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U. S. Securities and Exchange Commission
Washington, DC 20549
FORM 10-K SB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
COMMISSION FILE NUMBER 0-17293
COLLEGIATE PACIFIC INC.
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(Name of Small Business Issuer in its Charter)
DELAWARE 22-2795073
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
13950 SENLAC, SUITE 200, FARMERS BRANCH, TEXAS 75234
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(Address of Principal Executive Offices) (Zip Code)
(972) 243-8100
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Issuer's Telephone Number
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $0.01 PAR VALUE
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ended June 30, 1999 were
$6,813,333.
The aggregate market value at September 28, 1999 of shares of the
Common Stock held by non-affiliates was $12,576,161 based upon the bid price of
the Issuer's Common Stock as reported by the National Association of Securities
Dealers in the OTC Bulletin Board. Solely for the purpose of this calculation,
shares held by certain principal shareholders named in Item 11 hereof, as well
as shares held by directors and officers of the Issuer, have been excluded. Such
exclusion should not be deemed a determination or an admission by the issuer
that such shareholders or individuals are, in fact, affiliates of the issuer.
On September 28, 1999, there were 17,311,833 shares of the issuer's
Common Stock, $0.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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NONE
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Collegiate Pacific Inc.
FORM 10-KSB
Fiscal Year Ended June 30, 1999
TABLE OF CONTENTS
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PART I
Item 1 Description of Business 3
Item 2 Description of Property 4
Item 3 Legal Proceedings 4
Item 4 Submission of Matters to a Vote of Security Holders 4
PART II
Item 5 Market for Common Equity and Related Stockholder Matters 5
Item 6 Management's Discussion and Analysis or Plan of Operations 6
Item 7 Financial Statements 11
Item 8 Changes in and Disagreements with Accountants on Accounting and Financial 31
Disclosures
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons; Compliance 31
with Section 16(a) of the Exchange Act
Item 10 Executive Compensation 33
Item 11 Security Ownership of Certain Beneficial Owners and Management 35
Item 12 Certain Relationships and Related Transactions 36
PART IV
Item 13 Exhibits, List and Reports on Form 8-K 36
Signatures 39
</TABLE>
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PART 1
ITEM 1 DESCRIPTION OF BUSINESS
General
From August 1989 to June 16, 1997, Collegiate Pacific Inc. (the
"Company") was engaged in the business of developing and marketing drug testing
products under the name of Drug Screening Systems, Inc. On June 16, 1997, the
Company sold substantially all of its assets, changed its name to DSSI, and
thereafter had no formal operations.
On February 17, 1998, the Company's stockholders authorized the Company
to enter into the business of distributing sports equipment, which was effected
through (a) the sale of 10,000,000 shares of Common Stock, a controlling
interest in the Company, to Michael J. Blumenfeld (9,800,000 shares) and Adam
Blumenfeld (200,000 shares), at $.20 per share (the average of the bid and ask
price of the Common Stock on August 18, 1997, the date of the Stock Purchase
Agreement between the Company and Michael and Adam Blumenfeld), or an aggregate
purchase price of $2,000,000, and (b) the sale by Michael J. Blumenfeld to the
Company, at cost, of all of the assets, including the corporate name, of
Collegiate Pacific Inc. f/k/a as Nitro Sports Inc., a Texas corporation, which
company was formed in 1997 to engage in the catalog and mail order distribution
of sports equipment. The Company changed its name to Collegiate Pacific Inc. at
that time.
The Company was incorporated in Pennsylvania in 1987. On December
11,1998, the stockholders of the Company approved the reincorporation of the
Company from the Commonwealth of Pennsylvania to the State of Delaware pursuant
to a merger agreement with a newly formed Delaware corporation. The merger and
reincorporation as a Delaware corporation was effective on July 21,1999.
The Company's executive offices are located at 13950 Senlac, Suite
200, Farmers Branch, Texas 75234, and its telephone number at that location is
(972) 243-8100.
The Company is in the business of the mail order marketing of sports
equipment primarily to institutional customers located throughout the United
States. The Company's principal customers include country clubs, schools, YMCAs
and YWCAs (and similar recreational organizations), municipal recreation
departments, and other governmental agencies. The Company offers a broad line of
sporting equipment, including inflatable balls, nets for various sports,
standards and goals for sports, weight lifting equipment, and other recreational
products, and provides after sale customer service through toll-free numbers.
The Company believes that prompt delivery of a broad range of products at
competitive prices, coupled with prompt, accessible customer service,
differentiates the Company from its competitors. The Company currently markets
approximately 500 sports related equipment products to over 200,000 potential
institutional, retail, mass merchant, and team dealer customers. Since
commencing operations, the Company has sold products to approximately 20,000
customers.
The Company currently has a master mailing list of over 200,000
potential customers and distributed approximately 550,000 catalogs and fliers to
this audience during Fiscal Year 1999. This mailing list, which has been
developed under the supervision of the President of the Company from his 25
years of experience in the industry, is carefully maintained, screened, and
crosschecked. The master mailing list is subdivided into various combinations
designed to place catalogs in the hands of individual purchase decision-makers.
The master mailing list is also subdivided by relevant product types, seasons,
and customer profiles. The Company also uses other forms of solicitations such
as trade shows, telemarketing, broadcast fax programs, and the Internet.
The Company's revenues are not dependent upon any one or a few major
customers. The Company's institutional customers typically receive annual
appropriations for sports related equipment, which appropriations are generally
spent in the period proceeding the season in which the sport or athletic
activity occurs. While institutions are subject to budget constraints, once
allocations have been made, aggregate levels of expenditures are typically not
reduced.
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A majority of the Company's products are purchased from suppliers in
the Far East. In addition, the Company believes that foreign manufacturers
produce many of the products purchased from domestic suppliers. The
international supply of products is subject to risks, including shipment delays,
fluctuation in exchange rates, changes in custom regulations, adverse economic
conditions in foreign countries, natural disasters, and political turmoil, which
may affect the Company's ability to deliver its products in a timely and
competitive manner. The Company attempts to maintain a three to six week supply
of critical inventory items in stock.
Although the vast majority of products distributed are purchased in
final form, a small percentage of the items require minor fabrication to
complete. The Company has welding machines and an assortment of tools to aid in
this fabrication process. The raw materials used in this process are in the form
of shipping supplies, nuts and bolts, and other commercially available products.
The Company believes there are multiple suppliers for these products nationwide.
Seasonal Nature of Business
The Company anticipates that its revenues will peak in the third and
fourth calendar quarters of each fiscal year due primarily to the budgeting
procedures of many of its customers and the seasonal demand for the products
offered by the Company. The first and second calendar quarter generally
experiences lower revenues and higher expenses as a percentage of sales due to
lessening customer demand as a result of decreased sports activities, adverse
weather conditions inhibiting customer demand, holiday seasons, and school
recesses. Based upon current seasonality, the Company expects to incur moderate
operating losses in the July to December period, and expects to experience an
operating profit in the January to June period.
Competition
The Company competes in the institutional market with other direct mail
marketers of sporting equipment, local sporting goods dealers, and retail
sporting goods stores, which collectively dominate the institutional market. The
Company competes in the institutional market principally on the basis of price,
product availability, and customer service. The Company believes that it has an
advantage on the institutional market over traditional sporting goods retailers
because its selling prices do not include comparable price markups attributable
to wholesalers, manufacturers, and/or distributors. In addition, the Company
believes that it has an advantage over other direct mail marketers of sporting
goods because it believes that it offers superior products, coupled with prompt
and accessible service, at the most competitive prices.
Employees
The Company currently employs 21 full-time persons. The Company may
hire temporary employees as seasonal increases in demand occur. A union
represents none of the Company's employees, and the Company believes its
relations with such employees are good.
ITEM 2 DESCRIPTION OF PROPERTY
The Company leases an approximately 30,000 square foot corporate
headquarters and warehouse facility located in Farmers Branch, Texas. The
facility is under a lease that expires in Fiscal Year 2003. The Company believes
that this facility will be adequate for its business needs for the foreseeable
future. The Company does not own any real property.
ITEM 3 LEGAL PROCEEDINGS
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5 MARKET FOR THE COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market
The following table sets forth, for the periods indicated, the
quarterly range of the high and low bid prices of the Common Stock as reported
by the NASD on the Bulletin Board:
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Fiscal 1999 Quarter Ended Low High
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September 30, 1998 $1.63 $2.13
December 31, 1998 1.63 2.25
March 31, 1999 1.63 2.44
June 30, 1999 1.75 2.69
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Fiscal 1998 Quarter Ended Low High
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September 30, 1997 $0.17 $1.63
December 31, 1997 1.63 2.25
March 31, 1998 2.31 2.56
June 30, 1998 2.35 2.69
</TABLE>
The foregoing quotations reflect inter-dealer prices, without mark-up, mark-down
or commissions, and may not reflect actual transactions.
Holders
As of September 28, 1999, there were 393 holders of record of Common
Stock, and there were 17,311,833 shares of Common Stock issued and outstanding.
Dividends
The Company did not declare or pay any cash or stock dividends on the
Common Stock during the fiscal year ended June 30, 1999. The Company currently
does not anticipate paying any cash dividends in the foreseeable future. Any
future determination to pay dividends will be at the discretion of the Company's
Board of Directors and will be dependent upon then existing conditions,
including the Company's financial condition, results of operations, contractual
restrictions, capital requirements, business prospects, and such other factors
as the Board deems relevant.
Recent Sales of Unregistered Securities
The following sets forth information as of June 30, 1999 regarding all
sales of unregistered securities of the Registrant during the past three years.
All such shares were exempt from registration under the Securities Act by reason
of Section 4(2) of the Securities Act.
On February 17, 1998, the Company sold 10,000,000 shares of Common
Stock to Michael J. Blumenfeld (9,800,000 shares) and Adam Blumenfeld (200,000
shares) for $.20 per share (the average of the bid and ask price of the Common
Stock on August 18, 1997, the date of the Stock Purchase Agreement between the
Company and Mr. Blumenfeld), or an aggregate purchase price of $2,000,000, in
cash pursuant to the terms and subject to the conditions of that certain Stock
Purchase Agreement dated August 18, 1997 by and between the Company and Mike
Blumenfeld and Adam Blumenfeld.
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On February 17, 1998, in connection with the Stock Purchase Agreement
set forth above, the Company sold (i) 100,000 shares of Common Stock to Arthur
J. Coerver, who became a director of the Company upon consummation of the Stock
Purchase Agreement, at $.20 per share, (ii) 70,000 shares of Common Stock to
Robert W. Philip, who became a director of the Company upon consummation of the
Stock Purchase Agreement, at $.20 per share, and (iii) 70,000 shares of Common
Stock to William A. Watkins, Jr., who became a director of the Company upon
consummation of the Stock Purchase Agreement, at $.20 per share.
On February 24, 1998, the Company issued 100,000 shares of Common Stock
to Equipmart, Inc., a Texas corporation, in consideration of Equipmart, Inc.
entering into a Distribution Agreement with the Company.
On March 7, 1998, the Company issued 33,333 shares of Common Stock to
FunNets, Inc. in consideration of FunNets, Inc. entering into a Distribution
Agreement with the Company.
On September 2, 1998, Mr. Stephen Turner was issued 25,000 shares of
Common Stock in conjunction with the exercise of options issued under the terms
of the DSSI stock option plan of 1994.
On June 14, 1999, Mr. Joseph Shaya was issued 150,000 shares of Common
Stock in conjunction with the exercise of options issued under the terms of the
DSSI stock option plan of 1994.
On June 14, 1999, Mr. Jeffery M. Bachrach was issued 10,000 shares of
Common Stock in conjunction with the exercise of options issued under the terms
of the DSSI stock option plan of 1994.
In connection with each of the foregoing transactions, each purchaser
was provided access to all relevant information regarding the Company and
represented to the Company that they were "sophisticated" investors purchasing
the shares for investment purposes only and with no view toward distribution.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
The Company was incorporated on April 10, 1997 and began business
during the latter part of June 1997. Effective February 7, 1998, Collegiate
Pacific Inc. entered into a reverse acquisition agreement with DSSI, Inc.
("DSSI"), a publicly held shell corporation. On April 14, 1998, the Company
acquired all of the issued and outstanding common stock of Product
Merchandising, Inc. This transaction was accounted for as a purchase, and,
accordingly, the results and operations of this entity have been included in the
Company's results of operations commencing on April 14, 1998. The Company also
completed an acquisition of Vantage Products International, Inc. on May 31, 1998
by issuing common stock for all of the issued outstanding common stock of that
entity. This acquisition was accounted for as a pooling of interests and,
accordingly, the results of operations of the Company include the results of
operations of the pooled entity for the entire fiscal year.
The Company solicits customers from a variety of catalogs designed for
specific uses, including summer camps, baseball, and general sports and
recreation. The Company distributed approximately 550,000 catalogs to current
and prospective customers during Fiscal Year 1999. Subsequent to the end of
fiscal year 1999, the Company entered into a supply agreement with the General
Services Administration of the federal government to furnish certain products to
government agencies. No sales occurred to any federal government agencies in
fiscal year 1999 and the Company expects sales to those agencies to commence in
fiscal year 2000. The Company also solicits customers through trade shows, road
salesmen, broadcast fax programs, telemarketing, and the Internet.
There were no operations prior to June 30, 1997, and accordingly this
discussion covers the years ended June 30, 1999 and 1998, only.
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Results of Operations
Net Sales. Net sales for the fiscal year ended June 30,1999 increased
by approximately $3.5 million (107%) as compared to the period ended June 30,
1998. The increase in net sales or approximately 33% reflects the addition of
the camp catalog to the Company's lines of business. The balance of the increase
due to higher volume in the Company's primary catalog sales. Management believes
this trend in increased sales volume will continue in future periods, however no
assurances can be made that the increased sales level will be as high.
Gross Profit. Gross profit for the fiscal year ended June 30, 1999
increased by approximately $1.3 million (107%) as compared to the period ended
June 30,1998. As a percentage of sales the gross profit was approximately 36%
for both periods ended June 30, 1999 and 1998.
Selling, General, and Administrative Expense. Selling, general, and
administrative expense for the period ended June 30,1999 increased by
approximately $640 thousand as compared to the period ended June 30, 1998. As a
percentage of net sales, the selling, general, and administrative expense
decreased to approximately 34% for the period ended June 30, 1999 as compared to
52% for the period for the period ended June 30,1998. The increase in the
selling, general, and administrative expense was due primarily to the following:
(i) An increase in salaries and personnel related cost of approximately
$200 thousand as the Company staffed additional personnel in the camp
related business and to manage the increase in the primary catalog
sales.
(ii) An increase in advertising of approximately $160 thousand due to
the Company mailing catalogs to the camp related customers and an
increase in catalogs and fliers to baseball and other primary catalog
customers.
(iii) An increase in shipping cost of approximately $70 thousand due to
the increased sales activity.
(iv) An increase in amortization expense of approximately $52 thousand
due to the amortization of the cost in excess of net tangible assets
acquired in late fiscal year 1998.
(v) An increase in warehouse related expense of approximately $50
thousand due to the increased sales activity.
Operating Profit. Operating profit increased by approximately $630
thousand for the period ended June 30,1999 as compared to the period ended June
30, 1998. As a percentage of net sales, the operating profit increased to
approximately 2% as compared to a 16% operating loss for the period ended June
30, 1998. The increase is attributable to the increase in net sales.
Interest Expense. Interest expense decreased by approximately $60
thousand for the period ended June 30,1999 as compared to the period ended June
30, 1998. As a percentage of sales, interest expense decreased to approximately
2% for the period ended June 30, 1999 as compared to 5% for the period ended
June 30, 1998. The decrease reflects the lower borrowing requirements due to
decreased inventory purchases made in fiscal year 1999. All of the interest
incurred in fiscal years 1999 and 1998 relates to interest paid on the note to
Mr. Blumenfeld. (See "Liquidity and Capital Resources," below)
Provision for Income Taxes. The provision for taxes increased by
$33,580 for the period ended June 30, 1999 as compared to the period ended June
30,1998. The increase is the result of the Company and its subsidiaries filing
separate returns during the period ending June 30, 1999.
Net Loss. The net loss decreased by approximately $648 thousand for the
period ended June 30, 1999 as compared to the period ended June 30, 1998. As a
percentage of sales, the net loss as a percentage of sales, decreased to
approximately 1/2% for the period ended June 30, 1999 as compared to 21% for the
same period ended June 30, 1998. The decrease is primarily due to the increase
in net sales and the resulting increase in gross profit and lower selling,
general and administrative expenses.
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Liquidity and Capital Resources
Cash used in operations for the period ended June 30, 1999 was
approximately $190 thousand as compared to $2.7 million for the period ended
June 30, 1998. The decrease of approximately $2.6 million was primarily due to
lower purchases after the initial buildup when operations commenced and lower
inventory levels as a result of the increased sales volume, as well as the
decrease in net loss, and was partially offset by an increase in accounts
receivable also due to the increased sales.
The Company used approximately $82 thousand in cash from investing
activities. The primary use of cash in investing activities was for the purchase
of property and equipment. The company expects to spend a comparable amount for
capital expenditures in fiscal year 2000.
The Company generated approximately $276 thousand in cash from
financing activities. The cash from generated from financing was approximately
$226 thousand of net proceeds from note payable to stockholder used to finance
the increase sales volume, and approximately $50 in proceeds from the issuance
of common stock upon the exercise of common stock options.
On March 31,1999 the Company amended the Promissory note to Mr.
Blumenfeld. The note was amended to reflect a maturity date of April 10, 2001
and borrowings under the note carry a rate of 12% per annum. As of June 30, 1999
the aggregate outstanding amount under the note payable was $980,720.
On September 14, 1999, the Company agreed to terms for a new $2,000,000
Revolving Line of Credit with Chase Bank of Texas, N.A. The new Revolving Line
of Credit will allow the Company to borrow funds based upon a certain
percentages of accounts receivable and inventories. The new Revolving Line of
Credit will mature on October 31, 2001 and includes a provision for letters of
credit. Borrowings under the Revolving Line of Credit will bear interest at the
prevailing prime rate plus 1/4% or LIBOR plus 2 1/2%. The note payable to
stockholder is subordinate to the Revolving Line of Credit and Mr. Blumenfeld
partially guarantees the Revolving Line of Credit.
Management believes that the Company will satisfy its short term and
long-term liquidity needs from borrowings under the new Revolving Line of Credit
and from cash flows from operations. The Company is actively involved in seeking
expansion through acquisitions and/or joint ventures, and the success of such
efforts may require additional bank debt, equity financing, or private
financing.
Year 2000 Impact
The Year 2000 issue is the result of computer programs written using
two digits rather than four digits to define "date" fields. Information systems
have time sensitive operations that, as a result of this data field limitation,
could disrupt activities in the normal business cycle. The Company purchased and
implemented new information systems in fiscal year 1999, which brought the
information systems into Year 2000 compliance.
The Company has not discussed the Year 2000 issue with its customers
and suppliers. There can be no assurance that the systems of these other
companies will be timely converted, and the failure of the Company's significant
suppliers and customers to make necessary Year 2000 modifications could have a
material adverse impact on the company's results and operations.
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Certain Factors that May Affect the Company's Business or Future Operating
Results
This report contains various forward-looking statements and information
that are based upon Management's beliefs as well as assumptions made by and
information currently available to Management. When used in this report the
words "anticipate", "believe", "estimates", "expect", "predict", "project", and
similar expressions are intended to identify forward looking statements. Such
statements are subject to certain risk, uncertainties and assumptions. Should
one or more of these risk or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, expected or projected. Among the key factors that may have a direct
bearing on the company's results are set forth below.
The general economic conditions in the U.S. or international countries
with which the Company does business could affect pricing of raw materials such
as metals and other commodities used by suppliers of the Company's finished
goods. There can be no assurances that any price increase incurred by the
Company for its products can be passed to its customers without adversely
affecting the Company's operating result.
The Company ships its products using common carriers, primarily UPS. A
strike by the employees or other disruption of the services of those common
carriers could adversely affect the Company's operating results due to an
inability to make timely shipment to its customers or by utilizing other more
costly carriers or means of shipping.
The Company monitors the credit worthiness of its customer base on an
ongoing basis and has not experienced an abnormal increase in losses in its
accounts receivable portfolio. Management believes that allowances have been
made to adequately reflect the risk of loss, however, a change in the economic
condition of its customer base or a change in the make-up of its customer base
could have an adverse affect on loss associated with the credit terms the
Company gives to its customers.
The sporting goods and related equipment market in which the Company
participates is highly competitive and is without a significant barrier to
entry. The Company competes with other direct mail companies and retailers in
the sporting goods market and could experience competitive pricing pressure,
which could have an adverse affect on its operating results.
A significant amount of the Company revenues depends upon products
purchased from foreign suppliers, located primarily in the Far East. The
Company's revenue base is, as a result, subject to the risk of these suppliers
being affected by political turmoil, natural disasters, currency fluctuations,
an increase in import duties, a decrease in quotas, and other unanticipated
changes in customs regulations. Any of these items could have an adverse affect,
should they occur, on the Company's operating results.
The Company experiences, and expects to continue to experience,
significant fluctuations in sales and operating results from quarter to quarter,
which typically falls in the third and fourth quarters of the fiscal year. In
addition, the Company's quarterly results could be influenced by competitive
factors including pricing, availability and demand for its products; changes in
the mix of products sold, declining average sales prices and orders, and the
introduction to the market of new products and competitors. Due to the foregoing
factors, the Company believes that period-to-period comparisons of its operating
results are not necessarily meaningful and that such comparisons may not be the
best indicators of future performance. There can be no assurance that the
Company will achieve and maintain satisfactory operating results in the future
and that future sales and operating results will not be below the expectations
of management, public analysts and investors.
The Company's success depends to a significant degree upon the
continued contributions of key management and personnel, certain of whom would
be difficult to replace. The loss of services of certain of these executives and
personnel could have a material adverse effect on the Company. There can be no
assurance that the services of such personnel will continue to be available to
the Company. In addition, the company believes that its success to attract and
retain additional qualified employees and that the failure to recruit such other
skilled personnel as required could have a material adverse effect on the
Company.
The Company has undergone a period of significant growth, and its
continued expansion may significantly strain the Company's management,
financial, and other resources. The Company believes that improvements
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in management and operational controls, and operational, financial and
management information systems could be needed to manage future growth. There
can be no assurance that these resources will be available or in a
cost-effective form to the Company which will allow it to sustain growth at the
same levels. The failure to have these resources in sufficient form or quantity
during a period of significant growth could have an adverse affect on the
Company's operating results.
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ITEM 7 CONSOLIDATED FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
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Index to Consolidated Financial Statements ......................................................... 11
Report of Independent Auditors ..................................................................... 12
Consolidated Balance Sheet as of June 30, 1999 and 1998 ............................................ 15
Consolidated Statement of Operations for the year ended June 30, 1999 and 1998 ..................... 17
Consolidated Statement of Stockholders' Equity for the year ended June 30, 1999 and 1998 ........... 18
Consolidated Statement of Cash Flows for the year ended June 30, 1999 and 1998 ..................... 19
Notes to Consolidated Financial Statements ......................................................... 21
</TABLE>
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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1999 AND 1998
WITH
REPORT OF INDEPENDENT AUDITORS
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REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheet of COLLEGIATE
PACIFIC INC. AND SUBSIDIARIES as of June 30, 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES as of June 30, 1999, and the
consolidated results of their operations and their consolidated cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
Dallas, Texas
August 25, 1999
The accompanying notes are an integral
part of these consolidated financial statements.
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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheet of COLLEGIATE
PACIFIC INC. AND SUBSIDIARIES as of June 30, 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES as of June 30, 1998, and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.
SUTTON FROST LLP
Arlington, Texas
August 25, 1998
The accompanying notes are an integral part of
these consolidated financial statements.
