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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE -
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 28, 1997 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 0-19557
SALTON/MAXIM HOUSEWARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-3777824
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION
MOUNT PROSPECT, ILLINOIS 60056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES (ZIP CODE)
(847) 803-4600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether this 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 __
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant as of September 22, 1997 was approximately $115,633,653, computed on
the basis of the last reported sale price per share ($8.875) of such stock on
the NASDAQ National Market. Shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [X]
The number of shares of the Registrant's Common Stock outstanding as of
September 25, 1997 was 13,029,144.
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DOCUMENTS INCORPORATED BY REFERENCE:
<TABLE>
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PART OF FORM 10-K DOCUMENT INCORPORATED BY REFERENCE
------------------------------ ---------------------------------------------
<S> <C>
Part III (Items 10, 11, 12 and Portions of the Registrant's Definitive Proxy
13) Statement to be used in connection with
its 1997 Annual Meeting of Stockholders.
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CERTAIN STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN
AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS, TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE, OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE,
AMONG OTHERS, THE FOLLOWING: ECONOMIC CONDITIONS AND RETAIL ENVIRONMENT; THE
TIMELY DEVELOPMENT, INTRODUCTION AND CUSTOMER ACCEPTANCE OF THE COMPANY'S
PRODUCTS; COMPETITIVE PRODUCTS AND PRICING; DEPENDENCE ON FOREIGN SUPPLIERS AND
SUPPLY AND MANUFACTURING CONSTRAINTS; THE COMPANY'S RELATIONSHIP AND
CONTRACTUAL ARRANGEMENTS WITH KEY CUSTOMERS, SUPPLIERS AND LICENSORS;
CANCELLATION OR REDUCTION OF ORDERS; THE RISKS RELATING TO PENDING LEGAL
PROCEEDINGS AND OTHER FACTORS BOTH REFERENCED AND NOT REFERENCED IN THIS ANNUAL
REPORT ON FORM 10-K. WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS
"ESTIMATE," "PROJECT," "ANTICIPATED," "EXPECT," "INTEND," "BELIEVE," AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
PART I
ITEM 1. BUSINESS
GENERAL
Salton/Maxim Housewares, Inc. (the "Company") designs and markets a
broad range of kitchen and home appliances, personal and beauty care appliances
and decorative quartz wall and alarm clocks under the brand names of Salton(R),
Maxim(R), Breadman(R), Juiceman(R), Salton Creations(R), Salton Time(R),
White-Westinghouse(R) and Farberware(R). The kitchen and home appliances
currently marketed by the Company include espresso/cappuccino makers, waffle
makers, rice cookers, coffee makers, sandwich makers, toasters, bread baking
machines, Hotray(R) Warming trays, juice extractors, fans, fan heaters, irons,
ice cream and yogurt makers, and a wide variety of other food preparation
appliances. The Company's personal and beauty care appliances include hair
dryers, Wet Tunes(R) shower radios, shavers, curling irons, makeup mirrors,
massagers, manicure systems and facial saunas. The Company also markets, under
a joint venture agreement, a thermal household grill product under the name
"George Foreman's Lean Mean Fat Reducing Grilling Machine(R)." Mr. Foreman is
both a former Olympic champion and a former World Boxing Organization's heavy
weight champion of the world. The Company contracts for the manufacture of most
of its products with independent manufacturers located overseas, primarily in
the Far East and Europe. The Company also manufactures and assembles certain
appliances in its plant located in Kenilworth, New Jersey.
On July 1, 1996, the Company acquired substantially all of the assets and
certain liabilities of Block China Corporation ("Block China"). Block(R) China
designs and markets tabletop products, including china, crystal and glassware
primarily under the brand names Block(R), Atlantis(R) Crystal and Gear(R).
On July 11, 1996, the Company consummated a transaction with
Windmere-Durable Holdings, Inc. ("Windmere"), pursuant to that certain Stock
Purchase Agreement dated February 27, 1996, as amended (the "Stock Purchase
Agreement"). Windmere is a corporation engaged principally in manufacturing and
distributing a wide variety of personal care products and household appliances.
Pursuant to the Stock Purchase Agreement, Windmere purchased from the Company
6,508,572 newly issued shares of Common Stock (the "Purchase"), which
represented 50% of the outstanding shares of Common Stock of the Company on
February 27, 1996 after giving effect to the Purchase. As consideration for the
purchase, Windmere paid the Company: (i) $3,254,286 in cancellation of a loan;
(ii) a subordinated promissory note in the aggregate principal amount of
$10,847,620 (the "Note"), which Note is payable in five years and is secured by
certain assets of Windmere and its domestic subsidiaries and guaranteed by such
domestic subsidiaries; and (iii) 748,112 shares of Windmere's common stock.
Windmere's common stock is traded on the NYSE. Windmere was also granted an
option to purchase up to 485,000 shares of Common Stock at $4.83 per share,
which option is
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exercisable only if and to the extent that options to purchase shares of Common
Stock which were outstanding on February 27, 1996 are exercised.
In connection with the Purchase, Windmere and the Company also entered
into a Stockholder Agreement (the "Stockholder Agreement") and a Registration
Rights Agreement (the "Registration Agreement"). Pursuant to the Stockholder
Agreement, Windmere is entitled to designate for election, so long as its
ownership does not fall below 15%, that percentage of the Company's directors
as is proportionate to its stock ownership percentage; provided that the number
of directors designated by Windmere will in no event exceed 50% of the total
number of directors. The following persons designated by Windmere were elected
as directors of the Company on July 11, 1996: David M. Friedson, Chairman of
the Board, President and Chief Executive Officer of Windmere; Harry D.
Schulman, Senior Vice President of Windmere; Laurence S. Chud, M.D., Vice
President Investment Banking of CP Banker & Company; and James Connolly,
President of KQED Books and Video. There is now a total of eight directors
serving on the Company's Board of Directors. The Stockholder Agreement also
contains provisions which, subject to specified time periods and exceptions,
restrict the disposition by Windmere of shares of Common Stock and restrict
purchases by Windmere of additional shares of Common Stock that would increase
its percentage ownership interest.
The Company and Windmere also entered into a Marketing Cooperation
Agreement (the "Marketing Cooperation Agreement"). Pursuant to the Marketing
Cooperation Agreement, until Windmere's interest in the Company is less than
30% for at least ten consecutive days, each of the Company and Windmere has
agreed to participate in a variety of mutually satisfactory marketing
cooperation efforts designed to expand the market penetration of each party.
The Company also entered into a letter agreement dated April 30, 1997 (the
"Letter Agreement") with Windmere, pursuant to the Marketing Cooperation
Agreement. The Letter Agreement provides that the Company pay to Windmere a
fee in consideration of Windmere's marketing cooperation efforts in connection
with the Company's supply contract with Kmart and Windmere's guarantee of the
Company's obligations under such contract.
In January, 1997, the Company entered into a major supply contract with
the Kmart Corporation for Kmart to purchase, distribute, market and sell
certain products under the White-Westinghouse brand name licensed to Salton.
Under the terms of the contract, Salton supplies Kmart a broad range of kitchen
and home appliances under the White-Westinghouse brand name. Kmart is the
exclusive discount department store to market these White-Westinghouse
products.
In the second quarter of 1997, Windmere licensed the right to use the
Farberware(TM) name for small electric appliances. Farberware(TM) is a
time-honored trade name in the cookware and small electric appliance industry.
Under the Marketing Cooperation Agreement, the Company obtained the exclusive,
worldwide right to distribute Farberware(TM) small electric appliances.
On June 19, 1997, Salton/Maxim acquired the assets of Jonal Crystal
Ltd.("Jonal") from Sterling Cut Glass. Jonal imports, distributes and contract
manufactures glassware and crystal for the gift, tabletop and housewares
industries. Jonal products, which include the Crystal Kiss(TM) line of
glassware and giftware featuring the famous shape of the Hershey's Chocolate
Kiss, are offered as additional tabletop products under Block China.
The Company's product strategy focuses on developing new products and
enhancing existing products, then marketing those products under its
established brand names to service the needs of a broad range of retailers and
satisfy the different tastes, preferences and budgets of consumers. The Company
designs its products in many contemporary styles and colors and with a wide
variety of features. Management believes that the Company has a reputation in
the industry for excellence in design, creative packaging and marketing of
products, and innovative technology. It was the first to introduce warming
trays, a combination espresso/cappuccino/drip coffee maker, shower radios,
bread makers capable of using multiple grains of flours and Cell-U-Memo,(TM)
the first voice memo recorder for use on cellular phones. The Company has had a
number of products selected as top rated or best buy by various consumer
magazines.
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The Company sells its products throughout the United States primarily to
department stores, gourmet and lifestyle merchants, upscale mass merchandisers
and through other direct distribution channels, direct mail catalogs and
showrooms, specialty stores, warehouse clubs and beauty supply distributors.
The Company markets through its own sales force and a network of approximately
151 independent commissioned sales representatives. Further, the Company sells
certain of its products, primarily Juiceman(R) and the George Foreman Grills(R),
direct to consumers through the use of paid half- hour television programs
commonly referred to as "infomercials."
The Company believes that its principal strengths include its marketing
capabilities, its reputation with retailers, its proven ability to develop new
products and enhance existing products, and its established brand names.
PRODUCTS
Salton/Maxim Housewares, Inc. markets kitchen and home appliances,
tabletop products (including china, crystal and glassware), time products, gift
products, and personal and beauty care appliances. Kitchen and home appliances
are marketed primarily under the Salton(R), Maxim(R), Breadman(R), Juiceman(R),
George Foreman Grills(R), White-Westinghouse(R) and Farberware(R) brand names.
Tabletop products are marketed primarily under the Block(R) China, Atlantis(R)
Crystal and Gear(R) brand names. Personal and beauty care appliances and gift
products are marketed under the Salton Creations(R) brand name and time
products under the Salton Time(R) brand name. The Salton(R) brand name has been
in continuous use since 1947 and the Maxim(R) name since 1970. The Company
believes that the White-Westinghouse(R) and Farberware(R) brand names have
time-honored traditions throughout the world.
The marketing of the Company's products under its brand names permits the
Company to service the needs of a broad range of retailers and satisfy the
different tastes, preferences and budgets of consumers. Products are designed
to meet the needs of a broad range of consumers at a wide range of pricing
points. These products include full-featured or upscale models or designs as
well as those which are marketed to budget conscious consumers.
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The following table sets forth the approximate amounts and percentages of
the Company's net sales by product category during the periods shown.
FISCAL YEAR ENDED
(DOLLARS IN THOUSANDS)
<TABLE>
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JUNE 28, 1997 JUNE 29, 1996 JULY 1, 1995
------------------- ------------------- -------------------
PERCENT PERCENT PERCENT
NET SALES OF TOTAL NET SALES OF TOTAL NET SALES OF TOTAL
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Kitchen and Home
Appliances $155,972 85.3% $91,479 92.2% $70,168 91.1%
Tabletop Products(1) 16,756 9.2%
Personal and Beauty
Care Appliances, Gifts
and Time Products 10,078 5.5% 7,723 7.8% 6,823 8.9%
--------- -------- --------- -------- --------- --------
$182,806 100.0% $99,202 100.0% $76,991 100.0%
========= ======== ========= ======== ========= ========
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(1)The Company entered this category of business in fiscal year 1997
upon the acquisition of substantially all of the assets and certain
liabilities of Block(R) China Corporation, a tabletop product company,
on July 1, 1996. The Block(R) China division of the Company designs
and markets tabletop products including china, crystal and
glassware. The Block product line was further augmented on June 19,
1997 with the acquisition of the assets of Jonal Crystal Ltd. from
Sterling Cut Glass. Jonal products include the Crystal Kiss(R) line of
glassware and giftware featuring the famous shape of the Hershey's
Chocolate Kiss.
KITCHEN AND HOME APPLIANCES
The Company designs and markets an extensive line of kitchen and home
appliances under the Salton(R), Maxim(R), Breadman(R) Juiceman(R), George
Foreman Grills(R), White-Westinghouse(R) and Farberware(R) brand names. The
Company currently markets approximately 544 different models under its brand
names in this category. The Salton(R) brand name was first introduced in 1947
through the Hotray(R), a product still marketed by the Company. Other product
introductions have featured innovative technology and design applications and
opened up new product classifications for household use. These introductions
include the first triple function coffee appliance in the United States, (the
Cafe Salton(R), an espresso/cappuccino/drip coffee maker), a yogurt maker, a
peanut butter machine, George Foreman Grills(R) and the Wet Tunes(R) shower
radios. The Salton(R) brand name has been in continuous use since 1947 and
the Maxim(R) name since 1970. The Company believes that the
White-Westinghouse(R) and Farberware(R) brand names have time-honored
traditions throughout the world.
The category includes kitchen and home appliances that are coffee and tea
related products, thermal products, health conscious products, food preparation
products, and fans, fan heaters and humidifiers.
Coffee and Tea Related Products
Coffee and tea related products include combination
espresso/cappuccino/drip coffee makers, coffee makers, coffee urns, coffee
percolators, ice tea/ice coffee makers and a broad range of coffee related
accessories, including coffee mills and grinders, mug warmer sets, electric
kettles and replacement carafes.
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These products include:
1,2,3 Spresso(R), a patented, easy to use espresso/cappuccino coffee maker.
This machine has a vertical brewing system and is unique in the marketplace.
It operates cleanly, utilizing espresso coffee pods that are vacuum packed for
freshness. The pods are fully bio-degradable. The product is simple to operate
and a novice maker of expresso/cappuccino can operate the product in minutes.
The Three For All(R), a combination espresso/cappuccino/drip coffee maker
with a patented 2 cup adapter for direct cappuccino-espresso brewing. The
Company believes that the Three For All(R) coffee/cappuccino maker resulted in
the creation of a new product category in the small kitchen appliance industry.
The Cappuccino Expres(R), a line of cappuccino espresso makers which make
two to four cups of espresso in minutes. The patented steam jet froths milk for
cappuccino while the coffee brews.
In addition, the Company offers coffee urns and percolators traditional to
the Farberware brand name.
Thermal Products
Thermal products include bread bakers, sandwich makers, toasters, waffle
makers, toaster ovens and irons.
These products include:
Breadman(R) thermal products offer l-l/2 pound capacity Breadman(R) and
the 2 pound capacity Breadman Plus(R), automatic bread bakers. These bread
machines are pre-programmed to know exactly how long to mix, knead, rise and
bake healthy, whole grain breads. The consumer just needs to add the
ingredients and set the proper cycle to bake the bread. A window allows the
consumer to see the entire bread making process without opening the lid. The
machines have a programmable timer that allows a preset bake time up to twelve
hours in advance. Additionally, the "Ultimate" breadmaking machine, Breadman
Ultimate(R), has advanced software and patented features. It includes over 100
programs, fuzzy programming, pause buttons and a patented integrated fruit, nut
and herb dispenser.
Thermal products also include the Salton Snack 'N' Sandwich maker series
as well as a range of toasters, including Cool Touch and toaster ovens offered
under the Salton(R), Maxim(R), White-Westinghouse(R) and Farberware(R) brand
names.
Health Conscious Products
Health conscious products include a wide assortment of food preparation
products targeted to health conscious consumers who are interested in preparing
foods such as yogurt, juices and ice cream from natural ingredients. These
products range from ice cream makers and yogurt makers to a variety of juicers,
juice extractors, rice cookers and vegetable steamers. The principal products
include: the Nutritionist(R) line of cool touch sealed environment rice cookers;
the Yogurt Maker, a thermostatically controlled unit for producing homemade
yogurt; the Big Chill(R), a frozen yogurt and ice cream maker; and a series of
automatic rice cookers and steamers.
George Foreman's Lean Mean Fat Reducing Grilling Machines(R) (the "George
Foreman Grills") are also included in this group. These products, which have
unique, patented designs, grill meat, fish, chicken and vegetables evenly in
minutes. The grills are double non-stick coated and the sloped cooking surfaces
with patented grooves channels away measurable amounts of greasy fats into a
separate tray.
Juiceman(R) health conscious products include:
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The Juiceman(R) Jr , a l/4 horsepower juicer offered at a competitive
price. The machine is designed for fresh and healthy juicing using a
wide variety of fruits and vegetables.
The Juiceman(R) II, a preferred juicer used by serious health, fitness and
juicing advocates. It has a powerful 1/2 horsepower, 690 watt motor, built-in
speed control, and an extra large feed tube and pulp receptacle.
The Juiceman(R) 210 and the Juiceman(R) 410 are elite professional series
models with patented dual electronic speed controls.
Food Preparation Products
Food preparation products offer customers a broad range of food
preparation appliances such as electric woks, crepe makers, mixers, can
openers, blenders, hand-held blenders, choppers and warming trays. These
appliances include:
The Professional Wok, consisting of a 6- 1/2 quart capacity die-cast
aluminum body with heavy gauge aluminum dome cover. A patented 1600 watt
heating element design allows for even heat distribution for successful cooking
with an electric wok.
The Electric Brunch Pan, an electric pan with thick aluminum for uniform
heat distribution, an easy to clean non-stick coating and a ready light to
indicate proper cooking temperatures.
The Donut Bites(R), an electric donut maker, makes six light, crispy baked
donuts, and other dessert creations. It has a cool touch housing and non-stick
surface for easy use.
Food preparation appliances have been expanded to offer a range of these
type of basic appliances under the White-Westinghouse(R) and Farberware(R) brand
names.
Fans, Fan Heaters and Humidifiers
Fans, fan heaters and humidifiers are marketed under the
White-Westinghouse(R) brand name.
TABLETOP PRODUCTS
The Company entered this category of business in fiscal year 1997 upon the
acquisition of substantially all of the assets and certain liabilities of Block
China Corporation, a tabletop products company, on July 1, 1996. The Block(R)
China division of the Company designs and markets tabletop products including
china, crystal and glassware. The Block product line was further augmented on
June 19, 1997 with the acquisition of the assets of Jonal Crystal Ltd. from
Sterling Cut Glass. Jonal products include the Crystal Kiss(R) line of
glassware and giftware featuring the famous shape of the Hershey's Chocolate
Kiss.
