UNITED STATES SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly report pursuant to Section 13 of 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1997
Commission File Number 0-23604
DAKOTAH, INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
South Dakota 46-0339860
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification Number)
One North Park Lane
Webster, SD 57274
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, Including Zip Code: (605) 345-4646
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes: __X__ No: ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common stock, $.01 par value, 3,499,755 shares outstanding
as of August 12, 1997.
<PAGE>
DAKOTAH, INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets (Unaudited):
June 30, 1997 and December 31,1996
Statements of Operations (Unaudited):
Three and six month periods ended
June 30, 1997, and June 30, 1996
Statements of Cash Flows (Unaudited):
Six month periods ended
June 30, 1997, and June 30, 1996
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Items 1 through 3 and 5 have been omitted since
items are inapplicable or answer is negative
Item 4. Submission of Matters to a vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10.1 Credit and Security Agreement dated June 30, 1997
with Diversified Business Credit, Inc.
10.2 First Amendment dated July 7, 1997 to Credit and
Security Agreement with Diversified Business Credit,
Inc.
27.1 Financial Data Schedule
b) Reports on Form 8-K None
<PAGE>
DAKOTAH, INCORPORATED
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,956 $ 2,690
Accounts receivable less allowance
for doubtful accounts of $439,000
in 1997 and $382,000 in 1996 4,556,736 7,538,724
Inventories 19,473,090 9,555,897
Prepaid expenses and other 551,177 735,929
Income taxes receivable 425,987
Deferred income taxes 496,000 496,000
----------- -----------
Total current assets 25,508,946 18,329,240
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land 36,000 36,000
Buildings and improvements 2,399,645 2,334,516
Leasehold improvements 122,362 123,731
Machinery and equipment 3,227,898 3,009,792
Office equipment, furniture and fixtures and other 1,671,143 958,758
----------- -----------
7,457,048 6,462,797
Less accumulated depreciation & amortization 2,895,221 2,555,767
----------- -----------
4,561,827 3,907,030
OTHER ASSETS
Deferred income taxes 185,000 185,000
Other 814,783 508,690
----------- -----------
999,783 693,690
----------- -----------
$31,070,556 $22,929,960
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Outstanding checks in excess of bank balances $ 1,006,639 $
Notes payable to bank 10,740,014 7,123,000
Current maturities of long-term obligations, including
$288,800 in 1997 and $332,139 in 1996 to related parties 959,281 482,835
Accounts payable 6,079,650 2,134,845
Accrued liabilities
Compensation and related benefits 699,243 925,739
Other 505,311 716,217
Income taxes payable -- 187,079
----------- -----------
Total current liabilities 19,990,138 11,569,715
LONG TERM OBLIGATIONS, less current maturities, including
$129,162 in 1996 to related parties 1,544,103 912,585
STOCKHOLDERS' EQUITY
Common stock, par value $.01; 10,000,000 shares authorized;
issued & outstanding shares 3,499,755 34,998 34,998
Additional contributed capital 6,967,156 6,904,156
Retained earnings 2,534,161 3,508,506
----------- -----------
9,536,315 10,447,660
----------- -----------
$31,070,556 $22,929,960
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
DAKOTAH, INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended June 30, For the six months ended June 30,
1997 1996 1997 1996
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 6,856,237 $ 6,559,731 $ 13,538,086 $ 13,964,555
Cost of goods sold 5,221,003 4,929,806 10,178,176 10,370,397
----------- ----------- ------------ ------------
Gross profit 1,635,234 1,629,925 3,359,910 3,594,158
Operating expenses
Selling 1,022,175 984,484 2,205,453 2,078,682
General and administrative 1,297,050 842,126 2,266,203 1,617,052
----------- ----------- ------------ ------------
2,319,225 1,826,610 4,471,656 3,695,734
----------- ----------- ------------ ------------
Operating profit (loss) (683,991) (196,685) (1,111,746) (101,576)
Other income (expense)
Interest expense (210,102) (124,969) (353,599) (203,847)
Gain on sale of equipment 6,867 6,867
Other (11,866) (25,000)
----------- ----------- ------------ ------------
(210,102) (129,968) (353,599) (221,980)
Earnings (loss) before income (894,093) (326,653) (1,465,345) (323,556)
taxes
Income tax expense (benefit) (311,000) (107,595) (491,000) (106,480)
----------- ----------- ------------ ------------
NET EARNINGS (LOSS) $ (583,093) $ (219,058) $ (974,345) $ (217,076)
=========== =========== ============ ============
Net earnings (loss) per share $ (0.17) $ (0.06) $ (0.28) $ (0.06)
=========== =========== ============ ============
Weighted average
common shares outstanding 3,499,755 3,499,755 3,499,755 3,499,755
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
DAKOTAH, INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended June 30,
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (974,345) $ (217,076)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 339,453 341,259
Compensation to outside consultant 63,000
Changes in assets and liabilities:
Accounts receivable 2,981,988 1,967,727
Inventories (9,917,193) (3,688,672)
Prepaid expenses 184,752 (160,923)
Income taxes receivable (425,987)
Accounts payable 3,944,805 92,733
Accrued liabilities (437,402) 12,488
Income taxes payable (187,079) (134,000)
------------ -----------
Total adjustments (3,453,663) (1,569,388)
------------ -----------
Net cash used in operating activities (4,428,008) (1,786,464)
Cash flows from investing activities:
Capital expenditures (994,250) (898,602)
Other (306,093) --
------------ -----------
Net cash used in investing activities (1,300,343) (898,602)
Cash flows from financing activities:
Outstanding checks in excess of bank balances 1,006,639
Net borrowings under notes payable 3,617,014 2,211,113
Proceeds from issuance of long-term obligations 1,495,673 300,000
Principal payments on long-term obligations (387,709) (271,464)
------------ -----------
Net cash provided by financing activities 5,731,617 2,239,649
------------ -----------
Net increase (decrease) in cash and cash equivalents 3,266 (445,417)
Cash and cash equivalents at beginning of period 2,690 477,330
------------ -----------
Cash and cash equivalents at end of period $ 5,956 $ 31,913
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period
for:
Interest 323,435 155,575
Income taxes 120,000 --
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
DAKOTAH, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions of Form 10-Q pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although management believes
that the disclosures are adequate to make the information presented not
misleading.
In the opinion of management, the unaudited condensed financial statements
contain all adjustments consisting of normal recurring accruals necessary to
present fairly the financial position of the Company as of June 30, 1997 and the
results of operations for the three and six month periods ended June 30, 1997
and 1996 and the cash flows for the six month periods ended June 30, 1997 and
1996. These results are not necessarily indicative of results which may be
expected for the year as a whole.
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE B: INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
June 30, 1997 December 31, 1996
------------- -----------------
Raw Materials $ 9,483,192 $5,722,944
Work-In-Process 2,221,859 1,667,023
Finished Goods 7,768,039 2,165,930
----------- ----------
$19,473,090 $9,555,897
=========== ==========
NOTE C: NEW ACCOUNTING PRONOUNCEMENT
The FASB has issued Statement of Financial Accounting Standards No. 128,
EARNINGS PER SHARE, which is effective for financial statements issued after
December 15, 1997. Early adoption of the new standard is not permitted. The new
standard eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share together with disclosure of
how the per share amounts were computed.
<PAGE>
Basic earnings per share excludes dilution and is computed by dividing income
available to common shareholders by the weighted-average common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised and converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. The effect of
adopting this new standard has not been determined.
NOTE D: NOTES PAYABLE TO BANK
During the second quarter of 1997, the Company refinanced its credit facility
and further amended it in July of 1997. The total amount available under the
revolving note, which is due on demand is limited to the lesser of $15 million
or a defined borrowing base of eligible accounts receivable, inventory, and
outstanding amounts under the term note. The term note is due on demand and
requires monthly principal payments of $33,333. Advances under the revolving
note, based on inventory balances, provide for monthly interest payments at 3%
above the bank's prime rate (9.5% at June 30, 1997). The outstanding balances on
the revolving note and term note were $8,740,000 and $2,000,000 at June 30,
1997. The outstanding balances on the previous revolving note and term note were
$6,415,000 and $708,000 at December 31, 1996.