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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999 AND 1998
ASSETS
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1999 1998
---------- ----------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 518,844 $ 514,494
Accounts Receivable, less allowance for doubtful accounts
of $38,806 in 1999 and $-0- in 1998 1,142,708 685,974
Inventory 1,843,820 2,149,020
Prepaid Expenses and other Current Assets 23,581 40,064
---------- ----------
Total Current Assets 3,528,953 3,389,552
Property and Equipment, net of accumalated depreciation
of $98,785 in 1999 and $50,155 in 1998 150,585 120,626
Other Assets:
License Agreements, net of accumulated amortization of
$50,030 in 1999 and $12,408 in 1998 253,586 279,258
Cost in Excess of Net Tangible Assets Acquired, net of
accumulated amortization of $42,373 in 1999 and
$7,590 in 1998 509,373 544,156
Other Assets, net 54,409 54,552
---------- ----------
$4,496,906 $4,388,144
========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
15
<PAGE> 16
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 537,056 $ 552,618
Accrued Expenses 51,181 192,066
Note Payable to Stockholder -- 754,671
Other Current Liabilities 86,826 59,365
----------- -----------
Total Current Liabilities 675,063 1,558,720
Note Payable to Stockholder 980,720 --
----------- -----------
Total Liabilities 1,655,783 1,558,720
----------- -----------
Commitments and Contingencies -- --
Stockholders' Equity:
Common Stock, $.01 par value; authorized 20,000,000
shares; issued and outstanding: 17,201,833 in 1999
and 17,016,833 in 1998 172,018 170,168
Additional Paid-in Capital 3,368,954 3,320,804
Accumulated Deficit (660,462) (629,928)
Treasury Shares, at Cost; 4,500 shares in 1999 (10,982) --
----------- -----------
2,869,528 2,861,044
Less: Notes Receivable from Stockholders (28,405) (31,620)
----------- -----------
Total Stockholders' Equity 2,841,123 2,829,424
----------- -----------
$ 4,496,906 $ 4,388,144
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
16
<PAGE> 17
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Sales $ 6,813,333 $ 3,283,825
Cost of Sales 4,367,382 2,106,581
------------ ------------
Gross Profit 2,445,951 1,177,244
Selling, General and Administrative Expenses 2,343,434 1,704,859
------------ ------------
Operating Profit (Loss) 102,517 (527,615)
------------ ------------
Other Income (Expense):
Interest Expense (110,534) (172,027)
Interest Income 11,373 20,737
------------ ------------
Total Other Income (Expense) (99,161) (151,290)
------------ ------------
Income(Loss) Before Provision for Taxes 3,356 (678,905)
Provision for Taxes 33,890 --
------------ ------------
Net loss $ (30,534) $ (678,905)
============ ============
Weighted average shares of common stock outstanding 17,046,285 16,606,025
============ ============
Net loss per share of common stock (basic and diluted) $ (0.00) $ (0.04)
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
17
<PAGE> 18
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock Treasury Shares
------------------------ Additional Retained ---------------------
Shares Amount Paid-in Capital Earnings/(Deficit) Shares Amount Total
----------- ----------- --------------- ----------------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1997, 16,401,000 $ 164,010 $ 2,716,296 $ 48,977 -- -- $ 2,929,283
Issuance of stock for
cash 345,000 3,450 65,550 -- -- -- 69,000
Issuance of stock for
purchase of Product
Merchandising, Inc. 137,500 1,375 273,625 -- -- -- 275,000
Issuance of stock for
license agreements 133,333 1,333 265,333 -- -- -- 266,666
Net loss -- -- -- (678,905) -- -- (678,905)
----------- ----------- ----------- ----------- --------- --------- -----------
Balance at June 30, 1998 17,016,833 170,168 3,320,804 (629,928) -- -- 2,861,044
Issuance of stock for
cash 185,000 1,850 48,150 -- -- -- 50,000
Purchase of stock for
cash -- -- -- -- 4,500 (10,982) (10,982)
Net Loss -- -- -- (30,534) -- -- (30,534)
----------- ----------- ----------- ----------- --------- --------- -----------
Balance at June 30, 1999 17,201,833 $ 172,018 $ 3,368,954 $ (660,462) 4,500 $ (10,982) $ 2,869,528
=========== =========== =========== =========== ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
18
<PAGE> 19
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (30,534) $ (678,905)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 32,367 23,606
Amortization 75,618 26,420
Change in assets and liabilities, net of effects of business
acquisitions:
Accounts Receivable (456,734) (634,862)
Inventory 305,200 (2,149,020)
Prepaid Expenses and Other Current Assets 16,483 (40,064)
Other Assets, net (3,070) 48,029
Accounts Payable (15,562) 455,477
Accrued Expenses (140,885) 190,051
Other Liabilities 27,461 (2,343)
----------- -----------
Net cash used by operating activities (189,656) (2,761,611)
----------- -----------
Cash flows from investing activities:
Purchase of Property and Equipment (62,326) (128,263)
Cash in public entity in connection with reverse acquisition -- 582,660
Cash paid for Licenses (11,950) (25,000)
Cash paid for Treasury Shares (10,982)
Cash received from Notes Receivable from Stockholders 3,215
Cash used in business acquisition net of cash acquired -- (182,963)
----------- -----------
Net cash provided by(used in) investing activities (82,043) 246,434
----------- -----------
</TABLE>
(Continued)
The accompanying notes are an integral part of
these consolidated financial statements.
19
<PAGE> 20
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Cash flow from financing activities
Net proceeds from Notes Payable to Stockholder 226,049 754,671
Proceeds from issuance of Common Stock 50,000 2,275,000
---------- ----------
Net cash provided by financing activities 276,049 3,029,671
Increase in cash 4,350 514,494
Cash and cash equivalents at beginning of year 514,494 --
---------- ----------
Cash and cash equivalents at end of year $ 518,844 $ 514,494
========== ==========
Noncash investing activities:
Common stock issued to stockholders for notes receivable $ -- $ 31,620
========== ==========
Common stock issued for license agreements $ -- $ 266,666
========== ==========
Common stock issued for purchase of subsidiary $ -- $ 275,000
========== ==========
Cash Payments for:
Income taxes $ 26,020 $ --
========== ==========
Interest $ 255,699 $ --
========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
20
<PAGE> 21
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
1 - GENERAL AND BACKGROUND
Collegiate Pacific Inc. ("CPI") was incorporated on April 10, 1997 and began
business in June 1997. The Company is a Delaware corporation and is primarily
engaged in the mail order marketing of professional sports equipment to schools,
colleges and other organizations throughout the United States.
Effective February 17, 1998 CPI entered into a reverse acquisition agreement
with DSSI, Inc. ("DSSI"), a publicly held "shell" corporation. DSSI issued
9,800,000 (approximately 62.5%) shares of DSSI's voting common stock in exchange
for all of the outstanding shares of CPI (a tax free reorganization). The public
entity then changed its name to Collegiate Pacific, Inc. The year-end was
previously December 26, but changed to June 30, the public entity's year-end.
For accounting purposes, the transaction was treated as a recapitalization of
CPI, with CPI as the acquirer (a reverse acquisition). Accordingly, the
financial statements prior to the reverse acquisition date included herein are
those of CPI.
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The consolidated financial statements include the accounts of CPI and its wholly
owned subsidiaries Product Merchandising, Inc. ("PMI"), and Vantage Products
International, Inc. ("VPI") (collectively referred to as the "Company").
Significant intercompany accounts and transactions have been eliminated.
FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATIONS
Financial instruments, which are potentially subject to concentrations of credit
risk, consist principally of cash and accounts receivable. Cash deposits are
placed with high credit quality financial institutions to minimize risk.
Accounts receivable are unsecured. The fair value of these financial instruments
and notes payable approximate their carrying values.
RECLASSIFICATIONS
Certain amounts for June 30, 1998 have been reclassified to conform to the
current year classifications.
(Continued)
21
<PAGE> 22
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing consolidated financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosures of contingent assets and liabilities, and the reported amounts
of revenues and expenses. Actual results could vary from the estimates used in
preparing the accompanying consolidated financial statements.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories, which consist of goods held for resale, are carried at the lower of
cost or market using the average cost method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives (5 to 7 years). The cost of
maintenance and repairs is charged to expense as incurred; significant renewals
and betterments are capitalized.
COST IN EXCESS OF NET TANGIBLE ASSETS ACQUIRED
Cost in excess of net tangible assets acquired is the difference between the
purchase price paid and liabilities assumed over the estimated fair market value
of assets acquired. Cost in excess of net tangible assets acquired in connection
with acquisitions is amortized using the straight-line method over 15 years.
Amortization expense relating to cost in excess of net tangible assets amounted
to $36,542 and $7,590 for the years ended June 30, 1999 and 1998. On an on-going
basis management reviews recoverability, the valuation and amortization of cost
in excess of net tangible assets. As a part of this review, the Company
considers the undiscounted projected future net cash flows in evaluating the
recoverability of cost in excess of net tangible assets. If the undiscounted
future net cash flows were less than the stated value, cost in excess of net
tangible assets would be written down to fair value.
(Continued)
22
<PAGE> 23
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
License Agreements
License agreements represent amounts paid to acquire exclusive distribution
rights for specific products and are amortized over their estimated useful life
ranging from 3 to 15 years. Amortization expense relating to license agreements
was $37,622 and $12,408 for the year ended June 30, 1999 and 1998, respectively.
STOCK BASED COMPENSATION
The Company measures compensation cost for its stock based compensation plans
under the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees". The excess, if any, of the fair
value of the stock on the date of grant over the amount to be paid for the stock
is accrued over the related vesting period. Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123")
requires companies electing to continue to use APB 25 to account for its
stock-based compensation plan to make pro forma disclosures of net income and
earnings per share as if SFAS 123 had been applied. See Note 8.
Income Taxes
The Company utilizes the asset and liability approach to financial accounting
and reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities.
ADVERTISING
The Company expenses the cost of advertising as incurred or when such
advertising initially takes place. No advertising costs were capitalized at June
30, 1998 or 1999. Advertising expense approximated $489,000 and $337,000 for the
years ended June 30, 1999 and 1998, respectively.
(Continued)
23
<PAGE> 24
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss Per Share
Loss per common share was computed by dividing the net loss by the weighted
average number of shares of common stock outstanding. Loss per share for fiscal
1998 has been restated from the previously reported of $.09, to properly reflect
the capital structure of DSSI for the entire year. The effect of outstanding
options on the computation of net loss per share would be anti-dilutive and
therefore is not included in the computation of weighted average shares.
3 - BUSINESS ACQUISITIONS
VANTAGE PRODUCTS INTERNATIONAL, INC.
On May 31, 1998, the Company issued 400,000 shares of its common stock in
exchange for all the outstanding shares of VPI common stock. This transaction
was accounted for as a pooling-of-interests and, accordingly, common stock,
additional paid-in capital and accumulated deficit at July 1, 1997 have been
adjusted.
PRODUCT MERCHANDISING, INC.
On April 14, 1998, the Company acquired all of the issued and outstanding common
stock of PMI for $200,000 cash and 137,500 shares of CPI common stock valued at
a fair market value of $2 per share. The acquisition has been accounted for as a
purchase and, accordingly, the net assets and results of operations of PMI have
been included in the Company's consolidated financial statements commencing on
April 14, 1998. The total acquisition cost exceeded the fair value of the net
assets acquired by approximately $552,000.
(Continued)
24
<PAGE> 25
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Displays $ 1,237 $ 1,237
Leasehold improvements 6,178 6,178
Fixtures and equipment 230,255 167,927
Automobile 11,700 11,700
--------- ---------
Total property and equipment 249,370 187,042
Less accumulated depreciation (98,785) (66,416)
--------- ---------
Property and equipment, net $ 150,585 $ 120,626
========= =========
</TABLE>
5 - NOTE PAYABLE TO STOCKHOLDER
The note payable to stockholder (also the president of the Company) is payable
on demand, uncollateralized, and bears interest at an annual rate of 12%.
Accrued interest on this note, which was paid in full in Fiscal Year 1999 and
totaled $145,165 at June 30, 1998, and is included in accrued expenses for the
period ended June 30,1998. On March 31,1999 the note payable to stockholder was
renewed with a maturity date of April 30, 2001.
6 - FEDERAL INCOME TAXES
CPI and its subsidiaries file separate income tax returns. Deferred tax assets
and liabilities consist of the following:
<TABLE>
<CAPTION>
June 30,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets
Accrued expenses $ -- $ 65,222
Net operating loss carryforward 714,000 656,000
Other 5,018 17,399
--------- ---------
Total deferred tax assets 719,018 738,621
Valuation allowance (719,018) (738,621)
--------- ---------
Net deferred tax assets $ -- $ --
========= ==========
</TABLE>
(Continued)
25
<PAGE> 26
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
6 - FEDERAL INCOME TAXES (Continued)
The company has provided a valuation allowance against deferred tax assets
because their recovery is uncertain. Following is a reconciliation of income
taxes at the federal statutory rate to income tax expense:
<TABLE>
<CAPTION>
June 30,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
Tax benefit at statuary rate $ 1,114 $ 230,828
Loss for which benefits were not used (1,114) (230,828)
Taxes attributable to filing on
a separate return basis 23,896 --
State income taxes 9,994 --
--------- ---------
Income tax expense $ 33,890 $ --
========= =========
</TABLE>
At June 30, 1999, the Company had net operating loss carryovers of approximately
$2,100,000, of which approximately $900,000 were carryforwards of DSSI. Because
of the ownership change rules, use of the DSSI carryforwards are limited to
approximately $80,000 per year.
The carryovers of CPI and its subsidiaries expire from 2013 through 2019. The
DSSI carryovers expire through 2011.
(Continued)
26
<PAGE> 27
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
7 - RELATED PARTY TRANSACTIONS
Included in accounts payable at June 30, 1998 is $100,000 due to the prior owner
of PMI. This amount was paid in full subsequent to June 30, 1998. See Note 5
regarding stockholders loans.
8 - STOCK OPTIONS AND WARRANTS
On September 22, 1994, DSSI established a non-qualified stock option plan, which
provides for the granting of non-qualifying stock options to purchase up to
500,000 shares of common stock at the fair market value at the date of grant.
There were 345,000 options outstanding at June 30, 1998. No options were
granted, exercised or canceled during the year ended June 30, 1998, and
approximately 185,000 shares were exercised and no additional shares were
granted or cancelled under the terms of this plan during the year ended June 30,
1999.
On December 11,1998, the Company's stockholders approved a new stock option
plan, ("1998 Collegiate Pacific Inc. Stock Option Plan"). The new plan
authorizes the Company's Board of Directors to grant employees, directors and
consultants of the Company up to an aggregate of 2,000,000 shares of the
Company's common stock, $0.01 par value per share. Pursuant to the approval of
the stock option plan by the Company's stockholders, the Company's Board of
Directors on February 24, 1999 granted 207,500 shares to employees and
non-employee directors of the Company at the closing price of the Company's
common stock, which was $1.88. These options vested at date of grant.
(Continued)
27
<PAGE> 28
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
8 - STOCK OPTIONS AND WARRANTS (Continued)
A summary of the Company's option and warrant activity for the years ended June
30, 1998 and 1999 follows:
<TABLE>
<CAPTION>
Warrants Options Weighted
issued to Warrants issued to average
Directors, Officers issued to Officers and exercise
and Employees Other Parties Employees price
------------------- ------------- ------------ --------
<S> <C> <C> <C> <C>
Outstanding at June 30, 1997 144,681 271,348 345,000 $1.67
Options and warrants expired (144,681) (271,348) -- --
----------- ---------- -------- -----
Outstanding and exercisable at June 30, 1998 -- -- 345,000 0.40
Options and warrants granted -- -- 207,500 1.88
Options and warrants exercised -- -- (185,000) 0.27
Options and warrants expired -- -- -- --
----------- ---------- -------- -----
Outstanding and exercisable at June 30, 1999 -- -- 367,500 1.24
=========== ========== ======== =====
</TABLE>
The weighted average fair value of options granted in Fiscal 1999 was $1.23 per
share.
The Company has adopted the disclosure provisions of Statement No. 123, as
discussed in Note 2, and continues to apply Opinion 25 for stock options granted
to employees. If the Company had recognized compensation expense based upon the
fair market at the date of grant for options granted to employees, the effect on
net loss and loss per share for the year ended June 30, 1999 would have been as
follows:
<TABLE>
<S> <C>
Net loss
As reported $ (30,534)
Pro forma (285,000)
Loss per common share
As reported $ --
Pro forma (0.02)
</TABLE>
The fair value of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: expected volatility of 140%; risk free interest rate of 5.50%; no
dividend yield; and expected lives of seven years.
(Continued)
28
<PAGE> 29
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
8 - STOCK OPTIONS AND WARRANTS (Continued)
The following table summarizes additional information about stock options at
June 30,1999:
<TABLE>
<CAPTION>
Outstanding and Exercisable
----------------------------------------------
Weighted
average
remaining Weighted
contractual average
life exercise
Exercise price Shares (in years) price
- -------------- ------- ----------- -----------
<S> <C> <C> <C>
$ 0.25 60,000 3.0 $ 0.25
0.63 100,000 0.1 0.63
1.88 207,500 9.7 1.88
------- -----------
367,500 1.24
======= ===========
</TABLE>
9 - LEASES
The Company leases office and warehouse facilities located in Dallas, Texas and
Memphis, Tennessee under the terms of operating leases which expire at various
dates through 2003. Rent expense approximated $90,000 for the year ended June
30, 1998, and $107,000 for the year ended June 30, 1999.
Future minimum lease commitments on all operating leases with terms in excess of
one year are as follows:
<TABLE>
<S> <C>
2000 $ 94,890
2001 104,000
2002 105,000
2003 8,750
--------
$312,640
========
</TABLE>
(Continued)
29
<PAGE> 30
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
10 - SUBSEQUENT EVENTS (UNAUDITED)
On September 14, 1999 the Company agreed to terms for a new $2,000,000 Revolving
Line of Credit with Chase Bank of Texas, N.A. The new Revolving Line of Credit
will allow the Company to borrow funds based upon certain percentages of
accounts receivable and inventories. The Revolving Credit Facility matures on
October 31, 2001 and includes a provision for letters of credit. Borrowings
under the Revolving Line of Credit will bear interest at the prevailing Prime
Rate plus 1/4% or LIBOR plus 2-1/2%. The Note Payable to Stockholder is
subordinate to the Revolving Line of Credit, and the Revolving Line of Credit is
partially guaranteed by the Stockholder holding the existing Note Payable.
30
<PAGE> 31
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
For the period ended August 22, 1997, the Company's auditors were
Watkins, Watkins & Keenan. For the year ended June 30, 1998, the Company's
auditors were Sutton Frost LLP. The reason for this change was the lack of
independence of William A. Watkins, Jr., a partner of Watkins, Watkins & Keenan,
and a director of the Company since February 1998.
On December 11, 1998 the Board of Directors approved the firm of Grant
Thornton LLP as the Company's new principal accountants. The reports of Sutton
Frost for the 1998 fiscal year did not contain an adverse opinion or disclaimer
of opinion. Such reports were not qualified or modified as to uncertainty, audit
scope or accounting principles. During such year and during the period between
June 30,1997 and their dismissal, there was no disagreement between Sutton Frost
and Collegiate Pacific on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of Sutton Frost, would have
caused that firm to make reference to the subject matter of such disagreement in
connection with its report on the Company's financial statements.
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors and Executive Officers
As of September 28, 1999, the directors and executive officers of the Company
were:
<TABLE>
<CAPTION>
Positions and Offices Held
Name Age With the Company
- ----------------------------------------- --- -------------------------------------------
<S> <C> <C>
Michael J. Blumenfeld.................... 53 Chairman of the Board, President, AND Chief
Executive Officer
Arthur J. Coerver........................ 56 Chief Operating Officer and Director
Harvey Rothenberg........................ 57 Vice President Marketing and Director
William R. Estill........................ 50 Chief Financial Officer, Secretary and Treasurer
Chadd H. Edlein.......................... 28 Vice President Corporate Development
Jeff Davidowitz.......................... 43 Director
Robert W. Philip......................... 63 Director
William A. Watkins, Jr................... 56 Director
</TABLE>
All directors hold office until the next Annual Meeting of Shareholders
of the Company or until their successors have been duly elected and qualified.
Mr. Davidowitz was elected at the Annual Meeting of Shareholders on June 16,
1997; and Messrs. Blumenfeld, Coerver, Philip and Watkins were appointed to the
Board of Directors on February 17, 1998. Mr. Rothenberg was elected at the
Annual Meeting of Shareholders on December 11,1998.
Each executive officer of the Company will serve until the first
meeting of the Board of Directors following the next Annual Meeting of
Shareholders unless the Board otherwise directs.
Family Relationships
There are no family relationships among any of the directors or
executive officers of the Company.
31
<PAGE> 32
Business History
Michael J. Blumenfeld has served as Chairman of the Board, President,
and Chief Executive Officer of the Company since February 1998. From July 1997
until February 1998, Mr. Blumenfeld served as President and Chief Executive
Officer of Collegiate Pacific, Inc., a Texas corporation that sold all of its
assets to the Company in February 1998. From 1992 until November 1996, Mr.
Blumenfeld served as Chairman of the Board and Chief Executive Officer of Sport
Supply Group, Inc., a New York Stock Exchange company engaged in the direct mail
marketing of sports related equipment.
Arthur J. Coerver joined the Company in February 1998 as Chief
Operating Officer and a director. From 1991 through 1997, Mr. Coerver was Vice
President, Sales and Marketing, of Sport Supply Group, Inc., a New York Stock
Exchange company engaged in the direct mail marketing of sports related
equipment.
Harvey Rothenberg joined the Company in February 1998 and has served on
the Board of Directors since December 1998. From 1977 to 1998 Mr. Rothenberg
served as Vice President of Sales for Sport Supply Group, Inc., a New York Stock
Exchange company engaged in the direct mail marketing of sports related
equipment.
William R. Estill joined the Company in July 1999 as Chief Financial
Officer and Treasurer. From December 1997 until February 1999, Mr. Estill served
as Vice President of Finance for FWT, Inc., a manufacturer of telecommunication
structures. From May 1996 to November 1997, Mr. Estill served as Chief Financial
Officer of Bearcom, Inc. From April 1985 to May 1996, Mr. Estill served as Vice
President, Chief Financial Officer, Secretary and Treasurer for Sport Supply
Group, Inc., a New York Stock Exchange company. Mr. Estill was also a member of
the Board of Directors during his tenure with Sport Supply Group, Inc. Mr.
Estill holds a Bachelor of Business Administration degree in Accounting from the
University of Texas at Arlington and passed the CPA exam in 1983.
Chadd H. Edlein joined the Company in July 1997. From 1994 to 1997 Mr.
Edlein served as Marketing Manager for Sport Supply Group, Inc., a New York
Stock Exchange company engaged in the direct mail marketing of sports related
equipment.
Jeff Davidowitz has served as a director of the Company since June
1994. Mr. Davidowitz also serves as President of Penn Footwear, a private
investment company, since January 1, 1991. Prior to that, Mr. Davidowitz was
Vice President of Penn Footwear.
Robert W. Philip has served as a director of the Company since February
1998. Mr. Philip served as Executive in Residence and Lecturer in the Department
of Accounting of the College of Business Administration at the University of
North Texas in Denton, Texas from September 1989 until May 1994. Prior to that
time, Mr. Philip served as an audit partner with Arthur Andersen, S.C. for
approximately 18 years. Mr. Philip is currently retired from the University of
North Texas and Arthur Andersen, S.C.
William A. Watkins, Jr. has served as a director since February 1998.
Mr. Watkins has been a partner of Watkins, Watkins and Keenan, a certified
public accounting firm, since December 1971.
Compliance with Section 16(a) of the Exchange Act
Based solely on a review of Forms 3 and 4 furnished to the Company
under Rule 16a-3(e) promulgated under the Exchange Act with respect to Fiscal
1997, the Company is not aware of any director or officer of the Company who
failed to file on a timely basis, as disclosed in such forms, reports required
by Section 16(a) of the Exchange Act during Fiscal 1998 or prior years. The
Company is not aware of any beneficial owner of 10% or more of the outstanding
shares of the Common Stock, which is the only security of the Company registered
under Section 12 of the Exchange Act, other than Michael Blumenfeld who is a
director of the Company. See Item 11 to this Report.
32
<PAGE> 33
ITEM 10 EXECUTIVE COMPENSATION
Executive Compensation
The Summary Compensation Table below shows compensation for the 1999
fiscal year of each person who is a "Named Executive Officer" (as that term is
defined in Item 402 of Regulation S-K to the Securities Act of 1933, as
amended).
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------------------- --------------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDER- ALL OTHER
COMPEN- STOCK LYING COMPEN-
NAME AND PRINCIPAL SALARY BONUS SATION AWARD(S) OPTIONS SATION
POSITION YEAR $ $ $ $ # $
- ------------------------- ---- -------- ----- ------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael J. Blumenfeld 1999 $ 78,000 -- -- $ 93,750 50,000 --
Chairman, President 1998 77,000 -- --
& Chief Executive
Officer (1)
Arthur J. Coerver 1999 108,000 -- -- 46,875 25,000 --
Chief Operating Officer 1998 112,500 -- -- -- -- --
& Director (2)
</TABLE>
(1) Mr. Blumenfeld became Chairman, President, and Chief Executive Officer
on February 17, 1998.
(2) Mr. Coerver became Chief Operating Officer on February 17,1998.
Director Compensation
Directors receive $7,500 per year for their service on the Board of
Directors or any committee of the Board of Directors. Directors are reimbursed
for their reasonable out-of-pocket expenses associated with attending Board of
Directors and committee meetings.
Employment Contracts and Change in Control Agreements
None
STOCK OPTION PLANS
Stock Option Plan of 1994
On September 22, 1994, the Board of Directors ratified the adoption of
the Drug Screening Systems, Inc.(DSSI) Stock Option Plan of 1994 (the "1994
Option Plan") which provides for the granting of non-qualified stock options to
purchase up to 500,000 shares of the Common Stock, subject to possible
adjustment in the event of stock dividends, stock splits and similar
transactions. Pursuant to the 1994 Option Plan, options may be granted to key
employees, officers, directors, consultants and advisers of the Company and, if
later incorporated, subsidiaries; the options may become exercisable in
installments; the exercise price of an option may not necessarily be at the fair
market value of the Common Stock at its date of grant; the expiration date of an
option may be five to ten years
33
<PAGE> 34
after its date of grant; and there is a provision permitting exercise if there
is a "change of control" (which definition does not include a transaction
approved by the then current directors).
Pursuant to the 1994 Option Plan, options to purchase an aggregate of
270,000 shares of the Common Stock at $0.625 a share (the fair market value at
the date of grant) were granted on July 29, 1994 and an option to purchase
25,000 shares at $1.375 a share (the fair market value at the date of grant) was
granted on September 22, 1994 (subsequently reduced to $.0625 to reflect current
market). During its December 1995 meeting, the Board further reduced the
exercise price for options granted to active officers and its consultant to
$0.25 to reflect an additional drop in the market price. Options to purchase an
aggregate of 50,000 shares of the Common Stock at $0.25 a share (the fair market
value at the date of grant) were granted on June 16, 1997. These options are
exercisable on the respective date of grant and expire five years from the
respective date of grant.