Tabletop products include crystal products offered under the Block(R),
Atlantis(R) and Jonal(R) brand names, fine china and basic dinnerware
in various designs and patterns under the Block(R) brand name, ceramic
products under the Block(R) brand name and, under license, products utilizing
the shapes and brands of Nabisco(R), such as Oreo Cookies(R) and Animal
Crackers(R). In addition, Block(R) provides the Gear(R) line of products
including Father Christmas(R) Country Farm(TM), Country Orchard(TM), and
Country Village(TM). The combined Block China and Jonal product line offers
approximately 2,096 different products. These products are primarily marketed
by department stores, gift stores, specialty shops and other upscale merchants.
PERSONAL AND BEAUTY CARE APPLIANCES, GIFTS AND TIME PRODUCTS
The Company introduced personal and beauty care appliances under the
Salton Creations(R) brand name in January 1989, and presently markets
approximately 91 models of
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these and related products. Salton Creations(R) hair dryers feature high quality
materials, long life motors and innovative design high air flow systems. Hair
dryers are offered in various sizes, shapes and colors, and are designed to mix
form and function to enable consumers to correctly address power and heat to
hair type and styling needs.
The Company designs and markets a variety of other personal and beauty
care appliances under the Salton Creations(R) brand name, including curling
irons and brushes, make-up mirrors, massagers, manicure systems and shower
radios. The Wet Tunes(R) series of shower radios, introduced under the
Salton(R) brand name in 1984, features an AM/FM radio with waterproof mylar
speakers and wall mount brackets. Wet Tunes(R) radios are offered in several
different shapes, sizes and colors. Also included in this series are the Wet
Reflections(R), which has a light and fog-free mirror, the Wet Cassette(R) and
the Wet Lantern(R). In addition to Salton Creations, these type appliances
commenced being offered under the White-Westinghouse(R) brand name in fiscal
year 1997.
The Company also has a "gifts" program designed for department stores.
Under this program, the Company provides department stores with practical,
special occasion, small gift products. The Company's gifts programs included
the mini tool kit, calcutape, travel smoke alarm, emergency auto flasher,
deluxe art kit and the 7-piece gardening kit.
The Company's Salton Time(R) products include decorative quartz wall and
alarm clocks and have approximately 213 different models. Salton Time(R) has
introduced a number of innovative products such as the waterproof Wet Times(R)
indoor/outdoor clock.
NEW PRODUCT DEVELOPMENT
Management believes that the enhancement and extension of the Company's
existing products and the development of new product categories are necessary
for the Company's continued success and growth. The Company directs the style
and content of its products to meet customer requirements for quality, product
mix and pricing. Company employees work closely with both retailers and
suppliers to identify trends in consumer preferences and to generate new
product ideas. The Company's product design and engineering department
evaluates new ideas and seeks to develop new products and improvements to
existing products to satisfy industry requirements and changing consumer
preferences.
During fiscal 1997, the Company introduced 232 new product models, 173 new
models in the kitchen and home appliance product lines and 59 in the personal
and beauty care, gifts and time products. The introduction of products under
the White-Westinghouse(R) and Farberware(R) brands added approximately 74 new
models.
During fiscal 1996, the Company introduced 95 new product models, 45 new
models in the kitchen and home appliance product lines and 50 in the personal
and beauty care, gifts and time products.
MARKETING AND DISTRIBUTION
The Company's products are marketed throughout the United States under its
brand names of Salton(R), Maxim(R), Breadman(R), Juiceman(R), Salton
Creations(R) Salton Time(R), George Foreman Grills(R) White Westinghouse(R),
Farberware(R), Block(R) China, Atlantis(R) and Gear(R), primarily through
department stores, gourmet and lifestyle merchants, upscale mass
merchandisers, direct mail catalogs and showrooms, national chains, specialty
stores, warehouse clubs and beauty supply distributors. The Company is also
expanding its retailer base for certain of its products to include drug stores,
supermarkets and medium scale mass merchandisers, as well as additional
retailers within its existing channels of distribution.
The Company's total net sales to its five largest customers during fiscal
1997 and 1996 were 47% and 55%, respectively. One of the company's customers,
Kmart Corporation accounted for in excess of 10% of the Company's net sales
during fiscal 1997. In fiscal 1996, two of the Company's customers, Federated
Department Stores (including the merged operations of Macy's and its
affiliates) and Dayton Hudson and its affiliates, each
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accounted for in excess of 10% of the Company's net sales. The combined net
sales to these two entities, which consisted of eight distinct buying units for
Federated Department Stores and three distinct buying units for Dayton Hudson
(including its Target and Mervyn's subsidiary), represented 28% of the
Company's net sales during fiscal 1996.
The Company closely manages credit policies with respect to its customer
base. The Company has not suffered significant credit losses to date, during a
period of time when many major retailers, including customers of the Company,
experienced significant financial difficulties, some filing for protection
under bankruptcy laws. However, a significant concentration of the Company's
business activity is with entities whose ability to meet their obligations with
the Company is dependent upon prevailing economic conditions within the retail
industry.
The Company relies on its management's ability to determine the existence
and extent of available markets for its products. Company management has
extensive marketing and sales background and devotes a significant portion of
its time to marketing-related activities. The Company markets its products
primarily through its own sales force and approximately 151 independent sales
representatives. The Company's representatives are located throughout the
United States and Canada and are paid a commission based upon sales in their
respective territories. The Company's sales representative agreements are
generally terminable by either party upon 30 days notice.
Management directs its marketing efforts toward retailers and believes
that obtaining favorable product placement at the retail level is an important
factor in its business, especially when introducing new products. The Company
has an advanced electronic data interchange system to receive customer orders
and transmit shipping and invoice information electronically in response to
many retailers' preference for paperless order systems.
In addition to directing its marketing efforts toward retailers, the
Company provides promotional support for its products with the aid of national
television, radio and print advertising, cooperative advertising with
retailers, and in-store displays and product demonstrations. The Company
believes that these promotional activities are important to strengthening the
Company's brand name recognition.
The Company also emphasizes the design and packaging of its products in
order to increase their appeal to consumers and to stand out among other brands
on retailers' shelves. Management believes that distinctive packaging, designed
to answer consumers' questions concerning the Company's products, has resulted
in increased shelf space and greater sales. Many of the Company's products are
sold with instruction books and/or recipe books. Furthermore, the Company
includes VHS Video Manuals(R) with selected products to provide step by step
guidelines for the use and care of such products.
SOURCES OF SUPPLY
Most of the Company's products are manufactured to the Company's
specifications by over 46 unaffiliated manufacturers located primarily in Far
East locations, such as Hong Kong, the People's Republic of China and Taiwan,
and in Europe. The Company also purchased inventory from Durable Electrical
Metal Factory, Ltd., a wholly owned subsidiary of Windmere, of $23,511,000,
$3,200,000, and $2,089,000 in 1997, 1996, and 1995, respectively. Management
believes that the Company maintains good business relationships with its
overseas manufacturers. The Company also manufactures and assembles woks and
warming trays in its plant located in Kenilworth, New Jersey.
The Company does not maintain long-term purchase contracts with
manufacturers and operates principally on a purchase order basis. The Company
believes that it is not currently dependent on any single manufacturer for any
of its products. However, during fiscal 1997, three manufacturers, including
Durable, accounted for approximately 19%, 13% and 12% respectively, of the
Company's product purchases. Two of these manufacturers are located in Hong
Kong and China, while the third manufacturer is located in Korea. During
fiscal 1996, two manufacturers located in Hong Kong and China accounted for
approximately 26% and 15%, respectively of the Company's product purchases.
The Company believes that
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the loss of any one manufacturer would not have a long-term material adverse
effect on the Company because other manufacturers with which the Company does
business would be able to increase production to fulfill the Company's
requirements. However, the loss of a supplier could, in the short-term,
adversely effect the Company's business until alternative supply arrangements
were secured.
Because of the overseas locations of its manufacturers, the Company is
subject to the risk of production delays due to the unavailability of parts and
components, transportation delays due to strikes and work stoppages, political
unrest, import restrictions and other factors which could have an adverse
effect on the business of the Company.
The Company's purchase orders are generally made in United States dollars
in order to maintain continuity in the Company's pricing structure and to limit
exposure to currency fluctuations. The Company's policy is to maintain an
inventory base to service the seasonal demands of its customers. In certain
instances, the Company places firm commitments for products from six to twelve
months in advance of receipt of firm orders from customers.
The Company believes that it has enjoyed good working relations with its
manufacturers located in Hong Kong and the People's Republic of China.
Management believes that production currently conducted in the People's
Republic of China could be relocated to other low cost Far East manufacturing
locations, including Hong Kong, with only temporary disruption and delay.
However, the Company could be adversely affected if supply or demand for its
products decreases significantly due to a disruption in production and
delivery, or due to higher prices which result from increased manufacturing
costs or unfavorable changes in trade policy.
Quality assurance is particularly important to the Company and its product
shipments are required to satisfy quality control tests established by its
internal product design and engineering department. The Company employs
independent agents to perform quality control inspections at the manufacturers'
factories during the manufacturing process and prior to acceptance of goods.
COMPETITION
The Company's industries are mature and highly competitive. Competition is
based upon price and quality, as well as innovation in the design of
replacement models and in marketing and distribution approaches. The Company
competes with established companies having substantially greater facilities,
personnel, financial and other resources than those of the Company. In the sale
of kitchen and home appliances, the Company competes with, among others,
Toastmaster, Rival, Hamilton Beach Krups, Rowenta, Inc., Black and Decker, and
Sunbeam/Oster. In the sale of tabletop products, the Company competes with,
among others, Mikasa, Lennox, Miller Rogaska, Villeroy Boch, Waterford Crystal
and Baccarat Crystal. In the sale of personal care small appliances, the
Company principally competes with, among others, Clairol, Inc. (wholly-owned
subsidiary of Bristol-Myers Squibb Company), Conair Corporation, Vidal Sassoon
and Andis.
Management believes that the success of the Company is dependent on the
ability of the Company to offer a broad range of existing products and to
continually introduce new products and enhancements to existing products which
have substantial consumer appeal based upon price, design, performance and
features. The Company also believes that its trademarks, particularly Salton,
Maxim, Breadman, Juiceman, Salton Creations and Salton Time, and Block are
important to the Company's ability to compete effectively. Management further
believes that the White-Westinghouse and Farberware brand names provide the
Company with additional capability to provide the consumer market with
appealing, well priced products to meet competition.
EMPLOYEES
As of June 28, 1997, the Company employed 175 persons, of whom
approximately 49 persons, who work at the Company's Kenilworth, New Jersey
facility, were covered by a collective bargaining agreement which expires
February 28, 1999. The Company generally
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considers its relationship with employees to be satisfactory and has never
experienced a work stoppage.
REGULATION
The Company is subject to federal, state and local regulations concerning
the environment, occupational safety and health, and consumer products safety.
In general, the Company has not experienced difficulty complying with such
regulations and compliance has not had an adverse effect on the Company's
business. Most of the Company's products are listed by Underwriters
Laboratories, Inc. ("UL"), an independent, not-for-profit corporation engaged
in the testing of products for compliance with certain public safety standards.
Satisfaction of the standards of UL for the Company's consumer electrical
appliances is important to the Company and the Company has not experienced
difficulty in satisfying such standards.
BACKLOG
Orders for the Company's products are typically subject to cancellation
until shipment. Customer order patterns vary from year to year, largely because
of annual differences in consumer acceptance of product lines, product
availability, marketing strategies, inventory levels of retailers and
differences in overall economic conditions. As a result, comparisons of backlog
as of any date in a given year with backlog at the same date in a prior year
are not necessarily indicative of sales for that entire given year. As of June
28, 1997, the Company had a backlog of approximately $83 million compared to
approximately $60 million as of June 29, 1996. The Company does not believe
that backlog is necessarily indicative of the Company's future results of
operations or prospects.
SEASONALITY
The Company believes that sales of its products are seasonal, with higher
sales during the months of August through November.
TRADEMARKS, PATENTS AND LICENSING ARRANGEMENTS
The Company holds a number of patents and trademarks registered in the
United States and foreign countries for various products and processes. The
Company has registered its trademarks with the United States Patent and
Trademark Office. The Company considers these trademarks to be of considerable
value and of material importance to its business.
The Company holds numerous domestic and international patents, including
design patents. The Company believes that none of the Company's product lines
is dependent upon any single patent or group of patents.
During 1996, the Company entered into license agreements with White
Consolidated Industries, Inc. for use of the White-Westinghouse trademark for
small kitchen appliances, personal care products, fans, heaters, air cleaners
and humidifiers. The license agreements grant the Company the exclusive right
and license to use the White-Westinghouse trademark in the United States and
Canada in exchange for certain license fees, royalties and minimum royalties.
The license agreements also contain minimum sales requirements which, if not
satisfied, may result in the termination of the agreements. The license
agreements are also terminable upon a breach by the Company.
The Company has a joint venture agreement (the "Joint Venture") with
George Foreman Products, Inc., a Nevada corporation, and Benjamin H., a
California corporation. The name of the Joint Venture is "Salton/Maxim Presents
George Foreman, A Joint Venture." The Joint Venture is engaged solely in the
business of acquiring, selling and distributing a thermal household grill
product under the name "George Foreman's Lean Mean Fat Reducing Grilling
Machine." Each "Joint Venture" partner has certain percentage ownership
interests in the venture. Mr. Foreman is both a former Olympic champion and a
former World Boxing Organization's heavy weight champion of the world.
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In the second quarter of 1997, Windmere licensed the right to use the
Farberware name for small electrical appliances. Farberware is a time-honored
trade name in the cookware and small electric appliance industry. Under the
Marketing Cooperation Agreement, the Company obtained the exclusive, worldwide
right to distribute Farberware small electric appliances.
The Company has other licensing arrangements with various other companies
to market products bearing the trademark or likeness of the subject matter of
the license. These licenses include the right to market various products under
Gino's East Pizza, Hulk Hogan, Gear, Taco Bell, Hershey Kiss, Warner Bros.
characters, Andy Warhol, Marilyn Monroe, James Dean, Campbell Soup and Nabisco.
The Company believes that these other license arrangements are important
to the Company to demonstrate its creativity and versatility in product design
and the enhancement of existing products. However, the Company does not
believe that its product lines are dependent upon any single license or group
of these other licenses.
WARRANTIES
The Company's products are generally sold with a limited one-year warranty
from the date of purchase. In the case of defects in material or workmanship,
the Company agrees to replace or repair the defective product without charge.
To date, the Company has not experienced significant warranty claims.
ITEM 2. PROPERTIES
The Company does not own any facilities. A summary of the Company's leased
properties is as follows:
<TABLE>
<CAPTION>
LOCATION DESCRIPTION AREA(SQ. FT.) EXPIRATION
-------- ----------- ------------- ----------
<S> <C> <C> <C>
Mt. Prospect, IL Executive
offices,
warehousing and
repair facility 34,600 June 30, 1999
Rancho Dominguez, CA Warehouse and
distribution
facility 340,672 October 31, 2002
Harrison, NJ Warehouse and
distribution facility 146,555 May 31, 2002
Kenilworth, NJ Manufacturing
and
warehouse/distribution
facilities 97,800 March 31, 2000
Long Beach, CA Warehouse and
distribution
facility 34,328 March 14, 1998
New York, NY Block sales office 11,500 December 31, 1998
Gurnee, IL Retail outlet 6,141 January 31, 2000
Mt. Prospect, IL Consumer Services 3,018 June 30, 1999
Long Branch, NJ Retail outlet 1,200 Month-to-month
Chicago, IL Block Atlantis
</TABLE>
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retail store 560 October 15, 2007
Facilities in public warehouses have been used to service the Company's
needs during the last twelve months.
ITEM 3. LEGAL PROCEEDINGS
The Company, White Consolidated, Inc. ("White Consolidated"),
Windmere-Durable Holdings, Inc. and certain other parties have been named as
defendants in litigation filed by Westinghouse Electric Corporation
("Westinghouse") in the United States District Court for the Western District
of Pennsylvania on December 18, 1996. The action arises from a dispute between
Westinghouse and White Consolidated over rights to use the "Westinghouse"
trademark for consumer products, based on transactions between Westinghouse and
White Consolidated in the 1970's and the parties' subsequent conduct.
Procedural motions concerning the jurisdiction in which the dispute should be
heard have been filed by the parties. The action seeks, among other things, a
preliminary injunction enjoining the defendants from using the trademark,
unspecified damages and attorneys' fees. Pursuant to the Company's license
agreements with White Consolidated, White Consolidated is defending the Company
and is obligated to indemnify the Company from and against any and all claims,
losses and damages arising out of the action, including the costs of
litigation. Due to the inherent uncertainties of the litigation process, the
Company is unable to predict the outcome of this litigation. If the outcome of
this litigation is adverse to the Company, it could terminate or otherwise
adversely affect the Company's ability to market and sell products under the
White-Westinghouse brand name to Kmart and other retailers.
The Company is a party to various other actions and proceedings incident
to its normal business operations. The Company believes that the outcome of
such litigation will not have a material adverse effect on the financial
condition or results of operations of the Company. The Company also has product
liability and general liability insurance policies in amounts it believes to be
reasonable given its current level of business. Although historically the
Company has not had to pay any material product liability claims, it is
conceivable that the Company could incur claims for which it is not insured.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT(1)
The following is a list of the executive officers of the Company. The
executive officers are elected each year and serve at the pleasure of the Board
of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICE HELD
---- --- ------------------------
<S> <C>
Leonhard Dreimann 49 President and Chief Executive Officer
David C. Sabin 47 Chairman of the Board and Secretary
William B. Rue 50 Chief Operating Officer and Senior Vice
President
</TABLE>
(1) The description of Executive Officers called for in this item is
included pursuant to Instruction 3 to Section (b) of Item 401 of
Regulation SK.