The current credit facility contains affirmative and negative covenants
including among other things, provisions for minimum net earnings and net worth
requirements and limitations on capital expenditures. Additionally, the Company
may not incur additional borrowings, sell certain assets, aquire other
businesses or pay cash dividends without prior consent.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS:
The following table sets forth the percentage relationship to net sales of
certain items in the Company's statements of operations for the three and six
month periods ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
Percentage of Net Sales for the Percentage of Net Sales for the
three month period ended June 30, six month period ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Gross Profit 23.8 24.9 24.8 25.7
Selling Expenses 14.9 15.0 16.3 14.9
General & Administrative 18.9 12.9 16.7 11.5
Operating Profit (Loss) (10.0) (3.0) (8.2) (0.7)
Interest Expense 3.0 1.9 2.6 1.6
Earnings (Loss) Before
Income Taxes (13.0) (5.0) (10.8) (2.3)
Net Earnings (Loss) (8.5) (3.3) (7.2) (1.6)
</TABLE>
NET SALES decreased 3% to $13,538,000 for the six months ended June 30, 1997
from $13,965,000 in the same period of 1996. Net sales increased from $6,560,000
in the second quarter of 1996, to $6,856,000 in the second quarter of 1997. The
decrease in sales for the six months ended June 30,1997 is primarily related to
the negative effect on production time as a result of (1) the Company's
consolidation of its primary warehouse and shipping and receiving facility to
the main Webster, SD manufacturing facility, (2) the move of the Webster, SD
pillow finishing manufacturing equipment to the main Webster, SD manufacturing
facility, (3) the comprehensive reconfiguration of the main Webster, SD
manufacturing facility and (4) the effect of the severe winter weather.
The increase in net sales for the second quarter of 1997 from the second quarter
of 1996 is the result of increasing sales of the Company's Polarfleece(R) line
of products and blankets offset by a decline in sales of pillows and table
linens.
GROSS MARGIN PERCENTAGES decreased from 25.7% in the first six months of 1996 to
24.8% in the first six months of 1997. During the second quarter of 1997,
compared to the same period of 1996, gross profit percentages decreased to 23.8%
from 24.9%. Gross margin percentages were adversely affected in the first six
months of 1997 by the costs associated with the Company's efforts to build
capacity and infrastructure for the Fall selling season, by lost production time
and an increase of off-standard and
<PAGE>
indirect labor and other related costs associated with the Company's move of its
Webster, SD warehouse and pillow finishing manufacturing and the Webster, SD
plant reconfiguration. In the first six months of 1996, gross profit percentages
were negatively affected by the April, 1996 startup of the Company's
Polarfleece(R) manufacturing facility in Redfield, South Dakota.
SELLING EXPENSES grew from $2,079,000 in the first six months of 1996 to
$2,205,000 in the first six months of 1997. The $126,000 increase is primarily
the result of (1) increased costs of catalog and promotional literature of
approximately $73,000, (2) increased cost of showroom decorating and supplies of
approximately $45,000 and (3) increased costs of travel and lodging for the
sales force. These increases are related to the Company's efforts to increase
1997 net sales and expand its sales distribution channels and markets. As a
percentage of net sales, selling expenses increased to 16.3% in the first six
months of 1997 from 14.9% in the first six months of 1996 as a result of higher
selling expenses and lower sales.
GENERAL AND ADMINISTRATIVE EXPENSES increased from $1,617,000 in the first six
months of 1996 to $2,266,000 in the first six months of 1997. The increase is
primarily due to (1) an increase in administrative, clerical and management
staff of $150,000, to support the anticipated general growth of the Company and
the need to provide staff to accomplish the planned computer conversion and
re-engineering of the Company's processes and systems, (2) an increase of
approximately $80,000 in senior management recruiting costs and (3) increased
professional fees of approximately $74,000 primarily related to expanding
product distribution to international markets and increased accounting
fees, and (4) a general increase in costs related to the Company's planned
computer conversion. As a percentage of net sales, general and administrative
expenses increased from 11.5% in the first six months of 1996 to 16.7% in the
first six months of 1997 as a result of lower net sales and higher general and
administrative expenses.
INTEREST EXPENSE increased from $204,000 in the first six months of 1996 to
$354,000 in the first six months of 1997. The increase is the result of higher
average borrowings during the first six months related to previous capital
expenditures and the buildup of inventory to support the Company's sales in the
third and fourth quarters of 1997.
RESTATEMENT OF SECOND AND THIRD QUARTER FORM 10-Q'S. During the close of the
Company's 1996 annual close procedures, the Company noted that it had
inadvertently overlooked certain items during the preparation of its second and
third quarter Form 10-Q's. Upon identification of those matters, the Company
amended the respective Form 10-Q's to adjust for those items. The discussion
and analysis herein reflects these amendments.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $7.5 million as of June 30, 1997 and $6.8 million as
December 31, 1996.
The net cash used in operating activities during the first six months of 1997
was primarily used to fund the Company's buildup of inventory to support the
Company's anticipated sales in the third and fourth quarters of 1997.
<PAGE>
The net cash used in investing activities during the first six months of 1997
was primarily provided by the refinancing and increased borrowings of term debt.
Accounts receivable were approximately $4,557,000 as of June 30, 1997 and
$7,500,000 as of December 31, 1996. The decrease in the first six months of 1997
was due to lower sales in the second quarter of 1997 as compared to the fourth
quarter of 1996.
The allowance for doubtful accounts increased from $382,000 at December 31, 1996
t0 $439,000 at June 30, 1997. The Company estimates the allowance for doubtful
accounts based upon the best information available to management. In addition to
a substantial increase in sales and new customers, the Company had a number of
customers go into bankruptcy for which bankruptcy proceedings have not been
concluded. Management believes that the allowance is adequate to cover any
losses as a result of these items.
The seasonality of the Company's sales cycle and the planned increase of sales
volume has resulted in increased working capital requirements. In addition, the
buying habits of the Company's customers indicate a trend away from substantial
advance stocking orders to smaller, more frequent orders. This trend requires
the Company to carry larger levels of work in process and finished goods
inventories than historically maintained.
Inventories were approximately $19,473,000 as of June 30, 1997 and $9,600,000 as
of December 31, 1996. The increase in the first six months of 1997 as compared
to year end 1996 is primarily related to an increase of finished goods inventory
of Polarfleece(R) to support the Company's planned sales in the third and fourth
quarters of 1997.
Accounts payable were approximately $6,080,000 as of June 30, 1997 and
$2,135,000 as of December 31, 1996. The increase as of June 30, 1997 as compared
to year end 1996 is primarily related to an increase in inventory to support the
Company's planned sales in the third and fourth quarters of 1997.
The Company has used and expects to continue to use its revolving line of credit
to meet its short-term working capital requirements. During the second quarter
of 1997, the Company refinanced its credit facility. The Company also amended
the credit facility in July of 1997. The new credit facility, which expires in
June 1999, accommodates the Company's planned buildup of inventory, primarily
Polarfleece(R) throws, to allow the Company to maximize the sales opportunities
in the third and fourth quarters, optimize production capacity, and better serve
the Company's customers.
The total amount available under the revolving note, which is due on demand, is
limited to the lesser of $15 million or a defined borrowing base of eligible
accounts receivable and inventory. The term note is due on demand and requires
monthly principal payments of $33,333. Advances under the revolving note, based
on inventory balances, provide for monthly interest payments at 3% above the
bank's prime rate (11.5% at June 30, 1997). The term note and other advances
under the revolving note provide for monthly interest payments at 1.0% above the
bank's prime rate (9.5% at June 30, 1997). The outstanding balances on the
revolving note and term note were $8,740,000 and $2,000,000 at June 30, 1997.
The outstanding balances on the revolving note and term note were $6,415,000 and
$708,000 at December 31, 1996.
For the six months ended June 30, 1997, the Company's capital expenditures were
$994,000. These capital expenditures include $493,000 to upgrade computer
hardware
<PAGE>
and refinance operating leases existing prior to the upgrade. The remaining
$501,000 was used primarily to upgrade and purchase additional manufacturing and
transportation equipment.
The Company expects to spend an additional $500,000 in 1997 to expand capacity
and to up-grade existing buildings and production equipment.
Upon termination of the officers' stock appreciation program, the Company became
indebted to the Company's President and a former Executive Vice President in the
aggregate amount of $1,318,000. As of June 30, 1997, the total outstanding
indebtedness was approximately $268,000 compared to $461,000 at December 31,
1996. This indebtedness bears interest at 6% per annum and is payable in varying
installments through January 1998.
The Company believes that cash flows generated from operations and funds
available as a result of its borrowing capacity will be adequate to meet its
short-term working capital, projected capital expenditures and other financing
needs.
FORWARD LOOKING STATEMENTS
Forward looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that such forward looking statements involve risks and uncertainties, including,
without limitation, continued acceptance of the Company's products, cancellation
of orders, increased levels of competition for the Company, new products and
technological changes, the Company's dependence upon third party suppliers, and
intellectual property rights.
<PAGE>
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
At the Annual Meeting of Stockholders on June 12, 1997, the Company submitted to
a vote of security-holders the following matters which received the indicated
votes.
1. Election of Directors:
For Withhold Authority Broker Non-Votes
--- ------------------ ----------------
Leo T. Reynolds 3,293,239 20,343 0
Troy Jones, Jr. 3,293,133 20,449 0
Michael G. Grosek 3,293,239 20,343 0
2. Ratify the appointment of Grant Thorton LLP as independent auditors for
the current fiscal year:
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
3,288,560 16,270 8,752 0
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registered has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAKOTAH, INCORPORATED
July 14, 1997 By: /s/ TROY JONES, JR.
