<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
Commission file number: 0-19298
RIDDELL SPORTS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2890400
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 Third Avenue, New York, New York, 10022
(Address of principal executive offices) (Zip code)
(212) 826-4300
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
8,067,985 Common Shares as of November 11, 1996
1
<PAGE> 2
RIDDELL SPORTS INC.
INDEX
Page
Form 10-Q Cover Page . . . . . . . . . . . . . . 1
Form 10-Q Index . . . . . . . . . . . . . . . . . 2
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets . . . . . . 3
Consolidated Statements of Operations . 4
Consolidated Statements of
Shareholders' Equity. . . . . . . . . . 5
Consolidated Statements of Cash Flows . . 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations . . . . . . . . . . . . . . 13
Part II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . 17
Item 2. Changes in Securities . . . . . . . . 19
Item 3. Defaults upon Senior Securities . . . 19
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . 19
Item 5. Other Information . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K . . . 20
Signatures . . . . . . . . . . . . . . . . . . . . 21
2
<PAGE> 3
Part 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 645,509 $ 615,081
Accounts receivable, trade, less allowance for doubtful
accounts ($784,000 and $620,000 respectively) . . . . . . . . . . . 22,942,210 14,099,028
Inventories (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . 15,266,875 14,425,882
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,022,461 6,815,009
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 190,002 358,769
------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . . . 43,067,057 36,313,769
Property, plant and equipment, less accumulated
depreciation ($3,672,812 and $3,278,807 respectively) . . . . . . . . 3,344,939 2,966,494
Intangibles and deferred charges, less accumulated
amortization ($9,743,607 and $8,548,485 respectively) . . . . . . . . 33,546,409 34,741,533
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,693 102,893
------------- --------------
$80,061,098 $ 74,124,689
============= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (September 30, 1996
includes $870,834 due to a shareholder) Note 5 . . . . . . . . . . $ 5,095,033 $ 1,141,572
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,320,878 6,304,289
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 6,687,515 9,581,548
------------- --------------
Total current liabilities . . . . . . . . . . . . . . . . . . 17,103,426 17,027,409
Long-term debt, less current portion (Note 5):
Shareholders and related parties . . . . . . . . . . . . . . . . . . . 439,000 1,309,834
Banks and other . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,154,893 22,290,398
------------- --------------
25,593,893 23,600,232
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,180,000 1,990,000
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,148,004 6,605,206
Contingent liabilities (Note 4)
Shareholders' equity
Preferred stock, $.01 par; authorized 5,000,000 shares; none issued
Common stock, $.01 par; authorized 40,000,000 shares; issued
and outstanding 8,067,985 shares . . . . . . . . . . . . . . . . . . 80,680 80,680
Capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . 31,456,912 31,456,912
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . (2,501,817) (6,635,750)
------------- --------------
29,035,775 24,901,842
------------- --------------
$80,061,098 $ 74,124,689
============= ===============
See notes to consolidated financial statements
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ---------------------------------
1996 1995 1996 1995
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net revenues:
Net sales . . . . . . . . . . . $17,781,415 $16,986,783 $57,662,900 $52,167,954
Royalty income . . . . . . . . 555,850 713,408 2,130,339 2,854,796
------------- ------------- -------------- --------------
18,337,265 17,700,191 59,793,239 55,022,750
Cost of sales . . . . . . . . . . 10,100,296 10,027,223 31,316,347 29,345,111
------------- ------------- -------------- --------------
Gross profit . . . . . . . . . . 8,236,969 7,672,968 28,476,892 25,677,639
Selling, general and
administrative expenses . . . . 5,782,817 5,371,318 19,984,383 18,041,427
Product liability . . . . . . . . 664,133 658,740 1,992,400 1,983,750
------------- ------------- -------------- --------------
Income from operations . . . . . 1,790,019 1,642,910 6,500,109 5,652,462
Interest expense . . . . . . . . 784,902 802,270 2,176,176 2,192,887
------------- ------------- -------------- --------------
Income before taxes . . . . . . 1,005,117 840,640 4,323,933 3,459,575
Income taxes . . . . . . . . . . 40,000 38,000 190,000 156,000
------------- ------------- -------------- --------------
Net income . . . . . . . . . . . $965,117 $802,640 $4,133,933 $3,303,575
============= ============= ============== ==============
Net earnings per share . . . . . $ 0.11 $ 0.10 $ 0.48 $ 0.41
============= ============= ============== ==============
See notes to consolidated financial statements
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION> RIDDELL SPORTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Retained
Capital earnings Total
Common Stock in excess (Accumulated Shareholders'
Shares Amount of par deficit) equity
---------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
For the nine months ended September 30, 1995:
Balance, December 31, 1994 . . . 8,039,742 $80,397 $31,457,195 $(7,106,284) $24,431,308
Shares issued in connection with
a 1994 acquisition . . . . . . 28,243 283 (283) -0-
Net income for the period . . . 3,303,575 3,303,575
---------- ------- ------------ ------------ ------------
Balance, September 30, 1995 . . 8,067,985 $80,680 $31,456,912 $(3,802,709) $27,734,883
========== ======= ============ ============ ============
For the nine months ended September 30, 1996:
Balance, December 31, 1995 . . . 8,067,985 $80,680 $31,456,912 $(6,635,750) $24,901,842
Net income for the period . . . 4,133,933 4,133,933
---------- ------- ------------ ------------ ------------
Balance, September 30, 1996 . . 8,067,985 $80,680 $31,456,912 $(2,501,817) $29,035,775
========== ======= ============ ============ ============
See notes to consolidated financial statements
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
---------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Cash flows from investing activities:
Net income . . . . . . . . . . . . . . . . . . . . . . $4,133,933 $3,303,575
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization . . . . . . . . . . . . 1,647,763 1,681,590
Provision for losses on accounts receivable . . . . . 385,834 259,685
Deferred taxes . . . . . . . . . . . . . . . . . . . 190,000 142,222
Changes in assets and liabilities (net
of effects from acquisitions):
(Increase) decrease in:
Accounts receivable, trade . . . . . . . . . . . (9,229,016) (11,976,186)
Inventories . . . . . . . . . . . . . . . . . . (840,993) 348,212
Prepaid expenses . . . . . . . . . . . . . . . . 2,792,548 1,971,624
Other receivables . . . . . . . . . . . . . . . 168,767 2,170,787
Other assets . . . . . . . . . . . . . . . . . . 200 (14,480)
Increase (decrease) in:
Accounts payable . . . . . . . . . . . . . . . . (983,411) (3,714,401)
Accrued liabilities . . . . . . . . . . . . . . (2,894,033) (2,392,406)
Other liabilities . . . . . . . . . . . . . . . (457,202) (646,911)
-------------- --------------
Net cash used in operating activities . . . (5,085,610) (8,866,689)
-------------- --------------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . (831,084) (568,467)
Acquisition . . . . . . . . . . . . . . . . . . . . . - (641,670)
-------------- --------------
Net cash used in investing activities . . . (831,084) (1,210,137)
-------------- --------------
Cash flows from financing activities:
Net borrowings under line-of-credit agreement . . . . . 6,088,693 11,770,937
Principal payments on long-term debt:
Banks and other . . . . . . . . . . . . . . . . . . (141,571) (554,094)
Shareholders . . . . . . . . . . . . . . . . . . . . - (712,500)
-------------- --------------
Net cash provided by financing activities . 5,947,122 10,504,343
-------------- --------------
Net increase in cash . . . . . . . . . . . . . . . . . . . 30,428 427,517
Cash, beginning . . . . . . . . . . . . . . . . . . . . . . 615,081 190,325
-------------- --------------
Cash, ending . . . . . . . . . . . . . . . . . . . . . . . $ 645,509 $ 617,842
============== ==============
</TABLE>
Supplemental cash flow information:
In January 1995, in connection with an acquisition, the Company assumed
liabilities of approximately $330,000. Cash paid for interest was $2,135,034
and $1,936,706 for the nine month periods ended September 30, 1996 and 1995,
respectively. Income tax payments, or refunds, were not significant for the
periods ended September 30, 1996 and 1995.
See notes to consolidated financial statements
6
<PAGE> 7
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. These statements are unaudited, and in the
opinion of management include all adjustments (consisting only of normal
recurring adjustments) necessary for fair presentation of the Company's
consolidated financial position and the consolidated results of its operations
and cash flows at September 30, 1996 and 1995 and for the periods then ended.
Certain information and footnote disclosures made in the last Annual Report on
Form 10-K have been condensed or omitted for these interim statements.
Accordingly, these consolidated financial statements should be read in
conjunction with the December 31, 1995 Annual Report on Form 10-K. Operating
results for the nine months ended September 30, 1996 are not necessarily
indicative of the results to be expected during the remainder of 1996.
Tax expense for all periods presented herein was reduced by the benefit
of net operating loss carryforwards recognized during the periods. The
recognition of these tax benefits had the effect of decreasing tax expense,
and increasing net income, for the three month periods ended September 30,
1996 and 1995 by approximately $340,000, or $0.04 per share, and $280,000, or
$0.03 per share, respectively, and for the nine month periods ended September
30, 1996 and 1995 by approximately $1,470,000, or $0.17 per share, and
$1,150,000, or $0.14 per share, respectively.
2. Earnings per share
Earnings per share are based on the weighted average number of
outstanding common shares and the assumed exercise of dilutive common stock
options and warrants less the number of treasury shares assumed to be
purchased from the proceeds of the assumed exercise. The number of treasury
shares assumed to be purchased from the proceeds is based on the average
market price of the Company's common stock for the period in computing primary
earnings per share, and is based on the end of period market price of the
Company's common stock, if higher than the average market price, in computing
fully diluted earnings per share. For the three and nine month periods ended
September 30, 1996, primary earnings per share were the same as fully diluted
earnings per share after rounding to the nearest cent. For the periods ended
September 30, 1995 common stock options or warrants were not considered
dilutive. The weighted average number of common and equivalent shares
outstanding were as follows:
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
--------------------------- -------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Primary 8,568,263 8,067,985 8,547,515 8,067,985
Fully diluted 8,633,947 8,067,985 8,616,392 8,067,985
3. Inventories
Inventories consist of the following:
September 30, December 31,
1996 1995
---------- -----------
Finished goods $5,943,543 $4,904,058
Work-in-process 3,714,714 4,043,217
Raw materials 5,608,618 5,478,607
---------- -----------
$15,266,875 $ 14,425,882
=========== ============
7
<PAGE> 8
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Litigation matters and contingencies
Recorded assets and liabilities
In regards to the product liability and other litigation matters and
contingencies discussed below, the Company has recorded certain liabilities
and, in some cases, receivables for insurance recoveries. While these amounts
are discussed in the remaining sections of this note, a summary of these
amounts together with other items comprising the applicable balance sheet line
items is as follows:
<TABLE>
<CAPTIONS>
Other Accrued liabilities Other liabilities
Receivables (Current) (Non-Current)
------------- ------------------ ---------------
<S> <C> <C> <C>
September 30, 1996:
Product liability matters:
Future payments on settled cases $ - $ 1,200,000 $ 1,750,000
Insurance recoveries and liabilities
related to above - - -
Reserves for pending and other contingencies - 800,000 3,800,000
------------- ------------------ ---------------
Totals for product liability matters - 2,000,000 5,550,000
Provision for proposed settlement and other costs
relating to fraudulent transfer litigation 1,700,000
Other litigation contingency reserves 100,000
Other (not related to litigation or contingencies) 190,002 2,887,515 598,004
------------- ------------------ ---------------
$ 190,002 $ 6,687,515 $ 6,148,004
============= ================== ===============
December 31, 1995:
Product liability matters:
Future payments on settled cases $ - $ 1,200,000 $ 1,750,000
Insurance recoveries and liabilities
related to above 250,000 600,000 -
Reserves for pending and other contingencies - 900,000 4,200,000
------------- ------------------ ---------------
Totals for product liability matters 250,000 2,700,000 5,950,000
Provision for proposed settlement and other costs
relating to fraudulent transfer litigation 1,900,000
Other litigation contingency reserves 100,000
Other (not related to litigation or contingencies) 108,769 4,881,548 655,206
------------- ------------------ ---------------
$ 358,769 $ 9,581,548 $ 6,605,206
============= ================== ===============
</TABLE>
Product liability:
At September 30, 1996, a subsidiary of the Company was a defendant in 11
product liability suits relating to personal injuries allegedly related to the
use of Riddell helmets. The ultimate outcome of these claims, or potential
future claims, cannot presently be determined. The Company estimates that the
8
<PAGE> 9
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
uninsured portion of future costs and expenses related to these claims, and
incurred but not reported claims, will amount to $4,600,000 and, accordingly,
a reserve in this amount is included in the Consolidated Balance Sheet at
September 30, 1996 as part of accrued liabilities and other liabilities.
These reserves are based on estimates of losses and defense costs anticipated
to result from such claims, from within a range of potential outcomes, based
on available information, including an analysis of historical data such as the
rate of occurrence and the settlement amounts of past cases. However, due to
the uncertainty involved with estimates actual results have at times varied
substantially from earlier estimates and could do so in the future.
Accordingly, there can be no assurance that the ultimate costs of such claims
will fall within the established reserves.
As more fully described in previous reports, the Company maintains
product liability insurance. The Company recently expanded its existing
"occurrence based" product liability insurance policy. The policy period has
been extended through December 2001. The policy change also doubles the
coverage available under "excess" portions of the policy, increasing related
per claim limits from $10,000,000 to $20,000,000 and increasing each of two
different aggregate policy limits (applicable to claims arising in two
different time periods) from $10,000,000 to $20,000,000. The excess coverages
remain limited to certain ratios of paid premiums until the premiums due over
the entire policy period have been paid. However, this latter limitation can
be eliminated at any time by prepaying the future premiums due during the
remainder of the policy. In light of recent claims experience and the
structure of the revised policy, the overall annual cost of coverage under the
policy is not anticipated to change materially from recent levels.
MacGregor fraudulent transfer litigation:
MacGregor Sporting Goods, Inc. (now known as M. Holdings, Inc.) ("Mac I")
filed for bankruptcy in March 1989. In 1993, Mac I's Creditors' Committee and
the bankruptcy trustee of MGS Acquisition Inc. ("MGS") filed a complaint
against the Company seeking rescission of, and/or monetary damages in excess
of $28.5 million plus interest relating to, the Company's acquisitions in 1988
and 1989 of substantially all the assets of two of Mac I's former second-tier
subsidiaries (including the football helmet division, MacGregor trademark
licensing business, and the non-football uses of the Riddell trademark) (the
"Acquisition") for alleged failure to pay fair consideration at a time when
Mac I was insolvent or as a result of which Mac I became insolvent or
undercapitalized.
By order in November, 1994, the complaint was dismissed as time-barred.
The court ordered the appointment of a trustee in Mac I's bankruptcy, but did
not decide whether the trustee would be time-barred if it decided to take a
similar complaint against the Company. In March 1995, the newly appointed
trustee in Mac I's bankruptcy, together with the bankruptcy trustee of MGS
(collectively the "Trustees") filed a similar complaint against the Company.
Additionally, Innovative Promotions, Inc. and certain other purported
unsecured creditors of Mac I filed a complaint under state debtor and creditor
law against the Company making similar allegations and claims as the actions
described above, seeking rescission and/or damages in excess of $22 million.
The Trustees intervened in the Innovative action as plaintiffs, purportedly to
preserve their rights in the event they lost their separate action.
9
<PAGE> 10
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In April, 1996 the Company signed an agreement with the Trustees to
settle the "fraudulent transfer" litigations described above. The proposed
settlement was subject to, among other things, approval by two bankruptcy
courts. The proposed settlement had provided for a payment of approximately
$1.4 million by the Company. However, in June 1996, in view of opposition
from the Creditors' Committee of Mac I, the Trustees withdrew a motion they
had filed to approve the proposed settlement of the actions against the
Company, and the proposed settlement agreement terminated. In October 1996 a
former employee of the Company filed a counterclaim against the Company and
several subsidiaries in the Mac I bankruptcy, seeking indemnity and
contribution in an indeterminate amount from the Company in connection with a
suit by the Mac I trustee against such former employee.
The Company had previously recorded a $1.9 million provision, as of
December 31, 1995, for the proposed settlement as well as anticipated costs
relating to the litigation. The Company has charged certain litigation costs
against the liability reserve reducing the balance to $1,700,000 at September
30, 1996. The Company has not otherwise adjusted the liability reserve for
these actions as a result of the termination of the settlement agreement, as
the balance remains within the potential range of costs of resolving the
litigation. However, as discussed above, the plaintiffs in the actions are
seeking damages far in excess of this amount and, accordingly, there can be no
assurances that the matter will ultimately be resolved at an amount within the
reserve. The reserve is reflected in the Consolidated Balance Sheets as part
of accrued liabilities at September 30, 1996 and December 31, 1995. The
Company remains confident that the fraudulent transfer cases are without
merit, and intends to vigorously defend against them.
Other contingencies and litigation matters:
In connection with the Company's suit against its former President,
Frederic Brooks, for alleged breaches of his consulting agreement and certain
other matters, Mr. Brooks filed counterclaims against the Company. Mr. Brooks
alleges the Company breached its indemnification obligations to him as a
former officer and director of the Company in connection with the Company's
action against Mr. Brooks, a purported class action (now settled), an action
(now settled) against Mr. Brooks brought by certain stockholders of the
Company, and the action brought by the MacGregor Bankruptcy Trustee, and seeks
damages in excess of $1.85 million plus future attorneys' fees and interest.
Mr. Brooks also seeks compensatory and punitive damages combined of at least
$15 million against the Company, two of its officers and directors and an
entity controlled by them for tortious interference with contract and
prospective advantage and prima facie tort. Mr. Brooks has impleaded the
Company's "Riddell" footwear licensee for contribution for all damages that
may be assessed against him in the Company's suit against Mr. Brooks for
certain alleged breaches of his consulting agreement relating to, among other
things, alleged attempts to disparage and take control of the Company. In
connection with a settlement of certain actions between the Company and its
"Riddell" footwear licensee in early 1994, the Company agreed to indemnify the
licensee and certain of its affiliates in the event they were so impleaded by
Mr. Brooks into the Company's suit against Mr. Brooks for breach of his
consulting agreement. In March 1996, Mr. Brooks filed a motion for summary
judgement dismissing the claims against him and requesting consulting fees of
$587,230 plus interest under his consulting agreement (which the Company has
previously deposited in an escrow type account) and legal fees and the Company
filed a motion for partial summary judgement dismissing certain of Mr. Brook's
claims against it and its affiliates. Mr. Brooks recently
10
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RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
clarified that the relief sought in his motion for summary judgement included,
among other things, consulting fees with the Company s Riddell footwear
licensee exceeding $850,000 and attorney's fees exceeding $1.5 million through
April 1996, plus interest. The summary judgement motions have not yet been
ruled upon. The Company believes Mr. Brooks' claims against the Company are
without merit and intends to vigorously defend against them.
In 1993, certain subsidiaries and an officer of a subsidiary of the
Company were served with a complaint seeking compensatory and punitive damages
exceeding $10 million. The complaint alleges violation of privacy, unfair
competition, trademark infringement, breach of contract and other claims in
connection with the Company's sale of umpire vests. The action was dismissed
against the officer for lack of personal jurisdiction. The Company believes
this case is without merit and intends to defend vigorously against it.
In January 1995, the Company was named as a co-defendant in a complaint
which alleges wrongful death, failure to warn and other things surrounding the
death of a minor at one of the Company's facilities. The minor was involved
in a fatal accident as he trespassed on the roof of the facility after hours.
The complaint seeks unspecified monetary damages. The Company believes that
it has meritorious defenses to this action and intends to vigorously defend
against it. The defense of the matter has been assumed by the Company's
general liability insurance carrier, subject to a reservation of rights and
certain policy limits and deductibles.
The Company cannot estimate the full extent of a potential range of loss
related to these litigation matters as their ultimate outcome cannot presently
be determined.
5. Long Term Debt
In early November 1996, the Company issued a new 4.10% Convertible
Subordinated Note due November 1, 2004 (the "Note") in the principal amount of
$7,500,000, as further described below. A portion of the proceeds from this
issuance was used to repay the remaining $870,834 balance of a subordinated
term note, in the original amount of $2 million, due to a shareholder in
accordance with its terms. Contemporaneously with the issuance of the Note
the Company amended its loan agreement with its senior lender to, among other
things, extend the term of its revolving line of credit from April 1997 to
April 1998, and to defer a $1,000,000 principal payment due on a term loan
from December 1996 to December 1998.
The classification of certain long term debt between current and non-
current liabilities in the September 30, 1996 balance sheet has been adjusted
to reflect the subsequent events discussed above. These adjustments include
the reclassification of the $870,834 principal balance of the subordinated
term note due to a shareholder as a current liability, the reclassification of
the $1,000,000 principal payment previously due in December 1996 as a non-
current liability, and the reclassification of a $20,000,000 portion of the
revolving line of credit (representing the annual low point in borrowing
limits under the line) as a non-current liability.
11
<PAGE> 12
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Convertible Subordinated Note was issued on November 8, 1996 to
Silver Oak Capital, L.L.C., an affiliate of Angelo. Gordon & Co. The note
bears interest at 4.1% and is due on November 1, 2004. The Note is
convertible at $6.00 a share into 1,250,000 shares of the Company's Common
Stock (subject to antidilution adjustment), constituting 13.4% of the
outstanding shares of the Company's outstanding Common Stock after giving
effect to conversion of the Note but without regard to the exercise of any
outstanding options or warrants to buy the Company's Common Stock. The
conversion price represents a 21.5% premium to the Company's October 30, 1996
closing price of $4 15/16.
The Company must redeem 25% and 33.33% of the outstanding principal
amount of the Note on November 1, 2002, and November 1, 2003, respectively and
the remainder on November 1, 2004.
The holders of the Note may exercise an option (the "Change of Control
Option") to require the Company to purchase the Note at 101% of the principal
amount thereof under certain circumstances, generally including the
acquisition of at least 30% of the Company's then outstanding voting stock by
a person or group other than M.L.C. Partners Limited Partnership, a Delaware
limited partnership ("MLC") and affiliates thereof (which collectively
currently own in excess of 44% of the Company's outstanding stock) or the
occurrence of a merger or similar event in which the Company is not the
surviving entity, or a change in at least a majority of the members of the
Board of Directors. If holders of over $100,000 principal amount of the Note
were to exercise this Change of Control Option, it would result in an event
of default under the loan agreement for the Company s senior indebtedness.
The payment of principal of and interest on the Note is subordinated in
right of payment to prior payment in full of Senior Indebtedness (as defined
in the Note Purchase Agreement) upon maturity of the Senior Indebtedness by
acceleration or otherwise, or any bankruptcy, dissolution or similar event of
the Company. Senior Indebtedness is defined generally to include debt under
the Company's revolving line of credit and term loan payable to NBD Bank and
any refinancing, renewal or replacement thereof (regardless of the amount or
lender), certain acquisition debt and certain other debt. In addition, the
Company has agreed not to incur any Indebtedness (as defined in the Note
Purchase Agreement) that is subordinated in right of payment to any
Indebtedness of the Company unless it is pari passu with or subordinate in
right of payment to the Note.
The Company's wholly-owned subsidiaries have guaranteed the Company's
payment obligations under the Note. Such guaranty obligations are
subordinated in right of payment to any Senior Indebtedness of such subsidiary
to the same extent as the Note is subordinated to Senior Indebtedness of the
Company. Each subsidiary has agreed not to incur any Indebtedness that is
subordinate in right of payment to any Indebtedness of the subsidiary unless
it is pari passu with or subordinate in right of payment to such subsidiary's
payment obligations under the guaranty.
The Company has agreed to register with the Securities and Exchange
Commission the Common Stock underlying the Note, and has indemnified the
holders of the Note in connection with any such registration. The Company has
agreed to pay the fees and expenses relating to the registration of the Common
Stock, and certain other fees and expenses relating to the sale of the stock
(other then fees, commission and expenses of any underwriters).
12
<PAGE> 13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Operations for the third quarter of 1996 resulted in a 20% increase in
net income to $965,117, or $0.11 per share, over third quarter 1995 net income
of $802,640, or $0.10 per share. For the nine month period ended September
30, 1996 net income increased 25% to $4,133,933, or $0.48 per share, compared
to net income of $3,303,575, or $0.41 per share, for the nine month period of
1995. Due to recent increases in the market value of the Company's stock, per
share results for the first nine months of 1996 reflect the dilutive impact of
certain common stock options and warrants. The dilutive options and warrants
represented approximately 500,000 net common stock equivalents during the
first nine months of 1996, whereas no options or warrants were considered
dilutive for purposes of computing earnings per share for the 1995 periods.
As discussed in the Notes to Consolidated Financial Statements, 1996 and 1995
year to date earnings benefited from lower tax expense due to net operating
loss carryforwards recognized during the periods.
The Company's overall profitability improvements are due to increased
sales volume across most of the Company's product lines which, combined with
favorable sales mix and operational efficiencies, have improved the Company's
gross margins. These gains were partially offset by a decrease in royalties
from trademark licensing. The impact of the volume and margin gains were also
offset in part by increased selling costs resulting from increased promotional
expenses and higher commissions.
The effect of these factors are further described in the following
discussion of operating results by line item, together with other matters
having a significant effect on the Company's results of operations.
Revenues
Total revenues for the three months ended September 30, 1996 increased by
4% to $18,337,265, which compares with total revenues of $17,700,191 for the
three months ended September 30, 1995. Total revenues for the nine month
period ended September 30, 1996 increased by 9% to $59,793,239 from
$55,022,750 for the nine months ended September 30, 1995.
Net sales of the Company's sports products and services segment increased
by 5% for the third quarter of 1996 to $17,781,415 from $16,986,783 for the
three months ended September 30, 1995. For the nine month period of 1996, net
sales of this segment increased 11% to $57,662,900 from $52,167,954 in the
comparable period of 1995. The Company experienced sales gains in most of its
product lines, including year to date overall increases in sales of athletic
products, sports collectible products and reconditioning services.
Sales of competitive athletic products increased approximately $2.0
million, or 9%, for the year to date period in comparison to the first nine
months of 1995, and for the third quarter of 1996 increased by $300,000, or
3%, in comparison to the year ago period. The year to date sales of these
products, principally football helmets and shoulder pads sold to schools and
other institutions, reflects increased unit volume and selected price
increases to offset rising costs. Unit volume increases have occurred as
13
<PAGE> 14
the Company gains experience under the recently implemented direct
distribution of its institutional products. The Company is also benefiting
from other actions taken in recent periods to increase institutional sales.
These actions, discussed in prior reports, include increases in the number of
salesmen calling on schools, more intensive sales training, incremental field
sales managers, new sales incentive programs, and the introduction of
additional athletic products. These actions also included a new early
incentive program which encouraged early orders and deliveries, accelerating
some volume into the first quarter of the year, with the result that the third
quarter increase in sales of these products is lower than the year to date
rate of increase. As discussed in prior reports, the Company also benefitted
from a seasonal increase in the volume of competitive youth products sold
earlier in the year.
Sales of reconditioning services increased for the nine months period by
approximately 3%, or $500,000. For the third quarter, sales of these services
were down $200,000 in comparison to 1995 levels, partially offsetting gains
achieved earlier in the year. The year to date improvement was principally
due to moderate price increases.
Sales of sports collectible products increased in the third quarter by
approximately 14%, or $750,000, and for the nine month period increased 25%,
or $3.0 million, compared to the nine months period of 1995. This improvement
was due to increased volume in sales of the Company's line of miniature
helmets, including its new line of miniature hockey goalie helmets which the
Company started shipping in late 1995. Sales of sports collectible products
have been the strongest area of growth for the Company over the past two
years, and these lines have become a significant part of the Company's
business. The Company is continuing to maintain a high level of marketing
emphasis on the sports collectible business.
Royalty income decreased by 22% to $555,850 for the three months ended
September 30, 1996 from $713,408 during the third quarter of 1995. For the
nine months ended September 30, 1996 royalty income decreased by 25% to
$2,130,339 from $2,854,796 for the nine months ended September 30, 1995.
These decreases were largely attributable to a decline in royalties from the
licensing of the Riddell trademark. The Company anticipates that Riddell
licensing income will remain significantly below 1995 levels throughout 1996
for several reasons. As discussed in prior reports, in October 1995, the
Company terminated a license for use of the Riddell trademark on certain
athletic equipment. In connection with a restructuring of the business of its
apparel licensee, the Company agreed to reduce the minimum royalty due under
the license and replaced the prior agreement with a short term license. And
finally, the Company's Riddell footwear licensee has filed for bankruptcy as
discussed in prior reports. The footwear licensee must continue to comply
with the terms of the license, including payment of royalties; however, the
Company has agreed to allow the licensee to offset certain amounts, which
could exceed royalties otherwise due from the licensee through the middle of
1997. Royalties from licensing of the MacGregor trademark rights remained
stable between the third quarter of 1996 and 1995 with an increase of under
1%. MacGregor royalties decreased 9 %, or $200,000, for the nine month
period, due to a decrease in royalties from Kmart.
Gross Profit
Gross profit for the quarter ended September 30, 1996 increased $564,001,
or 7%, compared to the quarter ended September 30, 1995. For the nine month
period ended September 30, 1996 gross profits increased $2,799,253, or 11%,
over the comparable period of 1995. The increases in gross profits were
related to sales of sports products and services, further discussed below.
These increases
14
<PAGE> 15
were offset in part by the year-to-date decreases in royalty income from
trademark licensing discussed above. While trademark licensing does have
certain costs included in selling, general, and administrative expenses, there
are no related costs which are deducted in arriving at gross profit.
Accordingly, each incremental dollar of royalty income results in a dollar
increase in gross profit.
Gross profit attributable to sports products and services for the quarter
ended September 30, 1996 increased $721,559, or 10%, compared to the
comparable quarter of 1995. For the nine month period ended September 30,
1996 gross profits for this segment increased $3,523,710, or 15%, over the
comparable period of 1995. Gross profit margin rates for the sports products
and services segment increased to 43.2% of sales for the third quarter from
41.0% of sales for the third quarter of 1995. For the nine month period gross
profit margin rates increased to 45.7% of sales in 1996 compared to 43.7% of
sales in the comparable 1995 period. The increase in gross margin dollars is
principally due to the sales increases discussed above. Other factors
contributing to the improvement in gross margins were changes in the sales
mix, manufacturing efficiencies due to higher volumes and selective price
increases taken to offset rising costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $411,499 or 8%
over 1995 levels for the third quarter. For the nine month period ended
September 30, 1996 these expenses increased $1,942,956 or 11% over comparable
1995 levels. The increases are attributable to higher levels of selling,
marketing and promotional expenses relating to the Company's sales of
competitive athletic products sold to schools and other institutions. These
selling expense increases were incurred in taking certain actions to increase
sales of competitive athletic products as discussed above under Revenues.