Set forth below is a brief description of the background of those
executive officers of the Company who are not also Directors of the Company.
Information with respect to the background of those executive officers who are
also Directors of the Company is incorporated herein by reference as set forth
in Part III, Item 10, of the Company's Annual Report on Form 10-K.
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<PAGE> 15
William B. Rue has served as Chief Operating Officer and Senior Vice
President since December, 1994 and as Chief Financial Officer, Vice President
and Treasurer of the Company since September, 1988. From 1985 to 1988, he was
Treasurer of SEVKO, Inc. From 1982 to 1984, he was Vice President-Finance of
Detroit Tool Industries Corporation. Prior to that time, Mr. Rue had been
employed since 1974 by the accounting firm of Touche Ross & Co.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The registrant's Common Stock is traded on the NASDAQ National Market
under the symbol "SALT". The following table sets forth the range of high and
low bid prices of the Common Stock for the years ended June 28, 1997 and June
29, 1996 as reported by the NASDAQ system.
HIGH LOW
---- ---
YEAR ENDED JUNE 28, 1997
First Quarter 8 5/8 4 1/2
Second Quarter 8 3/4 6 1/4
Third Quarter 9 5 5/8
Fourth Quarter 8 1/4 6 3/8
YEAR ENDED JUNE 29, 1996
First Quarter 3 3/8 1 5/8
Second Quarter 4 1/8 2 1/2
Third Quarter 4 2 1/2
Fourth Quarter 5 1/4 2 1/4
As of September 17, 1997, there were approximately 416 holders of record
of the common stock of the Company. The Company has paid no dividends on the
Common stock and it is the Company's present intention to retain earnings to
finance the expansion of its business. The Company's current lending agreement
further restricts its ability to pay dividends.
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<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below for Salton/Maxim Housewares,
Inc. are derived from the Company's audited financial statements. The following
selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited financial statements and related notes thereto. (In thousands,
except per share data.)
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
JUNE 28, JUNE 29, JULY 1, JULY 2, JUNE 26,
1997 1996 1995 1994 1993
-------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales $182,806 $ 99,202 $76,991 $ 48,807 $ 50,661
Cost of sales 121,590 66,923 55,552 37,333 39,814
Distribution expenses 7,809 5,856 4,569 3,412 3,746
-------- -------- ------- -------- --------
Gross profit 53,407 26,423 16,870 8,062 7,101
Selling, general, and administrative
expenses 42,944 21,343 13,142 8,470 8,467
-------- -------- ------- -------- --------
Operating income (loss) 10,463 5,080 3,728 (408) (1,366)
Interest expense, net 4,063 3,934 3,057 2,047 1,643
Class action lawsuit expense 489 142
-------- -------- ------- -------- --------
Income (loss) before taxes 6,400 1,146 671 (2,944) (3,151)
-------- -------- ------- -------- --------
Income tax expense (benefit) 2,001 (3,450) 20
-------- -------- ------- -------- --------
Net income (loss) $ 4,399 $ 4,596 $651 $(2,944) $(3,151)
======== ======== ======= ======== ========
Weighted average shares outstanding 13,082 6,628 5,901 5,050 4,950
Net income (loss) per share $ 0.34 $0.69 $0.11 $ (0.58) $ (0.64)
BALANCE SHEET DATA:
Working capital $ 17,996 $ 12,244 $ 9,072 $ 9,290 $ 10,768
Total assets 102,343 59,481 41,121 38,635 35,797
Long-term debt 4,933 3,754 900 4,374 974
Stockholders' equity 38,622 19,925 15,329 10,736 13,638
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for the fiscal year ended June 28, 1997 were $182.8 million, an
increase of approximately $83.6 million or 84.3% compared to net sales of $99.2
million for the fiscal year ended June 29, 1996. This increase is primarily
attributable to increased sales of the Juiceman juice extractors and George
Foreman Grills, private label programs and the addition of Block China and
White-Westinghouse sales under the Kmart program. Net sales of
White-Westinghouse products to Kmart approximated 16% of net sales. Sales
under the Kmart agreement are expected to increase in anticipation of Kmart
instituting a broad range program under the White- Westinghouse trade name.
Gross profit in 1997 was $53.4 million or 29.2% of net sales as compared
to $26.4 million or 26.6% in 1996. Cost of goods sold during the period
decreased to 66.5% of net sales compared to 67.5% in 1996. Distribution
expenses were $7.8 million or 4.3% of net sales in 1997 compared to $5.9
million or 5.9% of net sales in the same period in 1996. Gross profit and costs
of goods sold in 1997 as a percentage of net sales were improved primarily due
to a more favorable mix of sales of higher gross margin items when compared to
1996.
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<PAGE> 17
Selling, general and administrative expenses increased to $42.9 million or
23.5% of net sales in 1997 compared to $21.3 million or 21.5% of net sales for
the same period in 1996. Expenditures for television, certain media and
cooperative advertising coverages and royalty expenses were $25.7 million or
14.1% of net sales in 1997 when compared to $10.9 million or 11.0% of net sales
in 1996. The remaining selling, general and administrative costs were $17.2
million or 9.4% of net sales in 1997 compared to $10.4 million or 10.5% of net
sales in 1996. The dollar increase was primarily attributable to higher costs
for additional personnel, trade show expenses, sales commissions and various
other costs related to the higher level of sales.
Net interest expense was approximately $4.1 million for 1997 compared to
$3.9 million for 1996. The Company's rate of interest on amounts outstanding
was a weighted average annual rate of 10.5% in 1997 compared to 11.1% in 1996.
The average amount outstanding under the Company's revolving line of credit
increased about $9.3 million when compared to the average amount outstanding in
the same period a year ago. This increase was used primarily to finance higher
net sales and a seasonal build in inventory. Interest expense during the
period was offset by interest income earned on the promissory note from
Windmere issued to the Company for stock sales in July 1996.
The Company had income before income taxes of $6.4 million in 1997
compared to income before income taxes of $1.1 million in 1996. Net operating
loss carryforwards and resultant deferred tax assets were used in both periods
to significantly offset current income taxes payable. Net income after income
taxes was $4.4 million or $0.34 per share in 1997 compared to net income after
income taxes of $4.6 million or $0.69 per share in 1996. Also during 1996, the
Company had re-assessed the measurement of deferred tax assets based on
available evidence and concluded that these assets at June 29, 1996 were
anticipated to be realized. Accordingly, the Company released previously
recorded valuation allowances which resulted in an income tax benefit of $3.5
million in 1996. Excluding the effect of this income tax benefit, net income
after income taxes would have been $1.1 million in 1996 compared to net income
after income taxes of $4.4 million in 1997. Weighted average common shares
outstanding were 13,071,757 in 1997 compared to 6,628,236 in 1996. Weighted
average common shares increased as a result of the Windmere transaction.
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for the fiscal year ended June 29, 1996 were $99.2 million as
compared to net sales of $77 million for the fiscal year ended July 1, 1995, an
increase of 28.8% or $22.2 million. This increase in sales was primarily
attributable to increased sales of the Breadman(TM) and Juiceman(TM) products.
Gross profit in 1996 was $26.4 million or 26.6% of net sales as compared
to $16.9 million or 21.9% of net sales in 1995. Cost of goods sold decreased
during the period to 67.5% of net sales compared to 72.2% in 1995. Distribution
expenses were approximately $5.9 million or 5.9% of net sales in 1996 as
compared to $4.6 million or 5.9% of net sales in 1995. Freight out expenses
increased to $2.9 million or 3.0% of net sales in 1996 from $2.3 million or
3.0% of net sales in 1995 due to the increase in net sales. However, gross
profit and cost of goods sold in 1996 as a percentage of net sales were
improved primarily due to a continuing shift towards more favorable mix of
sales of higher gross margin items when compared to 1995.
Selling, general and administrative expenses increased to $21.3 million or
21.5% of net sales in 1996 compared to $13.1 million or 17.1% of net sales in
1995. Expenditures for television, certain media and cooperative advertising
coverages of the Company and its products increased about $5.4 million in 1996
compared to 1995. Sales commissions in 1996 were $1.2 million or 1.2% of net
sales compared to $1.2 million or 1.5% of net sales in 1995. Variable costs
associated with selling activities increased to $3.6 million or 3.6% of net
sales in 1996 compared to $1.8 million or 2.4% of net sales in 1995. This
increase is primarily attributable to increases of royalties on sales of
licensed products and selling and administrative costs associated with the
Company's direct television sales
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<PAGE> 18
programs. All other costs were $6.3 million or 6.4% of net sales in 1996
compared to $5.2 million or 6.8% of net sales in 1995.
Interest expense in 1996 was approximately $3.9 million as compared to
$3.1 million a year ago. The Company's rate of interest on amounts outstanding
was a weighted average annual rate of 11.1% in 1996 compared to 11.2% in 1995.
The average amount outstanding under the Company's revolving line of credit
increased about $7.4 million when compared to the average amount outstanding in
the same period a year ago. This and other working capital increases were used
primarily to finance higher net sales and higher levels of inventory and
accounts receivable in 1996 when compared to 1995.
The Company had net income after income taxes of $4.6 million or $0.69 per
share in 1996 compared to net income after income taxes of $651,000 or $0.11
per share in 1995. The Company accounts for income taxes using the asset and
liability approach prescribed by Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes." The Company has re-assessed the
measurement of deferred tax assets based on available evidence and concluded
that these assets at June 29, 1996 are anticipated to be realized. Accordingly,
the Company released previously recorded valuation allowances which resulted in
an income tax benefit of $3.5 million in 1996 compared to an income tax expense
of $20,000 in 1995. Excluding the effect of this income tax benefit, net income
after income taxes would have been $1.1 million in 1996 compared to net income
after income taxes of $651,000 in 1995. Net operating loss carryforwards were
used in 1996 and 1995 to significantly offset the income taxes payable.
Weighted average common shares outstanding were 6,628,236 in 1996 and 5,901,133
in 1995.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1997, the Company used net cash of $9.0 million in operating
activities and net cash of $6.3 million in investing activities. This resulted
primarily from the growth in sales in the period and higher levels of inventory
and receivables, acquisition of the Block China tabletop product line, as well
as increased investment in capital assets, primarily tooling. Financing
activities provided cash of $17.9 million for these purposes from increased
line of credit proceeds and a $4.9 million short term note with Windmere which
bears interest at 9.8% per annum. At June 28, 1997, the Company had
approximately $38 million outstanding as drawings under its revolving line of
credit (the "Facility"). Typically, given the seasonal nature of the Company's
business, the Company's borrowings tend to be the highest in mid-summer to
fall. Under the terms of the Facility, the Company had the ability at June 28,
1997 to borrow a total of approximately $38.6 million. The Company will
continue to incur short-term borrowings in order to finance working capital
requirements. The Company's ability to fund its operating activities is
directly dependent upon its rate of growth, ability to effectively manage its
inventory, the terms under which it extends credit to its customers and its
ability to collect under such terms and its ability to access external sources
of financing. The Company believes that its internally generated funds,
together with funds available under the Facility and other potential external
financing sources, will provide sufficient funding to meet the Company's
capital requirements and its operating needs for at least the next 12 months.
The Company currently has budgeted approximately $3.6 million in capital
expenditures for the fiscal year ending June 27, 1998.
The Company from time to time explores additional or new sources of
financing. While the Company has been able to maintain access to external
financing sources, no assurance can be given that such access will continue or
that the Company will be successful in obtaining new or replacement sources of
financing.
During the fiscal year, the Company had a $45,000,000 Facility with a
commercial lender (the "Lender"). Borrowings under this Facility bore interest
at 2% over the Lender's established prime rate, payable monthly.
On June 30, 1997, the Company amended and extended its Facility (the
"Amended Facility") with the lender to September, 30, 2000. The Amended
Facility provides for borrowings up to $75,000,000 and it bears interest at 1%
over the Lender's established
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<PAGE> 19
prime rate, payable monthly, and includes a provision which provides the
Company the ability to reduce its borrowing rate, based on the London InterBank
Offered Rate (LIBOR), on up to 75% of outstanding borrowings. The Company may
further reduce its interest rate by meeting certain performance provisions.
The Amended Facility is secured by a first lien on substantially all the
Company's assets. Credit availability is based on a formula related to trade
accounts receivable, inventories and outstanding letters of credit. It
contains restrictive financial covenants, the more significant of which require
the Company to maintain specified ratios of total liabilities to net worth,
minimum tangible net worth, and minimum earnings before interest, taxes,
depreciation and amortization. Other covenants also limit the Company's
activities in mergers or acquisitions and sales of substantial assets.
Compliance with these covenants effectively restricts the ability of the
Company to pay dividends, and also requires the Company to apply cash receipts
to pay down borrowings under the Facility.
The Company entered into a major supply contract with Kmart Corporation on
January 27, 1997. Under the contract, the Company supplies Kmart with small
kitchen appliances, personal care products, heaters, fans and electrical air
cleaners and humidifiers under the White-Westinghouse brand name. Kmart is
the exclusive discount department store to market these White-Westinghouse
products.
On July 11, 1996, the Company concluded its transaction with
Windmere-Durable Holdings, Inc. ("Windmere"), pursuant to that certain Stock
Purchase Agreement dated February 27, 1996, as amended (the "Stock Purchase
Agreement"). Windmere is a corporation engaged principally in manufacturing and
distributing a wide variety of personal care products and household appliances.
Pursuant to the Stock Purchase Agreement, Windmere purchased from the Company
6,508,572 newly issued shares of Common Stock (the "Purchase"), which
represented 50% of the outstanding shares of Common Stock of the Company on
February 27, 1996 after giving effect to the Purchase. As consideration for the
Purchase, Windmere paid the Company: (i) $3,254,286 in cancellation of a loan,
as described below; (ii) a subordinated promissory note in the aggregate
principal amount of $10,847,620 (the "Note"), which Note is secured by certain
assets of Windmere and its domestic subsidiaries and guaranteed by such
domestic subsidiaries; and (iii) 748,112 shares of Windmere's common stock.
Windmere's common stock is traded on the NYSE. A portion of the consideration
for the Purchase was paid by the cancellation of the Company's obligation to
repay a loan in the principal amount of $3,254,286 which Windmere had made to
the Company in April 1996. The Note is payable five years from the closing date
of the purchase and bears interest at 8% per annum payable quarterly. Windmere
was also granted an option to purchase up to 485,000 shares of Common Stock at
$4.83 per share, which option is exercisable only if and to the extent that
options to purchase shares of Common Stock which were outstanding on February
27, 1996 are exercised.
The Company and Windmere entered into a Marketing Cooperation Agreement on
July 11, 1996 (the "Marketing Cooperation Agreement"). Pursuant to the
Agreement, until Windmere's interest in the Company is less than 30% for at
least ten consecutive days, each of the Company and Windmere has agreed to
participate in a variety of mutually satisfactory marketing cooperation efforts
designed to expand the market penetration of each party. Consequently, the
Company entered into a letter agreement dated April 30, 1997 (the "Letter
Agreement") with Windmere. The Letter Agreement provides that the Company pay
to Windmere a fee in consideration of Windmere's marketing cooperation efforts
in connection with the Company's supply contract with Kmart and Windmere's
guarantee of the Company's obligations under such contract. The effect of all
transactions with Windmere was to reduce 1997 net income by approximately
$126,000.
On July 1, 1996, the Company acquired substantially all of the assets and
certain liabilities of Block China Corporation, a tabletop products company.
The new Block China Division designs and markets table top products, including
china, crystal and glassware. The consideration paid by the Company consisted
of $1,485,000 in cash and an earn-out of up to $500,000 and 150,000 shares of
Common Stock based on the Block China Division's financial performance over a
three-year period.
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ACCOUNTING PRONOUNCEMENTS
The Company will be required to adopt Statement of Financial Accounting
Standards ("SFAS") No. 128 "Earnings per Share." The Company believes that the
adoption of this statements will not have a material effect on the Company's
financial statements.
EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE
The results of operations of the Company for the periods discussed have
not been significantly affected by inflation or foreign currency fluctuation.
The Company generally negotiates its purchase orders with its foreign
manufacturers in United States dollars. Thus, the Company's cost under any
purchase order is not subject to change after the time the order is placed due
to exchange rate fluctuations. However, the weakening of the United States
dollar against local currencies could result in certain manufacturers
increasing the United States dollar prices for future product purchases.
20
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following pages contain the Financial Statements and Supplementary
Data as specified by Item 8 of Part II of Form 10-K.
21
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Salton/Maxim Housewares, Inc.
Mount Prospect, Illinois
We have audited the accompanying balance sheets of Salton/Maxim Housewares,
Inc. as of June 28, 1997 and June 29, 1996 and the related statements of
earnings, of stockholders' equity and of cash flows for each of the three years
in the period ended June 28, 1997. Our audits also included the financial
statement schedule listed in the Index at Item 14 of the Annual Report on Form
10-K. These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Salton/Maxim Housewares, Inc. as of June
28, 1997 and June 29, 1996 and the results of its operations and its cash
flows for each of the three years in the period ended June 28, 1997 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
Deloitte & Touche LLP
September 24, 1997
Chicago, Illinois
22
<PAGE> 23
SALTON/MAXIM HOUSEWARES, INC.