------------------------------------
Troy Jones, Jr.
Chief Executive Officer
July 14, 1997 By: /s/ WILLIAM R. RETTERATH
------------------------------------
William R. Retterath
Chief Financial Officer
(Principal Financial and Accounting
Officer)
CREDIT AND SECURITY AGREEMENT
AGREEMENT made this 30th day of June, 1997, DAKOTAH, INCORPORATED, a
South Dakota corporation (herein called "Borrower"), for the benefit of
Diversified Business Credit, Inc., a Minnesota corporation (herein, with its
participants, successors and assigns, called "Lender").
RECITALS
Borrower has requested that Lender make loans to Borrower from time to
time at Lender's sole discretion and, in connection therewith, has executed and
delivered for Lender's benefit the following security documents (herein called
the "Security Documents"):
1. UCC Financing Statements
2. Various ancillary and supplemental agreements and documents executed
and delivered in connection with the foregoing.
This Agreement sets forth certain additional obligations undertaken by Borrower
to induce Lender to make such loans.
ACCORDINGLY, to induce Lender to make one or more loans to Borrower,
and for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Borrower hereby represents, warrants and agrees for the
benefit of Lender that:
1. THE LOANS. Lender and Borrower understand that Borrowers intends to
request advances from time to time under this terms of this Agreement in an
aggregate principal amount not to exceed $12,000,000 outstanding at any time,
including a $2,000,000 request that, if made, would be subject to the Term Loan
Supplement to Credit Agreement of even date herewith. Lender shall not be
obligated to make any loans to Borrower. All loans which Lender may determine to
make under this Agreement in its sole discretion shall be repayable on demand.
Borrower will comply with the following procedure in requesting loans from
Lender:
(a) Borrower will request loans from Lender in such manner as
Lender may from time to time prescribe.
(b) Lender may make loans in any amount and in any manner
requested orally or in writing (i) by any officer of Borrower; or (ii)
by any person designated as Borrower's agent by any officer of Borrower
in a writing delivered to Lender; or (iii) by any person reasonably
believed by Lender to be an officer of Borrower or such a designated
agent. Except as otherwise instructed in writing by such officer, agent
or person, Lender may disburse loan proceeds by deposit with any bank
to or for the account of Borrower or to or for the account of any third
party designated by such officer, agent or person, or by an instrument
payable to Borrower or to any such third party, or in any other manner
deemed appropriate by Lender. All principal of and interest on loans
made by Lender shall be repayable at the offices of Lender in
Minneapolis, Minnesota, unless Lender designates a different place of
payment by written notice to Borrower.
<PAGE>
(c) Lender may make loans on the basis of Collateral available
hereunder and under the Security Documents or any other basis deemed
appropriate by Lender from time to time. Lender may change from time to
time, at its sole discretion and without notice to Borrower, the
standards, criteria and formulae used by Lender in determining the type
and amount of Collateral eligible for advance. In any event, subject to
change at Lender's discretion, Borrower shall not request loans on the
basis of the following Collateral:
(1) Accounts receivable which are (i) disputed or
subject to claims or setoffs; or (ii) progress billings; or
(iii) owed by an account debtor not located in the United
States or Canada and not secured by a bank letter of credit
satisfactory to Lender in its sole discretion; or (iv) owed by
an account debtor which is the subject of any bankruptcy or
insolvency proceeding or is insolvent or has made an
assignment for the benefit of creditors or has failed or
suspended or gone out of business.
(2) Collateral which is not as warranted herein or in
the Security Documents.
(3) Collateral which Lender, in its discretion, has
declared ineligible collateral by written notice to Borrower.
(4) Accounts receivable not paid within 90 days after
invoice or, if Lender in its discretion has determined that a
particular dated receivable is eligible for advance, within 30
days after the due date stated.
(5) Accounts receivable owed to Borrower by any
shareholder, subsidiary or affiliate of Borrower or by any
person or company obligated to pay any receivable deemed
ineligible under clauses (1) through (4), if such ineligible
receivable is 10% or more of the total amount due from such
person or company.
Notwithstanding any apportionment, exclusion or segregation of
collateral made by Lender for purposes of determining the amount or
maximum amount of loans made to Borrower, all rights and interests of
Lender hereunder and under the Security Documents, and all other
collateral rights, interests and properties available to Lender, shall
secure and may be applied to pay any or all indebtedness of Borrower
secured thereby, in any manner or order of application and without
regard to any such apportionment, exclusion or segregation.
(d) Borrower will pay interest on all outstanding loans under
this Agreement (except for Inventory Loans, as hereinafter defined) at
an annual rate (computed on the basis of actual days elapsed in a
360-day year) which shall at all times be equal to the greater of (i)
seven and one half percent (7.5%) per annum, or (ii) one percent (1%)
above the rate of interest publicly announced by National City Bank of
Minneapolis from time to time as its base rate (or any similar
successor rate), and Borrower will pay interest on all outstanding
loans advanced against Borrower's eligible inventory as determined by
Lender under this Agreement ("Inventory Loans") at an annual rate
(computed on the basis of actual days elapsed in a 360-day year) which
shall at all times be equal to the greater of (i) eight and one half
percent (8.5%) per annum, or (ii) three percent (3%) above the rate of
interest publicly announced by National City Bank of Minneapolis from
time to time as its base rate (or any similar successor rate)." Each
change in the interest rate to take effect simultaneously with the
corresponding change in the designated bank's base rate or any similar
successor rate. In no event shall the Borrower pay interest at a rate
greater than the highest rate permitted
<PAGE>
by law. All interest shall accrue on the principal balance outstanding
from time to time and shall be payable on the first day of the next
month in which accrued and in any event on demand. Borrower agrees that
Lender may at any time or from time to time, without further request by
Borrower, make a loan to Borrower, or apply the proceeds of any loans,
for the purpose of paying all such interest promptly when due. In the
computation of interest, Lender may allow two (2) banking days for the
collection of uncollected funds.
(e) Lender may maintain from time to time, at its discretion,
liability records as to any and all loans made or repaid and interest
accrued or paid under this Agreement. All entries made on any such
record shall be presumed correct until Borrower establishes the
contrary. On demand by Lender, Borrower will admit and certify in
writing the exact principal balance which Borrower then asserts to be
outstanding to Lender for loans under this Agreement. Any billing
statement or accounting rendered by Lender shall be conclusive and
fully binding on Borrower unless specific written notice of exception
is given to Lender by Borrower within 30 days after its receipt by
Borrower.
(f) Borrower's obligations with respect to all loans shall be
fully binding and enforceable without any note or other evidence of
indebtedness. Nevertheless, if Lender so requests, Borrower will duly
execute and deliver to Lender a promissory note negotiable in form
payable on demand to the order of Lender in a principal amount equal to
the principal balance then outstanding to Lender for loans under this
Agreement, together with interest as set forth in Paragraph 1(d).
(g) In requesting any loans under this Agreement, Borrower
shall be deemed to represent and warrant to Lender that, as of the date
of the proposed loans, (i) all of the representations and warranties
made in Paragraphs 3 and 4 will be true and correct except for changes
caused by transactions permitted under this Agreement, and (ii) no
breach or default under, and no Event of Default defined or described
in, this Agreement or any of the Security Documents will exist.
2. AFFILIATE. For the purposes of this Agreement, "Affiliate" refers to
any corporation, partnership, individual or other entity which now or hereafter
controls, is controlled by, or is under common control with Borrower. Borrower
agrees that any breach, default or event of default by or attributable to any
Affiliate under any agreement between such Affiliate and Lender shall constitute
a breach of this Agreement and an Event of Default hereunder and under the
Security Documents.
3. SECURITY INTEREST
(a) GRANT OF SECURITY INTEREST. Borrower hereby assigns to
Lender and grants Lender a security interest (collectively referred to
as the "Security Interests") in the property described below, as
security for the payment and performance of each and every debt,
liability and obligation of every type and description which Borrower
may now or at any time hereafter owe to Lender (whether such debt,
liability or obligation now exists or is hereafter created or incurred,
whether it arises in a transaction involving Lender alone or in a
transaction involving other creditors of Borrower, and whether it is
direct or indirect, due or to become due, absolute or contingent,
primary or secondary, liquidated or unliquidated, or sole, joint,
several or joint and several, and including specifically, but not
limited to all indebtedness or Borrower arising under this or any other
present or future loan or credit agreement, promissory note, guaranty
or other undertaking of Borrower enforceable by Lender; all such debts,
liabilities and obligations are herein collectively referred to as the
"Obligations"). The Security Interests shall attach to the following
property of Borrower (the "Collateral"), including all proceeds and
products thereof:
<PAGE>
INVENTORY: All inventory of every type and description, now
owned or hereafter acquired by Borrower, including inventory consisting
of whole goods, spare parts or components, supplies or materials and
inventory acquired, held or furnished for sale, for lease or under
service contracts or for manufacture or processing, or any other
purpose, and wherever located.