General and administrative expenses showed a modest decline between the
periods.
Interest Expense
Interest expense has remained stable between the periods with a decrease
of 2% for the third quarter, and 1% for the nine month period, in comparison
to the comparable 1995 periods. This reflects a decline in the prime rate
which was offset in part by increases in average indebtedness related to the
level of the Company's business volume.
CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION:
The Company sells a portion of its competitive football products and
reconditioning services on dated payment terms with payments from customers
(primarily high schools and colleges in these cases) generally due the
following July to October period. Accordingly, trade receivables increase
throughout the year as sales are made on these dated payment terms. The
increase in trade receivables continues throughout an annual cycle until
reduced at the end of the cycle as the dated receivables become due. In order
to finance the resulting large receivable levels, the Company maintains a
revolving line of credit. The outstanding balance on the revolving line of
credit generally follows the seasonal receivable cycle described above,
increasing as the level of receivables increase until the fall of each year
when collections of the dated receivables are used to reduce the outstanding
balance on the line. The Company's current borrowing limits under the line of
credit discussed above fluctuate throughout the year from a low of
15
<PAGE> 16
$20,000,000 to a high of $31,750,000 at predetermined points in time. The
liability under the line is reflected on the Consolidated Balance Sheets as
part of long-term debt, with the balance in excess of the annual borrowing
limit low of $20,000,000 included in the current portion of long-term debt.
Operations during recent years have resulted in periods of increased
working capital demands due to volume growth in certain product lines and
other changes in the Company's business. In early November 1996 the Company
completed certain financing matters which will provide increased capital to
finance the Company s working capital requirements anticipated over the next
year. The financing matters completed included (1) a one year extension of
the maturity date of the Company's revolving line of credit from April 1997 to
April 1998; (2) a deferral of a $1,000,000 principal payment on term notes
from December 1996 to December 1998; (3) the sale of a new $7,500,000
principal amount 4.10% Convertible Subordinated Note, convertible into 1.25
million shares of the Company's common stock. The terms of the Note are more
fully described in Note 5 of Notes to Consolidated Financial Statements. A
portion of the proceeds of the Subordinated Convertible Note were used to
redeem the $870,834 remaining unpaid balance of a promissory note payable to
MLC, a shareholder and affiliate of the Company s Chairman and certain other
directors and another officer, in accordance with its terms. The remaining
proceeds, after expenses of approximately $1 million (including expenses
relating to the senior debt extensions and other related matters), will be
used for working capital needs and general corporate purposes. The Company
remains in discussion with its senior lender regarding additional changes to
its loan agreement, including an additional three year extension of its
revolving line of credit, but there can be no assurances that such an
extension will be granted.
16
<PAGE> 17
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Mac I Fraudulent Transfer Action and State Law Debtor and Creditor Claim
Mac I had filed for bankruptcy protection in March 1989 in the United
States Bankruptcy Court in New Jersey. Mac I, its Creditors' Committee and
the bankruptcy trustee of MGS jointly brought an action against the Company,
its principal lender, NBD Bank and others in the New Jersey Bankruptcy Court
(OFFICIAL UNSECURED CREDITORS' COMMITTEE OF MACGREGOR SPORTING GOODS, INC. V.
RIDDELL SPORTS INC., No. 93-2214 (RG) (Bankr. D.N.J.)). By order dated
November 3, 1994 the court dismissed this complaint as time-barred. The court
also appointed a trustee in the bankruptcy of Mac I, but did not decide
whether the trustee would be time-barred if it decided to bring a similar
action against the Company and its lender. Plaintiffs in the action had
sought monetary damages and/or the rescission of the Acquisitions for, among
other things, alleged failure to pay fair consideration at a time when Mac I
was insolvent or as a result of which Mac I became insolvent or
undercapitalized. The monetary damages alleged in connection with the
Acquisitions exceeded $28.5 million. In addition to seeking monetary damages
and\or rescission from the Company, the complaint sought to void the liens of
NBD Bank in the property at issue.
After the above action was dismissed, the Trustees commenced a
substantially similar action against the Company in March of 1995 entitled,
BRUCE LEVITT, BANKRUPTCY TRUSTEE FOR MACGREGOR SPORTING GOODS, INC., NOW KNOWN
AS M. HOLDINGS, INC., PAUL SWANSON, BANKRUPTCY TRUSTEE FOR MGS ACQUISITION,
INC. V. RIDDELL SPORTS INC., et al, No. 95-2261 (RG) (Bankr. D.N.J.) in the
Chapter 11 bankruptcy case of Mac I (the "Levitt Action"). The complaint
seeks monetary damages in an unspecified amount plus interest and\or
rescission in connection with the Company's Acquisitions on the grounds, among
others, that the Company allegedly failed to pay fair consideration at a time
when Mac I was insolvent and\or undercapitalized. In addition to seeking
monetary damages and\or rescission from the Company, the complaint seeks to
void the liens of NBD Bank in the property at issue. The complaint also seeks
damages against the Board of Directors of Mac I including Frederic H. Brooks
("Brooks"), a former President of the Company, for breaches of fiduciary
duties to Mac I for failing to obtain fair consideration in connection with
these transactions.
Additionally, Innovative Promotions, Inc. and certain other purported
unsecured creditors of Mac I initiated a state law debtor and creditor action
against the Company which is now pending in the New Jersey Bankruptcy Court
(INNOVATIVE PROMOTIONS, INC. ET AL. V. RIDDELL SPORTS INC. ET AL. (IN RE
MACGREGOR SPORTING GOODS, INC.), Adv. Proc. No. 94-2656(RG) in the Chapter 11
bankruptcy case of Mac I (the "Innovative Action"). The plaintiffs in the
Innovative action seek rescission of, and/or monetary damages in excess of $22
million exclusive of interest relating to the Company's Acquisitions for
alleged failure to pay fair consideration at a time when Mac I was insolvent,
or as a result of which Mac I became insolvent or undercapitalized.
Plaintiffs also seek judgments voiding the liens of NBD Bank with respect to
the assets. In June 1995, the Trustees in the Levitt Action (the "Trustees")
intervened as plaintiffs in the Innovative action purportedly to preserve
their rights in the event they lost the Levitt Action.
In April 1996 the Company entered into a settlement agreement with the
Trustees requiring the Company to pay an aggregate of $1.4 million and
releasing the Company and other defendants from all
17
<PAGE> 18
claims and liabilities in the litigations. The settlement was subject to,
among other things, approval of two bankruptcy courts. On June 24, 1996 the
Trustees withdrew their motion to approve the settlement agreement in light of
a Plan of Reorganization of Mac I submitted by the Mac I Creditors' Committee
in opposition to the settlement agreement. The Company notified the Trustees
that their actions breached, and caused termination of, the proposed
settlement agreement. The Creditors' Committee's Plan of Reorganization is
subject to acceptance by the creditors and court approval.
The Company has answered this complaint in both the Levitt Action and the
INNOVATIVE Action, remains confident that the fraudulent transfer cases are
without merit and intends to vigorously defend against them.
On October 31, 1996 in the Levitt Action, Brooks filled an answer and
counterclaim against the estate of Mac I and a cross-claim against the other
defendants in the Levitt Action, including the Company and several of its
subsidiaries. The cross-claim against the Company and such subsidiaries seeks
indemnification and contribution under state law, the Company's Bylaws and
Brooks employment agreements with the Company in an indeterminate amount.
The Company believes these cross-claims are without merit and intends to
vigorously defend against them.
Employee Litigation
In connection with the Company's suit against its former President,
Brooks, for alleged breaches of his consulting agreement and certain other
matters, Brooks filed counterclaims against the Company and two of its
officers and directors. The action is captioned, RIDDELL SPORTS INC. V.
FREDERIC H. BROOKS, (D.C., SDNY), 92 Civ. 7851 (JGK). Brooks generally
alleges the Company breached its indemnification obligations to him as a
former officer and director of the Company and seeks damages in excess of
$1.85 million, plus future attorneys fees and interest. Brooks also seeks
compensatory and punitive damages combined of at least $15 million against the
Company, two of its officers and directors and an entity controlled by them.
Brooks' counterclaims originally alleged claims for breach of contract,
declaratory relief, tortious interference with contract and prospective
advantage (including in connection with the Company's "Riddell" footwear
licensee), injurious falsehood, prima facie tort and abuse of process. On
January 5, 1995, the Court dismissed Brooks' claims for injurious falsehood
and abuse of process with prejudice and dismissed Brooks' tortious
interference with prospective advantage and prima facie tort claims without
prejudice. On February 3, 1995, Brooks amended his counterclaims to reassert
claims for tortious interference with prospective advantage and prima facie
tort. In connection with a settlement of certain actions between the Company
and its "Riddell" footwear licensee, the Company agreed to indemnify the
licensee and certain of its affiliates in the event they are impleaded by
Brooks into the Company's suit against Brooks for breach of his consulting
agreement; Brooks has impleaded the Company's "Riddell" footwear licensee and
other affiliates of the footwear licensee for indemnification for all damages
that may be assessed against him in the Company's suit against Brooks for
certain alleged breaches of his consulting agreement relating to among other
things alleged attempts to disparage and take control of the Company and to
Brooks' alleged cooperation with the Unsecured Creditors' Committee of
MacGregor. In March 1996, Brooks filed a motion for summary judgment
dismissing the claims against him and requesting consulting fees of $580,000
under his consulting agreement (for which the Company has previously
established a reserve), and the Company filed a motion for partial summary
judgment dismissing certain of Brooks claims against it and its affiliates.
Brooks recently clarified that the relief
18
<PAGE> 19
he was seeking in his motion for summary judgement included, among other
things, consulting fees pursuant to Brooks' consulting agreement with the
Company's "Riddell" footwear licensee in an amount exceeding $850,000,
attorney's fees and expenses of approximately $1,500,000 incurred through
April 30, 1996 in connection with Brooks' counterclaims, plus interest on all
such amounts.
The Company believes Brooks' remaining claims against the Company for
breach of contract, tortious interference with contract, tortious interference
with prospective advantage and prima facie tort are without merit and intends
to vigorously defend against them.
Other
The Company is also a defendant in certain product liability proceedings.
See Note 4 of "Notes to Consolidated Financial Statements".
The Company is also a defendant in certain other litigation described in
Item 3 of its Form 10-K for the year ended December 31, 1995 and Part II, Item
1 of its Form 10-Q for the quarter ended March 31, 1996 and June 30, 1996.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
19
<PAGE> 20
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit index:
3.(i) Amended and Restated Articles of Incorporation of Riddell
Sports Inc.
10.1 Fourteenth Amendment to the Company's Amended Revolving Credit
and Loan Agreement dated as of November 8, 1996 among NBD Bank,
as Lender, Riddell, Inc., Equilink Licensing Corporation and
RHC Licensing Corporation, as Borrowers, and Riddell Sports
Inc., All American Sports Corporation, Ridmark Corporation,
Proacq Corp. and SharCo Corporation., as guarantors, as amended
10.2 Note Purchase Agreement dated October 30, 1996 between Riddell
Sports Inc. and Silver Oak Capital, L. L. C.
10.3 Subordinated Guaranty dated November 8, 1996 among Riddell,
Inc., Equilink Licensing Corporation, and RHC Licensing
Corporation, All American Sports Corporation, Ridmark
Corporation, Proacq Corp. and SharCo Corporation.
10.4 Registration Rights Agreement dated November 8, between Riddell
Sports Inc. and Silver Oak Capital L.L.C.
11 Computation of Earnings Per Share
27 Financial Data Schedule (submitted in electronic form
to SEC only)
(b) Reports on Form 8-K
None
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RIDDELL SPORTS INC.
Date: November 12, 1996 By DAVID MAUER
----------------------
David Mauer
Chief Executive Officer
Date: November 12, 1996 By LAWRENCE F. SIMON
----------------------
Lawrence F. Simon
Senior Vice President
(Principal Accounting Officer)Q
21
<PAGE> 1 EX-3.(i)
EXHIBIT 10.1
CERTIFICATE OF INCORPORATION
OF
RIDDELLINK HOLDING CORP.
_________
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes
hereinafter stated, under the provisions and subject to the requirements of
the laws of the State of Delaware (particularly Chapter 1, Title 8 of the
Delaware Code and the acts amendatory thereof and supplemental thereto, and
known, identified and referred to as the General Corporation Law of the
State of Delaware ), hereby certifies that:
FIRST: The name for the corporation (hereinafter called the
corporation ) is
RIDDELLINK HOLDING CORP.
SECOND: The address, including street, number, city, and county, of
the registered office of the corporation in the State of Delaware is 229
South State Street, City of Dover, County of Ken; and the name of the
registered agent of the corporation in the State of Delaware is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the corporation is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation
shall have authority to issue is Three Thousand (3,000), all of which are
without par value. All such shares are of one class and are shares of
Common Stock.
No holder of any of the shares of the stock of the corporation,
whether now or hereafter authorized and issued, shall be entitled as of
right to purchase or subscribe for (1) any unissued stock of any class, or
(2) any additional shares of any class to be issued by reason of any
increase of the authorized capital stock of the corporation of any class,
or (3) bonds, certificates of indebtedness, debentures or other securities
convertible into stock of the corporation, or carrying any right to
purchase stock, may be issued and disposed of pursuant to resolution of the
Board of Directors to such persons, firms, corporations or associations and
upon such terms as may be deemed advisable by the Board of Directors in the
exercise of its discretion.
FIFTH: The name and the mailing address of the incorporator are as
follows:
NAME MAILING ADDRESS
T.M. Bonovich 229 South State Street, Dover, Delaware
-1-
<PAGE> 2 EX-3.(i)
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between
this corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application
in a summary way of this corporation or of any creditor or stockholder
thereof or on the application of any receiver or receivers appointed for
this corporation under the provisions of section 291 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as
the case may be, to be summoned in such manner as the said court directs.
If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of this corporation as
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court
to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
EIGHTH: For the management of the business and for the conduct of
the affairs of the corporation, and in further definition, limitation and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further
provided:
1. The management of the business and the conduct of the
affairs of the corporation shall be vested in its Board of Directors.
The number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the By-
Laws. The phrase whole Board and the phrase total number of
directors shall be deemed to have the same meaning, to wit, the total
number of directors which the corporation would have if there were no
vacancies. No election of directors need be by written ballot.
2. After the original or other By-Laws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and, after the corporation has received any payment for any of
its stock, the power to adopt, amend, or repeal the By-Laws of the
corporation may be exercised by the Board of Directors of the corporation;
provided, however, that any provision for the classification of directors
of the corporation for staggered terms pursuant to the provisions of
subsection (d) of Section 141 of the General Corporation Law of the State
of Delaware shall be set forth in an initial By-Law or in a By-Law adopted
by the stockholders entitled to vote of the corporation unless provisions
for such classification shall be set forth in this certificate of
incorporation.
3. Whenever the corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever
the corporation shall be authorized to issue more than one class of stock,
-2-
<PAGE> 3 EX-3.(i)
no outstanding share of any class of stock which is denied voting power
under the provisions of the certificate of incorporation shall entitle the
holder thereof to the right to vote at any meeting of stockholders except
as the provisions of paragraph (2) of subsection (b) of section 242 of the
General Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied voting
power shall entitle the holder thereof to vote upon the increase or
decrease in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the corporation
is hereby eliminated to the fullest extent permitted by paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the State
of Delaware, as the same may be amended and supplemented.
TENTH: The corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and
all of the expenses, liabilities or other matters referred to in or covered
by said section, and the indemnification provided for herein shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as
to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of the heirs, executors and administrators
of such a person.
ELEVENTH: From time to time any of the provisions of this certificate
of incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the
corporation by this certificate of incorporation are granted subject to the
provisions of this Article ELEVENTH.
Signed on April 4, 1988.
T.M. BONOVICH
-------------
T.M. Bonovich
Incorporator
-3-
<PAGE> 4 EX-3.(i)
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
RIDDELLINK HOLDING CORP.
Pursuant to the Delaware General Corporate Law
It is hereby certified that:
1. The name of the corporation (hereinafter called the
Corporation ) is RIDDELLINK HOLDING CORP.
2. The Certificate of Incorporation of the Corporation is hereby
amended by striking out Article 4 thereof and by substituting in lieu of
said Article 4 the following new Article
4:
4. The Corporation is authorized to issue an aggregate of
20,000 shares of stock, $.01 par value per share, of which 16,950
shares shall be designated Class A Common Stock ( Class A Common ) and
3,050 shares shall be designated Class B Common Stock ( Class B
Common ). Class A Common and Class B Common shall have exactly the
same designations, rights privileges and preferences (including voting
rights) except as follows:
(1) Until such time as the holders of Class A Common shall have
received, on account of their Class A Common shares, an
aggregate sum of four million ($4,000,000) dollars, whether
by way of or as a result of one or more dividends, sales of
any Class A Common by such holders and/or distributions with
respect to the liquidation, dissolution or winding up of the
Corporation, or otherwise (the Investor Repayment ) the
holders of Class B Common shall not be entitled to any
dividend or other distribution of any kind, nature or
description by the Corporation.
(2) At such time as the holders of Class A Common shall have
received the Investor Repayment, the holders of Class A
Common and the holders of Class B Common shall share in any
and all future dividends and distributions by the
Corporation in accordance with the following:
a) if the aggregate of all such dividends and
distributions exceeds the Investor Repayment, but is less
that $5,755,400 (said difference being referred to herein as
the Second Level Distribution ) then the holders of Class B
Common shall be entitled to that portion of the Second Level
Distribution which, after giving effect to prior Second
Level Distributions, brings the total distributed to such
holders to, in the aggregate:
.305 x Second Level Distribution
plus $610,000 x (Second Level Distribution)
$1,755,400
-1-
<PAGE> 5 EX-3.(i)
and the holders of the Class A Common shall be entitled to
the balance of each such Second Level Distribution plus the
Investor Repayment (provided the Investor Repayment is only
paid once).
Example:
aggregate Distributions/Dividends = $5,000,000
Second Level Distributions = $1,000,000
Class B Common Holders get
.305 x $1,000,000 = $ 305,000
plus 610,000 x $1,000,000 = $ 347,000
---------- ----------
$1,755,400 $ 652,000
Class A Common Holders get
Investor Repayment $4,000,000
Balance of Second Level
Distribution ($1,000,000
less $652,000) $ 348,000
----------
$4,348,000
b) if the aggregate of all such dividends and
distributions is equal to or exceeds $5,755,400 (being
referred to herein as the Ultimate Level
Distributions ) then the holders of Class B Common
shall be entitled to that portion of each Ultimate
Level Distribution which, after giving effect to prior
Ultimate Level Distributions, brings the total Ultimate
Level Distribution to such holders to, in the
aggregate:
.305 x Ultimate Level Distributions plus $610,000 and
the holders of the Class A Common shall be entitled to
the balance of each such Ultimate Level Distribution
plus the Investor Repayment (provided the Inventor
Repayment is only paid once).
Example:
aggregate Distributions/Dividends=$6,000,000
Ultimate Level Distributions = $2,000,000
Class B Common Holders receive:
.305 x $2,000,000 =$ 610,000
plus $610,000 610,000
--------
$1,220,000
Class A Common Holders get:
Investor Repayment $4,000,000
Balance of Ultimate Level
Distributions ($2,000,000
less $1,220,000) $ 780,000
----------
$4,780,000
-2-
<PAGE> 6 EX-3.(i)
3. The amendment of the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provision of
Sections 228 and 242 of the General Corporation Law of the State of
Delaware.
Signed and attested to on April 12, 1988.
ROBERT NEDERLANDER
----------------------------
Robert Nederlander - President
Attest:
LEONARD TOBOROFF
- -------------------------------
Leonard Toboroff - Secretary
-3-
<PAGE> 7 EX-3.(i)
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
RIDDELLINK HOLDING CORP.
Pursuant to the Delaware General Corporate Law
It is hereby certified that:
1. The name of the corporation (hereinafter called the
Corporation ) is RIDDELLINK HOLDING CORP.
2. The First section of the Certificate of incorporation of the
corporation is hereby amended in its entirety to read as follows:
FIRST: the name of the corporation (hereinafter called the
corporation ) is
SPORTS LICENSING AND MANUFACTURING INC.
3. The amendment of the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of
Sections 228 and 242 of the General Corporation Law of the State of
Delaware.
Signed and attested to on October 24, 1990.
FREDERIC H. BROOKS
------------------------------
Frederic H. Brooks, President
Attest:
LAWRENCE F. SIMON
- --------------------------------
Lawrence F. Simon,
Assistant Secretary
<PAGE> 8 EX-3.(i)
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
SPORTS LICENSING AND MANUFACTURING INC.
Pursuant to the Delaware General Corporation Law
It is hereby certified that:
1. The name of the corporation (hereinafter called the
Corporation ) is SPORTS LICENSING AND MANUFACTURING INC.
2. The First section of the Certificate of Incorporation of the
Corporation is hereby amended in its entirety to read as follows:
FIRST: the name of the corporation (hereinafter called the
corporation ) is
RIDDELL SPORTS INC.
3. The amendment of the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of
Sections 228 and 242 of the General Corporation Law of the State of
Delaware.
Signed and attested to on May 1, 1991.
ROBERT NEDERLANDER
------------------------------
Robert Nederlander
Chairman of the Board
Attest:
LAWRENCE F. SIMON
- --------------------------------
Lawrence F. Simon,
Assistant Secretary
<PAGE> 9 EX-3.(i)
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
RIDDELLINK HOLDING CORP.
Pursuant to the Delaware General Corporate Law
RIDDELLINK HOLDING CORP., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the Corporation ),
does hereby certify:
1. The name of the Corporation is RIDDELLINK HOLDING CORP.
2. The Certificate of Incorporation of the Corporation is hereby
amended by striking out Article 4 thereof and by substituting in lieu
thereof the following new Article 4.
4. The Corporation is authorized to issue an aggregate of
20,000 shares of common stock, $.01 par value per share (the Common
Stock ). Upon the filing of this Certificate of Amendment, each issued
and outstanding share of the Class A Common Stock, $0.1 par value per
share and each issued and outstanding share of the Class B Common
Stock, $.01 par value per share, shall be reclassified and changed
into one share of Common Stock, without any action on the part of the
holders thereof.
3. The foregoing amendment of the Certificate of Incorporation of
the Corporation was duly adopted in accordance with the provisions of
Section 228 and 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, RIDDELLINK HOLDING CORP. has caused this
certificate to be signed by its Chairman of the Board and attested by its
Secretary, this 29th day of September, 1988.
ROBERT NEDERLANDER
------------------------------
Robert Nederlander
Chairman of the Board
Attest:
LEONARD TOBOROFF
- ----------------------------
Leonard Toboroff,
Secretary
<PAGE 10> EX-3.(i)
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
RIDDELL SPORTS INC.
Pursuant to the Delaware General Corporation Law
It is hereby certified that:
1. The name of the corporation (hereinafter called the
Corporation ) is RIDDELL SPORTS INC.
2. The Board of Directors and Stockholders of the Corporation,
by the unanimous consent of all directors and the Voting Trustee pursuant
to a Voting Trust Agreement dated April 18, 1988, as Amended, covering all
issued and outstanding shares of the Corporation, pursuant to Sections
141(f) and 228(a) of the General Corporation Law, have adopted the
following resolutions setting forth an amendment to the Certificate of
Incorporation of the Corporation and declaring them to be in the best
interests of the Corporation; said resolutions reading as follows:
RESOLVED, that the Certificate of Incorporation of the
Corporation be amended immediately prior to the Public Offering so that
Article FOURTH reads in its entirety as follows:
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is TWENTY-ONE MILLION
(21,000,000) consisting of (i) Twenty Million (20,000,000) shares of
Common Stock, par value $.01 per share, and (ii) One Million
(1,000,000) shares of preferred Stock, par value $.01 per share.
The designations, powers, preferences and rights, and the
qualifications, limitations or restrictions of the Preferred Stock and
of the Common Stock are as follows:
A. Preferred Stock.
The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of this Article FOURTH, to
provide by resolution or resolutions for the issuance of the Preferred
Stock. The Preferred Stock may be issued either as a class without
series, or as so determined from time to time by the Board of
Directors, either in whole or in part in one or more series, each
series to be appropriately designated by a distinguishing number,
letter or title prior to the issue of any shares thereof. Whenever the
term Preferred Stock is used in this Article FOURTH, it shall be
deemed to mean and include Preferred Stock issued as a class without
series, or one or more series thereof, or both, unless the context
shall otherwise require. There is hereby expressly granted to the
Board of Directors of the Corporation authority, subject to the
limitations provided by law, the right to fix the voting powers,
designations, preferences, and relative participating, optional or
other special rights, and the qualifications, limitations or
restrictions of the shares of each series of such Preferred Stock, in
the resolution or resolutions adopted by the Board of Directors
providing for the issue of such Preferred Stock.
The authority of the Board of Directors of the Corporation with
respect to each series shall include, but shall not be limited to, the
authority to determine the following:
1. The designation of the series;
-1-
<PAGE> 11 EX-3.(i)
2. The number of shares initially constituting such series;
3. The increase, and the decrease to a number not less than the
number of the outstanding shares of such series, of the number of
shares constituting such series theretofore fixed;
4. The rate or rates and the times and conditions under which
dividends on the shares of such series shall be paid, and, (i) if
such dividends are payable in preference to, or in relation to,
the dividends payable on any other class or classes of stock, the
terms and conditions of such payment, and (ii) if such dividends
shall be cumulative, the date or dates from and after which they
shall accumulate;
5. Whether or not the shares of such series shall be redeemable,
and, if such shares shall be redeemable, the terms and conditions
of such redemption, including, but not limited to, the date or
dates upon or after which such shares shall be redeemable and the
amount per share which shall be payable upon such redemption,
which amount may vary under conditions and at different
redemption dates;
6. The amount payable on the shares of such series in the event of
the dissolution of, or upon any distribution of the assets of,
the Corporation;
7. Whether or not the shares of such series may be convertible into,
or exchangeable for, shares of any other class or series and the
price or prices and the rates of exchange and the terms of any
adjustments to be made in connection with such conversion or
exchange;
8. Whether or not the shares of such series shall have voting rights
in addition to the voting rights provided by law, and, if such
shares shall have such voting rights, the terms and conditions
thereof, including but no limited to, the right of the holders of
such shares to vote as a separate class either alone or with the
holders of shares of one or more other series of Preferred Stock
and the right to have more or less than one vote per share;
9. Whether or not a purchase fund shall be provided for the shares
of such series, and, if such a purchase fund shall be provided,
the terms and conditions thereof;
10. Whether or not a sinking fund shall be provided for the
redemption of the shares of such series and if such a sinking
fund shall be provided, the terms and conditions thereof; and
11. Any other powers, preferences and relative, participating,
optional, or other special rights, and qualifications,
limitations or restrictions thereof, as shall not be inconsistent
with the provisions of this Article FOURTH or the limitations
provided by law.
B. Common Stock.
-2-
<PAGE> 12 EX-3.(i)
1. Subject to the rights of the preferred stockholders, the holders
of the Common Stock shall be entitled to receive such dividends
as may be declared thereon by the Board of Directors of the
Corporation in its discretion, from time to time, out of any
funds or assets of the Corporation lawfully available for the
payment of such dividends.
2. In the event of any liquidation, dissolution or winding up of the
Corporation or any reduction of its capital, resulting in a
distribution of its assets to its stockholders, whether voluntary
or involuntary, then, after there shall have been paid or set
apart for the holders of the Preferred Stock the full
preferential amounts to which they are entitled, the holders of
the Common Stock shall be entitled to receive as a class, pro
rata, the remaining assets of the Corporation available for
distribution to its stockholders.
3. For any and all purposes of this Certificate of Incorporation,
neither the merger or consolidation of the Corporation into or
with any other corporation, nor the merger or consolidation of
any other corporation into or with the Corporation, nor a sale,
transfer or lease of all or substantially all of the assets of
the Corporation, or any other transaction or series of
transactions having the effect of a reorganization shall be
deemed to be a liquidation, dissolution or winding-up of the
Corporation.
4. Except as otherwise expressly provided by law or in a resolution
of the Board of Directors providing voting rights to the holders
of the Preferred Stock, the holders of the Preferred Stock, the
holders of the Common Stock shall possess exclusive voting power
for the election of directors and for all other purposes and each
holder thereof shall be entitled to one vote for each share
thereof;
and be it further
RESOLVED, that a stock split is hereby declared with respect to
all issued and outstanding Common Stock of record as of the date of or
immediately prior to the effective date of the Pubic Offering so that each
stockholder of the Corporation shall receive 388.0105 shares of Common
Stock, par value $.01 per shares, for each single share of Common Stock,
par value $.01 per share, the issued and outstanding and that each stock
certificate with respect to the shares of stock outstanding immediately
prior to said stock split shall thereafter be deemed to represent that
number of shares of stock which would be issued and outstanding immediately
after said stock split without the necessity of the record owner
surrendering said original stock certificate to the Corporation in exchange
for a new certificate for the increased number of shares of stock; and be
it further
RESOLVED, that, effective upon the stock split contemplated by
the immediately preceding resolution, there shall be transferred, on the
books of the Corporation, from surplus to capital, an amount which is
sufficient to increase the capital of the Corporation to the amount of the
aggregate par value of all of the Corporation s issued Common Stock
-3-
<PAGE> 13 EX-3.(i)
immediately following such stock split.
3. The amendment of the Certificate of Incorporation herein
certified has been duly adopted in accordance with the
provisions of Sections 228 and 242 of the General
Corporation Law of the State of Delaware.
Signed and attested to on June 20, 1991.
FREDERIC H. BOOKS
-----------------------------
Frederic H. Brooks, President
Attest:
LAWRENCE SIMON
- --------------------------
Lawrence F. Simon,
Assistant Secretary
-4-
<PAGE> 14 EX-3.(i)
CERTIFICATE OF CHANGE
OF
RIDDELL SPORTS INC.
UNDER SECTION 1309a OF THE BUSINESS CORPORATION LAW
The undersigned, being the President and the Secretary of RIDDELL
SPORTS INC., do hereby certify and set forth:
(1) The name of the corporation is Riddell Sports Inc.
(2) (a) The certificate of incorporation of Riddell Sports Inc. was
filed by the Delaware Department of State on the 4th day of April, 1988
under the name Riddellink Holding Corporation. Riddell Sports Inc. adopted
its current name pursuant to a certificate of amendment filed by the
Delaware Secretary of State of May 6, 1991 (b) Riddell Sports Inc. filed
its application for authority to conduct business in the state of New York
with the New York Secretary of State on June 28, 1991; the application for
authority was filed under the name Riddell Sports Inc.
