
into by Baldwin Piano & Organ Company with George
C. Huebner, Perry Schwartz, Ronald P. Geguzys and
Randolph Marks dated June 18, 1996, November 12,
1996, December 18, 1997 and January 1, 1998,
respectively.
(15) Incorporated by reference from the Company's Form
8-K dated February 10, 1997 as filed with the
Commission on February 27, 1997.
(16) Incorporated by reference from the Company's Form
8-K dated September 3, 1996 as filed with the
Commission on September 13, 1996.
(17) Incorporated by reference from the Company's Form
10-Q for the period ended June 30, 1997.
(18) Incorporated by reference from the Company's Form 10-Q for the
period ended September 30, 1997.
</TABLE>
30
<PAGE> 35
<TABLE>
<S> <C> <C>
(19) Incorporated by reference from the Company's Form 10-K for the
period ended December 31, 1996.
(20) Subsidiary Security Agreements with The Fifth
Third Bank were entered into by The Wurlitzer
Company, Baldwin Trading Company, Signature
Leasing Company and The Baldwin Piano Company
Limited.
(21) Subsidiary Guaranty was executed by each of The
Wurlitzer Company, Baldwin Trading Company,
Signature Leasing Company and The Baldwin Company
Limited.
</TABLE>
31
<PAGE> 1
Exhibit 10.33
===============================================
CREDIT AGREEMENT
BY AND BETWEEN
BALDWIN PIANO & ORGAN COMPANY,
BORROWER,
THE FIFTH THIRD BANK,
AGENT,
AND
THE FIFTH THIRD BANK AND
NBD BANK, N.A.,
LENDERS
OCTOBER 16, 1997
===============================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1. RECITALS........................................................................................1
ARTICLE 2. INTERPRETATION..................................................................................1
Section 2.1 Provisions Pertaining to Definitions...................................................1
Section 2.2 Definitions............................................................................2
ARTICLE 3. CREDIT FACILITY................................................................................12
Section 3.1 Total Credit Facility.................................................................12
Section 3.2 Loans.................................................................................12
Section 3.3 The Notes.............................................................................13
Section 3.4 Mandatory Prepayment..................................................................13
Section 3.5 Interest; Calculation of Charges; Fees................................................13
Section 3.6 Billing Statement.....................................................................14
Section 3.7 Loan Proceeds.........................................................................15
Section 3.8 Default Interest Rate.................................................................15
Section 3.9 Interest Rate After Certain Events....................................................15
Section 3.10 Verification Rights of the Lenders....................................................15
Section 3.11 Reports...............................................................................15
Section 3.12 Establishment of Reserves.............................................................16
Section 3.13 Increased Cost........................................................................16
Section 3.14 Collections...........................................................................18
Section 3.15 Advancements..........................................................................18
Section 3.16 Continuing Requirements - Accounts....................................................19
ARTICLE 4. LETTERS OF CREDIT.....................................................................19
Section 4.1 Obligation to Issue Letters of Credit.................................................20
Section 4.2 Expiration Date of Letters of Credit..................................................20
Section 4.3 Letters of Credit Deemed to be Loans..................................................20
Section 4.4 Procedure for Issuance of Letters of Credit...........................................20
Section 4.5 Reimbursement Obligations.............................................................20
Section 4.7 Amount of Letters of Credit...........................................................21
Section 4.8 Letter of Credit Participations.......................................................21
ARTICLE 5. TERM OF AGREEMENT..............................................................................21
Section 5.1 Termination...........................................................................21
Section 5.2 Effect of Termination.................................................................22
ARTICLE 6. BORROWING AND REPAYMENT PROCEDURES.............................................................22
Section 6.1 Borrowing Procedures..................................................................22
Section 6.2 Excess Advances.......................................................................23
Section 6.3 All Loans One Obligation..............................................................24
Section 6.4 Payments of Principal and Interest....................................................24
Section 6.5 Collection Days.......................................................................24
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 7. SECURITY FOR THE OBLIGATIONS...................................................................24
Section 7.1 Grant of Security Interest............................................................24
Section 7.2 Future Advances.......................................................................25
Section 7.3 Financing Statements..................................................................25
Section 7.4 Guaranties............................................................................25
Section 7.5 Further Assurances....................................................................25
ARTICLE 8. CONDITIONS PRECEDENT...........................................................................25
Section 8.1 Conditions Precedent..................................................................25
ARTICLE 9. REPRESENTATIONS AND WARRANTIES.................................................................27
Section 9.1 Financial Statements..................................................................28
Section 9.2 Non-Existence of Defaults.............................................................28
Section 9.3 Litigation............................................................................28
Section 9.4 Material Adverse Changes..............................................................28
Section 9.5 Title to Collateral...................................................................28
Section 9.6 Corporate Status......................................................................28
Section 9.7 Subsidiaries..........................................................................29
Section 9.8 Power and Authority...................................................................29
Section 9.9 Place of Business.....................................................................29
Section 9.10 Enforceability of the Loan Documents..................................................29
Section 9.11 Taxes.................................................................................29
Section 9.12 Compliance with Laws..................................................................29
Section 9.13 Consents..............................................................................29
Section 9.14 Purpose...............................................................................30
Section 9.15 Condition of the Business.............................................................30
Section 9.16 Capital...............................................................................30
Section 9.17 Location of Collateral................................................................30
Section 9.18 Accounts..............................................................................30
Section 9.19 Environmental, Health and Safety Matters..............................................31
Section 9.20 Intellectual Property: Patents. Copyrights. Trademarks. Etc.........................31
Section 9.21 Employee Benefit Plans................................................................31
Section 9.22 Solvency..............................................................................31
Section 9.23 Leases................................................................................32
Section 9.24 Labor Relations.......................................................................32
Section 9.25 Business Locations; Agent for Process.................................................32
Section 9.26 Inventory.............................................................................32
Section 9.27 Reaffirmation.........................................................................32
Section 9.28 Survival of Representations and Warranties...........................................33
ARTICLE 10. BALDWIN'S COVENANTS............................................................................33
Section 10.1 Affirmative Covenants.................................................................33
(a) Payment and Performance...............................................................33
(b) Insurance.............................................................................33
(c) Collection of Receivables; Sale of Inventory..........................................34
(d) Notice of Litigation and Proceedings..................................................34
(e) Payment of Indebtedness to Third Persons..............................................34
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
(f) Notice of Change of Business Location.................................................34
(g) Payment of Taxes......................................................................35
(h) Employee Benefit Plans and Guaranteed Pension Plans...................................35
(i) Further Assurances....................................................................35
(j) Maintenance of Status.................................................................35
(k) Financial Statements; Reporting Requirements; Certification as to Defaults............36
(l) Notice of Existence of Default........................................................37
(m) Compliance with Laws..................................................................37
(n) Maintenance of Collateral.............................................................37
(o) Collateral Records and Statements.....................................................37
(p) Inspection of Collateral..............................................................38
(q) Reimbursement for Bank Charges........................................................38
Section 10.2 Negative Covenants....................................................................38
(a) Change of Name. Etc...................................................................38
(b) Sale or Transfer of Assets............................................................38
(c) Encumbrance of Assets.................................................................39
(d) Acquisition of Stock or Assets; New Subsidiaries......................................39
(e) False Certificates or Documents.......................................................39
(f) Assignment............................................................................39
(g) Transactions with Affiliates..........................................................39
(h) Capital Expenditures..................................................................39
(i) Loans by Baldwin......................................................................39
(j) Fiscal Year...........................................................................39
(k) Total Indebtedness....................................................................40
(l) Adverse Transactions..................................................................40
(m) Guaranties............................................................................41
(n) Margin Securities.....................................................................41
(o) Leases................................................................................41
(p) Tax Consolidation.....................................................................41
(q) Stock Redemption......................................................................41
Section 10.3 Financial Covenants...................................................................41
(a) Amounts...............................................................................41
(b) Covenant Compliance Certificate.......................................................42
ARTICLE 11. DEFAULT/REMEDIES...............................................................................42
ARTICLE 12. SALE OF COLLATERAL.............................................................................45
ARTICLE 13. INDEMNIFICATIONS...............................................................................46
Section 13.1 General Indemnity.....................................................................46
Section 13.2 Environmental and Safety and Health Indemnity.........................................46
ARTICLE 14. CONCERNING THE AGENT AND THE LENDERS...........................................................47
Section 14.1 Appointment of the Agent..............................................................47
Section 14.2 Authority.............................................................................47
Section 14.3 Acceptance of Appointment.............................................................47
Section 14.4 Collateral Matters....................................................................48
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 14.5 Agency for Perfection.................................................................49
Section 14.6 Application of Moneys.................................................................49
Section 14.7 Reliance by the Agent.................................................................49
Section 14.8 Exculpatory Provisions................................................................49
Section 14.9 Action by the Agent...................................................................50
Section 14.10 Amendments, Waivers and Consents......................................................51
Section 14.11 Indemnification.......................................................................51
Section 14.12 Reimbursement of the Agent............................................................51
Section 14.13 Sharing of Funds Received.............................................................52
Section 14.14 Dealing with Lenders..................................................................52
Section 14.15 Agent as Lender.......................................................................52
Section 14.16 Duties Not to be Increased............................................................52
Section 14.17 Lender Credit Decisions...............................................................52
Section 14.18 Resignation of Agent..................................................................53
Section 14.19 Assignment of Notes; Participation....................................................53
ARTICLE 15. OTHER TERMS....................................................................................54
Section 15.1 Amendment Changes and Modification....................................................54
Section 15.2 Binding Effect........................................................................54
Section 15.3 Broker Fee............................................................................54
Section 15.4 Entire Agreement......................................................................54
Section 15.5 Headings..............................................................................54
Section 15.6 Incorporation by Reference............................................................55
Section 15.7 Interpretation........................................................................55
Section 15.8 Governing Law; Jurisdiction and Venue................................................55
Section 15.9 Waiver of Jury Trial..................................................................55
Section 15.10 Notices...............................................................................55
Section 15.11 No Third Party Beneficiary Rights and Reliance........................................56
Section 15.12 Protection or Preservation of Collateral..............................................56
Section 15.13 Relationship of the Parties...........................................................57
Section 15.14 Reversal of Payments..................................................................57
Section 15.15 Severability..........................................................................57
Section 15.16 Maximum Interest......................................................................57
Section 15.17 Waivers by the Lenders................................................................58
Section 15.18 Survival..............................................................................58
Section 15.19 Participations; Assignments...........................................................58
Section 15.20 Counterparts..........................................................................58
Section 15.21 Information...........................................................................58
Section 15.22 Release...............................................................................58
Section 15.23 Miscellaneous.........................................................................58
Section 15.24 Waivers by Baldwin....................................................................59
Section 15.25 No Oral Agreements....................................................................59
Section 15.26 Supplement............................................................................59
Section 15.27 Use of Counsel and Receipt of Credit Agreement........................................59
Section 15.28 Facsimiles, Etc.......................................................................59
Section 15.29 Power of Attorney.....................................................................59
Section 15.30 Expenses..............................................................................60
</TABLE>
<PAGE> 6
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Credit Agreement" or this "Agreement")
dated as of October 16, 1997 is by and among BALDWIN PIANO & ORGAN COMPANY, a
Delaware corporation, (hereinafter, together with its successors in title and
assigns called "Borrower" or "Baldwin"), THE FIFTH THIRD BANK, an Ohio banking
corporation, as Agent (in such capacity, the "Agent"), THE FIFTH THIRD BANK
("Fifth Third"), as a Lender, and NBD BANK, N.A., a national banking
association, ("NBD") as a Lender, (Fifth Third and NBD are hereinafter
collectively the "Lenders" and each individually a "Lender").
ARTICLE 1.
----------
RECITALS
--------
Baldwin has requested that the Lenders provide Baldwin with a
credit facility for general corporate and working capital purposes.
ARTICLE 2.
----------
INTERPRETATION
--------------
Section 2.1 PROVISIONS PERTAINING TO DEFINITIONS. For all purposes of
this Credit Agreement (except where such interpretations would be inconsistent
with the context or the subject matter):
(a) The expression "this Credit Agreement" shall mean this
Credit Agreement (including all of the Schedules and Exhibits annexed
hereto) as originally executed, or, if supplemented, amended or
restated from time to time, as so supplemented, amended or restated.
All references to Schedules and Exhibits refer to the Schedules and
Exhibits attached hereto, unless otherwise indicated;
(b) Where appropriate, words importing the singular only shall
include the plural and vice versa, and all references to dollars shall
be United States Dollars; and
(c) Accounting terms not otherwise defined herein shall have
the meanings customarily given in accordance with Generally Accepted
Accounting Principles (as hereinafter defined) and all financial
computations or determinations to be made under this Credit Agreement
shall, unless otherwise specifically provided herein, be made in
accordance with the financial statements delivered pursuant to Section
9.1 and shall be made on a Consolidated basis.
<PAGE> 7
Section 2.2 DEFINITIONS.
"ACCOUNT DEBTOR" shall mean any Person who is or who may
become obligated to Baldwin under, with respect to, or on account of an
Account, general intangible or other Collateral.
"ACCOUNTS" shall have the meaning given to that term in the
UCC and, to the extent not included therein, shall also mean all
accounts, leases, contract rights, chattel paper, general intangibles,
chooses in action and instruments, including any Lien or other security
interest that secures or may secure any of the foregoing, plus all
books, invoices, documents and other records in any form evidencing or
relating to any of the foregoing, now owned or hereafter acquired by
Baldwin; provided, however, that KAC Accounts shall not constitute
"Accounts" under this Credit Agreement or the other Loan Documents.
"AFFILIATES" shall mean: (i) any individual who is an officer
or director of a Person; and (ii) any Person who directly or indirectly
controls, is controlled by, or is under common control or ownership
with, a Person. For the purposes of this definition, the term "control"
shall mean the ownership of or the ability to direct or control 10% or
more of the beneficial interest in the applicable entity.
"BALDWIN/KAC PURCHASE AGREEMENT" means the Retail Accounts
Receivable Purchase Agreement dated as of October 1, 1990 among
Baldwin, The Wurlitzer Company and KAC, as amended, supplemented or
otherwise modified from time to time with the written consent of Agent.
"BORROWING BASE" shall mean as of any date of determination,
an amount equal to: the sum of (i) the Eligible Account Availability
plus (ii) the Eligible Inventory Availability; plus (iii) the Eligible
Raw Materials Availability, less (iv) so long as GECC has a first
priority lien on the Collateral, Two Million and 00/100 Dollars
($2,000,000.00).
"BORROWING BASE CERTIFICATE" shall have the meaning set forth
in Section 3.2(a).
"BUSINESS" shall mean the manufacture and distribution of
keyboard musical instruments, contract furniture, contract music,
contract electronics and other similar business in which Borrower may
engage from time to time.
"BUSINESS DAY" shall mean any day on which banks are open for
business in Cincinnati, Ohio.
"CAPITAL EXPENDITURE" shall mean any amount debited to the
fixed asset account on the consolidated balance sheet of Baldwin and
the Subsidiaries in respect of: (a) the acquisition (including. without
limitation, acquisition by entry into a capitalized lease),
construction, improvement, replacement or betterment of land,
buildings, machinery,
2
<PAGE> 8
equipment or of any other fixed assets or leaseholds, and (b) to the
extent related to and not included in clause (a), materials, contract
labor and direct labor (excluding expenditures properly chargeable to
repairs or maintenance in accordance with GAAP).
"CLOSING DATE" means the day on which the initial Loans are
made pursuant to this Agreement.
"COLLATERAL" shall mean all items described in Section 7.1.
"CREDIT FACILITY" shall have the meaning set forth in Section
3.1.
"DAILY CONTRACT BALANCE" shall have the meaning set forth in
Section 3.5(a)(ii)(3).
"DAILY RATE" shall have the meaning set forth in Section
3.5(a)(ii)(3).
"DEBT" shall have the meaning set forth in Section 10.3(a).
"DEFAULT" shall have the meaning set forth in Section 11.
"DEFAULT INTEREST RATE" shall have the meaning set forth in
Section 3.8.
"EFFECTIVE DATE" shall mean the date set forth in the heading
on page 1 of this Credit Agreement
"ELIGIBLE ACCOUNTS" shall mean all Accounts that are not
Ineligible Accounts.
"ELIGIBLE ACCOUNT AVAILABILITY" shall have the meaning set
forth in Section 3.2(a).
"ELIGIBLE INVENTORY" shall mean Inventory of musical
instruments which Baldwin has purchased or has manufactured and that
(a) are owned by Baldwin free and clear of all Liens, security
interests and encumbrances of any third parties, except for the
Permitted Liens and any interest of a Person as a consignee of
Inventory; (b) are not obsolete or unmerchantable in the reasonable
opinion of Baldwin and the Agent; (c) are in good and salable
condition; (d) conforms to the representations and warranties of
Section 9.27 of this Credit Agreement; (e) if the Inventory is held by
a consignee: (i) the Agent shall have received a copy of a consignment
agreement executed by the consignee in the form as attached to this
Credit Agreement as Exhibit A; (ii) Baldwin shall have filed all
necessary or appropriate UCC consignment financing statements in form
and substance satisfactory to Agent; (iii) Baldwin shall have sent to
the consignee's prior filed secured parties a consignment notification
letter in the form as attached to this Credit Agreement as Exhibit B
and (iv) Agent shall have filed UCC financing statements against
Baldwin in the jurisdiction where such consigned Inventory is located;
(f) if on order, such order is backed by a Letter of Credit; and (g)
Agent deems, in its sole discretion, to be acceptable for financing. No
work in process, spare parts, packaging and shipping materials,
supplies, returned or repossessed Inventory (unless and until the
related
3
<PAGE> 9
Account shall have been reduced with respect to such returned
Inventory), defective Inventory or Inventory located outside of the
United States or Canada, shall constitute Eligible Inventory.
"ELIGIBLE INVENTORY AVAILABILITY" shall have the meaning set
forth in SECTION 3.2(a).
"ELIGIBLE RAW MATERIALS" shall mean materials used by Baldwin
in the production of Inventory, including, but not limited to, lumber,
paint, varnish, piano keys, plates, piano wire, wood, frames and
electronic components, and that: (i) have not been processed or become
work-in-process which contribute to the finished products for sale by
Baldwin; (ii) were acquired by or manufactured by or for Baldwin; (iii)
are owned by Baldwin free and clear of all liens, security interests
and encumbrances of any third parties, except for the Permitted Liens;
and (iv) Agent deems, in its sole discretion, to be acceptable for
financing.
"ELIGIBLE RAW MATERIALS AVAILABILITY" shall have the meaning
set forth in Section 3.2(a).
"EMPLOYEE BENEFIT PLAN" means an "employee benefit plan" as
defined in Section 3(3) of ERISA.
"ENVIRONMENTAL LAWS" shall mean the Resource Conservation and
Recovery Act, as amended, the Toxic Substances Control Act, as amended,
the Comprehensive Environmental Response, Compensation and Liability
Act, as amended, the Superfund Amendments and Reauthorization Act of
1986, as amended, the Solid Waste Disposal Act, as amended, the Water
Pollution Control Act, as amended, the Clean Air Act, as amended, the
Clean Water Act, as amended, and any successor or comparable federal or
state statutes, or any regulation promulgated under any of such federal
or state statutes relating to the protection of the environment
"ENVIRONMENTAL LIEN" shall mean a Lien in favor of any
governmental entity for: (a) any liability under any Environmental Law,
or (b) damages arising from or costs incurred by such governmental
entity in response to a spillage, disposal, or release into the
environment of any Hazardous Material or other hazardous, toxic or
dangerous waste, substance or constituent, or other substance.
"ERISA" means the Employee Retirement Income Security Act of
1974 and regulations issued thereunder, as amended from time to time
and any successor statute.
"ERISA AFFILIATE" means, in relation to any Person, any trade
or business (whether or not incorporated) which is a member of a group
of which that Person is a member and which is under common control
within the meaning of the regulations promulgated under Section 414 of
the Internal Revenue Code of 1986, as amended.
4
<PAGE> 10
"ERISA LIABILITIES" means the aggregate of all unfunded vested
benefits under any employee pension benefit plan, within the meaning of
Section 3(2) of ERISA, of Borrower or any ERISA Affiliate of Borrower
under any Plan covered by ERISA that is not a Multiemployer Plan and
all potential withdrawal liabilities of any thereof under all
Multiemployer Plans.
"EUROCURRENCY LIABILITIES" has the meaning specified in
Regulation D of the Board of Governors of the Federal Reserve System,
as in effect from time to time.
"EUROCURRENCY RESERVE PERCENTAGE" means the daily average
reserve percentage applicable during each day of such Loans under
regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including without limitation any emergency,
supplemental or other marginal reserve requirement for a member bank of
the Federal Reserve System in New York City) with respect to
liabilities or assets consisting of or including Eurocurrency
Liabilities (or with respect to any other category of liabilities that
includes deposits by reference to which the interest rate on Loans is
determined).
"EXCESS ADVANCES" shall have the meaning set forth in Section
6.2.
"FUNDING DATE" shall mean the date designated by Baldwin for
the making of a Loan hereunder.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"GECC" means General Electric Capital Corporation, a New York
corporation.
"GUARANTOR" shall mean a guarantor of any of the Obligations.
"GUARANTEED PENSION PLAN" means any pension plan maintained by
Borrower or an ERISA Affiliate of Borrower, or to which Borrower or an
ERISA Affiliate contributes, some or all of the benefits under which
are guaranteed by the United States Pension Benefit Guaranty
Corporation ("PBGC").
"HAZARDOUS MATERIAL" shall mean any and all hazardous or toxic
substances, materials or wastes as defined or listed under the
Environmental Laws.
"HEAD OFFICE" means The Fifth Third Bank, Fifth Third Center,
Cincinnati, Ohio 45263.
"INDEBTEDNESS" shall mean any sum for borrowed money owed by
Baldwin or any Subsidiary (other than by KAC and other than any
guaranty of indebtedness of KAC) to a Person and shall include any debt
guaranteed by Baldwin or any Subsidiary (other than KAC), any debt as
to which the Baldwin has granted or permitted to exist a Lien on any
5
<PAGE> 11
asset even if non-recourse, letter of credit reimbursement obligations,
and capitalized lease obligations.
"INDEMNIFIED LIABILITIES" shall have the meaning set forth in
Section 13.1.
"INDEMNITEES" shall have the meaning set forth in Section
13.1.
"INELIGIBLE ACCOUNTS" shall mean, without duplication: (a)
Accounts created from the sale of goods and services that by their
terms for payment to be made more than sixty (60) days from date of
sale; (b) Accounts relating to contract electronics unpaid more than
ninety (90) days from the date of invoice or for all other inventory
unpaid for more than one hundred twenty (120) days from the date of
invoice; (c) all Accounts of any Account Debtor if fifty percent (50%)
or more of the outstanding balance of such Accounts are unpaid more
than ninety (90) days from the date of invoice; (d) Accounts for which
the Account Debtor is an officer, director, partner, member, owner,
employee, agent, parent, Subsidiary, or Affiliate of, or is related to,
Baldwin or has officers, directors, owners, partners or members with
Baldwin; (e) consignment receivables unpaid for more than one hundred
twenty (120) days from the date of invoice; (f) Accounts for which the
payment is or may be conditional; (g) Accounts for which the Account
Debtor is not a commercial or institutional entity of, or is not a
resident of, the United States or Canada; (h) Accounts with respect to
which any warranty or representation provided in Section 9.18 is not
true and correct; (i) Accounts which represent goods used for
demonstration purposes or loaned by Baldwin to another party; (j)
Accounts which are progress payment, barter, or contra accounts; (k)
Accounts which represent goods or services purchased for a personal,
family or household purpose; (l) KAC Accounts or any Accounts sold or
otherwise subject to the Securitization; and (m) any and all other
Accounts which Agent deems to be ineligible.
"INTANGIBLES" shall have the meaning set forth in Section
10.3(a).
"INVENTORY" means all of Baldwin's now owned and hereafter
acquired inventory, goods, merchandise, and other personal property,
wherever located, to be furnished under any contract or service or held
for sale or lease, including, without limitation, all returned goods,
finished goods and other materials and supplies of any kind, nature or
description which are or might be consumed in Baldwin's Business or
used in connection with the packing, shipping, advertising, selling or
furnishing of such goods, merchandise and such other personal property,
and all documents of title or other documents representing them;
provided, however, that returned and repossessed goods relating to any
Sold Accounts shall not constitute "Inventory" under this Credit
Agreement or the other Loan Documents unless and until such returned or
repossessed goods have been resold by GECC to Baldwin pursuant to the
Purchase and Sales Agreement and GECC or its assignee has received the
purchase price therefor provided under such agreement.
"ISSUING BANK" means Agent or any Lender as shall issue any
Letter of Credit hereunder.
6
<PAGE> 12
"KAC" means Keyboard Acceptance Corporation, a Delaware
corporation and a Subsidiary of Baldwin (formerly known as BPO Finance
Corporation).
"KAC ACCOUNTS" shall mean retail installment contracts which
result from the sale of inventory to consumers and which are sold or
otherwise transferred to KAC pursuant to the Baldwin/KAC Purchase
Agreement, and contributed, sold or otherwise transferred by KAC under
the Purchase and Sale Agreement or which are acquired by KAC in the
normal course of its business, including accounts which result from the
sale of products to consumers which products are manufactured or
distributed by parties other than Baldwin or its Subsidiaries.
"LETTER OF CREDIT" AND "LETTERS OF CREDIT" mean the letter of
credit issued by the Issuing Bank upon the request of Borrower pursuant
to Section 4.1.
"LETTER OF CREDIT FEE" means the fee charged to the Borrower
by this Issuing Bank pursuant to Article 4.
"LIBOR RATE" means, for each calendar month, the London
Interbank Offered Rate (LIBOR) for three-month deposits in U.S. dollars
that appears on Page 3750 of the Dow Jones Telerate Service (or any
other page that may replace any such page on such service in the
judgment of Agent) as of the last Business Day of the prior calendar
month
"LIBOR RATE (RESERVE ADJUSTED)" shall mean, the rate per annum
obtained by dividing the LIBOR Rate by a percentage equal to one
hundred percent (100%) minus the Eurocurrency Reserve percentage for
such interest period.
"LIEN" shall mean any security interest, mortgage, pledge,
lien, hypothecation, judgment lien or similar legal process, charge,
encumbrance, title retention agreement or analogous instrument or
device (including, without limitation, the interest of lessors under
capitalized leases and the interest of a vendor under any conditional
sale or other title retention agreement), reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances
affecting any of Baldwin's property.
"LIQUIDITY AGREEMENT" means the Liquidity Agreement dated as
of October 1, 1990 between Retail Funding Corporation and GECC, as
amended, supplemented or modified from time to time.
"LOAN" shall mean any advance made to or for the benefit of
Baldwin pursuant to this Credit Agreement.
"LOAN DOCUMENTS" shall mean all documents executed by Baldwin
pursuant to any financial accommodation between Baldwin and the Lenders
(other than pursuant or with respect to the Previous Fifth Third
Transaction) and all documents entered into in connection with the
transaction with the Lenders herein contemplated. The term "Loan
7
<PAGE> 13
Documents" includes, but is not limited to, this Credit Agreement, all
financing statements, all letters of credit, all pledges, security
agreements, guaranties, assignments, subordination agreements, and any
future or additional documents or writings executed under the terms of
this Credit Agreement or any amendments or modifications hereto.
"LOAN YEAR" means each period of twelve (12) consecutive
calendar months, commencing on the Closing Date and on each anniversary
thereof.
"MONTHLY COMPLIANCE CERTIFICATE" shall have the meaning set
forth in Section 10.3(b).
"MONTHLY REPORTS" shall have the meaning given in Section
3.11(a).
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA which is maintained for employees of
Borrower, or any ERISA Affiliate of Borrower.
"NOTE" and "NOTES" shall have the meaning given in Section
3.3.
"OBLIGATIONS" shall mean all liabilities and Indebtedness of
any kind and nature whatsoever now or hereafter arising, owing, due or
payable from Baldwin (and/or any of its Subsidiaries and Affiliates) to
any Lender arising under the Loan Documents, whether primary or
secondary, joint or several, direct, contingent, fixed or otherwise,
secured or unsecured or whether arising under this Credit Agreement,
any other Loan Document or any other agreement now or hereafter
executed by Baldwin (or any of its Subsidiaries or Affiliates) and
delivered to the Lenders in connection with the Loan or this Agreement.
Obligations will include, without limitation, any third party claims
against Baldwin (or any of its Subsidiaries or Affiliates) satisfied or
acquired by the Lenders. Obligations will also include all obligations
of Baldwin to pay to the Lenders: (a) any and all sums reasonably
advanced by the Lenders to preserve or protect the Collateral or the
value of the Collateral or to preserve, protect or perfect the Lenders'
security interests in the Collateral; (b) in the event of any
proceeding to enforce the collection of the Obligations after a
Default, the reasonable expenses of retaking, holding, preparing for
sale, selling or otherwise disposing of or realizing on the Collateral,
or expenses of any exercise by any Lender of its rights, together with
reasonable attorneys' fees, expenses of collection and court costs, as
provided in the Loan Documents; and (c) any other indebtedness or
liability of Baldwin to the Lenders, whether direct or indirect,
absolute or contingent now or hereafter arising; provided, however,
that any liabilities and Indebtedness resulting from the Securitization
and from the Previous Fifth Third transaction are specifically excluded
from the definition of Obligations.
"OSHA LAW" shall mean the Occupational Safety and Health Act
of 1970, any successor thereto, and any other federal, state or local
statute, law, ordinance, code, rule, regulation, order or decree
regulating, relating to or imposing liability or standards of conduct
concerning employee health and/or safety.
8
<PAGE> 14
"OTHER REPORTS" shall have the meaning set forth in Section
3.11(a)(i).
"PARTICIPATION PERCENTAGE" for each Lender means the
percentage set forth below opposite such Lender.
<TABLE>
<CAPTION>
======================================== ====================================
LENDER PARTICIPATION PERCENTAGE
- ---------------------------------------- ------------------------------------
<S> <C>
Fifth Third 50%
- ---------------------------------------- ------------------------------------
NBD 50%
======================================== ====================================
</TABLE>
"PATENTS" shall mean all of the following in which Borrower
now holds or hereafter acquires any interest: (i) all letters patent of
the United States or any country, all registrations and recordings
thereof, and all applications for letters patent of the United States
or any other country, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any state or territory
thereof or any other country, and (ii) all reissues, continuations,
continuations-in-part or extensions thereof.
"PERMITTED LIENS" shall mean: (a) Liens for taxes, assessments
or other governmental charges or levies not yet delinquent or which are
being contested in good faith by appropriate action and as to which
adequate reserves shall have been set aside in conformity with GAAP;
(b) Liens of mechanics, materialmen, landlords, warehousemen, carriers
and similar Liens arising in the future in the ordinary course of
business for sums not yet delinquent, or being contested in good faith
if a reserve or other appropriate provision in accordance with GAAP
shall have been made therefor and which are, in addition, satisfactory
to Agent in its reasonable discretion; (c) statutory Liens incurred in
the ordinary course of business in connection with workers'
compensation, unemployment insurance, social security, and similar
items for sums not yet delinquent or being contested in good faith, if
a reserve or other appropriate provision in accordance with GAAP shall
have been made therefor and which are, in addition, satisfactory to
Agent in its reasonable discretion; (d) lessor's Liens arising from
operating leases entered into in the ordinary course of business; (e)
Liens arising from legal proceedings, so long as such proceedings are
being contested in good faith by appropriate proceedings, appropriate
reserves have been established therefor in accordance with GAAP and
which are, in addition, satisfactory to Agent in its reasonable
discretion, and so long as execution is stayed and bonded on appeal on
all judgments resulting from any such proceedings; (f) Liens in favor
of Agent for the benefit of the Lenders granted hereunder; and (g)
Liens arising pursuant to the Permitted Securitization Documents.
"PERMITTED SECURITIZATION DOCUMENTS" shall mean: (i) the
Purchase and Sale Agreement, (ii) Liquidity Agreement, as amended,
supplemented or otherwise modified
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from time to time with the prior written consent of Agent and (iii) the
Baldwin/KAC Purchase Agreement.
"PERSON" shall mean an individual, a partnership, a joint
venture, a corporation, a trust, a limited liability company, an
unincorporated organization, and a government or any department or
agency thereof.
"PREVIOUS FIFTH THIRD TRANSACTION" shall mean that certain
General Loan and Security Agreement by and between Baldwin and Fifth
Third dated as of June 15, 1989, as amended by an Amended and Restated
General Loan and Security Agreement dated as of February 24, 1994.
"PRIME RATE" shall mean a fluctuating interest rate per annum
equal to the prime, base or reference rates of interest announced
publicly from time to time (whether or not charged in each instance) by
Agent (or any successor thereof) as such bank's prime, base, or
reference rate. Each change in the Prime Rate shall become effective on
the day the applicable reference bank announces a change in its prime
or reference rate. Baldwin acknowledges that Agent may extend credit at
rates of interest less than its announced prime, base or reference
rate.
"PRIME RATE LOANS" shall mean Loans bearing interest at a rate
determined by reference to the Prime Rate.
"PURCHASE AND SALE AGREEMENT" shall mean the Purchase and
Administration Agreement dated as of October 1, 1990 among Retailer
Funding Corporation, KAC, Baldwin and GECC, as amended, supplemented or
otherwise modified from time to time.
"REIMBURSEMENT OBLIGATIONS" means any amounts owing by
Borrower to the Lender on account of draws or disbursements under or
with respect to the Letters of Credit.
"RENTALS" shall have the meaning set forth in Section 10.2(o).
"REQUISITE LENDERS" means the Lenders whose aggregate
Participation Percentages are greater than or equal to sixty-six and
two-thirds percent (66 2/3%).
"SECURITIZATION" shall mean the transaction whereby Baldwin
sells retail installment contracts to KAC who thereupon sells such
retail installment contracts to Retail Funding Corporation which sells
an undivided pool interest in such contracts.
"SUBORDINATED DEBT" shall have the meaning set forth in
Section 10.3.
"SUBSIDIARIES" shall mean any corporation in which a Person
owns or controls greater than fifty percent (50%) of the voting
securities, or any partnership or joint
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venture in which a Person owns or controls greater than fifty percent
(50%) of the aggregate equitable interest. The term "Subsidiary" means
any one of the Subsidiaries.
"TANGIBLE NET WORTH" shall have the meaning set forth in
Section 10.3.
"TERMINATION EVENT" means (i) a "Reportable Event" described
in Section 4043 of ERISA and the regulations issued thereunder, but not
including any such event for which the thirty (30) day notice
requirement has been waived by applicable PBGC regulation; or (ii) the
withdrawal of Borrower or an ERISA Affiliate of Borrower from a
Guaranteed Pension Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA; or
(iii) the filing of a notice of intent to terminate a Guaranteed
Pension Plan or the treatment of a Guaranteed Pension Plan amendment as
a termination under Section 4041 of ERISA; or (iv) the institution of
proceedings to terminate a Guaranteed Pension Plan by the Pension
Benefit Guaranty Corporation; or (v) the withdrawal or partial
withdrawal of Borrower or an ERISA Affiliate of Borrower from a
Multiemployer Plan; or (vi) any other event or condition which might
reasonably be expected to constitute grounds under ERISA for the
termination of, or the appointment of a trustee to administer, any
Guaranteed Pension Plan.
"TOTAL CREDIT" shall mean Forty Million and 00/100 Dollars
($40,000,000.00).
"TRADEMARKS" shall mean all of the following in which Borrower
now holds or hereafter acquires any interest: (i) all trademarks, trade
names, corporate names, business names, trade styles, service marks,
logos, other source or business identifiers, prints and labels on which
any of the foregoing have appeared or appear, designs and general
intangibles of like nature, all registrations and recordings thereof,
and all applications in connection therewith, including registrations,
recordings and applications in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any
state or territory thereof or any other country, and (ii) all reissues,
extensions or renewals thereof.
"TOTAL CREDIT LIMIT" shall have the meaning set forth in
Section 3.2.
"UCC" shall mean the Uniform Commercial Code as in effect in
the State of Ohio and any successor statute, together with any
regulations thereunder, in each case as in effect from time to time.
References to sections of the UCC shall be construed to also refer to
any successor sections.
"UCC FINANCING STATEMENTS" mean the UCC financing statements
naming the Borrower, as debtor, and Agent, for the ratable benefit of
Lenders, as creditor, which UCC financing statements describe all or
some portion of the Collateral and which together perfect Agent's
security interest in the Collateral.
"UNMATURED DEFAULT" shall mean any event which, but for the
passage of time or notice, or both, would be a Default.
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<PAGE> 17
"VALUE" means the wholesale dealer cost of Baldwin's Eligible
Inventory, and the cost or Eligible Raw Materials, (exclusive of
discounts, rebates, credits, including, without limitation price
protection credits, incentive payments and all other general
intangibles relating to such Eligible Inventory), as determined in
accordance with GAAP.
ARTICLE 3.
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CREDIT FACILITY
---------------
Section 3.1 TOTAL CREDIT FACILITY. In consideration of Baldwin's
payment and performance of its Obligations and subject to the terms and
conditions contained in this Credit Agreement, the Lenders agree to provide, and
Baldwin agrees to accept, an aggregate credit facility of up to Forty Million
and 00/100 Dollars ($40,000,000.00) (the "TOTAL CREDIT"), subject to the terms
and conditions hereof (the "CREDIT FACILITY"). No Loans need be made by the
Lenders if Baldwin is in Default or if there exists any Unmatured Default. This
is an agreement regarding the extension of credit, and not the provision of
goods or services.
Section 3.2 LOANS. Subject to the terms of this Credit Agreement, each
Lender severally and not jointly agrees, for so long as no Default or Unmatured
Default exists and upon the terms of and subject to the conditions contained in
this agreement, to provide to Baldwin, and Baldwin agrees to accept, working
capital and general corporate financing on Eligible Accounts, Eligible Raw
Materials and Eligible Inventory, up to each Lender's Participation Percentage
of the Total Credit Limit, in the maximum aggregate unpaid principal amount at
any time equal to the lesser of: (i) the Borrowing Base; and (ii) the Total
Credit ("TOTAL CREDIT LIMIT"). A request for a Loan shall be made, or shall he
deemed to be made, as provided in Section 6.1 hereof.
(a) ELIGIBLE ACCOUNTS/ELIGIBLE INVENTORY/ELIGIBLE RAW
MATERIALS.
(i) ELIGIBLE ACCOUNTS. On receipt of each Borrowing
Base Certificate, in the form of Exhibit C, together with such
supporting information as Agent may require from time to time
(the "BORROWING BASE CERTIFICATE"), Agent will credit Baldwin
with the lesser of: (i) eighty percent (80%) of the net amount
of the Eligible Accounts which are, absent error or other
discrepancy, listed in such Borrowing Base Certificate
("ELIGIBLE ACCOUNT AVAILABILITY"); and (ii) Ten Million and
00/100 Dollars ($10,000,000.00) plus the amount of any unused
portion of the Eligible Inventory Availability not to exceed
an additional sum of Ten Million and 00/100 Dollars
($10,000,000.00). For purposes hereof, the net amount of
Eligible Accounts at any time shall be the face amount of such
Eligible Accounts LESS any and all returns, discounts (which
may, at Agent's option, be calculated on shortest terms),
credits, rebates, allowances, or excise taxes of any nature at
any time issued, owing, claimed by Account Debtors, granted,
outstanding, or payable in connection with such Accounts at
such time.
(ii) ELIGIBLE INVENTORY. On receipt of each Borrowing
Base Certificate, Agent will credit Baldwin with the lesser
of: (i) sixty five percent (65%) of the
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<PAGE> 18
Value of Eligible Inventory which is, absent error or other
discrepancy, listed in such Borrowing Base Certificate, and
(ii) Twenty-Five Million Dollars and 00/100 Dollars
($25,000,000.00) plus the amount of any unused portion of the
Eligible Account Availability not to exceed an additional sum
of Ten Million Dollars ($10,000,000) LESS the face amount of
any outstanding Letters of Credit (such lesser amount being
called the "ELIGIBLE INVENTORY AVAILABILITY").
(iii) ELIGIBLE RAW MATERIALS AVAILABILITY. On receipt
of each Borrowing Base Certificate, Agent will credit Baldwin
with the lesser of: (1) the sum of ten percent (10%) of the
Value of Raw Materials consisting of electronic components,
plus fifty percent (50%) of the Value of all other Raw
Materials; and (2) Five Million and 00/100 Dollars
($5,000,000.00) (such lesser amount being called the "ELIGIBLE
RAW MATERIALS AVAILABILITY").
Section 3.3 THE NOTES. The absolute and unconditional obligation of
Borrower to repay to each Lender its respective Participation Percentage of the
principal of the Loan and the interest thereon shall be evidenced by separate
notes (the "Notes" and each individually, a "Note"), for each Lender in the
amount of its respective Participation Percentage of the Total Credit dated as
of the Closing Date substantially in the form of Exhibit D. All payments under
the Notes shall be made to Agent at its Head Office, for the account of Lenders,
and Agent shall allocate all payments on the Loan received from Borrower among
all Lenders in accordance with each Lender's Participation Percentage of such
Loan.
Section 3.4 MANDATORY PREPAYMENT. If at any time and for any reason the
aggregate amount of outstanding Loans exceeds the Borrowing Base, Baldwin will,
immediately upon demand, repay an amount of the Loans made to it by the Lenders
hereunder equal to such excess. In addition, Baldwin shall immediately pay Agent
whatever sums may be necessary from time to time to remain in compliance with
the Total Credit Limit, as such limit may change from time to time, including,
without limitation, as a result of any Collateral no longer being deemed an
Eligible Account, Eligible Inventory, or Eligible Raw Materials or as a result
of any change in the Value of any Eligible Inventory, Eligible Raw Materials or
in the amount of any Eligible Account.
Section 3.5 INTEREST; CALCULATION OF CHARGES; FEES.
(a) LOANS.
(i) INTEREST. Baldwin hereby agrees to pay interest
to Agent for the benefit of the Lenders, on the average daily
loan balance owed under Baldwin's Loans at the following
rate(s): (A) for so long as the Agent, for the benefit of the
Lenders, does not have a first priority security interest
(subject to Permitted Liens), at a rate equal to one-half of
one percentage point (0.5%) per annum above the Prime Rate and
(B) upon release of the first priority security interest in
Borrower's assets in favor of GECC, and confirmation of the
first priority nature of Agent's lien through standard lien
searches, for the benefit of the Lenders, at a
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rate of one and one-half percentage points (1.5%) per annum
above the LIBOR Rate. Interest on Loans prior to maturity
shall be payable monthly and at maturity.
(ii) CALCULATION OF CHARGES. Such interest rate will:
(1) be computed based on a three hundred sixty (360) day year;
(2) be calculated with respect to each day by multiplying the
Daily Rate (as defined below) by the average daily loan
balance; and (3) accrue from the date of a Loan advanced to or
for the benefit of Baldwin, until the Agent, on behalf of the
Lenders receives full payment of the principal debt Baldwin
owes the Lenders in good funds in accordance with Section 6.4
and the Lenders apply such payment to Baldwin's principal debt
in accordance with the terms of this Credit Agreement.
(iii) DEFINITIONS. The "DAILY RATE" is the quotient
of the applicable annual rate provided herein divided by three
hundred sixty (360). The average daily loan balance is the
average of all days in the month being billed of the amount of
outstanding principal debt which Baldwin owes the Lenders on
the Loans at the end of each day after the Lenders has
credited payments which it has received on the Loan.
(b) Borrower shall pay to Agent the following fees, to be
distributed pro-rata among the Lenders in accordance with their
respective Participation Percentages:
(i) a non-refundable execution fee of Sixty-Two
Thousand Five Hundred and 00/100 Dollars ($62,500.00) to be
paid upon execution of this Credit Agreement by the Lenders;
(ii) a commitment fee of One Hundred Thirty-Seven
Thousand Five Hundred and 00/100 Dollars ($137,500.00) to be
paid on the Closing Date; provided, however, that the fee
under this clause (ii) shall be zero if, on the Closing Date,
the Lien in favor of GECC is not prior and senior to the Lien
in favor of Agent, for the benefit of the Lenders;
(iii) an annual facility fee of Fifty Thousand and
00/100 Dollars ($50,000.00) to be paid at the end of the first
Loan Year; and
(iv) an annual facility fee of Fifty Thousand and
00/100 Dollars ($50,000.00) to be paid at the end of the
second Loan Year.
Section 3.6 BILLING STATEMENT Agent will send Baldwin a monthly billing
statement identifying all charges due on Baldwin's account with the Lenders. The
charges specified on each billing statement will be: (a) due and payable in full
immediately on receipt; and (b) for an amount stated, absent manifest error.
Agent may adjust the billing statement at any time to conform to applicable law
and this Credit Agreement.
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Section 3.7 LOAN PROCEEDS. The parties intend that all indebtedness
incurred hereunder shall be governed exclusively by the terms of this Credit
Agreement and the other Loan Documents, and shall not, unless requested by the
Lenders, be evidenced by notes or other evidences of indebtedness. Upon any such
request, Baldwin will immediately execute and deliver any such note or other
evidence reasonably requested by the Lenders. Any fees, charges or expenses
charged to the Lenders by any bank for payments made by the Lenders at Baldwin's
request shall be immediately payable by Baldwin. All advances and other
obligations of Baldwin made hereunder will constitute a single obligation.
Section 3.8 DEFAULT INTEREST RATE. If a Default occurs, and unless and
until cured or waived, Agent or any Lenders may without prior demand, raise the
rate of interest accruing on the disbursed unpaid principal balance of any Loan
by three percentage points (3%) above the rate of interest otherwise applicable
(the "DEFAULT INTEREST RATE"), whether or not the Lenders elect to accelerate
the unpaid principal balances as a result of a Default. Agent will use
reasonable efforts to attempt to notify Baldwin before imposing the Default
Interest Rate permitted by this Section.
Section 3.9 INTEREST RATE AFTER CERTAIN EVENTS. If a judgment is
entered against Baldwin for sums due under any of the Obligations, as
applicable, the amount of the judgment entered (which may include principal,
interest, reasonable attorneys' fees and costs) shall bear interest at the
Default Interest Rate as of the date of entry of the judgment. All Obligations
of Baldwin described in clauses (a) and (b) of the definition thereof shall bear
interest at the Default Interest Rate.
Section 3.10 VERIFICATION RIGHTS OF THE LENDERS. Lenders may at any
time or times hereafter, with notice to Baldwin (but without disclosing the
names of the Account Debtors), verify the validity, amount or any other matter
relating to any Account by mail, telephone or other means, in the name of
Baldwin or any Lender.
Section 3.11 REPORTS.
(a) MONTHLY REPORTS. In addition to the Monthly Compliance
Certificate, as provided in Section 10.3(b), Baldwin will to provide to
the Lenders by the fifteenth (15th) day of each month, or more
frequently if requested by Agent, in each case as of the last day of
the immediately prior month, each of the following: (i) Inventory aging
report; (ii) aging of Accounts; and (iii) aging of Baldwin's accounts
payable (the "MONTHLY REPORTS").
(i) OTHER REPORTS. Baldwin agrees to provide the
Lenders within five (5) Business Days after each request by
Agent any other report or information reasonably obtainable by
Baldwin (the "Other Reports").
(ii) ACCURACY OF REPORTS. The Monthly Reports and the
Other Reports will be true and correct in all material
respects. Baldwin acknowledges the
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Lenders' reliance on the truthfulness and accuracy of each
Monthly Report and the Other Reports.
Section 3.12 ESTABLISHMENT OF RESERVES. Notwithstanding the foregoing
provisions of Section 3.2, Lenders shall have the right to establish reserves in
such amounts, and with respect to such matters, as Lenders shall deem necessary
or appropriate, against the amount of Loans which Baldwin may otherwise request
under Section 3.2, including, without limitation, with respect to (a) price
adjustments, damages, unearned discounts, returned products or other matters for
which credit memoranda are issued in the ordinary course of Baldwin's business;
(b) shrinkage, spoilage and obsolescence of Inventory; (c) slow moving
Inventory; (d) other sums chargeable against Baldwin as Loans under any Section
of this Credit Agreement; and (e) such other matters, events, conditions or
contingencies as to which a Lender in its sole credit judgment determines
reserves should be established from time to time hereunder.
Section 3.13 INCREASED COST.
(a) INCREASED COSTS. If, as a result of any law, regulation,
treaty or directive, or any change therein, or in the interpretation or
application thereof or compliance by the Lenders with any request or
directive (whether or not having the force of law) from any court or
governmental authority, agency or instrumentality:
(i) the basis of taxation of payments to the Lenders
(for purposes of this Section 3.13(a), a Lender shall also
refer to any affiliates of such Lender engaged in the funding
of the lending obligations hereunder) of the principal of or
interest on any Loan (other than taxes imposed on the overall
net income of such Lender by the jurisdiction in which such
Lender has its principal office) is changed;
(ii) any reserve, special deposit or similar
requirements against assets of, deposits with or for the
account of, or credit extended by, a Lender are imposed,
modified or deemed applicable; or
(iii) any other condition affecting this Credit
Agreement or the Loans is imposed on a Lender or the interbank
Eurodollar market;
and a Lender determines that, by reason thereof, the cost to such
Lender of making or maintaining any of the Loans is increased, or the
amount of any sum receivable by such Lender hereunder in respect of any
of the Loans is reduced;
THEN, Baldwin shall pay such Lender upon thirty (30) days written
notice from such Lender (which notice shall be accompanied by a
statement setting forth the basis for the calculation thereof but only
to the extent not theretofore provided to Baldwin) such additional
amount or amounts as will compensate such Lender for such additional
cost or reduction (provided such amount has not been compensated for in
the calculation of the currency Reserve Percentage). Notwithstanding
the foregoing, no Lender will be entitled
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<PAGE> 22
to the amount of such additional cost or reduction for any period which
is more than six (6) months prior to the date of notice by such Lender
to Baldwin hereunder. Determinations by a Lender for purposes of this
Section of the additional amounts required to compensate such Lender in
respect of the foregoing shall be conclusive, absent manifest error.
(b) DOLLAR DEPOSITS UNAVAILABLE OR INTEREST RATE
UNASCERTAINABLE. If Baldwin has any Loan outstanding, or has notified
Agent of the intention to obtain a Loan as provided herein, then if
prior to the date that the LIBOR Rate is determined, Agent determines
(which determination shall be conclusive and binding on the parties
hereto) that three-month deposits of the necessary amount are not
available to the Lenders in the interbank dollar market or that by
reason of circumstances affecting such market, adequate and reasonable
means do not exist for ascertaining the LIBOR Rate applicable to such
period or term, as the case may be, Agent shall promptly give notice of
such determination to Baldwin, and any notice of new Loans previously
given by Baldwin and not yet borrowed shall be deemed a notice to make
a Prime Rate Loan to the extent of the Lenders' proposed Loan.
(c) CHANGES IN LAW RENDERING LIBOR LOANS UNLAWFUL. If at any
time due to any new law, treaty or regulation, or any change of any
existing law, treaty or regulation, or any interpretation thereof by
any governmental or other regulatory authority charged with the
administration thereof, or for any other reason arising subsequent to
the date hereof, it shall become unlawful for the Lenders to fund any
Loan which it is committed to make hereunder, the obligation of the
Lenders to provide Loans based on LIBOR shall, upon the happening of
such event forthwith be suspended for the duration of such illegality.
If any such change shall make it unlawful to continue Loans previously
made by it hereunder, Agent shall, upon the happening of such event
notify Baldwin thereof in writing stating the reasons therefor, and
Baldwin shall, if required by such law, regulation or interpretation,
on such date as shall be specified in such notice, or prepay all such
Loans, without any penalty or premium whatsoever (except as provided in
Section 3.13(e)), to the Lenders in full. Any prepayment made pursuant
to this Section 3.13(c) shall be deemed to reduce the aggregate Credit
available hereunder by the principal amount so prepaid. Any such
prepayment shall be subject to the provisions of Section 3.13(e).
(d) CAPITAL ADEQUACY. If a Lender shall determine at any time
after the Effective Date that the adoption of any law, rule, guideline
or regulation regarding capital adequacy, or compliance with any law,
rule, guideline or regulation regarding capital adequacy, or any change
therein or in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by such
Lender with any request or directive or compliance with any law, rule,
guideline or regulation regarding capital adequacy (whether or not
having the force of law) from any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of
return on a Lender's capital as a consequence of its obligations
hereunder to a level below that which
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such Lender could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's policies with
respect to capital adequacy) by an amount deemed by such Lender to be
material, then Baldwin shall pay to such Lender upon demand such amount
or amounts, in addition to the amounts payable under the other
provisions of this Credit Agreement, as will compensate such Lender for
such reduction. Any such demand by such Lender hereunder shall be in
writing, and shall set forth the reasons for such demand and copies of
all documentation reasonably relevant in support thereof.
Notwithstanding the foregoing, no Lender will be entitled to receive
such additional amount for any period which is more than six (6) months
prior to the date of such Lender's written demand to Baldwin as
provided hereunder. Determinations by a Lender for purposes of this
Section 3.13(d) of the additional amount or amounts required to
compensate such Lender in respect of the foregoing shall be conclusive
in the absence of manifest error. In determining such amount or
amounts, a Lender may use any reasonable averaging and attribution
methods.
