UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported: September 22, 1997)
BCAM INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
NEW YORK 0-18109 13-3228375
- ---------------------------- ------------------------ ---------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification Number
1800 WALT WHITMAN ROAD, MELVILLE, NEW YORK 11747
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (516) 752-3550
- --------------------------------------------------------------------------------
(Former name or address, if changed since last report)
1
<PAGE>
Item 2. Acquisition or Disposition of Assets
Effective September 22, 1997, BCAM International, Inc. (the "Company" or
the "Registrant") acquired all of the outstanding Common Stock of Drew Shoe
Corporation ("Drew Shoe") for approximately $4.6 million plus the assumption of
liabilities. The purchase price was paid by delivery to the two shareholders of
Drew Shoe of an aggregate of $3,882,000, promissory notes in the aggregate
principal amount of $400,000 and by delivery of an aggregate of 375,000 shares
of the Company's Common Stock to one seller, Mr. Charles Schuyler (who became a
director of the Company upon the acquisition of Drew Shoe). The promissory notes
bear an interest rate of 8% per annum, are due on September 19, 1999, and are
payable in twenty-four (24) equal monthly installments aggregating $8,333.34
(plus interest) with a final payment due in the twenty-fifth (25th) month
aggregating $200,000.
See "Item 5. Other Events; a. Recent Sales of Unregistered Securities,
(ii) Acquisition financing", for a description of the securities issued in order
to finance the acquisition of Drew Shoe.
Simultaneously with the acquisition, the Company through it's wholly owned
subsidiary, Drew Shoe, entered into a $5.5 million credit facility with a
commercial bank consisting of (i) a revolving line of credit up to $4.5 million
(a portion of which is based upon agreed upon percentages of accounts receivable
and inventory) and (ii) a term loan of $1.0 million with a commercial bank. As
of the Drew Shoe acquisition, the Company believes there to be approximately
$4.5 million available under this credit facility (approximately $3.75 million
of which was drawn down to pay certain existing liabilities of Drew Shoe and to
transfer $250,000 to the Company). The revolving line of credit matures on
September 30, 1999, and is payable at a rate of prime plus 1.5%. The term loan
portion of the credit facility (in the principal amount of $1,000,000) also
bears an interest rate of prime plus 1.5% and is due on September 30, 2000. Both
the revolving line of credit and term loan may be used for general working
capital purposes and are guaranteed by the Company. The credit facility with
this bank requires Drew Shoe to maintain compliance with certain financial
covenants, principally net worth, and contain restrictions on the transfer of
cash to the Company.
Drew Shoe is a designer, manufacturer, marketer and distributor of medical
footwear headquartered in Lancaster, Ohio. In addition Drew Shoe operates
approximately 14 retail shoe specialty stores. For its fiscal year ending
December 31, 1996, Drew Shoe had revenues of approximately $14.6 million. The
Company intends to continue to operate Drew Shoe as a manufacturer of medical
footwear.
The acquisition of Drew Shoe is being accounted for under the purchase
method of accounting. As a result, the results of operations of Drew Shoe will
be consolidated with those of the Company commencing with the date of
acquisition. Drew Shoe's assets and
2
<PAGE>
liabilities will be reflected in the Company's balance sheet based upon
preliminary evaluations of their fair market value pending completion of an
analysis of such fair values. Reference is made to the pro-forma financial
information on pages S-1 through S-6.
Item 5. Other Events
a. Recent Sales of Unregistered Securities -
(i) Preferred stock of BCA Services, Inc. ("BCA"), a subsidiary of the
Registrant - On July 22, 1997 BCA Services, Inc. ("BCA"), a previously
wholly-owned subsidiary of BCAM International, Inc. (the "Company"), commenced
an Offering (the "Offering") to sell up to 150 shares of BCA's Convertible
Preferred Stock (the "Preferred Stock") for a total consideration of $1.5
million in a private offering to accredited investors.
The Preferred Stock is convertible into shares of the Company's Common
Stock ("Common Stock") at a price equal to 70% of the average closing bid price
of the Common Stock over a three day trading period ending on the day preceding
the conversion date (the "Variable Conversion Price"). The Conversion Price may
not be greater than 100% of the Variable Conversion Price on the first closing
date (the "Fixed Conversion Price"). The Fixed Conversion price is $0.6563. On
the first anniversary of the closing date, all outstanding shares of Preferred
Stock must be converted into shares of Common Stock of the Company.
In addition, for each 50 shares of Preferred Stock sold, each purchaser
received Non-Redeemable Class BB Warrants to purchase up to 25,000 shares of
Common Stock per $500,000 raised, exercisable at a rate of 110% of the Variable
Conversion Price on the first closing date. The warrants have a term of five
years and the Common Stock underlying the warrants contain registration rights.
Pursuant to the terms of the Offering, the Company divided the Offering
into three tranches. The first tranche, to purchase 50 shares of Preferred Stock
for $500,000, closed on July 24, 1997; the second tranche to purchase 50 shares
of Preferred Stock for $500,000, closed on September 8, 1997. The Company has
until November 7, 1997 to draw down the third tranche, presuming effectiveness
of a registration statement (see below). The purchasers of the securities issued
under the first two tranches were two institutional investors including Autost
Anstalt Schaau, which purchased a total of 50 shares of Preferred Stock and
warrants to purchase 25,000 shares of common stock, and UFH Endowment, Ltd.,
which also purchased a total of 50 shares of Preferred Stock and warrants to
purchase 25,000 shares of common stock.
3
<PAGE>
On September 18, 1997, BCA closed a separate offering of its Preferred
Stock plus warrants for $200,000 on similar terms and conditions as the Offering
(excluding the fixed conversion feature and certain fees). As a result of this
offering, 20 shares of Preferred Stock (convertible into the Company's common
stock at $0.9331 per share) were issued, along with Non-Redeemable Class CC
Warrants to purchase up to 10,000 shares of Common Stock (at $1.0264 per share).
The purchasers of the securities were Arcadia Mutual Fund, which purchased 15
shares of Preferred Stock and warrants to purchase 7,500 shares of the Company's
common stock, and David Morgenstern, who purchased 5 shares of Preferred Stock
and warrants to purchase 2,500 shares of the Company's common stock.
The Registrant claims exemption from registration of this placement by
virtue of Section 4(2) of the Securities Act of 1933.
The two private placements of BCA preferred stock were made with the
assistance of a placement agent, Corporate Capital Management, who charged a
commission of 8% in fees and 2% in expenses plus warrants to purchase up to
75,000 (50,000 of which have been issued in conjunction with the first two
tranches) shares of common stock of the Registrant at approximately $0.66 per
share, for five years for the first offering and 6% in fees and no warrants for
the second offering.
The Preferred Stock contains a penalty provision permitting redemption,
together with penalties, at the option of the holder if the underlying common
stock is not registered under an effective registration statement prior to
approximately January 4, 1998. On September 4, 1997, the Company filed the
required registration statement with the Securities and Exchange Commission. On
September 30, 1997, the Company received a letter of comments on such
registration statement from the Securities and Exchange Commission. The Company
has nearly completed its response to the comments and expects to file an amended
registration statement during the week of October 27, 1997 and request
effectiveness as soon as possible thereafter. The Company believes, based upon
progress toward completion of the registration statement and the comments
raised, that the penalty provision is a remote contingency.
A separate economic penalty (increased interest of 3% per month
retroactive to July 24, 1997 and continuing until effectiveness) would be
triggered by the absence of effectiveness of a registration statement relating
to the shares underlying the conversion feature by November 4, 1997.
In response to positions recently taken by the Securities and
Exchange Commission, Emerging Issues Task Force Statement D-60 has been issued
which requires accounting for securities issued which are convertible into
common stock at a value which is "in the money" at the date of issuance (such as
the preferred stock described above and
4
<PAGE>
the acquisition financing described below). This accounting requires that such
value be charged to operations (based upon the traded market price, without
discount, compared to the conversion amount) in the case of a convertible note
or to retained earnings as a dividend in the case of a preferred stock, over a
period reflecting the shortest period in which the investor has to exercise and
under the most favorable terms to the investor. Because the securities issued
are those of a subsidiary, but are convertible into shares of the Company, the
Company expects to record the preferred stock of the subsidiary as "minority
interests" in the consolidated financial statements. Then, the Company will
immediately charge approximately $500,000 related to the "in the money"
conversion feature for amounts drawn down in the quarter ended September 30,
1997 to Minority Interests. Additional charges would occur if and when the third
tranche is drawn down in the fourth quarter of 1997. See pro-forma financial
statements including footnotes a and b on S-2 and General Note 2 on S-4 and S-6.
(ii) Acquisition financing - In order to fund the acquisition of Drew Shoe
and provide working capital to the Company, On September 19, 1997, the Company
issued subordinated convertible notes to eight investors in the aggregate amount
of $6,000,000 (the "Convertible Notes"). The Convertible Notes are due on
September 19, 2002, unless at any time after September 19, 1998, they are
converted, at $.80 per share, into 7,500,000 shares of Common Stock of the
Company. The Convertible Notes bear an interest rate of 10%, payable
semi-annually, but the Company, at its discretion, may pay interest in the form
of its convertible notes in which case the annual interest rate becomes 13% with
semi-annual compounding. The Convertible Notes require the Company to maintain
compliance with certain financial covenants including maintenance of minimum
levels of interest coverage and net worth (as defined).
In addition, the Company issued to the noteholders Non-Redeemable Class DD
Warrants to purchase 2,400,000 shares of common stock, exercisable at $1.75 per
share at any time prior to September 19, 2002.
The market value of the Company's common stock on the Nasdaq SmallCap
market on the date of the transaction was approximately $1.50.
5
<PAGE>
The purchasers of the securities are set forth in the following table:
Common shares Common shares
Name of purchaser Amount paid issuable under warrants
- ----------------- ----------- ------------- --------------
Impleo, LLC $5,000,000 6,250,000 2,000,000
621 Partners 150,000 187,500 60,000
R. Weil & Associates 155,000 193,750 62,000
David M. Kirr 165,000 206,250 66,000
Terry B. Marbach 165,000 206,250 66,000
Gregg T. Summerville 165,000 206,250 66,000
Ralph Weil 100,000 125,000 40,000
Joseph Schueller 100,000 125,000 40,000
---------- --------- ---------
$6,000,000 7,500,000 2,400,000
========== ========= =========
Kirr Marbach & Company, LLC, a registered investment advisor, is the
managing general partner of 621 Partners, Appleton Associates and R. Weil &
Associates, and together with Messrs Kirr, Marbach and Summerville may be deemed
to constitute a group within the meaning of Regulation 13D-G.
The private placement of convertible notes and warrants to Impleo, LLC was
made with the assistance of an investment banker, Josephberg Grosz and Company,
who charged a cash fee of 6% ($300,000) of proceeds plus certain shares of
common stock, and warrants to purchase shares of common stock, of the
Registrant. The remaining $1,000,000 of proceeds was not subject to a
commission. The Registrant refers the reader to "Item 5. (f) Shares, warrants
and options granted in connection with the acquisition of Drew Shoe and related
acquisition financing", regarding non-cash fees paid.
As a result of the accounting described in the last paragraph of Item 5(i)
above, the Company expects to charge to Interest and Financing costs in the
Consolidated Financial Statements approximately $5,925,000 (representing the "in
the money" value of the conversion feature measured at the date of issuance)
over the one year period preceding the earliest date of conversion. The Company
also plans, under generally accepted accounting principles, to allocate
approximately $1,500,000 as the estimated value of the detachable warrants
issued in connection with the convertible notes, which amount will be amortized
over the five year term of the convertible notes. These charges will be in
addition to amortization of deferred financing costs (estimated to approximate
$300,000) over the five year term of the Convertible Notes. See pro-forma
financial statements including footnote c on S-2 and General Note 2 on S-4 and
S-6.
b. Option grants (largely subject to shareholder approval) - On September
17, 1997 options to purchase approximately 2,070,000 shares of common stock of
the
6
<PAGE>
Registrant were issued to employees, directors and consultants (including
1,500,000 for three executive officers of the Company and its HumanCAD
subsidiary). Of the options issued, options to purchase approximately 1,922,000
shares are subject to approval at the next meeting of the shareholders of the
Registrant. Accordingly, the Company may be subject to a charge to operations if
the exercise price of the options granted exceeds the market price of the common
stock on the date of shareholder approval.
c. Change in Directors - During September and October 1997, Mr. Mark
Plauman, Mr. Charles Schuyler and Mr. Steven Savitsky, respectively, have joined
the Registrant's Board of Directors and Mr. Cherubini has resigned.
Mr. Plauman is a senior vice president of Wexford Management LLC, an
investment management firm providing services for a series of investment
partnerships, several public companies and several private investments. Mr.
Plaumann is a Director of Wahlco Environmental Systems, Inc., a manufacturer of
environmental and engineered equipment; Technology Services Group Inc., a
manufacturer of smart pay phones; several private companies; and the general
partner of several public partnerships. Prior to joining Wexford Management LLC
in 1995, Mr. Plauman was a managing director of Alvarez & Marsal, Inc. a
management consulting firm. From 1985 to 1990 Mr. Plauman was a managing
director with American Healthcare Management, Inc. Prior to 1985, Mr. Plauman
was with Ernst & Young LLP for eleven years in various capacities in the audit
and consulting divisions.
Mr. Schuyler is President of Drew Shoe and has been a principal owner and
manager of Drew Shoe for more than the past twenty years.
Mr. Savitsky is the Founder, Chairman of the Board of Directors and Chief
Executive Officer of Staff Builders, Inc., a large provider of home healthcare
in the United States of America. Mr. Savitsky has a BA in Economics from Yeshiva
University and an MBA in Marketing and Finance from Baruch School of Business.
d. New Officer - Mr. Kenneth C. Riscica has joined the executive officers
of the Company as Vice President - Finance, Chief Financial Officer, Treasurer
and Secretary effective October 16, 1997. Mr. Riscica, formerly a partner in
charge of an emerging companies practice group with Arthur Andersen & Co. LLP
(having been a partner from 1987 to 1992 after joining the firm in 1976), more
recently served as Chief Executive Officer of Riscica Associates, Inc., a
financial and management consulting firm and as Chief Financial Officer of
Magna-Lab, Inc., a publicly traded medical technology company.
Mr. Robert Wong, Vice Chairman and Chief Technology Officer (who
previously served as Acting Chief Financial Officer, Acting Treasurer and Acting
Secretary) continues in his role as Vice Chairman and Chief Technology Officer.
7
<PAGE>
e. Anti-Dilution provisions of Class B Warrants and Class E Warrants -
Principally as a result of the Drew Shoe acquisition financing (as well as other
items), the exercise price and number of shares subject to existing Class B
Warrants and Class E Warrants have been adjusted pursuant to anti-dilution
provisions. The revised amounts are as follows:
Number of Shares
Exercise Price Subject to Warrants
-------------- -------------------
Class B Warrants:
Previous $1.50 969,191
Current $1.14 1,292,254
Class E Warrants:
Previous $1.25 540,747
Current $0.95 737,382
f. Shares, warrants and options granted in connection with the acquisition
of Drew Shoe and related acquisition financing.
In connection with the acquisition of Drew Shoe and related financing, the
following shares, warrants and options were issued to investment bankers and
other strategic consultants:
Common Stock:
Josephberg Grosz & Company, Inc. (investment bankers) 187,500 shares
Strategic Growth International (strategic consultants) 160,000 shares
Warrants or Options to purchase common stock:
Josephberg Grosz and Company (investment bankers) 500,000 at
$0.80 per share
until September
19, 2000
8
<PAGE>
Roger Miller (investment bankers) 50,000 at
$1.52 per
share until
September
17, 2002
Coleman and Company (investment bankers) 10,000 at
$1.52 per
share until
September
17, 2002
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
The balance sheets of Drew Shoe Corporation at December 31, 1996
(audited) and at June 30, 1997 (unaudited), and the results of its operations
and changes in its cash flows for the periods ended December 31, 1996 and 1995
(audited) and for the six month periods ended June 30, 1997 and 1996
(unaudited), required to be presented herein are so included together with the
report of J. H. Cohn LLP, independent public accountants pursuant to the
following Index to Financial Statements:
ITEM Page #
---- ------
Index F-1
Report of Independent Public Accountants F-2
Balance Sheets at June 30, 1997 (unaudited) and
December 31, 1996 (audited) F-3
Statements of Income and Retained Earnings for
the six months ended June 30, 1997 and
1996 (unaudited) and the years ended
December 31, 1996 and 1995 (audited) F-4
Statements of Cash Flows for the six months
ended June 30, 1997 and 1996 (unaudited) and
the years ended December 31, 1996 and 1995 (audited) F-5
Notes to Financial Statements F-6/12
(b) Pro Forma Financial Statements.
Pro Forma financial information showing the unaudited balance sheets and
statements of operations of the Company (consolidated) and Drew Shoe, as well as
pro-forma adjustments to reflect the Company's acquisition of Drew Shoe and the
acquisition
9
<PAGE>
financing and a pre acquisition working capital financing, as if the acquisition
had occurred as of the earliest date in the period presented, are included
hereby as follows:
ITEM Page #
---- ------
Index to Pro Forma Information S
Pro-Forma Balance Sheet at August 31, 1997 (unaudited) S-1/2
Pro-Forma Statement of Operations for the eight months ended
August 31, 1997 (unaudited) S-3/4
Pro-Forma Statement of Operations for the year ended
December 31, 1996 (unaudited) S-5/6
(c) Exhibits.
10.51 Letter of Agreement with Josephberg & Grosz to provide the Company
investment banking services (1)
10.52 Stock Purchase Agreement between the Company and the owners of Drew
Shoe Corporation (1)
10.54 Registration Rights Agreement dated July 15, 1997 (2)
10.60 First Addendum to Stock Purchase Agreement (3)
10.61 Non-Negotiable and Non-Assignable Promissory Note dated as of
September 19, 1997 by BCAM International, Inc. in favor of Charles
Schuyler
10.62 Non-Negotiable and Non-Assignable Promissory Note dated as of
September 19, 1997 by BCAM International, Inc. in favor of Frank
Shyjka
10.63 Form of 10%/13% Convertible Subordinated Note
10.64 Form of Warrant Agreement
10.65 Form of Registration Agreement
10.66 Form of Subordination Agreement
10.67 Loan and Security Agreement dated as of September 19, 1997 between
Bank One, National Association and Drew Shoe Corporation.
10.68 Guarantee agreement by BCAM International, Inc. of obligation of
Drew Shoe Corporation to Bank One, National Association.
10.69 Form of Revolving Note Agreement with Bank One, National Association
10.70 Term Loan Agreement with Bank One, National Association
10
<PAGE>
(1) Filed as an Exhibit to Registrant's Form 10-KSB for the fiscal year ended
December 31, 1996 (file no. 0-18109) and incorporated herein by reference
thereto
(2) Filed as an Exhibit to Registrant's Post-Effective Amendment number 13 on
Form SB-2 to Registration Statement on Form S-1 (file no. 33-38204) and
incorporated herein by reference thereto.
(3) Filed as an Exhibit to Registrant's Current Report on Form 8-K filed on
September 30, 1997 (file no. 0-18109) and incorporated herein by reference
thereto
Forward Looking Statements
This Form 8-K contains forward-looking statements which involve risks and
uncertainties. When used herein, the words "anticipate", "believe", "estimate"
and "expect" and similar expressions as they relate to the Company or its
management are intended to identify such forward-looking statements. These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. The Company's actual
results, performance or achievements could differ materially from the results
expressed in or implied by these forward-looking statements. Factors that could
cause or contribute to such differences are detailed from time to time in the
Company's Securities and Exchange Commission reports. Historical results are not
necessarily indicative of trends in operating results for any future period.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BCAM INTERNATIONAL, INC.
By: /s/ Michael Strauss
----------------------------
Michael Strauss, President
Chairman of the Board and
Chief Executive Officer
Date: October 29, 1997
12
<PAGE>
DREW SHOE CORPORATION
REPORT ON FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997
AND 1996 AND YEARS ENDED
DECEMBER 31, 1996 AND 1995
<PAGE>
DREW SHOE CORPORATION
I N D E X
PAGE
----
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996 F-3
STATEMENTS OF INCOME AND RETAINED EARNINGS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
AND YEARS ENDED DECEMBER 31, 1996 AND 1995 F-4
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
AND YEARS ENDED DECEMBER 31, 1996 AND 1995 F-5
NOTES TO FINANCIAL STATEMENTS F-6/12
* * *
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder
Drew Shoe Corporation
We have audited the accompanying balance sheet of DREW SHOE CORPORATION as of
December 31, 1996, and the related statements of income and retained earnings
and cash flows for the years ended December 31, 1996 and 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Drew Shoe Corporation as of
December 31, 1996, and its results of operations and cash flows for the years
ended December 31, 1996 and 1995, in conformity with generally accepted
accounting principles.
J. H. COHN LLP
Roseland, New Jersey
September 26, 1997
F-2
<PAGE>
DREW SHOE CORPORATION
BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
June December
ASSETS 30, 1997 31, 1996
----------- -----------
(Unaudited)
Current assets:
Cash $ 176,023 $ 26,757
Accounts receivable, less allowance for
doubtful accounts of $66,500 and $68,000 1,925,197 1,558,622
Inventories 6,644,853 6,694,033
Prepaid expenses and sundry receivables 102,880 116,536
----------- -----------
Total current assets 8,848,953 8,395,948
Property and equipment, net of accumulated
depreciation 1,334,636 1,350,145
Cash surrender value of life insurance, net
of loans of $423,333 and $501,000 74,357 69,074
Intangible pension assets 59,390 59,390
Other assets 187,528 194,200
----------- -----------
Totals $10,504,864 $10,068,757
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 377,023 $ 176,232
Accounts payable 675,878 883,962
Accrued payroll and payroll taxes 281,838 329,065
Accrued pension cost, current portion 246,823 195,435
Accrued other liabilities 150,458 75,022
----------- -----------
Total current liabilities 1,732,020 1,659,716
Notes payable - bank 2,435,253 1,962,253
Long-term debt, net of current portion 1,116,376 1,404,829
Accrued pension cost, net of current portion 110,613 110,613
----------- -----------
Total liabilities 5,394,262 5,137,411
----------- -----------
Commitments
Stockholders' equity:
Common stock, no par value, 1,711.3422
shares authorized; 1,709.8289 shares issued
and outstanding 127,156 127,156
Retained earnings 5,034,669 4,855,413
----------- -----------
Totals 5,161,825 4,982,569
Less excess additional pension liability (51,223) (51,223)
----------- -----------
Total stockholders' equity 5,110,602 4,931,346
----------- -----------
Totals $10,504,864 $10,068,757
=========== ===========
See Notes to Financial Statements.
F-3
<PAGE>
DREW SHOE CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 AND
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Six Months Years Ended
Ended June 30, December 31,
--------------------------- ------------------------------
1997 1996 1996 1995
---------- ---------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
INCOME
Net sales $7,773,892 $7,346,378 $14,609,346 $13,646,926
Cost of goods sold 4,709,086 4,611,994 9,146,708 8,590,713
---------- ---------- ----------- -----------
Gross profit 3,064,806 2,734,384 5,462,638 5,056,213
---------- ---------- ----------- -----------
Operating expenses:
Selling 1,816,954 1,597,533 3,477,433 2,972,764
General and
administrative 915,245 853,321 1,700,379 1,546,155
---------- ---------- ----------- -----------
Totals 2,732,199 2,450,854 5,177,812 4,518,919
---------- ---------- ----------- -----------
Operating income 332,607 283,530 284,826 537,294
Interest expense (178,407) (168,439) (338,447) (347,591)
Interest and other
income 25,056 47,288 79,328 93,899
---------- ---------- ----------- -----------
Net income 179,256 162,379 25,707 283,602
RETAINED EARNINGS
Balance, beginning of
period 4,855,413 4,885,266 4,885,266 4,853,464
Distributions (55,560) (55,560) (251,800)
---------- ---------- ----------- -----------
Balance, end of period $5,034,669 $4,992,085 $ 4,855,413 $ 4,885,266
========== ========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
DREW SHOE CORPORATION
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 AND
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Six Months Years Ended
Ended June 30, December 31,
-------------------- --------------------
1997 1996 1996 1995
-------- -------- --------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Operating activities:
Net income $179,256 $162,379 $ 25,707 $283,602
Adjustments to reconcile net income to
net cash provided by (used in) oper-
ating activities:
Depreciation and amortization 118,480 106,401 247,978 227,088
Changes in operating assets and lia-
bilities:
Accounts receivable (366,575) (198,296) 433,139 (312,845)
Inventories 49,180 (866,579) (711,712) (276,645)
Prepaid expenses and sundry receiv-
ables 13,656 9,712 24,995 84,273
Accounts payable (208,084) 433,201 25,612 222,689
Accrued expenses and other lia-
bilities 79,597 250,080 120,327 (4,250)
-------- -------- --------- --------
Net cash provided by (used in)
operating activities (134,490) (103,102) 166,046 223,912
-------- -------- --------- --------
Investing activities:
Purchases of property and equipment (94,675) (146,347) (266,292) (232,117)
(Increase) decrease in cash surrender
value of life insurance and other
assets (6,907) 142,848 58,904 (135,362)
-------- -------- --------- --------
Net cash used in investing
activities (101,582) (3,499) (207,388) (367,479)
-------- -------- --------- --------
Financing activities:
Net proceeds under revolving note
agreement 473,000 229,681 218,123 396,359
Proceeds from issuance of long-term debt 12,828 24,095 450,000
Principal payments on long-term debt (76,662) (73,382) (146,218) (526,523)
Distributions (55,560) (55,560) (157,800)
-------- -------- --------- --------
Net cash provided by financing
activities 385,338 113,567 40,440 162,036
-------- -------- --------- --------
Net increase (decrease) in cash 149,266 6,966 (902) 18,469
Cash, beginning of period 26,757 27,659 27,659 9,190
-------- -------- --------- --------
Cash, end of period $176,023 $ 34,625 $ 26,757 $ 27,659
======== ======== ========= ========
Supplemental disclosure of cash flow data:
Interest paid $166,639 $152,935 $ 329,227 $357,318
======== ======== ========= ========
Supplemental disclosure of noncash invest-
ing and financing information:
Change in additional pension liability
recorded as:
Increase (decrease) in intangible
pension asset $(236,662) $123,951
(Increase) decrease in stockholders'
equity (179,742) 230,965
--------- --------
Totals $(416,404) $354,916
========= ========
Stockholders' receivables offset against
distributions $ 94,000
========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
DREW SHOE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business and summary of accounting policies:
Business:
The Company designs, manufactures, imports, markets and
distributes women's and men's shoes for sale to independent
retailers and through Company-owned retail operations
throughout the United States.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Financial instruments and off-balance-sheet risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
trade accounts receivable. The Company maintains its cash in
bank deposit accounts which, at times, may exceed Federally
insured limits. Concentrations of credit risk with respect to
trade receivables are limited due to the large number of
customers comprising the Company's customer base, their
dispersion across different geographic areas, and generally
short payment terms. In addition, the Company routinely
assesses the financial strength of its customers.
Inventories:
Inventories are stated at the lower of cost, determined on a
first-in, first-out basis, or market.
Property and equipment:
Property and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated
useful lives of the assets.
Goodwill:
Goodwill, included in other assets, is amortized on a
straight-line basis over periods ranging from five to twenty
years.
Revenue recognition:
Revenue from wholesale product sales is recognized at the
time products are shipped. Revenue from retail product sales
through Company-owned retail operations is recognized at the
point of sale.
Income taxes:
The Company has elected to be treated as an "S" Corporation
under the applicable sections of the Internal Revenue Code.
Under these sections, corporate income or loss, in general,
is allocated to the stockholders for inclusion in their
personal income tax returns. Accordingly, there is no
provision for Federal income taxes in the accompanying
financial statements.
F-6
<PAGE>
DREW SHOE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business and summary of accounting policies (concluded):
Income taxes (concluded):
The Company has also elected to be treated as an "S"
Corporation in the states in which its files corporate income
tax returns. Accordingly, no provision for state income taxes
has been provided in the accompanying financial statements.
Advertising:
The Company expenses the cost of advertising as incurred.
Advertising costs charged to operations were $365,000 and
$364,000 for the years ended December 31, 1996 and 1995,
respectively.
Unaudited interim financial information:
In the opinion of management, the accompanying unaudited
financial statements reflect all adjustments, consisting only
of normal recurring accruals, necessary to present fairly the
financial position of the Company as of June 30, 1997, and
its results of operations and cash flows for the six months
ended June 30, 1997 and 1996. Results of operations for the
six months ended June 30, 1997 are not necessarily indicative
of the results of operations for the full year ending
December 31, 1997.
Note 2 - Inventories:
Inventories consist of the following:
December
June 30, 1997 31, 1996
------------- ----------
(Unaudited)
Raw materials $ 946,210 $ 858,907
Work-in-process 804,606 988,714
Finished goods 4,894,037 4,846,412
---------- ----------
Totals $6,644,853 $6,694,033
========== ==========
Note 3 - Property and equipment:
Property and equipment consists of the following at December 31,
1996:
Range of
Estimated
Useful Lives Amount
------------ ----------
Land $ 100,000
Buildings and improvements 10-35 years 865,325
Machinery and equipment 5-13 years 2,614,715
----------
Total 3,580,040
Less accumulated depreciation 2,229,895
----------
Total $1,350,145
==========
F-7
<PAGE>
DREW SHOE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 4 - Notes payable - bank:
At December 31, 1996, the Company had outstanding borrowings of
$1,962,253 under a revolving credit and bankers acceptance
facility with Bank One, National Association (the "Bank").
Borrowings under the revolving credit portion of the agreement
bear interest at the prime rate, while outstanding bankers'
acceptances of $500,000 at December 31, 1996 had an effective
interest rate of 7.25%. At December 31, 1996, the Company was in
violation of certain covenants in the loan agreement which were
subsequently waived by the Bank.
As discussed in Note 10, the Company entered into a new credit
facility with the Bank on September 22, 1997. Principal payments
are not required under the new revolving credit facility until
expiration on September 30, 1999 and, accordingly, the entire
amount of notes payable - bank has been classified as a
noncurrent liability in the accompanying balance sheets at June
30, 1997 and December 31, 1996.
Note 5 - Long-term debt:
Long-term debt consists of the following at December 31, 1996:
Mortgage note with interest at prime plus
.25% (8.5% at December 31, 1996), due
in monthly installments through February
2000, collateralized by real estate (A) $ 395,000
Note payable - related party with interest
at prime, renewable every January 1 for
an additional 12 months, unsecured (B)(D) 213,869
Debentures - related parties with interest
at 10%, due in monthly installments
through July 2002, unsecured (C)(D) 943,476
Other 28,716
----------
1,581,061
Less current portion 176,232
----------
Long-term debt $1,404,829
==========
(A) The mortgage was repaid on September 22, 1997 with
proceeds from a new $1,000,000 term loan payable to
the Bank (see Note 10). The term loan is payable in
monthly installments of $11,905 plus interest at prime
plus 1.5% through September 30, 2000, at which time
the outstanding balance is due.
(B) The note was renewed as of January 1, 1997 and,
accordingly, is classified as noncurrent at December
31, 1996.
F-8
<PAGE>
DREW SHOE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 5 - Long-term debt (concluded):
(C) The debentures were repaid on September 22, 1997
utilizing $845,056 of proceeds from the new term loan
and the revolving credit facility discussed in Note
10.
(D) Related party interest expense approximated $119,000
and $129,000 in 1996 and 1995, respectively.
Principal payment requirements on the above obligations, as
adjusted for the refinancing discussed in Note 10, in each of
the five years subsequent to December 31, 1996 are as follows:
Year Ending
December 31, Amount
------------ --------
1997 $176,232
1998 361,853
1999 368,266
2000 670,025
2001 2,195
As the notes payable - bank and long-term debt bear interest at
varying rates based on market, the carrying value approximates
fair value at December 31, 1996.
Note 6 - Pension plans:
The Company has two noncontributory, defined benefit pension
plans covering substantially all employees. Benefits under the
plan covering nonunion employees are based on average monthly
compensation and years of service. Benefits under the plan
covering union employees are based on years of service. The
Company's policy is to make contributions to the plans
sufficient to meet minimum funding requirements.