(3) The application for authroization of Riddell Sports Inc. is
hereby changed as follows:
Paragraph Fifth of the certificate of incorporation, which sets
forth a designation of the Secretary of State as agent of the corporation
upon whom process against it may be served and the post office address to
which the Secretary of State shall mail a copy of any process against it
served upon him, is hereby changed to the following, so as to change the
post office address:
Fifth: The Secretary of State of the State of New York is hereby
designated the agent of this corporation upon whom process against
this corporation may be served. The post office address to which the
Secretary of State shall mail a copy of any process against this
corporation served upon him as agent of this corporation is c/o
General Counsel at Riddell Sports Inc., 900 Third Avenue, 27th Floor,
New York, NY 10022.
(4) This change to the certificate of authority of Riddell Sports
Inc. was authorized by resolution adopted by unanimous vote of the board of
directors.
IN WITNESS WHEREOF, the undersigned have executed and signed this
certificate this 1st day of July 1, 1993, and affirm that the foregoing
statements are true, under the penalties of perjury.
STEPHEN D. TANNEN
-----------------------------
Stephen D. Tannen, President
LISA J. MARRONI
----------------------------
Lisa J. Marroni, Secretary
-1-
<PAGE> 15 EX-3.(i)
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
RIDDELL SPORTS INC.
Pursuant to the Delaware General Corporation Law
It is hereby certified that:
1. The name of the corporation (hereinafter called the
Corporation ) is RIDDELL SPORTS INC.
2. All of the members of the Board of Directors and at least a
majority of a quorum of the Stockholders of the Corporation present in
person or by proxy at a valid and duly called meeting of Stockholders,
pursuant to Sections 141(f) and 228(a) of the General Corporation Law, have
adopted the following resolution setting forth an amendment to the
Certificate of Incorporation of the Corporation and declaring it to be in
the best interests of the Corporation; said resolution reading as follows:
RESOLVED, that the Certificate of Incorporation of the
Corporation be amended so that Article FOURTH reads in its entirety as
follows:
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is FORTY-FIVE MILLION
(45,000,000) consisting of (i) Forty Million (40,000,000) shares of
Common Stock, par value $.01 per share, and (ii) Five Million
(5,000,000) shares of Preferred Stock, par value $.01 per share.
3. The amendment of the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of
Sections 228 and 242 of the General Corporation Law of the State of
Delaware.
Signed and attested to on June 27, 1996.
DAVID GROELINGER
-------------------------
David Groelinger
Senior Vice President
Attest:
LISA J. MARRONI
- ----------------------------
Lisa J. Marroni
Vice President and Secretary
-1-
<PAGE> 1 EX-10.1
EXHIBIT 10.1
FOURTEENTH AMENDMENT TO AMENDED
REVOLVING CREDIT AND LOAN AGREEMENT
-----------------------------------
This Fourteenth Amendment to Amended Revolving Credit and Loan Agreement
("Fourteenth Amendment") is entered into as of November 8, 1996, among NBD
Bank, formerly NBD Bank, N.A. ("NBD" or "Bank"), as Lender, and Riddell, Inc.,
an Illinois corporation ("Riddell"), Equilink Licensing Corporation, a Delaware
corporation ("Equilink") and RHC Licensing Corporation, a Delaware corporation
("RHC"), as Borrowers, and Riddell Sports Inc., a Delaware corporation
("Riddell Sports"), Ridmark Corporation, a Delaware corporation ("Ridmark"),
Proacq Corp., a Delaware corporation ("Proacq"), All American Sports
Corporation, a Delaware corporation ("All American"), and SharCo Corporation, a
Florida corporation ("SharCo"), as Guarantors. This Thirteenth Amendment
amends the Amended Revolving Credit and Loan Agreement, dated as December 30,
1991, as previously amended by the First Amendment to Amended Revolving Credit
and Loan Agreement, dated November 12, 1992, the Second Amendment to Amended
Revolving Credit and Loan Agreement, dated February 11, 1993, the Third
Amendment to Amended Revolving Credit and Loan Agreement, dated June 24, 1993,
the Fourth Amendment to Amended Revolving Credit and Loan Agreement, dated
January 26, 1994, the Fifth Amendment to Amended Revolving Credit and Loan
Agreement, dated March 26, 1994, the Sixth Amendment to Amended Revolving
Credit and Loan Agreement, dated April 30, 1994, the Seventh Amendment to
Amended Revolving Credit and Loan Agreement, dated July 31, 1994, the Eighth
Amendment to Amended Revolving Credit and Loan Agreement, dated September 15,
1994, the Ninth Amendment to Amended Revolving Credit and Loan Agreement, dated
December 12, 1994, the Tenth Amendment to Amendment Revolving Credit and Loan
Agreement, dated November 1, 1995, the Eleventh Amendment to Amended Revolving
Credit and Loan Agreement, dated November 15, 1995, the Twelfth Amendment to
Amendment Revolving Credit and Loan Agreement, dated December 6, 1995, and the
Thirteenth Amendment to Amendment Revolving Credit and Loan Agreement, dated
March 25, 1996 (as amended, the "Loan Agreement"), among the above referenced
parties and, prior to July 1994, Ohio Cellular Products Corporation.
Capitalized terms not otherwise defined herein shall have the meanings given to
them in the Loan Agreement.
WHEREAS, Borrowers and Guarantors have requested that NBD consent to
Riddell Sports obtaining a $7,500,000 unsecured loan from Silver Oak Capital,
L.L.C. ("Note Purchaser") to be guarantied by the subsidiaries of Riddell
Sports pursuant to the Note Purchase Agreement dated October 30, 1996 ("Note
Purchase Agreement"), between Riddell Sports and Note Purchaser.
WHEREAS, NBD has given its conditional consent by letter dated October 29,
1996, to the transactions contemplated by the Note Purchase Agreement
(including the issuance of the unsecured guaranties by the subsidiaries of
Riddell Sports) and it is a condition to such consent that the Borrowers and
Guarantors enter this Fourteenth Amendment.
WHEREAS, the Borrowers and Guarantors have requested that NBD extend the
Termination Date and defer the initial principal payment under the Term Loan.
<PAGE> 2 EX-10.1
WHEREAS, NBD and Borrowers have agreed to amend the Loan Agreement to
reflect such changes on the terms set forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is mutually acknowledged by the parties hereto, the parties
hereto agree as follows:
The following definitions in Section 1.1 of the Loan Agreement, are
amended to read in its entirety as follows:
"Subordinated Debt" means (i) the outstanding principal amount under
the Subordinated Notes and (ii) the outstanding amount under the
Subordinated Promissory Note dated April 18, 1988, in the original
principal amount of $439,000, from Riddell Sports to MacGregor
Sporting Goods, Inc. (assigned to Messrs. Nederlander, Toboroff,
Cougill and Brooks).
"Termination Date" means the earlier to occur of (i) April 30, 1998,
and (ii) the date on which NBD's obligations under this Agreement are
terminated under Article VII, or otherwise.
1. The following definitions are hereby added to Section 1.1 of the Loan
Agreement to be inserted in alphabetical order:
"Note Purchase Agreement" means the Note Purchase Agreement dated
October 30, 1996, between Riddell Sports and Silver Oak Capital,
L.L.C, as the same may be amended from time to time with the written
consent of NBD.
"Subordinated Notes" means the promissory notes of Riddell Sports
issued pursuant to the Note Purchase Agreement, as the same may be
amended or restated from time to time with the written consent of
NBD.
2. Section 5.6(c) of the Loan Agreement is hereby amended to read in its
entirety as follows:
(c) cash dividends payable to Riddell Sports to repay all or a
portion of the Subordinated Debt and accrued interest on the
Subordinated Notes, PROVIDED THAT, (i) at the time of the
declaration, distribution and payment, there exists no Default or
Event of Default under this Agreement or any Collateral Document and
(ii) the Subordinated Notes may not be prepaid without the prior
written consent of NBD (this clause (ii) shall not apply to the
repurchase of less than $100,000 in principal under Sections 8.5 and
8.6 of the Note Purchase Agreement or conversion of the Subordinated
Notes into stock under the Note Purchase Agreement); and
3. Sections 5.9 of the Loan Agreement are hereby amended in their
entirety to read as follows:
2
<PAGE> 3 EX-10.1
5.9 Capital Asset Expenditure. Expend sums in any fiscal year
(a) for the acquisition of capital assets exceeding $1,500,000 on an
aggregate basis for all Borrowers and Guarantors, including payments
under any capital lease of real or personal property, or (b) for
payments on non-capital leases exceeding $2,000,000 on an aggregate
basis for all Borrowers and Guarantors.
5. Section 5.10(f) of the Loan Agreement is hereby amended to read in
its entirety as follows:
(f) the sale or transfer of stock of Riddell Sports in the public
market, to NBD Bancorp (or its successor) under its warrant, and to
any holder the Subordinated Notes upon conversion pursuant to the
terms of the Note Purchase Agreement.
6. Sections 6.1A and 6.1B of the Loan Agreement are hereby amended in
their entirety to read as follows:
A. Working Capital Requirement. Maintain Working Capital in an
amount equal to at least (i) the Base Amount (as defined below),
minus (ii) $20,000,000 minus the then outstanding balance under the
Line of Credit Note which is classified as long term debt under
generally accepted accounting principles consistently applied. The
"Base Amount" shall be as follows: from September 30, 1996 to
March 30, 1997, $22,000,000; from March 31, 1997 to March 30, 1998,
$24,000,000; from March 31, 1998 and thereafter $26,000,000.
B. Book Net Worth. Maintain Book Net Worth as follows: (i) from
September 30, 1996 to the funding of the Subordinated Notes, at least
$28,400,000; (ii) from the funding of the Subordinated Notes through
September 29, 1997 at least $35,000,000; (iii) beginning
September 30, 1997 and thereafter at least $37,000,000. In
determining Book Net Worth, Subordinated Debt shall be excluded from
liabilities.
7. A new Event of Default is hereby added as Section 7.8 to the Loan
Agreement to read in its entirety as follows:
7.8 Repurchase or Prepayment of Subordinated Notes. (i) Any of the
holders of the Subordinated Notes exercise their option to require
Riddell Sports to repurchase more than $100,000 of principal, in the
aggregate, of such Subordinated Notes in connection with any event
triggering the rights of such holders to exercise their option under
Section 8.5 and 8.6 of the Note Purchase Agreement or (ii) any of the
Subordinated Notes are prepaid without the prior written consent of
NBD (this clause (ii) shall not apply to the repurchase under
Sections 8.5 and 8.6 of the Note Purchase Agreement or conversion of
the Subordinated Notes into stock under the Note Purchase Agreement).
3
<PAGE> 4 EX-10.1
8. The principal payment of $1,000,000 due on December 1, 1996, under
the 1995 Term Note is hereby deferred until December 1, 1998. Interest will
remain due on December 1, 1996 and will continue to accrue on the full
outstanding principal balance until paid.
9. The agreements of NBD embodied in this Fourteenth Amendment are
subject to the following condition precedent:
(a) Riddell Sports shall have received $7,450,000 as the proceeds of
the Subordinated Notes on or before November 15, 1996 (assuming an offset of
$50,000 for legal fees provided for under the Note Purchase Agreement).
(b) Borrowers shall pay NBD an extension fee of $50,000 due on or
before November 15, 1996, which fee is in addition to all other fees and
interest due NBD under the Loan Agreement.
10. Borrowers and Guarantors acknowledge and agree that they will pay all
reasonable attorney's fees and out of pocket costs of NBD in connection with or
with respect to this Fourteenth Amendment and the review and consent given in
connection with the Note Purchase Agreement described above.
11. The parties hereto acknowledge and agree that the terms and
provisions of this Fourteenth Amendment amend, add to and constitute a part of
the Loan Agreement. Except as expressly modified and amended by the terms of
this Fourteenth Amendment, all of the other terms and conditions of the Loan
Agreement and all of the documents executed in connection therewith or referred
to or incorporated therein (including, without limitation, the Guaranties),
remain in full force and effect and are hereby ratified, confirmed and
approved.
12. If there is an express conflict between the terms of this Fourteenth
Amendment and the terms of the Loan Agreement, or any of the other agreements
or documents executed in connection therewith or referred to or incorporated
therein, the terms of this Fourteenth Amendment shall govern and control.
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4
<PAGE> 5 EX-10.1
IN WITNESS WHEREOF, the parties have executed this Fourteenth Amendment to
Amended Revolving Credit and Loan Agreement effective as of the date noted
above.
NBD BANK (formerly NBD Bank, N.A.)
JON P. DADY
__________________________________
By: Jon P. Dady
Its: First Vice President
RIDDELL, INC.
DAVID GROELINGER
By:______________________________
David Groelinger
Its: Vice President
EQUILINK LICENSING CORPORATION
RHC LICENSING CORPORATION
RIDMARK CORPORATION
PROACQ CORP.
ALL AMERICAN SPORTS CORPORATION
SHARCO CORPORATION
DAVID GROELINGER
By:___________________________
David Groelinger
Their: Senior Vice President
RIDDELL SPORTS, INC.
DAVID GROELINGER
By:______________________________
David Groelinger
Its: Executive Vice President
DET07/50974.1
5
<PAGE> 1 EX-10.2
================================================================
Riddell Sports Inc.
$7,500,000
4.10% Convertible Subordinated Note due November 1, 2004
______
NOTE PURCHASE AGREEMENT
______
Dated October 30, 1996
<PAGE> 2 EX-10.2
1. AUTHORIZATION OF NOTE . . . . . . . . . . . . . . . . . 1
2. SALE AND PURCHASE OF NOTE . . . . . . . . . . . . . . . 1
3. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . 1
4. CONDITIONS TO CLOSING AND FUNDING . . . . . . . . . . . 2
4.1. Representations and Warranties . . . . . . . . . . 2
4.2. Performance; No Default . . . . . . . . . . . . . 2
4.3. Compliance Certificates . . . . . . . . . . . . . 2
4.4. Opinions of Counsel . . . . . . . . . . . . . . . 3
4.5. Changes in Corporate Structure . . . . . . . . . . 3
4.6. Proceedings and Documents . . . . . . . . . . . . 3
4.7. Purchase Permitted By Applicable Law, etc. . . . . 3
4.8. Extension of Bank Loan . . . . . . . . . . . . . . 4
4.9. Registration Rights Agreement . . . . . . . . . . 4
4.10. Subordinated Guaranty . . . . . . . . . . . . . . 4
4.11. Opinion of Counsel at Funding . . . . . . . . . . 4
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . 4
5.1. Organization; Power and Authority . . . . . . . . 4
5.2. Authorization, etc. . . . . . . . . . . . . . . . 5
5.3. Disclosure . . . . . . . . . . . . . . . . . . . . 5
5.4. Organization and Ownership of Shares of Subsidiar-
ies; Affiliates . . . . . . . . . . . . . . . . . . 6
5.5. Financial Statements . . . . . . . . . . . . . . . 7
5.6. Compliance with Laws, Other Instruments, etc . . . 7
5.7. Governmental Authorizations, etc. . . . . . . . . 8
5.8. Litigation; Observance of Agreements, Statutes
and Orders . . . . . . . . . . . . . . . . . . . . 8
5.9. Taxes . . . . . . . . . . . . . . . . . . . . . . 8
5.10. Title to Property; Leases . . . . . . . . . . . . 9
5.11. Licenses, Permits, etc. . . . . . . . . . . . . . 9
5.12. Compliance with ERISA . . . . . . . . . . . . . . 9
5.13. Private Offering by the Company . . . . . . . . . 9
5.14. Margin Regulations . . . . . . . . . . . . . . . 10
5.15. Existing Indebtedness; Liens . . . . . . . . . . 10
5.16. Foreign Assets Control Regulations, etc . . . . . 10
5.17. Status under Certain Statutes . . . . . . . . . . 10
5.18. Environmental Matters . . . . . . . . . . . . . . 11
5.19. Capitalization . . . . . . . . . . . . . . . . . 11
5.20. Brokers and other Commissions . . . . . . . . . . 12
5.21. Material Contracts . . . . . . . . . . . . . . . 12
5.22. Patents, Trademarks etc. . . . . . . . . . . . . 12
5.23. Absence of Dividends . . . . . . . . . . . . . . 12
6. REPRESENTATIONS OF THE PURCHASER . . . . . . . . . . . . 13
6.1. Purchase for Investment . . . . . . . . . . . . . 13
6.2. Source of Funds . . . . . . . . . . . . . . . . . 13
7. INFORMATION AS TO THE COMPANY . . . . . . . . . . . . . 14
i
<PAGE> 3 EX-10.2
Section Page
7.1. Financial and Business Information . . . . . . . . 14
7.2. Officer's Certificate . . . . . . . . . . . . . . 16
7.3. Inspection . . . . . . . . . . . . . . . . . . . . 16
8. PREPAYMENT OF THE NOTES . . . . . . . . . . . . . . . . 17
8.1. Sinking Funds . . . . . . . . . . . . . . . . . . 17
8.2. Optional Prepayments . . . . . . . . . . . . . . . 17
8.3. Allocation of Partial Prepayments . . . . . . . . 18
8.4. Maturity; Surrender, etc . . . . . . . . . . . . . 18
8.5. Repurchase of Note at Option of the Holder
Upon Change of Control . . . . . . . . . . . . 18
8.6. Notices; Method of Exercising Repurchase Right,
Etc . . . . . . . . . . . . . . . . . . . . . . . . 18
9. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . 20
9.1. Compliance with Law . . . . . . . . . . . . . . . 20
9.2. Insurance . . . . . . . . . . . . . . . . . . . . 21
9.3. Maintenance of Properties . . . . . . . . . . . . 21
9.4. Payment of Taxes and Claims . . . . . . . . . . . 21
9.5. Corporate Existence, etc . . . . . . . . . . . . . 22
9.6. Use of Proceeds . . . . . . . . . . . . . . . . . 22
9.7. Guaranty by New Subsidiaries . . . . . . . . . . . 22
10. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . 22
10.1. Transactions with Affiliates . . . . . . . . . . 22
10.2. Merger; Purchase of Assets; Acquisitions; Etc. . 24
10.3. Anti-Layering . . . . . . . . . . . . . . . . . . 25
10.4. Limitations on Grants of Options. . . . . . . . . 25
11. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . 26
12. REMEDIES ON DEFAULT, ETC . . . . . . . . . . . . . . . . 28
12.1. Acceleration . . . . . . . . . . . . . . . . . . 28
12.2. Other Remedies . . . . . . . . . . . . . . . . . 28
12.3. No Waivers or Election of Remedies, Expenses,
etc . . . . . . . . . . . . . . . . . . . . . . . . 29
13. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . 29
13.1. Note Subordinated to Senior Indebtedness . . . . 29
13.2. No Payment on the Note in Certain Circumstances . 29
13.3. Note Subordinated to Prior Payment of All Se-
nior Indebtedness on Acceleration of
Principal of the Note or on Dissolution,
Liquidation or Reorganization . . . . . . . . 31
13.4. Noteholders to Be Subrogated to Rights of
Holders of Senior Indebtedness . . . . . . . . 32
13.5. Obligations of the Company Unconditional . . . . 33
ii
<PAGE> 4 EX-10.2
Section Page
13.6. Subordination Rights Not Impaired by Acts or
Omissions of the Company or Holders of Senior
Indebtedness . . . . . . . . . . . . . . . . . 33
13.7. Section 13 Not to Prevent Events of Default . . . 34
14. CONVERSION OF NOTES . . . . . . . . . . . . . . . . . . 34
14.1. Right of Conversion; Conversion Price . . . . . . 34
14.2. Issuance of Shares on Conversion . . . . . . . . 34
14.3. No Adjustment for Interest or Dividends . . . . . 35
14.4. Adjustment of Conversion Price . . . . . . . . . 35
14.5. Notice of Adjustment of Conversion Price . . . . 38
14.6. Notice of Certain Corporation Action . . . . . . 39
14.7. Taxes on Conversions . . . . . . . . . . . . . . 40
14.8. Fractional Shares . . . . . . . . . . . . . . . . 40
14.9. Provisions in Case of Consolidation, Merger
or Sale of Assets . . . . . . . . . . . . . . 40
14.10. Covenant to Reserve Shares . . . . . . . . . . . 41
15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . 41
16. AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . 42
16.1. Requirements . . . . . . . . . . . . . . . . . . 42
16.2. Binding Effect, etc . . . . . . . . . . . . . . . 42
17. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . 42
18. REPRODUCTION OF DOCUMENTS . . . . . . . . . . . . . . . 43
19. CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . 43
20. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 44
20.1. Successors and Assigns . . . . . . . . . . . . . 44
20.2. Payments Due on Non-Business Days . . . . . . . . 44
20.3. Severability . . . . . . . . . . . . . . . . . . 44
20.4. Construction . . . . . . . . . . . . . . . . . . 45
20.5. Counterparts . . . . . . . . . . . . . . . . . . 45
20.6. Governing Law . . . . . . . . . . . . . . . . . . 45
20.7. Assignments and Restrictions on Transfers. . . . 45
20.8. Lost Note. . . . . . . . . . . . . . . . . . . . 49
20.9. Registration, Transfer and Exchange of the Note.
. . . . . . . . . . . . . . . . . . . . . . . . . 49
20.10. Equitable Relief. . . . . . . . . . . . . . . . 50
20.11. Expenses. . . . . . . . . . . . . . . . . . . 50
SCHEDULE A -- DEFINED TERMS
SCHEDULE 5.4 -- Subsidiaries of the Company
and Ownership of Subsidiary Stock
iii
<PAGE> 5 EX-10.2
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.8 -- Certain Litigation
SCHEDULE 5.15 -- Existing Indebtedness and LIPAS
SCHEDULE 5.19 -- Option, Warrants Etc.
SCHEDULE 5.22 -- Intellectual Property Litigation
EXHIBIT 1 -- Form of 4.10% Senior Note due November 1,
2004
EXHIBIT 4.8 -- Letter from NBD
EXHIBIT 4.9 -- Form of Registration Rights Agreement
EXHIBIT 4.10 -- Form of Guaranty
EXHIBIT 4.11 -- Form of Funding Opinion of Lisa Marroni
iv
<PAGE> 6 EX-10.2
RIDDELL SPORTS INC.
4.10% Convertible Subordinated Note due November 1, 2004
October 30, 1996
Silver Oak Capital, L.L.C.
c/o Angelo, Gordon & Co.
245 Park Avenue
26th Floor
New York, New York 10167
Ladies and Gentlemen:
Riddell Sports Inc., a Delaware corporation (the
"Company"), agrees with you as follows:
1. AUTHORIZATION OF NOTE.
The Company will authorize the issue and sale of its
4.10% Convertible Subordinated Note due November 1, 2004 in the
aggregate principal amount of $7,500,000. The Note shall be in
the form set out in Exhibit 1. Certain capitalized terms used in
this Agreement are defined in Schedule A; references to a "Sched-
ule" or an "Exhibit" are, unless otherwise specified, to a
Schedule or an Exhibit attached to this Agreement.
2. SALE AND PURCHASE OF NOTE.
Subject to the terms and conditions of this Agreement,
the Company will issue and sell to you and you will purchase from
the Company the Note in the principal amount specified above at
the purchase price of 100% of the principal amount thereof.
3. CLOSING.
The execution and delivery of this Agreement and the
delivery of the documents required to be delivered pursuant to
Sections 4.3 and 4.4 shall occur at the offices of Skadden, Arps,
Slate, Meagher & Flom, 919 Third Avenue, New York, New York
10022, at 10:00 a.m., New York time, at a closing (the "Closing")
on October 30, 1996. On the Funding Date at 10:00 a.m., New York
time, the Company will deliver to you at the office of the
Company the Registration Rights Agreement, the Subordinated
Guaranty and the Note, to be purchased by you in the form of a
1
<PAGE> 7 EX-10.2
single Note dated the Funding Date and registered in your name
(or in the name of your nominee), against delivery by you to the
Company or its order of immediately available funds in the amount
of the purchase price therefor by wire transfer of immediately
available funds for the account of the Company to account number
1399433 at NBD Bank, Detroit, MI, 48226; ABA No. 072 000 326
(with special instructions to notify Joyce Villenueve upon
receipt at NBD Private Banking (810) 645-7356). If on the
Funding Date the Company shall fail to tender such Note to you as
provided above in this Section 3, or any of the conditions
specified in Sections 4.8 through 4.11 shall not have been ful-
filled to your satisfaction, you shall, at your election, be
relieved of all further obligations under this Agreement, without
thereby waiving any rights you may have by reason of such failure
or such nonfulfillment.
4. CONDITIONS TO CLOSING AND FUNDING.
Your obligation to purchase and pay for the Note to be
sold to you on the Funding Date is subject to (i) the fulfillment
to your satisfaction, prior to or at the Closing, of the condi-
tions set forth in Sections 4.1 through 4.7 and (ii) to the ful-
fillment to your satisfaction prior to or on the Funding Date, of
the following conditions set forth in Sections 4.8 through 4.11.
4.1. Representations and Warranties.
The representations and warranties of the Company in
this Agreement shall be correct when made and at the time of the
Closing as if remade at that time.
4.2. Performance; No Default.
The Company shall have performed and complied with all
agreements and conditions contained in this Agreement required to
be performed or complied with by it prior to or at the Closing;
and prior to and after giving effect to the issue and sale of the
Note no Default or Event of Default shall have occurred and be
continuing.
4.3. Compliance Certificates.
(a) Officer's Certificate. The Company shall have
delivered to you an Officer's Certificate, dated the date of the
Closing, certifying that the conditions specified in Sections
4.1, 4.2 and 4.6 have been fulfilled.
(b) Secretary's Certificate. The Company and each of
the Guarantors shall have delivered to you a certificate certify-
ing as to the resolutions attached thereto and other corporate
proceedings relating to the authorization, execution and delivery
of the Note, this Agreement and the Registration Rights Agreement
2
<PAGE> 8 EX-10.2
(with respect to the Company) and the Subordinated Guaranty (with
respect to the Guarantors).
4.4. Opinions of Counsel.
You shall have received opinions in form and substance
satisfactory to you, dated the date of the Closing (a) from
Skadden, Arps, Slate, Meagher & Flom LLP, special counsel for the
Company and the Guarantors, (b) from Lisa Marroni, General
Counsel of the Company, and (c) from Richard Lester, General
Counsel of Riddell, Inc., in each of subclauses (a)-(c) covering
such matters incident to the transactions contemplated hereby as
you or your counsel may reasonably request (and the Company
hereby instructs its counsel to deliver such opinions to you) and
(d) from Akin, Gump, Strauss, Hauer & Feld, LLP, your special
counsel in connection with such transactions, covering such other
matters incident to such transactions as you may reasonably
request.
4.5. Changes in Corporate Structure.
Neither the Company nor any Guarantor shall have
changed its jurisdiction of incorporation or been a party to any
merger or consolidation or have succeeded to all or any substan-
tial part of the liabilities of any other entity, at any time
following the date of the most recent financial statements
referred to in Schedule 5.5.
4.6. Proceedings and Documents.
All corporate and other proceedings in connection with
the transactions contemplated by this Agreement and all documents
and instruments incident to such transactions shall be satisfac-
tory to you and your special counsel, and you and your special
counsel shall have received all such counterpart originals or
certified or other copies of such documents as you or they may
reasonably request.
4.7. Purchase Permitted By Applicable Law, etc.
On the date of the Closing your purchase of the Note
shall (i) be permitted by the laws and regulations of each
jurisdiction to which you are subject, (ii) not violate any
applicable law or regulation (including, without limitation,
Regulation G, T or X of the Board of Governors of the Federal
Reserve System) and (iii) not subject you to any tax, penalty or
liability under or pursuant to any applicable law or regulation,
which law or regulation was not in effect on the date hereof.
3
<PAGE> 9 EX-10.2
4.8. Extension of Bank Loan
On or before the Funding Date you shall have received
(i) a copy of a fully executed amendment to the NBD Loan Agree-
ment, extending the maturity of the loans made thereunder until
at least April 17, 1998, in form and substance reasonably accept-
able to Angelo, Gordon & Co. and (ii) a letter from NBD Bank in
the form of Exhibit 4.8 hereto.
4.9. Registration Rights Agreement
On or before the Funding Date you and the Company shall
have entered into a Registration Rights Agreement in the form of
Exhibit 4.9 hereto, duly executed and delivered by the Company.
4.10. Subordinated Guaranty
The Guarantors shall have delivered you a Subordinated
Guaranty in the form of Exhibit 4.10 hereto.
4.11. Opinion of Counsel at Funding
You shall have received an opinion in form and sub-
stance satisfactory to you, dated the Funding Date from Lisa
Marroni, General Counsel of the Company, in the form of Exhibit
4.11 hereto.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you that:
5.1. Organization; Power and Authority.
The Company and each of the Guarantors is a corporation
duty organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and is duly qualified
as a foreign corporation and is in good standing in each juris-
diction in which such qualification is required by law, other
than those jurisdictions as to which the failure to be so quali-
fied or in good standing could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect. The Company and each of the Guarantors has the corporate
power and authority to own or hold under lease the properties it
purports to own or hold under lease, to transact the business it
transacts and proposes to transact, to execute and deliver this
Agreement, the Note, the Registration Rights Agreement (in the
case of the Company) and the Subordinated Guaranty (in the case
of the Guarantors), and to perform the provisions hereof and
thereof.
4
<PAGE> 10 EX-10.2
5.2. Authorization, etc.
(a) This Agreement, the Registration Rights Agreement
and the Note have been duly authorized by all necessary corporate
action on the part of the Company, and this Agreement consti-
tutes, and upon execution and delivery thereof each of the
Registration Rights Agreement and the Note will constitute, a
legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such
enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (ii)
general principles of equity (regardless of whether such enforce-
ability is considered in a proceeding in equity or at law).
(b) The Subordinated Guaranty has been duly authorized
by all necessary corporate action on the part of each Guarantor,
and upon execution and delivery thereof will constitute, a legal,
valid and binding obligation of each Guarantor enforceable
against such Guarantor in accordance with its terms, except as
such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (ii)
general principles of equity (regardless of whether such enforce-
ability is considered in a proceeding in equity or at law).
(c) The shares of Common Stock issuable on conversion
of the Note have been duly authorized and reserved for issuance
on conversion of the Note and, when issued on such conversion,
will be validly issued, fully paid and non-assessable, and the
issuance of such shares is not subject to any preemptive or
similar rights.