(e) DISCRETION AS TO MANNER OF FUNDING. Notwithstanding any
provision of this Credit Agreement to the contrary, a Lender may fund
and maintain its funding of all or any part of its Loans in any manner
it elects, it being understood, however, that for the purposes of this
Credit Agreement all determinations hereunder shall be made as if such
Lender had actually funded and maintained each Loan through the
purchase of deposits having a maturity corresponding to the maturity of
each Loan and bearing an interest rate equal to the LIBOR Rate. A
Lender may, if it so elects fulfill any commitment to make Loans by
causing an affiliate to make or continue such Loans, provided, however,
that in such event such loans shall be deemed for the purposes of this
Credit Agreement to have been made by such Lender, and the obligation
of Baldwin to repay such Loans shall nevertheless be to the Lenders and
shall be deemed held by such Lender on behalf of the Lenders, to the
extent of such Loans, for the account of such branch or affiliate.
Section 3.14 COLLECTIONS. Baldwin will direct all Account Debtors to
make all remittances to, and Baldwin will deposit all collections on Accounts
received directly by Baldwin into, a lockbox account or accounts reasonably
designated by Agent. All Funds in such accounts immediately shall become the
property of Agent for the benefit of the Lenders and Baldwin shall obtain the
agreement of such banks to waive any offset rights against the funds so
deposited. Until delivery to such account(s), Baldwin will keep such remittances
separate and apart from Baldwin's own funds so that they are capable of
identification as the property of Agent and will be held in trust for the
Lenders. Agent may upon the occurrence and continuation of a Default notify any
Account Debtor of the assignment of Accounts and collect the same. All proceeds
received or collected by Agent with respect to Accounts, and reserves and other
property of Baldwin in possession of Agent at any time or times hereafter, may
be held by Agent without interest to Baldwin until all Obligations are paid in
full or applied by Agent on account of the Obligations. Agent may release to
Baldwin such portions of such reserves and proceeds as Agent may determine.
Section 3.15 ADVANCEMENTS. If Baldwin fails to: (a) perform any of the
affirmative covenants contained herein, (b) protect or preserve the Collateral;
or (c) protect or preserve the
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status and priority of the Liens and security interest of Agent for the benefit
in the Collateral, the Lenders may make advances to perform those obligations.
Agent will use reasonable efforts to attempt to give Baldwin notice prior to
making such advancement. All sums so advanced will be due and payable upon
demand and will immediately upon advancement become secured by the security
interests created by this Credit Agreement and will be subject to the terms and
provisions of this Credit Agreement and all of the Loan Documents. Agent may add
all sums so advanced, plus any expenses or costs incurred by Agent or any
Lender, including reasonable attorneys' fees, as outstanding Loans as Agent may
designate in its sole discretion. The provisions of this Section will not be
construed to prevent the institution of rights and remedies of Agent or any
Lender upon the occurrence of a Default. Any provisions in this Credit Agreement
to the contrary notwithstanding, the authorizations contained in this Section
will impose no duty or obligation on any Lender to perform any action or make
any advancement on behalf of Baldwin and are for the sole benefit and protection
of the Lenders.
Section 3.16 CONTINUING REQUIREMENTS - ACCOUNTS. Baldwin will: (a) not
permit or agree to any extension, compromise or settlement or make any change to
any Account outside the ordinary course of business; (b) affix appropriate
endorsements or assignments upon all such items of payment and proceeds so that
the same may be properly deposited by Agent to Agent's account; (c) monthly
notify Agent in writing which Accounts may be deemed Ineligible Accounts; and
(d) mark all chattel paper and instruments, now owned or hereafter acquired by
it but excluding the chattel paper which Baldwin sells to KAC in conjunction
with the Securitization, to show that the same are subject to the Lenders'
security interest and immediately thereafter deliver such chattel paper and
instruments to the Lenders with appropriate endorsements and assignments to the
Lenders.
ARTICLE 4.
----------
LETTERS OF CREDIT
-----------------
Section 4.1 OBLIGATION TO ISSUE LETTERS OF CREDIT. Subject to the terms
and conditions of this Credit Agreement, prior to the maturity of the Loans
(whether by acceleration or otherwise) and so long as no Default has occurred
and is continuing, Issuing Bank agrees to issue, in accordance with Issuing
Bank's usual and customary business practices, one or more Letters of Credit at
the request of Borrower, provided that Issuing Bank shall not issue any Letter
of Credit if: (a) any order, judgment or decree of any governmental authority or
arbitrator shall purport by its terms to enjoin or restrain Issuing Bank from
issuing such Letter of Credit or any rule, regulation or law applicable to
Issuing Bank or any request or directive from any governmental authority with
jurisdiction over Issuing Bank shall prohibit or request that Issuing Bank
refrain from the issuance of letters of credit generally or such Letters of
Credit in particular or shall impose upon Issuing Bank with respect to such
Letters of Credit any restriction or reserve or capital requirement (for which
Issuing Bank is not otherwise compensated) not in effect on the date hereof, or
any un-reimbursed loss, cost or expense which was not applicable, in effect or
known to Issuing Bank as of the date hereof in which Issuing Bank in good faith
deems material to it; or (b) any of the conditions precedent for the issuance of
such Letter of Credit or other terms and provisions of this Loan or any
subsequent loans hereof are not satisfied.
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Section 4.2 EXPIRATION DATE OF LETTERS OF CREDIT. The expiration date
of any Letter of Credit shall not be later than the earlier of (a) twelve (12)
months after the date of the issuance thereof, or (b) the third (3rd)
anniversary of the Closing Date.
Section 4.3 LETTERS OF CREDIT DEEMED TO BE LOANS. All Letters of Credit
issued by Issuing Bank shall be issued in connection with this Credit Agreement
and Borrower's obligation to pay any amount drawn under any Letter of Credit
shall constitute an Obligation hereunder and shall be bound by and shall benefit
from all the terms, provisions and conditions hereunder, including without
limitation, Issuing Bank's rights to recover costs and expenses relating thereto
as provided in this Credit Agreement and Issuing Bank's remedies upon the
occurrence of an Event of Default. Each Letter of Credit issued hereunder shall
reduce the amount of Loan proceeds available for disbursement under the Credit
Commitment in an amount equal to the face amount of each such Letter of Credit.
No interest shall accrue on the amount of undisbursed Loan proceeds representing
the aggregate amount of the Letters of Credit until such time as such Letters of
Credit are drawn upon.
Section 4.4 PROCEDURE FOR ISSUANCE OF LETTERS OF CREDIT. Borrower shall
give Issuing Bank two (2) Business Days prior written notice, or telephonic or
electronically transmitted notice confirmed promptly thereafter in writing, of
any requested issuance of a Letter of Credit under this Credit Agreement. Such
notice shall specify the stated amount of the Letter of Credit requested, the
effective date (which day shall be a Business Day) of issuance of such requested
Letter of Credit, the date on which such requested Letter of Credit is to expire
(which date shall be a business day and shall in no event be later than the
third anniversary of the Closing Date), the proposed beneficiaries of such
Letter of Credit, the conditions for draws under such Letter of Credit, and any
other information relevant thereto as Issuing Bank may request. Unless there is
a Default or Event of Default hereunder, or unless the amount of the Letter of
Credit exceeds the limitations set forth by Section 4.7 hereof, then, subject to
the terms and conditions of this Credit Agreement, Issuing Bank shall issue, on
the requested date, a Letter of Credit for the account of Borrower in accordance
with Issuing Bank's usual and customary business practices.
Section 4.5 REIMBURSEMENT OBLIGATIONS. Borrower agrees that all
Reimbursement Obligations owing to Issuing Bank under or with respect to each
such Letter of Credit issued by Issuing Bank shall be deemed to be a request for
a draw or advance hereunder and shall be deemed to have been disbursed to
Borrower as a Loan hereunder. Borrower hereby promises to pay to Agent any and
all Reimbursement Obligations hereunder. Interest shall begin to accrue on the
Reimbursement Obligations on the day such Reimbursement Obligations are incurred
by Borrower as a result of disbursement under the Letter of Credit.
Section 4.6 LETTER OF CREDIT FEES.
(a) With respect to each stand-by Letter of Credit issued by
the Issuing Bank, Borrower shall pay to the Agent a fee in the amount
of one percent (1.0%) per annum (computed on the basis of a 360-day
year for the days elapsed) of the daily average undrawn face amount of
each of the stand-by Letters of Credit ("Stand-by Letter of Credit
Fee"). The Stand-by Letter of Credit Fee shall be paid to the Agent in
advance on the
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date of issuance thereof . The Agent agrees to disburse from such
Stand-by Letter of Credit Fee, promptly upon receipt, to each Lender in
proportion to its Participation Percentage.
(b) With respect to commercial Letters of Credit issued by the
Issuing Bank, Borrower shall pay to the Issuing Bank fees in accordance
with the fee schedule set forth in Schedule 4.7 hereto ("Commercial
Letter of Credit Fees"). The Commercial Letter of Credit Fees shall be
paid to the Issuing Bank on the date on which the service for which
such fee applies is performed by the Issuing Bank or if such day is not
a Business Day on the next succeeding Business Day commencing on the
first such date following the issuance of any commercial Letter of
Credit.
Section 4.7 AMOUNT OF LETTERS OF CREDIT. At no time shall the aggregate
amount of all of the issued and outstanding Letters of Credit exceed Ten Million
and 00/100 Dollars ($10,000,000.00), nor shall the sum of all Letters of Credit
outstanding and all Loans outstanding exceed the Revolving Credit Commitment.
Section 4.8 LETTER OF CREDIT PARTICIPATIONS. By issuance of a Letter of
Credit and without any further action on the part of Issuing Bank or Lenders in
respect thereof, Issuing Bank hereby grants to each Lender, and each Lender
hereby agrees to acquire from Issuing Bank, a participation in such Letter of
Credit equal to such Lender's Participation Percentage of the face amount of
such Letter of Credit, effective upon the issuance of such Letter of Credit. In
consideration and in furtherance of the foregoing, each Lender hereby absolutely
and unconditionally agrees to pay to Agent on behalf of Issuing Bank, such
Lender's Participation Percentage of any Reimbursement Obligation. Each Lender
acknowledges and agrees that its obligation to acquire participations pursuant
to this Section 4.8 in respect of Letters of Credit is absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including without limitation the occurrence and continuance of a default or an
event of default hereunder, and that each such payment shall be made without any
offset, abatement, withholding or reduction whatsoever.
ARTICLE 5.
----------
TERM OF AGREEMENT
-----------------
Section 5.1 TERMINATION. This Credit Agreement will continue in full
force and effect until October 1, 2000; PROVIDED, HOWEVER, that if Agent's lien
for the benefit of the Lenders, in the Collateral, is not a first priority
security interest (subject to Permitted Liens other than those described in
clause (g) of the definition of Permitted Liens) on or prior to December 31,
1997, this Credit Agreement shall terminate on April 1, 1999. Notwithstanding
the foregoing, Baldwin may terminate this Credit Agreement at any time with
sixty (60) days prior written notice to Agent, and with less than sixty (60)
days prior written notice to Agent upon the payment to Agent of an early
termination fee equal to the sum of Fifty Thousand and 00/100 Dollars
($50,000.00). This sum will also be paid by Baldwin if this Credit Agreement is
terminated on account of Baldwin's Default. The early termination fee represents
liquidated damages and is not
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a penalty. Any termination of this Credit Agreement by Baldwin will have the
effect of accelerating the maturity of all Obligations not then otherwise due.
Baldwin may only elect to terminate this Credit Agreement in its entirety only,
no Section or lending facility may be terminated singly.
Section 5.2 EFFECT OF TERMINATION. Baldwin will not be relieved from
any Obligations to the Lenders arising out of the Lender's advances or
commitments made before the effective termination date of this Credit Agreement.
The Lenders will retain all of their rights, interests and remedies hereunder
until Baldwin has paid all of Baldwin's Obligations to the Lenders. All waivers
set forth within this Credit Agreement will survive any termination of this
Credit Agreement.
ARTICLE 6.
----------
BORROWING AND REPAYMENT PROCEDURES
----------------------------------
Section 6.1 BORROWING PROCEDURES.
(a) GENERALLY. A request for a Loan shall be made, or shall be
deemed to be made, in the following manner: (i) Baldwin may give the
Agent written notice of its intention to borrow during a calendar month
as of the last Business Day of the preceding calendar month by
providing a Borrowing Base Certificate to Agent as of the last Business
Day of such preceding month (ii) the becoming due of any amount
required to be paid under this Credit Agreement as interest shall be
deemed irrevocably to be a request for a Loan on the due date in the
amount required to pay such interest; and (iii)) the becoming due of
any other Obligations shall be deemed irrevocably to be a request for a
Loan on the due date in the amount then so due.
For purposes of Subpart (i) above, Baldwin agrees that the Lenders may
rely and act upon any request for a Loan from any individual who Agent,
absent gross negligence or willful misconduct, believes to be a
representative of Baldwin
(b) CONDITIONS PRECEDENT TO EACH LOAN. Without limiting the
applicability of the conditions precedent set forth in ARTICLE 8 below
to the Lenders' obligations to make any Loan, the obligation of the
Lenders to make any Loan shall be subject to the further conditions
precedent that, on the date of each such Loan:
(i) The following statements shall be true: (A) the
representations and warranties contained in ARTICLE 9 hereof
are correct on and as of the date of such Loan as though made
on and as of such date, and (B) there exists no Default or
Unmatured Default, nor would any Default or Unmatured Default
result from the making of the Loan requested by Baldwin;
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(ii) Agent shall have received a completed Borrowing
Base Certificate, signed by Baldwin, and dated as of the last
Business Day of the immediately preceding month in which the
Loan is requested; and
(iii) Agent shall have received such other approvals,
opinions or documents as it may reasonably request.
Baldwin agrees that the making of a request by Baldwin for a Loan, shall
constitute a certification by Baldwin and the person(s) executing or giving the
same that all representations and warranties of Baldwin herein are true as of
the date thereof and that all required conditions to the making of the Loan have
been met.
(c) AGENT MAY MAKE ADVANCES. In order to administer the making
of draws and advancements on Revolving Credit Loans under this Section
6.1, Agent may advance to Borrower, for and on behalf of each Lender,
each Lender's Participation Percentage of each Loan; PROVIDED, HOWEVER,
that Agent may collect from each Lender its Participation Percentage in
the Loans advanced by Agent if the balance of all prior advances since
the immediately preceding Settlement Date (as defined in paragraph
6.1(d) below), after applying all payments on the Loans since such
date, exceeds One Million and 00/100 Dollars ($1,000,000.00); PROVIDED,
FURTHER, that Agent shall not be deemed to have assumed any liability
as a Lender hereunder as a consequence of any advance which Agent may
make on behalf of the Lenders under this Section 6.1(c)and no such
advance by Agent shall in any way relieve any Lender of its obligations
to pay its Participation Percentage and make Revolving Credit Loans.
(d) SETTLEMENT OF ADVANCES. At such intervals or times as are
determined by Agent, but no less frequently than weekly (each such date
being a "Settlement Date"), Agent will report to each Lender the status
of Borrower's account with Agent on the preceding Settlement Date and
the collections from and advances made to Borrower during the period
since the next preceding Settlement Date ("Advance Period"). In each
report, Agent will compute the difference between the sun of advances
made during the Advance Period and the sum of payments made on the
Revolving Credit Loans during the Advance Period. If the collections
from Borrower exceed the advances made to borrower during the Advance
Period, Agent will distribute to each Lender on the next Business Day
following the Settlement Date, an amount equal to its Participation
Percentage of such collections. If the advances to Borrower exceed the
collections from Borrower during the Advance Period, each Lender shall
pay to Agent its Participation Percentage of such advances prior to
11:00 a.m. (EST) on the Business Day following the Settlement Date. The
payment by each such Lender of such aggregate amount shall be made to
the Agent at Agent's Head Office in immediately available and freely
transferrable funds.
Section 6.2 EXCESS ADVANCES. Agent, in its sole and absolute
discretion, may elect to permit the total unpaid balance of Loans to exceed the
Total Credit Limit ("EXCESS ADVANCES"), and no such event or occurrence shall
cause or constitute a waiver by the Lenders of their right to demand payment of
all or any part of the Loans at any time within the terms of this Credit
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Agreement or to refuse, in their sole and absolute discretion, to make such
other Loans. Any such Excess Advances shall be payable immediately upon demand
therefor, unless otherwise specifically agreed to by the Lenders, and shall bear
interest at the Default Interest Rate.
Section 6.3 ALL LOANS ONE OBLIGATION. All Obligations of Baldwin to the
Lenders under the Loan Documents shall constitute one obligation to the Lenders
secured by the security interest granted in this Credit Agreement, and by all
other Liens heretofore, now, or at any time or times hereafter granted by
Baldwin. All of the rights of the Lenders set forth in this Credit Agreement
shall apply to any modification of or supplement to this Credit Agreement, or
Exhibits hereto, unless otherwise agreed in writing.
Section 6.4 PAYMENTS OF PRINCIPAL AND INTEREST. All payments and
amounts due hereunder by Baldwin shall be made or be payable without set-off or
counterclaim and shall be made to Agent on the date due at its Head Office or at
such other place which Agent may designate to Baldwin in writing. Any payments
received after 1:00 p.m. (EST) shall be deemed received on the next Business
Day. Whenever any payment to be made hereunder shall be stated to be due on a
date other than a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time shall be included in the computation of
payment of interest or any fees. In order to cause timely payment to be made to
Agent of all Obligations as and when due, Borrower hereby authorizes and directs
Agent, at Agent's option to debit the account of Borrower maintained with Agent
or by increasing the principal balance of the Loan when such Obligations become
due.
Section 6.5 COLLECTION DAYS. All payments and all amounts received
hereunder will be credited by Agent to Baldwin's account one (1) day after good
funds have been deposited into Agent's general operating account.
ARTICLE 7.
----------
SECURITY FOR THE OBLIGATIONS
----------------------------
Section 7.1 GRANT OF SECURITY INTEREST.
(a) To secure payment of all of Baldwin's current and future
Obligations and to secure Baldwin's performance of all of the
provisions under this Credit Agreement and the other Loan Documents,
Baldwin grants Agent, for the benefit of the Lenders, a continuing
security interest in all of Baldwin's inventory, Accounts, contract
rights, chattel paper, security agreements, instruments, deposit
accounts, reserves and documents; and all judgments, claims, insurance
policies, and payments owed or made to Baldwin thereon; all whether now
owned or hereafter acquired, all attachments, accessories, accessions.
returns, repossessions, exchanges, substitutions and replacements
thereto, and all proceeds thereof, excluding, however KAC Accounts, but
not the Lenders' interest in the proceeds arising from the sale of such
KAC Accounts, and such returned or repossessed inventory" which is
specifically excluded from the definition of "Inventory" as provided in
this Credit Agreement.
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(b) All such assets in Subsection (a) above are collectively
referred to herein as the "COLLATERAL." All such terms for which
meanings are provided in the UCC are used herein with such meanings.
All Collateral financed by the Lenders, and all proceeds thereof, will
be held in trust by Baldwin for the Lenders, with such proceeds being
payable in accordance with this Credit Agreement. Baldwin covenants
with the Lenders that the Lenders may realize upon all or part of any
Collateral in any order it desires and any realization by any means
upon any Collateral will not bar realization upon any other collateral.
Baldwin's liability under this Credit Agreement is direct and
unconditional and will not be affected by the release or non-perfection
of any security interest granted hereunder.
Section 7.2 FUTURE ADVANCES. The Lenders' security interests shall
secure all current and all future advances to Baldwin made by the Lenders under
the Loan Documents.
Section 7.3 FINANCING STATEMENTS. Baldwin shall execute and deliver to
Agent for the benefit of the Lenders such financing statements and original
documents as may be required by the Lenders with respect to the Lenders'
security interests.
Section 7.4 GUARANTIES. Baldwin shall cause any and all Subsidiaries
(other than KAC and any other Subsidiary of Baldwin or KAC formed in connection
with the Securitization) whether now existing or hereafter acquired, to execute
and deliver guaranties of the Obligations which guaranties shall be
substantially in the form of Exhibit E and shall be secured by a perfected
security interest in all Accounts and Inventory of such Subsidiaries pursuant to
a Subsidiary Security Agreement substantially in the form of Exhibit F.
Section 7.5 FURTHER ASSURANCES. Baldwin will execute and deliver to
Agent, at such time or times as the Lenders may request, all financing
statements, security agreements, assignments, certificates, affidavits, reports,
schedules, and other documents and instruments that the Lenders may deem
necessary to perfect and maintain perfected the Lenders' security interests in
the Collateral and to fully consummate the transactions contemplated under all
Loan Documents. Baldwin will pay all filing, recording or registration fees.
ARTICLE 8.
----------
CONDITIONS PRECEDENT
--------------------
All duties and obligations of the Lenders under the Loan Documents on
the Effective Date, and at all times during the term of this Credit Agreement,
are specifically subject to the full and continued satisfaction by Baldwin of
the conditions precedent set forth below.
Section 8.1 CONDITIONS PRECEDENT. The following conditions must be
satisfied as of the Closing Date:
(a) AGENT'S COUNSEL. Agent's counsel must approve of all
matters pertaining to (i) title to the Collateral; (ii) the form,
substance and due execution of all Loan
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Documents; (iii) Baldwin's organizational documents; and (iv) all other
legal matters, including the application of any laws relating to usury.
(b) MATERIAL CHANGE. There must not have been any material
adverse change, between June 30, 1997, and the Closing Date, in the
condition of Baldwin, the condition of the Business, the value and
condition of the Collateral, the structure of Baldwin other than as
contemplated herein, or in the financial information, audits and the
like obtained by Fifth Third.
(c) PERFECTED LIENS. Agent, for the benefit of The Lenders,
shall have a perfected Lien and security interest in the Collateral,
subject only to the Permitted Liens; and shall have received evidence
in form and substance satisfactory to Agent that all filings,
recordings, registrations and other actions, including without
limitation, the filing of duly executed UCC Financing Statements on
Form UCC-1, necessary or, in the opinion of Agent, desirable to perfect
the Liens created by the Loan Documents, shall have been completed.
(d) INSURANCE. Baldwin shall provide Agent with certificates
of insurance evidencing that Baldwin has obtained the insurance as
required in Section 10.1(b).
(e) LAWS. Baldwin and its Subsidiaries shall be in compliance
with all applicable laws and governmental regulations, including, but
not limited to, all Environmental Laws, the failure to comply with
which would have a material adverse effect on Baldwin, its Subsidiaries
or the Business.
(f) CERTIFICATE OF GOOD STANDING. A certificate of good
standing for Baldwin (or other similar certificate) must be delivered
to Agent, from the appropriate governmental authority of Baldwin's
state of incorporation and other jurisdictions in which Baldwin
maintains an office or factory, dated not earlier than thirty (30) days
prior to the Effective Date.
(g) OPINION OF BALDWIN'S COUNSEL. Agent must receive a written
opinion from counsel for Baldwin, dated the Effective Date, and
addressed to and for the benefit of the Lenders, in form and substance
of Exhibit G and reasonably satisfactory to Agent.
(h) LIEN SEARCHES. Agent shall have received the results of a
recent search by a Person satisfactory to Agent, of the UCC, judgment
and tax lien filings which may have been filed with respect to personal
property of Borrower or any of its Subsidiaries in the jurisdictions
listed on Schedule 8.1(h), not more than five (5) days before the
Closing Date, that pertain to the Collateral, and the results of such
search shall be satisfactory to Agent.
(i) OTHER DOCUMENTS. Baldwin shall provide Agent with such
other documents, certificates, submissions, insurance policies and
other matters as reasonably requested by Agent relating to the
transaction herein contemplated.
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(j) OFFICER'S CERTIFICATE. Agent and each Lender shall have
received from Borrower a certificate dated as of the Closing Date,
signed by a duly authorized officer and certifying that each of the
representations and warranties made by and on behalf of Borrower to
Agent and each Lender in this Credit Agreement and in the other Loan
Documents was true and correct when made, and is true and correct on
and as of the Closing Date.
(k) SECRETARY'S CERTIFICATE OF RESOLUTION AND INCUMBENCY.
Baldwin shall provide Agent with a copy of all actions taken by
Borrower to authorize the execution by Borrower of the Credit
Agreement, the Loan Documents and all other documents required under
the provisions of the Credit Agreement, along with a certificates of
the Secretary or Assistant Secretary of Borrower, dated as of the
Closing Date, certifying:
(i) that the copies of such actions are true,
complete, are in full force and effect and have not been
amended, modified, or rescinded;
(ii) the name and bearing a specimen signature of
each individual who shall be authorized: i) to sign, in the
name and on behalf of Borrower, each of the Loan Documents to
which Borrower is or is to become a party on the Closing Date;
and ii) to give notices and to take other action on behalf of
Borrower under the Loan Documents; and
(iii) the Articles of Incorporation and By-Laws of
Baldwin
(l) GUARANTIES. The Lenders shall have received a duly
executed Guaranty from Baldwin Piano Company (Canada) Limited, The
Wurlitzer Company, Baldwin Trading Company and Signature Leasing
Company and shall have perfected a first priority Lien and security
interest in the collateral described in such Guaranty, subject to
Permitted Liens.
(m) PRE-CLOSING REVIEWS. The Lenders must complete reviews
with satisfactory results of Baldwin's Inventory and Accounts.
(n) PAYOFF. A lien release and payoff letter executed by any
and all lienholders on any of the Collateral, other than with respect
to the Permitted Liens.
ARTICLE 9.
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce the Lenders to enter into this Credit Agreement, Baldwin
makes the representations and warranties set forth below, all of which will
remain true in all material respects during the term of this Credit Agreement.
Baldwin acknowledges the Lenders' justifiable right to rely upon the
representations and warranties set forth below.
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Section 9.1 FINANCIAL STATEMENTS. Baldwin's audited consolidated
financial statements as of December 31,1996 and Baldwin's unaudited consolidated
financial statement as of June 30, 1997, copies of which have been previously
submitted to Agent, have been prepared in conformity with GAAP and present
fairly the financial condition of Baldwin and its consolidated Subsidiaries as
at such dates and the results of their operations for the periods then ended.
Baldwin warrants and represents to the Lenders that all financial statements and
information relating to Baldwin or any Guarantor which have been or may
hereafter be delivered by Baldwin or any Guarantor are true and correct and have
been and will be prepared in accordance with GAAP and, with respect to such
previously delivered statements or information, there has been no material
adverse change in the financial or business condition of Baldwin or any
Guarantor since the submission to the Agent, either as of the date of delivery,
or, if different, the date specified therein, and Baldwin acknowledges the
Lenders' reliance thereon.
Section 9.2 NON-EXISTENCE OF DEFAULTS. Neither Baldwin nor any of its
Subsidiaries is in default with respect to any material amount of its existing
Indebtedness. The making and performance of this Credit Agreement and all other
Loan Documents, will not immediately, or with the passage of time, the giving of
notice, or both: (a) violate the provisions of the bylaws or any other corporate
document of Baldwin; (b) violate any laws to the best of Baldwin's knowledge
after diligent inquiry; (c) result in a material default under any contract,
agreement, or instrument to which Baldwin is a party or by which Baldwin or its
properties are bound; or (d) result in the creation or imposition of any
security interest in, or Lien or encumbrance upon, any of the Collateral except
the Permitted Liens.
Section 9.3 LITIGATION. Set forth on SCHEDULE 9.3 is a list of all
actions, suits, investigations or proceedings pending or, to the knowledge of
Baldwin, threatened against Baldwin or any of its Subsidiaries, as of the date
hereof in which there is a reasonable probability of an adverse decision which
would materially and adversely affect Baldwin, the Business, or the Value of the
Collateral in the aggregate.
Section 9.4 MATERIAL ADVERSE CHANGES. Baldwin does not know of or
expect any material adverse change in the Business, or in Baldwin's or any of
the Subsidiaries' assets, liabilities, properties, or condition, financial or
otherwise, including changes in Baldwin's financial condition from June 30, 1997
through the Effective Date.
Section 9.5 TITLE TO COLLATERAL. Except for the Permitted Liens,
Baldwin has good and marketable title to all of the Collateral, free and clear
of any and all Liens, claims and encumbrances.
Section 9.6 CORPORATE STATUS. Baldwin and each of the Subsidiaries is a
corporation duly organized and validly existing, in good standing, with
perpetual corporate existence, under the laws of their respective jurisdictions
of formation. Baldwin and its Subsidiaries have the corporate power and
authority to own their properties and to transact the business in which they are
engaged and presently propose to engage. Baldwin and each Subsidiary is duly
qualified as a foreign corporation and in good standing in all states where the
nature of their business or the
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<PAGE> 34
ownership or use of their property requires such qualification, and where
failure to so qualify would have a material adverse effect on its business,
operations or financial condition.
Section 9.7 SUBSIDIARIES. All of the Subsidiaries of Borrower, as of
the Effective Date., are set forth on Schedule 9.7.
Section 9.8 POWER AND AUTHORITY. Baldwin has the corporate power to
borrow and to execute, deliver and carry out the terms and provisions of the
Loan Documents. Baldwin has taken or caused to be taken all necessary corporate
action to authorize the execution, delivery and performance of this Credit
Agreement and all other Loan Documents and the borrowing thereunder.
Section 9.9 PLACE OF BUSINESS. Baldwin's chief executive office and the
principal place of business is located at 422 Wards Corner Road, Loveland, Ohio
45140. Baldwin's records concerning the Collateral are kept at such chief
executive office, or will be kept at such other place that Baldwin informs Agent
of not less than 30 days in advance of relocation
Section 9.10 ENFORCEABILITY OF THE LOAN DOCUMENTS. The Loan Documents
executed by Baldwin are the valid and binding obligations of Baldwin and are
enforceable against Baldwin in accordance with their terms, except as limited by
bankruptcy, insolvency, or other laws of general application relating to the
enforcement of creditors' rights.
Section 9.11 TAXES. Baldwin's federal tax identification number is
31-1091812. Baldwin has (a) filed all federal, state and local tax returns and
other reports that it is required by law to file, (b) paid or caused to be paid
all taxes, assessments and other governmental charges that are due and payable,
the failure of which to pay would have a material adverse effect on the
Business, except those contested in good faith and in accordance with accepted
procedures, and for which adequate reserves have been established in accordance
with GAAP, and (c) made adequate provision for the payment of such taxes,
assessments or other charges accruing but not yet payable. Baldwin has no
knowledge of any deficiency or additional assessment in a material amount in
connection with any taxes, assessments or charges.
Section 9.12 COMPLIANCE WITH LAWS. Baldwin, to the best of its
knowledge, has complied, and shall cause each Subsidiary to comply, in all
material respects with all applicable laws, the failure to comply with which
would have a material adverse effect on Baldwin individually, or Baldwin and its
Subsidiaries on a consolidated basis.
Section 9.13 CONSENTS. Baldwin and the Subsidiaries have obtained all
material consents, permits, licenses, approvals or authorization of, or effected
the filing, registration or qualification with, any governmental entity which is
required to be obtained or effected by Baldwin and the Subsidiaries in
connection with the Business or the execution and delivery of this Credit
Agreement and the other Loan Documents the failure of which to obtain or effect
would have a material adverse effect on Baldwin individually, or on Baldwin and
its Subsidiaries on a consolidated basis.
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Section 9.14 PURPOSE. Baldwin will use the advances which the Lenders
make under the Credit Facility solely for lawful purposes and as described in
Section 3.2 hereof.
Section 9.15 CONDITION OF THE BUSINESS. All material assets used in the
conduct of the Business are in good operating condition and repair and are fully
usable in the ordinary course thereof, reasonable wear and tear excepted.
Section 9.16 CAPITAL. All issued shares and all outstanding shares in
the Subsidiaries as reflected in Baldwin's financial statements are validly
issued pursuant to proper authorization of the board of directors of such
Subsidiary, and are fully paid, and non-assessable. Baldwin and the Subsidiaries
shall give Agent fifteen days (15) prior written notice before entering any
agreement to register its equity or debt securities under the Securities Act of
1933, as amended, or any state securities law. All Baldwin's and Subsidiary's
issued shares and outstanding capital stock are fully paid and non-assessable,
and each such Person's capital structure is as set forth on SCHEDULE 9.16.
Section 9.17 LOCATION OF COLLATERAL. SCHEDULE 9.17 describes the
locations where any of the Collateral is located or stored as of the date
hereof.
Section 9.18 ACCOUNTS. For each Account listed by Baldwin on any
Borrowing Base Certificate, Baldwin warrants and represents to the Lenders that
at all times: (a) such Account is genuine; (b) such Account is not evidenced by
a judgment or promissory note or similar instrument or agreement; (c) it
represents an undisputed bona fide transaction completed in accordance with the
terms of the invoices and purchase orders relating thereto; (d) the goods sold
or services rendered which resulted in the creation of such Account have been
delivered or rendered to and accepted by the Account Debtor; (e) the amounts
shown on the Borrowing Base Certificate, Baldwin's books and records and all
invoices and statements delivered to Agent with respect thereto are owing to
Baldwin and are not contingent; (f) no payments have been or will be made
thereon except payments turned over to Agent for the benefit of the Lenders; (g)
there are no offsets, counterclaims or disputes existing or asserted with
respect thereto and Baldwin has not made any agreement with the Account Debtor
for any deduction or discount of the sum payable thereunder except regular
discounts allowed by Baldwin in the ordinary course of its business for prompt
payment; (h) there are no facts or events which in any way impair the validity
or enforceability thereof or reduce the amount payable thereunder from the
amount shown on the Borrowing Base Certificate, Baldwin's books and records and
the invoices and statements delivered to Agent with respect thereto; (i) all
persons acting on behalf of the Account Debtor thereon have the authority to
bind the Account Debtor; (j) the goods sold or transferred giving rise thereto
are not subject to any Lien, claim, encumbrance or security interest which is
superior to that of the Lenders; (k) such Account is subject to the Lenders'
perfected, first priority security interest and no other Lien other than a
Permitted Lien; and (1) there are no proceedings or actions known to Baldwin
which are threatened or pending against the Account Debtor thereon which might
result in any material adverse change in such Account Debtor's financial
condition.
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Section 9.19 ENVIRONMENTAL, HEALTH AND SAFETY MATTERS. Except as set
forth on Schedule 9.19, the Borrower has obtained all material permits, licenses
and other authorizations which are required under the Environmental Laws
existing on the date hereof. To the best of Borrower's knowledge, Borrower is in
material compliance with all material terms and conditions of any and all
material required permits, licenses, and authorizations, required under the
Environmental Laws existing on the date hereof. Borrower has received no notice
of any facts, events or conditions that interfere with or prevent continued
compliance by Borrower with, or give rise to any present or potential legal,
common law or statutory liability against Borrower. The Borrower's
representations and warranties set forth in this Section 9.19 are its exclusive
representations as to the matter set forth herein regarding Environmental Laws
and no other Section of this Article 9 shall be construed as a representation on
Environmental Laws and Borrower's compliance therewith.
Section 9.20 INTELLECTUAL PROPERTY: PATENTS. COPYRIGHTS. TRADEMARKS.
ETC.
(a) The Borrower possesses and has made all filings with the
United States Patent and Trademark office and appropriate state
agencies to evidence in it full and complete title to all the patents,
trademarks, service marks, trade names, copyrights and licenses and
rights in respect of the foregoing which are material to the conduct of
its business, without any known conflict with the rights of others.
Section 9.21 EMPLOYEE BENEFIT PLANS.
(a) Except as described in Schedule 9.21 hereof, Borrower and
its ERISA Affiliates are in compliance in all material respects with
any applicable provisions of ERISA and the regulations thereunder and
of the Internal Revenue Code of 1986, as amended, with respect to all
Employee Benefit Plans.
(b) No Termination Event has occurred or is reasonably
expected to occur with respect to any Guaranteed Pension Plan.
(c) Except as described in Schedule 9.21 hereof, the actuarial
present value of all benefit commitments under each Guaranteed Pension
Plan does not exceed the assets of that Plan.
(d) Neither Borrower nor any of its ERISA Affiliates is a
party to or participates in any Multiemployer Plans.
As used in this Subsection, the terms "actuarial present value" and
"benefit commitments" shall have the meanings specified in Section 4001
of ERISA.
Section 9.22 SOLVENCY. Baldwin and its Subsidiaries now have capital
sufficient to carry on their respective business and transactions and all
business and transactions in which they are about to engage and are now solvent
and able to pay their respective debts as they mature,
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and Baldwin and of the Subsidiaries now owns property having a value, greater
than the amount required to pay Baldwin's or such Subsidiary's debts.
Section 9.23 LEASES. SCHEDULE 9.23(A) attached hereto is a complete
listing of all capitalized leases of Baldwin and SCHEDULE 9.23(b) attached
hereto is a complete listing of each operating lease of Baldwin which requires
payments of at least Two Million and 00/100 Dollars ($2,000,000.00) over the
remaining non-cancelable terms of such lease.
Section 9.24 LABOR RELATIONS. Except as described on SCHEDULE 9.24
attached hereto and made a part hereof, neither Baldwin nor any of its
Subsidiaries is a party to any collective bargaining agreement, and there are no
material grievances, disputes or controversies with any union or any other
organization of Baldwin's employees, or threats of strikes, work stoppages or
any asserted pending demands for collective bargaining by any union or
organization.
Section 9.25 BUSINESS LOCATIONS; AGENT FOR PROCESS. Baldwin currently
has no office or place of business located in any state or county other than as
shown Schedule 9.17.
Section 9.26 INVENTORY. For each item of Inventory listed by Baldwin on
any Borrowing Base Certificate. Baldwin covenants, warrants and represents to
the Lenders that at all times: (a) Inventory will be kept only at the locations
indicated on Schedule 9.17 provided however, that Baldwin may keep Inventory at
another location with fifteen (15) days prior written notice to Agent and,
provided further that in connection with special event sales Inventory may be
displayed at another location for up to two (2) weeks for public retail sales;
(b) no Inventory is or will be produced in violation of the Federal Fair Labor
Standards Act; (c) Baldwin now keeps and will keep correct and accurate records
itemizing and describing the kind, type, quality and quantity of Inventory,
Baldwin's cost therefor and the selling price thereof, the daily withdrawals
therefrom and the additions thereto; (d) Inventory (excluding Inventory in
Canada) is not and will not be stored with a bailee, repairman, warehouseman or
similar party without Agent's prior written consent, and Baldwin will,
concurrently with delivery to such party, cause any such party to issue and
deliver to Agent, in form acceptable to Agent, warehouse receipts, in Agent's
name evidencing the storage of such Inventory, and waivers of warehouseman's
liens in favor of Agent for the benefit of the Lenders; (e) Baldwin will pay all
taxes, rents, business taxes, and the like on the premises where the Inventory
is located; and (f) Baldwin will not rent, lease, or grant a security interest
in any of the Inventory or use any of the Inventory for any purpose other than
consignment to retail dealers or sale to buyers in the ordinary course of
business, without Agent's prior written consent.
Section 9.27 REAFFIRMATION. Each request for a Loan made by Baldwin
pursuant to this Credit Agreement or any of the other Loan Documents shall
constitute: (a) an automatic representation and warranty by Baldwin to the
Lenders that there does not then exist any Default or Unmatured Default; and (b)
a reaffirmation as of the date of said request of all of the representations and
warranties of Baldwin contained in this Credit Agreement and the other Loan
Documents.
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Section 9.28 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Baldwin
covenants, warrants and represents to the Lenders that all representations and
warranties of Baldwin contained in this Credit Agreement or any of the other
Loan Documents shall be true at the time of Baldwin's execution of this Credit
Agreement and the other Loan Documents, and shall survive the execution,
delivery and acceptance thereof by the Lenders and the parties thereto and the
closing of the transactions described therein or related thereto.
ARTICLE 10.
-----------
BALDWIN'S COVENANTS
Section 10.1 AFFIRMATIVE COVENANTS. During the term of this Credit
Agreement and thereafter for so long as any Obligations are outstanding and
unpaid, Baldwin covenants that unless otherwise consented to by Agent in
writing, it shall perform all the acts and promises required by this Credit
Agreement and all the acts and promises set forth below.
(a) PAYMENT AND PERFORMANCE. Baldwin will pay and perform all
Obligations in full when and as due hereunder.
(b) INSURANCE.
(i) TYPE OF INSURANCE. Baldwin will at all times
cause the Business and the Collateral (other than Accounts) to
be insured by insurers of reasonable financial soundness and
having an A. M. Best rating of A or better, with such
policies, against such risks and in such amounts as are
appropriate for reasonably prudent businesses in Baldwin's
industry and of Baldwin's size and financial strength.
(ii) REQUIREMENTS AS TO INSURANCE POLICIES. The
policies of insurance which Baldwin is required to carry shall
comply with the requirements listed below:
(1) Each such policy shall provide that it
may not be canceled or allowed to lapse at the end of
a policy period without at least thirty (30) days'
prior written notice to Agent;
(2) Each liability and hazard insurance
policy shall name Agent as an additional insured; and
(3) Each property insurance policy required
hereunder shall contain a standard lender's loss
payable clause in favor of Agent. Such insurance
policies shall also contain lender's loss payable
endorsements satisfactory to Agent providing, among
other things, that any loss shall be payable in
accordance with the terms of such policy
notwithstanding any
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act of Baldwin which might otherwise result in
forfeiture of such insurance;
(iii) COLLECTION OF CLAIMS. Baldwin will promptly
advise Agent of any insured casualty in excess of Five Hundred
Thousand and 00/100 Dollars ($500,000.00) and Baldwin agrees
that after Default Agent may direct all insurance proceeds
therefrom to be paid directly to the Lenders to the extent
that such loss is not adequately insured under an insurance
policy which names Agent as a loss payee, and hereby appoints
Agent its attorney-in-fact for such purpose.
(iv) BLANKET POLICIES. Any insurance required
hereunder may be supplied by means of a blanket or umbrella
insurance policy.
(v) DELIVERY OF POLICIES OR CERTIFICATES OF
INSURANCE. Baldwin shall deliver to Agent certificates of
insurance issued by insurers to evidence that the insurance
maintained by Baldwin complies with the requirements
hereunder.
(c) COLLECTION OF RECEIVABLES; SALE OF INVENTORY. Baldwin will
collect its Accounts and sell its Inventory only in the ordinary course
of business, unless written permission to the contrary is obtained from
Agent.
(d) NOTICE OF LITIGATION AND PROCEEDINGS. Baldwin will give
prompt notice to Agent of: (a) any litigation or proceeding (including
fines and penalties of any public authority) in excess of Five Hundred
Thousand and 00/100 Dollars ($500,000.00) in which it, or any of the
Subsidiaries is a party in which there is a reasonable possibility of
an adverse decision which would require it or any of the Subsidiaries
to pay money or deliver assets, whether or not the claim is considered
to be covered by insurance; (b) any class action litigation against it,
regardless of size; and (c) the institution of any other suit or
proceeding that might materially and adversely affect its or any of its
Subsidiary's operations, financial condition, property or the Business.
(e) PAYMENT OF INDEBTEDNESS TO THIRD PERSONS. Baldwin will,
and will cause each Subsidiary to, pay, when due, all Indebtedness and
any other liability due third persons, except when the amount thereof
is being contested in good faith by appropriate proceedings and with
adequate reserves therefor satisfactory to Agent in accordance with
GAAP being set aside by Baldwin or such Subsidiary. Agent will use
reasonable efforts to attempt to give Baldwin notice before Agent
requires Baldwin to set aside additional reserves.
(f) NOTICE OF CHANGE OF BUSINESS LOCATION. Baldwin will notify
Agent thirty (30) days in advance of: (a) any change in or
discontinuation of the location of the Collateral, Baldwin's principal
place of business, or any of the Subsidiaries' existing offices or
places of business, (b) the establishment of any new places of business
relating to the Business, and (c) any change in or addition to the
locations where Baldwin's Inventory or records are kept.
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(g) PAYMENT OF TAXES. Baldwin will, and will cause each
Subsidiary to, pay or cause to be paid, when and as due, all taxes,
assessments and charges or levies imposed upon it or on any of its
property or that it is required to withhold and pay over to the taxing
authority or that it must pay on its income, the failure of which to
pay would have a material adverse effect on Baldwin individually, or on
Baldwin and the Subsidiaries on a consolidated basis, except where
contested in good faith by appropriate proceedings with adequate
reserves in accordance with GAAP, having been set aside by Baldwin or
such Subsidiary. However, Baldwin will, and will cause each Subsidiary
to, pay or cause to be paid all such taxes, assessments, charges or
levies immediately whenever foreclosure of any Lien that attaches on
the Collateral appears imminent.
(h) EMPLOYEE BENEFIT PLANS AND GUARANTEED PENSION PLANS.
Borrower will and will cause each of its ERISA Affiliates to (i) comply
with all requirements imposed by ERISA and the Internal Revenue Code of
1986, as amended, applicable from time to time to any of its Guaranteed
Pension Plans or Employee Benefit Plans, (ii) make full payment when
due of all amounts which, under the provisions of Employee Benefit
Plans or under applicable law, are required to be paid as contributions
thereto, (iii) not permit to exist any accumulated funding deficiency,
whether or not waived, (iv) file on a timely basis all reports, notices
and other filings required by any governmental agency with respect to
any of its Employee Benefit Plans, (v) make any payments to
Multiemployer Plans required to be made under any agreement relating to
such Multiemployer Plans, or under any law pertaining thereto, (vi) not
amend or otherwise alter any Guaranteed Pension Plan if the effect
would be to cause the actuarial present value of all benefit
commitments under each Guaranteed Pension Plan to be less than the
current value of the assets of such Guaranteed Pension Plan allocable
to such benefit commitments, (vii) furnish to all participants,
beneficiaries and employees under any of the Employee Benefit Plans,
within the periods prescribed by law, all reports, notices and other
information to which they are entitled under applicable law, and (viii)
take no action which would cause any of the Employee Benefit Plans to
fail to meet any qualification requirement imposed by the Internal
Revenue Code of 1986, as amended. As used in this Section 10.1, the
term "accumulated funding deficiency" has the meaning specified in
Section 302 of ERISA and Section 412 of the Internal Revenue Code, and
the terms "actuarial present value", "benefit commitments" and "current
value" have the meaning specified in Section 4001 of ERISA.
(i) FURTHER ASSURANCES. Baldwin agrees to, and will cause each
Subsidiary to, execute such other and further documents, including
without limitation, deeds of trust, promissory notes, security
agreements, financing statements, continuation statements, certificates
of title, and the like as may from time to time in the reasonable
opinion of Agent be necessary to perfect, confirm, establish,
re-establish, continue, or complete the security interests, collateral
assignments and Liens in the Collateral, and the purposes and
intentions of this Credit Agreement.
(j) MAINTENANCE OF STATUS. Baldwin will take all necessary
steps to (a) preserve its, and each Subsidiary's, existence as a
corporation, (b) preserve Baldwin's and
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the Subsidiaries' franchises and permits, and (c) comply with all
present and future material agreements to which Baldwin, or any of the
Subsidiaries, is subject, and (d) maintain, and cause each Subsidiary
to maintain, its qualification and good standing in all states in which
such qualification is necessary or in which the failure to be so
qualified might have a material adverse effect on the financial
condition or properties of Baldwin or the Business. Baldwin will not
change the nature of the Business during the term of this Credit
Agreement.
(k) FINANCIAL STATEMENTS; REPORTING REQUIREMENTS;
CERTIFICATION AS TO DEFAULTS. During the term of this Credit Agreement,
Baldwin will furnish a copy of the following to Agent:
(i) within one hundred twenty (120) days after the
end of each fiscal year, annual financial statements for
Baldwin and its Subsidiaries as of the end of such fiscal
year, consisting of a consolidated and consolidating balance
sheet, consolidated and consolidating statement of earnings,
consolidated and consolidating statements of consolidated cash
flows and consolidated and consolidating statement of
stockholder's equity, in comparative form, together with a
copy of Baldwin's 10-K for such fiscal year. The statements
and balance sheet will be audited by an independent firm of
certified public accountants selected by Baldwin and
acceptable to Agent (any Big 6 accounting firm being
acceptable to Agent), and certified by that firm of certified
public accountants to have been prepared in accordance with
GAAP. The certified public accountants will render an
unqualified opinion as to such statements and balance sheets.
Agent will have the absolute and irrevocable right, from time
to time, to discuss the affairs of Baldwin directly with the
independent certified public accountant after prior notice to
Baldwin and the reasonable opportunity of Baldwin to be
present at any such discussions;
(ii) by the twentieth (20th) day of each month,
financial statements for Baldwin and its Subsidiaries as of
the end of the immediately preceding month, consisting of
consolidated and consolidating balance sheet and statement of
operations prepared by Baldwin;
(iii) by the forty-fifth (45th) day of each fiscal
quarter, a Quarterly Compliance Certificate, in the form of
Exhibit H, of Baldwin's President or Chief Financial Officer,
stating that such person has reviewed the provisions of the
Loan Documents and that a review of the activities of Baldwin
during such quarter has been made by or under such person's
supervision with a view to determining whether Baldwin has
observed and performed all of Baldwin's obligations under the
Loan Documents, and that, to the best of such person's
knowledge, information and belief, Baldwin has observed and
performed each and every undertaking contained in the Loan
Documents and is not at the time in default in the observance
or performance of any of the terms and conditions thereof or,
if
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Baldwin will be so in default, specifying all of such defaults
and events of which such person may have knowledge;
(iv) by the end of each fiscal year, an annual budget
and income statement with cash flow projections for the
following fiscal year;
(v) promptly upon receipt thereof, copies of all
final reports and final management letters submitted to
Baldwin or any of the Baldwin's Subsidiaries by independent
accountants in connection with any annual or interim audit of
the books of Baldwin or such Subsidiaries made by such
accountants;
(vi) copies of any and all reports, filings and other
documentation delivered to the Securities and Exchange
Commission by or on behalf of Baldwin promptly after the
delivery thereof, if applicable; and
(vii) any other statements, reports and other
information as Agent may reasonably request concerning the
financial condition or operations of Baldwin and its
properties.
(l) NOTICE OF EXISTENCE OF DEFAULT. Baldwin will, and will
cause its Subsidiaries to, promptly notify Agent of: (a) the existence
of any known condition or event, which constitutes a Default or an
Unmatured Default; and (b) the actual or threatened termination,
suspension, lapse or relinquishment of any material license,
authorization, permit or other right granted Baldwin or for Baldwin's
benefit and used in the Business, or granted to any of its Subsidiaries
or for any such Subsidiaries' benefit, by any governmental agency
material to the Business.
(m) COMPLIANCE WITH LAWS. Baldwin will, and will cause its
Subsidiaries to, comply in all material respects with all applicable
laws, rules, regulations and orders.
(n) MAINTENANCE OF COLLATERAL. Baldwin will maintain all
material Collateral and every part thereof in good condition and repair
(ordinary wear and tear excepted). Baldwin will not permit the
aggregate value of the Collateral to be materially impaired. Baldwin
will defend the Collateral against all claims and legal proceedings by
Persons other than the Lenders and Permitted Liens. Baldwin will not
permit the Collateral to be used in violation of any applicable law,
regulations, or any policy of insurance. As to Collateral consisting of
instruments and chattel paper, Baldwin will preserve rights in it
against prior parties.
(o) COLLATERAL RECORDS AND STATEMENTS. Baldwin will keep such
accurate and complete books and records pertaining to the Collateral in
such detail and form as Agent reasonably requires, including, but not
limited to: schedules of inventory; original orders; invoices; shipping
documents; billing settlements and receivables; sold receivables;
Inventory listing containing model, serial number (if available) and
location. Other reporting will be available upon request by the
Lenders, including, but not be limited to,
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accounts payable aging in such form as the Lenders reasonably require.
The statements will be in the form and will contain the information as
is prescribed by Agent.
(p) INSPECTION OF COLLATERAL. The Lenders and any third party
appraiser selected by the Lenders may examine the Collateral at any
time during normal business hours upon a Default by Baldwin, and upon
forty-eight (48) hours prior oral notice to Baldwin at any other time.
The Lenders and any third party appraiser selected by the Lenders will
have full access to, and the right to: (a) review, inspect and make
abstracts and copies from Baldwin's books and records pertaining to the
Collateral, and (1)) inspect and examine inventory and check and test
the same as to quality, quantity, Value and condition. wherever
located, at any time during reasonable business hours, and from time to
time. Baldwin will assist the Lenders and any third party appraiser
selected by the Lenders in so doing. All costs, up to Ten Thousand and
00/100 Dollars ($10,000.00) per annum and one-half of the amount of
such costs in excess of Ten Thousand and 00/100 Dollars ($10,000.00)
per annum incurred by Agent or any Lender in connection with such
inspections shall be paid by Borrower.
(q) REIMBURSEMENT FOR BANK CHARGES. Baldwin will reimburse the
Lenders for all charges made by banks for collection of checks and
other items of payment and for transfer of funds to or from Baldwin.
Section 10.2 NEGATIVE COVENANTS. During the term of this Credit
Agreement and thereafter, for so long as any Obligations are outstanding and
unpaid, Baldwin covenants that unless otherwise consented to in writing by
Agent, Baldwin shall not perform or cause or permit to be performed the
following acts:
(a) CHANGE OF NAME, ETC. Baldwin and the Subsidiaries will not
change their name or begin to trade under any assumed names or trade
names without thirty (30) days prior written notice to Agent. Baldwin
will not, and will not permit any Subsidiary to, change its manner of
organization, enter into any mergers, consolidations, reorganizations
or recapitalization (excluding such transactions where Baldwin is the
surviving entity) without Agent's prior written consent other than as
contemplated herein.