The stock options that are still outstanding under the DSSI Option Plan
as of June 30,1999 are as follows:
<TABLE>
<CAPTION>
Name of Optionee Position with Company Number of Shares
- ---------------- --------------------- ----------------
<S> <C> <C>
Granted July 29, 1994
Robert G. Wallace Sales Consultant 50,000
Anthony Ian Newman Director (resigned 2/17/98) 25,000
Jeff Davidowitz Director 25,000
Kenneth S. Carpenter Vice President (resigned 7/26/96) 10,000
Granted September 22, 1994
Patrick J. Brennan Vice President, Chief Financial 25,000
Officer and Secretary (resigned
2/17/98)
Granted June 16, 1997
Patrick J. Brennan Vice President, Chief Financial 25,000
Officer and Secretary (resigned
2/17/98)
</TABLE>
34
<PAGE> 35
Stock Option Plan of 1998
On December 11, 1998, the Company's stockholders approved a new stock
option plan, ("1998 Collegiate Pacific Inc. Stock Option Plan"). The new plan
authorizes the Company's board of Directors to grant employees, directors, and
consultants of the Company up to an aggregate of the Company's common stock,
$0.01 par value per share. Pursuant to the approval of the stock option plan by
the Company's stockholders, the Company's Board of Directors on February 24,
1999 granted 207,500 shares to employees and non-employee directors of the
Company at the closing price of the Company's common stock, which was $1.88.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information known to the Company
with respect to beneficial ownership of shares of Common Stock as of June 30,
1999 for (i) all persons who are beneficial owners of five percent or more of
the Company's Common Stock, (ii) each director and nominee for director, (iii)
the Company's Chief Executive Officer and the other executive officers named in
the Summary Compensation Table above, and (iv) all executive officers and
directors as a group:
<TABLE>
<CAPTION>
Executive Officers and Directors (1) Number of Shares Beneficially Owned Percent of Class (2)
------------------------------------ ----------------------------------- --------------------
<S> <C> <C>
Michael J. Blumenfeld(4) 9,742,111 56.6%
Arthur J. Coerver(5) 138,000 *
Harvey Rothenberg(6) 29,436 *
William R. Estill -- *
Chadd 77,500 *
Edlein(9)
Jeff Davidowitz(3) 615,000 3.6%
Robert W. Philip(7) 47,500 *
William A. Watkins, Jr.(8) 72,500 *
Executive Officers and Directors as a Group 10,722,047 62.3%
(7 persons)
</TABLE>
*Less than 1%
(1) The address for each person listed is 13950 Senlac, Suite 200, Farmers
Branch, Texas 75234.
(2) Percentages are based on the total number of shares of Common Stock
outstanding at September 24, 1998, plus the total number of outstanding
options held by each person that are exercisable within 60 days of such
date. Shares of Common Stock issuable upon exercise of outstanding
options, however, are not deemed outstanding for purposes of computing
the percentage ownership of any other person. Except as otherwise noted
in the following footnotes, other than shared property rights created
under joint tenancy or marital property laws as between the Company's
directors and executive officers and their respective spouses, each
stockholder named in the table has sole voting and investment power
with respect to the shares of Common Stock set forth opposite such
stockholder's name.
(3) Consist of 610,000 shares of Common Stock and 5,000 shares issuable
upon exercise of an option expiring February 24, 2009.
(4) Consist of 9,692,111 shares of Common Stock and 50,000 shares issuable
upon exercise of an option expiring February 24, 2009.
35
<PAGE> 36
(5) Consist of 113,000 shares of Common Stock and 25,000 shares issuable
upon exercise of an option expiring February 24, 2009.
(6) Consist of 1,000 shares of Common Stock, 8,436 shares of Common Stock
held in trust for the benefit of Mr. Rothenberg's child, and 15,000
shares issuable upon exercise of an option expiring February 24, 2009,
and 5,000 in shares issuable upon exercise of an option expiring
February 24, 2009 held by the spouse of Mr. Rothenberg.
(7) Consist of 42,500 shares of Common Stock and 5,000 shares issuable upon
exercise of an option expiring February 24, 2009.
(8) Consist of 62,500 shares of Common Stock and 5,000 shares issuable upon
exercise of an option expiring February 24, 2009.
(9) Consist of 70,000 shares of Common Stock and 7,500 shares issuable upon
exercise of an option expiring February 24, 2009.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 17, 1998, the Company sold 10,000,000 shares of Common
Stock to Michael J. Blumenfeld (9,800,000 shares) and Adam Blumenfeld (200,000
shares) for $0.20 per share, or an aggregate purchase price of $2,000,000, in
cash pursuant to the terms and subject to the conditions of that certain Stock
Purchase Agreement dated August 18, 1997 by and between the Company and Michael
and Adam Blumenfeld. Adam Blumenfeld is the son of Mr. Blumenfeld. Mr.
Blumenfeld was not an officer or director of the Company at the time of the
execution of the Stock Purchase Agreement. The consideration paid by Mr.
Blumenfeld for the Common Stock was based on the average of the high and low bid
price of the Common Stock as reported by the NASD on August 18, 1997, the date
of the Stock Purchase Agreement.
On February 17, 1998, in connection with the Stock Purchase Agreement
set forth above, the Company sold (i) 100,000 shares of Common Stock to Arthur
J. Coerver, who became a director of the Company upon consummation of the Stock
Purchase Agreement, at $.20 per share, (ii) 67,500 shares of Common Stock to
Robert W. Philip, who became a director of the Company upon consummation of the
Stock Purchase Agreement, at $.20 per share, and (iii) 67,500 shares of Common
Stock to William A. Watkins, Jr., who became a director of the Company upon
consummation of the Stock Purchase Agreement, at $.20 per share.
Since April 14, 1997, Michael J. Blumenfeld has made loans, net of
repayments, to the Company in an aggregate amount approximating $755,000, which
are payable on demand and bear interest at the rate of 12% per annum. The
aggregate amount outstanding for such loans (including accrued interest) at June
30,1999 and 1998 was $980,720 and $899,836, respectively.
PART IV
ITEM 13 EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed below which are marked with a footnote reference were filed
with a prior registration statement filed under the Securities Act of 1933, as
amended or in a periodic report or proxy statement filed under the Exchange Act
and are incorporated herein by this reference. The exhibits listed below which
are not marked with a footnote reference are filed with this Form 10-KSB.
36
<PAGE> 37
<TABLE>
<CAPTION>
Number Exhibit
- ------ -------
<S> <C>
2.1 Purchase and Sale Agreement dated March 14, 1997 for
the sale of the majority of the Company's assets and
business to Casco Standards, Inc. (6)
2.2 Stock Purchase Agreement dated August 18, 1997 with
Michael J. Blumenfeld. (7)
2.3 Agreement and Plan of Merger dated July 20, 1999 for
the reincorporation of the Company in Delaware. (10)
3.1 Intentionally omitted
3.2 Intentionally omitted
3.3 Intentionally omitted
3.4 Intentionally omitted
3.5 Intentionally omitted
3.6 Intentionally omitted
3.7 Copy of Certificate of Incorporation of the Company
filed on December 15, 1998. (9)
3.8 Copy of Certificate of Merger of the Company filed on
July 20, 1999. (9)
3.9 Copy of the By-Laws of the Company. (9)
4.1 Intentionally omitted
4.2 Specimen Certificate of Common Stock, $0.01, par
value, of the Company. (9)
10.1 Copy of Warrant Agency Agreement dated as of June 4,
1993 between the Company and Continental Stock
Transfer & Trust Company, as Warrant Agent. (2)
10.2 Proof of Redeemable Warrant expiring June 3, 1996 of
the Company. (2)
10.3 Form of Underwriter's Unit Purchase Warrant of the
Company. (3)
10.4 Form of Underwriter's Warrant of the Company. (3)
10.5 Copy of the 1988 Stock Option Plan of the Company.
(1)
10.6 Copy of the 1994 Stock Option Plan of the Company.
(5)
10.7 Copy of Employee Restricted Stock Plan of the
Company. (4)
10.8 Copy of Lease dated July 1, 1997 between the Company,
as tenant, and Post-Valwood, Inc., as landlord. (8)
10.9 Copy of exclusive Distribution Agreement dated
February 24, 1998, between the Company and Equipmart,
Inc. (8)
10.10 Copy of exclusive Distribution Agreement dated March
7, 1998, between the Company and FunNets, Inc. (8)
10.11 Copy of exclusive Distribution Agreement dated March
21, 1998, between the Company and Pro Gym Equipment,
Inc. (8)
10.12 Copy of the Stock Acquisition Agreement dated April
14, 1998, between the Company and Product
Merchandising, Inc. (8)
10.13 Copy of the Agreement and Plan of Merger dated May
31, 1998, between the Company and Vantage Products
International, Inc. (8)
10.14 Copy of the 1998 Collegiate Pacific Inc. Stock Option
Plan. (10)
10.15 Copy of Credit Agreement, dated as at June 30, 1999,
between Chase Bank of Texas, National Association,
and the Company for a $2,000,000 line of credit, and
related documents.
10.16 Copy of the Promissory Note dated March 31, 1999 from
the Company to Michael J. Blumenfeld in the principal
amount of $1,082,648.75.
27.1 Financial Data Schedule
</TABLE>
37
<PAGE> 38
- --------------------
(1) Filed as an exhibit to the Company's Registration Statement on Form
S-18, File No. 33-19770-NY.
(2) Filed as an exhibit to the Company's Form 8-A dated June 28, 1993.
(3) Filed as an exhibit to the Company's Current Report on Form 8-K filed
on July 12, 1993.
(4) Filed as an exhibit to a Post-Effective Amendment to the Company's
Registration Statement on Form S- 18, File No. 33-19770-NY.
(5) Filed as an exhibit to the Company's Annual Report on Form 10- KSB for
the year ended June 30, 1994.
(6) Filed as an exhibit to the Company's Definitive Proxy Statement for its
Annual Meeting held on June 16, 1997.
(7) Filed as an exhibit to the Company's Form 8-K/A filed on September 11,
1997.
(8) Filed as an exhibit to the Company's Annual Report Form 10- KSB for the
year ended June 30, 1998.
(9) Filed as an exhibit to the Company's Form 8-A dated September 9, 1999.
(10) Filed as an exhibit to the Company's Definitive Proxy Statement for its
Annual Meeting held on December 11, 1998.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on July 22, 1999 regarding the
reincorporation of the Company under the laws of the State of Delaware.
38
<PAGE> 39
SIGNATURES
In accordance with Sections 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
COLLEGIATE PACIFIC INC.
By: /s/ MICHAEL J. BLUMENFELD
---------------------------------------------
Michael J. Blumenfeld,
Chairman, President, Chief Executive Officer
and Director (Principal Executive Officer)
Dated: September 29, 1999
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL J. BLUMENFELD Chairman, President, Chief Executive September 29, 1999
- --------------------------------- Officer, and Director
Michael J. Blumenfeld (Principal Executive Officer)
/s/ ARTHUR J. COERVER
- --------------------------------- Chief Operating Officer and Director September 29, 1999
Arthur J. Coerver
/s/ HARVEY ROTHENBERG Vice President Marketing and Director September 29, 1999
- ---------------------------------
Harvey Rothenberg
/s/ WILLIAM R. ESTILL Chief Financial Officer, Secretary, and September 29,1999
- --------------------------------- Treasurer (Principal Accounting and
William R. Estill Financial Officer)
/s/ JEFF DAVIDOWITZ
- --------------------------------- Director September 29, 1999
Jeff Davidowitz
/s/ ROBERT W. PHILIP
- --------------------------------- Director September 29, 1999
Robert W. Philip
/s/ WILLIAM A. WATKINS, JR.
- --------------------------------- Director September 29, 1999
William A. Watkins, Jr.
</TABLE>
39
<PAGE> 40
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Description
- ------ ------------
<S> <C>
2.1 Purchase and Sale Agreement dated March 14, 1997 for
the sale of the majority of the Company's assets and
business to Casco Standards, Inc. (6)
2.2 Stock Purchase Agreement dated August 18, 1997 with
Michael J. Blumenfeld. (7)
2.3 Agreement and Plan of Merger dated July 20, 1999 for
the reincorporation of the Company in Delaware. (10)
3.1 Intentionally omitted
3.2 Intentionally omitted
3.3 Intentionally omitted
3.4 Intentionally omitted
3.5 Intentionally omitted
3.6 Intentionally omitted
3.7 Copy of Certificate of Incorporation of the Company
filed on December 15, 1998. (9)
3.8 Copy of Certificate of Merger of the Company filed on
July 20, 1999. (9)
3.9 Copy of the By-Laws of the Company. (9)
4.1 Intentionally omitted
4.2 Specimen Certificate of Common Stock, $0.01, par
value, of the Company. (9)
10.1 Copy of Warrant Agency Agreement dated as of June 4,
1993 between the Company and Continental Stock
Transfer & Trust Company, as Warrant Agent. (2)
10.2 Proof of Redeemable Warrant expiring June 3, 1996 of
the Company. (2)
10.3 Form of Underwriter's Unit Purchase Warrant of the
Company. (3)
10.4 Form of Underwriter's Warrant of the Company. (3)
10.5 Copy of the 1988 Stock Option Plan of the Company.
(1)
10.6 Copy of the 1994 Stock Option Plan of the Company.
(5)
10.7 Copy of Employee Restricted Stock Plan of the
Company. (4)
10.8 Copy of Lease dated July 1, 1997 between the Company,
as tenant, and Post-Valwood, Inc., as landlord. (8)
10.9 Copy of exclusive Distribution Agreement dated
February 24, 1998, between the Company and Equipmart,
Inc. (8)
10.10 Copy of exclusive Distribution Agreement dated March
7, 1998, between the Company and FunNets, Inc. (8)
10.11 Copy of exclusive Distribution Agreement dated March
21, 1998, between the Company and Pro Gym Equipment,
Inc. (8)
</TABLE>
<PAGE> 41
<TABLE>
<S> <C>
10.12 Copy of the Stock Acquisition Agreement dated April
14, 1998, between the Company and Product
Merchandising, Inc. (8)
10.13 Copy of the Agreement and Plan of Merger dated May
31, 1998, between the Company and Vantage Products
International, Inc. (8)
10.14 Copy of the 1998 Collegiate Pacific Inc. Stock Option
Plan. (10)
10.15 Copy of Credit Agreement, dated as at June 30, 1999,
between Chase Bank of Texas, National Association,
and the Company for a $2,000,000 line of credit, and
related documents.
10.16 Copy of the Promissory Note dated March 31, 1999 from
the Company to Michael J. Blumenfeld in the principal
amount of $1,082,648.75.
27.1 Financial Data Schedule
</TABLE>
- --------------------
(1) Filed as an exhibit to the Company's Registration Statement on Form
S-18, File No. 33-19770-NY.
(2) Filed as an exhibit to the Company's Form 8-A dated June 28, 1993.
(3) Filed as an exhibit to the Company's Current Report on Form 8-K filed
on July 12, 1993.
(4) Filed as an exhibit to a Post-Effective Amendment to the Company's
Registration Statement on Form S- 18, File No. 33-19770-NY.
(5) Filed as an exhibit to the Company's Annual Report on Form 10- KSB for
the year ended June 30, 1994.
(6) Filed as an exhibit to the Company's Definitive Proxy Statement for its
Annual Meeting held on June 16, 1997.
(7) Filed as an exhibit to the Company's Form 8-K/A filed on September 11,
1997.
(8) Filed as an exhibit to the Company's Annual Report Form 10- KSB for the
year ended June 30, 1998.
(9) Filed as an exhibit to the Company's Form 8-A dated September 9, 1999.
(10) Filed as an exhibit to the Company's Definitive Proxy Statement for its
Annual Meeting held on December 11, 1998.
<PAGE> 1
EXHIBIT 10.15
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (as amended, restated and supplemented from time to time,
this "AGREEMENT") between COLLEGIATE PACIFIC, INC., a Delaware Corporation
("BORROWER"), and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION ("BANK") is dated
effective as of June 30, 1999 ("AGREEMENT EFFECTIVE DATE").
1. LOANS AND LETTERS OF CREDIT.
CREDIT COMMITMENT 1.1.A Subject to the terms and conditions of this Agreement,
Bank agrees to make loans ("Loans") to Borrower and issue Letters of Credit for
the account of Borrower and allow Borrower to incur L/C Obligations from time
to time before the Termination Date not to exceed at any one time outstanding
the Commitment. "COMMITMENT" means the lesser of the Borrowing Base or
$2,000,000.00 ("MAXIMUM AMOUNT") "CREDIT" means collectively Loan or Loans,
Applications and/or Letters of Credit. "USED CREDIT" means the sum of all
outstanding Loans and all L/C Obligations. Subject to the terms of this
Agreement Borrower has the right to borrow, repay and reborrow. Chapter 346 of
the Texas Finance Code (which governs certain revolving loan accounts) will not
apply to the Note, any Loan or any other Credit described in this Agreement.
LOANS 1.1.B Loans may only be used for working capital and payment on
Applications. Loans will be evidenced by, and will bear interest and be payable
as provided in, the Revolving Promissory Note of Borrower dated the Agreement
Effective Date (together with any and all renewals, extensions, modifications
and replacements thereof and substitutions therefor, the "NOTE"). "TERMINATION
DATE" means the earlier of: (a) October 31, 2001; or (b) the date specified by
Bank pursuant to Section 6.1 hereof.
LETTERS OF CREDIT 1.1.C Bank shall issue letters of credit, subject to the
restrictions in this Agreement, up to one (1) month prior to the Termination
Date for the account of Borrower and in favor of such Person or Persons as may
be designated by Borrower upon an application substantially in the form of the
L/C Addendum attached to this Agreement or other application in Proper Form
("APPLICATION" or "APPLICATIONS"), duly completed and executed by Borrower not
less than two (2) Business Days prior to the date on which the letter of credit
is to be issued. "LETTER OF CREDIT" means a Letter of Credit or Letters of
Credit issued by Bank upon an Application of Borrower. No Letter of Credit
shall have an expiry date later than a date 1 month prior to the Termination
Date and if a commercial Letter of Credit, it shall not exceed a term of 90
days. Letters of Credit may be commercial or standby. "L/C OBLIGATIONS" means
the sum of (a) the face amount of all outstanding Letters of Credit less any
drawings that have been paid by Borrower either with a Loan or other means
acceptable to Bank and (b) any other amounts owing to Bank under the
Applications not already included in (a). Borrower will pay a fee in an amount
equal to the greater of: (a) one quarter of one percent (1/4%) per annum per
quarter or fraction thereof on the face amount of the Letter of Credit and (b)
Bank's minimum fee in effect on the issue date of the Letter of Credit. The fee
shall be paid to the Bank at its main offices to the attention of the Manager,
Documentary Services Division prior to the issuance of the Letter of Credit.
Bank may at any time, but is not required to, make a Loan without prior notice
to Borrower to pay any drawing under a Letter of Credit and to pay any L/C
Obligation. L/C Obligations shall never exceed $200,000.00 ("LETTER OF CREDIT
SUBLIMIT").
BORROWING BASE 1.2 The BORROWING BASE will be the amount shown as the BORROWING
BASE on the most recent Borrowing Base Report, subject to verification by Bank
and calculated using the eligibility criteria, borrowing base factors and
dollar ceilings for various components specified in the attached Exhibit A,
incorporated herein by reference.
REQUIRED PAYMENT 1.3 If the Used Credit at any time exceeds the Borrowing Base
then in effect, Borrower must immediately make a payment on the Note in an
amount sufficient to reduce the Used Credit to an amount no greater than the
Borrowing Base. Payment shall be accompanied by any prepayment charge required
by the Note and shall be due concurrently with the Borrowing Base Report. If a
negative Amount Available for Borrowing under the Borrowing Base remains after
the Note balance is reduced to zero (that is, L/C Obligations exceed the
Borrowing Base), Borrower shall provide cash collateral for L/C Obligations in
an amount sufficient to eliminate the deficiency.
COMMITMENT FEE 1.4 Borrower will pay a commitment fee (computed on the basis of
the actual number of days elapsed in a year comprised of 360 days) of 1/2 % per
annum on the daily average difference between the Maximum Amount and the Used
Credit from the date hereof to the Termination Date. The Commitment fee is due
and payable quarterly beginning the first day of the second quarter following
the Agreement Effective Date.
PAST DUE AMOUNTS 1.5 Each amount due to Bank in connection with the Loan
Documents will bear interest from its due date until paid at the Highest Lawful
Rate unless the applicable Loan Document provides otherwise.
CAPITAL ADEQUACY 1.6 If Bank determines after the date of this Agreement that
any change in any Legal Requirement regarding capital adequacy, or any change
in the interpretation or administration thereof by any appropriate governmental
authority, or compliance with any request or directive to Bank regarding
capital adequacy (whether or not having the force of law) of any such agency,
increases the capital required to be maintained with respect to any Credit and
therefore reduces the rate of return on Bank's capital below the level Bank
could have achieved but for such change or compliance (taking into
consideration Bank's policies with respect to capital adequacy), then Borrower
will pay to Bank from time to time, within 15 days of Bank's request, any
additional amount required to compensate Bank for such reduction. Bank will
request any additional amount by delivering to Borrower a certificate of Bank
setting forth the amount necessary to compensate Bank. The certificate will be
conclusive and binding, absent manifest error. Bank may make any assumptions,
and may use any allocations of costs and expenses and any averaging and
attribution methods, which Bank in good faith finds reasonable.
SECURITY INTERESTS 1.7 The Obligations (hereafter defined) are secured by, among
other collateral, a first priority and continuing security interest in all the
accounts and other property described in a Security Agreement - Accounts and
General Intangibles executed by Borrower effective as of June 30, 1999; all
inventory and other property described in the Security Agreement - Inventory
executed by Borrower effective as of June 30, 1999; General Security Agreement
dated effective June 30, 1999 executed by Product Merchandising, Inc. (each and
all of said security agreements "Security Agreements"). The Obligations also are
secured by each of the Continuing Guaranties ("Guaranties") executed by each of
Michael Blumenfeld, and Product Merchandising, Inc. (each a "Guarantor").
2. CONDITIONS PRECEDENT.
ALL CREDITS 2.1 Bank is not obligated to make any Loan or issue any Letter of
Credit unless: (a) Bank has received the following, duly executed and in Proper
Form: (1) a Request for Credit, substantially in the form of Exhibit B, not
later than one (1) Business Day before the date (which shall also be a Business
Day) of the proposed Loan or two (2) Business Days before the proposed issuance
of a Letter of Credit together with an Application in Proper Form; provided
however, Bank may accept and act upon verbal requests received from Borrower's
representative reasonably believed by Bank to be authorized to make such
requests; (2) a Borrowing Base Report within the time required by this
Agreement; and (3) such other documents as Bank reasonably may require; (b) no
Event of Default exists; (c) the making of the Loan or issuance of the Letter
of Credit is not prohibited by, or subjects Bank to any penalty or onerous
condition under any Legal Requirement; (d) delivery to Bank of that certain
Liquidity Maintenance Agreement dated June 30, 1999 executed by Michael
Blumenfeld and the Exhibit A completed and submitted from time to time as
required by the terms of said agreement and the terms thereof are maintained
and verified; (e) receipt of landlord subordination agreements or landlord
waivers all in Proper Form from each landlord where any collateral of the
Security Agreements is located;
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Credit Agreement
June 30, 1999
Collegiate Pacific, Inc.
and (f) receipt of subordination agreements in Proper Form executed by the
Shareholders of Borrower subordinating all debt now or hereafter owing from
Borrower to Shareholders and all debt subordinated shall be Subordinated Debt
(hereinafter defined) to all Bank Indebtedness.
FIRST CREDIT 2.2 In addition to the matters described in the preceding section,
Bank will not be obligated to make the first Loan or issue the first Letter of
Credit unless Bank has received all of the Loan Documents specified on Annex I
in Proper Form.
3. REPRESENTATIONS AND WARRANTIES. To induce Bank to enter into this Agreement
and to make the Loans and issue Letters of Credit, Borrower represents and
warrants as of the Agreement Effective Date and the date of each Request for
Credit that each of the following statements is and shall remain true and
correct throughout the term of this Agreement:
ORGANIZATION AND STATUS 3.1 Borrower and each Subsidiary of Borrower is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; has all power and authority to conduct its
business as presently conducted, and is duly qualified to do business and in
good standing in each jurisdiction in which the nature of the business
conducted by it makes such qualification desirable. Borrower has no Subsidiary
other than those listed on Annex II and each Subsidiary is owned by Borrower in
the percentage set forth on Annex II. If Borrower is subject to the Texas
Revised Partnership Act ("TRPA"), Borrower agrees that Bank is not required to
comply with Section 3.05(d) of TRPA and agrees that Bank may proceed directly
against one or more partners or their property without first seeking
satisfaction from partnership property.
FINANCIAL STATEMENTS 3.2 All financial statements delivered to Bank are
complete and correct and fairly present, in accordance with generally accepted
accounting principles, consistently applied ("GAAP"), the financial condition
and the results of operations of Borrower and each Subsidiary of Borrower as at
the dates and for the periods indicated. No material adverse change has
occurred in the assets, liabilities, financial condition, business or affairs
of Borrower or any Subsidiary of Borrower since the dates of such financial
statements. Neither Borrower nor any Subsidiary of Borrower is subject to any
instrument or agreement materially and adversely affecting its financial
condition, business or affairs.
ENFORCEABILITY 3.3 The Loan Documents are legal, valid and binding obligations
of the Parties enforceable in accordance with their respective terms, except as
may be limited by bankruptcy, insolvency and other similar laws affecting
creditors' rights generally. The execution, delivery and performance of the
Loan Documents have all been duly authorized by all necessary action; are
within the power and authority of the Parties; do not and will not violate any
Legal Requirement, the Organizational Documents of the Parties or any agreement
or instrument binding or affecting the Parties or any of their respective
Property.
