SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended: October 12, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number: 0-16226
ENTREE CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 39-1566009
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8200 W. Brown Deer Road, Suite 200, Milwaukee, WI 53223
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 355-0037
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
At November 15, 1996, the registrant had issued and outstanding an
aggregate of 8,000,000 shares of its common stock.
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
Entree Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
October 12, March 30,
1996 1996
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash $ 1,413 $ 903
Receivables 9,535 8,848
Inventories 5,153 4,541
Other current assets 563 231
------- -------
Total current assets 16,664 14,523
Property and equipment 7,789 7,566
Less accumulated depreciation (4,706) (4,396)
------- -------
3,083 3,170
Other assets 388 355
------- -------
$ 20,135 $ 18,048
======= =======
Liabilities and Shareholders' Deficit
Current liabilities
Accounts payable $ 6,843 $ 7,893
Accrued liabilities 623 626
Revolving line of credit 6,929 2,996
Current portion of long-term debt 61 103
------- -------
Total current liabilities 14,456 11,618
Long-term debt 765 804
Preferred stock of subsidiary owned by parent 7,400 7,400
Shareholders' deficit
Common stock 80 80
Additional paid-in capital 15,296 15,273
Accumulated deficit (17,862) (17,127)
------- -------
Total shareholders' deficit (2,486) (1,774)
------- -------
$ 20,135 $ 18,048
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
Entree Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
12 Weeks Ended 28 Weeks Ended
October 12, October 14, October 12, October 14,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 55,005 $ 53,668 $ 130,868 $ 128,955
Other income --- 14 2 21
------ ------ ------- -------
55,005 53,682 130,870 128,976
Cost of sales 53,973 52,604 128,827 126,527
Selling and administra-
tive expenses 909 891 2,099 2,177
------ ------ ------- -------
Operating earnings (loss) 123 187 (56) 272
Interest expense (205) (232) (473) (557)
Equity in earnings (loss)
of unconsolidated
subsidiary 21 8 21 (20)
------ ------ ------- -------
Loss before extra-
ordinary item (61) (37) (508) (305)
Extraordinary item (227) --- (227) ---
------ ------ ------- -------
Net loss $ (288) $ (37) $ (735) $ (305)
====== ====== ======= =======
Loss per share:
Before extraordinary
item $ (.01) $ .00 $ (.06) $ (.04)
Extraordinary item (.03) --- (.03) ---
------ ------ ------- -------
Net loss $ (.04) $ .00 $ (.09) $ (.04)
====== ====== ======= =======
Weighted average number
of common shares
outstanding 8,000 8,000 8,000 8,000
====== ====== ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
Entree Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
28 Weeks Ended
October 12, October 14,
1996 1995
<S> <C> <C>
Operating activities:
Net loss $ (735) $ (305)
Reconciliation of net loss to net cash
used by operating activities:
Depreciation and amortization 368 357
Provision for doubtful accounts 85 85
Equity in (earnings) loss of
unconsolidated subsidiary (21) 20
Change in operating assets and
liabilities (2,769) (547)
------- -------
Net cash used by operating activities (3,072) (390)
Investing activities:
Purchases of property and equipment (223) (179)
Financing activities:
Payments of long-term debt (81) (52)
Net change in line of credit 3,933 198
Change in notes payable to parent --- 54
Other (47) ---
------- -------
Net cash provided by financing activities 3,805 200
------- -------
Increase (decrease) in cash 510 (369)
Cash at beginning of period 903 1,653
------- -------
Cash at end of period $ 1,413 $ 1,284
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
Entree Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the twenty-eight weeks ended October 12, 1996 are not necessarily
indicative of the results that may be expected for the fiscal year ended
March 29, 1997. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the fiscal year ended March 30, 1996.
The computation of loss per common share is based on the weighted
average number of common shares.
NOTE 2 - Preferred Stock of Subsidiary owned by Parent
The Diana Corporation ("Diana") owns 7,400,000 shares of Atlanta
Provision Company, Inc's ("APC") Series A non-voting preferred stock. The
preferred stock earns dividends at an annual rate of $.10 per share.
Dividends on 6,000,000 shares of preferred stock are cumulative from April 1,
1992 and payable quarterly commencing July 1, 1995. Dividends on 1,400,000
shares of preferred stock are cumulative from and payable quarterly
commencing April 1, 1996. No dividends have been declared by APC. At
October 12, 1996, dividends in arrears on the preferred stock were
$2,770,000. The preferred stock may be redeemed at any time at APC's option
for $1.00 per share plus accrued and unpaid dividends. The declaration of
dividends and redemption of preferred stock are restricted by a loan and
security agreement. Diana's investment in APC's preferred stock is reflected
within the accompanying balance sheet as preferred stock of subsidiary owned
by parent.
NOTE 3 - Revolving Line of Credit
On October 4, 1996, APC refinanced its revolving line of credit with a
new lender. The new credit facility provides for a revolving line of credit
through October 1998 of up to $10 million with interest at the prime rate
plus 2%. The line of credit requires a minimum interest payment to the
lender of $35,000 per month. A $2,000,000 letter of credit facility with
fees of 1% on outstanding letters of credit is included within the total
facility. At October 12, 1996, borrowings under the revolving line of credit
were $6,929,000.
4
<PAGE>
NOTE 3 - Revolving Line of Credit (Continued)
Borrowings under the revolving line of credit are restricted based on
defined percentages of eligible accounts receivable and inventories.
Substantially all of APC's current assets are pledged as collateral under the
line of credit. The line of credit restricts APC in a number of areas,
including, but not limited to, declaration of dividends, mergers and
acquisitions, transactions with affiliates, capital expenditures and
additional indebtedness. The line of credit contains the following financial
covenants for the remainder of fiscal 1997: minimum fixed charge ratio of
.75 to 1 for the period from October 4, 1996 through March 29, 1997, a
minimum current ratio of 1.10 to 1.0 and minimum tangible net worth at March
29, 1997 of $4,000,000.
NOTE 4 - Extraordinary Item
In connection with the refinancing discussed above, APC incurred
expenses of $227,000 which are reflected in the fiscal 1997 Condensed
Consolidated Statements of Operations as an extraordinary item pursuant to
Statement of Financial Accounting Standards No. 4.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The following is a summary of sales by significant product line for the
second quarter and year-to-date for fiscal 1997 and 1996 (in thousands):
Second Quarter Year-To-Date
1997 1996 1997 1996
Beef $ 23,783 $ 26,218 $ 57,449 $ 62,273
Pork 10,288 10,469 25,546 26,969
Other 20,934 16,981 47,873 39,713
------ ------ ------- -------
$ 55,005 $ 53,668 $ 130,868 $ 128,955
====== ====== ======= =======
For the twelve weeks ended October 12, 1996, APC's net sales increased
by $1,337,000 or 2.5% over fiscal 1996 second quarter net sales despite
overall volume (based on tonnage) decreasing by 3.5%. The average sales
price per pound during the second quarter increased from $1.28 in fiscal 1996
to $1.35 in fiscal 1997. For the twenty-eight weeks ended October 12, 1996,
APC's net sales increased by $1,913,000 or 1.5% over fiscal 1996 sales for
the same period of time despite overall volume (based on tonnage) decreasing
by 1.6%. The average sales price per pound during the twenty-eight weeks
ended October 12, 1996 increased from $1.29 in fiscal 1996 to $1.33 in fiscal
1997. The increases in net sales in the second quarter and year-to-date
fiscal 1997 are primarily attributable to an increase in the sales of
processed meats (included in other) to one large chain store customer,
partially offset by lower beef sales, due to lower volume from several chain
store customers.
For the twelve weeks ended October 12, 1996, gross profit decreased by
$32,000 or 3.0% from the corresponding period in fiscal 1996. Gross profit
as a percentage of net sales was 1.9% in the second quarter of fiscal 1997 as
compared to 2.0% in fiscal 1996. For the twenty-eight weeks ended October
12, 1996, gross profit decreased by $387,000 or 15.9% over the corresponding
period in fiscal 1996. Gross profit as a percentage of net sales for the
twenty-eight weeks ended October 12, 1996 was 1.6% as compared to 1.9% for
the same period in fiscal 1996. The decrease in gross profit and the gross
profit percentage for the twenty-eight weeks ended October 12, 1996 is
primarily due to lower beef volume during the second quarter of fiscal 1997
and the negative impact of higher grain prices resulting in an increase in
the supply of beef and lower beef prices during the first quarter of fiscal
1997.
For the twelve weeks ended October 12, 1996, selling and administrative
expenses increased $18,000 or 2.0% from the same period in fiscal 1996.
Selling and administrative expenses as a percentage of net sales were 1.7% in
the second quarter of fiscal 1997 unchanged from the same period of time in
fiscal 1996. For the twenty-eight weeks ended October 12, 1996, selling and
administrative expenses decreased $78,000 or 3.6% from the same period in
fiscal 1996. Selling and administrative expenses as a percentage of net
sales were 1.6% for the twenty-eight weeks ended October 12, 1996 as compared
to 1.7% for the same period in fiscal 1996. The decrease in the twenty-eight
weeks ended October 12, 1996 is primarily attributable to lower selling
expenses due to a reduction in the number of sales employees.
6
<PAGE>
For the twelve and twenty-eight weeks ended October 12, 1996, interest
expense decreased by $27,000 and $84,000, respectively, from the same periods
in fiscal 1996. The decreases are primarily attributable to the elimination
of all borrowings by the Company and APC to Diana at the end of fiscal 1996.
On March 30, 1996, Diana acquired 1.4 million shares of APC's preferred stock
in exchange for the cancellation of the $1.4 million promissory note from
APC. In addition, on March 30, 1996, Diana made a capital contribution of
$683,000 to the Company by discharging the Company from a $683,000 promissory
note.
Liquidity and Capital Resources
The Company recorded cash used by operating activities of $3,072,000
during the twenty-eight weeks ended October 12, 1996 as compared to cash used
by operating activities of $390,000 for the same period of time in fiscal
1996. The increase in cash used from operating activities is primarily
attributable to an increase in the net loss and cash used from the net change
in working capital items. The net increase in working capital items was
funded primarily through additional borrowings of $3,933,000 from the
revolving line of credit.
Capital expenditures for property and equipment during the twenty-eight
weeks ended October 12, 1996 were $223,000. Capital expenditures were
incurred primarily for warehouse improvements and equipment, and data
processing equipment. Fiscal 1997 capital expenditures are limited to
$500,000 pursuant to restrictions in APC's credit facility.
In October 1996, APC refinanced its revolving line of credit with a new
lender (see Note 3 to the Condensed Consolidated Financial Statements).
APC's credit facility provides a revolving line of credit of up to
$10,000,000 with interest at the prime rate plus 2% through September 1998.
A $2 million letter of credit facility is included within the total credit
facility. At October 12, 1996, APC borrowed $6,929,000 and had letters of
credit of $2,000,000 issued on its behalf. At October 12, 1996, APC had
available borrowing capacity of $1,071,000. Subsequent to October 12, 1996,
APC has incurred increased levels of borrowings under its revolving line of
credit primarily due to increased inventory and lower accounts payable
levels. As a result, the unused borrowing capacity under the revolving line
of credit has recently been, at times, less than 1% of the total credit
facility. APC's management has received a verbal commitment from its new
lender to increase the credit facility by $1,000,000 through January 31,
1997. APC's management will need to continue to manage working capital
levels to ensure adequate availability under its revolving line of credit.
In November 1996, Diana announced that its Board of Directors approved
a restructuring plan aimed at maximizing its shareholder's value. The
restructuring plan consists of combining the Company with two other
businesses owned by Diana into a newly-formed entity and the subsequent spin-
off of this entity to shareholders of Diana. The spin-off is expected to be
completed in early 1997.
7
<PAGE>
Forward Looking Statement
The Company's statement regarding future availability under its
revolving line of credit may be considered a "forward looking statement"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Actual results or developments may differ materially from those contained in
the forward looking statements. Factors which may cause such a difference to
occur include but are not limited to (i) whether extraordinary repairs are
needed to APC's distribution facility, (ii) whether APC can maintain its
current customer base, (iii) whether APC can continue to control its
operating expenses, (iv) product demand, competition, the cost of beef, pork
and other products, and industry conditions, (v) whether vendors continue to
provide credit to APC on satisfactory terms, (vi) whether APC's secured
lender exercises its demand right and (vii) whether other competitors enter
APC's marketplace.
8
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4.1 - Loan and Security Agreement dated October 4, 1996
between Atlanta Provision Company, Inc. and
Sanwa Business Credit Corporation
27 - Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company for the
quarter covered by this report.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENTREE CORPORATION
/s/ Richard Y. Fisher
President and Director
(Principal Executive Officer)
/s/ R. Scott Miswald
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
DATE: November 26, 1996
10
LOAN AND SECURITY AGREEMENT
Dated: October 4, 1996
$10,000,000
between
SANWA BUSINESS CREDIT CORPORATION
as Lender,
and
ATLANTA PROVISION COMPANY, INC.