A summary of the components of net periodic pension cost for the
years ended December 31, 1996 and 1995 follows:
1996 1995
-------- --------
Service cost $135,590 $ 80,498
Interest 144,279 94,746
Actual return on plan assets (45,938) (90,671)
Amortization and deferral (12,643) 74,909
-------- --------
Net pension cost $221,288 $159,482
======== ========
F-9
<PAGE>
DREW SHOE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 6 - Pension plans (continued):
The following table sets forth the funded status and amounts
recognized in the balance sheet as of December 31, 1996:
Underfunded
Overfunded Nonunion
Union Plan Plan
---------- -----------
Actuarial present value of
benefit obligations:
Vested benefit $1,009,957 $ 646,873
Nonvested benefits 6,591 77,875
---------- ----------
Accumulated benefit obligation 1,016,548 724,748
Effect of projected future
compensation levels 335,867
---------- ----------
Projected plan benefit obliga-
tions for services rendered
to date 1,016,548 1,060,615
Plan assets at fair value 1,043,077 342,324
---------- ----------
Plan assets in excess of (less
than) projected benefit ob-
ligations 26,529 (718,291)
Unrecognized net (gain) loss (142,577) 387,090
Prior service cost not yet
recognized in periodic pen-
sion cost 111,421 (8,661)
Unrecognized transition liability 81,003 68,051
Additional minimum liability (110,613)
---------- ----------
Prepaid (accrued) pension
cost 76,376 (382,424)
Less current portion (76,376) 271,811
---------- ----------
Long term portion, representing
additional liability $ - $ (110,613)
========== ==========
Significant assumptions used in the accounting for the defined
benefit plans were as follows:
Discount rate 7%
Rate of increase in compensation levels 4%
Expected long-term rate of return on assets 8.25%
The plans' assets at December 31, 1996 are invested in an
annuity investment fund, certificates of deposit, insurance
contracts and interest bearing cash accounts.
F-10
<PAGE>
DREW SHOE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 6 - Pension plans (concluded):
The provisions of Statement of Financial Accounting Standards
No. 87 ("SFAS No. 87"), "Employers' Accounting for Pensions,"
require recognition in the balance sheet of an additional
minimum liability and related intangible asset for pension plans
with accumulated benefits in excess of plan assets. This
resulted in the recognition at December 31, 1996 of an
additional liability of $110,613. SFAS No. 87 provides that the
intangible asset cannot exceed the amount of unrecognized prior
service costs. At December 31, 1996, an intangible asset of
$59,390 was recognized, with the remaining balance of $51,223
recorded as a reduction of stockholders' equity.
Effective September 3, 1997, the accrual of future benefits
under the nonunion defined benefit pension plan was sus- pended.
The effect of the curtailment of the nonunion plan on the
Company's financial statements cannot currently be determined.
Note 7 - Commitments and other matters:
Lease commitments:
The Company leases retail space and certain machinery and
equipment under operating leases that expire through 2003.
Related rent expense amounted to $369,000 and $246,000 for
the years ended December 31, 1996 and 1995, respectively.
Future minimum rental payments required under the
noncancelable operating leases in years subsequent to
December 31, 1996 are as follows:
Year Ending
December 31, Amount
------------ --------
1997 $317,808
1998 261,377
1999 155,603
2000 49,726
2001 24,708
Thereafter 48,450
--------
Total $857,672
========
Collective bargaining agreement:
At December 31, 1996, approximately 63% of the Company's
workforce is represented under a collective bargaining
agreement which expires May 31, 1998.
Concentrations:
The Company relies to a large extent on medical footwear for
sales. Approximately 80% of the Company's sales are women's
shoes. No one customer accounts for more than 10% of the
Company's sales.
F-11
<PAGE>
DREW SHOE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 8 - Provision for income taxes:
A reconciliation of income taxes based on pre-tax income and the
Federal statutory rate to the Company's effective rate for the
years ended December 31, 1996 and 1995 follows:
December 31,
------------
1996 1995
---- ----
Federal statutory income tax rate 34.0% 34.0%
Increase (decrease) resulting from:
State income taxes, net of Federal
tax benefit 7.8 7.0
"S" Corporation income not subject
to Federal or state tax (48.6) (42.7)
Other 6.8 1.7
---- ----
Effective rate - % - %
==== ====
Note 9 - Unaudited proforma income tax information:
Unaudited proforma income tax information as if the Company had
been a "C" Corporation subject to Federal and state income taxes
follows:
Six Months Ended Year Ended
June 30, December 31,
--------------------- --------------------
1997 1996 1996 1995
--------- --------- -------- ---------
Income before income
taxes $ 179,256 $ 162,379 $ 25,707 $ 283,602
Pro forma provision
for income taxes (73,000) (66,000) (10,000) (115,000)
--------- --------- -------- ---------
Pro forma net income $ 106,256 $ 96,379 $ 15,707 $ 168,602
========= ========= ======== =========
Note 10 - Subsequent events:
Effective September 22, 1997, the Company's stockholders sold
all of the outstanding common stock of the Company to BCAM
International, Inc. ("BCAM"), a publicly-held software
technology company, for cash and other consideration.
On September 22, 1997, the Company entered into a new $4,500,000
revolving credit facility and a $1,000,000 term loan with the
Bank (see Notes 4 and 5). Under the terms of the revolving
credit facility, the Company may borrow a maximum of 80% of
eligible accounts receivable, as defined, and 35% of eligible
inventory, as defined. Such borrowings bear interest at the
prime rate plus 1.5%, payable monthly. Principal payments are
not required under the revolving credit facility until
expiration on September 30, 1999. Borrowings under the revolving
credit facility and the term loan are secured by substantially
all of the Company's assets and guaranteed by BCAM.
The agreement contains various restrictive covenants including
net worth requirements, limitations on dividends and
distributions, limitations on transactions with affiliates, as
defined, and the maintenance of a debt service coverage ratio.
F-12
<PAGE>
BCAM International, Inc.
INDEX TO PRO-FORMA FINANCIAL INFORMATION
(UNAUDITED)
Page
----
Pro-Forma Balance Sheet at August 31, 1997 S-1/2
Pro-Forma Statement of Operations for the eight
months ended August 31, 1997 S-3/4
Pro-Forma Statement of Operations for the year
ended December 31, 1996 S-5/6
S
<PAGE>
BCAM International, Inc.
Condensed Consolidated Pro Forma Balance Sheet (Unaudited)
August 31, 1997
<TABLE>
<CAPTION>
BCAM Drew Pro-Forma Adjustments Pro-Forma
----------- -------------- --------------------------------- -------------
Assets dr. cr.
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and equivalents $ 100,000 $ (123,000) 600,000 a 3,832,000 e 2,245,000
6,000,000 c 450,000 d
250,000 i 100,000 j
200,000 f
Accounts receivable, net 75,000 1,710,000 100,000 h 1,685,000
Unbilled Receivables 87,000 - 87,000
Inventory 25,000 6,307,000 150,000 h 6,182,000
Other current assets 159,000 423,000 582,000
------------ ----------- ---------- ---------- -----------
Total current assets 446,000 8,317,000 6,850,000 4,832,000 10,781,000
Property and equipment
Land - 100,000 100,000
Buildings & improvements 51,000 811,000 111,000 h 751,000
Furniture & equipment 887,000 2,782,000 1,749,000 h 1,920,000
------------ ----------- ---------- ---------- -----------
938,000 3,693,000 - 1,860,000 2,771,000
Less accumulated deprn (710,000) (2,381,000) 2,381,000 h (710,000)
------------ ----------- ---------- ---------- -----------
228,000 1,312,000 2,381,000 1,860,000 2,061,000
Patents, trademarks, software, net 385,000 - 385,000
Investment in Drew Shoe 4,732,000 e 5,362,000 k -
630,000 f
Deferred financing costs 571,000 697,000 d 50,000 e 830,500
100,000 j 87,500 g
400,000 f
Goodwill 220,000 k 349,000
129,000 h
Other assets 1,000 328,000 150,000 h 179,000
------------ ----------- ---------- ---------- -----------
Total assets $ 1,631,000 $ 9,957,000 15,739,000 12,741,500 $14,585,500
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 144,000 $ 501,000 $ 645,000
Accrued expenses and other 269,000 3,116,000 250,000 h 3,885,000
250,000 i
------------ ----------- ---------- ---------- -----------
Total current liabilities 413,000 3,617,000 500,000 4,530,000
Seller Notes, 8% due Sept 1999 - - 400,000 e 400,000
Convertible Notes, due Sept 2002 - - 4,500,000 c 4,500,000
Other liabilities 4,000 1,198,000 1,202,000
Minority interest 450,000 - 600,000 a 1,050,000
Common shareholders' equity:
Common stock, par value $.01 167,000 127,000 127,000 k 167,000
Paid-in surplus 16,001,000 - 570,000 d 500,000 b 24,678,000
5,925,000 c
1,500,000 c
817,000 d
450,000 e
30,000 f
25,000 g
Contra equity - - 5,925,000 c (5,925,000)
Retained earnings (deficit) (14,505,000) 5,015,000 500,000 b (15,117,500)
112,500 g
5,015,000 k
------------ ----------- ---------- ---------- -----------
1,663,000 5,142,000 12,249,500 9,247,000 3,802,500
Less 763,182 treasury shares (899,000) - (899,000)
------------ ----------- ---------- ---------- -----------
764,000 5,142,000 12,249,500 9,247,000 2,903,500
------------ ----------- ---------- ---------- -----------
Total liabilities and equity $ 1,631,000 $ 9,957,000 12,249,500 15,247,000 $14,585,500
============ =========== ========== ========== ===========
</TABLE>
S-1
<PAGE>
Notes to Pro Forma Balance Sheet:
(a) To reflect, as minority interest, the private placement of subsidiary
Preferred Stock which is convertible into shares of the Company's common
stock. See Item 5 a.(i) $450,000 (net of expenses of $50,000) is already
reflected in the August 31 balance sheet for the July 1997 tranche; the
remainder, $500,000 on 9/8/97 and $200,000 on 9/18/97, net of
commissions/expenses ($100,000), are reflected by this adjustment
(b) To reflect an imputed dividend to minority shareholders of subsidiary in
accordance with guidance of EITF D-60 for the "in the money" value of the
conversion feature
(c) To reflect the issuance of $6,000,000 of 10% Convertible Notes
(convertible into 7,500,000 shares of common stock) and warrants to
purchase 2,400,000 shares of common stock as described in Item 5 a (i), as
follows:
Allocated to Detachable Warrants 1,500,000
Allocated to Convertible Notes 4,500,000
Allocated to "in the money" conversion feature 5,925,000
Contra-equity for conversion feature (to be charged to
expense over one year period prior until convertible) (5,925,000)
-------------
Cash proceeds, gross 6,000,000
=============
(d) To reflect the cash and equity portion of acquisition financing
compensation (i.e. shares, warrants and options issued to investment
bankers and consultants). See Item 5 (f).
Shares to Investment banker (187,500 x $1.50 x 80%) 225,000
Investment banker options( 500,000 imputed at $.80) 400,000
Shares to consultant (160,000 x $1.50 x 80%) 192,000
-------------
subtotal credit to equity 817,000
-------------
Cash compensation to investment banker 300,000
Additional cash for professional fees, estimate 150,000
-------------
subtotal credit to cash 450,000
-------------
Total 1,267,000
=============
<TABLE>
<S> <C> <C>
Allocated to:
Deferred Debt Financing Costs (55%) 696,850 697,000
=========
Equity component of deferred finance costs (45%) 570,150 570,000
=========
</TABLE>
(e) To reflect the purchase of Drew Shoe Corporation per Item 2, as follows:
Cash consideration at closing 3,832,000
Plus amounts previously paid to sellers 50,000
Notes to Sellers 400,000
Shares to seller (375,000 x $1.50 per share) x 80%
to reflect diiscount for marketability/minority position 450,000
Investment in Drew Shoe 4,732,000
(f) To reflect the cash and equity compensation for consultants to the Drew
Shoe acquisition. See Item 5 (f)
Investment banker options (50,000 valued at $.60) 30,000
Additional cash compensation for professional fees 200,000
Amounts already capitalized at August 31 400,000
Total expenses of transaction 630,000
(g) To write off certain costs of proposed financings which were terminated by
the Company. (including $87,500 capitalized in deferred finance costs and
$25,000 of equity compensation to terminate).
(h) To make a preliminary allocation, based upon incomplete information and
analysis, of the Drew Shoe purchase price to the fair value of the assets
and liabilities acquired.
(i) To reflect the approximate net increase in borrowings at Drew Shoe under
the new Term Loan and Working Capital agreement with BankOne. See Item 2.
(j) To reflect estimated costs of the BankOne Term Loan and revolving credit
agreement. See Item 2.
(k) To eliminate the Company's investment in Drew Shoe.
S-2
<PAGE>
BCAM International, Inc.
Condensed Consolidated Pro-Forma Statement of Operations (Unaudited)
For the eight months ending August 31,1997
<TABLE>
<CAPTION>
BCAM Drew Pro-Forma Adjustments Pro-Forma
-------------- -------------- --------------------------- --------------
dr. cr.
<S> <C> <C> <C> <C> <C>
Revenues $ 397,000 $ 10,269,000 $ 10,666,000
Cost of Sales 222,000 6,212,000 25,000 h 6,459,000
-------------- -------------- ---------- ---------- --------------
Gross profit 175,000 4,057,000 25,000 - 4,207,000
Selling, general and admin. 1,443,000 3,644,000 6,000 g 5,093,000
25,000 h
Research and development 50,000 - 50,000
-------------- -------------- ---------- ---------- --------------
Income (loss) from operations (1,318,000) 413,000 31,000 - (936,000)
Other income (expense):
Interest and other income 16,000 33,000 49,000
Interest and financing costs (3,000) (236,502) 200,000 a (439,502)
93,000 b (93,000)
22,000 c (22,000)
400,000 d (400,000)
20,000 e (20,000)
50,000 f (50,000)
-------------- -------------- ---------- ---------- --------------
total other expense 13,000 (203,502) 785,000 - (975,502)
-------------- -------------- ---------- ---------- --------------
Income (loss) before tax (1,305,000) 209,498 816,000 - (1,911,502)
Provision for taxes (note 3) - - - - -
-------------- -------------- ---------- ---------- --------------
Net income (loss) $ (1,305,000) $ 209,498 816,000 - $ (1,911,502)
============== ============== ========== ========== ==============
Weighted Average Shares Outstanding 16,474,558
--------------
Net loss per share -0.12
==============
(i)
</TABLE>
Pro-forma adjustments:
(a) To amortize deferred financing costs for the value of detachable warrants
issued in connection with convertible notes as follows: $1.5 million
divided by 5 year term of notes = $300,000 ($200,000 for 8 mos.)
(b) To amortize deferred financing costs for the convertible notes over 5
years: $697,000 divided by 5 = $140,000 ($93,000 for 8 mos.)
(c) To amortize the estimated BankOne financing costs - $100,000 divided by 3
= $33,000 ($22,000 for 8 mos.)
(d) To reflect interest expense on convertible notes - $6,000,000 times 10% =
$600,000 ($400,000 for 8 mos.)
(e) To reflect interest cost for 8% Notes payable to former Drew Shoe
shareholders (approximately $30,000) ($20,000 for 8 mos.)
(f) To reflect incremental increase in interest rate and borrowings under Bank
One Agreement (approx. $75,000/year - $50,000 for 8 mos.)
(g) To amortize goodwill over 40 years (349,000/40=$9,000), based on Drew
Shoe's lengthy existence in an industry which serves basic needs which are
expected to continue ($6,000 for 8 mos.).
(h) To reflect the estimated incremental increase in fixed asset depreciation
of approximately $75,000 ($50,000 for 8 mos.)
(i) Weighted average shares outstanding (15,752,058) + investment banker and
consultant shares (187,500 + 160,000) plus shares to seller (375,000)
totals 16,474,558.
S-3
<PAGE>
General Notes:
Note 1. The Company has identified certain cost savings and is evaluating other
cost savings measures for implementation at Drew Shoe. The Company has not
reflected any such cost savings in this pro-forma information because the
specific identification of savings, net of new investments, is not yet
finalized.
Note 2. The Company has excluded from this pro forma information non-recurring
charges related to the issuance of the acquisiton financing and the
preferred stock issued by a subsidiary (See Item 5 a (i) and (ii)
Such charges include:
a. Non recurring charge to minority interests
for imputed dividend to minority shareholders
of subsidiary to be recorded in the third
quarter ended September 1997 $500,000
b. Non recurring charge to interest and financing
costs as a result of imputed interest in
connection with the issuance of convertible notes
and warrants to be amortized over 12 months
ending Sept. 19, 1998 $5,925,000
Note 3. The Company has not included a pro forma income tax provision because
it will consolidate Drew Shoe for tax purposes and utilize existing net
operating losses of the Company against any anticipated profits of Drew
Shoe. While such net operating losses are subject to limitations as to
their useage, The Company believes that it will have sufficient available
net operating losses to offset the anticipated profits of Drew Shoe in the
near term. Also, based on the existing results of operations and
additional cash interest on a recurring basis, the consolidated company is
likely to be generating additional pretax losses in the near term.
S-4
<PAGE>
BCAM International, Inc.
Condensed Consolidated Pro-Forma Statement of Operations (Unaudited)
For the year ending December 31,1996
<TABLE>
<CAPTION>
BCAM Drew Pro-Forma Adjustments Pro-Forma
-------------- -------------- -------------------------- --------------
dr. cr.
<S> <C> <C> <C> <C> <C>
Revenues $ 605,000 $ 14,609,000 $ 15,214,000
Cost of Sales 273,000 9,147,000 37,500 h 9,457,500
-------------- -------------- ---------- ---------- --------------
Gross profit 332,000 5,462,000 37,500 - 5,756,500
Selling, general and admin. 1,802,000 5,178,000 9,000 g 7,026,500
37,500 h
Research and development 98,000 - 98,000
-------------- -------------- ---------- ---------- --------------
Income (loss) from operations (1,372,000) 284,000 28,500 - (1,172,000)
Other income (expense):
Interest and other income 68,000 - - 68,000
Interest and financing costs (14,000) (259,000) 300,000 a (573,000)
140,000 b (140,000)
33,000 c (33,000)
600,000 d (600,000)
30,000 e
75,000 f (75,000)
-------------- -------------- ---------- ---------- --------------
total other (expense) 54,000 (259,000) 1,178,000 - (1,353,000)
-------------- -------------- ---------- ---------- --------------
Income (loss) before tax (1,318,000) 25,000 1,206,500 - (2,525,000)
Provision for taxes (note 3) -
-------------- -------------- ---------- ---------- --------------
Net income (loss) $ (1,318,000) $ 25,000 1,206,500 - $ (2,525,000)
============== ============== ========== ========== ==============
Weighted Average
Shares Outstanding 16,600,000
--------------
Net loss per share -0.15
==============
(i)
</TABLE>
Pro-forma adjustments:
(a) To amortize as additional interest the value of detachable warrants issued
in connection with convertible notes as follows: $1.5 million divided by 5
year term of notes = $300,000
(b) To amortize deferred financing costs for the convertible notes over 5
years: $697,000 divided by 5 = $140,000
(c) To amortize the estimated BankOne financing costs - $100,000 divided by 3
= $33,000
(d) To reflect interest expense on convertible notes - $6,000,000 times 10% =
$600,000
(e) To reflect interest cost for 8% Notes payable to former Drew Shoe
shareholders (approximately $30,000)
(f) To reflect incremental increase in interest rate and borrowings under
BankOne loan (approx. $75,000/year)
(g) To amortize goodwill over 40 years (349,000/40=$9,000), based on Drew
Shoe's lengthy existence in an industry which serves basic needs which are
expected to continue.
(h) To reflect the estimated incremental increase in fixed asset depreciation
of approximately $75,000
(i) Weighted average shares outstanding (15,954,733) + investment banker and
consultant shares (187,500 + 160,000) plus shares to seller (375,000)
totals 16,600,000.
S-5
<PAGE>
General Notes:
Note 1. The Company has identified certain cost savings and is evaluating other
cost savings measures for implementation at Drew Shoe. The Company has not
reflected any such cost savings in this pro-forma information because the
specific identification of savings, net of new investments, is not yet
finalized.
Note 2. The Company has excluded from this pro forma information non-recurring
charges related to the issuance of the acquisiton financing and the
preferred stock issued by a subsidiary (See Item 5 a (i) and (ii) Such
charges include:
a. Non recurring charge to Minority Interests for
imputed dividend to minority shareholders of
subsidiary to be recorded in the third quarter
ended September 1997, approximately $500,000
b. Non recurring charge to interest and financing
costs as a result of imputed interest in
connection with the issuance of convertible notes
and warrants to be amortized over 12 months ending
September 19, 1998, approximately $5,925,000
Note 3. The Company has not included a pro forma income tax provision because
it will consolidate Drew Shoe for tax purposes and utilize existing net
operating losses of the Company against any anticipated profits of Drew
Shoe. While such net operating losses are subject to limitations as to
their useage, the Company believes that it will have sufficient available
net operating losses to offset the anticipated profits of Drew Shoe in the
near term. Also, based on the existing results of operations and
additional cash interest on a recurring basis, the consolidated company is
likely to be generating additional pretax losses in the near term.
S-6
NON-NEGOTIABLE AND NON-ASSIGNABLE
PROMISSORY NOTE
$200,000 Dated as of September 19, 1997
FOR VALUE RECEIVED, BCAM INTERNATIONAL, INC. (hereinafter called the
"Payor"), promises to pay to Charles Schuyler (hereinafter called the "Payee"),
the sum of Two-Hundred Thousand ($200,000) Dollars in twenty-four (24) equal
monthly installments of Four Thousand One-Hundred Sixty-Six and 67/100
($4,166.67) Dollars and a final installment payable on the anniversary date
twenty-five (25) months from the date hereof of One Hundred Thousand and 00/100
($100,000.00) Dollars. Each monthly installment of the principal shall be
accompanied by interest calculated at the rate of eight (8%) percent per annum.
In the event that Payee's employment by Drew Shoe Corporation ("Drew") pursuant
to that certain Employment Agreement of even date herewith by and between Drew
and Payee is terminated by Drew for (i) any reason other than for "cause" as
defined in such Employment Agreement, or (ii) as a result of Payee's death, the
entire remaining principal amount of the obligation set forth herein together
with interest shall become due and payable upon demand.
The Payor reserves the right to prepay the whole or any portion of this
indebtedness at any time, without penalty, and the remaining principal balance
shall continue to accrue interest as set forth herein with payments made until
payment in full of the entire outstanding obligation.
Notwithstanding the obligation contained herein, the Payee expressly
acknowledges and agrees that the obligation herein shall be subordinate to any
and all obligations of the Payor to any commercial lending institution and shall
execute and deliver such instruments as may be necessary to confirm
subordination of the indebtedness evidenced by this Note.
Failure to make payment due hereunder within fifteen (15) days following
delivery of written notice of non-payment given by Payor, shall constitute a
default. Upon default, the entire unpaid amount of the indebtedness hereunder
shall become immediately due and payable and interest shall continue to accrue
at the rate set forth above until the principal obligation and all unpaid
interest thereon has been paid in full.
This Note may not be transferred or assigned except upon the prior written
consent of the Payor.
This Note shall be governed and construed in accordance with the laws of
the State of Ohio.
<PAGE>
IN WITNESS WHEREOF, the Payor has executed this Note as of the day and
year first written above.
BCAM INTERNATIONAL, INC.
By:
----------------------------
MICHAEL STRAUSS, President
2
NON-NEGOTIABLE AND NON-ASSIGNABLE
PROMISSORY NOTE
$200,000 Dated as of September 19, 1997
FOR VALUE RECEIVED, BCAM INTERNATIONAL, INC. (hereinafter called the
"Payor"), promises to pay to Frank Shyjka (hereinafter called the "Payee"), the
sum of Two-Hundred Thousand ($200,000) Dollars in twenty-four (24) equal monthly
installments of Four Thousand One-Hundred Sixty-Six and 67/100 ($4,166.67)
Dollars and a final installment payable on the anniversary date twenty-five (25)
months from the date hereof of One Hundred Thousand and 00/100 ($100,000.00)
Dollars. Each monthly installment of the principal shall be accompanied by
interest calculated at the rate of eight (8%) percent per annum. The Payor
reserves the right to prepay the whole or any portion of this indebtedness at
any time, without penalty, and the remaining principal balance shall continue to
accrue interest as set forth herein with payments made until payment in full of
the entire outstanding obligation.
Notwithstanding the obligation contained herein, the Payee expressly
acknowledges and agrees that the obligation herein shall be subordinate to any
and all obligations of the Payor to any commercial lending institution and shall
execute and deliver such instruments as may be necessary to confirm
subordination of the indebtedness evidenced by this Note.
Failure to make payment due hereunder within fifteen (15) days following
delivery of written notice of non-payment given by Payor, shall constitute a
default. Upon default, the entire unpaid amount of the indebtedness hereunder
shall become immediately due and payable and interest shall continue to accrue
at the rate set forth above until the principal obligation and all unpaid
interest thereon has been paid in full.
This Note may not be transferred or assigned except upon the prior written
consent of the Payor.
This Note shall be governed and construed in accordance with the laws of
the State of Ohio.
<PAGE>
IN WITNESS WHEREOF, the Payor has executed this Note as of the day and
year first written above.
BCAM INTERNATIONAL, INC.
By:
----------------------------
MICHAEL STRAUSS, President
2
EXHIBIT A
FORM OF NOTE
BCAM INTERNATIONAL, INC.
10%/13% CONVERTIBLE SUBORDINATED NOTE
$_________ Melville, New York
September 19, 1997
FOR VALUE RECEIVED, BCAM INTERNATIONAL, INC. (the "Company"), a New
York corporation, hereby promises to pay to the order of ____________ or
registered assigns, the principal sum of ___________ DOLLARS ($_________) on
September 15, 2002, with interest (computed on the basis of a 360-day year,
consisting of twelve 30-day months) on the unpaid balance thereof at the rate of
10% per annum from the date hereof, payable semi-annually in arrears on March 19
and September 19, in each year (each, an "Interest Payment Date"), commencing
March 19, 1998, until the principal hereto shall have been paid in full;
provided, however, that in lieu of making interest payments in cash, the Company
may elect (the "Interest Election"), by giving written notice to each registered
holder of Notes of such election, to pay interest in kind at the rate of 13% per
annum, in which event such interest shall be capitalized and added to the
outstanding principal balance of this Note on the date of each such Interest
Election. Payments of both principal and interest are to be made at the
principal office of the Company in lawful money of the United States of America.
Any amounts of principal hereof or interest hereon which are not paid when due
or required hereunder or under the Agreement shall thereafter bear interest
until paid in full at the rate of 15% per annum.
This Note is issued pursuant to a Note Purchase Agreement dated as
of September 19, 1997 between the Company and the Purchasers (as defined
therein) (the "Agreement") and is entitled to the benefits thereof.
Payments of principal, interest, premium (if any), and all other
amounts in respect of this Note are subordinate, to the extent specified in that
certain Subordination Agreement dated as of September 19, 1997, among the
Subordinated Creditors (as such term is defined in the Subordination Agreement)
and Bank One, N.A., to the prior payment in full of the Senior Debt (as defined
in such Subordination Agreement). By accepting this Note, the holder hereof
agrees to such subordination.
Payments of principal, interest, premium (if any), and all other
amounts in respect of this Note are subordinate, to the extent specified in that
certain Subordination Agreement dated as of September 19, 1997, between _______
and Bank One, N.A., to the prior payment in full of the Senior Debt (as defined
in such Subordination Agreement). By accepting this Note, the holder hereof
agrees to such subordination.
<PAGE>
This Note may not be prepaid, in whole or in part, prior to maturity
without the consent of the holder hereof.
If any payment on this Note becomes due and payable on a day other
than a Business Day (as defined in the Agreement), the maturity thereof shall be
extended to the next succeeding Business Day.
At any time or from time to time on and after September 19, 1998,
the holder of this Note may convert all or any portion of the unpaid principal
amount of this Note and accrued but unpaid interest hereon (and any interest
which the Company has elected to pay in kind in accordance with the terms
hereof) into shares of common stock of the Company (the "Conversion Privilege"),
par value $.01 per share at the Conversion Price (as such term is defined in the
Agreement) in effect as of the date of such conversion by executing and
delivering to the Company the Conversion Notice attached hereto as Exhibit 1.
Upon request by the holder hereof, the Company shall advise the holder of the
applicable Conversion Price and all other terms and conditions of the Conversion
Privilege.
As provided in the Agreement, upon surrender of the Note for
registration of transfer, duly endorsed, or accompanied by a written instrument
of transfer duly executed by the registered holder hereof or his attorney duly
authorized in writing, a new Note for a like principal amount will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company shall not be affected by any notice to
the contrary.
THIS NOTE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
If an Event of Default, as defined in the Agreement, shall occur and
be continuing, the unpaid principal amount of this Note and all accrued but
unpaid interest may be declared due and payable in the manner and with the
effect provided in the Agreement.
[seal] BCAM INTERNATIONAL, INC.
Attest: By:
-------- ----------------------------
Title:
-------------------------------
- ----------------------------------
-2-
<PAGE>
EXHIBIT 1
BCAM INTERNATIONAL, INC.
10%/13% Convertible Subordinated Note
Conversion Subordinated Notice
To the Company:
The undersigned hereby exercises the option to convert one or more
of the 10%/13% Convertible Notes of the BCAM International, Inc., aggregate
amount $__________, or the portion thereof below designated, into shares of
Common Stock of the Company in accordance with the terms of such Notes, and
directs that the shares of Common Stock issuable upon conversion, together with
any check in payment of fractional shares and any Note representing any
unconverted principal amount hereof, be issued and delivered to the undersigned
at the address indicated below unless a different name has been indicated below,
in which case the undersigned will pay all transfer taxes payable with respect
thereto.
Dated: _______________________
-----------------------------------
Signature of Holder
DELIVERY ADDRESS: Social Security or Identifying Number
-----------------------------------
- ------------------------------
- ------------------------------ Amount to be Converted:
- ------------------------------ $
-----------------------------------
FILL IN FOR REGISTRATION OF SHARES
AND NOTES, IF DIFFERENT FROM HOLDER
SUBMITTING THIS NOTE:
- --------------------------------------
Name
- --------------------------------------
Address
Social Security or Identifying Number:
- --------------------------------------
-3-
EXHIBIT C
FORM OF WARRANT AGREEMENT
WARRANT AGREEMENT AND FORM OF WARRANT
WARRANT AGREEMENT (the "Agreement"), dated as of September 19, 1997,
between BCAM INTERNATIONAL, INC., a New York corporation (the "Company"),
_________.
WHEREAS, _________ has agreed to purchase from the Company $________
principal amount of 10%/13% Convertible Notes (the "Notes") due September 15,
2002 pursuant to a Note Purchase Agreement (the "Note Purchase Agreement") of
even date herewith; and
WHEREAS, in connection with the issuance of the Notes, the Company
has agreed to issue to ________or its designee (each, a "Holder") _________
warrants (individually, a "Warrant" and collectively, the "Warrants"), each of
which entitles the Holder thereof to purchase, upon the terms and subject to the
conditions contained in this Agreement and the Warrant Certificates (as defined
below), one share of the common stock of the Company, par value $.01 per share
(the "Common Stock"), subject to adjustment as provided in Section 10 hereof;
and
WHEREAS, the Company will issue certificates evidencing the Warrants
(the "Warrant Certificates") and other matters as provided herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. Warrant Certificates. The Warrant Certificate (and the
Forms of Exercise, Assignment and Partial Assignment) shall be substantially in
the forms set forth in Exhibits A through D, respectively, attached hereto, and
may have such letters, numbers or other marks of identification and such legends
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement.
SECTION 2. Execution and Countersignature of Warrant Certificates.
The Warrant Certificates shall be executed on behalf of the Company by its Chief
Executive Officer, President, Chief Financial Officer or Treasurer (each, a
"Company Officer") under its corporate seal reproduced thereon attested by its
Secretary or Assistant Secretary. The signature of any of these Company Officers
on any Warrant Certificate may be manual or facsimile. The name, incumbency and
specimen signature of each Company Officer authorized to act and give
instructions and notices under this Agreement shall be certified by the
Secretary or Assistant Secretary of the Company. Warrant Certificates bearing
the manual or facsimile signatures of individuals who were at any time Company
Officers shall bind the Company even if any such individual ceased to be a
Company Officer prior to the execution and delivery of such Warrant Certificate
or was not a Company Officer at the date of this Agreement. Each Warrant
Certificate shall be countersigned by the manual signature of each Holder and
shall not be valid for any purpose unless so countersigned. Each Warrant
Certificate shall be dated the date of issuance.
<PAGE>
SECTION 3. Transfers; Exchanges and Purchases by the Company.