COMPLIANCE 3.4 Borrower and each Subsidiary of Borrower has filed all
applicable tax returns and paid all taxes shown thereon to be due, except those
for which extensions have been obtained and those which are being contested in
good faith and for which adequate reserves have been established. Borrower and
each Subsidiary of Borrower is in compliance with all applicable Legal
Requirements and manages and operates (and will continue to manage and operate)
its business in accordance with good industry practices. Neither Borrower nor
any Subsidiary of Borrower is in default in the payment of any other
indebtedness or under any agreement to which it is a party. The Parties have
obtained all consents of and registered with all Governmental Authorities or
other Persons required to execute, deliver and perform the Loan Documents.
LITIGATION 3.5 Except as previously disclosed to Bank in writing, there is no
litigation or administrative proceeding pending or, to the knowledge of
Borrower, threatened against, nor any outstanding judgment, order or decree
affecting Borrower or any Subsidiary of Borrower before or by any Governmental
Authority.
TITLE AND RIGHTS 3.6 Borrower and each Subsidiary of Borrower has good and
marketable title to its Property, free and clear of any Lien except for Liens
permitted by this Agreement and the other Loan Documents. Except as otherwise
expressly stated in the Loan Documents or permitted by this Agreement, the
Liens of the Loan Documents will constitute valid and perfected first and prior
Liens on the Property described therein, subject to no other Liens whatsoever.
Borrower and each Subsidiary of Borrower possesses all permits, licenses,
patents, trademarks and copyrights required to conduct its business. All
easements, rights-of-way and other rights necessary to maintain and operate
Borrower's Property have been obtained and are in full force and effect.
REGULATION U; BUSINESS PURPOSE 3.7 None of the proceeds of any credit provided
under this Agreement will be used to purchase or carry, directly or indirectly,
any margin stock or for any other purpose which would make this credit a
"purpose credit" within the meaning of Regulation U of the Board of Governors
of the Federal Reserve System. All credit provided under this Agreement will be
used for business, commercial, investment or other similar purpose and not
primarily for personal, family, or household use or primarily for agricultural
purposes as such terms are used in the Texas Finance Code Chapter 303.
ENVIRONMENT 3.8 Borrower and each Subsidiary of Borrower have complied with
applicable Legal Requirements in each instance in which any of them have
generated, handled, used, stored or disposed of any hazardous or toxic waste or
substance, on or off its premises (whether or not owned by any of them).
Neither Borrower nor any Subsidiary of Borrower has any material contingent
liability for non-compliance with environmental or hazardous waste laws.
Neither Borrower nor any Subsidiary of Borrower has received any notice that it
or any of its Property or operations does not comply with, or that any
Governmental Authority is investigating its compliance with, any environmental
or hazardous waste laws.
INVESTMENT COMPANY ACT/PUBLIC UTILITY HOLDING COMPANY ACT 3.9 Neither Borrower
nor any Subsidiary of Borrower is an "investment company" within the meaning of
the Investment Company Act of 1940 or a "holding company" or an "affiliate" of
a "holding company" or a "public utility" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
STATEMENTS BY OTHERS 3.10 All statements made by or on behalf of Borrower, any
Subsidiary of Borrower or any other of the Parties in connection with any Loan
Document constitute the joint and several representations and warranties of
Borrower hereunder.
YEAR 2000 3.11 Any reprogramming required to permit the proper functioning, in
and following the year 2000, of (i) the Borrower's and its Subsidiaries'
computer systems and (ii) equipment containing embedded microchips (including
systems and equipment supplied by others or with which Borrower's or its
Subsidiaries' systems interface) and the testing of all such systems and
equipment, as so reprogrammed, will be completed by August 31, 1999.
Thereafter, Borrower and its Subsidiaries' will continue to monitor the year
2000 readiness of their critical consultants, vendors and suppliers and upon
determination that such critical consultants, vendors and suppliers are not
year 2000 ready, Borrower and its Subsidiaries' will take appropriate actions
in order that delivery of services will not be interrupted. The cost to the
Borrower and its Subsidiaries of such reprogramming and testing and of the
reasonably foreseeable consequences of year 2000 to the Borrower and its
Subsidiaries (including, without limitation, reprogramming errors and the
failure of others' systems or equipment) will not result in an Event of
Default.
4. AFFIRMATIVE COVENANTS. Borrower agrees to do, and if necessary cause to be
done, and cause its Subsidiaries to do, each of the following:
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June 30, 1999
Collegiate Pacific, Inc.
CORPORATE FUNDAMENTALS 4.1 (a) Pay when due all taxes and governmental charges
of every kind upon it or against its income, profits or Property, unless and
only to the extent that the same shall be contested in good faith and adequate
reserves have been established therefor; (b) Renew and keep in full force and
effect all of its licenses, permits and franchises; (c) Do all things necessary
to preserve its corporate existence and its qualifications and rights in all
jurisdictions where such qualification is necessary or desirable; (d) Comply
with all applicable Legal Requirements; and (e) Protect, maintain and keep in
good repair its Property and make all replacements and additions to its
Property as may be reasonably necessary to conduct its business properly and
efficiently.
INSURANCE 4.2 Maintain insurance with such reputable financially sound
insurers, on such of its Property and personnel, in such amounts and against
such risks as is customary with similar Persons or as may be reasonably
required by Bank, and furnish Bank satisfactory evidence thereof promptly upon
request. These insurance provisions are cumulative of the insurance provisions
of the other Loan Documents. Bank must be named as a beneficiary, loss payee or
additional insured of such insurance as its interest may appear and Borrower
must provide Bank with copies of the policies of insurance and a certificate of
the insurer that the insurance required by this section may not be canceled,
reduced or affected in any manner without 30 days' prior written notice to
Bank.
FINANCIAL INFORMATION/BORROWING BASE REPORT 4.3 (a) Furnish to Bank in Proper
Form (i) the financial statements prepared in conformity with GAAP on
consolidated and consolidating bases and the other information described in,
and within the times required by, Exhibit C, Reporting Requirements, Financial
Covenants and Compliance Certificate attached hereto and incorporated herein by
reference; (ii) the Borrowing Base Report substantially in the form of, and
within the time required by, Exhibit A along with the other information
required by Exhibit A to be submitted; (iii) within the time required by
Exhibit C, Exhibit C signed and certified by the chief financial officer or
president of Borrower; (b) Borrower will not change its fiscal year; (c)
promptly after such request is submitted to the appropriate Governmental
Authority, any request for waiver of funding standards or extension of
amortization periods with respect to any employee benefit plan; (d)
verification of Guarantor Michael Blumenfeld's compliance with the Liquidity
Maintenance Agreement dated effective June 30, 1999 (e) copies of special
audits, studies, reports and analyses prepared for the management of Borrower
by outside parties and (f) such other information relating to the financial
condition and affairs of Borrower and guarantors or any other Obligor and their
Subsidiaries as Bank may request from time to time in its discretion.
MATTERS REQUIRING NOTICE 4.4 Notify Bank immediately, upon acquiring knowledge
of (a) the institution or threatened institution of any lawsuit or
administrative proceeding which, if adversely determined, might adversely
affect Borrower or any Subsidiary or any other Obligor; (b) any material
adverse change in the assets, liabilities, financial condition, business or
affairs of Borrower or any Subsidiary or any other Obligor; (c) any Event of
Default; or (d) any reportable event or any prohibited transaction in
connection with any employee benefit plan.
INSPECTION 4.5 Permit Bank and its affiliates to inspect and photograph its
Property, to examine and copy its files, books and records, and to discuss its
affairs with its officers and accountants, at such times and intervals and to
such extent as Bank reasonably desires.
ASSURANCES 4.6 Promptly execute and deliver any and all further agreements,
documents, instruments, and other writings that Bank may request to cure any
defect in the execution and delivery of any Loan Document or more fully to
describe particular aspects of the agreements set forth or intended to be set
forth in the Loan Documents.
CERTAIN CHANGES 4.7 Notify Bank at least 30 days prior to the date that any of
the Parties changes its name or the location of its chief executive office or
principal place of business or the place where it keeps its books and records
or the location of any of the Collateral.
EXHIBIT C 4.8 Comply with each of the other affirmative covenants set forth in
Exhibit C.
SUBSIDIARIES' GUARANTIES AND SECURITY AGREEMENTS 4.9 Promptly deliver to Bank
continuing unconditional and irrevocable corporate guaranties of payment of all
Obligations in Proper Form as well as General Security Agreements covering all
assets in Proper Form for all current and future Subsidiaries of Borrower
reflecting a pledge of all assets as Collateral for all Obligations.
SUBORDINATION OF SHAREHOLDER INDEBTEDNESS 4.10 All shareholder Indebtedness
will be subordinated to Bank Indebtedness in Proper Form. Borrower may make a
principal payment on such shareholder Indebtedness up to the amount of
$500,000.00 plus accrued interest as reported through April 30, 1999;
thereafter, Borrower will be permitted to make principal and interest payments
on such shareholder Indebtedness so long as such principal and interest
payments do not exceed 50% of Borrower's Net Income on or to any Event of
Default. No payments whether principal or interest will be permitted following
any Event of Default.
5. NEGATIVE COVENANTS. The Borrower will not, and no Subsidiary of Borrower
will:
INDEBTEDNESS 5.1 Create, incur, or permit to exist, or assume or guarantee,
directly or indirectly, or become or remain liable with respect to, any
Indebtedness, contingent or otherwise unless there is a permitted amount set
forth in Exhibit C, except: (a) Indebtedness to Bank, or secured by Liens
permitted by this Agreement, or otherwise approved in writing by Bank, and
renewals and extensions (but not increases) thereof; and (b) current accounts
payable and unsecured current liabilities, not the result of borrowing, to
vendors, suppliers and Persons providing services, for expenditures for goods
and services normally required by it in the ordinary course of business and on
ordinary trade terms.
LIENS 5.2 Create or permit to exist any Lien upon any of its Property now owned
or hereafter acquired, or acquire any Property upon any conditional sale or
other title retention device or arrangement or any purchase money security
agreement; or in any manner directly or indirectly sell, assign, pledge or
otherwise transfer any of its accounts or other Property, except: (a) Liens,
not for borrowed money, arising in the ordinary course of business; (b) Liens
for taxes not delinquent or being contested in good faith by appropriate
proceedings; (c) Liens in effect on the date hereof and disclosed to Bank in
writing, so long as neither the indebtedness secured thereby nor the Property
covered thereby increases; and (d) Liens in favor of Bank, or otherwise
approved in writing by Bank. Notwithstanding anything to the contrary herein,
Borrower will not, and no Subsidiary of Borrower will permit any Lien on any
inventory that secures the Loans unless Bank shall provide Borrower with Bank's
prior written consent.
FINANCIAL AND OTHER COVENANTS 5.3 Fail to comply with the required financial
covenants and other covenants described, and calculated as set forth, in
Exhibit C. Unless otherwise provided on Exhibit C, all such amounts and ratios
will be calculated: (a) on the basis of GAAP; and (b) on a consolidated basis.
Compliance with the requirements of Exhibit C will be determined as of the
dates of the financial statements to be provided to Bank.
CORPORATE CHANGES 5.4 In any single transaction or series of transactions,
directly or indirectly: (a) liquidate or dissolve; (b) be a party to any merger
or consolidation; (c) sell or dispose of any interest in any of its
Subsidiaries, or permit any of its Subsidiaries to issue any additional equity
other than to Borrower; (d) sell, convey or lease all or any substantial part
of its assets, except for sale of inventory in the ordinary course of business;
or (e) permit any change in ownership of Borrower.
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June 30, 1999
Collegiate Pacific, Inc.
RESTRICTED PAYMENTS 5.5 Unless otherwise permitted on Exhibit C, at any time:
(a) redeem, retire or otherwise acquire, directly or indirectly, any shares of
its capital stock or other equity interest in excess of 50% of Borrower's Net
Income; (b) declare or pay any dividend in excess of 50% of Borrower's Net
Income (except stock dividends and dividends paid to Borrower); (c) make any
other distribution or contribution of any Property or cash or obligation to
owners of an equity interest or to a Subsidiary in their capacity as such,
including any principal and interest payments on Subordinated Debt and any such
principal and interest payments on Subordinated Debt shall not exceed 50% of
Borrower's Net Income; (d) make any capital expenditures in excess of
$100,000.00 in the aggregate for Borrower and its Subsidiaries during any
fiscal year; or (e) make any payments on Subordinated Debt after an y Event of
Default has occurred.
NATURE OF BUSINESS; MANAGEMENT 5.6 Change the nature of its business or enter
into any business which is substantially different from the business in which
it is presently engaged, or permit any material change in its management.
AFFILIATE TRANSACTIONS 5.7 Enter into any transaction or agreement with any
Affiliate except upon terms substantially similar to those obtainable from
wholly unrelated sources.
SUBSIDIARIES 5.8 Form, create or acquire any Subsidiary without giving prior
notice to Bank and without providing continuing guaranties of payment and
security agreements in Proper Form to Bank in compliance with Section 4.9 of
this Agreement.
LOANS AND INVESTMENTS 5.9 Unless otherwise provided on Exhibit C, make any
advance, loan, extension of credit, or capital contribution to or investment
in, or purchase, any stock, bonds, notes, debentures, or other securities of,
any Person, except: (a) readily marketable direct obligations of the United
States of America or any agency thereof with maturities of one year or less
from the date of acquisition; (b) fully insured (unless with Bank) certificates
of deposit with maturities of one year or less from the date of acquisition
issued by any commercial bank operating in the United States of America having
capital and surplus in excess of $50,000,000.00; and (c) commercial paper of a
domestic issuer if at the time of purchase such paper is rated in one of the
two highest rating categories of Standard and Poor's Corporation or Moody's
Investors Service.
6. EVENTS OF DEFAULT AND REMEDIES.
EVENTS OF DEFAULT 6.1 Each of the following is an "EVENT OF DEFAULT":
(a) Any Obligor fails to pay any principal of or interest on the Note, any
Application or any other Obligation under any Loan Document as and when due; or
(b) Any Obligor or any Subsidiary of Borrower fails to pay at maturity, or
within any applicable period of grace, any principal of or interest on any
other borrowed money obligation or fails to observe or perform any term,
covenant or agreement contained in any agreement or obligation by which it is
bound; or
(c) Any representation or warranty made in connection with any Loan Document
was incorrect, false or misleading when made; or
(d) Any Obligor violates any covenant contained in any Loan Document; or
(e) An event of default occurs under any other Loan Document; or
(f) Final judgment for the payment of money is rendered against Obligor or any
Subsidiary of Borrower and remains undischarged for a period of 30 days during
which execution is not effectively stayed; or
(g) The sale, encumbrance or abandonment (except as otherwise expressly
permitted by this Agreement) of any of the Collateral or the making of any
levy, seizure, garnishment, sequestration or attachment thereof or thereon; or
the loss, theft, substantial damage, or destruction of any material portion of
such Property; or
(h) Any order is entered in any proceeding against Borrower or any Subsidiary
of Borrower decreeing the dissolution, liquidation or split-up thereof, and
such order shall remain in effect for 30 days; or
(i) Any Obligor or any subsidiary of Borrower makes a general assignment for
the benefit of creditors or shall petition or apply to any tribunal for the
appointment of a trustee, custodian, receiver or liquidator of all or any
substantial part of its business, estate or assets or shall commence any
proceeding under any bankruptcy, insolvency, dissolution or liquidation law of
any jurisdiction, whether now or hereafter in effect; or any such petition or
application shall be filed or any such proceeding shall be commenced against
any Obligor or any subsidiary of Borrower and the Obligor or such subsidiary by
any act or omission shall indicate approval thereof, consent thereto or
acquiescence therein, or an order shall be entered appointing a trustee,
custodian, receiver or liquidator of all or any substantial part of the assets
of any Obligor or any subsidiary of Borrower or granting relief to any Obligor
or any subsidiary of Borrower or approving the petition in any such proceeding,
and such order shall remain in effect for more than 30 days; or any Obligor or
any subsidiary of Borrower shall fail generally to pay its debts as they become
due or suffer any writ of attachment or execution or any similar process to be
issued or levied against it or any substantial part of its property which is
not released, stayed, bonded or vacated within 30 days after its issue or levy;
or
(j) Any Obligor or any Subsidiary of Borrower conceals or removes any part of
its Property, with intent to hinder, delay or defraud any of its creditors,
makes or permits a transfer of any of its Property which may be fraudulent
under any bankruptcy, fraudulent conveyance or similar law; or makes any
transfer of its Property to or for the benefit of a creditor at a time when
other creditors similarly situated have not been paid; or
(k) A material adverse change occurs in the assets, liabilities, financial
condition, business or affairs of any Obligor or any Subsidiary of Borrower; or
(l) Any change occurs in the ownership of Borrower; or
(m) Any individual Obligor dies or any Obligor that is not an individual
dissolves.
IF ANY EVENT OF DEFAULT OCCURS, then Bank may do any or all of the following:
(1) declare the Obligations to be immediately due and payable without notice of
acceleration or of intention to accelerate, presentment and demand or protest,
all of which are hereby expressly waived; (2) without notice to any Obligor,
terminate the Commitment and accelerate the Termination Date; (3) set off, in
any order, against the indebtedness of Borrower under the Loan Documents any
debt owing by Bank to Borrower (whether such debt is owed individually or
jointly), including, but not limited to, any deposit account, which right is
hereby granted by Borrower to Bank; and (4) exercise any and all other rights
pursuant to the Loan Documents, at law, in equity or otherwise.
REMEDIES CUMULATIVE 6.2 No remedy, right or power of Bank is exclusive of any
other remedy, right or power now or hereafter existing by contract, at law, in
equity, or otherwise, and all remedies, rights and powers are cumulative.
7. MISCELLANEOUS.
NO WAIVER 7.1 No waiver of any default or Event of Default will be a waiver of
any other default or Event of Default. No failure to exercise or delay in
exercising any right or power under any Loan Document will be a waiver thereof,
nor shall any single or partial exercise of any such right or power preclude
any further or other exercise thereof or the exercise of any other right or
power. The making of any Loan or the issuance of any Letter of Credit during
either the existence of any default or Event of Default, or subsequent to the
occurrence of an Event of Default will not be a waiver of any such default or
Event of Default. No amendment, modification or waiver of any Loan Document
will be effective unless the same is in writing and signed by the Person
against whom such amendment, modification or waiver is sought to be enforced.
No notice to or demand on any Person shall entitle any Person to any other or
further notice or demand in similar or other circumstances.
NOTICES 7.2 All notices required under the Loan Documents shall be in writing
and either delivered against receipt therefor, or mailed by registered or
certified mail, return receipt requested, in each case addressed to the address
shown on the signature page hereof or to such other
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June 30, 1999
Collegiate Pacific, Inc.
address as a party may designate. Except for the notices required by each of
Sections 2.1and 5.8, which shall be given only upon actual receipt by Bank,
notices shall be deemed to have been given (whether actually received or not)
when delivered (or, if mailed, on the next Business Day).
GOVERNING LAW/ARBITRATION 7.3 (a) UNLESS OTHERWISE SPECIFIED THEREIN, EACH LOAN
DOCUMENT IS GOVERNED BY TEXAS LAWS AND THE APPLICABLE LAWS OF THE UNITED STATES
OF AMERICA. To the maximum extent permitted by law, any controversy or claim
arising out of or relating to the Obligations or any Loan Document, including
but not limited to any claim based on or arising from an alleged tort or an
alleged breach of any agreement contained in any of the Loan Documents, shall,
at the request of any party to the Obligation or Loan Documents (either before
or after the commencement of judicial proceedings), be settled by mandatory and
binding arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association (the "AAA Rules") and pursuant to Title 9 of
the United States Code, or if Title 9 does not apply, the Texas General
Arbitration Act. In any arbitration proceeding: (i) all statutes of limitations
which would otherwise be applicable shall apply; and (ii) the proceeding shall
be conducted in the city in which the office of Bank originating the Obligation
is located, by a single arbitrator if the amount in controversy is $1 million
or less, or by a panel of three arbitrators if the amount in controversy
(including but not limited to all charges, principal, interest fees and
expenses) is over $1 million. Arbitrators are empowered to resolve any
controversy by summary rulings substantially similar to summary judgments and
motions to dismiss. Arbitrators may order discovery conducted in accordance
with the Federal Rules of Civil Procedures. All arbitrators will be selected by
the process of appointment from a panel, pursuant to the AAA Rules. Any award
rendered in the arbitration proceeding will be final and binding, and judgment
upon any such award may be entered in any court having jurisdiction.
(b) If any party to the Obligation or Loan Documents files a proceeding in any
court to resolve any controversy or claim, such action will not constitute a
waiver of the right of such party or a bar to the right of any other party to
seek arbitration under the provisions of this Section or that of any other
claim or controversy, and the court shall, upon motion of any party to the
proceeding, direct that the controversy or claim be arbitrated in accordance
with this Section.
(c) No provision of, or the exercise of any rights under, this Section shall
limit or impair the right of any party to the Loan Documents before, during or
after any arbitration proceeding to: (i) exercise self-help remedies including
but not limited to setoff or repossession; (ii) foreclose any Lien on or
security interest in any Collateral; or (iii) obtain relief from a court of
competent jurisdiction to prevent the dissipation, damage, destruction,
transfer, hypothecation, pledging or concealment of assets or Collateral
including, but not limited to attachments, garnishments, sequestrations,
appointments of receivers, injunctions or other relief to preserve the status
quo.
(d) To the maximum extent permitted by applicable law and the AAA Rules,
neither Bank nor any Obligor or any Affiliate, officer, director, employee,
attorney, or agent of either shall have any liability with respect to, and Bank
and each Obligor waives, releases, and agrees not to sue any of them upon, any
claim for any special, indirect, incidental and consequential damages suffered
or incurred by such Person in connection with, arising out of, or in any way
related to, this Agreement or any of the other Loan Documents. Each of Bank and
each Obligor waives, releases, and agrees not to sue each other or any of their
Affiliates, officers, directors, employees, attorneys, or agents for punitive
damages in respect of any claim in connection with, arising out of, or in any
way related to, this Agreement or any of the other Loan Documents, or any of
the transactions contemplated by this Agreement or any of the other Loan
Documents. Nothing contained herein, however, shall be construed as a waiver of
any Obligor's or the Bank's right to compel arbitration of disputes pursuant to
subparagraphs (a) and (b), above.
(e) Nothing herein shall be considered a waiver of the right or protections
afforded Bank by 12 U.S.C. 91, Texas Banking Code Art. 342-609 or any similar
statute.
(f) Each party agrees that any other party may proceed against any other liable
Person, jointly or severally, or against one or more of them, less than all,
without impairing rights against any other liable Persons. A party shall not be
required to join the principal Obligor or any other liable Persons (e.g.,
sureties or guarantors) in any proceeding against any Person. A party may
release or settle with one or more liable Persons as the party deems fit
without releasing or impairing right to proceed against any Persons not so
released.
SURVIVAL; PARTIES BOUND; TERM OF AGREEMENT 7.4 All representations, warranties,
covenants and agreements made by or on behalf of Borrower in connection with
the Loan Documents will survive the execution and delivery of the Loan
Documents; will not be affected by any investigation made by any Person, and
will bind Borrower and the successors, trustees, receivers and assigns of
Borrower and will benefit the successors and assigns of the Bank; provided that
Bank's agreement to provide credit to Borrower under this Agreement will not
inure to the benefit of any successor or assign of Borrower. Except as
otherwise provided herein, the term of this Agreement will be until the later
of the final maturity of any Obligations and the full and final payment of all
Obligations and all amounts due under the Loan Documents.
DOCUMENTARY MATTERS 7.5 This Agreement may be executed in several identical
counterparts, on separate counterparts; each counterpart will constitute an
original instrument, and all separate counterparts will constitute but one and
the same instrument. The headings and captions in the Loan Documents have been
included solely for convenience and should not be considered in construing the
Loan Documents. If any provision of any Loan Document is invalid, illegal or
unenforceable in any respect under any applicable law, the remaining provisions
will remain effective. The Loans and all other Obligations and indebtedness of
Borrower to Bank are entitled to the benefit of the Loan Documents.
EXPENSES 7.6 Any provision to the contrary notwithstanding, and whether or not
the transactions contemplated by this Agreement are consummated, Borrower
agrees to pay on demand all out-of-pocket expenses (including, without
limitation, the fees and expenses of counsel for Bank) in connection with the
negotiation, preparation, execution, filing, recording, modification,
supplementing and waiver of the Loan Documents and the making, servicing and
collection of the Obligations. Borrower agrees to pay Bank's standard
Documentation Preparation and Processing Fee for preparation, negotiation and
handling of this Agreement. The obligations of Borrower under this and the
following section will survive the termination of this Agreement.
INDEMNIFICATION 7.7 BORROWER AGREES TO INDEMNIFY, DEFEND AND HOLD BANK HARMLESS
FROM AND AGAINST ANY AND ALL LOSS, LIABILITY, OBLIGATION, DAMAGE, PENALTY,
JUDGMENT, CLAIM, DEFICIENCY AND EXPENSE (INCLUDING INTEREST, PENALTIES,
ATTORNEYS' FEES AND AMOUNTS PAID IN SETTLEMENT) TO WHICH BANK MAY BECOME
SUBJECT ARISING OUT OF OR BASED UPON THE LOAN DOCUMENTS, OR ANY OBLIGATION,
INCLUDING THAT RESULTING FROM BANK'S OWN NEGLIGENCE, EXCEPT AND TO THE EXTENT
CAUSED BY BANK'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
NATURE OF OBLIGATIONS 7.8 If more than one Borrower executes this Agreement,
all of the representations, warranties, covenants and agreements of Borrower
shall be joint and several obligations of all Borrowers.