5.3. Disclosure.
No report or other information furnished to you in
writing by or on behalf of the Company contains any untrue state-
ment of a Material fact or omits to state any Material fact nec-
essary to make the statements therein not misleading in light of
the circumstances when and under which they were made. Each con-
tract, agreement and understanding (including all agreements and
understandings with Affiliates of the Company or any of its
Subsidiaries) to which the Company or any of its Subsidiaries is
a party or by which any of their respective property is bound
which is Material to the business of the Company and its subsid-
iaries taken as a whole has been previously filed with the
Securities and Exchange Commission in the Company's Forms 10-K,
10-K-A; Schedule 14-A; 10-Q; and 8-K. The Company's current
reports on Forms 10-K, 10-Q and 8-K, taken together, do not, as
of the date they were written, contain any untrue statement of
material fact or omit to state any material fact necessary to
make the statements therein not misleading. Since June 30, 1996,
5
<PAGE> 11 EX-10.2
there has not been any occurrence that, individually or in the
aggregate, would have a Material Adverse Effect, except as has
been disclosed in the Company's filings with the Securities and
Exchange Commission. No representation is made by the Company as
to projections delivered to you in writing in connection with the
transactions contemplated hereby other than that the projections,
at the time they were prepared, were based on information and
calculations the Company believed to be reasonable.
5.4. Organization and Ownership of Shares of Subsidiaries; Affil-
iates.
(a) Schedule 5.4 contains (except as noted therein)
complete and correct lists (i) of the Company's Subsidiaries,
showing, as to each Subsidiary, the correct name thereof, the
jurisdiction of its organization, and the percentage of shares of
each class of its capital stock or similar equity interests out-
standing owned by the Company and each other Subsidiary and (ii)
such information as to the Company's Affiliates, other than
Subsidiaries.
(b) All of the outstanding shares of capital stock or
similar equity interests of each Subsidiary shown in Schedule 5.4
as being owned by the Company and its Subsidiaries have been
validly issued, are fully paid and nonassessable and are owned by
the Company or another Subsidiary free and clear of any Lien
(except as otherwise disclosed in Schedule 5.4). Neither the
Company nor any Subsidiary is party to any agreement or other
obligation that would obligate such Person to issue or sell any
shares of capital stock of any Subsidiary to any Person other
than the Company or any wholly-owned Subsidiary.
(c) Each Subsidiary identified in Schedule 5.4 is a
corporation or other legal entity duly organized, validly exist-
ing and in good standing under the laws of its jurisdiction of
organization, and is duly qualified as a foreign corporation or
other legal entity and is in good standing in each jurisdiction
in which such qualification is required by law, other than those
jurisdictions as to which the failure to be so qualified or in
good standing could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Each
such Subsidiary has the corporate or other power and authority to
own or hold under lease the properties it purports to own or hold
under lease and to transact the business it transacts and propos-
es to transact.
(d) No Subsidiary is a party to, or otherwise subject
to any legal restriction or any agreement (other than this Agree-
ment, the Company's bank loan documents with NBD Bank, and
customary limitations imposed by corporate law statutes) re-
stricting the ability of such Subsidiary to pay dividends out of
profits or make any other similar distributions of profits to the
6
<PAGE> 12 EX-10.2
Company or any of its Subsidiaries that owns outstanding shares
of capital stock or similar equity interests of such Subsidiary.
5.5. Financial Statements.
The Company has delivered to the Purchaser copies of
the financial statements of the Company and its Subsidiaries
listed on Schedule 5.5. All of said financial statements (in-
cluding in each case the related schedules and notes) fairly
present in all material respects the consolidated financial
position of the Company and its Subsidiaries as of the respective
dates specified in such Schedule and the consolidated results of
their operations and cash flows for the respective periods so
specified and have been prepared in accordance with GAAP consis-
tently applied throughout the periods involved except as set
forth in the notes thereto (subject, in the case of any interim
financial statements, to normal year-end adjustments).
5.6. Compliance with Laws, Other Instruments, etc.
(a) The execution, delivery and performance by the
Company of this Agreement, the Registration Rights Agreement and
the Note will not (i) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien
in respect of any property of the Company or any of its Subsid-
iaries under, any indenture, mortgage, deed of trust, loan,
purchase or credit agreement, lease, corporate charter or by-
laws, or any other agreement or instrument to which the Company
or any such Subsidiary is bound or by which the Company or any
such Subsidiary or any of their respective properties may be
bound or affected, except (other than with respect to the execu-
tion and delivery of this Agreement and the execution, delivery
and performance of the Registration Rights Agreement) the bank
loan documents with NBD Bank,(ii) conflict with or result in a
breach of any of the terms, conditions or provisions of any
order, judgment, decree, or ruling of any court, arbitrator or
Governmental Authority applicable to the Company or any such
Subsidiary or (iii) violate any provision of any statute or other
rule or regulation of any Governmental Authority applicable to
the Company or any such Subsidiary.
(b) The execution, delivery and performance by each
Guarantor of the Subordinated Guaranty will not (i) contravene,
result in any breach of, or constitute a default under, or result
in the creation of any Lien in respect of any property of such
Guarantor or any of its Subsidiaries under, any indenture, mort-
gage, deed of trust, loan, purchase or credit agreement, lease,
corporate charter or by-laws, or any other agreement or instru-
ment to which such Guarantor or any such Subsidiary is bound or
by which such Guarantor or any such Subsidiary or any of their
respective properties may be bound or affected, except the bank
loan documents with NBD Bank, (ii) conflict with or result in a
7
<PAGE> 13 EX-10.2
breach of any of the terms, conditions or provisions of any
order, judgment, decree, or ruling of any court, arbitrator or
Governmental Authority applicable to such Guarantor or any such
Subsidiary or (iii) violate any provision of any statute or other
rule or regulation of any Governmental Authority applicable to
such Guarantor or any such Subsidiary.
5.7. Governmental Authorizations, etc.
No consent, approval or authorization of, or registra-
tion, filing or declaration with, any Governmental Authority is
required by the Company in connection with the execution, deliv-
ery or performance by the Company of this Agreement, the Regis-
tration Rights Agreement or the Note.
5.8. Litigation; Observance of Agreements, Statutes and Orders.
(a) Except as disclosed in Schedule 5.8, there are no
actions, suits or proceedings pending or, to the knowledge of the
Company, threatened against or affecting the Company or any
Subsidiary or any property of the Company or any Subsidiary in
any court or before any arbitrator of any kind or before or by
any Governmental Authority that, individually or in the aggre-
gate, could reasonably be expected to have a Material Adverse
Effect.
(b) Neither the Company nor any of its Subsidiaries is
in default under any term of any agreement or instrument to which
it is a party or by which it is bound, or any order, judgment,
decree or ruling of any court, arbitrator or Governmental Author-
ity or is in violation of any applicable law, ordinance, rule or
regulation (including without limitation Environmental Laws) of
any Governmental Authority, which default or violation, individu-
ally or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
5.9. Taxes.
The Company and its Subsidiaries have filed all tax
returns that are required to have been filed in any jurisdiction,
and have paid all taxes shown to be due and payable on such re-
turns and all other taxes and assessments levied upon them or
their properties, assets, income or franchises, to the extent
such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments
(i) the amount of which is not individually or in the aggregate
Material or (ii) the amount, applicability or validity of which
is currently being contested in good faith by appropriate pro-
ceedings and with respect to which the Company or a Subsidiary,
as the case may be, has established adequate reserves in accor-
dance with GAAP. The Company knows of no basis for any other tax
or assessment that could reasonably be expected to have a Materi-
8
<PAGE> 14 EX-10.2
al Adverse Effect. The charges, accruals and reserves on the
books of the Company and its Subsidiaries in respect of Federal,
state or other taxes for all fiscal periods are adequate.
5.10. Title to Property; Leases.
The Company and its Subsidiaries have good and suffi-
cient title to their respective properties that individually or
in the aggregate are Material, including all such properties re-
flected in the most recent audited balance sheet referred to in
Section 5.5 or purported to have been acquired by the Company or
any such Subsidiary after said date (except as sold or otherwise
disposed of in the ordinary course of business), in each case
free and clear of Liens other than Liens that do not interfere
with the intended use of the Property by the Company and that
would not, individually or in the aggregate, have a Material
Adverse Effect. All leases that individually or in the aggregate
are Material are valid and subsisting and are in full force and
effect in all material respects and the Company has not received
any notice of default or infringement of any such lease.
5.11. Licenses, Permits, etc.
The Company and its Subsidiaries own or possess all li-
censes, permits, franchises, authorizations, patents, copyrights,
service marks, trademarks and trade names, or rights thereto,
that individually or in the aggregate are Material, without known
conflict with the rights of others.
5.12. Compliance with ERISA.
The Company, its ERISA Affiliates and their respective
Plans are in compliance in all material respects with those pro-
visions of ERISA and of the Code which are applicable with re-
spect to any Plan. No Prohibited Transaction and no Reportable
Event has occurred with respect to any such Plan. None of the
Company or any of its ERISA Affiliates is a contributing employer
with respect to any Multiemployer Plan. The Company and each of
its ERISA Affiliates have met the minimum funding requirements
under ERISA and the Code with respect to each of their respective
Plans, if any, and have not incurred any liability to the PBGC or
any Plan. There is no Material unrecorded unfunded benefit lia-
bility, determined in accordance with Section 4001(a)(18) of
ERISA, with respect to any Plan of the Company or its ERISA
Affiliates.
5.13. Private Offering by the Company.
Neither the Company nor anyone acting on its behalf has
taken, or will take, any action that would subject the issuance
or sale of the Note to the registration requirements of Section 5
of the Securities Act.
9
<PAGE> 15 EX-10.2
5.14. Margin Regulations.
No part of the proceeds from the sale of the Note
hereunder will be used, directly or indirectly, for the purpose
of buying or carrying any margin stock within the meaning of
Regulation G of the Board of Governors of the Federal Reserve
System (12 CFR 207), or for the purpose of buying or carrying or
trading in any securities under such circumstances as to involve
the Company in a violation of Regulation X of said Board (12 CFR
224) or to involve any broker or dealer in a violation of Regula-
tion T of said Board (12 CFR 220). As used in this Section, the
terms "margin stock" and "purpose of buying or carrying" shall
have the meanings assigned to them in said Regulation G.
5.15. Existing Indebtedness; Liens.
(a) Except as described therein, Schedule 5.15 sets
forth a complete and correct list of all outstanding Indebtedness
of the Company and its Subsidiaries as of the date of the Clos-
ing, since which date there has been no Material change in the
amounts, interest rates, sinking funds, installment payments or
maturities of the Indebtedness of the Company or its Subsid-
iaries. Neither the Company nor any of its Subsidiaries is in
default and no waiver of default is currently in effect, in the
payment of any principal or interest on any Indebtedness of the
Company or such Subsidiary and no event or condition exists with
respect to any Indebtedness of the Company or any Subsidiary that
would permit (or that with notice or the lapse of time, or both,
would permit) one or more Persons to cause such Indebtedness to
become due and payable before its stated maturity or before its
regularly scheduled dates of payment.
(b) Neither the Company nor any Subsidiary has agreed
or consented to any of its property, whether now owned or hereaf-
ter acquired, to be subject to a Lien other than Permitted Liens.
5.16. Foreign Assets Control Regulations, etc.
Neither the sale of the Note by the Company hereunder
nor its use of the proceeds thereof will violate the Trading with
the Enemy Act, as amended, or any of the foreign assets control
regulations of the United States Treasury Department (31 CFR,
Subtitle B, Chapter V, as amended) or any enabling legislation or
executive order relating thereto.
5.17. Status under Certain Statutes.
Neither the Company nor any of its Subsidiaries is sub-
ject to regulation under the Investment Company Act of 1940, as
amended, the Public Utility Holding Company Act of 1935, as
amended, the Interstate Commerce Act, as amended, or the Federal
Power Act, as amended.
10
<PAGE> 16 EX-10.2
5.18. Environmental Matters.
(a) Neither the Company nor any of its Subsidiaries has
knowledge of any claim or has received any notice of any
claim, and no proceeding has been instituted raising any
claim against the Company or any of its Subsidiaries or any
of their respective real properties now or formerly owned,
leased or operated by any of them or other assets, alleging
any damage to the environment or violation of any Environ-
mental Laws, except, in each case, such as could not reason-
ably be expected to result in a Material Adverse Effect.
(b) Neither the Company nor any of its Subsidiaries
has knowledge of any facts which would give rise to any
claim, public or private, of violation of Environmental Laws
or damage to the environment emanating from, occurring on or
in any way related to real properties now or formerly owned,
leased or operated by any of them or to other assets or
their use (collectively, the "Property"), except, in each
case, such as could not reasonably be expected to result in
a Material Adverse Effect;
(c) the Company does not have any knowledge that any
other Person has ever received any notice, claim or alle-
gation of any violation, and the Company is not aware of any
existing violation, of Environmental Laws at or about any
Property, and the Company does not have any knowledge of any
actions commenced or threatened by any party for or related
to or arising out of non-compliance with Environmental Laws
which apply to any Property, activities at any Property or
Hazardous Materials at, from or affecting any Property; and
(d) none of the Property appears on the National
Priority List (as defined under federal law) or any state
listing which identifies sites for remedial clean-up or
investigatory actions. None of the Property has been con-
taminated with substances which give rise to a clean-up
obligation under any Environmental Law or common law.
5.19. Capitalization.
The authorized and outstanding capital stock of the
Company consists of 40,000,000 shares of Common Stock, $0.01
par value, of which 8,067,985 shares are outstanding on the
date hereof and 5,000,000 shares of preferred stock, none of
which is outstanding on the date hereof. Except as set
forth on Schedule 5.19 and except for the Company's obliga-
tion to make an annual grant of an option to acquire 7,500
shares of the Company's Common Stock to each member of its
Board of Directors who is not the Chief Executive Officer
and an initial grant of an option to acquire 15,000 shares
of the Company's Common Stock to each person (other than
11
<PAGE> 17 EX-10.2
current members of the Board of Directors) upon becoming a
member of the Board of Directors, there are no outstanding
subscriptions, options, warrants, calls, contracts, demands,
commitments, convertible securities, agreements or arrange-
ments of any character or nature whatsoever under which the
Company is or may become obligated to issue, assign or
transfer any shares of the capital stock of the Company.
5.20. Brokers and other Commissions
Other than usual and customary fees of Berenson,
Minella, the Company has no agreement or understanding with
any finder, broker or other person requiring the payment of
any fee as a result of the sale of the Note.
5.21. Material Contracts
The Company has not received any notice of default
under, nor does it have any knowledge of any threatened
termination of, any Material contract, of the Company or any
of its Subsidiaries, and to the best of the Company's knowl-
edge, the Company and its Subsidiaries are in compliance
with their respective Material contracts, other than such
failures in compliance that would not have a Material Ad-
verse Effect.
5.22. Patents, Trademarks etc.
Subject to the claims set forth in the actions de-
scribed in Schedule 5.22, the Company and its Subsidiaries
own or have rights to use all copyrights, service marks,
service names, trademarks, trade names, patents, trade
secrets and other proprietary rights that are Material to
the Company and its Subsidiaries taken as a whole and used
in the respective business and operations of the Company
and/or its Subsidiaries. The Company knows of no infringe-
ment upon, and has no knowledge that it is infringing upon,
any copyrights, service marks, service names, trademarks,
trade names, patents, trade secrets and other proprietary
rights owned by any other person or persons, and there is no
claim or action by any such person pending or to the knowl-
edge of the Company, threatened, with respect thereto.
5.23. Absence of Dividends
Since June 30, 1996, the Company has not made any divi-
dend, redemption, repurchase or other distribution in re-
spect of its Common Stock.
12
<PAGE> 18 EX-10.2
6. REPRESENTATIONS OF THE PURCHASER.
6.1. Purchase for Investment.
You represent that you are purchasing the Note for your
own account and not with a view to the distribution thereof,
PROVIDED that the disposition of your or their property shall at
all times be within your or their control. You understand that
the Note has not been registered under the Securities Act and may
be resold only if registered pursuant to the provisions of the
Securities Act or if an exemption from registration is available,
except under circumstances where neither such registration nor
such an exemption is required by law, and that the Company is not
required to register the Note.
6.2. Source of Funds.
You represent that at least one of the following state-
ments is an accurate representation as to each source of funds (a
"Source") to be used by you to pay the purchase price of the Note
to be purchased by you hereunder:
(a) the Source constitutes assets of an "investment
fund" (within the meaning of Part V of the QPAM Exemption)
managed by a "qualified professional asset manager" or
"QPAM" (within the meaning of Part V of the QPAM Exemption),
no employee benefit plan's assets that are included in such
investment fund, when combined with the assets of all other
employee benefit plans established or maintained by the same
employer or by an affiliate (within the meaning of Section
V(c)(1) of the QPAM Exemption) of such employer or by the
same employee organization and managed by such QPAM, exceed
20% of the total client assets managed by such QPAM, the
conditions of Part I(c) and (g) of the QPAM Exemption are
satisfied, neither the QPAM nor a person controlling or
controlled by the QPAM (applying the definition of "control"
in Section V(e) of the QPAM Exemption) owns a 5% or more
interest in the Company and the identity of such QPAM has
been disclosed to the Company in writing pursuant to this
paragraph (a); or
(b) the Source is a governmental plan; or
(c) the Source is one or more employee benefit plans,
or a separate account or trust fund comprised of one or more
employee benefit plans, each of which has been identified to
the Company in writing pursuant to this paragraph (c); or
(d) the Source does not include assets of any employee
benefit plan, other than a plan exempt from the coverage of
ERISA.
13
<PAGE> 19 EX-10.2
As used in this Section 6.2, the terms "employee benefit plan",
"governmental plan", "party in interest" and "separate account"
shall have the respective meanings assigned to such terms in
Section 3 of ERISA.
7. INFORMATION AS TO THE COMPANY.
7.1. Financial and Business Information.
The Company shall deliver to you:
(a) Quarterly Statements -- within 45 days after the
end of each quarterly fiscal period in each fiscal year of
the Company (other than the last quarterly fiscal period of
each such fiscal year), duplicate copies of,
(i) a consolidated balance sheet of the Company
and its Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes
in shareholders' equity and cash flows of the Company
and its Subsidiaries, for such quarter and (in the case
of the second and third quarters) for the portion of
the fiscal year ending with such quarter,
setting forth in each case in comparative form the figures
for the corresponding periods in the previous fiscal year,
all in reasonable detail, prepared in accordance with GAAP
applicable to quarterly financial statements generally, and
certified by a Senior Financial Officer as fairly present-
ing, in all material respects, the financial position of the
companies being reported on and their results of operations
and cash flows, subject to changes resulting from year-end
adjustments, provided that delivery within the time period
specified above of copies of the Company's Quarterly Report
on Form 10-Q prepared in compliance with the requirements
therefor and filed with the Securities and Exchange Commis-
sion shall be deemed to satisfy the requirements of this
Section 7.1 (a);
(b) Annual Statements -- within 90 days after the end
of each fiscal year of the Company, duplicate copies of,
(i) a consolidated balance sheet of the Company
and its Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, changes
in shareholders' equity and cash flows of the Company
and its Subsidiaries, for such year,
setting forth in each case in comparative form the figures
for the previous fiscal year, all in reasonable detail,
14
<PAGE> 20 EX-10.2
prepared in accordance with GAAP, and accompanied by an
opinion thereon of independent certified public accountants
of recognized national standing, which opinion shall state
that such financial statements present fairly, in all mate-
rial respects, the financial position of the companies being
reported upon and their results of operations and cash flows
and have been prepared in conformity with GAAP, and that the
examination of such accountants in connection with such
financial statements has been made in accordance with gener-
ally accepted auditing standards, and that such audit pro-
vides a reasonable basis for such opinion in the circum-
stances, and
provided that the delivery within the time period specified
above of the Company's Annual Report on Form 10-K for such
fiscal year prepared in accordance with the requirements
therefor and filed with the Securities and Exchange Commis-
sion, shall be deemed to satisfy the requirements of this
Section 7.1(b);
(c) SEC and Other Reports -- promptly upon their
becoming available, one copy of (i) each financial state-
ment, report, notice or proxy statement sent by the Company
or any Subsidiary sent or made available to public securi-
ties holders generally, and (ii) each regular or periodic
report, each registration statement (without exhibits except
as expressly requested by such holder), and each prospectus
and all amendments thereto filed by the Company or any of
its Subsidiaries with the Securities and Exchange Commission
and of all press releases and other statements made avail-
able generally by the Company or any such Subsidiary to the
public concerning developments that are Material;
(d) ERISA Matters -- promptly, and in any event within
five days after a Responsible Officer becoming aware of any
of the following, a written notice setting forth the nature
thereof and the action, if any, that the Company or an ERISA
Affiliate proposes to take with respect thereto:
(i) with respect to any Plan, any reportable
event, as defined in section 4043(b) of ERISA and the
regulations thereunder, for which notice thereof has
not been waived pursuant to such regulations as in
effect on the date hereof; or
(ii) the taking by the PBGC of steps to insti-
tute, or the threatening by the PBGC of the institution
of, proceedings under section 4042 of ERISA for the
termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by the Company or
any ERISA Affiliate of a notice from a Multiemployer
15
<PAGE> 21 EX-10.2
Plan that such action has been taken by the PBGC with
respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that
could result in the incurrence of any liability by the
Company or any ERISA Affiliate pursuant to Title I or
IV of ERISA or the penalty or excise tax provisions of
the Code relating to employee benefit plans, or in the
imposition of any Lien on any of the rights, properties
or assets of the Company or any ERISA Affiliate pursu-
ant to Title I or IV of ERISA or such penalty or excise
tax provisions, if such liability or Lien, taken to-
gether with any other such liabilities or Liens then
existing, could reasonably be expected to have a Mate-
rial Adverse Effect;
(e) Notices from Governmental Authority -- promptly,
and in any event within 30 days of receipt thereof, copies
of any notice to the Company or any Subsidiary from any Fed-
eral or state Governmental Authority relating to any order,
ruling, statute or other law or regulation that could rea-
sonably be expected to have a Material Adverse Effect; and
(f) Requested Information -- with reasonable prompt-
ness, such other data and information relating to the busi-
ness, operations, affairs, financial condition, assets or
properties of the Company or any of its Subsidiaries or
relating to the ability of the Company to perform its obli-
gations hereunder and under the Note as from time to time
may be reasonably requested by you.
7.2. Officer's Certificate.
Each set of financial statements delivered to you
pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be
accompanied by a certificate of a Senior Financial Officer
setting forth a statement that such officer has reviewed the
relevant terms hereof and has made, or caused to be made, under
his or her supervision, a review of the transactions and condi-
tions of the Company and its Subsidiaries from the beginning of
the quarterly or annual period covered by the statements then
being furnished to the date of the certificate and that such
review shall not have disclosed the existence during such period
of any condition or event that constitutes a Default or an Event
of Default or, if any such condition or event existed or exists
specifying the nature and period of existence thereof.
16
<PAGE> 22 EX-10.2
7.3. Inspection.
The Company shall permit your representatives:
(a) No Default -- if no Default or Event of Default
then exists, upon reasonable prior notice to the Company, to
visit the principal executive office of the Company, to
discuss the affairs, finances and accounts of the Company
and its Subsidiaries with the Company's officers, and (with
the consent of the Company, which consent will not be unrea-
sonably withheld) to visit the other offices and properties
of the Company and each of its Subsidiaries, all at such
reasonable times and as often as may be reasonably requested
in writing; and
(b) Default -- if a Default or Event of Default then
exists, to visit and inspect any of the offices or proper-
ties of the Company or any such Subsidiary, to examine all
their respective books of account, records, reports and
other papers, to make copies and extracts therefrom, and to
discuss their respective affairs, finances and accounts with
their respective officers and independent public accountants
(and by this provision the Company authorizes said accoun-
tants to discuss the affairs, finances and accounts of the
Company and its Subsidiaries), all at such times and as
often as may be reasonably requested.
8. PREPAYMENT OF THE NOTES.
8.1. Sinking Funds.
On November 1, 2002 the Company will prepay 25% of the
then outstanding principal amount of the Note, at par, and on
November 1, 2003 the Company will prepay 33.33% of the then out-
standing principal amount of the Note, at par, and on November 1,
2004, the Company will repay the remaining amount as shall then
be outstanding of the Note at par.
8.2. Optional Prepayments.
The Company may, at its option, upon notice as provided
below, prepay on any Interest Payment Date occurring after
November 1, 2000 all, or any part of, the Note, at the following
percentage of the principal amount of the Note so prepaid if re-
deemed during the 12 month period ending November 1, of the years
indicated below:
2001 102.25%
2002 101.50%
2003 100.75%
2004 100.00%
17
<PAGE> 23 EX-10.2
The Company will give the holder of the Note written notice of
each optional prepayment under this Section 8.2 not less than 30
days and not more than 180 days prior to the date fixed for such
prepayment. Each such notice shall specify such date, the
aggregate principal amount of the Note to be prepaid on such
date, and the interest to be paid on the prepayment date with
respect to such principal amount being prepaid.
8.3. Allocation of Partial Prepayments.
If a portion of the Note has been assigned pursuant to
Section 20.7, then in the case of each partial prepayment of the
Notes, the principal amount of the Notes to be prepaid shall be
allocated among all of the Notes at the time outstanding in pro-
portion, as nearly as practicable, to the respective unpaid prin-
cipal amounts thereof not theretofore called for prepayment.
8.4. Maturity; Surrender, etc.
In the case of each prepayment of the Note pursuant to
this Section 8, the principal amount of the Note to be prepaid
shall mature and become due and payable on the date fixed for
such prepayment, together with interest on such principal amount
accrued to such date. From and after such date, unless the Com-
pany shall fail to pay such principal amount when so due and pay-
able, interest on such principal amount shall cease to accrue.
If the Note is paid or prepaid in full, it shall be surrendered
to the Company and cancelled and shall not be reissued, and no
Note shall be issued in lieu of any prepaid principal amount of
the Note.
8.5. Repurchase of Note at Option of the Holder Upon Change of
Control.
In the event that a Repurchase Event occurs, the regis-
tered holders of the Note shall have the right, at such holder's
option, subject to the terms and conditions set forth herein, to
require the Company to repurchase all or any part of such
holder's interest in the Note (provided that the principal amount
of such Note at maturity must be $1,000 or an integral multiple
thereof) on the date that is no later than 90 calendar days after
the date the Company gives notice of such Repurchase Event (the
"Repurchase Date"), at a cash purchase price (the "Repurchase
Price") equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to and including the Repur-
chase Date.
8.6. Notices; Method of Exercising Repurchase Right, Etc.
(a) Within 30 calendar days after the occurrence of a
Repurchase Event, the Company shall make an irrevocable uncondi-
tional offer (a "Repurchase Offer") to the registered holders of
18
<PAGE> 24 EX-10.2
the Note to purchase all of the Note pursuant to the offer de-
scribed in clause (b) of this Section 8.6 at the Repurchase Price
plus accrued and unpaid interest, if any, to the Repurchase Date.
Within five Business Days after each date upon which the Company
knows of the occurrence of a Repurchase Event requiring the
Company to make a Repurchase Offer pursuant to Section 8.5
hereof, the Company shall so notify you.
(b) Notice of a Repurchase Offer shall be sent, not
more than 30 calendar days after the occurrence of the Repurchase
Event, by first class mail, by the Company to you and each other
registered holder at its registered address. The Company will
have no liability to send any such notice to any holder who has
not provided the Company with its address. No failure of the
Company to give such notice or defect therein shall limit any
holder's right to exercise his repurchase right or affect the
validity of the proceedings for the repurchase of the Note. The
notice, which shall govern the terms of the Repurchase Offer,
shall state that:
(i) the Repurchase Offer is being made pursuant
to such notice and Section 8.5 and that the Note, or
portion thereof, properly tendered pursuant to the
Repurchase Offer prior to the thirtieth calendar day
prior to the Repurchase Date (the "Final Repurchase Put
Date") will be accepted for payment;
(ii) the Repurchase Price, the Repurchase Date
and the Final Repurchase Put Date;
(iii) that the Note, or portion thereof, not
tendered or accepted for payment will continue to
accrue interest, if interest is then accruing;
(iv) that, unless the Company defaults in paying
the Repurchase Price, or payment is otherwise prevent-
ed, the Note, or portion thereof, accepted for payment
pursuant to the Repurchase Offer shall cease to accrue
interest after the Repurchase Date;
(v) that holders electing to have the Note, or
portion thereof, purchased pursuant to a Repurchase
Offer will be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on
the reverse of the Note completed, to the Company;
(vi) that holders will be entitled to withdraw
their election if the Company receives, prior to the
close of business on the Final Repurchase Put Date, a
telegram, telex, facsimile transmission or letter
setting forth the name of the holder, the principal
amount of the Note the holder is withdrawing and a
19
<PAGE> 25 EX-10.2
statement containing a facsimile signature that such
holder is withdrawing his election to have such princi-
pal amount of the Note purchased; and
(vii) that holders whose interest in the Note was
purchased only in part will be issued a new Note equal
in principal amount to the unpurchased portion of the
Note surrendered.
(c) Any such Repurchase Offer shall comply with all
applicable provisions of federal and state laws, including those
regulating tender offers, if applicable, and any provisions of
this Agreement which conflict with such laws shall be deemed to
be superseded by the provisions of such laws. On or before the
Repurchase Date, the Company shall (a) accept for payment the
Note or portions thereof properly tendered pursuant to the
Repurchase Offer prior to the close of business on the Final
Repurchase Put Date, (b) remit by wire transfer of immediately
available funds to the holders so accepted payment in an amount
equal to the Repurchase Price plus accrued and unpaid interest,
if any, to the Repurchase Date, and (c) promptly authenticate and
mail or deliver to such holders a new Note equal in principal
amount to any unpurchased portion of the Note surrendered. Any
portion of the Note not so accepted shall be promptly mailed or
delivered by the Company to the holder thereof and the principal
shall, until paid, bear interest to the extent permitted by
applicable law from the Repurchase Date at the rate borne by the
Note and the Note shall remain convertible into Common Stock
until the principal of the Note shall have been paid or duly
provided for.
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as the Note is out-
standing:
9.1. Compliance with Law.
The Company will and will cause each of its Subsid-
iaries to comply with all laws, ordinances or governmental rules
or regulations to which each of them is subject, including, with-
out limitation, Environmental Laws, and will obtain and maintain
in effect all licenses, certificates, permits, franchises and
other governmental authorizations necessary to the ownership of
their respective properties or to the conduct of their respective
businesses, in each case to the extent necessary to ensure that
non-compliance with such laws, ordinances or governmental rules
or regulations or failures to obtain or maintain in effect such
licenses, certificates, permits, franchises and other governmen-
tal authorizations could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
20
<PAGE> 26 EX-10.2
9.2. Insurance.
The Company will and will cause each of its Subsid-
iaries to maintain, with financially sound and reputable insur-
ers, insurance with respect to their respective properties and
businesses against such casualties and contingencies, of such
types, on such terms and in such amounts (including deductibles,
co-insurance and self-insurance, if adequate reserves are main-
tained with respect thereto) as is customary in the case of
entities of established reputations engaged in the same or a
similar business and similarly situated.