(b) SALE OR TRANSFER OF ASSETS. Except in the ordinary course
of business or except as consented to in writing by Agent, or except
for sales to a Lender or any affiliate thereof or except for sales to
and by KAC as contemplated by the Permitted Securitization Documents,
Baldwin and the Subsidiaries will not sell, transfer, lease (including
sale-leaseback) or otherwise dispose of all or any substantial part of
their assets; provided, however, that any sales of Sold Accounts by
Baldwin to KAC under the Permitted Securitization Documentation, and
sales, contributions or other transfers of Sold Accounts under the
Permitted Securitization Documentation by KAC, shall be permitted. This
provision will not apply to any sale if the proceeds of such sale pay
the Obligations in full.
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(c) ENCUMBRANCE OF ASSETS. Baldwin will not, and will not
permit a Subsidiary other than KAC to, mortgage. pledge, grant or
permit to exist a security interest in or Lien upon any of the
Collateral, now owned or hereafter acquired except for the Permitted
Liens.
(d) ACQUISITION OF STOCK OR ASSETS; NEW SUBSIDIARIES. Baldwin
and the Subsidiaries will not, without Agent's prior written consent,
acquire, or enter into any agreement, commitment letter or letter of
intent to acquire, all or substantially all the assets of, equity
interest or stock in, another business for an amount in excess of
Twenty-five Million and 00/100 Dollars ($25,000,000.00); nor will
Baldwin hereafter create any new Subsidiaries.
(e) FALSE CERTIFICATES OR DOCUMENTS. Baldwin has not and will
not, and will not permit any Subsidiary to, furnish Agent with any
certificate or other document that contains any untrue statement of
material fact or that omits to state a material fact necessary to make
it not misleading in light of the circumstances under which it was
furnished.
(f) ASSIGNMENT. Baldwin will not assign or attempt to assign
the Loan Documents or any of its interests under the Loan Documents,
except in favor of Agent for the benefit of the Lenders.
(g) TRANSACTIONS WITH AFFILIATES. Baldwin will not enter into
any contracts, leases, sales or other transactions with any Affiliate
(other than Subsidiaries) on terms less favorable than could be
obtained generally by Baldwin from a non-Affiliate. For avoidance of
doubt, Baldwin and KAC may enter into and perform any of its
obligations under the Permitted Securitization Documents.
(h) CAPITAL EXPENDITURES. Baldwin will not make, or commit to
make, any expenditure for capital improvements (including, without
limitation, capitalized leases) or the acquisition of capital goods in
excess of Ten Million and 00/100 Dollars ($10,000,000.00) per calendar
year without the prior written consent of Agent.
(i) LOANS BY BALDWIN. Baldwin will not, and will not permit
any Subsidiary to, make any loan to any Person in excess of the
aggregate amount of Five Hundred Thousand and 00/100 Dollars
($500,000.00), except for loans in anticipation of reasonable and
normally reimbursable business expenses and trade credit extended in
the ordinary course of Business, and loans made by KAC under the
Permitted Securitization Documentation.
(j) FISCAL YEAR. Baldwin will not, and will not permit any
Subsidiary to, change its fiscal year-end without sixty (60) days prior
written notice to Agent.
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(k) TOTAL INDEBTEDNESS. Baldwin shall not create, incur,
assume, or suffer to exist, or permit any Subsidiary to create, incur
or suffer to exist, any Indebtedness, except:
(i) the Obligations;
(ii) Subordinated Debt;
(iii) Capital Leases not prohibited by Section
10.2(h) for Capital Expenditures;
(iv) Indebtedness incurred in connection with the
Previous Fifth Third Transaction;
(v) Indebtedness of any Subsidiary to Baldwin;
(vi) accounts payable to trade creditors and current
operating expenses (other than for money borrowed) incurred in
the ordinary course of business which are aged not more than
thirty (30) days past due, unless actively contested in good
faith and by appropriate and lawful proceedings and for which
adequate reserves have been established in accordance with
GAAP;
(vii) obligations to pay Rentals permitted by Section
10.2(o);
(viii) guaranties by Borrower of Indebtedness of KAC;
(ix) any obligations incurred pursuant to the
Permitted Securitization Documentation; and
(x) guaranties permitted pursuant to Section 10.2(m);
and
(xi) Reimbursement Obligations incurred in connection
with Letters of Credit.
(l) ADVERSE TRANSACTIONS. Baldwin will not enter into any
transaction, or permit any Subsidiary to enter into any transaction,
which materially and adversely affects or may materially and adversely
affect the aggregate Value of Collateral or Baldwin's ability to repay
the Obligations or permit or agree to any material extension,
compromise or settlement or make any change or modification of any kind
or nature with respect to any Account, including any of the terms
relating thereto, other than discounts and allowances in the ordinary
course of business, all of which shall be reflected in the Borrowing
Base Certificate submitted to Agent pursuant to Section 3.2 of this
Credit Agreement.
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(m) GUARANTIES. Baldwin will not guarantee, assume, endorse or
otherwise, in any way, become directly or contingently liable with
respect to the Indebtedness of any Person in excess of One Hundred
Thousand and 00/100 Dollars ($100,000.00) other than guarantees of
floor plan financing arrangements of Borrower or its Subsidiaries, or
of any dealer, distributor or purchaser of inventory of Borrower or any
Subsidiary.
(n) MARGIN SECURITIES. Baldwin will not own, purchase or
acquire, or permit any Subsidiary to own, purchase or acquire, (or
enter, or permit any Subsidiary to enter, into any contract to purchase
or acquire) any "margin security" as defined by any regulation of the
Federal Reserve Board as now in effect or as the same may hereafter be
in effect unless, prior to any such purchase or acquisition or entering
into any such contract, Agent shall have received an opinion of counsel
satisfactory to Agent to the effect that such purchase or acquisition
will not cause this Credit Agreement to violate Regulations G or U or
any other regulation of the Federal Reserve Board then in effect.
(o) LEASES. Baldwin will not become a lessee under any
operating lease of property if the aggregate Rentals (defined below)
payable during any current or future period of twelve (12) consecutive
months under the lease in question and all other leases under which
Baldwin is then lessee would exceed Two Million Five Hundred Thousand
and 00/100 Dollars ($2,500,000.00). The term "RENTALS" means, as of the
date of determination, all payments which the lessee is required to
make by the terms of any lease.
(p) TAX CONSOLIDATION. Baldwin will not file or consent to the
filing of any consolidated income tax return with any Person other than
a Subsidiary.
(q) STOCK REDEMPTION. Baldwin will not redeem or purchase any
of its outstanding capital stock, warrants in favor of anyone other
than Agent, or stock options or convert or permit such stock, warrants
or options to be converted into cash, nor has or shall Baldwin guaranty
to any of its shareholders any minimum stock price or valuation, but
excluding from all of the foregoing, the purchase of options and any
other such transactions of Five Million Dollars ($5,000,000) or less in
value.
Section 10.3 FINANCIAL COVENANTS.
(a) AMOUNTS. Baldwin agrees that it will at all times maintain
the following:
(i) a Tangible Net Worth in the combined amount of
not less than Forty Million and 00/100 Dollars
($40,000.000.00);
(ii) a ratio of Debt to Tangible Net Worth of not
more than Two and One- Half to One (2.5 to 1);
(iii) a ratio of Current Tangible Assets to current
liabilities of not less than One and Three Tenths to One (1.3
to 1);
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For purposes of this Section 10.3(a): (a) "TANGIBLE
NET WORTH" means the book value of Baldwin's assets less liabilities
(including as liabilities all reserves for contingencies and other
potential liabilities), excluding from such assets all Intangibles; (b)
"INTANGIBLES" means and includes general intangibles (as that term is
defined in the UCC); accounts receivable and advances due from
officers, directors, member, owner, employees, stockholders and
affiliates; leasehold improvements net of depreciation; licenses; good
will; prepaid expenses; escrow deposits; covenants not to compete; the
excess of cost over book value of acquired assets; franchise fees;
organizational costs; finance reserves held for recourse obligations;
capitalized research and development costs; and such other similar
items as Agent may from time to time determine in Agent's sole
discretion; (c) "DEBT" means all of Baldwin's liabilities and
indebtedness for borrowed money of any kind arid nature whatsoever
other than Subordinated Debt (as defined below), whether direct or
indirect, absolute or contingent, and including obligations under
capitalized leases, guaranties or with respect to which Baldwin has
pledged assets to secure performance, whether or not direct recourse
liability has been assumed by Baldwin, but specifically excluding any
liability which Baldwin incurs pursuant to the Permitted Securitization
Documentation; (d) "SUBORDINATED DEBT" means all of Baldwin's Debt
which is subordinated to the payment of Baldwin's liabilities to the
Lenders by an agreement in form and substance satisfactory to Agent;
(e) "CURRENT TANGIBLE ASSETS" means Baldwin's current assets less, to
the extent otherwise included therein, all Intangibles. The foregoing
terms will be determined in accordance with GAAP consistently applied,
and, if applicable, on a consolidated basis ("FINANCIAL COVENANTS").
(b) COVENANT COMPLIANCE CERTIFICATE. The President or Chief
Financial Officer of Baldwin will certify to Agent by the twentieth
(20th) day of each month, or more often if requested by Agent, that
Baldwin is in compliance with the Financial Covenants as set forth in a
Monthly Compliance Certificate substantially in the form of Exhibit I.
ARTICLE 11.
-----------
DEFAULT/REMEDIES
----------------
Baldwin will be in default (each a "Default") under this
Credit Agreement if there occurs and is continuing any of the
following:
Section 11.1 Baldwin fails to pay any amount of principal or interest
on the Loans when due and payable hereunder or Baldwin fails to pay any other
sum under the Loan Documents within three (3) days of the date when due and
payable; hereunder or thereunder; provided, however, that if any such
non-payment occurs as a result of the failure of Agent to debit the account of
Borrower with Agent and increase the amount of the outstanding balance of the
Loan, in accordance with the last sentence of Section 6.4 hereof, and at such
time the Borrower has availability under the Borrowing Base for the full amount
of such payment and no other Event of Default shall then have occurred and be
continuing, the non-payment shall not be an Event of
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Default hereunder until three (3) Business Days after Agent has given Borrower
written notice of such non-payment.
Section 11.2 Baldwin breaches any terms, covenants, warranties or
representations contained herein, or in any other Loan Document which is not
cured within thirty (30) days of written notice from Agent or any Lender to
Baldwin;
Section 11.3 any Guarantor breaches any terms, covenants, warranties or
representations contained in any guaranty or other agreement between the
Guarantor and the Lenders which is not cured within thirty (30) days of written
notice from Agent or any Lender to Baldwin;
Section 11.4 any representation, statement, report or certificate made
or delivered by Baldwin or any Guarantor to the Lenders is not accurate when
made in any material respect which is not cured within thirty (30) days of
written notice from Agent or any Lender to Baldwin;
Section 11.5 Baldwin abandons any material Collateral;
Section 11.6 Baldwin or any Guarantor is or becomes in default in the
payment or performance of any obligation owed to any third party for borrowed
money;
Section 11.7 a default or termination event shall have occurred and be
continuing under the Permitted Securitization Documentation;
Section 11.8 an unpaid money judgment issues against Baldwin or any
Guarantor in excess of Two Hundred Fifty Thousand and 00/100 Dollars
($250,000.00) and such judgment remains unsatisfied for a period of thirty (30)
days or is not stayed pending appeal;
Section 11.9 an attachment, sale or seizure issues or is executed
against any assets of Baldwin or against any assets of any Guarantor in an
amount in excess of Ten Million and 00/100 Dollars ($10,000,000.00) which
remains unsatisfied or unreleased for a period of thirty (30) days;
Section 11.10 Baldwin ceases existence as a corporation, partnership,
trust or limited liability company;
Section 11.11 Baldwin ceases or suspends business;
Section 11.12 Baldwin or any Guarantor makes a general assignment for
the benefit of creditors;
Section 11.13 Baldwin or any Guarantor becomes insolvent or voluntarily
or involuntarily becomes subject to the Federal Bankruptcy Code, any state
insolvency law or any similar law;
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Section 11.14 any receiver is appointed for any of Baldwin's or any
Guarantor's assets;
Section 11.15 any guaranty of Baldwin's debts to the Lenders is
terminated without the prior written consent of Agent and the Lenders;
Section 11.16 Baldwin loses any franchise, permission, license or right
to sell or deal in any Collateral;
Section 11.17 Baldwin or any Guarantor misrepresents Baldwin's or such
Guarantor's financial condition or organizational structure;
Section 11.18 any material item or portion of the Collateral becomes
subject to any Lien, claim, encumbrance or security interest other than a
Permitted Lien and such Lien is not released within thirty (30) days;
Section 11.19 Baldwin shall be enjoined, restrained or in any way
prevented by court, governmental or administrative order from conducting all or
any material part of its Business; or any material lease or agreement pursuant
to which Baldwin leases, uses or occupies any property shall be canceled or
terminated prior to the expiration of its stated term, or any part of the
Collateral shall be taken through condemnation or the value thereof shall be
impaired through condemnation; or
Section 11.20 Any event shall occur which might, in Agent's opinion,
have a material adverse effect on Baldwin's financial or business condition,
operation or prospects.
Upon the occurrence and continuation of an event of a Default:
(a) Agent may at any time at Agent's election, without notice
or demand to Baldwin, do any one or more of the following: cease making
further Loans and declare all or any of the Obligations immediately due
and payable, together with all costs and expenses of the Lenders'
collection activity, including, without limitation, all reasonable
attorneys fees; exercise any or all rights under applicable law
(including, without limitation, the right to possess, transfer and
dispose of the Collateral); and/or cease extending any additional
credit to Baldwin.
(b) Baldwin will not contribute, sell or otherwise transfer
any Accounts (other than the KAC Accounts) or other assets to KAC.
(c) Baldwin will segregate and keep the Collateral in trust
for the Lenders, and in good order and repair, and will not sell, rent,
lease, consign, otherwise dispose of or use any Collateral, nor further
encumber any Collateral.
(d) Upon Agent's oral or written demand, Baldwin will
immediately deliver the Collateral to Agent, in good order and repair,
at a place specified by Agent, together with all related documents; or
Agent may, in Agent's sole discretion and without notice or
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demand to Baldwin, take immediate possession of the Collateral together
with all related documents.
(e) Agent may, without notice, apply the Default Interest
Rate.
(f) Agent may, without notice to Baldwin and at any time or
times hereafter enforce payment and collect, by legal proceedings or
otherwise, Accounts in the name of Baldwin or the Lenders; and take
control of any cash or non-cash items of payment or proceeds of
Accounts and of any rejected, returned, repossessed or stopped in
transit goods relating to Accounts. Agent may at its sole election and
without demand enter, with or without process of law, any premises
where Collateral might be and, without charge or liability to the
Lenders therefor do one or more of the following: (i) take possession
of the Collateral and use or store it in said premises or remove it to
such other place or places as Agent may deem convenient; (ii) take
possession of all or part of such premises and the Collateral and place
a custodian in the exclusive control thereof until completion of
enforcement of the Lenders' security interest in the Collateral or
until the Lenders' removal of the Collateral and, (iii) remain on such
premises and use the same, together with Baldwin's materials, supplies,
books and records, for the purpose of liquidating or collecting such
Collateral and conducting and preparing for disposition of such
Collateral.
(g) Upon the occurrence of a Default under Sections 10.3(m),
(n) and (o) all Obligations shall automatically be accelerated and due
and payable and the Default Interest Rate shall automatically apply as
of the date of the first occurrence of such Default, without any prior
notice, demand or action of any type on the part of Agent.
All of the Lenders' rights and remedies are cumulative. The Lenders' failure to
exercise any of the Lenders' rights or remedies hereunder will not waive any of
the Lenders' rights or remedies as to any past, current or future Default.
ARTICLE 12.
-----------
SALE OF COLLATERAL
------------------
Baldwin agrees that if the Lenders conducts a private sale of
any Collateral by requesting bids from ten (10) or more dealers or distributors
in that type of Collateral, any sale by the Lenders of such Collateral in bulk
or in parcels within one hundred twenty (120) days of: (a) Agent's taking
possession and control of such Collateral; or (b) when Agent is otherwise
authorized to sell such Collateral; whichever occurs last, to the bidder
submitting the highest cash bid therefor, is a commercially reasonable sale of
such Collateral under the UCC. Baldwin agrees that the purchase of any
Collateral by a vendor, as provided in any agreement between Agent and the
vendor, if any, is a commercially reasonable disposition and private sale of
such Collateral under the UCC, and no request for bids shall be required.
Baldwin further agrees that seven (7) or more days prior written notice will be
commercially reasonable notice of any public or private sale (including any sale
to a vendor). Baldwin irrevocably waives any requirement that
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Agent retain possession and not dispose of any Collateral until after an
arbitration hearing, arbitration award, confirmation, trial or final judgment If
Agent disposes of any such Collateral other than as herein contemplated, the
commercial reasonableness of such disposition will be determined in accordance
with the laws of the state governing this Credit Agreement.
ARTICLE 13.
-----------
INDEMNIFICATIONS
----------------
Section 13.1 GENERAL INDEMNITY. In addition to the payment of expenses
and attorneys' fees, if applicable, whether or not the transactions contemplated
hereby shall be consummated, Baldwin agrees to indemnify, pay and hold Agent and
the officers, directors, employees, agents, and affiliates of Agent and such
holders (collectively called the "INDEMNITEES") harmless from and against, any
and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel for any of such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not any of such Indemnitees shall be designated a party thereto),
that may be imposed on, incurred by, or asserted against the Indemnitees, in any
manner relating to or arising out of the Loan Documents, the statements
contained in any commitment letters delivered by the Lenders. The Lenders'
agreement to make the Loans or any other payment hereunder, or the use or
intended use of the proceeds of any of the Loans hereunder (the "INDEMNIFIED
LIABILITIES"); PROVIDED, HOWEVER, that Baldwin shall have no obligation to an
indemnitee hereunder with respect to Indemnified Liabilities arising from the
gross negligence or willful misconduct of an Indemnitee. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, Baldwin shall contribute the maximum portion that it is permitted to pay
and satisfy under applicable law, to the payment and satisfaction of all
Indemnified Liabilities incurred by the Indemnitees or any of them. The
provisions of the undertakings and indemnification set out in this Section 13.1
shall survive satisfaction and payment of the Obligations and termination of
this Credit Agreement.
Section 13.2 ENVIRONMENTAL AND SAFETY AND HEALTH INDEMNITY. Baldwin
hereby indemnifies the Indemnitees and agrees to hold the Indemnitees harmless
from and against any and all losses, liabilities, damages, injuries, costs,
expenses and claims of any and every kind whatsoever (including, without
limitation, court costs and attorneys' fees) which at any time or from time to
time may be paid, incurred or suffered by, or asserted against, an Indemnitee
for, with respect to, or as a direct or indirect result of the violation by
Baldwin or any Subsidiary, of any Environmental Law; or with respect to, or as a
direct or indirect result of the escape, seepage, leakage, spillage, disposal,
discharge, emission or release from, properties utilized by Baldwin and/or any
Subsidiary in the conduct of its business into or upon any land, the atmosphere,
or any watercourse, body of water or wetland, of any Hazardous Material
(including, without limitation, any losses, liabilities, damages, injuries,
costs, expenses or claims asserted or arising under the Environmental Laws). The
provision of and undertakings and indemnification set out in this
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Section 13.2 shall survive satisfaction and payment of the Obligations and
termination of this Credit Agreement.
ARTICLE 14.
-----------
CONCERNING THE AGENT AND THE LENDERS
------------------------------------
The Agent and the Lenders agree as follows:
Section 14.1 APPOINTMENT OF THE AGENT. Each of the Lenders hereby
appoints Fifth Third to serve as Agent, under this Credit Agreement and the
other Loan Documents, and in such capacity, to administer this Credit Agreement,
and the other Loan Documents.
Section 14.2 AUTHORITY. Each of the Lenders hereby irrevocably
authorizes the Agent (i) to take such action on such Lender's behalf under this
Credit Agreement and the other Loan Documents and to exercise such powers and to
perform such duties hereunder and thereunder as are delegated to or required of
the Agent by the terms hereof or thereof, together with such powers as are
reasonably incidental thereto; and (ii) to take such action on such Lender's
behalf as the Agent shall consider necessary or advisable for the protection,
collection or enforcement of any of the Obligations. The Agent will promptly
notify each of the Lenders as soon as it becomes aware of any Default or Event
of Default or any failure by Borrower to make any payment in respect of any of
the Notes, PROVIDED, HOWEVER, that Agent shall not be deemed to have knowledge
of any item until such time as Agent's officers responsible for administration
of the Loans shall receive written notice thereof or have actual knowledge of
such event. If any Lender becomes aware of any Default or Event of Default by
Borrower, it shall promptly notify Agent thereof PROVIDED, HOWEVER, that Lenders
shall not be deemed to have knowledge of any item until such time as Lenders'
officers responsible for administration of the Loans shall receive written
notice thereof or have actual knowledge of such event.
Section 14.3 ACCEPTANCE OF APPOINTMENT. The Agent hereby accepts its
appointment as Agent for each of the Lenders under this Credit Agreement and the
other Loan Documents, but only on the terms set forth in this Credit Agreement,
including the following:
(a) Agent makes no representation as to the value, validity or
enforceability of this Credit Agreement or of any of the other Loan
Documents or as to the correctness of any statement contained in this
Credit Agreement or in any of the other Loan Documents;
(b) Agent may exercise its powers and perform its duties under
this Credit Agreement and the other Loan Documents either directly or
through its agents or attorneys;
(c) Agent shall be entitled to obtain from counsel selected by
it with reasonable care advice with respect to legal matters pertaining
to this Credit Agreement, or any of the other Loan Documents and shall
not be liable for any action taken, omitted to be taken or suffered in
good faith in accordance with the advice of such counsel;
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(d) Agent shall not be required to use its own funds in the
performance of any of its duties or in the exercise of any of its
rights or powers, and Agent shall not be obligated to take any action
which, in its reasonable judgment, would involve it in any expense or
liability unless it shall have been furnished security or indemnity in
an amount and in form and substance satisfactory to it; and
(e) Agent, in performing its duties and functions under this
Credit Agreement and the other Loan Documents on behalf of the Lenders,
will exercise the same care which it normally exercises in making and
handling loans in which it alone is interested, but does not assume
further responsibility.
Section 14.4 COLLATERAL MATTERS.
(a) RELEASE OF COLLATERAL. Lenders hereby irrevocably
authorize Agent, at its option and in its discretion, to release any
Lien granted to or held by Agent upon any property covered by the Loan
Documents (i) upon termination of the Credit Commitments and payment
and satisfaction of all Obligations; or (ii) constituting property
being sold or disposed of if Borrower certifies to Agent that the sale
or disposition is made in compliance with the provisions of this Credit
Agreement (and Agent may rely in good faith conclusively on any such
certificate, without further inquiry); or (iii) constituting property
leased to Borrower under a lease which has expired or been terminated
in a transaction permitted under this Credit Agreement or is about to
expire and which has not been, and is not intended by Borrower to be,
renewed or extended. Upon request by Agent at any time, any Lender will
confirm in writing Agent's authority to release particular types or
items of property covered by the Loan Documents pursuant to this
Subsection 14.4(a).
(b) CONFIRMATION OF AUTHORITY; EXECUTION OF RELEASES. Without
in any manner limiting Agent's authority to act without any specific or
further authorization or consent by Requisite Lenders (as set forth in
Subsection 14.4(a)), each Lender agrees to confirm in writing, upon
request by Borrower, the authority to release any property covered by
the Loan Documents conferred upon Agent under clauses (i) through (iii)
of Subsection 14.4(a). So long as no Event of Default is then
continuing, upon receipt by Agent of confirmation from the Requisite
Lenders of its authority to release any particular item or types of
property covered by the Loan Documents, and upon at least five (5)
Business Days prior written request by Borrower, Agent shall (and is
hereby irrevocably authorized by Lenders to) execute such documents as
may be necessary to evidence the release of the Liens granted to Agent
for the benefit of Lenders herein or pursuant hereto upon such
Collateral; PROVIDED, HOWEVER, that (i) Agent shall not be required to
execute any such document on terms which, in Agent's opinion, would
expose Agent to liability or create any obligation or entail any
consequence other than the release of such Liens without recourse or
warranty, and (ii) such release shall not in any manner discharge,
affect or impair the Obligations or any Liens upon (or obligations of
Borrower, in respect of), all interests retained by Borrower, including
(without limitation) the proceeds of any
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sale, all of which shall continue to constitute part of the property
covered by the Loan Documents.
(c) ABSENCE OF DUTY. Agent shall have no obligation whatsoever
to any Lender or any other Person to assure that the property covered
by the Loan Documents exists or is owned by Borrower or is cared for,
protected or insured or has been encumbered or that the Liens granted
to Agent herein or pursuant hereto have been properly or sufficiently
or lawfully created, perfected, protected or enforced or are entitled
to any particular priority, or to exercise at all or in any particular
manner or under any duty of care, disclosure or fidelity, or to
continue exercising, any of the rights, authorities and powers granted
or available to Agent in this Section 14.4 or in any of the Loan
Documents, it being understood and agreed that in respect of the
property covered by the Loan Documents or any act, omission or event
related thereto, Agent may act in any manner it may deem appropriate,
it its discretion, given Agent's own interest in property covered by
the Loan Documents as one of the Lenders and that Agent shall have no
duty or liability whatsoever to any of the other Lenders; provided that
Agent shall exercise the same care which it would in dealing with loans
for its own account.
Section 14.5 AGENCY FOR PERFECTION. Each Lender hereby appoints each
other Lender as agent for the purpose of perfecting Lenders' security interest
in assets which, in accordance with Article 9 of the Uniform Commercial Code in
any applicable jurisdiction, can be perfected only by possession. Should any
Lender (other than Agent) obtain possession of any such Collateral, such Lender
shall notify Agent thereof, and, promptly upon Agent's request therefor, shall
deliver such Collateral to Agent or in accordance with Agent's instructions.
Each Lender agrees that it will not have any right individually to enforce or
seek to enforce any Loan Document or to realize upon any collateral security for
the Loans, it being understood and agreed that such rights and remedies may be
exercised only by Agent.
Section 14.6 APPLICATION OF MONEYS. All moneys realized by the Agent
under the Loan Documents shall be held by Agent to apply in accordance with the
provisions of this Credit Agreement.
Section 14.7 RELIANCE BY THE AGENT. Agent shall be entitled to rely on
any notice, consent, certificate, affidavit, letter, telegram, telecopy,
facsimile or teletype message, statement, order, instrument or other document
believed by it to be genuine and correct and to have been signed or sent by the
proper person or persons. Agent shall deem and treat the payee of any Note as
the absolute owner thereof for all purposes hereof until such time as it
receives actual notice of an assignment permitted hereunder of such payee's
interest, together with the written agreement of the assignee in form and
substance satisfactory to Agent that such assignee is bound by this Credit
Agreement as a "Lender" hereunder.
Section 14.8 EXCULPATORY PROVISIONS. Neither Agent nor any of its
shareholders, directors, officers, employees or agents shall be liable in any
manner to any of the Lenders for any action taken, omitted to be taken or
suffered in good faith by it or them under any of the Loan Documents or in
connection therewith, or be responsible for the consequences of any
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oversight or error of judgment, except for losses due to gross negligence or
willful misconduct of such Agent, shareholder, director, officer, employee or
agent. Without limiting the generality of the foregoing sentence of this Section
14.8, under no circumstances shall the Agent be subject to any liability to any
Lender on account of any action taken or omitted to be taken by such Agent in
compliance with the direction of the Requisite Lenders or all of the Lenders, as
the case may be as provided for hereunder.
Agent shall not be responsible in any manner to any of the
Lenders for the due execution, effectiveness, genuineness, validity or
enforceability, perfection or recording of this Credit Agreement, any of the
Notes, any of the other Loan Documents or for any certificate, report or other
document used under or in connection with this Credit Agreement or any of the
other Loan Documents, or for the truth or accuracy of any recitals, statements,
warranties or representations contained herein or in any certificate, report or
other document at any time hereafter furnished or purporting to have been
furnished to it by or on behalf of Borrower, or any other Person, or be under
any obligation to any of the Lenders to ascertain or inquire as to the
performance or observance by Borrower, or any other Person of any of the
covenants, agreements or conditions set forth in this Credit Agreement, the
Notes or any of the other Loan Documents or as to the use of any moneys lent
hereunder or thereunder.
Agent shall not be obligated to take any action or refrain
from taking any action under any Loan Document that might, in its judgment,
involve it in any expense or liability until it shall have been indemnified to
its satisfaction by or received an agreement to indemnify from each Person which
such Agent reasonably believes may be an intended recipient of such
distribution. If a court of competent jurisdiction shall adjudge that any amount
received and distributed by the Agent is to be repaid, each Person to whom any
such distribution shall have been made shall either repay to the Agent its
proportionate share of the amount so adjudged to be repaid or shall pay over the
same in such manner and to such Persons as shall be determined by such court.
Section 14.9 ACTION BY THE AGENT. Except as otherwise expressly
provided under this Credit Agreement or in any other of the Loan Documents,
Agent will take such action, assert such rights and pursue such remedies under
this Credit Agreement and the other Loan Documents as the Requisite Lenders or
all of the Lenders, as the case may be as provided for hereunder shall direct.
Except as otherwise expressly provided in any of the Loan Documents, Agent will
not (and will not be obligated to) take any action, assert any rights or pursue
any remedies under this Credit Agreement or any of the other Loan Documents in
violation or contravention of any express direction or instruction of the
Requisite Lenders or all of the Lenders, as the case may be as provided for
hereunder. Agent may refuse (and will not be obligated) to take any action,
assert any rights or pursue any remedies under this Credit Agreement or any of
the other Loan Documents without the express written direction and instruction
of the Requisite Lenders or all of the Lenders, as the case may be as provided
for hereunder. In the event Agent fails, within a commercially reasonable time,
to take such action, assert such rights, or pursue such remedies as the
Requisite Lenders or all of the Lenders, as the case may be as provided for
hereunder, direct, the Requisite Lenders or all of the Lenders, as the case may
be as provided for hereunder, shall have the right to take such action, to
assert such
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rights, or pursue such remedies on behalf of all of the Lenders unless the terms
hereof otherwise require the consent of all the Lenders to the taking of such
actions. All notices and other material information required to be delivered by
Borrower to Agent hereunder shall be delivered within a reasonable time (and in
any event not more than five (5) days) after Agent's receipt of same by Agent to
each Lender. No Lender (other than the Agent, acting in its capacity as Agent)
shall be entitled to take any enforcement action of any kind under any of the
Loan Documents, except as expressly provided in this Credit Agreement. Action
that may be taken by Requisite Lenders or all of the Lenders, as the case may be
as provided for hereunder may be taken pursuant to a vote at a meeting (which
may be held by telephone conference call) of all of the Lenders, or pursuant to
the written consent of such Lenders.
Section 14.10 AMENDMENTS, WAIVERS AND CONSENTS. Any provision of this
Credit Agreement, the Notes or the other Loan Documents may be amended or waived
upon the consent of the Requisite Lenders, and after such consent, Agent, on
behalf of the Lenders, may execute and deliver to Borrower a written instrument
waiving or amending such provision; PROVIDED, HOWEVER, that neither this Credit
Agreement, the Notes, nor any of the other Loan Documents may be amended, waived
or a variation therefrom or forbearance with respect to such variation consented
to without the written consent of the Agent and all of Lenders which effect (i)
a change in the Total Credit; (ii) a change in any Lender's Participation
Percentage; (iii) a reduction in the interest rates or reduction of the
principal set forth in the Notes; (iv) the extension of the maturity date on the
Notes; (v) a change in the payment schedule or scheduled date for the payment of
or amount of any interest or principal; (vi) any change in Section 10.3(a) ;
(vii) a change in this Section, the definition of Requisite Lender or any
provision of this Credit Agreement which requires consent or action of all the
Lenders for action thereunder; (viii) a change in the obligations and
liabilities of Agent; (ix) a change which increases the obligations of any
Lender; or (x) a change in any fees or charges hereunder or in Sections 3.12 or
15.30 or Article 13 hereof.
Section 14.11 INDEMNIFICATION. Each Lender agrees to indemnify Agent
(to the extent Agent is not promptly reimbursed by Borrower), in accordance with
its Participation Percentage from and against any and all liabilities,
obligations, losses, damages, penalties, interests, actions, judgments and suits
of any kind or nature whatsoever which may be imposed on, incurred by or
asserted against Agent relating to or arising out of this Credit Agreement or
any of the other Loan Documents or relating to any action taken or omitted by
such Agent under this Credit Agreement or any of the other Loan Documents,
PROVIDED that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, interest, actions, judgments or suits
resulting from Agent's own gross negligence or willful misconduct.
Section 14.12 REIMBURSEMENT OF THE AGENT. Each Lender further agrees to
reimburse Agent, in accordance with its Participation Percentage, for any
reasonable out-of-pocket costs or expenses incurred by Agent in connection with
its duties under this Credit Agreement (including, but not limited to,
reasonable fees and disbursements of counsel, travel and living expenses away
from home of employees or agents of the Agent and compensation of agents or of
experts employed by the Agent to render services for the Lenders hereunder), but
only to the extent such fees, disbursements, expenses and compensation have not
been promptly reimbursed to the
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Agent by Borrower. If any such sums are reimbursed to the Agent by Borrower
after one or more of the Lenders have reimbursed the Agent for such sums, the
Agent will refund such sums ratably to the Lenders who contributed such sums.
Section 14.13 SHARING OF FUNDS RECEIVED. Each Lender and Agent agrees
with Agent and each of the other Lenders that if such Lender shall receive from
Borrower or any other Person or Persons, whether by payment received otherwise
than in accordance with the terms of the Loan Documents, exercise of the right
of set-off, counterclaim, cross-claim, enforcement of any claim, or proceedings
against Borrower or any other Person or Persons, proof of claim in bankruptcy,
reorganization, liquidation, receivership or other similar proceedings, or
otherwise, and shall retain and apply to the payment of any of the Obligations
owing to such Lender any amount in excess of its Pro Rata Share of the payments
received by all of the Lenders and the Agent in respect of all of the
Obligations, such Lender will promptly make such dispositions and arrangements
with the other Lenders and the Agent with respect to such excess, either by way
of distribution, PRO TANTO assignment of claim, subrogation or otherwise, as
shall result in each of the Lenders receiving in respect of the Obligations
owing to it, its Pro Rata Share of such payments.
Section 14.14 DEALING WITH LENDERS. Agent may at all times deal solely
with the several Lenders for all purposes of this Credit Agreement and the
protection, enforcement and collection of the Notes, including without
limitation the acceptance and reliance upon any certificate, consent or other
document executed on behalf of one or more of the Lenders and the division of
payments pursuant to the provisions of this Credit Agreement. The Agent shall
not have a fiduciary relationship in respect of any Lender by reason of this
Credit Agreement. The Agent shall have no implied duties to the Lenders, or any
obligation to the Lenders to take any action hereunder except any action
specifically provided by this Credit Agreement to be taken by the Agent.
Section 14.15 AGENT AS LENDER. Fifth Third shall have, in its capacity
as a Lender under the Loan Documents, the same obligations and the same rights,
remedies, powers and privileges under this Credit Agreement and the other Loan
Documents as it would have were it not also an Agent.
Section 14.16 DUTIES NOT TO BE INCREASED. The duties and liabilities of
Agent under this Credit Agreement and the other Loan Documents shall not be
increased or otherwise changed without its express prior written consent. The
Agent shall have no duty to provide information to the Lenders except as
expressly set forth herein.
Section 14.17 LENDER CREDIT DECISIONS. Each Lender acknowledges that it
has, independently of and without reliance upon Agent or any of the other
Lenders, made its own credit analysis and decision to enter into this Credit
Agreement and the other Loan Documents to which it is a party. Each Lender also
acknowledges that it will, independently of and without reliance upon Agent or
any of the other Lenders, continue to make its own credit decisions in taking or
not taking action under this Credit Agreement or any of the other Loan Documents
and in determining the compliance or lack thereof by Borrower and any other
Person with any provision of any Loan Document or other document or agreement.
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Section 14.18 RESIGNATION OF AGENT. Fifth Third and any successor Agent
may resign as such at any time by giving thirty (30) days' prior written notice
of resignation to each Lender and Borrower, such resignation to be effective on
the date which is specified in such notice. Upon any such resignation by Fifth
Third as Agent, or in the event the office of Agent shall thereafter become
vacant for any other reason, the Requisite Lenders shall appoint a successor
Agent, by an instrument in writing signed by such Lenders and delivered to such
successor Agent and Borrower whereupon, such successor Agent shall succeed to
all of the rights and obligations of the retiring Agent as if originally named.
The retiring Agent shall duly assign, transfer and deliver to such successor
Agent all moneys at the time held by the retiring Agent hereunder after
deducting therefrom its expenses for which it is entitled to be reimbursed. Upon
such succession of any such successor Agent, the retiring Agent shall be
discharged from its duties and obligations hereunder, except for its gross
negligence or willful misconduct arising prior to its retirement or removal
hereunder. After any Agent's resignation, the provisions of this Section 14
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as Agent.
Section 14.19 ASSIGNMENT OF NOTES; PARTICIPATION.
(a) Each Lender may, with concurrent notice to Agent and, so
long as no Event of Default has occurred nor is continuing, with the
consent of Borrower, which shall not be unreasonably withheld or
delayed, assign all or a portion of its rights and obligations under
this Credit Agreement and the Notes; PROVIDED that (i) for each such
assignment, the parties thereto shall execute and deliver an assignment
and assumption agreement, in form and substance acceptable to Agent,
together with any Notes subject to such assignment, (ii) no such
assignment shall reduce the assigning Lender's Credit Commitment to
less that Fifty-One Percent (51%) of such Lender's original Credit
Commitment without the consent of Agent, and (iii) no such assignment
shall be for less than Five Million and 00/100 Dollars ($5,000,000.00)
of the aggregate of the Lender's Credit Commitment, unless such
assignment is to a then-current holder of a Note. Upon such execution
and delivery of such assignment and assumption agreement to Agent
substantially in the form attached hereto as Exhibit I, from and after
the date specified as the effective date in such Agreement (the
"Acceptance Date"), (x) the assignee thereunder shall be a party
hereto, and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such agreement, such assignee shall
have the rights and obligations of a Lender hereunder and (y) the
assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such agreement,
relinquish its rights (other than any rights it may have pursuant to
Section 15.30 which will survive) and be released from its obligations
under this Credit Agreement (and, in the case of an assignment covering
all or the remaining portion of an assigning Lender's rights and
obligations under this Credit Agreement, such Lender shall cease to be
a party hereto).
(b) Each Lender may sell participations of up to forty-nine
percent (49%) of its rights and obligations under the Loan
Documents(including, without limitation, up to such portion of its
Credit Commitment, the Loans owing to it, and the Note held by it);
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PROVIDED, HOWEVER, that (i) such Lenders' obligations under the Loan
Documents (including, without limitation, its Credit Commitment to
Borrower hereunder) shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) such Lender shall remain the
holder of any such Note for all purposes of the Loan Documents, (iv)
the participating banks or other entities shall be entitled to the cost
protection provisions of Sections 3.13 and 15.30 hereof, but a
participant shall not be entitled to receive pursuant to such
provisions an amount larger than its share of the amount to which the
Lender granting such participation would have been entitled, (v)
Borrower, the Agent and the other Lenders shall continue to deal solely
and directly with such selling Lender in connection with such Lender's
rights and obligations under the Loan Documents, and (vi) no such
transfer shall include the transfer of any of such Lender's rights to
grant consents or approve amendments or modifications to the Loan
Documents except with respect to those items requiring the action of or
consent by all of the Lenders or affecting the rights and obligations
of Agent. It is understood and agreed that each Lender may share any
and all information received by it from or on behalf of Borrower
pursuant to this Credit Agreement or any of the other Loan Documents
with any participant or prospective participant of such Lender.
ARTICLE 15.
-----------
OTHER TERMS
-----------
Section 15.1 AMENDMENT CHANGES AND MODIFICATION. The Loan Documents may
be amended, changed or modified only as may be agreed upon in writing by Baldwin
and the Lenders from time to time.
Section 15.2 BINDING EFFECT. The Loan Documents will be binding upon
the parties, their successors and assigns, provided, however, that Baldwin shall
not assign or attempt to assign this Credit Agreement, any other Loan Document
or any of its interests under the Loan Documents, without the prior written
consent of the Lenders.
Section 15.3 BROKER FEE. Neither party is obligated to pay any premium
or other charge, brokerage fee or commission in connection with the agreements
set forth herein. Each party will indemnify the other and hold it harmless from
any such claim arising out of such party's acts or those of its representatives.
Section 15.4 ENTIRE AGREEMENT. The Loan Documents embody the entire
agreement of the parties relating to the Credit Facility. There are no promises,
terms, conditions, obligations or warranties other than those contained in the
Loan Documents. The Loan Documents supersede all prior communications,
representations or agreements, verbal or written, between the parties relating
to the Credit Facility.
Section 15.5 HEADINGS. The headings to the sections of this Credit
Agreement are included only for the convenience of the parties and will not have
the effect of defining,
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diminishing or enlarging the rights of the parties or affecting the construction
or interpretation of any portion of this Credit Agreement.
Section 15.6 INCORPORATION BY REFERENCE. All other Loan Documents are
incorporated herein by this reference and are made a part of this Credit
Agreement as if fully set forth herein. This Credit Agreement, prior to such
incorporation, controls in the event of any conflict with the terms of any other
Loan Documents.
Section 15.7 INTERPRETATION. For the purpose of construing this Credit
Agreement, unless the context otherwise requires, words in the singular will be
deemed to include words in the plural, and vice versa.
Section 15.8 GOVERNING LAW; JURISDICTION AND VENUE. The undersigned
agree that inasmuch as this Credit Agreement, the Notes and the Loan Documents
are to be executed by Borrower and accepted by Agent and Lenders in Cincinnati,
Ohio and the funds to be disbursed under the Loans are to be disbursed in Ohio,
this instrument and the rights and obligations of all parties hereunder shall be
governed by and construed under the substantive laws of the State of Ohio,
without reference to the conflict of laws principles of such state.
The Agent, each Lender and Borrower hereby designate all courts of
record sitting in Cincinnati, Ohio, both state and federal, as forums where any
action, suit or proceeding in respect of or arising out of this Credit
Agreement, the Notes, Loan Documents, or the transactions contemplated by this
Credit Agreement may be prosecuted as to all parties, their successors and
assigns, and by the foregoing designations the Agent, each Lender, and Borrower
consents to the jurisdiction and venue of such courts. BORROWER WAIVES ANY AND
ALL PERSONAL RIGHTS UNDER THE LAWS OF ANY OTHER STATE TO OBJECT TO JURISDICTION
WITHIN THE STATE OF OHIO FOR THE PURPOSES OF LITIGATION TO ENFORCE SUCH
OBLIGATIONS OF BORROWER. In the event such litigation is commenced, Borrower
agrees that service of process may be made and personal jurisdiction over
Borrower obtained by service of a copy of the summons, complaint and other
pleadings required to commence such litigation upon Borrower's appointed Agent
for Service of Process in the State of Ohio, which the undersigned hereof
designates to be: CT Corporation Systems, Cincinnati, Ohio. Borrower recognizes
and agrees that the agency has been created for the benefit of Borrower, and
Agent and each Lender and agree that this agency shall not be revoked,
withdrawn, or modified without the consent of the Agent.
Section 15.9 WAIVER OF JURY TRIAL. AS A SPECIFICALLY BARGAINED
INDUCEMENT FOR THE LENDERS TO EXTEND CREDIT TO BORROWER, AND AFTER HAVING THE
OPPORTUNITY TO CONSULT COUNSEL, BORROWER HEREBY EXPRESSLY WAIVES THE RIGHT TO
TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO THIS CREDIT AGREEMENT OR
ARISING IN ANY WAY FROM THE OBLIGATIONS.
Section 15.10 NOTICES. Any notice under the Loan Documents, will be in
writing. Any notice to be given or document to be delivered under the Loan
Documents will be deemed to
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have been duly given upon delivery, if delivered in person or by any expedited
delivery service which provides proof of delivery, upon tested telex or
facsimile transmission, or on the fifth Business Day after mailing, if mailed by
certified mail, return receipt requested, postage prepaid mail, addressed to the
Lenders or Baldwin at the appropriate addresses. The Lenders will use reasonable
efforts to deliver any notice the Lenders or Agent are required to give to
Baldwin; provided, however, that failure by the Lenders to actually give any
such notice will not be deemed to be a waiver of any rights or remedies of the
Lenders and will not give rise to any claims, defenses or damages by Baldwin.
The addresses for notices are those set forth below or such other addresses as
may be hereafter specified by written notice by the parties:
to the Lenders The Fifth Third Bank
Fifth Third Center
Cincinnati, Ohio 45263
Attn: Robert C. Ries, Vice President
Facsimile: 513/744-7711
and
NBD Bank, N.A.
One Indiana Square, Suite 302
Indianapolis, Indiana 46266
Attn: Edward C. Hathaway, First Vice President
Facsimile: (317) 266-6042
with a copy to: Keating, Muething & Klekamp, P.L.L.
1800 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Attn: Michael F. Bigler
Facsimile: (513) 579-6457
to Baldwin: Baldwin Piano & Organ Company
422 Wards Corner Road
Loveland, Ohio 45140
Attn: Treasurer
Facsimile (513) 576-4664
with a copy to: Graydon, Head & Ritchey
511 Walnut Street, Suite 1900
Cincinnati, Ohio 45202
Attn: Thomas W. Kahle
Facsimile: (513) 651-3836
Section 15.11 NO THIRD PARTY BENEFICIARY RIGHTS AND RELIANCE. No Person
not a party to this Credit Agreement will have any benefit under this Credit
Agreement nor have third-party
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beneficiary rights as a result of any of the Loan Documents, nor will any party
be entitled to rely on any actions or inactions of the Lenders or their agents,
all of which are done for the sole benefit and protection of the Lenders.
Section 15.12 PROTECTION OR PRESERVATION OF COLLATERAL. The Lenders
will not have any contractual duty to protect, insure, collect or realize upon
the Collateral or preserve rights in it against prior parties. The Lenders will
not be responsible or liable for any shortage, discrepancy, damage, loss or
destruction of any part of the Collateral regardless of the cause (excluding
actions of the Lenders).
Section 15.13 RELATIONSHIP OF THE PARTIES. Neither the Lenders on the
one hand nor Baldwin on the other hand will be deemed a partner, joint venturer
or related entity of the other by reason of the Loan Documents.
Section 15.14 REVERSAL OF PAYMENTS. To the extent that Baldwin makes a
payment or payments to the Lenders, which payment or payments or proceeds or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside 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 to the extent of such payment or proceeds received, the
Credit Facility will be revived and continue in full force and effect, as if
such payment or proceeds had not been received by the Lenders.
Section 15.15 SEVERABILITY. If any provision of this Credit Agreement
(either generally, or as to a specific application to a set of facts) will be
held to be invalid, illegal or unenforceable, such invalidity, illegality or
unenforceability will not affect any other provision of this Credit Agreement
(either in its entirety, or as to or the application of such provision to any
other set of facts), but this Credit Agreement will be construed as if such
invalid, illegal or unenforceable provision never had been included in this
Credit Agreement.
Section 15.16 MAXIMUM INTEREST. Baldwin acknowledges that the Lenders
intend to strictly conform to the applicable usury laws governing this Credit
Agreement. Regardless of any provision contained herein or in any other document
executed or delivered in connection herewith or therewith, the Lenders shall
never be deemed to have contracted for, charged or be entitled to receive,
collect or apply as interest on this Credit Agreement (whether termed interest
herein or deemed to be interest by judicial determination or operation of law),
any amount in excess of the maximum amount allowed by applicable law, and, if
the Lenders ever receive, collect or apply as interest any such excess, such
amount which would be excessive interest will be applied first to the reduction
of the unpaid principal balances of advances under this Credit Agreement, and,
second, any remaining excess will be paid to Baldwin. In determining whether or
not the interest paid or payable under any specific contingency exceeds the
highest lawful rate, Baldwin and the Lenders shall, to the maximum extent
permitted under applicable law: (a) characterize any non-principal payment
(other than payments which are expressly designated as interest payments
hereunder) as an expense or fee rather than as interest; (b) exclude voluntary
pre-payments and the effect thereof; and (c) spread the total amount of interest
throughout the entire term of this Credit Agreement so that the interest rate is
uniform throughout such term.
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Section 15.17 WAIVERS BY THE LENDERS. The Lenders may at any time or
from time to time waive all or any rights under any of the Loan Documents, but
any waiver or indulgence at any time or from time to time will not constitute,
unless specifically so expressed by the Lenders in writing, a future waiver by
the Lenders of performance by Baldwin.
Section 15.18 SURVIVAL. The grant of security interest herein to secure
all Obligations, and all provisions relating to the Collateral will survive
termination of this Credit Agreement and will remain in full force and effect
until all Obligations have been paid in full and this Credit Agreement has been
terminated.
Section 15.19 PARTICIPATIONS; ASSIGNMENTS. The Lenders may with sixty
(60) days prior notice to Baldwin, grant participations in or assign, at any
time and from time to time hereafter, its interest in this Credit Agreement or
any Loan Document, or of any portion thereof.
Section 15.20 COUNTERPARTS. This Credit Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same instrument, and either of the parties hereto may execute this Credit
Agreement by signing any such counterpart.
Section 15.21 INFORMATION. The Lenders may provide to any third party
any credit, financial or other information on Baldwin that the Lenders may from
time to time possess.
Section 15.22 RELEASE. Baldwin releases the Lenders from all claims and
causes of action which Baldwin may now or hereafter have for any loss or damage
to it claimed to be caused by or arising from: (a) any failure of the Lenders to
protect, enforce or collect, in whole or in part, any Account; (b) the Lenders'
notification to any Account Debtors thereon of the Lenders' security interest in
any of the Accounts; (c) the Lenders' directing any Account Debtor to pay any
sum owing to Baldwin directly to the Lenders; and (d) any other act or omission
to act on the part of the Lenders, its officers, agents or employees, except for
willful misconduct or gross negligence. The Lenders will have no obligation to
preserve rights to Accounts against prior parties.
Section 15.23 MISCELLANEOUS. Time is of the essence regarding Baldwin's
performance of its obligations to the Lenders notwithstanding any course of
dealing or custom on the Lenders' part to grant extensions of time. Baldwin's
liability under this Credit Agreement is direct and unconditional and will not
be affected by the release or non-perfection of any security interest granted
hereunder. The Lenders will have the right to refrain from or postpone
enforcement of this Credit Agreement or any other Loan Documents without
prejudice and the failure to strictly enforce the Loan Documents will not be
construed as having created a course of dealing between the Lenders and Baldwin
contrary to the specific terms of the Loan Documents or as having modified,
released or waived the same. The express terms of this Credit Agreement and the
other Loan Documents will not be modified by any course of dealing, usage of
trade, or custom of trade which may deviate from the terms hereof If Baldwin
falls to pay any taxes, fees or other obligations which may impair the Lenders'
interest in the Collateral, or fails to keep the Collateral insured, the Lenders
may, but shall not be required to, pay such taxes, fees or obligations and pay
the cost to insure the Collateral, and the amounts paid will be: (a) an
additional debt owed by
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Baldwin to the Lenders, which shall be subject to finance charges as provided
herein; and (b) due and payable immediately in full. Baldwin agrees to pay all
of the Lenders' reasonable attorneys' fees and expenses incurred by the Lenders
in enforcing the Lenders' rights hereunder.
Section 15.24 WAIVERS BY BALDWIN. Baldwin irrevocably waives notice of:
the Lenders' acceptance of this Credit Agreement, presentment, demand, protest,
nonpayment, nonperformance, and dishonor. Baldwin and the Lenders irrevocably
waive all rights to claim any punitive and/or exemplary damages in excess of Two
Hundred Fifty Thousand and 00/100 Dollars ($250,000.00). Baldwin waives all
rights of offset and counter claims Baldwin may have against the Lenders.
Baldwin waives all notices of default and non-payment at maturity of any or all
of the Accounts.
Section 15.25 NO ORAL AGREEMENTS. ORAL AGREEMENTS OR COMMITMENTS TO
LEND MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT
INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT
YOU, (BALDWIN) AND US (THE LENDERS) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY
AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH
IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS
WE MAY LATER AGREE IN WRITING TO MODIFY IT. THERE ARE NO UNWRITTEN AGREEMENTS
BETWEEN THE PARTIES.
Section 15.26 SUPPLEMENT. If Baldwin and the Lenders have heretofore
executed other agreements in connection with all or any part of the Collateral,
this Credit Agreement shall supplement each and every other agreement previously
executed by and between Baldwin and the Lenders, and in that event, this Credit
Agreement shall neither be deemed a novation nor a termination of such
previously executed agreement nor shall execution of this Credit Agreement be
deemed a satisfaction of any obligation secured by such previously executed
agreement.
Section 15.27 USE OF COUNSEL AND RECEIPT OF CREDIT AGREEMENT. Baldwin
acknowledges that it has received a true and complete copy of this Credit
Agreement. Baldwin acknowledges that it has (a) had representation of counsel
during negotiation of this Credit Agreement, and (b) read and understood this
Credit Agreement.