BALANCE SHEETS
JUNE 28, 1997 AND JUNE 29, 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
ASSETS
------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 2,612,871 $ 3,983
Accounts receivable, less allowance:
1997--$2,400,000; 1996--$1,900,000 25,646,677 15,870,626
Inventories 41,967,801 28,287,965
Prepaid expenses and other current assets 3,717,062 1,934,006
Federal income taxes refundable 1,105,336
Deferred tax assets 1,734,414 1,949,315
------------ -----------
Total current assets 76,784,161 48,045,895
PROPERTY, PLANT AND EQUIPMENT:
Molds and tooling 14,827,525 12,373,478
Warehouse equipment 380,487 296,168
Office furniture and equipment 3,792,035 1,929,683
------------ -----------
19,000,047 14,599,329
Less accumulated depreciation (10,684,016) (8,367,736)
------------ -----------
8,316,031 6,231,593
INTANGIBLES, NET OF ACCUMULATED AMORTIZATION 4,880,006 3,670,533
NON-CURRENT DEFERRED TAX ASSETS 205,580 1,533,069
INVESTMENT IN WINDMERE COMMON STOCK 12,156,820
------------ -----------
TOTAL ASSETS $102,342,598 $59,481,090
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Revolving line of credit $ 37,977,230 $24,095,382
Accounts payable 17,361,238 10,057,195
Accrued expenses 2,757,790 1,164,851
Accrued interest payable 191,807 67,932
Current portion--Subordinated Debt 500,000 416,669
------------ -----------
Total current liabilities 58,788,065 35,802,029
LONG-TERM PORTION SUBORDINATED DEBT 500,000
DUE TO WINDMERE 4,932,730 3,254,286
------------ -----------
Total Liabilities 63,720,795 39,556,315
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized,
2,000,000 shares, no shares issued
Common Stock, $.01 par value; authorized,
20,000,000 shares; shares issued and outstanding:
1997-13,029,144; 1996-6,508,572 130,291 65,086
Unrealized gains on securities available for sale 1,337,250
Additional paid-in capital 53,035,981 29,292,946
Less note receivable from stock issuance (10,847,620)
Accumulated deficit (5,034,099) (9,433,257)
------------ -----------
Total stockholders' equity 38,621,803 19,924,775
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $102,342,598 $59,481,090
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE> 24
SALTON/MAXIM HOUSEWARES, INC.
STATEMENTS OF EARNINGS
YEARS ENDED JUNE 28, 1997, JUNE 29, 1996, AND JULY 1, 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Net sales $182,806,323 $99,202,415 $76,991,270
Cost of goods sold 121,590,232 66,923,141 55,551,782
Distribution expenses 7,808,631 5,856,477 4,569,681
------------ ----------- -----------
Gross profit 53,407,460 26,422,797 16,869,807
Selling, general and administrative expenses 42,944,341 21,342,872 13,142,207
------------ ----------- -----------
Operating income 10,463,119 5,079,925 3,727,600
Interest expense, net 4,063,197 3,934,325 3,056,570
------------ ----------- -----------
Income before income taxes 6,399,922 1,145,600 671,030
Income tax expense (benefit) 2,000,764 (3,449,884) 20,000
------------ ----------- -----------
Net income $ 4,399,158 $ 4,595,484 $ 651,030
============ =========== ===========
Weighted average common and common
equivalent shares outstanding 13,082,254 6,628,236 5,901,133
Net income per common and common
equivalent share $ 0.34 $ 0.69 $ 0.11
</TABLE>
See Notes To Consolidated Financial Statements
24
<PAGE> 25
SALTON/MAXIM HOUSEWARES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 28, 1997, JUNE 29, 1996, AND JULY 1, 1995
<TABLE>
Unrealized
Gains on Less Note
Securities Additional Receivable Total
Common Held for Paid In from sales Accumulated Stockholders'
Shares Stock Sale Capital of stock Deficit Equity
------ ----- ---- ------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, July 2, 1994 5,100,000 $51,000 $25,364,875 $(14,679,771) $ 10,736,104
Class Action lawsuit
settlement 394,520 3,945 896,055 900,000
Conversion of
subordinated debt
and related accrued
interest to equity 1,014,052 10,141 3,032,016 3,042,157
Net income for fiscal
1995 651,030 651,030
---------- -------- ----------- ------------- -------------
BALANCE, July 1, 1995 6,508,572 65,086 29,292,946 (14,028,741) 15,329,291
Net income for
fiscal 1996 4,595,484 4,595,484
---------- -------- ----------- ------------- -------------
BALANCE, June 29, 1996 6,508,572 65,086 29,292,946 (9,433,257) 19,924,775
Issuance of
common stock 6,508,572 65,085 23,650,352 $(10,847,620) 12,867,817
Issuance of warrants 82,303 82,303
Unrealized gains on
securities available
for sale $1,337,250 1,337,250
Employee stock option
shares exercised 12,000 120 10,380 10,500
Net income fiscal 1997 4,399,158 4,399,158
---------- -------- ---------- ----------- ------------- ------------- -------------
BALANCE, June 28, 1997 13,029,144 $130,291 $1,337,250 $53,035,981 $(10,847,620) $ (5,034,099) $ 38,621,803
========== ======== ========== =========== ============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements
25
<PAGE> 26
SALTON/MAXIM HOUSEWARES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 28, 1997, JUNE 29, 1996, AND JULY 1, 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income $4,399,158 $4,595,484 $651,030
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Change in deferred taxes 822,332 (3,482,384)
Depreciation and amortization 3,136,060 2,195,510 1,986,369
Changes in assets and liabilities:
Accounts receivable (9,776,051) (2,395,175) (2,323,909)
Inventories (13,679,836) (8,847,133) 617,614
Prepaid expenses and other current assets (1,783,056) (892,342) 562,545
Federal income tax refund (1,105,336)
Accounts payable 7,304,043 4,650,026 2,056,488
Accrued expenses 1,592,939 546,215 39,134
Accrued class action lawsuit settlement
fees (100,000)
Accrued interest 123,875 59,206 44,186
---------- ---------- ----------
Net cash provided by (used in) operating
activities (8,965,872) (3,570,593) 3,533,457
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,608,389) (4,279,838) (2,327,490)
Block acquisition and related payments (1,739,280)
---------- ---------- ----------
Net cash used in investing activities (6,347,669) (4,279,838) (2,327,490)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from revolving line of credit 13,881,848 6,234,938 1,071,384
Repayment of subordinated note payable to
bank (416,999) (583,331)
Proceeds from subordinated debt and due to
Windmere 4,932,730 3,254,286 1,000,000
Offering costs associated with stock issue (485,650)
Common stock issued 10,500
Payment for product line acquisitions (814,939) (2,529,571)
Financing costs (242,389) (743,431)
---------- --------- ----------
Net cash provided by (used in) financing
activities 17,922,429 7,848,565 (1,201,618)
---------- --------- ----------
NET INCREASE (DECREASE) IN CASH 2,608,888 (1,866) 4,349
CASH -- Beginning of Year 3,983 5,849 1,500
---------- --------- ----------
CASH -- End of Year $2,612,871 $3,983 $5,849
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $3,939,322 $3,510,123 $2,780,008
Income taxes $1,697,500 $10,000 $20,000
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
A long-term debt obligation of $3,254,286 was
canceled by the consummation of a transaction
with Windmere-Durable Holdings, Inc.("Windmere").
In addition, the Company received a $10,847,620
note receivable and 748,112 shares of Windmere
common stock in exchange for 6,508,572 newly
issued shares of common stock of the Company.
See Notes to Consolidated Financial Statements.
26
<PAGE> 27
SALTON/MAXIM HOUSEWARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 28, 1997, JUNE 29, 1996, AND JULY 1, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Salton/Maxim Housewares, Inc.("SMHI") and its subsidiaries (the "Company")
principally import, distribute and sell kitchen and home appliances
under the brand names of Salton(R), Maxim(R), Breadman(R), Juiceman(R), Salton
Creations(R), Salton Time(R), White-Westinghouse(R) and Farberware(R) through
major retail markets and direct marketing distribution channels in the United
States. The Company also designs and markets tabletop products, including
china, crystal and glassware.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of SMHI and its subsidiaries, Home Creations Direct, Ltd.
and Salton Hong Kong, Ltd. Salton Hong Kong, Ltd. is a foreign corporation
which was organized under the laws of Hong Kong in fiscal year 1997.
Intercompany balances and transactions are eliminated in consolidation.
USE OF ESTIMATES -- In preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
ACCOUNTING PERIOD -- The Company's fiscal year ends on the Saturday
closest to June 30. The fiscal years ended June 28, 1997, June 29, 1996 and
July 1, 1995 each consisted of 52 weeks.
INVENTORIES -- Inventories are stated at the lower of cost or market. Cost
is determined on the first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated
at cost. Expenditures for maintenance costs and repairs are charged against
income. Depreciation is provided on the straight-line basis over the estimated
useful lives of the assets, not to exceed 5 years. For tax purposes, assets are
depreciated using accelerated methods.
INTANGIBLE ASSETS -- Intangible assets, which are amortized over their
estimated useful lives, consist of:
<TABLE>
<CAPTION>
USEFUL LIFE JUNE 28, JUNE 29,
(IN YEARS) 1997 1996
----------- ---- ----
<S> <C> <C> <C>
Goodwill 10-40 $1,926,454 $ 295,238
Financing and organization costs 2-5 171,778 411,129
Patents and trademarks 5-20 2,781,774 2,964,166
---------- ----------
Intangible assets, net $4,880,006 $3,670,533
========== ==========
</TABLE>
Accumulated amortization of intangible assets was $3,770,866 at June 28,
1997, and $2,951,087 at June 29, 1996.
Long-lived assets are reviewed for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. If such review indicates that the carrying amount of
long-lived assets is not recoverable, the carrying amount of such assets is
reduced to estimated recoverable value.
REVENUE RECOGNITION -- The Company recognizes revenues when goods are
shipped to its customers.
27
<PAGE> 28
DISTRIBUTION EXPENSES -- Distribution expenses consist primarily of
freight, warehousing, and handling costs of products sold.
ADVERTISING -- The Company sponsors various programs under which it
participates in the cost of advertising and other promotional efforts for
Company products undertaken by its retail customers. Advertising and promotion
costs associated with these programs are recognized in the period in which the
advertising or other promotion is performed by the retailer.
The Company's tradenames and, in some instances, specific products, also
are promoted from time to time through direct marketing channels, primarily
television. Advertising and promotion costs are expensed in the period in
which direct customer response occurs.
INCOME TAXES -- The Company accounts for income taxes using the asset and
liability approach. The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefits that, based on available evidence,
management does not expect to be realized.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE -- Net income per common
share is computed based upon the weighted average number of common and common
equivalent shares (which include dilutive stock options) outstanding.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying values of financial
instruments included in current assets and liabilities approximate fair values
due to the short-term maturities of these instruments. Investment in Windmere
common stock is accounted for as "available for sale" and is carried at fair
value.
ACCOUNTING PRONOUNCEMENTS -- The Company will be required to adopt
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings per
Share" in fiscal 1998. The Company believes that the adoption of this
statement will not have a material effect on the Company's financial
statements.
2. WINDMERE TRANSACTION
On July 11, 1996, the Company consummated a transaction (the "Windmere
Transaction") with Windmere-Durable Holdings, Inc. ("Windmere"), pursuant to a
Stock Purchase Agreement dated February 27, 1996, as amended (the "Stock
Purchase Agreement"). Windmere is a corporation engaged principally in
manufacturing and distributing a wide variety of personal care products and
household appliances. Pursuant to the Stock Purchase Agreement, Windmere
purchased from the Company 6,508,572 newly issued shares of Common Stock (the
"Purchase"), which represented 50% of the outstanding shares of Common Stock of
the Company on February 27, 1996 after giving effect to the Purchase. As
consideration for the purchase, Windmere paid the Company: (i) $3,254,286 in
cancellation of a loan, as described below; (ii) a subordinated promissory note
in the aggregate principal amount of $10,847,620 (the "Note"), which Note is
payable July 11, 2001, bears interest at 8%, payable quarterly, and is secured
by certain assets of Windmere and its domestic subsidiaries and guaranteed by
such domestic subsidiaries; and (iii) 748,112 shares of Windmere's common
stock. Windmere's common stock is traded on the NYSE. A portion of the
consideration for the Purchase was paid by the cancellation of the Company's
obligation to repay a loan in the principal amount of $3,254,286 which Windmere
had made to the Company in April 1996. Windmere was also granted an option to
purchase up to 485,000 shares of Common Stock at $4.83 per share, which option
is exercisable only if and to the extent that options to purchase shares of
Common Stock which were outstanding on February 27, 1996 are exercised.
3. BLOCK CHINA ACQUISITION
On July 1, 1996, the Company acquired substantially all of the assets and
certain liabilities of Block China Corporation, a tabletop product company in a
transaction accounted for as a purchase. The Block China Division of the
Company designs and markets tabletop products, including china, crystal and
glassware. The consideration paid by the Company consisted of $1,485,000 in
cash and a warrant to purchase 25,000 shares of Common Stock with an exercise
price of $4.75. The consideration also included an earn-out of up to $500,000
and 150,000 shares of Common Stock based on financial performance over a
three-year period of the Division. The operating results of Block China before
its acquisition by the Company are not material.
28
<PAGE> 29
4. REVOLVING LINE OF CREDIT AND LETTERS OF CREDIT
During the 1997 fiscal year, the Company had a $45,000,000 revolving line
of credit (the "Facility") with a commercial lender (the "Lender"). Borrowings
under this Facility bore interest at 2% over the Lender's established prime
rate, payable monthly.
On June 30, 1997, the Company amended its Facility (the "Amended
Facility") with the lender. It expires on September 30, 2000 and provides for
borrowings up to $75,000,000. The Amended Facility bears interest at 1% over
the Lender's established prime rate, payable monthly and includes a provision
which provides the Company the ability to reduce its borrowing rate, based on
the London InterBank Offered Rate (LIBOR), on up to 75% of outstanding
borrowings. The Company may further reduce its interest rate by meeting
certain performance provisions.
The Amended Facility is secured by a first lien on substantially all the
Company's assets. Credit availability is based on a formula related to trade
accounts receivable, inventories and outstanding letters of credit. The
Amended Facility contains restrictive financial covenants, the more significant
of which require the Company to maintain specified ratios of total liabilities
to net worth, minimum tangible net worth, and minimum earnings before interest,
taxes, depreciation and amortization. Other covenants also limit the Company's
activities in mergers or acquisitions and sales of substantial assets.
Compliance with these covenants effectively restricts the ability of the
Company to pay dividends, and also requires the Company to apply cash receipts
to pay down borrowings under the Facility.
Information regarding short-term borrowings under revolving lines of
credit is:
<TABLE>
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
---- ----
<S> <C> <C>
Balance at end of fiscal period $37,977,230 $24,095,382
Interest rate at end of fiscal period 10.5% 10.25%
Maximum amount outstanding at any month-end $43,632,702 $37,494,590
Average amount outstanding $35,191,494 $25,891,256
Weighted average interest rate during fiscal period 10.5% 11.1%
Outstanding letters of credit at end of fiscal period $2,915,815 $1,242,335
</TABLE>
5. SUBORDINATED DEBT AND DUE TO WINDMERE
SUBORDINATED DEBT
The Company has 10% subordinated notes payable aggregating $500,000. The
notes have an effective maturity date of September 1, 1997.
The Company had a $1,000,000 promissory note payable at the prime rate of
interest to a bank. The note was subordinated to the commercial lender and was
secured by subordinated liens on substantially all of the Company's assets. At
June 29, 1996, approximately $417,000 remained outstanding under the note and
the note was repaid in fiscal year 1997.
DUE TO WINDMERE
The Company had amounts due to Windmere, including Durable Electrical
Metal Factory, Ltd., a wholly owned subsidiary of Windmere ("Durable"),
totaling approximately $9,141,000, including notes payable of $4,932,730, at
June 28, 1997. These amounts primarily represented working capital advances by
Windmere to the Company to fund the development of the White-Westinghouse(R)
and Farberware(R) product lines, as well as interest and trade accounts payable.
29
<PAGE> 30
The Company and Windmere entered into a Marketing Cooperation Agreement on
July 11, 1996 (the "Marketing Cooperation Agreement"). Pursuant to this
agreement, until Windmere's interest in the Company is less than 30% for at
least ten consecutive days, each of the Company and Windmere has agreed to
participate in a variety of mutually satisfactory marketing cooperation efforts
designed to expand the market penetration of each party. Consequently, the
Company entered into a letter agreement dated April 30, 1997 (the "Letter
Agreement") with Windmere. The Letter Agreement provides that the Company pay
to Windmere a fee in consideration of Windmere's marketing cooperation efforts
in connection with the Company's supply contract with Kmart and Windmere's
guarantee of the Company's obligations under such contract.
Windmere and the Company entered into a loan agreement dated April 8, 1996
pursuant to which Windmere loaned $3,254,286 to the Company (the "Loan"). The
principal balance of the Loan, together with all interest accrued thereon at 8%
per annum, was due and payable upon the closing of the Windmere Transaction,
described in Note 2, provided, however, that upon the request of the Company,
Windmere agreed that $3,254,286 of the consideration payable by Windmere in the
Windmere Transaction would be applied against the total amount outstanding and
due under the Loan.
On July 11, 1996, the Company requested that the cash portion of the
Windmere Transaction be applied to the Loan, thereby effectively canceling the
Loan. In addition, the Company paid Windmere approximately $54,000 in interest
at that date under the Loan.
The effect of all transactions with Windmere was to reduce 1997 net income
by approximately $126,000.
6. CAPITAL STOCK
The Company has authorized 20,000,000 shares of $.01 par value common
stock. At June 29, 1996 and July 1, 1995, there were 6,508,572 shares issued
and outstanding. As more fully described in Note 2 "Windmere Transaction" on
July 11, 1996, Windmere purchased from the Company 6,508,572 newly issued
shares of common stock which represented 50% of the outstanding shares of
common stock of the Company on February 27, 1996 after giving effect to the
transaction.
The Company has authorized 2,000,000 shares of $.01 par value preferred
stock. To date, no shares of preferred stock have been issued.