DOCUMENTS OF TITLE; All warehouse receipts, bills of lading
and other documents of title of every type and description now owned or
hereafter acquired by Borrower.
RECEIVABLES: Each and every right of Borrower to the payment
of money, whether such right to payment now exists or hereafter arises,
whether such right to payment arises out of a sale, lease or other
disposition of goods or other property, out of a rendering of services,
out of a loan, out of the overpayment of taxes or other liabilities, or
any other transaction or event, whether such right to payment is
created, generated or earned by Borrower or by some other person whose
interest is subsequently transferred to Borrower, whether such right to
payment is or is not already earned by performance, and howsoever such
right to payment may be evidenced, together with all other rights and
interests (including all liens, security interests and guaranties)
which Borrower may at any time have by law or agreement against any
account debtor or other person obligated to make any such payment or
against any property of such account debtor or other person; all
contract rights, chattel papers, bonds, notes and other debt
instruments, and all loans and obligations receivable, tax refunds and
other rights to payment in the nature of general intangibles; all
checking accounts, savings accounts and other depository accounts and
all savings certificates and certificates of deposit maintained with or
issued by Lender or any other bank or other financial institution.
EQUIPMENT AND FIXTURES: All equipment and fixtures of every
type and description now owned or hereafter acquired by Borrower,
including (without limitation) all present and future machinery,
vehicles, furniture, fixtures, manufacturing equipment, shop equipment,
office and recordkeeping equipment, parts, tools, supplies and all
other goods (except inventory) used or bought for use by Borrower for
any business or enterprise; including (without limitation) all goods
that are or may be attached or affixed or otherwise become fixtures
upon any real property; and including specifically (without limitation)
the goods described in any equipment schedule or list herewith or
hereafter furnished to Lender by Borrower, all accessions thereto, all
substitutions and replacements thereof, and all like or similar
property now owned or hereafter acquired by Borrower. (No such schedule
or list need be furnished in order for the security interest granted
herein to be valid as to all of Borrower's equipment.)
EQUITY SECURITIES: All stocks and other instruments, now owned
or hereafter acquired by Borrower, evidencing an ownership interest in
any partnership, corporation, entity or enterprise.
GENERAL INTANGIBLES: All general intangibles of every type and
description now owned or hereafter acquired by Borrower, including
(without limitation) all present and future foreign and domestic
patents, patent applications, trademarks, trademark applications,
copyrights, trade names, trade secrets, shop drawings, engineering
drawings, blueprints, specifications, parts lists, manuals, operating
instructions, customer or supplier lists and contracts, licenses,
permits, franchises, the right to use Borrower's corporate name, and
the goodwill of Borrower's business, provided, however, for licenses in
which Borrower is licensee the grant of this security interest shall be
limited by any restrictions upon Borrower's right to grant security
interests made in the ordinary course of business.
<PAGE>
(b) REPRESENTATIONS, WARRANTIES AND COVENANTS. Borrower
represents, warrants and covenants as follows:
(1) Except as set forth in Schedule 3(b)(1), Borrower
has (or will have at the time it acquires rights in Collateral
hereafter arising) and will maintain so long as the Security
Interests may remain outstanding, absolute title to each item
of Collateral and all proceeds thereof, free and clear of all
interests, liens, attachments, encumbrances and security
interests except the Security Interests and as provided herein
and except as Lender may otherwise agree in writing. Borrower
will defend the Collateral against all claims or demands of
all persons (other than Lender) claiming the Collateral or any
interest therein. Borrower will not sell or otherwise dispose
of the Collateral or any interest therein, except the sale of
inventory in the ordinary course of Borrower's business,
without Lender's prior written consent. Notwithstanding the
foregoing, prior to an Event of Default Borrower may sell up
to $25,000 worth of equipment per fiscal year for fair market
value, provided that the proceeds are paid to Lender.
Borrower's interest in the Collateral is freely transferable
to any person, without condition, limitation, jurisdiction or
restriction of governmental authority, or any other
qualification whatsoever.
(2) Borrower does business solely under its own name
and trade names (if any) set forth below. The place(s) of
business and chief executive office of Borrower are located at
the address(es) set forth below, and all tangible Collateral
is located at such address(es). All of Borrower's records
relating to its business or the Collateral are kept at its
chief executive office. Borrower will not permit any tangible
Collateral or any records pertaining to Collateral to be
located in any state or area in which, in the event of such
location, a financing statement covering such Collateral would
be required to be, but has not in fact been, filed in order to
perfect the Security interests. Borrower will not change its
name, identity or corporate structure or the location of its
place of business, without prior written notice to Lender.
(3) None of the Collateral is or will become a
fixture on real estate, unless a sufficient fixture filing is
in effect with respect thereto.
(4) Each account and other right to payment and each
instrument, document, chattel paper and other agreement
constituting or evidencing Collateral is (or, in the case of
all future Collateral, will be when arising or issued) the
valid genuine and legally enforceable obligation, subject to
no defense, setoff or counterclaim, of the account debtor or
other obligor named therein or in Borrower's records
pertaining thereto as being obligated to pay such obligation.
Borrower will not modify, amend, subordinate, cancel or
terminate the obligation of any such account debtor or other
obligor, without Lender's prior written consent.
(5) Borrower will keep all tangible Collateral in
good repair, working order and condition, normal depreciation
excepted, and will, from time to time, replace any worn,
broken or defective parts.
(6) Borrower will promptly pay all taxes and other
governmental charges levied or assessed upon or against any
Collateral or upon or against the creation, perfection or
continuance of the Security Interests.
<PAGE>
(7) Borrower will keep all Collateral free and clear
of all security interests, liens and encumbrances except the
Security Interests and as provided herein and except other
security interests approved in writing by Lender.
(8) Borrower will at all reasonable times permit
Lender or its representatives to examine or inspect any
Collateral, or any evidence of Collateral, wherever located.
(9) Borrower will promptly notify Lender of any loss
of or material damage to any Collateral or of any substantial
adverse change, known to Borrower, in any Collateral or the
prospect of payment thereof.
(10) Upon request by Lender, whether such request is
made before or after the occurrence of any Event of Default,
Borrower will promptly deliver to Lender a pledge of all
instruments, documents and chattel papers constituting
Collateral, duly endorsed or assigned by Borrower.
(11) Borrower will at all times keep all tangible
Collateral insured against risks of fire (including so-called
extended coverage), theft, collision (for Collateral
consisting of motor vehicles) and such other risks and in such
amounts as Lender may reasonably request, with any loss
payable to Lender to the extent of its interest.
(12) Borrower will use and keep the Collateral, and
will require that others use and keep the Collateral, only for
lawful purposes, without violation of any federal, state or
local law, statute or ordinance.
(13) Borrower from time to time will execute and
deliver or endorse any and all instruments, documents,
conveyances, assignments, security agreements, financing
statements and other agreements and writings which Lender may
reasonably request in order to secure, protect, perfect or
enforce the Security Interests or the rights of Lender under
this Agreement (but any failure to request or assure that
Borrower executes, delivers or endorses any such item shall
not affect or impair the validity, sufficiency or
enforceability of this Agreement and the Security Interests,
regardless of whether any such item was or was not executed,
delivered or endorsed in a similar context or on a prior
occasion). Without limitation, Borrower agrees to use its best
efforts to obtain whatever consents and assignments Lender
requests from licensors of the Borrower to protect Lender's
right to market inventory collateral without unreasonable
restrictions following the occurrence of an Event of Default.
(14) The proper places to file financing statements
to perfect the Security Interests are the Secretary of State,
Minnesota; the Day County Recorder, South Dakota; Spink County
Recorder, South Dakota; Roberts County Recorder, South Dakota;
Marshall County Recorder, South Dakota; Charles Mix County
Recorder, South Dakota; Grant County Recorder, South Dakota;
the Secretary of State, New York; the Secretary of State,
Illinois; and the Secretary of State, Georgia. When the
financing statements heretofore signed by Borrower are filed
there, Lender will have valid and perfected security interests
in the Collateral, subject to no prior security interest,
assignment, lien or encumbrance (except interests, if any,
specifically approved by Lender in writing).