as Borrower
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS.................................................... 1
2. LOANS: GENERAL TERMS.......................................... 9
2.1 Total Facility............................................ 9
2.2 Advances to Constitute One Loan; Loan Purpose............. 9
2.3 Interest Rate............................................. 10
2.4 Term of Agreement; Liquidated Damages..................... 10
2.5 Credit Availability Charge................................ 11
2.6 Closing Fee............................................... 11
2.7 Letters of Credit; LC Guaranties.......................... 11
2.8 Letter of Credit and LC Guaranty Fees..................... 11
2.9 Default Rate.............................................. 12
3. ELIGIBLE ACCOUNTS; ELIGIBLE INVENTORY.......................... 12
3.1 Eligible Accounts......................................... 12
3.2 Eligible Inventory........................................ 14
4. PAYMENTS....................................................... 15
4.1 Loan Account; Method of Making Payments................... 15
4.2 Payment Terms............................................. 15
4.3 Collection of Accounts and Payments....................... 15
4.4 Application of Payments and Collections................... 16
4.5 Statements................................................ 16
5. COLLATERAL: GENERAL TERMS..................................... 17
5.1 Security Interest......................................... 17
5.2 Disclosure of Security Interest........................... 17
5.3 Special Collateral........................................ 17
5.4 Further Assurances........................................ 17
5.5 Inspection................................................ 18
5.6 Perfection and Priority; Location of Collateral........... 18
5.7 Lender's Payment of Claims Asserted Against Borrower...... 18
6. COLLATERAL: ACCOUNTS.......................................... 18
6.1 Verification of Accounts.................................. 18
6.2 Assignments, Records and Accounts Report.................. 18
6.3 Notice Regarding Disputed Accounts........................ 19
6.4 Sale or Encumbrance of Accounts........................... 19
<PAGE>
7. COLLATERAL: INVENTORY......................................... 19
7.1 Sale of Inventory......................................... 19
7.2 Safekeeping of Inventory; Inventory Covenants............. 19
7.3 Records and Schedules of Inventory........................ 19
7.4 Returned and Repossessed Inventory........................ 20
7.5 Evidence of Ownership of Inventory........................ 20
8. [Intentionally Omitted].......................................... 20
9. WARRANTIES AND REPRESENTATIONS................................. 20
9.1 General Warranties and Representations.................... 20
9.2 Account Warranties and Representations.................... 22
9.3 Inventory Warranties and Representations.................. 23
9.4 Automatic Warranty and Representation and Reaffirmation of
Warranties and Representations............................ 24
9.5 Survival of Warranties and Representations................ 24
10. COVENANTS AND CONTINUING AGREEMENTS............................ 24
10.1 Affirmative Covenants..................................... 24
10.2 Negative Covenants........................................ 28
10.3 Contesting Charges........................................ 29
10.4 Payment of Charges........................................ 30
10.5 Insurance; Payment of Premiums............................ 30
10.6 Survival of Obligations Upon Termination of Agreement..... 31
11. DEFAULT; RIGHTS AND REMEDIES ON DEFAULT........................ 31
11.1 Default................................................... 31
11.2 Acceleration of the Liabilities........................... 33
11.3 Remedies.................................................. 33
11.4 Notice.................................................... 34
12. CONDITIONS PRECEDENT........................................... 35
12.1 Execution and Delivery of Agreement....................... 35
12.2 Documentation............................................. 35
13. MISCELLANEOUS.................................................. 37
13.1 Appointment of Lender as Borrower's Lawful
Attorney-In-Fact.......................................... 37
13.2 Modification of Agreement; Sale of Interest............... 38
13.3 Attorneys' Fees and Expenses; Lender's Out-of-Pocket
Expenses.................................................. 38
13.4 Waiver by Lender.......................................... 39
13.5 Severability.............................................. 39
13.6 Parties; Entire Agreement................................. 39
<PAGE>
13.7 Conflict of Terms......................................... 39
13.8 Waiver by Borrower........................................ 40
13.9 Governing Law............................................. 40
13.10 Notice.............................................. 40
13.11 Section Titles, Etc................................. 42
Exhibits
Exhibit A Form of Special Deposit Agreement
Exhibit B Financials
Exhibit C Form of Validity Guaranty
Exhibit D Locations
Exhibit E Assumed and Fictitious Names
Exhibit F Litigation and Labor Matters
Exhibit G Permitted Liens
Exhibit H Form of Opinion of Borrower's Counsel
Exhibit I-1 Form of Accounts Report
Exhibit I-2 Form of Inventory Report
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is made as of the
4th day of October, 1996, by and between Sanwa Business Credit Corporation,
a Delaware corporation ("Lender"), and Atlanta Provision Company, Inc., a
Georgia corporation ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower desires to borrow funds and obtain other financial
accommodations from Lender, and Lender is willing to make certain loans and
to provide other financial accommodations to Borrower upon the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, and of any loans or extension of credit heretofore, now or hereafter
made to or for the benefit of Borrower by Lender, the parties hereto hereby
agree as follows:
1. DEFINITIONS.
1.1 When used herein, the following terms shall have the following
meanings:
(a) "Accounts" shall mean all accounts, contract rights, chattel
paper, instruments and documents, whether now owned or hereafter acquired by
Borrower.
(b) "Account Debtor" shall mean any Person who is or who may
become obligated to Borrower under, with respect to, or on account of an
Account.
(c) "Accounts Report" shall mean a report delivered to Lender by
Borrower, as required by Section 6.2, consisting of an aged trial balance of
all Accounts existing as of the date of such Accounts Report, specifying for
each Account Debtor obligated on the Accounts, such Account Debtor's name,
address and outstanding balance and the aging of such outstanding balance.
The form of an Accounts Report is attached hereto as Exhibit I-1.
(d) "Adjusted Tangible Assets" shall mean all assets except: (i)
any surplus resulting from any write-up of assets subsequent to October 4,
1996; (ii) deferred assets, including prepaid insurance and prepaid taxes,
deposits and construction in progress; (iii) patents, copyrights, trademarks,
trade names, non-compete agreements, franchises and other similar
intangibles; (iv) goodwill, including any amounts, however designated on a
balance sheet of Borrower representing the excess of the purchase price paid
for assets or stock over the value assigned thereto on the books of such
Person: (v) Borrower's fifty-percent (50%) owned investment in Fieldstone
Meats of Alabama and investments which are prohibited by the
<PAGE>
provisions of Section 10.2(B); (vi) unamortized debt discount and expense;
and (vii) Accounts, notes and other receivables due from Affiliates or
employees.
(e) "Adjusted Tangible Net Worth" at any date means a sum equal
to:
(i) the net book value (after deducting related
depreciation, obsolescence, amortization, valuation, and other
proper reserves) at which the Adjusted Tangible Assets of Borrower
would be shown on a balance sheet of Borrower at such date in
accordance with GAAP, minus
(ii) the amount at which Borrower's liabilities (other
than capital stock (which shall include redeemable preferred stock)
and surplus) would be shown on such balance sheet in accordance
with GAAP, and including as liabilities all reserves for
contingencies and other potential liabilities.
(f) "Affiliate" shall mean any and all Persons which, in the sole
and absolute judgment of Lender, directly or indirectly, own or control, are
controlled by or are under common control with Borrower, and any and all
Persons from whom, in the sole and absolute judgment of Lender, Borrower has
not or is not likely to exhibit independence of decision or action. For the
purpose of this definition, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
(g) "Ancillary Agreements" shall mean all Security Documents and
all agreements, instruments and documents, including without limitation,
notes, guaranties, mortgages, deeds of trust, chattel mortgages, pledges,
powers of attorney, consents, assignments, contracts, notices, security
agreements, leases, financing statements, subordination agreements, trust
account agreements and all other written matter whether heretofore, now, or
hereafter executed by or on behalf of Borrower or any other Person or
delivered to Lender or any Participant with respect to this Agreement.
(h) "B of A" shall mean Bank of America, Illinois, or any
successor institution thereto.
(i) "Business Day" shall mean any day, other than a Saturday or
Sunday, on which the main lobby of the Depository Bank is open for business
with the general public.
(j) "Capital Expenditures" shall mean all expenditures for any
fixed assets or improvements, or for replacements, including, but not limited
to, the direct or indirect acquisition of such assets by way of increased
product or service charges, offset items or otherwise, and shall include
capitalized lease payments, all as determined in accordance with GAAP.
(k) "Cash and Cash Equivalents" shall mean, at any time, any
assets of the Borrower which are in the form of, or are readily convertible
into money, including, without
2
<PAGE>
limitation, cash, checks, and other negotiable instruments, deposits with any
bank or financial institution (whether as demand deposits or time deposits ,
and whether or not evidenced by certificates of deposits), and readily
marketable securities of any type.
(l) "Charges" shall mean all national, federal, state, county,
city, municipal, or other governmental (including, without limitation, the
Pension Benefit Guaranty Corporation) taxes, levies, assessments, charges,
liens, claims or encumbrances upon or relating to (i) the Collateral, (ii)
the Liabilities, (iii) Borrower's employees, payroll, income or gross
receipts, (iv) Borrower's ownership or use of any of its assets, or (v) any
other aspect of Borrower's business.
(m) "Closing Date" means the date on which all of the conditions
precedent in Section 12 are satisfied and the initial Revolving Loan is made
hereunder.
(n) "Collateral" shall mean all of the property and interests in
property described in Section 5.1 and all other property and interests in
property which shall, from time to time, secure any part of the Liabilities.
(o) "Commitment Termination Date" shall mean the earliest of (i)
the date on which Lender demands payment of the Liabilities, (ii) October 4,
1998 or such later date as Lender and Borrower may agree to in writing, (iii)
the date of termination of the commitment to make further Revolving Loans
pursuant to Section 2.4 hereof, and (iv) the date of termination of the
commitment to make further Revolving Loans and to issue additional Letters of
Credit or LC Guaranties pursuant to Section 11.2 hereof.
(p) "Contract Year" means initially, that period of time
commencing on the Closing Date and ending one (1) day prior to the first
anniversary of the Closing Date, and thereafter each period of one (1) year
commencing on the date after the last day of the immediately preceding
Contract Year and ending one (1) day prior to the anniversary of such date.
(q) "Current Asset Base" means in respect to Borrower at any time
an amount equal to (x) the lesser of (i) Ten Million Dollars ($10,000,000) or
(ii) the sum of up to eighty percent (80%) (or such lesser percentage as
Lender may, at any time and from time to time, determine in the exercise of
its reasonable credit judgment) of the value at such time of Eligible
Accounts, plus the lesser of Four Million Dollars ($4,000,000) or up to fifty
percent (50%) (fifty-five percent (55%) during the months of July and
December) (or such lesser percentage as Lender may, at any time and from time
to time, determine, in the reasonable exercise of its reasonable credit
judgment) of the value at such time of Eligible Inventory minus (subtract
from the lesser of (i) or (ii) above) (y) an amount equal to as of such date
the sum of (i) the Letter of Credit Accommodations, plus (ii) any amount
which Lender reasonably expects it may be obligated to pay in the future for
the account of Borrower, plus (iii) the amount of any reserve established by
Lender pursuant to the terms hereof against the Current Asset Base.
3
<PAGE>
(r) "Current Assets" shall mean the aggregate net book value of
the current assets of Borrower as determined in accordance with GAAP,
excluding any Accounts owing to Borrower from any Affiliate.
(s) "Current Liabilities" shall mean the aggregate amount of all
liabilities of Borrower which would be classified as current liabilities
under GAAP, including without limitation, Liabilities outstanding under the
Revolving Loans.
(t) "Default" shall mean the occurrence or existence of any one or
more of the events described in Section 11.1.
(u) "Depository Bank" shall mean the banking institution which is
referred to in Section 4.3 and which shall be the signatory to the Special
Deposit Agreement which is attached hereto as Exhibit A.
(v) "EBITDA" shall mean for any applicable Fiscal Period
Borrower's Net Income during such period, plus interest expenses,
depreciation and amortization expenses and income and franchise expense
deducted in determining Net Income for such period, plus any dividends or
distributions paid or made to Borrower's stockholders to the extent that such
dividends or distributions are permitted pursuant to the terms hereof.
(w) "Eligible Accounts" shall mean those Accounts listed in an
Accounts Report which, as of the date of such Accounts Report and at all
times thereafter, (i) satisfy the requirements for eligibility as described
in Section 3.1, (ii) do not violate the negative covenants and other
provisions of this Agreement and do satisfy the affirmative covenants,
warranties and other provisions of this Agreement and (iii) Lender, in its
sole and absolute judgment, deems to be Eligible Accounts.
(x) "Eligible Inventory" shall mean those items of Inventory
included in an Inventory Report which, as of the date of such Inventory
Report and at all times thereafter, (i) satisfy the requirements for
eligibility described in Section 3.2, (ii) do not violate the negative
covenants and other provisions of this Agreement and do satisfy the
affirmative covenants, warranties, and other provisions of this Agreement and
(iii) Lender, in its sole and absolute judgment, deems to be Eligible
Inventory.
(y) "Environmental Laws" shall mean all federal, state and local
laws, rules, regulations, ordinances, programs, permits, guidances, orders
and consent decrees relating to health, safety and environmental matters,
including, but not limited to, the Resource Conservation and Recovery Act,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Toxic Substances Control Act as amended, the Clean Water Act, the
River and Harbor Act, Water Pollution Control Act, the Marine Protection
Research and Sanctuaries Act, the Deep-Water Port Act, the Safe Drinking
Water Act, the SuperFund Amendments and Reauthorization Act of 1986, the
Federal Insecticide, Fungicide and Rodenticide Act, the Mineral Lands and
Leasing Act, the Surface Mining Control and Reclamation Act, state and
federal
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superlien and environmental clean up programs and laws, and U.S. Department
of Transportation regulations.
(z) "Equipment" shall mean all of Borrower's now owned and
hereafter acquired equipment and fixtures, including without limitation,
furniture, machinery, vehicles and trade fixtures, together with any and all
accessories, parts and appurtenances thereto, substitutions therefor and
replacements thereof.
(aa) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
(ab) "Event of Default" shall mean any event or condition which,
with the passage of time or the giving of notice or both, would constitute a
Default.
(ac) "Excess Revolving Credit Loan Availability" shall mean the
positive difference, if any, between the Current Asset Base and the aggregate
amount outstanding in respect of the Revolving Loans.
(ad) "Financials" shall mean those financial statements of Borrower
attached hereto as Exhibit B or delivered to Lender pursuant to Section 10.1.
(ae) "Fiscal Period" shall mean an accounting period during
Borrower's fiscal year consisting of four (4) weeks; provided, however, that
in the event that Borrower's fiscal year has fifty-three (53) weeks,
Borrower's final Fiscal Period during such fiscal year shall consist of five
(5) weeks.
(af) "Fixed Charges" shall mean as to Borrower, for any Fiscal
Period, the aggregate of all (i) interest expenses paid or accrued by the
Borrower during such period, plus (ii) scheduled payments of principal with
respect to Indebtedness during such period, plus (iii) income and franchise
taxes paid during such period, plus (iv) Capital Expenditures made during
such period, plus (v) all dividends or distributions paid to Borrower's
stockholders during such period.
(ag) "Fixed Charge Coverage Ratio" shall mean, for any Fiscal
Period, the Borrower's EBITDA divided by the Borrower's Fixed Charges.
(ah) "GAAP" generally accepted accounting principles in the United
States of America as in effect from time to time.
(ai) "General Intangibles" shall mean all choses in action, general
intangibles, causes of action and all other intangible personal property of
Borrower of every kind and nature (other than Accounts) now owned or
hereafter acquired by Borrower. Without in any way limiting the generality
of the foregoing, General Intangibles specifically includes, without
limitation, all corporate or other business records, security deposits,
inventions, designs, patents,
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patent applications, trademarks, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, and tax refund claims owned
by Borrower and all letters of credit, guarantee claims, security interests
or other security held by or granted to Borrower to secure payment by an
Account Debtor of any Accounts.
(aj) "Indebtedness" shall mean all of Borrower's liabilities,
obligations and indebtedness to any Person of any and every kind and nature,
whether primary, secondary, direct, indirect, absolute, contingent, fixed, or
otherwise, heretofore, now or hereafter owing, due, or payable, however
evidenced, created, incurred, acquired or owing and however arising, whether
under written or oral agreement, by operation of law, or otherwise. Without
in any way limiting the generality of the foregoing, Indebtedness
specifically includes (i) the Liabilities, (ii) all obligations or
liabilities of any Person that are secured by any lien, claim, encumbrance,
or security interest upon property owned by Borrower, even though Borrower
has not assumed or become liable for the payment thereof, (iii) all
obligations or liabilities created or arising under any lease of real or
personal property, or conditional sale or other title retention agreement
with respect to property used or acquired by Borrower, even though the rights
and remedies of the lessor, seller or lender thereunder are limited to
repossession of such property, (iv) all unfunded pension fund obligations and
liabilities and (v) deferred taxes.