7. STOCK OPTION PLANS
In October 1995, SFAS No. 123, "Accounting For Stock-Based Compensation,"
was issued and is effective for financial statements for fiscal years beginning
after December 1995. As permitted by the statement, the Company will continue
to measure compensation cost for stock option plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting For Stock Issued to
Employees." Accordingly, no compensation cost has been recognized for its
fixed stock option plans. Had compensation cost for the company's stock option
plans been determined consistent with the fair value method outlined in SFAS
No. 123, the impact on the Company's net income and earnings per common share
would have been as follows:
<TABLE>
<CAPTION>
1997 1996
Net Income ---- ----
<S> <C> <C>
As reported $4,399,158 $4,595,484
Pro forma $4,192,582 $4,509,515
Primary earnings per share
As reported $0.34 $0.69
Pro forma $0.32 $0.68
</TABLE>
30
<PAGE> 31
Options to purchase common stock of the Company have been granted to
employees under the 1992 and 1995 stock option plans at prices equal to the
fair market value of the stock on the dates the options were granted. Options
have also been granted to non-employee directors of the company, which are
exercisable one year after the date of grant. All options granted expire 10
years from the date of grant.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model. The following assumptions were
used during the respective years to estimate the fair value of options granted:
1997 1996
---- ----
Dividend yield 0.0% 0.0%
Expected volatility 65.96% 62.37%
Risk-free interest rate 6.11% 6.11%
Expected life of options 7.92 years 7.69 years
In addition, on July 11, 1996 Windmere was granted an option to purchase
up to 485,000 shares of common stock at $4.83 per share. This option is
excercisable only if and to the extent that options to purchase shares of
common stock which were outstanding on February 27, 1996 are exercised. A
summary of the Company's fixed stock options for the fiscal years ended June
28, 1997 and June 29, 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Weighted- Weighted-
Shares Average Shares Average
(000) Exercise Price (000) Exercise Price
------- -------------- ----- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 485 $4.827 271 $6.664
Granted 493 4.881 214 2.500
Exercised (12) 0.875
Expired
Forfeited
----- ------ --- ------
Outstanding at end of year 966 $4.904 485 $4.827
Options exercisable at end of year 958 $4.878 271 $6.664
Weighted-average fair value of
options granted during the year $4.542 $1.920
</TABLE>
The following information summarizes the stock options outstanding
at June 28, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Shares Contractual Exercise Shares Exercise
Range of Exercise Prices (000) Life (years) Price (000) Price
------------------------ ------ ------------ -------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.875 - $2.500 323 7.77 $2.052 323 $2.052
$4.830 - $5.375 505 8.91 4.852 505 4.852
$8.000 - $12.000 138 4.65 11.768 130 12.000
------------------------------------- ---------------------------------------
$0.875 - $12.000 966 N/A N/A 958 $4.878
</TABLE>
8. RELATED PARTY TRANSACTIONS
The Company purchased inventory from Durable of $23,511,000, $3,200,000,
and $2,089,000 in 1997, 1996, and 1995, respectively. The Company owed Durable
approximately $3,120,000 at June 28, 1997 for current charges.
The Company recorded inventory purchases and commissions with Markpeak,
Ltd., a Hong Kong company, of approximately $7,815,000 and $432,000
respectively in 1997, $10,233,000 and $739,000, respectively in 1996, and
$8,314,000 and $563,000, respectively in 1995. At June 28, 1997, the Company
owed Markpeak, Ltd. approximately $1,475,000 for current charges. A director of
the Company is the Managing Director of Markpeak, Ltd.
31
<PAGE> 32
During fiscal year 1997, the Company had purchases of approximately
$162,000 as compared to sales of approximately $919,000 in fiscal year 1996,
from Duquesne Financial Corporation ("Duquesne"). The Chairman of the Company
is an executive officer of Duquesne. As of June 28, 1997, the Company owed
Duquesne approximately $7,000 related to inventory purchases.
The Company paid Shapiro, Devine and Craparo, Inc. ("SDC"), a
manufacturers representation firm, commissions of approximately $241,000,
$160,000 and $196,000 in 1997, 1996 and 1995, respectively. A director of the
Company was a co-founder of SDC. At June 28, 1997, the Company owed SDC
approximately $31,400 for current commissions.
9. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment under long-term
operating leases. Rental expense under all leases was approximately $1,183,000
$665,000, and $633,000, for the fiscal periods ended June 28, 1997, June 29,
1996, and July 1, 1995, respectively.
The future minimum rental commitments as of June 28, 1997 were as follows:
Fiscal Year Ending
1998 $1,564,286
1999 2,666,095
2000 2,077,444
2001 1,967,532
2002 1,119,470
----------
Total $9,394,827
==========
The Company has employment agreements with its three executive officers
which are in effect until December 15, 1997.
The Company has license agreements with White Consolidated Industries,
Inc.("White Consolidated"), which require minimum royalty payments through the
year 2011. The current level of royalty payments are in excess of the minimum
requirements. The Company also has various license agreements with other
parties for periods usually not exceeding three years. The agreements are then
typically renewable upon mutual consent. These license agreements require
royalty payments based on the sales of licensed product in the period. Total
royalties paid under these agreements, including the White Consolidated
agreement, were $6,300,000 in fiscal year 1997, $1,600,000 in fiscal year 1996
and $453,000 in fiscal year 1995.
10. LEGAL PROCEEDINGS
The Company, White Consolidated, Windmere and certain other parties
have been named as defendants in litigation filed by Westinghouse Electric
Corporation ("Westinghouse") in the United States District Court for the
Western District of Pennsylvania on December 18, 1996. The action arises from
a dispute between Westinghouse and White Consolidated over rights to use the
"Westinghouse" trademark for consumer products, based on transactions between
Westinghouse and White Consolidated in the 1970's and the parties' subsequent
conduct. Procedural motions concerning the jurisdiction in which the dispute
should be heard have been filed by the parties. The action seeks, among other
things, a preliminary injunction enjoining the defendants from using the
trademark, unspecified damages and attorneys' fees. Pursuant to the Company's
license agreements with White Consolidated, White Consolidated is defending the
Company and is obligated to indemnify the Company from and against any and all
claims, losses and damages arising out of the action, including the costs of
litigation.
The Company is a party to various other legal actions and proceedings
incident to its normal business operations. Management believes that the
outcome of all the Company's litigation will not have a material adverse effect
on its financial condition or results of operations.
32
<PAGE> 33
11. SUPPLY CONTRACT AND MAJOR CUSTOMERS
The Company entered into a major supply contract with Kmart Corporation
("Kmart") on January 31, 1997. Under the contract, the Company supplies Kmart
with small kitchen appliances, personal care products, heaters, fans and
electrical air cleaners and humidifiers under the White-Westinghouse brand
name. In fiscal year 1997, sales to Kmart approximated 16% of total net sales
of the Company.
The Company's net sales in the aggregate to its five largest customers
during the fiscal years ended June 28, 1997, June 29, 1996 and July 1, 1995
were 47%, 55% and 52% of total net sales in these periods, respectively. In
addition to Kmart, one customer accounted for 9%, 15%, and 11% of total net
sales during the fiscal years ended June 28, 1997, June 29, 1996, and July 1,
1995, respectively. Another customer accounted for 9%, 13%, and 15%,
respectively, over the same fiscal years.
Although the Company has long-established relationships with many of its
customers, with the exception of Kmart Corporation, it does not have long-term
contracts with any of its customers. A significant concentration of the
Company's business activity is with department stores, upscale mass
merchandisers, specialty stores, and warehouse clubs whose ability to meet
their obligations to the Company is dependent upon prevailing economic
conditions within the retail industry.
12. INCOME TAXES
Deferred taxes based upon differences between the financial statement and
tax bases of assets and liabilities and available tax carryforwards consisted
of:
Fiscal Year Ended
June 28, 1997 June 29, 1996
------------- -------------
Allowance for doubtful accounts $ 960,000 $ 776,340
Depreciation and amortization (1,060,680) (759,000)
Other deferred items, net (302,415) (208,282)
Net operating loss carry-forwards 2,349,579 2,659,323
Inventory reserves and capitalization 713,568 1,014,003
Unrealized gains on securities available for sale (720,058)
----------- ----------
Net deferred tax asset $ 1,939,994 $3,482,384
=========== ==========
During 1996, the Company re-assessed the measurement of deferred tax
assets based on available evidence and concluded that a valuation allowance was
unnecessary. Accordingly, the valuation allowance of $3,463,066 was eliminated
in the fourth quarter of fiscal 1996.
The Company has net loss carry-forwards at June 28, 1997 expiring as
follows:
YEAR CARRY-FORWARD EXPIRES AMOUNT
- -------------------------- ------
2007 $ 768,000
2008 2,336,000
2009 2,665,000
2010 60,000
2011 45,000
----------
Total $5,874,000
==========
As a result of certain transactions, the Company's ability to utilize its
net operating loss carryforwards to offset otherwise taxable income is limited
annually under Internal Revenue Code Section 382. The amount of such annual
limitation is approximately $2,000,000.
33
<PAGE> 34
A reconciliation of the statutory federal income tax rate to the effective
rate was as follows:
Fiscal Years Ended
------------------
June 28, June 29, July 1,
1997 1996 1995
---- ---- ---
Statutory federal income tax rate 35.0% 35.0% 35.0%
Effective state tax rate 4.8% 4.8% 4.8%
Permanent differences 2.3%
Effect of foreign tax rate (8.8)%
Utilization of operating loss carryforwards (34.6)% (36.8%)
Change in valuation allowance (296.9)
Other (2.0)% (9.4)% %
------ ------- -----
Effective income tax rate 31.3% (301.1)% 3.0%
====== ======= =====
U.S. income taxes were not provided on certain unremitted earnings of
Salton Hong Kong, Ltd. which the Company considers to be permanent investments.
The cumulative amount of U.S. income taxes which have not been provided
totaled approximately $699,000 at June 28, 1997.
*****
34
<PAGE> 35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 as to the Directors of the
Company is incorporated herein by referenced to the information set forth under
the caption "Election of Directors" in the Company's definitive Proxy Statement
for the 1997 Annual Meeting of Stockholders, since such Proxy Statement will be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the Company's fiscal year pursuant to Regulation 14A. Information
required by this Item 10 as to the executive officers of the Company is
included in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference to
the information set forth under the caption "Compensation of Directors and
Executive Officers" in the Company's definitive Proxy Statement for the 1997
Annual Meeting of Stockholders, since such Proxy Statement will be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the Company's fiscal year pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference to
the information set forth under the caption "Stock Ownership of Principal
Holders and Management" in the Company's definitive Proxy Statement for the
1997 Annual Meeting of Stockholders, since such Proxy Statement will be filed
with the Securities and Exchange Commission not later than 120 days after the
end of the Company's fiscal year pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS
The information required by this Item 13 is incorporated by reference to
the information set forth under the caption "Certain Transactions" in the
Company's definitive Proxy Statement for the 1997 Annual Meeting of
Stockholders, since such Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days after the end of the Company's
fiscal year pursuant to Regulation 14A.
35
<PAGE> 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON REPORT 8-K
(a)(1) FINANCIAL STATEMENTS
The following Financial Statements of the registrant and its subsidiaries
are included in Part II, Item 8:
PAGE
----
Independent Auditors' Report 22
Balance Sheets June 28, 1997 and June 29, 1996 23
Statements of Earnings for the Years Ended June 28, 1997,
June 29, 1996 and July 1, 1995 24
Statements of Stockholders' Equity for the Years Ended June 28,
1997, June 29, 1996 and July 1, 1995 25
Statements of Cash Flows for the Years Ended June 28, 1997,
June 29, 1996 and July 1, 1995 26
Notes to the Consolidated Financial Statements 27
(a)(2) FINANCIAL STATEMENTS SCHEDULES
The following Financial Statement Schedules of the Registrant are included
in Item 14 hereof.
PAGE
----
Schedule VIII-Valuation and Qualifying Accounts 39
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
(a)(3) EXHIBITS
(b) No reports on Form 8-K were filed during the quarter ended June 28,
1997.
36
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 25th day of
September, 1997.
SALTON/MAXIM HOUSEWARES, INC.
By: /s/ LEONHARD DREIMANN
----------------------------------
Leonhard Dreimann
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on September 25, 1997:
SIGNATURE
- ---------
/s/ LEONHARD DREIMANN President, Chief Executive Officer and Director
- ------------------------- (Principal Executive Officer)
Leonhard Dreimann
/s/ WILLIAM B. RUE Senior Vice President, Chief Operating Officer,
- ------------------------- Treasurer and Chief Financial Officer (Principal
William B. Rue Accounting and Financial Officer)
/s/ DAVID C. SABIN Director
- -------------------------
David C. Sabin
/s/ FRANK DEVINE Director
- -------------------------
Frank Devine
/s/ BERT DOORNMALEN Director
- -------------------------
Bert Doornmalen
/s/ DAVID M. FRIEDSON Director
- -------------------------
David M. Friedson
/s/ HARRY D. SCHULMAN Director
- -------------------------
Harry D. Schulman
Director
- -------------------------
Laurence S. Chud, M.D.
Director
- -------------------------
James Connolly
37
<PAGE> 38
The following page contains the Financial Statement Schedules as specified
by Item 14(a)(2) of Part IV of Form 10-K. The report of Deloitte & Touche LLP
thereon appears at page 18 of this Form 10-K.
38
<PAGE> 39
SALTON/MAXIM HOUSEWARES, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED JUNE 28, 1997
<TABLE>
<CAPTION>
CHARGED TO
BEGINNING COSTS AND ENDING
BALANCE EXPENSES DEDUCTIONS BALANCE
------- ---------- ---------- -------
YEAR ENDED JULY 1, 1995:
Allowance for returns,
<S> <C> <C> <C> <C>
allowances and doubtful accounts $1,900,000 $2,567,270 $(2,567,270) $1,900,000
YEAR ENDED JUNE 29, 1996:
Allowance for returns,
allowances and doubtful accounts $1,900,000 $5,213,815 $(5,213,815) $1,900,000
YEAR ENDED JUNE 28, 1997:
Allowance for returns,
allowances and doubtful accounts $1,900,000 $8,984,832 $(8,484,832) $2,400,000
</TABLE>
39
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- -------------- -----------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of
Registrant. Incorporated by reference to the Registrant's
Registration Statement on Form S-1 (Registration
No. 33-42097).
3.2 By-laws of the Registrant. Incorporated by reference to
the Registrant's Registration Statement on Form S-1
(Registration No. 33-42097).
4.1 Third Amended and Restated Promissory Note, dated July
28, 1994, payable to Financo Investor Fund, L.P.
Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended July 2,
1994.
4.2 Specimen Certificate for shares of Common Stock, $.01
par value, of the Registrant. Incorporated by reference
to the Registrant's Registration Statement on Form S-1
(Registration No. 33-42097).
10.1 Loan and Security Agreement dated December 20, 1991 by
and between LaSalle National Bank and the Registrant.
Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended
December 28, 1991.
10.2 Amendment No. 1 to the Loan and Security Agreement by and
between LaSalle National Bank and the Registrant dated
May 6, 1992. Incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 28, 1992.
10.3 Waiver Letter dated September 24, 1992, to the Loan and
Security Agreement by and between LaSalle National Bank
and the Registrant. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 27, 1992.
10.4 Waiver and Amendments No. 3, 4 and 5, dated as of May 28,
June 30, and September 14, 1993, respectively, to the
Loan and Security Agreement by and between LaSalle
National Bank and the Registrant. Incorporated by
reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 26, 1993.
10.5 Waiver and Amendment No. 6, dated as of March 15, 1994,
to the Loan and Security Agreement by and between
LaSalle National Bank and the Registrant. Incorporated
by reference to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 26, 1994.
10.6 Amendment No. 7, dated as of July 28, 1994, to the Loan
and Security Agreement by and between LaSalle National
Bank and the Registrant. Incorporated by reference to
the Registrant's Annual Report on Form 10-K for the
fiscal year ended July 2, 1994.
10.7 Standstill Agreement, dated July 28, 1994, between
Financo Investors Fund, L.P. and the Registrant.
Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended July 2,
1994.
10.9 Substitute and Amended Note, dated as of August 4, 1994,
payable to LaSalle National Bank. Incorporated by
reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 2, 1994.
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
<S> <C>
10.10 Loan and Security Agreement, dated as of July 28, 1994, by and
between the Registrant and the Foothill Capital Corporation.
Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended July 2, 1994.
10.11 Salton/Maxim Housewares, Inc. Stock Option Plan. Incorporated
by reference to the Registrant's Registration Statement on form S-1
(Registration No. 33-42097).
10.12 Stockholders Agreement, dated August 6, 1991, by and among the
Registrant, Braddock Financial Corporation, Financo Investors Fund,
L.P., and Mesirow Private Equity, Inc. (successor to Mesirow Venture
Capital, Inc.) as the authorized representative of Mesirow Capital
Partners III, Mesirow Capital Partners IV, Mesirow Capital Partners
and Allied Investment Corporation. Incorporated by reference to the
Registrant's Registration Statement on Form S-1 (Registration No.
33-42097).
10.13 Lease, dated January 30, 1990, by and between 164 Delaney
Street Partnership and the Registrant, as amended by a First
Amendment to Lease Agreement and Second Amendment to Lease Agreement
and Second Amendment to Lease Agreement. Incorporated by reference t
the Registrant's Registration Statement on Form S-1 (Registration No
33-42097).
10.14 Lease, dated April 23, 1984, by and between OTR, as agent for
the State Teachers Retirement Board of Ohio, and the Registrant, as
assignee under an Assignment and Assumption of Lessee's Interest
under Lease Agreement dated September 30, 1988. Incorporated by
reference to the Registrant's Registration Statement on Form S-1
(Registration No. 33-42097).
10.15 Form of Sales Representative Agreement generally used by and
between the Registrant and its sales representatives. Incorporated b
reference to the Registrant's Registration Statement on Form S-1
(Registration No. 33-42097).
10.16 Stock Registration Rights Agreement, dated as of August 6,
1991, by and between the Registrant, Braddock Financial Corporation,
Financo Investors Fund, L.P., Mesirow Capital Partners II, Mesirow
Capital Partners IV, Mesirow Capital Partners V and Allied Investmen
Corporation. Incorporated by reference to the Registrant's
Registration Statement on Form S-1 (Registration No. 33-42097).