Subject to Section 13, each Warrant shall be transferable, in whole or in part,
upon surrender of the Warrant Certificate to the Company together with a written
assignment of the Warrant Certificate, on the Form of Assignment or Partial
Assignment, as the case may be, set forth on the reverse thereof or in other
form satisfactory to the Company, duly executed by Holder, and together with
funds to pay any transfer taxes payable in connection with such transfer. Upon
such surrender and payment, a new Warrant Certificate, in the name of the
assignee and in the denomination or denominations specified in such instrument
of assignment, shall be issued and delivered. If less than all of a Warrant
Certificate is being transferred, a new Warrant Certificate or Certificates
shall be issued for the portion of the Warrant not being transferred. The
Warrant Certificate surrendered shall be canceled by the Company.
A Warrant Certificate may be divided or combined with other Warrant
Certificates upon surrender thereof to the Company, together with a written
notice specifying the names and denominations in which new Warrant Certificates
are to be issued, signed by Holder, and together with the funds to pay any
transfer taxes payable in connection with such transfer. Upon such surrender and
payment, a new Warrant Certificate or certificates shall be issued and delivered
in accordance with such notice. The Warrant Certificate surrendered shall be
canceled by the Company.
The Company shall make no service or other charge in connection with
any such transfer or exchange of Warrant Certificates, except for any transfer
taxes or other governmental charges payable in connection therewith.
Warrant Certificates canceled pursuant to any provisions of this
Agreement shall not be reissued, and shall be returned to the Company.
SECTION 4. Duration and Exercise of Warrants. The Warrants shall
expire at 5:00 p.m. New York City time on September 30, 2002, provided, that if
such date falls on a day other than a Business Day, then the Warrants shall
expire at 5:00 p.m. New York City time on the next succeeding Business Day (such
date of expiration being herein referred to as the "Expiration Date"). A
"Business Day" shall mean a day other than a Saturday, Sunday or a public or
national bank holiday or the equivalent for banks generally under the laws of
the State of New York.
The Warrants represented by each Warrant Certificate shall only be
exercisable for Common Stock from the Exercise Date with respect to such
Warrants through and including the Expiration Date with respect to such
Warrants. Each Warrant may be exercised on any Business Day on or prior to 5:00
p.m. New York City time on the Expiration Date. After 5:00 p.m. New York City
time on the Expiration Date, unexercised Warrants will become wholly void and of
no value.
Subject to the provisions of this Agreement, each Holder shall have
the right to purchase from the Company (and the Company shall issue and sell to
such Holder) one fully paid and nonassessable share of Common Stock at the
exercise price (the "Exercise Price") at the time in effect hereunder, upon
surrender the Company of the Warrant Certificate evidencing such Warrant,
-2-
<PAGE>
with the Form of Exercise duly completed and signed, and upon payment of the
Exercise Price in lawful money of the United States of America by certified or
official bank check payable to the order of the Company. The Exercise Price
shall be as provided in Section 6. The Exercise Price and the number of shares
of Common Stock purchasable upon exercise of a Warrant shall be subject to
adjustment as provided in Section 10. Except as provided in Section 10, no
adjustment shall be made for any cash dividends or other distributions on or in
respect of the Common Stock or other securities purchasable upon the exercise of
a Warrant.
Subject to Section 6, upon surrender of a Warrant Certificate and
payment of the Exercise Price at the time in effect hereunder and an amount
equal to any applicable transfer tax in cash or by certified check or bank draft
payable to the order of the Company, the Company shall thereupon promptly cause
to be issued and shall deliver to or upon such Holder, within a reasonable time,
not exceeding ten (10) days after each Warrant represented by the Warrant
Certificate shall have been exercised, a certificate for the Common Stock
issuable upon the exercise of each Warrant evidenced by such Warrant
Certificate. Such certificate shall be deemed to have been issued and such
Holder shall be deemed to have become a holder of record of such shares of
Common Stock (a "Shareholder") as of the date of the surrender of such Warrant
Certificate and payment of the Exercise Price.
The Warrants evidenced by a Warrant Certificate shall be
exercisable, at the election of any Holder, either as an entirety or from time
to time for part only of the number of Warrants evidenced by the Warrant
Certificate. In the event that less than all of the Warrants evidenced by a
Warrant Certificate surrendered upon the exercise of Warrants are exercised, a
new Warrant Certificate or Certificates shall be issued for the remaining number
of Warrants evidenced by the Warrant Certificate so surrendered. All Warrant
Certificates surrendered upon exercise of Warrants shall be canceled by the
Company.
The Company shall deposit to the account of the Company all monies
received in payment of the Exercise Price of any Warrant and any applicable
transfer taxes.
SECTION 5. Exercise Price. The initial Exercise Price for Warrants
to be issued hereunder shall $1.75 per share of Common Stock, and such initial
exercise price shall be subject to adjustment as provided in Section 10 hereof.
SECTION 6. Payment of Taxes. The Company shall pay all documentary
stamp taxes, if any, attributable to the issuance of Warrants and the issuance
of Common Stock upon the exercise of any Warrant; provided, however, that the
Company shall not be required to pay any tax or taxes which may be payable in
respect of any transfer involved in the issuance of any certificates for Common
Stock in a name other than that of a Holder of a Warrant Certificate surrendered
upon the exercise of a Warrant and the Company shall not be required to issue or
deliver such certificates unless or until the persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
SECTION 7. Mutilated or Missing Warrant Certificates. In case any of
the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company shall issue, in
-3-
<PAGE>
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and in substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence satisfactory to
the Company of suchloss, theft or destruction of such Warrant Certificate and
indemnity, if requested, also satisfactory to the Company. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
requirements and pay such other reasonable charges as the Company may prescribe.
SECTION 8. Reservation of Common Stock. The Company will at all
times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock and Common Stock held in
its treasury, for the purpose of enabling it to satisfy any obligation to issue
Common Stock upon the exercise of Warrants, the maximum number of shares of
Common Stock which are required to be delivered upon the exercise of all
outstanding Warrants.
The Company covenants that all Common Stock which may be issued upon
the exercise of Warrants will, upon issuance, be duly issued and outstanding,
fully paid and nonassessable and free from all taxes, liens, charges and
security interests with respect to the issuance thereof.
The Company is authorized to requisition from time to time from the
transfer agent for its Common Stock stock certificates required to honor the
exercise of outstanding Warrants. The Company hereby authorizes its present and
any future such transfer agent to comply with all such requests. The Company
will supply such transfer agent with duly executed Common Stock certificates for
such purposes and will itself provide or otherwise make available any cash which
may be payable as provided in Section 11.
SECTION 9. Obtaining of Governmental Approvals and Stock Exchange
Listings. The Company will in good faith and as expeditiously as possible take
all action which may be necessary to obtain and keep effective any and all
permits, consents and approvals of governmental agencies and authorities, and
will make any and all filings under federal and state securities laws necessary
in connection with the issuance, distribution and transfer of Warrant
Certificates, the exercise of the Warrants and the issuance, sale, transfer and
delivery of Common Stock upon the exercise of Warrants, provided, that the
foregoing provisions of this sentence shall not be deemed to require the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), or similar state securities laws of the Warrants or the Common Stock
issuable upon the exercise of the Warrants.
SECTION 10. Adjustment of Exercise Price and Number and Kind of
Securities Purchasable upon Exercise of Warrants.
(a) Adjustment of Exercise Price and Number of Warrants. The
applicable Exercise Price for any Warrants shall be subject to adjustment from
time to time as hereinafter provided for in this Section 10. No adjustment ofthe
Exercise Price for any Warrants, however, shall be made in an amount less than
$.01 per share, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent adjustment,
which
-4-
<PAGE>
together with any subsequent adjustments so carried forward shall amount to $.01
per share or more. Upon each adjustment of the Exercise Price for any Warrants,
except pursuant to subsection (f) of this Section 10, each Holder shall
thereafter, at or prior to the Expiration Date, be entitled to purchase, at the
Exercise Price for the applicable Warrants resulting from such adjustment, the
number of shares issuable upon exercise of such Warrants (calculated to the
nearest whole share) obtained by multiplying the applicable Exercise Price in
effect immediately prior to such adjustment by the number of shares issuable
upon exercise of the Warrants immediately prior to such adjustment and dividing
the product so obtained by the applicable Exercise Price resulting from such
adjustment.
(b) Adjustment of Exercise Price upon Certain Issuances of Common
Stock. If at any time after the date hereof, the Company shall issue or sell any
shares of Common Stock for a consideration per share less than the "current
market price" (as hereinafter defined) in effect immediately prior to the time
of such issue or sale, then, forthwith upon such issue or sale, the applicable
Exercise Price for all Warrants shall be reduced to the price (calculated to the
nearest cent) determined by multiplying the applicable Exercise Price in effect
immediately prior to the time of such issue or sale by a fraction, the numerator
of which shall be the sum of (i) the number of shares of Common Stock
outstanding immediately prior to such issue or sale multiplied by the current
market price immediately prior to such issue or sale, plus (ii) the
consideration received by the Company upon such issue or sale, and the
denominator of which shall be the product of (i) the total number of shares of
Common Stock outstanding immediately after such issue or sale, multiplied by
(ii) the current market price immediately prior to such issue or sale.
(c) Constructive Issuances of Stock, Convertible Securities, Rights
and Options. For purposes of subsection (b) of this Section 10, the following
clauses shall also be applicable:
(i) Issuance of Rights or Options. In case at any time the Company
shall in any manner grant any rights or options to subscribe for or to purchase,
or any options for the purchase of, Common Stock or stock or securities
convertible into or exchangeable for Common Stock (such convertible or
exchangeable stock or securities being hereinafter called "Convertible
Securities"), whether or not such rights or options or the right to convert or
exchange any such Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable upon the exercise of such
rights or options or upon conversion or exchange of such Convertible Securities
(determined as provided below) shall be less than the current market price
determined as of the date of granting such rights or options, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
rights or options or upon conversion or exchange of the total maximum amount of
such Convertible Securities issuable upon the exercise of such rights or options
shall (as of the date of granting of such rights or options) be deemed to be
outstanding and to have been issued for such price per share. For the purposes
of calculations under this clause (i), the price per share for which Common
Stock is issuable upon the exercise of any such rights or options or upon
conversion or exchange of any such Convertible Securities shall be determined by
dividing (a) the total amount, if any, received or receivable by the Company as
consideration for the granting of such rights or options, plus the minimum
aggregate amount of additional consideration payable to the Company upon the
exercise of all such rights or options, plus, in the case of such rights or
options which relate to Convertible
-5-
<PAGE>
Securities, the minimum aggregate amount of additional consideration, if any,
payable upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by the maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise of such
rights or options. Except as provided in clause (iii) of this subsection (c), no
further adjustments of any Exercise Price shall be made upon the actual issue of
such Common Stock or of such Convertible Securities upon exercise of such rights
or options or upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. In case at any time
the Company shall in any manner issue or sell any Convertible Securities,
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is issuable upon
conversion or exchange of such Convertible Securities (determined as provided
below) shall be less than the current market price in effect immediately prior
to the date of such issue or sale of such Convertible Securities, then the total
maximum number of shares of Common Stock issuable upon conversion or exchange of
all such Convertible Securities shall (as of the date of the issue or sale of
such Convertible Securities) be deemed to be outstanding and to have been issued
for such price per share, provided that if any such issue or sale of such
Convertible Securities is made upon exercise of any rights to subscribe for or
to purchase or any option to purchase any such Convertible Securities for which
adjustments of any Exercise Price have been or are to be made pursuant to other
provisions of this subsection (c), no further adjustment of any Exercise Price
shall be made by reason of such issue or sale. For the purposes of calculations
under this clause (ii), the price per share for which Common Stock is issuable
upon conversion or exchange of Convertible Securities shall be determined by
dividing (a) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (b) the total maximum number
of shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. Except as provided in clause (iii) of this subsection,
no further adjustments of any Exercise Price shall be made upon the actual issue
of such Common Stock upon conversion or exchange of such Convertible Securities.
(iii) Change in Option Price or Conversion Rate; Expiration or
Termination of Rights or Convertible Securities. If the purchase price provided
for in any rights or options referred to in clause (i) above, or the additional
consideration, if any, payable upon the conversion or exchange of Convertible
Securities referred to in clause (i) or (ii) above, or the rate at which any
Convertible Securities referred to in clause (i) or (ii) above are convertible
into or exchangeable for Common Stock, shall change (other than under or by
reason of provisions designed to protect against dilution), then the Exercise
Price for all Warrants then in effect shall forthwith be readjusted to the
Exercise Price which would have then been in effect had such then outstanding
rights, options or Convertible Securities provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold. If the purchase price or exercise price
provided for in any such right or option referred to in clause (i) above or the
rate at which any Convertible Securities referred to in clause (i) or (ii) above
are convertible into or exchangeable for Common Stock, shall decrease at any
time under or
-6-
<PAGE>
by reason of provisions with respect thereto designed to protect against
dilution, then in case of the delivery of Common Stock upon the exercise of any
such right or option or upon conversion or exchange of any such Convertible
Security, the Exercise Price for all Warrants then in effect hereunder shall
forthwith be decreased to such Exercise Price as would have been obtained had
the adjustments made upon issuance of such right or option or such Convertible
Securities been made upon the basis of the actual issuance of (and the total
consideration received for) the shares of Common Stock delivered upon such
exercise, conversion or exchange. Upon the expiration of any rights, options or
Convertible Securities, if any thereof shall not have been exercised, converted
or exchanged, as the case may be, each applicable Exercise Price and the number
of shares issuable upon exercise of the Warrants shall, upon such expiration, be
readjusted and shall thereafter be such as it would have been had it been
originally adjusted (or had the original adjustment not been required, as the
case may be) as if the only shares of Common Stock so issued were the shares of
Common Stock, if any, actually issued or sold upon the exercise, conversion or
exchange, as the case may be, of such rights, options or Convertible Securities
and (b) such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise, conversion or
exchange, as the case may be, plus the aggregate consideration, if any, actually
received by the Company for the issuance, sale or grant of all of such rights,
options or Convertible Securities, whether or not exercised, converted or
exchanged.
(iv) Stock Dividends. In case at any time the Company shall
declare a dividend or make any other distribution upon any stock of the Company
which is payable in Common Stock or Convertible Securities, any Common Stock or
Convertible Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold without
consideration.
(v) Consideration for Stock. In case any shares of Common
Stock or Convertible Securities or any rights or options to purchase any such
Common Stock or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the issuance or sales
price therefor, without deducting therefrom any expenses incurred or any
underwriting commissions or concessions or discounts paid or allowed by the
Company in connection therewith. In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase any such Common
Stock or Convertible Securities shall be issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Company shall be deemed to be the fair value of such consideration as determined
reasonably and in good faith by the Board of Directors of the Company, without
deducting any expenses incurred or any underwriting commissions or concessions
or discounts paid or allowed by the Company in connection therewith. In case any
Common Stock or Convertible Securities or any rights or options to purchase any
shares of Common Stock or Convertible Securities shall be issued in connection
with any merger of another corporation with and into the Company, the amount of
consideration therefor shall be deemed to be the fair value as determined
reasonably and in good faith by the Board of Directors of the Company of such
portion of the assets of such merged corporation as the Board shall determine to
be attributable to such Common Stock, Convertible Securities, rights or options,
as the case may be.
-7-
<PAGE>
(vi) Definition of "Current Market Price". For the purpose of
any computation hereunder, the "current market price" shall mean (1) if the
Common Stock is listed on one or more stock exchanges or is quoted on the NASDAQ
National Market (the "National Market"), the average of the closing sales prices
of a share of Common Stock on the primary national or regional stock exchange on
which such shares are listed or on the National Market if quoted thereon or (2)
if the Common Stock is not so listed or quoted but is traded in the
over-the-counter market (other than the National Market), the average of the
closing bid and asked prices of a share of Common Stock, in the case of clauses
(1) and (2), for the 30 trading days (or such lesser number of trading days as
the Common Stock shall have been so listed, quoted or traded) next preceding the
date of measurement; provided, however, that if no such sale prices or bid and
asked prices have been quoted during the preceding 30-day period, "current
market price" means the value as determined reasonably and in good faith by the
Board of Directors of the Company; and provided, further, however, that in the
event the current market price of a share of Common Stock is determined during a
period following the announcement by the Company of (i) a dividend or
distribution on the Common Stock payable in shares of Common Stock or
Convertible Securities, (ii) a dividend of the type referred to in subsection
(d) of this Section 10, or (iii) any subdivision, combination or
reclassification of the Common Stock, and prior to the expiration of 30 trading
days after the ex-dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification, then, and in each
such case, the "current market price" shall be appropriately adjusted to take
into account ex-dividend trading.
(d) Adjustment for Certain Special Dividends. In case the Company
shall declare a dividend upon the Common Stock payable otherwise than out of
earnings or earned surplus, determined in accordance with generally accepted
accounting principles, proper provision shall be made so that each Holder shall
receive (at the Exercise Price in effect immediately prior to such
distribution), the distribution payable per share of Common Stock, whether in
cash, or if the distribution is of property other than cash, such other
property, to which such holder would have been entitled upon such distribution
if such holder had exercised the Warrant held by such Holder immediately prior
thereto.
(e) Subdivision or Combination of Stock. In case the Company shall
at any time subdivide the outstanding shares of Common Stock into a greater
number of shares, each Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares issuable
upon exercise of the Warrants immediately prior to such subdivision shall be
proportionately increased, and conversely, in case the outstanding shares of
Common Stock shall be combined at any time into a smaller number of shares, each
Exercise Price in effect immediately prior to such combination shall be
proportionately increased and the number of shares issuable upon exercise of the
Warrants immediately prior to such combination shall be proportionately reduced.
(f) Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case the Company (i) consolidates with or merges into
any other corporation and is not the continuing or surviving corporation of such
consolidation or merger, or (ii) permits any other corporation to consolidate
with or merge into the Company and the Company is the continuing or surviving
corporation but, in connection with such consolidation or merger, the Common
Stock is
-8-
<PAGE>
changed into or exchanged for stock or other securities of any other corporation
or cash or any other assets, or (iii) transfers all or substantially all of its
properties and assets to any other corporation, or (iv) effects a capital
reorganization or reclassification of the capital stock of the Company in such a
way that holders of Common Stock shall be entitled to receive stock, securities,
cash or assets with respect to or in exchange for Common Stock, then, and in
each such case, proper provision shall be made so that, upon the basis and upon
the terms and in the manner provided in this subsection (f), upon the exercise
of the Warrants at any time after the consummation of such consolidation,
merger, transfer, reorganization or reclassification, each Holder shall be
entitled to receive (at the aggregate Exercise Price in effect for shares
issuable upon such exercise of the Warrants immediately prior to such
consummation), in lieu of shares issuable upon such exercise of the Warrants
prior to such consummation, the stock and other securities, cash and assets to
which such Holder would have been entitled upon such consummation if such Holder
had so exercised such Warrants immediately prior thereto (subject to adjustments
subsequent to such corporate action as nearly equivalent as possible to the
adjustments provided for in this Section 10).
(g) Notice of Adjustment. Whenever the number of shares issuable
upon the exercise of the Warrants or any Exercise Price is adjusted, as provided
in this Section 10, the Company shall prepare and mail to each Holder a
certificate setting forth (i) the Exercise Price and the number of shares
issuable upon the exercise of the Warrants after such adjustment, (ii) a brief
statement of the facts requiring such adjustment and (iii) the computation by
which such adjustment was made.
(h) No Change of Warrant Necessary. Irrespective of any adjustment
in any Exercise Price or in the number or kind of shares issuable upon exercise
of the Warrants, unless the Holders of a majority of Warrants otherwise request,
the Warrants may continue to express the same price and number and kind of
shares as are stated in the Warrants as initially issued.
(i) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares of Common Stock owned or
held by or for the account of the Company. The disposition of any shares of
Common Stock owned or held by or for the account of the Company shall be
considered an issue of Common Stock for the purposes of this Section 10.
(j) Certain Adjustment Rules.
(i) The provisions of this Section 10 shall similarly apply to
successive transactions.
(ii) If the Company shall declare any dividend referred to in
paragraph (iv) of subsection (c) of this Section 10 or subsection (d) of this
Section 10 and if any Holder exercises all or any part of the Warrants after
such declaration but before the payment of such dividend, the Company may elect
to defer, until the payment of such dividend, issuing to such Holder the shares
issuable upon such exercise of the Warrants over and above the shares issuable
upon such exercise of the Warrants on the basis of the Exercise Price in effect
prior to such adjustment; provided, however, that the Company shall deliver to
each such Holder a due bill or
-9-
<PAGE>
other appropriate instrument evidencing such Holder's right to receive such
additional shares upon the payment of such dividend.
(iii) If the Company shall declare any dividend referred to in
paragraph (iv) of subsection (c) of this Section 10 or subsection (d) of this
Section 10 and shall legally abandon such dividend prior to payment, then no
adjustment shall be made pursuant to this Section 10 in respect of such
declaration.
(k) Exceptions to Adjustment to Purchase Price. Notwithstanding
anything herein to the contrary, no adjustment to any Exercise Price or the
number of shares issuable upon exercise of the Warrants shall be made in the
case of the following:
(i) the issuance of any Warrant or the issuance of any shares
upon any exercise of any Warrant or any adjustment of the Conversion Price with
respect thereto;
(ii) the grant of up to 3,167,500 options to purchase Common
Stock to employees, officers or directors of the Company, or the adjustment of
the exercise price thereof pursuant to the Existing Option Plans;
(iii) the issuance of up to 3,167,500 shares of Common Stock
to any employees, officers or directors of the Company upon the exercise of any
options to purchase Common Stock granted pursuant to the Existing Option Plans:
(iv) the grant of up to 4,500,000 options to purchase Common
Stock to employees, officers or directors of the Company, or the adjustment of
the exercise price thereof pursuant to the New Option Plan:
(v) the issuance of up to 4,500,000 shares of Common Stock to
any employees, officers or directors of the Company upon the exercise of any
options to purchase Common Stock granted pursuant to the New Option Plan; and
(vi) the conversion of the Notes;
(vii) the conversion of the Other Notes issues pursuant to the
Other Note Agreement;
(viii) the issuance of Common Stock of the Company upon
conversion of the shares of Convertible Preferred Stock; and
(ix) any change in the par value of the Common Stock.
(l) Other Exercise Price Reductions. Anything in this Section 10 to
the contrary notwithstanding, the Company shall be entitled to reduce any
Exercise Price, in addition to those adjustments required by this Section 10, to
the extent necessary so that any consolidation or subdivision of the Common
Stock, issuance wholly for cash of any Common Stock at less than the current
market price, issuance wholly for cash of Common Stock or Convertible Securities
or
-10-
<PAGE>
dividends on Common Stock payable in Common Stock or other assets, hereafter
made by the Company to the holders of its Common Stock shall not be taxable to
them.
SECTION 11. Fractional Shares of Common Stock. The Company may, but
will not be required to, issue fractions of shares of Common Stock or to
distribute Common Stock certificates which evidence fractions of shares upon the
exercise of the Warrants; provided, however, that in lieu of fractional shares
of Common Stock the Company shall make a cash payment therefor equal in amount
to the product of the applicable fraction multiplied by the "current market
price" then in effect.
SECTION 12. Notices of Certain Events. In the event that the Company
shall propose (a) to pay any dividend payable in stock of any class to the
holders of shares of Common Stock or to make any other distribution to the
holders of shares of Common Stock (other than a regular quarterly cash dividend
out of earnings or retained earnings of the Company), (b) to offer to the
holders of shares of Common Stock rights or warrants to subscribe for or to
purchase any additional shares of Common Stock or shares of stock of any class
or any other securities, rights or options, (c) to effect any reclassification
of its Common Stock, (d) to effect any consolidation or merger into or with, or
to effect any sale or other transfer (or to permit one or more of its
subsidiaries to effect any sale or other transfer) in one or more transactions,
of more than fifty percent (50%) of the assets or earning power of the Company
and its subsidiaries (taken as a whole) to, any other person or entity, or (e)
to effect the liquidation, dissolution or winding up of the Company, then, in
each such case, the Company shall give to each Holder, in accordance with this
Section 12, a notice of such proposed action, which shall specify the record
date for the purposes of such stock dividend, distribution of rights or
warrants, or the date on which such reclassification, consolidation, merger,
sale, transfer, liquidation, dissolution, or winding up is to take place and the
date of participation therein by the holders of the Common Stock, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (a) or (b) above at least thirty (30) days prior to the record
date for determining holders of the shares of Common Stock for purposes of such
action, and in the case of any such other action, at least thirty (30) days
prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the shares of Common Stock whichever
shall be the earlier. Notices authorized or required by this Agreement to be
given by the Company to each Holder shall be sufficiently given if sent by
first-class mail, postage prepaid, addressed to each Holder.
SECTION 13. Restrictions on Transferability.
The Warrant Certificates and the shares of capital stock of the
Company issuable upon exercise of the Warrants shall not be transferable except
upon the conditions specified in this Section 13, which conditions are intended
to insure compliance with the provisions of the Securities Act in respect of the
transfer of any Warrant Certificate or any shares of capital stock issuable upon
exercise of the Warrants.
(a) Restrictive Legend; Holder's Representation. Unless and until
otherwise permitted by this Section 13, each certificate representing shares of
capital stock issuable upon exercise of the Warrants, and any certificate issued
at any time upon transfer of, or in exchange for
-11-
<PAGE>
or replacement of, any certificate bearing the legend set forth below shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OR ANY STATE SECURITIES LAWS AND,
ACCORDINGLY, THE TRANSFER, RESALE OR OTHER DISPOSITION OF SUCH SECURITIES MAY
ONLY BE MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR A VALID EXEMPTION THEREFROM AND IN COMPLIANCE WITH ALL
APPLICABLE STATE SECURITIES LAWS, AND BY DELIVERY OF AN OPINION OF COUNSEL
SATISFACTORY TO COUNSEL FOR THE COMPANY THAT THERE IS SUCH AN EXEMPTION. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OF THAT CERTAIN WARRANT AGREEMENT DATED AS OF SEPTEMBER 19, 1997, BY
AND BETWEEN IMPLEO LLC AND THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED
UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY."
So long as the Warrants or the shares of Capital Stock issuable upon
exercise of the Warrants are "restricted securities" within the meaning of the
Securities Act and the regulations promulgated thereunder, each Holder
represents to the Company that he or it is acquiring the Warrants and will
acquire the shares of capital stock issuable upon exercise of the Warrants for
his or its own account and not with a view to any public distribution thereof,
subject to any requirement of law that the disposition of such securities shall
at all times be within the control of the owner thereof. The acquisition of any
Warrants or shares of capital stock issuable upon exercise of the Warrants by
any Holder shall constitute such Holder's reaffirmation of such representation.
Each Holder further represents to the Company that he or it is an "accredited
investor" as defined in Regulation D of the Securities Act. Each Holder
understands that the Warrants and the shares of capital stock issuable upon
exercise of the Warrants have not been registered under the Securities Act and
may only be sold or otherwise disposed of in compliance with the Securities Act.
Each Holder by its acceptance of such security further understands that such
security may bear a legend as contemplated by this Section 13.
(b) Termination of Restrictions. Notwithstanding the foregoing
provisions of this Section 13, the restrictions imposed by this Section 13 upon
the transferability of the Warrant Certificates and the shares of capital stock
issuable upon exercise of the Warrants shall cease and terminate as to any
particular Warrant Certificate or shares of capital stock when, (i) such Warrant
Certificate or shares of capital stock shall have been effectively registered
under the Securities Act and sold by any Holder in accordance with such
registration or (ii) in the opinion of counsel for such Holder, if such opinion
is satisfactory in form and substance to the Company, such restrictions are no
longer required in order to insure compliance with the Securities Act. If and
whenever the restrictions imposed by this Section 13 shall terminate as to a
Warrant Certificate (or to any shares of capital stock) as hereinabove provided,
such Holder may and the Company shall, as promptly as practicable upon the
request of such Holder and at the Company's expense, cause to be stamped or
otherwise imprinted upon such Warrant Certificate or such shares of capital
stock a legend in substantially the following form:
-12-
<PAGE>
"The restrictions on transferability of this [these] [Warrant
Certificate/securities] terminated on _____________, and are of no further force
or effect."
All Warrant Certificates issued upon transfer, division or
combination of, or in substitution for, any Warrant Certificate or Warrant
Certificates entitled to bear such legend shall have a similar legend endorsed
thereon. Whenever restrictions imposed by this Section 13 shall terminate as to
any Warrant Certificate or as to any shares of capital stock, as hereinabove
provided, each Holder shall be entitled to receive from the Company without
expense, a new Warrant Certificate or new shares of capital stock not bearing
the restrictive legend set forth in subsection (a) of this Section 13.
SECTION 14. Representations and Warranties. The Company represents
and warrants that:
(a) Organization, Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York. The Company has all requisite power and authority to
own or lease and operate properties and to carry on its business as now
conducted.
(b) Authority. The Company has all requisite power and authority to
enter into and perform all of its obligations under this Agreement, to issue the
Warrants and to carry out the transactions contemplated hereby. The Company has
taken all corporate or stockholder actions necessary to authorize enter into and
perform all of its obligations under this Agreement and to consummate the
transactions contemplated hereby.
(c) Validity. This Agreement and the Warrants are the legal, valid
and binding obligations of the Company, enforceable in accordance with their
respective terms.
(d) Capitalization.
(i) As of the date hereof, the total authorized capitalization
of the Company consists of (A) 750,000 shares of preferred stock, none of which
are issued or outstanding, and (B) 40,000,000 Shares (par value $.01 per share),
of which 15,954,733 shares were issued and outstanding and 763,182 Shares were
held as treasury shares. All such outstanding shares of the Company have been
duly and validly issued and are fully paid and non-assessable.
(ii) Except as set forth on Schedule I attached hereto, there
are no outstanding subscriptions, warrants, options, calls or commitments of any
character relating to or entitling any person to purchase or otherwise acquire
any of the capital stock or equity securities of the Company or any Subsidiary
thereof or any security that is convertible into or exchangeable for such
capital stock or equity securities. Except as set forth in this Agreement, there
are no preemptive or similar rights to subscribe for or to purchase any capital
stock of the Company, and, except as set forth on Schedule I, the Company has
not entered into any presently outstanding agreement to register its equity or
debt securities under the Securities Act. The Company has no stock option plans
other than the Existing Option Plans (as such term is defined in the Note
Purchase Agreement).
-13-
<PAGE>
SECTION 15. Notice. Any notice, demand, request, instruction or
other communication which any party hereto may be required or may desire to give
shall be deemed to have been properly given (a) if by hand delivery, telecopy,
telex or other facsimile transmission, upon delivery to such party at the
address, telecopier or telex number specified below; (b) if by registered or
certified mail, on the fifth Business Day after the day deposited with the
United States Postal Service, postage prepaid, return receipt requested,
addressed to such party at the address specified below; or (c) if by Federal
Express or other reputable express mail service, on the next Business Day after
delivery to such express mail service, addressed to such party at the following
address:
To the Company, at:
BCAM International, Inc.
1800 Walt Whitman Road
Melville, New York 11747
Attention: Michael Strauss, President
Telephone: (516) 752-7530
Telecopier: (516) 752-3558
If to any Purchaser, at its address
listed on the signature pages hereof:
or to such other address, telex, telecopier, or other facsimile transmission
number as the party to be served with notice may have furnished in writing to
the party seeking or desiring to serve notice as a place or number for the
service of notice.
SECTION 16. Identity of Transfer Agent. Forthwith upon the
appointment of any subsequent transfer agent for the Common Stock, or any other
shares of the Company's capital stock issuable upon the exercise of the
Warrants, the Company will provide to each Holder a statement setting forth the
name and address of such subsequent transfer agent.
SECTION 17. Supplements and Amendments.
(a) The Company may from time to time supplement or amend this
Agreement without the approval of any Holder in order to cure any ambiguity, to
correct or supplement any provision contained herein which may be defective or
inconsistent with any provisions herein, or to make any other provisions with
regard to matters or questions arising hereunder which the Company may deem
necessary or desirable and which shall not adversely affect the interests of any
Holder.
(b) Any term, covenant, agreement or condition contained in this
Agreement may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument signed by the Company and each Holder.
SECTION 18. No Rights as Shareholders. Nothing contained in this
Agreement or in any of the Warrant Certificates shall be construed as conferring
upon any Holder any rights of a
-14-
<PAGE>
Shareholder, including without limitation, the right to vote, to receive
dividends or to consent to, or receive notice as a Shareholder in respect of,
any meeting of Shareholders for the election of directors of the Company or for
any other matter.
SECTION 19. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company and each Holder shall bind and
inure to the benefit of their respective successors and assigns hereunder.
SECTION 20. Termination. This Agreement shall terminate and be of no
further force and effect at, and no Warrant may be exercised after, 5:00 p.m.