(ak) "Initial Term" shall have the meaning ascribed to it in
Section 2.4.
(al) "Inventory" shall mean all goods, inventory, merchandise and
other personal property, including, without limitation, goods in transit,
wherever located and whether now owned or hereafter acquired by Borrower
which are or may at any time be held for sale or lease, furnished under any
contract of service or held as raw materials, work-in-process, supplies or
materials used or consumed in the business of Borrower, and all such property
the sale or other disposition of which has given rise to Accounts and which
has been returned to or repossessed or stopped in transit by Borrower.
(am) "Inventory Report" shall mean a report delivered to Lender by
Borrower, as required by Section 7.3, consisting of a detailed listing of all
Inventory as of the date of such Inventory Report describing the kind, type,
quality, quantity, location and the lower of cost (computed on the basis of
a first-in, first-out cost flow assumption) or market value of such
Inventory. The form of an Inventory Report is attached hereto as Exhibit I-
2.
(an) "Investment Property" shall mean all of Borrower's investment
property, whether now owned or hereinafter acquired by Borrower, including,
without limitation, all securities (certificated or uncertificated),
securities accounts, securities entitlements, commodity accounts and
contracts.
(ao) "LC Guaranty" shall mean any guaranty or application for
letter of credit executed by Lender at Borrower's request in favor of B of A
in respect to any Letter of Credit issued by B of A for the account of
Borrower.
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(ap) "Letter of Credit" shall mean a letter of credit at any time
issued by B of A for the account of Borrower.
(aq) "Letter of Credit Accommodations" shall mean as of any date
one hundred percent (100%) of the face amount of all LC Guaranties and
Letters of Credit issued by Lender for the benefit of Borrower and
outstanding at such time.
(ar) "Liabilities" shall mean all of Borrower's liabilities,
obligations and indebtedness to Lender of any and every kind and nature,
whether primary, secondary, direct, absolute, contingent, fixed, or otherwise
(including, without limitation, interest, charges, expenses, attorneys' fees
and other sums chargeable to Borrower by Lender, future advances made to or
for the benefit of Borrower and obligations of performance), whether arising
under this Agreement, under any of the Ancillary Agreements or acquired by
Lender from any other source, whether heretofore, now or hereafter owing,
arising, due, or payable from Borrower to Lender, however evidenced, created,
incurred, acquired or owing and however arising, whether under written or
oral agreement, operation of law, or otherwise.
(as) "Loan Account" shall have the meaning ascribed to it in
Section 4.1.
(at) "Maximum Revolving Loan Amount" shall mean Ten Million Dollars
($10,000,000).
(au) "Net Income" shall mean the net income (or loss) after income
and franchise taxes of Borrower and shall have the meaning given such term by
GAAP provided, that there shall be specifically excluded therefrom tax-
adjusted (i) gains or losses from the sale of capital assets, (ii) gains or
losses arising from extraordinary items, as defined by GAAP, (iii) gains or
losses arising from non-operating income from Borrower's fifty-percent (50%)
owned investment in Fieldstone Meats of Alabama, and (iv) one-time charges
relating to Borrower's repayment of its loans to Fleet Capital Corporation.
(av) "OSHA" shall mean the Occupational Safety and Health Act and
all rules and regulations from time to time promulgated thereunder.
(aw) "Participant" shall mean any Person, now or at any time or
times hereafter, participating with Lender in the loans made by Lender to
Borrower pursuant to this Agreement and the Ancillary Agreements.
(ax) "Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, entity, party, or government (whether national,
federal, state, county, city, municipal or otherwise, including, without
limitation, any instrumentality, division, agency, body or department
thereof).
(ay) "Prime Rate" shall mean the "Prime Rate" of interest quoted
from time to time, by The Wall Street Journal as the base rate on corporate
loans posted by at least seventy-
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five percent (75%) of the nations thirty (30) largest banks provided,
however, that in the event that The Wall Street Journal ceases quoting a
"Prime Rate", "Prime Rate" shall mean the per annum rate of interest quoted
as the "Bank Prime Loan" rate for the most recent weekday for which such rate
is quoted in Statistical Release H.15 (519) published from time to time by
the Board of Governors of the Federal Reserve System, provided further that
in the event that both of the aforesaid indices cease to be published or to
quote rates of the aforesaid types, the "Prime Rate" shall be determined from
a comparable index chosen by Lender in good faith. The "Prime Rate" shall
change effective on the date of the publication of any change in the
applicable index by which such "Prime Rate" is determined.
(az) "Reportable Event" shall have the meaning ascribed to it in
Section 9.1(0).
(ba) "Revolving Loan(s)" shall have the meaning ascribed to it in
Section 2.1.
(bb) "Security Documents" shall mean this Agreement and all other
agreements, instruments, documents, financing statements, warehouse receipts,
bills of lading, notices of assignment, schedules, assignments, mortgages and
other written matter necessary or requested by Lender to create, perfect and
maintain perfected Lender's security interest in the Collateral.
(bc) "Special Collateral" shall have the meaning ascribed to it in
Section 5.3.
(bd) "Subordinated Debt" shall mean all Indebtedness of Borrower
that is subordinated to the Liabilities, pursuant to a subordination
agreement acceptable to Lender, in its sole discretion.
(be) "Stock" shall mean all shares, options, interests,
participations or other equivalents (however designated) of or in a
corporation, whether voting or non-voting, including, without limitation,
common stock, warrants, preferred stock, convertible debentures and all
agreements, instruments and documents convertible, in whole or in part, into
any one or more or all of the foregoing.
(bf) "Term" shall mean the period between the date hereof through
and including the Commitment Termination Date.
1.2 Accounting Terms. Any accounting terms used in this Agreement
which are not specifically defined shall have the meanings customarily given
them in accordance with GAAP.
1.3 Other Terms. All other terms contained in this Agreement which are
not otherwise defined in this Agreement shall, unless the context indicates
otherwise, have the meanings provided for by the Uniform Commercial Code of
the State of Illinois to the extent the same are used or defined therein.
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1.4 Certain Matters of Construction. Any pronoun used shall be deemed
to cover all genders. The section titles, table of contents and list of
exhibits appear as a matter of convenience only and shall not affect the
interpretation of this Agreement. All references to statutes and related
regulations shall include any amendments of same and any successor statutes
and regulations. All references to any instruments or agreements, including,
without limitation, references to this Agreement, shall include any and all
modifications thereto and any and all extensions or renewals thereof.
Wherever from the context it appears appropriate, each term stated in either
the singular or plural shall include the singular and the plural.
2. LOANS: GENERAL TERMS.
2.1 Total Facility. Lender may make available for Borrower's use from
time to time during the Term of this Agreement certain loans and other
financial accommodations (the "Total Facility"), as requested by Borrower in
accordance with the terms hereof, in amounts determined by Lender in its sole
and absolute discretion, up to a maximum principal amount at any time
outstanding equal to the Current Asset Base. Lender's discretion to honor
Borrower's request for a Revolving Loan or the issuance of a Letter of Credit
or LC Guaranty, and the amount of such Revolving Loan or Letter of Credit or
LC Guaranty may be exercised without regard to the accuracy of any
representation made or deemed to be made under, or the compliance by Borrower
with the terms of, this Agreement, the Security Documents or any of the
Ancillary Agreements or the existence or non-existence of any Default or
Event of Default. The Total Facility shall consist of:
(a) a revolving line of credit consisting of advances against
Eligible Accounts and Eligible Inventory (the "Revolving Loan"). The
aggregate amount of Revolving Loans outstanding at any one time shall not
exceed the Current Asset Base; and
(b) the letter of credit facility described in Section 2.7 hereof.
Lender may establish reserves in such amounts, and with
respect to such matters, as Lender shall, in its sole discretion, deem
necessary or appropriate, against the amount of Revolving Loans which
Borrower may otherwise request under this Section 2.1, including, without
limitation, with respect to (i) price adjustments, damages, unearned
discounts, returned products or other matters for which credit memoranda are
issued in the ordinary course of Borrower's business; (ii) shrinkage,
spoilage and obsolescence of Inventory; (iii) slow moving Inventory; (iv)
other sums chargeable against Borrower's Loan Account as Revolving Loans
under any section of this Agreement; and (v) such other matters, events,
conditions or contingencies as to which Lender, in its reasonable discretion,
determines from time to time should be established.
2.2 Advances to Constitute One Loan; Loan Purpose. All loans and
advances by Lender to Borrower under this Agreement and the Ancillary
Agreements (whether made as a Revolving Loan or otherwise), shall constitute
one loan and all indebtedness and obligations of
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Borrower to Lender under this Agreement and the Ancillary Agreements shall
constitute one general obligation secured by the Collateral.
2.3 Interest Rate. Unless otherwise provided in a writing evidencing
such Liabilities, Borrower shall pay Lender interest on the outstanding
principal balance of the Liabilities (excluding outstanding Letter of Credit
Accommodations) at the rate per annum of two percent (2%) above the Prime
Rate. Interest shall be computed on the basis of a year of 360 days and
actual days elapsed and shall be payable as provided in Section 4.2. In no
contingency or event whatsoever shall the rate of interest paid by Borrower
under this Agreement or any of the Ancillary Agreements exceed the maximum
amount permissible under any law which a court of competent jurisdiction
shall, in a final determination, deem applicable hereto. In the event that
such a court determines that Lender has received interest hereunder or under
any Ancillary Agreement in excess of the maximum amount permitted by such
law, (i) Lender shall apply such excess to any unpaid principal owed by
Borrower to Lender or, if the amount of such excess exceeds the unpaid
balance of such principal, Lender shall promptly refund such excess interest
to Borrower and (ii) the provisions hereof shall be deemed amended to provide
for such permissible rate. All sums paid, or agreed to be paid, by Borrower
which are, or hereafter may be construed to be, compensation for the use,
forbearance or detention of money shall, to the extent permitted by
applicable law, be amortized, prorated, spread and allocated throughout the
full term of all such indebtedness until the indebtedness is paid in full.
2.4 Term of Agreement; Liquidated Damages. 1. Subject to Lender's
discretionary rights as provided in Section 2.1, this Agreement shall be in
effect until the Commitment Termination Date. Further, either party shall
have the right to terminate this Agreement by giving the other party at least
ninety (90) days' prior notice of such termination. This Agreement may also
be terminated by Lender upon demand or upon the occurrence of a Default as
provided in Section 11. Upon the effective date of termination, all of the
Liabilities shall become immediately due and payable without presentment,
notice or demand. Notwithstanding any termination, until all of the
Liabilities shall have been fully paid and satisfied, Lender shall be
entitled to retain its security interest in the Collateral, Borrower shall
continue to remit collections of Accounts and proceeds of Collateral as
provided in this Agreement, and Lender shall retain all of its rights and
remedies under this Agreement.
(b) If, prior to October 4, 1998, this Agreement is terminated by
Borrower or is terminated by Lender as a result of the commission by Borrower
of an Event of Default, Borrower shall pay to Lender (in addition to the then
outstanding principal, accrued interest and other charges owing under the
terms of this Agreement and any of the other Ancillary Agreements), as
liquidated damages for the loss of the bargain and for compensation for the
costs of Lender being prepared to make funds available to Borrower and not as
a penalty, an amount equal to: two percent (2%) of the Maximum Revolving
Credit Amount if termination occurs during the first Contract Year and one
percent (1%) of the Maximum Revolving Credit Amount if termination occurs
during the second Contract Year. No termination charge shall be payable by
Borrower if Lender makes demand (upon the occurrence of an Event of Default
or otherwise) pursuant to the terms of this Agreement or if terminated by
Borrower if Lender reduces the
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percentages of Eligible Inventory and Eligible Accounts as provided in the
definition of Current Asset Base.
2.5 Credit Availability Charge. During each month prior to Commitment
Termination Date (or portion of the month in which the Closing occurs and of
the month in which the Commitment Termination Date occurs), Borrower shall
pay to Lender, in addition to any interest, late charges or liquidated
damages due under this Agreement, an amount ("Credit Availability Charge")
equal to the excess (if any) of Thirty-Five Thousand Dollars ($35,000) over
the sum of all interest paid by Borrower in respect to the Liabilities during
such month plus all Letter of Credit and LC Guaranty fees payable within such
month pursuant to Section 2.8 hereof. The amount of any Credit Availability
Charge shall be payable to Lender monthly, in arrears, on the first day of
each month (for the immediately preceding month), with the final payment date
on the last day of the Term hereof. The aforesaid Credit Availability Charge
is in addition to any other applicable fees and charges and shall be payable
for the entire period covered by this Agreement, unless this Agreement is
terminated by Borrower pursuant to Section 2.4 above and Borrower has paid
the applicable prepayment fee.
2.6 Closing Fee. At Closing, Borrower shall pay to Lender a closing
fee equal to Fifty Thousand Dollars ($50,000), which shall be deemed fully
earned and nonrefundable at the closing of the transactions contemplated
hereby and shall be paid concurrently with the initial Revolving Credit Loan
hereunder. Such fee shall compensate Lender for the costs associated with
the origination, structuring, processing, approving and closing of the
transactions contemplated by this Agreement, including, but not limited to,
administrative, out-of-pocket, general overhead and lost opportunity costs,
but not including any expenses for which Borrower has agreed to reimburse
Lender pursuant to any other provisions of this Agreement or any of the other
Loan Documents, such as, by way of example, legal fees and expenses.
2.7 Letters of Credit; LC Guaranties. If requested to do so by
Borrower, Lender may, subject to the terms hereof, and in its sole and
absolute discretion, issue its, or cause to be issued by B of A, Letters of
Credit for the account of Borrower or may, subject to the terms hereof and in
its sole absolute discretion, execute LC Guaranties by which Lender shall
guaranty the payment or performance by Borrower of its reimbursement
obligation with respect to Letters of Credit issued for Borrower's account by
B of A, provided that the aggregate face amount of all Letters of Credit and
LC Guaranties outstanding at any time shall not exceed Two Million Dollars
($2,000,000) and no Letter of Credit shall have a maturity of more than one
year or shall have an expiration date that is after October 4, 1998 or such
later date as may be agreed to by Lender. In addition to Lender's
discretionary rights as provided, Lender shall have no obligation to issue or
cause to be issued a Letter of Credit or LC Guaranty at any time during which
a Default or an Event of Default has occurred and is continuing.
2.8 Letter of Credit and LC Guaranty Fees. As consideration for Lender
issuing its, or causing to be issued B of A's Letters of Credit for
Borrower's account or for issuing its LC Guaranties at Borrower's request
pursuant to Section 2.7 hereof, Borrower agrees to pay Lender as compensation
to Lender for issuing or causing to be issued Letters of Credit or such LC
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Guaranties: (i) fees equal to one percent (1%) per annum of the aggregate
face amount of Letters of Credit and LC Guaranties outstanding from time to
time during the term of this Agreement, which fees shall be deemed fully
earned upon issuance of each Letter of Credit or LC Guaranty, shall be due
and payable on the first Business Day of each month and shall not be subject
to rebate or proration upon the termination of this Agreement for any reason;
and (ii) all non-percentage fees and charges paid to the issuer or like party
by Lender on account of such Letter of Credit or LC Guaranties.