Section 15.28 FACSIMILES, ETC. Notwithstanding anything herein to the
contrary: (a) Baldwin and the Lenders may rely on any facsimile copy, electronic
data transmission or electronic data storage of any statement, financial
statements or other reports, and (b) such facsimile copy, electronic data
transmission or electronic data storage will be deemed an original, and the best
evidence thereof for all purposes, including, without limitation, under this
Credit Agreement or any other Loan Document, and for all evidentiary purposes
before any arbitrator, court or other adjudicatory authority.
Section 15.29 POWER OF ATTORNEY. Baldwin irrevocably appoints Agent
(and any person designated by it) as Baldwin's true and lawful Attorney with
full power to at any time, in the discretion of Agent (whether or not Default
has occurred) to: (a) endorse the name of Baldwin
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upon any of the items of payment of proceeds of the Collateral and deposit the
same in the account of Agent for application to the Obligations; (b) sign the
name of Baldwin on any document or instrument that Agent shall deem necessary or
appropriate to perfect and maintain perfected the security interests in the
Collateral under this Credit Agreement and other Loan Documents; (c) initiate
and settle any insurance claim and endorse Baldwin's name on any check,
instrument or other item of payment; (d) endorse the name of Baldwin upon
financing statements, instruments, Certificates of Title and Statements of
Origin pertaining to the Collateral; and (e) do anything to preserve and protect
the Collateral and Agent's rights and interest therein. In the event of a
Default, Baldwin irrevocably appoints Agent (and any person designated by it) as
Baldwin's true and lawful Attorney with full power to at any time, in the
discretion of Agent to: (i) demand payment, enforce payment and otherwise
exercise all of Baldwin's rights, and remedies with respect to the collection of
any Accounts; (ii) settle, adjust, compromise, extend or renew any Accounts;
(iii) settle, adjust or compromise any legal proceedings brought to collect any
Accounts; (iv) sell or assign any Accounts upon such terms, for such amounts and
at such time or times as Agent may deem advisable; (v) discharge and release any
Accounts; (vi) prepare, file and sign Baldwin's name on any Proof of Claim in
Bankruptcy or similar document against any Account Debtor; (vii) endorse the
name of Baldwin upon any chattel paper, document, instrument, invoice, freight
bill, bill of lading or similar document or agreement relating to any Account or
goods pertaining thereto; (viii) take control in any manner of any item of
payments or proceeds and for such purpose to notify the Postal Authorities to
change the address for delivery of mail addressed to Baldwin to such address as
Agent may designate; and (ix) sign the name of Baldwin to verify the accuracy of
the Accounts. This power of attorney is for value and coupled with an interest
and is irrevocable so long as any Obligations remain outstanding and by Agent
exercising such right, Agent shall not waive any right against Baldwin until the
Obligations are paid in full.
Section 15.30 EXPENSES. Baldwin agrees, whether or not any Loan is made
hereunder, to pay Agent or the Lenders upon demand for all reasonable expenses,
including reasonable fees of attorneys for Agent or the Lenders (who may be
employees of the Lenders), incurred by (a) Agent or the Lenders in connection
with the preparation, negotiation, and execution of this Credit Agreement and
any other Loan Document, (b) Agent or the Lenders in connection with the
preparation of any and all amendments to this Credit Agreement and any other
Loan Document, and all search, recording, filing, and registration expenses, and
(c) Agent or the Lenders in connection with the enforcement of the Baldwin's
obligations hereunder or under any other Loan Document. Baldwin also agrees to
(i) indemnify and hold Agent or the Lenders harmless from any loss or expense
which may arise or be created by the acceptance of telephonic or other
instructions for making Loans, except for any loss & expense arising from
Agent's or a Lender's gross negligence or willful misconduct (provided, however,
that reliance alone upon telephonic or other instructions shall not itself be
deemed to constitute gross negligence or willful misconduct), and (ii) to pay
and save Agent and each Lender harmless from all liability for, any stamp or
other taxes which may be payable with respect to the execution or delivery of
this Credit Agreement or any of the other Loan Documents. Baldwin's obligations
under this Section 15.30 shall survive any termination of this Credit Agreement.
[Remainder of page intentionally left blank. Signature page follows.]
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by or on behalf of each of the parties as of the day and in the year first above
written in Cincinnati, Ohio.
WITNESS BORROWER
<TABLE>
<S> <C>
BALDWIN PIANO & ORGAN
COMPANY
/s/ Thomas W. Kahle By: /s/ Perry H. Schwartz
- ----------------------------- --------------------------------
Name: Perry H. Schwartz
-----------------------------
/s/ Michael F. Bigler Title: Chief Financial Officer and
- ----------------------------- -----------------------------
Executive Vice President
-----------------------------
AGENT
THE FIFTH THIRD BANK, As Agent
/s/ By: /s/ Robert L. Ries
- ----------------------------- --------------------------------
Name: Robert L. Ries
------------------------------
/s/ Michael F. Bigler Title: Vice President
- ----------------------------- ----------------------------
LENDERS
THE FIFTH THIRD BANK
/s/ By: /s/ Robert L. Ries
- ----------------------------- --------------------------------
Name: Robert L. Ries
------------------------------
/s/ Michael F. Bigler Title: Vice President
- ----------------------------- ----------------------------
NBD BANK, N.A.
/s/ Julie A. Sherrill By: /s/ Sandra L. Jackson
- ----------------------------- --------------------------------
Name: Sandra L. Jackson
------------------------------
Julie Sherrill Title: Assistant Vice President
- ----------------------------- -----------------------------
</TABLE>
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EXHIBITS
Exhibit A Form of Consignment Agreement
Exhibit B Form of Consignment Notification Letter
Exhibit C Form of Borrowing Base Certificate
Exhibit D Form of Revolving Promissory Note
Exhibit E Form of Subsidiary Guaranty
Exhibit F Form of Subsidiary Security Agreement
Exhibit G Form of Borrower's Counsel Opinion Letter
Exhibit H Form of Quarterly Covenant Certificate
Exhibit I Form of Monthly Compliance Certificate
SCHEDULES
Schedule 4.7 Letter of Credit Fee
Schedule 8.1(h) UCC Jurisdictions
Schedule 9.3 Litigation
Schedule 9.7 Subsidiaries
Schedule 9.16 Capital Structure
Schedule 9.17 Collateral Locations
Schedule 9.19 Environmental Matters
Schedule 9.21 ERISA Matters
Schedule 9.23(a) Capitalized Leases
Schedule 9.23(b) Operating Leases
Schedule 9.24 Labor Relations
<PAGE> 1
Exhibit 10.34
FIRST AMENDMENT TO
CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT ("First Amendment") dated as
of October 16, 1997 by and among BALDWIN PIANO & ORGAN COMPANY, a Delaware
corporation, (hereinafter, together with its successors in title and assigns,
called "Borrower"), THE FIFTH THIRD BANK, an Ohio banking corporation, as Agent
(in such capacity, the "Agent") THE FIFTH THIRD BANK ("Fifth Third"), as a
Lender, and NBD BANK, N.A., a national banking association, ("NBD") as a Lender,
(Fifth Third and NBD are hereinafter collectively the "Lenders" and each
individually a "Lender").
PRELIMINARY STATEMENT
---------------------
WHEREAS, Borrower, Agent and Lenders have entered into a Credit
Agreement dated as October 16, 1997 (the "Credit Agreement"); and
WHEREAS, Borrower has requested Agent and Lenders to extend the
expiration date of any Letter of Credit; and
WHEREAS, Borrower, Agent and Lenders now wish to amend the Credit
Agreement in accordance with the terms and provisions hereof;
NOW, THEREFORE, the parties hereto agree to supplement and amend the
Credit Agreement upon such terms and conditions as follows:
1. CAPITALIZED TERMS. All capitalized terms used herein shall have the
meanings assigned to them in the Credit Agreement unless the context hereof
requires otherwise. Any definitions as capitalized terms set forth herein shall
be deemed incorporated into the Credit Agreement as amended by this First
Amendment.
2. EXPIRATION DATE OF LETTERS OF CREDIT.
(a) Section 4.2 of the Credit Agreement is hereby amended to
in its entirety to read as follows:
"Section 4.2 EXPIRATION DATE OF LETTERS OF CREDIT. The
expiration date of any Letter of Credit shall not be later than the
earlier of (a) twelve (12) months after the date of the issuance
thereof, or the third anniversary of the Closing Date; PROVIDED,
HOWEVER, the expiration date may be extended beyond the third
anniversary of the Closing Date in the event that the Issuing Bank
shall have received as collateral cash equal to the total Reimbursement
Obligations with respect to such Letter of Credit. In order to
collateralize any Letter of Credit expiring after the third anniversary
of the Closing Date, Baldwin hereby irrevocably authorizes Agent to
draw amounts equal to the total Reimbursement Obligations under any
Letter of Credit existing on the
<PAGE> 2
- 2 -
third anniversary of the Closing Date and deposit the same in an
account with Agent for the benefit of the Issuing Bank and the
Lenders."
(b) The second parenthetical clause of the second sentence of
Section 4.4 of the Credit Agreement is hereby amended to in its entirety to read
as follows:
"(which date shall be a business day and shall in no event be later
than the third anniversary of the Closing Date, except to the extent
provided in the proviso to Section 4.2)"
3. REAFFIRMATION OF COVENANTS, WARRANTIES AND REPRESENTATIONS. Borrower
hereby agrees and covenants that all representations and warranties in the
Credit Agreement, including without limitation all of those warranties and
representations set forth in Article 9, are true and accurate as of the date
hereof. Borrower further reaffirms all covenants in the Credit Agreement,
including without limitation each of the affirmative, financial and negative
covenants set forth in Article 10 thereof, as if fully set forth herein, except
to the extent modified by this First Amendment.
4. MISCELLANEOUS. (a) Borrower shall reimburse Agent for all reasonable
fees and disbursements of legal counsel to Agent which shall have been incurred
by Agent in connection with the preparation, negotiation, review, execution and
delivery of this First Amendment and the handling of any other matters
incidental hereto.
(b) All of the terms, conditions and provisions of the Agreement not
herein modified shall remain in full force and effect. In the event a term,
condition or provision of the Agreement conflicts with a term, condition or
provision of this First Amendment, the latter shall govern.
(c) This First Amendment shall be governed by and shall be construed
and interpreted in accordance with the laws of the State of Ohio.
(d) This First Amendment shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, successors and
assigns.
(e) This First Amendment may be executed in several counterparts, each
of which shall constitute an original, but all which together shall constitute
one and the same agreement.
[Remainder of page intentionally left blank. Signature page follows.]
<PAGE> 3
- 3 -
IN WITNESS WHEREOF, this First Amendment has been duly executed and
delivered by or on behalf of each of the parties as of the day and in the year
first above written.
SIGNED IN THE PRESENCE OF:
BALDWIN PIANO & ORGAN COMPANY,
Borrower
By: /s/ Perry H. Schwartz
- -------------------------- ------------------------------------
Name: Perry H. Schwartz
----------------------------------
Title: Cheif Financial Officer and
- -------------------------- ---------------------------------
Executive President
---------------------------------
THE FIFTH THIRD BANK, Agent
/s/ LuAnn Beiderbeck By: /s/ Robert L. Ries
- -------------------------- ------------------------------------
Name: Robert L. Ries
----------------------------------
/s/ Jo E. McClanahan Title: Vice President
- -------------------------- ---------------------------------
LENDERS:
THE FIFTH THIRD BANK
/s/ LuAnn Beiderbeck By: /s/ Robert L. Ries
- -------------------------- ------------------------------------
Name: Robert L. Ries
----------------------------------
/s/ Jo E. McClanahan Title: Vice President
- -------------------------- ---------------------------------
NBD BANK, N.A.
/s/ Andrea Hoskin By: /s/ Edward C. Hathaway
- -------------------------- ------------------------------------
Name: Edward C. Hathaway
----------------------------------
Andrea Hoskin Title: First Vice President
- -------------------------- ---------------------------------
<PAGE> 1
Exhibit 10.35
FORM OF SUBSIDIARY SECURITY AGREEMENT
-------------------------------------
THIS SECURITY AGREEMENT entered into this ____ day of October, 1997, by
and between [SUBSIDIARY], having its principal office at [422 Wards Corner Road,
Loveland, Ohio 45140] ("Debtor") and THE FIFTH THIRD BANK, an Ohio banking
corporation as Agent, ("Secured Party").
1. GRANTING CLAUSE.
To secure the Obligations (as defined in Section 2 hereof), Debtor
hereby grants to Secured Party a security interest in all of the property of the
type described in Exhibit A attached hereto and incorporated herein by reference
now or hereafter acquired by Debtor, including all substitutions, replacements,
additions and accessions thereto and therefor and all cash and noncash proceeds
from the sale, exchange, collection or other disposition thereof (such property
is hereinafter referred to as the "Collateral"). Terms used herein but not
otherwise defined shall have the meanings set forth in that certain Credit
Agreement dated as of October __, 1997 by and among Baldwin Piano & Organ
Company ("Baldwin"), Secured Party, as Agent and various lenders as the same may
be amended, modified, supplemented or restated from time to time (the "Credit
Agreement").
2. OBLIGATIONS SECURED HEREBY.
The security interest in the Collateral granted hereby secures and
covers the payment and performance by Debtor of all of its obligations under
that certain Guaranty of Debtor in favor of the Secured Party dated as of the
date hereof (the foregoing are referred to herein as the "Obligations").
3. DEBTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) COLLATERAL. Debtor hereby represents and warrants that (i)
except for the security interest granted hereby, Debtor is, or to the
extent that this Agreement provides that the Collateral is to be
acquired after the date hereof will be, the owner of the Collateral
free and clear of all liens, pledges, security interests or other
encumbrances of any nature whatsoever; and (ii) upon execution of this
Security Agreement and recording of applicable financing statements,
the security interest granted hereby will be the first, best and only
security interest in the Collateral subject to Permitted Liens.
(b) ENFORCEABILITY. Debtor represents and warrants that the
execution and performance of this Security Agreement has been duly
authorized by all appropriate action of Debtor and this Security
Agreement has been duly executed by Debtor, delivered to
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Secured Party and constitute legal, valid and binding obligations of
Debtor, enforceable against it in accordance with their respective
terms, subject to applicable bankruptcy laws. Neither the execution or
delivery by Debtor of this Security Agreement nor the consummation by
Debtor of the transactions contemplated hereby nor compliance by Debtor
with the provisions hereof, conflicts with or results in a breach of
any of the provisions of the Articles of Incorporation or Code of
Regulations of Debtor or of the provisions of any other agreement,
instrument or understanding to which it is a party or by which it or
any of its assets or properties are bound.
(c) PROTECTION OF COLLATERAL. (i) Debtor will keep the
Collateral free from any lien, security interest or other encumbrance,
other than Permitted Liens, adverse to the security interest granted
hereby and in good order and repair and will not waste or destroy the
Collateral or any part thereof; (ii) Debtor will not use the Collateral
in violation of any statute, ordinance or regulation; (iii) in
accordance with the terms and conditions of the Credit Agreement and
applicable to Debtor to the same extent as applicable to Baldwin
therein, Secured Party may examine and inspect the Collateral at any
time, wherever located; (iv) Debtor will at any time and from time to
time execute and deliver all such supplements and amendments hereto and
all such financing statements, continuation statements, instruments of
further assurance and other instruments and will take such other
action, as the Secured Party reasonably requests and reasonably deems
necessary or advisable to (a) grant Secured Party a security interest
in all or any portion of the Collateral, (b) maintain or preserve the
lien of this Agreement to carry out more effectively the purpose
hereof, (c) perfect, publish notice of or protect the validity of or of
any grant made or to be made by this Agreement, (d) enforce this
Agreement, or (e) preserve and defend the Collateral and the rights of
the Secured Party therein against the claims and demands of all persons
and entities claiming the same or any interest therein.
(d) PERFORMANCE OF OBLIGATIONS. Debtor will punctually perform
and observe all of the Obligations.
(e) MAINTENANCE AND INSPECTION OF RECORDS. In accordance with
the terms and conditions of the Credit Agreement and applicable to
Debtor to the same extent as applicable to Baldwin therein, Debtor will
maintain accurate and complete records in respect of the Collateral and
shall at all reasonable times allow Secured Party by any officer,
employee or agent to examine, audit or inspect (including making
extracts from) such records and to arrange for verification of the
Collateral. Debtor also agrees to furnish such information or reports
relating to the Collateral as Secured Party may from time to time
reasonably request.
(f) INSURANCE AND TAXES.
(i) INSURANCE OF COLLATERAL. In accordance with the
terms and conditions of the Credit Agreement and applicable to
Debtor to the same extent as applicable to
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<PAGE> 3
Baldwin therein, Debtor agrees to maintain insurance at all
times with respect to the Collateral and to deliver to Secured
Party, upon Secured Party's request, all such policies of
insurance. Such insurance policies shall comply with the
requirements of the Loan Agreement and applicable to Debtor to
the same extent as applicable to Baldwin therein and contain
such terms, be in such form, for such periods and be written
by such companies as are reasonably satisfactory to Secured
Party and shall be payable to Secured Party and Debtor as
their interests may appear. All policies of insurance shall
provide for not less than thirty (30) days written notice to
Secured Party prior to any cancellation of such policies.
Debtor hereby makes, constitutes and appoints Secured Party as
its true and lawful attorney-in-fact for it and in its name
and place for the purpose of obtaining, adjusting, settling
and canceling such policies of insurance and endorsing any
drafts in respect thereof. The rights, powers and authority of
Secured Party herein granted shall commence and be in effect
on the date of this Agreement and shall remain in full force
and effect thereafter until the Obligations have been paid and
performed in full. If Debtor fails to maintain such insurance,
Secured Party may, at its option, maintain such insurance and
all premiums so paid by Secured Party will be payable upon
Secured Party's demand and until paid by Debtor will accrue
interest at the highest rate of interest provided for in the
Note.
(ii) PAYMENT OF TAXES AND ASSESSMENTS. In accordance
with the terms of the Credit Agreement and applicable to
Debtor to the same extent as applicable to Baldwin therein,
Debtor agrees to promptly pay when due all taxes and
assessments imposed on or with respect to all the Collateral.
If such taxes and assessments are not paid when due, the
Secured Party may do so for Debtor's account and all
expenditures so paid by Secured Party will be added to the
principal balance of the Note, will be payable upon Secured
Party's demand and until paid by Debtor will accrue interest
at the highest rate of interest provided for in the Note.
(g) LOCATION OF COLLATERAL. Debtor covenants that the
Collateral will be kept at all times on the premises of the real estate
referred to in Exhibit A of this Agreement (the "Premises"), and Debtor
will not hold Collateral at locations other than the Premises, except,
in each case, to the extent that such Collateral is Inventory in
transit; provided, however, as contemplated by and provided for in
Section 1 hereof, Secured Party agrees that Debtor may, at any time and
from time to time, substitute or replace the Collateral ("Substituted
or Replaced Collateral") with Collateral of equal or greater value and
that Debtor may, in connection with each such substitution or
replacement, remove the Substituted or Replaced Collateral from such
premises.
(h) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made by Debtor in this Security
Agreement shall survive the execution and
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<PAGE> 4
delivery of this instrument until such time as the Note and all other
Obligations shall have been paid or otherwise satisfied in full.
4. DEBTOR'S RIGHTS WITH RESPECT TO COLLATERAL.
Unless and until the occurrence of an Event of Default, Debtor shall
have the right to utilize the Collateral in the ordinary course of its business
and to substitute or replace the Collateral in accord with Section 3g hereof,
but shall not have the right to sell, lease or otherwise dispose of or transfer
the Collateral or any interest therein without the prior written consent of
Secured Party; provided, however, so long as an Event of Default shall not have
occurred and be continuing, any portion of the Collateral which constitutes
inventory or accounts receivable may be sold or transferred in the ordinary
course of business consistent with the past business practices of Debtor.
5. EVENTS OF DEFAULT AND REMEDIES.
(a) RIGHTS AND REMEDIES UPON DEFAULT. If any Event of Default
under the Loan Agreement shall have occurred and be continuing, Secured
Party may proceed to protect and enforce its rights under this
Agreement by suit in equity, action at law or any other appropriate
proceeding and Secured Party shall have, without limitation, all of the
rights and remedies provided by applicable law, including, without
limitation, the rights and remedies of a secured party under the
Uniform Commercial Code of the state governing disposition of the
Collateral. Debtor shall be liable for any deficiency remaining after
the collection of the Collateral and application of the proceeds to the
Obligations to the fullest extent permitted by applicable law.
(b) POWER OF ATTORNEY WITH RESPECT TO THE COLLATERAL. Secured
Party shall have the right upon the occurrence of an Event of Default
with respect to the payment of the Obligations, whether as scheduled,
by acceleration, or otherwise, to notify account debtors of its
security interest in the Accounts and to require payments to be made
directly to Secured Party at such address or in such manner as Secured
Party may deem appropriate. Upon request of Secured Party at any time,
Borrowers will so notify the account debtors and will indicate on all
billings to the account debtors that the Accounts are payable to
Secured Party. To facilitate direct collection, Debtor hereby appoints
Secured Party and any officer or employee of Secured Party, as the
agent to (i) receive, open and dispose of all mail addressed to Debtor
and take therefrom any payments on or proceeds of other arrangements,
in which Debtor shall cooperate, to receive Debtor's mail, including
notifying the post office authorities to change the address for
delivery of mail addressed to Debtor to such address as Secured Party
shall designate, (ii) endorse the name of Debtor in favor of Secured
Party upon any and all checks, drafts, money orders, notes, acceptances
or other evidences or payment or Collateral that may come into Secured
Party's possession, (iii) sign and endorse the name of Debtor on any
invoice or bill of lading relating to any of the Accounts, on
verifications of
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<PAGE> 5
Accounts sent to any Debtor, to drafts against account debtors, to
assignments of Accounts and to notices to account debtors, and (iv) do
all acts and things necessary to carry out this Agreement, including
signing the name of Debtor on any instruments required by law in
connection with the transactions contemplated hereby and on financing
statements as permitted by the Uniform Commercial Code. Debtor hereby
ratifies and approves all acts of such attorneys-in-fact, and neither
Secured Party nor any other such attorney-in-fact shall be liable for
any acts of commission or omission, or for any error of judgment or
mistake of fact or law. This power, being coupled with an interest, is
irrevocable so long as any of the Obligations remain unsatisfied.
Secured Party shall not, under any circumstances, be liable
for any error or omission or delay of any kind occurring in the
settlement, collection or payment of any Accounts or any instrument
received in payment thereof or for any damage resulting therefrom
except for such acts or omissions resulting from Secured Party's gross
negligence or willful misconduct. Upon the occurrence of an Event of
Default, Secured Party may, without notice to or consent from Debtor,
sue upon or otherwise collect, extend the time of payment of, or
compromise or settle for cash, credit or otherwise upon any terms, any
of the Accounts or any securities, instruments or insurance applicable
thereto and/or release the obligor thereon. Secured Party is authorized
to accept the return of the goods represented by any of the Accounts
without notice to or consent by Debtor, or without discharging or any
way affecting the Obligations hereunder.
Secured Party shall not be liable for or prejudiced by any
loss, depreciation or other damage to Accounts or other Collateral
unless caused by Secured Party's gross negligence or willful
misconduct, and Secured Party shall have no duty to take any action to
preserve or collect any Account or other Collateral.
(c) DISTRIBUTION OF COLLATERAL. Upon enforcement of this
Agreement following the occurrence of an Event of Default, the proceeds
of the Collateral shall be applied as received from time to time by the
Secured Party as follows:
FIRST: To the payment of all costs and expenses
incurred or accrued by the Secured Party (including the fees
and expenses of its attorneys, appraisers and agents) in
connection with any proceeding commenced to enforce this
Security Agreement or in connection with the taking, holding,
maintaining, preparing for sale, selling and the like of the
Collateral.
SECOND: To the payment of all amounts then due and
payable on the Note (first to the payment of delinquency
charges, then to the payment of default charges, then to the
payment of accrued interest and then to the payment of unpaid
principal).
5
<PAGE> 6
THIRD: To the payment of any surplus to Debtor or any
other person or entity legally entitled thereto.
(d) COSTS AND EXPENSES. Borrower absolutely and
unconditionally agrees to pay to Secured Party upon demand by Secured
Party all reasonable out-of-pocket costs and expenses which shall be
incurred or sustained by Secured Party or any of its directors,
officers, employees or agents as a consequence of, on account of, in
relation to or any way in connection with the exercise, protection or
enforcement (whether or not suit is instituted) any of its rights,
remedies, powers or privileges under this Agreement or any of the Loan
Documents or in, to or under all or any part of the Collateral or in
connection with any litigation, proceeding or dispute in any respect
related to this Agreement or any of the Loan Documents (including, but
not limited to, all of the reasonable fees and disbursements of
consultants, legal advisers, accountants, experts and agents for
Secured Party, the reasonable travel and living expenses away from home
of employees, consultants, experts or agents of Secured Party, and the
reasonable fees of agents, consultants and experts not in the full-time
employ of Secured Party for services rendered on behalf of Secured
Party).
(e) Debtor hereby confirms to Secured Party the continuing and
immediate right of set-off of Secured Party with respect to all
deposits, balances and other sums credited by or due from Secured Party
or any of the offices or branches of Secured Party to Debtor, which
right is in addition to any other rights which Secured Party may have
under applicable law. Regardless of the adequacy of any Collateral, if
any principal, interest or other sum payable by Debtor to Secured Party
under the Note or any of the Loan Documents is not paid to Secured
Party punctually when the same shall first become due and payable
(after giving effect to any applicable grace period), or if any Event
of Default shall at any time occur, any deposits, balances or other
sums credited by or due from Secured Party or any of the offices or
branches of Secured Party to Debtor may, without any prior notice of
any kind to Debtor or compliance with any other conditions precedent
now or hereafter imposed by statute, rule or law or otherwise (all of
which are hereby expressly and irrevocably waived by Debtors to the
extent permitted by law), be immediately set off, appropriated and
applied by Secured Party toward the payment and satisfaction of the
Obligations (but not to any other obligations of such Debtor to Secured
Party until all of the Obligations have been paid in full) in such
order and manner as Secured Party (in its sole and complete discretion)
may determine.
6. NO WAIVER; CUMULATIVE REMEDIES.
Secured Party shall not by any act, delay, omission or otherwise be
deemed to have waived any of its rights or remedies hereunder and no waiver
shall be valid unless in writing, signed by the Secured Party, and then only to
the extent therein set forth. A waiver by Secured Party of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which Secured Party would otherwise have had on any future occasion. No
failure to exercise or any delay in exercising on the part of Secured Party any
right, power or privilege hereunder, shall operate
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<PAGE> 7
as a waiver thereof; nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
herein provided are cumulative and not exclusive of any rights and remedies
provided by law.
7. SEVERABILITY OF PROVISIONS.
The provisions of this Security Agreement are severable, and if any
clause or provision hereof shall be held invalid or unenforceable in whole or in
part, then such invalidity or unenforceability shall attach only to such clause
or provision, or part thereof and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision in this
Security Agreement in any jurisdiction.
8. AMENDMENTS; CHOICE OF LAW; BINDING EFFECT.
(a) None of the terms or provisions of this Security Agreement
may be altered, modified or amended except by an instrument in writing,
duly executed by each of the parties hereto.
(b) This Security Agreement shall be governed by and be
construed and interpreted in accordance with the laws of the State of
Ohio.
(c) This Security Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
assigns.
9. NOTICES.
All notices and demands hereunder shall be deemed to have been
delivered if made in accordance with the Credit Agreement. Such notices, if to
Secured Party, shall be to it at its address set forth therein, or if to Debtor,
shall be to it in care of Baldwin at Baldwin's address set forth in the Credit
Agreement. Either of the foregoing parties may change its address for notices
hereunder by giving notice of such change to the other party in accordance with
the provisions of the Credit Agreement.
10. HEADINGS.
The descriptive headings herein used are for convenience only and shall
not be deemed to limit or otherwise effect the construction of any provisions
hereof.
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<PAGE> 8
11. COUNTERPART EXECUTION.
Security Agreement may be executed in several counterparts each of
which together shall constitute one and the same agreement.
12. DEFEASANCE CLAUSE.
If the Debtor shall pay the Note secured by this Agreement and perform
the other Obligations, then this Agreement and the security interest in the
Collateral granted hereby shall be void and terminated and Secured Party agrees
to execute such documents and do such acts as are necessary to release and
terminate such liens.
[Remainder of page intentionally left blank. Signature page follows.]
8
<PAGE> 9
IN WITNESS WHEREOF, the undersigned have caused this Security Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized, at _________________________ on the day and year first above
written.
WITNESSES: DEBTOR
[SUBSIDIARY]
By:
- ----------------------------- ---------------------------
Name:
-------------------------
Title:
- ----------------------------- ------------------------
AGENT
THE FIFTH THIRD BANK, AS AGENT
By:
- ----------------------------- ---------------------------
Name:
-------------------------
Title:
- ----------------------------- ------------------------
9
<PAGE> 1
Exhibit 10.36
FORM OF SUBSIDIARY GUARANTY
---------------------------
THIS GUARANTY (this "Guaranty") is made as of this ___ day of October,
1997, by [NAME OF SUBSIDIARY], a[n] ______________ corporation (the
"Guarantor"), in favor of THE FIFTH THIRD BANK, as agent (the "Agent") for the
Lenders as set forth in the Credit Agreement (as hereinafter defined).
WHEREAS, Baldwin Piano & Organ Company, a Delaware corporation (the
"Debtor"), directly or indirectly owns one hundred percent (100%) of the issued
and outstanding capital stock of the Guarantor;
WHEREAS, Debtor, Agent and Lenders have entered into a certain Credit
Agreement dated as of October ___, 1997 (as amended, modified, supplemented or
restated from time to time, the "Credit Agreement"), pursuant to which the
Lenders have agreed to make certain loans and advances to Debtor on the terms
and conditions stated in the Credit Agreement;
WHEREAS, the Guarantor and the Debtor are members of the same
consolidated group of companies and are engaged in related businesses, and the
Guarantor will receive a portion of the proceeds of the Loans from the Debtor
and will derive substantial direct and indirect economic benefit therefrom;
WHEREAS, it is a condition precedent to the Credit Agreement that
Guarantor shall have entered in this Guaranty with the Agent, for the benefit of
the Lenders; and
NOW, THEREFORE, for and in consideration of the foregoing and to induce
the Agent and the Lenders to enter into the Credit Agreement and to induce the
Lenders to make loans and advances thereunder, the Guarantor hereby agrees as
follows:
1. DEFINITIONS. Unless otherwise defined herein, all capitalized terms
used herein shall have their meanings as set forth in the Credit Agreement. In
addition, as used herein:
"GUARANTOR NET WORTH" shall mean, as of any date of determination
thereof, the excess of (i) the amount of the "present fair saleable value" of
the assets of such Guarantor as of the date of such determination, over (ii) the
amount of all "liabilities of such Guarantor, contingent or otherwise," as of
the date of such determination, as such quoted terms are determined in
accordance with applicable federal and state laws governing determinations of
the insolvency of debtors.
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<PAGE> 2
"MAXIMUM GUARANTY LIABILITY" shall mean, as of any date of
determination thereof, the sum of (i) with respect to each Loan the proceeds of
which are used to make or the issuance of which constitutes a Valuable Transfer
to such Guarantor, the amount of such Loan PLUS (ii) with respect to each Loan
the proceeds of which are not used to make or the issuance of which does not
constitute a Valuable Transfer to such Guarantor, the lesser of (A) the
outstanding amount of such Loan as of such date or (B) the greater of (I)
ninety-five percent (95%) of the Guarantor Net Worth at the time of such Loan or
(II) ninety-five percent (95%) of the Guarantor Net Worth of such Guarantor at
the earliest of (x) such date, (y) the date of the commencement of a case under
Title 11 of the United States Bankruptcy Code, (or any successor provisions) in
which such Guarantor is a debtor or (z) the date enforcement hereunder is
sought.
"VALUABLE TRANSFERS" shall mean (i) all loans, advances or capital
contributions made to or for the benefit of such Guarantor with proceeds of
Loans, (ii) all debt securities or other obligations of such Guarantor acquired
by such Guarantor or retired by such Guarantor with proceeds of Loans, (iii) the
fair market value of all property acquired with proceeds of Loans, and
transferred, absolutely and not as collateral, to such Guarantor, and (iv) all
equity securities of such Guarantor acquired by such Guarantor with proceeds of
Loans.
2. GUARANTY OF PAYMENT.
(a) The Guarantor hereby irrevocably, absolutely and
unconditionally guarantees the full, prompt and complete payment when due,
subject to applicable grace periods, if any (whether at the stated maturity, by
acceleration or otherwise), of all Obligations (as defined in the Credit
Agreement), direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter incurred.
(b) The Guarantor agrees that the Obligations may at any time
and from time to time exceed the Maximum Guaranty Liability of the Guarantor,
without impairing this Guaranty or affecting the rights and remedies of Agent or
any Lender hereunder.
(c) The Guarantor acknowledges that valuable consideration
supports this Guaranty, including, without limitation, the consideration set
forth in the recitals above as well as any commitment to lend, extension of
credit or other financial accommodation, whether heretofore or hereafter made by
the Agent or any of the Lenders to the Debtor; any extension, renewal or
replacement of any of the Obligations; any forbearance with respect to any of
the Obligations or otherwise; any cancellation of an existing guarantee; any
purchase of any of the Debtor's assets by the Agent or any of the Lenders; or
any other valuable consideration.
3. THE LENDERS' AND AGENT'S COSTS AND EXPENSES. The Guarantor agrees to
pay on demand, if not paid by the Debtor, all costs and expenses of every kind
incurred by the Lenders or the Agent: (a) in enforcing this Guaranty, (b) in
collecting any of the Obligations from the Debtor or the Guarantor or any other
guarantor of the Obligations, and (c) in realizing upon or protecting
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<PAGE> 3
any collateral for this Guaranty or for payment of any of the Obligations.
"Costs and expenses" as used in the preceding sentence shall include, without
limitation, the reasonable attorneys' fees incurred by the Lenders and the Agent
in retaining counsel for advice, suit, appeal, any insolvency or other
proceedings under the United States Bankruptcy Code, or otherwise, or for any
purpose specified in the preceding sentence, and "Obligations" as used in this
Guaranty shall include, without limitation, such costs and expenses.
4. NATURE OF GUARANTY: CONTINUING, ABSOLUTE AND UNCONDITIONAL;
SUBROGATION WAIVER.
(a) This Guaranty is and is intended to be a continuing
guarantee of payment of the Obligations, independent of and in addition to any
other guarantee, indorsement, collateral or other agreement held by the Lenders
or the Agent therefor or with respect thereto, whether or not furnished by the
Guarantor. [Until payment in full of the Obligations as set forth herein, the
Guarantor agrees that it shall not have any rights (direct or indirect) of
subrogation, contribution, reimbursement, indemnification, or other rights of
payment or recovery from the Debtor or any other guarantor of the Obligations
for any payments made by the Guarantor hereunder, under any other agreement or
otherwise, and the Guarantor hereby irrevocably waives and releases, absolutely
and unconditionally, any such rights of subrogation, contribution,
reimbursement, indemnification and other rights of payment or recovery which it
may now have or hereafter acquire.]
(b) For the further security of the Agent and the Lenders and
without in any way diminishing the liability of the Guarantor, following the
occurrence of an Event of Default under the Credit Agreement and acceleration of
the Obligations, all debts and liabilities, present or future, of the Debtor to
the Guarantor and all monies received from the Debtor or for its account by the
Guarantor in respect thereof shall be received in trust for the Agent and the
Lenders and forthwith upon receipt shall be paid over to the Lenders until all
of the Obligations have been paid in full. This assignment and postponement is
independent of and severable from this Guaranty and shall remain in full effect
whether or not the Guarantor is liable for any amount under this Guaranty.
(c) This Guaranty is absolute and unconditional and shall not
be changed or affected by any representation, oral agreement, act or thing
whatsoever, except as herein provided. This Guaranty is intended by the
Guarantor to be the final, complete and exclusive representation of the
agreement between the Guarantor and the Agent and the Lenders. No modification
or amendment of any provision of this Guaranty shall be effective unless in
writing and signed by a duly authorized officer of the Agent.
5. CERTAIN RIGHTS AND OBLIGATIONS.
(a) This Guaranty shall not be affected, changed or diminished
in any respect by the taking or failure to take by the Lenders or the Agent,
without notice, demand or any reservation of rights against the Guarantor and
without affecting the Guarantor's obligations hereunder, from time to time, of
any actions: (i) to renew, extend, increase, accelerate or otherwise change the
time
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for payment of, the terms of or the interest on the Obligations or any part
thereof or grant other indulgences to the Debtor or others; (ii) to sell, assign
or transfer, or grant participations in, any of the Loans or other Obligations
or any of the Loan Documents to the extent permitted by, and in accordance with
the Credit Agreement; (iii) to accept from any person or entity and hold
collateral for the payment of the Obligations or any part thereof, and to
modify, exchange, enforce or refrain from enforcing, or release such collateral
or any part thereof; (iv) to accept and hold any indorsement or guarantee of
payment of the Obligations or any part thereof, and to discharge, release or
substitute any such obligation of any such indorser or guarantor, or any person
or entity who has given any security interest in any collateral as security for
the payment of the Obligations or any part thereof, or any other person or
entity in any way obligated to pay the Obligations or any part thereof, and to
enforce or refrain from enforcing, or compromise or modify, the terms of any
obligation of any such indorser, guarantor, person or entity; (v) to dispose of
any and all collateral securing the Obligations in any commercially reasonable
manner in accordance with the applicable terms of the Credit Agreement as the
Lenders or the Agent, in their or its sole and absolute discretion, may deem
appropriate, and to direct the order or manner of such disposition and the
enforcement of any and all endorsements and guaranties relating to the
Obligations or any part thereof as the Lenders or the Agent, in their or its
sole and absolute discretion, may determine; (vi) except as otherwise required
by the Credit Agreement, to determine the manner, amount and time of application
of payments and credits, if any, to be made on all or any part of any component
or components of the Obligations (whether principal, interest, costs, and
expenses, or otherwise); and (vii) to take advantage or refrain from taking
advantage of any security or accept or make or refrain from accepting or making
any compositions or arrangements when and in such manner as the Lenders or the
Agent, in their or its sole discretion, may deem appropriate and generally do or
refrain from doing any act or thing which might otherwise, at law or in equity,
release the liability of the Guarantor as a guarantor or surety in whole or in
part, and in no case shall the Lenders or the Agent be responsible or shall the
Guarantor be released either in whole or in part for any act or omission in
connection with the Lenders or the Agent having sold any security at an under
value so long as such sale shall have occurred in a commercially reasonable
manner.
(b) The Guarantor hereby agrees to make all payments hereunder
in full to the extent hereinafter provided: (i) without deduction by reason of
any setoff, defense (other than payment) or counterclaim; (ii) without requiring
protest or notice of nonpayment or notice of default or any other notice to the
Guarantor (or to the Debtor, except as may be provided by the Credit Agreement)
or to any other person or entity; (iii) without demand for payment or proof of
such demand; (iv) without requiring the Lenders or the Agent to resort first to
the Debtor (this being a guarantee of payment and not of collection) or to any
other guarantee or any collateral which the Lender or the Agent may hold; (v)
without requiring notice of acceptance hereof or assent hereto by the Lenders or
the Agent; and (vi) without requiring notice that any of the Obligations has
been incurred or of the reliance by the Lenders upon this Guaranty; all of the
foregoing which the Guarantor hereby waives.
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<PAGE> 5
(c) The Guarantor's obligation hereunder shall not be affected
by any of the following, all of which the Guarantor hereby waives: (i) any
failure to perfect or continue the perfection of any security interest in or
other lien on any collateral securing payment of any of the Obligations or the
Guarantor's obligation hereunder; (ii) the invalidity, unenforceability,
propriety of manner of enforcement of, or loss or change in priority of any such
security interest or other lien or guarantee of the Obligations; (iii) any
failure to protect, preserve or insure any such collateral except the willful
misconduct or gross negligence of the Agent or Lenders; (iv) the failure of the
Guarantor to receive notice of any intended disposition of such collateral; (v)
any defense arising by reason of the cessation from any cause whatsoever of
liability of the Debtor including, without limitation, any failure, negligence
or omission by the Lenders or the Agent in enforcing their or its claims against
the Debtor, except the willful misconduct or gross negligence of the Agent or
Lenders; (vi) any release (including adjudication or discharge in bankruptcy),
settlement or compromise of any obligation of the Debtor; (vii) the invalidity
or unenforceability of any of the Obligations; (viii) any bankruptcy,
insolvency, reorganization, arrangement, adjustment, composition, liquidation,
or the like of the Debtor or any of its Subsidiaries; (ix) any sale, transfer or
other disposition by the Debtor or any Subsidiary of the Debtor of any stock of
the Guarantor; or (x) the taking of any action against or the release of any
other guarantor of the Obligations.
6. ALLOCATION OF LIABILITY.
(a) Notwithstanding anything herein to the contrary, Guarantor's
liability hereunder shall be limited to the Maximum Guaranty Liability for
Guarantor as determined at the earlier of the date of commencement of a case
under Title 11 of the United States Bankruptcy Code, (or any successor
provisions) in which such Guarantor is a debtor or the date enforcement is
sought hereunder or under the Notes; PROVIDED, HOWEVER, that Guarantor shall be
jointly and severally liable for all advances, charges, costs and expenses,
including reasonable attorneys' fees incurred or paid by Agent or any Lender in
exercising any right, power or remedy conferred by this Agreement or any
enforcement thereof, including without limitation those additional costs, claims
and damages set forth in Article 2.
(b) Guarantor agrees that in the event of (i) the dissolution or
insolvency of Guarantor, (ii) the inability of Guarantor to pay its debts as
they become due, (iii) an assignment by Guarantor for the benefit of its
creditors, or (iv) the institution of any bankruptcy or other proceeding by or
against Guarantor alleging that such Guarantor is insolvent or unable to pay its
debts as they become due, and whether or not such event shall occur at a time
when the Obligations are not then due and payable, the other Guarantors shall
pay the Obligations promptly upon demand as if the Obligations were then due and
payable. Guarantor agrees that upon the filing by or against any other Guarantor
of any proceeding under any present or future provision of the United States
Bankruptcy Code or any other similar federal or state statute, until payment in
full of the Obligations as set forth herein, other Guarantors shall have no
right to contribution, indemnification, or any recourse whatsoever against the
bankrupt Guarantor for any liability incurred by the other Guarantors under the
terms of the Loan Documents. Guarantor agrees that this provision shall continue
to be effective or be reinstated, as
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the case may be, if at any time any payment, or any part thereof, of principal,
interest or any other amount with respect to the Obligations is rescinded or
must otherwise be restored by Agent or the Lenders upon the bankruptcy or
reorganization of Guarantor, any other Person or otherwise.
Guarantor further agrees that, to the extent that Guarantor makes a
payment to Agent, which payment or payments or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or otherwise
required to be repaid to another Guarantor, its estate, trustee, receiver or any
other party, including without limitation, under any bankruptcy law, state or
federal law, common law or equitable cause, then to the extent of such payment
or repayment, the obligation or part thereof which has been paid, reduced or
satisfied by such amount shall be reinstated and continued in full force and
effect as of the date such initial payment, reduction or satisfaction occurred.
7. REPRESENTATION AND WARRANTIES. The Guarantor represents and warrants
to the Lenders and the Agent that: (i) it is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation and has full corporate power, authority and legal right to own its
property and assets and to transact the business in which it is engaged; (ii) it
has full power, authority and legal right to execute and deliver, and to perform
its obligations under, this Guaranty, and has taken all necessary action to
authorize the guarantee hereunder on the terms and conditions of this Guaranty
and to authorize the execution, delivery and performance of this Guaranty; and
(iii) this Guaranty has been duly executed and delivered by the Guarantor and
constitutes a legal, valid and binding obligation of the Guarantor enforceable
against the Guarantor in accordance with its terms except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights generally or
equitable principles relating to enforceability.
8. ASSIGNMENT BY LENDERS. Any of the Lenders may, to the extent
permitted by, and in accordance with, the Credit Agreement, syndicate or sell,
assign, transfer or grant participations in certain portions of the Loans or
other Obligations, and in such event the Agent, on behalf of each and every
immediate and successive assignee, transferee or holder of or participant in all
or any of such Loans or other obligations, shall have the right to enforce this
Guaranty, by suit or otherwise, for the benefit of such assignee, transferee,
holder or participant as fully as if such assignee, transferee, holder or
participant were herein by name specifically given such rights, powers, and
benefits, but the Agent, on behalf of the Lenders, shall have an unimpaired
right, prior and superior to that of any assignee, transferee or holder to
enforce this Guaranty for the benefit of the Lenders or any such participant, as
to so much of the Loans or other Obligations as they have not sold, assigned or
transferred.
9. TERMINATION. This Guaranty shall remain in full force and effect
until all of the Obligations shall have been indefeasibly paid in full. If after
receipt of any payment of all or any part of the Obligations, the Lenders or the
Agent are for any reason compelled by court order to surrender such payment to
any person or entity, because such payment is determined to be void or voidable
as
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a preference, impermissible setoff, or a diversion of trust funds, or for any
reason, this Guaranty shall continue in full force notwithstanding any contrary
action which may have been taken by the Lenders or the Agent in reliance upon
such payment, and any such contrary action so taken shall be without prejudice
to the Lenders' or the Agent's rights under this Guaranty and shall be deemed to
have been conditioned upon such payment having become final and irrevocable.
10. MISCELLANEOUS.
(a) The "Debtor" and the "Guarantor" as used in this Guaranty
shall include: (i) any successor individual or individuals, association,
partnership or corporation to which all or a substantial part of the business or
assets of the Debtor or the Guarantor shall have been transferred and (ii) any
other corporation into or with which the Debtor or the Guarantor shall have been
merged, consolidated, reorganized, or absorbed.
(b) Without limiting any other right of the Lenders, upon the
occurrence of any Event of Default, the Agent or the Lenders, at its or their
sole election, may set off against such of the Obligations any and all moneys
then owed to the Guarantor by the Agent or the Lenders in any capacity, without
notice to the Guarantor or to any other Person, any such notice being hereby
expressly waived, and the Agent or the Lenders shall be deemed to have exercised
such right of set off immediately at the time of such election even though any
charge therefor is made or entered on the Agent's or the Lenders' records
subsequent thereto.
(c) The Guarantor's obligation hereunder is to pay the
Obligations in full when due, subject to applicable grace periods, if any,
according to the Credit Agreement to the extent provided herein, and shall not
be affected by any extension of time for payment by the Debtor resulting from
any proceeding under the United States Bankruptcy Code or similar law.
(d) No course of dealing between the Debtor or the Guarantor
and the Agent or the Lenders and no act, delay or omission by the Agent or the
Lenders in exercising any right or remedy hereunder or with respect to any of
the Obligations shall operate as a waiver thereof or of any other right or
remedy, and no single or partial exercise thereof shall preclude any other or
further exercise thereof or the exercise of any other right or remedy. The Agent
and/or the Lenders may remedy any default by the Debtor under any agreement with
the Debtor or with respect to any of the Obligations in any reasonable manner
without waiving the default remedied and without waiving any other prior or
subsequent default by the Debtor. All rights and remedies of the Lender
hereunder are cumulative.
(e) The term "Lenders" as used herein shall include all of the
successors or assigns of each of the Lenders. The rights and benefits of each
Lender hereunder shall, if such Lender so directs, inure to any party acquiring
any interest in the obligations or any part thereof.
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(f) The term "Agent" as used herein shall include the
successors or assigns of the Agent.
(g) Captions of the sections of this Guaranty are solely for
the convenience of the Agent, the Lenders and the Guarantor, and are not an aid
in the interpretation of this Guaranty.
(h) If any provision of this Guaranty is unenforceable in
whole or in part for any reason, the remaining provisions shall continue to be
effective.
(i) The obligation of the Guarantor pursuant to this Agreement
to make payment shall mean payment in the currency of the United States of
America and shall not be discharged or satisfied by any tender or recovery
pursuant to any judgment expressed in or converted into any other currency
except to the extent to which such tender or recovery shall result in the
effective receipt by the Agent or Lenders of the full amount at the time of such
payment of U.S. dollars payable or expressed to be payable under the Credit
Agreement to the Lenders equal to the U.S. Dollar equivalent of such judgment at
the time such judgment was rendered or entered. The Lenders shall have an
additional cause of action for the purpose of recovery in the other currency of
the amount (if any) by which such effective receipt shall fall short of the full
amount of U.S. dollars payable or expressed to be payable under this paragraph
shall not be affected by judgment being obtained for any other sums due under
this Agreement.
(j) THIS GUARANTY AND THE TRANSACTIONS EVIDENCED HEREBY SHALL
BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF OHIO, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
11. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. GUARANTOR HEREBY
CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE
COUNTY OF HAMILTON, STATE OF OHIO AND IRREVOCABLY AGREES THAT, SUBJECT TO
AGENT'S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
GUARANTY, THE OTHER LOAN DOCUMENTS OR ANY OBLIGATION SHALL BE LITIGATED IN SUCH
COURTS. GUARANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO
BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS GUARANTY, SUCH
OTHER LOAN DOCUMENT OR SUCH OBLIGATION. GUARANTOR DESIGNATES AND APPOINTS CT
CORPORATION SYSTEM AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY
GUARANTOR WHICH IRREVOCABLY AGREE IN WRITING TO SO SERVE AS ITS AGENT TO RECEIVE
ON ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT,
SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY GUARANTOR TO BE
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EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO
SERVED SHALL BE MAILED BY REGISTERED MAIL TO GUARANTOR AT ITS ADDRESS PROVIDED
IN THE GUARANTOR SECURITY AGREEMENT EXCEPT THAT UNLESS OTHERWISE PROVIDED BY
APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF
SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY GUARANTOR REFUSES TO ACCEPT
SERVICE, GUARANTOR HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE
VALID SERVICE OF PROCESS. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF AGENT OR ANY
LENDER TO BRING PROCEEDINGS AGAINST GUARANTOR IN THE COURTS OF ANY OTHER
JURISDICTION.
12. WAIVER OF JURY TRIAL. GUARANTOR, AGENT AND EACH LENDER HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS GUARANTY, ANY OF THE LOAN DOCUMENTS, OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION AND THE
LENDER/GUARANTOR RELATIONSHIP THAT IS BEING ESTABLISHED. GUARANTOR, AGENT AND
EACH LENDER ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH
MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF LENDERS. THE SCOPE OF THIS WAIVER IS
INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY
COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING
WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW AND STATUTORY CLAIMS. GUARANTOR, AGENT AND EACH LENDER
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
GUARANTY AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS. GUARANTOR, AGENT AND EACH LENDER FURTHER WARRANT AND REPRESENT
THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY,
THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE
LOANS OR THE GUARANTY. IN THE EVENT OF LITIGATION, THIS GUARANTY MAY BE FILED AS
A WRITTEN CONSENT TO A TRIAL BY THE COURT.
[Remainder of page intentionally left blank. Signature page follows.]
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by or on behalf of each of the parties as of the day and in the year first above
written in Cincinnati, Ohio.
SIGNED IN THE PRESENCE OF: GUARANTOR:
[NAME OF GUARANTOR]
By:
- ------------------------------ ---------------------------
Name:
---------------------------
Title:
- ------------------------------ ------------------------
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Exhibit 10.37
================================================================================
AMENDED AND RESTATED
PURCHASE AND ADMINISTRATION AGREEMENT
Dated as of October 31, 1997
Among
RETAILER FUNDING CORPORATION,
KEYBOARD ACCEPTANCE CORPORATION
and
BALDWIN PIANO & ORGAN COMPANY
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE II
DEFINITIONS...................................................................2
Section 1.01 Definitions............................................2
ARTICLE II
PURCHASE OF ELIGIBLE RECEIVABLES.............................................12
Section 2.01 The Initial Purchase..................................13
Section 2.02 Additional Purchases..................................13
Section 2.03 Deferred Purchase Price...............................14
Section 2.04 Increase of Commitment................................14
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS....................................15
Section 3.01 Representations and Warranties of Seller..............15
Section 3.02 Representations and Warranties of the Company.........17
Section 3.03 Covenants of Seller...................................18
Section 3.04 Representations and Warranties Deemed Made............22
Section 3.05 Receivable Repurchases................................23
ARTICLE IV
CONDITIONS PRECEDENT.........................................................23
Section 4.01 Conditions to the Obligations of the Company..........23
ARTICLE V
ADMINISTRATION, COLLECTIONS AND OTHER OBLIGATIONS............................25
Section 5.01 Appointment of Collection Agent.......................25
Section 5.02 Collections...........................................25
Section 5.03 Application of Collections............................27
Section 5.04 Settlement Statements; Weekly Reports.................29
<PAGE> 3
Section 5.05 Appointment of Successor Collection Agent.............30
Section 5.06 Compromise and Adjustment.............................31
Section 5.07 Interest Deficiency Payments..........................32
Section 5.08 Net Deposits..........................................32
Section 5.09 SWAPs.................................................32
Section 5.10 SWAP Advances.........................................32
Section 5.11 Grant of Security Interest; Remedies...................33
ARTICLE VI
PARENT GUARANTEE.............................................................34
Section 6.01 Unconditional Parent Guarantee........................34
Section 6.02 Validity..............................................35
Section 6.03 Waivers...............................................35
Section 6.04 Subrogation...........................................35
Section 6.05 Grant of Security Interest; Remedies..................35
ARTICLE VII
MISCELLANEOUS................................................................37
Section 7.01 Notices, etc..........................................37
Section 7.02 Successors and Assigns................................39
Section 7.03 Severability Clause...................................39
Section 7.04 Amendments; Governing Law.............................39
Section 7.05 Seller's Obligations..................................39
Section 7.06 Servicing Fee.........................................39
Section 7.07 Subordination of Deferred Purchase Price..............40
Section 7.08 Facility Fee..........................................43
Section 7.09 Bankruptcy Petition Against the Company...............43
Section 7.10 Setoff................................................43
Section 7.11 Remedies..............................................43
Section 7.12 Costs, Expenses and Taxes.............................43
Section 7.13 Optional Repurchase...................................43
Section 7.14 Further Assurances....................................43
ANNEX A Form of Monthly Portfolio Statement
ANNEX B Form of Monthly Settlement Statement
ANNEX C Purchase Discount Adjustment Criteria
ANNEX D Form of Sale and Assignment
ANNEX E Form of Additional Assignment
ANNEX F Form of Blocked Deposit Agreement
ANNEX G Form of Weekly Activity Report
ANNEX H Form of Support Agreement
<PAGE> 4
AMENDED AND RESTATED
PURCHASE AND ADMINISTRATION AGREEMENT
AMENDED AND RESTATED PURCHASE AND ADMINISTRATION AGREEMENT
(the "Agreement") dated as of October 31, 1997 among RETAILER FUNDING
CORPORATION, a Delaware corporation (together with its successors and assigns,
hereinafter referred to as the "Company"), KEYBOARD ACCEPTANCE CORPORATION, a
Delaware corporation (together with its successors and assigns hereinafter
referred to as the "Seller") and BALDWIN PIANO & ORGAN COMPANY, a Delaware
corporation (together with its successors and assigns, hereinafter referred to
as the "Parent"), to which General Electric Capital Corporation ("GECC") has
joined as a consenting party.