New York City time on the Expiration Date provided for in Section 4 of this
Agreement. Notwithstanding the foregoing, this Agreement will terminate on any
earlier date when all Warrants have been exercised and no Warrants remain
outstanding.
SECTION 21. Governing Law. This Agreement and each Warrant issued
hereunder shall be deemed to be a contract made under the laws of the State of
New York, without regard to the conflict of law principles thereof, and for all
purposes shall be governed by and construed in accordance with the laws of such
state applicable to contracts to be made and performed entirely within such
state.
SECTION 22. Benefits of this Agreement; Rights of Action. Nothing in
this Agreement shall be construed to give to any person or corporation other
than the Company and each Holder any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole and exclusive
benefit of the Company and each Holder.
SECTION 23. Damages. The Company recognizes and agrees that each
Holder will not have an adequate remedy if the Company fails to comply with the
terms of this Agreement and the Warrant Certificates and that damages will not
readily be ascertainable, and the Company expressly agrees that, in the event of
such failure, it shall not oppose an application by any Holder requiring
specific performance of any and all provisions of the Warrant or this Agreement
or enjoining the Company from continuing to commit any such breach of the terms
of the Warrant or this Agreement.
SECTION 24. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
SECTION 25. Headings. The headings used in this Agreement are
inserted for convenience only and neither constitute a portion of this Agreement
nor in any manner affect the construction of the provisions of this Agreement.
SECTION 26. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
Attest: BCAM INTERNATIONAL, INC.
By:
- -------------------------- ----------------------------------
Name:
-----------------------
Title:
-----------------------
----------
By:
----------------------------------
Name:
-----------------------
Title:
-----------------------
-16-
<PAGE>
SCHEDULE I
A. Outstanding Subscriptions, Warrants, Options, Calls, etc.
Date of Number of Shares of Conversion Price
Agreement or Holder or Common Stock or Warrant Price,
or Instrument Holders Expiration Date Covered Etc.
------------- ------- --------------- ------- ----
B. Registration Agreements
Number of
Date of Holder or Demand
Agreement Holders Expiration Date Securities Covered Registrations
--------- ------- --------------- ------------------ -------------
<PAGE>
EXHIBIT A TO THE
WARRANT AGREEMENT
[FORM OF WARRANT CERTIFICATE]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OR ANY STATE SECURITIES LAWS AND, ACCORDINGLY, THE TRANSFER,
RESALE OR OTHER DISPOSITION OF SUCH SECURITIES MAY ONLY BE MADE PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR A VALID EXEMPTION
THEREFROM AND IN COMPLIANCE WITH ALL APPLICABLE STATE SECURITIES LAWS, AND BY
DELIVERY OF AN OPINION OF COUNSEL SATISFACTORY TO COUNSEL FOR THE COMPANY THAT
THERE IS SUCH AN EXEMPTION.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OF THAT CERTAIN WARRANT AGREEMENT DATED AS OF SEPTEMBER 19, 1997,
BETWEEN IMPLEO LLC AND THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED
UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.
EXERCISABLE ONLY ON OR BEFORE 5:00 P.M. NEW YORK CITY TIME
September 19, 2002
No. W-___ __________ Warrants
WARRANT CERTIFICATE
BCAM INTERNATIONAL, INC.
This Warrant Certificate certifies that __________________, or
registered assigns, is the registered holder (the "Holder") of ____________
Warrants (the "Warrants") expiring September 19, 2002 to purchase common stock
of BCAM International, Inc., a New York corporation (the "Company"). Each
Warrant entitles the Holder to purchase from the Company, on or after the
issuance hereof, and on or before 5:00 p.m. New York City time on September 19,
2002 one fully paid and nonassessable share of common stock of the Company, par
value $.01 per share ("Common Stock"), at the exercise price (the "Exercise
Price") at the time in effect under the Warrant Agreement (as hereinafter
defined), payable in lawful money of the United States of America, upon
surrender of this Warrant Certificate and payment of such Exercise Price to the
Company in New York, New York, but only subject to the conditions set forth
herein and in the Warrant Agreement; provided, however, that the number or kinds
of shares of Common Stock or other securities (or in certain events other
property) purchasable upon exercise of the Warrants and the Exercise Price
referred to herein may as of the date of this Warrant Certificate have been, or
may after such date be, adjusted as a result of the occurrence of certain
events, as more fully
<PAGE>
provided in the Warrant Agreement. Payment of the Exercise Price shall be made
by certified or official bank check payable to the order of the Company.
No Warrant may be exercised after 5:00 p.m. New York City time on
September 19, 2002 (the "Expiration Date").
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants issued pursuant to a Warrant Agreement, dated
as of September 19, 1997 (the "Warrant Agreement"), duly executed and delivered
by the Company, which Warrant Agreement is hereby incorporated by reference in
and made a part of this instrument and is hereby referred to for a description
of the rights, limitation of rights, obligations, duties and immunities
thereunder of the Company and Holder. initially capitalized terms used but not
defined herein shall have the meanings assigned to such terms in the Warrant
Agreement. A copy of the Warrant Agreement is available for inspection at the
Company, located 1800 Walt Whitman Road, Melville, New York 11747 during regular
business hours.
Warrants may be exercised to purchase shares of Common Stock from
the Company at any time, or from time to time on or after the date hereof and on
or before the Expiration Date, at the Exercise Price then in effect. The Holder
may exercise the Warrants represented by this Warrant Certificate by
surrendering the Warrant Certificate with the Form of Exercise set forth hereon
properly completed and executed, together with payment of the Exercise Price at
the time in effect, to the Company. In the event that an exercise of Warrants
evidenced hereby shall be an exercise of less than the total number of Warrants
evidenced hereby, there shall be issued to Holder or Holder's assignee a new
Warrant Certificate evidencing the number of Warrants not exercised. No
adjustment will be made for any dividends on any shares of Common Stock issuable
upon exercise of this Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price may, subject to certain conditions, be adjusted and
under certain circumstances the Warrant may become exercisable for securities or
other assets other than the shares of Common Stock referred to on the face
hereof. If the Exercise Price is adjusted, the Warrant Agreement provides that
the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall be adjusted.
The Company may, but shall not be required to, issue fractions of
shares of Common Stock or any certificates that evidence fractional shares of
Common Stock. In lieu of fractional shares of Common Stock, the Company shall
make a cash payment therefor equal in amount to the product of the applicable
fraction multiplied by the current market price then in effect.
Subject to the terms and conditions contained in the Warrant
Agreement, the Warrants represented by this Warrant Certificate are
transferable, in whole or in part, upon surrender of this Warrant Certificate to
the Company, together with a written assignment of the Warrant on the Form of
Assignment or Partial Assignment, as the case may be, set forth hereon or in
other form satisfactory to the Company, duly executed by Holder or Holder's duly
appointed legal representative, and together with funds to pay any transfer
taxes payable in connection with such transfer. Upon such surrender and payment,
a new Warrant Certificate shall be issued and delivered in the name of the
assignee and in the denomination or denominations specified in such
-2-
<PAGE>
instrument of assignment. If less than all of the Warrants represented by this
Warrant Certificate are being transferred, a new Warrant Certificate or
Certificates shall be issued for the portion of this Warrant Certificate not
being transferred.
This Warrant Certificate may be divided or combined with other
Warrant Certificates upon surrender hereof to the Company, together with a
written notice specifying the names and denominations in which new Warrant
Certificates are to be issued, signed by Holder or Holder's duly appointed legal
representative, and together with the funds to pay any transfer taxes payable in
connection with such transfer. Upon such surrender and payment, a new Warrant
Certificate or Certificates shall be issued and delivered in accordance with
such notice.
The Company shall make no service or other charge in connection with
any such transfer or exchange of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, any distribution to Holder hereof, and for all other
purposes.
This Warrant Certificate shall not be valid unless countersigned by
Holder by the manual signature of one of its authorized officers.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed under its corporate seal.
BCAM INTERNATIONAL, INC..
By:
-------------------------------------
Name:
Title:
Dated: September 19, 1997
Attest:
- ------------------------------
Countersigned:
BCAM INTERNATIONAL, INC.
By:
--------------------------------
Name:
Title:
-3-
<PAGE>
EXHIBIT B TO THE
WARRANT AGREEMENT
[FORM OF EXERCISE]
[To be executed upon exercise of Warrant]
The undersigned (the "Holder") hereby irrevocably elects to exercise
the right, represented by BCAM International, Inc. Warrant Certificate No.
W-______, to purchase ________ shares of BCAM International, Inc., in the amount
of $_______ in accordance with the terms hereof. The undersigned requests that a
certificate for such Common Stock be registered in the name of _______ (insert
social security or other identifying number) whose address is _________________.
If said number of ____ shares of Common Stock is less than all of the shares of
Common Stock purchasable under BCAM International, Inc. Warrant Certificate No.
W-____, Holder requests that a new Warrant Certificate representing the
remaining balance of the shares of Common Stock be registered in the name of
Holder and that such Warrant Certificate be delivered to ___________ whose
address is ___________.
Dated:______________, _____
Signature:
---------------------------------
(Signature must conform in all respects to
name of Holder as specified on the face of
the Warrant Certificate.)
- ----------------------------------
(insert Social Security or
Taxpayer Identification
Number of Holder)
Signature Guaranteed:
- ----------------------------------
<PAGE>
EXHIBIT C TO THE
WARRANT AGREEMENT
[FORM OF ASSIGNMENT]
(To be executed to transfer the Warrant Certificate)
FOR VALUE RECEIVED___________________________________________ hereby
sells, assigns and transfers unto______________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
__________________ (print name and address of transferee) the Warrants
represented by BCAM International, Inc. Warrant Certificate No. W-_____________
together with all right, title and interest evidenced thereby, and does hereby
irrevocably constitute and appoint _____________________, attorney, to transfer
the said Warrants on the books of BCAM International, Inc., with full power of
substitution.
Dated:______________, _____
Signature:
---------------------------------
(Signature must conform in all respects to
name of Holder as specified on the face of
the Warrant Certificate.)
- -----------------------------------------
(insert Social Security or
Taxpayer Identification Number of Holder)
Signature Guaranteed:
- -----------------------------------------
<PAGE>
EXHIBIT D TO THE
WARRANT AGREEMENT
[FORM OF PARTIAL ASSIGNMENT]
(To be executed to transfer the Warrant Certificate)
FOR VALUE RECEIVED___________________________________________ (the
"Holder") hereby sells, assigns and transfers unto________________________
______________________ (print name and address of transferee) _________ Warrants
represented by BCAM International, Inc. Warrant Certificate No. W-_______,
together with all right, title and interest evidenced thereby, and does hereby
irrevocably constitute and appoint _____________, attorney, to transfer said
Warrants on the books of BCAM International, Inc., with full power of
substitution. Holder requests that a new Warrant Certificate representing the
remaining balance of Warrants represented by BCAM International, Inc. Warrant
Certificate No. W-________ be registered in the name of Holder and that such
Warrant Certificate be delivered to ___________ whose address is ______________.
Dated:______________, _____
Signature:
---------------------------------
(Signature must conform in all respects to
name of Holder as specified on the face of
the Warrant Certificate.)
- ----------------------------------
(insert Social Security or
Taxpayer Identification
Number of Holder)
Signature Guaranteed:
- ----------------------------------
EXHIBIT D
FORM OF REGISTRATION AGREEMENT
REGISTRATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of
September 19, 1997, between BCAM INTERNATIONAL, INC., a New York corporation
(the "Company"), and the parties signatory hereto (the "Purchasers").
WHEREAS, concurrently herewith the Company and the Purchasers are
entering into that certain Note Purchase Agreement (the "Note Purchase
Agreement"), pursuant to which the Purchasers are purchasing $_______ of the
Company's 10%/13% convertible notes; and
WHEREAS, to induce the Purchasers to enter into the Note Purchase
Agreement, the Company has agreed to provide the registration rights set forth
in this Agreement.
NOW, THEREFORE, in consideration of the premises, and subject to the
terms and conditions hereof, the parties hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, (i) the following terms shall
have the following meanings when used in this Agreement, (ii) any capitalized
terms used in this Agreement and not defined in this Article 1 but which is
defined in the Note Purchase Agreement shall have the meaning set forth therein,
(iii) terms stated in the singular shall include the plural and vice versa, (iv)
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter, and (v) all section, article and exhibit
references in this Agreement, unless otherwise stated, are to the respective
section of, or exhibit to this Agreement.
1.1. "Business Day" means any day other than a day on which
commercial banks are permitted or required to close for business in New York,
New York.
1.2. "Commission" means the Securities & Exchange Commission and any
successor agency thereto.
1.3. "Common Stock" means the Company's Common Stock, par value $.01
per share.
1.4. "Equity Securities" means the Company's Common Stock and any
options, rights or warrants to subscribe for shares of Common Stock, and any
securities convertible into or exchangeable for shares of Common Stock.
1.5. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.6. "Holder" means any Person who owns at least $50,000 principal
amount of the Notes or owns at least that number of shares of Common Stock
received upon the
<PAGE>
conversion of $50,000 principal amount of the Notes where such shares were
received upon conversion of the Notes.
1.7. "NASD" means the National Association of Securities Dealers,
Inc.
1.8. "Other Holder" means a Person who has the right to require the
Company to effect registration of Equity Securities under the Securities Act
pursuant a written agreement in effect as of the date hereof.
1.9. "Person" means an individual, partnership, corporation, trust
or unincorporated organization, or a government or agency or political
subdivision thereof.
1.10. "Registrable Securities' means, collectively, the shares of
Common Stock issuable upon (a) conversion of the Notes, and (b) the exercise of
the Warrants.
1.11. "Registration Expenses" means all expenses incident to the
Company's performance of or compliance with this Agreement, including, without
limitation, (a) all registration and filing fees, (b) fees and expenses
associated with filings required to be made with the NASD, (c) fees and expenses
of compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel for the underwriters or selling Holders in connection
with blue sky qualifications of the Equity Securities and determination of their
eligibility for investment under the laws of such jurisdictions designated by
the managing underwriter or underwriters, if any), (d) printing expenses
(including expenses of printing certificates for the Equity Securities in a form
eligible for deposit with Depository Trust Company and of printing
prospectuses), (e) messenger, telephone and delivery expenses, (f) fees and
expenses of the Company's accountants, (g) fees and disbursements of counsel for
the Company and for the selling Holders (subject to the provisions of Section
5.1 hereof), and (h) out-of-pocket fees and expenses of underwriters (excluding
discounts, commissions or fees of underwriters relating to the distribution of
Equity Securities of the selling Holders).
1.12. "SEC" means the Securities and Exchange Commission.
1.13. "Securities Act" means the Securities Act of 1933, as amended.
1.14. "Underwritten Offering" means a registration in which Equity
Securities of the Company are sold to an underwriter for reoffering to the
public.
2. DEMAND AND INCIDENTAL REGISTRATION RIGHTS
2.1. Registration on Request. (a) At any time after the date hereof
(the "Registration Date"), upon the written request of any Holder or Holders
holding an aggregate of at least 500,000 shares of Common Stock or 200,000
Warrants (500,000 shares of Common Stock or 200,000 Warrants being hereinafter
referred to as "Minimum Securities"), that the Company effect the registration
under the Securities Act of all or part of the Registrable Securities held by
such Holder or Holders, and specifying the intended method or methods of
disposition of such Registrable Securities, the Company will promptly give
written notice of such requested registration by registered mail to all Holders;
provided, however, that the number of
-2-
<PAGE>
Minimum Securities shall be increased or decreased, proportionately, if the
Company shall (x) subdivide the number of outstanding shares of Common Stock or
Warrants into a greater number of shares or warrants, or (y) if the Company
shall reduce the number of outstanding shares of Common Stock or Warrants by
combining such number into a small number of shares or warrants. Thereupon, the
Company will use its best efforts to effect (at the earliest possible date and
if possible within 60 days after the giving of such written notice by the
Company) the registration, under the Securities Act, of:
(i) the Registrable Securities which the Company has been so
requested to register by such Holder or Holders, for disposition in
accordance with the intended method of disposition stated in such
request, and
(ii) all other Registrable Securities which the Company has
been requested to register by a Holder or Holders by written request
delivered to the Company within 30 days after the giving of such
written notice by the Company (which request shall specify the
intended method of disposition of such Registrable Securities), all
to the extent required to permit the disposition in accordance with
the intended methods thereof as aforesaid of the Common stock so to
be registered, provided, however, that the Company shall not be
required under this Section 2.1 to effect an Underwritten Offering.
(b) The Company will pay all Registration Expenses in connection
with all demand registrations of Registrable Securities effected by the Company
pursuant to this Section 2.1.
2.2. Incidental Registration. (a) If the Company at any time
proposes to register any of its Equity Securities under the Securities Act,
whether for sale for its own account or otherwise, on a form and in a manner
which would permit registration of Common Stock for sale to the public under the
Securities Act, it will at such time give prompt written notice to all Holders
of its intention to do so, describing such Equity Securities and specifying the
form and manner and the other relevant facts involved in such proposed
registration, and upon the written request of any Holders delivered to the
Company within thirty (30) days after the giving of any such notice (which
request shall specify the Common Stock intended to be disposed of by such
Holders and the intended method of disposition thereof), the Company will use
its best efforts to effect the registration under the Securities Act of all
Common Stock which the Company has been so requested to register by Holders, to
the extent required to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Common Stock so to be registered; provided,
however, that:
(i) if, at any time after giving such written notice of its
intention to register any of its Equity Securities and prior to the
effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason
not to register such Equity Securities, at its sole election, the
Company may give written notice of such determination to each Holder
and thereupon shall be relieved of its obligation to register any
Common Stock in connection with such registration (but not from its
obligation to pay the Registration Expenses in connection therewith
as provided in paragraph (c) of this
-3-
<PAGE>
Section 2.2), without prejudice, however, to the rights of any one
or more Holders to request that such registration be effected as a
registration under Section 2.1;
(ii) if (A) the registration so proposed by the Company
involves an Underwritten Offering of the Equity Securities so being
registered, whether for sale for the account of the Company or
otherwise, and (B) the managing underwriter of such Underwritten
Offering shall advise the Company in writing that, in its opinion,
the distribution of all or a specified portion of such Holders'
Common Stock by such underwriters will materially and adversely
affect the distribution of such Equity Securities by such
underwriters (which opinion shall state the reasons therefor), then
the Company will promptly furnish each such Holder with a copy of
such opinion and shall include Equity Securities in such
registration to the extent of the number which the Company is so
advised can be sold in such offering, determined as follows: (1) if
such registration as proposed by the Company is in response to a
request from a Holder as provided in Section 2.1, (x) first, the
Equity Securities proposed to be sold in such registration by
Holders making such request under Section 2.1, and (y) second, the
Equity Securities requested to be included in such registration by
Other Holders and the Company (allocated among such Other Holders
and the Company as they may agree); (2) if such registration as
proposed by the Company is solely a primary registration of its
Equity Securities, (x) first, the securities the Company proposes to
sell, and (y) second, Equity Securities requested to be included in
such registration, pro rata among the Holders and the Other Holders
requesting such registration; and (3) if such registration was
requested by Other Holders, (x) first, the Equity Securities held by
the Other Holders initiating such registration, allocated among the
Other Holders, on such basis as shall have been agreed upon by such
Other Holders, (y) second, Equity Securities requested to be
included in such registration by Holders pursuant to Section 2.2,
and (z) third Equity Securities proposed to be included by the
Company;
(iii) the Company shall not be obligated to effect any
registration of Common Stock under this Section 2.2 incidental to
the registration of any of its Equity Securities in connection with
mergers, acquisitions, exchange offers, dividend reinvestment plans,
employee stock ownership plans or stock option plans, thrift plans,
pension plans or other employee benefit plans.
(b) No registration of Common Stock effected under this Section 2.2
shall relieve the Company of its obligation to effect registrations of Common
Stock pursuant to Section 2.1.
(c) The Company will pay all Registration Expenses in connection
with each registration of Common Stock requested pursuant to this Section 2.2.
3. HOLD-BACK AGREEMENTS
3.1. Restrictions on Public Sale by Holders of Securities.
-4-
<PAGE>
(a) Each Holder agrees, if requested by the Company and the managing
underwriter or underwriters of an Underwritten Offering, not to effect any
public sale or distribution of any Registrable Securities of the Company without
the prior written consent of the Company, including a sale pursuant to Rule 144
or Rule 144A under the Securities Act, during the 10-day period prior to, and
during the 90 day period (the "Standstill Period") beginning on the
effectiveness of the Registration Statement relating to such Underwritten
Offering, in each case to the extent timely notified in writing by the Company
or by the managing underwriter or underwriters; provided, however, that the
restriction contained herein shall apply only to an Underwritten Offering of the
Company to become effective after the date hereof (1) which includes securities
to be sold on the Company's behalf to the public in an Underwritten Offering and
(2) with respect to which the Company has complied with its obligations under
Section 2.2 hereof. The Company may impose stop-transfer instructions with
respect to Equity Securities subject to the restrictions provided for in this
Section 3.1 until the end of the Standstill Period,
(b) If the distribution restrictions described in Section 3.1(a) are
in effect, the Company agrees not to effect any public sale or distribution of
its Equity Securities during the one hundred eighty (180) day period following
the effective date of a registration statement covering any Registrable
Securities, except as part of such registration and except pursuant to a
registration on Form S-8 or any successor or similar form thereto.
4. REGISTRATION PROCEDURES
4.1 Filing of Registration Statement. If and whenever the Company is
required to effect the registration of any Registrable Securities under the
Securities Act as provided in Section 2.1 or use its reasonable best efforts to
effect any such registration under Section 2.2., as expeditiously as possible
the Company will:
(a) prepare and (in any event within 60 days after the end of the
period within which requests for registration may be delivered to the Company)
file with the SEC a registration statement on the appropriate form with respect
to such Registrable Securities and use reasonable efforts to cause such
registration statement to become effective;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such registration statement until all such
shares of Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set forth in
such registration statement;
(c) furnish to each seller of Registrable Securities such number of
conformed copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number of copies
of the prospectus included in such registration statement (including each
preliminary prospectus and any summary prospectus), in conformity with the
requirements of the Securities Act, such documents incorporated by reference in
such registration statement or prospectus, and such other documents, as such
seller may reasonably request;
-5-
<PAGE>
(d) use reasonable efforts to register or qualify all Registrable
Securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as each seller shall reasonably request, and
to any and all other acts and things which may be necessary or advisable to
enable such seller to consummate the disposition in such jurisdiction of its
shares of Registrable Securities covered by such registration statement, except
that the Company shall not for any such purpose be required to qualify generally
to do business as a foreign corporation in any jurisdiction wherein it is not so
qualified, or to subject itself to taxation in any such jurisdiction;
(e) furnish to each Holder selling Registrable Securities a signed
counterpart, addressed to such Holder, of (i) an opinion of counsel for the
Company in the form accompanying the registration statement and in the form
delivered to underwriters, if any, dated the effective date of such registration
statement (or if such registration includes an Underwritten Offering, dated the
date of the closing under the underwriting agreement), and (ii) a "cold comfort"
letter signed by the independent public accountants who have certified the
Company's financial statements included in such registration statement; in each
case covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in Underwritten Offerings
of securities and, in the case of the accountants' letter, such other financial
matters as such sellers may reasonably request;
(f) immediately notify each Holder selling Registrable Securities
covered by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event of which it becomes aware as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and at the request of any such Holder
prepare and furnish to such Holder a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of Registrable Securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing; and
(g) otherwise use reasonable efforts to comply with all applicable
rules and regulations of the SEC, and make available to its Registrable
Securities holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve (12) months, but not more than eighteen
(18) months, beginning with the first month of the first fiscal quarter after
the effective date of such registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act.
4.2. Underwriting Agreement. If requested by the underwriters for
any Underwritten Offering of Registrable Securities on behalf of a Holder or
pursuant to a registration requested under Section 2.1, the Company will enter
into an underwriting agreement with such underwriters for such offering, such
agreement to contain such representations and warranties by the Company and such
other terms and provisions as are customarily contained in underwriting
-6-
<PAGE>
agreements with respect to secondary distributions, including, without
limitation, indemnities to the effect and to the extent provided in Section 6.
The Holder or Holders on whose behalf Registrable Securities are to be
distributed by underwriters pursuant to Section 2.1 or 2.2 shall be parties to
any related underwriting agreement and shall provide customary representations,
warranties and other agreements; the representations and warranties made by, and
the other agreements made or opinions given on the part of or on behalf of, the
Company to and for the benefit of such underwriters, also shall be made to and
for the benefit of such Holder.
4.3. Selection of Underwriter. Whenever a registration requested
pursuant to Section 2.1 is for an Underwritten Offering, the Holders holding a
majority of the Registrable Securities included in such registration shall have
the right to select the managing underwriter to administer the offering.
4.4. Postponement of Registration. In the event of any registration
of any Registrable Securities under the Securities Act pursuant to Section 2.1,
the Company shall have the right to postpone or delay such registration if the
Company reasonably believes that such registration at such time would have a
material adverse effect on the operations or financial conditions of the
Company; provided, however, that the Company may exercise its rights under this
Section 4.4 only one time in any 12-month period. The Company shall immediately
give notice of such delay or postponement to each Holder proposing to sell
Registrable Securities in such underwritten offering, explaining the reasons for
each such postponement or delay. In the event the Company has not filed a
registration statement within three months of a notice of delay or postponement,
the Holders shall be entitled again to demand such registration (in accordance
with the requirements of Section 2.1) without any further delay or postponement
and without prejudice to any other rights accorded such Holders in this
Agreement. In connection with the preparation and filing of each registration
statement registering Registrable Securities under the Securities Act, the
Company will give the Holders on whose behalf Registrable Securities are to be
so registered and their underwriters, if any, and their respective counsel and
accountants, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the SEC,
and each amendment thereof or supplement thereto, and will give each of them
such access to its books and records and such opportunities to discuss the
business of the Company with its officers and the independent public accountants
who have certified its financial statements as shall be necessary, in the
opinion of such Holders and such underwriter or their respective counsel, to
conduct a reasonable investigation within the meaning of the Securities Act.
4.5. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of Registrable Securities subject to this Agreement to the
public without registration, the Company agrees to:
(a) use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144 at all times
after the date of this Agreement;
(b) use its best efforts to then file with the Commission in a
timely manner all reports and other documents required of the Company under the
Exchange Act for so long as it is subject to such reporting requirements; and
-7-
<PAGE>
(c) so long as a Holder owns any Registrable Securities, to furnish
to such Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 and of the Securities
Act and the Exchange Act, a copy of the most recent annual or quarterly report
of the Company, and such other reports and documents of the Company as a Holder
may reasonably request in availing itself of any rule or regulation of the
Commission allowing a Holder to sell any Registrable Securities without
registration.
4.6. No Conflicting Agreements. The Company represents and warrants
to each Holder that it is not a party to any agreement that conflicts in any
manner with such Holder's rights to cause the Company to register Registrable
Securities pursuant to this Section 4.6.
5. REGISTRATION EXPENSES
5.1. Payment of Registration Expenses. All Registration Expenses
will be borne by the Company, regardless of whether the Registration Statement
becomes effective. In connection with the registration statements to be filed
pursuant to Sections 2.1 and 2.2 hereunder, the Company will reimburse the
selling Holders of shares of Common Stock being registered in such registration
for the reasonable fees and disbursements of one counsel chosen by the Holders
of a majority of Registrable Securities participating in the offering.
6. INDEMNIFICATION
6.1. Indemnification by Company. The Company agrees to indemnify and
hold harmless, to the fullest extent permitted by law, each Holder, its
officers, directors and employees and each Person who controls such Holder
(within the meaning of the Securities Act) or acts on behalf of such Holder
against all losses, claims, damages, liabilities and reasonable expenses caused
by any untrue or alleged untrue statement of a material fact contained in any
registration statement, prospectus or preliminary prospectus or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
in which they were made, not misleading, except insofar as the same are caused
by or contained in any information furnished in writing to the Company by such
Holder expressly for use therein; provided, however, that (i) the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission in the final
prospectus, if such untrue statement or allege untrue statement, omission or
alleged omission is corrected in an amendment or supplement to the final
prospectus and the Holder thereafter fails to deliver such prospectus as so
amended or supplemented prior to or concurrently with the sale of the Common
Stock to the Person asserting such loss, claim, damage, liability or expense
after the Company and furnished such Holder with a copy of such amended or
supplemented prospectus; and (ii) the Company shall not be liable if any Person
uses a prospectus (or an amendment or supplement thereto) following the giving
of notice by the Company pursuant to Section 4.1(d)). The Company will also
indemnify the underwrites participating in the distribution, their officers and
directors and each Person who controls such Persons (within the meaning of the
Securities Act) to the same extent as provided above with respect to the
indemnification of the Holders, if so requested.
-8-
<PAGE>
6.2. Indemnification by Holders. In connection with each
registration hereunder, each Holder participating in the offering will furnish
to the Company in writing such information as the Company reasonably requests
for use in connection with any registration statement or prospectus and agrees
to indemnify and hold harmless, to the full extent permitted by law, the
Company, its directors and officers and each Person who controls the Company
(within the meaning of the Securities Act) against any loses, claims, damages,
liabilities and expenses resulting form any untrue statement of a material fact
or any omission of a material fact required to be stated in the registration
statement or prospectus or preliminary prospectus or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in such registration
statement or prospectus. The indemnification provided by any Holder pursuant to
this Section 6.2 shall be limited to the total proceeds received by such Holder
from such offering. The Company shall be entitled to receive indemnities from
the underwriters participating in the distribution, to the same extent as
provided above with respect to information so furnished in writing by such
persons specifically for inclusion in any prospectus or registration statement.
6.3. Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder will (a) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (b) permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party; provided, however,
that any Person entitled to indemnification hereunder shall have the right to
employ separate counsel and to participate in the defense of such claim, but the
fees and expenses of such counsel shall be at the expense of such Person unless
(i) the indemnifying party has agreed in writing to pay such fees or expenses,
or (ii) the indemnifying party shall have failed to assume the defense of such
claim and employ counsel reasonably satisfactory to such Person. Whether or not
such defense is assumed by the indemnifying party, the indemnifying party will
not be subject to any liability for any settlement made without its consent (but
if such settlement only involves the payment of money, such consent will not be
unreasonably withheld). No indemnifying party will be required to consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party and indemnifying party of a release form all liability in
respect to such claim or litigation. An indemnifying party who is not entitled
to, or elects not to, assume the defense of a claim will not be obligated to pay
the fees and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim.
6.4. Contribution. If for any reason the indemnification provided
for in Sections 6.1 and 6.2 is unavailable to an indemnified party, then the
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such loss, claim, damage or liability in such
proportion as is appropriate to reflect not only the relative benefits received
by the indemnified party and the indemnifying party, but also the relative fault
of the indemnified party and the indemnifying party, as well as any other
relevant equitable considerations, including the amount of the proceeds received
by the Company or any Holder, as the case may be. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
-9-
<PAGE>
7. MISCELLANEOUS
7.1. Amendments and Waiver. The Provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures form the provisions hereof
may not be given unless the Company has obtained the prior written consent of
the Holders of a majority of all Notes.
7.2. Notices. All notices and other communications provided for or
permitted hereunder shall be delivered (a) in person with receipt acknowledged,
(b) by a nationally registered overnight delivery service, (c) by registered or
certified mail, return receipt requested, postage prepaid, or (d) by telecopy
and confirmed by telecopy answerback addressed as follows:
If to any Purchaser, at its address listed
on the signature pages hereof:
If to the Company, at:
BCAM International, Inc.
1800 Walt Whitman Road
Melville, New York 11747
Attention: Michael Strauss, President
Telephone: (516) 752-7530
Telecopier: (516) 752-3558
or at such other address as may be substituted by notice given as herein
provided. Every notice, hereunder shall be deemed to have been duly given or
served on the date on which personally delivered, with receipt acknowledged,
telecopied and confirmed by telecopy answerback or five Business Days after the
same shall have been deposited in the United States mail. Failure or delay in
delivering copies of any notice, demand, request, consent, approval, declaration
or other communication to the persons designated above to receive copies shall
in no way adversely affect the effectiveness of such notice, demand, request,
consent, approval, declaration or other communication.
7.3. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties. Any Person who acquires at least $250,000 principal amount of the Notes
may become a party to this Agreement by executing and delivering a supplemental
agreement agreeing to be bound by all of the terms and conditions hereof.
7.4. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts (including by
the execution of a letter of transmittal expressly referring to this Agreement),
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
7.5. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
-10-
<PAGE>
7.6. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE
OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAWS PROVISION.