9.3. Maintenance of Properties.
The Company will and will cause each of its Subsid-
iaries to maintain and keep, or cause to be maintained and kept,
their respective properties in good repair, working order and
condition (other than ordinary wear and tear), so that the
business carried on in connection therewith may be properly
conducted at all times, provided that this Section shall not
prevent the Company or any such Subsidiary from discontinuing the
operation and the maintenance of any of its properties if such
discontinuance is desirable in the conduct of its business and
the Company has concluded that such discontinuance could not,
individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect.
9.4. Payment of Taxes and Claims.
The Company will and will cause each of its Subsid-
iaries to file all tax returns required to be filed in any juris-
diction and to pay and discharge all taxes shown to be due and
payable on such returns and all other taxes, assessments, govern-
mental charges, or levies imposed on them or any of their proper-
ties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have be-
come delinquent and all claims for which sums have become due and
payable that have or might become a Lien on properties or assets
of the Company or any such Subsidiary, provided that neither the
Company nor any such Subsidiary need pay any such tax or assess-
ment or claims if (i) the amount, applicability or validity
thereof is contested by the Company or such Subsidiary on a
timely basis in good faith and in appropriate proceedings, and
the Company or such Subsidiary has established adequate reserves
therefor in accordance with GAAP on the books of the Company or
such Subsidiary or (ii) the nonpayment of all such taxes and
assessments in the aggregate could not reasonably be expected to
have a Material Adverse Effect.
21
<PAGE> 27 EX-10.2
9.5. Corporate Existence, etc.
The Company will at all times preserve and keep in full
force and effect its corporate existence. The Company will at
all times preserve and keep in full force and effect the corpo-
rate existence of each of its Subsidiaries (unless merged into
the Company or one of its Subsidiaries) and all rights and fran-
chises of the Company and its Subsidiaries unless, in the good
faith judgment of the Company, the termination of or failure to
preserve and keep in full force and effect such corporate exis-
tence, right or franchise could not, individually or in the
aggregate, have a Material Adverse Effect.
9.6. Use of Proceeds.
The Company shall apply the net proceeds from the sale
of the Note to working capital, repayment of Indebtedness (in-
cluding repayment of the MLC Note) and general corporate purpos-
es. Furthermore, the Company may from time to time enter into
discussions with respect to settling the legal proceedings listed
on Schedules 5.8 in which the Company and/or its Subsidiaries are
parties, and while no assurances are given that any such settle-
ment will be attained, the Company may apply the net proceeds to
fund all or a portion of any such settlement (net of available
insurance). The Company shall not apply the proceeds from the
sale of the Note to payment of any dividend, return of capital or
other distribution on capital stock of the Company.
9.7. Guaranty by New Subsidiaries.
Immediately upon the incorporation (or merger or other
acquisition by which any entity becomes a Subsidiary) on or after
the Effective Date of each new Subsidiary of the Company or any
of its Subsidiaries, the Company shall cause each such new
Subsidiary to deliver its subordinated guaranty of the Company's
payment obligations under the Note by duly executing and deliv-
ering to the Holders a counterpart of the Subordinated Guaranty.
10. NEGATIVE COVENANTS.
The Company covenants that so long as the Note is out-
standing:
10.1. Transactions with Affiliates.
(a) The Company will not and will not permit any of
its Subsidiaries to enter into directly or indirectly any Affili-
ate Transaction except upon fair and reasonable terms no less fa-
vorable to the Company or such Subsidiary than would be obtain-
able in a comparable arm's-length transaction with a Person not
an Affiliate;
22
<PAGE> 28 EX-10.2
(b) Furthermore, only at such times that (x) at least
$3,750,000 aggregate principal amount of the Note is outstanding
and (y) Angelo, Gordon & Co. owns or controls directly or through
its ownership of the voting stock of Silver Oak Capital L.L.C. or
otherwise at least 50% of the outstanding principal amount of the
Note, then:
(i) the Company will not and will not permit any
of its Subsidiaries to enter into directly or indirect-
ly any Affiliate Transaction with an aggregate value of
more than $100,000 in any twelve month period (subject
to the adjustment provided in Section 10.1(c)) unless
(A) such Affiliate Transaction is approved by the
majority of the independent directors (as defined in
Regulation Section 1.162-27(e)(3) promulgated under
Section 162(m) of the Code (as in effect on the Effec-
tive Date)) of the Company's Board of Directors; and
(B) at least three days before entering into any such
Affiliate Transaction the Company describes such trans-
action to Angelo, Gordon & Co. and indicates whether or
not approval of the independent directors was obtained;
and
(ii) if the Company or any of its Subsidiaries
proposes to enter into directly or indirectly any
Affiliate Transaction with an aggregate value of more
than $250,000 in any twelve month period (subject to
the adjustment provided in Section 10.1(c)), then it
shall notify Angelo, Gordon & Co. of the terms of such
proposed transaction, and the Company or such Subsid-
iary shall not enter into such proposed transaction if
Angelo, Gordon & Co. objects directly to the Company's
Chief Executive Officer, President or Senior Financial
Officer within 10 Business Days after such notice is
delivered; provided, however, that if Angelo, Gordon
and Co. objects within such 10 Business Days, then the
Company or such Subsidiary may enter into such Affili-
ate Transaction if it supplies Angelo, Gordon & Co.
with a copy of a written opinion from an independent
investment bank or firm of independent certified public
accountants (other than the Company's auditors) that
the Affiliate Transaction is on terms that are fair and
reasonable and no less favorable to the Company or such
Subsidiary than would be obtained in a comparable
arm's-length transaction with a Person not an Affiliate
of the Company.
(c) For purposes of determining the threshold amounts
set forth in Sections 10.1(b)(i) and (ii), such amounts shall be
increased on each anniversary of the Effective Date by the
percentage increase since the prior anniversary of the Effective
Date (or, since the Effective Date if the date of adjustment is
23
<PAGE> 29 EX-10.2
the first such anniversary) in the Consumer Price Index-Urban
Consumer as reprinted by the Bureau of Labor Statistics of the
U.S. Department of Labor or superseding index or report whether
published by the Department of Labor or otherwise.
(d) Notwithstanding the foregoing, any loan from an
Affiliate to the Company or any of its Subsidiaries will be
deemed to have been made on fair and reasonable terms no less
favorable to the Company or such Subsidiary than would be obtain-
able in a comparable arm's-length transaction with a Person not
an Affiliate pursuant to Section 10.1(a) if such loan (i) re-
quires payments of interest (or interest accrues) at the annual
rate of not more than Prime plus 3%, (ii) is pari passu or subor-
dinated in right payment to the Note, and (iii) does not involve
the issuance of any warrant or other additional consideration
from the Company or any Subsidiary.
(e) Notwithstanding anything to the contrary in
Sections 10.1(a) and 10(b), the Company may enter into any
Affiliate Transaction with a Subsidiary that is not a wholly-
owned Subsidiary so long as such transaction is in the ordinary
course of the Company's business (such as an intercompany loan or
payroll funding) and upon usual and customary terms for such
transactions.
10.2. Merger; Purchase of Assets; Acquisitions; Etc.
The Company will not (i) merge or consolidate or amal-
gamate with any other Person or convey, transfer or lease sub-
stantially all of its properties or assets as an entirety in a
single transaction or series of transactions to any Person unless
(X) either (1) the Company shall be the continuing Person, or (2)
the Person formed by such consolidation or into which the Company
is merged or to which all or substantially all of the properties
and assets of the Company are transferred as an entirety (the
Company or such other Person being hereinafter referred to as the
"Surviving Person") shall be a corporation or partnership orga-
nized and validly existing under the laws of the United States,
any state thereof or the District of Columbia, and, if the
Company is a party to such consolidation, merger or transfer, the
Surviving Person shall assume all of the obligations of the
Company under this Agreement and the Note; (Y) immediately after
giving effect to such transaction, no Default or Event of Default
and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have happened and be continu-
ing; and (Z) the Company has delivered to you an Officer's
Certificate stating that such consolidation, merger, transfer,
conveyance or other disposition complies with this Section 10.2
and that all conditions precedent herein provided relating to
such transaction have been satisfied; provided, however, that the
Company or its Subsidiaries may merge with and among each other
so long as one of the Company or such Subsidiaries is the survi-
24
<PAGE> 30 EX-10.2
vor of the merger and no other third party is a party to such
merger or consolidation.
10.3. Anti-Layering.
Company will not, directly or indirectly, incur or
suffer to exist any Indebtedness that is subordinate in right of
payment to any Indebtedness of the Company, unless such Indebted-
ness is pari passu with or is subordinate in right of payment to
the Note.
10.4. Limitations on Grants of Options.
The Company will not grant to any Persons (including
without limitation any officer or director of the Company) on any
date during any Contract Year, Incentive Stock Options to acquire
more than the number of shares of Common Stock equal to the
difference between the (x) applicable Adjusted Cumulative Quota
for the Contract Year in which the grant is proposed to be made
reduced by (y) the aggregate number of shares of Common Stock
underlying Incentive Stock Options previously granted to any
Persons (including without limitation any officer or director of
the Company) during the period commencing on the Effective Date
and through such proposed date of grant.
"Contract Year" shall mean the period commencing on the
Effective Date and ending on the first anniversary thereof and
each succeeding twelve month period thereafter.
"Incentive Stock Options" shall mean options (whether
or not such options constitute incentive stock options (as
defined under Sections 421 and 422 of the Code)) to acquire
Common Stock granted by the Company or any of its Subsidiaries
pursuant to the terms of the Company's Incentive Stock Option
Plans.
"Cumulative Quota" shall mean with respect to each Con-
tract Year, the number of shares of Common Stock set forth below:
First Contract Year 250,000
Second Contract Year 500,000
Third Contract Year 750,000
Fourth Contract Year 1,000,000
Fifth Contract Year 1,250,000
Sixth Contract Year 1,500,000
Seven Contract Year 2,000,000
Eighth Contract Year 2,500,000
"Adjusted Cumulative Quota" for any Contract Year shall
be the number of shares of Common Stock constituting the applica-
ble Cumulative Quota for such year increased (or, in the case of
a reverse stock split, reduced) upon the occurrence of each event
25
<PAGE> 31 EX-10.2
described in Section 14.4(a) or (c) by the percentage that the
total number of outstanding shares of Common Stock will be
proportionately increased (or, in the case of reverse stock
split, reduced) as a result of such event; it being understood
that such adjustment shall be effective and determined on the
same date(s) that the Conversion Price would be adjusted pursuant
to such Sections.
11. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the follow-
ing conditions or events shall occur and be continuing:
(a) the Company fails to pay any principal of the Note
when the same becomes due and payable, whether at maturity
or at a date fixed for prepayment or by declaration or
otherwise; or
(b) the Company defaults in the payment of any inter-
est on any Note for more than five (5) Business Days after
written notification thereof from you to the Company when
the same becomes due and payable; or
(c) the Company defaults in the performance of or com-
pliance with any term contained in Section 10.2 or fails to
comply with its obligations to issue shares of Common Stock
on conversion of the Note; or
(d) the Company defaults in the performance of or com-
pliance with any term contained herein (other than those
referred to in paragraphs (a), (b) and (c) of this Section
11) and such default is not remedied within 30 days after
the earlier of (i) a Responsible Officer obtaining actual
knowledge of such default and (ii) the Company receiving
written notice of such default from you (any such written
notice to be identified as a "notice of default" and to
refer specifically to this paragraph (d) of Section 11); or
(e) any representation or warranty made in writing by
or on behalf of the Company or by any officer of the Company
in this Agreement or in any writing furnished in connection
with the transactions contemplated hereby proves to have
been false or incorrect in any Material respect on the date
as of which made; or
(f) (i) the Company or any of its Subsidiaries is in
default (as principal or as guarantor or other surety) in
the payment of any principal of or premium or make-whole
amount or interest on any Indebtedness that is outstanding
in an aggregate principal amount of at least $3,000,000 be-
yond any period of grace provided with respect thereto and
notice from the lender, or (ii) the Company or any Subsid-
26
<PAGE> 32 EX-10.2
iary is in default in the performance of or compliance with
any term of any evidence of any Indebtedness in an aggregate
outstanding principal amount of at least $3,000,000 or of
any mortgage, indenture or other agreement relating thereto
or any other condition exists, and as a consequence of such
default or condition such Indebtedness has been declared due
and payable before its stated maturity or before its regu-
larly scheduled dates of payment; or
(g) the Company or any of its Subsidiaries (i) admits
in writing its inability to pay, its debts as they become
due, (ii) files, or consents by answer or otherwise to the
filing against it of, a petition for relief or reorganiza-
tion or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy, insol-
vency, reorganization, moratorium or other similar law of
any jurisdiction, (iii) makes an assignment for the benefit
of its creditors, (iv) consents to the appointment of a
custodian, receiver, trustee or other officer with similar
powers with respect to it or with respect to any substantial
part of its property, (y) is adjudicated as insolvent or to
be liquidated, or (vi) takes corporate action for the pur-
pose of any of the foregoing; or
(h) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by
the Company or any of its Subsidiaries, a custodian, receiv-
er, trustee or other officer with similar powers with re-
spect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a
petition for relief or reorganization or any other petition
in bankruptcy or for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or order-
ing the dissolution, winding-up or liquidation of the Compa-
ny or any of its Subsidiaries, or any such petition shall be
filed against the Company or any of its Subsidiaries and
such petition shall not be dismissed within 60 days; or
(i) a final judgment or judgments for the payment of
money aggregating $3,000,000 in excess of any insurance and
reserves for such judgment are rendered against one or more
of the Company and its Subsidiaries and which judgments are
not, within 60 days after entry thereof, bonded, discharged
or stayed pending appeal, or are not discharged within 60
days after the expiration of such stay; or
(j) if (i) any Plan shall fail to satisfy the minimum
funding standards of ERISA or the Code for any plan year or
part thereof or a waiver of such standards or extension of
any amortization period is sought or granted under section
412 of the Code, (ii) a notice of intent to terminate any
Plan shall have been or is reasonably expected to be filed
27
<PAGE> 33 EX-10.2
with the PBGC or the PBGC shall have instituted proceedings
under ERISA section 4042 to terminate or appoint a trustee
to administer any Plan or the PBGC shall have notified the
Company or any ERISA Affiliate that a Plan may become a
subject of any such proceedings, (iii) the aggregate "amount
of unfunded benefit liabilities" (within the meaning of
section 4001(a)(18) of ERISA) under all Plans, determined in
accordance with Title IV of ERISA, shall exceed $500,000,
(iv) the Company or any ERISA Affiliate shall have incurred
or is reasonably expected to incur any Material liability
pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit
plans, (v) the Company or any ERISA Affiliate withdraws from
any Multiemployer Plan, or (vi) the Company or any Subsid-
iary establishes or amends any employee welfare benefit plan
that provides post-employment welfare benefits in a manner
that would increase the liability of the Company or any
Subsidiary thereunder; and any such event or events de-
scribed in clauses (i) through (vi) above, either individ-
ually or together with any other such event or events, could
reasonably be expected to have a Material Adverse Effect.
As used in Section 11 (j), the terms "employee benefit plan" and
"employee welfare benefit plan" shall have the respective mean-
ings assigned to such terms in Section 3 of ERISA.
12. REMEDIES ON DEFAULT, ETC.
12.1. Acceleration.
If an Event of Default has occurred and is continuing,
the Majority Lenders may, by written notice to the Company, de-
clare the Note to be immediately due and payable.
Upon becoming due and payable under this Section 12.1,
the Note will forthwith mature and the entire unpaid principal
amount of such Note, plus all accrued and unpaid interest thereon
shall all be immediately due and payable, in each and every case
without demand, protest or further notice, all of which are
hereby waived.
12.2. Other Remedies.
If any Default or Event of Default has occurred and is
continuing, and irrespective of whether the Note has become or
has been declared immediately due and payable under Section 12.1,
you may proceed to protect and enforce your rights by an action
at law, suit in equity or other appropriate proceeding, whether
for the specific performance of any agreement contained herein or
in the Note, or for an injunction against a violation of any of
the terms hereof or thereof, or in aid of the exercise of any
power granted hereby or thereby or by law or otherwise.
28
<PAGE> 34 EX-10.2
12.3. No Waivers or Election of Remedies, Expenses, etc.
No course of dealing and no delay on your part in
exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice your rights, powers or remedies.
No right, power or remedy conferred by this Agreement or by the
Note upon you shall be exclusive of any other right, power or
remedy referred to herein or therein or now or hereafter avail-
able at law, in equity, by statute or otherwise. Without limit-
ing the obligations of the Company under Section 15, the Company
will pay to you on demand such further amount as shall be suffi-
cient to cover the reasonable costs and expenses of you incurred
in any enforcement or collection under this Section 12, includ-
ing, without limitation, reasonable fees, expenses and disburse-
ments of one counsel representing you (and all other holders of
the Note).
13. SUBORDINATION
13.1. Note Subordinated to Senior Indebtedness.
The Company, for itself and its successors, and you
agree that (a) the payment of the principal of, premium, if any,
and interest on the Note and (b) any payment on account of the
acquisition or redemption of the Note by the Company or any of
its Subsidiaries including, without limitation, pursuant to Sec-
tion 8 hereof, is subordinated, to the extent and in the manner
provided in this Section 13, to the prior payment in full of all
Senior Indebtedness of the Company and its Subsidiaries and that
these subordination provisions are for the benefit of the holders
of Senior Indebtedness.
This Section 13 shall constitute a continuing offer to
all Persons who, in reliance upon such provisions, become holders
of, or continue to hold, Senior Indebtedness, and such provisions
are made for the benefit of the holders of Senior Indebtedness,
and such holders are made obligees hereunder and any one or more
of them may enforce such provisions.
13.2. No Payment on the Note in Certain Circumstances.
(a) No payment shall be made by the Company or any
Subsidiary on account of principal of, premium, if any, or inter-
est on the Note or on account of the redemption, repurchase,
acceleration or other acquisition of the Note (other than in the
form of Common Stock or other capital stock of the Company), or
on account of the Subordinated Guaranty if there shall have oc-
curred and be continuing a default in the payment of all or any
portion of the obligations on any Senior Indebtedness (a "Senior
Payment Default") until such Senior Payment Default shall have
been cured or waived or shall have ceased to exist.
29
<PAGE> 35 EX-10.2
(b) During the continuance of any non-payment default
or event of default with respect to Senior Indebtedness pursuant
to which the maturity thereof may be accelerated, and upon re-
ceipt by you of notice thereof from the holders of more than a
majority of the aggregate principal amount of Senior Indebtedness
then outstanding (a "Senior Non-Payment Default"), then, unless
and until (i) such default or event of default shall have been
cured or waived or have ceased to exist, or (ii) a Default under
either Section 11(g) or Section 11(h) hereof involving the
Company or any Subsidiary of the Company shall have occurred and
be continuing, or (iii) such Senior Indebtedness shall have been
paid in full (each of clause (i), (ii) and (iii) being a "Block-
age Termination Event"), no payment or distribution (other than
in the form of Common Stock or other capital stock of the Compa-
ny) will be made by or on behalf of the Company or any Subsidiary
of the Company on account of or with respect to the Note during a
period (a "Blockage Period") commencing on the date of receipt of
such notice and ending 179 days thereafter.
(c) Notwithstanding anything herein to the contrary,
(i) in no event will a Blockage Period extend beyond the 179
days from the date the payment on the Note was due and (ii) there
must be 180 days in any 365 day period during which no Blockage
Period is in effect. Not more than one Blockage Period may be
commenced with respect to the Note during any period of 365
consecutive days. No default or event of default that existed or
was continuing on the date of commencement of any Blockage Period
with respect to the Senior Indebtedness initiating such Blockage
Period may be, or be made, the basis for the commencement of any
other Blockage Period by the holders of such Senior Indebtedness,
whether or not within a period of 365 consecutive days, unless
such default or event of default has been cured or waived for a
period of not less than 90 consecutive days.
(d) In furtherance of the provisions of Section 13.1
hereof, in the event that, notwithstanding the foregoing provi-
sions of this Section 13.2, any payment or distribution of assets
on account of principal of, premium, if any, or interest on the
Note shall be made by the Company or any Subsidiary of the
Company and received by you at a time when such payment or
distribution was prohibited by the provisions of this Section
13.2, then, unless such payment or distribution is no longer
prohibited by this Section 13.2, such payment or distribution
(subject to the provisions of Sections 13.6 and 13.7 hereof)
shall be received and held in trust by you for the benefit of the
holders of Senior Indebtedness, and shall be paid or delivered by
you, to the holders of Senior Indebtedness remaining unpaid and
unprovided for or their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any
instruments evidencing any of such Senior Indebtedness may have
been issued, ratably according to the aggregate amounts on
account of the Senior Indebtedness held or represented by each,
30
<PAGE> 36 EX-10.2
to the extent necessary to enable payment in full (except as such
payment otherwise shall have been provided for), of all Senior
Indebtedness remaining unpaid, after giving effect to all concur-
rent payments and distributions and all provisions therefor, to
or for the holders of such Senior Indebtedness. Your obligations
under this Section 13.2(d) shall only be to the extent that any
holder of such Senior Indebtedness, as promptly as practical
following notice from you to the holders of such Senior Indebted-
ness that such prohibited payment has been received by you, and
requesting from such holder of Senior Indebtedness a statement of
amounts owing such holder, such holder (or a representative
thereof) notifies you of the amounts then due and owing on such
Senior Indebtedness, if any, held by such holder and only the
amounts specified in such notices to you shall be paid hereunder
to the holders of such Senior Indebtedness.
(e) The Company shall give prompt written notice to
you of any default or event of default, and any cure or waiver
thereof, or any acceleration under any Senior Indebtedness or
under any agreement pursuant to which Senior Indebtedness may
have been issued.
13.3. Note Subordinated to Prior Payment of All Senior Indebt-
edness on Acceleration of Principal of the Note or on
Dissolution, Liquidation or Reorganization.
Upon any acceleration of the principal of the Note or
any Senior Indebtedness or any distribution of assets of the
Company or any Subsidiary upon any dissolution, winding up, total
or partial liquidation or reorganization of the Company or any
Subsidiary, whether voluntary or involuntary, in bankruptcy,
insolvency, receivership or similar proceeding or upon assignment
for the benefit of creditors:
(a) the holders of all Senior Indebtedness shall first
be entitled to receive payments in full of the principal of,
premium, if any, and interest on and all other amounts pay-
able in respect thereof, before you are entitled to receive
any payment on account of the principal of, premium, if any,
and interest on the Note;
(b) any payment or distribution of assets of the Com-
pany or any Subsidiary of any kind or character, whether in
cash, property or securities, to which you would be entitled
except for the provisions of this Section 13, shall be paid
by the liquidating trustee or agent or other Person making
such a payment or distribution, directly to the holders of
Senior Indebtedness or their representative, ratably ac-
cording to the respective amounts of Senior Indebtedness
held or represented by each, to the extent necessary to make
payment in full of all such Senior Indebtedness remaining
unpaid after giving effect to all concurrent payments and
31
<PAGE> 37 EX-10.2
distributions to or for the holders of such Senior Indebted-
ness; and
(c) in the event that, notwithstanding the foregoing,
any payment or distribution of assets of the Company or any
Subsidiary of any kind or character, whether in cash, prop-
erty or securities, shall be received by you on account of
principal of, premium, if any, or interest on the Note, as
the case may be, before all Senior Indebtedness is paid in
full, such payment or distribution (subject to the provi-
sions of Sections 13.6 and 13.7 hereof) shall be received
and held in trust by you for the benefit of the holders of
such Senior Indebtedness, or their respective representa-
tive, ratably according to the respective amounts of Senior
Indebtedness held or represented by each, to the extent
necessary to make payment in full of all such Senior Indebt-
edness remaining unpaid after giving effect to all concur-
rent payments and distributions to or for the holders of
such Senior Indebtedness, but only to the extent that as to
any holder of such Senior Indebtedness, as promptly as prac-
tical following notice from you to the holders of such
Senior Indebtedness that such prohibited payment has been
received by you and requesting from such holder of Senior
Indebtedness a statement of amounts owing such holder, such
holder notifies you of the amounts then due and owing on
such Senior Indebtedness, if any, held by such holder and
only the amounts specified in such notices to you shall be
paid hereunder to the holders of such Senior Indebtedness.
The Company shall give prompt written notice to you of
any dissolution, winding up, liquidation or reorganization of the
Company or assignment for the benefit of creditors by the Compa-
ny.
13.4. Noteholders to Be Subrogated to Rights of Holders of Se-
nior Indebtedness.
Subject to the payment in full of all Senior Indebted-
ness, you shall be subrogated to the rights of the holders of
such Senior Indebtedness to receive payments or distributions of
assets of the Company applicable to the Senior Indebtedness until
all amounts owing on the Note shall be paid in full, and for the
purpose of such subrogation no such payments or distributions to
you of such Senior Indebtedness by or on behalf of the Company,
or by or on behalf of you by virtue of this Section 13, which
otherwise would have been made to you shall, as between the
Company and you, be deemed to be payment by the Company, to or on
account of such Senior Indebtedness, it being understood that the
provisions of this Section 13 are and are intended solely for the
purpose of defining the relative rights of you, on the one hand,
and the holders of such Senior Indebtedness, on the other hand.
32
<PAGE> 38 EX-10.2
If any payment or distribution to which you would
otherwise have been entitled but for the provisions of this
Section 13 shall have been applied, pursuant to the provisions of
this Section 13 to the payment of amounts payable under Senior
Indebtedness, then you shall be entitled to receive from the
holders of such Senior Indebtedness any payments or distributions
received by such holders of Senior Indebtedness in excess of the
amount sufficient to pay all amounts payable under or in respect
of such Senior Indebtedness in full.
13.5. Obligations of the Company Unconditional.
Nothing contained in this Section 13 or elsewhere in
this Agreement or in the Note is intended to or shall impair, as
between the Company and you, the obligation of the Company, which
is absolute and unconditional, to pay to you the principal of,
premium, if any, and interest on the Note as and when the same
shall become due and payable in accordance with its terms, or is
intended to or shall affect the relative rights of you and credi-
tors of the Company other than the holders of the Senior Indebt-
edness, nor shall anything herein or in the Note prevent you from
exercising all remedies otherwise permitted by applicable law
upon default under this Agreement, subject to the rights, if any,
under this Section 13, of the holders of Senior Indebtedness in
respect of cash, property or securities of the Company received
upon the exercise of any such remedy. Notwithstanding anything
to the contrary in this Section 13 in this Agreement or in the
Note upon any distribution of assets of the Company referred to
in this Section 13, you shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which
such dissolution, winding up, liquidation or reorganization pro-
ceedings are pending, or a certificate of the liquidating trustee
or agent or other Person making any distribution to you for the
purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and
other Indebtedness of the Company, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and
all other facts pertinent thereto or to this Section 13.
13.6. Subordination Rights Not Impaired by Acts or Omissions of
the Company or Holders of Senior Indebtedness.
No right of any present or future holders of any Senior
Indebtedness to enforce subordination provisions contained in
this Section 13 shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company
or any Subsidiary or by any act or failure to act, in good faith,
by any such holder, or by any noncompliance by the Company with
the terms of this Agreement, or by any noncompliance by any
Subsidiary with the terms of the Subordinated Guaranty regardless
of any knowledge thereof with which any such holder may have or
be otherwise charged. The holders of Senior Indebtedness may
33
<PAGE> 39 EX-10.2
extend, renew, modify or amend the terms of the Senior Indebted-
ness or any security therefor and release, sell or exchange such
security and otherwise deal freely with the Company and the
Subsidiaries all without affecting the liabilities and obliga-
tions of the parties to this Agreement, the subordination provi-
sions of this Section 13 or the rights of holders of Senior
Indebtedness to enforce such provisions.
13.7. Section 13 Not to Prevent Events of Default.
The failure to make a payment on account of principal
of, premium, if any, or interest on the Note by reason of any
provision of this Section 13 shall not be construed as preventing
the occurrence of a Default or an Event of Default under Sec-
tion 12 hereof or in any way prevent you from exercising any
right hereunder other than the right to receive payment on the
Note.
14. CONVERSION OF NOTES
14.1. Right of Conversion; Conversion Price.
You shall have the right, at your option, at any time
(except that, in the event all or a portion of the Note shall be
called for redemption, such right shall terminate at the close of
business on the last Business Day prior to the date fixed for
such redemption unless the Company shall default in payment due
upon redemption thereof), to convert, subject to the terms and
provisions of this Section 14, the principal of the Note or any
portion thereof which is at least $60,000 principal amount and an
integral multiple of 12,000 into shares of Common Stock, at the
Conversion Price.
14.2. Issuance of Shares on Conversion.
As promptly as practicable after the surrender, as
herein provided, of the Note or portion of the Note for conver-
sion, the Company shall deliver or cause to be delivered at its
said office or agency, to you, certificates representing the
number of fully paid and nonassessable shares of Common Stock
into which such Note or portion of the Note may be converted in
accordance with the provisions of this Section 14. Such conver-
sion shall be deemed to have been made as of the close of busi-
ness on the date that such Note or portion of the Note shall have
been surrendered for conversion with a written notice of conver-
sion duly executed, so that your rights under the Note shall
cease at such time and, subject to the following provisions of
this paragraph, you shall be treated for all purposes as having
become the record holder of such shares of Common Stock at such
time and such conversion shall be at the Conversion Price in
effect at such time; provided, however, that no such surrender on
34
<PAGE> 40 EX-10.2
any date when the stock transfer books of the Company shall be
closed shall be effective to cause your rights under the Note to
cease or to constitute you as the record holder of such shares of
Common Stock on such date, but such surrender shall be effective
to cause your rights under the Note to cease and to constitute
you as the record holder thereof for all purposes at the close of
business on the next succeeding day on which such stock transfer
books are open; such conversion shall be at the Conversion Price
in effect on the date that the Note or portion of the Note being
converted shall have been surrendered for conversion, as if the
stock transfer books of the Company had not been closed.
Upon conversion of the Note in part only, the Company
shall execute at the expense of the Company, a new Note in prin-
cipal amount equal to the unconverted portion of such Note.