USURY NOT INTENDED 7.9 Borrower and Bank intend to conform strictly to
applicable usury laws. Therefore, the total amount of interest (as defined
under applicable law) contracted for, charged or collected under this Agreement
or any other Loan Document will never exceed the Highest Lawful Rate. If Bank
contracts for, charges or receives any excess interest, it will be deemed a
mistake. Bank will automatically reform the Loan Document or charge to conform
to applicable law, and if excess interest has been received, Bank will either
refund the excess to Borrower or credit the excess on any unpaid principal
amount of the Note or any other Obligation. All amounts constituting interest
will be spread throughout the full term of the Loan Document or applicable
Obligation in determining whether interest exceeds lawful amounts.
NO COURSE OF DEALING 7.10 NO COURSE OF DEALING BY ANY OBLIGOR, WITH BANK, NO
COURSE OF PERFORMANCE AND NO TRADE PRACTICES OR OTHER EXTRINSIC EVIDENCE OF ANY
NATURE MAY BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS
AGREEMENT.
Page 5 of 7 Pages
<PAGE> 6
Credit Agreement
June 30, 1999
Collegiate Pacific, Inc.
8. DEFINITIONS.
Unless the context otherwise requires, capitalized terms used in Loan Documents
and not defined elsewhere shall have the meanings provided by GAAP, except as
follows:
AFFILIATE means, as to any Person, any other Person (a) that directly or
indirectly, through one or more intermediaries, controls or is controlled by,
or is under common control with, such Person; (b) that directly or indirectly
beneficially owns or holds five percent (5%) or more of any class of voting
stock of such Person; or (c) five percent (5%) or more of the voting stock of
which is directly or indirectly beneficially owned or held by the Person in
question. The term "control" means to possess, directly or indirectly, the
power to direct the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise. Bank is not under
any circumstances to be deemed an Affiliate of Borrower or any of its
Subsidiaries.
AUTHORITY DOCUMENTS means certificates of authority to transact business,
certificates of good standing, borrowing resolutions (with secretary's
certificate), secretary's certificates of incumbency, and other documents which
empower and enable Borrower or its representatives to enter into agreements
evidenced by Loan Documents or evidence such authority.
BUSINESS DAY means a day when the main office of Bank is open for the conduct
of commercial lending business.
COLLATERAL means all Property, tangible or intangible, real, personal or mixed,
now or hereafter subject to Security Documents, or intended so to be.
CORPORATION means corporations, partnerships, limited liability companies,
joint ventures, joint stock associations, associations, banks, business trusts
and other business entities.
GOVERNMENT ACCOUNTS means receivables owed by the U.S. government or other
political subdivision as to which Bank's security interest or ability to obtain
direct payment of the proceeds is governed by any federal statutory
requirements other than those of the Uniform Commercial Code, including,
without limitation, the Federal Assignment of Claims Act of 1940, as amended.
GOVERNMENTAL AUTHORITY means any foreign governmental authority, the United
States of America, and any political subdivision of any of the foregoing, and
any agency, department, commission, board, bureau, court or other tribunal
having jurisdiction over Bank or any Obligor, or any Subsidiary of Borrower or
their respective Property.
HIGHEST LAWFUL RATE If Texas law determines the Highest Lawful Rate, Bank has
elected the weekly ceiling as defined in Chapter 1D of the Texas Credit Title,
Article 5069-1D.001 et seq., Title 79 of the Texas Revised Civil Statutes, as
amended. Bank may from time to time, as to current and future balances, elect
and implement any other ceiling under such statute and/or revise the index,
formula or provisions of law used to compute the rate on this open-end account
by notice to the Borrower, if and to the extent permitted by, and in the manner
provided in such statute.
INDEBTEDNESS means and includes (a) all items which in accordance with GAAP
would be included on the liability side of a balance sheet on the date as of
which Indebtedness is to be determined (excluding capital stock, surplus,
surplus reserves and deferred credits); (b) all guaranties, endorsements and
other contingent obligations in respect of, or any obligations to purchase or
otherwise acquire, Indebtedness of others, and (c) all Indebtedness secured by
any Lien existing on any interest of the Person with respect to which
indebtedness is being determined, in Property owned subject to such Lien,
whether or not the Indebtedness secured thereby has been assumed.
LEGAL REQUIREMENT means any law, ordinance, decree, requirement, order,
judgment, rule, regulation (or interpretation of any of the foregoing) of, and
the terms of any license or permit issued by, any Governmental Authority.
LIEN shall mean any mortgage, pledge, charge, encumbrance, security interest,
collateral assignment or other lien or restriction of any kind, whether based
on common law, constitutional provision, statute or contract.
LOAN DOCUMENTS means this Agreement, the Note, the Applications, the
agreements, documents, instruments and other writings contemplated by this
Agreement or listed on Annex I, all other assignments, deeds, guaranties,
pledges, instruments, certificates and agreements now or hereafter executed or
delivered to the Bank pursuant to any of the foregoing, and all amendments,
modifications, renewals, extensions, increases and rearrangements of, and
substitutions for, any of the foregoing.
NET INCOME means after-tax income from continuing operations, plus or minus
discontinued operations, extraordinary items and cumulative effect of change in
accounting principle.
OBLIGATIONS means all principal, interest and other amounts which are or become
owing under this Agreement, the Note, any Application or any other Loan
Document.
OBLIGOR means each Borrower and any guarantor, surety, co-signer, general
partner or other person who may now or hereafter be obligated to pay all or any
part of the Obligations.
ORGANIZATIONAL DOCUMENTS means, with respect to a corporation, the certificate
of incorporation, articles of incorporation and bylaws of such corporation;
with respect to a limited liability company, the articles of organization,
regulations and other documents establishing such entity, with respect to a
partnership, joint venture, or trust, the agreement, certificate or instrument
establishing such entity; in each case including all modifications and
supplements thereof as of the date of the Loan Document referring to such
Organizational Document and any and all future modifications thereof which are
consented to by Bank.
PARTIES means all Persons other than Bank executing any Loan Document.
PERSON means any individual, Corporation, trust, unincorporated organization,
Governmental Authority or any other form of entity.
PROPER FORM means in form and substance satisfactory to the Bank.
PROPERTY means any interest in any kind of property or asset, whether real,
personal or mixed, tangible or intangible.
SECURITY DOCUMENTS means those Security Agreements listed on Annex I and all
supplements, modifications, amendment and extensions and all other agreements
hereafter executed and delivered to Bank to secure the Loans and Applications.
SUBORDINATED DEBT means any Indebtedness subordinated to Indebtedness due Bank
pursuant to a written subordination agreement in Proper Form among Bank,
subordinated creditor and Borrower which at a minimum must prohibit: (a) any
action by subordinated creditor which will result in an occurrence of an Event
of Default or default under this Agreement, the subordination agreement or the
subordinated Indebtedness; and (b) upon the happening of any Event of Default
or default under any Loan Document, the subordination agreement, or any
instrument evidencing the subordinated Indebtedness (i) any payment of
principal and interest on the subordinated Indebtedness; (ii) any act to compel
payment of principal or interest on subordinated Indebtedness; and (iii) any
action to realize upon any Property securing the subordinated Indebtedness .
SUBSIDIARY means, as to a particular parent Corporation, any Corporation of
which 50% or more of the indicia of equity rights is at the time directly or
indirectly owned and/or is subsequently acquired by such parent Corporation or
by one or more Persons controlled by, controlling or under common control with
such parent Corporation.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN BANK AND THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF BANK AND THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN BANK AND THE PARTIES.
Page 6 of 7 Pages
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Agreement Effective Date.
BORROWER: COLLEGIATE PACIFIC, INC.
By: /s/ MIKE BLUMENFELD
----------------------------------------------------------------------------
Name: Mike Blumenfeld
--------------------------------------------------------------------------
Title: Pres.
-------------------------------------------------------------------------
Address: 13950 Seniac Drive, Suite 200, Dallas, Texas 75006
BANK: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ A. MICHAEL KLEIN
----------------------------------------------------------------------------
Name: A. Michael Klein
--------------------------------------------------------------------------
Title: VP
-------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBITS: ANNEXES: ADDENDUM:
<S> <C> <C>
A Borrowing Base Report I Loan Documents L/C Addendum
B Request for Credit II Subsidiaries
C Reporting Requirements, Financial Covenants,
and Compliance Certificate
</TABLE>
Page 7 of 7 Pages
<PAGE> 8
EXHIBIT A
BORROWING BASE REPORT
ACCOUNTS AND INVENTORY
BORROWING BASE REPORT FOR PERIOD BEGINNING: __________________ AND ENDING
__________________("CURRENT PERIOD") REQUIRED BY THE CREDIT AGREEMENT DATED THE
EFFECTIVE DATE (AS AMENDED, RESTATED, AND SUPPLEMENTED FROM TIME TO TIME, THE
"AGREEMENT") BY AND BETWEEN COLLEGIATE PACIFIC, INC. AND CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION
- -------------------------------------------------------------------------------
THE BORROWING BASE REPORT MUST BE SUBMITTED TO BANK WITHIN 30 DAYS OF THE LAST
DAY OF EACH CALENDAR MONTH. BORROWER MUST PROVIDE THE FOLLOWING ALONG WITH THE
BORROWING BASE REPORT: ACCOUNTS RECEIVABLE AGINGS AND ACCOUNTS PAYABLE AGING
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Line 1. Total Accounts of Borrower and all Subsidiaries earned and invoiced
within 30 days of being earned and are outstanding as of the end of the
Current Period $
-------
INELIGIBLE ACCOUNTS AS OF THE END OF THE CURRENT PERIOD:
2. That portion (e.g., invoice) of all of the Accounts
of any Account Debtor where the Account is more than
90 days from invoice date $
-------
3. All of the Accounts, not already included in Line 2,
of any Account Debtor if 20% of the dollar amount of all
of the Accounts of such Account Debtor are more than
90 days from invoice date $
-------
4. That portion of all of the Accounts of any Account
Debtor which exceeds 10% of the dollar amount of the
total of all Accounts for all Account Debtors for
the Current Period (Line 1) $
-------
5. Intercompany and Affiliate Accounts $
-------
6. Past Due Credits (added as a positive figure) $
-------
7. Government Accounts [GOVERNMENT ACCOUNTS MEANS
RECEIVABLES OWED BY THE U.S. GOVERNMENT AS TO WHICH BANK'S SECURITY
INTEREST OR ABILITY TO OBTAIN DIRECT PAYMENT OF THE PROCEEDS IS
GOVERNED BY ANY FEDERAL STATUTORY REQUIREMENTS OTHER THAN THOSE OF THE
UNIFORM COMMERCIAL CODE, INCLUDING, WITHOUT LIMITATION, THE FEDERAL
ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED AND ALL THOSE RECEIVABLES
BY ANY STATE, COUNTY OR MUNICIPAL AUTHORITY OR
QUASI-GOVERNMENTAL AUTHORITY.] $
-------
8. Foreign Accounts (unless secured by a letter
of credit issued by a bank satisfactory to the Bank or covered
by foreign credit insurance acceptable to the Bank) $
-------
9. Accounts subject to any dispute or setoff or contra account $
-------
10.Subject to Purchase Money Security Interest $
-------
11.Bill and hold $
-------
12.Other Ineligible Accounts (pre-billings, progress billings) $
-------
13.Total Ineligible Accounts for the Current Period $
(Add Lines 2 through 12) -------
14.Total Eligible Accounts for the Current Period $
(Line 1 - Line 13) -------
15.Multiplied by: Accounts Advance Factor 85%
16.Equals: ACCOUNTS COMPONENT OF BORROWING BASE $
-------
Total Inventory of Borrower and all Subsidiaries
) as of the end of the Current Period $
-------
INELIGIBLE INVENTORY AS OF THE END OF THE CURRENT PERIOD:
17.Work in Process $
-------
18.Private label $
-------
19.Obsolete $
-------
20.Returned/damaged $
-------
21.Consigned/unowned $
-------
22.Subject to Purchase Money Security Interest $
-------
23.Slow moving $
-------
24.Other Ineligible Inventory $
-------
25.Total Ineligible Inventory as of the end of the
Current Period (Lines 17 + 18 + 19 +
20 + 21 + 22+23+24) $
-------
25.Total Eligible Inventory as of the end of the
Current Period (Line 14 - Line 23) $
-------
26. Minus: Trade Accounts Payable $
-------
27. Multiplied by: Inventory Advance Factor 65%
28.Equals: INVENTORY COMPONENT OF BORROWING BASE $
-------
(Not to exceed 60% of the Accounts Component of Borrowing Base [Line16])
29.Total BORROWING BASE as of
the end of the Current Period (Line 16 + Line 28) $
-------
</TABLE>
EXHIBIT A Page 1 of 2 Pages
<PAGE> 9
<TABLE>
<S> <C> <C>
30.COMMITMENT is lesser of Maximum Amount and BORROWING BASE
$2,000,000.00 and $ ________________________ (on Line 29) COMMITMENT =$
-------
31.LESS: USED CREDIT as of the end of the Current Period 31(a) + 31(b)
(a)Total Outstanding Loans $
-------
(b)L/C Obligations:
(i) Total Face Amount of all Outstanding
Letters of Credit + $
-------
(ii) Less any drawings on Letters of
Credit paid by Borrower - $
-------
(iii) Amounts owing under
Applications not included in (ii) + $
-------
Total/ L/C Obligations as of the end of the
Current Period are $
(c) Loans & L/C Obligations (31a + 31b) = Used Credit
-----------
Letter of Credit Sublimit is $
-------
Current L/C availability $ - $
------- -------
32. Equals: amount available for borrowing subject to the terms of
the Agreement, if positive; or amount due under Section 1.3, if negative: $
[30-31(c)] -------
</TABLE>
The terms "ACCOUNTS" and "INVENTORY" have the respective meanings as set forth
in the Texas Business and Commerce Code in effect as of the date of the
Agreement. Inventory shall be valued at the lesser of: (a) market value; and
(b) cost. "OTHER INELIGIBLE ACCOUNTS" mean all such Accounts of Borrower and
its Subsidiaries that are not subject to a first and prior Lien in favor of
Bank, those Accounts that are subject to any Lien not in favor of Bank and
those Accounts of Borrower and its Subsidiaries as shall be deemed from time to
time to be, in the sole judgment of Bank, ineligible for purposes of
determining the Borrowing Base. "OTHER INELIGIBLE INVENTORY" means that
Inventory of Borrower and its Subsidiaries that is not subject to a first and
prior Lien in favor of Bank, that Inventory that is subject to any Lien not in
favor of Bank and that Inventory of Borrower and its Subsidiaries as shall be
deemed from time to time to be in the sole judgment of Bank, ineligible for
purposes of determining the Borrowing Base. All other terms not defined herein
shall have the respective meanings as in the Agreement.
Borrower certifies that the above information and computations are true,
correct, complete and not misleading as of the date hereof.
Borrower: COLLEGIATE PACIFIC, INC.
By:
----------------------------------------------------------------------------
Name:
--------------------------------------------------------------------------
Title: President or Chief Financial Officer Date:
-------------------
Address:
-----------------------------------------------------------------------
EXHIBIT A Page 2 of 2 Pages
<PAGE> 10
EXHIBIT B
REQUEST FOR CREDIT
[LETTERHEAD OF BORROWER]
Chase Bank of Texas, National Association
12875 Josey Lane
Farmers Branch, TX 75234
Re: Request for Credit under Agreement
Attention: A. MICHAEL KLEIN
Account # Note #
-------------------- -----------------
Gentlemen:
This letter confirms our oral or telephonic request of
_______________, 19__, for credit in accordance with that certain Credit
Agreement dated as of the Agreement Effective Date (as amended, restated and
supplemented from time to time, the "Agreement") between you and us. Any term
defined in the Agreement and used in this letter has the same meaning as in the
Agreement.
<TABLE>
<S> <C>
The proposed Loan is to be made on __________________________ (proposed Borrowing Date) as
[ ] A new Loan in the amount of $ __________________________ to be:
[ ] A Prime Rate Loan Interest Period to end on ____________________________ (Maturity Date).
[ ] A LIBOR Loan Interest period of:
[ ] 1 [ ] 2 [ ] 3 [ ] 6 months; ____________________ (Maturity Date).
[ ] A continuation of a Prime Rate Loan with a Maturity Date of in the amount of $ ________________ as a:
[ ] Prime Rate Loan with a Maturity Date of
[ ] LIBOR Loan in the amount of $ ______ with an Interest Period of [ ] 1 [ ] 2 [ ] 3 [ ] 6 months
____________________ (Maturity Date).
[ ] A continuation of a LIBOR Loan with a Maturity Date of in the amount of
$ ________________________ as a:
[ ] Prime Rate Loan with a Maturity Date of: ____________________________________________________.
[ ] LIBOR Loan with an Interest Period of [ ] 1 [ ] 2 [ ] 3 [ ] 6 months; ____________________ (Maturity Date).
[ ] The proposed Letter of Credit to be issued is in the amount of $ __________________ for the benefit of ___________
__________________________________________________________________ and with an expiry date of_____________________
__________________ as described in the enclosed Application.
</TABLE>
The undersigned hereby certifies that:
(1) The representations and warranties made by the Borrower or by any
other Person in the Agreement and the other Loan Documents are
true and correct on and as of this date as though made on this
date.
(2) The proposed credit complies with all applicable provisions of the
Agreement.
(3) No Event of Default has occurred and is continuing.
(4) an Application is enclosed if the request is for a Letter of
Credit.
Sincerely,
COLLEGIATE PACIFIC, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
EXHIBIT B Page 1 of 1
<PAGE> 11
ANNEX I
LOAN DOCUMENTS
"Loan Documents" includes, but is not limited to, the following:
1. Agreement
2. Note
3. Applications
4. Borrowing Base Report
5. Compliance Certificate
6. Security Agreements executed by Borrower, in Proper Form, covering,
among other property:
Accounts and general intangibles of Borrower
Inventory of Borrower
7. Security Agreement - Accounts and general intangibles executed
effective as of June 30, 1999 by Product Merchandising, Inc
8. Financing Statements
9. Continuing Guaranties executed effective as of June 30, 1999 by each
of Michael Blumenfeld and Product Merchandising, Inc (each a
"Guarantor")
10. Continuing Guaranties and Security Agreements in Proper Form executed
by all future Subsidiaries of Borrower
11. Certified Copies of Organizational and Authority Documents of Borrower
and Non-individual Guarantors
12. Insurance policies and certificates
13. Financial Statements of Borrower, Subsidiaries and Guarantors
14. UCC search
15. Regulation U Purpose Statement (U-1)
16. Subordination Agreement effective as of June 30, 1999 by Michael
Blumenfeld, Borrower and Bank covering all indebtedness now or
hereafter owing to Michael Blumenfeld
Loan Documents - ANNEX I Page 1 of 1
<PAGE> 12
ANNEX II
SUBSIDIARIES AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
Subsidiary Name % Owned by State Where
and Address Borrower Incorporated
- --------------- ---------- ------------
<S> <C> <C>
Product Merchandising, Inc.
7226 John Silver
Sarasota, Florida 34231
</TABLE>
ANNEX II Page 1 of 1
<PAGE> 13
EXHIBIT C to Credit Agreement between
Collegiate Pacific, Inc. ("Borrower") and Chase Bank of Texas,
National Association ("Bank") dated the Agreement Effective Date (as same may be
amended, restated and supplemented in writing the "Agreement")
REPORTING REQUIREMENTS, FINANCIAL COVENANTS
AND
COMPLIANCE CERTIFICATE FOR CURRENT REPORTING PERIOD
ENDING ______________ , 199_ ("END DATE")
A. REPORTING PERIOD. THIS EXHIBIT WILL BE IN PROPER FORM AND SUBMITTED
WITHIN 30 DAYS OF THE END OF EACH CALENDAR MONTH
BORROWER'S FISCAL YEAR ENDS ON JUNE 30, 1999.
B. Reporting
<TABLE>
<CAPTION>
====================================================================================================================================
Financial Reporting. Borrower will provide the following financial information within the times indicated: Compliance
Certificate
====================================================================================================================================
WHO WHEN DUE WHAT Compliance
--- -------- ---- (Circle)
<S> <C> <C> <C>
Yes No
- ------------------------------------------------------------------------------------------------------------------------------------
BORROWER (i) Within 90 days of fiscal year end Annual financial statements Yes No
(balance sheet, income statement,
cash flow statement) Audited with
unqualified opinion by
independent certified public
accountants satisfactory to Bank,
accompanied by Compliance
Certificate
-----------------------------------------------------------------------------------------
(ii) Within 30 days of each Reporting Unaudited interim financial Yes No
Period End Date statements (including fiscal
year end statements),
Borrowing Base Report
(Exhibit A), along with
accounts receivable aging
and listing, accounts
payable aging accompanied
by Compliance Certificate
- ------------------------------------------------------------------------------------------------------------------------------------
(iii) Within 30 days of each Accounts receivable aging and
PRODUCT MERCHANDISING, INC. Reporting Period End Date accounts payable aging Yes No
- ------------------------------------------------------------------------------------------------------------------------------------
Annual unaudited financial
PRODUCT MERCHANDISING, INC. (iv) Within 30 days of Borrower's statements (balance sheet, income Yes No
fiscal year end statement, cash flow statement)
- ------------------------------------------------------------------------------------------------------------------------------------
Inventory Reports in Proper Form
BORROWER AND SUBSIDIARIES (v) Upon request of Bank Yes No
- ------------------------------------------------------------------------------------------------------------------------------------
Annual personal financial
INDIVIDUAL GUARANTOR (vi) Within 120 days of each calendar statement (including cash flow Yes No
year until Bank releases Guaranty and contingent liability
information) of the Guarantor:
Michael Blumenfeld
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
C.
====================================================================================================================================
FINANCIAL COVENANTS. Borrower will comply with the
following financial covenants, defined in accordance COMPLIANCE CERTIFICATE
with GAAP and the definitions in Section 8, and ----------------------
incorporating the calculation adjustments indicated on
the Compliance Certificate:
- ------------------------------------------------------------------------------------------------------------------------------------
REQUIRED ACTUAL REPORTED Compliance
-------- --------------- (Circle)
<S> <C> <C>
Except as specified otherwise, each covenant will be For Current Reporting Period/as of the End Date Yes No
maintained at all times and reported for each Reporting
Period or as of each Reporting Period End Date, as
appropriate:
- ------------------------------------------------------------------------------------------------------------------------------------
1. Maintain a Tangible Net Worth as adjusted of at least Total Stockholders' Equity $ Yes No
$2,500,000.00 plus 50% of Net Income ("Step Up Amount") ------
Minus: Goodwill $
------
Other Intangible Assets $
------
Loans/Advances to
Equity holders $
------
Loans to Affiliates $
------
License Agreements $
------
= Net Worth as adjusted $
------
Cumulative Net Income
since June 30, 1999 $
------
Multiplied by 50%
= Step Up Amount $
------
$
----------
Tangible $ $
Net Worth ---------- -------
as adjusted + Step Up = Required
Amount Amount
====================================================================================================================================
</TABLE>
EXHIBIT C Page 1 of 3 Pages
<PAGE> 14
<TABLE>
<S> <C> <C> <C>
====================================================================================================================================
2. Maintain a ratio of total Indebtedness as adjusted to Total Liabilities Yes No
Tangible Net Worth as adjusted no greater than 1.0 to 1.0. (GAAP) $
--------
Plus: Contingent obligations $
Liens on Borrower's Property --------
not included in Borrower's
liabilities $
--------
Minus: Subordinated Debt $
--------
Equals: Indebtedness as adjusted $
========
Total
Stockholders' Equity $
--------
Minus: Goodwill $
--------
Other Intangible Assets $
--------
Loans/Advances to
Equity holders $
--------
Loans to Affiliates $
--------
License Agreements $
--------
= Tangible Net Worth as adjusted
$
=========
$ / $ =
----------- ---------------- --------
Indebtedness (adjusted) TNW (adjusted) Ratio
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
D.
====================================================================================================================================
Other Required Covenants to be maintained and to be certified.
- --------------------------------------------------------------
COMPLIANCE CERTIFICATE
- ------------------------------------------------------------------------------------------------------------------------------------
REQUIRED ACTUAL REPORTED COMPLIANCE
-------- --------------- (CIRCLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(i) Pursuant to Section 1.1.C, L/C Obligations may not L/C Obligations are: $ Yes No
exceed Letter of Credit Sublimit --------------------
Letter of Credit Sublimit is: $200,000.00
- ------------------------------------------------------------------------------------------------------------------------------------
(ii) Pursuant to Section 3.11, any reprogramming required to As of _______________, 1999 Borrower has Yes No
permit the proper functioning in year 2000 for Borrower's and completed such reprogramming and testing of
its Subsidiaries' computer systems and equipment (including Borrower's and its Subsidiaries' computer systems
systems and equipment supplied by others or with which and equipment required to permit the proper
Borrower's or its Subsidiaries' systems interface) and the functioning in year 2000.
testing of all such systems and equipment, as so
reprogrammed, will be completed by August 31, 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
(iii) Pursuant to Section 4.10, all shareholder Indebtedness
will be subordinated to Bank Indebtedness in Proper Form. Principal and interest payments on Subordinated Debt = Yes No
Borrower may make a principal payment on such subordinated
shareholder Indebtedness in an amount of up to $500,000.00 ----------------------
plus accrued interest as reported through April 30, 1999 and
thereafter Borrower is permitted to make payments of
principal and interest on remaining subordinated shareholder
Indebtedness so long as it does not exceed 50% of Borrower's Net Income =
Net Income. -----------------------
Subordinated Debt Payments as % of Net Income =
-------
- ------------------------------------------------------------------------------------------------------------------------------------
(iv) Pursuant to Section 5.1, Borrower and its Subsidiaries
additional Indebtedness shall not be permitted to exceed Additional Indebtedness is: $ Yes No
$100,000.00 in the aggregate during the term of this ------------------
Agreement.