W I T N E S S E T H :
---------------------
WHEREAS, the Company, the Seller and the Parent entered into a
Purchase and Administration Agreement dated as of October 1, 1990, which
Purchase and Administration Agreement was amended by a First Amendment dated as
of February 15, 1994, a Second Amendment dated as of December 1, 1994, a Third
Amendment dated as of December 1, 1995 and a Fourth Amendment dated as of
November 1, 1996 (such Purchase and Administration Agreement as so amended, the
"Original Agreement");
WHEREAS, the Company, the Seller and the Parent wish to
further amend and restate the Original Agreement and GECC wishes to consent to
such further amendment and restatement;
WHEREAS, the Company and GECC have entered into a Liquidity
Agreement (the "Liquidity Agreement") dated as of the date of the Original
Agreement pursuant to which GECC has agreed to make available to the Company the
credit facilities described therein and the Company may issue Commercial Paper
(as hereinafter defined) to finance the purchase by the Company of
Receivables (as hereinafter defined) from the Seller;
WHEREAS, the Liquidity Agreement contemplates that Receivables
will be assigned by the Company as security for the Commercial Paper and for the
credit facilities described in the Liquidity Agreement;
WHEREAS, it is contemplated that following such purchase and
assignment of Receivables, the Seller will, as agent for the Company, collect
the sums due thereon from the obligors on the Receivables and account to the
Company therefor as provided for herein; and
WHEREAS, the Company has requested the Seller to undertake the
collection and servicing responsibilities in respect of the Receivables owned by
the Company from time to time;
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NOW, THEREFORE, the parties hereto agree that the Original
Agreement is amended and restated in its entirety as of the date hereof as
follows (as hereby amended and restated, the "Agreement"):
ARTICLE I
DEFINITIONS
Section 1.01 DEFINITIONS. As used herein the following terms
shall have the meanings herein specified:
"Additional Assignment" shall have the meaning set forth in
Section 2.02 hereof.
"Additional Receivable" shall have the meaning set forth in
Section 2.02 hereof.
"Adjustment Payment" shall have the meaning specified in
Section 5.06 hereof.
"Aggregate Interest Component" shall mean, with respect to any
Settlement Period, the sum for all Commercial Paper outstanding at any time
during such Settlement Period of an amount with respect to each Commercial Paper
Note outstanding at any time during such Settlement Period equal to the product
of (x) the Interest Component of such Commercial Paper Note multiplied by (y) a
fraction the numerator of which is the number of days during such Settlement
Period that such Commercial Paper Note was outstanding and the denominator of
which is the total number of days such Commercial Paper Note was or is scheduled
to be outstanding, as the case may be.
"Applicable Program Fee Percentage" shall mean, with respect
to any Settlement Period, (a) if Consolidated Book Net Worth is $35,000,000 or
less, 1.75%, (b) if Consolidated Book Net Worth is greater than $35,000,000 and
less than or equal to $40,000,000, 1.50%, (c) if Consolidated Book Net Worth is
greater than $40,000,000 and less than or equal to $50,000,000, 1.25%, or (d) if
Consolidated Book Net Worth is greater than $50,000,000, 1.00%.
"Blocked Deposit Account" shall have the meaning specified in
Section 5.02(b).
"Blocked Deposit Agreement" means an agreement by and among
the Seller, the Company, the Collateral Agent and a Blocked Deposit Bank in
substantially the form attached hereto as Annex F, establishing a Blocked
Deposit Account and specifying the rights of the Company and the Collateral
Agent in such Blocked Deposit Account.
"Blocked Deposit Bank" means any bank maintaining one or more
Blocked Deposit Accounts.
"Book Net Worth" shall mean, with respect to any Person, the
total assets less the total liabilities of such Person, as determined in
accordance with GAAP.
"Business Day" shall mean a day on which each of GECC, the
Collateral Agent and the Depositary is open at its respective address specified
in this Agreement or in the Security Agreement or Depositary Agreement, as the
case may be, for the purpose of conducting its business.
"Carrying Costs" shall mean, with respect to any Settlement
Period, the sum of (i) the Aggregate Interest Component for such Settlement
Period PLUS (ii) the aggregate amount of interest accrued during such Settlement
Period with respect to all Loans outstanding during such Settlement Period PLUS
(iii) the Program Fee payable with respect to such Settlement Period PLUS
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(iv) the fixed interest component, if any, payable by the Company on the
notional principal amount of SWAPs outstanding at any time during such
Settlement Period accrued from the first day through the last day of such
Settlement Period whether or not such fixed interest component is due and owing
during such Settlement Period PLUS (v) the amount, if any, paid by the Company
during such Settlement Period in connection with any termination of any SWAP
MINUS (vi) the sum of (1) the variable interest component, if any, receivable by
the Company on the notional principal amount of SWAPs outstanding at any time
during such Settlement Period accrued from the first day through the last day of
such Settlement Period whether or not such variable interest component is due
and owing during such Settlement Period and (2) the amount, if any, received by
the Company during such Settlement Period in connection with any termination of
any SWAP.
"Cash Percentage" shall mean at any time 90%, as the same may
be adjusted from time to time in accordance with the policies and criteria set
forth on Annex C hereto.
"Collateral Agent" shall have the meaning assigned to such
term in Section 7.01 of the Security Agreement.
"Collection Account" shall have the meaning assigned to such
term in Section 5.03 of the Liquidity Agreement and in Section 5.01 of the
Security Agreement.
"Collection Agent" shall have the meaning set forth in Section
5.01 hereof.
"Collection Agent Event of Default" shall have the meaning set
forth in Section 5.05 hereof.
"Collections" shall mean (i) all payments received in respect
of the Receivables, in the form of cash, checks, wire transfers, ATM transfers
or any other form of payment in accordance with the terms of a Receivable or
otherwise, (ii) all proceeds from the sale or other disposition of the
collateral securing a Receivable, (iii) any Adjustment Payments made pursuant to
Section 5.06 hereof and (iv) any dealer recourse payments or reserves which
dealer recourse payments or reserves are applied in respect of a Receivable.
"Commercial Paper" shall mean promissory notes of the Company
in the form of Exhibit B to the Depositary Agreement issued by the Company in
the commercial paper market pursuant to the Liquidity Agreement and the
Depositary Agreement, each such promissory note being referred to herein as a
"Commercial Paper Note".
"Commitment" shall mean the obligation of GECC to make Loans
with respect to the Seller in the maximum principal amount at any time
outstanding of $100,000,000, as such amount may be (x) terminated or reduced
from time to time pursuant to Section 4.02 of the Liquidity Agreement or (y)
increased from time to time as provided in Section 2.04 hereof.
"Commitment Commission" shall have the meaning specified in
Section 4.01 of the Liquidity Agreement.
"Company" shall have the meaning assigned to that term in the
introduction to this Agreement.
"Company Default" shall mean any event which with notice or
lapse of time, or both, would become a Company Event of Default.
"Company Event of Default" shall have the meaning set forth in
Section 8.01 of the Liquidity Agreement.
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"Consolidated Book Net Worth" shall mean, with respect to any
Settlement Period, the Book Net Worth of the Parent and its Subsidiaries as of
the last day of the preceding Settlement Period.
"Cumulative SWAP Payable" shall mean, as of any date of
determination thereof, the amount, if any, by which (x) the fixed interest
component payable by the Company on the notional principal amount of all
outstanding SWAPs accrued from the preceding SWAP Payment Date for each such
SWAP through the last day of the preceding Settlement Period exceeds (y) the
variable interest component receivable by the Company on the notional principal
amount of all outstanding SWAPs accrued from the preceding SWAP Payment Date for
each such SWAP through the last day of the preceding Settlement Period.
"Cut-Off Date" shall mean September 30, 1990.
"D&P" shall mean Duff & Phelps Credit Rating Co.
"Daily Accrual Factor" shall mean, with respect to any day, a
fraction the numerator of which is the number of days that have elapsed in the
current calendar month prior to such day and the denominator of which is the
total number of days in the current calendar month.
"Deferred Purchase Price" shall have the meaning set forth in
Section 2.03 hereof.
"Deposits Letter of Credit" shall mean an irrevocable letter
of credit in a stated amount of $1,500,000 naming the Collateral Agent as
beneficiary and permitting the Collateral Agent to make drawings thereunder for
any amounts required to be deposited in the Collection Account by the Seller or
the Collection Agent which are not so deposited on the date due; provided that
such letter of credit must be in form and substance satisfactory to the
Collateral Agent and must be issued by a banking institution approved by the
Collateral Agent.
"Documents" shall mean all documentation relating to the
Receivables including, without limitation, credit applications, billing
statements and computer records and programs.
"EBITDA" shall mean, for any period, the consolidated net
income (or net loss) of the Parent and its Subsidiaries for such period as
determined in accordance with GAAP, plus the sum of the following amounts of the
Parent and its Subsidiaries for such period to the extent included in the
determination of such net income (or net loss), (i) depreciation expense, (ii)
amortization expense, (iii) interest expense, and (iv) income tax expense.
"Effective Yield" shall mean the ratio (expressed as a
percentage) computed as of the last day of each Settlement Period by dividing
(a) the product of (x) 2 and (y) the sum of (1) the aggregate amount of all
interest and finance charges (and excluding in any event any late fees,
prepayment fees or other similar charges) accruing in respect of all Eligible
Receivables during the period of six consecutive Settlement Periods then ended
and (2) the amount, if any, by which (i) the variable interest component, if
any, receivable by the Company on the notional principal amount of all SWAPs
outstanding at any time during the period of six consecutive Settlement Periods
then ended accrued from the first day through the last day of such six-month
period whether or not such variable interest component is due and owing during
such six-month period exceeds (ii) the fixed interest component, if any, payable
by the Company on the notional principal amount of SWAPs outstanding at any time
during such six-month period accrued from the first day through the last day of
such six-month period whether or not such fixed interest component is due and
owing during such six-month period by (b) the average Unpaid Balance of
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<PAGE> 8
all Eligible Receivables as of the first day of each of the seven consecutive
Settlement Periods commencing with the first Settlement Period occurring during
such six-month period.
"Effective Yield Adjuster" shall mean, with respect to any
Settlement Period, an amount (but not less than zero) equal to the product of
(a) 1.5 and (b) the amount, if any, by which (x) 13.37% exceeds (y) the
Effective Yield as of the last day of the preceding Settlement Period.
"Eligible Receivable" shall mean each Receivable:
(a) which was originated in compliance with all applicable
requirements of law (including, without limitation, all laws, rules and
regulations relating to truth in lending, fair credit billing, fair
credit reporting, fair debt collection practices and privacy) and which
as of the date of this Purchase Agreement complies with all applicable
requirements of law;
(b) with respect to which all consents, licenses, approvals or
authorizations of, or registrations or declarations with, any
governmental authority required to be obtained, effected or given by
the Seller or the Parent in connection with the creation or the
execution, delivery and performance of such Receivable, have been duly
obtained, effected or given and are in full force and effect;
(c) as to which, at the time of the sale of such Receivable to
the Company, the Seller was the sole owner thereof and had good and
marketable title thereto free and clear of all Liens;
(d) which is the legal, valid and binding payment obligation
of the Obligor thereon enforceable against such Obligor in accordance
with its terms and is not subject to any right of rescission, setoff,
counterclaim or defense (including the defense of usury) or to any
repurchase obligation or return right;
(e) which constitutes "chattel paper" under and as defined in
Article 9 of the UCC of all applicable jurisdictions;
(f) which was established in accordance with the normal credit
extension procedures and standards of the Parent, the Seller or
Wurlitzer in the regular and ordinary course of the business of the
Parent, the Seller or Wurlitzer, as the case may be, and, subject to
review and approval by the Company of the applicable policies,
procedures and underwriting, may include Receivables originated from
non-Parent dealer programs;
(g) which is denominated and payable in U.S. dollars and is
only payable in the United States of America;
(h) other than a Receivable (A) as to which (i) as of the
Cut-Off Date (or in the case of Additional Receivables, as of the last
day of the preceding Settlement Period), any payment, or part thereof,
remains unpaid for 30 days or more past the due date for such payment
determined by reference to the original contractual payment terms
thereof, or (ii) the Obligor thereon shall generally not be paying its
debts as such debts become due or shall have admitted in writing its
inability to pay its debts generally or shall have made a general
assignment for the benefit of creditors or any proceeding shall have
been instituted by or against such Obligor seeking to adjudicate it a
bankrupt or insolvent or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or
composition of its or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of
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<PAGE> 9
debtor or seeking the entry of an order for relief or the appointment
of a receiver, trustee or other similar official for it or for any
substantial part of its property or such Obligor shall have taken any
corporate action to authorize any of the foregoing, or (iii) all of the
original obligors obligated thereon are deceased, or (B) which,
consistent with the internal credit and collection policies of the
Seller, the Parent or Wurlitzer, has been or should have been written
off as uncollectible;
(i) the terms of which at the time of its transfer to the
Company have not been modified or waived except as permitted under this
Purchase Agreement;
(j) which has no Obligor thereon that is an officer, director
or employee of the Parent, the Seller or any Subsidiary of the Parent;
and
(k) which bears interest on the principal balance thereof or
provides for the payment of finance charges in respect of the amount
financed at a rate per annum of not less than 9.9% (or such lower rate
as shall be approved from time to time by the Collateral Agent in a
particular case or generally, with the Collateral Agent hereby
approving a rate of not less than 6.9% per annum with respect to
Receivables constituting not more than 10% of the Outstanding Principal
Receivables) and is in substantially the form of one of the form
contracts set forth as Annex F hereto with such changes therein as may
be necessary or desirable from time to time in light of local statutes
or regulations.
"Excess Finance Charge Amount" shall mean with respect to any
Settlement Period (i) the aggregate Collections received during such Settlement
Period allocable to Finance Charge Receivables less (ii) the Carrying Costs with
respect to such Settlement Period.
"Facility Fee" shall have the meaning specified in Section
7.08 hereof.
"Finance Charge Receivables" shall mean all interest, finance
charges, late fees, prepayment fees or other fees which become due or owing
under a Receivable after the Cut-Off Date or, in the case of Additional
Receivables, the applicable Notice Date.
"Fixed Amount" shall mean, at any time, the aggregate notional
principal amount of all SWAPs outstanding at such time.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as from time to time in effect.
"GECC" shall mean General Electric Capital Corporation, a New
York corporation.
"Guarantor" shall mean General Electric Capital Corporation as
issuer of the Guaranty.
"Guaranty" shall mean a Guaranty Agreement in the form of
Exhibit C to the Liquidity Agreement entered into by GECC with respect to the
Receivables purchased by the Company from the Seller from time to time and
certain obligations of the Seller hereunder and any guaranty issued in
substitution therefor.
"Guaranty Fee" shall mean the fee payable by the Company to
GECC in respect of the Guaranty.
"Guaranty Letter of Credit" shall mean an irrevocable letter
of credit naming GECC as beneficiary and permitting GECC to make drawings
thereunder from time to time, in an aggregate principal amount not less than 2%
of the Outstanding Principal Receivables as of the earlier of (x) the Settlement
Date in the calendar month preceding the date of the related
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<PAGE> 10
payment under the Guaranty and (y) the Wind-Down Date, for any amounts required
to be reimbursed to GECC under the Guaranty which are not so reimbursed on the
date due; provided that such letter of credit must be in form and substance
satisfactory to GECC and must be issued by The Fifth Third Bank, NBD Bank, N.A.
or another banking institution approved by GECC.
"Indemnification Agreement" shall mean the indemnification
agreement among the Seller, GECC and each dealer for the Commercial Paper in the
form of Exhibit H to the Liquidity Agreement as the same may at any time be
further amended or modified and in effect.
"Ineligible Receivables" shall mean all Receivables which were
not Eligible Receivables on the date such Receivables were sold and assigned to
the Company pursuant to the terms of the Purchase Agreement.
"Initial Purchase Date" shall have the meaning set forth in
Section 2.01 hereof.
"Intercreditor Agreement" shall mean that certain letter
agreement dated as of October 31, 1997 by and among the Company, GECC, The Fifth
Third Bank, Seller and Parent, as the same shall be amended, modified or
supplemented from time to time in accordance with the terms thereof.
"Interest" shall mean, for any Person, determined on a
consolidated basis in accordance with GAAP, for any period, the net interest
expense for such period, plus (a) interest expense capitalized for such period
to the extent deducted in the determination of such net interest expense, less
(b) the sum of the following amounts with respect to such Person to the extent
included in such net interest expense of such Person for such period: (A) the
amount of amortized debt discount, (B) charges relating to write-ups or
write-downs in the book or carrying value of existing indebtedness, and (C) any
increase in pay-in-kind interest payable.
"Interest Component" shall mean (a) the portion of the face
amount of Commercial Paper issued on a discount basis representing the discount
incurred in respect thereof and (b) the amount of interest payable in respect of
such Commercial Paper issued on an interest-bearing basis.
"Interest Deficiency Payment" shall have the meaning set forth
in Section 5.07 hereof.
"KAC Obligations" shall mean all obligations and liabilities
of the Seller or the Collection Agent to the Company, GECC or the Collateral
Agent, howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter existing, or due or to become due,
under or in connection with this Agreement, including but not limited to the
obligation to make deposits of Collections and Seller Payables as provided
herein.
"Lien" shall mean any mortgage, pledge, assignment, lien,
security interest or other charge or encumbrance of any kind, including the
retained security title of a conditional vendor or a lessor.
"Loans" shall mean the Revolving Loans and the Refunding Loans
made to the Company pursuant to Article III of the Liquidity Agreement.
"Lockbox Account" shall have the meaning specified in Section
5.02(a).
"Moody's" shall mean Moody's Investors Service, Inc.
"Notice Date" shall mean, with respect to each Purchase Date
subsequent to the Initial Purchase Date, the last day of the calendar month
preceding such Purchase Date.
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"Obligor" shall mean, with respect to any Receivable, the
Person or Persons obligated to make payments with respect to such Receivable,
including any guarantor thereof.
"Origination Agreement" shall mean any agreement pursuant to
which KAC acquires a Receivable or agrees with a manufacturer to provide
financing to dealers or purchasers that results in the origination or
acquisition by KAC of Receivables.
"Outstanding Principal Receivables" shall mean at any time,
all Principal Receivables which have not been paid (but only to the extent
unpaid) and which do not constitute Uncollectible Receivables or Repurchased
Receivables.
"Outstanding Unpaid Receivable Losses Funding Amount" shall
mean, as of any date of determination thereof, the aggregate Unpaid Receivables
Losses Funding Amounts for all prior Settlement Periods which have not been paid
from the Excess Finance Charge Amount or the Purchase Discount Collections in
any subsequent Settlement Period or otherwise.
"Over-Collateralization Amount" shall mean with respect to any
Purchase Date an amount equal to the product of (a) the Outstanding Principal
Receivables being purchased on such Purchase Date and (b) the Purchase Discount.
"Parent" means Baldwin Piano & Organ Company, a Delaware
corporation and the parent corporation of the Seller and Wurlitzer.
"Parent Credit Agreement" shall mean that certain Credit
Agreement dated October 16, 1997 by and among Parent, the Fifth Third Bank, as
agent, and the lenders party thereto, as the same may be amended, modified or
supplemented from time to time in accordance with the terms thereof.
"Permitted Investments" means investments, having maturities
of not more than 270 days at the date of purchase, made by the Collateral Agent
from time to time with Deposited Funds in the following: (i) obligations issued
by, or the principal of and interest on which is fully guaranteed by, the United
States of America; (ii) commercial paper rated A-1+ by S&P and P-1 by Moody's;
(iii) certificates of deposit, other deposits or bankers' acceptances issued by
or established with commercial banks having (or in the case of a bank which is
the principal subsidiary of a bank holding company, such bank holding company
has) unimpaired capital and unimpaired surplus of at least $250,000,000 and (a)
whose commercial paper is rated A-1+ by S&P and P-1 by Moody's, and (b) the
deposits in which are insured by the Federal Deposit Insurance Corporation; and
(iv) repurchase agreements, with a term of no more than 30 days, involving any
of the Permitted Investments described in clauses (i) through (iii) hereof.
"Person" shall mean and include an individual, a partnership,
a corporation (including a business trust), a joint stock company, a trust, an
unincorporated association, a joint venture or other entity or a government or
an agency or political subdivision thereof.
"Portfolio Settlement Statement" shall have the meaning
provided in Section 5.04 hereof.
"Principal Component" shall mean (A) the excess of the face
amount of Commercial Paper issued on a discount basis over the Interest
Component thereof and (B) the principal amount of Commercial Paper issued on an
interest-bearing basis.
"Principal Receivables" shall mean all amounts due or owing in
respect of a Receivable other than Finance Charge Receivables.
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<PAGE> 12
"Program Fee" shall mean, with respect to each Settlement
Period, an amount equal to the sum of (i) the product of (x) the Applicable
Program Fee Percentage with respect to such Settlement Period MULTIPLIED BY (y)
the actual number of days elapsed during such Settlement Period divided by 360
MULTIPLIED BY (z) the average daily amount of Commercial Paper outstanding
during such Settlement Period plus (ii) the product of (x) 0.50% MULTIPLIED BY
(y) the number of days elapsed during such Settlement Period divided by 360
MULTIPLIED BY (z) an amount equal to (1) the Commitment MINUS (2) the sum of the
average daily amount of Commercial Paper outstanding during such Settlement
Period and the average daily amount of Loans outstanding during such Settlement
Period.
"Purchase Date" shall have the meaning set forth in Section
2.02 hereof.
"Purchase Discount" shall mean 10%, as the same may be
adjusted from time to time in accordance with the policies and criteria set
forth on Annex C hereto.
"Purchase Discount Collections" shall mean, with respect to
any Settlement Period, the product of (x) the sum of (i) the Collections
received during such Settlement Period allocable to Principal Receivables plus
(ii) the amount of any repurchase payment made by the Seller pursuant to Section
3.05 hereof on the Settlement Date immediately succeeding such Settlement Period
which is allocable to Principal Receivables plus (iii) the amount of any
purchase payment made by the Collection Agent pursuant to Section 5.02(c) hereof
on the Settlement Date immediately succeeding such Settlement Period which is
allocable to Principal Receivables, and (y) the Purchase Discount.
"Receivable" shall mean a retail installment sales contract
executed by the respective Obligor and identified by account number, account
name and outstanding principal balance on Schedule I hereto; PROVIDED that from
and after each Purchase Date subsequent to the Initial Purchase Date, each
Additional Receivable identified on Schedule I to an Additional Assignment
delivered in accordance with Section 2.02 hereof shall be a Receivable and
Schedule I hereto shall be deemed to be amended and supplemented to include each
such Additional Receivable; and PROVIDED FURTHER, that from and after the date
of any repurchase of a Receivable by the Seller in accordance with Section 3.05
hereof or by the Collection Agent in accordance with Section 5.02(c) hereof,
such Repurchased Receivable shall no longer be a Receivable.
"Receivable Losses" shall mean, with respect to any Settlement
Period, the Unpaid Balance of the Receivables which became Uncollectible
Receivables during such Settlement Period.
"Receivable Losses Funding Amount" shall mean, with respect to
any Settlement Period, the product of (x) the Cash Percentage and (y) the
Receivables Losses for such Settlement Period.
"Recoveries" shall mean, with respect to any Settlement
Period, all Collections received during such Settlement Period in respect of
Receivables which became Uncollectible Receivables prior to the first day of
such Settlement Period.
"Refunding Loans" shall mean the Refunding Loans made to the
Company by GECC pursuant to Section 3.01(c) of the Liquidity Agreement.
"Repurchased Receivable" shall mean any Receivable which is
repurchased by the Seller pursuant to Section 3.05 hereof.
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"Retail Purchase Agreement" shall mean the Retail Accounts
Receivable Purchase Agreement dated as of October 1, 1990 by and among the
Parent, Wurlitzer and the Seller as amended, supplemented and modified through
the date hereof.
"Revolving Loans" shall mean the Revolving Loans made to the
Company by GECC pursuant to Section 3.01(b) of the Liquidity Agreement.
"S&P" shall mean Standard & Poor's Corporation.
"Security Agreement" shall mean the Security Agreement among
the Company, GECC and the Collateral Agent, dated as of June 28, 1988, as the
same may at any time be amended or modified and in effect, in accordance with
the terms hereof and thereof.
"Seller" shall mean Keyboard Acceptance Corporation (formerly
BPO Finance Corporation), a Delaware corporation.
"Seller Default" shall mean any event which with notice or
lapse of time, or both, would become a Seller Event of Default.
"Seller Documents" shall mean and include this Agreement, the
Guaranty, the Indemnification Agreement, the Assignment, each Additional
Assignment and the Consent and Acknowledgment to Security Agreement executed by
the Seller.
"Seller Event of Default" shall have the meaning set forth in
Section 8.02 of the Liquidity Agreement.
"Seller Payables" shall mean (i) the obligation of the Seller
to repurchase, pursuant to Section 3.05 hereof, any Receivable which was not an
Eligible Receivable on the date such Receivable was sold by the Seller to the
Company, (ii) the Seller's obligation to make Interest Deficiency Payments
pursuant to Section 5.07 hereof, and (iii) all other amounts owed by the Seller
to the Company from time to time pursuant to this Agreement.
"Senior Indebtedness" shall have the meaning specified in
Section 7.07 hereof.
"Servicing Fee" shall have the meaning specified in Section
7.06 hereof.
"Settlement Date" shall mean, with respect to each Settlement
Period, the fifteenth Business Day following the last day of such Settlement
Period.
"Settlement Period" shall mean the period of time commencing
on the first day in a calendar month to and including the last day in such
calendar month, PROVIDED that the initial Settlement Period shall commence on
October 1, 1990 and end on October 31, 1990.
"Settlement Statement" shall have the meaning provided in
Section 5.04 hereof.
"Subsidiary" of any Person means any corporation, of which
more than 50% of the total voting power of voting securities shall at the time
be owned or controlled, either directly or indirectly, by such Person or one or
more other Subsidiaries of such Person.
"Support Agreements" shall mean letter agreements in the form
attached hereto as Annex H executed by certain officers of the Parent.
"SWAP" shall mean an interest rate exchange agreement (i)
entered into by the Company at the request of the Seller as provided in Section
5.09 hereof and (ii) satisfying all of the terms and conditions of Section 10.15
of the Liquidity Agreement.
"SWAP Advance" shall have the meaning specified in Section
5.10 hereof.
"SWAP Counterparty" shall have the meaning specified in
Section 10.15 of the Liquidity Agreement.
"SWAP Deficit" shall have the meaning specified in Section
5.10 hereof.
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"SWAP Excess" shall mean, with respect to any Settlement
Period, the amount, if any, by which (x) the variable interest component, if
any, receivable by the Company on the notional principal amount of SWAPs
outstanding at any time during such Settlement Period accrued from the first day
through the last day of such Settlement Period whether or not such variable
interest component is due and owing during such Settlement Period EXCEEDS (y)
the fixed interest component, if any, payable by the Company on the notional
principal amount of SWAPs outstanding at any time during such Settlement Period
accrued from the first day through the last day of such Settlement Period
whether or not such fixed interest component is due and owing during such
Settlement Period.
"SWAP Notice" shall have the meaning specified in Section 5.09
hereof.
"SWAP Payment Date" shall mean any day designated as a payment
date pursuant to the terms of a SWAP.
"SWAP Shortfall" shall mean, with respect to any Settlement
Period, the amount, if any, by which (x) the fixed interest component, if any,
payable by the Company on the notional principal amount of SWAPs outstanding at
any time during such Settlement Period accrued from the first day through the
last day of such Settlement Period whether or not such fixed interest component
is due and owing during such Settlement Period EXCEEDS (y) the variable
interest component, if any, receivable by the Company on the notional principal
amount of SWAPs outstanding at any time during such Settlement Period accrued
from the first day through the last day of such Settlement Period whether or
not such variable interest component is due and owing during such Settlement
Period.
"SWAPs Sub-Account" shall have the meaning specified in
Section 5.03 of the Liquidity Agreement.
"Tangible Net Worth" shall mean of any Person, at any date,
determined on a consolidated basis in accordance with GAAP, the total assets of
such Person (which shall be valued at cost less normal depreciation) less:
(a) all items which are treated as intangibles in accordance
with GAAP, including, without limitation, (i) excess cost over book value of
businesses acquired; (ii) patents and patent rights; (iii) trademarks and trade
names; (iv) copyrights; (v) goodwill; (vi) organization cost; (vii) government
licenses; (viii) franchises; (ix) mailing lists; (x) exploration permits; (xi)
import and export permits; and (xii) bond or debenture discounts; and
(b) Total Liabilities.
"Termination Date" shall mean the date on which GECC gives
the Depositary and the Company instructions to cease issuing or delivering
Commercial Paper in accordance with the terms of Section 2.01(a) of the
Liquidity Agreement.
"Total Liabilities" of any Person means, at any date, the
total liabilities of such Person and its Subsidiaries at such date determined
on a consolidated basis in accordance with GAAP. "UCC" shall mean, with respect
to any state, the Uniform Commercial Code as from time to time in effect in
such state.
"Uncollectible Receivable" shall mean any Receivable (i)
which has been written off as uncollectible by the Seller in its capacity as
Collection Agent for the Company pursuant to
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this Agreement, in accordance with the customary and usual servicing procedures
of the Seller and the Parent for servicing retail installment sale contracts or
(ii) as to which any payment, or part thereof, remains unpaid for 121 days or
more past the due date for such payment determined by reference to the original
contractual payment terms of such Receivable.
"Unpaid Balance" shall mean with respect to any Receivable the
aggregate amount required to prepay in full the principal of, and all interest,
finance, prepayment and other fees or charges of any kind payable in respect of,
such Receivable.
"Unpaid Receivable Losses Funding Amount" shall mean, with
respect to any Settlement Period, the amount, if any, by which (x) the
Receivable Losses Funding Amount with respect to such Settlement Period exceeds
(y) the sum of (1) the Excess Finance Charge Amount for such Settlement Period
and (2) the Purchase Discount Collections for such Settlement Period.
"Weekly Activity Report" shall have the meaning specified in
Section 5.04(b).
"Wind-Down Date" shall mean the earliest to occur of (i) the
Settlement Date immediately following any period of three consecutive Settlement
Periods in which the Receivable Losses exceeds an annualized rate equal to 12%
of the average outstanding Principal Receivables, (ii) the first Settlement Date
to occur after (w) the Termination Date, (x) the 30th day following the date on
which GECC gives the Seller notice of its decision to cease providing credit
support for the purchase of Additional Receivables by the Company, (y) GECC has
notified the Company pursuant to Section 8.01 of the Liquidity Agreement that a
Company Event of Default exists or (z) GECC has notified the Company pursuant to
Section 8.02 of the Liquidity Agreement that a Seller Event of Default exists,
(iii) the first Settlement Date on which the product of the Cash Percentage and
the Unpaid Balance of the Receivables is less than or equal to the greater of
(x) $25,000,000 or (y) the Fixed Amount at such time, (iv) October 31, 2001, (v)
the first Settlement Date to occur after any date on which the Seller is not a
Subsidiary of the Parent unless GECC shall have given its prior written consent
to such change in the ownership of the Seller, (vi) the first Settlement Date to
occur after the Expiration Date (as defined in the Liquidity Agreement), (vii)
the first Settlement Date on which the Outstanding Principal Receivables divided
by the Principal Component of outstanding Commercial Paper shall be less than
1.09, as such number may be adjusted from time to time in accordance with the
policies and criteria set forth on Annex C hereto, (viii) the 120th day
following the delivery by the Seller of a termination notice in accordance with
the provisions of Section 2.04(b) of this Agreement, (ix) the first Settlement
Date on which the ratio of (a) all Outstanding Principal Receivables that are
less than 31 days past due to (b) all Outstanding Principal Receivables, is less
than 85% or (x) the date which is eighteen (18) months prior to the expiry date
of the Guaranty Letter of Credit, as such expiry date may be extended form time
to time.
"Written" or "in writing" shall mean any form of written
communication or communication by means of telex, telecopier or telegraph.
"Wurlitzer" shall mean The Wurlitzer Company, a Delaware
corporation which is a wholly-owned subsidiary of the Parent.
ARTICLE II
PURCHASE OF ELIGIBLE RECEIVABLES
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Section 2.01 THE INITIAL PURCHASE. (a) Subject to and upon the
terms and conditions herein set forth, the Company shall purchase from the
Seller, and the Seller shall sell and assign to the Company, on October 25, 1990
(the "Initial Purchase Date"), pursuant to the form of Sale and Assignment
attached hereto as Annex D, all right, title and interest of the Seller in, to
and under the Receivables existing on the Cut-Off Date, together with all monies
due or to become due and all amounts received with respect thereto (including
all Finance Charge Receivables), all proceeds thereof, including the proceeds of
any sale or disposition of any goods or merchandise subject thereto and all
right, title and interest of the Seller in, to and under the Retail Purchase
Agreement in respect thereof. The purchase price for such Receivables shall
consist of (1) an amount equal to the product of (x) the Outstanding Principal
Receivables on the Cut-Off Date and (y) the Cash Percentage, which amount shall
be paid by the Company in cash to the Seller on the Initial Purchase Date and
(2) the Deferred Purchase Price specified in Section 2.03.
(b) In connection with such sale, the Seller shall, at its own
expense, on or prior to the Initial Purchase Date (1) indicate in its computer
files that the Receivables have been transferred to the Company, (2) deliver to
the Company a computer printout containing a true and complete list showing for
each Receivable, as of the Cut-Off Date: (i) its account number, (ii) its
account name and (iii) the unpaid principal balance thereof and (3) execute and
file UCC-1 financing statements with respect to the Receivables now existing and
hereafter acquired by the Company from the Seller pursuant to this Agreement
meeting the requirements of the UCC and all other applicable state law in such
manner and in such jurisdictions as are necessary to perfect the sale of the
Receivables from the Seller to the Company.
Section 2.02 ADDITIONAL PURCHASES. (a) Subject to and upon the
terms and conditions herein set forth, on the first Settlement Date and on each
Settlement Date thereafter prior to the earlier of a Wind-Down Date or the date
of a Collection Agent Event of Default specified in Section 5.05(g) (the Initial
Purchase Date and each such Settlement Date on which a purchase shall occur, a
"Purchase Date"), the Seller shall offer to sell and assign to the Company, and
the Company shall purchase from the Seller, all right, title and interest of the
Seller in, to and under each retail installment sale contract originated by the
Parent, the Seller or Wurlitzer during or prior to the preceding Settlement
Period which satisfies each of the criteria specified in the definition of
Eligible Receivable (each such retail installment sale contract, an "Additional
Receivable"), together with all monies due or to become due and all amounts
received with respect thereto (including Finance Charge Receivables), and all
proceeds thereof, including the proceeds of any sale or disposition of any goods
or merchandise subject thereto and all right, title and interest of the Seller
in, to and under the Retail Purchase Agreement or any other Origination
Agreement in respect thereof. The purchase price for such Additional Receivables
shall consist of (1) an amount equal to the product of (x) the Outstanding
Principal Receivables being purchased as of the Notice Date and (y) the Cash
Percentage, which shall be payable in cash on such Purchase Date and (2) the
Deferred Purchase Price specified in Section 2.03. All such subsequent sales and
assignments shall be made pursuant to the form of Additional Assignment attached
hereto as Annex E. No purchase of Receivables shall be made pursuant to this
Section 2.02 (i) after a Wind-Down Date shall have occurred or (ii) if after
giving effect thereto the
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Outstanding Principal Receivables would exceed the Commitment. If at any time
the Commercial Paper shall no longer be rated at least "D-1" in the case of D&P,
"P-1" in the case of Moody's and "A-1" in the case of S&P, the Seller shall not
be obligated to offer to sell and assign Additional Receivables to the Company,
but may, at its option, unless a Wind-Down Date shall have occurred, elect to do
so, in which event the Company shall be obligated to purchase such Additional
Receivables from the Seller in accordance with the terms hereof.
(b) In connection with each sale pursuant to Section 2.02(a)
hereof, the Seller shall, at its own expense, on or prior to the related
Purchase Date (1) deliver to the Company an executed Additional Assignment which
shall have attached thereto as Schedule I a list identifying each Additional
Receivable being sold and assigned to the Company on such Purchase Date by
account number, account name and outstanding principal balance, (2) indicate in
its own computer files that such Additional Receivables have been transferred to
the Company pursuant to this Agreement, (3) make such additional UCC financing
statement filings, if any, as may be necessary under the UCC and applicable law
to perfect the sale of such Additional Receivables from the Seller to the
Company and (4) mark each Additional Receivable with a legend stating that such
Additional Receivable has been transferred to the Company pursuant to this
Agreement.
Section 2.03 DEFERRED PURCHASE PRICE. On the Initial Purchase
Date and on each subsequent Purchase Date the Company shall create an obligation
(the "Deferred Purchase Price") in favor of the Seller in respect of the
Receivables purchased on such Purchase Date in an amount equal to the
Over-Collateralization Amount, which shall represent contingent deferred
purchase price for such Receivables and shall be payable only to the extent
provided in, and solely in accordance with the terms of, Section 5.03(b) and
Section 7.07 hereof. The Deferred Purchase Price will be reduced on each
Settlement Date by an amount equal to the sum of (i) the Purchase Discount
Collections plus (ii) the product of (x) the Purchase Discount and (y) the
Receivable Losses for such preceding Settlement Period.
Section 2.04 INCREASE OF COMMITMENT. (a) The Seller shall have
the right from time to time to increase the Commitment to an amount not in
excess of $150,000,000 by giving at least thirty days' prior written notice to
the Company and GECC; PROVIDED that, unless such increase in the Commitment
causes the Commitment to equal $150,000,000 such increase must be in an amount
equal to $10,000,000 or an integral multiple thereof and there must not have
been more than one prior increase in the Commitment during the preceding twelve
months. Any such increase in the Commitment shall be effective on the scheduled
date specified in the Seller's notice.
(b) The Seller shall have the right, at any time and from time
to time, to request in writing that the Commitment be increased to an amount in
excess of $150,000,000. Upon the concurrence of the Company and GECC, in their
sole and absolute discretion, this Agreement shall be amended to reflect the
increased Commitment. In the event that (x) the Seller requests an increase in
the Commitment pursuant to this Section 2.04(b), such request is accompanied by
financial and portfolio projections supporting the amount of such increase, the
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Seller has provided the Company with such information as the Company shall
reasonably request in connection with its approval process, and the sum of the
outstanding Commercial Paper and Loans on the date of such request is in excess
of $142,500,000 and (y) GECC and the Company shall not have agreed to such
increase within 90 days following the date of such request, the Seller shall
have the right to terminate this Agreement, without any premium or penalty
whatsoever, by providing the Company with 120 days' prior written notice
thereof.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 3.01 REPRESENTATIONS AND WARRANTIES OF SELLER. The
Seller represents and warrants to the Company that:
(a) Each of the Seller and the Parent has been duly organized
and is validly existing and in good standing under the laws of the
State of Delaware, with full corporate power and authority to own its
properties and to conduct its business as presently conducted. Each of
the Seller and the Parent is duly qualified to do business and is in
good standing as a foreign corporation (or is exempt from such
requirements), and has obtained all necessary licenses and approvals,
in each jurisdiction in which failure to so qualify or to obtain such
licenses and approvals would have a material adverse effect on the
conduct of the Seller's or the Parent's business.
(b) The sale of Receivables pursuant to this Agreement, the
performance of its obligations under this Agreement and the
consummation of the transactions herein contemplated have been duly
authorized by all requisite corporate action and will not conflict with
or result in a breach of any of the terms or provisions of, or
constitute a default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of its property or assets or
upon that of the Parent or any Subsidiary pursuant to the terms of any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which it, the Parent or any Subsidiary is a party or
by which it, the Parent or any Subsidiary is bound or to which any
property or assets of it, the Parent or any Subsidiary is subject, nor
will such action result in any violation of the provisions of its
articles of incorporation or by-laws or of any statute or any order,
rule or regulation of any federal or state court or governmental agency
or body having jurisdiction over it, the Parent or any Subsidiary or
any of their respective properties; and no consent, approval,
authorization, order, registration or qualification of or with any such
court or any such regulatory authority or other such governmental
agency or body is required to be obtained by or with respect to the
Seller, the Parent or any Subsidiary for the sale of Receivables or the
consummation of the transactions contemplated by this Agreement.
(c) This Agreement has been duly executed and delivered by the
Seller and constitutes a valid and legally binding obligation of the
Seller, enforceable against the
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Seller in accordance with its terms, except that the enforceability
thereof may be subject to (a) the effects of any applicable bankruptcy,
insolvency, reorganization, receivership, conservatorship or other
laws, regulations and administrative orders affecting the rights of
creditors generally and (b) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or
law). This Agreement has been duly executed and delivered by the Parent
and constitutes a valid and legally binding obligation of the Parent,
enforceable against the Parent in accordance with its terms, except
that the enforceability thereof may be subject to (a) the effects of
any applicable bankruptcy, insolvency, reorganization, receivership,
conservatorship or other laws, regulations and administrative orders
affecting the rights of creditors generally and (b) general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or law).
(d) The Seller is, as of the time of the transfer to the
Company of each Receivable being sold to the Company on the Initial
Purchase Date, and will be, as of the time of the transfer to the
Company of each Receivable sold to the Company on any subsequent
Purchase Date, the sole owner of such Receivable free from any lien,
security interest, encumbrance or other right, title or interest of any
Person. Each Receivable existing on the Initial Purchase Date has been,
and in the case of Additional Receivables sold hereafter such
Additional Receivables will be, on the applicable Purchase Date,
conveyed to the Company free and clear of any Lien.
(e) There is no effective financing statement (or similar
statement or instrument of registration under the law of any
jurisdiction) now on file or registered in any public office filed by
or against the Seller, the Parent or any Subsidiary or purporting to be
filed on behalf of the Seller, the Parent or any Subsidiary covering
any interest of any kind in any Receivables which are being, or which
hereafter will be, sold to the Company, and the Seller will not execute
nor will there be on file in any public office any effective financing
statement (or similar statement or instrument of registration under the
laws of any jurisdiction) or statements relating to such Receivables,
except in each case any financing statements filed in respect of and
covering the purchase of the Receivables by the Company pursuant to
this Agreement, the security interest created pursuant to the Security
Agreement and the security interests created pursuant to the Revolving
Credit and Security Agreement and the Subsidiary Security Agreement.
(f) All filings and recordings (including pursuant to the UCC)
required to perfect the title of the Company in each Receivable sold
hereunder have been accomplished and are in full force and effect and
the Seller shall at its expense perform all acts and execute all
documents reasonably requested by the Company at any time and from time
to time to evidence, perfect, maintain and enforce the title or the
security interest of the Company or the Collateral Agent in the
Receivables and the priority thereof.
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(g) All Receivables sold and assigned to the Company on the
Initial Purchase Date are Eligible Receivables and all Receivables sold
and assigned to the Company on any Purchase Date subsequent to the
Initial Purchase Date will be Eligible Receivables as of such Purchase
Date.
(h) As of the Initial Purchase Date, Schedule 1 to this
Agreement is, and as of the applicable Purchase Date with respect to
Additional Receivables, Schedule I to the applicable Additional
Assignment will be, an accurate and complete listing of all the
Receivables as of the Cut-Off Date or the last day of the Settlement
Period preceding such Purchase Date, as the case may be, and the
information contained therein with respect to such Receivables is true
and correct as of such date. As of the Initial Purchase Date the
aggregate amount of the Outstanding Principal Receivables was
$45,486,051.16.
(i) With respect to the Receivables existing as of the Cut-Off
Date, this Agreement and the Sale and Assignment referred to in Section
2.01, and, in the case of Additional Receivables sold to the Company
hereafter, the related Additional Assignment, constitute a valid sale,
transfer and assignment to the Company of all right, title and interest
in the Receivables and Additional Receivables and the proceeds thereof,
or, if this Agreement does not constitute a sale of such property, it
constitutes a grant of a "security interest" in such property to the
Company, which, in the case of existing Receivables and the proceeds
thereof, is enforceable upon execution and delivery of this Agreement
and which will be enforceable with respect to Additional Receivables
and the proceeds thereof upon the transfer and assignment of such
Additional Receivables to the Company. Upon the filing of the financing
statements described in Section 3.01(f) and, in the case of the
Additional Receivables hereafter sold to the Company and the proceeds
thereof, upon the transfer thereof to the Company, the Company shall
have a first priority perfected security or ownership interest in such
property. Except as otherwise provided in this Agreement, neither the
Seller nor the Parent nor any Subsidiary of the Parent nor any Person
claiming through or under the Seller, the Parent or any Subsidiary of
the Parent has any claim to or interest in the Collection Account, the
Cash Collateral Account or the Commercial Paper Account.
Section 3.02 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Seller that:
(a) The Company has been duly organized and is validly
existing and in good standing as a corporation under the laws of the
State of Delaware, with full corporate power and authority to own its
properties and to transact the business in which it is now engaged or
in which it proposes to engage.
(b) The purchase by the Company of Receivables pursuant to
this Agreement and the consummation of the transactions herein
contemplated will not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default under or, except as
contemplated hereby and by the Security Agreement, result in the
creation or
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imposition of any lien, charge or encumbrance upon any of the property
or assets of the Company pursuant to the terms of, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company is a party or by which it is bound or
to which any of the property or assets of the Company is subject, nor
will such action result in any violation of the provisions of the
certificate of incorporation or the by-laws of the Company or of any
statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or any of its
properties or assets; and no consent, approval, authorization, order,
registration or qualification of or with any court or any such
regulatory authority or other governmental agency or body is required
for the purchase by the Company of Receivables hereunder.
(c) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the valid and legally binding
obligation of the Company enforceable against the Company in accordance
with its terms, except that the enforceability thereof may be subject
to (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
and (b) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or law).
Section 3.03 COVENANTS OF SELLER. The Seller covenants and
agrees with the Company as follows:
(a) The chief executive office of each of the Seller, the
Parent and Wurlitzer is located in Loveland, Ohio. Originals or
duplicates of Documents evidencing all Receivables are kept at, and
only at, said offices, or at Parent offices located in Loveland, Ohio,
and neither the Parent nor the Seller nor Wurlitzer will move its chief
executive office or permit the Documents and books evidencing the
Receivables to be moved unless (i) the Seller shall have given to the
Company and GECC not less than 45 days' prior written notice thereof,
clearly describing the new location, and (ii) the Seller shall have
taken such action, satisfactory to the Company and GECC, to maintain
the title or ownership of the Company and any security interest of, or
any filing in respect of title of, the Company or the Collateral Agent
in the Receivables at all times fully perfected and in full force and
effect.
(b) The Seller, the Parent and Wurlitzer shall duly fulfill
all obligations on their part to be fulfilled under or in connection
with the Receivables, including complying with all requirements of law
applicable thereto, and will do nothing to impair the right, title and
interest of the Company in the Receivables; PROVIDED, HOWEVER, that an
adjustment or compromise of a Receivable pursuant to Section 5.06 shall
not be deemed to be a violation of this paragraph.
(c) The Seller agrees to indemnify, defend and hold the
Company harmless from and against any and all loss, liability, damage,
judgment, claim, deficiency or expense (including interest, penalties,
reasonable attorneys' fees and disbursements and
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amounts paid in settlement) to which the Company may become subject
insofar as such loss, liability, damage, judgment, claim, deficiency or
expense arises out of, is based upon or relates to (i) a breach by the
Seller of any warranty, representation, covenant or agreement contained
in this Agreement; (ii) any Receivable sold by the Seller to the
Company hereunder on any Purchase Date not being an Eligible Receivable
on the date of purchase by the Company; (iii) any breach by the Seller,
the Parent or a Subsidiary of any obligation under a Receivable or
under any other agreement between the Seller, the Parent or a
Subsidiary and the Obligor under the related Receivable or any
indebtedness or liability at any time owing to or in favor of such
Obligor by the Seller, the Parent or any Subsidiary in connection
therewith; (iv) any claim or demand of a Person claiming a Receivable
sold by the Seller to the Company hereunder or claiming any interest
therein adverse to the Company; or (v) this Agreement or the
acquisition or ownership by the Company of the Receivables; provided,
that the Seller shall have no liability for any loss, claim or amount
pursuant to this clause (v) to the extent that such loss, claim or
amount is found to have resulted from the negligence, bad faith or
wilful misconduct of the Company or a breach by the Company of its
obligations hereunder. The obligations of the Seller under this Section
3.03(c) shall be considered to have been relied upon by the Company and
shall survive the execution and delivery of this Agreement regardless
of any investigation made by the Company or on its behalf.
(d) The Seller shall defend each Receivable sold by it to the
Company and not repurchased by it against all claims and demands of all
Persons at any time claiming the same or any interest therein adverse
to the Company through the Seller, the Parent or a Subsidiary.
(e) The Seller will not execute any effective financing
statement (or similar statement or instrument of registration under the
laws of any jurisdiction) or statements relating to any Receivables
sold to the Company, except any financing statements filed or to be
filed in respect of and covering the purchase of the Receivables by the
Company pursuant to this Agreement and the security interest created in
favor of the Collateral Agent pursuant to the Security Agreement.
(f) The Seller shall at its expense perform all acts and
execute all documents reasonably requested by the Company at any time
to evidence, perfect, maintain and enforce the title or the security
interest of the Company or the Collateral Agent in the Receivables and
the priority thereof. The Seller will, at the reasonable request of a
duly authorized officer of the Company, execute and deliver financing
statements relating to or covering the Receivables sold to the Company
(reasonably satisfactory in form and substance to the Company) and,
where permitted by law, the Seller will authorize the Company to file
one or more financing statements signed only by the Company.
(g) The Seller shall use all reasonable measures to prevent or
minimize any loss being realized on a Receivable in which the Company
owns an interest and shall take all reasonable steps to recover the
full amount of such loss. The Seller shall, at its own
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expense, take such steps as are necessary to maintain perfection of the
security interest created by each Receivable in the related goods and
merchandise subject thereto. The Seller shall use its best efforts,
consistent with prudent servicing procedures, to repossess or otherwise
convert the ownership of the goods or merchandise securing any
Receivable which becomes an Uncollectible Receivable. The Seller shall
follow such practices and procedures for servicing the Receivables as
would be customary and usual for a prudent commercial lender under
similar circumstances, including using reasonable efforts to realize
upon any recourse to the dealer of the goods or merchandise securing a
Receivable and selling such goods or merchandise at a public or private
sale.
(h) The Seller agrees to immediately cease selling Receivables
to the Company pursuant to this Agreement upon the occurrence of a
Wind-Down Date.
(i) Except for the sale of Receivables to the Company pursuant
to the terms hereof, the Seller shall not sell all or substantially all
of its property and assets to, or consolidate with or merge into, any
other corporation, unless (x) the obligations of the Seller under this
Agreement shall be expressly and effectively assumed by such transferee
or purchasing or successor corporation, (y) immediately after giving
effect to such sale, transfer or other disposition or consolidation or
merger, no Seller Event of Default shall have occurred and be
continuing and (z) unless such transferee or purchasing or successor
corporation is the Parent, the Seller shall have obtained the prior
written consent of GECC; provided that nothing contained in this
Agreement shall prevent the Seller from merging into itself any other
corporation which is a Subsidiary of the Parent or acquiring by
purchase or otherwise all or any part of the, share capital, other
securities or property of any other corporation which is a Subsidiary
of the Parent, provided that no Seller Event of Default shall have
occurred and be continuing or would result from such transaction.