7.7. Entire Agreement. This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There is no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the Common Stock. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
7.8. Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, the successful party shall be entitled to
recover reasonable attorneys' fees in addition to its costs and expenses and any
other available remedy.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date written above.
BCAM INTERNATIONAL, INC.
By:
----------------------------------
Title:
-------------------------------
---------------------
By:
----------------------------------
Title:
-------------------------------
FORM OF SUBORDINATION AGREEMENT
SUBORDINATION AGREEMENT
This Subordination Agreement (the "Agreement") is entered into as of
September ___, 1997, by and between _________________, and BANK ONE, NATIONAL
ASSOCIATION.
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are
hereby acknowledged, and in consideration of the loans or other extensions of
credit and all renewals or extensions now or hereafter made by Bank One,
National Association, its successors and assigns ("Senior Creditor"), directly
or indirectly, to Drew Shoe Corporation ("Borrower") which loans or other
extensions of credit have been or will be guaranteed by BCAM International, Inc.
(the "Guarantor"), such Guarantor being the 100% shareholder of the Borrower,
the undersigned, _____________., on behalf of the undersigned and the
undersigned's successors and assigns ("Subordinated Creditor") and Senior
Creditor make the following representations and agreements:
1. Description of Subordinated Debt. Subordinated Creditor represents and
warrants to Senior Creditor that (a) Guarantor is indebted to Subordinated
Creditor in the principal sum of $___________, evidenced by (i) that certain
Note Purchase Agreement dated as of September 19, 1997 (the "Note Purchase
Agreement") between _____________ from Guarantor dated September 19, 1997, which
is attached to this Agreement as Exhibit A (the "Subordinated Note"); (b)
Subordinated Creditor holds no collateral, or other assurances, or security for
the Subordinated Debt; (c) the Subordinated Debt has not been subordinated in
favor of or sold, assigned, pledged or otherwise transferred or encumbered, in
whole or in part, to any other person, entity or corporation; and (d)
Subordinated Creditor has the full right, power and authority to enter into this
Agreement.
2. Subordination. Subordinated Creditor hereby subordinates all
indebtedness, obligations, and liabilities now or hereafter owing by Guarantor
to Subordinated Creditor in respect of the Subordinated Note, including without
limitation, all principal, premium interest, fees, expenses, and other charges
accruing thereon (the "Subordinated Debt") to the payment of any and all
indebtedness, obligations and liabilities now or hereafter owing by Guarantor to
Senior Creditor under a certain Continuing Guaranty executed and delivered by
Guarantor to Senior Creditor dated September ___, 1997, and all amendments,
modifications, renewals and substitutes therefor (the "Guaranty") by which
Guarantor guarantees payment of certain liabilities of Borrower, including all
principal up to the sum of $5,500,000, together with all interest, fees,
expenses, and other charges accruing on such principal sum (the "Senior Debt"),
to the extent and in the manner set forth below, and Subordinated Creditor
agrees not to demand, accept or receive, directly or indirectly, any payment or
repayment of principal, interest or other amount in respect of the Subordinated
Debt, or from any property of Borrower or Guarantor or any third party, in
violation of the terms hereof. Subordinated Creditor shall take no steps to
obtain payment, directly or indirectly, of any type from Borrower or from any
property of Borrower.
(a) Permitted Payments. Subject to the provisions of paragraphs 2(b)
and 2(c) below, the Guarantor may pay to Subordinated Creditor the following
payments in connection
<PAGE>
with the Subordinated Debt (the "Permitted Payments" or a "Permitted Payment"):
(1) accrued interest in connection with the Subordinated Note, on a
semi-annual basis, on each March 19 and September 19, commencing
March 19, 1998; and
(2) payments of principal in connection with the Subordinated Note, at
its stated maturity of September 19, 2002, in the amount of up to
$_____________ as set forth in the Subordinated Note.
(b) No Payments Upon Default. No amount, including, without
limitation, the Permitted Payments, shall be paid by Guarantor or accepted by
Subordinated Creditor, whether in cash, property, securities or otherwise, in
respect of the Subordinated Debt (a "Blockage"), if (i) there exists, or would
exist after giving effect to such proposed payment, any "Event of Default", as
defined in a certain Loan and Security Agreement between Senior Creditor and
Borrower dated as of September ___, 1997, as the same may be renewed,
supplemented or otherwise modified or amended from time to time which relates to
the tangible net worth of the Borrower or a bankruptcy or other insolvency
proceeding of the Borrower or the Guarantor, or a default in payment by
Guarantor under the Guaranty (separately a "Default" and collectively the
"Defaults"), and (ii) Subordinated Creditor shall have received written notice
from Senior Creditor of such Default; provided, however, that notwithstanding
the foregoing restrictions, Subordinated Creditor may receive any payment which
was suspended hereunder upon the earlier of (i) a cure of such default,
acknowledged by the Senior Creditor in writing, or the written waiver by Senior
Creditor, of the then existing Defaults, or (ii) the payment in full in cash of
Senior Debt and the irrevocable termination of the loan documents relating
thereto. Notwithstanding the foregoing, during any 360-day period, the aggregate
of all periods of Blockage shall not exceed 180 days, and there shall be a
period of at least 180 consecutive days in each consecutive 360-day period when
no period of Blockage is in effect.
(c) No Payments Upon Certain Proceedings. In the event of any
insolvency or bankruptcy proceedings, or any receivership, liquidation,
reorganization, or any sale or transfer of any material asset or interest in
Guarantor or Borrower (each, a "Sale Transaction") if such transaction has not
been agreed to or consented to by the Senior Creditor, or if such Sale
Transaction gives rise to an Event of Default under the Senior Debt or the
Guaranty; , or other similar proceedings or transactions in connection
therewith, relative to Guarantor or Borrower, and their respective creditors, or
their respective properties, or in the event of any proceedings for voluntary
liquidation, dissolution or other winding up of Guarantor or Borrower, whether
or not involving insolvency or bankruptcy, Senior Creditor shall be entitled to
receive payment in full of the Senior Debt, including, without limitation,
interest, default interest, fees, or expenses accruing subsequent to the filing
of a petition in any such insolvency or bankruptcy proceeding, notwithstanding
any law, rule or regulation that would otherwise limit Senior Creditor's right
to receive such "post-petition" interest, default interest, fees, or expenses
before Subordinated Creditor is entitled to receive any payment of the
Subordinated Debt, and Senior Creditor shall be entitled to receive for
application in payment thereof any payment, distribution, or dividend of any
kind or character, whether in cash or property or securities, which may be
payable or deliverable
-2-
<PAGE>
in any such proceedings in respect of the Subordinated Debt, except securities
which are subordinate and junior in right of payment to the payment of all the
Senior Debt then outstanding.
3. Legend. Subordinated Creditor shall cause the Subordinated Note and
other instruments and agreements evidencing any Subordinated Debt to bear an
appropriate legend referring to this Agreement and reciting that the payment of
the Subordinated Debt evidenced thereby is subject to the provisions hereof, and
agrees to cause any extension of any such instrument to bear such legend.
4. Turnover of Payments. If, prior to the satisfaction of the Senior Debt,
Subordinated Creditor receives from any source whatsoever including, but not
limited to, receipt resulting from the exercise by any court of its legal or
equitable powers, any payment (except for a Permitted Payment) with respect to
any of the Subordinated Debt, Subordinated Creditor shall forthwith deliver such
payment to Senior Creditor, in precisely the form received, except for
Subordinated Creditor's indorsement when necessary, for application on account
of the Senior Debt, and until so delivered, such payment or security shall be
held in trust by Subordinated Creditor as the property of Senior Creditor. In
the event of the failure of any Subordinated Creditor to indorse any instrument
for the payment of money so received by such Subordinated Creditor, Senior
Creditor is irrevocably appointed attorney for such Subordinated Creditor with
full power to make such indorsement and with full power of substitution.
5. Standstill. Subordinated Creditor agrees for the benefit of the holder
of the Senior Debt that, so long as any part of the Senior Debt remains
outstanding, Subordinated Creditor will not (a) take any action to accelerate,
demand the payment of, or recover any amount due under the Subordinated Debt
(except for Permitted Payments) or to exercise any remedies with respect
thereto; or (b) take any action or exercise any remedies against the Guarantor
or against any property of the Guarantor prior to the earliest of (i) 120 days
after Subordinated Creditor provides notice to Senior Creditor of an "Event of
Default" (as such term is defined in the Note Purchase Agreement) under the
terms of the Subordinated Note which is not thereafter cured or waived in
writing by Subordinated Creditor, (ii) 30 days after the acceleration of the
Senior Debt, or (iii) the infeasible payment in full of the Senior Debt.
6. No Waiver. No action which Senior Creditor, or Guarantor or Borrower,
with the consent of Senior Creditor, may take or refrain from taking with
respect to any Senior Debt, or collateral therefor, including a waiver or
release thereof, or any agreement or agreements (including guaranties) in
connection therewith, shall affect this Agreement or the obligations of
Subordinated Creditor hereunder. Without limitation, the subordination of
Subordinated Creditor shall in no way be affected or impaired by, and
Subordinated Creditor hereby irrevocably consents to: (a) any amendment,
restatement, alteration, extension, renewal, waiver, indulgence or other
modification of the documents evidencing the Senior Debt; (b) any settlement or
compromise in connection with the Senior Debt; (c) any substitution, exchange,
release or other disposition of all or any part of the Senior Debt or the
collateral held therefor; (d) any failure, delay, neglect, act or omission by
the Senior Creditor to act in connection with the Senior Debt or the collateral
held
-3-
<PAGE>
therefor; or (e) any advances for the purpose of performing or curing any term
or covenant contained in the documents or agreements evidencing the Senior Debt
to which Borrower shall be or would otherwise be in default. The obligations and
agreements of Subordinated Creditor hereunder shall be unconditional and
continuing.
7. No Modification. No modification or waiver shall be deemed to be made
by Senior Creditor of any of its rights hereunder unless the same shall be in
writing and then only with respect to the specific instance involved, and shall
in no way impair or offset the rights of Senior Creditor or the obligations of
Subordinated Creditor in any other respect or at any other time. No amendment,
waiver or modification of any subordination provision adverse to Senior Creditor
or the holders of the Senior Debt will be effective against any holder of the
Senior Debt, unless expressly consented to in writing by or on behalf of such
holder.
8. Obligation of Guarantor Not Impaired. The provisions of this
Subordination Agreement define the relative rights of the Senior Creditor and of
Subordinated Creditor against the Guarantor and its property. Nothing herein
shall impair, as between the Guarantor and Subordinated Creditor, the obligation
of Guarantor, which is unconditional and absolute, to pay to Subordinated
Creditor the principal thereof and premium, if any, and interest on the
Subordinated Debt in accordance with the terms and the provisions thereof.
Except as otherwise expressly provided in this Subordination Agreement, nothing
shall prevent the Subordinated Creditor from exercising all remedies under the
Note Purchase Agreement, the Subordinated Note or otherwise permitted by
applicable law.
9. Event of Default Under Subordinated Note. The failure by Guarantor to
make a payment on account of principal of or interest on the Subordinated Note
by reason of any provisions of this Subordination Agreement shall not be
construed as preventing the occurrence of an Event of Default under the
Subordinated Note.
10. Successors; Governing Law. This Agreement shall be binding upon
Subordinated Creditor and Senior Creditor and their respective legal
representatives, heirs, successors and assigns. This Agreement shall be
construed and enforced in accordance with and governed by the law of the State
of Ohio.
11. Notice. Any notice or other communication required or permitted
pursuant to this Agreement shall be deemed given (a) one day after the same is
sent to the address set forth below such party's signature line below if sent by
recognized overnight delivery service, (b) upon confirmation of electronic
communication if sent by telecopier, or (c) upon delivery to such address if
personally delivered.
12. Subrogation. Conditional upon the prior payment in full of the Senior
Debt, to the extent that Senior Creditor has received any payment or
distribution which, but for this Agreement, would have been applied to the
Subordinated Debt, Subordinated Creditor shall be subrogated to the rights of
Senior Creditor until the Subordinated Debt shall be paid in full, and,
-4-
<PAGE>
for the purposes of such subrogation, no such payment or distribution shall, as
between the Guarantor or its other creditors, be deemed to be a payment or
distribution on account of the Senior Debt, it being understood and agreed that
the provisions of this Subordination Agreement are intended solely for the
purpose of defining the relative rights of the holders of the Senior Debt and
the Subordinated Debt.
13. Counterparts. This Agreement may be executed in three or more
counterparts, each of which when so executed and delivered shall be an original,
but all of which together shall constitute one and the same document.
14. Headings. The headings contained in this Agreement are for ease of
reference only, and shall not be construed to modify, alter or affect this
Agreement in any way.
Each of the parties has executed this Agreement as of the date set forth
above.
SUBORDINATED CREDITOR:
________________
By:_________________________________
Its:________________________________
Notice address: ____________
Agreed and Accepted:
SENIOR CREDITOR:
BANK ONE, NATIONAL ASSOCIATION
By:_________________________________
Its:________________________________
Notice Address:
100 East Broad Street
Columbus, Ohio 43271-0170
-5-
<PAGE>
Attn: Mark S. Slayman
Facsimile No. (614) 248-5518
BCAM International, Inc. and Drew Shoe Corporation each hereby
acknowledges notice of the foregoing Subordination Agreement and agrees to be
bound by all the terms, provisions and conditions thereof.
GUARANTOR:
BCAM INTERNATIONAL, INC.
By:_________________________________
Its:________________________________
Notice address: 1800 Walt Whitman Road
Melville, NY 11747
Attn: Michael Strauss
Facsimile No. (516) 752-3558
BORROWER:
DREW SHOE CORPORATION
By:_________________________________
Its:________________________________
Notice address: 252 Quarry Road
Lancaster, Ohio 43130
Attn: Larry R. Martin
Facsimile: (614) 654-4979
-6-
Execution Copy
LOAN AND SECURITY AGREEMENT
dated as of
September 19, 1997
BETWEEN
BANK ONE, NATIONAL ASSOCIATION as Bank
AND
DREW SHOE CORPORATION as Borrower
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
1 The Loans........................................................1
1.1 The Revolving Loan and Borrowing Base. ...................1
1.2 The Term Loan..............................................1
1.3 Pending Defaults. ........................................1
2 Eligibility......................................................1
2.1 Eligible Accounts..........................................1
2.2 Eligible Inventory.........................................2
2.3 Reserves. .................................................3
3 Terms and Uses of Loans. ........................................3
3.1 Interest Rates and Fees....................................3
3.2 Terms of Repayment.........................................3
3.3 Costs and Expenses.........................................3
3.4 Use of Proceeds............................................4
3.5 The Guarantor..............................................4
3.6 Amendment and Restatement..................................4
3.7 Increased Capital. ........................................5
3.8 Maximum Charges. ..........................................5
4 Security Agreement...............................................5
4.1 Grant of Security Interest.................................5
4.2 Representations and Covenants Regarding the Collateral.....7
4.3 Application of Proceeds from Collection of
Accounts; Setoff; Government Accounts; Perfection;
Lien Notation. ......................................... 7
4.4 Collateral Insurance.......................................8
4.5 Books and Records..........................................8
4.6 Collateral Administration..................................8
4.7 Preservation and Disposition of Collateral.................9
4.8 Waivers and Consents.......................................9
4.9 Financing Statements......................................10
4.10 Bank's Appointment as Attorney-in-Fact....................10
4.11 Remedies on Default.......................................11
5 Conditions Precedent............................................12
5.1 Effectiveness and Initial Advance.........................12
5.2 Conditions Precedent to Subsequent Advances...............12
-i-
<PAGE>
6 Warranties and Representations..................................13
6.1 Corporate Organization and Authority......................13
6.2 Borrowing is Legal and Authorized.........................13
6.3 Taxes.....................................................13
6.4 Capital Structure.........................................14
6.5 Compliance with Law.......................................14
6.6 Financial Statements; Full Disclosure.....................14
6.7 Litigation: Adverse Effects...............................14
6.8 No Insolvency.............................................15
6.9 Government Consent........................................15
6.10 Title to Properties.......................................15
6.11 No Defaults...............................................15
6.12 Environmental Protection..................................15
6.13 ERISA and Labor Matters...................................16
6.14 Regarding the Accounts and Inventory......................19
6.15 Margin Loans. ............................................19
7 Borrower Business Covenants.....................................19
7.1 Payment of Taxes and Claims...............................19
7.2 Maintenance of Properties and Corporate Existence.........20
7.3 Sale of Assets, Merger, Subsidiaries, Tradenames, Conduct
of Business............................................20
7.4 Negative Pledge...........................................21
7.5 Other Borrowings..........................................21
7.6 Contingent Obligations....................................22
7.7 Sale of Accounts; No Consignment..........................22
7.8 Minimum Security..........................................22
7.9 Management................................................22
7.10 Acquisition of Capital Stock. ............................22
7.11 Cash Dividends and Other Distributions....................22
7.12 Loans and Advances........................................23
7.13 Transactions with Affiliates..............................23
7.14 Tangible Net Worth........................................24
7.15 Debt Service Coverage Ratio...............................24
7.16 Environmental Compliance and Indemnification..............25
7.17 Maintenance of Accounts...................................25
7.18 Financial Information and Reporting. .....................25
7.19 Post Closing Matters. ....................................27
8 Default.........................................................27
8.1 Events of Default.........................................27
8.2 Default Remedies. ........................................28
-ii-
<PAGE>
9 Miscellaneous...................................................28
9.1 Notices...................................................28
9.2 Access to Accountants. ...................................29
9.3 Reproduction of Documents.................................29
9.4 Survival, Successors and Assigns..........................30
9.5 Amendment and Waiver, Duplicate Originals.................30
9.6 Accounting Treatment and Fiscal Year......................30
9.7 Enforceability and Governing Law. ........................30
9.8 Confidentiality...........................................31
9.9 Waiver of Right to Trial by Jury..........................31
9.10 No Consequential Damages. ................................31
9.11 Indemnity.................................................31
10 Definitions ....................................................32
10.1 Uniform Commercial Code Terms. ...........................32
10.2 Accounting Terms..........................................32
10.3 Other Definitional Provisions.............................32
10.4 Index of Definitions. ...................................32
Exhibits
Exhibit A-1 - Revolving Note
Exhibit A-2 - Term Note
Exhibit B - Borrowing Base Certificate
Exhibit C - Conditions Precedent to Initial Disbursement
Schedules
Schedule 4.2 - Schedule of Business Locations
Schedule 6.4 - Capital Structure
Schedule 6.10 - Schedule of Permitted Encumbrances
Schedule 6.13(a) - ERISA Matters
Schedule 6.13(b) - Labor Matters
-iii-
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (this "Agreement") is entered into at
Columbus, Ohio, between Bank One, National Association (the "Bank") and Drew
Shoe Corporation (the "Borrower") as of the _____ day of September, 1997.
1 The Loans. The Bank, subject to the terms and conditions hereof, will extend
credit to the Borrower up to the aggregate principal sum of $5,500,000.00 (the
"Loans").
1.1 The Revolving Loan and Borrowing Base. The Bank will extend a revolving
credit facility to the Borrower under which the Bank shall make, subject to the
terms and conditions hereof, loans and advances on a revolving basis up to the
principal sum of $4,500,000.00 (the "Revolving Loan"). The principal balance of
the Revolving Loan shall not exceed an amount equal to the sum of (i) the lesser
of up to 35% of Eligible Inventory or $2,500,000.00; plus (ii) up to 80% of
Eligible Accounts (collectively the "Borrowing Base").
1.2 The Term Loan. The Bank, subject to the terms and conditions hereof, will
extend to the Borrower a term facility in the principal sum of $1,000,000.00
(the "Term Loan")
1.3 Pending Defaults. The Bank shall have no obligation to advance or readvance
any sums pursuant to the Revolving Loan, if at any time (i) a set of facts or
circumstances exists, which, by itself, upon the giving of notice, the lapse of
time, or any one or more of the foregoing would constitute an Event of Default
under this Agreement (a "Pending Default"), or (ii) the Bank, in its sole good
faith discretion, determines that a Material Adverse Effect has occurred or that
a material adverse change has occurred in the financial condition, operations or
business of the Borrower, in the value of the Collateral or in the Bank's
interest in the Collateral.
2 Eligibility.
2.1 Eligible Accounts. The term "Eligible Accounts" means the portion of the
Borrower's accounts arising in the ordinary course of the Borrower's business
from the sale of goods or services that the Bank determines in its sole good
faith discretion, based on credit policies, market conditions, the Borrower's
business and other criteria, is eligible. An account shall not be deemed an
Eligible Account unless such account is subject to the Bank's perfected first
priority security interest and no other lien, encumbrance, or security interest,
is evidenced by an invoice or other documentary evidence satisfactory to the
Bank, is unconditionally due and payable in U.S. dollars to the Borrower from a
party (the "Account Debtor") and conforms to the warranties regarding the
accounts contained in this Agreement. Without limiting the generality of the
foregoing, no account shall be an Eligible Account if:
(a) the account is due and payable and (i) is more than 60 days past-due or (ii)
remains unpaid
<PAGE>
more than 150 days after the date of the original invoice therefor; (b) the
account arises from uncompleted performance on the part of the Borrower,
constitutes a progress billing or advance billing, is a "bill and hold," or, if
involving a sale of goods, all such goods have not been lawfully shipped and
invoiced to the Account Debtor, (or if requested by the Bank, copies of all
invoices, together with all shipping documents and delivery receipts evidencing
such shipment have not been delivered to the Bank);
(c) the account arises from a contract with any government or agency thereof,
except for the Veterans Administration;
(d) the account is subject to any prior assignment, claim, lien, subrogation
rights or security interest, or subject to any levy or setoff;
(e) the account is subject to any credit, contra account, allowance, adjustment,
return of goods, or discount (collectively a "Contra"), provided, however, that
unless the Account Debtor has asserted a Contra, if the amount of the account
exceeds the amount of the Contra, such excess shall be considered for
eligibility if such excess is not otherwise excluded by this Section 2.1;
(f) the account arises from an Affiliate;
(g) the Account Debtor is subject to bankruptcy, receivership or similar
proceedings or is insolvent;
(h) the account is evidenced by any chattel paper, promissory note, payment
instrument or written agreement or arises from a consumer;
(i) the account arises from an Account Debtor whose mailing address or executive
office is located outside the United States or one of the Canadian Provinces (
excluding Quebec) unless (A) the payment for such account is assured by an
irrevocable letter of credit, such letter of credit is from a financial
institution acceptable to the Bank, the same has been assigned to the Bank and
the original has been delivered to the Bank or the same has been confirmed by a
financial institution acceptable to the Bank and is in form and substance
acceptable to the Bank, payable in the full amount of the account in United
States dollars at a place of payment located within the United States, or (B)
the payment for such account is insured by foreign credit insurance acceptable
to the Bank, which has been collaterally assigned to the Bank in form
satisfactory to the Bank, and the Bank has been named beneficiary with respect
thereto;
(j) the account arises from an Account Debtor who has more than 25% of its
accounts (in dollar value) not eligible pursuant to Section 2.1(a) above; or
(k) the Bank has notified the Borrower that the account or the Account Debtor is
unsatisfactory or unacceptable (which the Bank reserves the right to do in its
sole good faith discretion at any time).
-2-
<PAGE>
2.2 Eligible Inventory. The term "Eligible Inventory" means that portion of the
Borrower's inventory on which the Bank has a first and exclusive perfected
security interest (provided, however, that prior to November 19, 1997, inventory
shall not be deemed ineligible solely on account of the Borrower's failure to
obtain a landlord's waiver with respect to the same) and that the Bank
determines in its sole good faith discretion from time to time, based on credit
policies, market conditions, the Borrower's business and other matters, is
eligible for use in calculating the Borrowing Base. For purposes of determining
the Borrowing Base, Eligible Inventory shall not include (a) work in process,
(b) slow-moving, obsolete or discontinued inventory, (c) supply items,
packaging, or the freight portion of raw materials, (d) inventory in the control
of a third person for processing, storage, or otherwise unless the Borrower
shall have obtained and delivered to the Bank, a bailee's waiver or secured
party of bailee's waiver, in form satisfactory to the Bank, the original
documents or other instruments evidencing such inventory, or such other
agreements or other documents the Bank shall require in its sole and absolute
discretion, (e) consigned inventory, (f) inventory in transit, (g) inventory
associated with any contract of which the Borrower has knowledge that the same
may be subject to a material adverse development, (h) inventory located outside
the United States or (i) inventory associated with any contract to the extent
that progress or advance payments received from the Account Debtor would cause
such inventory to be identified to the contract. All inventory shall be valued
at the lesser of cost (on a FIFO basis) or market.
2.3 Reserves. The Bank reserves the right to deduct from any advances to be made
hereunder such amounts as the Bank may deem proper and necessary, in its sole
discretion, to establish reserves for the creditworthiness of any Account
Debtor, market fluctuations in the value of inventory, the payment of taxes or
contingent liabilities, customer advances and deposits, payment of interest,
fees, and expenses payable under this Agreement or any other agreement in favor
of the Bank, and such other purposes as the Bank may deem appropriate.
3 Terms and Uses of Loans.
3.1 Interest Rates and Fees. The Borrower agrees to pay the Bank (a) each month
interest on the unpaid balance of the Loans at the rates of interest set forth
in the note or notes evidencing the Loans, and (b) no later than the execution
of this Agreement, a closing fee of $22,500.00 with respect to the Revolving
Loan and $5,000.00 with respect to the Term Loan.
3.2 Terms of Repayment. The Loans shall be evidenced by one or more notes, each
in substantially the form set forth in Exhibit A-1 and A-2 attached hereto.
Repayment of the Loans shall be made in accordance with the terms of the
promissory notes then outstanding pursuant to this Agreement.
3.3 Costs and Expenses. The Borrower agrees to pay audit fees (in the amount of
$500.00 per day per auditor, plus the out-of-pocket expenses of such auditors).
In addition, the Borrower agrees to pay service charges, analysis fees, and all
costs and expenses incidental to or in
-3-
<PAGE>
connection with this Agreement or any service provided by the Bank, the
enforcement of the Bank's rights in connection therewith, any amendment or
modification of this Agreement or any other loan documents, any litigation,
contest, dispute, proceeding or action in any way relating to the Collateral or
to this Agreement, whether any of the foregoing are incurred prior to or after
maturity, the occurrence of an Event of Default, or the rendering of a judgment.
Such costs shall include, but not be limited to, fees and out-of-pocket expenses
of the Bank's counsel, recording fees, inspection fees, revenue stamps and note
and mortgage taxes.
3.4 Use of Proceeds. The net proceeds of the Loans will be used to refinance all
of the Borrower's existing bank indebtedness, and to pay in full its existing
debentures issued as part of the Borrower's 1986 reorganization, to provide for
working capital requirements of the Borrower and for any other lawful business
purpose in the Borrower's business.
3.5 The Guarantor. BCAM International, Inc. (the "Guarantor") shall
unconditionally guarantee the full and prompt payment of the Loans.
3.6 Amendment and Restatement. The indebtedness and obligations evidenced by
this Agreement and all instruments, agreements, and documents executed in
connection herewith constitute an amendment, renewal, and restatement of all
indebtedness and obligations of the Borrower evidenced by a certain Business
Loan Agreement dated August 30, 1996, as amended from time to time (the "Prior
Loan Agreement") and all promissory notes, instruments, security agreements and
other documents executed in connection therewith (collectively the "Prior Loan
Documents"). All Uniform Commercial Code financing statements, fixtures filings,
and all security agreements and/or collateral assignments executed and delivered
to the Bank in connection with the Prior Loan Agreement, or the Prior Loan
Documents shall remain in full force and effect in all respects as if the
indebtedness and obligations secured and perfected with respect to such Uniform
Commercial Code financing statements, security agreements and collateral
assignments had been payable originally as provided by this Agreement and by the
instruments, agreements and documents executed in connection herewith. The terms
and conditions of this Agreement and the Bank's rights and remedies hereunder,
shall apply to all of the obligations incurred under the Prior Loan Agreement.
It is expressly understood and agreed by the parties hereto that this Agreement
is in no way intended to constitute a novation of the indebtedness existing
under the Prior Loan Agreement or evidence payment of all or any of such
obligations and liabilities. The Borrower reaffirms the security interest and
liens granted to the Bank pursuant to each of the Prior Loan Documents executed
by the Borrower, which security interest and liens shall continue in full force
and effect during the terms of this Agreement and any renewals thereof and shall
continue to secure the obligations identified in the Prior Loan Documents. All
references to the Prior Loan Agreement in the Prior Loan Documents shall be
deemed to refer to this Agreement. If any inconsistency exists between this
Agreement and the Prior Loan Agreement or the Prior Loan Documents, the terms of
this Agreement shall prevail. Nothing contained in this Agreement or in any
security agreement, assignment, collateral assignment, mortgage or other
document or instrument executed contemporaneously herewith shall be deemed to
satisfy or discharge the indebtedness evidenced by the Prior Loan Agreement,
-4-
<PAGE>
or the Prior Loan Documents (this being an amendment and restatement only) or
terminate the security interests, assignments, mortgages, financing statements,
fixture filings, or other documents or instruments previously executed and
delivered granted to the Bank prior to the date hereof.
3.7 Increased Capital. If after the date hereof the Bank determines that (i) the
adoption or implementation of or any change in or the interpretation or
administration of any law or regulation or any guideline or request from any
central bank or other governmental authority or quasi-governmental authority
exercising jurisdiction, power or control over the Bank or banks or financial
institutions generally (whether or not having the force of law), compliance with
which affects or would affect the amount of capital required or expected to be
maintained by the Bank or any corporation controlling the Bank and (ii) the
amount of such capital is increased by or based upon the making or maintenance
by the Bank of any of the Loans, any participation in or obligation to
participate in the Loans, or other advances made hereunder or the existence of
any obligation to make the Loans then, in any such case, upon written demand by
the Bank, the Borrower shall immediately pay to the Bank, from time to time as
specified by the Bank, additional amounts sufficient to compensate the Bank or
such corporation therefor. Such demand shall be accompanied by a statement as to
the amount of such compensation and include a summary of the basis for such
demand with detailed calculations. Such statement shall be conclusive and
binding for all purposes, absent manifest error.
3.8 Maximum Charges. In no event whatsoever shall the interest rate and other
charges hereunder exceed the highest rate permissible under law which a court of
competent jurisdiction shall, in a final determination, deem applicable hereto.
In the event such a court determines that the Bank has received interest or
other charges hereunder in excess of the highest rate applicable thereto, the
Bank shall promptly refund such excess amount to the Borrower, and the
provisions hereof shall be deemed amended to provide for such permissible rate.
4 Security Agreement.
4.1 Grant of Security Interest. The Borrower hereby grants, pledges, conveys and
assigns to the Bank continuing security interests in all of Borrower's right,
title, and interest in the following property, whether the Borrower's interest
therein be as owner, co-owner, lessee, consignee, secured party or otherwise,
and whether the same be now owned or existing or hereafter arising or acquired,
and wherever located, together with all substitutions, replacements, additions
and accessions therefor or thereto, all documents, negotiable documents,
documents of title, warehouse receipts, storage receipts, dock receipts, dock
warrants, express bills, freight bills, airbills, bills of lading, and other
documents relating thereto, all products thereof and all cash and non-cash
proceeds thereof including, but not limited to, notes, drafts, checks,
instruments, insurance proceeds, indemnity proceeds, warranty and guaranty
proceeds (herein the "Proceeds"): (a) all inventory including, but not limited
to, all goods, merchandise and other personal property furnished under any
contract of service or intended for sale or lease, all parts, supplies, raw
materials, work in process, finished goods, materials used or consumed, and
repossessed and
-5-
<PAGE>
returned goods (herein the "Inventory"); (b) all accounts, accounts receivable,
contract rights, chattel paper, general intangibles, income or other tax
refunds, proceeds of letters of credit, preference recoveries and all claims in
respect of any transfers of any kind, instruments, negotiable documents, notes,
drafts, acceptances and other forms of obligations, all books, records, ledger
cards, computer programs, and other documents or property, including without
limitation such items which are evidencing or relating to the accounts and
inventory and including, but not limited to, any of the foregoing arising from
or in connection with the sale, lease or other disposition of Inventory (herein
the "Accounts"); (c) all machinery, equipment, tools, dies, molds, rolling
stock, furniture, furnishings and fixtures including, but not limited to, all
manufacturing, fabricating, processing, transporting and packaging equipment,
power systems, heating, cooling and ventilating systems, lighting and
communications systems, electric, gas and water distribution systems, food
service systems, fire prevention, alarm and security systems, laundry systems
and computing and data processing systems (herein the "Equipment"); (d) all
trade names, trademarks, trade secrets, service marks, data bases, software and
software systems, including the source and object codes, information systems,
discs, tapes, customer lists, telephone numbers, credit memoranda, goodwill,
patents, patent applications, patents pending, copyrights, royalties, literary
rights, licenses and franchises (herein the "Intellectual Property"); and (e)
all deposit accounts, whether general, special, time, demand, provisional, or
final, all cash or monies wherever located, any and all deposits or other sums
at any time due to Borrower, any and all policies or certificates of insurance,
stock, securities, investment property, securities accounts, goods, choses in
action, cash and property, which now or hereafter are at any time in the
possession or control of the Bank or in transit by mail or carrier to or from
the Bank, or in the possession of any third party acting in the Bank's behalf,
without regard to whether the Bank received the same in pledge for safekeeping,
as agent for collection or transmission or otherwise, or whether the Bank has
conditionally released the same (herein the "Deposits") (all of the Accounts,
the Inventory, the Equipment, the Intellectual Property, the Deposits and the
Proceeds herein are collectively termed the "Collateral"). Notwithstanding the
foregoing, the Bank agrees that Borrower's right, title and interest in the
following life insurance policies, any replacements or substitutes therefor, and
in all proceeds of the same (the "Excluded Property") shall not be included in
the definition of Collateral: (1) Massachusetts Mutual Policy #4150489 in the
face amount of $330,000.00 on the life of George Utley and (2) Massachusetts
Mutual Policy #4150470 in the face amount of $330,000.00 on the life of Harold
C. Schuyler.
The security interests hereby granted are to secure the prompt and full
payment and complete performance of all Obligations to the Bank. The word
"Obligations" means all indebtedness, debts and liabilities (including
principal, interest, late charges, collection costs, attorneys' fees and the
like) of the Borrower to the Bank, whether now existing or hereafter arising,
either created by the Borrower alone or together with another or others, primary
or secondary, secured or unsecured, absolute or contingent, liquidated or
unliquidated, direct or indirect, whether evidenced by note, draft, application
for letter of credit or otherwise, and any and all renewals of or substitutes
therefor, including all indebtedness owed to the Bank in connection with the
Loans.