- ------------------------------------------------------------------------------------------------------------------------------------
(v) Pursuant to Sections 5.4, 5.5, 5.6, 5.7 and 5.9 ,
Borrower shall not permit any (a) merger, acquisition, As of _____________________, Borrower is in
consolidation or sale of assets outside of the ordinary compliance with
course of business; (b) capital expenditures in excess of Yes No
$100,000.00 in the aggregate for Borrower and its Section 5.4
Subsidiaries or dividend payments in excess of 50% of ----------- Yes No
Borrower's Net Income; (c) treasury stock purchases in Section 5.5
excess of 50% of Borrower's Net Income; (d) change the ----------- Yes No
nature of Borrower's business; (e) material change in Section 5.6
Borrower's management; (f) loans or advances to Affiliates ----------- Yes No
and (g) loans, advances or extensions of credit to officers, Section 5.7
directors or shareholders of Borrower. ----------- Yes No
Section 5.9
-----------
- ------------------------------------------------------------------------------------------------------------------------------------
(vi) Borrower will provide Liquidity Maintenance Agreement As of_______________________ the terms and
executed by Michael Blumenfeld dated June 30, 1999 and agreements of that certain Liquidity Maintenance Yes No
ensure that the terms of such agreement are maintained and Agreement executed by Michael Blumenfeld dated June
reported quarterly. 30, 1999 are in compliance. Exhibit A of the
Liquidity Maintenance Agreement last provided to Bank
on:
-------------------------------
====================================================================================================================================
</TABLE>
THE ABOVE SUMMARY REPRESENTS SOME OF THE COVENANTS AND AGREEMENTS CONTAINED IN
THE AGREEMENT AND DOES NOT IN ANY WAY RESTRICT OR MODIFY THE TERMS AND
CONDITIONS OF THE AGREEMENT. IN CASE OF CONFLICT BETWEEN THIS EXHIBIT C AND THE
AGREEMENT, THE AGREEMENT SHALL CONTROL.
The undersigned hereby certifies that the above information and computations
are true and correct and not misleading as of the date hereof, and that since
the date of the Borrower's most recent Compliance Certificate (if any):
EXHIBIT C Page 2 of 3 Pages
<PAGE> 15
[ ] No default or Event of Default has occurred under the
Agreement during the current Reporting Period, or been
discovered from a prior period, and not reported.
[ ] A default or Event of Default (as described below) has
occurred during the current Reporting Period or has been
discovered from a prior period and is being reported for the
first time and:
[ ] was cured on .
------------------------
[ ] was waived by Bank in writing on .
----------------------
[ ] is continuing.
Description of Event of Default:
--------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
Executed this day of , 19 .
-------------------- ------------- ----
BORROWER: COLLEGIATE PACIFIC, INC.
SIGNATURE:
---------------------------------------------------------------------
NAME:
--------------------------------------------------------------------------
TITLE: (Chief Financial Officer or President)
-------------------------------------------------------------------------
ADDRESS:
-----------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
EXHIBIT C Page 3 of 3 Pages
<PAGE> 16
REVOLVING PROMISSORY NOTE
(this "Note")
U.S. $2,000,000.00 June 30, 1999 ("DATE")
FOR VALUE RECEIVED, COLLEGIATE PACIFIC, INC. ("BORROWER") a Delaware
corporation, promises to pay to the order of CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION ("BANK") on or before October 31, 2001, (the "STATED MATURITY
DATE"), at its banking house at 712 Main Street, Houston, Harris County, Texas,
or at such other location as Bank may designate, in lawful money of the United
States of America, the lesser of: (i) the principal sum of TWO MILLION AND
NO/100 UNITED STATES DOLLARS (U.S. $2,000,000.00) (the "MAXIMUM LOAN TOTAL"); or
(ii) the aggregate unpaid principal amount of all loans made by Bank (each such
loan being a "LOAN"), which may be outstanding on the Stated Maturity Date. Each
Loan shall be due and payable on the maturity date agreed to by Bank and
Borrower with respect to such Loan ("MATURITY DATE"). In no event shall any
Maturity Date fall on a date after the Stated Maturity Date. Subject to the
terms and conditions of this Note and the Loan Documents, Borrower may borrow,
repay and reborrow all or any part of the credit provided for herein at any time
before the Stated Maturity Date, there being no limitation on the number of
Loans made so long as the total unpaid principal amount at any time outstanding
does not exceed the Maximum Loan Total.
This Note is the Revolving Promissory Note described in Section 1.1.B of the
Credit Agreement between Borrower and Bank dated effective as of June 30, 1999
(as amended, restated and supplemented from time to time, the "AGREEMENT") and
sometimes referred to therein as the Note. Capitalized terms used in this Note
have the meanings used in the Agreement.
"ADJUSTED LIBOR RATE" means a per annum interest rate determined by Bank by
dividing: (i) the LIBOR Rate by (ii) Statutory Reserves provided that
Statutory Reserves is greater than zero, otherwise Adjusted LIBOR Rate
means a per annum interest rate equal to the LIBOR Rate. "LIBOR RATE" means
with respect to any LIBOR Loan for any Interest Period the interest rate
determined by Bank by reference to the British Bankers' Association
Interest Settlement Rates (as set forth by any service selected by Bank
which has been nominated by the British Bankers' Association as an
authorized information vendor for the purpose of displaying such rates
including but not limited to Bloomberg, Reuters or Telerate) to be the rate
at approximately 11:00 a.m. London time, two Business Days prior to the
commencement of such Interest Period for the offering by the London office
of the Chase Manhattan Bank, of dollar deposits in an amount comparable to
such LIBOR Loan with a maturity comparable to such Interest Period.
"BOARD" means the Board of Governors of the Federal Reserve System of the
United States.
"BORROWING DATE" means any Business Day on which Bank shall make or
continue a Loan hereunder.
"BUSINESS DAY" means a day: (i) on which Bank and commercial banks in New
York City are generally open for business; and (ii) with respect to LIBOR
Loans, on which dealings in United States Dollar deposits are carried out
in the London interbank market.
"HIGHEST LAWFUL RATE" means the maximum nonusurious rate of interest from
time to time permitted by applicable law. If Texas law determines the
Highest Lawful Rate, Bank has elected the weekly rate ceiling as defined in
Article 5069- 1D.001 et. seq., as amended, of the Texas Revised Civil
Statutes or any successor statute. Bank may from time to time, as to
current and future balances, elect and implement any other ceiling under
such statutes and/or revise the index, formula or provisions of law used to
compute the rate on this open-end account by notice to Borrower, if and to
the extent permitted by, and in the manner provided in applicable law.
"INTEREST PERIOD" means the period commencing on the Borrowing Date and
ending on the Maturity Date, consistent with the following provisions. The
duration of each Interest Period shall be: (a) in the case of a Prime Rate
Loan, a period of up to the Stated Maturity Date unless any portion thereof
is converted to a LIBOR Loan hereunder; and (b) in the case of a LIBOR
Loan, a period of up to one, two or three months; in each case as selected
by Borrower and agreed to by Bank. Borrower's choice of Interest Period is
subject to the following limitations: (i) No Interest Period shall end on a
date after the Stated Maturity Date; and (ii) If the last day of an
Interest Period would be a day other than a Business Day, the Interest
Period shall end on the next succeeding Business Day (unless the Interest
Period relates to a LIBOR Loan and the next succeeding Business Day is in a
different calendar month than the day on which the Interest Period would
otherwise end, in which case the Interest Period shall end on the next
preceding Business Day).
"LIBOR LOAN" means a Loan which bears interest at a rate determined by
reference to the Adjusted LIBOR Rate.
"LOAN DOCUMENTS" means this Note and any document or instrument evidencing,
securing, guaranteeing or given in connection with this Note.
"OBLIGATIONS" means all principal, interest and other amounts which are or
become owing under this Note or any other Loan Document.
"OBLIGOR" means Borrower and any guarantor, surety, co-signer, general
partner or other person who may now or hereafter be obligated to pay all or
any part of the Obligations.
"PRIME RATE" means the rate determined from time to time by Bank as its
prime rate. The Prime Rate shall change automatically from time to time
without notice to Borrower or any other person. THE PRIME RATE IS A
REFERENCE RATE AND MAY NOT BE BANK'S LOWEST RATE.
"PRIME RATE LOAN" means a Loan which bears interest at a rate determined by
reference to the Prime Rate.
"STATUTORY RESERVES" means the difference (expressed as a decimal) of the
number one minus the aggregate of the maximum reserve percentages
(including, without limitation, any marginal, special, emergency, or
supplemental reserves) expressed as a decimal established by the Board and
any other banking authority to which Bank is subject to, with respect to
the LIBOR Rate, for Eurocurrency Liabilities (as defined in Regulation D of
the Board). Such reserve percentages shall include, without limitation,
those imposed under such Regulation D. LIBOR Loans shall be deemed to
constitute Eurocurrency Liabilities and as such shall be deemed to be
subject to such reserve requirements without benefit of or credit for
proration, exceptions or offsets which may be available from time to time
to any bank under such Regulation D. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
Loans may be either Prime Rate Loans or LIBOR Loans. Borrower shall pay
interest on the unpaid principal amount of each Prime Rate Loan at a rate per
annum equal to the lesser of: (i) the Prime Rate in effect from time to time
plus one quarter of one percent (1/4%) (the "EFFECTIVE PRIME RATE"); or (ii) the
Highest Lawful Rate. Accrued interest on each Prime Rate Loan is due and payable
on the last day of each month and at the Maturity Date. Borrower shall pay
interest on the unpaid principal amount of each LIBOR Loan for the Interest
Period with respect thereto at a rate per annum equal to the lesser of: (i) the
Adjusted LIBOR Rate plus two and one half of one percent (2.5%) (the "EFFECTIVE
LIBOR RATE"); or (ii) the Highest Lawful Rate. Accrued interest on each LIBOR
Loan is due on the last day of each Interest Period applicable thereto, and in
the case of an Interest Period in excess of three months, on each day which
occurs every three months after the initial date of such Interest Period, and on
any prepayment (on the amount prepaid).
If at any time the effective rate of interest which would otherwise be
payable on any Loan evidenced by this Note exceeds the Highest Lawful Rate, the
rate of interest to accrue on the unpaid principal balance of such Loan during
all such times shall be limited to the Highest Lawful Rate, but any subsequent
reductions in such interest rate shall not become effective to reduce such
interest rate below the Highest Lawful Rate until the total amount of interest
accrued on the unpaid principal balance of such Loan
Page 1 of 3 Pages
Collegiate Pacific, Inc.
<PAGE> 17
equals the total amount of interest which would have accrued if the Effective
Prime Rate, or Effective LIBOR Rate, whichever is applicable, had at all times
been in effect.
Each LIBOR Loan shall be in an amount not less than $50,000.00 and an
integral multiple of $50,000.00. Each Prime Rate Loan shall be in an amount not
less than $10,000.00 and an integral multiple of $10,000.00. Interest on all
Loans shall be computed on the basis of the actual number of days elapsed and a
year comprised of 360 days, unless such calculation would result in a usurious
interest rate, in which case such interest shall be calculated on the basis of a
365 or 366 day year, as the case may be.
The unpaid principal balance of this Note at any time will be the total
amounts advanced by Bank, less the amount of all payments or prepayments of
principal. Absent manifest error, the records of Bank will be conclusive as to
amounts owed.
Loans shall be made on Borrower's irrevocable notice to Bank, given not
later than 10:00 A.M. (Houston time) on, in the case of LIBOR Loans, the third
Business Day prior to the proposed Borrowing Date or, in the case of Prime Rate
Loans, the first Business Day prior to the proposed Borrowing Date. Each notice
of a requested borrowing (a "NOTICE OF REQUESTED BORROWING") under this
paragraph may be oral or written, and shall specify: (i) the requested amount;
(ii) proposed Borrowing Date; (iii) whether the requested Loan is to be a Prime
Rate Loan or LIBOR Loan; and (iv) Interest Period for the LIBOR Loan. If any
Notice of Requested Borrowing shall be oral, Borrower shall deliver to Bank
prior to the Borrowing Date a confirmatory written Notice of Requested
Borrowing.
Borrower may on any Business Day prepay the outstanding principal
amount of any Prime Rate Loan, in whole or in part. Partial prepayments shall be
in an aggregate principal amount of $10,000.00 or a greater integral multiple of
$10,000.00. Borrower shall have no right to prepay any LIBOR Loan.
Provided that no Event of Default has occurred and is continuing,
Borrower may elect to continue all or any part of any LIBOR Loan beyond the
expiration of the then current Interest Period relating thereto by providing
Bank at least three Business Days' written or telecopy notice of such election,
specifying the Loan or portion thereof to be continued and the Interest Period
therefor and whether it is to be a Prime Rate Loan or LIBOR Loan provided that
any continuation as a LIBOR Loan shall not be less than $50,000.00 and shall be
in an integral multiple of $50,000.00. If an Event of Default shall have
occurred and be continuing, the Borrower shall not have the option to elect to
continue any such LIBOR Loan or to convert Prime Rate Loans into LIBOR Loans.
Provided that no Event of Default has occurred and is continuing, Borrower may
elect to convert any Prime Rate Loan at any time or from time to time to a LIBOR
Loan by providing Bank at least three Business Days' written or telecopy notice
of such election, specifying each Interest Period therefor. Any conversion of
Prime Rate Loans shall not result in a borrowing of LIBOR Loans in an amount
less than $50,000.00 and in integral multiples of $50,000.00.
If at any time Bank determines in good faith (which determination shall
be conclusive) that any change in any applicable law, rule or regulation or in
the interpretation, application or administration thereof makes it unlawful, or
any central bank or other governmental authority asserts that it is unlawful,
for Bank or its foreign branch or branches to maintain any LIBOR Loan by means
of dollar deposits obtained in the London interbank market (any of the above
being described as a "LIBOR Event"), then, at the option of Bank, the aggregate
principal amount of all LIBOR Loans outstanding shall be prepaid; however the
prepayment may be made at the sole option of the Bank with a Prime Rate Loan.
Upon the occurrence of any LIBOR Event, and at any time thereafter so long as
such LIBOR Event shall continue, the Bank may exercise its aforesaid option by
giving written notice thereof to Borrower.
If any domestic or foreign law, treaty, rule or regulation (whether now
in effect or hereinafter enacted or promulgated, including Regulation D of the
Board) or any interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof (whether or
not having the force of law): (a) changes, imposes, modifies, applies or deems
applicable any reserve, special deposit or similar requirements in respect of
any Loan or against assets of, deposits with or for the account of, or credit
extended or committed by, Bank; or (b) imposes on Bank or the interbank
eurocurrency deposit and transfer market or the market for domestic bank
certificates or deposit any other condition affecting any such Loan; and the
result of any of the foregoing is to impose a cost to Bank of agreeing to make,
funding or maintaining any such Loan or to reduce the amount of any sum
receivable by Bank in respect of any such Loan, then Bank may notify Borrower in
writing of the happening of such event and Borrower shall upon demand pay to
Bank such additional amounts as will compensate Bank for such costs as
determined by Bank. Without prejudice to the survival of any other agreement of
Borrower under this Note, the obligations of Borrower under this paragraph shall
survive the termination of this Note.
Borrower will indemnify Bank against, and reimburse Bank on demand for,
any loss, cost or expense incurred or sustained by Bank (including without
limitation any loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by Bank to fund or maintain
LIBOR Loans) as a result of: (a) any payment or prepayment (whether permitted by
Bank or required hereunder or otherwise) of all or a portion of any LIBOR Loan
on a day other than the Maturity Date of such Loan; (b) any payment or
prepayment, whether required hereunder or otherwise, of any LIBOR Loan made
after the delivery of a Notice of Requested Borrowing but before the applicable
Borrowing Date if such payment or prepayment prevents the proposed Loan from
becoming fully effective; or (c) the failure of any LIBOR Loan to be made by
Bank due to any action or inaction of Borrower. Such funding losses and other
costs and expenses shall be calculated and billed by Bank and such bill shall,
as to the costs incurred, be conclusive absent manifest error.
All past-due principal and interest on this Note, will, at Bank's
option, bear interest at the Highest Lawful Rate, or if applicable law does not
provide for a maximum nonusurious rate of interest, at a rate per annum equal to
the Prime Rate plus five percent (5%).
In addition to all principal and accrued interest on this Note,
Borrower agrees to pay: (a) all reasonable costs and expenses incurred by Bank
and all owners and holders of this Note in collecting this Note through probate,
reorganization, bankruptcy or any other proceeding; and (b) reasonable
attorney's fees if and when this Note is placed in the hands of an attorney for
collection.
Borrower and Bank intend to conform strictly to applicable usury laws.
Therefore, the total amount of interest (as defined under applicable law)
contracted for, charged or collected under this Note will never exceed the
Highest Lawful Rate. If Bank contracts for, charges or receives any excess
interest, it will be deemed a mistake. Bank will automatically reform the
contract or charge to conform to applicable law, and if excess interest has been
received, Bank will either refund the excess to Borrower or credit the excess on
the unpaid principal amount of this Note. All amounts constituting interest will
be spread throughout the full term of this Note in determining whether interest
exceeds lawful amounts.
If any Event of Default (as defined in the Agreement or any other Loan
Document) occurs, then Bank may do any or all of the following: (i) cease making
Loans hereunder; (ii) declare the Obligations to be immediately due and payable,
without notice of acceleration or of intention to accelerate, presentment and
demand or protest or notice of any kind, all of which are hereby expressly
waived; (iii) set off, in any order, against the Obligations any debt owing by
Bank to any Obligor, including, but not limited to, any deposit account, which
right is hereby granted by each Obligor to Bank; and (iv) exercise any and all
other rights under the Loan Documents, at law, in equity or otherwise.
No waiver of any default is a waiver of any other default. Bank's delay
in exercising any right or power under any Loan Document is not a waiver of such
right or power.
Each Obligor severally waives notice, demand, presentment for payment,
notice of nonpayment, notice of intent to accelerate, notice of acceleration,
protest, notice of protest, and the filing of suit and diligence in collecting
this Note and all other demands and notices, and consents and agrees that its
liabilities and obligations will not be released or discharged by any or all of
the following, whether with or without notice to it or any other Obligor, and
whether before or after the stated maturity hereof: (i) extensions of the time
of payment; (ii) renewals; (iii) acceptances of partial payments; (iv) releases
or substitutions of any collateral or any Obligor; and (v) failure, if any, to
perfect or maintain perfection of any security interest in any collateral. Each
Obligor agrees that acceptance of any partial payment will not constitute a
waiver and that waiver of any default will not constitute waiver of any prior or
subsequent default.
Page 2 of 3 Pages
Collegiate Pacific, Inc.
<PAGE> 18
Where appropriate the neuter gender includes the feminine and the
masculine and the singular number includes the plural number.
Chapter 346 of the Finance Code (which regulates certain revolving loan
accounts) shall not apply to this Note or to any Loan evidenced by this Note.
This Note is governed by Texas law. If any provision of this Note is
illegal or unenforceable, that illegality or unenforceability will not affect
the remaining provisions of this Note. BORROWER AND BANK AGREE THAT THE COUNTY
IN WHICH BANK'S PRINCIPAL OFFICE IS LOCATED IN TEXAS IS PROPER VENUE FOR ANY
ACTION OR PROCEEDING BROUGHT BY BORROWER OR BANK, WHETHER IN CONTRACT, TORT, OR
OTHERWISE. ANY ACTION OR PROCEEDING AGAINST BORROWER MAY BE BROUGHT IN ANY STATE
OR FEDERAL COURT IN SUCH COUNTY TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW.
TO THE EXTENT PERMITTED BY APPLICABLE LAW BORROWER HEREBY IRREVOCABLY (A)
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY
OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT
FORUM. BORROWER AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED
OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED BELOW.
BANK MAY SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW AND MAY BRING ANY
ACTION OR PROCEEDING AGAINST BORROWER OR WITH RESPECT TO ANY OF ITS PROPERTY IN
COURTS IN OTHER PROPER JURISDICTIONS OR VENUES.
For purposes of this Note, any assignee or subsequent holder of this
Note will be considered the "Bank," and each successor to Borrower will be
considered the "Borrower."
NO COURSE OF DEALING BETWEEN BORROWER AND BANK, NO COURSE OF
PERFORMANCE, NO TRADE PRACTICES, AND NO EXTRINSIC EVIDENCE OF ANY NATURE MAY BE
USED TO CONTRADICT OR MODIFY ANY TERM OF THIS NOTE OR ANY OTHER LOAN DOCUMENT.
THIS NOTE AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, Borrower has executed this Note effective the day,
month and year first aforesaid.
BORROWER: COLLEGIATE PACIFIC, INC.
By: /s/ MIKE BLUMENFELD
---------------------------------------
Name: Mike Blumenfeld
-------------------------------------
Title: President
------------------------------------
(Bank's signature is provided as its acknowledgment of the above as the final
written agreement between the parties and as its agreement with each Borrower
subject to TRPA that Bank is not required to comply with Section 3.05(d) of
TRPA.)
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ A. MICHAEL KLEIN
---------------------------------------
Name: A. Michael Klein
-------------------------------------
Title: Vice President
------------------------------------
Page 3 of 3 Pages
Collegiate Pacific, Inc.
<PAGE> 19
SECURITY AGREEMENT -- INVENTORY
(this "Agreement")
COLLEGIATE PACIFIC INC.
13950 SENLAC DRIVE, SUITE 200 DALLAS, DALLAS COUNTY, TX 75006
("Debtor"), and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
712 MAIN HOUSTON TEXAS 77252-2558 , ("Secured Party"), agree as follows:
SECTION 1. DEFINITIONS. (a) "Collateral" means all Inventory, all Accounts and
all Proceeds, together with all books and records of Debtor, whether in paper or
electronic form, relating to the Collateral. "Inventory" means all inventory,
including without limitation materials, supplies, returned or repossessed goods,
goods in transit and goods held by others under lease, consignment or other
arrangements, and all documents or certificates of title related to the
foregoing. If, but only if, this box [ ] is checked by Secured Party, the
Inventory is limited to Inventory described on the schedule or schedules
attached to this Agreement. "Accounts" means all accounts, general intangibles,
instruments, negotiable documents, chattel paper and deposit accounts arising in
connection with the Inventory. (b) "Obligations" means all debts, obligations
and liabilities of every kind and character of Debtor, whether joint or several,
contingent or otherwise, now or hereafter existing in favor of Secured Party,
including without limitation all liabilities arising under or from any note,
open account, overdraft, letter of credit application, endorsement, surety
agreement, guaranty, interest rate swap or other derivative product, acceptance,
foreign exchange contract or depository service contract, whether payable to
Secured Party or to a third party and subsequently acquired by Secured Party.
Debtor and Secured Party specifically contemplate that Debtor may hereafter
become further indebted to Secured Party. (c) "Past Due Rate" means the highest
nonusurious rate of interest that Secured Party may contract for, charge or
receive under applicable law, or 18% if applicable law does not specify such a
rate. (d) "Proceeds" means all products and proceeds, in cash or otherwise, of
all Collateral. (e) "Security Interest" means the security interests created by
this Agreement. (f) "UCC" means the Texas Uniform Commercial Code, as amended
from time to time. All terms defined in the UCC are used in this Agreement as
defined in the UCC unless otherwise defined in this Agreement.
SECTION 2. CREATION OF SECURITY INTEREST. To secure the payment and performance
of the Obligations, Debtor grants to Secured Party a security interest in and
assigns to Secured Party all collateral which Debtor owns or later acquires.
SECTION 3. DEBTOR'S REPRESENTATIONS. (a) Debtor is the sole lawful owner of the
Collateral, free and clear of all encumbrances, and has the right and power to
transfer the Collateral to Secured Party. No financing statement covering the
Collateral, other than in favor of Secured Party, is on file in any public
office. (b) This Agreement constitutes the legal, valid and binding obligation
of Debtor, enforceable in accordance with its terms. (c) The Collateral and the
Debtor's production, sale and use thereof comply with all applicable laws, rules
and regulations (including without limitation the Fair Labor Standards Act), and
Debtor has obtained any consents necessary to execute, deliver and perform its
obligations under this Agreement. (d) The address set forth above is Debtor's
place of business, if Debtor has only one place of business, Debtor's chief
executive office, if Debtor has more than one place of business, or Debtor's
residence, if Debtor has no place of business. (e) The Collateral is free from
damage caused by fire or other casualty. (f) Except as disclosed on attached
schedules, no Collateral is covered by a certificate of title or subject to a
certificate of title law.
SECTION 4. DEBTOR'S AGREEMENTS. (a) Debtor will warrant and defend its title to
and Secured Party's interest in the Collateral against any adverse claimant.
Debtor will promptly take all reasonable and appropriate steps to collect the
Accounts. Debtor will not agree to a material modification of the terms of any
Account without the written consent of Secured Party. (b) Notwithstanding the
security interest in Proceeds granted herein, Debtor will not sell, transfer,
assign or otherwise dispose of any interest in the Collateral, except as
authorized in this Agreement or in writing by Secured Party, and Debtor will
keep the Collateral (including Proceeds) free from unpaid charges, including
taxes and assessments, and from all encumbrances other than those in favor of
Secured Party. Debtor may sell or lease inventory in the ordinary course of
business. Sale in the ordinary course of business does not include a transfer in
total or partial satisfaction of a debt. (c) Secured Party may require that
Debtor (i) deposit all payments on the Accounts in a special bank account over
which Secured Party alone has power of withdrawal, and (ii) direct each account
debtor to send remittances to an address designated by Secured Party. Secured
Party may hold the funds in the account as security, or apply the funds to pay
the Obligations. (d) Debtor will furnish Secured Party all information Secured
Party may request with respect to the Collateral. Debtor will notify Secured
Party promptly of any event that could have a material adverse effect on the
aggregate value of the Collateral or on the Security Interest, or any change in
Debtor's location, name, identity or organizational structure. (e) Debtor will
keep accurate books and records regarding the Collateral and will allow Secured
Party to inspect the Collateral and to inspect and make copies (including
electronic copies) of its books and records during regular business hours.