2.9 Default Rate. Upon and after the occurrence of an Event of
Default, and during the continuation thereof, the interest rate provided for
in Section 2.4 and the fees payable in respect to outstanding Letter of
Credit and LC Guaranties shall each be increased by two percentage points
(2%).
3. ELIGIBLE ACCOUNTS; ELIGIBLE INVENTORY.
3.1 Eligible Accounts. Upon the delivery by Borrower to Lender of an
Accounts Report, Lender shall determine, in its sole and absolute discretion,
which individual Accounts listed thereon are Eligible Accounts. In making
this determination, Lender will consider the following requirements:
(a) If the individual Account arises from the sale of goods, such
goods have been shipped or delivered on open account and on an absolute sale
basis and not on consignment, on approval or on a sale-or-return basis or
subject to any other repurchase or return agreement and no material part of
such goods has been returned (other than returns described in Section 7.4),
repossessed, rejected, lost or damaged;
(b) The individual Account is not evidenced by chattel paper or an
instrument of any kind;
(c) The Account Debtor obligated on such individual Account is not
insolvent or the subject of any bankruptcy or insolvency proceeding of any
kind and Lender is satisfied with the creditworthiness of such Account
Debtor;
(d) If the individual Account is owing from an Account Debtor
located outside the United States or Canada, such Account Debtor has
furnished Borrower with an irrevocable letter of credit which has been issued
or confirmed by a financial institution acceptable to Lender, is in form and
substance acceptable to Lender, has been pledged to Lender, and is payable in
United States dollars in an amount not less than the face value of the
individual Account;
(e) The individual Account is a valid, legally enforceable
obligation of the relevant Account Debtor and such Account Debtor has not
asserted any offset, counterclaim or defense denying liability thereunder;
provided, however, that if such offset, counterclaim or defense has been
asserted, such Account shall be ineligible only to the extent of such
asserted offset, counterclaim or defense;
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(f) The individual Account is subject to and covered by Lender's
perfected security interest and is not subject to any other lien, claim,
encumbrance or security interest;
(g) The individual Account is evidenced by an invoice or other
documentation in form acceptable to Lender;
(h) The individual Account (x) has not remained unpaid as of
thirty-five (35) days from the date of original invoice, if no due date is
specified or if a due date is specified, has not remained unpaid as of
twenty-eight (28) days after the due date but in no event more than fifty-
eight (58) days following the original date of the invoice and (y) is not
owing from an Account Debtor with respect to which more than twenty-five
percent (25%) of the balance of all individual Accounts owing from such
Account Debtor has remained unpaid for the applicable period specified in
clause (x) above;
(i) If the Account Debtor is located in the State of New Jersey,
Borrower has filed a Notice of Business Activities Report (or equivalent
report) with the appropriate officials in such states for the then current
year;
(j) The individual Account is not owing from an employee, officer,
agent, director, stockholder of Borrower or any Affiliate or from the United
States of America or any department, agency or instrumentality thereof;
(k) Each of the warranties and representations set forth in
Section 9.2 has been reaffirmed with respect to such individual Account at
the time that the most recent Accounts Report was delivered to Lender;
(l) The individual Account is one against which Lender is legally
permitted to make loans and advances;
(m) If the Account Debtor is the United States of America or any
department, agency or instrumentality thereof, Borrower must have assigned
its right to payment of such Account to Lender, in a manner satisfactory to
Lender, so as to comply with the Assignment of Claims Act of 1940 (31 U.S.C.
Section 203 et seq., as amended);
(n) The Account does not arise out of a sale or order that has not
yet been shipped and invoiced; and
(o) The Account does not arise out of COD/cash sale, counter sale
or backhaul; provided, however, that in the event an Account arises out of a
COD/cash sale or counter sale that is less than seven (7) days past due then
such Account shall be deemed an Eligible Account; provided further that the
aggregate amount of such Accounts shall not at any time exceed $200,000.
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3.2 Eligible Inventory. Upon the delivery by Borrower to Lender of an
Inventory Report, Lender shall determine, in its sole and absolute
discretion, which items of Inventory listed thereon is Eligible Inventory.
In making this determination, Lender will consider the following
requirements:
(a) The item of Inventory is in good condition, meets all
standards imposed by any governmental agency, or department or division
thereof, having regulatory authority over such goods, their use or sale, is
not obsolete, is in good condition and is either currently useable or
currently saleable in the ordinary course of Borrower's business and is not
otherwise unacceptable to Lender due to age, type, category or quantity;
(b) The item of Inventory is located at one of the locations of
Borrower listed on Exhibit D attached hereto or as otherwise hereinafter
agreed to by Lender, is subject to and covered by Lender's perfected security
interest and is not subject to any other lien, claim, encumbrance or security
interest;
(c) The item of Inventory has not been consigned, sold or leased
to any Person;
(d) Each of the warranties and representations set forth in
Section 9.3 has been reaffirmed with respect such item of Inventory at the
date that the most recent Inventory Report was delivered to Lender;
(e) The item of Inventory was not purchased by Borrower in or as
part of a "bulk" transfer or sale of assets unless Borrower, and the seller
of such item, have complied with all applicable bulk sales or bulk transfer
laws;
(f) The item of Inventory does not consist of work-in-process or
packaging or supplies;
(g) The item of Inventory is not slow moving Inventory, is not out
of date Inventory and is not consigned Inventory;
(h) The item of Inventory is in the possession of Borrower but is
not owned by Borrower;
(i) The item of Inventory does not consist of dock fees (or
"inside margin" as such term is used or referred to by Borrower); and
(j) The item of Inventory is not stored at a leased or warehouse
location, unless in respect to such leased or warehouse location, Lender has
received a landlord waiver or bailee letter in form and substance acceptable
to Lender.
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4. PAYMENTS.
4.1 Loan Account; Method of Making Payments. Lender shall maintain a
loan account (the "Loan Account") on its books in which shall be recorded (i)
all loans and advances made by Lender to Borrower pursuant to this Agreement,
(ii) all payments made by Borrower on all such loans and advances and (iii)
all other appropriate debits and credits as provided in this Agreement,
including, without limitation, all fees, charges, expenses and interest. All
entries in the Loan Account shall be made in accordance with Lender's
customary accounting practices as in effect from time to time. Unless
otherwise agreed to in writing from time to time hereafter, all payments
which Borrower is required to make to Lender under this Agreement or under
any of the Ancillary Agreements shall be made by appropriate debits to the
Loan Account. Lender may, in its sole and absolute discretion, elect to bill
Borrower for such amounts in which case the amount shall be immediately due
and payable with interest thereon at the rate set forth in Section 2.3.
4.2 Payment Terms. 2. The Liabilities will be repayable as follows:
(i) interest shall be payable on the first day of each month (for the
immediately preceding month) out of the first collections received with
respect to any proceeds of Collateral, (ii) fees, costs, expenses and similar
charges shall be payable as and when provided for in this Agreement or the
Ancillary Agreements and (iii) the principal balance of the Liabilities shall
be payable from collections received with respect to any proceeds of
Collateral as such proceeds are received; provided; however, that if at any
time the outstanding principal balance of the Revolving Loans to Borrower
exceeds the Current Asset Base, Borrower shall immediately pay to Lender such
amount as is necessary to eliminate such excess. Nothing contained in this
Section 4.2 shall authorize Borrower to sell, lease or otherwise dispose of
any Collateral other than as expressly set forth in Sections 6.4, 7.1 and
8.3.
(b) Borrower shall prepay the Revolving Loans, in an amount equal
to one hundred percent (100%) of the net cash proceeds (after deducting all
expenses, including commissions, taxes payable and amounts payable to holders
of prior liens, if any, and an appropriate reserve for income taxes in
connection therewith) from the sale of assets outside of the ordinary course
of business.
4.3 Collection of Accounts and Payments. Borrower shall establish a
special account in Borrower's name with a bank acceptable to Lender in its
reasonable discretion ("Depository Bank") to which Borrower shall direct all
of its Account Debtors to remit all payments. In addition, if Borrower
receives any remittances or proceeds of the Collateral, Borrower will
immediately deposit all remittances and proceeds of the Collateral in the
identical form in which such payment was made, whether by cash or check.
Depository Bank shall acknowledge and agree, in a manner satisfactory to
Lender, that all payments made to such special account are the sole and
exclusive property of Lender, that Depository Bank has no right of setoff
against the funds in such special account and that Depository Bank will wire,
or otherwise transfer immediately available funds in a manner satisfactory to
Lender, funds deposited in such special account to Lender on a daily basis as
soon as such funds are collected. Borrower hereby agrees
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that all payments made to such special account or otherwise received by
Lender, whether on the Accounts or as proceeds of other Collateral or
otherwise, will be the sole and exclusive property of Lender and will be
applied on account of the Liabilities. After such funds are received by
Lender, Lender will immediately credit (conditional upon final collection)
all payments received through the special account to the Loan Account.
Borrower and any Affiliates, shareholders, directors, officers, employees,
agents of Borrower and all Persons acting for or in concert with Borrower
shall, acting as trustee for Lender, receive, as the sole and exclusive
property of Lender, any monies, checks, notes, drafts or any other payments
relating to or proceeds of Accounts or other Collateral which come into their
possession or under their control and immediately upon receipt thereof, shall
remit the same or cause the same to be remitted, in kind, to Lender, at
Lender's address set forth in Section 13.10. Borrower agrees to pay to
Lender any and all fees, costs and expenses (if any) which Lender incurs in
connection with opening and maintaining the special account and depositing
for collection by Lender any check or item of payment received or delivered
to Depository Bank or Lender on account of the Liabilities and Borrower
further agrees to reimburse Lender for any claims asserted by Depository Bank
in connection with the special account or any returned or uncollected checks
received by Depository Bank for deposit in the special account.
4.4 Application of Payments and Collections. Borrower irrevocably
waives the right to direct the application of payments and collections
received by Lender from or on behalf of Borrower, and Borrower agrees that
Lender shall have the continuing exclusive right to apply and reapply any and
all such payments and collections against the Liabilities in such manner as
Lender may deem appropriate, notwithstanding any entry by Lender upon any of
its books and records. To the extent that Borrower makes a payment or
payments to Lender or Lender receives any payment or proceeds of the
Collateral for Borrower's benefit, which payment(s) 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 act, state or federal law, common law or
equitable cause, then, to the extent of such payment or proceeds received,
the Liabilities or part thereof intended to be satisfied shall be revived and
shall continue in full force and effect, as if such payments or proceeds had
not been received by Lender.
4.5 Statements. All advances to Borrower and all other debits and
credits provided for in this Agreement, shall be evidenced by entries made by
Lender in its internal data control systems showing the date, amount and
reason for each such debit or credit. Until such time as Lender shall have
rendered to Borrower written statements of account as provided herein, the
balance in the Loan Account, as set forth on Lender's most recent statement,
shall be rebuttably presumptive evidence of the amounts due and owing to
Lender by Borrower. Not less than ten (10) days after the final day of each
calendar month, Lender shall render to Borrower a statement setting forth the
balance of the Loan Account, including principal, interest, expenses and
fees. Each such statement shall be subject to subsequent adjustment by
Lender and Lender's right to reapply payments in accordance with Section 4.4,
but shall, absent manifest errors or omissions, be presumed correct and
binding upon Borrower and shall constitute an account stated unless, within
thirty (30) days after receipt of any statement from Lender, Borrower shall
deliver to
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Lender written objection thereto specifying the error or errors, if any,
contained in such statement. In the absence of any such properly delivered
written objection, Lender's statement of Borrower's Loan Account shall be
conclusive and binding on all Borrower.
5. COLLATERAL: GENERAL TERMS.
5.1 Security Interest. To secure the prompt payment to Lender of the
Liabilities, Borrower hereby grants to Lender a continuing security interest
in and to all of the following property and interest in property of Borrower,
whether now owned or existing or hereafter acquired or arising and wherever
located: (i) all Accounts, Inventory, contract rights, General Intangibles,
Investment Property, tax refunds, chattel paper, instruments, letters of
credit, documents and documents of title; (ii) all of Borrower's deposit
accounts (general or special) with any credits and other claims against
Depository Bank or Lender, or any other financial institutions with which
Borrower maintains deposits; (iii) all of Borrower's now owned or hereafter
acquired monies, and any and all other property of Borrower now or hereafter
coming into the actual possession, custody or control of Lender or any agent
or affiliate of Lender in any way or for any purpose (whether for
safekeeping, deposit, custody, pledge, transmission, collection or
otherwise); (iv) all insurance proceeds of or relating to any of the
foregoing; (v) all of Borrower's books and records relating to any of the
foregoing; and (vi) all accessions and additions to, substitutions for, and
replacements, products and proceeds of any of the foregoing.
5.2 Disclosure of Security Interest. Borrower shall make appropriate
entries upon its financial statements and books and records disclosing
Lender's security interest in the Collateral.
5.3 Special Collateral. Immediately upon Borrower's receipt of any
Collateral which is evidenced or secured by an agreement, chattel paper,
letter of credit, instrument or document, including, without limitation,
promissory notes, documents of title and warehouse receipts, (the "Special
Collateral"), Borrower shall deliver the original thereof to Lender or to
such agent of Lender as Lender shall designate, together with appropriate
endorsements, the documents required to draw thereunder (as may be relevant
to letters of credit) or other specific evidence (in form and substance
acceptable to Lender) of assignment thereof to Lender.
5.4 Further Assurances. At Lender's request, Borrower shall, from time
to time, (i) execute and deliver to Lender all Security Documents that Lender
may reasonably request, in form and substance acceptable to Lender, and pay
the costs of any recording or filing of the same and (ii) take such other
actions as Lender may request in order to fully effect the purposes of this
Agreement and to protect Lender's interest in the Collateral. Upon the
occurrence of any Default, Borrower hereby irrevocably makes, constitutes and
appoints Lender (and all Persons designated by Lender for that purpose) as
Borrower's true and lawful attorney and agent-in-fact to sign the name of
Borrower on any of the Security Documents and to deliver any of the Security
Documents to such Persons as Lender, in its sole discretion, may elect.
Borrower agrees that a carbon, photographic, photostatic, or other
reproduction of this Agreement or of a financing statement is sufficient as
a financing statement.
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5.5 Inspection. Lender (by any of its officers, employees or agents)
shall have the right, at any time or times during Borrower's usual business
hours, with prior notice (except upon an Event of Default), to inspect the
Collateral, all records related thereto (and to make extracts from such
records) and the premises upon which any of the Collateral is located, to
discuss Borrower's affairs and finances with any Person to verify the amount,
quality, value and condition of, or any other matter relating to, the
Collateral.