-6-
<PAGE>
The continuing security interests granted hereby shall extend to all
present and future Obligations, whether or not the Obligations are reduced or
extinguished and thereafter increased or reincurred, whether or not the
Obligations are related to the indebtedness identified above by class, type or
kind and whether or not the Obligations are specifically contemplated as of the
date hereof. The absence of any reference to this Agreement in any documents,
instruments or agreements evidencing or relating to any Obligation secured
hereby shall not limit or be construed to limit the scope or applicability of
this Agreement.
4.2 Representations and Covenants Regarding the Collateral. The Borrower
represents and warrants that except for the security interests granted hereby,
any liens set forth in Schedule 6.10, and liens permitted by this Agreement, the
Borrower is, or as to Collateral arising or to be acquired after the date
hereof, shall be, the sole and exclusive owner, lessee, or licensee, as the case
may be, of the Collateral, and the Collateral is and shall remain free from any
and all liens, security interests, encumbrances, claims and interests, and no
security agreement, financing statement, equivalent security or lien instrument
or continuation statement covering any of the Collateral is on file or of record
in any public office. The Borrower shall not create, permit or suffer to exist,
and shall take such action as is necessary to remove any claim to or interest in
or lien or encumbrance upon the Collateral except the security interest granted
hereby and any liens or encumbrances set forth in Schedule 6.10, and shall
defend the right, title and interest of the Bank in and to the Collateral
against all claims and demands of all persons and entities at any time claiming
the same or any interest therein. The Borrower shall (a) maintain its principal
place of business and chief executive office at the address set forth in
paragraph 9.1 of this Agreement, and the records concerning the Collateral shall
be kept at that address unless the Bank shall give its prior written consent
otherwise; (b) keep the Collateral at the locations set forth in Schedule 4.2
attached hereto and maintain no other place of business or place where
Collateral is located, except as shown in Schedule 4.2 attached hereto; and (c)
deliver to the Bank at least thirty (30) days prior to the occurrence of any of
the following events, written notice of such impending events: (i) a change in
the principal place of business or chief executive office; (ii) the opening or
closing of any place of business; or (iii) a change in name, identity or
corporate structure.
4.3 Application of Proceeds from Collection of Accounts; Setoff; Government
Accounts; Perfection; Lien Notation. All amounts received by the Bank
representing payment of Accounts or proceeds from the sale of Inventory or of
the Collateral may be applied by the Bank to the payment of the Obligations in
such order of preference as the Bank may determine. The Borrower also authorizes
the Bank at any time after the occurrence of an Event of Default, without
notice, to appropriate and apply any balances, credits, deposits, accounts or
money of the Borrower in the Bank's possession, custody or control to the
payment of any of the Obligations whether or not the Obligations are due or
matured. If any of the Accounts arise out of contracts with or orders from the
United States or any department, agency or instrumentality thereof, the Borrower
shall immediately (i) notify the Bank thereof in writing and (ii) execute any
instrument and take any steps which the Bank deems necessary and requests in
writing from the Borrower pursuant to the Federal Assignment of Claims Act of
1940, as amended (41 U.S.C. Section 15) in order that all money due and to
become due under such contract or order shall be assigned to the
-7-
<PAGE>
Bank. The Borrower agrees to execute, deliver, file and record all such notices,
affidavits, assignments, financing statements and other instruments as shall in
the judgment of the Bank be necessary or desirable to evidence, validate and
perfect the security interest of the Bank in the Accounts. If certificates of
title are issued or outstanding with respect to any Inventory or Equipment, the
Borrower will cause the interest of the Bank to be properly noted thereon at the
Borrower's expense.
4.4 Collateral Insurance. The Borrower shall have and maintain insurance at all
times with respect to all Inventory and Equipment insuring against risks of fire
(including so-called extended coverage), explosion, theft, sprinkler leakage and
such other casualties as the Bank may designate, containing such terms, in such
form, for such amounts, for such periods and written by such companies as may be
satisfactory to the Bank, and each such policy shall contain a clause or
endorsement satisfactory to the Bank that names the Bank as additional insured
and loss payee, as its interests may appear, that provides that no act, default
or breach of warranty or condition of the insured or any other person shall
affect the right of the Bank to recover under such policy or policies of
insurance or to pay any premium in whole or in part relating thereto, and that
provides for thirty (30) days' written minimum notice of cancellation or
alteration to the Bank. The Borrower shall deliver to the Bank certified copies
of all policies of insurance and evidence of the payment of all premiums
therefor, upon written request from the Bank. The Borrower hereby irrevocably
appoints the Bank (and any of the Bank's officers, employees or agents
designated by the Bank) as attorney-in-fact in obtaining and cancelling such
insurance and in making, settling and adjusting all claims under such policies
of insurance, endorsing any check, draft, instrument or other item of payment
for the proceeds of such policies of insurance and for making all determinations
and decisions with respect to such policies of insurance; provided, however,
that the Bank shall not exercise the power of attorney granted by this section
until and unless (a) an Event of Default shall have occurred or (b) an event of
loss shall have occurred and the Bank in good faith deems (i) that the Borrower,
after reasonable opportunity to do so, is not diligently pursuing its claims
with respect to such loss, and (ii) that the failure of Borrower to do so is
likely to have a Material Adverse Effect. In the event of failure to provide
insurance as herein provided, the Bank may, at its option, provide such
insurance, and the Borrower shall pay to the Bank, upon demand, the cost
thereof. Should said sum not be paid to the Bank upon demand, interest shall
accrue thereon from the date of demand until paid in full at the highest rate
set forth in any document or instrument evidencing any of the Obligations.
4.5 Books and Records. The Borrower shall (a) at all times keep accurate and
complete records of the Collateral in accordance with GAAP, including without
limitation, a perpetual inventory in respect of the Borrower's finished goods in
its retail locations (excluding its outlet stores) and a periodic inventory in
respect of all other inventory and complete and accurate stock records, and at
all reasonable times and from time to time, shall allow the Bank, by or through
any of its officers, agents, attorneys or accountants, to examine, inspect and
make extracts from such books and records and to arrange for verification of the
Collateral directly with Account Debtors or by other methods and to examine and
inspect the Collateral wherever located, and (b) upon request of the Bank,
provide the Bank with copies of agreements with, purchase orders from, and
invoices to, the Account Debtors, and copies of all shipping documents, delivery
receipts, and
-8-
<PAGE>
such other documentation and information relating to the Collateral as the
Bank may require.
4.6 Collateral Administration. The Borrower (a) shall promptly perform, on
request of the Bank, such acts as the Bank may determine to be necessary or
advisable to create, perfect, maintain, preserve, protect and continue the
perfection of any lien and security interest provided for in this Agreement or
otherwise to carry out the intent of this Agreement, including, without
limitation, (i) obtaining waivers or other similar documents reasonably
necessary to permit the enforcement of the remedies of the Bank hereunder, (ii)
delivering to the Bank warehouse receipts covering any portion of the Inventory
located in warehouses and for which warehouse receipts are issued, (iii)
delivering to the Bank copies, and originals upon the Bank's request, of all
letters of credit on which the Borrower is named beneficiary, and (iv) if any
Inventory is at any time in the possession or control of a warehouseman, bailee
or any agent, notifying such person of the Bank's lien and security interest in
the Collateral upon the Bank's request and, upon the Bank's request, instructing
such persons to hold all Collateral for the Bank's account subject to the Bank's
instruction; (b) shall not (i) extend, amend or otherwise modify the terms of
any Account, (ii) amend, modify or waive any term or condition of any
contractual obligation related thereto or (iii) redate any invoice or sale or
make sales on extended dating beyond that customary in the Borrower's industry;
provided, however, that the Borrower may extend, amend or otherwise modify the
terms of any Account in the ordinary course of business, if such extension,
amendment, modification or waiver does not cause an Account to become or
otherwise remain (but for such action) an Eligible Account; and (c) if there are
any disputes with any of the Accounts, will notify the Bank promptly and resolve
or settle such dispute at no expense or detriment to the Bank.
4.7 Preservation and Disposition of Collateral. The Borrower shall (a) use its
best efforts to obtain, prior to the placement of any Collateral in or upon any
leased real property, a waiver from the lessor with respect to the rights
(whether present or future) of the lessor with respect to that Collateral; (b)
advise the Bank promptly, in writing and in reasonable detail, (i) of any
material encumbrance or claim asserted against any of the Collateral; (ii) of
any material change in the composition of the Collateral; and (iii) of the
occurrence of any other event that would have a material adverse effect upon the
aggregate value of the Collateral or upon the security interest of the Bank; (c)
not sell or otherwise dispose of the Collateral, except for the Inventory or
Equipment as otherwise permitted by this Agreement or by any agreement executed
in connection herewith; (d) keep the Collateral in good condition and shall not
misuse, abuse, secrete, waste or destroy any of the same; and (e) not use the
Collateral in violation of any statute, ordinance, regulation, rule, decree or
order; (f) not permit any taxes, assessments, charges or levies to become liens
or encumbrances upon the Accounts or the Inventory or in respect to the income
or profits therefrom. At its option, the Bank may discharge taxes, liens,
security interests or other encumbrances at any time levied or placed on the
Collateral and may pay for the maintenance and preservation of the Collateral.
The Borrower agrees to reimburse the Bank upon demand for any payment made or
any expense incurred (including reasonable attorneys' fees) by the Bank pursuant
to the foregoing authorization. Should said sum not be paid to the Bank upon
demand, interest shall accrue thereon, from the date of demand until paid in
full, at the highest rate set
-9-
<PAGE>
forth in any document or instrument evidencing any of the Obligations.
4.8 Waivers and Consents. The Borrower waives presentment and demand for payment
of any of the Obligations, protests and notice of dishonor or Event of Default
with respect to any of the Obligations and all other notices to which the
Borrower might otherwise be entitled, except as otherwise expressly provided in
this Agreement. No failure to exercise or delay in exercising any right, power
or privilege under this Agreement on the part of the Bank shall operate as a
waiver thereof, and no single or partial exercise of any right, power or
privilege under this Agreement shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The Bank shall
have no duty as to the collection or protection of Collateral or any income
therefrom, nor as to the preservation of rights against prior parties, nor as to
the preservation of any right pertaining thereto, beyond the safe custody of
Collateral in the possession of the Bank and the occurrence of an Event of
Default and the exercise of remedies under this Agreement..
4.9 Financing Statements. At the request of the Bank, the Borrower shall join
with the Bank in executing, delivering and filing one or more financing
statements in a form satisfactory to the Bank and shall pay the cost of filing
the same in all public offices wherever filing is deemed by the Bank to be
necessary or desirable. A carbon, photographic or other reproduction of this
Agreement or of a financing statement shall be sufficient as a financing
statement.
4.10 Bank's Appointment as Attorney-in-Fact. The Borrower hereby irrevocably
constitutes and appoints the Bank and any officer or agent thereof, with full
power of substitution, as the Borrower's true and lawful attorney-in-fact with
full irrevocable power and authority in its place and stead and in its name or
in the Bank's own name, from time to time in the Bank's discretion, for the
purpose of carrying out the terms of this Agreement, and hereby grants to the
Bank the power and right, on behalf of the Borrower, without notice to or
assent: (a) to execute, file and record all such financing statements,
certificates of title and other certificates of registration and operation and
similar documents and instruments as the Bank may deem necessary or desirable to
protect, perfect and validate the Bank's security interest in the Collateral;
(b) after the occurrence of an Event of Default and during the continuance
thereof, to receive, collect, take, indorse, sign, and deliver in the Borrower's
or the Bank's name, any and all checks, notes, drafts, or other documents or
instruments relating to the Collateral; and (c) upon the occurrence of an Event
of Default, (i) to notify postal authorities to change the address for delivery
of the Borrower's mail to an address designated by the Bank, (ii) to open such
mail delivered to the designated address, (iii) to sign and indorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications and notices in
connection with accounts and other documents relating to the Collateral; (iv) to
commence and prosecute any suits, actions or proceedings at law or in equity in
any court of competent jurisdiction to collect the Collateral or any part
thereof and to enforce any other right in respect of any Collateral; (v) to
defend any suit, action or proceeding brought with respect to any Collateral;
(vi) to negotiate, settle, compromise or adjust any account, suit, action or
proceeding described above and, in connection therewith, to give such discharges
or releases as the Bank may deem appropriate; and (vii)
-10-
<PAGE>
generally, to sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though the
Bank were the absolute owner thereof for all purposes, and to do, at the Bank's
option, at any time or from time to time, all acts and things which the Bank
deems necessary to protect, preserve or realize upon the Collateral and the
Bank's security interest therein, in order to effect the intent of this
Agreement.
The Borrower hereby ratifies all that said attorneys shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable. The powers conferred upon the Bank
hereunder are solely to protect its interests in the Collateral and shall not
impose any duty upon the Bank to exercise any such powers. The Bank shall be
accountable only for amounts that the Bank actually receives as a result of the
exercise of such powers and neither the Bank nor any of its officers, directors,
employees or agents shall be responsible to the Borrower for any act or failure
to act, except for the Bank's own gross negligence or willful misconduct, as
determined by a final non-appealable judgment by a court of competent
jurisdiction.
4.11 Remedies on Default. Upon the occurrence of an Event of Default and during
the continuance thereof, the Bank shall have the rights and remedies of a
secured party under this Agreement, under any other instrument or agreement
securing, evidencing or relating to the Obligations and under the laws of the
State of Ohio or any other applicable state law. Without limiting the generality
of the foregoing, the Bank shall have the right to take possession of the
Collateral and all books and records relating to the Collateral and for that
purpose the Bank may enter upon any premises on which the Collateral or books
and records relating to the Collateral or any part thereof may be situated and
remove the same therefrom. Except for the notices specified below of time and
place of public sale or disposition or time after which a private sale or
disposition is to occur, the Borrower expressly agrees that the Bank, without
demand of performance or other demand, advertisement or notice of any kind to or
upon the Borrower or any other person or entity (all and each of which demands,
advertisements and/or notices are hereby expressly waived), may forthwith
collect, receive, appropriate and realize upon the Collateral, or any part
thereof, and/or may forthwith sell, lease, assign, give option or options to
purchase or sell or otherwise dispose of and deliver the Collateral (or contract
to do so), or any part thereof, in one or more parcels at public or private sale
or sales, at any of the Bank's offices or elsewhere at such prices as the Bank
may deem best, for cash or on credit or for future delivery without assumption
of any credit risk. The Bank shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Collateral so sold, free of any right
or equity of redemption. The Borrower further agrees, (a) at the Bank's request,
to assemble the Collateral and to make it available to the Bank at such places
as the Bank may reasonably select and (b) to allow the Bank to use or occupy the
Borrower's premises, without charge, for the purpose of effecting the Bank's
remedies in respect of the Collateral. The Bank shall apply the net proceeds of
any such collection, recovery, receipt, appropriation, realization or sale,
after deducting all reasonable costs and expenses of every kind incurred in
connection therewith or incidental to the care or safekeeping of any or all of
the Collateral or in any way relating to the rights of the Bank
-11-
<PAGE>
hereunder, including reasonable attorneys' fees and legal expenses, to the
payment in whole or in part of the Obligations, in such order as the Bank may
elect, and only after so paying over such net proceeds and after the payment by
the Bank of any other amount required by any provision of law, need the Bank
account for the surplus, if any. To the extent permitted by applicable law, the
Borrower waives all claims, damages and demands against the Bank arising out of
the repossession, retention, sale or disposition of the Collateral and agrees
that the Bank need not give more than 10 days' notice pursuant to the terms of
this Agreement of the time and place of any public sale or of the time after
which a private sale may take place and that such notice is reasonable
notification of such matters. The Borrower shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which the Bank is entitled and shall also be
liable for the costs of collecting any of the Obligations or otherwise enforcing
the terms thereof or of this Agreement, including reasonable attorneys' fees.
5 Conditions Precedent.
5.1 Effectiveness and Initial Advance. This Agreement shall become effective and
the Bank shall be obligated to make the initial advance hereunder only after the
Bank shall have received from the Borrower each of the following items in form
and substance satisfactory to the Bank:
(a) The Bank shall have received this Agreement, the promissory notes referenced
above and all other agreements, documents and instruments described in Exhibit C
attached hereto and made a part hereof, each duly executed where appropriate in
form and substance satisfactory to the Bank, and without limiting the foregoing,
the Borrower hereby directs its counsel Vorys, Sater, Seymour & Pease and
Ruskin, Moscou, Evans & Faltischek, P.C. to prepare and deliver to the Bank the
opinions referred to in such Exhibit.
(b) The Bank shall have received a certificate signed by the Vice President of
Finance of the Borrower, stating to the best of his knowledge after due inquiry,
on such effective date no Event of Default has occurred and is continuing.
(c) The Bank shall have received (i) UCC-1 financing statements duly executed
that shall, when filed in the appropriate jurisdictions, be sufficient to
perfect liens on the Collateral, (ii) an open end mortgage assignment of rents
and security agreement, duly executed, that shall, when filed in the appropriate
jurisdiction, be sufficient to effect a mortgage lien on the real estate and
improvements located at 252 Quarry Road and 301 Forest Rose, Lancaster, Ohio
(collectively the "Real Property"), and (iii) Trademark Collateral Assignments
and Security Agreements sufficient to perfect liens on the Borrower's trademarks
and related property.
(d) The proforma borrowing base certificate shall reflect availability under the
Borrowing Base, after the initial draw hereunder, of not less than $700,000.00.
5.2 Conditions Precedent to Subsequent Advances. The obligation of the Bank to
make any disbursement or advance subsequent to the initial disbursement or
initial advance under the
-12-
<PAGE>
Revolving Loan, of any portion of any of the Loans is subject to all the
conditions and requirements of this Agreement and delivery of the following
required documents, or other action, all of which are conditions precedent:
(a) Warranties and Representations. On the date of each advance pursuant to the
Revolving Loan, the warranties and representations set forth in Section 6 hereof
and each of the representations and warranties contained in any certificate,
document or financial or other statement furnished at any time pursuant to this
Agreement or any related document shall be true and correct on and as of such
date with the same effect as though such warranties and representations had been
made on and as of such date, except to the extent that such warranties and
representations expressly relate to an earlier date.
(b) Compliance. The Borrower shall have complied and shall then be in compliance
with all the terms, covenants and conditions of this Agreement which are binding
upon it, and no Event of Default or Pending Default shall have occurred and be
continuing on such date or after giving effect to the advances requested to be
made.
(c) Confirmation of Conditions Precedent. The Borrower shall then be in
compliance with and able to confirm all the foregoing conditions precedent with
the same effect as though such conditions precedent were requirements to the
making of any advance contemplated herein.
6 Warranties and Representations. In order to induce the Bank to enter into this
Agreement and to make the Loans and the other financial accommodations to the
Borrower, the Borrower represents and warrants to the Bank that each of the
following statements is true and correct:
6.1 Corporate Organization and Authority. The Borrower (a) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio; (b) has all requisite corporate power and authority and all necessary
licenses and permits to own and operate its properties and to carry on its
business as now conducted and as presently proposed to be conducted; and (c) is
not doing business or conducting any activity in any jurisdiction in which it
has not duly qualified and become authorized to do business, except for the
State of Arizona; provided, however, the Borrower shall have taken steps
necessary to qualify in Arizona no later than 60 days from the date of this
Agreement.
6.2 Borrowing is Legal and Authorized. (a) The Board of Directors of the
Borrower has duly authorized the execution and delivery of this Agreement and of
the notes and documents contemplated herein; this Agreement, the notes and other
documents executed in connection with this Agreement will constitute valid and
binding obligations enforceable in accordance with their respective terms; (b)
the execution of this Agreement and related notes and documents and the
compliance with all the provisions of this Agreement (i) are within the
corporate powers of the Borrower; and (ii) are legal and will not conflict with,
result in any breach in any of the provisions of, constitute a default under, or
result in the creation of any lien or encumbrance upon any
-13-
<PAGE>
property of the Borrower under the provisions of any agreement, charter
instrument, bylaw, or other instrument to which the Borrower is a party or by
which it may be bound; (c) there are no limitations in any indenture, contract,
agreement, mortgage, deed of trust or other agreement or instrument to which the
Borrower is now a party or by which the Borrower may be bound with respect to
the payment of principal or interest on any indebtedness, or the Borrower's
ability to incur indebtedness including the notes to be executed in connection
with this Agreement.
6.3 Taxes. All tax returns required to be filed by the Borrower in any
jurisdiction have in fact been filed, and all taxes, assessments, fees and other
governmental charges upon the Borrower, or upon any of its properties, which are
due and payable have been paid, except to the extent that any of the same are
not required to be paid pursuant to the terms of this Agreement. The Borrower
does not know of any proposed additional tax assessment against it. The accruals
for taxes on the books of the Borrower for its current fiscal period are
adequate.
6.4 Capital Structure. Schedule 6.4 attached hereto accurately represents to the
Bank the following: (a) the classes of capital stock of the Borrower and par
value of each such class, all as authorized by the Borrower's Articles of
Incorporation , (b) the number of shares of each such class of stock issued and
outstanding, (c) the registered owner or holder (legally or beneficially)
thereof, (d) the certificate numbers evidencing the foregoing, and (e) the
Borrower's employer tax identification number. All shares of all classes of
capital stock issued are fully paid and nonassessable. The Borrower does not
have outstanding any other stock or other equity security, or any other
instrument convertible to an equity security of the Borrower, or any commitment,
understanding, agreement or arrangement to issue, sell or have outstanding any
of the foregoing.
6.5 Compliance with Law. The Borrower (a) is not in violation of any laws,
ordinances, governmental rules or regulations to which it is subject, including
without limitation any laws, rulings or regulations relating to the Employee
Retirement Income Security Act of 1974 or Section 4975 of the Internal Revenue
Code and (b) has not failed to obtain any licenses, permits, franchises or other
governmental or environmental authorizations necessary to the ownership of its
properties or to the conduct of its business, which violation or failure might
have a Material Adverse Effect.
6.6 Financial Statements; Full Disclosure. The financial statements for the
fiscal year ending December 31, 1996, which have been supplied to the Bank, have
been prepared in accordance with GAAP and fairly represent the Borrower's
financial condition as of such date, and the financial statements for the
interim period ending July 31, 1997, which have been supplied to the Bank,
fairly represent the Borrower's financial condition as of such date. No material
adverse change in the Borrower's financial condition has occurred since such
dates. The financial statements referred to in this paragraph do not, nor does
this Agreement or any written statement furnished by the Borrower to the Bank in
connection with obtaining the Loans, contain any untrue statement of a material
fact or omit a material fact necessary to make the statements contained therein
or herein not misleading. The Borrower has disclosed to the Bank in writing all
facts, including, without limitation, all pending litigation, administrative
proceedings, and arbitration
-14-
<PAGE>
proceedings, which materially affect the properties, business, prospects,
profits or condition (financial or otherwise) of the Borrower or the ability of
the Borrower to perform this Agreement.
6.7 Litigation: Adverse Effects. There is no action, suit, audit, proceeding,
investigation or arbitration (or series of related actions, suits, proceedings,
investigations or arbitrations) before or by any governmental authority or
private arbitrator pending or, to the knowledge of the Borrower, threatened
against the Borrower or any property of the Borrower (i) challenging the
validity or the enforceability of any of this Agreement, or any loan document,
agreement, or instrument executed in connection herewith, or (ii) which has had,
shall have or is reasonably likely to have a Material Adverse Effect, or (iii)
which involves individual claims against the Borrower in excess of the sum of
$100,000. The Borrower is not (A) in violation of any applicable requirements of
law which violation shall have or is likely to result in a Material Adverse
Effect, or (B) subject to or in default with respect to any final judgment,
writ, injunction, restraining order or order of any nature, decree, rule or
regulation of any court or governmental authority, in each case which shall have
or is likely to have a Material Adverse Effect. "Material Adverse Effect" means
a material adverse effect upon (a) the business, condition (financial or
otherwise), operations, performance, properties or prospects of the Borrower or
any Guarantor, (b) the ability of the Borrower or any Guarantor to perform its
obligations under this Agreement or any document, agreement, guaranty, or
instrument executed in connection herewith, or (c) the ability of the Bank to
enforce the terms of this Agreement, or any document, agreement, guaranty, or
instrument executed in connection herewith.
6.8 No Insolvency. After giving effect to all indebtedness of the Borrower
(including without limitation the Indebtedness outstanding under the Loans), the
Borrower (a) will be able to pay its obligations as they become due and payable;
(b) has assets, the present fair saleable value of which exceeds the amount that
will be required to pay its probable liability on its obligations as the same
become absolute and matured; (c) has sufficient property, the sum of which at a
fair valuation exceeds all of its indebtedness; and (d) will have sufficient
capital to engage in its business. In addition, the Borrower's grant of security
interests in the Collateral and mortgages and assignments of rent in respect of
the Real Property for the Loans constitutes fair consideration and reasonably
equivalent value because the Borrower has received the proceeds of the Loans.
6.9 Government Consent. Neither the nature of the Borrower or of its business or
properties, nor any relationship between the Borrower and any other entity or
person, nor any circumstance in connection with the execution of this Agreement,
is such as to require a consent, approval or authorization of, or filing,
registration or qualification with, any governmental authority on the part of
the Borrower as a condition to the execution and delivery of this Agreement and
the notes and documents contemplated herein.
6.10 Title to Properties. The Borrower (a) has good title to all property owned
and a valid leasehold interest in all leased property, free from any liens and
encumbrances, except as set forth on Schedule 6.10 attached to this Agreement,
and (b) has not agreed or consented to cause or
-15-
<PAGE>
permit in the future (upon the happening of a contingency or otherwise) any of
its property whether now owned or hereafter acquired to be subject to a lien or
encumbrance except as provided in this paragraph.
6.11 No Defaults. No event has occurred and no condition exists which would
constitute a Pending Default or an Event of Default pursuant to this Agreement.
The Borrower is not in violation in any material respect of any term of any
agreement, charter instrument, bylaw or other instrument to which it is a party
or by which it may be bound.
6.12 Environmental Protection. Except as disclosed in two Phase I environmental
Site Assessments, each dated May 27, 1997, prepared by Dames & Moore, including
the supplements thereto, the Borrower (a) has no actual knowledge of the
permanent placement, burial or disposal of any Hazardous Substances (as
hereinafter defined) on any real property owned, leased, or used by the Borrower
(the "Premises"), of any spills, releases, discharges, leaks, or disposal of
Hazardous Substances that have occurred or are presently occurring on, under, or
onto the Premises, or of any spills, releases, discharges, leaks or disposal of
Hazardous Substances that have occurred or are occurring off the Premises as a
result of the improvement, operation, or use of the Premises which would result
in material non-compliance with any of the Environmental Laws (as hereinafter
defined); (b) is and has been in compliance in all material respects with all
applicable Environmental Laws; (c) knows of no pending or threatened
environmental civil, criminal or administrative proceedings against the Borrower
relating to Hazardous Substances; (d) knows of no facts or circumstances that
would give rise to any future civil, criminal or administrative proceeding
against the Borrower relating to Hazardous Substances; and (e) will not permit
any of its employees, agents, contractors, subcontractors, or any other person
occupying or present on the Premises to generate, manufacture, store, dispose or
release on, about or under the Premises any Hazardous Substances which would
result in the Premises not complying in all material respects with the
Environmental Laws.
As used herein, "Hazardous Substances" shall mean and include all
hazardous and toxic substances, wastes, materials, compounds, pollutants and
contaminants (including, without limitation, asbestos, polychlorinated
biphenyls, and petroleum products) which are included under or regulated by the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
(42 U.S.C. ss.9601, et seq.), the Hazardous Materials Transportation Act, as
amended (49 U.S.C. ss.1801, et seq.), the Toxic Substances Control Act, as
amended (15 U.S.C. ss.2601, et seq.), the Resource Conservation and Recovery
Act, as amended (42 U.S.C. ss.6901, et seq.), the Water Quality Act of 1987, as
amended (33 U.S.C. ss.1251, et seq.), the Clean Water Act, as amended (33 U.S.C.
ss.1321 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act, as
amended (7 U.S.C. Sec. 136, et seq.), the National Environmental Policy Act of
1969, as amended (42 U.S.C. Sec. 4321, et seq.), and the Clean Air Act, as
amended (42 U.S.C. ss.7401, et seq.), and any other federal, state or local
statute, ordinance, law, code, rule, regulation or order regulating or imposing
liability (including strict liability) or standards of conduct regarding
Hazardous Substances (hereinafter the "Environmental Laws"), but does not
include such substances as are permanently incorporated into a structure or any
part thereof in such a way as to
-16-
<PAGE>
preclude their subsequent release into the environment, or the permanent or
temporary storage or disposal of household hazardous substances by tenants, and
which are thereby exempt from or do not give rise to any violation of any
Environmental Laws.
6.13 ERISA and Labor Matters. (a) None of the Borrower nor any ERISA Affiliate
maintains or contributes to any Plan other than those set forth in Schedule
6.13(a) attached hereto. Each Plan which is intended to be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended to the date
hereof (the "Internal Revenue Code"), has been determined by the Internal
Revenue Service (the"IRS") to be so qualified, and each trust related to any
such Plan has been determined to be exempt from federal income tax under Section
501(a) of the Internal Revenue Code. None of the Borrower nor any ERISA
Affiliate knows of any reason why such Plans or trusts are no longer qualified
or exempt following such determination by the IRS. Except as disclosed in
Schedule 6.13(a), none of the Borrower or any ERISA affiliate maintains or
contributes to any employee welfare benefit plan within the meaning of Section
3(1) of ERISA which provides benefits to employees after termination of
employment other than as required by Section 601 of ERISA. The Borrower and all
ERISA Affiliates are in compliance in all material respects with the
responsibilities, obligations or duties imposed on them by ERISA, the Internal
Revenue Code and regulations promulgated thereunder with respect to all Plans.