Secured Party may make test verifications of the Collateral.
SECTION 5. FURTHER ASSURANCES. Secured Party may file this Agreement or any
financing statements wherever Secured Party believes necessary to perfect the
Security Interest, A photographic or other reproduction of this Agreement or any
financing statement relating to this Agreement will be sufficient as a financing
statement. Debtor authorizes Secured Party and irrevocably appoints Secured
Party as Debtor's attorney-in-fact to file any financing statement (including
any amendments) relating to this Agreement electronically, and Secured Party's
transmission of Debtor's name as part of any filing relating to this Agreement
will constitute Debtor's signature on the financing statement. Debtor will take
such action as Secured Party may at any time require to protect, assure or
enforce the Security Interest. If any Collateral is located on or in ]eased
property, Debtor will furnish Secured Party an executed landlord's waiver
satisfactory to Secured Party. Debtor will promptly deliver to Secured Party any
part of the Collateral that constitutes instruments, and will make a designation
on all of its chattel paper, instruments and negotiable documents to reflect the
Security Interest.
SECTION 6. DEBTOR'S USE OF COLLATERAL; INSURANCE. (a) Debtor will keep the
Inventory at
13950 SENLAC DR. STE 200, DALLAS, TX AND 3717 MIAC DRIVE, MEMPHIS, TN 38118
or other locations of which Debtor notifies Secured Party in writing from time
to time, except for temporary removal in connection with ordinary use. (b)
Debtor will properly maintain the Inventory and will comply with all applicable
laws, rules and regulations in the use, sale and production of the Inventory
(including without limitation the Fair Labor Standards Act). (c) DEBTOR WILL
MAINTAIN INSURANCE ON THE COLLATERAL against all customary risks for goods of
the same type and use, including without limitation fire and theft, and any
other risks designated by Secured Party. DEBTOR MAY FURNISH INSURANCE THROUGH
EXISTING POLICIES DEBTOR OWNS OR CONTROLS OR THROUGH NEW POLICIES ISSUED BY ANY
COMPANY AUTHORIZED TO TRANSACT BUSINESS IN TEXAS. Secured Party will be named on
a customary loss payee endorsement to all such insurance, providing for payment
to Secured Party and Debtor (and no other person) as their interests appear, and
providing for at least 30 days written notice to Secured Party before
cancellation. Secured Party is irrevocably appointed attorney in fact for Debtor
to obtain, adjust, settle and cancel such insurance. Secured Party may apply all
proceeds of insurance to repayment of the Obligations, whether Debtor is in
default or not.
SECTION 7. COSTS AND EXPENSES. Debtor will pay, or reimburse Secured Party for,
all costs and expenses of every character incurred from time to time in
connection with this Agreement (including all modifications and renewals) and
the Obligations, including costs and expenses incurred (a) for mortgage or
recording taxes, (b) to satisfy any obligation of Debtor under this Agreement or
to protect the Collateral, (c) in connection with the evaluation, monitoring or
administration of the Obligations or the Collateral (whether or not an Event of
Default has occurred), and (d) in connection with the exercise of Secured
Party's rights and remedies. Costs and expenses include reasonable fees and
expenses of outside counsel and other outside professionals and charges imposed
for the services of attorneys and other professionals employed by Secured Party
or its affiliates. Any amount owing under this Section will be due and payable
on demand and will bear interest from the date of expenditure by Secured Party
until paid at the Past Due Rate. If any part of the Obligations is governed by
Chapters 3, 4, 5 or 15 of the Texas Credit Code, this Section is limited to the
extent required by those chapters.
SECTION 8. DEFAULT. Each of the following events or conditions is an "Event of
Default:" (a) Debtor fails to pay when due (or within any contractually agreed
grace period) any of the Obligations; (b) any event occurs that gives Secured
Party the immediate right to declare any of the Obligations due and payable in
full prior to final maturity; (c) any warranty, representation or statement
contained in this Agreement or made in connection with this Agreement or any of
the Obligations was false or misleading in any respect when made; (d) Debtor
violates any covenant, condition or agreement contained in this Agreement or any
other document relating to the Obligations; (e) any Collateral is lost, stolen,
substantially damaged, destroyed, abandoned, levied upon, seized or attached; or
(f) Debtor conceals or removes any part of the Collateral with intent to hinder,
delay or defraud the Secured Party. After an Event of Default occurs, Secured
Party may, without notice to any person, declare the Obligations to be
immediately due and payable. Debtor WAIVES demand, presentment and all notices,
including without limitation notice of dishonor and default, notice of intent to
accelerate and notice of acceleration.
Page 1
<PAGE> 20
SECTION 9. SECURED PARTY'S RIGHTS AND REMEDIES. After an Event of Default
occurs, Secured Party will have all rights and remedies of a secured party after
default under the UCC and other applicable law. Secured party may, without
waiving any default, do anything Debtor is required to do by this Agreement but
fails to do. Secured Party may require Debtor to assemble the Collateral and
make it available at a reasonably convenient place Secured Party designates.
Except for the safe custody of any Collateral in its possession and accounting
for moneys actually received by it, Secured Party will have no duty as to any
Collateral, including any duty to preserve rights against prior parties. Debtor
irrevocably appoints Secured Party Debtor's attorney-in-fact to endorse any
checks or other instruments included in the Collateral, or to take other action
to enforce, collect or compromise the Collateral. Secured Party is not required
to take possession of any Collateral prior to any sale, nor to have any
Collateral present at any sale. Secured Party may sell part of the Collateral
without waiving its right to proceed against the remaining Collateral. If any
sale is not completed or is defective in the opinion of Secured Party, Secured
Party may make a subsequent sale of the same Collateral. Any bill of sale or
other instrument evidencing any foreclosure sale will be prima facie evidence of
factual matters stated or recited therein. If a sale of Collateral is conducted
in conformity with customary practices of banks disposing of similar property,
the sale will be deemed commercially reasonable, but Secured Party will have no
obligation to advertise or to sell Collateral on credit. Written notice to
Debtor mailed 10 days prior to public or private sale is reasonable notice. By
exercising its rights, Secured Party will not become liable for, and Debtor will
not be released from, any of Debtor's duties or obligations under the contracts
and agreements included in the Collateral. Secured Party may purchase Collateral
at any public sale, and may credit the purchase price against the Obligations.
All remedies in this Agreement are cumulative of any and all other legal,
equitable or contractual remedies available to Secured Party. Debtor WAIVES any
rights to a marshalling of assets or sale in inverse order of alienation, and
any rights to notice except as provided in the UCC.
SECTION 10. ADDITIONAL AGREEMENTS. (a) This Agreement will remain in effect
until Secured Party executes and delivers to Debtor a written termination
statement. (b) No modification or waiver of the terms of this Agreement will be
effective unless in writing and signed by Secured Party. Secured Party may waive
any default without waiving any other prior or subsequent default. Secured
Party's failure to exercise or delay in exercising any right under this
Agreement will not operate as a waiver of such right. No single or partial
exercise of any right under this Agreement will preclude any other or further
exercise of that right or any other right. (c) Any notice required or permitted
under this Agreement will be given in writing by United States mail, by hand
delivery or delivery service, or by telegraphic, telex, telecopy or cable
communication, sent to the intended addressee at the address shown in this
Agreement, or to such different address as the addressee designates by 10 days
notice. Notice by United States mail will be effective when mailed. All other
notices will be effective when received. Written confirmation of receipt will be
conclusive. (d) If any provision of this Agreement is unenforceable or invalid,
that provision will not affect the enforceability or validity of any other
provision. If the application of any provision of this Agreement to any person
or circumstance is illegal or unenforceable, that application will not affect
the legality or enforceability of the provision as to any other person or
circumstance. (e) If more than one person executes this Agreement as Debtor,
their obligations under this Agreement are joint and several, and the term
Collateral includes any property described in Section 1 that is owned by any
Debtor individually or jointly with any other Debtor and the term "Obligations"
includes both several and joint obligations of each debtor. (f) The section
headings in this Agreement are for convenience only and shall not be considered
in construing this Agreement. (g) This Agreement may be executed in any number
of counterparts and by different parties in separate counterparts, each of which
will constitute one and the same agreement. (h) This Agreement benefits the
Secured Party and its successors and assigns and is binding on Debtor and its
heirs, legal representatives, successors and assigns. (i) If any of the
Obligations are subject to Chapter 3, 4, 5 or 15 or the Texas Credit Code or
Regulation AA of the Board of Governors of the Federal Reserve System
(collectively, the "Consumer Restrictions"), (1) nothing in this Agreement
waives any rights which cannot be legally waived under the Consumer
Restrictions, and (2) the Collateral does not include any assignment of wages or
any non-possessory, non-purchase money security interest in household goods. (j)
THIS AGREEMENT IS GOVERNED BY THE LAWS OF THE STATE OF TEXAS. (k) Secured Party
is executing this Agreement for the purpose of acknowledging the following
notice, and Secured Party's failure to execute this Agreement will not
invalidate this Agreement.
EXECUTED EFFECTIVE AS OF June 30, 1999.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
DEBTOR(S):
COLLEGIATE PACIFIC INC.
BY: /s/ MIKE BLUMENFELD TITLE:
-----------------------------------------------------------------------------
SECURED PARTY: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ [ILLEGIBLE]
-----------------------------------------------------------------------------
Title: VP
--------------------------------------------------------------------------
Page 2
<PAGE> 21
SECURITY AGREEMENT -- ACCOUNTS AND GENERAL INTANGIBLES
(THIS "AGREEMENT")
COLLEGIATE PACIFIC INC.
13950 SENLAC DRIVE, SUITE 200 DALLAS, DALLAS COUNTY, TX 75006
("Debtor"), and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
712 MAIN HOUSTON TEXAS 77252-2558, ("Secured Party"), agree as follows:
SECTION 1. DEFINITIONS. (a) "Collateral" means all Accounts and all Proceeds,
together with all books and records of Debtor, whether in paper or electronic
form, relating to the Collateral. "Accounts" means all accounts, general
intangibles, instruments, negotiable documents, chattel paper, deposit accounts
and intellectual property. If, but only if, this box [ ] is checked by Secured
Party, the Accounts are limited to those Accounts described on the schedule or
schedules attached to this Agreement. (b) "Obligations" means all debts,
obligations and liabilities of every kind and character, whether joint or
several, contingent or otherwise, of Debtor now or hereafter existing in favor
of Secured Party, including without limitation all liabilities arising under or
from any note, open account, overdraft, letter of credit application,
endorsement, surety agreement, guaranty, interest rate swap or other derivative
product, acceptance, foreign exchange contract or depository service contract,
whether payable to Secured Party or to a third party and subsequently acquired
by Secured Party. Debtor and Secured Party specifically contemplate that Debtor
may hereafter become further indebted to Secured Party. (c) "Past Due Rate"
means the highest nonusurious rate of interest that Secured Party may contract
for, charge or receive under applicable law, or 18% if applicable law does not
specify such a rate. (d) "Proceeds" means the rights and interests of Debtor in
goods; the sale and delivery of which give rise to any Account, including all
returned or repossessed goods, and all products and proceeds, in cash or
otherwise, of all Collateral. (e) "Security Interest" means the security
interests created by this Agreement. (f) "UCC" means the Texas Uniform
Commercial Code, as amended from time to time. All terms defined in the UCC are
used in this Agreement as defined in the UCC unless otherwise defined in this
Agreement.
SECTION 2. CREATION OF SECURITY INTEREST. To secure the payment and performance
of the Obligations, Debtor grants to Secured Party a security interest in and
assigns to Secured Party all Collateral which Debtor owns or later acquires.
SECTION 3. DEBTOR'S REPRESENTATIONS. (a) Debtor is the sole lawful owner of the
Collateral, free and clear of all encumbrances, and has the right and power to
transfer the Collateral to Secured Party. No financing statement covering the
Collateral, other than in favor of Secured Party, is on file in any public
office. (b) This Agreement constitutes the legal, valid and binding obligation
of Debtor, enforceable in accordance with its terms. (c) The Collateral and the
Debtor's use thereof comply with all applicable laws, rules and regulations, and
Debtor has obtained any consents necessary to execute, deliver and perform its
obligations under this Agreement. (d) The address set forth above is Debtor's
place of business, if Debtor has only one place of business, Debtor's chief
executive office, if Debtor has more than one place of business, or Debtor's
residence, if Debtor has no place of business.
SECTION 4. DEBTOR'S AGREEMENTS. (a) Debtor will warrant and defend its title to
and Secured Party's interest in the Collateral against any adverse claimant.
Debtor will promptly take all reasonable and appropriate steps to collect the
Collateral. Debtor will not agree to a material modification of the terms of any
Account without the written consent of Secured Party. (b) Notwithstanding the
security interest in Proceeds granted herein, Debtor will not sell, transfer,
assign or otherwise dispose of any interest in the Collateral, except as
authorized in this Agreement or in writing by Secured Party, and Debtor will
keep the Collateral (including Proceeds) free from unpaid charges, including
taxes and assessments, and from all encumbrances other than those in favor of
Secured Party. (c) Secured Party may require that Debtor (i) deposit all
payments on the Accounts in a special bank account over which Secured Party
alone has power of withdrawal, and (ii) direct each account debtor to send
remittances to an address designated by Secured Party. Secured Party may hold
the funds in the account as security, or apply the funds to pay the Obligations.
(d) Debtor will furnish Secured Party all information Secured Party may request
with respect to the Collateral. Debtor will notify Secured Party promptly of any
event that could have a material adverse effect on the aggregate value of the
Collateral or on the Security Interest, or any change in Debtor's location,
name, identity or organizational structure. (e) Debtor will keep accurate books
and records regarding the Collateral and will allow Secured Party to inspect and
make copies (including electronic copies) of its books and records during
regular business hours. Secured Party may make test verifications of the
Collateral.
SECTION 5. FURTHER ASSURANCES. Secured Party may file this Agreement or any
financing statements wherever Secured Party believes necessary to perfect the
Security Interest. A photographic or other reproduction of this Agreement or any
financing statement relating to this Agreement will be sufficient as a financing
statement. Debtor authorizes Secured Party and irrevocably appoints Secured
Party as Debtor's attorney-in-fact to file any financing statement (including
any amendments) relating to this Agreement electronically, and Secured Party's
transmission of Debtor's name as part of any filing relating to this Agreement
will constitute Debtor's signature on the financing statement. Debtor will take
such action as Secured Party may at any time require to protect, assure or
enforce the Security Interest. Debtor will promptly deliver to Secured Party any
part of the Collateral that constitutes instruments, and will make a designation
on all of its chattel paper, instruments and negotiable documents to reflect the
Security Interest.
SECTION 6. COSTS AND EXPENSES. Debtor will pay, or reimburse Secured Party for,
all costs and expenses of every character incurred from time to time in
connection with this Agreement (including all modifications and renewals) and
the Obligations, including costs and expenses incurred (a) for mortgage or
recording taxes, (b) to satisfy any obligation of Debtor under this Agreement or
to protect the Collateral, (c) in connection with the evaluation, monitoring or
administration of the Obligations or the Collateral (whether or not an Event of
Default has occurred), and (d) in connection with the exercise of Secured
Party's rights and remedies. Costs and expenses include reasonable fees and
expenses of outside counsel and other outside professionals and charges imposed
for the services of attorneys and other professionals employed by Secured Party
or its affiliates. Any amount owing under this Section will be due and payable
on demand and will bear interest from the date of expenditure by Secured Party
until paid at the Past Due Rate. If any part of the Obligations governed by
Chapter 3, 4, 5 or 15 of the Texas Credit Code, this Section is limited to
the extent required by these chapters.
SECTION 7. DEFAULT. Each of the following events or conditions is an "Event of
Default:" (a) Debtor fails to pay when due (or within any contractually agreed
grace period) any of the Obligations; (b) any event occurs that gives Secured
Party the immediate right to declare any of the Obligations due and payable in
full prior to final maturity; (c) any warranty, represenatation or statement
contained in this Agreement or made in connection with this Agreement or any of
the Obligations was false or misleading in any respect when made; (d) Debtor
violates any covenant, condition or agreement contained in this Agreement or any
other document relating to the Obligations; (e) any Collateral is lost, stolen,
substantially damaged, destroyed, abandoned, levied upon, seized or attached; or
(f) Debtor conceals or removes any part of the Collateral with intent to hinder,
delay or defraud the Secured Party. After an Event of Default occurs, Secured
Party may, without notice to any person, declare the Obligations to be
immediately due and payable. Debtor WAIVES demand, presentment and all
notices, including without limitation notice of dishonor and default, notice of
intent to accelerate and notice of acceleration.
SECTION 8. SECURED PARTY'S RIGHTS AND REMEDIES. After an Event of Default
occurs, Secured Party will have all rights and remedies of a secured party after
default under the UCC and other applicable law. Secured Party may, without
waving any default, do anything Debtor is required to do by this Agreement and
fails to do. Secured Party may require Debtor to assemble the Collateral and
make it available at a reasonably convenient place Secured Party designates.
Except for the safe custody of any Collateral in its possession and accounting
for moneys actually received by it, Secured Party will have no duty as to any
Collateral, including any duty to preserve rights against prior parties. Debtor
irrevocably appoints Secured Party Debtor's attorney-in-fact to endorse any
checks or other instruments included in the Collateral, or to take any other
action to enforce, collect or compromise the Collateral. Secured Party is not
required to take possession of any Collateral prior to any sale, nor to have any
Collateral present at any sale. Secured Party may sell part of the Collateral
without waiving its right to proceed against the remaining Collateral. If any
sale is not completed or is defective in the opinion of Secured Party, Secured
Party may make a subsequent sale of the same Collateral. Any bill of sale or
other instrument evidencing any foreclosure sale will be prima facie evidence of
factual matters stated or recited therein. If a sale of Collateral is conducted
in conformity with customary practices of banks disposing of similar property,
the sale will be deemed commercially reasonable, but Secured Party will have no
obligation to advertise or to sell Collateral on credit. Written notice to
Debtor mailed 10 days prior to public or private sale is reasonable notice. By
exercising its rights, Secured Party will not become liable for, and Debtor will
not be released from, any of Debtor's duties or obligations under the contracts
and agreement included in the Collateral. Secured Party may purchase Collateral
at any public sale, and may credit the purchase price against the Obligations.
All remedies in this Agreement are cumulative of any and all other legal,
equitable or contractual remedies available to Secured Party. Debtor WAIVES any
rights to a marshalling of assets or sale in inverse order of alienation, and
any rights to notice except as provided in the UCC.
Page 1
<PAGE> 22
SECTION 9. ADDITIONAL AGREEMENTS. (a) This Agreement will remain in effect until
Secured Party executes and delivers to Debtor a written termination statement.
(b) No modification or waiver of the terms of this Agreement will be effective
unless in writing and signed by Secured Party. Secured Party may waive any
default without waiving any other prior or subsequent default. Secured Party's
failure to exercise or delay in exercising any right under this Agreement will
not operate as a waiver of such right. No single or partial exercise of any
right under this Agreement will preclude any other or further exercise of that
right or any other right. (c) Any notice required or permitted under this
Agreement will be given in writing by United States mail, by hand delivery or
delivery service, or by telegraphic, telex, telecopy or cable communication,
sent to the intended addressee at the address shown in this Agreement, or to
such different address as the addressee designates by 10 days notice. Notice by
United States mail will be effective when mailed. All other notices will be
effective when received. Written confirmation of receipt will be conclusive. (d)
If any provision of this Agreement is unenforceable or invalid, that provision
will not affect the enforceability or validity of any other provision. If the
application of any provision of this Agreement to any other person or
circumstance is illegal or unenforceable, that application will not affect the
legality or enforceability of the provision as to any other person or
circumstance. (e) If more than one person executes this Agreement as Debtor,
their obligations under this Agreement are joint and several, and the term
Collateral includes any property described in Section 1 that is owned by any
Debtor individually or jointly with any other Debtor and the term "Obligations"
includes both several and joint obligations of each Debtor. (f) The section
headings in this Agreement are for convenience only and shall not be considered
in construing this Agreement. (g) This Agreement may be executed in any number
of counterparts and by different parties in separate counterparts, each of which
will constitute one and the same agreement. (h) This Agreement benefits the
Secured Party and its successors and assigns and is binding on Debtor and its
heirs, legal representatives, successors and assigns. (i) If any of the
Obligations are subject to Chapter 3, 4, 5 or 15 of the Texas Credit Code or
Regulation AA of the Board of Governors of the Federal Reserve System
(collectively, the "Consumer Restrictions"), (1) nothing in this Agreement
waives any rights which cannot be legally waived under the Consumer
Restrictions, and (2) the Collateral does not include any assignment of wages or
any non-possessory, non-purchase money security interest in household goods. (j)
THIS AGREEMENT IS GOVERNED BY THE LAWS OF THE STATE OF TEXAS. (k) Secured Party
is executing this Agreement for the purpose of acknowledging the following
notice, and Secured Party's to execute this Agreement will not invalidate this
Agreement.
EXECUTED EFFECTIVE AS OF June 30 1999.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
DEBTOR(S):
COLLEGIATE PACIFIC INC.
BY: /s/ MIKE BLUMENFELD TITLE:
- --------------------------------------------------------------------------------
SECURED PARTY: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ [ILLEGIBLE]
-----------------------------------------------------------------------------
Title: VP
--------------------------------------------------------------------------
Page 2
<PAGE> 23
SECURITY AGREEMENT -- ACCOUNTS AND GENERAL INTANGIBLES
(THIS "AGREEMENT")
PRODUCT MERCHANDISING, INC.
13950 SENLAC DRIVE, SUITE 200 DALLAS, DALLAS COUNTY, TX 75006
("Debtor"), and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
712 MAIN HOUSTON TEXAS 77252-2558 ,("Secured Party"), agree as follows:
SECTION 1. DEFINITIONS. (a) "Collateral" means all Accounts and all Proceeds,
together with all books and records of Debtor, whether in paper or electronic
form, relating to the Collateral. "Accounts" means all accounts, general
intangibles, instruments, negotiable documents, chattel paper, deposit accounts
and intellectual property. If, but only if, this box [ ] is checked by Secured
Party, the Accounts are limited to those Accounts described on the schedule or
schedules attached to this Agreement. (b) "Obligations" means all debts,
obligations and liabilities of every kind and character, whether joint or
several, contingent or otherwise, of Debtor now or hereafter existing in favor
of Secured Party, including without limitation all liabilities arising under or
from any note, open account, overdraft, letter of credit application,
endorsement, surety agreement, guaranty, interest rate swap or other derivative
product, acceptance, foreign exchange contract or depository service contract,
whether payable to Secured Party or to a third party and subsequently acquired
by Secured Party. Debtor and Secured Party specifically contemplate that Debtor
may hereafter become further indebted to Secured Party. (c) "Past Due Rate"
means the highest nonusurious rate of interest that Secured Party may contract
for, charge or receive under applicable law, or 18% if applicable law does not
specify such a rate. (d) "Proceeds" means the rights and interests of Debtor in
goods, the sale and delivery of which give rise to any Account, including all
returned or repossessed goods, and all products and proceeds, in cash or
otherwise, of all Collateral. (e) "Security Interest" means the security
interests created by this Agreement. (f) "UCC" means the Texas Uniform
Commercial Code, as amended from time to time. All terms defined in the UCC are
used in this Agreement as defined in the UCC unless otherwise defined in this
Agreement.
SECTION 2. CREATION OF SECURITY INTEREST. To secure the payment and performance
of the Obligations, Debtor grants to Secured Party a security interest in and
assigns to Secured Party all Collateral which Debtor owns or later acquires.
SECTION 3. DEBTOR'S REPRESENTATIONS. (a) Debtor is the sole lawful owner of the
Collateral, free and clear of all encumbrances, and has the right and power to
transfer the Collateral to Secured Party. No financing statement covering the
Collateral, other than in favor of Secured Party, is on file in any public
office. (b) This Agreement constitutes the legal, valid and binding obligation
of Debtor, enforceable in accordance with its terms. (c) The Collateral and the
Debtor's use thereof comply with all applicable laws, rules and regulations, and
Debtor has obtained any consents necessary to execute, deliver and perform its
obligations under this Agreement. (d) The address set forth above is Debtor's
place of business, if Debtor has only one place of business, Debtor's chief
executive office, if Debtor has more than one place of business, or Debtor's
residence, if Debtor has no place of business.
SECTION 4. DEBTOR'S AGREEMENTS. (a) Debtor will warrant and defend its title to
and Secured Party's interest in the Collateral against any adverse claimant.
Debtor will promptly take all reasonable and appropriate steps to collect the
Collateral. Debtor will not agree to a material modification of the terms of any
Account without the written consent of Secured Party. (b) Notwithstanding the
security interest in Proceeds granted herein, Debtor will not sell, transfer,
assign or otherwise dispose of any interest in the Collateral, except as
authorized in this Agreement or in writing by Secured Party, and Debtor will
keep the Collateral (including Proceeds) free from unpaid charges, including
taxes and assessments, and from all encumbrances other than those in favor of
Secured Party. (c) Secured Party may require that Debtor (i) deposit all
payments on the Accounts in a special bank account over which Secured Party
alone has power of withdrawal, and (ii) direct each account debtor to send
remittances to an address designated by Secured Party. Secured Party may hold
the funds in the account as security, or apply the funds to pay the Obligations.