10.17 Employment Agreement dated October 17, 1991 between the
Registrant and Leonhard Dreimann. Incorporated by reference to the
Registrant's Registration Statement on Form S-1 (Registration No.
33-42097).
10.18 Employment Agreement dated October 17, 1991 between the
Registrant and David C. Sabin. Incorporated by reference to the
Registrant's Registration Statement on Form S-1 (Registration No.
33-42097).2
10.19 Employment Agreement dated October 17, 1991 between the
Registrant and William B. Rue. Incorporated by reference to the
Registrant's Registration Statement on Form S-1 (Registration No.
33-42097).
10.20 Salton/Maxim Housewares, Inc. Incentive Bonus Plan.
Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (Registration No. 33-42097).
10.21 Fourth Amendment to Loan and Security Agreement dated as of
September 19, 1995 between the Registrant and the Foothill Capital
Corporation. Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended July 1, 1995.
</TABLE>
41
<PAGE> 42
<TABLE>
<CAPTION>
<S> <C>
10.22 Salton/Maxim Housewares, Inc. 1995 Employee Stock Option
Plan. Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter
ended December 30, 1995.
10.23 Salton/Maxim Housewares, Inc. Non-Employee Directors
Stock Option Plan. Incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 30, 1995.
10.24 Asset Purchase Agreement dated July 1, 1996 by and among
the Registrant, Block China Corporation and Robert C.
Block Incorporated by reference from the Company's
Current Report on Form 8-K dated July 1, 1996.
10.25 Stock Purchase Agreement, dated as of February 27, 1996,
by and between the Registrant and Windmere-Durable
Holdings, Inc. Incorporated by reference to the
Registrant's Current Report on Form 8-K dated February
27, 1996.
10.26 Subordinated Promissory Note dated July 11, 1996 in the
principal amount of $10,847,620 issued by
Windmere-Durable Holdings, Inc. to the Registrant.
Incorporated by reference to the Registrant's Current
Report on Form 8-K dated July 11, 1996.
10.27 Stockholder Agreement dated July 11, 1996 between the
Registrant and Windmere-Durable Holdings, Inc.
Incorporated by reference to the Registrant's Current
Report on Form 8-K dated July 11, 1996.
10.28 Registration Rights Agreement dated July 11, 1994 between
the Registrant and Windmere-Durable Holdings, Inc.
Incorporated by reference to the Registrant's Current
Report on Form 8-K dated July 11, 1996.
10.29 Marketing Cooperation Agreement dated July 11, 1996
between the Registrant and Windmere-Durable Holdings,
Inc. Incorporated by reference to the Registrant's
Current Report on Form 8-K dated July 11, 1996.
10.30 License Agreement dated as of February 1, 1996 by and
between White Consolidated Industries Inc. and the
Registrant. Incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q/A for the
fiscal quarter ended December 28, 1996.
10.31 License Agreement dated as of May 21, 1996 by and between
White Consolidated Industries Inc. and the Registrant.
Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q/A for the fiscal quarter ended
December 28, 1996.
10.32 Purchase, Distribution and Marketing Agreement dated as
of January 27, 1997 between the Registrant and Kmart
Corporation. Incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q/A for the
fiscal quarter ended December 28, 1996.
</TABLE>
42
<PAGE> 43
10.33 Letter Agreement dated April 30, 1997 between the Registrant and
Windmere-Durable Holdings Inc. Incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 29, 1997.
10.34 Amended and Restated Loan and Security Agreement, dated as of
June 30, 1997, by and between the Registrant and the Foothill Capital
Corporation.
27 Financial Data Schedule
43
<PAGE> 1
EXHIBIT 10.34
================================================================================
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
SALTON/MAXIM HOUSEWARES, INC.
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF JUNE 30, 1997
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
1. DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.3 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.4 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.5 Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2. LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1 Revolving Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.2 Letters of Credit and Letter of Credit Guarantees. . . . . . . . . . . . . . . . . . . . . . . 15
2.3 Overadvances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.4 Interest: Rates, Payments, and Calculations . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.5 Crediting Payments; Application of Collections . . . . . . . . . . . . . . . . . . . . . . . . 18
2.6 Statements of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.7 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3. CONDITIONS; TERM OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.1 Conditions Precedent to Initial Advance, L/C, or L/C Guaranty . . . . . . . . . . . . . . . . . 19
3.2 Conditions Precedent to All Advances, L/Cs, or L/C Guarantees . . . . . . . . . . . . . . . . . 21
3.3 Term; Automatic Renewal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.4 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.5 Early Termination by Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.6 Termination Upon Change of Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.7 Termination Upon Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.1 Grant of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.2 Negotiable Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.3 Collection of Accounts, General Intangibles, Negotiable Collateral. . . . . . . . . . . . . . . 23
4.4 Delivery of Additional Documentation Required . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.5 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.6 Right to Inspect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.1 No Prior Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.2 Eligible Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.3 Eligible Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.4 Location of Inventory and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.5 Inventory Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
5.6 Location of Chief Executive Office; FEIN . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.7 Due Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.8 Due Authorization; No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.10 No Material Adverse Change in Financial Condition . . . . . . . . . . . . . . . . . . . . . . 26
5.11 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.12 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.13 Environmental Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.14 Agreement Enforcable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.15 Reliance by Foothill; Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.1 Accounting System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.2 Collateral Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.3 Schedules of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.4 Financial Statements, Reports, Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.5 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.6 Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.7 Designation of Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.8 Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.9 Title to Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.10 Maintenance of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.12 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.13 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.14 No Setoffs or Counterclaims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.15 Location of Inventory and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.16 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.17 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.18 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.2 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.3 Restrictions on Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.4 Extraordinary Transactions and Disposal of Assets . . . . . . . . . . . . . . . . . . . . . . 34
7.5 Change Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.6 Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.7 Restructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.8 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.9 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.10 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.11 Consignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
7.12 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.13 Accounting Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.14 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.15 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.16 Suspension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.17 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.18 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.19 Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.20 Payment of Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.13 Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9. FOOTHILL'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.1 Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.2 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10. TAXES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11. WAIVERS; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.1 Demand; Protest; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.2 Foothill's Liability for Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
14. DESTRUCTION OF BORROWER'S DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
15. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15.1 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15.3 Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15.4 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15.5 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15.6 Amendments in Writing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15.7 Counterparts; Telefacsimile Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15.8 Revival and Reinstatement of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
15.9 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
15.10 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
15.11 Amended and Restated Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
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<PAGE> 5
EXHIBITS
Exhibit A Collateral Patent and Trademark Assignment; First Amendment to
Collateral Patent and Trademark Assignment; and Second Amendment
to Collateral Patent and Trademark Assignment
Exhibit B Revolving Loan Note
Exhibit C LIBOR Supplement
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<PAGE> 6
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this "Agreement"), is
entered into as of June 30, 1997, between FOOTHILL CAPITAL CORPORATION, a
California corporation ("Foothill"), with a place of business located at 60
State Street, Suite 1150, Boston, Massachusetts 02109, and SALTON/MAXIM
HOUSEWARES, INC., a Delaware corporation ("Borrower"), with its chief executive
office located at 550 Business Center Drive, Mount Prospect, Illinois 60056.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following definitions:
"Account Debtor" means any Person who is or who may become obligated under,
with respect to, or on account of an Account.
"Accounts" means all currently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to Borrower arising
out of the sale of goods by Borrower, irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or security
therefor.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. For purposes of this definition, "control" as applied to any Person
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether through
the ownership of voting securities, by contract, or otherwise.
"Agreement" means this Amended and Restated Loan and Security Agreement and
any extensions, riders, supplements, notes, amendments, or modifications to or
in connection with this Amended and Restated Loan and Security Agreement.
"Authorized Officer" means any officer of Borrower.
"Average Unused Portion of Maximum Amount" means (a) the Maximum Amount;
less (b) the sum of: (i) the average Daily Balance of advances made by
Foothill under Section 2.1 that were outstanding during the immediately
preceding month, plus (ii) the average Daily Balance of the undrawn L/Cs and
L/C Guarantees issued by Foothill under Section 2.2 that were outstanding
during the immediately preceding month.
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C. Section
101 et seq.), as amended, and any successor statute.
<PAGE> 7
"Borrower" has the meaning set forth in the preamble to this Agreement.
"Borrower's Books" means all of Borrower's books and records including:
ledgers; records indicating, summarizing, or evidencing Borrower's properties
or assets (including the Collateral) or liabilities; all information relating
to Borrower's business operations or financial condition; and all computer
programs, disc or tape files, printouts, runs, or other computer prepared
information.
"Borrowing Base" has the meaning set forth in Section 2.1.
"Business Day" means any day which is not a Saturday, Sunday, or other day
on which national banks are authorized or required to close.
"Capitalized Lease" means any lease which is or should be capitalized on the
balance sheet of the Borrower in accordance with GAAP.
"Change of Ownership" shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Section 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Act of 1934) directly or indirectly of more
than 50% of the total voting power of all classes of stock then outstanding of
Borrower normally entitled to vote in the election of directors.
"Change of Ownership Premium" has the meaning set forth in Section 3.6.
"Closing Date" means the date of the execution of this Agreement.
"Closing Fee" has the meaning set forth in Section 2.7.
"Code" means the California Uniform Commercial Code.
"Collateral" means each of the following: the Accounts; Borrower's Books;
the Equipment; the General Intangibles; the Inventory; the Negotiable
Collateral; any money, or other assets of Borrower which now or hereafter come
into the possession, custody, or control of Foothill the Windmere Common Stock,
the Windmere Note and the Windmere Collateral; and the proceeds and products,
whether tangible or intangible, of any of the foregoing including proceeds of
insurance covering any or all of the Collateral, and any and all Accounts,
Borrower's Books, Equipment, General Intangibles, Inventory, Negotiable
Collateral, money, deposit accounts, or other tangible or intangible property
resulting from the sale, exchange, collection, or other disposition of any of
the foregoing, or any portion thereof or interest therein, and the proceeds
thereof.
"Collateral Management Fee" has the meaning set forth in Section 2.7.
2
<PAGE> 8
"Concentrated Account" means the Highly Concentrated Accounts and the
Accounts identified as Concentrated Accounts on Schedule E-1.
"Consolidated Current Assets" means, as of any date of determination, the
aggregate amount of all current assets of Borrower and its subsidiaries
calculated on a consolidated basis that would, in accordance with GAAP, be
classified on a balance sheet as current assets.
"Consolidated Current Liabilities" means, as of any date of determination,
the aggregate amount of all current liabilities of Borrower and its
subsidiaries, calculated on a consolidated basis that would, in accordance with
GAAP, be classified on a balance sheet as current liabilities excluding
Subordinated Debt. For purposes of this definition, all advances outstanding
under this Agreement shall be deemed to be current liabilities without regard
to whether they would be deemed to be so under GAAP.
"Daily Balance" means the amount of an Obligation owed at the end of a given
day.
"Default Rate" has the meaning set forth in Section 2.4(c).
"Designated Deposit Account" has the meaning set forth in Section 2.1(d).
"Early Termination Premium" has the meaning set forth in Section 3.5.
"EBITDA" means, for any period, for the Borrower, determined in accordance
with GAAP, the sum of (a) the net income (or net loss) for such period plus (b)
all amounts deducted from net income (or net loss) for such period for
depreciation or amortization, plus (c) interest expense deducted from net
income (or net loss) for such period, minus (d) interest actually paid in cash
for such period, plus (e) all accrued taxes on or measured by income to the
extent included in the determination of such net income (or loss); plus (f) to
the extent included in net income (or net loss) for such period, any
extraordinary losses or losses from discontinued operations.
"Eligible Accounts" means those Accounts created by Borrower in the ordinary
course of business that arise out of Borrower's sale of goods or rendition of
services, that strictly comply with all of Borrower's representations and
warranties to Foothill, and that are and at all times shall continue to be
reasonably acceptable to Foothill in all respects; provided, however, that
standards of eligibility may be fixed and revised from time to time by Foothill
in Foothill's reasonable credit judgment. Eligible Accounts shall not include
the following:
(a) Accounts that the Account Debtor has failed to pay within (i) one
hundred twenty (120) days of invoice date for Accounts with selling terms of
thirty (30) days or (ii) Accounts which the Account Debtor has failed to pay
within one hundred eighty (180) days of invoice date for Accounts with selling
terms of more than thirty (30) days but not more than one hundred eighty (180)
days and all Accounts owed by an Account Debtor that has failed
3
<PAGE> 9
to pay fifty percent (50%) or more of its Accounts owed to Borrower within the
periods set forth in subprovisions (i) and (ii) as applicable;
(b) Accounts with respect to which the Account Debtor is an officer,
employee, Affiliate, or agent of Borrower;
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other
terms by reason of which the payment by the Account Debtor may be conditional;
(d) Accounts with respect to which the Account Debtor is not a resident
of the United States, and which are not either (i) covered by credit insurance
in form and amount, and by an insurer, satisfactory to Foothill, or (ii)
supported by one or more letters of credit that are assignable by their terms
and have been delivered to Foothill in an amount, of a tenor, and issued by a
financial institution, acceptable to Foothill;
(e) Accounts with respect to which the Account Debtor is the United
States or any department, agency, or instrumentality of the United States
except for Accounts not subject to the Armed Services Procurement Regulations
or any other government regulation either prohibiting the assignment of
Accounts or requiring special procedures for perfection of the assignment of
Accounts;
(f) Accounts with respect to which Borrower is or may become liable to
the Account Debtor for goods sold or services rendered by the Account Debtor to
Borrower but excluding cooperative advertising between Borrower and an Account
Debtor;
(g) Accounts with respect to an Account Debtor (other than Concentrated
Accounts) whose total obligations owing to Borrower exceed ten percent (10%) of
all Eligible Accounts, to the extent the obligations owing by such Account
Debtor are in excess of such percentage; Accounts with respect to a
Concentrated Account whose total obligations owing to Borrower exceed twenty
percent (20%) of all Eligible Accounts, to the extent the obligations owing by
such Concentrated Accounts are in excess of such percentage, except that any
one (1) of the following may be true at any time: total obligations owing to
Borrower with respect to any two (2) Concentrated Accounts may exceed twenty
percent (20%) at any time but shall not exceed thirty percent (30%), or total
obligations with respect to one (1) of the Highly Concentrated Accounts may
exceed twenty percent (20%) at any time but shall not does not exceed thirty
percent (30%) at any time, or Accounts with respect to any two (2) of the
Highly Concentrated Accounts may exceed twenty percent (20%) at any time but
shall not, aggregated together, exceed fifty percent (50%) at any time;
(h) Accounts with respect to which the Account Debtor disputes liability
or makes any Material claim with respect thereto, or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business;
4
<PAGE> 10
(i) That portion of Accounts which have been rebilled to Account Debtors
as a result of the failure of the Account Debtor to pay invoices representing
the Account in full.
(j) Accounts the collection of which Foothill, in its reasonable credit
judgment, believes to be doubtful by reason of the Account Debtor's financial
condition;
(k) Accounts that are payable in other than United States Dollars; and
(l) Accounts that represent progress payments or other advance billings
that are due prior to the completion of performance by Borrower of the subject
contract for goods or services.
"Eligible Inventory" means Inventory (net of reserves for slow moving
inventory in an amount acceptable to Foothill) consisting of finished goods
held for sale in the ordinary course of Borrower's business, that are located
at Borrower's premises or such other locations as identified on Schedule 6.15
and replacement parts and accessories inventory located at Borrower's premises
or such other locations as identified on Schedule 6.15, or "In Transit
Inventory," which is acceptable to Foothill in all respects, and strictly
comply with all of Borrower's representations and warranties to Foothill.
Eligible Inventory shall not include obsolete items, restrictive or custom
items, work- in-process, components that are not part of finished goods,
estimated defects located in warehouse Z and net warehouse Y returns in transit
outside the United States, spare parts, packaging and shipping materials,
supplies used or consumed in Borrower's business, Inventory at any location
other than those set forth on Schedule 6,15, Inventory subject to a security
interest or lien in favor of any third Person, bill and hold goods, Inventory
that is not subject to Foothill's perfected security interests, defective
goods, "seconds," and Inventory acquired on consignment. Eligible Inventory
shall be valued at the lower of Borrower's cost on a Landed Cost basis or
market value. As of the date hereof the amount acceptable to Foothill as a
reserve for slow moving inventory is two and two tenths percent (2.2%) of the
Borrower's Eligible Inventory.
"Environmental Laws" means the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, any
so-called "Superfund" or "Superlien" law, the Toxic Substances Control Act, and
any other federal, state or local statue, law, ordinance, code, rule,
regulation, order or decree or other requirement regulating, relating to, or
imposing liability or standards of conduct (including but not limited to permit
requirements, and emission or effluent restrictions) concerning any Hazardous
Materials or any hazardous, toxic or dangerous waste, substance or constituent,
or any pollutant or contaminant or other substance, whether solid, liquid or
gas, as now or at any time hereafter in effect.
"Environmental Lien" means a Lien in favor of any governmental entity for
(a) any liability under any Environmental Law or (b) damages arising from or
costs incurred by such governmental entity in response to a spillage, disposal
or release into the environment of
5
<PAGE> 11
any Hazardous Material or other hazardous, toxic or dangerous waste, substance
or constituent, or other substance.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, machine tools, motors, equipment, (including computer
telecommunication and video equipment) furniture, furnishings, fixtures,
vehicles (including motor vehicles and trailers), tools, parts, dies, jigs,
goods (other than consumer goods, farm products, or Inventory), wherever
located, and any interest of Borrower in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any predecessor, successor, or superseding laws
of the United States of America, together with all regulations promulgated
thereunder.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
which, within the meaning of Section 414 of the IRC, is: (i) under common
control with Borrower; (ii) treated, together with Borrower, as a single
employer; (iii) treated as a member of an affiliated service group of which
Borrower is also treated as a member; or (iv) is otherwise aggregated with the
Borrower for purposes of the employee benefits requirements listed in IRC
Section 414(m)(4).