<PAGE>
If Borrower at any time fails to perform or observe any of the
foregoing agreements, and if such failure shall continue for a period
of ten calendar days after Lender gives Borrower written notice thereof
(or in the case of the agreements contained in subsections (7) and (11)
above, immediately upon the occurrence of such failure, without notice
or lapse of time), Lender may, but need not, perform or observe such
agreement on behalf and in the name, place and stead of Borrower (or,
at Lender's option, in the name of Lender) and may, but need not, take
any and all other actions which Lender may reasonably deem necessary to
cure or correct such failure (including, without limitation, the
payment of taxes, the satisfaction of security interests, liens or
encumbrances, the performance of obligations owed to account debtors or
other obligors, the procurement and maintenance of insurance, the
execution of assignments, security agreements and financing statements,
and the endorsement of instruments); and Borrower shall thereupon pay
to Lender on demand the amount of all monies expended and all costs and
expenses (including reasonable attorneys' fees and legal expenses)
incurred by Lender in connection with or as a result of the performance
or observance of such agreements or the taking of such action by
Lender, together with interest thereon from the date expended or
incurred at the highest lawful rate then applicable to any of the
Obligations. To facilitate the performance or observance by Lender of
such agreements of Borrower, Borrower hereby irrevocably appoints
Lender, or the delegate of Lender, acting alone, as the attorney in
fact of Borrower with the right (but not the duty) from time to time to
create, prepare, complete, execute, deliver, endorse or file in the
name and on behalf of Borrower any and all instruments, documents,
assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by Borrower under this
subparagraph (b).
(c) PROCEEDS; COLLATERAL ACCOUNT. Borrower agrees to deliver
to Lender, or, at Lender's option, to deposit in one or more special
collateral accounts maintained for Lender by any bank reasonably
satisfactory to Lender, all proceeds of cash sales of inventory, all
collections on accounts, contract rights, chattel paper and other
rights to payment constituting Collateral, and all other cash proceeds
of Collateral, immediately upon receipt thereof, in the form received,
except for Borrower's endorsement when deemed necessary. Amounts
deposited in a collateral account shall not bear interest and shall not
be subject to withdrawal by Borrower, except after full payment and
discharge of all Obligations. All such collections shall constitute
proceeds of Collateral and shall not constitute payment of any
Obligation. Until delivered to Lender or deposited in a collateral
account, all proceeds or collections of Collateral shall be held in
trust by Borrower for and as the property of Lender and shall not be
commingled with any funds or property of Borrower. Lender may deposit
any and all collections received by it from Borrower or out of any
collateral account in Lender's general account and may commingle such
collections with other property of Lender or any other person. All
items shall be delivered to Lender or deposited in any collateral
account subject to final payment. If any such item is returned
uncollected, Borrower will immediately pay Lender, or, for items
deposited in a collateral account, the bank maintaining such account,
the amount of that item, or such bank in its discretion may charge any
uncollected item to Borrower's commercial account or other account.
Borrower shall be liable as an endorser on all items deposited in any
collateral account, whether or not in fact endorsed by Borrower. Lender
from time to time at its discretion may apply funds on deposit in a
collateral account to the payment of any or all Obligations, in any
order or manner of application satisfactory to Lender.
(d) COLLECTION RIGHTS OF LENDER. In addition to the rights of
Lender under subparagraph (c), with respect to any and all rights to
payment constituting Collateral Lender may at any time (either before
or after the occurrence of an Event of Default under Paragraph 7)
notify any account debtor or other person obligated to pay the amount
due that such right to payment has been assigned or transferred to
Lender for security and shall be paid directly to Lender. Borrower will
join in giving such notice, if Lender so requests. At any time after
Borrower or Lender gives such notice to an account debtor or other
obligor,
<PAGE>
Lender may, but need not, in Lender's name or in Borrower's name (i)
demand, sue for, collect or receive any money or property at any time
payable or receivable on account of, or securing, any such right to
payment, or grant any extension to, make any compromise or settlement
with or otherwise agree to waive, modify, amend or change the
obligations (including collateral obligations) of any such account
debtor or other obligor; and (ii) as agent and attorney in fact of
Borrower, notify the United States Postal Service to change the address
for delivery of Borrower's mail to any address designated by Lender and
otherwise intercept, receive, open and dispose of Borrower's mail,
applying all Collateral as permitted under this Agreement and holding
all other mail for Borrower's account or forwarding such mail to
Borrower's last known address.
(e) ASSIGNMENT OF INSURANCE. As additional security for the
payment and performance of the Obligations, Borrower hereby assigns to
Lender any and all monies (including, without limitation, proceeds of
insurance and refunds of unearned premiums) due or to become due under,
and all other rights of Borrower with respect to, any and all policies
of insurance now or at any time hereafter covering the Collateral or
any evidence thereof or any business records or valuable papers
pertaining thereto, and Borrower hereby directs the issuer of any such
policy to pay all such monies directly to Lender. At any time, whether
before or after the occurrence of any Event of Default, Lender may (but
need not), in Lender's name or in Borrower's name, execute and deliver
proofs of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
(f) REPRODUCTIONS. A carbon, photographic or other
reproduction of this Agreement or of any financing statement signed by
Borrower shall be sufficient as a financing statement.
(g) VERIFICATION. At any time or from time to time, under its
own name or under a trade name, Lender may (but shall not be obligated
to) send to and discuss with Borrower's account debtors requests for
verification of amounts owed to Borrower. If Lender so requests at any
time, Borrower will send requests for verification to its account
debtors or join in any requests for verification sent by Lender.
(h) SURPLUS AND DEFICIENCY; CARE OF COLLATERAL. This Agreement
does not contemplate a sale of accounts, contract rights or chattel
paper, and, as provided by law, Borrower is entitled to any surplus and
shall remain liable for any deficiency. Lender's duty of care with
respect to Collateral in its possession (as imposed by law) shall be
deemed fulfilled if it exercises reasonable care in physically keeping
such Collateral or, in the case of Collateral in the custody or
possession of a bailee or other third person, exercises reasonable care
in the selection of the bailee or other third person, and Lender need
not otherwise preserve, protect, insure or care for any Collateral.
Lender shall not be obligated to preserve any rights Borrower may have
against prior parties, to realize on the Collateral at all or in any
particular manner or order or to apply any cash proceeds of the
Collateral in any particular order of application.
4. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Lender that:
(a) Borrower is a corporation duly organized and existing in
good standing under the laws of the State of South Dakota. It has the
corporate power to own its property and to carry on its business as now
conducted and is duly qualified to do business in all states in which
such qualification is required. During the ten years preceding the date
of this Agreement, Borrower has done business solely under the name
DAKOTAH, INCORPORATED . Borrower does not own any capital stock of any
corporation except for an investment in Webster Development
Corporation, as disclosed to Lender.
<PAGE>
(b) Borrower is duly authorized and empowered to execute,
deliver and perform this Agreement and the Security Documents and to
borrow money from Lender.
(c) The execution and delivery of this Agreement and the
Security Documents, and the performance by Borrower of its obligations
thereunder, do not and will not violate or conflict with any provision
of law or the Articles of Incorporation or By-Laws of Borrower and do
not and will not violate or conflict with, or cause any default or
event of default to occur under, any agreement binding upon Borrower.
(d) The execution and delivery of this Agreement and the
Security Documents have been duly approved by all necessary action of
the directors and shareholders of Borrower; and this Agreement and the
Security Documents have in fact been duly executed and delivered by
Borrower and constitute its lawful and binding obligations, legally
enforceable against it in accordance with their respective terms
(subject to laws generally affecting the enforcement of creditors'
rights).
(e) No litigation, tax claims or governmental proceedings are
pending or are threatened against Borrower or any Affiliate and no
judgment or order of any court or administrative agency is outstanding
against Borrower or any Affiliate.
(f) The transaction evidenced by this Agreement does not
violate any law pertaining to usury or the payment of interest on
loans.
(g) The authorization, execution, delivery and performance of
this Agreement and the Security Documents are not and will not be
subject to the jurisdiction, approval or consent of, or to any
requirement of registration with or notification to, any federal, state
or local regulatory body or administrative agency.
(h) The conduct of its business by Borrower is not subject to
registration with, notification to, or regulation, licensing,
franchising, consent or approval by any state or federal governmental
authority or administrative agency, except general laws and regulations
which are not related or applicable particularly or uniquely to the
type of business conducted by Borrower, which do not materially
restrict or limit the business of Borrower, and with which Borrower is
in full compliance. All registrations and notifications required to be
made, and all licenses, franchises, permits, operating certificates,
approvals and consents required to be issued, to enter into or conduct
such business have been duly and lawfully made or obtained and issued,
and all terms and conditions set forth therein or imposed thereby have
been duly met and complied with.
(i) To the best knowledge of Borrower based upon reasonable
inquiry, no director, shareholder, officer, employee or agent of, or
consultant to, Borrower is prohibited by law, by regulation, by
contract, or by the terms of any license, franchise, permit,
certificate, approval or consent from participating in the business of
Borrower as director, shareholder, officer, employee or agent of, or as
consultant to, Borrower, or is the subject of any pending or, to
Borrower's best knowledge, threatened proceeding which, if determined
adversely, would or could result in such a prohibition.
(j) All assets of Borrower and any Affiliates are free and
clear of liens, security interests and encumbrances, except those
permitted under Paragraph 6(b).
(k) Borrower and all Affiliates have filed all federal and
state tax returns which are required to be filed, and all taxes shown
as due thereon have been paid. Borrower and all Affiliates have paid or
<PAGE>
caused to be paid to the proper authorities when due all federal, state
and local taxes required to be withheld by them.