No Benefit Plan has incurred any accumulated funding deficiency (as defined in
Sections 302(a)(2) of ERISA and 412(a) of the Internal Revenue Code) whether or
not waived. Neither the Borrower nor any ERISA Affiliate nor any fiduciary of
any Plan which is not a Multiemployer Plan (i) has engaged in a nonexempt
prohibited transaction described in Sections 406 of ERISA or 4975 of the
Internal Revenue Code or (ii) has taken or failed to take any action which would
constitute or result in a Termination Event. Neither the Borrower nor any ERISA
Affiliate has any potential liability under Sections 4063, 4064, 4069, 4204 or
4212(c) of ERISA. Neither the Borrower nor any ERISA Affiliate has incurred any
liability to the PBGC which remains outstanding other than the payment of
premiums, and there are no premium payments which have become due which are
unpaid. Schedule B to the most recent annual report filed with the IRS with
respect to each Benefit Plan and furnished to the Bank is complete and accurate
in material respects. Since the date of each such Schedule B, there has been no
material adverse change in the funding status or financial condition of the
Benefit Plan relating to such Schedule B. Neither the Borrower nor any ERISA
Affiliate has (i) failed to make a required contribution or payment to a
Multiemployer Plan or (ii) made a complete or partial withdrawal under Sections
4203 or 4205 of ERISA from a Multiemployer Plan. Neither the Borrower nor any
ERISA Affiliate has failed to make a required installment or any other required
payment under Section 412 of the Internal Revenue Code on or before the due date
for such installment or other payment. Neither the Borrower nor any ERISA
Affiliate is required to provide security to a Benefit Plan under Section
401(a)(29) of the Internal Revenue Code due to a Plan amendment that results in
an increase in current liability for the plan year. Except as set forth in
Schedule 6.13(a), the Borrower does not have, by reason of the transactions
contemplated hereby any obligation to make any payment to any employee pursuant
to any Plan or existing contract or arrangement. Upon written request of the
Bank, the Borrower will provide to the Bank copies of all of the following: each
Benefit Plan and related trust agreement (including all amendments to such Plan
and trust) in existence, or for which the Parent
-17-
<PAGE>
or any ERISA Affiliate has taken any corporate action to authorize the adoption
thereof, as of the date of this Agreement, and in respect of which such Company
or any ERISA Affiliate is currently an "employer" as defined in Section 3(5) of
ERISA, and the most recent summary plan description, actuarial report,
determination letter issued by the IRS and Form 5500 filed in respect of each
such Benefit Plan in existence; a listing of all of the Multiemployer Plans
currently contributed to by such Company or any ERISA Affiliate with the
aggregate amount of the most recent annual contributions required to be made by
such Company and all ERISA Affiliates to each such Multiemployer Plan, any
information which has been provided to such Company or an ERISA Affiliate
regarding withdrawal liability under any Multiemployer Plan and the collective
bargaining agreement pursuant to which such contribution is required to be made;
each employee welfare benefit plan within the meaning of Section 3(1) of ERISA
which provides benefits to employees of such company or any of its subsidiaries
after termination of employment other than as required by Section 601 of ERISA,
the most recent summary plan description for such plan and the aggregate amount
of the most recent annual payments made to terminated employees under each such
plan.
As used herein, "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time, and any successor statute. As used
herein, "ERISA Affiliate" means any (i) corporation which is a member of the
same controlled group of corporations (within the meaning of Section 414(b) of
the Internal Revenue Code) as the Borrower, (ii) partnership or other trade or
business (whether or not incorporated) under common control (within the meaning
of Section 414(c) of the Internal Revenue Code) with the Borrower, and (iii)
member of the same affiliated service group (within the meaning of section
414(m) of the Internal Revenue Code) as the Borrower, any corporation described
in clause (i) above or any partnership or trade or business described in clause
(ii) above. As used herein, "Plan" means an employee benefit plan defined in
Section 3(3) of ERISA in respect of which the Borrower or any ERISA Affiliate
is, or within the immediately preceding six years was, an "employer" as defined
in Section 3(5) of ERISA. As used herein,"Benefit Plan" means a defined benefit
plan as defined in Section 3(35) of ERISA (other than a Multi-employer Plan) in
respect of which the Borrower or any ERISA Affiliate is, or within the
immediately preceding six (6) years was, an "employer" as defined in Section
3(5) of ERISA. As used herein, "Multiemployer Plan" means a "multiemployer plan"
as defined in Section 4001(a)(3) of ERISA which is, or within the immediately
preceding six (6) years was, contributed to by the Borrower or any ERISA
Affiliate. As used herein,"Termination Event" means (i) a Reportable Event with
respect to any Benefit Plan; (ii) the withdrawal of the Borrower or any ERISA
Affiliate from a Benefit Plan during a plan year in which the Borrower or such
ERISA Affiliate was a "substantial employer" as defined in Section 4001(a)(2) of
ERISA or the cessation of operations which results in the termination of
employment of 20% of Benefit Plan participants who are employees of the Borrower
or any ERISA Affiliate; (iii) the imposition of an obligation on the Borrower or
any ERISA Affiliate under Section 4041 of ERISA to provide affected parties
written notice of intent to terminate a Benefit Plan in a distress termination
described in Section 4041(c) of ERISA; (iv) the institution by the Pension
Benefit Guaranty Corporation, or any Person succeeding to the functions thereof
(the "PBGC"), of proceedings to terminate a Benefit Plan; (v) any event or
condition which might constitute grounds under Section
-18-
<PAGE>
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan; or (vi) the partial or complete withdrawal of the
Borrower or any ERISA Affiliate from a Multiemployer Plan
(b) Except as set forth in Schedule 6.13(b) attached hereto, as of the
date of this Agreement, there is no collective bargaining agreement covering any
of the employees of the Borrower. To the knowledge of the Borrower, except as
set forth in Schedule 6.13(b) as of the date of this Agreement, no attempt to
organize the employees of the Borrower is pending, threatened, planned or
contemplated. Set forth in Schedule 6.13(b), as the case may be, is a list, as
of the date of this Agreement, of all material consulting agreements, executive
employment agreements, executive compensation plans, deferred compensation
agreements, employee pension plans or retirement plans, and employee profit
sharing plans.
6.14 Regarding the Accounts and Inventory. (a) Each of the accounts is based on
an actual bona fide, and genuine (i) sale and delivery of goods or (ii)
rendering or performance of services in the ordinary course of business, the
Account Debtors have accepted such goods or services and unconditionally owe and
are obligated to pay the full amounts reflected in the invoices according to the
terms thereof without any defense, offset or counterclaim; (b) all of the
shipping and delivery receipts and other documents to be given to the Bank with
respect to the accounts are genuine; (c) to the best of the Borrower's
knowledge, pursuant to its customary credit investigation in the ordinary course
of business as of the date each account is created, each of the Account Debtors
is solvent and able to pay such account when due, or with respect to any Account
Debtors who are not solvent, the Borrower has set up on it books and in its
financial records bad debt reserves adequate to cover such accounts; (d) each of
the accounts referenced on the Borrower's most recent Borrowing Base or other
certificate against which the Borrower has requested an advance under the
Revolving Loan is an Eligible Account; and (e) all of the inventory referenced
on the Borrower's most recent Borrowing Base certificate or other certificate
against which the Borrower has requested an advance under the Revolving Loan is
Eligible Inventory.
6.15 Margin Loans. None of the transactions contemplated in the Agreement will
violate or result in a violation of Section 7 of the Securities Exchange Act of
1934, as amended, or any regulation issued pursuant thereto, including, without
limitation, Regulation U of the Board of Governors of the Federal Reserve
System, 12 C.F.R., Chapter II. The Borrower does not own or intend to carry or
purchase any "margin security" within the meaning of said Regulation U. None of
the proceeds of the Loans have been or will be used to purchase or refinance any
borrowing, the proceeds of which were used to purchase any "security" within the
meaning of the Securities Exchange Act of 1934, as amended.
7 Borrower Business Covenants. The Borrower covenants that on and after the date
of this Agreement until terminated pursuant to the terms of this Agreement, or
so long as any of the indebtedness provided for herein remains unpaid:
-19-
<PAGE>
7.1 Payment of Taxes and Claims. The Borrower will pay (a) all taxes, estimated
payments, assessments and governmental charges or levies imposed upon it or its
property or assets or in respect of any of its franchises, businesses, income or
property before any penalty or interest accrues thereon; and (b) all claims of
materialmen, mechanics, carriers, warehousemen, landlords, bailees and other
like persons, (including, without limitation, claims for labor, services,
materials and supplies) for sums which have become due and payable and which by
law have or may become a lien or encumbrance upon any of the Borrower's property
or assets, prior to the time when any penalty or fine shall be incurred with
respect thereto; provided, however, that no such taxes, assessments and
governmental charges referred to in clause (a) above or claims referred to in
clause (b) above are required to be paid if being contested in good faith by the
Borrower, by appropriate proceedings diligently instituted and conducted,
without danger of any material risk to the Collateral or the Bank's interest
therein, without any of the same becoming a lien upon the Collateral, and if
such reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP, shall have been made therefor.
7.2 Maintenance of Properties and Corporate Existence. The Borrower shall (a)
maintain its property in good condition and make all renewals, replacements,
additions, betterments and improvements thereto which it deems necessary; (b)
maintain, with financially sound and reputable insurers, insurance with respect
to its properties and business against such casualties and contingencies, of
such types (including but not limited to fire and casualty, public liability,
products liability, larceny, embezzlement or other criminal misappropriation
insurance) and in such amounts as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated, with each such policy of insurance containing a clause or endorsement
satisfactory to the Bank that names the Bank as additional insured and lender
loss payee, as its interest may appear, and that provides that no act, default
or breach of warranty or condition of the Borrower or any other person shall
affect the right of the Bank to recover under such policy or policies of
insurance or to pay any premium in whole or in part relating thereto, in such
amounts as is customary in the case of entities of established reputations
engaged in the same or a similar business and similarly situated; (c) reflect in
its financial statements adequate accruals and appropriations to reserves and
keep and maintain proper books of record and account in which entries in
conformity with GAAP shall be made of all dealings and transactions in relation
to its businesses and activities, including, without limitation, transactions
and other dealings with respect to the Collateral; (d) do or cause to be done
all things necessary (i) to preserve and keep in full force and effect its
existence, rights and franchises, and (ii) to maintain its status as a
corporation duly organized and existing and in good standing under the laws of
the state of its incorporation; (e) conduct continuously and operate actively
its business and take all actions necessary to enforce and protect the validity
of any intellectual property; and (f) not be in violation of any laws,
ordinances, or governmental rules and regulations or fail to obtain any
licenses, permits, franchises or other governmental authorizations necessary to
the ownership of its properties or to the conduct of its business, which
violation or failure to obtain might have a Material Adverse Effect.
7.3 Sale of Assets, Merger, Subsidiaries, Tradenames, Conduct of Business. The
Borrower shall not (a) except in the ordinary course of business, sell, lease,
transfer or otherwise dispose of,
-20-
<PAGE>
any of its assets and except for the sale or disposition of obsolete Equipment,
(b) consolidate with, merge into, enter into partnerships or joint ventures with
or make investments in any other entity, or permit any other entity to
consolidate with or merge into it, or (c) create or acquire any subsidiaries or
conduct business under any other tradenames without the prior written consent of
the Bank. The Borrower has no subsidiaries and conducts business only in the
name of the Borrower, those tradenames set forth on Schedule 4.2 attached
hereto, and those tradenames acquired pursuant to asset acquisitions permitted
in this Section 7.3. The Borrower shall not engage in any business other than
the businesses engaged in by the Borrower on the date hereof and any business or
activities which are substantially similar or related thereto. The Borrower
shall not without the prior written consent of the Bank acquire all or
substantially all of the assets or business of any other person, company, or
entity, except for the acquisition of new stores or other businesses in the
footwear industry not to exceed the aggregate sum of (i) $1,000,000.00 in total
purchase price (including without limitation liabilities assumed or debt
incurred) for assets purchased in any period of twelve consecutive months;
provided, however, that the Borrower shall provide to the Bank 30 days prior
written notice of any such acquisition and any tradenames to be purchased or
utilized in connection therewith and shall execute any documents deemed
necessary by the Bank to perfect or protect the Collateral; and provided,
further that the Borrower shall make no such acquisition if as a result thereof
or after such acquisition, an Event of Default or a Pending Default would occur
or exist hereunder.
7.4 Negative Pledge. The Borrower will not cause or permit or permit to exist or
agree or consent to cause or permit in the future (upon the happening of a
contingency or otherwise), any of its real or personal property, whether now
owned or hereafter acquired, to become subject to a lien or encumbrance, except:
(i) liens in connection with deposits required by workers' compensation,
unemployment insurance, social security and other like laws; (ii) taxes,
assessments, reservations, exceptions, encroachments, easements, rights of way,
covenants, conditions, restrictions, leases and other similar title exceptions
or encumbrances affecting real property, provided they do not in the aggregate
materially detract from the value of said property or materially interfere with
its use in the ordinary conduct of business; (iii) inchoate liens arising under
ERISA to secure the contingent liability of the Borrower; (iv) liens as set
forth in Schedule 6.10 attached to this Agreement; and (v) liens in connection
with secured borrowings permitted by Section 7.5 below. In addition, the
Borrower will not grant or agree to provide in the future (upon the happening of
a contingency or otherwise), a "negative pledge" or other covenant or agreement
similar to this Section 7.4 in favor of any other lender, creditor or third
party.
7.5 Other Borrowings. Except for (A) the Loans or other Indebtedness to the
Bank, (B) a certain existing loan from the 1955 George R. Utley Trust in the
original principal amount of $213,869.18, (C) the Indebtedness disclosed on
Schedule 6.10 attached hereto, (D) purchase money financing in an amount not to
exceed the purchase price of the property acquired and secured only by such
property, not to exceed the aggregate sum of $250,000.00 outstanding at any
time, and (E) unsecured Indebtedness or secured Indebtedness, secured only by a
junior lien on Inventory issued to sellers of inventory or businesses acquired
by the Borrower not to exceed the aggregate sum of $1,000,000.00 in any period
of twelve consecutive months, which shall be
-21-
<PAGE>
subordinated to the Loans and if involving collateral, subject to intercreditor
provisions, pursuant to subordination agreements satisfactory to the Bank, the
Borrower will not directly or indirectly create, incur, assume or otherwise
become or remain liable with respect to any Indebtedness. "Indebtedness," as
applied to the Borrower or any other entity shall mean, at any time, (a) all
indebtedness, obligations or other liabilities (other than accounts payable
arising in the ordinary course of the Borrower's business payable on terms
customary in the trade) which in accordance with GAAP should be classified upon
the Borrower's balance sheet as liabilities, including, without limitation (i)
for borrowed money or evidenced by debt securities, debentures, acceptances,
notes or other similar instruments, and any accrued interest, fees and charges
relating thereto, (ii) under profit payment agreements or in respect of
obligations to redeem, repurchase or exchange any securities or to pay dividends
in respect of any stock, (iii) with respect to letters of credit issued, (iv) to
pay the deferred purchase price of property or services, except accounts payable
and accrued expenses arising in the ordinary course of business, or (v) in
respect of capital leases; (b) all indebtedness, obligations or other
liabilities secured by a lien on any property, whether or not such indebtedness,
obligations or liabilities are assumed by the owner of the same; and (c) all
indebtedness, obligations or other liabilities in respect of interest rate
contracts and currency agreements, net of liabilities owed by the counterparties
thereon.
7.6 Contingent Obligations. The Borrower shall not directly or indirectly create
or become liable with respect to any Contingent Obligation, except (a) recourse
obligations resulting from the indorsement of negotiable instruments for
collection in the ordinary course of business, (b) obligations, warranties and
indemnities not relating to Indebtedness, which have been or are undertaken or
made in the ordinary course of the Borrower's business or in connection with
asset acquisitions occurring prior to the date hereof or permitted hereunder,
and (c) Contingent Obligations with respect to surety, appeal and performance
bonds obtained by the Borrower. "Contingent Obligations" means any agreement,
undertaking or arrangement by which the Borrower assumes, guaranties, endorses,
agrees to provide funding, or otherwise becomes or is contingently liable upon
the obligation or liability of any other person, partnership, corporation,
limited liability company or other.
7.7 Sale of Accounts; No Consignment. The Borrower shall not sell, assign, or
encumber, except to the Bank, any of its Accounts or notes receivable and shall
not permit any of its Inventory to be sold or transferred on consignment except
to the extent of the aggregate sum of up to $100,000.00 of inventory at any one
time or from time to time on consignment in California and Michigan. In
addition, except in connection with acquisitions of existing inventory of
purchased retail locations, the Borrower will not acquire or possess any
inventory on consignment.
7.8 Minimum Security. The Borrower shall maintain, as minimum security for the
Revolving Loan, Eligible Inventory and Eligible Accounts having an aggregate
value such that the Borrowing Base will equal or exceed the aggregate unpaid
principal balance of the Revolving Loan, and if the Borrower fails to do so, the
Borrower shall immediately pay to the Bank the difference between the aggregate
unpaid principal balance of the Revolving Loan and the
-22-
<PAGE>
Borrowing Base.
7.9 Management. The Borrower shall not replace or change its chief executive
officer Charles G. Schuyler or its chief financial officer Larry R. Martin
without the prior written consent of the Bank, except for death or discharge for
cause, in which event, the Borrower shall have replaced such officer with a
person of similar experience and expertise reasonably acceptable to the Bank,
within 60 days of such death or discharge.
7.10 Acquisition of Capital Stock. The Borrower shall not redeem or acquire any
of its own capital stock, or any warrants or any securities for its capital
stock, except (i) through the use of the net proceeds from the simultaneous sale
of an equivalent amount of its capital stock for the same purchase or redemption
price, and (ii) up to the Maximum Excess Cash Flow Amount.
7.11 Cash Dividends and Other Distributions. Except for a single distribution to
the Guarantor in an amount not to exceed the sum of $250,000.00, which shall not
cause (a) the Borrower's availability under its Borrowing Base to be less than
$700,000.00 or (b) an Event of Default or a Pending Default hereunder, on or
after the date hereof, the Borrower shall not declare or pay any cash dividends
or make any other distributions of any kind to shareholders which total in
excess of the Maximum Excess Cash Flow Amount; provided, however, that no
dividends shall be paid if an Event of Default has occurred and is continuing
under this Agreement. The aggregate amount of all redemptions of capital stock,
dividends, distributions, management or other fees, loans, advances, royalties,
license fees, product development expenses or other payments to Affiliates
(collectively "Payments to Affiliates") shall be limited to an amount not to
exceed 50% of the Borrower's Excess Cash Flow (the "Maximum Excess Cash Flow
Amount"). "Excess Cash Flow" shall mean for any period the Borrower's EBITDA,
plus amounts accrued or paid in respect of management fees, royalties or other
similar charges to Affiliates, minus the sum of (i) scheduled principal payments
on the Term Loan and long-term Indebtedness for borrowed money and lease
payments on capital leases, (ii) the aggregate amount of capital expenditures,
(iii) charges for federal, state, local and foreign income taxes, (iv) Interest
Expense, and (v) minus, in the case of an increase, and plus, in the case of a
decrease, the increase or decrease in working capital (provided, however, that
any increase in current assets due to acquisitions permitted by this Agreement
using seller financing constituting long-term Indebtedness shall be net of the
amount of such long-term Indebtedness). The Borrower shall make no Payments to
Affiliates prior to March 31, 1998. Thereafter, the Borrower may make Payments
to Affiliates in an amount not to exceed the Maximum Excess Cash Flow Amount
quarterly in arrears, calculated upon the Borrower's cumulative Excess Cash Flow
for the period beginning October 1, 1997, and continuing through the end of the
most recently ended quarter until such time as the Loans are paid in full (with
deductions for all such Payments to Affiliates made prior to the most recent
calculation), and the Borrower has no rights to obtain or request advances under
this Agreement; provided, however, the Borrower shall not make any Payments to
Affiliates if immediately after making such payment (i) the Borrowing Base would
exceed the principal balance of the Revolving Loan by an amount less than
$200,000, or (ii) after making such payment, an Event of Default or a Pending
Default shall occur hereunder. In addition to the foregoing, the Borrower may
-23-
<PAGE>
distribute the Excluded Property or any portion thereof to the pledgees
thereof or to the Borrower's shareholder.
7.12 Loans and Advances. Except to the extent of the Maximum Excess Cash Flow
Amount, and except for advances to employees which in the aggregate do not
exceed $25,000 outstanding at any time, the Borrower will not make any loans or
advances to any person, corporation or entity.
7.13 Transactions with Affiliates. The Borrower shall not, except as otherwise
expressly permitted herein, directly or indirectly enter into or permit to exist
any of the following: (i) make any investment in an Affiliate of the Borrower;
(ii) transfer, sell, lease, assign or otherwise dispose of any asset to any
Affiliate of the Borrower, (iii) merge into or consolidate with or purchase or
acquire assets from any Affiliate of the Borrower; (iv) repay any Indebtedness
to any Affiliate of the Borrower; (v) pay any royalties or license fees to any
Affiliate of the Borrower; (vi) pay any management or consulting fees to any
Affiliate of the Borrower; (vii) enter into any other transaction directly or
indirectly with or for the benefit of any Affiliate of the Borrower (including,
without limitation, guaranties and assumptions of obligations of any such
Affiliate) except in each case for transactions (A) in the ordinary course of
business and (B) either on a basis no less favorable to the Borrower as would be
obtained in a comparable arm's length transaction with a person, entity or
corporation not an Affiliate, or in the case of compensation payable to any
officer or director of the Borrower, in an amount approved by the Board of
Directors of the Borrower. "Affiliate" shall mean any individual, partnership,
corporation, or other entity which, directly or indirectly, is in control of, is
controlled by, or is under common control with the Borrower, or is a family
member related by birth or marriage. For the purposes of this
definition,"control" of such entity shall mean the power, directly or
indirectly, to vote 5% or more of the securities, units or other measures having
ordinary voting power for the election of directors, management committees, or
similar committees of such entity, or the power to direct or cause the direction
of the management and policies of such entity, whether by contract or otherwise.
7.14 Tangible Net Worth. The Borrower shall maintain at all times a Tangible Net
Worth of not less than (a) $4,100,000.00 beginning with the date of this
Agreement and continuing through and including December 30, 1997, (b)
$4,100,000.00, plus 50% of the Borrower's Net Income in the period beginning
October 1, 1997, through and including December 31, 1997 the "Increased Amount,"
which shall be maintained at all times from January 1, 1998, through and
including December 30, 1998, and (c) the Increased Amount plus 50% of the
Borrower's Net Income in each fiscal year in which the Borrower's Net Income is
positive, beginning with the fiscal year ending December 31, 1998, and ending
with the most recently ended fiscal year at the date of calculation.
"Tangible Net Worth" shall mean the Borrower's shareholders' equity, minus,
without duplication, the sum of all of the following: (i) the excess of cost
over the value of net assets of purchased businesses, rights, and other similar
intangibles, (ii) organizational expenses, (iii)
-24-
<PAGE>
intangible assets (other than deferred taxes and deferred pension assets), (iv)
goodwill, (v) deferred charges or deferred financing costs, (vi) loans or
advances to and/or accounts or notes receivable from Affiliates, (vii)
non-compete agreements, and (viii) any other asset not directly related to the
operation of the business of the Borrower.
7.15 Debt Service Coverage Ratio. The Borrower shall maintain at all times
specified below a ratio of (a) EBITDA minus expenditures for fixed or capital
assets (whether financed or unfinanced) and expenditures, including without
limitation, costs of any acquisition, which should be capitalized in accordance
with GAAP for such period, minus payments for federal, state, local and foreign
income taxes ("Adjusted EBITDA") to (b) Debt Service, of not less than 1.25 to
1.00. The ratio of Adjusted EBITDA to Debt Service shall be determined quarterly
during fiscal year 1998, beginning with the quarter ending March 31, 1998, for
the fiscal quarter ending on such date, continuing on June 30, 1998, for the two
fiscal quarters ending on such date, continuing on September 30, 1998 for the
three quarters ending on such date, and continuing on December 31, 1998, and as
of the end of each month thereafter as of the last day of each month for the
twelve month period ending on such date.
"EBITDA" means for any period, (i) the sum of the amounts for such period
of (A) Net Income, (B) Interest Expense, (C) charges for federal, state, local
and foreign income taxes, and (D) depreciation, amortization expense and
non-cash charges which were deducted in determining net income.
"Debt Service" means with respect to any period, the sum of (a) scheduled
principal payments on term obligations and capital leases for such period, plus
(d) Interest Expense.
"Net Income" means for any period the net income (or deficit) after taxes
of the Borrower for such period, which in accordance with GAAP would be included
as net income on the statements of income of the Borrower for such period.
"Interest Expense" means, for any period, as determined in conformity with
GAAP, total interest expense, whether paid or accrued or due and payable
(without duplication), including without limitation the interest component of
capital lease obligations for such period, all bank fees, commissions, discounts
and net costs under interest rate contracts.
7.16 Environmental Compliance and Indemnification. The Borrower hereby
indemnifies the Bank and holds the Bank harmless from and against any loss,
damage, cost, expense or liability (including strict liability) directly or
indirectly arising from or attributable to the generation, storage, release,
threatened release, discharge, disposal or presence (whether prior to or during
the term of the Loans) of Hazardous Substances on, under or about the Premises
(whether by the Borrower or any employees, agents, contractors or subcontractors
of the Borrower or any predecessor in title or any third persons occupying or
present on the Premises), or the breach of any of the representations and
warranties regarding the Premises, including, without limitation: (a) those
damages or expenses arising under the Environmental Laws; (b) the costs of any
repair, cleanup or detoxification of the Premises, including the soil and ground
water thereof, and the
-25-
<PAGE>
preparation and implementation of any closure, remedial or other required plans;
(c) damage to any natural resources; and (d) all reasonable costs and expenses
incurred by the Bank in connection with clauses (a), (b) and (c) including, but
not limited to reasonable attorneys' fees.
The indemnification provided for herein shall not apply to any losses,
liabilities, damages, injuries, expenses or costs which: (i) arise from the
gross negligence or willful misconduct of the Bank, or (ii) relate to Hazardous
Substances placed or disposed of on the Premises after the Bank acquires title
to the Premises through foreclosure or otherwise.
7.17 Maintenance of Accounts. The Borrower shall not maintain or have any
operating accounts or other accounts at any bank, depositary source or other
financial institution where money or proceeds of Collateral are deposited or
maintained, other than (i) bank accounts established in connection with the
Borrower's retail stores with amounts not to exceed the aggregate sum of
$75,000.00 at any time, (ii) its accounts at the Bank or (iii) other accounts
acceptable to the Bank in its sole good faith discretion.
7.18 Financial Information and Reporting. The Borrower shall deliver the
following to the Bank:
(a) within 30 days after the end of each month, financial statements,
including a balance sheet and statements of income and surplus, and statement of
cash flows, certified by the president or chief financial officer of the
Borrower (a "Financial Officer") as fairly representing the Borrower's financial
condition as of the end of such period;
(b) within 30 days after the end of each month, statements signed by a
Financial Officer of the Borrower certifying the compliance of the Borrower with
the terms of this Agreement and the calculation of the financial covenants
contained in Section 7 above and calculating all Payments to Affiliates and the
Maximum Excess Cash Flow Amount;
(c) borrowing base certificate, or other writings satisfactory to the Bank
for the calculation of, or setting forth the calculation of, the Borrowing Base
with each advance request pursuant to the Revolving Loan, if the Borrowing Base
does not reflect sufficient availability for such advance, but, in any event, no
less frequently than once a month;
(d) within 30 days after the end of each month, a report, in form
satisfactory to the Bank, signed by a Financial Officer setting forth all of
Borrower's accounts receivable in form satisfactory to the Bank and consistent
with prior practices;
(e) within 30 days after the end of each month, a report, in form
satisfactory to the Bank, signed by a Financial Officer setting forth all of
Borrower's accounts payable in form satisfactory to the Bank and consistent with
prior practices;
(f) within 120 days after the end of each fiscal year, audited,
unqualified financial
-26-
<PAGE>
statements prepared in accordance with GAAP and certified by independent public
accountants satisfactory to the Bank, containing a balance sheet, statements of
income and surplus, statements of cash flows and reconciliation of capital
accounts, and within 5 days after receipt thereof, any management letters
written by such accountants;
(g) within 120 days after the end of each fiscal year, a statement signed
by the Borrower's independent public accountants certifying that nothing has
come to their attention that would cause them to believe that the Borrower is in
violation of the terms of this Agreement;
(h) no later than 30 days prior to the end of each fiscal year, financial
projections for the Borrower for its next fiscal year, on a monthly basis,
including a projected income statement, balance sheet, and cash flow and
comparative information for the comparative period of the preceding fiscal year;
(i) within 45 days after the end of each quarter, financial statements of
the Guarantor, including a balance sheet and statements of income and surplus,
and a statement of cash flows in form filed with the Securities and Exchange
Commission, quarterly or annually as the case may be, fairly representing the
Guarantor's financial condition as of the end of such period;
(j) within 120 days after the end of each fiscal year, audited,
unqualified financial statements of the Guarantor prepared in accordance with
GAAP and certified by independent public accountants satisfactory to the Bank,
containing a balance sheet, statements of income and surplus, statements of cash
flows and reconciliation of capital accounts, and within 5 days after receipt
thereof, any management letters written by such accountants;
(k) immediately upon the filing or release, as the case may be, copies of
any Securities and Exchange Commission or State Securities Law disclosures,
filings, documents or any press releases in respect of the Guarantor;
(l) immediately upon becoming aware of the existence of any Pending
Default, Event of Default or breach of any term or conditions of this Agreement,
a written notice specifying the nature and period of existence thereof and what
action the Borrower is taking or proposes to take with respect thereto; and
(m) at the request of the Bank, such other information as the Bank may
from time to time reasonably require.
7.19 Post Closing Matters. To the extent not delivered prior to or on the date
of the initial funding hereunder, the Borrower shall deliver to the Bank, in
form and substance satisfactory to the Bank, each of the agreements,
instruments, opinions and other documents listed under the heading "Post Closing
Matters" on Exhibit C attached hereto, within the respective time periods set
forth on such Exhibit C.
-27-
<PAGE>
8 Default.
8.1 Events of Default. Each of the following shall constitute an "Event of
Default" hereunder: (a) the Borrower fails to make any payment of principal,
interest or any other sum due and payable under any note or reimbursement
agreement executed in connection with this Agreement on or before three days
after the date such payment is due; (b) the Borrower fails to perform or observe
any agreement, term, or covenant contained in Sections 1.1, 3.4, 4.4, 4.7, 7.1,
7.3, 7.4, 7.5, 7.6, 7.7, 7.8, 7.10, 7.11, 7.12, 7.13, 7.17 or 7.18 of this
Agreement; (c) the Borrower fails to comply with any other provision of this
Agreement, or fails to perform or observe any covenant contained in any
mortgage, security agreement or other agreement in favor of the Bank, and any
such failure continues for more than 15 days after such failure shall first
become known to any Financial Officer of the Borrower; (d) any warranty,
representation or other statement made or deemed to be made contained in this
Agreement or in any instrument furnished in compliance with or in reference to
this Agreement is false in any material respect when made or deemed to be made
or misleading in any material respect; (e) the Borrower or the Guarantor becomes
insolvent or makes an assignment for the benefit of creditors, or consents to
the appointment of a trustee, receiver or liquidator; (f) bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings are
instituted by the Borrower or the Guarantor; (g) bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings are instituted against the
Borrower or the Guarantor, and the same are not fully discharged within 90 days
after such filing; (h) a final judgment or judgments for the payment of money
aggregating in excess of $100,000 is or are outstanding against the Borrower,
and any such judgment or judgments have not been discharged in full or stayed;
(i) the occurrence of any event which allows the acceleration of the maturity of
any indebtedness of (A) the Borrower to the Bank or any of the Bank's affiliates
or (B) of the Guarantor to IMPLEO, LLC, a Delaware limited liability company or
to Ralph E. Weil, Joseph Schueller, R. Weil & Associates, 621 Partners, Strafe &
Company for account of David M. Kirr, Strafe & Company for account of Terry B.
Marbach, and Strafe & Company for account of Gregg T. Summerville; (j) the
occurrence of any event which allows the acceleration of the maturity of any
material Indebtedness of the Borrower or constitutes a default or breach under
any material lease or material contract to any other person, corporation or
entity (other than the Bank) under any indenture, agreement or undertaking; (k)
the default by, dissolution of the Guarantor, or any insurer or other surety for
the Borrower with respect to any obligation or liability to the Bank or any of
the Bank's affiliates; (l) a Change of Control of the Borrower shall have
occurred ("Change of Control" shall mean a company, person, entity or group of
companies, person or entities acting in concert, shall, as a result of a tender
or exchange offer, open market purchases, privately negotiated purchases,
exercise of the stock pledge or otherwise, have become the beneficial owner
(within the meaning of Rule 13d.3 under the Securities Exchange Act of 1934, as
amended) of securities of the Borrower representing more than 20% of the
combined voting power of the outstanding securities of the Borrower ordinarily
having the right to vote in the election of directors from the beneficial owners
as of the date hereof ); or (m) the property furnished as Collateral declines
materially in value, and the Borrower does not upon demand therefor, furnish
additional security satisfactory to the Bank within 30 days of such demand.