(j) The Seller shall permit the Company, the Collateral Agent
or their duly authorized representatives, attorneys or auditors to
inspect the Receivables, the Documents and the related accounts,
records and computer systems maintained by the Seller at such times as
the Company or the Collateral Agent may reasonably request. Upon
instructions from the Company or the Collateral Agent, the Seller shall
release any Document to the Company or the Collateral Agent, as the
case may be.
(k) The Seller shall deliver to the Company, (i) on or before
March 30, 1991 and (ii) on each March 30th thereafter, an officer's
certificate signed by the President or any Vice President of the
Seller, dated as of December 31 of the preceding year, stating that (a)
a review of the activities of the Seller during the preceding 12-month
period and of its performance under this Agreement has been made under
such officer's supervision and (b) to the best of such officer's
knowledge, based on such review, the Seller has fulfilled its
obligations under the Agreement throughout such year, or, if there has
been a default in the fulfillment of any such obligation, specifying
each such default known to such officer and the nature and status
thereof.
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(l) The Seller shall provide such cooperation, information and
assistance, and prepare and supply the Company with such data regarding
the performance by the Obligors of their obligations under the
Receivables and the performance by the Seller of its obligations under
the Seller Documents, as may be reasonably requested by the Company
from time to time in connection with any audit of the financial
statements or books and records of the Company.
(m) The Seller shall maintain its facility from which it
services the Receivables in its present condition, ordinary wear and
tear excepted, or such other facility of similar quality, security and
safety as the Seller may select from time to time. The Seller shall
make all property tax payments, lease payments and all other payments
with respect to such facility. The Seller shall, until the payment in
full of all Senior Indebtedness, (i) ensure that the Collateral Agent
shall have complete and unrestricted access during regular business
hours upon reasonable notice, at the Seller's expense, to such facility
and all computers and other systems relating to the servicing of the
Receivables and all persons employed at such facility, (ii) use its
best efforts to retain the employees based at such facility to provide
assistance to the Collateral Agent and (iii) continue to store on a
daily basis all back-up files relating to the Receivables and the
servicing of the Receivables at the current facilities used for such
purpose or such other storage facility of similar quality, security and
safety as the Seller may select from time to time. The Seller shall
cooperate with the Collateral Agent in connection with the writing and
development of a conversion program (to be retained by the Collateral
Agent) in respect of all computer files relating to the Receivables or
the servicing and collection thereof (including but not limited to each
of the computer files listed on Schedule 3.03(m) hereto).
(n) Seller shall at all times maintain in effect interest-rate
cap agreements with respect to no less than 80% of an amount equal to
(i) the Credits Outstanding, less (ii) the Fixed Amount. With respect
to any interest-rate cap purchased or maintained hereunder, Seller
shall use its best efforts to secure the acknowledgement of its
counterparty that Seller's right to receive payments thereunder is
subject to a first priority Lien in favor of the Collateral Agent or
shall otherwise assign such right to the Collateral Agent.
(o) As long as this Agreement remains in effect, Seller shall
deliver or cause to be delivered to Company:
(1) Within 30 days after the end of each fiscal
month, Parent's consolidated and consolidating unaudited
balance sheet as of the close of such month and the related
statements of income and changes in financial position for
such month, all prepared by Parent in conformity with GAAP,
and accompanied by the certification of Parent's chief
executive officer or chief financial officer that such
financial statements present fairly the financial position of
Parent as at the end of such month and that there is no Seller
Event of Default or Collection Agent Event of Default, or
event which with the passage of time or the giving of notice
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or both would constitute a Seller Event of Default or
Collection Agent Event of Default.
(2) Within 120 days after the close of each fiscal
year of the Parent, a copy of Parent's annual financial
statements, consisting of a balance sheet and statements of
income and changes in financial position, all prepared in
conformity with GAAP, certified without qualification, except
for changes in accounting principles with which the
accountants agree, litigation or tax controversies which are
being contested in good faith, by the independent certified
public accountants regularly retained by Parent and acceptable
to Seller, and accompanied by a certificate from such
accountants to the effect that during the course of their
examination they have not become aware of any Seller Event of
Default or Collection Agent Event of Default, or event which
with the passage of time or giving of notice or both would
constitute a Seller Event of Default or Collection Agent Event
of Default (it being understood that such accountants shall
not be required to undertake any investigation other than as
may be required in accordance with generally accepted auditing
standards and that such accountants must have actual knowledge
of such Seller Event of Default or Collection Agent Event of
Default other than of a financial or accounting nature).
(3) Not later than December 15 of each year, on a
consolidated and consolidating basis;
(i) projected balance sheets for the
forthcoming 12 fiscal months, month by month;
(ii) a projected cash flow statement,
including reasonable details of cash disbursements,
for the forthcoming 12 fiscal months, month by month;
and
(iii) a projected income statement for the
forthcoming 12 months, month by month, together with
appropriate supporting details as requested by
Seller.
(4) Such other information respecting the business,
financial condition or prospects of the Parent or the Seller
as Seller or GECC may, from time to time, request.
Section 3.04 Representations and Warranties Deemed Made. The
sale of Additional Receivables on each Purchase Date pursuant to Section 2.02 of
this Agreement shall be deemed to constitute a representation and warranty by
the Seller that the representations and warranties made under Section 3.01 of
this Agreement are true and correct on such Purchase Date as if made on such
Purchase Date.
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Section 3.05 RECEIVABLE REPURCHASES. In the event that any
Receivable sold by the Seller to the Company on any Purchase Date pursuant to
the terms hereof was not an Eligible Receivable on the applicable Purchase Date,
the Seller shall repurchase such Receivable on the Settlement Date following the
Settlement Period in which (i) the Company or the Collateral Agent requests the
Seller to repurchase such Receivable or (ii) the Seller or the Parent discovers
that such Receivable was not an Eligible Receivable on such applicable Purchase
Date. The purchase price for any such Receivable shall be an amount equal to the
Unpaid Balance thereof as of the last day of the Settlement Period preceding
such Settlement Date. The Seller's obligation to repurchase Receivables pursuant
to this Section 3.05 shall constitute a Seller Payable.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.01 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company hereunder on each Purchase Date (including the
Initial Purchase Date) shall be subject to the satisfaction of the following
conditions:
(a) All representations and warranties of the Seller contained
in this Agreement shall be true and correct on such Purchase Date and
the Seller shall be in compliance in all material respects with its
respective obligations hereunder.
(b) On or prior to such Purchase Date, there shall have been
made and there shall be in full force and effect all filings
(including, without limitation, UCC filings), recordings and/or
registrations, and there shall have been given, or taken, any notice or
any other similar action as may be necessary or, to the extent
requested by the Company, advisable, in order to establish, perfect,
protect and preserve the right, title and interest, remedies, powers,
privileges, liens and security interests of the Company and the
Collateral Agent granted pursuant to this Agreement or the Security
Agreement, as the case may be, and the Company and the Collateral Agent
shall have received evidence satisfactory to them of all of the
foregoing.
(c) All corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall
be satisfactory in form and substance to the Company and the Company
shall have received from the Seller copies of all documents (including,
without limitation, records of corporate proceedings) relevant to the
transactions herein contemplated as the Company may have reasonably
requested.
(d) The Company shall be permitted by the Liquidity Agreement
to purchase Receivables on such Purchase Date and shall have cash in
the Collection Account or shall have obtained Loans or issued
Commercial Paper in an amount sufficient to fund such purchase.
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(e) The Seller shall be in compliance in all material respects
with its obligations hereunder.
(f) No Company Event of Default described in clause (d) or (e)
of Section 8.01 of the Liquidity Agreement shall have occurred and be
continuing.
(g) No Seller Event of Default shall have occurred and be
continuing.
(h) The Wind-Down Date shall not have occurred.
(i) No Collection Agent Event of Default as defined in Section
5.05 hereof shall have occurred.
(j) Each of the Parent Credit Agreement and the Intercreditor
Agreement shall be in full force and effect and no event of default
under the Parent Credit Agreement shall have occurred and be
continuing.
(k) The Guaranty Letter of Credit shall be in full force and
effect and there shall be available for drawing thereunder an amount
that is not less than 2% of the Outstanding Principal Receivables after
giving effect to the purchase to be made on such Purchase Date.
(l) The Seller and GECC shall have received Support Agreements
executed by the chief executive officer, treasurer and data processing
manager of the Parent and the president and data processing manager of
the Seller.
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ARTICLE V
ADMINISTRATION, COLLECTIONS AND OTHER OBLIGATIONS
Section 5.01 APPOINTMENT OF COLLECTION AGENT. Until such time
as the Company shall notify the Seller in writing pursuant to Section 5.05
hereof of the revocation of such power and authority, the Company hereby
appoints the Seller as its agent ("Collection Agent") to collect all amounts
owing under or on account of all Receivables purchased by the Company from the
Seller and to perform as administrative agent for the Company all tasks and
duties in connection therewith that may be necessary or advisable and permitted
for carrying out the transactions contemplated by this Agreement, the Liquidity
Agreement and the Security Agreement. The Collection Agent shall keep separate
records on behalf of the Company covering the transactions contemplated by this
Agreement including the identity and collection status of each Receivable
purchased by the Company from the Seller and the Seller Payables. In collection
of the Receivables, the Collection Agent shall exercise the same care that it
has exercised in handling similar matters for its own account, and shall create
and administer policies and practices consistent with the policies and practices
applied in handling similar matters for its own account and as if it had not
sold the Receivables to the Company. The Collection Agent is further authorized,
upon prior notice to GECC and subject to Section 5.05, to delegate certain of
its service, collection, enforcement and administrative duties hereunder with
respect to the Receivables to the Parent or, with the prior written consent of
GECC, to any other Person who agrees to conduct such duties in accordance with
this Agreement; PROVIDED, HOWEVER, that the Collateral Agent shall have notified
S&P, D&P and Moody's in writing in advance of any such proposed delegation of
its duties to a Person other than the Parent and none of S&P, D&P or Moody's
shall have advised that it would or might reduce the rating of the RFC
Commercial Paper as a result thereof; and PROVIDED FURTHER, that no delegation
will relieve the Collection Agent of its liability and responsibility with
respect to such duties. Upon the revocation of the power and authority granted
pursuant to the first sentence of this Section 5.01, the Company shall appoint a
successor Collection Agent in accordance with Section 5.05 hereof.
Section 5.02 COLLECTIONS. (a) The Seller shall take or cause
to be taken all such action as may be necessary or advisable to collect each
Receivable from time to time, all in accordance with applicable laws, rules and
regulations and with reasonable care and diligence. The Seller will keep and
maintain at its own cost and expense satisfactory and complete records of the
Receivables sold to the Company by it, including, but not limited to, a record
of all payments received and all other dealings therewith, and the Seller will
make the same available to the Company at any reasonable time upon demand. The
Seller shall, at its own cost and expense, deliver such books and records and
all Documents relating to the Receivables to the Company or to its
representatives at any time upon its demand. The Seller shall identify in form
and manner satisfactory to the Company, such Receivables and the other books,
records and Documents of the Seller pertaining to such Receivables with an
appropriate reference to the fact that such Receivables have been sold and
assigned to the Company and that the Company is the lawful owner thereof and has
legal title therein. All payments made by obligors with respect to the
Receivables are required to be sent to P.O. Box 691395, Cincinnati, Ohio
45269-1395 (the
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"Lockbox Account") maintained with The Provident Bank. The Lockbox Account shall
be established by the Seller and the Collection Agent in the name of, and for
the benefit of, the Collateral Agent pursuant to a lockbox agreement in form and
substance satisfactory to the Company and the Collateral Agent and containing
terms substantially the same as the form of Blocked Deposit Agreement attached
as Annex F hereto. Exclusive dominion and control of the Lockbox Account shall
be vested in the Collateral Agent, subject to the right of the Collection Agent
to have access thereto for purposes of its collection and servicing duties
hereunder. The Seller shall have no right to make withdrawals from the Lockbox
Account. The Collection Agent's right of access to the Lockbox Account shall be
revocable at the option of the Collateral Agent upon the occurrence of any
Seller Default, Seller Event of Default or Collection Agent Event of Default. In
addition, after the occurrence of any Seller Default, any Seller Event of
Default or any Collection Agent Event of Default, the Seller agrees that it
shall, upon the written request of the Company or the Collateral Agent, notify
all Obligors under Receivables sold to the Company by it to make payment thereof
to (i) one or more other bank accounts and/or post-office boxes designated by
the Company or the Collateral Agent and specified in such notice or (ii) any
successor Collection Agent appointed hereunder.
(b) The Seller and the Collection Agent shall cause to be
established, and shall maintain thereafter, Account No. 0918906 (the "Blocked
Deposit Account") with The Provident Bank. The Blocked Deposit Account shall be
established in the name, and for the benefit, of the Collateral Agent pursuant
to a Blocked Deposit Agreement. The Collateral Agent shall have exclusive
dominion and control over, and the sole right of withdrawal from, the Blocked
Deposit Account. All funds received in the Lockbox Account shall be transferred
on the date received to the Blocked Deposit Account. In the event that,
notwithstanding the requirement that all Obligors be required to make payments
directly to the Lockbox Account, any Collections of Receivables are received by
the Seller, the Parent or the Collection Agent, such Collections shall be
deposited into the Account on the date received. The Collateral Agent shall on
each Business Day cause the Collections on deposit in the Blocked Deposit
Account to be transferred to an account designated by the Collection Agent;
PROVIDED that the Collateral Agent shall retain in the Blocked Deposit Account
on each day its estimate of the amount, if any, by which (A) the sum of (1) the
Collections of Finance Charge Receivables received in the Blocked Deposit
Account during the current Settlement Period and (2) the excess, if any, of the
Collections of Principal Receivables received in the Blocked Deposit during the
current Settlement Period over the principal amount of new retail installment
sale contracts acquired by the Seller during such Settlement Period that meet
the criteria to be Eligible Receivables, exceeds (B) an amount equal to the
product of (x) the Daily Accrual Factor for such day and (y) the amount
available to be drawn on the Deposits Letter of Credit on such day. All
Collections released to the Seller pursuant to this Section 5.02(b), will,
pending remittance to the Collection Account as provided in Section 5.03 hereof,
be held by the Seller for the benefit of the Company and shall be payable to the
Company in accordance with Section 5.03 hereof.
(c) In performing its duties and obligations hereunder, the
Collection Agent (i) shall not impair the rights of the Company in any
Receivable, (ii) shall not amend the terms of any Receivable such that the
maturity of any payment due thereunder is extended more than 180
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days, (iii) shall not release any goods or merchandise securing a Receivable
from the lien created by such Receivable except as specifically provided for
herein, and (iv) shall be entitled to commence or settle any legal action to
enforce collection of any Receivable or to foreclose upon or repossess any goods
or merchandise securing such Receivable. In the event that the Collection Agent
shall breach any of its covenants set forth in clauses (i), (ii) or (iii) of
this Section 5.02(c), the Collection Agent shall repurchase each Receivable
affected thereby on the Settlement Date following the Settlement Period in which
such breach occurs for a purchase price equal to the Unpaid Balance of such
Receivable as of the last day of such Settlement Period. For the purposes of
Section 5.05 hereof, the Collection Agent shall not be deemed to have breached
its obligations under this Section 5.02(c) unless it shall fail to so purchase
any Receivable affected by the Collection Agent's noncompliance with clauses
(i), (ii) or (iii) of this Section 5.02(c).
(d) All payments or other amounts collected or received by the
Collection Agent in respect of a Receivable shall be applied to the Unpaid
Balance of such Receivable and allocated first to the amount of any outstanding
Finance Charge Receivables due in respect thereof and then to the amount of any
Principal Receivables due in respect thereof.
Section 5.03 APPLICATION OF COLLECTIONS. (a) On the second
Business Day preceding each Settlement Date (a "Deposit Date"), (1) the
Collection Agent shall deposit or cause to be deposited in the Collection
Account an amount equal to (i) the aggregate purchase price of all Receivables
being purchased by the Collection Agent on such Settlement Date pursuant to
Section 5.02(c) hereof PLUS (ii) the aggregate amount of all Collections
released to it pursuant to Section 5.02(b) during the immediately preceding
Settlement Period MINUS (iii) the amount of any SWAP Advances made by the
Collection Agent out of such Collections pursuant to Section 5.10 hereof, (2)
the Seller shall deposit or cause to be deposited in the Collection Account the
aggregate amount of Seller Payables with respect to the immediately preceding
Settlement Period (including, but not limited to, the amount of any Interest
Deficiency Payment for such Settlement Period pursuant to Section 5.07 hereof
and the amount of the aggregate purchase price for any Receivables being
repurchased on such Settlement Date pursuant to Section 3.05 hereof), (3)
following a Settlement Period with respect to which a SWAP Excess existed, the
Collateral Agent shall transfer from the SWAPs Sub-Account of the Collection
Account to the Collection Account an amount equal to the lesser of (i) the
amount of the SWAP Excess and (ii) the amount then on deposit in the SWAPs
Sub-Account of the Collection Account and (4) the Collateral Agent shall
transfer from the Blocked Deposit Account to the Collection Account any amounts
retained in the Blocked Deposit Account as of the close of business on the last
day of the immediately preceding Settlement Period in accordance with Section
5.02(b). On the fifth Settlement Date following each Settlement Date on which
the Parent makes a Loss Shortfall Payment (as defined in the Guaranty) to the
Guarantor pursuant to Section 9(a) of the Guaranty, the Guarantor shall deposit
or cause to be deposited in the Collection Account an amount equal to such Loss
Shortfall Payment. On each Settlement Date, the Collateral Agent shall deposit
or cause to be deposited in the Collection Account the proceeds of any
Commercial Paper sold on such Settlement Date and any Revolving Loans made by
GECC on such Settlement Date, in each case to the extent such proceeds are not
used to pay Commercial Paper maturing on such Settlement Date.
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(b) On each Settlement Date, the Company shall apply the
amounts then on deposit in the Collection Account (including any proceeds of any
Commercial Paper sold on such Settlement Date and any Revolving Loans made by
GECC on such Settlement Date, in each case to the extent such proceeds are not
used to pay Commercial Paper maturing on such Settlement Date) to the payment of
the following amounts in the following order of priority:
(i) an amount equal to (1) the Aggregate Interest Component
for the preceding Settlement Period LESS (2) the amount, if any, by
which the SWAP Excess with respect to such Settlement Period, if any,
exceeds the amount on deposit in the SWAPs Sub-Account of the
Collection Account at the opening of business on the preceding Deposit
Date, shall be retained in the Collection Account and used for the
payment of Commercial Paper maturing on or subsequent to such
Settlement Date,
(ii) the amount of interest accrued during the preceding
Settlement Period with respect to all Loans that were repaid during
such Settlement Period with the proceeds of Commercial Paper shall be
retained in the Collection Account and used for the payment of
Commercial Paper maturing on or subsequent to such Settlement Date,
(iii) an amount equal to (1) the SWAP Shortfall with respect to
the preceding Settlement Period LESS (2) the amount of any SWAP
Advances made by the Collection Agent out of the Collections for such
Settlement Period, shall be transferred to the SWAPs Sub-Account of the
Collection Account and applied in accordance with Section 5.03(c),
(iv) an amount equal to the lesser of (1) the Purchase Discount
Collections for the preceding Settlement Period and (2) the amount, if
any, by which (x) the sum of the Receivable Losses Funding Amount for
the preceding Settlement Period PLUS the Outstanding Unpaid Receivable
Losses Funding Amount for all prior Settlement Periods exceeds (y) the
Excess Finance Charge Amount for such preceding Settlement Period,
shall be retained in the Collection Account and used for the payment of
Commercial Paper maturing on or subsequent to such Settlement Date,
(v) the amount of interest accrued during the preceding
Settlement Period with respect to all Loans which remain outstanding on
the last day of such Settlement Period shall be paid to GECC,
(vi) the Purchase Price of Additional Receivables, if any,
being purchased on such Settlement Date pursuant to Section 2.02 shall
be paid to the Seller,
(vii) on each Settlement Date prior to the Wind-Down Date, an
amount equal to (1) the Purchase Discount Collections for the preceding
Settlement Period LESS (2) the amount, if any, by which (x) the sum of
the Receivable Losses Funding Amount for the preceding Settlement
Period PLUS the Outstanding Unpaid Receivable Losses Funding Amount
with respect to all prior Settlement Periods exceeds (y) the Excess
Finance
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Charge Amount for such preceding Settlement Period, representing a
portion of the Deferred Purchase Price created pursuant to Section
2.03, shall be paid to the Seller,
(viii) prior to the Termination Date and provided that no Seller
Default or Seller Event of Default shall have occurred and be
continuing, the Recoveries with respect to the preceding Settlement
Period shall be paid to the Seller,
(ix) an amount equal to the Program Fee for the preceding
Settlement Period shall be used to pay the Commitment Commission and
the Guaranty Fee for such preceding Settlement Period to GECC,
(x) the Servicing Fee for the preceding Settlement Period
shall be paid to the Seller or, if the Seller is no longer the
Collection Agent, to the successor Collection Agent,
(xi) the amount of any outstanding Loans shall be paid to
GECC,
(xii) an amount equal to the lesser of (1) the Recoveries with
respect to the preceding Settlement Period and (2) the amount of any
unreimbursed payments made by the Guarantor pursuant to Section 2 of
the Guaranty, shall be paid to the Guarantor, and
(xiii) the balance, if any, shall be retained in the Collection
Account and used for the payment of Commercial Paper maturing on or
subsequent to such Settlement Date.
(c) Any amounts received from any SWAP Counterparty on any
SWAP Payment Date shall be deposited in the SWAPs Sub-Account of the Collection
Account. On each SWAP Payment Date, amounts on deposit in the SWAPs Sub-Account
of the Collection Account (including any amounts received from any SWAP
Counterparty on such SWAP Payment Date) shall be applied by the Collateral Agent
to the payment of any amounts owing to any SWAP Counterparty on such SWAP
Payment Date. On each SWAP Payment Date, the excess of (x) any amounts remaining
on deposit in the SWAPs Sub-Account of the Collection Account after the payment
in full of all amounts owing to each SWAP Counterparty on such SWAP Payment Date
OVER (y) the Cumulative SWAP Payable as of such date for any SWAPs not payable
on such SWAP Payment Date, shall be transferred by the Collateral Agent to the
Collection Account and used for the payment of Commercial Paper maturing on or
subsequent to the date of such transfer.
(d) If as of the close of business on any Settlement Date, the
amount on deposit in the SWAPs Sub-Account of the Collection Account exceeds the
Cumulative SWAP Payable as of such date, then the amount of such excess shall be
transferred by the Collateral Agent to the Collection Account and used for the
payment of Commercial Paper maturing on or subsequent to the date of such
transfer.
Section 5.04 SETTLEMENT STATEMENTS; WEEKLY REPORTS. (a) Not
later than the sixth Business Day following the last day of each Settlement
Period, the Seller shall deliver or cause to
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be delivered to the Company and GECC a report in the form of Annex A hereto
(each such report, a "Portfolio Settlement Statement"). Not later than the tenth
Business Day following the last day of each Settlement Period, the Collateral
Agent shall deliver to the Company, the Seller and GECC a report in the form of
Annex B hereto (each such report, a "Settlement Statement"). The Collateral
Agent will send a copy of each Portfolio Settlement Statement to each rating
agency then rating the Commercial Paper promptly after its receipt thereof.
(b) Not later than 10:00 a.m. on the second Business Day in
each calendar week, the Seller shall deliver or cause to be delivered to the
Collateral Agent a report (each such report, a "Weekly Activity Report") in the
form of Annex G hereto with respect to the Receivables origination and
collection activity during the preceding calendar week.
Section 5.05 APPOINTMENT OF SUCCESSOR COLLECTION AGENT. Upon
the occurrence of any of the following events (each a "Collection Agent Event of
Default"), and so long as such Collection Agent Event of Default shall continue
unremedied:
(a) failure by the Seller to make any payments required to be
made by it hereunder or pursuant to any other Seller Document on the
day on which such payment is required to be made;
(b) failure on the part of the Seller duly to observe or
perform in any respect any other covenants or agreements of the Seller
contained herein or in any other Seller Document which continues
unremedied for a period of 15 days after written notice thereof; or the
delegation by the Seller of its duties hereunder, except as expressly
permitted in accordance with the terms hereof;
(c) any representation, warranty or certification made by the
Seller herein or in any other Seller Document proves to have been
incorrect when made and which continues to be incorrect for a period of
15 days after written notice thereof;
(d) a Seller Event of Default described in clause (b) or (c)
of Section 8.02 of the Liquidity Agreement shall have occurred and be
continuing;
(e) the occurrence of an event of default under the Parent
Credit Agreement;
(f) the Parent's Tangible Net Worth at any time shall be less
than $40,000,000;
(g) the Parent's ratio of EBITDA (excluding any expenses in
connection with the closing of any factory of Parent) to Interest at
any time shall be less than 2.0:1, with EBITDA and Interest calculated
monthly based upon a rolling twelve-month period;
(h) the Parent's ratio of Total Liabilities to Tangible Net
Worth shall be more than 2.5:1;
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(i) the Seller shall pay any dividend on its capital stock or
repurchase any shares thereof and, on the date of such payment or
repurchase (after giving effect to such payment or repurchase),
Seller's Book Net Worth is less than $4,000,000 based upon Seller's
most recent financial statements submitted to the Company; or
(j) the Parent shall employ any person as its chief executive
officer, treasurer or date processing manager, or the Seller shall
employ any person as its president or data processing manager, unless
in each such case such person has executed and delivered to the Company
and GECC a Support Agreement;
the Company may, and upon the direction of GECC shall, notify the Seller in
writing of the revocation of the Seller's appointment as the Company's
Collection Agent hereunder. In addition, at any time following the occurrence of
a Wind-Down Date, the Company may, and upon the direction of GECC shall notify
the Seller in writing of the revocation of the Seller's appointment as
Collection Agent hereunder. Upon revocation of the Seller's appointment as
Collection Agent hereunder, the Company shall appoint GECC as its Collection
Agent and GECC shall perform all of the duties required of the Collection Agent
hereunder. In addition, following the receipt of such a written revocation
notice, the Seller will (i) deliver and turn over to the Collateral Agent or to
its representatives at any time on demand of the Collateral Agent all the
Seller's books and records pertaining to the Receivables and the servicing
thereof including, without limitation, all original sales slips, invoices,
credit files and computer tapes or disks relating to Receivables and/or (ii)
subject to the rights of any owner of any such premises or equipment that is
leased by the Seller, allow the Collateral Agent to occupy the premises of the
Seller where such books, records, contracts, credit files and computer tapes are
maintained and utilize such premises, the equipment thereon and any personnel of
the Seller that the Collateral Agent may wish to employ, to administer, service
and collect the Receivables.
The Seller agrees that upon receipt of written notification
from the Company of the revocation of the Seller's appointment as Collection
Agent hereunder, the Seller shall upon the written request of the Company (which
request may be contained in the notification of revocation) (i) notify all
Obligors under the Receivables sold to the Company by the Seller to make payment
thereof to a bank account(s) designated by the Company and specified in such
notice, and (ii) pay to the Company immediately all Collections then held or
thereafter received by the Seller of Receivables sold by it to the Company
together with all other payment obligations of the Seller hereunder owing to the
Company.
Section 5.06 COMPROMISE AND ADJUSTMENT. The Seller or the
Parent shall be entitled to compromise, adjust, modify or cancel any
indebtedness evidenced by any Receivable sold to the Company, or settle any
dispute, claim, suit or legal proceeding relating thereto all in accordance with
its then current business practices; PROVIDED, HOWEVER, that in such event the
Seller shall deposit an amount of cash equal to any reduction in the amount
payable under such Receivable (an "Adjustment Payment") into the Collection
Account on the Deposit Date following the Settlement Period in which such event
occurs. The amount of any such
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Adjustment Payment shall be deemed to have been collected within the meaning of
Section 5.02 of this Agreement.
Section 5.07 INTEREST DEFICIENCY PAYMENTS. On each Deposit
Date, the Seller shall deposit into the Collection Account an amount with
respect to the preceding Settlement Period (an "Interest Deficiency Payment")
equal to (a) the Carrying Costs for such Settlement Period less (b) that portion
of the aggregate amount scheduled to be paid on the Receivables during such
Settlement Period which is allocable to Finance Charge Receivables.
Section 5.08 NET DEPOSITS. For so long as the Seller shall be
the Collection Agent hereunder, the Seller may make any remittances required to
be made to the Collection Account on any Deposit Date pursuant to Section
5.03(a) hereof net of any amounts which are to be distributed to the Seller on
the related Settlement Date pursuant to clauses (v), (vi), (vii) and (ix) of
Section 5.03(b) hereof, as specified in the Settlement Statement in respect of
such Settlement Period.
Section 5.09 SWAPs. Subject to the terms and conditions set
forth herein and in Section 10.15 of the Liquidity Agreement, the Company shall,
from time to time, upon receipt of not less than ten Business Days' prior notice
from the Seller (any such notice, a "SWAP Notice"), enter into one or more SWAPs
in the aggregate notional principal amount specified in such SWAP Notice;
PROVIDED that the aggregate notional principal amount of all SWAPs outstanding
at any time may not exceed $40,000,000. Each SWAP Notice shall designate (i) the
aggregate notional principal amount of the related SWAP (which notional
principal amount may not be less than $20,000,000), (ii) the term of the related
SWAP (which term may not be less than three years nor extend beyond the
Expiration Date then in effect) and (iii) the Business Day (not earlier than the
tenth Business Day following the date of such SWAP Notice) by which the Company
shall enter into the related SWAP. The Company shall not enter into any SWAP
unless the Company shall have notified the Seller of the pricing terms
applicable to such SWAP and the Seller shall have approved such pricing terms.
The Company shall not terminate any SWAP prior to the occurrence of a Wind-Down
Date. Upon or at any time following, the occurrence of a Wind-Down Date, the
Company may, in its sole discretion, elect to terminate any SWAP.
Section 5.10 SWAP ADVANCES. In the event that, on the Business
Day preceding any SWAP Payment Date, the amount on deposit in the SWAPs
Sub-Account of the Collection Account is insufficient to make the payments due
from the Company to all SWAP Counterparties under all SWAPs on such SWAP Payment
Date (the amount of such insufficiency, a "SWAP Deficit"), the Collection Agent
shall, to the extent available, remit Collections of Finance Charge Receivables
then held by the Collection Agent in an amount equal to such SWAP Deficit to the
SWAPs Sub-Account of the Collection Account (any amount so remitted, a "SWAP
Advance"). Collections required to be remitted by the Collection Agent pursuant
to this Section 5.10 on the Business Day preceding any SWAP Payment Date shall
be made to the SWAPs Sub-Account of the Collection Account no later than 12:00
noon, New York City time, on the Business Day preceding such SWAP Payment Date.
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Section 5.11 GRANT OF SECURITY INTEREST; REMEDIES. (a) As
security for the prompt payment or performance in full when due of all of the
KAC Obligations, the Seller hereby assigns and pledges to the Company a security
interest in and lien upon, all of the Seller's right, title, and interest in and
to the following, in each case whether now or hereafter existing or in which the
Seller now has or hereafter acquires an interest and wherever the same may be
located (collectively, the "Seller Collateral");
(i) all retail installment sale contracts, chattel paper
and/or accounts that have not been sold to the Company pursuant to
Sections 2.01 or 2.02 hereof, together with all monies due or to become
due and all amounts received with respect thereto, and all proceeds
thereof;
(ii) the Retail Purchase Agreement, including (i) all rights of
the Seller to receive moneys due and to become due under or pursuant to
the Retail Purchase Agreement, (ii) all rights of the Seller to receive
proceeds of any insurance, indemnity, warranty or guaranty with respect
to the Retail Purchase Agreement, (iii) claims of the Seller for
damages arising out of or for breach of or default under the Retail
Purchase Agreement and (iv) the right of the Seller to amend, waive or
terminate the Retail Purchase Agreement, to perform under the Retail
Purchase Agreement and to compel performance and otherwise exercise all
remedies and rights under the Retail Purchase Agreement;
(iii) the Blocked Deposit Account, all funds held in the Blocked
Deposit Account and all certificates and instruments, if any, from time
to time representing or evidencing each such account;
(iv) the Lockbox Account, all funds held in the Lockbox
Account, and all certificates and instruments, if any, from time to
time representing or evidencing the Lockbox Account or such funds; and
(v) all proceeds, accessions, substitutions, rents and profits
of any and all of the foregoing.
(b) If any KAC Obligation is not paid when due, then the
Company may exercise in respect of the Seller Collateral, in addition to any and
all other rights and remedies otherwise available to it, all of the rights and
remedies of a secured party upon default under the UCC (such rights and remedies
to be cumulative and nonexclusive), and may take the following remedial actions:
(i) The Company may, without notice except as specified below,
solicit and accept bids for and sell the Seller Collateral or any part
of the Seller Collateral in one or more parcels at public or private
sale, at any exchange, broker's board or at any of the Company's or
Collateral Agent's offices or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as the Company may deem
commercially reasonable.
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The Seller agrees that, to the extent notice of sale shall be required
by law, at least ten Business Days' notice to the Seller of the time
and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. The Company
shall not be obligated to make any sale of Seller Collateral regardless
of notice of sale having been given. The Company may adjourn any public
or private sale from time to time by announcement at the time and place
fixed for such sale, and such sale may, without further notice, be made
at the time and place to which it was so adjourned. Every such sale
shall operate to divest all right, title, interest, claim and demand
whatsoever of the Seller in and to the Seller Collateral so sold, and
shall be a perpetual bar, both at law and in equity, against the
Seller, any Person claiming the Seller Collateral through the Seller
and their respective successors or assigns.
(ii) Upon the completion of any sale under subsection (i)
above, the Seller will deliver or cause to be delivered all of the
Seller Collateral sold to the purchaser or purchasers at such sale on
the date of sale, or within a reasonable time thereafter if it shall be
impractical to make immediate delivery, but in any event full title and
right of possession to such property shall pass to such purchaser or
purchasers forthwith upon the completion of such sale. Nevertheless, if
so requested by the Company or by any purchaser, the Seller shall
confirm any such sale or transfer by executing and delivering to such
purchaser all proper instruments of conveyance and transfer and
releases as may be designated in any such request.
(iii) At any sale under subsection (i) above, the Company or the
Collateral Agent may bid for and purchase the property offered for sale
and, upon compliance with the terms of sale, may hold, retain and
dispose of such property without further accountability therefor.
(iv) The Company may exercise at the Seller's expense any and
all rights and remedies of the Seller under or in connection with the
Retail Purchase Agreement or the other Seller Collateral, including any
and all rights of the Seller to demand or otherwise require payment of
any amount under, or performance of any provisions of, the Retail
Purchase Agreement.
ARTICLE VI
PARENT GUARANTEE
Section 6.01 UNCONDITIONAL PARENT GUARANTEE. For valuable
consideration, and to induce the Company to enter into this Agreement and GECC
to enter into the Liquidity Agreement, Parent hereby guarantees to the Company
and the Collateral Agent the performance of all obligations of the Seller
pursuant to this Agreement, including, without limitation, the performance of
all covenants and agreements herein set forth, the payment of all Seller
Payables and the deposit of all Collections in accordance with the terms hereof,
notwithstanding the
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occurrence of any Seller Default, Seller Event of Default or Collection Agent
Event of Default, or any termination of this Agreement. Parent hereby
unconditionally agrees that upon any default in the performance or payment of
any of Seller's obligations under this Agreement, Parent shall immediately
perform or pay the same without setoff or counterclaim or any other deduction
whatsoever.
Section 6.02 VALIDITY. The obligation of Parent pursuant to
Section 6.01 hereof shall be unconditional regardless of the genuineness,
validity, regularity, or enforceability of the obligations of the Seller
pursuant to this Agreement or, to the fullest extent permitted by law, any other
circumstance that might constitute a legal or equitable discharge of a surety or
guarantor.
Section 6.03 WAIVERS. Parent hereby expressly waives
diligence, presentment, protest, and any requirement that any right or power be
exhausted or any action be taken against the Seller and all notice and demand
whatsoever.
Section 6.04 SUBROGATION. Parent shall not exercise any rights
it may acquire by way of subrogation, in whole or in part, to the rights of the
Company or the Collateral Agent against the Seller until the Company shall have
received payment in full of all of the Sellers' obligations under this
Agreement. Parent agrees that, to the fullest extent permitted by law, as
between Parent and the Company or the Collateral Agent, any amounts due pursuant
to this Article VI may be declared to be immediately due and payable as provided
herein notwithstanding any stay, injunction, or other prohibition preventing
such declaration as against the Seller and that, in the event of such
declaration, such obligations (whether or not due and payable by the Seller)
shall immediately become due and payable by Parent for purposes of, and to the
extent provided in, this Article VI.
Section 6.05 GRANT OF SECURITY INTEREST; REMEDIES. (a) As
security for the prompt payment or performance in full when due of all of the
obligations of the Parent hereunder (the "Parent Obligations"), the Parent (i)
hereby assigns and pledges to the Company a security interest in and lien upon,
all of the Parent's right, title, and interest in and to all issued and
outstanding capital stock of the Seller at any time owned by the Parent (the
"Stock") together with all proceeds thereof (the Stock and all such proceeds,
the "Parent Collateral") and (ii) hereby pledges and deposits as security with
the Company the Stock owned by the Parent on the date hereof and delivers to the
Company certificates therefor accompanied by stock powers duly executed in blank
by the Parent or such other instruments or transfer as are acceptable to the
Company.
(b) If the Parent shall acquire (by purchase, stock dividend
or otherwise) any additional Stock at any time or from time to time after the
date hereof, the Parent will forthwith pledge and deposit such Stock as security
with the Company and deliver to the Parent certificates therefor accompanied by
stock powers duly executed in blank by the Parent or such other instruments of
transfer as are acceptable to the Company.
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(c) Unless and until the Parent shall have failed to perform
any of its obligations hereunder when due (any such failure, a "Parent Event")
the Parent shall be entitled to vote any and all Stock and to give consents,
waivers or ratifications in respect thereof, provided that no vote shall be cast
or any consent, waiver or ratification given or any action taken which would
violate or be inconsistent with any of the terms of this Agreement or any other
instrument or agreement referred to herein, or which would have the effect of
impairing the position or interests of the Company. All such rights of the
Parent to vote and to give consents, waivers and ratifications shall cease in
case a Parent Event shall occur and be continuing.
(d) Unless and until a Parent Event shall have occurred and be
continuing, all cash dividends payable in respect of the Stock shall be paid to
the Parent. The Company shall be entitled to receive directly, and to retain as
part of the Collateral: (i) all other or additional stock or securities or
property (other than cash) paid or distributed by way of dividend in respect of
the Stock; (ii) all other or additional stock or other securities or property
paid or distributed in respect of the Stock by way of stock-split, spin-off,
split-up, reclassification, combination of shares or similar rearrangement; and
(iii) all other or additional stock or other securities or property which may be
paid in respect of the Collateral by reason of any consolidation, merger,
exchange of stock, conveyance of assets, liquidation or similar corporate
reorganization.
(e) In case a Parent Event shall have occurred and be
continuing, the Company shall be entitled to exercise all of the rights, powers
and remedies of secured party upon default under the UCC (such rights and
remedies to be cumulative and non-exclusive), and the Company shall be entitled,
without limitation, to exercise the following rights, which the Parent hereby
agrees to be commercially reasonable:
(i) to receive all amounts payable in respect of the
Collateral otherwise payable under Section 6.05(d) to the Parent;
(ii) to transfer all or any part of the Stock into the
Company's name or the name of its nominee or nominees;
(iii) to vote all or any part of the Stock (whether or not
transferred into the name of the Company) and give all consents,
waivers and ratifications in respect of the Stock and otherwise act
with respect thereto as though it were the outright owner thereof (the
Parent hereby irrevocably constituting and appointing the Company the
proxy and attorney-in-fact of the Parent, with full power of
substitution to do so); and
(iv) at any time or from time to time to sell, assign and
deliver, or grant options to purchase, all or any part of the
Collateral, or any interest therein, at any public or private sale,
without demand of performance, advertisement or notice of intention to
sell or of the time or place of sale or adjournment thereof or to
redeem of otherwise (all of which are hereby waived by the Parent), for
cash, on credit or for other property, for immediate or future delivery
without any assumption of credit risk, and its absolute discretion may
determine, provided that at least ten days' notice of the time and
place of
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any such sale shall be given to the Parent. The Parent hereby waives
and releases to the fullest extent permitted by law any right or equity
of redemption with respect to the Collateral, whether before or after
sale hereunder, and all rights, if any, of marshalling the Collateral
and any other security for the Parent Obligations or otherwise. At any
such sale, unless prohibited by applicable law, the Company or the
Collateral Agent may bid for and purchase all or any part of the
Collateral so sold free from any such right or equity of redemption.
Neither the Company nor the Collateral Agent shall be liable for
failure to collect or realize upon any or all of the Collateral or for
any delay in so doing nor shall any of them be under any obligation to
take any action whatsoever with regard thereto.
(f) All moneys collected by the Company upon any sale or other
disposition of the Collateral, together with all other moneys received by the
Company hereunder, shall be applied to the payment of all costs and expenses
incurred by the Company in connection with such sale, the delivery of the
Collateral or the collection of any such moneys (including, without limitation,
attorneys fees and expenses), and the balance of such moneys shall be held by
the Company and applied by it to satisfy the Parent Obligations. Upon payment in
full of all such Parent Obligations, any remaining balance will be paid to the
Parent.
ARTICLE VII
MISCELLANEOUS
Section 7.01 NOTICES, ETC. Except where telephonic
instructions or notices are authorized herein to be given, all notices, demands,
instructions and other communications required or permitted to be given to or
made upon any party hereto shall be in writing and shall be personally delivered
or sent by registered, certified or express mail, postage prepaid, return
receipt requested, or by telecopier or prepaid telegram (with messenger delivery
specified in the case of a telegram) and shall be deemed to be given for
purposes of this Agreement on the day that such writing is delivered or sent to
the intended recipient thereof in accordance with the provisions of this
Section. Unless otherwise specified in a notice sent or delivered in accordance
with the foregoing provisions of this Section, notices, demands, instructions
and other communications in writing shall be given to or made upon the
respective parties hereto at their respective addresses (or to their respective
telecopier numbers) indicated below, and, in the case of telephonic instructions
or notices, by calling the telephone number or numbers indicated for such party
below:
If to the Company:
Retailer Funding Corporation
c/o Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: Douglas Donaldson
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Telephone No.: (617) 951-7000
Telecopier No.: (617) 951-7050
with a copy to:
General Electric Capital Corporation
14131 Midway Road, 10th Floor
Dallas, Texas 75244
Attention: Harold Goehl
Telephone No.: (972) 628-4971
Telecopier No.: (972) 628-4912
If to the Seller:
Keyboard Acceptance Corporation
422 Wards Corner Road
Loveland, Ohio 45140
Attention: Perry Schwartz
Telephone No.: (513) 576-4518
Telecopier No.: (513) 576-4588
If to the Parent:
Baldwin Piano & Organ Company
422 Wards Corner Road
Loveland, Ohio 45140
Attention: Perry Schwartz
Telephone No.: (513) 576-4518
Telecopier No.: (513) 576-4588
If to GECC:
General Electric Capital Corporation
14131 Midway Road, 10th Floor
Dallas, Texas 75244
Attention: Harold Goehl
Telephone No.: (972) 628-4971
Telecopier No.: (972) 628-4912
with copies to:
General Electric Capital Corporation
101 East Ridge Road
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Danbury, Connecticut 06810
Attention: Sean P. Dunn
Telephone No.: (203) 830-6244
Telecopier No.: (203) 830-6297
and
General Electric Capital Corporation
3001 Summer Street
Stamford, Connecticut 06927
Attention: Irene Eddy
Telephone No.: (203) 357-3219
Telecopier No.: (203) 357-3555
Section 7.02 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon the Seller, the Parent and the Company and their respective
successors and assigns and shall inure to the benefit of the Seller, the Parent
and the Company and their respective successors and assigns; PROVIDED that,
except as permitted by Section 5.01 hereof, neither the Seller nor the Parent
shall assign any of its rights or obligations hereunder without the prior
written consent of the Company and GECC. Except as expressly permitted hereunder
or in any of the Company Documents, the Company shall not assign any of its
rights or obligations hereunder without the prior written consent of the Seller
and GECC.
Section 7.03 SEVERABILITY CLAUSE. Any provisions of this
Agreement which are prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 7.04 AMENDMENTS; GOVERNING LAW. This Agreement and the
rights and obligations of the parties hereunder may not be changed orally but
only by an instrument in writing signed by the party against which enforcement
is sought and shall be construed in accordance with and governed by the laws of
the State of New York.
Section 7.05 SELLER'S OBLIGATIONS. It is expressly agreed
that, anything in this Agreement contained to the contrary notwithstanding, the
Seller, Wurlitzer and Parent shall be liable to perform all of the obligations
assumed by them under each Receivable and the Company shall have no obligations
or liability under the Receivables to any Obligor thereunder by reason of or
arising out of this Agreement nor shall the Company be required or obligated in
any manner to perform or fulfill any of the obligations of the Seller or the
Parent under or pursuant to any Receivable.
Section 7.06 SERVICING FEE. Subject to the provisions of
Section 5.03(b) hereof, the Company agrees to pay to the Collection Agent or any
successor Collection Agent, as the
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case may be, on each Settlement Date an amount (the "Servicing Fee") in respect
of its collection agent and related duties hereunder during the immediately
preceding Settlement Period equal to the excess, if any, of (i) the aggregate
Collections received during the immediately preceding Settlement Period
allocable to Finance Charge Receivables over (ii) the sum of (1) the Carrying
Costs for such immediately preceding Settlement Period, (2) the Receivable
Losses Funding Amount with respect to such immediately preceding Settlement
Period and (3) the Outstanding Unpaid Receivable Losses Funding Amount for all
prior Settlement Periods.
If any funds remain on deposit in the Collection Account on
the Expiration Date or any Collections of Receivables are received thereafter,
and after the payment in full of all of the Company's obligations under the
Liquidity Agreement, the Security Agreement, the Purchase Agreement, any
Commercial Paper, the Guaranty or in any other agreement or document related
thereto, an amount equal to such funds shall be paid by the Company to the
Seller as a special termination fee under this Agreement.
Section 7.07 SUBORDINATION OF DEFERRED PURCHASE PRICE.
(a) SUBORDINATION OF LIABILITIES. The Seller, for itself and
its successors and assigns, covenants and agrees that, except as provided in
Section 5.03(b), the Deferred Purchase Price is hereby expressly subordinated,
to the extent and in the manner hereinafter set forth, to the prior payment in
full of all Senior Indebtedness (as defined in paragraph (f) of this Section
7.07). The provisions of this Section 7.07 shall constitute a continuing offer
to all persons who, in reliance upon such provisions, become holders of, or
continue to hold, Senior Indebtedness, and such provisions are made for the
benefit of the holders of Senior Indebtedness, and such holders are hereby made
obligees hereunder the same as if their names were written herein as such, and
they and/or each of them may proceed to enforce such provisions.
(b) COMPANY NOT TO MAKE PAYMENTS WITH RESPECT TO DEFERRED
PURCHASE PRICE. (i) Except to the limited extent provided in Section 5.03(b)
hereof, no payment shall be made in respect of the Deferred Purchase Price until
the Senior Indebtedness shall have been paid in full.
(ii) In the event that notwithstanding the provisions of the
preceding subsection (i) of this paragraph (b), the Company shall make any
payment on account of the Deferred Purchase Price at a time when payment is not
permitted by said subsection (i), such payment shall be held by any recipient of
such payment, in trust for the benefit of, and shall be paid forthwith over and
delivered to, the holders of Senior Indebtedness or their representatives under
the agreements pursuant to which the Senior Indebtedness may have been issued,
as their respective interests may appear, for application PRO RATA to the extent
necessary to pay all Senior Indebtedness in full accordance with the terms of
such Senior Indebtedness, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
(c) Deferred Purchase Price Subordinated to Prior Payment of
all Senior Indebtedness on Dissolution, Liquidation or Reorganization of the
Company. Upon any distribution of assets of the Company upon any dissolution,
winding up, liquidation or
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reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceeding or upon an assignment for the benefit of creditors or otherwise):
(i) the holders of all Senior Indebtedness shall first be
entitled to receive payment in full of the principal thereof, premium,
if any, and interest (including postpetition interest) and all other
amounts due thereon before the holders of the Deferred Purchase Price
are entitled to receive any payment on account thereon;
(ii) any payment or distributions of assets of the Company or
any kind or character, whether in cash, property or securities to which
the holders of the Deferred Purchase Price would be entitled except for
the provisions of this Section 7.07, shall be paid by the liquidating
trustee or agent or other person making such payment or distribution,
whether a trustee in bankruptcy, a receiver or liquidating trustee or
other trustee or agent, directly to the holders of Senior Indebtedness
or their representative or representatives under the agreements
pursuant to which the Senior Indebtedness may have been issued, to the
extent necessary to make payment in full of all Senior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness; and
(iii) in the event that, notwithstanding the foregoing
provisions of this paragraph (c), any payment or distribution of assets
of the Company of any kind or character, whether in cash, property or
securities, shall be received by holders of the Deferred Purchase Price
on account of any Deferred Purchase Price before all Senior
Indebtedness is paid in full, or effective provision made for its
payment, such payment or distribution shall be received and held in
trust for and shall be paid over to the holders of the Senior
Indebtedness remaining unpaid or unprovided for or their representative
or representatives under the agreements pursuant to which the Senior
Indebtedness may have been issued, for application to the payment of
such Senior Indebtedness until all such Senior Indebtedness shall have
been paid in full, after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness.
(d) SUBROGATION. Subject to the prior payment in full of all
Senior Indebtedness, the holders of the Deferred Purchase Price shall be
subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions of assets of the Company applicable to the Senior
Indebtedness until all amounts owing on the Senior Indebtedness shall be paid in
full, and for the purpose of such subrogation no payments or distributions to
the holders of the Senior Indebtedness by or on behalf of the Company or by or
on behalf of the holders of the Deferred Purchase Price by virtue of this
paragraph (d) which otherwise would have been made to the holders of the
Deferred Purchase Price shall, as between the Company, its creditors other than
the holders of Senior Indebtedness, and the holders of the Deferred Purchase
Price be deemed to be payment by the Company to or on account of the Senior
Indebtedness, it being understood that the provisions of this Section 7.07 are
and are intended solely for the purpose of defining the relative rights of the
holders of the Deferred Purchase Price on the one hand, and the holders of the
Senior Indebtedness, on the other hand.
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(e) SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF
THE COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS. No right of any present or future
holders of any Senior Indebtedness to enforce subordination as herein provided
shall at any time in any way be prejudiced or impaired by an act or failure to
act on the part of the Company or by any act or failure to act in good faith by
any such holder, or by any noncompliance by the Company with the terms and
provisions hereof or any agreement related hereto or of the Liquidity Agreement
or any agreement related thereto regardless of any knowledge thereof which any
such holder may have or be otherwise charged with. The holders of the Senior
Indebtedness may, without in any way affecting the obligations of the holders of
the Deferred Purchase Price with respect thereto, at any time or from time to
time and in their absolute discretion, change the manner, place or terms of
payment of, or renew or alter, any Senior Indebtedness, or amend, modify or
supplement any agreement or instrument governing or referred to therein, or
exercise or refrain from exercising any other of their rights under the Senior
Indebtedness including, without limitation, the waiver of default thereunder or
the release of any collateral securing such Senior Indebtedness, all without
notice to or assent from the holders of the Deferred Purchase Price.
(f) SENIOR INDEBTEDNESS. The term "Senior Indebtedness" shall
mean all indebtedness whether principal, interest (post-petition or otherwise),
fees or any other amount of the Company owing under (i) the Liquidity Agreement
and all documents and instruments referred to therein including, without
limitation, Commercial Paper, the Revolving Loan Note, the Refunding Loan Note,
the Guaranty and the Security Agreement, and (ii) any renewal, extension,
restatement or refunding of any of the obligations referred to in the preceding
clause (i), PROVIDED that Senior Indebtedness shall not include the Deferred
Purchase Price.
(g) TRANSFER OF DEFERRED PURCHASE PRICE. The Seller for itself
and its successors and assigns, agrees that it will not sell, assign or
otherwise transfer any Deferred Purchase Price or any interest therein without
the prior written consent of GECC.
(h) SUSPENSION OF CERTAIN REMEDIES. Until such time as it has
been informed in writing by GECC that all Senior Indebtedness now or hereafter
existing has been paid in full, the Seller for itself and its successors and
assigns, will not (x) make demand or sue for any payment of or distribution in
respect of any Deferred Purchase Price except such as may be due pursuant to
Section 5.03(b) hereof or (y) commence, or join with any creditor in commencing,
any proceeding for the liquidation or dissolution of the Company or for a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property or an assignment for the benefit of
creditors for any marshalling of the assets and liabilities of the Company;
PROVIDED, HOWEVER, that nothing in this paragraph (h) shall prohibit the Seller,
its successors or assigns from participating in any proceeding which has been
commenced by any other person.
(i) Any Deferred Purchase Price remaining after the payment of
all Senior Indebtedness will be paid by the Company to the Seller.
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<PAGE> 46
Section 7.08 FACILITY FEE. In consideration of the Company's
agreement to purchase Receivables hereunder from time to time, the Seller agrees
to pay or cause to be paid to the Company an annual fee (the "Facility Fee"),
payable in advance on the date of this Agreement and on each anniversary
thereof, in the amount of $35,000.