14.3. No Adjustment for Interest or Dividends.
No payment or adjustment in respect of interest on the
Note or dividends on the shares of Common Stock shall be made
upon the conversion of the Note; provided, however, that if all
or any portion of the Note (other than a portion thereof called
for redemption) shall be converted subsequent to any Record Date
and on or prior to the next succeeding Interest Payment Date, the
interest falling due on such Interest Payment Date shall be pay-
able on such Interest Payment Date notwithstanding such conver-
sion, and such interest (whether or not punctually paid or duly
provided for) shall be paid at the close of business on such
Record Date and the Note or portion thereof surrendered for con-
version during the period from the close of business on any
Record Date to the opening of business on the corresponding
Interest Payment Date must be accompanied by payment of an amount
equal to the interest payable on such Interest Payment Date.
14.4. Adjustment of Conversion Price.
(a) In case the Company shall pay or make a dividend
or other distribution on any class of capital stock of the Com-
pany in shares of Common Stock, the Conversion Price in effect at
the opening of business on the day following the date fixed for
the determination of stockholders entitled to receive such
dividend or other distribution shall be reduced by multiplying
such Conversion Price by a fraction of which the numerator shall
be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the
total number of shares constituting such dividend or other dis-
tribution, such reduction to become effective immediately after
the opening of business on the day following the date fixed for
such determination. For the purposes of this paragraph (a), the
number of shares of Common Stock at any time outstanding shall
not include shares held in the treasury of the Company.
35
<PAGE> 41 EX-10.2
(b) In case the Company shall issue stock, rights,
options or warrants to all holders of its shares of Common Stock
entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the current market price per
share (determined as provided in paragraph (g) of this Section
14.4) of Common Stock on the date fixed for the determination of
stockholders entitled to receive such stock, rights, options or
warrants, the Conversion Price in effect at the opening of
business on the day following the date fixed for such determina-
tion shall be reduced by multiplying such Conversion Price by a
fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the date
fixed for such determination plus the number of shares of Common
Stock which the aggregate of the subscription price of the total
number of shares of Common Stock so offered for subscription or
purchase would purchase at such current market price and the
denominator shall be the number of shares of Common Stock out-
standing at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so
offered for subscription or purchase, such reduction to become
effective immediately after the opening of business on the day
following the date fixed for such determination. In the event
that all of the shares of Common Stock subject to such rights,
options or warrants have not been issued when such rights,
options or warrants expire, then the Conversion Price shall
promptly be readjusted to the Conversion Price which would then
be in effect had the adjustment upon the issuance of such rights,
options or warrants been made on the basis of the actual number
of shares of Common Stock issued upon the exercise of such rights
or warrants. For the purposes of this paragraph (b), the number
of shares of Common Stock at any time outstanding shall not
include shares held in the treasury of the Company but shall
include shares issuable in respect of scrip certificates issued
in lieu of fractions of shares of Common Stock. The antidilution
provisions of this Section 14 shall not apply to grants of
options under the Company's Incentive Stock Plans.
(c) In case the outstanding shares of Common Stock
shall be subdivided into a greater number of shares, the Conver-
sion Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective
shall be proportionately reduced, and, conversely, in case out-
standing shares of Common Stock shall be combined into a smaller
number of shares, the Conversion Price in effect at the opening
of business on the day following the day upon which such combina-
tion becomes effective shall be proportionately increased, such
reduction or increase, as the case may be, to become effective
immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes
effective.
36
<PAGE> 42 EX-10.2
(d) In case the Company shall, by dividend or other-
wise, distribute to all or substantially all holders of shares of
Common Stock evidences of indebtedness or assets of the Company
(including cash or securities or other property, but excluding
any (i) rights, options or warrants referred to in paragraph (b)
of this Section 14.4 and (ii) any dividend or distribution
referred to in paragraph (a) of this Section 14.4), the Conver-
sion Price shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on the day fixed for
the determination of stockholders entitled to receive such
distribution by a fraction of which the numerator shall be the
current market price per share (determined as provided in para-
graph (g) of this Section 14.4) of Common Stock on the date fixed
for such determination less the amount or then fair market value
as determined by the Board of Directors (whose determination
shall be conclusive and described in a Board Resolution filed
with the Trustee) of the cash or portion of the assets or evi-
dences of indebtedness so distributed allocable to one share of
Common Stock and the denominator shall be such current market
price per share of Common Stock, such adjustment to become effec-
tive immediately prior to the opening of business on the day
following the date fixed for the determination of stockholders
entitled to receive such distribution.
(e) In case the Company shall issue or sell any shares
of Common Stock or securities convertible into or exercisable for
Common Stock, in any case for a consideration per share of Common
Stock less than the current market price at the time of such
issuance or sale, the Conversion Price shall be reduced by
multiplying the Conversion Price in effect immediately prior to
such issuance or sale by a fraction, (A) the numerator of which
shall be (i) the number of shares of Common Stock outstanding on
a fully diluted basis immediately prior to the transaction plus
(ii) the number of additional shares of Common Stock on a fully
diluted basis that would have been issued or sold in the transac-
tion had the issuance or sale occurred at the current market
price and (B) the denominator of which shall be the number of
shares of Common Stock outstanding on a fully diluted basis
immediately after such transaction. For purposes of this sub-
paragraph (e) of this Section 14.4, the issuance or sale shall be
deemed to occur on the earlier of (x) the date on which the
Company shall enter into a binding contract for the issuance or
sale of such shares of Common Stock or convertible securities and
(y) the date of the actual issuance or sale of such securities.
The issuance of Common Stock on conversion or exercise of con-
vertible securities outstanding prior to the date hereof shall
not give rise to any adjustment of the Conversion Price under
this subparagraph (e) of this Section 14.4.
(f) In case the shares of Common Stock shall be
changed into the same or a different number of shares of any
37
<PAGE> 43 EX-10.2
class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or
combination of shares or a stock dividend described in paragraph
(a) or paragraph (c) of this Section 14.4, or a consolidation,
merger or sale of assets described in Section 14.10 hereof), then
and in each such event you shall have the right thereafter to
convert the Note into the kind and amount of shares of stock and
other securities and property receivable upon such reorganiza-
tion, reclassification or other change, by holders of the number
of shares of Common Stock into which the Note might have been
converted immediately prior to such reorganization, reclassifica-
tion or change.
(g) For the purpose of any computation under para-
graphs (b), (d) and (e) of this Section 14.4, the current market
price per share of Common Stock on any date shall be deemed to be
the average of the Closing Prices for the 15 consecutive Trading
Days selected by the Company commencing not more than 30 and not
less than 20 Trading Days before the date in question.
(h) No adjustment in the Conversion Price shall be re-
quired unless such adjustment (plus any adjustments not previous-
ly made by reason of this paragraph (h)) would require an in-
crease or decrease of at least 1% in such price; provided,
however, that any adjustments which by reason of this paragraph
(h) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calcula-
tions under this paragraph (h) shall be made to the nearest cent.
(i) The Company may, but shall not be required to,
make such reductions in the Conversion Price, in addition to
those required by paragraphs (a), (b), (c), (d) and (e) of this
Section 14.4, as the Company's Board of Directors considers to be
advisable in order to avoid or diminish any income tax to any
holders of shares of Common Stock resulting from any dividend or
distribution of stock or issuance of rights or warrants to pur-
chase or subscribe for stock or from any event treated as such
from income tax purposes or for any other reasons. The Company's
Board of Directors shall have the power to resolve any ambiguity
or correct any error in the adjustments made pursuant to this
Section 14.4 and its actions in so doing shall be final and con-
clusive.
(j) No adjustment in the Conversion Price need be made
for rights to purchase or the sale of the Common Stock pursuant
to a Company plan providing for reinvestment of dividends or in-
terest; provided, however, that any discount under such plan may
not exceed 5% of the current market price of the Common Stock and
such plan is registered under the Securities Act.
38
<PAGE> 44 EX-10.2
14.5. Notice of Adjustment of Conversion Price.
Whenever the Conversion Price is adjusted as herein
provided the Company shall compute the adjusted Conversion Price
in accordance with Section 14.4 and shall prepare an Officer's
Certificate setting forth the adjusted Conversion Price and show-
ing in reasonable detail the facts upon which such adjustment is
based and the computation thereof.
14.6. Notice of Certain Corporation Action.
(a) In case:
(i) the Company shall authorize the granting to all
holders of its shares of Common Stock of rights or warrants en-
titling them to subscribe for or purchase any shares of capital
stock of any class or of any other rights; or
(ii) of any reclassification of the shares of Common
Stock, or of any consolidation or merger to which the Company is
a party and for which approval of any stockholders of the Company
is required, or of the sale or transfer of all or substantially
all of the assets of the Company; or
(iii) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company; or
(iv) the Company declares or pays any dividend or
distribution to holders of shares of Common Stock; or
(v) the Company shall take any other corporate action
that could give rise to an adjustment in the Conversion Price in
accordance with Section 14.4 (so long as the disclosure of such
action does not require disclosure of material nonpublic informa-
tion);
then the Company shall deliver to you at least 10 days (or 20
days in any case specified in clause (iii) above) prior to the
applicable record date hereinafter specified, a notice stating
(1) the date on which a record is to be taken for the purpose of
such dividend, distribution, rights or warrants, or, if a record
is not to be taken, the date as of which the holders of shares of
Common Stock of record to be entitled to such dividend, distribu-
tion, rights or warrants is to be determined, or (2) the date on
which such reclassification, consolidation, merger, sale, trans-
fer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders
of shares of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up.
39
<PAGE> 45 EX-10.2
In addition to the foregoing notices, the Company will give
notice as soon as practicable that any of the rights of the
holders under Section 14.4 has been invoked for any reason not
specified in Sections 14.6(a)(i), (ii), (iii) or (iv), which
notice will describe the event that triggered such rights. Such
notice shall also state whether such transaction will result in
any adjustment in the Conversion Price and, if so, shall state
what the adjusted Conversion Price will be and when it will be-
come effective. Neither the failure to give the notice required
by this Section 14.6, nor any defect therein shall affect the
sufficiency of the notice or the legality or validity of any such
dividend, distribution, right, warrant, reclassification, consol-
idation, merger, sale, transfer, liquidation, dissolution or
winding-up. Notwithstanding the foregoing, the Company has no
obligation to disclose to any holders any material nonpublic
information concerning the Company or any of its Subsidiaries.
(b) In case the Company or any Affiliate of the Com-
pany shall propose to engage in a "Rule 13e-3 Transaction" (as
defined in Rule 13e-3 under the Securities Exchange Act of 1934,
as amended) the Company shall, no later than the date on which
any information with respect to such Rule 13e-3 Transaction is
first required to be given to you pursuant to such Rule 13e-3,
cause to be mailed to you a copy of all information required to
be given to you pursuant to such Rule 13e-3. The information re-
quired to be given under this paragraph shall be in addition to
and not in lieu of any other information required to be given by
the Company pursuant to this Section 14.6 or any other provision
of this Agreement.
14.7. Taxes on Conversions.
The Company will pay any and all stamp or similar taxes
that may be payable in respect of the issuance or delivery of
shares of Common Stock on conversion of all or any portion of the
Note pursuant hereto. The Company shall not, however, be re-
quired to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of shares of
Common Stock in a name other than you to be converted.
14.8. Fractional Shares.
No fractional shares or scrip representing fractional
shares shall be issued upon the conversion of the Note. If any
such conversion would otherwise require the issuance of a frac-
tional share an amount equal to such fraction multiplied by the
current market price per share of Common Stock (determined as
provided in paragraph (g) of Section 14.4 hereof) on the day of
conversion shall be paid in cash by the Company.
40
<PAGE> 46 EX-10.2
14.9. Provisions in Case of Consolidation, Merger or Sale of
Assets.
In case of any consolidation of the Company with, or
merger of the Company into, any other corporation or trust, or in
case of any merger of another corporation or trust into the Com-
pany (other than a merger which does not result in any reclas-
sification, conversion, exchange or cancellation of outstanding
shares of Common Stock of the Company), or in case of any sale,
transfer or other disposition of all or substantially all of the
assets of the Company, the corporation or trust formed by such
consolidation or resulting from such merger or which acquires
such assets, as the case may be, shall agree that you shall have
the right thereafter, during the period the Note shall be con-
vertible as specified in Section 14.1 hereof to convert such Note
only into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or
transfer by a holder of the number of shares of Common Stock of
the Company into which the Note might have been converted immedi-
ately prior to such consolidation, merger, sale or transfer,
assuming such holder of Common Stock (i) is not a Person with
which the Company consolidated or into which the Company merged
or which merged into the Company or to which such sale or trans-
fer was made, as the case may be (a "Constituent Person"), or an
Affiliate of a Constituent Person and (ii) failed to exercise his
rights of election, if any, as to the kind or amount of securi-
ties, cash and other property receivable upon such consolidation,
merger, sale or transfer (provided that if the kind or amount of
securities, cash and other property receivable upon such consoli-
dation, merger, sale or transfer is not the same for each share
of Common Stock held immediately prior to such consolidation,
merger, sale or transfer by other than a Constituent Person or an
Affiliate thereof and in respect of which such rights of election
shall not have been exercised ("non-electing share"), then for
the purpose of this Section 14.9 the kind and amount of securi-
ties, cash and other property receivable upon such consolidation,
merger, sale or transfer by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a
plurality of non-electing shares).
14.10. Covenant to Reserve Shares.
The Company covenants that it will at all times reserve
and keep available, free from preemptive rights, out of its
authorized shares of Common Stock, solely for the purpose of
issuance upon conversion of the Note as herein provided, such
number of shares of Common Stock as shall then be issuable upon
the conversion of the Note. The Company covenants that all
shares of Common Stock which shall be so issuable shall be, when
issued in accordance with the Note and this Agreement, duly and
validly issued and fully paid and nonassessable.
41
<PAGE> 47 EX-10.2
15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREE-
MENT.
All representations and warranties contained herein
shall survive the execution and delivery of this Agreement and
the Note, the purchase by you of the Note or interest therein and
the payment of the Note. Subject to the preceding sentence, this
Agreement and the Note embodies the entire agreement and under-
standing between you and the Company and supersede all prior
agreements and understandings relating to the subject matter
hereof.
16. AMENDMENT AND WAIVER.
16.1. Requirements.
Subject to Section 20.7(d), this Agreement and the Note
may be amended, and the observance of any term hereof or of the
Note may be waived (either retroactively or prospectively), with
(and only with) the written consent of the Company and the
Majority Lenders.
16.2. Binding Effect, etc.
No course of dealing between the Company and you nor
any delay in exercising any rights hereunder or under the Note
shall operate as a waiver of any of your rights. As used herein,
the term "this Agreement" and references thereto shall mean this
Agreement as it may from time to time be amended or supplemented.
17. NOTICES.
All notices and communications provided for hereunder
shall be in writing and sent (a) by telecopy if the sender on the
same day sends a confirming copy of such notice by a recognized
overnight delivery service (charges prepaid), or (b) by regis-
tered or certified mail with return receipt requested (postage
prepaid), or (c) by a recognized overnight delivery service (with
charges prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at c/o
Angelo, Gordon & Co. to the attention of David Roberts, or
at such other address as you or it shall have specified to
the Company in writing,
(ii) if to the Company, to the Company at its address
set forth at the beginning hereof to the attention of the
42
<PAGE> 48 EX-10.2
Chief Financial Officer, or at such other address as the
Company shall have specified to you in writing.
Notices under this Section 17 will be deemed given only when
actually received.
18. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, in-
cluding, without limitation, (a) consents, waivers and modifica-
tions that may hereafter be executed, (b) documents received by
you at the Closing (except the Note), and (c) financial state-
ments, certificates and other information previously or hereafter
furnished to you, may be reproduced by you by any photographic,
photostatic, microfilm, microcard, miniature photographic or
other similar process and you may destroy any original document
so reproduced. The Company agrees and stipulates that, to the
extent permitted by applicable law, 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 you in
the regular course of business) and any enlargement, facsimile or
further reproduction of such reproduction shall likewise be ad-
missible in evidence. This Section 18 shall not prohibit the
Company or you from contesting any such reproduction to the same
extent that it could contest the original, or from introducing
evidence to demonstrate the inaccuracy of any such reproduction.
19. CONFIDENTIAL INFORMATION.
For the purposes of this Section 19, "Confidential
Information" means material, nonpublic information delivered to
you by or on behalf of the Company or any Subsidiary in connec-
tion with the transactions contemplated by or otherwise pursuant
to this Agreement, provided that such term does not include
information that (a) was publicly known or otherwise known to you
prior to the time of such disclosure, (b) subsequently becomes
publicly known through no act or omission by you or any person
acting on your behalf, (c) otherwise becomes known to you other
than through disclosure by the Company or any Subsidiary or (d)
constitutes financial statements delivered to you under Section
7.1 that are otherwise publicly available. You will maintain the
confidentiality of such Confidential Information in accordance
with procedures adopted by you in good faith to protect confiden-
tial information of third parties delivered to you, provided that
you may deliver or disclose Confidential Information to (i) your
directors, officers, managers, employees, agents, attorneys and
affiliates of each of them (to the extent such disclosure reason-
ably relates to the administration of the investment represented
by your Note), (ii) your officers, directors, employees, manag-
43
<PAGE> 49 EX-10.2
ers, financial advisors and other professional advisors who agree
to hold confidential the Confidential Information substantially
in accordance with the terms of this Section 19, (iii) any
federal or state regulatory authority having jurisdiction over
you, or (iv) any other Person to which such delivery or disclo-
sure is determined by your counsel to be necessary (w) to effect
compliance with any law, rule, regulation or order applicable to
you, (x) in response to any subpoena or other legal process, (y)
in connection with any litigation to which you are a party or (z)
if an Event of Default has occurred and is continuing, but solely
to the extent your counsel reasonably determines to be necessary
or appropriate in the enforcement or for the protection of the
rights and remedies under your Note and this Agreement. If you
or any of your representatives or affiliates are requested or
required (by oral questions, interrogatories, requests for
information or documents, subpoena, civil investigative demand,
any informal or formal investigation by any government or govern-
mental agency or authority or other process) to disclose any
Confidential Information, you will provide the Company with
prompt written notice of any such request or requirement (includ-
ing the terms of, and circumstances surrounding, such request) so
that the Company or any of its Subsidiaries may seek an appropri-
ate protective order or other appropriate remedy and/or waive
compliance with the provisions of this Agreement, the party
subject to such request will disclose only that portion of the
Confidential Information which it is advised by counsel is
legally required and will exercise reasonable efforts to obtain
reliable assurance that confidential treatment will be accorded
the Confidential Information. The obligations provided in this
Section 19 shall survive termination of this Agreement and repay-
ment or conversion of the Note.
20. MISCELLANEOUS.
20.1. Successors and Assigns.
All covenants and other agreements contained in this
Agreement by or on behalf of any of the parties hereto bind and
inure to the benefit of their respective successors and permitted
assigns whether so expressed or not.
20.2. Payments Due on Non-Business Days.
Anything in this Agreement or the Note to the contrary
notwithstanding, any payment of principal of or interest on the
Note that is due on a date other than a Business Day shall be
made on the next succeeding Business Day without including the
additional days elapsed in the computation of the interest pay-
able on such next succeeding Business Day.
20.3. Severability.
44
<PAGE> 50 EX-10.2
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforce-
ability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction
shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
20.4. Construction.
Each covenant contained herein shall be construed (ab-
sent express provision to the contrary) as being independent of
each other covenant contained herein, so that compliance with any
one covenant shall not (absent such an express contrary pro-
vision) be deemed to excuse compliance with any other covenant.
Where any provision herein refers to action to be taken by any
Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken
directly or indirectly by such Person.
20.5. Counterparts.
This Agreement may be executed in any number of coun-
terparts, each of which shall be an original but all of which
together shall constitute one instrument. Each counterpart may
consist of a number of copies hereof, each signed by less than
all, but together signed by all, of the parties hereto.
20.6. Governing Law.
This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed
by, the law of the State of New York excluding choice-of-law
principles of the law of such State that would require the appli-
cation of the laws of a jurisdiction other than such State.
20.7. Assignments and Restrictions on Transfers.
(a) The Company may not assign any of its rights or
obligations hereunder or under the Note without your prior con-
sent; provided, however, that the Company may assign any of its
rights or obligations hereunder pursuant to a merger or other
transaction permitted under Section 10.2 hereof.
(b) Except as otherwise permitted by this Section
20.7(b) the Note issued under this Agreement, including each Note
issued upon the transfer or exchange of any Note, shall be
stamped or otherwise imprinted with a legend in the following
form:
"This Note has not been registered under the Securities
Act of 1933, as amended (the "Act") or any other appli-
45
<PAGE> 51 EX-10.2
cable securities law and may not be transferred in the
absence of such registration or an exemption therefrom
under the Act and compliance with any other applicable
securities laws. This Note may be transferred only in
compliance with the conditions specified in the Note
Purchase Agreement referred to in this Note, a complete
and correct copy of the form of which is available for
inspection at the principal office of Riddell Sports
Inc., 900 Third Avenue, NY, NY.
(c) So long as the following provisions of this
Section 20.7(c) are complied with, you may assign to any trans-
feree any of your interest in the Notes, provided, that any such
partial assignment shall be in an amount at least equal to
$60,000 and an integral multiple of 12,000.
(i) In connection with any transfer of any Note
which is not registered under an effective registration
statement under the Securities Act, the holder thereof shall
provide the Company with confirmation in a manner reasonably
satisfactory to the Company that such transfer does not re-
quire registration under the Securities Act or the quali-
fication of an indenture under the Trust Indenture Act of
1939, as amended. Such holder shall provide the Company if
reasonably requested with an opinion of counsel reasonably
satisfactory to the Company and experienced in rendering
opinions on matters of United States Federal securities law
to the effect of the foregoing and such other written infor-
mation and representation as the Company may reasonably
request, and each transferee shall have agreed in writing to
be bound by all the restrictions on transfer of the Notes
contained in this Section 20.7(c).
(ii) No Note shall be transferred unless, prior
to such transfer, the proposed transferee shall confirm in
writing to the Company the accuracy as to such proposed
transferee of at least one or more of the representations
set out in Sections 20.7(c)(iii) or 20.7(c)(iv) and, if such
representation requires such proposed transferee to identify
to the Company the name of one or more "employee benefit
plans" (as such term is defined in subsection 20.7(f), the
Company shall be reasonably satisfied that such transfer
does not involve a transaction which is subject to the
prohibitions of Section 406 of ERISA or in connection with
which a tax would be imposed pursuant to Section 4975 of the
Code, and the Company shall confirm such satisfaction in
writing to such proposed transferee.
(iii) One or more of the following representa-
tions will satisfy Section 20.7(c)(ii):
46
<PAGE> 52 EX-10.2
(A) "You represent that (1) you are purchas-
ing the Note for your own account or for one or more
separate accounts maintained by you or for the account
of one or more affiliated institutional investors on
whose behalf you have authority to make this repre-
sentation for investment and not with a view to the
distribution thereof or with any present intention of
distributing or selling any portion or the Note, pro-
vided that the disposition of your or their property
shall at all times be within your or their control and
(2) you (and each Person on whose behalf you are acting
hereunder) are an institutional "accredited investor"
within the meaning of Rule 501(a) under the Securities
Act. You understand that the Note has not been regis-
tered under the Securities Act and may be resold only
if registered pursuant to the provisions thereof or
pursuant to an exemption from registration thereunder
and in accordance with any other applicable securities
laws and the provisions of Section 20.7(c) hereof;
(B) "You represent that one or more of
the following statements is individually or col-
lectively, as the case may be, an accurate repre-
sentation as to the source of all the funds to be
used by you to pay the purchase price of portion
of the Note purchased by you hereunder:
(1) if you are an insurance company,
all or a part of such funds constitute assets
allocated to a general asset account (within the
meaning of the Department of Labor ("DOL") regula-
tions under ERISA and the DOL Interpretive Bulle-
tin 75-2, 29 C.F.R. 2509 75-2 (Nov. 13, 1986)),
maintained by you, which is not a separate account
(within the meaning of ERISA and the regulations
thereunder); or
(2) if you are an insurance company, to
the extent that any part of such funds constitutes
assets allocated to any separate account main-
tained by you, (x) such separate account is a
"pooled separate account" within the meaning of
Prohibited Transaction Class Exemption ("PTE") 90-
1, in which case you have disclosed to the Issuer
in writing the names of each employee benefit plan
whose assets in such separate account exceed 10%
of the total assets of such account as of the date
of such purchase (and for the purposes of this
subsection (b), all employee benefit plans main-
tained by the same employer or employee organiza-
tion are deemed to be a single plan), and every
relevant requirement of PTE 90-1 specifically
47
<PAGE> 53 EX-10.2
applicable to you which is required to be satis-
fied as of the date of such purchase will be sat-
isfied in all material respects as of such date of
purchase or (y) such separate account contains
only the assets of a specific employee benefit
plan, complete and accurate information as to the
identity of which you have delivered to the Issuer
in writing; or
(3) if you are a "qualified profession-
al asset manager" or "QPAM" (within the meaning of
Part V of Prohibited Transaction Class Exemption
84-14 (the "QPAM Exemption")) of such funds which
constitute assets of an "investment fund" (within
the meaning of Part V of the QPAM exemption) man-
aged by you, every relevant requirement of the
QPAM Exemption specifically applicable to you
which is required to be satisfied as of the date
of such purchase will be satisfied in all material
respects as of the date of such purchase; or
(4) if you are other than an insurance
company or a QPAM, all or a portion of such funds
consists of funds which do not constitute "plan
assets" of any employee benefit plan and the re-
maining portion, if any, of such funds consists of
funds which may be deemed to constitute "plan as-
sets" of one or more specific employee benefit
plans, complete and accurate information as to the
identity of each of which you have delivered to
the Issuer in writing.
As used in this section 20.7(c)(iii), the term "employ-
ee benefit plan" shall mean any employee benefit plan subject to
Section 406 of ERISA and any employee benefit plan or individual
retirement account subject to Section 4975 of the Code, the term
"separate account" shall have the meaning assigned to it in
section 3 of ERISA and the term "plan assets" shall have the
meaning assigned to it in section 2510.3-101 of the Department of
Labor regulations under ERISA.
(iv) In the event of an assignment of any portion
of the Note in accordance with the above, you shall identify
the assignee and the amount of Note assigned) and the as-
signee shall execute an appropriately completed counterpart
of this Agreement (as then in effect), and the assignee
shall be bound to this Agreement as if an original party
hereto and shall have, to the extent of such assignment
(unless otherwise provided in such assignment), the obliga-
tions, rights and benefits of a lender hereunder holding the
Note (or portions thereof) assigned to it (in addition to
the portion, if any, theretofore held by such assignee). In
48
<PAGE> 54 EX-10.2
connection with the assignment by you of all or any portion
of your interest in the Note to another Person, upon request
of you or such Person, the Company will execute and deliver
a Note or Notes in substantially the form of Exhibit A
hereto, as appropriate (as such form of Note may have been
amended, endorsed, modified, extended, exchanged, or re-
newed), dated the day after the last day through which
interest shall have been paid on the Note, payable to the
order of such Person in an aggregate principal amount equal
to the portion of the Note so assigned and otherwise duly
completed, and the assigning lender shall make a notation on
related Note held by it as to the principal amount of the
Note so assigned. In the event of any assignment pursuant
to this Section 20.7(c), as used in this Agreement, the term
"Note" shall include any Note delivered to such assignee and
the term "you" shall include such assignee (except that
provisions specifying the principal amount of the Note owned
or acquired by such assignee or any other holder shall be
deemed to refer to the principal amount of the Note so ac-
quired by such holder).
(d) Notices, written instruments, waivers or consents
pursuant to Section 11 (notice of Event of Default); Section 12
(notice of acceleration); Section 16.1 (amendments/waivers) and
20.7 (assignment) are of no force and effect or validity unless
evidenced by an instrument in writing signed by the Majority
Lenders; provided, however, that any modification or waiver
changing the date fixed for payment of principal or interest on
the Note, or reducing the amount of payment of principal of, in-
terest on, redemption price, Repurchase Price or Conversion Price
of the Note, or amending the other provisions of Section 14 in a
manner adverse to the holders or amending this Section 20.7(d) or
the definition of "Majority Lenders" or releasing the Subordinat-
ed Guaranty in full shall not be effective against any holder
affected thereby unless contained in an instrument in writing
signed by such holders.
20.8. Lost Note.
Upon receipt by the Company of evidence satisfactory to
it of the loss, theft, destruction or mutilation of the Note, and
(in case of loss, theft or destruction) of indemnity satisfactory
to it (any holder's undertaking to be satisfactory indemnity in
case of loss, theft or destruction of any Note owned by such
holder), and upon reimbursement to the Company of all reasonable
expenses incidental thereto, and upon surrender and cancellation
of such Note, if mutilated, the Company will pay any unpaid prin-
cipal and interest then or theretofore due and payable on the
Note so lost, stolen, destroyed or mutilated, and will deliver in
lieu thereof a new Note in the remaining unpaid principal amount
thereof and carrying the same rights to interest (unpaid and to
accrue).
49
<PAGE> 55 EX-10.2
20.9. Registration, Transfer and Exchange of the Note.
The Company will keep at its principal office a regis-
ter in which it will provide for the registration and registra-
tion of transfer of the Note, at its own expense (excluding
transfer taxes). If the Note is surrendered at said office or at
the place of payment named in the Note for registration of trans-
fer or exchange (accompanied in the case of registration of
transfer of a registered Note by written instrument of transfer
in form satisfactory to the Company duly executed by or on behalf
of the holder) the Company, at its expense, will deliver in ex-
change one or more new Notes in any denominations (multiples of
$1,000) as requested by the holder, for the aggregate unpaid
principal amount. Each such new Note shall be payable to such
person as such holder may request. Any Note issued in a transfer
or exchange shall carry the same rights to interest (unpaid and
to accrue) carried by the Note or Notes so transferred or ex-
changed so that there will not be any loss or gain of interest on
the Note or Notes surrendered.
20.10. Equitable Relief.
It is understood and agreed that the Company and its
Subsidiaries will be irreparably injured by a breach of Section
19 of this Agreement by you or your respective representatives or
affiliates, that money damages would not be a sufficient remedy
for any such breach and that the Company and its Subsidiaries
shall be entitled to equitable relief, including injunctive re-
lief and specific performance, as a remedy for any such breach
(which shall not be the exclusive remedy for breach of this
agreement). You agree to waive, and to instruct your representa-
tives to waive, any requirement for the securing or posting of
any bond in connection with such remedy.
20.11. Expenses.
The Company shall pay Angelo, Gordon & Co. on demand
and upon delivery of invoices or other evidence of such expenses,
up to $50,000, promptly after and if the Funding Date occurs, as
reimbursement for reasonable legal fees and expenses of it and
its counsel, Akin, Gump, Strauss, Hauer & Feld LLP, incurred in
negotiating and preparing this Agreement and the Note and making
the loan contemplated hereunder. The Company shall also pay the
reasonable costs and expenses of one counsel representing you and
all other holders of the Note in connection with any amendment of
or waiver to the terms of this Agreement; provided, that the
Company is delivered invoices and other evidences of such expens-
es.