-28-
<PAGE>
8.2 Default Remedies. Upon the occurrence of an Event of Default, the Bank may
immediately exercise any right, power or remedy permitted to the Bank by law or
any provision of this Agreement, and shall have, in particular, without limiting
the generality of the foregoing, the right to declare the entire principal, all
interest accrued, and all other charges accruing on all Obligations to be
forthwith due and payable, without any presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived by the Borrower.
9 Miscellaneous.
9.1 Notices. (a) All communications under this Agreement or under the notes
executed pursuant hereto shall be in writing and shall be sent by facsimile or
by a nationally recognized overnight delivery service (1) if to the Bank, at the
following address, or at such other address as may have been furnished in
writing to the Borrower by the Bank:
Bank One, NA
100 East Broad Street
Columbus, Ohio 43271-0170
Loan Officer:
Mark S. Slayman, Assistant Vice President
(614) 248-2549
(614) 248-5518 (Fax)
(2) if to the Borrower, at the following address, or at such other address as
may have been furnished in writing to the Bank by the Borrower:
Larry R. Martin, VP of Finance
Drew Shoe Corporation
252 Quarry Road
Lancaster, Ohio 43130
(614) 654-4979 (Fax)
With a copy to the Guarantor:
Michael Strauss, Chairman & CEO
BCAM International, Inc.
1800 Walt Whitman Road Melville, NY 11747 (516) 752-3550
(516) 752-3558 (Fax)
(b) any notice so addressed and sent by telecopier shall be deemed to be given
when confirmed,
-29-
<PAGE>
and any notice sent by nationally recognized overnight delivery service shall be
deemed to be given the next day after the same is delivered to such carrier.
9.2 Access to Accountants. Upon two business days', prior written notice to the
Borrower, the Borrower hereby irrevocably authorizes its certified public
accountants to provide to the Bank any and all information that the Bank
requests from time to time with regard to the Borrower, and to discuss with the
Bank from time to time any and all matters relating to the Borrower.
9.3 Reproduction of Documents. This Agreement and all documents relating hereto,
including, without limitation, (a) consents, waivers and modifications which may
hereafter be executed, (b) documents received by the Bank at the closing or
otherwise, and (c) financial statements, certificates and other information
previously or hereafter furnished to the Bank, may be reproduced by the Bank by
any photographic, photostatic, microfilm, micro-card, miniature photographic or
other similar process and the Bank may destroy any original document so
reproduced. The Borrower agrees and stipulates that any such reproduction shall
be admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by the Bank in the regular course of
business) and that any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence.
9.4 Survival, Successors and Assigns. All warranties, representations, and
covenants made by the Borrower herein or on any certificate or other instrument
delivered by it or on its behalf under this Agreement shall be considered to
have been relied upon by the Bank and shall survive the closing of the Loans
regardless of any investigation made by the Bank on its behalf. All statements
in any such certificate or other instrument shall constitute warranties and
representations by the Borrower. This Agreement shall inure to the benefit of
and be binding upon the heirs, successors and assigns of each of the parties.
9.5 Amendment and Waiver, Duplicate Originals. All references to this Agreement
shall also include all amendments, extensions, renewals, modifications, and
substitutions thereto and thereof made in writing and executed by both the
Borrower and the Bank. This Agreement may be amended, and the observance of any
term of this Agreement may be waived, with (and only with) the written consent
of the Borrower and the Bank; provided however that nothing herein shall change
the Bank's sole discretion (as set forth elsewhere in this Agreement) to make
advances, determinations, decisions or to take or refrain from taking other
actions. No delay or failure or other course of conduct by the Bank in the
exercise of any power or right shall operate as a waiver thereof; nor shall any
single or partial exercise of the same preclude any other or further exercise
thereof, or the exercise of any other power or right. Two or more duplicate
originals of this Agreement may be signed by the parties, each of which shall be
an original but all of which together shall constitute one and the same
instrument.
9.6 Accounting Treatment and Fiscal Year. The Borrower shall not change its
fiscal year for accounting or tax purposes from a period consisting of the
twelve month period ending on
-30-
<PAGE>
December 31 of each calendar year. The Borrower shall not make any material (as
defined in GAAP) change in accounting treatment and reporting practices or tax
reporting treatment, except as required by GAAP or law and disclosed to the
Bank.
9.7 Enforceability and Governing Law. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction, as to such jurisdiction, shall
be inapplicable or ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. No delay or
omission on the part of the Bank in exercising any right shall operate as a
waiver of such right or any other right. All of the Bank's rights and remedies,
whether evidenced hereby or by any other agreement or instrument, shall be
cumulative and may be exercised singularly or concurrently. This Agreement shall
be governed by and construed in accordance with the laws of the State of Ohio
(without giving effect to the conflict of laws rules thereof). The Borrower
agrees that any legal suit, action or proceeding arising out of or relating to
this Agreement may be instituted in a state or federal court of appropriate
subject matter jurisdiction in the State of Ohio, waives any objection which it
may have now or hereafter to the venue of any suit, action or proceeding, and
irrevocably submits to the jurisdiction of any such court in any such suit,
action or proceeding.
9.8 Confidentiality. The Bank shall hold all non-public information obtained
pursuant to the requirements hereof and identified as such by the Borrower in
accordance with the Bank's customary procedures for handling confidential
information of this nature and in accordance with safe and sound banking
practices, and in any event may make disclosures reasonably required by a bona
fide participant in connection with the contemplated participation, or as
required or requested by any governmental authority or any representative
thereof, or pursuant to any legal process, or to its accountants, lawyers and
other advisors.
9.9 Waiver of Right to Trial by Jury. EACH PARTY TO THIS AGREEMENT HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (1) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (2) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND
EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO
TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
-31-
<PAGE>
9.10 No Consequential Damages. No claim may be made by the Borrower, any
officers, directors, or agents against the Bank or its affiliates, directors,
officers, employees, attorneys or agents for any special, indirect, punitive, or
consequential damages in respect of any breach or wrongful conduct (whether the
claim therefor is based in contract, tort or duty imposed by law) in connection
with, arising out of or in any way related to the transactions contemplated and
relationships established by this Agreement, or any act, omission or event
occurring in connection therewith, and the Borrower hereby waives, releases and
agrees not to sue upon any such claim for any such damages, whether or not
accrued and whether or not known or suspected to exist in its favor.
9.11 Indemnity. The Borrower shall indemnify the Bank from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses and disbursements of any kind or nature whatsoever
(including, without limitation, fees and disbursements of counsel) which may be
imposed on, incurred by, or asserted against the Bank in any litigation,
proceeding or investigation instituted or conducted by any governmental agency
or instrumentality or any other person or entity with respect to any aspect of,
or any transaction contemplated by, or referred to in, or any matter related to,
this Agreement, whether or not the Bank is a party thereto, except to the extent
that any of the foregoing arises out of the gross negligence or willful
misconduct of the Bank, as determined in a final, non-appealable judgment by a
court of competent jurisdiction.
10 Definitions
10.1 Uniform Commercial Code Terms. All terms defined in the Uniform Commercial
Code as adopted in the State of Ohio shall have the meanings given therein
unless otherwise defined herein.
10.2 Accounting Terms. As used in this Agreement, and any promissory notes,
certificates, reports or other documents made or delivered pursuant hereto,
accounting terms not defined in this Agreement shall have the respective
meanings given to such terms under GAAP. "GAAP" means generally accepted
accounting principles set forth in the opinions and pronouncements of the
Accounting Principles Board, the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board as in effect on the
date hereof.
10.3 Other Definitional Provisions.
(a) The words "hereof," "herein," and "hereunder," and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement;
(b) Whenever required by the context of this Agreement, the promissory
notes or other loan documents executed in connection herewith, the singular
shall include the plural, and
-32-
<PAGE>
vice versa and the masculine and feminine genders shall include the neuter
gender and vice versa.
10.4 Index of Definitions.
"Account Debtor" is defined in Section 2.1.
"Accounts" is defined in Section 4.1.
"Adjusted EBITDA" is defined in Section 7.15.
"Affiliate" is defined in Section 7.13
"Agreement" is defined in the preamble.
"Bank" is defined in the preamble.
"Benefit Plan" is defined in Section 6.13.
"Borrower" is defined in the preamble.
"Borrowing Base" is defined in Section 1.1.
"Change of Control" is defined in Section 8.1.
"Collateral" is defined in Section 4.1.
"Contingent Obligations" is defined in Section 7.6.
"Contra" is defined in Section 2.1.
"Control" is defined in Section 7.13.
"Debt Service" is defined in Section 7.15.
"Deposits" is defined in Section 4.1.
"EBITDA" is defined in Section 7.15.
"Eligible Accounts" is defined in Section 2.1.
"Eligible Inventory" is defined in Section 2.2.
"Environmental Laws" is defined in Section 6.12.
-33-
<PAGE>
"Equipment" is defined in Section 4.1.
"ERISA" is defined in Section 6.13.
"ERISA Affiliate" is defined in Section 6.13.
"Event of Default" is defined in Section 8.1.
"Excess Cash Flow" is defined in Section 7.11.
"Excluded Property" is defined in Section 4.1.
"Financial Officer" is defined in Section 7.18.
"GAAP" is defined in Section 10.2.
"Guarantor" is defined in Section 3.5.
"Hazardous Substances" is defined in Section 6.12.
"Increased Amount" is defined in Section 7.14.
"Indebtedness" is defined in Section 7.5.
"Intellectual Property" is defined in Section 4.1.
"Interest Expense" is defined in Section 7.15.
"Internal Revenue Code" is defined in Section 6.13.
"Inventory" is defined in Section 4.1.
"IRS" is defined in Section 6.13.
"Loans" is defined in Section 1.
"Material Adverse Effect" is defined in Section 6.7.
"Maximum Excess Cash Flow Amount" is defined in Section 7.11.
"Multiemployer Plan" is defined in Section 6.13.
"Net Income" is defined in Section 7.15.
-34-
<PAGE>
"Obligations" is defined in Section 4.1.
"Payments to Affiliates" is defined in Section 7.11.
"PBGC" is defined in Section 6.13.
"Pending Default" is defined in Section 1.3.
"Plan" is defined in Section 6.13.
"Premises" is defined in Section 6.12.
"Prior Loan Agreement" is defined in Section 3.6.
"Prior Loan Documents" is defined in Section 3.6.
"Proceeds" is defined in Section 4.1.
"Real Property" is defined in Section 5.1.
"Revolving Loan" is defined in Section 1.1.
"Tangible Net Worth" is defined in Section 7.14.
"Termination Event" is defined in Section 6.13.
"Term Loan" is defined in Section 1.2.
Each of the parties has signed this Agreement as of the date set forth in
the preamble above.
DREW SHOE CORPORATION
By__________________________________
Its_________________________________
-35-
<PAGE>
BANK ONE, NATIONAL ASSOCIATION
By__________________________________
Its_________________________________
-36-
<PAGE>
SCHEDULE 6.10
SCHEDULE OF PERMITTED ENCUMBRANCES
Maximum Amount
Secured Party Description of Items of Obligation
- ------------- -------------------- -------------
<PAGE>
SCHEDULE 4.2
SCHEDULE OF BUSINESS LOCATIONS
- --------------------------------------------------------------------------------
GUARANTOR: BCAM International, Inc. BORROWER: Drew Shoe Corporation
ADDRESS: 1800 Walt Whitman Road ADDRESS: 252 Quarry Road
Melville, NY 11747 Lancaster, Ohio 43130
- --------------------------------------------------------------------------------
CONTINUING GUARANTY
This Continuing Guaranty (this "Guaranty") is made as of the ______ day of
September, 1997.
For the purpose of inducing Bank One, National Association (hereinafter referred
to as "Bank") to lend money or extend credit to Drew Shoe Corporation
(hereinafter referred to as "Borrower"), the undersigned (hereinafter referred
to as "Guarantor") hereby unconditionally guarantees the prompt and full payment
to Bank when due, whether by acceleration or otherwise, of all Obligations of
any kind for which Borrower is now or may hereafter become liable to Bank in any
manner.
The word "Obligations" means, without limitation, all indebtedness, debts and
liabilities (including principal, interest, late charges, collection costs,
attorneys' fees and the like) of Borrower to Bank, either created by Borrower
alone or together with another or others, primary or secondary, secured or
unsecured, absolute or contingent, liquidated or unliquidated, direct or
indirect, whether evidenced by note, draft, application for letter of credit,
agreements of guaranty or otherwise, and any and all renewals of, extensions of
or substitutes therefor, arising from credit extended or to be extended to
Borrower in the principal amount of $5,500,000.00, pursuant to a Loan and
Security Agreement, a Revolving Note and a Term Note, or one or more instruments
of indebtedness and related documents dated September ___, 1997, any and all
supplements, modifications, or amendments relating thereto.
Guarantor hereby promises that if one or more of the Obligations are not paid
when due, Guarantor will, upon request of Bank, pay the Obligations to Bank,
irrespective of any action or lack of action on Bank's part in connection with
the acquisition, perfection, possession, enforcement or disposition of any or
all Obligations or any or all security therefor or otherwise, and further
irrespective of any invalidity in any or all Obligations, the unenforceability
thereof or the insufficiency, invalidity or unenforceability of any security
therefor.
Guarantor waives notice of any and all acceptances of this Guaranty. This
Guaranty is a continuing guaranty, and, in addition to covering all present
Obligations of Borrower to Bank, will extend to all future Obligations of
Borrower to Bank, whether such Obligations are reduced, amended, or entirely
extinguished and thereafter increased or reincurred. This Guaranty is made and
will remain in effect until the Obligations are paid in full and until the
Borrower has no right to request further advances under the documents or
instruments evidencing the Obligations.
<PAGE>
Bank's rights hereunder shall be reinstated and revived, and this Guaranty shall
be fully enforceable, with respect to any amount at any time paid on account of
the Obligations which thereafter shall be required to be restored or returned by
Bank upon the bankruptcy, insolvency or reorganization of Borrower, Guarantor,
or any other person, or as a result of any other fact or circumstance, all as
though such amount had not been paid.
In the event Guarantor at any time shall pay any sums on account of any
Obligations or take any other action in performance of any Obligations,
Guarantor shall be subrogated to the rights, powers, privileges and remedies of
the Bank in respect of such Obligations; provided that all such rights of
subrogation and all claims and indebtedness arising therefrom shall be, and
Guarantor hereby agrees that the same are, and shall be at all times, in all
respects subordinate and junior to all Obligations, and provided, further, that
Guarantor hereby agrees that Guarantor shall not seek to exercise any such
rights of subrogation, reimbursement, exoneration, or indemnity whatsoever or
any rights of recourse to any security for any of the Obligations unless or
until all Obligations shall have been indefeasibly paid in full and duly and
fully performed.
Guarantor waives presentment, demand, protest, notice of protest and notice of
dishonor or other nonpayment of any and all Obligations and further waives
notice of sale or other disposition of any collateral or security now held or
hereafter acquired by Bank. Guarantor agrees that no extension of time, whether
one or more, nor any other indulgence granted by Bank to Borrower, or to
Guarantor, and no omission or delay on Bank's part in exercising any right
against, or in taking any action to collect from or pursue Bank's remedies
against Borrower or Guarantor, or any of them, will release, discharge or modify
the duties of Guarantor. Guarantor agrees that Bank may, without notice to or
further consent from Guarantor, release or modify any collateral, security or
other guaranties now held or hereafter acquired, or substitute other collateral,
security or other guaranties, and no such action will release, discharge or
modify the duties of Guarantor hereunder. Guarantor further agrees that Bank
will not be required to pursue or exhaust any of its rights or remedies against
Borrower or Guarantor, or any of them, with respect to payment of any of the
Obligations, or to pursue, exhaust or preserve any of its rights or remedies
with respect to any collateral, security or other guaranties given to secure the
Obligations, or to take any action of any sort, prior to demanding payment from
or pursuing its remedies against Guarantor.
Guarantor agrees to provide to Bank true and complete (a) audited, unqualified
financial statements, including a balance sheet and statements of income and
surplus, and a statement of cash flows, prepared in accordance with GAAP and
certified by independent public accountants satisfactory to Bank, within 120
days after the end of each fiscal year, (b) financial statements, including a
balance sheet and statements of income and surplus, and a statement of cash
flows in form filed with the Securities and Exchange Commission, within 45 days
after the end of each fiscal quarter, and (c) completed tax returns together
with all schedules thereto, within 30 days of the filing of the same. "GAAP"
means generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board, the American Institute of
Certified Public Accountants and the Financial Accounting Standards Board as in
effect on the date hereof. Guarantor agrees that failure to furnish such
financial statements may constitute or
-2-
<PAGE>
be deemed to constitute a default or event of default of the Obligations.
Guarantor agrees that any legal suit, action or proceeding arising out of or
relating to this Guaranty may be instituted in a state or federal court of
appropriate subject matter jurisdiction in the State of Ohio; waives any
objection which Guarantor may have now or acquire hereafter to the venue of any
such suit, action or proceeding; and irrevocably submits to the jurisdiction of
any such court in any such suit, action or proceeding.
WAIVER OF RIGHT TO TRIAL BY JURY
GUARANTOR HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS GUARANTY OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH,
OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF
GUARANTOR OR BANK WITH RESPECT TO THIS GUARANTY OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND
GUARANTOR HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT
GUARANTOR OR BANK MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF GUARANTOR TO THE WAIVER OF
THE RIGHT OF GUARANTOR TO TRIAL BY JURY.
Guarantor hereby authorizes any attorney at law to appear for Guarantor in any
action on any or all Obligations guaranteed hereby at any time after such
Obligations become due, whether by acceleration or otherwise, in any court of
record in or of the State of Ohio or elsewhere, to waive the issuing and service
of process against, and confess judgment against Guarantor in favor of Bank for
the amount that may be due, including interest, late charges, collection costs,
attorneys' fees and the like as provided for in said Obligations, and costs of
suit, and to waive and release all errors in said proceedings and judgments, and
all petitions in error and rights of appeal from the judgments rendered.
If any Obligation of Borrower is assigned by Bank, this Guaranty will inure to
the benefit of Bank's assignee, and to the benefit of any subsequent assignee,
to the extent of the assignment or assignments, provided that no assignment will
operate to relieve Guarantor from any duty to Bank hereunder with respect to any
unassigned Obligation. In the event that any one or more of the provisions
contained in this Guaranty or any application thereof shall be determined to be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and any other
applications thereof shall not in any way be affected or
-3-
<PAGE>
impaired thereby. This Guaranty shall be construed in accordance with the
law of the State of Ohio.
The liabilities evidenced hereby may from time to time be evidenced by another
guaranty or guaranties given in substitution or reaffirmation hereof. Any
security interest or mortgage which secures the liabilities evidenced hereby
shall remain in full force and effect notwithstanding any such substitution or
reaffirmation.
Bank shall not be bound to take any steps necessary to preserve any rights in
the collateral against prior parties. If any Obligations hereunder are not paid
when due, Bank may, at its option, demand, sue for, collect or make any
compromise or settlement it deems desirable with reference to any collateral,
and shall have the rights of a secured party under the law of the State of Ohio.
Guarantor shall be liable for any deficiency.
In witness whereof, Guarantor has caused this Guaranty to be executed by an
officer therewith duly authorized as of the date set forth above.
GUARANTOR:
BCAM INTERNATIONAL, INC.
By:________________________________
Its:_______________________________
-4-
BANK ONE, NATIONAL ASSOCIATION
Revolving Note
$4,500,000.00 Columbus, Ohio September ____, 1997
FOR VALUE RECEIVED, the undersigned promises to pay to the order of BANK
ONE, NATIONAL ASSOCIATION (hereinafter called the "Bank," which term shall
include any holder hereof) at such place as the Bank may designate or, in the
absence of such designation, at any of the Bank's offices, the sum of
$4,500,000.00 or so much thereof as shall have been advanced by the Bank at any
time and not thereafter repaid (hereinafter referred to as "Principal Sum"),
together with interest as hereinafter provided and payable at the times and in
the manner hereinafter provided. The proceeds of the loan evidenced hereby may
be advanced, repaid and readvanced in partial amounts during the term of this
revolving note ("Note") and prior to maturity. Each such advance shall be made
to the undersigned upon receipt by the Bank of the undersigned's application
therefor and disbursement instructions, which shall be in such form as the Bank
shall from time to time prescribe. The Bank shall be entitled to rely on any
oral or telephonic communication requesting an advance and/or providing
disbursement instructions hereunder, which shall be received by it in good faith
from anyone reasonably believed by the Bank to be the undersigned, or the
undersigned's authorized agent. The undersigned agrees that all advances made by
the Bank will be evidenced by entries made by the Bank into its electronic data
processing system and/or internal memoranda maintained by the Bank. The
undersigned further agrees that the sum or sums shown on the most recent
printout from the Bank's electronic data processing system and/or on such
memoranda shall be rebuttably presumptive evidence of the amount of the
Principal Sum and of the amount of any accrued interest.
This Note is issued pursuant to, and is entitled to the benefits of, a
certain Loan and Security Agreement dated as of September ______, 1997, between
the undersigned and the Bank, as amended, restated, supplemented or otherwise
modified from time to time (the "Loan Agreement"), to which reference is hereby
made for a more complete statement of the terms and conditions under which the
Revolving Loan evidenced hereby is made. Capitalized terms defined in the Loan
Agreement and not otherwise defined herein are used herein with the meanings so
defined.
INTEREST
Interest will accrue on the unpaid balance of the Principal Sum until paid
at a variable rate of interest per annum, which shall change in the manner set
forth below, equal to one and one-half percentage points (1 1/2%) in excess of
the Prime Rate.
Upon default, whether by acceleration or otherwise, interest will accrue
on the unpaid balance of the Principal Sum and unpaid interest, if any, until
paid at a rate of interest per annum equal to two percentage points (2%) in
excess of the interest rate in effect hereunder on the date
<PAGE>
of default.
All interest shall be calculated on the basis of a 360 day year for the
actual number of days the Principal Sum or any part thereof remains unpaid.
For the purposes of this Note and the instruments securing this Note, the
term "Prime Rate" shall mean the commercial lending rate of interest per annum
as fixed from time to time by the management of BANK ONE, NATIONAL ASSOCIATION,
Columbus, Ohio, or its successors (hereinafter sometimes the "Reference Bank"),
at its main office and designated as its "Prime Rate." The undersigned hereby
waives any right to claim that the Prime Rate is an interest rate other than
that rate designated by the Reference Bank as its "Prime Rate" on the grounds
that: (i) such rate may or may not be published or otherwise made known to the
undersigned; or (ii) the Reference Bank may make loans to certain borrowers at
interest rates which are lower that its "Prime Rate."
MANNER OF PAYMENT
The Principal Sum shall be due and payable on September 30, 1999, and at
maturity whether by acceleration or otherwise. Accrued interest shall be due and
payable monthly beginning on October 31, 1997, and continuing on the last day of
each month thereafter, and at maturity, whether by acceleration or otherwise.
LATE CHARGE
Any installment or other payment not made within 10 days of the date such
payment or installment is due shall be subject to a late charge equal to 10% of
the amount of the installment or payment.
SECURITY
If, at the time of the payment and discharge hereof, the undersigned shall
be then directly or contingently liable to the Bank as maker, indorser, surety
or guarantor of any other note, bill of exchange, or other instrument, then the
Bank may continue to hold any of the collateral for the obligations evidenced
hereby ("Collateral") as security therefor, even though this Note shall have
been surrendered to the undersigned. The Bank shall not be bound to take any
steps necessary to preserve any rights in the Collateral against prior parties.
If any obligation evidenced by this Note is not paid when due, the Bank may, at
its option, demand, sue for, collect or make any compromise or settlement it
deems desirable with reference to the Collateral, and shall have the rights of a
secured party under the laws of the State of Ohio, and the undersigned shall be
liable for any deficiency.
DEFAULT
Upon the occurrence of any of the following events:
2
<PAGE>
(1) the failure of the undersigned to make any payment of interest or of
the Principal Sum on or before three days after the date such
payment is due; or
(2) an "Event of Default" under the Loan Agreement,
then the Bank may, at its option, without notice or demand, accelerate the
maturity of the obligations evidenced hereby, which obligations shall become
immediately due and payable. In the event the Bank shall institute any action
for the enforcement or collection of the obligations evidenced hereby, the
undersigned agrees to pay all costs and expenses of such action, including
reasonable attorneys' fees, to the extent permitted by law.
GENERAL PROVISIONS
The undersigned and any indorser, surety, or guarantor, hereby severally
waive presentment, notice of dishonor, protest, notice of protest, and diligence
in bringing suit against the undersigned and any indorser, surety, or guarantor,
and consent that, without discharging any of them, the time of payment may be
extended an unlimited number of times before or after maturity without notice.
The Bank shall not be required to pursue the undersigned and any indorser,
surety, or guarantor, or to exercise any rights against any Collateral herefor
before exercising any other such rights.
The obligations evidenced hereby may from time to time be evidenced by
another note or notes given in substitution, renewal or extension hereof. Any
security interest or mortgage which secures the obligations evidenced hereby
shall remain in full force and effect notwithstanding any such substitution,
renewal, or extension.
The captions used herein are for references only and shall not be deemed a
part of this Note. If any of the terms or provisions of this Note shall be
deemed unenforceable, the enforceability of the remaining terms and provisions
shall not be affected. This Note shall be governed by and construed in
accordance with the law of the State of Ohio.
WAIVER OF RIGHT TO TRIAL BY JURY
THE UNDERSIGNED HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS NOTE OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE UNDERSIGNED OR THE BANK WITH RESPECT TO THIS NOTE OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH,
OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND
THE
3
<PAGE>
UNDERSIGNED HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT THE
UNDERSIGNED OR THE BANK MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE UNDERSIGNED TO
THE WAIVER OF THE RIGHT OF THE UNDERSIGNED TO TRIAL BY JURY.
WARRANT OF ATTORNEY
The undersigned authorizes any attorney at law to appear in any Court of
Record in the State of Ohio or in any state or territory of the United States
after the above indebtedness becomes due, whether by acceleration or otherwise,
to waive the issuing and service of process, and to confess judgment against the
undersigned in favor of the Bank for the amount then appearing due together with
costs of suit, and thereupon to waive all errors and all rights of appeal and
stays of execution.
WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL.
IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR
PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU
REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED
GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY
OTHER CAUSE.
Borrower:
DREW SHOE CORPORATION
By:_________________________________
Its:________________________________
4
9-18-97 Redlined Draft
BANK ONE, NATIONAL ASSOCIATION
COMMERCIAL LOAN NOTE
Business Purpose
$1,000,000.00 Columbus, Ohio September ____, 1997
FOR VALUE RECEIVED, the undersigned promises to pay to the order of BANK
ONE, NATIONAL ASSOCIATION (hereinafter called the "Bank," which term shall
include any holder hereof), at such place as the Bank may designate or, in the
absence of such designation, at any of the Bank's offices, the sum of
$1,000,000.00 (hereinafter called the "Principal Sum"), together with interest
as hereinafter provided. The undersigned promises to pay the Principal Sum and
the interest thereon at the time and in the manner hereinafter provided.
This commercial loan note (this" Note") is issued pursuant to, and is
entitled to the benefits of, a certain Loan and Security Agreement dated as of
September ___, 1997, between the undersigned and the Bank, as amended, restated,
supplemented or otherwise modified from time to time (the "Loan Agreement"), to
which reference is hereby made for a more complete statement of the terms and
conditions under which the Term Loan evidenced hereby is made. Capitalized terms
defined in the Loan Agreement and not otherwise defined herein are used herein
with the meanings so defined.
INTEREST
Interest will accrue on the unpaid balance of the Principal Sum until paid
at a variable rate of interest per annum, which shall change in the manner set
forth below equal to one and one-half percentage points (1 1/2%) in excess of
the Prime Rate.
Upon default, whether by acceleration or otherwise, interest will accrue
on the unpaid balance of the Principal Sum and unpaid interest, if any, until
paid at a rate of interest per annum equal to two percentage points (2%) in
excess of the interest rate in effect hereunder on the date of default.
All interest shall be calculated on the basis of a 360 day year for the
actual number of days the Principal Sum or any part thereof remains unpaid.
For the purposes of this Note and the instruments securing this Note, the
term "Prime Rate" shall mean the commercial lending rate of interest per annum
as fixed from time to time by the management of BANK ONE, NATIONAL ASSOCIATION,
Columbus, Ohio, or its successors (hereinafter sometimes the "Reference Bank"),
at its main office and designated as its "Prime Rate." The undersigned hereby
waives any right to claim that the Prime Rate is an interest
<PAGE>
rate other than that rate designated by the Reference Bank as its "Prime Rate"
on the grounds that: (i) such rate may or may not be published or otherwise made
known to the undersigned; or (ii) the Reference Bank may make loans to certain
borrowers at interest rates which are lower that its "Prime Rate."
MANNER OF PAYMENT
The Principal Sum shall be due and payable in thirty-six consecutive
monthly installments, beginning on October 31, 1997, and continuing on the last
day of each month thereafter, and at maturity whether by acceleration or
otherwise. Each installment of Principal Sum shall be in the amount of
$11,905.00, except the final installment shall be for the unpaid balance.
Accrued interest shall be payable on the same dates as installments of the
Principal Sum, and at maturity, whether by acceleration or otherwise.
LATE CHARGE
Any installment or other payment not made within 10 days of the date such
payment or installment is due shall be subject to a late charge equal to 10% of
the amount of the installment or payment.
SECURITY
If, at the time of payment and discharge hereof, the undersigned shall be
then directly or contingently liable to the Bank as maker, indorser, surety or
guarantor of any other note, bill of exchange, or other instrument, then the
Bank may continue to hold any of the collateral for the obligation evidenced
hereby ("Collateral") as security therefor, even though this Note shall have
been surrendered to the undersigned. The Bank shall not be bound to take any
steps necessary to preserve any rights in the Collateral against prior parties.
If any obligation evidenced by this Note is not paid when due, the Bank may, at
its option, demand, sue for, collect or make any compromise or settlement it
deems desirable with reference to the Collateral, and shall have the rights of a
secured party under the laws of the State of Ohio, and the undersigned shall be
liable for any deficiency.
DEFAULT
Upon the occurrence of any of the following events:
(1) the failure of the undersigned to make any payment of interest or of
the Principal Sum on or before three days after the date such
payment is due; or
(2) an "Event of Default" under the Loan Agreement,
then the Bank may, at its option, without notice or demand, accelerate the
maturity of the
2
<PAGE>
obligations evidenced hereby, which obligations shall become immediately due and
payable. In the event the Bank shall institute any action for the enforcement or
collection of the obligations evidenced hereby, the undersigned agrees to pay
all costs and expenses of such action, including reasonable attorneys' fees, to
the extent permitted by law.
GENERAL PROVISIONS
All of the parties hereto, including the undersigned, and any indorser,
surety, or guarantor, hereby severally waive presentment, notice of dishonor,
protest, notice of protest, and diligence in bringing suit against any party
hereto, and consent that, without discharging any of them, the time of payment
may be extended an unlimited number of times before or after maturity without
notice. The Bank shall not be required to pursue any party hereto, including any
guarantor, or to exercise any rights against any Collateral herefor before
exercising any other such rights.
The obligations evidenced hereby may from time to time be evidenced by
another note or notes given in substitution, renewal or extension hereof. Any
security interest or mortgage which secures the obligations evidenced hereby
shall remain in full force and effect notwithstanding any such substitution,
renewal, or extension.
The captions used herein are for reference only and shall not be deemed a
part of this Note. If any of the terms or provisions of this Note shall be
deemed unenforceable, the enforceability of the remaining terms and provisions
shall not be affected. This Note shall be governed by and construed in
accordance with the law of the State of Ohio.
WAIVER OF RIGHT TO TRIAL BY JURY
THE UNDERSIGNED HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS NOTE OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE UNDERSIGNED OR THE BANK WITH RESPECT TO THIS NOTE OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH,
OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND
THE UNDERSIGNED HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT THE
UNDERSIGNED OR THE BANK MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE UNDERSIGNED TO
THE WAIVER OF THE RIGHT OF THE UNDERSIGNED TO TRIAL BY JURY.
3
<PAGE>
WARRANT OF ATTORNEY
The undersigned authorizes any attorney at law to appear in any Court of
Record in the State of Ohio or in any other state or territory of the United
States after the above indebtedness becomes due, whether by acceleration or
otherwise, to waive the issuing and service of process, and to confess judgment
against the undersigned in favor of the Bank for the amount then appearing due
together with costs of suit, and thereupon to waive all errors and all rights of
appeal and stays of execution.
WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL.
IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR
PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU
REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED
GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY
OTHER CAUSE.
Borrower:
DREW SHOE CORPORATION
By:_______________________________
Its:______________________________
4