(l) Borrower has furnished to Lender the financial statements
described below for the periods described below:
3/31/97
------------------------------
12/31/96
------------------------------
12/31/95
------------------------------
------------------------------
These statements were prepared in accordance with generally accepted
accounting principles consistently maintained, present fairly the
financial condition of Borrower as at the dates thereof, and disclose
fully all liabilities of Borrower, whether or not contingent, with
respect to any pension plan. Since the date of the most recent
financial statement, there has been no material adverse change in the
financial condition of Borrower.
(m) Each qualified retirement plan of Borrower presently
conforms to and is administered in a manner consistent with the
Employee Retirement Income Security Act of 1974.
(n) Borrower will not request or maintain any credit for the
purpose of purchasing or carrying any security, within the meaning of
Regulations G or U of the Board of Governors of the Federal Reserve
System.
5. AFFIRMATIVE COVENANTS. Borrower covenants and agrees that it will:
(a) Use the proceeds of any and all loans made by Lender
solely for lawful and proper corporate purposes of the Borrower.
(b) Pay all taxes, assessments and governmental charges prior
to the time when any penalties or interest accrue, unless contested in
good faith with an adequate reserve for payment; and pay to the proper
authorities when due all federal, state and local taxes required to be
withheld by it.
(c) Continue the conduct of its business; maintain its
corporate existence; maintain all rights, licenses and franchises
necessary for Borrower to conduct its business substantially in the
manner currently conducted; and comply with all applicable laws and
regulations.
(d) Maintain its property in good working order and condition
and make all needful and proper repairs, replacements, additions and
improvements thereto.
(e) Deliver to Lender:
<PAGE>
(1) Within 90 days after the end of each fiscal year,
a statement of Borrower's financial condition as at the end of
such fiscal year and a statement of earnings and retained
earnings of Borrower for such fiscal year, with comparative
figures for the preceding fiscal year, prepared, if Lender so
requests, on a consolidating and consolidated basis to include
any Affiliated Corporation, certified without qualification by
independent certified public accountants acceptable to Lender.
(2) Within 30 days after the end of each fiscal
month, a statement of Borrower's financial condition and an
operating statement and statement of earnings and retained
earnings of Borrower for such month, in each case with
comparative figures for the same month in the preceding fiscal
year, prepared on the same basis as the most recent annual
statement provided pursuant to clause (1) above, certified by
an officer of Borrower.
(3) Within 15 days after the end of each month, an
aging of Borrower's accounts receivable as of the end of such
month.
(4) Within 10 days after the end of each month, an
inventory certification as of the end of such month.
(5) Within 20 days after the end of each month, an
aging of Borrower's accounts payable as at the end of such
month.
(6) From time to time, any and all receivables,
schedules, collection reports, equipment schedules, copies of
invoices to account debtors and shipment documents and
delivery receipts for goods sold, and other material, reports,
records or information required by Lender.
(f) Permit any officer, employee, attorney or accountant for
Lender to audit, review, make extracts from, or copy any and all
corporate and financial books, records and properties of Borrower at
all times during ordinary business hours, to send and discuss with
account debtors and other obligors' requests for verification of
amounts owed to Borrower, and to discuss the affairs of Borrower with
any of its directors, officers, employees, agents.
(g) Maintain property, liability, business interruption,
workman's compensation and other forms of insurance in reasonable
amounts designated at any time or from time to time by Lender.
(h) Earn net income in each fiscal year measured as of its
fiscal year end equal to, or greater than the annual net income
reported for the 1996 fiscal year end. Earn net income of not less than
$1.00 for each fiscal year to date as of the end of the third fiscal
quarter of each fiscal year.
(i) At all times maintain the book net worth of Borrower at
amounts in excess of $9,750,000.00 and maintain Borrower's tangible net
worth (excluding all intangible assets designated by Lender) at amounts
in excess of $8,100,000.00.
(j) Notify Lender promptly of (i) any disputes or claims by
customers of Borrower; (ii) any goods returned to or recovered by
Borrower; (iii) any change in the persons constituting the officers and
directors of Borrower; and (iv) the occurrence of any breach, default
or event of default by or attributable to Borrower under this Agreement
or any of the Security Documents.
<PAGE>
6. NEGATIVE COVENANTS. Borrower covenants and agrees that it will not,
except with the prior written approval of Lender:
(a) Become or remain liable in any manner in respect of any
indebtedness or contractual liability (including, without limitation,
notes, bonds, debentures, loans, guaranties, obligations of
partnerships, and pension liabilities, in each case whether or not
contingent and whether or not subordinated), except:
(1) Indebtedness arising under this Agreement;
(2) Unsecured indebtedness, other than for money
borrowed or for the purchase of a capital asset, incurred in
the ordinary course of its business, which becomes due and
must be fully satisfied within twelve months after the date on
which it is incurred;
(3) Indebtedness arising out of the purchase of real
property and either unsecured or secured only by a purchase
money security interest or mortgage lien, provided, however,
that the aggregate amount of such indebtedness shall not
exceed $400,000.00.
(4) Indebtedness arising out of the lease or purchase
of goods constituting equipment and either unsecured or
secured only by a purchase money security interest securing
purchase money indebtedness, but in any event only if such
equipment is acquired in compliance with Paragraph 6(c).
(5) Presently outstanding unsecured borrowings, if
any, disclosed in the financial statements referred to in
Paragraph 4(m), but not including any extensions or renewals
thereof.
(b) Create, incur or cause to exist any mortgage, security
interest, encumbrance, lien or other charge of any kind upon any of its
property or assets, whether now owned or hereafter acquired, except:
(1) The interests created by this Agreement and the
Security Documents;
(2) Liens for taxes or assessments not yet due or
contested in good faith by appropriate proceedings;
(3) A purchase money security interest or lessor's
interest securing indebtedness permitted to be outstanding or
incurred under Paragraph 6(a)(4);
(4) Security interests and mortgage liens approved by
Lender in writing; and
(5) Other liens, charges and encumbrances incidental
to the conduct of its business or the ownership of its
property which were not incurred in connection with the
borrowing of money or the purchase of property on credit and
which do not in the aggregate materially detract from the
value of its property or materially impair the use thereof in
its business.
(c) Expend or contract to expend, in any one calendar year,
more than $1,360,000 in the aggregate for the fiscal year ending
12/31/97; $500,000 in the aggregate for any fiscal year thereafter; or
<PAGE>
more than $150,000 in any one transaction for the lease, purchase or
other acquisition of any capital asset, or for the lease of any other
asset, whether payable currently or in the future.
(d) Sell, lease, or otherwise dispose of all or any
substantial part of its property, except as expressly permitted
hereunder or under the Security Documents.
(e) Consolidate or merge with any other corporation; or
acquire any business; or acquire stock of any corporation; or enter
into any partnership or joint venture.
(f) Substantially alter the nature of the business in which it
is engaged.
(g) Declare or pay any dividends (except dividends payable
solely in its capital stock), or purchase or redeem any of its capital
stock, or otherwise distribute any property on account of its capital
stock; or enter into any agreement therefor.
(h) Purchase stock or securities of, extend credit to or make
investments in, become liable as surety for, or guarantee or endorse
any obligation of, any person, firm or corporation, except investments
in direct obligations of the United States and commercial bank deposits
and extensions of credit reflected by trade accounts receivable arising
for goods sold by Borrower in the ordinary course of its business.
(i) After notice from Lender, grant any discount, credit or
allowance to any customer of Borrower or accept any return of goods
sold.
(j) In any manner transfer any property without prior or
present receipt of full and adequate consideration.
(k) Permit more than $15,000.00 in the aggregate to be owing
to Borrower by the officers, directors or shareholders of Borrower or
any Affiliated Corporation, or members of their families, on account of
any loan, travel advance, credit sale or other transaction or event.
(l) Pay excessive or unreasonable salaries, bonuses,
commissions, consultant fees, or other compensation; or increase the
salary, bonus, commissions, consultant fees or other compensation of
any director, officer, or consultant, or any member of their families,
by any unreasonable amount in any one year, either individually or for
all such persons in the aggregate, or pay any such increase from any
source other than profits earned in the year of payment.
(m) Permit any breach, default or event of default to occur
under any note, loan agreement, indenture, lease, mortgage, contract
for deed, security agreement or other contractual obligation binding
upon Borrower.
(n) Change its fiscal year or fail to apply GAAP in a manner
materially consistent with the financial statements dated as of
12/31/96, except to the extent that changes in GAAP necessitate changes
in the manner in which it is applied or Lender consents thereto.
7. EVENT OF DEFAULT. Any breach of any representation, warranty or
agreement of Borrower set forth herein or in the Security Documents or in any
other instrument or agreement securing any of the Obligations shall constitute
an Event of Default hereunder and under the Security Documents.