50
<PAGE> 56 EX-10.2
If you are in agreement with the foregoing, please sign
the accompanying counterpart of this Agreement and return it to
the Company, whereupon the foregoing shall become a binding
agreement between you and the Company.
Very truly yours,
Riddell Sports Inc.
DAVID GROELINGER
By:_________________________
Chief Financial Officer
Executive Vice President
The foregoing is hereby
agreed to as of the
date thereof.
Silver Oak Capital, L.L.C.
MICHEAL L GORDON
By:_________________________
51
<PAGE> 57 EX-10.2
SCHEDULE A
----------
DEFINED TERMS
As used herein, the following terms have the respective
meanings set forth below or set forth in the Section hereof
following such term:
"Affiliate" means, at any time, and with respect to any
Person, (a) any other Person that at such time directly or in-
directly through one or more intermediaries Controls, or is
Controlled by, or is under common Control with, such first
Person, and (b) any Person beneficially owning or holding,
directly or indirectly, 10% or more of any class of voting or
equity interests of the Company or any Subsidiary or any corpora-
tion of which the Company and its Subsidiaries beneficially own
or hold, in the aggregate, directly or indirectly, 10% or more of
any class of voting or equity interests. As used in this defini-
tion, "Control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. Unless the context other-
wise clearly requires, any reference to an "Affiliate" is a ref-
erence to an Affiliate of the Company.
"Affiliate Transaction" means any transaction or group
of related transactions (including without limitation the pur-
chase, lease, sale or exchange of properties of any kind or the
rendering of any service) with any Affiliate (other than the
Company or another wholly-owned Subsidiary) and other than any
payments which are salaries, director's fees, bonuses, stock
options issued under the Company's Incentive Stock Option Plans,
expense reimbursement or other payments of a similar nature.
"Business Day" means any day other than a Saturday, a
Sunday or a day on which commercial banks in New York City are
required or authorized to be closed.
"Capital Lease" means, at any time, a lease with re-
spect to which the lessee is required concurrently to recognize
the acquisition of an asset and the incurrence of a liability in
accordance with GAAP.
"Change of Control" means an event or series of events
by which (i) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act) other than a Permitted Holder is
A-1
<PAGE> 58 EX-10.2
or becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all shares that any such
person has the right to acquire, whether such right is exercis-
able immediately or only after the passage of time), directly or
indirectly, of more than 30% of the total voting power of all
classes of capital stock then outstanding of the Company normally
entitled to vote in elections of directors ("Voting Shares"),
provided that the Permitted Holders "beneficially own" (as so
defined) a lesser percentage of the Voting Shares than such other
person and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a
majority of the Board of Directors of the Company; (ii) the
Company consolidates with or merges into another corporation or
conveys, transfers, or transfers or leases all or substantially
all of its assets to any person, or any corporation consolidates
with or merges into the Company, in either event pursuant to a
transaction in which the outstanding Voting Shares of the Company
are changed into or exchanged for cash, securities or other
property, other than any such transaction between the Company and
a wholly-owned Subsidiary; or (iii) on the date, the individuals
who at the beginning of the two-year period immediately preceding
such date constituted the Company's Board of Directors (together
with any new directors whose election by the Company's Board of
Directors, or whose nomination for election by the Company's
shareholders, was approved by a vote of at least 66 2/3% of the
directors then still in office who were either directors at the
beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to
constitute a majority of the directors then in office.
"Closing" is defined in Section 3.
"Closing Price" means with respect to the shares of the
Company's Common Stock on any day, (i) the closing price of the
Company's Common Stock as reported by the National Market System
of the National Association of Securities Dealers automated
quotation system ("NASDAQ") on such day, or, (ii) if there were
no sales on such day, the average of the bid and asked prices at
the end of such day or, (iii) if there was no bidding on such
day, then the last closing price reported on NASDAQ, or (iv) if
the Company's Common Stock is not traded on the NASDAQ market,
the closing price on the national securities exchange on which
the shares of such stock are listed or admitted to trading or, if
such shares are not listed or admitted to trading on any national
securities exchange, the average of the last reported closing bid
and asked prices as furnished by any New York Stock Exchange
member firm selected from time to time by the Company for that
purpose.
A-2
<PAGE> 59 EX-10.2
"Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the rules and regulations promul
gated thereunder from time to time.
"Common Stock" means the Company's Common Stock, par
value $0.01 per share.
"Company" means Riddell Sports Inc., a Delaware corpo-
ration.
"Confidential Information" is defined in Section 19.
"Conversion Price" initially means $6.00 per share or,
in case an adjustment of such price has taken place pursuant to
the provisions of Section 14.4 hereof, then at the price as last
adjusted.
"Default" means an event or condition the occurrence or
existence of which would, with the lapse of time or the giving of
notice or both, become an Event of Default.
"Effective Date" means October 30, 1996.
"Environmental Laws" means any and all Federal, state,
local, and foreign statutes, laws, regulations, ordinances,
rules, judgments, orders, decrees, permits, concessions, grants,
franchises, licenses, agreements or governmental restrictions
relating to pollution and the protection of the environment or
the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes,
air emissions and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, and the rules and
regulations promulgated thereunder from time to time in effect.
"ERISA Affiliate" means any trade or business (whether
or not incorporated) that is treated as a single employer togeth-
er with the Company under section 414 of the Code.
"Event of Default" is defined in Section 11.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Funding Date" shall mean the date specified by you to
the Company on at least 2 days prior notice, following receipt of
notification by the Company of the satisfaction of the condi-
tions referred to in Section 4.8, which date is no more than ten
(10) days after the date of the Closing.
A-3
<PAGE> 60 EX-10.2
"GAAP" means generally accepted accounting principles
as in effect from time to time in the United States of America.
"Governmental Authority" means
(a) the government of
(i) the United States of America or any State or
other political subdivision thereof, or
(ii) any jurisdiction in which the Company or any
Subsidiary conducts all or any part of its business, or
which asserts jurisdiction over any properties of the
Company or any Subsidiary, or
(b) any entity exercising executive, legislative,
judicial, regulatory or administrative functions of, or per-
taining to, any such government.
"Guarantors" means Riddell, Inc.; SharCo Corporation, a
Florida corporation; All American Sports Corporation, Equilink
Licensing Corporation, Ridmark Corporation, RHC Licensing Corpo-
ration and Proacq Corp., Delaware corporations; and all future
Subsidiaries of the Company and its Subsidiaries pursuant to
Section 9.7 hereof.
"Guaranty" means, with respect to any Person, any obli-
gation (except the endorsement in the ordinary course of business
of negotiable instruments for deposit or collection) of such
Person guaranteeing or in effect guaranteeing any indebtedness,
dividend or other obligation of any other Person in any manner,
whether directly or indirectly, including (without limitation)
obligations incurred through an agreement, contingent or other-
wise, by such Person:
(a) to purchase such indebtedness or obligation or any
property constituting security therefor;
(b) to advance or supply funds (i) for the purchase or
payment of such indebtedness or obligation, or (ii) to main-
tain any working capital or other balance sheet condition or
any income statement condition of any other Person or other-
wise to advance or make available funds for the purchase or
payment of such indebtedness or obligation;
(c) to lease properties or to purchase properties or
services primarily for the purpose of assuring the owner of
such indebtedness or obligation of the ability of any other
Person to make payment of the indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness
or obligation against loss in respect thereof.
A-4
<PAGE> 61 EX-10.2
In any computation of the indebtedness or other liabilities of
the obligor under any Guaranty, the indebtedness or other obliga-
tions that are the subject of such Guaranty shall be assumed to
be direct obligations of such obligor.
"Hazardous Material" means any and all pollutants,
toxic or hazardous wastes or any other substances that might pose
a hazard to health or safety, the removal of which may be re-
quired or the generation, manufacture, refining, production,
processing, treatment, storage, handling, transportation, trans-
fer, use, disposal, release, discharge, spillage, seepage, or
filtration of which is or shall be restricted, prohibited or
penalized by any applicable law (including, without limitation,
asbestos, urea formaldehyde foam insulation and polycholorinated
biphenyls).
"holder" or "Holder" means, with respect to any Note,
the Person in whose name such Note is registered in the register
maintained by the Company pursuant to Section 20.9.
"Incentive Stock Option Plans" shall mean the Company's
1991 Stock Option Plan, as amended from time to time, and each
successor or supplemental plan to such plan pursuant to which the
Company may from time to time grant stock options (including
Incentive Stock Options (as defined in Sections 421 and 422A of
the Code)) to its directors, key employees and consultants or
other employees as compensation or incentive for providing
services to the Company or its Subsidiaries.
"Indebtedness" with respect to any Person means, at any
time, without duplication,
(a) its liabilities for borrowed money and its redemp-
tion obligations in respect of mandatorily redeemable Pre-
ferred Stock;
(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable
arising in the ordinary course of business but including all
liabilities created or arising under any conditional sale or
other title retention agreement with respect to any such
property);
(c) all liabilities appearing on its balance sheet in
accordance with GAAP in respect of Capital Leases;
(d) all liabilities for borrowed money secured by any
Lien with respect to any property owned by such Person
(whether or not it has assumed or otherwise become liable for
such liabilities);
A-5
<PAGE> 62 EX-10.2
(e) all its liabilities in respect of letters of
credit or instruments serving a similar function issued or
accepted for its account by banks and other financial insti-
tutions (whether or not representing obligations for borrowed
money);
(f) Swaps of such Person; and
(g) any Guaranty of such Person with respect to lia-
bilities of a type described in any of clauses (a) through
(f) hereof.
Indebtedness of any Person shall include all obligations of such
Person of the character described in clauses (a) through (g) to
the extent such Person remains legally liable in respect thereof
notwithstanding that any such obligation is deemed to be extin-
guished under GAAP.
"Interest Payment Date" means May 1 and November 1,
commencing May 1, 1997.
"Lien" means, with respect to any Person, any mortgage,
lien, pledge, charge, security interest or other encumbrance, or
any interest or title of any vendor, lessor, lender or other
secured party to or of such Person under any conditional sale or
other title retention agreement or Capital Lease, upon or with
respect to any property or asset of such Person (including in the
case of stock, stockholder agreements, voting trust agreements
and all similar arrangements).
"Litigation Debt" means any and all notes (other than
the Note), guarantees, debentures, bonds and other debt securi-
ties and other indebtedness created, incurred, assumed or suf-
fered to exist, evidenced by a note or other written obligation,
to satisfy in full or part any and all awards, judgments, settle-
ments or other dispositions, fines or similar amounts (including
without limitation, legal fees) arising out of any litigation,
arbitration or other judicial or administrative proceeding or
threatened proceeding in which the Company or any of its Subsid-
iaries or MacMark Corporation, a Delaware corporation, is or is
threatened to be made a party (collectively "Actions") or to
obtain any appeal bond or injunctive relief bond in connection
with any Action.
"Majority Lenders" means at any time Persons holding
more than 50% of the aggregate outstanding principal amount of
the Note (excluding Notes held by the Company or any Affiliate).
"Material" means material in relation to the business,
operations, affairs, financial condition, assets, properties, or
prospects of the Company and its Subsidiaries taken as a whole.
A-6
<PAGE> 63 EX-10.2
"Material Adverse Effect" means a material adverse
effect on (a) the business, operations, affairs, financial con-
dition, assets, prospects or properties of the Company and its
Subsidiaries taken as a whole, or (b) the ability of the Company
to perform its obligations under this Agreement and the Note or
(c) the validity or enforceability of this Agreement, the Regis-
tration Rights Agreement or the Note.
"MLC" means M.L.C. Partners Limited Partnership, a
Delaware limited partnership, and any successor to such entity.
"MLC Note" means that Second Amended and Restated
Subordinated Secured Term Note dated December 6, 1995 in the
original principal amount of $1,187,500 of the Company in favor
of MLC.
"Multiemployer Plan" means any Plan that is a "multi-
employer plan" (as such term is defined in section 4001(a)(3) of
ERISA).
"NBD Loan Agreement" means that Amended Credit and
Revolving Loan Agreement, entered into as of December 30, 1991
and as further amended, by and among NBD Bank, as lender, and
Riddell, Inc. Equilink Licensing Corp. and RHC Licensing Corp. as
Borrowers, and certain guarantors named therein.
"Note" means $7,500,000 aggregate principal amount of
the Company's 4.10% Convertible Subordinated Note due November 1,
2004, and including any such notes issued pursuant to Section
14.2 or an assignment permitted under Section 20 hereof.
"Officer's Certificate" means a certificate of a Senior
Financial Officer or of any other officer of the Company whose
responsibilities extend to the subject matter of such certifi-
cate.
"PBGC" means the Pension Benefit Guaranty Corporation
referred to and defined in ERISA or any successor thereto.
"Permitted Holders" means MLC or any Person who is a
partner or affiliate of MLC, or any Person who is a member of a
"group" with MLC for purposes of Rule 13-d(3) under the Securi-
ties Exchange Act of 1934, as amended.
"Permitted Liens" means (i) Liens for taxes not delin-
quent or for taxes being contested in good faith by appropriate
proceedings or as to which adequate financial reserves have been
established on the books and records of the Company or the
appropriate Subsidiary; (ii) Liens (other than any Lien imposed
by ERISA) created and maintained in the ordinary course of busi-
ness of the Company or any of its Subsidiaries which are not
Material in the aggregate, and which could not reasonably be
A-7
<PAGE> 64 EX-10.2
expected to have a Material Adverse Effect; (iii) Liens of the
Company or any of its Subsidiaries affecting real property which
constitute minor survey exceptions or defects or irregularities
in title, minor encumbrances, easements or reservations of, or
rights of others for, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of such real property;
and (iv) Liens set forth on Schedule 5.15 hereto.
"Person" means an individual, partnership, corporation,
limited liability company, association, trust, unincorporated
organization, or a government or agency or political subdivision
thereof.
"Plan" means an "employee benefit plan" (as defined in
section 3(3) of ERISA) that is or, within the preceding five
years, has been established or maintained, or to which contribu-
tions are or, within the preceding five years, have been made or
required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have
any liability.
"Preferred Stock" means any class of capital stock of a
corporation that is preferred over any other class of capital
stock of such corporation as to the payment of dividends or the
payment of any amount upon liquidation or dissolution of such
corporation.
"Prime Rate" means the rate designated by NBD Bank (or
the Company's other principal lender) from time to time as its
prime or reference rate in the United States of America, such
rate to change as and when such designated rate changes, which
rate may not be the lowest rate charged by to any of its custom-
ers.
"Prohibited Transaction" shall mean any transaction
involving any Plan which is proscribed by Section 406 of ERISA or
Section 4975 of the Code.
"property" or "properties" means, unless otherwise
specifically limited, real or personal property of any kind,
tangible or intangible, choate or inchoate.
"QPAM Exemption" means Prohibited Transaction Class
Exemption 8414 issued by the United States Department of Labor.
"Record Date" means 15 days before each Interest
Payment Date.
"Registration Rights Agreement" means that agreement
between the Company and the Holders in the form of Exhibit 4.9
hereto.
A-8
<PAGE> 65 EX-10.2
"Repurchase Date" shall have the meaning specified in
Section 8.5 hereof.
"Repurchase Event" means a Change of Control unless all
of the consideration in the transaction giving rise to such
Change of Control to the holders of Common Stock consists of cash
and securities that are, or immediately upon issuance will be,
listed on a national securities exchange or quoted on the Nasdaq
National Market, or a combination of cash and such securities,
and the aggregate fair market value of such consideration (which,
in the case of such securities, shall be equal to the average of
the daily Closing Price of such securities during the ten consec-
utive Trading Days commencing with the sixth Trading Day follow-
ing consummation of such transaction) is at least 105% of the
conversion price of the Note in effect on the date immediately
preceding the closing date of such transaction.
"Repurchase Offer" shall have the meaning specified in
Section 8.6 hereof.
"Repurchase Price" shall have the meaning specified in
Section 8.5 hereof.
"Responsible Officer" means any Senior Financial
Officer and any other officer of the Company with responsibility
for the administration of the relevant portion of this agreement.
"Riddell, Inc." means Riddell, Inc., a Delaware corpo-
ration and wholly-owned Subsidiary of the Company.
"Securities Act" means the Securities Act of 1933, as
amended from time to time.
"Senior Financial Officer" means the chief financial
officer, principal accounting officer, treasurer or comptroller
of the Company.
"Senior Indebtedness" means the principal of and pre-
mium, if any, interest, charges and fees on the following,
whether outstanding at the date hereof or hereafter created,
incurred, assumed or suffered to exist:
(a) Indebtedness, whether secured or unsecured, or par-
tially secured and partially unsecured, evidenced by obliga-
tions under the NBD Loan Agreement, and any extension, re-
funding, supplement, restructuring, replacement (including
without limitation any full or partial replacement or sup-
plement involving another lender and an increase to the
aggregate principal amount), refinancing, renewal, amendment
(including without limitation an amendment increasing the
aggregate principal amount) or other modification of any kind
thereto (collectively, "Renewals");
A-9
<PAGE> 66 EX-10.2
(b) Indebtedness that would appear on the consolidated
balance sheet of the Company (prepared in accordance with
GAAP) as short or long term Indebtedness or that would appear
in the notes to such balance sheet as a Guaranty of short or
long term Indebtedness of any Subsidiary that has been in-
curred in consideration of cash advanced after the date
hereof to the Company or any wholly-owned Subsidiary;
(c) any and all other Indebtedness, notes (other than
the Note), guarantees, debentures, bonds and other debt
securities and other indebtedness, and any and all obliga-
tions to advance funds to, or purchase assets, property or
services from, any other Person (but excluding trade debt and
accounts payable arising in the ordinary course of business)
evidenced by a note or other written obligation, in each case
whether secured or unsecured, or partially secured and par-
tially unsecured, created, incurred, assumed, or suffered to
exist, in connection with the purchase or lease of any assets
(including without limitation securities) of any other Person
by the Company or any of its Subsidiaries; and
(d) any and all Litigation Debt, provided, however,
that so long as (i) at least $3,750,000 aggregate principal
amount of the Note is outstanding, and (ii) Angelo, Gordon &
Co. owns or controls at least 50% of the outstanding princi-
pal amount of the Note either directly or through its owner-
ship of the membership interests or similar capital or equity
interests in Silver Oak Capital, L.L.C. or otherwise, then
the aggregate principal amount of any Litigation Debt at any
one time outstanding which may be Senior Indebtedness shall
not exceed $2,000,000.
The term "Senior Indebtedness" shall also mean and in-
clude, insofar as it relates to indebtedness for borrowed money
from institutions which in the ordinary course of their business
loan money, the costs and expenses, if any, reasonably incurred
by holders of Senior Indebtedness in negotiating and consummating
such indebtedness, amendments, modification, replacement, supple-
ment, renewals, extensions, restructurings, refinancings or
refundings of Senior Indebtedness or the enforcement or collec-
tion of Senior Indebtedness, including legal fees (including
without limitation the reasonable estimate of the allocable cost
of in-house legal counsel), to the extent the Company or any of
its Subsidiaries is obligated therefor. Notwithstanding anything
to the contrary in the foregoing, Senior Indebtedness shall not
mean indebtedness of the Company to any Subsidiary for money bor-
rowed or advances from such Subsidiary other than a guarantee or
assumption of the indebtedness of any Subsidiary which would
otherwise constitute Senior Indebtedness. The term "Senior
Indebtedness" shall not include (i) any Indebtedness outstanding
as of the date hereof other than that under the NBD Loan Agree-
ment; (ii) Indebtedness that is expressly junior or subordinate
A-10
<PAGE> 67 EX-10.2
to any other Indebtedness; (iii) any liability for federal, state
or local taxes payable; or (iv) trade payables.
"Subordinated Guaranty" means that Subordinated Guaran-
ty from the Guarantors in favor of the Holders in the form of
Exhibit 4.10 hereto.
"Subsidiary" means, as to any Person, any corporation,
association or other business entity in which such Person or one
or more of its Subsidiaries or such Person and one or more of its
Subsidiaries owns sufficient equity or voting interests to enable
it or them (as a group) ordinarily, in the absence of contingen-
cies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint
venture if more than a 50% interest in the profits or capital
thereof is owned by such Person or one or more of its Subsidiar-
ies or such Person and one or more of its Subsidiaries (unless
such partnership can and does ordinarily take major business
actions without the prior approval of such Person or one or more
of its Subsidiaries). Unless the context otherwise clearly
requires, any reference to a "Subsidiary" is a reference to a
Subsidiary of the Company.
"Swaps" means, with respect to any Person, payment
obligations with respect to interest rate swaps, currency swaps
and similar obligations obligating such Person to make payments,
whether periodically or upon the happening of a contingency. For
the purposes of this Agreement, the amount of the obligation
under any Swap shall be the amount determined in respect thereof
as of the end of the then most recently ended fiscal quarter of
such Person, based on the assumption that such Swap had terminat-
ed at the end of such fiscal quarter, and in making such determi-
nation, if any agreement relating to such Swap provides for the
netting of amounts payable by and to such Person thereunder or if
any such agreement provides for the simultaneous payment of
amounts by and to such Person, then in each such case, the amount
of such obligation shall be the net amount so determined.
"Trading Day" means any day other than any day on which
securities are not traded on the applicable securities exchange
or in the applicable securities market.
A-11
<PAGE> 1 EX-10.3
EXHIBIT 10.3
SUBORDINATED GUARANTY
----------------------
This Subordinated Guaranty, dated as of November 8, 1996 (the Guaranty ) by
All American Sports Corporation, Equilink Licensing Corporation, Ridmark
Corporation, RHC Licensing Corporation, and Proacq Corp., Delaware
corporations; Riddell, Inc., an Illinois corporation and SharCo Corporation,
a Florida corporation (collectively, the Present Guarantors ) and all
wholly-owned subsidiaries of the Company and its subsidiaries hereafter
formed who execute this Subordinated Guaranty or counterpart thereto
(collectively, the Future Guarantors ) (the Present Guarantors and the
Future Guarantors are referred to herein collectively as, the Guarantors ),
in favor of Silver Oak Capital, L.L.C. (the Purchaser ).
Whereas, the Present Guarantors are the wholly-owned subsidiaries of Riddell
Sports Inc., a Delaware corporation (the Borrower ).
Whereas, the Borrower has entered into a Subordinated Note Purchase Agreement
dated October 30, 1996 (the Purchase Agreement ) with the Purchaser
providing for the Borrower to issue its 4.10% Convertible Subordinated Note
due November 1, 2004 (the Note ) in the aggregate principal amount of $7.5
million to the Purchaser.
Whereas, the proceeds from the sale of the Note will directly, or indirectly,
inure to the benefit of the Guarantors in their capacities as subsidiaries of
the Borrower.
Whereas, in as an inducement to the Purchaser to purchase the Note, the
Present Guarantors have agreed to issue this Subordinated Guaranty.
Whereas, Section 9.7 of the Purchase Agreement requires the Future Guarantors
to be bound by this Subordinated Guaranty.
1. Certain Definitions.
1.01 Capitalized terms used but not defined herein shall have the
meanings given such terms in the Purchase Agreement.
1.02 The term Holder or Holders shall refer to each of (i) the
Purchaser, (ii) each permitted successor or assignee of Purchaser s rights
and (iii) each permitted transferee or assignee of all or a portion of the
Note to the extent the Purchaser shall specify such person pursuant to this
clause (iii) as a Holder.
-1-
<PAGE> 2 EX-10.3
2. The Guarantee.
Each Guarantor hereby jointly and severally guarantees to each Holder
and their respective successors and permitted assigns the prompt payment in
full when due (whether at stated maturity, by acceleration, required
repurchase or otherwise) of the principal of and interest on the Note held by
each Holder and all other amounts from time to time owing to the Holders by
the Borrower under the Purchase Agreement and under the Note, in each case
strictly in accordance with the terms thereof (such obligations being herein
collectively called the Guaranteed Obligations ). Each Guarantor hereby
further jointly and severally agrees that if the Borrower shall fail to pay
in full when due (whether at stated maturity, by acceleration, required
repurchase or otherwise) any of the Guaranteed Obligations, such Guarantor
will promptly pay the same, without any demand or notice whatsoever, and that
in the case of any extension of time of payment or renewal of any of the
Guaranteed Obligations, the same will be promptly paid in full when due
(whether at extended maturity, by acceleration or otherwise) in accordance
with the terms of such extension or renewal.
3. Obligations Unconditional.
The obligations of each Guarantor under Section 2 hereof are absolute
and unconditional, irrespective of (i) the value, genuineness, validity,
regularity or enforceability of the obligations of the Borrower under this
Guaranty, the Purchase Agreement, the Note or any other agreement or
instrument referred to herein or therein, (ii) any substitution, release or
exchange of any other guarantee of or security for any of the Guaranteed
Obligations (iii) the absence of any action to enforce the Purchase Agreement
or the Note, (iv) any waiver or consent by the Holder with respect to any
provisions of the Purchase Agreement or the Note, (v) any modification or
amendment of, or supplement of, the Guaranty, Purchase Agreement, Note or any
other agreements or instruments referred to herein or therein or (vi) the
recovery of any judgment against the Borrower or any action to enforce such
judgment, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 3 that the obligations of the
Guarantors hereunder shall be absolute and unconditional under any and all
circumstances. Without limiting the generality of the foregoing, it is agreed
that the occurrence of any one or more of the following shall not impair the
liability of any Guarantor hereunder, which shall remain absolute and
unconditional as described above:
(A) at any time or from time to time, without notice to any
Guarantor, the time for any performance of or compliance with any
of the Guaranteed Obligations shall be extended, or such
performance or compliance shall be waived;
(B) any of the acts mentioned in any of the provisions of this
Guaranty, the Purchase Agreement or the Note or any other agreement
or instrument referred to herein or therein shall be done or
omitted; or
-2-
<PAGE> 3 EX-10.3
(C) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be
modified, supplemented or amended in any respect, or any right
under this Guaranty, the Purchase Agreement or the Note or any
other agreement or instrument referred to herein or therein shall
be waived or any other guarantee of any of the Guaranteed
Obligations or any security therefor shall be released or exchanged
in whole or in part or otherwise dealt with.
Each Guarantor hereby expressly waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Borrower, protest, notices and all demands whatsoever, any
requirement that any Holder exhaust any right, power or remedy or proceed
against the Borrower under the Purchase Agreement or the Note or any other
agreement or instrument referred to herein or therein, or against any other
Person under any other guarantee of, or security for, any of the Guaranteed
Obligations and covenants that its Guaranteed Obligations will not be
discharged except by complete performance by the Borrower or another
Guarantor of such Guaranteed Obligations.
4. Reinstatement.
The obligations of each Guarantor under this Guaranty shall be
automatically reinstated if and to the extent that for any reason any payment
by or on behalf of the Borrower in respect of the Guaranteed Obligations is
rescinded or must be otherwise restored by any holder of any of the
Guaranteed Obligations, whether as a result of any proceedings in bankruptcy
or reorganization or otherwise.
5. Subrogation.
Each Guarantor hereby waives all rights of subrogation, contribution,
reimbursement and indemnity and all other rights that such Guarantor would
have against the Borrower at any time as a result of any payment in respect
of its Guaranteed Obligations (whether contractual, under the Bankruptcy
Code, or otherwise).
6. Remedies.
Each Guarantor agrees that, as between such Guarantor and the Holders,
the obligations of the Borrower under the Purchase Agreement and the Note may
be declared to be forthwith due and payable as provided in the Purchase
Agreement (and shall be deemed to have become automatically due and payable
in the circumstances provided in the Purchase Agreement) for purposes of the
Guaranty notwithstanding any stay, injunction or other prohibition preventing
such declaration (or such obligations from becoming automatically due and
payable) as against the Borrower and that, in the event of such declaration
(or such obligations being deemed to have become automatically due and
payable), such obligations (whether or not due and payable by the Company)
shall forthwith become due and payable by such Guarantor for purposes of said
Section 2 of the Guaranty.
-3-
<PAGE> 4 EX-10.3
7. Instrument for the Payment of Money.
Each Guarantor hereby acknowledges that the guarantee in this Guaranty
constitutes an instrument for the payment of money and consents and agrees
that any Holder, at its sole option, in the event of a dispute by such
Guarantor in the payment of any moneys due hereunder, shall have the right to
bring motion-action under New York CPLR Section 3213.
8. Continuing Guarantee.
The guarantee in this Guaranty is a continuing guarantee, and shall
apply to all Guaranteed Obligations whenever arising.
9. General Limitation on Guarantee Obligations.
In any action or proceeding involving any state corporate law, or any
state or Federal bankruptcy, insolvency, reorganization, fraudulent
conveyance, fraudulent transfer or other law affecting the rights of
creditors generally, if the obligations of any Guarantor under Section 2
hereof would otherwise be held or determined to be void, invalid or
unenforceable, or subordinated to the claims of any other creditors, on
account of the amount of its liability under said Section 2, then,
notwithstanding any other provision hereof to the contrary, the amount of
such liability shall, without any further action by such Guarantor, any
Holder or any other Person, be automatically limited and reduced to the
highest amount that is valid and enforceable and not subordinated to the
claims of other creditors as determined in such action or proceeding.
10. Subordination.
The obligations of each Guarantor under this Guaranty shall be junior
and subordinated in right of payment to any Senior Indebtedness of such
Guarantor in the same manner and to the same extent as the Note is
subordinated to Senior Indebtedness of the Borrower pursuant to Section 13 of
the Purchase Agreement.
11. Anti-Layering
No Guarantor will, directly or indirectly, incur or suffer to exist any
Indebtedness that is subordinate in right of payment to any Indebtedness of
such Guarantor, unless such Indebtedness is pari passu with or is subordinate
in right of payment to such Guarantor s payment obligations under the
Guaranty.
12. Requirements.
Subject to the terms of the Purchase Agreement, this Guaranty may be
amended, and the observance of any term hereof may be waived (either
retroactively or prospectively), with (and only
-4-
<PAGE> 5 EX-10.3
with) the written consent of the Majority Lenders.
13. Successors and Assigns.
The guaranty provided in Section 2 hereof binds and inures to the
benefit of the Holders and each of their respective successors and permitted
assigns.
14. Governing Law.
This Guaranty shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of New
York excluding choice-of-law principles of the law of such State that would
require the application of the laws of a jurisdiction other than such State.