5.6 Perfection and Priority; Location of Collateral. Borrower's chief
executive office, principal place of business and all other offices and
locations of the Collateral and books and records related thereto (including,
without limitation, computer programs, printouts and other computer materials
and records concerning the Collateral) are set forth on Exhibit D attached
hereto. Borrower shall not remove its books and records or the Collateral
from any such locations (except for removal of items of Inventory upon its
sale in accordance with the terms of this Agreement) and shall not open any
new offices or relocate any of its books and records or the Collateral except
within the continental United States of America with at least thirty (30)
days' prior notice thereof to Lender.
5.7 Lender's Payment of Claims Asserted Against Borrower. Lender may,
but shall not be obligated to, at any time or times hereafter, in its sole
discretion, and without waiving any Default or waiving or releasing any
obligation, liability or duty of Borrower under this Agreement or the
Ancillary Agreements, pay, acquire or accept an assignment of any security
interest, lien, claim or other encumbrance asserted by any Person against the
Collateral. All sums paid by Lender under this Section 5.7, including all
costs, fees (including without limitation reasonable attorney's and
paralegals' fees and court costs), expenses and other charges relating
thereto, shall be payable by Borrower to Lender on demand and shall be
additional Liabilities secured by the Collateral.
6. COLLATERAL: ACCOUNTS.
6.1 Verification of Accounts. Any of Lender's officers, employees or
agents shall have the right, at any time or times hereafter, in Lender's or
Borrower's name or in the name of a firm of independent certified public
accountants acceptable to Lender, to verify the validity, amount or any other
matters relating to any Accounts by mail, telephone, telegraph or telecopier
or otherwise. The foregoing notwithstanding, unless a Default has occurred
and is continuing, verifications of Account balances shall be made by written
communication to the Account Debtor and the verification of matters other
than validity or amounts of Accounts shall only be made after notice to
Borrower.
6.2 Assignments, Records and Accounts Report. Borrower shall keep
accurate and complete records of its Accounts and, as often as possible but
at least three (3) times weekly, Borrower shall deliver to Lender Borrower's
Daily Collateral Report and Advance Request reports. Borrower, semi-monthly
on the 15th and last day of each month, shall deliver to Lender a current
updated Accounts Report and accounts payable aging with full details as
requested by Lender. Borrower shall also deliver to Lender, upon demand,
copies of original invoices and/or
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the original copy of all documents, including, without limitation, repayment
histories, present status reports and shipment reports, relating to the
Accounts included in any Accounts Report and such other matters and
information relating to the status of then existing Accounts as Lender shall
reasonably request.
6.3 Notice Regarding Disputed Accounts. Borrower shall give Lender
prompt notice of any of its Accounts in excess of $5,000 which are in dispute
between any Account Debtor and Borrower. Each Accounts Report shall identify
all disputed Accounts and disclose with respect thereto, in reasonable
detail, the reason for the dispute, all claims related thereto and the amount
in controversy.
6.4 Sale or Encumbrance of Accounts. Borrower shall not, without the
prior written consent of Lender, sell, transfer, grant a security interest in
or otherwise dispose of or encumber any of its Accounts to any Person other
than Lender.
7. COLLATERAL: INVENTORY.
7.1 Sale of Inventory. Unless a Default occurs and Lender directs
Borrower or anyone of them to do otherwise pursuant to Section 11.3, Borrower
may sell Inventory in the ordinary course of their businesses (which does not
include a transfer in partial or total satisfaction of Indebtedness, sales in
bulk, sales on consignment or sales on an approval or sales on a guaranteed
return basis). All proceeds of such sales shall be part of the Collateral
and remitted to the special account referred to in Section 4.3. Borrower
shall not rent, lease or otherwise transfer or dispose of any of the
Inventory without Lender's prior written consent, except as set forth in this
Section 7.1.
7.2 Safekeeping of Inventory; Inventory Covenants. Borrower shall
maintain all Inventory in good and saleable condition at all times. Lender
shall not be responsible for (i) the safekeeping of the Inventory; (ii) any
loss or damage thereto or destruction thereof occurring or arising in any
manner or fashion from any cause; (iii) any diminution in the value of
Inventory or (iv) any act or default of any carrier, warehouseman, bailee or
forwarding agency or any other Person in any way dealing with or handling the
Inventory. All risk of loss, damage, distribution or diminution in value of
the Inventory shall be borne by Borrower.
7.3 Records and Schedules of Inventory. Borrower shall keep correct
and accurate daily records, consistent with Borrower's usual and customary
business practice, itemizing and describing the kind, type, quality and
quantity of Inventory, Borrower's cost therefor, and the daily withdrawals
therefrom and additions thereto and Inventory then on consignment (if any,
provided that Lender's prior written consent to such consignment must be
obtained). Borrower shall furnish to Lender, as often as possible but at
least three (3) times weekly, a current updated Inventory Report, based on
the FIFO cost assumption in conjunction with completion and delivery of
Borrower's Daily Collateral Report and Advance Request reports (as required
in Section 6.2 hereof). A physical count of the Inventory shall be conducted
no less often than quarterly and a report based on such count of the
Inventory shall promptly thereafter be provided
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to Lender together with such supporting information including, without
limitation invoices relating to Borrower's purchase of goods listed in said
report, as Lender shall, in its sole discretion, request.
7.4 Returned and Repossessed Inventory. If at any time prior to the
occurrence of a Default, any Account Debtor returns any of the Inventory to
Borrower, Borrower shall promptly determine the reason for such return and,
if Borrower accepts such return, issue a credit memorandum (with copies to be
sent to Lender daily) in the appropriate amount to such Account Debtor.
Borrower shall, in all cases, immediately notify Lender of the return of any
Inventory on any day with an aggregate value of $50,000 or more, specifying
the reason for such return and the location and condition of the returned
Inventory.
7.5 Evidence of Ownership of Inventory. Borrower shall, upon Lender's
request, deliver to Lender all evidence of ownership of the Inventory.
8. [Intentionally Omitted].
9. WARRANTIES AND REPRESENTATIONS.
9.1 General Warranties and Representations. Borrower warrants and
represents, that:
(a) Borrower is a corporation duly organized and validly existing
and in good standing under the laws of the state of its incorporation, and is
qualified or licensed as a foreign corporation to do business in all other
countries, states and provinces in which the laws thereof require Borrower to
be so qualified or licensed;
(b) Borrower has not used, during the five (5) year period
preceding the date of this Agreement, and does not intend to use, any other
corporate or fictitious name, except as disclosed in Exhibit E attached
hereto;
(c) Borrower has the right and power and is duly authorized and
empowered to enter into, execute, deliver and perform this Agreement and the
Ancillary Agreements;
(d) The execution, delivery and performance by Borrower of this
Agreement and the Ancillary Agreements shall not, by such execution or
performance, the lapse of time, the giving of notice or otherwise, constitute
a violation of any applicable law, rule, regulation, judgment, order or
decree or a breach of any provision contained in Borrower's charter documents
or by-laws or contained in any agreement, instrument, indenture or other
document to which Borrower is now a party or by which Borrower is bound;
(e) Borrower's use of the proceeds of any advances made by Lender
are, and will continue to be, legal and proper corporate uses (duly
authorized by its board of directors, in accordance with applicable law, rule
or regulation) and such uses are consistent with all applicable laws, rules
and regulations, as in effect as of the date hereof;
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(f) Borrower has, and is current and in good standing with respect
to, all governmental approvals, permits, certificates, inspections, consents
and franchises necessary to conduct and to continue to conduct its present
business as heretofore conducted by it and to own or lease and operate its
properties as now owned or leased and operated by it;
(g) None of said approvals, permits, certificates, consents or
franchises contain any term, provision, condition or limitation more
burdensome than such as are generally applicable to Persons engaged in the
same or similar business as Borrower;
(h) Borrower now has capital sufficient to carry on its business
and transactions and all businesses and transactions in which it is about to
engage and is now solvent and able to pay its debts as they mature and
Borrower now owns property the fair saleable value of which is greater than
the amount required to pay Borrower's debts;
(i) Except as disclosed on Exhibit F attached hereto and in the
Financials, Borrower has no litigation pending, or to the best of its
knowledge, threatened, and no Indebtedness (except for trade payables arising
in the ordinary course of its business since the dates reflected in the
Financials) and has not guaranteed the obligations of any other Person;
(j) Borrower is not a party to any contract or agreement or
subject to any charge, restriction, judgment, decree or order materially and
adversely affecting its business, property, assets, operations or condition,
financial or other, and is not a party to any labor dispute; there are no
lockouts, strikes or walkouts relating to any labor contracts and no such
contract is scheduled to expire during the Initial Term, except as disclosed
on Exhibit F attached hereto;
(k) Borrower has good, indefeasible and merchantable title to and
ownership of the Collateral, free and clear of all liens, claims, security
interests and other encumbrances, except those of Lender and those, if any,
described on Exhibit G attached hereto;
(l) Borrower is not in violation of any applicable statute, rule,
regulation or ordinance including, without limitation, OSHA and all
Environmental Laws, of any governmental entity, including, without
limitation, the United States of America, any state, city, town,
municipality, county or of any other jurisdiction, or of any agency thereof,
in any respect materially and adversely affecting the Collateral or
Borrower's business, property, assets, operations or condition, financial or
other;
(m) Borrower is not in default under any indenture, loan
agreement, mortgage, lease, trust deed, deed of trust or other similar
agreement relating to the borrowing of monies to which it is a party or by
which it is bound;
(n) The Financials fairly present the assets, liabilities and
financial condition and results of operations of Borrower and such other
Persons described therein as of the dates thereof; there are no omissions or
other facts or circumstances which are or may be material and
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there has been no material and adverse change in the assets, liabilities or
financial or other condition of Borrower since the date of the Financials;
there exist no equity or long term investments in or outstanding advances to
any Person not reflected in the Financials; there are no actions or
proceedings which are pending or, to the best of Borrower's knowledge,
threatened, against Borrower or any other Person which might result in any
material adverse change in Borrower's financial condition or materially and
adversely affect Borrower's operations, its assets or the Collateral; except
for Borrower's investment in Fieldstone Meats of Alabama, Borrower does not
have subsidiaries or divisions that Borrower reports for separately;
(o) Borrower has not received any notice to the effect that it is
not in full compliance with any of the requirements of ERISA and the
regulations promulgated thereunder and, to the best of its knowledge there
exists no event described in Section 4043 of ERISA, excluding subsections
4043(b)(2) and 4043(b)(3) thereof (a "Reportable Event");
(p) Borrower has filed all federal, state and local tax returns
and other reports, or has been included in returns or reports filed by an
Affiliate, which Borrower is required by law, rule or regulation to file and
all Charges that are due and payable have been paid unless same are being
contested by Borrower in good faith and by appropriate proceedings and
adequate reserves have been maintained; and
(q) Borrower's execution and delivery of this Agreement or any of
the Ancillary Agreements does not directly or indirectly violate or result in
a violation of any applicable laws, rules or regulations, including without
limitation, the Securities Exchange Act of 1934, as amended, and Regulations
U, G, T and X of the Board of Governors of the Federal Reserve System (12 CFR
221, 207, 220 and 224, respectively), and Borrower shall not use the proceeds
of the Revolving Loans to carry any "margin security," as defined in such
Regulations.
9.2 Account Warranties and Representations. Borrower warrants and
represents that Lender may rely, in determining which Accounts listed on any
Accounts Report of Borrower are Eligible Accounts of Borrower, without
independent investigation, on all statements, warranties and representations
made by Borrower on or with respect to any such Accounts Report and, unless
otherwise indicated in writing by Borrower, that:
(a) Such Accounts are genuine, are in all respects what they
purport to be, are not reduced to a judgment and, if evidenced by any
instrument, item of chattel paper, agreement, contract or documents, are
evidenced by only one executed original instrument, item of chattel paper,
agreement, contract, or document, which original has been endorsed and
delivered to Lender;
(b) Such Accounts represent undisputed, bona fide transactions
completed in accordance with the terms and provisions contained in any
documents related thereto;
(c) Except for credits issued to any Account Debtor in the
ordinary course of Borrower's business for Inventory returned pursuant to
Section 7.4, the amounts shown on the
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Accounts Report, and all invoices and statements delivered to Lender with
respect to any Account, are actually and absolutely owing to Borrower and are
not contingent for any reason;
(d) To the best of Borrower's knowledge, except as may be
disclosed on such Accounts Report, there are no setoffs, counterclaims or
disputes existing or asserted with respect to any Accounts included on an
Accounts Report, and Borrower has not made any agreement with any Account
Debtor for any deduction from such Account, except for discounts or
allowances allowed by Borrower in the ordinary course of its business for
prompt payment, which discounts and allowances have been disclosed to Lender
and are reflected in the calculation of the invoice related to such Account;
(e) To the best of Borrower's knowledge, there are no facts,
events or occurrences which in any way impair the validity or enforcement of
any of the Accounts or tend to reduce the amount payable thereunder from the
amount of the invoice shown on any Accounts Report, and on all contracts,
invoices and statements delivered to Lender with respect thereto;
(f) To the best of Borrower's knowledge, all Account Debtors are
solvent and had the capacity to contract at the time any contract or other
document giving rise to or evidencing the Accounts was executed;
(g) The goods, the sale of which gave rise to the Accounts, (i)
were produced in full compliance with the Federal Labor Standards Act, 29
U.S.C. Sections 207 et seq. as amended from time to time, and (ii) are not,
and were not at the time of the sale thereof, subject to any lien, claim,
security interest or other encumbrance, except those of Lender, and those
removed or terminated prior to the date hereof;
(h) Borrower has no knowledge of any fact or circumstance which
would impair the validity or collectibility of any of the Accounts;
(i) To the best of Borrower's knowledge, there are no proceedings
or actions which are threatened or pending against any Account Debtor which
might result in any material adverse change in its financial or other
condition; and
(j) The Accounts have not been pledged or sold to any other Person
or otherwise encumbered and Borrower is the owner of the Accounts free of all
liens and encumbrances except those of Lender.
9.3 Inventory Warranties and Representations. Borrower warrants and
represents, that Lender may rely, in determining which items of Inventory
listed on any Inventory Report of Borrower are Eligible Inventory of
Borrower, without independent investigation, on all statements, warranties
and representations made by Borrower on or with respect to any such Inventory
Report and, unless otherwise indicated in writing by Borrower, that:
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(a) All Inventory is located on premises listed on Exhibit D or as
otherwise hereinafter agreed to by Lender, or is Inventory which is in
transit and is so identified on the relevant Inventory Report;
(b) The Inventory has been produced in full compliance with all
requirements of the Federal Labor Standards Act, 29 U.S.C. Sections 207 et
seq., as amended from time to time;
(c) Except as specified on Exhibit D, no Inventory is now, and
shall not at any time or times hereafter be, stored with a bailee,
warehouseman or similar party without Lender's prior written consent and, if
Lender gives such consent, Borrower will concurrently therewith cause any
such bailee, warehouseman or similar party to issue and deliver to Lender, in
form and substance acceptable to Lender, warehouse receipts therefor in
Lender's name; and
(d) Borrower is the owner of all of its Inventory free and clear
of all claims, liens and encumbrances except those of Lender and none of its
Inventory has been leased, rented, transferred or sold, either on
consignment, on a sale or return basis, on approval, or otherwise.