Section 7.09 BANKRUPTCY PETITION AGAINST THE COMPANY. Each of
the Seller and the Parent covenants and agrees that prior to the date which is
one year and one day after the payment in full of all Commercial Paper issued by
the Company it will not institute against, or join any other person in
instituting against, the Company any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any Federal or
state bankruptcy or similar law.
Section 7.10 SETOFF. Each of the Seller and the Parent hereby
irrevocably and unconditionally waives all right of setoff that it may have
under contract (including this Agreement), applicable law or otherwise with
respect to any funds or monies of the Company at any time held by or in the
possession of the Seller or the Parent.
Section 7.11 REMEDIES. In addition to any rights and remedies
now or hereafter granted under applicable law and not by way of limitation of
any such rights and remedies the Company shall have all of the rights and
remedies under the UCC as enacted in any applicable jurisdiction in addition to
the rights and remedies provided in this Agreement.
Section 7.12 COSTS, EXPENSES AND TAXES. The Seller agrees to
pay all reasonable costs and expenses in connection with the negotiation,
preparation, printing, typing, reproduction, execution and delivery of this
Agreement, the Liquidity Agreement, the Security Agreement and the Consent and
Acknowledgment to Security Agreement and any amendments or modifications of (or
supplements to) any of the foregoing and any and all other documents furnished
pursuant hereto or thereto or in connection herewith or therewith.
Section 7.13 OPTIONAL REPURCHASE. On any Settlement Date on
which the Unpaid Balance of the Receivables does not exceed $4,548,605, the
Seller shall have the right to reacquire all such Receivables at a price equal
to the Unpaid Balance thereof plus any accrued and unpaid Carrying Costs through
such Settlement Date. The amount of such purchase price shall be treated as a
Collection with respect to the Receivables and applied in accordance with
Article V hereof.
Section 7.14 FURTHER ASSURANCES. The Seller agrees to do such
further acts and things and to execute and deliver to the Company or the
Collateral Agent such additional assignments, agreements, powers and instruments
as are required by the Company to carry into effect the purposes of this
Agreement or to better assure and confirm unto the Company or the Collateral
Agent its rights, powers and remedies hereunder.
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IN WITNESS WHEREOF, the parties hereto have caused this
Purchase and Administration Agreement to be executed and delivered by their duly
authorized officers as of the date hereof.
RETAILER FUNDING CORPORATION
By /s/ Anne R. Brennan
-------------------------------
Authorized Signatory
KEYBOARD ACCEPTANCE CORPORATION
By /s/ George B Huebner
-------------------------------
Authorized Signatory
BALDWIN PIANO & ORGAN COMPANY
By /s/ Perry H. Schwartz
-------------------------------
Authorized Signatory
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Consented to:
GENERAL ELECTRIC CAPITAL
CORPORATION
By /s/ Harold Goehl
---------------------------
Authorized Signatory
45
<PAGE> 1
Exhibit 10.38
FIRST AMENDMENT
FIRST AMENDMENT (the "First Amendment") dated as of October 31, 1997 to
Guaranty Agreement dated as of October 1, 1990 (the "First Agreement") among
Retailer Funding Corporation (the "Company"), Keyboard Acceptance Corporation
(formerly BPO Finance Corporation) ("KAC"), Baldwin Piano & Organ Company
("Baldwin") and General Electric Capital Corporation (the "Guarantor"). Except
as otherwise defined herein, capitalized terms used herein and defined, either
directly or by reference in the Purchase and Administration Agreement shall be
used herein as so defined.
W I T N E S S E T H :
---------------------
WHEREAS, the Company, KAC, Baldwin and the Guarantor have entered into
the Guaranty Agreement and now desire to amend certain of the provisions
thereof:
NOW, THEREFORE, it is agreed:
Section 8 of the Guaranty Agreement is hereby amended by
adding a new paragraph at the end thereof which reads as follows:
"In order to provide the Guarantor with assurance as to the
performance by Baldwin and KAC of their reimbursement
obligations hereunder, Baldwin shall deliver to Guarantor on
or prior to October 31, 1997, and cause to be maintained in
effect from time to time thereafter, an irrevocable letter of
credit (the "Guaranty Reimbursement Letter of Credit") naming
the Guarantor as beneficiary and permitting the Guarantor to
make drawings thereunder from time to time, in an aggregate
principal amount not less than 2% of the Outstanding Principal
Receivables as of the earlier of (x) the Settlement Date in
the calendar month preceding the date of the related payment
under the Guaranty and (y) the Wind- Down Date, for amounts
required to be reimbursed to the Guarantor under this Guaranty
Agreement that are not so reimbursed on or prior to the tenth
day following the due date therefor. Such Guaranty
Reimbursement Letter of Credit shall be in form and substance
satisfactory to the Guarantor and shall be issued by The Fifth
Third Bank, NBD Bank, N.A. or another banking institution
approved by Guarantor."
This First Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Guaranty
Agreement.
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<PAGE> 2
This First Amendment shall become effective (the "Amendment Effective
Date") on the date on which the Company, KAC, Baldwin and GECC shall have
each executed and delivered to the other a counterpart of this First
Amendment.
From and after the Amendment Effective Date, all references to the
Guaranty Agreement in the Guaranty Agreement, each of the other Company
Documents and each of the Seller Documents shall be deemed to be
references to the Purchase and Administration Agreement as amended hereby.
This First Amendment may be executed on separate counterparts by the
parties hereto, each of which when so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument.
This First Amendment and the rights and obligations hereunder shall be
construed in accordance with and governed by the laws of the State of New
York.
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this First Amendment to be duly executed and delivered as of the date
first above written.
RETAILER FUNDING CORPORATION
By /s/ Anne C. Brennan
----------------------------------
Title: Secretary
KEYBOARD ACCEPTANCE CORPORATION
(formerly BPO Finance Corporation)
By /s/ Goerge B. Huebner
----------------------------------
Title: President
BALDWIN PIANO & ORGAN COMPANY
By /s/ Perry H. Schwartz
----------------------------------
Title: Executive Vice President
2
<PAGE> 3
GENERAL ELECTRIC CAPITAL
CORPORATION
By /s/ Harold Goehl
----------------------------------
Title: Attorney-in-fact
3
<PAGE> 1
Exhibit 10.39
FIRST AMENDMENT TO
RETAIL ACCOUNTS RECEIVABLE PURCHASE AGREEMENT
THIS FIRST AMENDMENT ("Amendment") dated as of October 24, 1997 by and
among BALDWIN PIANO & ORGAN COMPANY, a Delaware corporation, hereinafter
referred to as "Baldwin," THE WURLITZER COMPANY, a Delaware corporation,
hereinafter referred to as "Wurlitzer," and KEYBOARD ACCEPTANCE CORPORATION
formerly known as BPO Finance Corporation, a Delaware corporation, hereinafter
referred to as "Finance" or "KAC," to that Retail Accounts Receivable Purchase
Agreement dated as of October 1, 1990 (the "Agreement").
WHEREAS, the parties have agreed to amend the Agreement, as provided
for herein.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree
as follows:
A. Capitalized terms used and not otherwise defined herein are used
with the meaning set forth in the Agreement. All of the parties hereby
acknowledge that Wurlitzer no longer holds any Accounts or sells Accounts
pursuant to the Agreement and is only signing this Amendment as a matter of
convenience and expediency for Baldwin and KAC.
B. Section 9 of the Agreement is hereby amended and restated in its
entirety as follows:
Section 9. Services and Undertakings of Baldwin.
9.1 Until otherwise notified in writing by KAC, Baldwin agrees to:
(a) Accept and hold for the benefit of KAC all remittances and
collections received by Baldwin in payment of Accounts acquired by KAC
under this Agreement and deposit all remittances and collections as
required of KAC under the Purchase and Administration Agreement;
(b) Unless otherwise instructed or permitted by KAC, not
compromise or settle any Account, extend the time for payment for any
Account or renew the obligations represented by any Account;
(c) Stamp or mark all retail installment contracts with Retail
Account Debtors, including any such contracts to be retained by Retail
Account Debtors, with an appropriate legend to indicate that the
Account Debtors, with an appropriate legend to indicate that the
Accounts have been or will be transferred to KAC, and deliver same
(except retail installment contracts to be retained by Retail Account
Debtors), to KAC upon its request; provided, however, that while said
documents are in custody of Baldwin, Baldwin is authorized to hold same
for the benefit of KAC;
(d) Permit KAC's agents to examine its books, records, and
files relating to the Accounts at any and at all reasonable times, for
the purposes of ascertaining, inspecting, and
1
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verifying any and all transactions in connection therewith, and the
status and condition thereof, and the collection of any sums thereon,
and any other matter pertaining to this Agreement;
(e) Make available employees of Baldwin for purposes of
servicing the Accounts and make available reasonably adequate office
space and facilities at its headquarters in Loveland, Ohio for office
personnel and records of KAC maintained to carry out the purposes of
this Agreement;
(f) Furnish all necessary postage, stationery, forms,
supplies, equipment, light, heat, telephone and telegraph services, and
other materials and equipment at Baldwin's headquarters; and
(g) Purchase from KAC all Merchandise repossessed by KAC with
respect to Accounts in default, at a price equal to the depreciated
value at which such Merchandise is consigned and/or sold to an Eligible
Dealer of, if the Merchandise is placed in a retail store operated by
Baldwin, at a price equal to the depreciated value assigned to such
Merchandise by Baldwin under its normal accounting practices consistent
with those currently in effect.
9.2 If Baldwin fails to perform any obligation contained herein, KAC or
its designee may itself perform such obligation.
9.3 Notwithstanding anything to the contrary contained herein, (a)
Baldwin shall remain liable under any contracts and agreements with any
Retail Account Debtor to perform all of its duties and obligations
thereunder, (b) the exercise by KAC of any of its rights under this
Agreement shall not release Baldwin from any of its duties or
obligations pursuant to any contract or agreement relating to any
Account, and (c) KAC shall not have any obligation or liability with
respect to any Account or Retail Account Debtor by reason of this
Agreement or be obligated to perform any of the obligations or duties
of Baldwin thereunder.
C. Except as expressly modified hereby, the Agreement remains unaltered
and in full force and effect. Each party acknowledges that the other parties
have made no oral representations to it with respect to the Agreement and this
Amendment thereto and that all prior understandings between the parties are
merged into the Agreement as amended by this writing.
D. This Amendment shall be considered an integral part of the
Agreement, and all references to the Agreement in the Agreement itself or any
document referring thereto shall, on and after the date of execution of this
Amendment, be deemed to be references to the Agreement as amended by this
Amendment.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed in duplicate by their duly authorized officers on the day and year
first above written.
BALDWIN PIANO & ORGAN COMPANY
By: /s/ Perry H. Schwartz
-------------------------------
Its: Executive Vice President
------------------------------
THE WURLITZER COMPANY
By: /s/ Perry H. Schwartz
-------------------------------
Its: Executive Vice President
------------------------------
KEYBOARD ACCEPTANCE CORPORATION
fka BPO Finance Corporation
By: /s/ George C. Huebner
-------------------------------
Its: President
------------------------------
3
<PAGE> 1
Exhibit 11.1
STATEMENT REGARDING COMPUTATIONS OF EARNINGS PER SHARE
<TABLE>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Net earnings $4,449,163
==========
Average number of common
shares outstanding 3,435,331
=========
Basic earnings per share $ 1.30
==========
Average number of common and
common equivalent shares 3,482,745
=========
Diluted earnings per share $ 1.28
==========
YEAR ENDED DECEMBER 31, 1996:
Net earnings $2,055,929
==========
Average number of common
shares outstanding 3,420,852
=========
Basic earnings per share $ 0.60
==========
Average number of common and
common equivalent shares 3,461,640
=========
Diluted earnings per share $ 0.59
==========
YEAR ENDED DECEMBER 31, 1995:
Net earnings $3,960,181
==========
Average number of common
shares outstanding 3,415,196
=========
Basic earnings per share $ 1.16
==========
Average number of common and
common equivalent shares 3,434,161
=========
Diluted earnings per share $ 1.15
==========
</TABLE>
<PAGE> 1
Exhibit 13.1
BALDWIN
[LOGO]
1997 ANNUAL REPORT
MUSIC RETAIL CONTRACT
[PHOTO] [PHOTO] [PHOTO]
PRODUCTS FINANCING ELECTRONICS
<PAGE> 2
BALDWIN AT A GLANCE
MUSIC PRODUCTS
PRODUCTS
- --------------------------------------------------------------------------------
Grand pianos, vertical pianos, comput-erized auto-player piano systems and
digital pianos.
BRAND NAMES
- --------------------------------------------------------------------------------
Baldwin(R), Chickering(R) and Wurlitzer(R) acoustic pianos.
ConcertMaster(R) computerized player piano systems.
Baldwin Pianovelle(R) digital keyboards.
Markets
- --------------------------------------------------------------------------------
North America, Asia, South America and Europe.
Annual Sales
- --------------------------------------------------------------------------------
$ 91.0 Million.
Distribution Network
- --------------------------------------------------------------------------------
400 independent dealers and 14 Company-owned stores.
PLANT SITES
- --------------------------------------------------------------------------------
Greenwood, Mississippi (piano cases and wood components).
Trumann, Arkansas (vertical pianos).
Conway, Arkansas (grand pianos).
Juarez, Mexico (keys and actions).
OUTLOOK
- --------------------------------------------------------------------------------
Combined, the Baldwin, Chickering and Wurlitzer brands are the best-selling
acoustic pianos in North America; Pianovelle is the fastest-growing digital
piano in the country and ConcertMaster competes as a top-of-the-line auto-player
system. Innovative products, international opportunities and strengthened
marketing are expected to create demand beyond category growth.
RETAIL FINANCING
PRODUCTS
- --------------------------------------------------------------------------------
Point-of-sale consumer financing for new and used pianos, and special promotion
programs. Piano leasing programs.
MARKETS
- --------------------------------------------------------------------------------
United States.
ANNUAL REVENUE
- --------------------------------------------------------------------------------
$ 8.9 Million.
DISTRIBUTION NETWORK
- --------------------------------------------------------------------------------
More than 500 dealers.
LOCATION
- --------------------------------------------------------------------------------
Loveland, Ohio.
OUTLOOK
- --------------------------------------------------------------------------------
Keyboard Acceptance Corporation has been the leading retail financier of
keyboards for almost a century. Loan portfolio grew by 11 percent in 1997,
fueled by aggressive marketing, intro-duction of new services and a healthy
economy. This trend is expected to continue in 1998.
CONTRACT ELECTRONICS
PRODUCTS
- --------------------------------------------------------------------------------
Printed circuit board assemblies, design, engineering, testing, electro-
mechanical and mechanical assemblies, post-production repair and order
fulfillment.
MARKETS
- --------------------------------------------------------------------------------
Original equipment manufacturers in the United States.
ANNUAL SALES
- --------------------------------------------------------------------------------
$ 35.7 Million.
DISTRIBUTION NETWORK
- --------------------------------------------------------------------------------
Internal and independent sales representatives.
PLANT SITE
- --------------------------------------------------------------------------------
Fayetteville, Arkansas.
OUTLOOK
- --------------------------------------------------------------------------------
Baldwin competes in the highly fragmented $25 billion electronics manufacturing
services industry in North America. Baldwin Contract Electronics' 1997 growth
rate of 15 percent should continue in 1998.
<PAGE> 3
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
($ millions except per share) 1995 1996 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $ 122.6 $ 115.1 $ 143.1(a)
Net Earnings 4.0 2.1 4.4(a)
Basic Earnings Per Share 1.16 0.60 1.30(a)
Long-Term Debt, including current portion 21.9 34.3 28.6
Working Capital 34.7 31.5 47.9
Shareholders' Equity 54.1 56.3 60.8
Debt to Equity Ratio 0.40 0.61 0.47
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NET SALES BASIC EARNINGS PER SHARE BOOK VALUE PER SHARE
($ millions) (dollars) (dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1996 1997 1995 1996 1997 1995 1996 1997
- ---- ---- ---- ---- ---- ---- ---- ---- ----
122.6 115.1 143.1 1.16 0.60 1.30 15.85 16.45 17.66
128.5(a) 1.05(a)
</TABLE>
<TABLE>
<CAPTION>
MUSIC SALES KAC INSTALLMENT PAPER WRITTEN CONTRACT ELECTRONICS SALES
($ millions) ($ millions) ($ millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1996 1997 1995 1996 1997 1995 1996 1997
- ---- ---- ---- ---- ---- ---- ---- ---- ----
79.9 79.8 105.6 69.6 74.2 87.2 30.7 30.8 35.7
91.0(a)
</TABLE>
- -------------------------------------------------------------------------------
(a) During 1997, the phase-out of the Company's consignment inventory program
and other one-time events added $14.6 million to sales, $0.9 million to net
earnings and $0.25 to earnings per share. Without these items, 1997 sales,
net earnings and basic earnings per share would have been $128.5 million,
$1.6 million and $1.05, respectively.
- ----------------------------------------------------------------------------
<PAGE> 4
TO OUR SHAREHOLDERS
[KAREN L. HENDRICKS PICTURED]
AS PROMISED, the pace of positive change at Baldwin accelerated significantly in
1997. Working against the strategic plan we outlined for you a year ago, we have
made substantial progress in modernizing and streamlining our Music business and
laying the foundation needed to accelerate profitable growth in our Retail
Financing and Contract Electronics businesses.
Demand for pianos has increased, and in 1998, as the cost benefits of 1997's
initiatives begin to flow through to our Music business, we anticipate further
progress in improving plant utilization and operating margins. In the coming
year, we will also turn more of our attention to realizing attractive
opportunities for profitable growth in our other two core businesses -- Retail
Financing and Contract Electronics. By achieving a more balanced business mix,
we expect to multiply our growth opportunities and better insulate Baldwin's
earnings against shifts in the business and economic cycles. This is designed to
build additional value for our shareholders in the form of improved earnings
stability.
Before reviewing 1997 with you, I want to recognize the invaluable and tireless
efforts of our employees. They are real professionals one and all, who have
rolled up their sleeves and put their shoulders to the wheel of change. It has
PAGE 2
<PAGE> 5
been an exhilarating, sometimes gut-wrenching, but ultimately satisfying
experience. And while there is certainly more work to be done, we believe you
will be encouraged, as we are, by the significant progress made over the past
year.
In 1997, we laid the essential groundwork needed to improve profits in 1998 and
beyond. During the year, we achieved revenue improvements in each of our core
businesses; negotiated new and more favorable financing arrangements with our
present lender and a new lender; divested non-core businesses; substantially
reduced inventories; improved production turnaround, manufacturing processes,
asset utilization, quality control and engineering support in our music plants;
outsourced transportation of keyboard instruments, dramatically improving
order-to-delivery cycle times to our dealers; created a contract electronics
bonus program to focus management on asset utilization as we grow this business;
added key management personnel in music and contract electronics; and
restructured financing arrangements with our dealers, which improved our balance
sheet and cash flow and enhanced our ability to service, support and supply our
dealer network.
Net sales from operations for 1997 were up 12 percent to $128.5 million,
compared with $115.1 million last year. Total reported 1997 sales of $143.1
million included the one-time impact of our sell-off of consignment inventory,
as we shifted our dealer financing from consignment sales to our new Baldwin
Inventory Finance Program.
PAGE 3
<PAGE> 6
Continuing music operations and contract electronics both achieved double-digit
sales growth, a reflection of a healthy economic climate, more aggressive
marketing strategies and an intense focus on execution. With both of these
businesses demonstrating robust sales potential, we expect sales growth to
continue in the months ahead.
Our Keyboard Acceptance Corporation (KAC), which provides point-of-sale consumer
financing for keyboard instruments, increased its retail financing portfolio by
11 percent this year, while the face value of new financing contracts rose 19
percent versus a year ago. Taken together, KAC and our music business have
historically strengthened each other and will continue to do so in the future,
but there are other growth opportunities as well. While KAC is the domestic
market leader in retail financing of keyboard instruments, we believe there is
still room to grow our financing business beyond the current dealer network. In
late 1997 we also initiated Signature Leasing, to give Baldwin piano customers
another financing option. In the coming year, we expect leasing to continue to
grow as a popular financing tool.
Net earnings for 1997 rose 75 percent to $3.6 million, or $1.05 per share,
excluding the one-time addition of $0.9 million, or 25 cents per share,
attributable primarily to our exit from consignment. Including
consignment-related profits, reported earnings for 1997 were $4.4 million. We
anticipate further improvements in profitability
PAGE 4
<PAGE> 7
SHAREHOLDER LETTER
throughout 1998, as a result of initiatives involving all three core businesses.
In addition, the impact of efforts begun in 1997 and continuing into 1998 will
generate savings through better supply chain management, manufacturing
efficiencies, and improvements in capacity and asset utilization.
The ongoing strategies we have pursued these past several years have served us
well and remain firmly in place. We will continue to: 1) drive gross margin
improvements in our music and contract electronics plants; 2) focus on
profitable growth in all three core businesses; 3) maintain the pace of
innovation at every level of our organization, and 4) improve asset utilization
via increased throughput and control of working capital. With the changes we
have initiated beginning to yield visible results, the stage is well set to
continue to execute against these successful strategies again in 1998.
If there is one key lesson we revalidated in 1997, it is the power of focus. It
will continue to be our watchword in 1998. For Baldwin, this means focus on
strategy, priorities, execution and our end customers. Making the right choices,
and then working hard to see them executed well, is what we are about. We are
confident that building three strong, resilient businesses will drive profitable
growth and produce enhanced value for our shareholders.
/s/ Karen L. Hendricks
Karen L. Hendricks
Chairman, Chief Executive Officer and President
PAGE 5
<PAGE> 8
BALDWIN MUSIC PRODUCTS
Driven by successful product introductions, aggressive marketing, a
powerful brand name franchise and improved manufacturing efficiencies, Baldwin
Music Products continued to gain sales and earnings momentum, turning in a very
solid performance for the year.
Combined, the Baldwin, Chickering and Wurlitzer brand names are America's
best-selling acoustic pianos, while the Baldwin Pianovelle brand is the nation's
fastest-growing digital piano. In 1997, music product sales from operations
reached $91 million, a strong 14 percent increase over 1996. This put Baldwin
well ahead of the piano industry overall, with the Company's strongest
year-to-year gain since 1988 when Baldwin acquired Wurlitzer. The 14 percent
gain excludes the positive one-time impact of $14.6 million in sales
attributable to the phase-out of dealer consignment sales.
This Division achieved significant market share gains for both acoustic and
digital instruments. On a unit sales basis, Baldwin's acoustic market share rose
from 26 percent to an estimated 28 percent, up for the third straight year. The
two-year-old Pianovelle digital piano line captured an estimated 6 percent share
of this expanding market, moving closer to our year 2000 goal of 10 percent. All
of Baldwin's domestic sales channels -- 400 independent dealers, Company-owned
retail stores, and factory direct sales -- met, or exceeded, 1997 sales targets.
PAGE 6
<PAGE> 9
MUSIC PRODUCTS DIVISION
With the United States accounting for less than 20 percent of the world piano
market, this domestic progress has also energized the Company's international
sales strategy. Baldwin has already developed products designed to appeal
specifically to overseas buyers. In 1998, for the first time in many years,
Baldwin will present its pianos at the Frankfurt Musikmesse in Germany, the
world's largest annual showcase for musical instruments.
Fueling this Division's healthy l997 sales performance was the introduction of
innovative, sales-generating products such as Baldwin's exclusive
ConcertMaster(R) player piano system. Shipments began in the second quarter of
l997. Many families today have the resources and desire to own an elegant
Baldwin grand piano. Now, it can be a useful and satisfying purchase even if no
one in the household plays the piano. The ConcertMaster auto player technology
provides another compelling reason to buy a Baldwin grand -- to both families
and commercial customers such as hotels, restaurants, and lounges. We believe
that up to one in three new grand pianos sold in the United States is now
equipped with some sort of auto-player system. The ConcertMaster competes as a
top-of-the-line unit.
[Picture of grand piano equipped with Consert Master System]
BALDWIN CONCERTMASTER COMPUTERIZED PLAYER SYSTEM
PAGE 7
<PAGE> 10
Introduction of synchronous manufacturing techniques at all four Baldwin piano
plants continued to impact dramatically on operating efficiency, cycle time and
inventory requirements. By late 1997, the average number of days needed to
fulfill dealer orders for vertical pianos had fallen from 32 to just 18. At the
same time, we reduced our vertical piano inventory by half. In 1998, these
initiatives should result in lower costs, higher gross margins and improved
quality and will be extended to include the Company's grand pianos.
Baldwin undertook several initiatives in 1997 to improve its dealer support
programs. The main initiative was the Baldwin Inventory Finance Program offered
by Baldwin to its dealers in conjunction with Deutsche Financial Services, a
large global commercial finance organization. This program replaced Baldwin's
previous system of consignment, affording dealers more attractive financial
terms, substantially reducing the administrative burdens on Baldwin and giving
our sales force the opportunity to do more selling. More than 78 percent of our
dealers have already chosen Baldwin's new inventory finance program.
Throughout the year, Baldwin's Concert & Artist Division was actively involved
in projects promoting the "Baldwin Sound" through the Company's roster of
celebrated
PAGE 8
<PAGE> 11
MUSIC PRODUCTS DIVISION
artists from the American classical, pop, and jazz piano worlds. We
also reinforced Baldwin's valued relationships with such prestigious musical
organizations as the Boston Symphony Orchestra, Chicago Symphony Orchestra,
Philadelphia Orchestra, Cincinnati Symphony as well as the world-renowned
Tanglewood Festival Center and John F. Kennedy Center for the Performing Arts.
Yet another source of pride for Baldwin was the early 1998 placement of a
magnificent ConcertMaster-equipped Baldwin Grand in the family quarters at the
White House -- a gift to the People of the United States. We believe every home
deserves a Baldwin.
[Picture of a of Computer]
New Web Site -- An Internet web site has been launched by Baldwin to provide a
convenient way for both web surfers and Baldwin dealers to access information
about the Company and its products. The site may be viewed on any computer that
is equipped to access the Internet. Viewers may also connect to the Baldwin
Pianovelle web site which spotlights the Company's innovative line of digital
pianos.
www.baldwinpiano.com or www.pianovelle.com
PAGE 9
<PAGE> 12
BALDWIN RETAIL FINANCING
Keyboard Acceptance Corporation -- Nearly one hundred years ago, Baldwin
recognized that the opportunity to pay over time for such a major purchase as a
piano was a critical element in the consumer's buying decision. That has not
changed, and today Baldwin is the only piano manufacturer that offers in-house
consumer financing.
Baldwin's financing subsidiary, Keyboard Acceptance Corporation (KAC), continued
its growth in 1997 by increasing its outstanding loan portfolio by 11 percent.
The dollar value of new contracts grew by 18 percent as a result of the number
and average value of new contracts written. Over the past five years KAC's
portfolio has grown 75 percent.
No company in the industry knows its dealers and their customers better than
KAC. With a staff that has decades of experience serving the specialized retail
financing needs of the keyboard industry, KAC uses this distinct competitive
advantage to tailor very attractive financing programs, featuring competitive
rates, rent-to-own options, prompt credit approval and other unique dealer
services. KAC's intimate familiarity with the industry has enabled the Company
to forge a unique and mutually beneficial partnership with its dealers, creating
a bond so strong that a number of competitors have abandoned the keyboard
financing niche entirely.
PAGE 10
<PAGE> 13
BALDWIN RETAIL FINANCING
Today the vast majority of KAC's dealers rely on the Company as the primary
credit source for their customers. Many of these dealer relationships have been
built on two or more generations of mutual trust and understanding -- factors
that have played, and will continue to play, a major role in KAC's ongoing
success.
KAC also provides its dealers with the kind of special incentives and local
promotions that drive sales, offering other support services that go well beyond
the industry norm. For example, during 1997 KAC representatives served at more
than 100 major sales events in 25 states. This service allows on-site credit
decisions, helps customers to make financing choices quickly and frees the sales
staff to present products more efficiently. If a creative way can be found to
help a customer obtain the premium product they have always wanted, KAC can do
it. Because KAC's programs have proven so successful, its dealer network has
grown by 40 percent since 1993.
KAC's credit losses have consistently been only a fraction of what the consumer
finance industry as a whole has experienced. When repossessions do occur, KAC
now benefits from its unique ability to resell them at retail, thereby greatly
minimizing any loss, yet providing value to customers.
[Picture of a hand holding a pen]
PAGE 11
<PAGE> 14
In September 1997, KAC opened the National Piano Repossession Center (NPRC) near
Atlanta, Georgia. The NPRC receives repossessed pianos from all over the
country, reconditions them as needed and sells them in a showroom dedicated
solely to these repossessed instruments. The new center has attracted a steady
stream of eager bargain hunters, many of whom also finance their purchase
through KAC. By eliminating any financial liability for repossessions, the
dealer is free to focus primarily on the sale of new keyboard instruments. This
strategy has substantially enhanced the value dealers place on their
relationship with KAC.
KAC is proud of its long-standing dealer recognition and quality reputation as
the nation's oldest, largest and best known retail finance company exclusively
devoted to serving the keyboard industry. More aggressive marketing,
introduction of new services and a healthy economy helped spur record new
business for KAC in 1997. These same conditions create an exciting future for
KAC and its dealers during 1998.
PAGE 12
<PAGE> 15
BALDWIN RETAIL FINANCING
SIGNATURE LEASING CORPORATION -- Despite the tremendous popularity of consumer
leases for high-ticket purchases, such as boats and automobiles, leasing has
never been broadly available to piano consumers. Baldwin saw this as a major
opportunity and in late 1997 launched Signature Leasing to offer piano buyers
another financing alternative. Early results are encouraging, as dealers and the
Company's own sales force begin to utilize Signature Leasing's potential as a
method to increase piano sales. In 1998, Baldwin will continue to educate both
its sales force and its dealer network about the benefits and selling points of
leasing.
[PICTURE OF A FOUNTAIN PEN AND CONTAINER OF INK]
Signature Leasing -- Signature Leasing is a wholly-owned subsidiary of Baldwin
created to reduce the cash required by the consumer to have one of the Company's
Baldwin, Chickering, Wurlitzer or Pianovelle products. It offers a full range of
proprietary lease programs. Signature Leasing deals exclusively with Baldwin
products and Baldwin's dealers, and is expected to significantly increase their
sales. For those leased keyboard instruments returned at the end of the lease
term, Baldwin has unique refurbishing skills and resources, and a network of
Company stores to profitably sell these renewed instruments.
PAGE 13
<PAGE> 16
BALDWIN CONTRACT ELECTRONICS
WHILE HEIGHTENED BUSINESS COMPETITION on a global scale has made
outsourcing a critical staple of American manufacturing, it has also created
exciting opportunities for technologically proficient, high-quality,
full-service suppliers such as Baldwin Contract Electronics, based in
Fayetteville, Arkansas.
Currently, the North American electronics manufacturing services industry that
serves original equipment manufacturers (OEMs) is a booming $25 billion industry
- -- and growing. Yet the sector remains highly fragmented with hundreds of small
players and a few large ones. In this crowded arena, Baldwin is well positioned
for growth.
In 1997, Baldwin's proven reputation for quality, reliability and quick
turnaround increased total sales 15 percent to $35.7 million. New customer sales
accounted for 15 percent of the total. This Division continues to concentrate
its business on higher-margin printed circuit boards and value-added services,
but with focus on asset utilization and operating profitability.
While the manufacture of printed circuit board assemblies still represents
approximately 60 percent of this Division's revenues, Baldwin Contract
Electronics is increasingly providing customers with such higher-margin services
as design,
PAGE 14
<PAGE> 17
BALDWIN CONTRACT ELECTRONICS
engineering, testing, electromechanical and mechanical assembly, post-production
repair and order fulfillment.
Baldwin has long-standing partnerships with each of its largest customers. In
fact, this Division's 10-year-plus relationship with its top three customers
have grown consistently at an annual compound growth rate of nearly 21 percent
for the last 10 years. Baldwin Contract Electronics has also received numerous
"Outstanding Supplier" awards from its customers, including the 1997 top
supplier award from its largest customer. While this Division continues to build
and strengthen its strategic alliances with core customers, its aggressive
pursuit of "under-outsourced" market segments has already achieved a measure of
success in attracting new business.
In targeting new customers, Baldwin Contract Electronics has set its sights on
the industrial, consumer and business equipment sectors, which have more
recently begun to embrace outsourcing in a major way. Unlike traditional
outsourcing sectors, such as computer and telecommunication manufacturing, where
long-standing outsourcing relationships are already in place, Baldwin Contract
Electronics is targeting those sectors where there is still plenty of room for
outsourcing to grow.
[Picture of printed circuit board]
PAGE 15
<PAGE> 18
Mirroring the growth of the overall electronics manufacturing services industry,
Division sales have been expanding rapidly, producing a five-year annual growth
rate of 17 percent, with every indication that double-digit growth will continue
through the end of the decade and beyond.
Baldwin's long reputation for quality and craftsmanship, and Baldwin Contract
Electronics' ability to offer customers a full spectrum of outsourced services
gives this Division a powerful competitive edge. By focusing on outsourcing
services aimed at the low-to-medium volume segment of the market, Baldwin
Contract Electronics has achieved a strategic mix of customers that differs
markedly from the industry as a whole, where 70 percent of the business revolves
around such highly competitive areas as computers, peripherals and
communications.
These same fiercely competitive segments account for only 10 percent of this
Division's output, and with good reason. Major opportunities to add value and
achieve higher margins lie elsewhere, in higher value segments such as medical,
industrial, automotive, consumer, instrumentation and other products. And these
are the principal sectors that Baldwin Contract Electronics will pursue in 1998
and beyond.
PAGE 16
<PAGE> 19
BALDWIN CONTRACT ELECTRONICS
This Division's future prospects have been further enhanced by the recent
appointment of a highly-regarded, long-time senior engineering executive in the
contract electronics industry to direct all Baldwin Contract Electronics
operations.
This Division's strategy rests on maintaining a powerful base of large core
customers, adding new higher-margin business and leveraging Baldwin's strong
reputation for quality. This plan positions Baldwin Contract Electronics to
become a significant contributor to Baldwin's profitability in the years ahead.
[PICTURE OF WOMEN EXERCISING ON STAIRMASTER(R) SPORTS/MEDICAL PRODUCT]
Value-added Services -- The engineering and design expertise of Baldwin Contract
Electronics has helped StairMaster(R) Sports/Medical Products, Inc., a leader in
the health and fitness equipment industry, convert the circuit boards used in
its products to surface mount technology. This advancement has allowed for extra
features in StairMaster's products and enhanced product reliability in the
field. Value-added work such as design and testing presents growth opportunities
for Baldwin Contract Electronics.
PAGE 17
<PAGE> 20
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
DIRECTORS
- ----------------------------------------------------------------------------
Karen L. Hendricks
Chairman, Chief Executive Officer and President
Baldwin Piano & Organ Company
George E. Castrucci
Management Consultant, Former Chairman
& Chief Executive Officer of Great American Broadcasting Company
William B. Connell
Lead Director of Baldwin Piano & Organ Company
Chairman of EDB Holdings, Inc.
John H. Gutfreund
President of Gutfreund & Company Inc.
Retired Chairman and Chief Executive Officer of Salomon Brothers, Inc.
Joseph H. Head, Jr.
Chairman of Atkins & Pearce, Inc.
Roger L. Howe
Retired Chairman of U.S. Precision Lens, Inc.
EXECUTIVE OFFICERS
- ----------------------------------------------------------------------------
Karen L. Hendricks
Chairman, Chief Executive Officer and President
Stephen P. Brock
Executive Vice President and General Manager, Music Division
Ronald P. Geguzys
Executive Vice President and
General Manager, Contract Electronics Division
Randolph R. Marks
Executive Vice President, Piano Operations
Perry H. Schwartz
Executive Vice President and Chief Financial Officer
George C. Huebner
Senior Vice President and
General Manager, Keyboard Acceptance Corporation
Ronald W. Kruse
Corporate Secretary, Vice President and
General Manager, Signature Leasing Company
- ----------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Baldwin Piano & Organ Company
We have audited the accompanying consolidated balance sheets of Baldwin
Piano & Organ Company and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 Baldwin
Piano & Organ Company and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Cincinnati, Ohio
February 23, 1998
PAGE 18
<PAGE> 21
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
Consolidated Statement of Earnings
Years ended December 31, 1997, 1996 and 1995
(In thousands, except earnings per share)
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $143,101 $115,070 $122,634
Cost of goods sold 115,052 92,495 96,333
- -----------------------------------------------------------------------------------------------------------------------------
Gross profit 28,049 22,575 26,301
Income on the sale of installment receivables 7,378 5,811 4,946
Interest income on installment receivables 1,249 1,296 906
Other operating income, net 2,304 3,476 4,010
- -----------------------------------------------------------------------------------------------------------------------------
38,980 33,158 36,163
Selling, general and administrative 29,451 27,186 27,755
- -----------------------------------------------------------------------------------------------------------------------------
Operating profit 9,529 5,972 8,408
Interest expense 2,865 2,868 2,087
- -----------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 6,664 3,104 6,321
Income taxes 2,215 1,048 2,361
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings $ 4,449 $ 2,056 $ 3,960
=============================================================================================================================
Basic earnings per share $ 1.30 $ .60 $ 1.16
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares 3,435 3,421 3,415
- -----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share 1.28 $ .59 $ 1.15
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average number of common and
common equivalent shares 3,483 3,462 3,434
=============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
Common Additional Retained Cost of
stock paid-in capital earnings treasury shares Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 42 $12,001 $44,318 $(6,207) $50,154
Net earnings -- -- 3,960 -- 3,960
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 42 12,001 48,278 (6,207) 54,114
Proceeds from exercise of stock options -- 105 -- -- 105
Net earnings -- -- 2,056 -- 2,056
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 42 12,106 50,334 (6,207) 56,275
Proceeds from exercise of stock options -- 210 -- (176) 34
Stock grants issued -- 65 -- -- 65
Net earnings -- -- 4,449 -- 4,449
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $ 42 $12,381 $54,783 $(6,383) $60,823
=============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
PAGE 19
<PAGE> 22
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996 (In thousands)
<TABLE>
<CAPTION>
Assets 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
Current assets:
<S> <C> <C>
Cash $ 680 $ 774
Receivables, net 23,201 13,933
Inventories 36,649 54,453
Deferred income taxes 2,460 3,533
Other current assets 4,423 4,496
- ----------------------------------------------------------------------------------------------------------------------------
Total current assets 67,413 77,189
- ----------------------------------------------------------------------------------------------------------------------------
Installment receivables, less current portion 16,502 11,435
Property, plant and equipment, net 18,262 16,479
Other assets 12,183 6,961
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $114,360 $112,064
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
Current liabilities:
<S> <C> <C>
Current portion of long-term debt $ 900 $ 30,901
Accounts payable 10,812 8,915
Income taxes payable 575 154
Accrued liabilities 7,221 5,757
- ----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 19,508 45,727
- ----------------------------------------------------------------------------------------------------------------------------
Long-term debt, less current portion 27,650 3,350
Deferred income taxes 237 73
Other liabilities 6,142 6,639
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 53,537 55,789
- ----------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock (4,205,094 issued shares in 1997 and 4,175,144 issued shares in 1996) 42 42
Additional paid-in capital 12,381 12,106
Retained earnings 54,783 50,334
- ----------------------------------------------------------------------------------------------------------------------------
67,206 62,482
Less cost of treasury shares (760,380 shares in 1997 and 749,748 shares in 1996) (6,383) (6,207)
- ----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 60,823 56,275
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $114,360 $112,064
============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
PAGE 20
<PAGE> 23
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS)
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 4,449 $ 2,056 $ 3,960
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,421 2,204 2,656
Gain on sale of assets -- -- (266)
Provision for doubtful accounts 1,466 1,250 965
Deferred income taxes 1,236 1,069 1,760
Change in assets and liabilities:
Trade receivables (7,471) 161 (956)
Inventories 17,805 (10,516) 315
Other current assets 73 223 (1,257)
Other assets (5,393) 220 75
Accounts payable, accrued and other liabilities 2,890 (3,486) 758
Income taxes payable 421 (468) (899)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 18,897 (7,287) 7,111
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (4,996) (3,602) (3,934)
Proceeds from sale of assets -- -- 839
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,996) (3,602) (3,095)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Installment receivables written (87,186) (74,244) (69,555)
Installment receivables liquidated 4,474 6,495 4,839
Proceeds from sale of installment receivables 74,383 66,523 60,635
Net borrowing (repayment) on long-term debt (5,700) 12,355 150
Proceeds from exercise of stock options 34 105 --
- ----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (13,995) 11,234 (3,931)
Net (decrease) increase in cash (94) 345 85
Cash at beginning of year 774 429 344
- ----------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 680 $ 774 $ 429
============================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- ----------------------------------------------------------------------------------------------------------------------------
Cash paid during the year for: Interest $ 3,018 $ 2,781 $ 2,161
Income taxes $ 527 $ 595 $ 1,584
============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
PAGE 21
<PAGE> 24
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Baldwin Piano & Organ Company and all of its subsidiaries (Company). All
material intercompany balances and transactions have been eliminated.
REVENUE RECOGNITION
Prior to mid 1997, the Company shipped keyboard instruments to a majority
of its dealers on a consignment basis and retained title to each consigned
instrument until it was sold by the dealer. Under consignment, sales are
recorded when the dealer sells an instrument to one of its customers. Starting
in June 1997, the Company phased out its consignment program. For dealers not in
consignment, title is transferred at the time of shipment to the dealer and the
Company recognizes a sale at that time.
While the Company was shipping on consignment, a monthly display fee was
charged on all consigned inventory held by dealers longer than ninety days. This
display fee, on an annual basis, ranged from 10.5% to 15.5% of the selling price
of such inventory to the dealer. Display fee income comprises the majority of
the amount reported in the Consolidated Statement of Earnings as "Other
operating income, net".
The Company produces electronic, furniture and keyboard components on
behalf of other manufacturers. These contract businesses transfer title and
recognize revenue at the time of shipments to their customers.
INSTALLMENT RECEIVABLES
Installment receivables are recorded at the principal amount of the
contracts. Interest on the contracts is recorded as income using the interest
method.
The Company's wholly-owned finance subsidiary (Finance) maintains an
agreement with an unconsolidated, qualifying special purpose entity to sell
substantially all of its installment receivable contracts up to a maximum
outstanding principal amount of $150 million. The buyer of the installment
receivables earns interest on the outstanding principal balance of the contracts
based upon a floating interest rate provision. Finance continues to
contractually service all installment receivables sold. Over the lives of the
contracts, the spread between the actual yield on the installment contracts sold
and the amount retained by the buyer under the floating rate provision is
remitted to Finance as a servicing fee. This amount is recorded in the
Consolidated Statements of Earnings as "Income on the sale of installment
receivables".
ALLOWANCE FOR DOUBTFUL ACCOUNTS
An allowance for losses on receivables is provided through a charge to
operations based on estimates of possible losses. Accounts deemed to be
uncollectible are charged and recoveries credited to the allowance for doubtful
accounts.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in first-out (LIFO) method for a substantial portion of
inventories. Cost for the remaining portion is determined using the first-in
first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives of the
related property. The estimated useful lives are principally as follows:
<TABLE>
<CAPTION>
Description Years
-----------------------------------------
<S> <C>
Buildings 25 - 35
Building equipment 5
Machinery and equipment 3 - 10
</TABLE>
Leasehold improvements are amortized over the shorter of the lease term or
estimated useful life of the asset. The cost of maintenance, repairs, minor
renewals and betterments of property, plant and equipment is charged to expense
in the year incurred. Major expenditures for renewals and betterments are
capitalized and depreciated over their estimated useful lives.
PAGE 22
<PAGE> 25
OTHER ASSETS
Other assets consists primarily of goodwill and institutional and display
inventory. Goodwill, which represents the excess of purchase price over the fair
value of the net assets acquired, is amortized on a straight line basis over the
expected periods to be benefited, generally 40 years. The Company evaluates
long-lived assets, including goodwill and other intangibles, based on fair
values or projected undiscounted cash flows whenever significant events or
changes in circumstances occur which indicate the carrying amount may not be
recoverable.
TAXES ON INCOME
Deferred income taxes reflect the future tax consequences of differences
between the tax base of assets and liabilities and their financial reporting
amounts at each balance sheet date, based upon enacted income tax laws and tax
rates. Income tax expense or benefit is provided based on earnings reported in
the financial statements. The provision for income tax expense or benefit
differs from the amounts of income taxes currently payable because certain items
of income and expense included in the consolidated financial statements are
recognized in different time periods by taxing authorities.
STOCK OPTION PLANS
Prior to January, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation expense would be recorded on the date of
the grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation", which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of the grant.
Alternatively, SFAS 123 also allows entities to continue to apply the provisions
of APB 25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS 123 had been applied. The Company
has elected to continue to apply the provisions of APB 25 and provide the pro
forma disclosure provisions of SFAS 123.
RETIREMENT PLANS
Defined contribution and defined benefit plans cover substantially all
hourly and salaried employees located in the United States. The Company also
maintains a deferred compensation plan for certain key employees. The Company's
cost of providing these retirement plans is recognized as a charge to income in
the year cost is incurred.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company is contractually obligated to make health care benefits
available to a certain group of retired employees. Also, the Company sponsors
several postemployment plans for various groups of employees. These plans'
provisions include severance benefits in which the employees' rights either vest
or accumulate for each additional year of service performed.
The Company charges the expected cost of retiree health and certain
postemployment benefits to expense during the years employees render service.
The Company funds these postretirement and postemployment benefits primarily on
a pay-as-you-go basis.
FOREIGN CURRENCY TRANSLATION
Financial statements of foreign subsidiaries, where the local currency is
the functional currency, are translated into U.S. dollars at the current
exchange rates except inventories, sales, cost of goods sold and expenses which
are translated at average exchange rates during each reporting period.
Adjustments resulting from the translation of financial statements are recorded
in the results of operations.
DERIVATIVE FINANCIAL INSTRUMENTS
Premiums paid for purchased interest rate cap agreements are amortized to
interest expense over the term of the caps. Unamortized premiums are included in
other assets in the Consolidated Balance Sheets. Amounts receivable under cap
agreements are accounted for as a reduction of interest expense. The Company has
an interest rate swap agreement to adjust the interest sensitivity of long-term,
fixed rate installment receivables. Net interest income (expense) resulting from
the differential between exchanging floating and fixed-rate swap interest
payments is recorded on an accrual basis as an adjustment to the interest income
of the associated asset. The Company does not hold or issue derivative financial
instruments for trading purposes.
EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted SFAS No. 128 "Earnings Per
Share" which simplifies the standards for computing earnings per share.
Quarterly earnings per share have been restated to reflect the adoption,
however, there was no material impact on the Company's previously reported
earnings per share. Basic earnings per share is based upon the weighted average
number of common shares outstanding during the year. Diluted earnings per share
is computed based on the weighted average number of common and common equivalent
shares outstanding. Unless otherwise indicated, references to per share amounts
are basic per share amounts.
PAGE 23
<PAGE> 26
TRANSFER AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities",
was adopted on January 1, 1997 and provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishments of
liabilities. SFAS 125 requires an entity that sells installment receivables with
contractual servicing rights retained to allocate the previous carrying amount
between the assets sold and any retained interest based on their relative fair
values at the date of transfer. The resulting servicing rights are amortized in
proportion to, and over the period of, estimated net servicing revenues.
Servicing rights are assessed for impairment periodically based on fair value of
estimated future cash flows using discount rates that approximates current
market conditions and expected future prepayment rates, with any impairment
recognized through a valuation allowance. For purposes of measuring impairment,
the underlying receivables are stratified based on original interest rates and
estimated maturities.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Future events could affect these
estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with current
year financial presentation.
(2) RECEIVABLES
Receivables consist of the following (In thousands):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Trade $ 14,770 $ 9,693
Installment - owned 13,447 8,814
Holdback on installment accounts sold 12,586 9,841
Other 438 558
- --------------------------------------------------------------------------------
41,241 28,906
Less allowance for doubtful accounts 1,538 3,538
- --------------------------------------------------------------------------------
Net receivables 39,703 25,368
Less noncurrent portion 16,502 11,435
- --------------------------------------------------------------------------------
Net current receivables $ 23,201 $ 13,933
================================================================================
</TABLE>
In the normal course of business, the Company extends credit to various
dealers where certain concentrations of credit risk exist. These concentrations
of credit risk may be similarly affected by changes in economic or other
conditions and may, accordingly, impact the Company's overall credit risk.
However, management believes that consolidated trade accounts receivable are
well diversified, thereby reducing potential material credit risk, and that the
allowance for doubtful accounts is adequate to absorb estimated losses as of
December 31, 1997 and 1996.
Installment receivables owned by Finance are net of unearned interest
charges of $0.7 million and $1.3 million at December 31, 1997 and 1996,
respectively. See Note 5 for additional information on installment receivables
and Note 6 for information regarding the use of receivables to secure
borrowings.
PAGE 24
<PAGE> 27
(3) INVENTORIES
Inventories consist of the following (In thousands):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
FIFO cost: Raw materials $ 18,406 $ 15,540
Work-in-process 8,865 8,257
Finished goods 19,306 43,623
- --------------------------------------------------------------------------------
46,577 67,420
Less revaluation to LIFO (9,928) (12,967)
- --------------------------------------------------------------------------------
$ 36,649 $ 54,453
================================================================================
</TABLE>
At December 31, 1997 and 1996, approximately 68% and 76%, respectively, of
the Company's inventories were valued on the LIFO method.
Net earnings for 1997 are approximately $1.8 million greater than would
have been reported had the FIFO method been used. Of that amount approximately
$0.9 million was attributable to the phase-out of the Company's consignment
inventory program. Net earnings for 1996 and 1995 are approximately $0.6 million
and $0.8 million, respectively, less than would have been reported had the FIFO
method been used.
During 1997 the liquidation of LIFO inventory layers carried at lower costs
prevailing in prior years as compared with the current cost of inventories
decreased cost of sales and, therefore, increased earnings before income taxes
by approximately $5.6 million, offset by the effect of inflation in the current
year of $2.6 million.
See Note 6 for information regarding the use of inventories to secure
borrowings.
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (In thousands):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 414 $ 414
Buildings and building equipment 14,462 13,013
Machinery and equipment 19,265 18,552
Leasehold improvements 549 544
- --------------------------------------------------------------------------------
34,690 32,523
Less accumulated
depreciation and amortization 16,428 16,044
- --------------------------------------------------------------------------------
$ 18,262 $ 16,479
================================================================================
</TABLE>
See Note 6 for information regarding the use of property, plant and equipment to
secure borrowings.
PAGE 25
<PAGE> 28
(5) DISCLOSURE REGARDING FINANCE SUBSIDIARY
The Company sells certain of its keyboard instruments to customers on the
installment method. The Company has a continuing agreement to sell all of its
installment receivables to Finance. Also, Finance purchases installment
receivables for music products from independent retail dealers.
In 1997, Finance amended its agreement with an independent entity to sell
substantially all of its installment receivable contracts up to a maximum
outstanding principal amount of $150 million. Certain installment receivables
are not eligible for sale and are retained by Finance. Finance continues to
service all installment receivables sold.
At the time of each installment receivable sale, Finance receives cash
equal to the unpaid principal balance of the contracts, less a purchase discount
applied to the principal balance of the contracts sold. The purchase discount is
adjusted at each receivable sale and is determined using the loss experience and
effective yield of the portfolio.
The buyer of the installment receivables earns interest on the outstanding
principal balance of the contracts based upon a floating interest rate
provision. Over the duration of the contracts, the difference between the actual
yield on the installment contracts sold and the amount retained by the buyer
under the floating interest rate provision is remitted to Finance as a service
fee. This amount is recorded in the Consolidated Statement of Earnings as
"Income on the sale of installment receivables."
The installment contracts are written generally at fixed rates ranging from
12% to 16% with terms extending over three to five years. The interest retained
by the buyer for 1997, 1996 and 1995 represented an average interest rate of
6.8%, 6.8% and 7.1%, respectively.
Under the sale agreements, Finance is required to repurchase accounts that
become more than 120 days past due or accounts that are deemed uncollectible.
The repurchase price is equal to the remaining unpaid principal balance of the
contract on the date repurchased, less the related purchase discount. Finance is
responsible for all credit losses associated with the sold receivables.
At December 31, 1997 and 1996, the balance of installment receivables on
which Finance remains contingently liable, is as follows (In thousands):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Principal balance of installment receivables sold $ 102,011 $ 94,777
Less related holdback 12,586 9,841
- --------------------------------------------------------------------------------
Contingent liability $ 89,425 $ 84,936
================================================================================
</TABLE>
The fair value of the principal balance of installment receivables sold
before related purchase discount is $105.0 million and $97.8 million at December
31, 1997 and 1996, respectively. The fair value is determined as the present
value of expected future cash flows discounted at a rate the Company believes a
purchaser would require as a rate of return, approximately 12%. The carrying
amount of the purchase discount on accounts sold is included in Note 2 under the
indicated caption.
Each installment receivable is secured by the keyboard instrument financed
by the receivable. Prior to the fourth quarter of 1997, in the event of
repossession of the instrument because of nonpayment, the dealer originally
selling the instrument bore some risk of the bad debt loss, but had the right to
sell the repossessed product. This dealer risk was borne in the form of a
potential liability to the Company. This is referred to as recourse. In that
fourth quarter, Finance initiated a program of acquiring receivables without
such recourse, and the Company began selling repossessed pianos through its own
retail stores, primarily through a repossession center located in the Atlanta
metropolitan area.