15. Assignments and Restrictions on Transfers.
No Guarantor may assign any of its rights or obligations hereunder or
under the Note without the prior consent of the Majority Lenders. The
Purchaser and each Holder shall not transfer any of its rights under the
Guaranty except to the same extent as permitted by Section 20.7 of the
Purchase Agreement.
All American Sports Corporation
Equilink Licensing Corporation
Ridmark Corporation
RHC Licensing Corporation
Proacq Corp.
SharCo Corporation
By: DAVID GROELINGER
----------------------------
Their: Senior Vice President
Riddell, Inc.
By: DAVID GROELINGER
----------------------------
Its: Vice President
[FUTURE GUARANTOR]
By: _______________________
Its: ______________________
-5-
<PAGE> 1 EX-10.4
EXHIBIT 10.4
Registration Rights Agreement
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as
of November 8, 1996, by and between Riddell Sports Inc., a Delaware
corporation (the "Company"), and Silver Oak Capital, L.L.C., a Delaware
limited liability corporation (the "Purchaser").
WHEREAS, pursuant to a Note Purchase Agreement, dated as of the
date hereof (the "Purchase Agreement"), by and among the Company and the
Purchaser, the Company is issuing to the Purchaser its 4.10% Convertible
Subordinated Note due November 1, 2004 in the principal amount of
$7,500,000;
WHEREAS, the Note is convertible at any time in whole or in part
into shares of the Company's Common Stock, par value $0.01 per share (the
"Common Stock");
WHEREAS, in order to induce the Purchaser to enter into the
Purchase Agreement, the Company has agreed to provide the registration
rights set forth in this Agreement.
NOW, THEREFORE, the parties to this Agreement hereby agree as
follows:
1. Certain Definitions.
(a) Capitalized terms used but not defined herein shall have the
meanings given such terms in the Purchase Agreement.
(b) The term "Shares" shall refer to the shares of Common Stock
of the Company issued or issuable on conversion of the Note.
(c) The term "Holder" or "Holders" shall refer to each of (i)
the Purchaser, (ii) each successor or assignee of Purchaser's rights
hereunder who has received such rights in accordance with the Purchase
Agreement and (iii) each transferee or assignee of all or a portion of the
Note or the Shares who has received such interest in accordance with the
Purchase Agreement to the extent the Purchaser shall specify such person
pursuant to this clause (iii) as a Holder.
(d) The term "Majority Holders" shall mean, as of any date of
determination, Holders of not less than a majority of the Restricted Shares
at such date.
(e) The term "Restricted Share" shall refer to each Share until
the date on which such Share (i) has been registered under the Securities
Act of 1933, as amended (the "Act") and disposed of pursuant to a
registration statement, (ii) is distributed to the public
<PAGE> 2 EX-10.4
pursuant to Rule 144 under the Act or is saleable pursuant to Rule 144(k)
under the Act or (iii) is transferred otherwise in accordance with the Act
such that the holder thereof has shares of Common Stock that may be freely
and publicly resold without registration or limitation.
2. Demand Registrations.
(a) The Holders may at any time after the date hereof request (a
"Demand") registration under the Securities Act (a "Demand Registration")
of the offer and sale of the Restricted Shares, which Demand shall specify
the number of Restricted Shares requested to be registered and the intended
method of distribution; and the Company shall, as promptly as practicable
following such Demand file with the Securities and Exchange Commission (the
"Commission") and thereafter shall use its best efforts to cause to be
declared effective a registration statement (a "Registration Statement") on
an appropriate form under the Act, relating to the offer and sale of the
Restricted Shares by the Holders in accordance with the method of
distribution so specified; provided, that:
(i) Any Demand must be made by a Holder in writing on behalf of
the Majority Holders;
(ii) The Company will not be obligated to effect more than three
(3) Demand Registrations. A registration will not count as one of
such three Demand Registrations until it has become effective and been
maintained effective for the offer and sale of the Restricted Shares
as hereinafter provided for a period of 270 days (or such shorter
period as shall terminate at such time as all Shares included therein
have been sold thereunder or such Shares cease to Restricted Shares);
and
(iii) If the intended method of distribution is an
underwritten offering, (A) the Company will not be obligated to
conduct or pay the expenses of more than two (2) roadshows relating to
the offer of the Restricted Shares; (B) the Company will not be
obligated to conduct or pay the expenses of any such roadshow unless
there is included in such Registration Statement on behalf of the
Holders and any other holders participating in such registration in
accordance with Section 2(b), at least 500,000 shares of Common Stock
(as adjusted to reflect any stock splits, combinations,
recapitalizations, reclassifications or reorganizations affecting the
Shares after the date hereof); and (C) the Company will have no
obligation to conduct or pay expenses in connection with a roadshow
relating to a Demand Registration for the offer of the Restricted
Shares that occurs within 12 months after an earlier roadshow that the
Company has conducted and for which the Company has paid expenses and
that relates to a Demand Registration for the offer of the Restricted
Shares.
(b) The Company will give prompt notice to each Holder of
Restricted Shares of a Demand under Section 2(a) and will include in such
Demand Registration on a pro rata basis all Restricted Shares requested to
be included on the part of the Holders. The Company will not include in
any Demand Registration any securities which are not Restricted Shares
-2-
<PAGE> 3 EX-10.4
without the prior written consent of the Holders of a majority of the
Restricted Shares requested to be included in such registration (such
consent not to be unreasonably withheld) unless the Demand Registration
takes the form of a firm commitment underwritten offering. If the Demand
Registration takes the form of a firm commitment underwritten offering and
the lead underwriter of the offering advises the Company that the total
number of securities requested to be included in such offering exceeds the
total number of securities which can be sold, there shall be included in
such offering the amount of securities which in the opinion of the lead
underwriter can be sold, and such securities shall be allocated (x) first
to the holders of Restricted Shares and (y) next among the Company and such
other holders of securities that have requested inclusion in such
registration pro rata based upon the number of securities sought to be
registered, or on such other basis as may be agreed upon among the Company,
such lead underwriter and such other securityholders.
(c) The Company will give prompt notice to each Holder of
Restricted Shares of any proposed registration (other than in connection
with a registration on Form S-8 or S-4 or any successor or similar form) by
the Company of its securities for its own account, and permit the Holders
to request that such registration include the Restricted Shares of the
Holders, except that, if the Registration takes the form of a firm
commitment underwritten offering and the lead underwriter of the offering
advises the Company that the total number of securities requested to be
included in such offering exceeds the total number of securities which can
be sold, there shall be included in such offering the amount of securities
which in the opinion of the lead underwriter can be sold, and such
securities shall be allocated (x) first to the Company and (y) next among
the holders of Restricted Shares that have requested inclusion in such
registration and such other securityholders who have exercised piggyback
registration rights pro rata based upon the number of securities sought to
be registered, or on such other basis as may be agreed upon among the
Company, such underwriter, the Holders of Restricted Shares and such other
securityholders.
(d) The Company will give prompt notice to each Holder of
Restricted Shares of any proposed registration (other than in connection
with a registration on Form S-8 or S-4 or any successor or similar form) by
the Company of securities for the account of other securityholders
exercising demand registration rights, and permit the Holders to request
that such registration include the Restricted Shares of the Holders, except
that, if the Registration takes the form of a firm commitment underwritten
offering and the lead underwriter of the offering advises the Company that
the total number of securities requested to be included in such offering
exceeds the total number of securities which can be sold, there shall be
included in such offering the amount of securities which in the opinion of
the lead underwriter can be sold, and such securities shall be allocated
(x) first to such other securityholders who have exercised demand
registration rights and (y) next among the Company and the holders of
Restricted Shares that have requested inclusion in such registration pro
rata based upon the number of securities sought to be registered, or on
such other basis as may be agreed upon among the Company, such lead
underwriter and the Holders of Restricted Shares.
-3-
<PAGE> 4 EX-10.4
(e) It is understood that, except to the extent provided in
Section 2(i) or Section 7, nothing in this Agreement shall preclude the
Company from filing any registration statement for the sale of shares for
its own account or for the account of any other securityholders, but that
the filing of such registration statement shall not affect the obligations
of the Company to effect a Demand Registration pursuant to a Demand under
Section 2(a) and to otherwise comply with its obligations hereunder in
respect of such Demand by the Holders.
(f) The Company will ensure that (i) the Registration Statement
and any amendment thereto and any prospectus forming part thereof and any
supplement thereto complies in all material respects with the Act and the
rules and regulations thereunder, (ii) the Registration Statement and any
amendment thereto does not, when it becomes effective, contain 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 and (iii) the prospectus forming part of the Registration
Statement, and any supplement to such prospectus, does not, at any time the
same is used in connection therewith, include an untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, except that the Company shall have no
responsibilities with respect to the adequacy of the information required
to be provided to it pursuant to Section 3(l).
(g) If (i) the Registration Statement is not filed with the
Commission on or prior to 30 days after a Demand made in accordance with
Section 2(a), (ii) the Company has not responded to all of the questions
("Questions") posed by the Commission regarding the Registration Statement
within 10 days of receipt of the Questions from the Commission, (iii) the
Registration Statement is not declared effective within 120 days of the
Demand, or (iv) after a Registration Statement is declared effective, such
Registration Statement thereafter ceases to be effective or such
Registration Statement or the related prospectus ceases to be usable
(during a Blackout Period (as hereinafter defined in Section 3(i)) or
otherwise) for its intended purpose for a period of more than 45
consecutive days (each such event referred to in clauses (i) through (iv),
a "Registration Default"), then commencing on the day following the date on
which such Registration Default occurs, the Company agrees to pay to each
Holder of Restricted Shares, during the first 90-day period immediately
following the occurrence of such Registration Default, liquidated damages
by way of additional interest on the Note (the "Special Interest") in an
amount equal to 0.50% per annum of the principal amount of the Note. The
amount of Special Interest payable to each Holder shall increase by an
additional 0.25% per annum during each 90-day period thereafter during
which such Registration Default or any other Registration Default shall
continue, but shall in no event exceed 1.00% per annum. A Registration
Default shall cease, and Special Interest shall cease to be payable with
respect to such Registration Default (1) upon the filing of the
Registration Statement, in the case of clause (i) above, (2) upon receipt
by the Commission of the responses to the Questions, in the case of clause
(ii) above, (3) when the Registration Statement becomes effective or usable
in the case of clauses (iii) and (iv) above. Notwithstanding the foregoing
to the contrary, (I) the amount of Special Interest payable shall not
increase because more than one Registration Default have occurred and are
pending and (II) a Holder of Restricted Shares who is not entitled to the
benefits of a
-4-
<PAGE> 5 EX-10.4
Demand Registration (e.g. such Holder has not elected to include Restricted
Shares in such Registration Statement) shall not be entitled to Special
Interest with respect to a Registration Default that pertains to a
Registration Statement. All Special Interest shall be paid to Holders in
the same manner and at the same time as payments of interest made pursuant
to the Note.
(h) The Company shall not be required to include in the
Registration Statement Restricted Shares of a Holder if such Holder fails
to provide the information required to be provided by it, if any, pursuant
to Section 3(l).
(i) The Company will not grant to any person the right to cause
the Company to register any equity securities of the Company held by such
person or enter into any other agreement, in either case if compliance by
the Company on a timely basis with its obligations under this Agreement
would constitute a breach of or default under any such other agreement.
3. Registration Procedures. In connection with any Demand
Registration, the Company will comply with the following provisions:
(a) The Company shall use its best efforts to keep the
Registration Statement continuously effective in order to permit the
prospectus forming part thereof to be usable by the Holders for a period of
nine (9) months from the date such Registration Statement becomes effective
or such shorter period that will terminate when all of the Shares covered
by the Registration Statement have been sold pursuant to the Registration
Statement or all Shares cease to be Restricted Shares; provided, that if
the Company shall give any Suspension Notice (as such is defined herein in
Section 3(c)) under Section 3(c)(ii) - (v), such nine month period shall be
extended by the number of days during such period from and including the
date of the giving of such Suspension Notice to and including the date when
each seller of Common Stock covered by the applicable Registration
Statement shall have received (x) the copies of the supplemental or amended
prospectus contemplated by Section 3(i) (if an amended or supplemental
prospectus is required) or (y) the Advice (if no amended or supplemental
prospectus is required).
For purposes of this Section 3(a), the Company shall be deemed
not to have used its best efforts to keep the Registration Statement
effective during the requisite period if it voluntarily takes any action
that would result in Holders of Shares covered thereby not being able to
offer and sell such Shares pursuant to the Registration Statement during
that period, unless such action is an event described in Section 3(c)(v) or
Section 3(d) below or such action is required by applicable law or, to the
extent required by applicable law, if it shall fail promptly to take such
action as is reasonably necessary to permit such prospectus to once again
be so usable.
(b) The Company shall furnish to each Holder included in the
registration, prior to the filing thereof with the Commission, a copy of
the Registration Statement and each amendment thereof and each supplement,
if any, to the prospectus included therein and shall use its best efforts
to reflect in each such document, when so filed with the Commission, such
comments as such Holders reasonably may propose.
-5-
<PAGE> 6 EX-10.4
(c) The Company shall advise each Holder included in the
registration and, if requested by a Holder, confirm such advice in writing
(which advice pursuant to clauses (ii) - (v) hereof shall be accompanied by
an instruction (a "Suspension Notice") to suspend the use of any prospectus
until the requisite changes have been made):
(i) when the Registration Statement and any amendment thereto
has been filed with the Commission and when the Registration Statement
or any post effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus included
therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the shares of Common
Stock for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose; and
(v) of the happening of any event that represents a fundamental
change in the information set forth or incorporated by reference in
the Registration Statement or that otherwise requires the making of
any changes in the Registration Statement or the prospectus or the
filing of any reports under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") so that, as of such date, the statements
therein are not misleading and do not omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.
Each Holder agrees that, upon receipt of any Suspension Notice of
the Company pursuant to paragraphs (ii) through (v) of Section 3(c) hereof,
such Holder will discontinue disposition of such shares pursuant to the
Registration Statement until such Holder's receipt of copies of the
supplemental or amended prospectus contemplated by Section 3(i) hereof, or
until advised in writing (the "Advice") by the Company that the use of the
applicable prospectus may be resumed.
(d) The Company will use its reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of the Registration
Statement at the earliest possible time.
(e) The Company will furnish to each Holder of Shares included
within the coverage of the Registration Statement, without charge, copies
of the Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, and, if a Holder so requests
in writing, all exhibits (including those incorporated by reference) in
such number as such Holder may reasonably request from time to time.
-6-
<PAGE> 7 EX-10.4
(f) The Company will deliver to each Holder of Shares included
within the coverage of the Registration Statement, without charge, as many
copies of the prospectus (including each preliminary prospectus) included
in the Registration Statement and any amendment or supplement thereto as
such Holder may reasonably request; and the Company consents to the use of
the prospectus or any amendment or supplement thereto by each of the
selling Holders of Common Stock in connection with the offering and sale of
the Common Stock covered by the prospectus or any amendment or supplement
thereto.
(g) Prior to any public offering of Common Stock pursuant to the
Registration Statement, the Company will use its best efforts to register
or qualify or cooperate with the Holders and their respective counsel in
connection with the registration or qualification of such securities for
offer and sale under the securities or blue sky laws of such jurisdictions
as such counsel reasonably requests in writing on behalf of such Holders
and do any and all other acts or things necessary or advisable to enable
the offer and sale in such jurisdictions of the shares of Common Stock
covered by the Registration Statement; provided, however, that the Company
will not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action which
would subject it to general service of process or to taxation in any such
jurisdiction where it is not then so subject.
(h) The Company will cooperate with each Holder to facilitate
the timely preparation and delivery of certificates representing shares of
Common Stock to be sold pursuant to the Registration Statement free of any
restrictive legends and registered in such names as the Holder may request
in writing prior to sales of Common Stock pursuant to the Registration
Statement.
(i) Upon the occurrence of any event contemplated by paragraphs
(ii) through (v) of Section 3(c) hereof during the period for which the
Company is required to maintain an effective Registration Statement, the
Company will prepare a post-effective amendment to the Registration
Statement or a supplement to the related prospectus or file any other
required document as soon as practicable so that, as thereafter delivered
to purchasers of the Common Stock, the prospectus will not include an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and will comply with the Act
and the rules promulgated thereunder; provided however that, if the Company
determines in its reasonable good faith judgment that the filing of any
such post-effective amendment or supplement or other document would
interfere with any announced or imminent material financing, acquisition,
disposition, corporate reorganization or other material transaction of a
similar type involving the Company or would require the disclosure of
information that is not then in the best interests of the Company to
disclose, then the Company may, subject to the provisions of Section 2(g),
delay such filing for such period as would terminate at the earliest time
at which the Company determines that such disclosure could be made without
unduly interfering with the interests of the Company. The period of any
such delay is referred to herein as a "Blackout Period". In no event may
any Blackout Period exceed 90 days from the date of the Suspension Notice,
and the Company shall not be permitted to impose more than one Blackout
Period in any calendar
-7-
<PAGE> 8 EX-10.4
year. The Company shall give prompt notice to the Holder of the
termination of any Suspension Notice or Blackout Period.
(j) The Company will prepare and deliver in a timely manner, but
in no event later than two business days prior to the consummation of a
sale of shares of Common Stock, certificates representing Restricted Shares
to be sold and not bearing any restrictive legends.
(k) The Company will comply with all applicable rules and
regulations of the Commission and will make generally available to its
security holders as soon as practicable but in any event not later than
eighteen (18) months after the effective date of the applicable
Registration Statement an earnings statement satisfying the provisions of
Section 11(a) of the Act or Rule 158 promulgated thereunder.
(l) The Company may require each Holder of Shares to be sold
pursuant to the Registration Statement to furnish to the Company such
information regarding such Holder, the shares of Common Stock beneficially
owned by the Holder and the intended method of distribution of Shares as
the Company may from time to time reasonably require for inclusion in the
Registration Statement, and the Company may exclude from such registration
the shares of Common Stock of any Holder that fails to furnish such
information within a reasonable time after receiving such request.
(m) The Company shall enter into such customary agreements
(including, if requested, an underwriting agreement in customary form) and
take all such other action, if any, as Holders of a majority of the Shares
being sold or the managing underwriters (if any) shall reasonably request
in order to facilitate the disposition of the Shares pursuant to the
Registration Statement; provided, however, that the Company shall have no
obligation to pay any discounts or underwriting commission attributable to
Restricted Shares sold for the account of Holders, or any expenses of the
underwriters other than those customarily reimbursed by sellers of
securities, including (A) fees and expenses of filings and counsel in
connection with the qualification of the Shares for offering and sale under
state securities laws, (B) fees and expenses of filings and counsel
incident to securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the underwriting and (C) other
expenses in the event that the underwriting agreement is terminated after
its execution but prior to closing of the sale thereunder. The Company
agrees that, in connection with an underwritten registration, it will enter
into an underwriting agreement in customary form that will contain
applicable indemnification provisions similar to those contained in Section
5 hereof, providing for general indemnification by the Company of the
underwriters and for indemnification by the Holders of the underwriters
that is limited to losses derived from misstatements or omissions made in
reliance upon and in conformity with written information furnished to the
Company by such Holder expressly for use therein.
(n) The Company, if requested by Holders of a majority of the
Shares being sold, or the managing underwriters (if any) in connection with
the Registration Statement, shall use its best efforts to cause (i) its
counsel to deliver an opinion relating to the Registration
-8-
<PAGE> 9 EX-10.4
Statement and the Common Stock, in customary form addressed to such Holders
and the managing underwriters (if any), thereof as of the effective date of
such Registration Statement and the closing of any underwriting; (ii) its
officers to execute and deliver all customary documents and certificates
requested by Holders of a majority of the Shares being sold or the managing
underwriters (if any), including an underwriting agreement containing
customary representations, agreements and indemnification on the part of
the Company; and (iii) its independent public accountants to provide a
comfort letter in customary form, subject to receipt of appropriate
documentation as contemplated, and only if permitted, by Statement of
Auditing Standards No. 72.
(o) The Company will use its best efforts to cause the shares of
Common Stock covered by the Registration Statement to be listed on each
securities exchange, if any, or NASDAQ on which similar securities issued
by the Company are then listed, if so requested by Holders of a majority of
shares of Common Stock covered by the Registration Statement, or by the
managing underwriters (if any).
4. Registration Expenses. The Company will bear all expenses
incurred in connection with the performance of its obligations under this
Agreement, including without limitation filing fees, printing costs, and
(subject to the provisions of Section 2(a)(iii)) the costs and expenses of
a roadshow or other management presentations to investors relating to the
Company, but not the underwriting commissions or discounts associated with
the sale of Restricted Shares, and the Company will reimburse the Holders
for the reasonable fees (not exceeding $10,000), disbursements and expenses
of counsel (and any local counsel as reasonably required) chosen by the
Holders of a majority of the shares of Common Stock to be sold pursuant to
a Registration Statement acting for the Holders in connection therewith.
5. Indemnification.
(a) The Company shall indemnify and hold harmless each of the
Holders of Common Stock to be included in such registration against any
losses, claims, damages or liabilities, joint or several, to which such
Holder may become subject under the Act, the Exchange Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement under which such shares of Common Stock were registered under the
Act, or any preliminary, final or summary prospectus contained therein or
furnished by the Company to any such Holder, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, and the Company shall
reimburse such Holder for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that the Company
shall not be liable to any such person in any such case to the extent that
any such loss, claim, damage or liability (or actions in respect thereof)
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration
Statement, or
-9-
<PAGE> 10 EX-10.4
preliminary, final or summary prospectus, or amendment or supplement
thereto, in reliance upon and in conformity with written information
furnished to the Company by, or on behalf of, such person expressly for use
in connection therewith.
(b) Each Holder agrees, as a condition to including any shares
of Common Stock in the Registration Statement filed pursuant to Section 2
hereof and to entering into any underwriting agreement with respect
thereto, severally and not jointly, to (i) indemnify and hold harmless the
Company and all other Holders against any losses, claims, damages or
liabilities to which the Company or such other Holders may become subject
under the Act, the Exchange Act, or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon an untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, or any preliminary,
final or summary prospectus contained therein or furnished by the Company
to any such Holder, or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity
with written information furnished to the Company by such Holder expressly
for use in connection therewith and (ii) reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection
with investigating or defending any such action or claim as such expenses
are incurred; provided, however, that no such Holder shall be required to
undertake liability to any person under this Section 5(b) for any amounts
in excess of the dollar amount of the proceeds to be received by such
Holder from the sale of such Holder's Common Stock pursuant to such
registration.
(c) Promptly after receipt by an indemnified party under
Sections 5(a) or 5(b) hereof written notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is to
be made against an indemnifying party pursuant to the indemnification
provisions of or contemplated by this Section 5, notify such indemnifying
party in writing of the commencement of such action; but the omission so to
notify the indemnifying party shall not relieve it from any liability which
it may have to any indemnified party other than under the indemnification
provisions of or contemplated by Sections 5(a) or 5(b) hereof. In case any
such action shall be brought against any indemnified party and it shall
notify an indemnifying party of the commencement thereof, such indemnifying
party shall be entitled to participate therein and, to the extent that it
shall wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, such
indemnifying party shall not be liable to such indemnified party for any
legal expenses of other counsel or any other expenses, in each case
subsequently incurred by such indemnified party, in connection with the
defense thereof other than reasonable costs of investigation. Such
indemnifying party shall not enter into any settlement with a party without
obtaining an unconditional release of each indemnified party with respect
to any and all claims against each indemnified party. An indemnified party
shall not
-10-
<PAGE> 11 EX-10.4
enter into any settlement without the consent of the indemnifying party
which shall not be unreasonably withheld.
(d) Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by Sections 5(a) or 5(b) are
unavailable to or insufficient to hold harmless an indemnified party in
respect of any losses, claims, damages or liabilities (or actions in
respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified party in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact
relates to information supplied by such indemnifying party or by such
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The parties hereto agree that it would not be just and equitable
if contributions pursuant to this Section 5(d) were determined by pro rata
allocation (even if the Holders or any agents or underwriters or all of
them were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
referred to in this Section 5(d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, or
liabilities (or actions in respect thereof) referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred
by such indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 5(d),
no Holder shall be required to contribute any amount in excess of the
amount by which the dollar amount of the proceeds received by such Holder
from the sale of any shares of Common Stock (after deducting any fees,
discounts and commissions applicable thereto) exceeds the amount of any
damages which such Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission,
and no underwriter shall be required to contribute any amount in excess of
the amount by which the total price at which the Common Stock underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such underwriter has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
The Holders' and any underwriters' obligations in this Section 5(d) to
contribute shall be several in proportion to the principal amount of Common
Stock registered or underwritten, as the case may be, by them and not
joint.
(e) The obligations of the Company under this Section 5 shall be
in addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each officer, director and
partner of each Holder, agent and underwriter and each person, if any, who
controls any Holder, agent or underwriter within the meaning of the
-11-
<PAGE> 12 EX-10.4
Act; and the obligations of the Holders and any underwriters contemplated
by this Section 5 shall be in addition to any liability which the
respective Holder or underwriter may otherwise have and shall extend, upon
the same terms and conditions, to each officer and director of the Company
and to each person, if any, who controls the Company within the meaning of
the Act.
6. Underwritten Registrations. If any of the Restricted Shares
covered by the Registration Statement are to be sold in an underwritten
offering, the Company shall have the right to select the lead investment
banker or lead manager that will administer the offering, subject to the
consent of the Holders of a majority of such Restricted Shares included in
such offering, which consent will not be unreasonably withheld, and the
Holders of a majority of such Restricted Shares included in such offering
will have the right to select one or more co-investment bankers or co-lead
managers to administer the offering, subject to consent of the Company,
which consent will not be unreasonably withheld.
No person may participate in any underwritten registration
hereunder unless such person (i) agrees to sell such person's Restricted
Shares on the basis reasonably provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and
(ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
7. Holdback Agreement. The Company agrees, if so requested by
the managing underwriters of any underwritten offering, (i) not to effect
any sale or distribution of its equity securities, or any securities
convertible into or exchangeable or exercisable for such securities, during
the seven days prior to and during the 90-day period beginning on the
effective date of any underwritten Demand Registration (except as part of
such underwritten registration or pursuant to registrations on Form S-4 or
S-8 or any successor form) and (ii) to use its best efforts to cause each
executive officer, director and any affiliate of the Company to agree not
to effect any sale or distribution (including sales pursuant to Rule 144)
of any such securities during such period (except as part of such
underwritten registration, if otherwise permitted), unless the underwriters
managing the registered public offering otherwise agree.
8. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless the Company
has obtained the written consent of Holders of a majority of the Shares.
Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of the Holders whose Shares are being sold pursuant to the
Registration Statement and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of a majority of the Shares
being sold by such Holders pursuant to the Registration Statement.
-12-
<PAGE> 13 EX-10.4
(b) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, first-
class mail, telex, telecopier, or air courier guaranteeing overnight
delivery: (i) if to a Holder, at the most current address given by such
Holder to the Company in accordance with the provisions of this Section
8(b), which, with respect to the Purchaser shall initially be: Silver Oak
Capital, L.L.C., c/o Angelo, Gordon & Co., L.P., 245 Park Avenue, 26th
Floor, New York, New York 10167, Attention: David Roberts (Telecopy: (212)
867-5436); and (ii) if to the Company: Riddell Sports Inc., 900 Third
Avenue, New York, New York 10022 Attention: David Groelinger (Telecopy:
(212) 826-5006). All such notices and communications shall be deemed to
have been duly given: when delivered by hand, if personally delivered;
three business days after being delivered to a next-day air courier; when
answered back, if faxed; and when receipt is acknowledged by the
recipient's telecopier machine, if telecopied.
(c) Successors And Assigns. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto
and their respective successors and assigns.
(d) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
(e) Governing Law. This Agreement shall be governed by the laws
of the State of New York (regardless of the laws that might otherwise
govern under applicable principles of conflicts of law) as to all matters,
including but not limited to matters of validity, construction, effect,
performance and remedies.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Severability. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder
of the terms, provisions, covenants and restrictions set forth herein shall
remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their reasonable efforts
to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such term,
provision, covenant or restriction that may be hereafter declared invalid,
illegal, void or unenforceable.
-13-
<PAGE> 14 EX-10.4
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first above written.
RIDDELL SPORTS INC.
DAVID GROELINGER
By: ____________________________________
Name: David Groelinger
Title: CFO & Executive V.P.
SILVER OAK CAPITAL, L.L.C.
MICHEAL L. GORDON
By: __________________________________
Name: Micheal L. Gordon
Title:
RIDDELL SPORTS INC. EXHIBIT 11
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
--------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Primary earnings per share:
- -----------------------------------
Weighted average common shares
outstanding during period 8,067,985 8,067,985 8,067,985 8,067,985
Common shares equivalents of dilutive
stock options based on treasury
stock method using average market
price for quarter 500,278 0 479,530 0
----------- ----------- ----------- -----------
Average common shares and equivalents 8,568,263 8,067,985 8,547,515 8,067,985
=========== =========== =========== ===========
Net income for the period $965,117 $802,640 $4,133,933 $3,303,575
=========== =========== =========== ===========
Per share amount $0.11 $0.10 $0.48 $0.41
=========== =========== =========== ===========
Fully diluted earnings per share:
- -----------------------------------
Weighted average common shares 8,067,985 8,067,985 8,067,985 8,067,985
outstanding during period
Common shares equivalents of dilutive
stock options based on treasury
stock method using quarter ending
market price which is higher than
average market price 565,962 0 548,407 0
----------- ----------- ----------- -----------
Average common shares and equivalents 8,633,947 8,067,985 8,616,392 8,067,985
=========== =========== =========== ===========
Net income for the period $965,117 $802,640 $4,133,933 $3,303,575
=========== =========== =========== ===========
Per share amount $0.11 $0.10 $0.48 $0.41
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FILED AS PART OF THE QUARTERLY REPORT
ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERNCE TO SUCH REPORT
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 646
<SECURITIES> 0
<RECEIVABLES> 23,726
<ALLOWANCES> 784
<INVENTORY> 15,267
<CURRENT-ASSETS> 43,067
<PP&E> 7,018
<DEPRECIATION> 3,673
<TOTAL-ASSETS> 80,061
<CURRENT-LIABILITIES> 17,103
<BONDS> 25,594
0
0
<COMMON> 81
<OTHER-SE> 28,955
<TOTAL-LIABILITY-AND-EQUITY> 80,061
<SALES> 57,663
<TOTAL-REVENUES> 59,793
<CGS> 31,316
<TOTAL-COSTS> 31,316
<OTHER-EXPENSES> 1,992
<LOSS-PROVISION> 390
<INTEREST-EXPENSE> 2,176
<INCOME-PRETAX> 4,324
<INCOME-TAX> 190
<INCOME-CONTINUING> 4,134
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,134
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.48
</TABLE>