9.4 Automatic Warranty and Representation and Reaffirmation of
Warranties and Representations. Each request for an advance made by Borrower
pursuant to this Agreement or the Ancillary Agreements shall constitute (i)
an automatic warranty and representation by Borrower to Lender that there
does not then exist a Default or an Event of Default and (ii) a reaffirmation
as of the date of said request of all of the warranties and representations
of Borrower contained in this Agreement and in the Ancillary Agreements.
9.5 Survival of Warranties and Representations. Borrower covenants,
warrants and represents, to Lender that all representations and warranties of
Borrower contained in this Agreement and the Ancillary Agreements shall be
true at the time of Borrower's execution of this Agreement and the Ancillary
Agreements, and shall survive the execution, delivery and acceptance hereof
and thereof by the parties thereto and the closing of the transactions
described herein and therein or related hereto or thereto. Borrower and
Lender expressly agree that any misrepresentation or breach of any
representation or warranty whatsoever contained in this Agreement or in any
of the Ancillary Agreements shall be deemed material.
10. COVENANTS AND CONTINUING AGREEMENTS.
10.1 Affirmative Covenants. Borrower covenants that it shall:
(a) (i) Have, for the periods listed below within the Term hereof
for the fiscal year then ended, a Fixed Charge Ratio equal to or greater than
the Fixed Change Ratio set forth opposite such fiscal year in the following
schedule:
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Period Ending Fixed Charge Ratio
- ------------- ------------------
Closing Date through Fiscal Year Ending
March 29, 1997 .75 to 1
Fiscal Year Ending on or about March 28,
1998 and each Fiscal Year Ending on the
Saturday closer to each March 31 thereafter 1.0 to 1
(ii) Have, at the end of each Fiscal Period, a current ratio
(ratio of Current Assets to Current Liabilities) of not less than 1.10 to
1.0.
(iii) Maintain at the end of each fiscal quarter listed
below an Adjusted Tangible Net Worth equal to or greater than the amount set
forth opposite such fiscal quarter in the following schedule:
Fiscal Quarter Ending Minimum Adjusted Tangible Net Worth
March 29, July 19, and October 11, 1997 $4,000,000
January 3, March 28, July 18, and
October 10, 1998, and January 2, 1999,
and each fiscal quarter thereafter $4,250,000
(b) Pay to Lender, on demand, any and all fees, costs or expenses
which Lender or any Participant pays to a bank or other similar institution
arising out of or in connection with (i) the forwarding to Borrower or any
other Person on behalf of Borrower, by Lender or any Participant, of proceeds
of loans made by Lender to Borrower pursuant to this Agreement and (ii) the
depositing for collection, by Lender or any Participant, of any check or item
of payment received or delivered to Lender or any Participant on account of
the Liabilities;
(c) At its sole cost and expense, keep and maintain the Collateral
insured for its full insurable value against loss or damage by fire, theft,
explosion, sprinklers and all other hazards and risks which are specified by
Lender from time to time by obtaining policies naming Lender as loss payee
(none of which shall be cancelable or subject to modification without at
least thirty (30) days notice to Lender) in coverage, form and amount and
with companies satisfactory to Lender and at Lender's request will deliver
each policy or certificate of insurance together with the applicable loss
payee endorsement to Lender. In addition, Borrower will deliver renewals for
all of such policies at least thirty (30) days prior to the expiration date
of the subject policy. Without limiting the generality of the foregoing,
unless otherwise agreed in writing by Lender, all of such policies shall (i)
provide that no act of any person other than Lender will affect Lender's
right to recover under such policies; (ii) be in amount at least equal to the
greater of (a) original cost or (b) replacement value of the Collateral
covered thereby; and (iii) contain an agreed value clause sufficient to
eliminate any risk of co-insurance.
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(d) Notify Lender promptly of any event or occurrence causing a
material loss or decline in value of the Collateral and the estimated (or
actual, if available) amount of such loss or decline;
(e) Promptly upon Borrower's learning thereof, notify Lender of
(i) any material delay in Borrower's performance of any of its obligations to
any Account Debtor and of any assertion of any claims, offsets, defenses or
counterclaims by any Account Debtor and of any allowances (other than
customary allowances for prompt payment) or credits granted (including all
credits issued for returned or repossessed Inventory) or other monies
advanced by Borrower to any Account Debtor and (ii) all material adverse
information relating to the financial or other condition of any Account
Debtor;
(f) Keep books of account and prepare financial statements and
furnish to Lender the following (all of the foregoing and following to be
kept and prepared in accordance with generally accepted accounting principles
applied on a basis consistent with the Financials, unless Borrower's
independent certified public accountants concur in any changes therein and
such changes are disclosed to Lender and are consistent with then GAAP):
(i) as soon as available, but not later than one hundred
twenty (120) days after the close of each fiscal year of Borrower,
financial statements of Borrower (including a balance sheet,
statement of cash flows and a statement of profit and loss and
surplus all with supporting footnotes) as at the end of such year
and for the year then ended all in reasonable detail as requested
by Lender and in respect to the statements audited by a firm of
independent certified public accountants of recognized national
standing selected by Borrower and acceptable to Lender and
containing the unqualified opinion of such independent certified
public accountants with respect to such financial statements;
(ii) as soon as available, but not later than sixty (60) days
after the end of the first Fiscal Period and thirty (30) days after
the end of each subsequent Fiscal Period, financial statements of
Borrower (including a statement of profit and loss and of surplus
for the month then ended, a statement of cash flow for the Fiscal
Period then ended and a balance sheet as at the end of such Fiscal
Period) as at the end of the portion of Borrower's fiscal year then
elapsed, all in reasonable detail as requested by Lender and
certified by Borrower's principal financial officer as prepared in
accordance with GAAP and fairly presenting the financial position
and results of operations of Borrower for such period;
(iii) as soon as available, but not later than thirty (30)
days before the beginning of each fiscal year, a cash flow
projection for Borrower for such fiscal year, together with
appropriate supporting documents reasonably acceptable to Lender;
and
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(iv) such other data and information (financial and other) as
Lender, from time to time, may reasonably request, bearing upon or
related to the Collateral, Borrower's financial condition or
results of its operations.
(g) Notify Lender promptly upon, but in no event later than five
(5) days after, Borrower's learning thereof, that any Eligible Account or
Eligible Inventory has ceased to be an Eligible Account or Eligible
Inventory, respectively, and the reason(s) for such ineligibility;
(h) Notify Lender, promptly upon Borrower's learning of (i) any
litigation reasonably expected to involve $10,000 or more affecting Borrower,
whether or not the claim is considered by Borrower to be covered by
insurance; and (ii) the institution of any suit or administrative proceeding
which may materially and adversely affect the operations, financial condition
or business of Borrower or which may affect Lender's security interest in the
Collateral;
(i) Provide Lender with copies of all agreements between Borrower
and any warehouse at which Inventory may, from time to time, be kept and all
leases or similar agreements between Borrower and any Person, whether
Borrower is the lessor or lessee thereunder; and
(j) Maintain (a) product liability insurance in an amount
customary for the business conducted by Borrower; and (b) general public
liability insurance in an amount satisfactory to Lender but in no event less
than $5,000,000 per occurrence, for bodily injury and property damage, by
obtaining policies (none of which shall be cancelable or subject to
modification without at least thirty (30) days notice to Lender) in coverage
and form and with companies satisfactory to Lender and at Lender's request
will deliver each policy or certificate of insurance to Lender. In addition,
Borrower will deliver renewals for all of such policies at least thirty (30)
days prior to the expiration date of the subject policy.
(k) Comply with all laws, ordinances, governmental rules and
regulations to which Borrower is subject, and obtain and keep in force any
and all licenses, permits, franchises, or other governmental authorizations
necessary to the ownership of the assets or properties of Borrower or to the
conduct of business of Borrower, including, without limitation, OSHA and all
Environmental Laws, which violation or failure to obtain might materially and
adversely affect the business, prospects, profits, assets or properties, or
condition (financial or otherwise) of Borrower.
(l) In the event that, with Lender's consent, Robert J. Zeman is
no longer acting as the chief financial officer of Borrower, then Borrower
shall cause the replacement for Robert J. Zeman to execute and deliver to
Lender a Validity Guaranty in the form attached hereto as Exhibit C.
(m) Keep and maintain the Equipment in good operating condition
and repair and shall make all necessary replacements thereof so that the
value, utility and operating efficiency thereof shall at all times be
maintained and preserved. If the aggregate fair market
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value or book value (whichever is greater) of all deletions from Equipment
exceed, within any one fiscal year, $50,000, Borrower shall promptly inform
Lender of any such deletions from the Equipment.
10.2 Negative Covenants. Borrower covenants, that Borrower shall not,
without the prior written consent of Lender:
(a) Merge or consolidate with or acquire any Person;
(b) Other than in the ordinary course of its business including,
without limitation, the sales of goods, services and Inventory, make any
investment in the securities of any Person or any loan or advance to any
Person;
(c) Declare or pay dividends upon Borrower's Stock or make any
distribution of Borrower's property or assets or make any loans, advances or
extensions of credit to any Person, including, without limitation, any
Affiliate, officer or employee of Borrower; provided that Borrower may issue
stock dividends upon its Stock so long as the same is in accordance with all
applicable laws;
(d) Make any loans or other advances of money (other than
reasonable employee salary, expense and travel advances) to officers,
directors, stockholders or Affiliates of Borrower;
(e) Redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of Borrower's Stock or make any material change in Borrower's
capital structure or in any of business objectives, purposes and operations
of Borrower which might in any way adversely affect the repayment of the
Liabilities;
(f) Enter into, or be a party to, any transaction with any
Affiliate, director, officer or stockholder of Borrower, except in the
ordinary course of and pursuant to the reasonable requirements of Borrower's
business and upon fair and reasonable terms which are fully disclosed to
Lender and are no less favorable to Borrower than would obtain in a
comparable arm's length transaction with a Person not an Affiliate, director,
officer or stockholder of Borrower;
(g) Enter into any transaction which materially and adversely
affects the Collateral or the ability of Borrower to repay its Indebtedness
or permit or agree to any 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, except for credits given for
Inventory returned pursuant to Section 7.4;
(h) Guarantee or otherwise, in any way, become liable with respect
to the obligations or liabilities of any Person, except (i) its Affiliates'
obligations to Lender, and (ii) by
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endorsement of instruments or items of payment for deposit to the general
account of Borrower or for delivery to Lender on account of the Liabilities;
(i) Except as otherwise expressly permitted herein, make deposits
to or withdrawals from any of its deposit accounts for the benefit of any
Affiliate;
(j) Except as otherwise expressly permitted herein or in the
Ancillary Agreements, encumber, pledge, mortgage, grant a security interest
in, encumber, assign, sell, lease or otherwise dispose of or transfer,
whether by sale, merger, consolidation, liquidation, dissolution, or
otherwise, any of Borrower's assets;
(k) Incur any Indebtedness for borrowed money in the aggregate at
any time hereafter in excess of Two Hundred Fifty Thousand Dollars ($250,000)
(other than the Liabilities), except for Indebtedness which is unsecured and
is to Persons who execute and deliver to Lender (in form and substance
acceptable to Lender and its counsel) subordination agreements subordinating
their claims against Borrower to the payment of the Liabilities and except
for Indebtedness for borrowed money incurred in connection with the
refinancing of the existing mortgage(s) Indebtedness or other Indebtedness
for borrowed money, each of which is secured by mortgage(s) on Borrower's
real property, and the other terms and conditions of such Indebtedness are
acceptable to Lender in the commercially reasonable exercise of its
discretion;
(l) Make capital expenditures, on an aggregated basis in respect
to Borrower in any fiscal year which, in the aggregate, exceed Five Hundred
Thousand Dollars ($500,000);
(m) Permit any Accounts to be owing to Borrower from any
Affiliate, except Accounts owing to Borrower from Fieldstone Meats of Alabama
not to exceed $50,000 in the aggregate at any one time;
(n) Make or permit any Subsidiary to make any payment of any part
or all of any Subordinated Debt or otherwise repurchase, redeem or retire
instrument evidencing any such Subordinated Debt prior to maturity, except as
otherwise specifically provided for in the subordination agreement applicable
thereto; or enter into any agreement (oral or written) which could in any way
be construed to amend, modify, alter or terminate any one or more instruments
or agreements evidencing or relating to any Subordinated Debt; and
(o) Except with respect to Equipment currently pledged to Bankers
Leasing Association, Inc., USL Capital Corporation, Austell Box Board Corp.,
Crown Lift Trucks and Mitel Finance Corporation, encumber, pledge, mortgage,
grant a security interest in, encumber, assign, sell, lease or otherwise
dispose of or transfer, whether by sale, merger, consolidation, liquidation,
dissolution, or otherwise, any of Borrower's Equipment.
10.3 Contesting Charges. Notwithstanding anything to the contrary
herein, Borrower may dispute any Charges without prior payment thereof, even
if such non-payment may cause a lien to attach to Borrower's assets, provided
that Borrower shall give Lender prompt notice of
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such dispute and shall be diligently contesting the same in good faith and by
an appropriate proceeding and there is no danger of a loss or forfeiture of
any of the Collateral and provided further that, if the same are potentially
or actually in excess of Ten Thousand Dollars ($10,000) in the aggregate at
any time hereafter, in respect to all disputed Charges for Borrower, Borrower
shall give Lender such additional collateral and assurances as Lender, in its
sole discretion, deems necessary under the circumstances, immediately upon
demand by Lender.
10.4 Payment of Charges. Subject to the provisions of Section 10.3,
Borrower shall pay promptly when due all of the Charges. In the event
Borrower, at any time or times hereafter, shall fail to pay the Charges or to
promptly obtain the satisfaction of such Charges, Borrower shall promptly so
notify Lender thereof and Lender may, without waiving or releasing any
obligation or liability of Borrower hereunder or any Default, in its sole
discretion, at any time or times thereafter, make such payment or any part
thereof, (but shall not be obligated so to do) or obtain such satisfaction
and take any other action with respect thereto which Lender deems advisable.
All sums so paid by Lender and any expenses, including reasonable attorneys'
fees, court costs, expenses and other charges relating thereto, shall be
payable by Borrower to Lender upon demand and shall be additional
Liabilities.