Also under the covenants of the Company's debt agreements, Finance can only
pay dividends or repurchase its own stock to the extent its net worth exceeds
$4.0 million. During 1996 Finance declared and paid a dividend of $2.0 million.
No dividends were declared in 1997.
With the adoption of SFAS No. 125 on January 1, 1997, the Company at
December 31, 1997 has recorded a servicing asset of $2.8 million which is
included in other assets in the Consolidated Balance Sheets. At December 31,
1997, the Company has also recorded a liability for $1.4 million representing
the estimated recourse obligation associated with the sale of installment
receivables, resulting in a gain of $1.4 million in 1997. The fair value of
these assets and liabilities at December 31, 1997 approximates their carrying
value.
PAGE 26
<PAGE> 29
Condensed balance sheets of Finance are as follows (In thousands):
<TABLE>
<CAPTION>
1997 1996
ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C>
Installment receivables owned $ 12,810 $ 8,814
Holdback on accounts sold 12,586 9,841
Allowance for doubtful accounts (518) (310)
- --------------------------------------------------------------------------------
Installment receivables, net 24,878 18,345
Deferred income taxes 807 634
Servicing asset 2,785 --
Other assets 3,736 3,507
- --------------------------------------------------------------------------------
Total assets $ 32,206 $ 22,486
================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
- --------------------------------------------------------------------------------
Recourse obligation $ 1,368 $ --
Other liabilities 3,669 3,563
Due to parent 20,315 14,409
Shareholder's equity 6,854 4,514
- --------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 32,206 $ 22,486
================================================================================
</TABLE>
Condensed statements of earnings of Finance are as follows (In thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income on installment receivables:
Sold $ 7,378 $ 5,782 $ 4,921
Owned 1,249 1,296 906
Other operating income 287 285 332
- --------------------------------------------------------------------------------
Total revenue 8,914 7,363 6,159
Expenses:
General and administrative 3,032 2,873 2,431
Provision for doubtful accounts 1,162 854 120
- --------------------------------------------------------------------------------
Operating profit 4,720 3,636 3,608
Interest expense 1,017 419 3
- --------------------------------------------------------------------------------
Earnings before income taxes 3,703 3,217 3,605
Income taxes 1,363 1,223 1,442
- --------------------------------------------------------------------------------
Net earnings $ 2,340 $ 1,994 $ 2,163
================================================================================
</TABLE>
See Note 7 for information regarding derivative financial instruments.
PAGE 27
<PAGE> 30
(6) LONG-TERM DEBT
Long-term debt consists of the following (In thousands):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit agreement $ 25,200 $ 30,001
Term loan 3,350 4,250
- --------------------------------------------------------------------------------
28,550 34,251
Less maturities due within one year
included in current liabilities 900 30,901
- --------------------------------------------------------------------------------
$ 27,650 $ 3,350
================================================================================
</TABLE>
On October 16, 1997, the Company replaced its short-term $50 million
revolving line of credit with a long-term, secured $40 million revolving Credit
Facility expiring on October 1, 2000; however, the Company can terminate the
agreement at any time with sixty days' notice. Under the Credit Facility, the
lenders have made available a line of credit based upon certain percentages of
the carrying value of the Company's inventories and accounts receivable. At
December 31, 1997, the Company had approximately $8.4 million of additional
borrowing available under this Credit Facility.
The annual rate of interest under the Credit Facility is equal to 1.5
percentage points per annum above LIBOR, or under certain specified
circumstances, 0.5 percentage points per annum above the Prime Rate. The rate
under the Credit Facility was 7.5% at December 31, 1997 and 7.3% under the
previous revolver at December 31, 1996.
The financial covenants of the Credit Facility agreement require the
Company to maintain certain financial ratios and tangible net worth within
defined amounts. As of December 31, 1997, the Company was in compliance with the
terms of the Credit Facility.
Substantially all of the tangible assets of the Company and its
subsidiaries are pledged as collateral under the various debt agreements.
The Company has $3.4 million outstanding on a secured term loan, payable in
monthly installments of $75,000 through January 31, 1999 with a final payment of
$2.3 million due on February 28, 1999. The annual rate of interest under the
term loan is a fixed rate of 7.1%.
See Note 7 for information regarding derivative financial instruments.
(7) DERIVATIVE FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks.
In February 1994, Finance entered into a five year interest rate swap
agreement in order to reduce the potential impact of an increase in interest
rates on $20 million of installment contracts. The agreement entitles Finance to
receive from a counterparty, on a monthly basis, interest income to the extent
the floating rate retained by the buyer of installment receivables exceeds 6% or
requires Finance to pay interest expense to the extent the floating rate is less
than 6%. Under the swap agreement, Finance paid $65,000 in 1997, paid $87,000 in
1996 and received $14,000 in 1995.
The fair value of Finance's interest rate swap agreement at December 31,
1997 and 1996 approximates its carrying value of zero. The fair value is
estimated by comparing the above interest rate to a rate that would be
applicable if the Company entered into a similar agreement for the remaining
term of the swap.
In November 1997 and December 1996, the Company entered into two-year
interest rate cap agreements in order to reduce the potential impact of
increases in interest rates on $20 million and $44 million respectively, of
floating-rate long-term debt. The agreements entitle the Company to receive from
the counterparty, on a monthly basis, interest income to the extent the
one-month commercial paper rate exceeds 12%. As the commercial paper rate did
not exceed 12% in 1997 and 1996, the Company did not receive interest income for
those years.
Due to the short maturity of the interest rate cap agreements, fair market
value approximates carrying value. The carrying amount of the unamortized
premiums was $10,000 and $14,000 at December 31, 1997 and 1996, respectively.
The Company and Finance are exposed to credit losses in the event of
nonperformance by the counterparties to its interest rate swap and cap
agreements but have no off-balance sheet credit risk of accounting loss. The
Company and Finance anticipate, however, that the counterparties will be able to
fully satisfy their obligations under the contracts. The Company and Finance do
not obtain collateral or other security to support financial instruments subject
to credit risk but monitor the credit standing of the counterparties.
PAGE 28
<PAGE> 31
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has only limited involvement with financial instruments and
does not use them for trading purposes.
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1997 and 1996. Statement
of Financial Accounting Standards No. 107 (SFAS 107), "Disclosures about Fair
Value of Financial Instruments", defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties.
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Installment receivables owned $ 13,447 $ 13,195 $ 8,814 $ 8,508
Term loan $ 3,350 $ 3,328 $ 4,250 $ 4,206
================================================================================
</TABLE>
The carrying amounts shown in the table above are included in Notes 2 and 6
under the indicated captions.
The fair value of installment receivables owned is determined as the
present value of expected future cash flows discounted at a rate the Company
believes a purchaser would require as a rate of return, approximately 12%. The
fair value of the term loan is estimated by discounting the future cash flows at
rates currently offered for similar debt instruments of comparable maturities.
The fair value of the Credit Facility equals carrying value as a result of
the variable nature of the interest rate. Note 5 presents the estimated fair
value of installment receivables on which Finance remains contingently liable as
well as the related discount. Note 7 presents the estimated fair values of
derivative financial instruments.
For all financial instruments other that those noted above, fair value
approximates carrying value primarily due to the short maturity of those
instruments.
(9) INCOME TAXES
The components of income tax expense (benefit) are as follows (In
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current: Federal $ 736 $ (410) $ 544
State 151 (73) 91
Foreign 113 222 232
- --------------------------------------------------------------------------------
1,000 (261) 867
- --------------------------------------------------------------------------------
Deferred: Federal 860 1,123 1,295
State 355 186 199
- --------------------------------------------------------------------------------
1,215 1,309 1,494
- --------------------------------------------------------------------------------
$ 2,215 $ 1,048 $ 2,361
================================================================================
</TABLE>
Earnings before income taxes aggregated $5.6 million, $2.1 million and $5.7
million for domestic operations and $1.1 million, $1.0 million and $0.6 million
for foreign operations in 1997, 1996 and 1995, respectively.
The difference between the taxes provided in the accompanying Consolidated
Statements of Earnings and the amount which would be computed by applying the
U.S. Federal income tax rate to earnings before income taxes is as follows (In
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed expected tax $ 2,262 $ 1,055 $ 2,149
State income taxes, net of
Federal tax benefit 195 75 191
Favorable settlement - foreign taxes (300) -- --
Other 58 (82) 21
- --------------------------------------------------------------------------------
$ 2,215 $ 1,048 $ 2,361
================================================================================
</TABLE>
PAGE 29
<PAGE> 32
The significant components of deferred income tax expense (benefit) are as
follows (In thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Reserves for inventories $ (597) $ 983 $ 502
Allowance for doubtful accounts (655) 133 432
Nondeductible accruals (566) 337 557
LIFO inventory decrease 539 (648) (268)
Other 64 504 271
- --------------------------------------------------------------------------------
Deferred tax expense (benefit) $(1,215) $ 1,309 $ 1,494
================================================================================
</TABLE>
Components of deferred tax balances as of December 31, 1997 and 1996 are as
follows (In thousands):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts $ 1,232 $ 1,887
Nondeductible accruals,
principally due to accrual for
financial reporting purposes 2,565 3,124
Other 361 341
- --------------------------------------------------------------------------------
Total gross deferred tax assets 4,158 5,352
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Inventories, principally due to differences in LIFO (191) (131)
Property, plant and equipment, principally
due to differences in depreciation (1,260) (1,258)
Investments in affiliated companies, principally
due to undistributed income of affiliated
companies (262) (263)
State income taxes (222) (240)
- --------------------------------------------------------------------------------
Total gross deferred
tax liabilities (1,935) (1,892)
- --------------------------------------------------------------------------------
Net deferred tax assets $ 2,223 $ 3,460
================================================================================
</TABLE>
In the opinion of management, no valuation allowance related to deferred
tax assets was required at December 31, 1997. Based on the Company's historical
and current pre-tax earnings, management believes it is more likely than not
that the Company will realize the benefit of recorded deferred tax assets. There
can be no assurance, however, that the Company will generate any earnings or any
specific level of continued earnings.
PAGE 30
<PAGE> 33
(10) ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consist of the following (In thousands):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Accrued liabilities:
Reserve for installment receivables sold
with recourse $ 1,810 $ 1,407
Compensation and benefits 2,204 2,046
Other 3,207 2,304
- --------------------------------------------------------------------------------
$ 7,221 $ 5,757
================================================================================
Other liabilities:
Postretirement and postemployment $ 683 $ 1,918
Deferred compensation 1,735 2,052
Recourse obligation 1,368 --
Other 2,356 2,669
- --------------------------------------------------------------------------------
$ 6,142 $ 6,639
================================================================================
</TABLE>
(11) RETIREMENT PLANS
The Company maintains retirement plans under Section 401(k) of the Internal
Revenue Code. Under these plans, the Company makes an annual contribution up to
3% of compensation paid to all covered employees. To the extent employees
contribute up to 6% of their compensation, the Company will match a portion of
each dollar contributed. The Company also maintains a deferred compensation plan
for certain key employees and a defined benefit plan for certain hourly
employees. The cost of providing these retirement benefits is as follows (In
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Defined contribution 401(k) $ 681 $ 742 $ 744
Deferred compensation 200 147 83
Defined benefit 340 240 231
- --------------------------------------------------------------------------------
$ 1,221 $ 1,129 $ 1,058
================================================================================
</TABLE>
Benefits to employees under the defined benefit plan are based upon their
years of credited service. Contributions to the plan are designed to fund the
plan's current service cost on a current basis and initial prior service cost
over 30 years. Plan assets consist primarily of U.S. government obligations,
Federal agency obligations, mortgages, corporate bonds and notes, and common
stocks.
PAGE 31
<PAGE> 34
The following table sets forth the defined benefit plan's funded status as
of December 31, 1997 and 1996 (In thousands):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 2,372 $ 2,152
- --------------------------------------------------------------------------------
Accumulated benefit obligation 2,377 2,164
- --------------------------------------------------------------------------------
Plan assets at fair value 2,261 1,971
Projected benefit obligation for service
rendered to date 3,054 2,873
- --------------------------------------------------------------------------------
Plan assets less than projected benefit obligation (793) (902)
Unamortized prior service cost 593 647
Unrecognized net loss 71 189
Unrecognized transition obligation 39 46
Adjustment required to recognize minimum liability (260) (173)
- --------------------------------------------------------------------------------
Pension costs accrued at year end $ (350) $ (193)
================================================================================
</TABLE>
Net pension cost included the following components (In thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost benefits earned during
period $ 181 $ 131 $ 122
Interest cost on projected
benefit obligation 259 174 171
Return on plan assets (162) (196) (114)
Net amortization and deferral 62 131 52
- --------------------------------------------------------------------------------
Net periodic pension cost $ 340 $ 240 $ 231
================================================================================
Actuarial assumptions:
Weighted average discount rate 7.5% 7.5% 7.5%
Rate of return on assets 8.0% 8.0% 8.0%
================================================================================
</TABLE>
(12) SHAREHOLDERS' EQUITY
At December 31, 1997 and 1996, the Company had 14,000,000 shares of $.01
per value common stock authorized and 4,205,094 and 4,175,144 shares issued,
respectively. The Company held 760,380 shares and 749,748 shares in treasury at
December 31, 1997 and 1996, respectively.
The Company maintains two qualified incentive stock option plans. Under
these plans, options for 450,000 shares of common stock may be granted to key
managerial personnel of the Company. The Company has also granted non-qualified
stock options to key employees and to each non-employee director. In all cases,
the option price shall not be less than the fair market value of the common
stock at the date of grant.
At December 31, 1997, there were 64,000 additional shares available for
grant under the plans. The per share weighted-average fair value of stock
options granted during 1997, 1996 and 1995 was $6.26, $6.29 and $5.53,
respectively, on the date of the grant using the Black Scholes option-pricing
model with the following weighted-average assumptions: 1997 - expected dividend
yield of 0%, expected volatility of 32.4%, risk-free interest rate of 5.62%, and
an expected life of 7 years; 1996 - expected dividend yield of 0%, expected
volatility of 31.6%, risk-free interest rate of 6.32%, and an expected life of 7
years; 1995 - expected dividend yield of 0%, expected volatility of 31.6%,
risk-free interest rate of 5.52%, and an expected life of 7 years.
The Company applies APB 25 in accounting for its plans and, accordingly, no
compensation cost has been recognized for its stock options in the consolidated
financial statements. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under SFAS 123, the Company's
net earnings, basic earnings per share and diluted earnings per share would have
been reduced to the pro forma amounts indicated below (In thousands, except
earnings per share):
PAGE 32
<PAGE> 35
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings:
As reported $ 4,449 $ 2,056 $ 3,960
Pro forma 4,211 1,874 3,916
Basic earnings per share:
As reported $ 1.30 $ .60 $ 1.16
Pro forma 1.23 .55 1.15
Diluted earnings per share:
As reported $ 1.28 $ .59 $ 1.15
Pro forma 1.21 .54 1.14
================================================================================
</TABLE>
Pro forma net earnings reflect only options granted in 1997, 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS 123 is not reflected in the pro forma net earnings amounts presented
above because compensation cost is reflected over the options' vesting period of
five years and compensation cost for options granted prior to January 1, 1995 is
not considered.
A summary of the activity of the stock option plans follows (In thousands,
except per share data):
<TABLE>
<CAPTION>
Shares Weighted average
subject per share
to option option price
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1995 286 $ 12.56
Options granted 177 13.21
Options exercised (10) 10.21
Options expired (42) 11.44
- --------------------------------------------------------------------------------
Balance, December 31, 1996 411 $ 13.00
Options granted 72 13.46
Options exercised (17) 12.07
Options expired (53) 12.20
- --------------------------------------------------------------------------------
Balance, December 31, 1997 413 $ 13.10
================================================================================
</TABLE>
At December 31, 1997, the range of exercise prices was $8.63 - $17.25, and
weighted-average remaining contractual life of outstanding options was 7.4
years.
At December 31, 1997 and 1996, the number of options exercisable was
232,000 and 189,300, respectively, and the weighted-average exercise price of
those options was $13.02 and $12.87, respectively.
The Company has adopted a shareholder rights plan declaring a dividend
distribution of one Common Share Purchase Right for each outstanding share of
the Company's common stock. Under the plan, shareholders of record on September
10, 1996 received one right for each common share held on that date. This
distribution was not taxable to shareholders. The rights have a ten year life
and may be exercised if a party acquires 15 percent or more of the Company's
common stock, or announces a tender offer to do so, without the consent of the
Company's Board of Directors.
PAGE 33
<PAGE> 36
(13) EARNINGS PER SHARE
(In thousands, except per share data):
<TABLE>
<CAPTION>
NET PER
EARNINGS SHARES SHARE
1997 (NUMERATOR) (DENOMINATOR) AMOUNT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share:
Net earnings available to common
shareholders $ 4,449 3,435 $ 1.30
Effect of dilutive securities stock options 0 48
- --------------------------------------------------------------------------------
Diluted earnings per share:
Earnings available to common
stockholders and assumed conversions $ 4,449 3,483 $ 1.28
================================================================================
1996
- --------------------------------------------------------------------------------
Basic earnings per share:
Net earnings available to common
shareholders $ 2,056 3,421 $ .60
Effect of dilutive securities stock options 0 41
- --------------------------------------------------------------------------------
Diluted earnings per share:
Earnings available to common
stockholders and assumed conversions $ 2,056 3,462 $ .59
================================================================================
1995
- --------------------------------------------------------------------------------
Basic earnings per share:
Net earnings available to common
shareholders $ 3,960 3,415 $ 1.16
Effect of dilutive securities stock options 0 19
- --------------------------------------------------------------------------------
Diluted earnings per share:
Earnings available to common
stockholders and assumed conversions $ 3,960 3,434 $ 1.15
================================================================================
</TABLE>
Options to purchase 50,600, 61,500 and 71,500 shares of common stock were
outstanding in 1997, 1996 and 1995, respectively, but were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of common shares.
(14) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in litigation arising in its normal course of
business. The Company does not believe that any existing claim or suit will have
a material adverse effect on the business or financial condition of the Company.
The operations of the Company and its predecessors are subject to Federal,
state and local laws regulating the discharge of materials into the environment.
The Company does not anticipate that any environmental matters currently known
to the Company will result in any material liability.
At December 31, 1997 the Company was obligated under non-cancelable
operating leases for real and personal property which are subject to certain
renewal and purchase options. Noncancellable operating leases in effect at
December 31, 1997, require rental payments of $1.4 million, $0.8 million, $0.6
million, $0.5 million and $0.2 million for the years 1998 through 2002,
respectively, and $0.1 million for years thereafter. Lease expense for all
operating leases was $1.9 million, $2.3 million and $1.3 million for 1997, 1996
and 1995, respectively.
PAGE 34
<PAGE> 37
(15) SEGMENT INFORMATION
A summary of operations by major segment follows (In thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Music $ 107,362 $ 82,941 $ 85,085
Contract furniture and music 2,147 4,455 10,565
- --------------------------------------------------------------------------------
Music and other segment 109,509 87,396 95,650
Electronic contracting 35,609 30,894 30,687
Finance 8,914 7,363 6,159
- --------------------------------------------------------------------------------
Sales and other revenue $ 154,032 $ 125,653 $ 132,496
================================================================================
Music and other segment $ 7,339 $ 5,339 $ 6,674
Electronic contracting 1,374 1,421 1,690
Finance 4,720 3,636 3,608
Unallocated corporate (3,904) (4,424) (3,564)
- --------------------------------------------------------------------------------
Operating profit $ 9,529 $ 5,972 $ 8,408
================================================================================
Music and other segment $ 58,573 $ 69,671 $ 62,988
Electronic contracting 23,581 19,907 15,609
Finance 32,206 22,486 22,832
- --------------------------------------------------------------------------------
Identifiable assets $ 114,360 $ 112,064 $ 101,429
================================================================================
Music and other segment $ 2,509 $ 1,640 $ 1,948
Electronic contracting 678 416 334
- --------------------------------------------------------------------------------
Depreciation $ 3,187 $ 2,056 $ 2,282
================================================================================
Music and other segment $ 3,886 $ 1,816 $ 3,770
Electronic contracting 1,110 1,786 164
- --------------------------------------------------------------------------------
Capital additions $ 4,996 $ 3,602 $ 3,934
================================================================================
</TABLE>
The amounts reflected as "Sales and other revenue" in the above table are
included in the "Net sales", "Income on the sale of installment receivables",
"Interest income on installment receivables" and "Other operating income, net"
captions of the Consolidated Statement of Earnings.
The music and other segment includes a broad range of acoustic and
electronic instruments serving a broad consumer base. Music products are sold
through Company-owned retail stores, domestic wholesale dealers, factory direct
sales and an international dealer network. In addition, this segment includes
furniture and musical components produced on behalf of other manufacturers.
The electronic contracting segment assembles printed circuit boards and
electromechanical devices for original equipment manufacturers (OEMs) outside
the music industry.
The Finance segment provides point-of-sale consumer financing through
keyboard product dealers located throughout the United States.
The Company uses the LIFO method of valuing music products inventory and
the FIFO method for electronic contracting inventory.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information". SFAS No. 131 establishes standards for
reporting information about operating segments. The adoption of SFAS No. 131
will have no impact on the Company's consolidated results of operations,
financial position or cash flows.
PAGE 35
<PAGE> 38
(16) QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended December 31, 1997 and 1996 are
as follows (In thousands, except per share data):
<TABLE>
<CAPTION>
1997 First Second Third Fourth Year
========================================================================================
<S> <C> <C> <C> <C> <C>
Net sales $ 27,309 $ 42,404 $ 33,915 $ 39,473 $ 143,101
- ----------------------------------------------------------------------------------------
Gross profit 4,776 8,153 7,376 7,744 28,049
- ----------------------------------------------------------------------------------------
Net earnings 246 1,642 1,059 1,502 4,449
- ----------------------------------------------------------------------------------------
Basic earnings per share .07 .48 .31 .44 1.30
- ----------------------------------------------------------------------------------------
Diluted earnings per share .07 .47 .30 .42 1.28
========================================================================================
1996 First Second Third Fourth Year
========================================================================================
Net sales $ 27,147 $ 26,139 $ 26,508 $ 35,276 $ 115,070
- ----------------------------------------------------------------------------------------
Gross profit 5,275 5,920 4,965 6,415 22,575
- ----------------------------------------------------------------------------------------
Net earnings 684 750 192 430 2,056
- ----------------------------------------------------------------------------------------
Basic earnings per share .20 .22 .06 .13 .60
- ----------------------------------------------------------------------------------------
Diluted earnings per share .20 .22 .06 .12 .59
========================================================================================
</TABLE>
PAGE 36
<PAGE> 39
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
FIVE-YEAR SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Earnings Statement Data:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 143,101 $ 115,070 $ 122,634 $ 122,347 $ 120,658
Cost of goods sold 115,052 92,495 96,333 96,559 89,563
- --------------------------------------------------------------------------------------------------------------------------
Gross profit 28,049 22,575 26,301 25,788 31,095
Income on the sale of installment receivables 7,378 5,811 4,946 4,828 5,646
Interest income on installment receivables 1,249 1,296 906 735 600
Other operating income, net 2,304 3,476 4,010 4,482 4,984
- --------------------------------------------------------------------------------------------------------------------------
Gross profit and other operating revenue 38,980 33,158 36,163 35,833 42,325
Selling, general and administrative 29,451 27,186 27,755 33,173 29,808
- --------------------------------------------------------------------------------------------------------------------------
Operating profit 9,529 5,972 8,408 2,660 12,517
Interest expense 2,865 2,868 2,087 2,101 2,232
- --------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes and
cumulative effect of changes in
accounting principles 6,664 3,104 6,321 559 10,285
Income taxes 2,215 1,048 2,361 214 4,120
- --------------------------------------------------------------------------------------------------------------------------
Earnings before cumulative effect of
changes in accounting principles 4,449 2,056 3,960 345 6,165
Cumulative effect of changes in accounting for
postretirement and postemployment benefits -- -- -- -- (1,604)
- --------------------------------------------------------------------------------------------------------------------------
Net earnings $ 4,449 $ 2,056 $ 3,960 $ 345 $ 4,561
==========================================================================================================================
Earnings per share:
Before cumulative effect of changes in
accounting principles $ 1.30 $ .60 $ 1.16 $ .10 $ 1.81
Cumulative effect of changes in accounting for
postretirement and postemployment benefits -- -- -- -- (.47)
- --------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 1.30 $ .60 $ 1.16 $ .10 $ 1.34
- --------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 1.28 $ .59 $ 1.15 $ .10 $ 1.32
==========================================================================================================================
Balance Sheet Data (at December 31):
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
Working capital $ 47,905 $ 31,462 $ 34,703 $ 35,759 $ 35,941
- --------------------------------------------------------------------------------------------------------------------------
Total assets 114,360 112,064 101,429 97,460 89,928
- --------------------------------------------------------------------------------------------------------------------------
Current portion of long-term debt 900 30,901 17,646 16,746 11,299
- --------------------------------------------------------------------------------------------------------------------------
Long-term debt, less current portion 27,650 3,350 4,250 5,000 4,384
- --------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 60,823 56,275 54,114 50,154 49,892
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain prior year amounts have been reclassified to conform with current year
financial statement presentation.
PAGE 37
<PAGE> 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
During 1997 the Company phased out its consignment inventory program. Under
the Company's historical consignment inventory program, Company pianos in the
dealer's possession remained part of the Company's inventory until actually sold
by the dealer. In 1997 the Company, in conjunction with a third party, provided
a more attractive floor plan to its dealers to finance the dealers' purchase of
products from the Company. As a result, most dealers opted out of the existing
consignment program and the Company inventory in each of these dealers'
possession was immediately sold to the dealers. This transfer of title was a
sale to the dealer and created a large, one-time, increase in Baldwin's sales.
Net sales for 1997 increased 24% to $143.1 million from $115.1 million for
the same period in 1996. The increase in sales included $14.6 million related to
the one-time phase-out of consignment. This occurred also in spite of the loss
of $2.3 million in contract furniture sales, a business exited in 1996.
Measured before the impact of the phase-out of consignment, sales for the
Company's core acoustic and digital music businesses rose $12.2 million (18%)
over 1996. This increase is due to improved piano quality, innovative new
products, a healthy economic climate and new marketing programs. Additionally,
sales for the Company's contract electronics business increased $4.7 million
(15%) over 1996, mainly as a result of new customers.
Net earnings for 1997 more than doubled, to $4.4 million ($1.30 per share)
compared to $2.1 million ($.60 per share) in 1996. Without the impact of
discontinuing consignment sales and other events, net earnings for 1997 would
have been $3.6 million ($1.05 per share). Previous year's net earnings were
negatively impacted by strategic initiatives designed to enhance future
competitiveness.
The Company values a substantial portion of its inventory on the last-in,
first-out (LIFO) method. The 1997 gross profit is $1.8 million greater than the
amount that would have been reported had the first-in, first-out (FIFO) method
been used, and $3.4 million greater due to the inventory LIFO decrement.
Income on the sale of installment receivables increased $1.6 million from
1996, while interest income on installment receivables remained at the same
level as in 1996. This increase is primarily the result of the effect of the
required adoption of SFAS 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. SFAS 125 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996 and is to be applied prospectively. SFAS 125
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. The Company has
recorded a servicing asset of $2.8 million, while recording an estimated
recourse obligation of $1.4 million.
Prior to the fourth quarter of 1997, in the event of repossession of an
instrument financed by the Company's wholly-owned subsidiary (Finance), the
dealer originally selling the instrument bore some risk of the bad debt loss,
but had the right to sell the repossessed product. This dealer risk was borne in
the form of a potential liability to the Company. This is referred to as
recourse. In that fourth quarter, Finance initiated a program of acquiring
receivables without such recourse, and the Company began selling repossessed
pianos through its own retail stores, primarily through a repossession center
located in the Atlanta metropolitan area.
Other operating income decreased in 1997 by $1.2 million primarily due to
lower floor plan income resulting from the phase-out of the consignment
inventory program.
Selling, general and administrative expenses increased by $2.3 million from
1996. Of that amount approximately $0.9 million was attributable to one time
items, and $1.4 million relates to higher advertising and promotional spending,
increased investor relations activity and acquisition related matters.
1996 COMPARED TO 1995
While market share in the Company's core acoustic piano business increased
in 1996, net earnings were $2.1 million compared to $4.0 million for 1995 and
gross profit decreased from $26.3 million to $22.6 million. Net earnings and
gross profit for 1996 were negatively impacted by strategic initiatives designed
to enhance future competitiveness, including the Company's decision to exit its
non-strategic church organ, contract music and furniture businesses. Earnings
and gross profit were also impacted somewhat by lower profit margins due to a
change in mix of sales in both music products and electronic contracting
businesses. 1996 results included increased interest expense due to higher
inventory and a charge to record the one-time costs of a salaried workforce
reduction. 1996 net earnings were favorably impacted by reductions of 3% in
selling, general and administrative expenses.
Net sales for 1996 totaled $115.1 million compared to $122.6 million of
1995. Contract music and furniture sales declined by $6.1 million (58%) due to
the Company's decision to exit from these non-strategic businesses. In 1995, the
PAGE 38
<PAGE> 41
Company consolidated the Baldwin and Wurlitzer dealer networks in order to allow
dealers to offer both Baldwin and Wurlitzer products. Net sales from the music
products segment were slightly lower in 1996 versus the previous year due to the
impact of this strategic consolidation. While sales declined 2% for the year,
second half 1996 sales represent an 8% improvement over second half 1995. Within
the music products segment, digital piano sales dramatically improved 37% from
1995 resulting from the successful launch of the new Baldwin Pianovelle product
line. Electronic contracting sales were about equal to 1995.
The Company values a substantial portion of its inventory on the last-in,
first-out (LIFO) method. The 1996 gross profit is $1.0 million less than the
amount that would have been reported had the first-in, first-out (FIFO) method
been used.
Income on the sale of installment receivables and interest income on
installment receivables increased by $0.9 million and $0.4 million,
respectively, from 1995. These together account for 21% increase and is
primarily the result of growth in the installment receivable portfolio of 8%
complemented by lower interest rates. See "Liquidity and Capital Resources".
Other operating income decreased due primarily to a non-recurring gain on
sale of fixed assets in 1995 of $0.3 million.
Selling, general and administrative expenses decreased by $0.9 million due
primarily to the 1995 decisions to transition Baldwin's retail locations in
Chicago to a wholesale dealer and the strategic consolidation of the Baldwin and
Wurlitzer dealer networks that resulted in less support staff. This was
partially offset by a one-time charge in 1996 due to a salaried workforce
reduction.
The provision for doubtful accounts increased in 1996 primarily as a result
of the growth in the dollar value of contracts sold by Finance.
Interest expense increased by $0.8 million in 1996 resulting from higher
debt levels necessary for pipeline inventories for the new ConcertMaster
autoplayer, the Pianovelle digital piano line and additional purchases of
imported Wurlitzer grand pianos. In addition, several electronic contracting
customers delayed deliveries of orders throughout the year, which resulted in
higher inventories of finished products. During the fourth quarter of 1996, the
Company reduced its inventories by $7.8 million.
INFLATION, OPERATIONS AND INTEREST RATES
The impact of inflation on manufacturing and operating costs can affect the
Company's results. However, the Company has generally been able to offset the
impact of higher employment costs per hour and higher raw material unit costs by
increases in sales prices.
The operations of the Company and its predecessors are subject to Federal,
state and local laws regulating the discharge of materials into the environment.
The Company does not anticipate that any environmental matters currently known
to the Company will result in any material liability.
The Company and its subsidiaries' operating results are sensitive to
changes in interest rates primarily because of fixed interest rates on
installment receivables contracts and floating interest rates on a substantial
portion of indebtedness. Additionally the buyer of the installment receivables
earns interest on the outstanding principal balance of the contracts based upon
a floating interest rate provision.
The Company can partially offset the effect of interest rate changes by
increasing interest rates on its new installment receivable contracts. In
November 1997 and December 1996, the Company entered into two-year interest rate
cap agreements in order to reduce the potential impact of increases in interest
rates on $20 million and $44 million, respectively, of floating-rate long-term
debt. The agreements entitle the Company to receive from the counterparty, on a
monthly basis, interest income to the extent the one-month commercial paper rate
exceeds 12%. The Company is exposed to credit losses in the event of
nonperformance by the counterparty to its interest rate caps, but has no
off-balance sheet credit risk of accounting loss. The Company anticipates,
however, that the counterparty will be able to fully satisfy their obligations
under the contracts. The Company does not obtain collateral or other security to
support financial instruments subject to credit risk, but monitors the credit
standing of the counterparty.
The annual rate of interest under the Company's revolving Credit Facility
is equal to 1.5 percentage points above LIBOR, or under certain specified
circumstances, 0.5 percentage points per annum above the Prime Rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires significant working capital to support its operations.
Under Baldwin's traditional consignment inventory program, inventory levels
would increase during each year to support its high fourth quarter seasonal
sales demand. During 1997 the Company phased out its consignment inventory
program (see Results of Operations, above). This phase-out accounted for a large
portion of the decrease in inventory and the increase in current receivables
PAGE 39
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
that occurred in 1997. Also during 1997, installment receivables increased as a
result of a larger portfolio for installment contracts.
On October 16, 1997, the Company replaced its short-term $50 million
revolving line of credit with a long-term, secured $40 million revolving Credit
Facility expiring on October 1, 2000; however the Company can terminate the
agreement at any time with sixty days' notice. Under the Credit Facility, the
lenders have made available a line of credit based upon certain percentages of
the carrying value of the Company's inventories and accounts receivable. The
annual rate of interest under the Credit Facility is equal to 1.5 percentage
points above LIBOR, or under certain specified circumstances, 0.5 percentage
points per annum above the Prime Rate. At December 31, 1997, the rate under the
Credit Facility was 7.5% and the Company had approximately $8.4 million of
additional borrowing available under this Credit Facility.
The Company's debt agreements contain covenants that require the Company to
maintain certain financial ratios and tangible net worth within defined amounts.
In October, 1997, the Company's finance subsidiary (Finance) amended its
agreements with an independent entity to sell substantially all of its
installment receivable contracts up to a maximum outstanding principal amount of
$150 million. Certain installment receivables are not eligible for sale and are
retained by Finance. Finance continues to service all installment receivables
sold. At the time of each installment receivable sale, Finance receives cash
equal to the unpaid principal balance of the contracts, less a purchase discount
applied to the principal balance of the contracts sold. The purchase discount is
adjusted at each receivable sale using the loss experience and effective yield
of the portfolio.
The buyer of the installment receivables earns interest on the outstanding
principal balance of the contracts based upon a floating interest rate
provision. Over the duration of the contracts, the difference between the actual
yield on the installment contracts sold and the amount retained by the buyer
under the floating interest rate provisions is remitted to Finance as a service
fee. In February 1994, Finance entered into a five year interest rate swap
agreement in order to reduce the potential impact of an increase in interest
rates on $20 million of installment contacts.
Proceeds from the sale of installment receivables amounted to $74.4 million
for 1997, $66.5 million for 1996 and $60.6 million for 1995. This increase in
1997 compared to 1996 and 1995 is largely the result of an increase in the
volume of new installment contracts written at traditional keyboard dealers and
at Company sponsored "event sales".
Under the sale agreements, Finance is required to repurchase accounts that
become more that 120 days past due or accounts that are deemed uncollectible.
The repurchase price is equal to the remaining unpaid principal balance of the
contract on the date repurchased, less the related purchase discount. Finance is
responsible for all credit losses associated with the sold receivables. Finance
remains contingently liable on approximately $89.4 million of installment
receivables sold. The Company believes an adequate allowance has been provided
for any uncollectible receivables.
Capital expenditures amounted to $5.0 million, $3.6 million and $3.9
million for 1997, 1996 and 1995, respectively. As of December 31, 1997, the
Company had $1.2 million in outstanding capital commitments.
YEAR 2000
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The Company's major computer systems consist
of third-party software. The conclusion of the Company's research is that the
latest existing releases of this software contain the necessary changes to
correct any significant year 2000 problems. As a matter of ongoing policy, in
order to assure continuing contractual vendor support, the Company promptly
installs and implements new releases of third-party software.
The year 2000 problem is a result of computer programs being written using
two digits (rather than four) to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000, which would result in
miscalculations or system failures.
Based on preliminary information, costs of addressing potential problems
are not currently expected to have a material adverse impact on the Company's
financial position, results of operations or cash flows in future periods.
However, if the Company, its customers or vendors are unable to resolve such
processing issues in a timely manner, it could result in a material financial
risk. Accordingly, the Company plans to devote the necessary resources to
resolve all significant year 2000 issues in a timely manner.
PAGE 40
<PAGE> 43
BALDWIN
[LOGO]
SHAREHOLDER INFORMATION
HOME OFFICE
- --------------------------------------------------------------------------------
422 Wards Corner Road, Loveland, Ohio 45140-8390 (513) 576-4500
e-mail: [email protected]
web sites: www.baldwinpiano.com and www.pianovelle.com
MANUFACTURING LOCATIONS
- --------------------------------------------------------------------------------
Conway, Fayetteville and Trumann, Arkansas; Greenwood, Mississippi; Juarez,
Mexico
RETAIL LOCATIONS
- --------------------------------------------------------------------------------
Company Owned Outlets:
Atlanta, Georgia; Cincinnati, Ohio; Indianapolis and Fort Wayne, Indiana;
Louisville and Lexington, Kentucky
Independent Keyboard Dealers (400)
REGISTRAR AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Provident Bank, One East Fourth Street, Cincinnati, Ohio 45202
AUDITORS
- --------------------------------------------------------------------------------
KPMG Peat Marwick LLP, Cincinnati, Ohio
SECURITIES MARKET
- --------------------------------------------------------------------------------
The Nasdaq National Market; Symbol: BPAO
FORM 10-K
- --------------------------------------------------------------------------------
A copy of the Company's Form 10-K as filed with the Securities and Exchange
Commission is available to shareholders by writing to Corporate Secretary,
Baldwin Piano & Organ Company, 422 Wards Corner Road, Loveland, OH 45140-8390.
MARKET AND DIVIDEND INFORMATION
- --------------------------------------------------------------------------------
The Company's common stock is listed on the Nasdaq National Market under the
symbol BPAO. As of March 20, 1998, the number of outstanding shares of the
Company's common stock was 3,445,710 and the approximate number of record
holders of such shares was 114. The Company has paid no dividends since its
inception and intends to continue its policy of retaining earnings to finance
future growth.
<TABLE>
<CAPTION>
1997 1996
Common Stock Price Range High Low High Low
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $ 14 $ 11-1/2 $ 14-1/2 $ 12-1/4
Second Quarter 14-1/2 12-3/4 15-1/2 12-3/4
Third Quarter 18 13-1/4 16-1/2 14-1/2
Fourth Quarter 19-15/16 15-5/8 16-1/4 11
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 44
BALDWIN
[LOGO]
422 WARDS CORNER ROAD, LOVELAND, OHIO 45140-8390
(513) 576-4500 e-mail: [email protected]
web sites: www.baldwinpiano.com
www.pianovelle.com
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
Jurisdiction of
Name Incorporation
- ---- ---------------
Keyboard Acceptance Corporation Delaware
The Wurlitzer Company Delaware
Baldwin Trading Company Ohio
Signature Leasing Company Ohio
The Baldwin Piano Company Canada
(Canada) Limited
Fabricantes Tecnicos, S.A. Mexico
Servicios Baldwin, S.A. Mexico
Immobiliaria Baldwin, S.A. Mexico
Korean American Musical Instrument Korea
Corporation
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Baldwin Piano & Organ Company:
We consent to the incorporation by reference in each of the
registration statements (File Nos. 33-53809 and 333-3775) on Form
S-8 of Baldwin Piano & Organ Company of our report dated February
23, 1998, relating to the consolidated balance sheets of Baldwin
Piano & Organ Company and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1997, and our report dated
February 23, 1998 on the related schedule, which reports are
included or incorporated by reference in the December 31, 1997
annual report on Form 10-K of Baldwin Piano & Organ Company.
KPMG PEAT MARWICK LLP
Cincinnati, Ohio
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED BALANCE SHEET, STATEMENT OF EARNINGS AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 680
<SECURITIES> 0
<RECEIVABLES> 41,241
<ALLOWANCES> 1,538
<INVENTORY> 36,649
<CURRENT-ASSETS> 67,413
<PP&E> 34,690
<DEPRECIATION> 16,428
<TOTAL-ASSETS> 114,360
<CURRENT-LIABILITIES> 19,508
<BONDS> 27,650
0
0
<COMMON> 42
<OTHER-SE> 60,781
<TOTAL-LIABILITY-AND-EQUITY> 114,360
<SALES> 43,101
<TOTAL-REVENUES> 154,032
<CGS> 115,052
<TOTAL-COSTS> 115,052
<OTHER-EXPENSES> 29,451
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,865
<INCOME-PRETAX> 6,664
<INCOME-TAX> 2,215
<INCOME-CONTINUING> 4,449
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,449
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.28
</TABLE>
<PAGE> 1
EXHIBIT 99.4
[BALDWIN PIANO & ORGAN COMPANY LETTERHEAD]
FOR IMMEDIATE RELEASE
CONTACTS: Joel Pomerantz or NEWS RELEASE
Ken DiPaola
The Dilenschneider Group
(212)922-0900
BALDWIN PIANO NAMES NEW EXECUTIVE V.P.
TO OVERSEE OPERATIONS AT COMPANY'S PIANO PLANTS
LOVELAND, Ohio, October 27, 1997 -- The Baldwin Piano & Organ Company
(NASDAQ:BPAO) today announced the appointment of Randolph Marks as executive
vice president, piano operations, a new position. Mr. Marks, 46, will supervise
all manufacturing activities at Baldwin's piano plants in the U.S. and Mexico.
Commenting on the appointment, Karen L. Hendricks, chairman, chief executive
officer and president, said: "We are fortunate to have attracted Mr. Marks away
from his consulting firm to work full-time for Baldwin. Randy is well-equipped
to achieve our manufacturing goals. As Baldwin's chief manufacturing consultant
for the past 18 months, he has been a driving force in our plant revitalization
initiative since its inception. He also brings a level of knowledge and
experience in international markets that will be invaluable as the company moves
more aggressively into the export trade."
For the last 15 years, Mr. Marks served as the managing director of
InterAmerican Holdings Co., (IAH), a diversified consulting organization with
expertise in manufacturing and operational restructuring and international
market development. During his tenure with IAH, Mr. Marks provided senior-level
advisory work to companies as diverse as Louisiana Pacific, Ace Hardware, Thomas
Built Bus, and Packaging Corporation of America.
Mr. Marks was also co-founder, with Imperial Corporation of America, of
InterAmerican Partners I, the first investment fund dedicated to the acquisition
of labor intensive, low-skill manufacturing companies. He personally managed the
acquisition of the Eric Morgan Co. and Countess York, both home furnishing
manufacturers.
The Baldwin Piano & Organ Company's Music Division makes and markets
America s best selling acoustic pianos under the Baldwin, Wurlitzer, and
Chickering brand names, as well as the Pianovelle(R) line of digital pianos and
Baldwin's newest product, the computerized ConcertMaster(R) player piano system.
Baldwin also provides its dealers with retail consumer financing through
Keyboard Acceptance Corporation and produces electronic parts and components for
original equipment manufacturers through Baldwin's Special Products Division.
Baldwin currently employs some 1,400 workers at six locations, including
corporate headquarters in Loveland, Ohio, and five manufacturing facilities in
Arkansas, Mississippi, and Mexico.
###
<PAGE> 1
[BALDWIN PIANO & ORGAN COMPANY LETTERHEAD]
NEWS RELEASE
EXHIBIT 99.5
CONTACTS: Perry Schwartz Joel Pomerantz
Baldwin Piano & Organ The Dilenschneider Group
(513) 576-4518 (212) 922-0900
BALDWIN PIANO SIGNS $40 MILLION LENDING AGREEMENT
WITH FIFTH THIRD BANK
AMENDS ITS RETAIL FINANCING SECURITIZATION
AGREEMENT WITH GENERAL ELECTRIC CAPITAL
LOVELAND, OH, November 3, 1997 -- Baldwin Piano and Organ Company
(NASDAQ:BPAO), maker of America's best-selling acoustic pianos, today announced
that it has entered into a three-year, $40 million revolving loan agreement with
The Fifth Third Bank of Cincinnati, Ohio, as lender and agent. NBD Bank N.A. is
a participant. The new agreement replaces a similar arrangement with General
Electric Capital Corporation.
Commenting on the revolving loan agreement, Karen L. Hendricks,
chairman and chief executive officer of Baldwin, said, "This new agreement
eliminates a number of long-standing restrictive covenants and gives us the kind
of financial flexibility we need to grow our business. The flexibility that
comes with fewer restrictions will enable us to continue to upgrade our
manufacturing facilities and processes and allow us to keep pace with growing
demand."
Baldwin also announced that its Securitization Agreement with General
Electric Capital Corporation has been amended to eliminate provisions requiring
liens on Baldwin assets and to otherwise provide the company with more flexible
terms. The Agreement covers the securitization of retail financing contracts for
pianos sold to consumers.
-more-
<PAGE> 2
-2-
Commenting on the amended Securitization Agreement, Ms. Hendricks said,
"The amended agreement with General Electric Capital recognizes Baldwin's
improved financial strength and offers us better terms and greater flexibility
to grow Keyboard Acceptance Corporation, our retail financing arm."
The Baldwin Piano & Organ Company makes and markets America's best-
selling acoustic piano brands -- Baldwin, Wurlitzer, and Chickering -- as well
as the Pianovelle(R) line of digital pianos and Baldwin's newest product, the
computerized ConcertMaster(R) player piano system. Baldwin also provides its
dealers with retail consumer financing through its Keyboard Acceptance
Corporation subsidiary and produces electronic parts and components for original
equipment manufacturers through its Special Products Division.
Baldwin currently employs some 1,400 workers at six locations,
including its corporate headquarters in Loveland, Ohio, and five manufacturing
facilities in Arkansas, Mississippi, and Mexico.
* * * *
"Safe Harbor" statement under the Private Securities Litigation Reform Act of
1995: This release contains forward looking statements that are subject to risks
and uncertainties, including, but not limited to, the impact of competitive
products and pricing, product demand and market acceptance, reliance on key
strategic alliances, fluctuations in operating results and other risks detailed
from time to time in the Company's filings with the Securities and Exchange
Commission.
# # #
<PAGE> 1
EXHIBIT 99.6
[BALDWIN PIANO & ORGAN COMPANY LETTERHEAD]
NEWS RELEASE
FOR IMMEDIATE RELEASE
Contacts: Perry Schwartz - CFO Ken DiPaola or Joel Pomerantz
Baldwin Piano The Dilenschneider Group, Inc.
(513) 576-4518 (212) 922-0900
BALDWIN PIANO REPORTS VERY STRONG YEAR-END RESULTS
1997 EARNINGS FROM OPERATIONS UP 75%; MUSIC SALES UP 14%;
CONTRACT ELECTRONICS SALES UP 16%
LOVELAND, OH, February 23, 1998 -- Baldwin Piano and Organ Company
(NASDAQ:BPAO) today announced results for the fourth quarter and year ended
December 31, 1997.
In the fourth quarter, total sales grew 12 percent to $39.5 million, up
from $35.3 million in the fourth quarter of 1996. Net earnings rose more than
three-fold to $1.5 million, or 44 cents per share, compared with $430,000, or 13
cents per share, a year earlier. Fourth-quarter accounting adjustments related
to Baldwin's second-quarter phase out of consignment sales reduced reported net
earnings by $200,000, or 6 cents per share.
For the full year, basic net earnings rose to $4.4 million, or $1.30
per share, on sales of $143.1 million, which includes the one-time impact of
Baldwin's phase out of consignment sales. Before such one-time adjustments, 1997
earnings from operations increased 75 percent to $3.6 million, or $1.05 per
share, on sales of $128.5 million. A year ago, Baldwin reported net earnings of
$2.1 million, or 60 cents per share, on sales of $115.1 million.
(more)
<PAGE> 2
-2-
Commenting on Baldwin's strong performance, Karen L. Hendricks,
chairman and chief executive officer said, "Solid demand for pianos in 1997
fueled Baldwin's core music sales, driving an 8 percent improvement in total
digital and acoustic unit sales. On the Contracts Electronics side of our
business, the strongest new customer development in five years produced
double-digit sales growth. KAC, our retail keyboard finance unit, also had
another solid year. Reported earnings also benefited from substantial inventory
reductions and the related LIFO benefits, as well as the adoption of FAS 125,
which accelerated earnings recognition on KAC's portfolio of installment
receivables.
"In 1997, we laid the essential groundwork needed to improve profits in
1998 and beyond. This year's operating gains reflect, in part, some of the
initial benefits from our strategic plan implemented early in the year. Many of
these actions will continue to benefit short-term and long-term operating
performance, and we will continue to initiate new actions to further fine tune
our plan across all three core businesses -- Music, KAC and Contract
Electronics.
"During the year, we achieved sales improvements in each of our core
businesses; negotiated new and more favorable financing arrangements with our
present lender and a new lender; divested non-core businesses; substantially
reduced inventories; improved production turnaround, manufacturing processes,
asset utilization, quality control and engineering support in our music plants;
outsourced transportation of keyboard instruments, dramatically improving
order-to-delivery cycle times to our dealers; created a contract electronics
bonus program to focus management on asset utilization as we grow this business;
added key management personnel in music and contract electronics; and
restructured financing arrangements with our dealers, which improved our balance
sheet and enhanced our ability to service, support and supply our dealer
network."
-more-
<PAGE> 3
-3-
Ms. Hendricks added, "In 1997 Lehman Brothers, the international investment
banking firm, was retained by Baldwin to advise management and the board on,
among other matters, the company's strategic direction and potential
opportunities to enhance shareholder value. Lehman has undertaken a financial
review of Baldwin and its operations and briefed the board on several occasions.
During 1997, Lehman advised management and the board on the development and
implementation of Baldwin's strategic plan and will, at the board's request,
continue to monitor the company's progress and advise Baldwin on the merits of
various strategic opportunities and alternatives."
Baldwin Piano & Organ Company has marketed keyboard musical products
for 136 years and has been providing consumer financing for the keyboard
industry for nearly a century. Baldwin, maker of America's best selling pianos,
also manufactures electronic and electro-mechanical components for Original
Equipment Manufacturers.
"Safe Harbor" statement under the Private Securities Litigation Reform Act of
1995:
This release contains forward looking statements that are subject to risks and
uncertainties, including, but not limited to, the impact of competitive products
and pricing, product demand and market acceptance, reliance on key strategic
alliances, fluctuations in operating results and other risks detailed from time
to time in the company's filings with the Securities and Exchange Commission.
(Condensed Earnings Statement and Balance Sheet Attached)
<PAGE> 4
-4-
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF EARNINGS
(IN THOUSANDS, EXCEPT NET EARNINGS PER SHARE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31.
------------------------- ----------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 39,472 $ 35,276 $ 143,101 $ 115,070
Cost of goods sold 31,728 28,861 115,052 92,495
--------- --------- --------- ---------
Gross profit 7,744 6,415 28,049 22,575
Interest income on
installment receivables (1) 2,312 1,784 8,627 7,107
Other operating income, net 497 828 2,304 3,476
Selling, general and administrative (7,998) (7,538) (29,451) (27,186)
Interest expense (617) (859) (2,865) (2,868)
--------- --------- --------- ---------
Earnings before income taxes 1,938 630 6,664 3,104
Income taxes 436 200 2,215 1,048
--------- --------- --------- ---------
Net earnings $ 1,502 $ 430 $ 4,449(a) $ 2,056
========= ========= ========= =========
Basic earnings per share $ 0.44 $ 0.13 $ 1.30(a) $ 0.60
========= ========= ========= =========
Diluted earnings per share $ 0.42 $ 0.12 $ 1.28 $ 0.59
========= ========= ========= =========
Average number of
shares outstanding 3,444 3,425 3,435 3,421
========= ========= ========= =========
Diluted shares outstanding 3,540 3,449 3,483 3,462
========= ========= ========= =========
<FN>
(a) Earnings from operations in 1997 were $3,585 ($1.05 per share). One time items increased earnings
by $864 ($0.25 per share).
</FN>
</TABLE>
CONSOLIDATED SUMMARY BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
-------- --------
<S> <C> <C>
Assets
Receivables, net $ 23,201 $ 13,933
Inventories 36,649 54,453
Other current assets 7,563 8,803
-------- --------
Total current assets 67,413 77,189
Installment receivables, less current portion 16,502 11,435
Property, plant and equipment, net 18,262 16,479
Other assets 12,183 6,961
-------- --------
Total assets $114,360 $112,064
======== ========
Liabilities and Shareholders' Equity
Current portion of long-term debt $ 900 $ 30,901
Other liabilities 18,608 14,826
-------- --------
Total current liabilities 19,508 45,727
Long-term debt, less current portion 27,650 3,350
Other liabilities 6,379 6,712
Shareholders' equity 60,823 56,275
-------- --------
Total liabilities and shareholders' equity $114,360 $112,064
======== ========
<FN>
(1) Baldwin's adoption of FAS 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities, by its Keyboard Acceptance unit (KAC) resulted in
additional pre-tax revenue of $442,280 and $1,417,280 respectively, for the fourth quarter
and fiscal 1997. FAS 125 was not applicable to fiscal 1996 and earlier periods.
</FN>
</TABLE>