"ERISA Event" means any one or more of the following: (i) a Reportable
Event with respect to a Qualified Plan or a Multiemployer Plan; (ii) a
Prohibited Transaction with respect to any Plan; (iii) a complete or partial
withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan; (iv)
the complete or partial withdrawal of Borrower or an ERISA Affiliate from a
Qualified Plan during a plan year in which it was, or was treated as, a
"substantial employer" as defined in Section 4001(a)(2) of ERISA; (v) a failure
to make full payment when due of all amounts which, under the provisions of any
Plan or applicable law, Borrower or any ERISA Affiliate is required to make;
(vi) the filing of a notice of intent to terminate, or the treatment of a plan
amendment as a termination, under Sections 4041 or 4041A of ERISA; (vii) an
event or condition which might reasonably be expected to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Qualified Plan or Multiemployer Plan; (viii) the
imposition of any liability under Title IV of ERISA, other than PBGC premiums
due but not delinquent under Section 4007 of ERISA, upon Borrower or any ERISA
Affiliate; and (ix) a violation of the applicable requirements of Sections 404
or 405 of ERISA, or the exclusive benefit rule under Section 403(c) of ERISA,
by any fiduciary or disqualified person with respect to any Plan for which
Borrower or any ERISA Affiliate may be directly or indirectly liable.
6
<PAGE> 12
"Event of Default" has the meaning set forth in Section 8.
"FEIN" means Federal Employer Identification Number.
"Fiscal Month" means any 4 or 5 week period ending on the last Saturday of
each month.
"Fiscal Year" means the 52/53 week period ending on the last Saturday of
June.
"Foothill" has the meaning set forth in the preamble to this Agreement.
"Foothill Expenses" means all: costs or expenses (including taxes,
photocopying, notarization, telecommunication and insurance premiums) required
to be paid by Borrower under any of the Loan Documents that are paid or
advanced by Foothill; documentation, filing, recording, publication, appraisal
(including periodic Collateral appraisals in accordance with Section 2.7(c)),
real estate survey, environmental audit, and search fees assessed, paid, or
incurred by Foothill in connection with Foothill's transactions with Borrower;
costs and expenses incurred by Foothill in the disbursement of funds to
Borrower (by wire transfer or otherwise); charges paid or incurred by Foothill
resulting from the dishonor of checks; costs and expenses paid or incurred by
Foothill to correct any default or enforce any provision of the Loan Documents,
or in gaining possession of, maintaining, handling, preserving, storing,
shipping, selling, preparing for sale, or advertising to sell the Collateral or
any portion thereof, irrespective of whether a sale is consummated; costs and
expenses paid or incurred by Foothill in examining Borrower's Books; costs and
expenses of third party claims or any other suit paid or incurred by Foothill
in enforcing or defending the Loan Documents; and Foothill's reasonable
attorneys fees and expenses incurred in advising, structuring, drafting,
reviewing, administering, amending, terminating, enforcing (including attorneys
fees and expenses incurred in connection with a "workout," a "restructuring,"
or an Insolvency Proceeding concerning Borrower defending, or concerning the
Loan Documents, irrespective of whether suit is brought.
"GAAP" means generally accepted accounting principles as in effect from time
to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's present and future general
intangibles and other personal property (including contract rights, rights
arising under common law, statutes, or regulations, choses or things in action,
goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, infringements, claims, computer
programs, computer discs, computer tapes, literature, reports, catalogs,
deposit accounts, insurance premium rebates, tax refunds, and tax refund
claims), other than goods, Accounts, and Negotiable Collateral.
"Hazardous Materials" means all or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
applicable laws or regulations as "hazardous substances," "hazardous
materials," "hazardous wastes," "toxic substances," or any
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other formulation intended to define, list, or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, reproductive toxicity, or "EP toxicity"; (b) oil, petroleum,
or petroleum derived substances, natural gas, natural gas liquids, synthetic
gas, drilling fluids, produced waters, and other wastes associated with the
exploration, development, or production of crude oil, natural gas, or
geothermal resources; (c) any flammable substances or explosives or any
radioactive materials; and (d) asbestos in any form or electrical equipment
which contains any oil or dielectric fluid containing levels of polychlorinated
biphenyls in excess of fifty (50) parts per million.
"Highly Concentrated Accounts" means the accounts identified as such on
Schedule E-1.
"In Transit Inventory" means Eligible Inventory purchased by Borrower where
Borrower has legal title but the goods have not been received by the Borrower
at one of its locations and entered into its perpetual inventory system.
"Indebtedness" means: (a) all obligations of Borrower for borrowed money;
(b) all obligations of Borrower evidenced by bonds, debentures, notes, or other
similar instruments and all reimbursement or other obligations of Borrower in
respect of letters of credit, letter of credit guaranties, bankers acceptances,
interest rate swaps, controlled disbursement accounts, or other similar
financial products; (c) all obligations under capital leases; (d) all
obligations or liabilities of others secured by a lien or security interest on
any property or asset of Borrower, irrespective of whether such obligation or
liability is assumed; and (e) any obligation of Borrower guaranteeing or
intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or
sold with recourse to Borrower) any indebtedness, lease, dividend, letter of
credit, or other obligation of any other Person.
"Insolvency Proceeding" means any proceeding commenced by or against any
Person under any provision of the Bankruptcy Code or under any other bankruptcy
or insolvency law, including assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with its creditors,
or proceedings seeking reorganization, arrangement, or other similar relief.
"Interest Rate" means the rate or rates set forth in Section 2.4(a).
"Inventory" means all present and future inventory in which Borrower has any
interest, including goods held for sale and all of Borrower's present and
future raw materials (but excluding any Hazardous Materials), work in process,
finished goods, and packing and shipping materials, wherever located, and any
documents of title representing any of the above.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Landed Cost" means Borrower's "book cost" (on a "FIFO" basis in accordance
with GAAP) for Eligible Inventory purchased by Borrower from a Person as
opposed to the
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actual amount paid by Borrower to said Person and Borrower's book cost may
include tax, freight and duty.
"L/C" has the meaning set forth in Section 2.2(a).
"L/C Guaranty" has the meaning set forth in Section 2.2(a).
"LIBOR Rate" means the rate set forth in the Libor Supplement.
"LIBOR SUPPLEMENT" means that certain Libor Supplement to this Agreement, a
copy of which is attached hereto as Exhibit C.
"Loan Documents" means this Agreement, the Lockbox Agreements, the Revolving
Loan Note, the Patent Security Agreement, the Libor Supplement, the Pledge
Agreement, any other note or notes executed by Borrower and payable to
Foothill, and any other agreement entered into in connection with this
Agreement.
"Lockbox Accounts" shall mean the depositary account established pursuant to
the respective Lockbox Agreements.
"Lockbox Agreements" means those certain Lockbox Operating Procedural
Agreements and those certain Depository Account Agreements, in form and
substance satisfactory to Foothill, each of which is among Borrower, Foothill,
and one of the Lockbox Banks.
"Lockbox Bank" means LaSalle National Bank.
"Maximum Amount" means at any given time the lesser of (i) Seventy Five
Million Dollars ($75,000,000) and (ii) the sum of (A) Twenty Million Dollars
($20,000,000) plus (B) the aggregate amount of commitments to participate in
Foothill's interest in the financing arrangements hereunder obtained by
Foothill from Participants acceptable to Foothill who have entered into
Participation Agreements with Foothill on terms and conditions satisfactory to
Foothill.
"Maximum Foothill Amount" means that portion of the Maximum Amount for which
Foothill shall be responsible, exclusive of any participations with
Participants, which amount is Twenty Million Dollars ($20,000,000).
"Multiemployer Plan" means a multiemployer plan as defined in Sections 3(37)
or 4001(a)(3) of ERISA or Section 414 of the IRC in which employees of Borrower
or an ERISA Affiliate participate or to which Borrower or any ERISA Affiliate
contribute or are required to contribute.
"Negotiable Collateral" means all of Borrower's present and future letters
of credit, notes, drafts, instruments, certificated and uncertificated
securities (including the shares
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of stock of subsidiaries of Borrower), documents, personal property leases
(wherein Borrower is the lessor), chattel paper, and Borrower's Books relating
to any of the foregoing.
"Obligations" means all loans, advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), contingent reimbursement obligations owing to Foothill
under any outstanding L/Cs or L/C Guarantees, premiums (including Early
Termination Premiums), liabilities (including all amounts charged to Borrower's
loan account, including any lease payments made by Foothill on behalf of the
Borrower, pursuant to any agreement authorizing Foothill to charge Borrower's
loan account), obligations, fees, guaranties, covenants, and duties owing by
Borrower to Foothill of any kind and description (whether pursuant to or
evidenced by the Loan Documents, by any note or other instrument (including the
Revolving Loan Note), or pursuant to any other agreement between Foothill and
Borrower, and irrespective of whether for the payment of money), whether direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability, or obligation owing from
Borrower to others that Foothill may have obtained by assignment or otherwise
excluding the Subordinated Debt held by any stockholders of Borrower and
further including all interest not paid when due and all Foothill Expenses that
Borrower is required to pay or reimburse by the Loan Documents, by law, or
otherwise.
"Overadvance" has the meaning set forth in Section 2.3.
"Participant" means any Person other than Foothill that has committed to
provide a portion of the financing contemplated herein. Borrower shall not be
deemed in privity with any Participant pursuant to this Agreement, and shall
only be required to comply with the terms and conditions of this Agreement.
"Participation Agreement" means an agreement between Foothill and a
Participant.
"Participated Amount" means the lesser of (i) Fifty Five Million Dollars
($55,000,000) or (ii) the amount obtained by Foothill from Participants
acceptable to Foothill who have entered into Participation Agreements with
Foothill on terms and conditions satisfactory to Foothill.
"Patent Security Agreement" means the Collateral Patent and Trademark
Assignment between Foothill and Borrower in form and content acceptable to
Foothill in the form of Exhibit A, with appropriate insertions as it may be
amended, modified or supplemented from time to time.
"PBGC" means the Pension Benefit Guaranty Corporation as defined in Title IV
of ERISA, or any successor thereto.
"Permitted Liens" means: (a) liens and security interests held by Foothill;
(b) liens for unpaid taxes that are not yet due and payable; (c) liens and
security interests set forth on Schedule P-1 attached hereto; (d) purchase
money security interests and liens of lessors under Capital Leases to the
extent that the acquisition or lease of the underlying asset was permitted
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under Section 7.10, and so long as the security interest or lien only secures
the purchase price of the asset; (e) easements, rights of way, reservations,
covenants, conditions, restrictions, zoning variances, and other similar
encumbrances that do not materially interfere with the use or value of the
property subject thereto; (f) obligations and duties as lessee under any lease
existing on the date of this Agreement; (g) mechanics', materialmen's,
warehousemen's, or similar liens that arise by operation of law and (h) liens
subject to a Permitted Protest except to the extent that such liens would have
priority over any liens held by Foothill.
"Permitted Protest" means the right of Borrower to protest any lien, tax,
rental payment, or other charge, other than any such lien or charge that
secures the Obligations, provided (i) a reserve with respect to such obligation
is established on the books of Borrower in an amount that is reasonably
satisfactory to Foothill, (ii) any such protest is instituted and diligently
prosecuted by Borrower in good faith, and (iii) Foothill is satisfied that,
while any such protest is pending, there will be no impairment of the
enforceability, validity, or priority of any of the liens or security interests
of Foothill in and to the property or assets of Borrower.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint ventures, trusts, land trusts,
business trusts, or other organizations, irrespective of whether they are legal
entities, and governments and agencies and political subdivisions thereof.
"Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA)
which Borrower or any ERISA Affiliate sponsors or maintains or to which
Borrower or any ERISA Affiliate makes, is making, or is obligated to make
contributions, including any Multiemployer Plan or Qualified Plan.
"Pledge Agreement" means that certain Pledge Agreement of even date from
Borrower pledging the Windmere Note, the Windmere Collateral and the Windmere
Stock.
"Prohibited Transaction" means any transaction described in Section 406 of
ERISA which is not exempt by reason of Section 408 of ERISA, and any
transaction described in Section 4975(c) of the IRC which is not exempt by
reason of Section 4975(c) of the IRC.
"Qualified Plan" means a pension plan (as defined in Section 3(2) of ERISA)
intended to be tax-qualified under Section 401(a) of the IRC which Borrower or
any ERISA Affiliate sponsors, maintains, or to which any such person makes, is
making, or is obligated to make, contributions, or, in the case of a
multiple-employer plan (as described in Section 4064(a) of ERISA), has made
contributions at any time during the immediately preceding period covering at
least five (5) plan years, but excluding any Multiemployer Plan.
"Reference Rate" means the highest of the most recent rate of interest, per
annum, most recently announced by NORWEST BANK MINNESOTA, N.A. as its "Prime
Rate" or "Reference Rate," as the case may be, irrespective of whether such
announced rate is the best rate available from such financial institution.
Borrower acknowledges and agrees that the Reference Rate is a reference used in
determining interest rates on certain loans by Foothill and
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is not intended to be the lowest rate of interest charged on any extension of
credit. In the event that the Reference Rate is changed from time to time
hereafter, the applicable rate of interest hereunder automatically and
immediately shall be increased or decreased by an amount equal to the Reference
Rate change.
"Renewal Date" has the meaning set forth in Section 3.3.
"Reportable Event" means any event described in Section 4043 (other than
Subsections (b)(7) and (b)(9)) of ERISA.
"Revolving Loan Note" means the Amended and Restated Revolving Loan Note
from Borrower to Foothill in the original amount of Seventy Five Million
Dollars ($75,000,000) in the form of Exhibit B with appropriate insertions, as
the same may be amended or modified from time to time.
"Solvent" means, with respect to any Person on a particular date, that on
such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not
engaged in business or a transaction, and is not about to engage in business or
a transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"Subordinated Debt" shall mean the indebtedness set forth on Schedule S-1
attached hereto.
"Tangible Net Worth" means, as of the date any determination thereof is to
be made, the difference of: (a) Borrower's total stockholder's equity; minus
(b) the sum of: (i) all intangible assets of Borrower; and (ii) all amounts
due to Borrower from Affiliates, except the amount due to Borrower from
Windmere - Durable Holdings, Inc. pursuant to the Windmere Note calculated on a
consolidated basis in accordance with GAAP.
"Unfunded Benefit Liability" means the excess of a Plan's benefit
liabilities (as defined in Section 4001(a)(16) of ERISA) over the current value
of such Plan's assets, determined in accordance with the assumptions used by
the Plan's actuaries for funding the Plan pursuant to Section 412 of the IRC
for the applicable plan year.
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"Unused Line Fee" has the meaning set forth in Section 2.7.
"Voidable Transfer" has the meaning set forth in Section 15.8.
"Windmere Common Stock" means 748,112 shares of Windmere-Durable Holdings,
Inc. f/k/a Windmere Corporation common stock owned by Borrower and pledged to
Foothill pursuant to the Pledge Agreement or any additional shares of the
common stock of Windmere obtained by Borrower and pledged to Foothill pursuant
to the Pledge Agreement.
"Windmere Collateral" means the assets of Windmere-Durable Holdings, Inc.
f/k/a Windmere Corporation pledged to Borrower to secure payment of the
Windmere Note pursuant to the terms of that certain Security Agreement from
Windmere Corporation as debtor to Borrower as secured party.
"Windmere Guaranty" means those certain Guaranty Agreements from each
domestic subsidiary of Windmere-Durable Holdings, Inc. in favor of Borrower to
guaranty payment of the Windmere Note.
"Windmere Note" means that certain Promissory Note executed by Windmere
Corporation and now known as Windmere-Durable Holdings, Inc. in favor of
Borrower in the original principal amount of $10,847,620.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrower on a consolidated basis
unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in the Code
shall be construed and defined as set forth in the Code unless otherwise
defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular, references to the
singular include the plural, the term "including" is not limiting, and the term
"or" has, except where otherwise indicated, the inclusive meaning represented
by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder,"
and similar terms in this Agreement refer to this Agreement as a whole and not
to any particular provision of this Agreement. Section, subsection, clause,
schedule, and exhibit references are to this Agreement unless otherwise
specified. Any reference in this Agreement or in the Loan Documents to this
Agreement or any of the Loan Documents shall include all alterations,
amendments, changes, extensions, modifications, renewals, replacements,
substitutions, and supplements, thereto and thereof, as applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits attached to
this Agreement shall be deemed incorporated herein by reference.
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2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES. (a) Subject to the terms and conditions of this
Agreement, Foothill agrees to make revolving advances to Borrower in an amount
at any one time outstanding not to exceed the Borrowing Base less forty five
percent (45%) of the undrawn or unreimbursed amount of L/Cs and L/C Guarantees
outstanding hereunder. For purposes of this Agreement, "Borrowing Base", as of
any date of determination, shall mean the sum of: (i) an amount equal to eighty
percent (80%) of the amount of Eligible Accounts plus (ii) an amount equal to
the lowest of: (x) the sum of (A) sixty percent (60%) of the amount of Eligible
Inventory consisting of finished goods inventory and In Transit Inventory or
seventy five percent (75%) of the amount of Eligible Inventory consisting of
finished goods inventory and In Transit Inventory during the months of June,
July, August, September, October, November and December (including up to Eight
Million Dollars ($8,000,000) of In Transit Inventory or Twelve Million Dollars
($12,000,000) of In Transit Inventory in June, July, August, September,
October, November and December) plus (B) twenty five percent (25%) of the
amount of Eligible Inventory consisting of returned inventory up to One Million
Dollars ($1,000,000) plus (C) fifteen percent (15%) of the amount of Eligible
Inventory consisting of replacement parts or accessories inventory up to Five
Hundred Thousand Dollars ($500,000); (y) Thirty Million Dollars ($30,000,000)
or Forty Million Dollars ($40,000,000) during the months of June, July, August,
September, October, November and December plus (iii) an amount equal to the
lowest of Seven Million Five Hundred Thousand Dollars ($7,500,000) or seventy
five percent (75%) of the value from time to time of the Windmere Common Stock
as reflected on the New York Stock Exchange under the symbol "WND".