10.5 Insurance; Payment of Premiums. All policies of insurance on the
Collateral or otherwise required hereunder shall be in form and amount
satisfactory to Lender and with insurers reasonably recognized as adequate by
Lender. Borrower shall deliver to Lender binders for each policy of
insurance with originals (or certified copies) to follow as promptly as
practical. Borrower shall also deliver evidence of payment of all premiums
therefor and shall deliver renewals of all such policies to Lender at least
thirty (30) days prior to their expiration dates. Such policies of insurance
shall contain an endorsement, in form and substance acceptable to Lender,
showing all losses payable to Lender. Such endorsement shall provide that
the insurance companies will give Lender at least thirty (30) days' prior
notice before any such policy shall be altered or cancelled and that no act
or default of Borrower or any other person shall affect the right of Lender
to recover under such policy in case of loss or damage. Borrower hereby
directs all insurers under such policies to pay all proceeds payable
thereunder directly to Lender. Borrower irrevocably makes, constitutes and
appoints Lender (and all officers, employees or agents designated by Lender)
as Borrower's true and lawful attorney and agent-in-fact for the purpose of
making, settling and adjusting claims under such policies (provided that
Lender shall consult with Borrower prior to finally making, settling or
adjusting claims under such policies), endorsing the name of Borrower in
writing or by stamp on any check, draft, instrument or other item of payment
for the proceeds of such policies and for making all determinations and
decisions with respect to such policies. If Borrower shall fail to obtain or
maintain any of the policies required by this Section 10.5 or to pay any
premium relating thereto, then Lender, without waiving or releasing any
obligation or default by Borrower hereunder, may (but shall be under no
obligation to do so) obtain and maintain such policies of insurance and pay
such premiums and take any other action with respect thereto which Lender
deems advisable. All sums so disbursed by Lender, including reasonable
attorneys' fees, court costs, expenses and other charges relating thereto,
shall be payable by Borrower to Lender upon demand and shall be additional
Liabilities.
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10.6 Survival of Obligations Upon Termination of Agreement. Except as
otherwise expressly provided for in this Agreement and in the Ancillary
Agreements, no termination or cancellation (regardless of cause or procedure)
of this Agreement or the Ancillary Agreements shall in any way affect or
impair the powers, obligations, duties, rights, and liabilities of Borrower
or Lender in any way or respect relating to any transaction or event
occurring prior to such termination or cancellation, the Collateral, or any
of the undertakings, agreements, covenants, warranties and representations of
Borrower or Lender contained in this Agreement or the Ancillary Agreements.
All such undertakings, agreements, covenants, warranties and representations
shall survive such termination or cancellation.
11. DEFAULT; RIGHTS AND REMEDIES ON DEFAULT.
11.1 Default. The occurrence of any one or more of the following events
shall constitute a Default:
(a) Borrower fails to pay any part of the Liabilities when due and
payable or declared due and payable or is in default in the payment of any of
the Indebtedness;
(b) Borrower or any Affiliate fail or neglect to perform, keep or
observe any other term, provision, condition or covenant contained in this
Agreement or in the Ancillary Agreements, which is required to be performed,
kept or observed by Borrower or such Affiliate and the same is not cured to
Lender's satisfaction within ten (10) days after Lender gives Borrower notice
identifying such default; provided, however, that if any such Default is
curable, but cannot be reasonably cured within such ten (10) day period, then
if Borrower is diligently acting to cure such Default, Borrower shall have an
additional twenty (20) days to cure such Default;
(c) A default shall occur under any agreement, document or
instrument, other than this Agreement or any of the Ancillary Agreements, now
or hereafter existing, to which Borrower is a party and the same is not cured
within the cure period provided for in such agreement, document or
instrument, but in no event shall such cure period extend beyond ten (10)
days after Lender gives Borrower notice identifying such default;
(d) Any statement, warranty, representation, report, financial
statement, or certificate made or delivered by Borrower, or any of officer,
employee or agent thereof, to Lender is not true and correct in any material
respect;
(e) There shall occur any material uninsured damage to or loss,
theft, or destruction of any of the Collateral;
(f) The Collateral or any other asset of Borrower are attached,
seized, levied upon or subjected to a writ or distress warrant, or come
within the possession of any receiver, trustee, custodian or assignee for the
benefit of creditors and the same is not cured within thirty (30) days
thereafter; an application is made by any Person other than Borrower for the
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appointment of a receiver, trustee, or custodian for any of the Collateral or
any of other asset of Borrower and the same is not dismissed within thirty
(30) days after the application therefor;
(g) An application is made by Borrower for the appointment of a
receiver, trustee or custodian for any of the Collateral or any of other
asset; a petition under any section or chapter of the Bankruptcy Code or any
similar law or regulation is filed by or against Borrower and is not
dismissed within thirty (30) days after filing; Borrower makes an assignment
for the benefit of its creditors or any case or proceeding is filed by or
against Borrower for its dissolution, liquidation, or termination; Borrower
ceases to conduct its business as now conducted or is enjoined, restrained or
in any way prevented by court order from conducting all or any material part
of its business affairs;
(h) Except as permitted in Section 10.3, a notice of lien, levy or
assessment is filed of record with respect to all or any substantial portion
of Borrower's assets by the United States, or any department, agency or
instrumentality thereof, or by any state, county, municipal or other
governmental agency including, without limitation, the Pension Benefit
Guaranty Corporation, or any taxes or debts owing to any of the foregoing
becomes a lien or encumbrance upon the Collateral or any of Borrower's other
assets and such lien or encumbrance is not released within thirty (30) days
after its creation;
(i) Judgment is rendered against Borrower in excess of Ten
Thousand Dollars ($10,000) and Borrower fails to either pay such judgment
within thirty (30) days or commence appropriate proceedings to appeal such
judgment within the applicable appeal period or, after such appeal is filed,
Borrower fails to diligently prosecute such appeal or such appeal is denied;
(j) Borrower becomes insolvent or fails generally to pay its debts
as they become due;
(k) Borrower fails within fifteen (15) days after the occurrence
of any of the following events, to furnish Lender with appropriate notice
thereof: (i) the happening of a Reportable Event with respect to any profit
sharing or pension plan governed by ERISA (such notice shall contain the
statement of the chief financial officer of the applicable Borrower setting
forth details as to such Reportable Event and the action which Borrower
proposes to take with respect thereto and a copy of the notice of such
Reportable Event to the Pension Benefit Guaranty Corporation), (ii) the
termination of any such plan, (iii) the appointment of a trustee by an
appropriate United States District Court to administer any such plan, or (iv)
the institution of any proceedings by the Pension Benefit Guaranty
Corporation to terminate any such plan or to appoint a trustee to administer
any such plan;
(l) Borrower fails to: (i) furnish to Lender a copy of each
report which is filed by Borrower with respect to any profit sharing or
pension plan governed by ERISA promptly after the filing thereof with the
Secretary of Labor or the Pension Benefit Guaranty Corporation or (ii) notify
Lender promptly upon receipt by Borrower of any notice of the institution of
any proceeding or other actions which may result in the termination of any
such plans;
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(m) If a default occurs under any agreement, instrument or
document relating to any of the Liabilities and heretofore, now or at any
time or times hereafter executed by, or delivered to Lender by Borrower;
(n) The Diana Corporation shall cease to own and control, directly
or indirectly, eighty-one and twenty-five one hundredths percent (81.25%) of
the common Stock of Borrower unless Borrower's common Stock is purchased from
The Diana Corporation or its Subsidiary, Entree Corporation, by Borrower's
management pursuant to the terms and conditions which are acceptable to
Lender in its sole discretion and Borrower agrees to amend such provisions of
this Agreement and the Ancillary Agreements as Lender, in its sole
discretion, deems necessary or appropriate, to reflect Borrower's changed
circumstances resulting from such management buy-out; or
(o) If G. Michael Coggins ceases to be employed as President/Chief
Executive Officer of Borrower.
11.2 Acceleration of the Liabilities. Upon and after the occurrence of
a Default, all of the Liabilities may, at the option of Lender and without
demand, notice, or legal process of any kind, be declared, and immediately
shall become, due and payable and/or Lender may, without notice, terminate
this facility with respect to further Revolving Loans, whereupon no further
Revolving Loans may be made hereunder and no additional Letters of Credit or
LC Guaranties may be issued;
11.3 Remedies. Upon and after the occurrence of a Default, Lender shall
have all of the following rights and remedies:
(a) All of the rights and remedies of a secured party under the
Illinois Uniform Commercial Code or other applicable law, all of which rights
and remedies shall be cumulative, and none exclusive, to the extent permitted
by law, and in addition to any other rights and remedies contained in this
Agreement and in any of the Ancillary Agreements;
(b) The right to (i) peacefully enter upon the premises of
Borrower or any other place or places where the Collateral is located and
kept, without any obligation to pay rent to Borrower or any other person,
through self-help and without judicial process or first obtaining a final
judgment or giving Borrower notice and opportunity for a hearing on the
validity of Lender's claim, and remove the Collateral from such premises and
places to the premises of Lender or any agent of Lender, for such time as
Lender may require to collect or liquidate the Collateral, and/or (ii)
require Borrower to assemble and deliver the Collateral to Lender at a place
to be designated by Lender;
(c) The right to (i) open Borrower's mail and collect any and all
amounts due from Account Debtors, (ii) notify Account Debtors that the
Accounts have been assigned to Lender and that Lender has a security interest
therein and (iii) direct such Account Debtors to make all payments due from
them upon the Accounts, including the Special Collateral, directly
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to Lender or to a lock box designated by Lender. Lender shall promptly
furnish Borrower with a copy of any such notice sent and Borrower hereby
agrees that any such notice in Lender's sole discretion, may be sent on
Lender's stationery, in which event, Borrower shall, upon demand, co-sign
such notice with Lender;
(d) The right to sell, lease or to otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as
provided in Section 11.4, in lots or in bulk, for cash or on credit, all as
Lender, in its sole discretion, may deem advisable. At any such sale or
sales of the Collateral, the Collateral need not be in view of those present
and attending the sale, nor at the same location at which the sale is being
conducted. Lender shall have the right to conduct such sales on Borrower's
premises or elsewhere and shall have the right to use Borrower's premises
without charge for such sales for such time or times as Lender may see fit.
Lender is hereby granted a license or other right to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks and advertising matter, or any property of
a similar nature, as it pertains to the Collateral, in advertising for sale
and selling any Collateral and all of Borrower's rights under all licenses
and all franchise agreements shall inure to Lender's benefit but Lender shall
have no obligations thereunder. Lender may purchase all or any part of the
Collateral at public or, if permitted by law, private sale and, in lieu of
actual payment of such purchase price, may setoff the amount of such price
against the Liabilities. The proceeds realized from the sale of any
Collateral shall be applied first to the reasonable costs, expenses and
attorneys' and paralegal fees and expenses incurred by Lender for collection
and for acquisition, completion, protection, removal, storage, sale and
delivery of the Collateral; second to interest due upon any of the
Liabilities; and third to the principal of the Liabilities. Lender shall
account to Borrower for any surplus. If any deficiency shall arise, Borrower
shall remain liable to Lender therefor.
(e) With respect to the face amount of all LC Guaranties and
Letters of Credit issued by Lender and then outstanding, Lender may, at its
option, require Borrower to deposit with Lender funds equal to such face
amount, and if Borrower fails to promptly make such deposit, Lender may
advance such amount as a Revolving Loan (whether or not an overadvance is
created thereby). Any such deposit or advance shall be held by Lender as a
reserve to fund future payments on such LC Guaranties and future drawings
against such Letters of Credit. At such time as all LC Guaranties have been
paid or terminated and all Letters of Credit have been drawn upon or expired,
any amounts remaining in such reserve shall be applied against any
outstanding Liabilities, or to the extent all Liabilities been indefeasibly
paid in full, returned to Borrower.
11.4 Notice. Borrower agrees that any notice required to be given by
Lender of a sale, lease, other disposition of any of the Collateral or any
other intended action by Lender, which is personally delivered to Borrower or
which is deposited in the United States mail, postage prepaid and duly
addressed to Borrower at the address set forth in Section 13.10, at least ten
(10) days prior to any such public sale, lease or other disposition or other
action being taken, or the
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time after which any private sale of the Collateral is to be held, shall
constitute commercially reasonable and fair notice thereof to Borrower.
12. CONDITIONS PRECEDENT
Notwithstanding any other provision of this Agreement or any of the
other Ancillary Agreements and without affecting in any manner the rights of
Lender under the other Sections of this Agreement, it is understood and
agreed that Lender will not make any Revolving Loan under Section 2 of this
Agreement or issue any Letter of Credit or LC Guaranty unless and until each
of the following conditions has been and continues to be satisfied, all in
form and substance satisfactory to Lender and its counsel:
12.1 Execution and Delivery of Agreement. This Agreement, or
counterparts thereof, shall have been duly executed by, and delivered to,
Borrower and Lender.
12.2 Documentation. Lender shall have received the following documents,
each to be in form and substance satisfactory to Lender and its counsel:
(a) Certified copies of Borrower's casualty insurance policies,
together with loss payable endorsement on Lender's standard form of Loss
Payee Endorsement naming Lender as loss payee, and certified copies of
Borrower's liability insurance policies, together with endorsements naming
Lender as a co-insured delivered to Lender within thirty (30) days of the
date hereof;
(b) Copies of all filing receipts or acknowledgments issued by any
governmental authority to evidence any filing or recordation necessary to
perfect the liens of Lender in the Collateral and evidence in a form
acceptable to Lender that such liens constitute valid and perfected security
interests and liens, having the lien priority specified herein delivered to
Lender within thirty (30) days of the date hereof;
(c) Landlord waivers or warehouseman agreements with respect to
all premises leased by Borrower and which are disclosed on Exhibit D attached
hereto;
(d) A copy of the Articles or Certificate of Incorporation of
Borrower, and all amendments thereto, certified by the Secretary of State or
other appropriate official of its jurisdiction of incorporation;
(e) Good standing certificates for Borrower, issued by the
Secretary of State or other appropriate official of Borrower's jurisdiction
of incorporation and each jurisdiction where the conduct of Borrower's
business activities or the ownership of its assets and properties
necessitates qualification;
(f) The Ancillary Agreements duly executed, accepted and
acknowledged by or on behalf of each of the signatories thereto;
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(g) The favorable, written opinion of Godfrey & Kahn, S.C. counsel
to Borrower, as to the transactions contemplated by this Agreement and any of
the other Ancillary Agreements, to be substantially in the form of Exhibit H
attached hereto;
(h) Written instruction from Borrower directing the application of
proceeds of the initial Revolving Loan made pursuant to this Agreement, and
initial Accounts Report and Inventory Report and initial Lenders' Daily
Collateral Report and Advance Request from Borrower reflecting that Borrower
has Eligible Accounts and Eligible Inventory in amounts sufficient in value
and amount to support Revolving Loans and Letters of Credit and/or LC
Guaranties in the amount requested by Borrower on the date of such
certificate;
(i) Duly executed Special Deposit Agreements from such state or
federal banks as deemed necessary by Lender delivered to Lender within ten
(10) days of the date hereof;
(j) Duly executed Accounts Guaranty Agreement (Validity Guaranty)
and Inventory Guaranty Agreement (Validity Guaranty) executed by Mike
Coggins and Robert Zeman;
(k) Trademark Collateral Assignment;
(l) Accountant's Letter;
(m) Pay-off Statements and/or releases and termination statements
from Fleet Capital Corporation;
(n) A completed SBCC Environmental Questionnaire and, if requested
by Lender after the return of the SBCC Environmental Questionnaire, a Phase
I Environmental Report in respect to Borrower's location in Atlanta, Georgia,
completed by an environmental consulting firm acceptable to Lender;
(o) A completed Form W-9 of Borrower; and
(p) Such other documents, instruments and agreements as Lender
shall reasonably request in connection with the foregoing matters.