<PAGE>
8. REMEDIES UPON DEFAULT. Upon the occurrence of any Event of Default,
and at any time thereafter unless and until such Event of Default is waived in
writing by Lender, Lender may exercise one or several or all of the following
rights and remedies:
(a) Lender may terminate this Agreement with immediate
effectiveness and without notice or lapse of time. Notwithstanding such
termination, all claims, rights and security interests of Lender and
all debts, liabilities, obligations and duties of Borrower shall remain
in full force and effect.
(b) Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the Uniform
Commercial Code, including, without limitation, the right to take
possession of Collateral, or any evidence thereof, proceeding without
judicial process (without a prior hearing or notice thereof, which
Borrower hereby expressly waives) and the right to sell, lease or
otherwise dispose of any or all of the Collateral, and in connection
therewith Borrower will on demand assemble the Collateral and make it
available to Lender at a place to be designated by Lender which is
reasonably convenient to all parties. If notice to Borrower of any
intended disposition of Collateral or any other intended action is
required by law in a particular instance, such notice shall be deemed
commercially reasonable if given (in the manner specified in Paragraph
13(a) at least ten calendar days prior to the date of intended
disposition or other action. For the purpose of enabling Lender to
exercise such rights and remedies:
(1) Borrower hereby grants Lender (in addition to
Lender's security interest in general intangibles) a
non-exclusive license to use, sell or otherwise exploit in any
manner any and all trade names, trademarks, patents,
copyrights, licenses (in cases where Borrower is a licensee,
limited to the extent permitted by the governing license
agreement) and other intangible properties necessary,
appropriate or useful in the enforcement of the Security
Interests; and
(2) Borrower hereby grants Lender the right to
possess and hold all premises owned, leased or held by
Borrower upon which any Collateral is or may be located (the
"Premises"), subject to the following terms and conditions:
A. Lender may take possession of the
Premises only upon the occurrence of an Event of
Default.
B. Lender may use the Premises only to hold,
process, manufacture and sell or otherwise dispose of
goods which are inventory, or to provide services
under contracts for receivables, or to use, operate,
store, liquidate or realize upon goods which are
equipment or any other Collateral granted under this
Agreement and for other purposes which Lender may in
good faith deem to be related or incidental purposes.
C. The right of Lender to hold the Premises
shall cease and terminate upon the earlier of (i)
payment in full and discharge of all Obligations;
(ii) final sale or disposition of all goods
constituting Collateral (including both inventory and
equipment) and delivery of all such goods to
purchasers.
D. Lender shall not be obligated to pay or
account for any rent or other compensation for this
grant or for the possession, occupancy or use of any
of the Premises.
<PAGE>
E. Borrower acknowledges and agrees that the
breach of this grant is not fully compensable by
money damages, and that, accordingly, this grant may
be enforced by an action for specific performance.
(c) Lender may exercise or enforce any and all other rights or
remedies available by law or agreement against the Collateral, against
Borrower, or against any other person or property.
9. ACCELERATION UPON BANKRUPTCY. All of the Obligations shall be
immediately and automatically due and payable, without further act or condition,
if any case under the United States Bankruptcy Code is commenced voluntarily by
Borrower or involuntarily against Borrower.
10. SETOFF. Borrower agrees that Lender may at any time or from time to
time, at its sole discretion and without demand and without notice to anyone,
set off any deposit or other liability owed to Borrower by Lender, whether or
not due, against any indebtedness owed to Lender by Borrower (for loans under
this Agreement or for any other transaction or event), whether or not due. In
addition, each person holding a participating interest in any loans made to
Borrower by Lender shall have the right to appropriate or set off any deposit or
other liability then owed by such person to Borrower, whether or not due, and
apply the same to the payment of said participating interest, as fully as if
such person had lent directly to Borrower the amount of such participating
interest.
11. TERMINATION BY BORROWER. So long as Lender, in its sole discretion,
is willing to make loans to Borrower for ordinary working capital purposes
subject to the availability of Collateral deemed eligible by Lender, Borrower
may terminate this Agreement and (subject to payment and performance of all
outstanding secured obligations) may obtain any release or termination of the
Security Documents to which Borrower is otherwise entitled by law, effective
only on the second or any subsequent anniversary date of this Agreement, and
then only if Lender receives at least 60 days' prior written notice of
Borrower's intent to terminate this Agreement effective on such anniversary
date. Upon any such termination, all obligations of Borrower under this
Agreement and the Security Documents shall remain in full force and effect until
all indebtedness arising under this Agreement and all other debts, liabilities
and obligations of Borrower secured hereby, or by the Security Documents or any
other collateral security have been fully paid and satisfied. Subject to paying
all obligations of Borrower to Lender and survival of all indemnifications of
Borrower in any of the Loan Documents, Borrower may terminate this Agreement
upon sixty days' prior written notice in the event that Lender exercises its
discretion to (i) refuse to make any further requested advances under this
Agreement or (ii) to reduce its formula without the consent of Borrower for
making advances up to the specific percentage values of eligible collateral
specified in that certain letter from Lender to Borrower dated of even date
herewith; or (iii) to refuse to amend this Agreement upon request of Borrower to
permit outstanding Advances in excess of $12,000,000 even though sufficient
eligible collateral exists in order for such higher level of borrowing under the
then existing formula of Lender.
12. RESERVATION OF RIGHT TO MAKE DEMAND AND TO REFUSE TO LEND.
Notwithstanding any other provisions contained herein, Borrower acknowledges
that Lender reserves the right to demand immediate payment of any or all loans
and the interest thereon and of all other obligations of Borrower payable on
demand, and the right to refuse to make any loans hereunder, whether or not (a)
an Event of Default has occurred hereunder, (b) Borrower has failed to comply
with the terms of this Agreement or the Security Documents, (c) Borrower's
financial or other condition has changed, (d) Lender has at that time or in
connection with any previous demand or refusal to lend given notice of its
intention to make demand or to refuse to lend or (e) such demand or refusal to
lend shall not cause any loss or damage to the Borrower.
13. MISCELLANEOUS. Borrower agrees that:
<PAGE>
(a) This Agreement can be waived, amended, terminated or
discharged, and the Security Interests can be released, only explicitly
in a writing signed by Lender. A waiver so signed shall be effective
only in the specific instance and for the specific purpose given. Mere
delay or failure to act shall not preclude the exercise or enforcement
of any rights and remedies available to Lender. All rights and remedies
of Lender shall be cumulative and may be exercised singularly in any
order or sequence, or concurrently, at Lender's option, and the
exercise or enforcement of any such right or remedy shall neither be a
condition to nor bar the exercise of enforcement of any other. All
notices to be given to Borrower shall be deemed sufficiently given if
actually received by any officer of Borrower or if delivered or mailed
by registered, certified or ordinary mail, postage prepaid, to Borrower
at its address set forth below or at its most recent address shown on
Lender's records.
(b) Borrower will furnish to Lender, prior to the first
advance hereunder, (i) a certified copy of resolutions of the directors
and, if required, the shareholders of Borrower, authorizing the
execution, delivery and performance of this Agreement and the Security
Documents; (ii) a certificate of an officer of Borrower confirming, in
his personal capacity, the representations and warranties set forth in
Paragraphs 3 and 4; (iii) a written opinion of Borrower's independent
legal counsel, addressed to Lender, confirming to the satisfaction of
Lender the representations and warranties set forth in clause (b)(14)
of Paragraph 3 and clauses (a) through (h) of Paragraph 4; and (iv)
currently certified copies of the Articles of Incorporation and Bylaws
of Borrower and a Certificate of Good Standing issued as to Borrower by
the Secretary of State of the state of its incorporation; and (v) all
certificates of insurance and insurance endorsements required hereunder
and under the Security Documents; and (vi) all collateral schedules,
security interest subordination agreements, searches, abstracts,
releases and termination statements which Lender may request adequately
to assure and confirm the creation, perfection and priority of the
security interests created hereunder or under the Security Documents.
(c) On demand, Borrower will pay or reimburse Lender for all
expenses, including all reasonable fees and disbursements of legal
counsel, incurred by Lender in connection with the preparation,
negotiation, execution, performance or enforcement of this Agreement or
the Security Documents, or any document contemplated thereby, or the
perfection, protection, enforcement or foreclosure of the security
interests created hereby or by the Security Documents, or in connection
with the protection or enforcement of the interests and collateral
security of Lender in any litigation or bankruptcy or insolvency
proceeding or the prosecution or defense or any action or proceeding
relating in any way to the transactions contemplated by this Agreement.
(d) Lender and its participants, if any, are not partners or
joint venturers, and Lender shall have no liability or responsibility
for any obligation, act or omission of its participants under or as to
this Agreement.