(d) Debtor will furnish Secured Party all information Secured Party may request
with respect to the Collateral. Debtor will notify Secured Party promptly of any
event that could have a material adverse effect on the aggregate value of the
Collateral or on the Security Interest, or any change in Debtor's location,
name, identity or organizational structure. (e) Debtor will keep accurate books
and records regarding the Collateral and will allow Secured Party to inspect and
make copies (including electronic copies) of its books and records during
regular business hours. Secured Party may make test verifications of the
Collateral.
SECTION 5. FURTHER ASSURANCES. Secured Party may file this Agreement or any
financing statements wherever Secured Party believes necessary to perfect the
Security Interest. A photographic or other reproduction of this Agreement or any
financing statement relating to this Agreement will be sufficient as a financing
statement. Debtor authorizes Secured Party and irrevocably appoints Secured
Party as Debtor's attorney-in-fact to file any financing statement (including
any amendments) relating to this Agreement electronically, and Secured Party's
transmission of Debtor's name as part of any filing relating to this Agreement
will constitute Debtor's signature on the financing statement. Debtor will take
such action as Secured Party may at any time require to protect, assure or
enforce the Security Interest. Debtor will promptly deliver to Secured Party any
part of the Collateral that constitutes instruments, and will make a designation
on all of its chattel paper, instruments and negotiable documents to reflect the
Security Interest.
SECTION 6. COSTS AND EXPENSES. Debtor will pay, or reimburse Secured Party for,
all costs and expenses of every character incurred from time to time in
connection with this Agreement (including all modifications and renewals) and
the Obligations, including costs and expenses incurred (a) for mortgage or
recording taxes, (b) to satisfy any obligation of Debtor under this Agreement or
to protect the Collateral, (c) in connection with the evaluation, monitoring or
administration of the Obligations or the Collateral (whether or not an Event
of Default has occurred), and (d) in connection with the exercise of Secured
Party's rights and remedies. Costs and expenses include reasonable fees and
expenses of outside counsel and other outside professionals and charges imposed
for the services of attorneys and other professionals employed by Secured Party
or its affiliates. Any amount owing under this Section will be due and payable
on demand and will bear interest from the date of expenditure by Secured Party
until paid at the Past Due Rate. If any part of the Obligations is governed by
Chapter 3, 4, 5 or 15 of the Texas Credit Code, this Section is limited to the
extent required by these chapters.
SECTION 7. DEFAULT. Each of the following events or conditions is an "Event of
Default:" (a) Debtor fails to pay when due (or within any contractually agreed
grace period) any of the Obligations; (b) any event occurs that gives Secured
Party the immediate right to declare any of the Obligations due and payable in
full prior to final maturity; (c) any warranty, represenatation or statement
contained in this Agreement or made in connection with this Agreement or any of
the Obligations was false or misleading in any respect when made; (d) Debtor
violates any covenant, condition or agreement contained in this Agreement or any
other document relating to the Obligations; (e) any Collateral is lost, stolen,
substantially damaged, destroyed, abandoned, levied upon, seized or attached; or
(f) Debtor conceals or removes any part of the Collateral with intent to hinder,
delay or defraud the Secured Party. After an Event of Default occurs, Secured
Party may, without notice to any person, declare the Obligations to be
immediately due and payable. Debtor WAIVES demand, presentment and all notices,
including without limitation notice of dishonor and default, notice of intent to
accelerate and notice of acceleration.
SECTION 8. SECURED PARTY'S RIGHTS AND REMEDIES. After an Event of Default
occurs, Secured Party will have all rights and remedies of a secured party after
default under the UCC and other applicable law. Secured Party may, without
waving any default, do anything Debtor is required to do by this Agreement and
fails to do. Secured Party may require Debtor to assemble the Collateral and
make it available at a reasonably convenient place Secured Party designates.
Except for the safe custody of any Collateral in its possession and accounting
for moneys actually received by it, Secured Party will have no duty as to any
Collateral, including any duty to preserve rights against prior parties. Debtor
irrevocably appoints Secured Party Debtor's attorney-in-fact to endorse any
checks or other instruments included in the Collateral, or to take any other
action to enforce, collect or compromise the Collateral. Secured Party is not
required to take possession of any Collateral prior to any sale, nor to have any
Collateral present at any sale. Secured Party may sell part of the Collateral
without waiving its right to proceed against the remaining Collateral. If any
sale is not completed or is defective in the opinion of Secured Party, Secured
Party may make a subsequent sale of the same Collateral. Any bill of sale or
other instrument evidencing any foreclosure sale will be prima facie evidence of
factual matters stated or recited therein. If a sale of Collateral is conducted
in conformity with customary practices of banks disposing of similar property,
the sale will be deemed commercially reasonable, but Secured Party will have no
obligation to advertise or to sell Collateral on credit. Written notice to
Debtor mailed 10 days prior to public or private sale is reasonable notice. By
exercising its rights, Secured Party will not become liable for, and Debtor will
not be released from, any of Debtor's duties or obligations under the contracts
and agreement included in the Collateral. Secured Party may purchase Collateral
at any public sale, and may credit the purchase price against the Obligations.
All remedies in this Agreement are cumulative of any and all other legal,
equitable or contractual remedies available to Secured Party. Debtor WAIVES any
rights to a marshalling of assets or sale in inverse order of alienation, and
any rights to notice except as provided in the UCC.
Page 1
<PAGE> 24
SECTION 9. ADDITIONAL AGREEMENTS. (a) This Agreement will remain in effect until
Secured Party executes and delivers to Debtor a written termination statement.
(b) No modification or waiver of the terms of this Agreement will be effective
unless in writing and signed by Secured Party. Secured Party may waive any
default without waiving any other prior or subsequent default. Secured Party's
failure to exercise or delay in exercising any right under this Agreement will
not operate as a waiver of such right. No single or partial exercise of any
right under this Agreement will preclude any other or further exercise of that
right or any other right. (c) Any notice required or permitted under this
Agreement will be given in writing by United States mail, by hand delivery or
delivery service, or by telegraphic, telex, telecopy or cable communication,
sent to the intended addressee at the address shown in this Agreement, or to
such different address as the addressee designates by 10 days notice. Notice by
United States mail will be effective when mailed. All other notices will be
effective when received. Written confirmation of receipt will be conclusive.
(d) If any provision of this Agreement is unenforceable or invalid, that
provision will not affect the enforceability or validity of any other provision.
If the application of any provision of this Agreement to any other person or
circumstance is illegal or unenforceable, that application will not affect the
legality or enforceability of the provision as to any other person or
circumstance. (e) If more than one person executes this Agreement as Debtor,
their obligations under this Agreement are joint and several, and the term
Collateral includes any property described in Section 1 that is owned by any
Debtor individually or jointly with any other Debtor and the term "Obligations"
includes both several and joint obligations of each Debtor. (f) The section
headings in this Agreement are for convenience only and shall not be considered
in construing this Agreement. (g) This Agreement may be executed in any number
of counterparts and by different parties in separate counterparts, each of which
will constitute one and the same agreement. (h) This Agreement benefits the
Secured Party and its successors and assigns and is binding on Debtor and its
heirs, legal representatives, successors and assigns (i) If any of the
Obligations are subject to Chapter 3, 4, 5 or 15 of the Texas Credit Code or
Regulation AA of the Board of Governors of the Federal Reserve System
(collectively, the "Consumer Restrictions"), (1) nothing in this Agreement
waives any rights which cannot be legally waived under the Consumer
Restrictions, and (2) the Collateral does not include any assignment of wages or
any non-possessory, non-purchase money security interest in household goods. (j)
THIS AGREEMENT IS GOVERNED BY THE LAWS OF THE STATE OF TEXAS. (k) Secured Party
is executing this Agreement for the purpose of acknowledging the following
notice, and Secured Party's to execute this Agreement will not invalidate this
Agreement.
EXECUTED EFFECTIVE AS OF June 30, 1999.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
DEBTOR(S):
PRODUCT MERCHANDISING, INC.
BY: /s/ MIKE BLUMENFELD TITLE:
-----------------------------------------------------------------------------
SECURED PARTY: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ [ILLEGIBLE]
-----------------------------------------------------------------------------
Title: VP
--------------------------------------------------------------------------
Page 2
<PAGE> 25
ANNEX A
TO
SECURITY AGREEMENT -- ACCOUNTS AND GENERAL INTANGIBLES
(THE "AGREEMENT")
between PRODUCT MERCHANDISING, INC.
("Debtor") and
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION ("Secured Party"),
dated June 30, 1999
THIS ANNEX A is attached to and made a part of the Agreement.
1. "Obligations" for purposes of the Agreement means all debts, obligations
and liabilities of every kind and character of Debtor or of COLLEGIATE
PACIFIC INC.
(whether one or more, "Borrower"), whether joint or several, contingent or
otherwise, now or hereafter existing in favor of Secured Party, including
without limitation all liabilities arising under or from any note, open
account, overdraft, letter of credit application, endorsement, surety
agreement, guaranty, interest rate swap or other derivative product,
acceptance, foreign exchange contract or depository service contract,
whether payable to Secured Party or to a third party and subsequently
acquired by Secured Party. If more than one person is listed as Borrower,
the term "Obligations" includes both several and joint obligations of each
Borrower. Debtor and Secured Party specifically contemplate that Borrower
may hereafter become further indebted to Secured Party.
2. "Debtor" means Debtor, Borrower or both, as appropriate, in Section 7 of
the Agreement.
3. Written notice mailed to Borrower 10 days prior to public or private sale
of the Collateral is reasonable notice.
EXECUTED EFFECTIVE AS OF June 30, 1999.
DEBTOR(S):
PRODUCT MERCHANDISING, INC.
BY: /s/ MIKE BLUMENFELD TITLE:
-----------------------------------------------------------------------------
SECURED PARTY: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ [ILLEGIBLE]
-----------------------------------------------------------------------------
Title: VP
--------------------------------------------------------------------------
<PAGE> 26
CONTINUING UNLIMITED GUARANTY
(THIS "GUARANTY")
1. Guaranty. The undersigned Guarantor (jointly and severally if more than
one) agrees to pay
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
herein called "Lender" at
712 MAIN HOUSTON TEXAS 77252-2558
or such other address as Lender designates, when due or declared due, the
Guaranteed Indebtedness. This Guaranty is an unconditional, absolute and
continuing guaranty of payment and performance and not of collection.
"Guaranteed Indebtedness" means all debts, obligations, and liabilities of
every kind and character, whether joint or several, contingent or
otherwise, of
COLLEGIATE PACIFIC INC.
(together with its successors, "Borrower") now or hereafter existing in
favor of Lender, including without limitation all liabilities arising
under or from any note, open account, overdraft, letter of credit
application, endorsement, surety agreement, guaranty, interest rate swap
or other derivative product, acceptance, foreign exchange contract, or
depository service contract, whether payable to Lender or to a third party
and subsequently acquired by Lender. Guarantor and Lender specifically
contemplate that Borrower may hereafter become further indebted to Lender.
Guaranteed Indebtedness includes any post-petition interest and expenses
(including, but not limited to, attorneys' fees) whether or not allowed as
a claim against Borrower under any bankruptcy, insolvency, or other
similar law. All Guaranteed Indebtedness is conclusively presumed to have
been made or acquired in reliance on this Guaranty. This Guaranty does not
in any way cancel, amend, discharge or limit any other guaranty executed
by Guarantor in favor of Lender. "Loan Documents" means any document or
instrument evidencing, securing or executed in connection with Guaranteed
Indebtedness.
2. Termination of Guaranty. This Guaranty will continue to be in effect until
final payment in full of the Guaranteed Indebtedness. Any Guarantor may
terminate its liability for Guaranteed Indebtedness not in existence
(whether by advance, commitment or otherwise) by delivering written notice
to Lender, to be effective 5 business days after received under written
receipt of Lender. After termination of this Guaranty, Guarantor will
continue to be liable for all Guaranteed Indebtedness existing on the
effective date of termination, and for all Guaranteed Indebtedness arising
under any written agreement to make loans or extensions of credit entered
into between Lender and Borrower prior to the effective date of termination
(whether or not Lender is contractually obligated to make the loans or
extensions of credit).
3. Continuation and Reinstatement of Guaranty. If any petition or other action
is filed by or against Borrower under the Bankruptcy Code or any other law
relating to liquidation, insolvency or reorganization of debtors, or any
other proceeding involving the estate or assets of the Guarantor, this
Guaranty will remain effective or be reinstated, as the case may be (even
if the Guaranteed Indebtedness has been paid in full), with respect to any
payments or transfer of assets with respect to Guaranteed Indebtedness, to
the extent such payment or transfers are or may be voidable or otherwise
subject to rescission or return as preferential transfer, fraudulent
conveyance or otherwise.
4. Changes to Guaranteed Indebtedness. Guarantor authorizes Lender, without
notice, consent or demand, before and after termination of this Guaranty,
without affecting Guarantor's liability hereunder: to take and hold
security for the payment of this Guaranty and/or the Guaranteed
Indebtedness, and exchange, enforce, foreclose, waive and release any
security and to apply the proceeds of such security as Lender in its
discretion determines; to obtain a guaranty of the indebtedness from any
one or more other persons or entities whomsoever and at any time or times
to enforce, waive, rearrange, modify, limit or release such other persons
or entities from their obligations under such guaranties; and to extend,
rearrange, supplement, modify, settle, compromise, discharge or subordinate
any of the Guaranteed Indebtedness.
5. Unenforceability or Uncollectibility of the Guaranteed Indebtedness.
Guarantor will remain liable for the Guaranteed Indebtedness even though
the Guaranteed Indebtedness may be unenforceable against or uncollectible
from the Borrower or any other person due to incapacity, lack of power or
authority, discharge, or for any reason whatsoever.
6. Guarantor Reporting. Guarantor will furnish to Lender such financial
statements and other information relating to the financial condition,
properties and affairs of Guarantor as Lender requests from time to time.
7. Right of Offset. Guarantor grants to Lender a right of setoff against every
deposit account and all personal property in Lender's possession, whether
tangible or intangible, and any claim of Guarantor (whether individual,
joint, several or otherwise) against Lender, now or hereafter existing.
This right of setoff is not exclusive. In addition to Lender's right of
setoff and as further security for this Guaranty and the Guaranteed
Indebtedness, Guarantor hereby grants Lender a security interest in all
deposits and all other accounts and property of Guarantor now or hereafter
on deposit with or held by Lender and all other sums at any time credited
by or owing from Lender to Guarantor. These rights and remedies of Lender
are in addition to other rights and remedies (including, without
limitation, other rights of setoff) which Lender may have.
8. Automatic Acceleration. Guarantor agrees that if the maturity of any
Guaranteed Indebtedness is accelerated by bankruptcy or otherwise, such
maturity shall also be deemed accelerated for the purpose of this Guaranty
without demand on or notice to Guarantor.
9. Waivers of Guarantor. Guarantor waives (i) diligence and promptness in
preserving liability of any person on Guaranteed Indebtedness, and in
collecting or bringing suit to collect Guaranteed Indebtedness; (ii) all
rights of Guarantor under Rule 31, Texas Rules of Civil Procedure, or
Chapter 34 of the Texas Business and Commerce Code, or Section 17.001 of
the Texas Civil Practice and Remedies Code; (iii) to the extent Guarantor
is subject to the Texas Revised Partnership Act ("TRPA"), compliance by
Lender with Section 3.05(d) of TRPA; (iv) protest; (v) notice of
extensions, renewals, modifications, rearrangements and substitutions of
Guaranteed Indebtedness; (vi) notice of acceptance of this agreement,
creation of Guaranteed Indebtedness, failure to pay Guaranteed Indebtedness
as it matures, any other default, adverse change in Borrower's financial
condition, release or substitution of collateral, subordination of Lender's
rights in any collateral, and every other notice of every kind. If any part
of the Guaranteed Indebtedness is secured by an interest in real property
("Real Property"), and such interest is foreclosed upon pursuant to a
judicial or nonjudicial foreclosure sale, Guarantor agrees that
notwithstanding the provisions of Section 51.003, 51.004, and 51.005 of
the Texas Property Code (as amended from time to time), and to the extent
permitted by law, Lender may seek a deficiency judgment from Guarantor and
any other party obligated on the Guaranteed Indebtedness equal to the
difference between the amount owing the Guaranteed Indebtedness and the
amount for which the Real Property was sold at judicial or nonjudicial
foreclosure sale. Guarantor irrevocably waives and shall not seek to
enforce or collect upon any rights which it now has or may acquire against
the Borrower, either by way of subrogation, indemnity, reimbursement or
contribution, for any amount paid under this Guaranty or by way of any
other obligations of the Borrower to Guarantor until 91 days after the
Guaranteed Indebtedness is paid in full.
10. Representations and Agreements. This Guaranty constitutes a legal, valid,
binding obligation of and is enforceable against Guarantor. Guarantor has
filed all federal and state tax returns which are required to be filed, and
has paid all due and payable taxes and assessments against the property and
income of Guarantor. Guarantor has determined that this Guaranty will
benefit Guarantor directly or indirectly. The value of the consideration
received by Guarantor is reasonably worth at least as much as its liability
hereunder and is fair and reasonably equivalent value for this Guaranty. No
material adverse change has occurred in Guarantor's financial condition or
business operations reflected in the last financial statement and
application for credit provided to Lender. Guarantor has not relied and is
not relying on Lender to provide to Guarantor information regarding
Borrower's assets or financial condition and Lender has no duty to provide
such information.
11. Applicable Law and Venue. This Guaranty is governed by Texas law. If any
provision of this Guaranty is illegal or unenforceable, that illegality or
unenforceability will not affect the remaining provisions of this Guaranty.
GUARANTOR AND LENDER AGREE THAT THIS GUARANTY WILL BE PERFORMED IN THE
COUNTY IN WHICH LENDER'S PRINCIPAL OFFICE IN TEXAS IS LOCATED, AND THAT
SUCH COUNTY IS PROPER VENUE FOR ANY ACTION OR PROCEEDING BROUGHT BY THE
GUARANTOR OR LENDER, WHETHER IN CONTRACT, TORT, OR OTHERWISE. ANY ACTION OR
PROCEEDING AGAINST GUARANTOR MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT
IN SUCH COUNTY TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW. TO THE
EXTENT PERMITTED BY APPLICABLE LAW GUARANTOR HEREBY IRREVOCABLY (A) SUBMITS
TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY
OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION
OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN
INCONVENIENT FORUM. GUARANTOR AGREES THAT SERVICE OF PROCESS UPON IT MAY BE
MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS
ADDRESS SPECIFIED BELOW. LENDER MAY SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW AND MAY BRING ANY ACTION OR PROCEEDING AGAINST GUARANTOR
OR WITH RESPECT TO ANY OF ITS PROPERTY IN COURTS IN OTHER PROPER
JURISDICTIONS OR VENUES.
Page 1
<PAGE> 27
12. Notice. Any notice required or permitted under this Guaranty must be given
in writing by United States mail, by hand delivery or delivery service, or
by telegraphic, telex, telecopy or cable communication, sent to the
intended addressee at the address shown in this Guaranty, or to such
different address as the addressee designates by 10 days notice. Notice by
United States mail will be effective when mailed. All other notices will be
effective when received. Written confirmation of receipt will be
conclusive. Notice of terminations, as provided in Section 2, will not be
deemed given until actually received by a commercial lending officer with
the rank of Vice President or above at the address of Lender shown in this
Guaranty.
13. Costs and Expenses. To the extent permitted by applicable law, Guarantor
will pay on demand all attorneys' fees and all other costs and expenses
incurred by Lender in connection with the preparation, administration,
enforcement, or collection of this Guaranty including but not limited to
Lender's standard Documentation Preparation and Processing fees.
14. Miscellaneous. This Guaranty binds each Guarantor and its successors and
assigns and benefits Lender. The term "Lender" also includes all successors
and assigns of Lender. Guarantor may not assign its obligations under this
Guaranty without the prior written consent of Lender. This Guaranty may be
executed in multiple counterparts, and each counterpart will be deemed an
original, without the need to produce any counterpart other than the one to
be enforced. Any gender designation used herein includes all genders and
the singular number includes the plural. Lender's delay or failure to
exercise its rights is not a waiver of those rights. This Guaranty may not
be amended except in a writing signed by an authorized officer of Lender
and no waiver will be effective unless it is in writing. Any waiver is
applicable only for the specific situation for which it is given.
THIS GUARANTY is executed as of June 30, 1999.
THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO
GUARANTOR'S GUARANTY OF GUARANTEED INDEBTEDNESS AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. NO COURSE OF DEALING BETWEEN GUARANTOR AND LENDER, NO COURSE OF
PERFORMANCE, NO TRADE PRACTICES, AND NO EXTRINSIC EVIDENCE OF ANY NATURE MAY BE
USED TO CONTRADICT OR MODIFY ANY TERM OF THIS GUARANTY.
THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR AND LENDER.
GUARANTOR:
PRODUCT MERCHANDISING, INC.
BY: /s/ MIKE BLUMENFELD TITLE:
- -----------------------------------------------------------------------------
ADDRESS OF
GUARANTOR: 7226 JOHN SILVER
-------------------------------------------------------------------
SARASOTA, SARASOTA COUNTY, FL 34231
- -----------------------------------------------------------------------------
LENDER: (Lender's signature is provided as its acknowledgement of the above as
the final written agreement between the parties.)
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
BY: /s/ [ILLEGIBLE]
--------------------------------------------------------------------------
TITLE: VP
-----------------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.16
PROMISSORY NOTE
$1,082,648.75 MARCH 31, 1999
FOR VALUE RECEIVED, the undersigned, Collegiate Pacific, Inc. a
corporation, ("Maker"), hereby unconditionally promises to pay to the order of
Mike Blumenfeld, ("Payee"), at Dallas, Texas, the unpaid principal sum of
$1,082,648.75, in lawful money of the United States of America, together with
interest on the principal balance from day-to-day remaining, computed from the
date hereof until payment at the rate of 12% per annum, calculated monthly, on
the basis of a twelve month year, based on the principal balance at the
beginning of each month.
1. PAYMENT. The principal of and interest on this note will be due
and payable on April 10, 2001.
2. WAIVERS. Demand, presentment, protest and notice of nonpayment
and protest are hereby waived by Maker.
3. EVENTS OF DEFAULT. An "Event of Default" will exist hereunder if
any one or more of the following events occurs and is continuing:
(A) Maker fails to pay when due, any principal of, or interest
on, this note and such failure continues for 10 days after notice
thereof by Maker from Payee.
(B) Maker applies for or consents to the appointment of a
receiver, trustee, custodian, intervenor, or liquidator of Maker
or of all or a substantial part of its assets, (ii) files a
voluntary petition in bankruptcy, admits in writing that it is
unable to pay its debts as they become due or generally does not
pay its debts as they become due, (iii) makes a general
assignment for the benefit of creditors, (iv) files a petition or
answer seeking reorganization or an arrangement with creditors or
to take advantage of any bankruptcy or insolvency laws, (v) files
an answer admitting the material allegations of, or consents to,
or defaults in answering, a petition filed against it in any
bankruptcy, reorganization or insolvency proceeding, or (vi)
takes corporate action for the purpose of effecting any of the
foregoing; or
(C) an involuntary petition or complaint is filed against Maker
seeking bankruptcy or reorganization or the appointment of a
receiver, custodian, trustee, intervenor, or liquidator of Maker,
or of all or substantially all of its assets, and such petition
or complaint is not dismissed within (30) days of the filing
thereof; or an order, order for relief, judgement or decree is
entered by any court of competent
<PAGE> 2
jurisdiction or other competent authority approving a petition or
complaint seeking reorganization of Maker or appointing a
receiver, custodian, trustee, intervenor, or liquidator of Maker,
or of all or substantially all of is assets.
4. REMEDIES. Upon the occurrence of any Event of Default, the holder
hereof may, at its option, declare the entire unpaid balance of
principal and accrued interest on this note to be immediately due
and payable; provided that upon the occurrence of any of the
Events of Default described in Sections 3(B) or (C) above, the
entire unpaid balance of principal and accrued interest on this
note will, without any action by Payee, immediately become due
and payable without demand for payment, presentment, protest an
non-payment, or other notice of default, notice of acceleration
and intention to accelerae or any other notice, all of which are
expressly waived by Maker.
5. PREPAYMENTS. Maker reserves the right to prepay the outstanding
principal balance of this note, in whole or in part, at any time
and from time to time without premium or penalty.
6. COLLECTION. If this note is placed in the hands of an attorney
for collection, or if it is collected through any legal
proceedings at law or in equity or in bankruptcy, receivership or
other court proceedings, Maker promises to pay all costs and
expenses of collection including, but not limited to, court costs
and the reasonable attorneys' fees of the holder hereof.
COLLEGIATE PACIFIC, INC.
By: /s/ MIKE BLUMENFELD
----------------------------
Mike Blumenfeld
President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COLLEGIATE PACIFIC, INC. AND SUBSIDIARIES
FOR THE YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 1998 10 KSB FILING.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 518,844
<SECURITIES> 0
<RECEIVABLES> 1,142,708
<ALLOWANCES> 38,806
<INVENTORY> 1,843,820
<CURRENT-ASSETS> 3,528,953
<PP&E> 150,585
<DEPRECIATION> 32,367
<TOTAL-ASSETS> 4,496,906
<CURRENT-LIABILITIES> 675,063
<BONDS> 0
0
0
<COMMON> 172,018
<OTHER-SE> 2,669,105
<TOTAL-LIABILITY-AND-EQUITY> 4,496,906
<SALES> 6,813,333
<TOTAL-REVENUES> 6,813,333
<CGS> 4,367,382
<TOTAL-COSTS> 4,367,382
<OTHER-EXPENSES> 2,343,434
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110,534
<INCOME-PRETAX> 3,356
<INCOME-TAX> 33,890
<INCOME-CONTINUING> (30,534)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,534)
<EPS-BASIC> (.00)
<EPS-DILUTED> (.00)
</TABLE>