12.3 Other Conditions. The following conditions have been and shall
continue to be satisfied, in the sole discretion of Lender:
(a) No Default shall exist;
(b) Each of the conditions precedent set forth in the Ancillary
Agreements shall have been satisfied;
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(c) Since August 31, 1996, there shall not have occurred any
material adverse change in the business, financial condition or results of
operations of Borrower or the existence or value of any Collateral, or any
event, condition or state of facts which would reasonably be expected
materially and adversely to affect the business, financial condition or
results of operations of Borrower. Lender shall have conducted an audit of
Borrower's books and record and the results thereof shall be satisfactory to
Lender, in its sole discretion.
(d) Lender and its counsel shall have reviewed the corporate,
capital and legal structure, ownership structure and organizational documents
of Borrower and the results of such review shall be acceptable to Lender in
its sole discretion.
13. MISCELLANEOUS.
13.1 Appointment of Lender as Borrower's Lawful Attorney-In-Fact.
Borrower, irrevocably designates, makes, constitutes and appoints Lender (and
all persons designated by Lender) as Borrower's true and lawful attorney and
agent in-fact and Lender, or Lender's agent, may, without notice to Borrower:
(a) At any time hereafter, endorse by writing or stamp Borrower's
name on any checks, notes, drafts or any other payment relating to and/or
proceeds of the Collateral which come into the possession of Lender or under
Lender's control and deposit the same to the account of Lender for
application to the Liabilities;
(b) At any time after the occurrence of a Default, in Borrower's
or Lender's name: (i) demand payment of the Collateral; (ii) enforce payment
of the Collateral, by legal proceedings or otherwise; (iii) exercise all of
Borrower's rights and remedies with respect to the collection of the
Collateral; (iv) settle, adjust, compromise, extend or renew the Accounts and
the Special Collateral; (v) settle, adjust or compromise any legal
proceedings brought to collect the Collateral; (vi) if permitted by
applicable law, sell or assign the Collateral upon such terms, for such
amounts and at such time or times as Lender deems advisable; (vii) satisfy
and release the Accounts and Special Collateral; (viii) take control, in any
manner, of any item of payment or proceeds referred to in Section 4.3; (ix)
prepare, file and sign Borrower's name on any proof of claim in Bankruptcy or
similar document against any Account Debtor; (x) prepare, file and sign
Borrower's name on any notice of lien, assignment or satisfaction of lien or
similar document in connection with the Collateral; (xi) do all acts and
things necessary, in Lender's sole discretion, to fulfill Borrower's
obligations under this Agreement; (xii) endorse by writing or stamp the name
of Borrower upon any chattel paper, document, instrument, invoice, freight
bill, bill of lading or similar document or agreement relating to the
Collateral; and (xiii) use the information recorded on or contained in any
data processing equipment and computer hardware and software relating to the
Collateral to which Borrower has access; and
(c) At any time after the occurrence of a Default notify the post
office authorities to change the address for delivery of Borrower's mail to
an address designated by Lender and receive, open and dispose of all mail
addressed to Borrower.
37
<PAGE>
13.2 Modification of Agreement; Sale of Interest. This Agreement and
the Ancillary Agreements may not be modified, altered or amended, except by
an agreement in writing signed by Borrower and Lender. Borrower may not
sell, assign or transfer this Agreement or the Ancillary Agreements or any
portion hereof or thereof, including, without limitation, Borrower's right,
title, interest, remedies, powers, or duties hereunder or thereunder.
Borrower hereby consents to Lender's participation, sale, assignment,
transfer or other disposition, at any time or times hereafter, of this
Agreement or the Ancillary Agreements or of any portion hereof or thereof,
including, without limitation, Lender's right, title, interest, remedies,
powers, or duties hereunder or thereunder.
13.3 Attorneys' Fees and Expenses; Lender's Out-of-Pocket Expenses. (a)
If, at any time or times, whether prior or subsequent to the date hereof and
regardless of the existence of a Default or an Event of Default, Lender
incurs legal or other costs and expenses or employs counsel, accountants or
other professionals for advice or other representation or services in
connection with:
(i) The preparation, negotiation and execution of this
Agreement, all Ancillary Agreements, any amendment of or modification of
this Agreement or the Ancillary Agreements or any sale or attempted sale
of any interest herein to a Participant;
(ii) Any litigation, contest, dispute, suit, proceeding or
action (whether instituted by Lender, Borrower or any other Person) in
any way relating to the Collateral, this Agreement, the Ancillary
Agreements or Borrower's affairs;
(iii) Any attempt to enforce any rights of Lender or any
Participant against Borrower or any other Person which may be obligated
to Lender or such Participant by virtue of this Agreement or the
Ancillary Agreements, including, without limitation, the Account
Debtors;
(iv) Any attempt to inspect, verify, protect, collect, sell,
liquidate or otherwise dispose of any of the Collateral; or
(v) Any inspection, verification, protection, collection,
sale, liquidation or other disposition of any of the Collateral,
including without limitation, Lender's periodic or special audits of
Borrower's books and records;
then, in any such event, the reasonable attorneys' and paralegals' fees and
expenses arising from such services and all reasonably incurred expenses,
costs, charges and other fees of or paid by Lender in any way or respect
arising in connection with or relating to any of the events or actions
described in this Section 13.3 shall be payable by Borrower to Lender upon
demand and shall be additional Liabilities. Without limiting the generality
of the foregoing, such expenses, costs, charges and fees may include
accountants' fees, costs and expenses; court costs, fees and expenses;
photocopying and duplicating expenses; court reporter fees, costs and
expenses; long distance telephone charges; air express charges; telegram
charges; secretarial over-time charges;
38
<PAGE>
and expenses for travel, lodging and food paid or incurred in connection with
the performance of all such services.
(a) Borrower acknowledges and agrees that Lender and its agents
and representatives shall be permitted field reviews of the Collateral,
Borrower's Current Asset Base and Borrower's books and records both prior to
the Closing Date and on a basis up to quarterly thereafter. Borrower agrees
to reimburse Lender for its out-of-pocket costs and expenses incurred in
connection with such field reviews.
13.4 Waiver by Lender. Lender's failure, at any time or times
hereafter, to require strict performance by Borrower of any provision of this
Agreement or of any Ancillary Agreement shall not constitute a waiver, or
affect or diminish any right of Lender thereafter to demand strict compliance
and performance therewith. Any suspension or waiver by Lender of a Default
under this Agreement or any Ancillary Agreement shall not suspend, waive or
affect any other Default under this Agreement or the Ancillary Agreements,
whether the same is prior or subsequent thereto and whether of the same or of
a different type. None of the undertakings, agreements, warranties,
covenants and representations of Borrower contained in this Agreement or the
Ancillary Agreements and no Default under this Agreement or the Ancillary
Agreements shall be deemed to have been suspended or waived by Lender, unless
such suspension or waiver is by an instrument in writing signed by an officer
of Lender and directed to Borrower specifying such suspension or waiver.
13.5 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
13.6 Parties; Entire Agreement. This Agreement and the Ancillary
Agreements shall be binding upon and inure to the benefit of the respective
successors and assigns of Borrower and Lender. Borrower's successors and
assigns shall include, without limitation, a trustee, receiver or
debtor-in-possession of or for Borrower. Nothing contained in this Section
13.6 shall be deemed to modify Section 13.2. This Agreement is the complete
statement of the agreement by and between Borrower and Lender and supersedes
all prior negotiations, understandings and representations between them with
respect to the subject matter of this Agreement.
13.7 Conflict of Terms. The provisions of the Ancillary Agreements are
incorporated in this Agreement by this reference. Except as otherwise
provided in this Agreement and except as otherwise provided in the Ancillary
Agreements by specific reference to the applicable provision of this
Agreement, if any provision contained in this Agreement is in conflict with,
or inconsistent with, any provision in any Ancillary Agreement, the provision
contained in this Agreement shall govern and control.
39
<PAGE>
13.8 Waiver by Borrower. Except as otherwise provided for in this
Agreement, Borrower waives (i) presentment, demand and protest, notice of
protest, notice of presentment, default, non-payment, maturity, release,
compromise, settlement, extension or renewal of any or all commercial paper,
accounts, contract rights, documents, instruments, chattel paper and
guaranties at any time held by Lender on which Borrower may in any way be
liable and hereby ratifies and confirms whatever Lender may do in this
regard; (ii) all rights to notice and a hearing prior to Lender's taking
possession or control of, or to Lender's replevy, attachment or levy upon the
Collateral or any bond or security which might be required by any court prior
to allowing Lender to exercise any of Lender's remedies; (iii) the benefit of
all valuation, appraisement, extension and exemption laws; and (iv) any
right to a trial by jury concerning any matter relating to this Agreement or
any Ancillary Document. Borrower acknowledges that it has been advised by
its own counsel with respect to this Agreement and the transactions evidenced
by this Agreement.
13.9 Governing Law. This Agreement has been delivered for acceptance by
Lender in Chicago, Illinois and shall be governed by and construed in
accordance with the internal laws (as opposed to the conflicts of law
provisions) of the State of Illinois. Borrower hereby (i) waives any right
to a trial by jury in any action to enforce or defend any matter arising from
or related to this Agreement; (ii) irrevocably submits to the jurisdiction of
any state or federal court located in Cook County, Illinois, over any action
or proceeding to enforce or defend any matter arising from or related to this
Agreement; (iii) waives personal service of any and all process upon such
Borrower, and consents that all such service of process be made by messenger,
certified mail or registered mail directed to Borrower at the address set
forth in Section 13.10 and service so made shall be deemed to be completed
upon the earlier of actual receipt or three (3) days after the same shall
have been posted to Borrower's address; (iv) irrevocably waives, to the
fullest extent Borrower may effectively do so, the defense of an inconvenient
forum to the maintenance of any such action or proceeding; (v) agrees that a
final judgment in any such action or proceeding shall be conclusive and may
be enforced in any other jurisdictions by suit on the judgment or in any
other manner provided by law; and (vi) agrees not to institute any legal
action or proceeding against Lender or any of Lender's directors, officers,
employees, agents or property, concerning any matter arising out of or
relating to this Agreement in any court other than one located in Cook
County, Illinois. Nothing in this Section 13.9 shall affect or impair
Lender's right to serve legal process in any manner permitted by law or
Lender's right to bring any action or proceeding against Borrower, or
Borrower's property in the courts of any other jurisdiction.
13.10 Notice. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon
any of the parties by another, or whenever any of the parties desires to give
or serve upon another any communication with respect to this Agreement, each
such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and shall be delivered in person (by
personal delivery, delivery service or overnight courier service) with
receipt acknowledged, or telecopied with receipt acknowledged, or sent by
certified
40
<PAGE>
mail, return receipt requested, postage prepaid, addressed as hereafter set
forth, or mailed by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
41
<PAGE>
(a) If to Lender, at: Sanwa Business Credit Corporation
One South Wacker Drive
Chicago, Illinois 60606
Attn: First Vice President,
Commercial Finance Division
Telecopier No.: (312) 782-6035
with a copy to: Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Suite 2600
Chicago, Illinois 60601
Attn: John T. McEnroe
Telecopier No.: (312) 609-5005
(b) If to Borrower, at: Atlanta Provision Company, Inc.
1400 West Marietta Street, N.W.
Atlanta, Georgia 30318
Attn: Mike Coggins
Telecopier No.: (404) 792-9398
with a copy to: Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202-3590
Attn: Kenneth Hunt, Esq.
Telecopier No.: (414) 273-5198
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice, demand,
request, consent, approval, declaration or other communication hereunder
shall be deemed to have been duly given or served on the date on which
personally delivered, in person, by delivery service or by overnight courier
service, with receipt acknowledged, or the date of the telecopy transmission,
with receipt acknowledged, or three Business Days after the same shall have
been deposited in the United States mail. Failure or delay in delivering
copies of any notice, demand, request, consent, approval, declaration or
other communication to persons designated above to receive copies shall in no
way adversely affect the effectiveness of such notice, demand, request,
consent, approval, declaration or other communication.
13.11 Section Titles, Etc.. The section titles and table of
contents, if any, contained in this Agreement are and shall be without
substantive meaning or content of any kind whatsoever and are not a part of
the agreement between the parties hereto. All references herein to Sections,
paragraphs, clauses and other subdivisions refer to the corresponding
Sections, paragraphs, clauses and other subdivisions of this Agreement; and
the words "herein", "hereof", "hereby", "hereto", "hereunder", and words of
similar import refer to this Agreement as a whole and not to any
42
<PAGE>
particular Section, paragraph, clause or subdivision hereof. All Exhibits
which are referred to herein or attached hereto are hereby incorporated by
reference.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year specified at the beginning hereof.
BORROWER:
ATLANTA PROVISION COMPANY, INC.
By: /s/ Robert J. Zeman
Title: Vice President and CFO
LENDER:
SANWA BUSINESS CREDIT CORPORATION
By: /s/ George M. Adams
Title: First Vice President
42
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ENTREE CORPORATION AS OF AND FOR THE 28
WEEKS ENDED OCTOBER 12, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-START> MAR-31-1996
<PERIOD-END> OCT-12-1996
<CASH> 1413
<SECURITIES> 0
<RECEIVABLES> 9885
<ALLOWANCES> (350)
<INVENTORY> 5153
<CURRENT-ASSETS> 16664
<PP&E> 7789
<DEPRECIATION> (4706)
<TOTAL-ASSETS> 20135
<CURRENT-LIABILITIES> 14456
<BONDS> 765
0
0
<COMMON> 80
<OTHER-SE> (2566)
<TOTAL-LIABILITY-AND-EQUITY> 20135
<SALES> 130868
<TOTAL-REVENUES> 130870
<CGS> 128827
<TOTAL-COSTS> 128827
<OTHER-EXPENSES> 2099
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 473
<INCOME-PRETAX> (508)
<INCOME-TAX> 0
<INCOME-CONTINUING> (508)
<DISCONTINUED> 0
<EXTRAORDINARY> (227)
<CHANGES> 0
<NET-INCOME> (735)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