(e) This Agreement shall be binding upon Borrower and its
successors and assigns and shall inure to the benefit of Lender and its
participants, successors and assigns. This Agreement shall be effective
when executed by Borrower and delivered to Lender, whether or not this
Agreement is executed by Lender. All rights and powers specifically
conferred upon Lender may be transferred or delegated by Lender to any
of its participants, successors or assigns. Except to the extent
otherwise required by law, this Agreement and the transactions
evidenced hereby shall be governed by the substantive laws of the State
in which this Agreement is accepted by Lender. If any provision or
application of this Agreement is held unlawful or unenforceable in any
respect, such illegality or unenforceability shall not affect other
provisions or applications which can be given effect, and this
Agreement shall be construed as if the unlawful or unenforceable
provision or application had never been contained herein or prescribed
hereby. All
<PAGE>
representations and warranties contained in this Agreement or in any
other agreement between Borrower and Lender shall survive the
execution, delivery and performance of this Agreement and the creation
and payment of any indebtedness to Lender. Borrower waives notice of
the acceptance of this Agreement by Lender.
14. Nothing herein contained nor any transaction related hereto shall
be construed or shall operate so as to require the Borrower or any person liable
for repayment of loans made hereunder to pay interest in an amount or at a rate
greater than the maximum allowed, from time to time, by applicable laws, if any.
Should any interest or other charges, including any property, tangible or
intangible, or other items of value received by the Lender, imposed against or
paid by the Borrower or any party liable for the payment of such loans, result
in a computation of earning of interest in excess of the maximum legal rate of
interest permitted under applicable law in effect while such interest is being
earned, then any and all of that excess shall be waived by the Lender, and all
of that excess shall be automatically credited against and in reduction of the
principal balance of such loans, without premium, with the same force and effect
as though the Borrower had specifically designated such extra sums to be so
applied to principal and the Lender to accept such extra payment(s) as a
premium-free prepayment, and any portion of the excess that exceeds the
principal balance of loans made hereunder shall be paid by the Lender to the
Borrower or to any party liable for the payment of such loans, applicable, it
being the intent of the parties hereto that under no circumstances shall the
Borrower or any party liable for the payment of the indebtedness evidenced
hereby be required to pay interest in excess of the maximum rate allowed by any
applicable laws. The provisions of this Agreement are hereby modified to the
extent necessary to conform with the limitations and provisions of this
paragraph, and this paragraph shall govern over all other provisions in any
document or agreement now or hereafter existing. This paragraph shall never be
superseded or waived unless there is a written document executed by the Lender
and the Borrower, expressly declaring the usury limitation of this Agreement to
be null and void, and no other method or language shall be effective to
supersede or waive this paragraph.
15. ENVIRONMENTAL LAWS. Borrower is and will continue to be throughout
the term of this Agreement in full and complete compliance with all federal,
state and local laws, rules and regulations governing hazardous and toxic
substances, waste or materials, any pollutants or contaminants or any other
similar substances, or pertaining to environmental regulations, contamination or
cleanup, including, without limitation, the Comprehensive Environmental Response
Compensation and Liability Act, as amended, the Minnesota Petroleum Tank Release
Cleanup Act, as amended, or any other state lien or state super lien or
environmental cleanup statute (all such laws, rules and regulations being
referred to collectively as "Environmental Laws").
Borrower indemnifies, defends and holds Lender and its officers,
directors, employees and agents, harmless from and against any liability, laws,
claims, damages or expense (including attorneys' fees and disbursements) arising
out of or based upon any violation or claim of violation of Environmental Laws
by any Borrower or with respect to any assets owned or used by any Borrower or
any properties leased or occupied by any properties of any Borrower by Lender.
This indemnity shall be continuing and remain in full force and effect and shall
survive this Agreement and the Security Documents or any exercise of any remedy
by Lender even if all indebtedness and other obligations to Lender have been
satisfied in full.
16. WAIVER OF JURY TRIAL. BORROWER AND LENDER EACH HEREBY WAIVE ANY
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THIS
AGREEMENT, THE SECURITY DOCUMENTS OR ANY OTHER AGREEMENTS OR TRANSACTIONS
BETWEEN THE BORROWER AND LENDER.
17. JURISDICTION AND VENUE. BORROWER HEREBY CONSENTS TO THE EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT SITUATED IN HENNEPIN COUNTY,
MINNESOTA
<PAGE>
AND WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, WITH REGARD TO ANY
ACTIONS, CLAIMS, DISPUTES OR PROCEEDINGS RELATED TO THIS AGREEMENT, THE
COLLATERAL, ANY OTHER LOAN DOCUMENT, OR ANY TRANSACTIONS ARISING THEREFROM, OR
ENFORCEMENT AND/OR INTERPRETATION OF ANY OF THE FOREGOING. Nothing herein shall
affect Lender's rights to serve process in any manner permitted by law, or limit
Lender's right to bring proceedings against Borrower in the competent courts of
any other jurisdiction or jurisdictions.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the proper officers thereunto duly authorized on the day and year first above
written.
DAKOTAH, INCORPORATED
By /s/ Troy Jones, Jr.
---------------------------------
Chief Executive Officer
TRADE NAMES OF BORROWER: ADDRESS OF CHIEF EXECUTIVE OFFICES:
None One North Park Lane
Webster, SD 57274-0120
COLLATERAL LOCATIONS: OTHER LOCATIONS:
See attached Exhibit A None
Accepted at Minneapolis, Minnesota
on June 30, 1997.
DIVERSIFIED BUSINESS CREDIT, INC.
By /s/ Bridget A. Manahan
---------------------------------
Vice President
<PAGE>
EXHIBIT A TO CREDIT AND SECURITY AGREEMENT
COLLATERAL LOCATIONS
Dakotah, Inc. Dakotah, Inc.
North Park Lane
One North Park Lane Webster, SD 57274
Webster, SD 57274
Dakotah, Inc. Dakotah, Inc.
715 West Highway 12 East Highway 12
Webster, SD 57274 Webster, SD 57274
Dakotah, Inc. Dakotah, Inc.
10 Redfield Industrial Pk 2 Fifth Avenue West
Redfield, SD 57469 Sisseton, SD 57262
Dakotah, Inc. Dakotah, Inc.
South Main Street 27480 SD Hwy 45
Veblen, SD 57270 Platte, SD 57369
Dakotah, Inc. Dakotah, Inc.
1340 Industrial Drive 295 Fifth Avenue
Milbank, SD 57252 Suite 107
New York, NY 10016
Dakotah, Inc. Dakotah, Inc.
Atlanta Merchandise Mart 12-332 Merchandise Mart
240 Peachtree St. NW Chicago, IL 60654
Suite 10E20
Atlanta, GA 30303
FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT
This First Amendment to Credit and Security Agreement is made and
entered into as of this 7th day of July, 1997, by and between DAKOTAH,
INCORPORATED, a South Dakota corporation (herein called "Borrower"), and
Diversified Business Credit, Inc., a Minnesota corporation (herein called
"Lender").
Recitals
A. Borrower executed and delivered to Lender a Credit and Security
Agreement on June 30, 1997 (the "Credit Agreement").
B. Borrower and Lender desire to alter, amend and modify the Credit
Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, and for good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. Paragraph 1 of the Credit Agreement is hereby amended as follows:
"1. THE LOANS. The Lender shall not be obligated to make any
loans to Borrower. All loans which Lender may determined to
make under this Agreement shall be repayable upon demand.
Borrower will comply with the following procedure in
requesting loans from Lender:"
The remainder of Paragraph 1, including subparagraphs 1.(a),
1.(b), 1.(c), 1.(d), 1.(e), 1.(f) and 1.(g) shall remain
unchanged.
2. Except as expressly amended hereby, the Credit Agreement and the
Security Documents (as defined in the Credit Agreement) shall remain in full
force and effect in accordance with their original terms and binding upon and
enforceable against Borrower, and not subject to any defense, counterclaim or
right of setoff.
IN WITNESS WHEREOF, the parties have executed and delivered this First
Amendment to Credit and Security Agreement as of the day and year first above
written.
DAKOTAH, INCORPORATED
By /s/ Troy Jones, Jr.
----------------------------------
Its Chief Executive Officer
DIVERSIFIED BUSINESS CREDIT, INC.
By /s/ Bridget A. Manahan
----------------------------------
Its Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,956
<SECURITIES> 0
<RECEIVABLES> 4,995,736
<ALLOWANCES> 439,000
<INVENTORY> 19,473,090
<CURRENT-ASSETS> 25,508,946
<PP&E> 7,457,048
<DEPRECIATION> 2,895,221
<TOTAL-ASSETS> 31,070,556
<CURRENT-LIABILITIES> 19,990,138
<BONDS> 1,544,103
0
0
<COMMON> 34,998
<OTHER-SE> 9,501,317
<TOTAL-LIABILITY-AND-EQUITY> 31,070,556
<SALES> 13,538,086
<TOTAL-REVENUES> 13,538,086
<CGS> 10,178,176
<TOTAL-COSTS> 10,178,176
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 62,672
<INTEREST-EXPENSE> 353,599
<INCOME-PRETAX> (1,465,345)
<INCOME-TAX> (491,000)
<INCOME-CONTINUING> (974,345)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (974,345)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> 0
</TABLE>