(b) Anything to the contrary in Section 2.1(a) above notwithstanding,
Foothill may reduce its advance rates based upon Eligible Accounts or Eligible
Inventory or the Windmere Common Stock without declaring an Event of Default if
it determines, in its reasonable discretion, that there is a material impairment
of the prospect of repayment of all or any portion of the Obligations or a
material impairment of the value or priority of Foothill's security interests in
the Collateral.
(c) Foothill shall have no obligation to make advances hereunder to
the extent they would cause the outstanding Obligations, including funds
advanced by any Participant to exceed the Maximum Amount provided however
that it is expressly understood that Foothill shall have no obligation to
individually make advances hereunder in excess of the Maximum Foothill Amount.
(d) Foothill is authorized to make advances under this Agreement based
upon telephonic or other instructions received from anyone purporting to be an
Authorized Officer of Borrower, or without instructions if pursuant to Section
2.4(d). Borrower agrees to establish and maintain a single designated deposit
account (the "Designated Deposit Account") for the purpose of receiving the
proceeds of the advances requested by Borrower and made by Foothill hereunder.
Unless otherwise agreed by Foothill and Borrower, any advance requested by
Borrower and made by Foothill hereunder shall be made to the Designated Deposit
Account.
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Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to the
terms and conditions of this Agreement, reborrowed at any time during the term
of this Agreement.
2.2 LETTERS OF CREDIT AND LETTER OF CREDIT GUARANTEES.
(a) Subject to the terms and conditions of this Agreement, Foothill
agrees to issue commercial or standby letters of credit for the account of
Borrower (each, an "L/C") or to issue standby letters of credit or guarantees
of payment (each such letter of credit or guaranty, an "L/C Guaranty") with
respect to commercial or standby letters of credit issued by another Person for
the account of Borrower in an aggregate face amount not to exceed the lesser
of: (i) the Borrowing Base less the amount of advances outstanding pursuant to
Section 2.1, and (ii) Five Million Dollars ($5,000,000) or Seven Million
Dollars ($7,000,000) during the months of July, August and September. Borrower
expressly understands and agrees that Foothill shall have no obligation to
arrange for the issuance by other financial institutions of letters of credit
that are to be the subject of L/C Guarantees. Borrower and Foothill
acknowledge and agree that certain of the letters of credit that are to be the
subject of L/C Guarantees may be outstanding on the Closing Date. Each L/C and
each letter of credit that is the subject of an L/C Guaranty shall have an
expiry date no later than twenty (20) days prior to the date on which this
Agreement is scheduled to terminate under Section 3.3 (without regard to any
potential renewal term) and all such L/Cs and letters of credit (and the
applicable L/C Guarantees) shall be in form and substance acceptable to
Foothill in its sole discretion. Foothill shall not have any obligation to
issue L/Cs or L/C Guarantees to the extent that the face amount of all
outstanding L/Cs and L/C Guarantees, plus the amount of advances outstanding
pursuant to Section 2.1, would, including funds advanced by any Participant,
exceed the Maximum Amount provided, however that it is expressly understood
that Foothill shall not have any obligation to individually issue L/Cs or L/C
Guarantees to the extent that the full amount of all outstanding L/Cs or L/C
Guarantees issued by Foothill plus the amount of advances outstanding from
Foothill pursuant to Section 2.1 would exceed the Maximum Foothill Amount. The
L/Cs and the L/C Guarantees issued under this Section 2.2 shall be used by
Borrower, consistent with this Agreement, for its general working capital
purposes or to support its obligations with respect to workers' compensation
premiums or other similar obligations. If Foothill is obligated to advance
funds under an L/C or L/C Guaranty, the amount so advanced immediately shall be
deemed to be an advance made by Foothill to Borrower pursuant to Section 2.1
and, thereafter, shall bear interest at the rates then applicable under Section
2.5.
(b) Borrower hereby agrees to indemnify, save, defend, and hold Foothill
harmless from any loss, cost, expense, or liability including any Foothill
Expenses arising out of or in connection with any L/Cs or L/C Guarantees.
Borrower agrees to be bound by the issuing bank's regulations and
interpretations of any letters of credit guarantied by Foothill and opened to
or for Borrower's account or by Foothill's interpretations of any L/C issued by
Foothill to or for Borrower's account, even though this interpretation may be
different from Borrower's own, and Borrower understands and agrees that
Foothill shall not be liable for any error, negligence, or mistakes, whether of
omission or commission, in following Borrower's instructions or those contained
in the L/Cs or any modifications, amendments, or supplements thereto except for
Foothill's gross negligence. Borrower understands that the L/C Guarantees
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may require Foothill to indemnify the issuing bank for certain costs or
liabilities arising out of claims by Borrower against such issuing bank.
Borrower hereby agrees to indemnify, save, defend, and hold Foothill harmless
with respect to any loss, cost, expense (including attorneys fees), or
liability incurred by Foothill under any L/C Guaranty as a result of Foothill's
indemnification of any such issuing bank except for Foothill's gross negligence
or willful misconduct.
(c) Borrower hereby authorizes and directs any bank that issues a
letter of credit guaranteed by Foothill to deliver to Foothill all instruments,
documents, and other writings and property received by the issuing bank pursuant
to such letter of credit, and to accept and rely upon Foothill's instructions
and agreements with respect to all matters arising in connection with such
letter of credit and the related application. Borrower may or may not be the
"applicant" or "account party" with respect to such letter of credit.
(d) Any and all service charges, commissions, fees, and costs incurred
by Foothill relating to the letters of credit guaranteed by Foothill shall be
considered Foothill Expenses for purposes of this Agreement and immediately
shall be reimbursable by Borrower to Foothill. On the first day of each month,
Borrower shall pay Foothill a fee in arrears equal to one and three quarters
percent (1.75%) per annum times the average Daily Balance of the L/Cs and L/C
Guarantees that were outstanding during the immediately preceding month issued
by Foothill or by another Person at Foothill's direction for the account of
Borrower plus service charges, commissions and costs. Service charges,
commissions, fees, and costs may be charged to Borrower's loan account at the
time the service is rendered or the cost is incurred.
(e) Immediately upon the termination of this Agreement, Borrower agrees
to either: (i) provide cash collateral to be held by Foothill in an interest
bearing account in an amount equal to the maximum amount of Foothill's
obligations under L/Cs plus the maximum amount of Foothill's obligations to any
Person under outstanding L/C Guarantees, or (ii) cause to be delivered to
Foothill releases of all of Foothill's obligations under its outstanding L/Cs
and L/C Guarantees. At Foothill's discretion, any proceeds of Collateral
received by Foothill after the occurrence and during the continuation of an
Event of Default may be held as the cash collateral required by this Section
2.2(e) but said proceeds need not be held in an interest bearing account,
Foothill shall have no obligation upon termination of this Agreement to release
its lien on any of the Collateral until Borrower has complied with the
provisions of this Section 2.2(e).
2.3 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Foothill pursuant to Sections 2.1 and 2.2 is
greater than either the dollar or percentage limitations set forth in Sections
2.1 or 2.2 (an "Overadvance"), Borrower immediately shall pay to Foothill, in
cash, the amount of such excess to be used by Foothill first, to repay
non-contingent Obligations and, thereafter, to be held by Foothill as cash
collateral to secure Borrower's obligation to repay Foothill for all amounts
paid pursuant to L/Cs or L/C Guarantees.
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2.4 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. Guarantees shall bear interest pursuant to this
Section. Except as provided to the contrary in this Section 2.4(a) and Section
2.4(b) all Obligations, except for undrawn L/Cs and L/C Guarantees shall bear
interest on the average Daily Balance at a per annum rate of one (1%) percentage
point above the Reference Rate except if the Borrower meets projected EBITDA as
of June 30, 1998 of Eleven Million Five Hundred Thousand Dollars ($11,500,000)
as reflected on its audited financial statements, then all obligations, except
for undrawn L/Cs and L/C Guarantees, shall bear interest on the average Daily
Balance at a rate per annum of three quarters of one (0.75%) percentage point
above the Reference Rate. The reduced Interest Rate shall be effective as of
the first Business Day of the first month following the receipt and approval by
Foothill of the audited financial statements of the Borrower reflecting EBITDA
as of June 30, 1998 of $11,500,000.
(b) LIBOR OPTION. Provided there is no Event of Default in existence
hereunder or event which with the passage of time would become an Event of
Default, Borrower shall have the option to have interest calculated on an
amount equal to seventy five percent (75%) of the projected average Daily
Balance in accord with the Libor Supplement.
(c) Default Rate. All Obligations, except for undrawn L/Cs and L/C
Guarantees, shall bear interest, from and after the occurrence and during the
continuance of an Event of Default, at a per annum rate equal to four (4%)
percentage points above the Interest Rate in effect from time to time pursuant
to Section 2.4(a). From and after the occurrence and during the continuance of
an Event of Default, the fee provided in Section 2.2(d) shall be increased to a
fee equal to six percent (6%) per annum times the average Daily Balance of the
undrawn L/Cs and L/C Guarantees that were outstanding during the immediately
preceding month.
(d) Minimum Interest. In no event shall the rate of interest
chargeable hereunder be less than six and three quarters percent (6.75%) per
annum.
(e) Payments. Interest hereunder shall be due and payable, in
on the first day of each month during the term hereof. Borrower hereby
authorizes Foothill, at its option, without prior notice to Borrower, to charge
such interest, all Foothill Expenses (as and when incurred), and all
installments or other payments due under the Revolving Loan Note or any other
note or other Loan Document to Borrower's loan account, which amounts thereafter
shall accrue interest at the rate then applicable hereunder. Any interest not
paid when due shall be compounded by becoming a part of the Obligations, and
such interest shall thereafter accrue interest at the rate then applicable
hereunder.
(f) Computation. The Reference Rate as of the date of this Agreement
is eight and one half percent (8.5%) per annum. In the event the Reference Rate
is changed from time to time hereafter, the applicable rate of interest
hereunder automatically and immediately shall be increased or decreased by an
amount equal to such change in the Reference
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Rate. All interest and fees chargeable under the Loan Documents shall be
computed on the basis of a three hundred sixty (360) day year and charged for
the actual number of days elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. In no event shall
the interest rate or rates payable under this Agreement, plus any other amounts
paid in connection herewith, exceed the highest rate permissible under any law
that a court of competent jurisdiction shall, in a final determination, deem
applicable. Borrower and Foothill, in executing this Agreement, intend legally
to agree upon the rate or rates of interest and manner of payment stated within
it; provided, however, that, anything contained herein to the contrary
notwithstanding, if said rate or rates of interest or manner of payment exceeds
the maximum allowable under applicable law, then, ipso facto as of the date of
this Agreement, Borrower is and shall be liable only for the payment of such
maximum as allowed by law, and payment received from Borrower in excess of such
legal maximum, whenever received, shall be applied to reduce the principal
balance of the Obligations to the extent of such excess.
2.5 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The receipt of any
wire transfer of funds, check, or other item of payment by Foothill (whether
from transfers to Foothill by the Lockbox Banks pursuant to the Lockbox
Agreements or otherwise) immediately shall be applied to provisionally reduce
the Obligations, and thus increase availability pursuant to the Borrowing Base,
but shall not be considered a payment on account unless such wire transfer is
of immediately available federal funds and is made to the appropriate deposit
account of Foothill or unless and until such check or other item of payment is
honored when presented for payment. From and after the Closing Date, Foothill
shall be entitled to charge Borrower for two (2) Business Days of `clearance'
at the Interest Rate set forth in Section 2.4(a)(i), as applicable, on all
collections, checks, wire transfers, or other items of payment that are
received by Foothill (regardless of whether forwarded by the Lockbox Banks to
Foothill, whether provisionally applied to reduce the Obligations, or
otherwise). This across-the-board two (2) Business Day clearance charge on all
receipts is acknowledged by the parties to constitute an integral aspect of the
pricing of Foothill's facility to Borrower, and shall apply irrespective of the
characterization of whether receipts are owned by Borrower or Foothill, and
irrespective of the level of Borrower's Obligations to Foothill. Should any
check or item of payment not be honored when presented for payment, then
Borrower shall be deemed not to have made such payment, and interest shall be
recalculated accordingly. Anything to the contrary contained herein
notwithstanding, any wire transfer, check, or other item of payment shall be
deemed received by Foothill only if it is received into Foothill's Operating
Account (as such account is identified in the Lockbox Agreements) on or before
11:00 a.m. Los Angeles time. If any wire transfer, check, or other item of
payment is received into Foothill's Operating Account (as such account is
identified in the Lockbox Agreements) after 11:00 a.m. Los Angeles time it
shall be deemed to have been received by Foothill as of the opening of business
on the immediately following Business Day.
2.6 STATEMENTS OF OBLIGATIONS. Foothill shall render monthly statements
to Borrower of the Obligations, including principal, interest, fees, and
including an itemization of all charges and expenses constituting Foothill
Expenses owing, and such statements shall be conclusively presumed to be
correct and accurate and constitute an account stated between
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Borrower and Foothill unless, within thirty (30) days after receipt thereof by
Borrower, Borrower shall deliver to Foothill by registered or certified mail at
its address specified in Section 12, written objection thereto describing the
error or errors contained in any such statements.
2.7 FEES. Borrower shall pay to Foothill the following fees:
(a) Closing Fee. A one time closing fee of Two Hundred Eighty One
Thousand Two Hundred Fifty Dollars ($281,250) which is earned, in full, on the
Closing Date and is due and payable by Borrower to Foothill as follows: (i)
$70,314 on the Closing Date, (ii) $70,312 on August 1, 1997, (iii) $70,312 on
September 30, 1997 and (iv) $70,312 on December 31, 1997;
(b) Unused Line Fee. On the first day of each month during the term
of this Agreement, a fee in an amount equal to one quarter of one percent
(0.25%) per annum times the Average Unused Portion of the Maximum Amount;
(c) Financial Examination, Documentation, and Appraisal Fees.
Foothill's customary fee of Six Hundred Dollars ($600) per day per examiner,
plus out-of-pocket expenses for each financial analysis and examination of
Borrower performed by Foothill or its agents; Foothill's customary appraisal fee
of One Thousand Dollars ($1,000) per day per appraiser, plus out-of-pocket
expenses for each appraisal of the Collateral performed by Foothill or its
agents; and, on each anniversary of the Closing Date, Foothill's customary fee
of One Thousand Dollars ($1,000) per year for its loan documentation review; and
(d) Collateral Management Fee. On the first day of each month during
the term of this Agreement, and thereafter so long as any Obligations are
outstanding, a collateral management fee in an amount equal to Three Thousand
Dollars ($3,000) per month.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE, L/C, OR L/C GUARANTY. The
obligation of Foothill to make advances or to provide L/Cs or an L/C Guaranty
after the Closing Date is subject to the fulfillment, to the satisfaction of
Foothill and its counsel, of each of the following conditions on or before the
Closing Date:
(a) Foothill shall have received searches reflecting the filing of its
financing statements and fixture filings so that the security interest granted
hereunder shall, after payment to the Old Lender and subordination by the Old
Lender, give to Foothill a senior, perfected lien in all of the Collateral
including all trade names, trademarks and patents of Borrower except for
Permitted Liens and except with respect to tooling located outside the United
States.
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(b) In addition to the execution of this Agreement, Foothill shall have
received each of the following documents, duly executed, and each such document
shall be in full force and effect:
i) the Lockbox Agreements;
ii) the Amended and Restated Revolving Loan Note in the amount of
$75,000,000;
iii) Participation Agreements;
iv) the Patent Security Agreement;
(c) Foothill shall have received a certificate from the Secretary of
Borrower attesting to the resolutions of Borrower's Board of Directors
authorizing its execution and delivery of this Agreement and the other Loan
Documents to which Borrower is a party and authorizing specific officers of
Borrower to execute same;
(d) Foothill shall have received copies of Borrower's By-laws and
Certificate of Incorporation, as amended, modified, or supplemented to the
Closing Date, certified by the Secretary of Borrower;
(e) Foothill shall have received ten (10) days prior to the Closing Date
a copy, duly certified by the Secretary of State of Delaware, of Borrower's
Certificate of Incorporation;
(f) Foothill shall have received a certificate of corporate status with
respect to Borrower, dated ten (10) days prior to the Closing Date, by the
Secretary of State of the state of incorporation of Borrower, which certificate
shall indicate that Borrower is in good standing in such state;
(g) Foothill shall have received certificates of corporate status with
respect to Borrower, each dated within fifteen (15) days of the Closing Date,
such certificates to be issued by the Secretary of State of the states in which
its failure to be duly qualified or licensed would have a material adverse
effect on the financial condition or properties and assets of Borrower, which
certificates shall indicate that Borrower is in good standing;
(h) Foothill shall have received the certified copies of the policies of
insurance, together with the endorsements thereto, as are required by Section
6.12 hereof, the form and substance of which shall be satisfactory to Foothill
and its counsel;
(i) Foothill shall have received duly executed certificates of title with
respect to that portion of the Collateral that is subject to certificates of
title;
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(j) Foothill shall have received landlord waivers and, if requested by
Foothill, mortgagee waivers from the lessors and mortgagees of the locations
where the Inventory or Equipment is located;
(k) Foothill shall have received an opinion of Borrower's counsel in form
and substance satisfactory to Foothill in its sole discretion;
(l) Foothill shall have received satisfactory evidence that all returns
required to be filed by Borrower have been timely filed and all taxes upon
Borrower or its properties, assets, income and franchises (including Real
Property taxes and payroll taxes) have been paid prior to delinquency, except
such taxes that are the subject of a Permitted Protest; and
(m) Foothill shall be satisfied that the Borrower is Solvent and shall
remain Solvent following the consummation of the transactions contemplated by
this Agreement.
(n) If not funded from Borrower's loan account, Foothill shall have
received the Closing Fee referred to in Section 2.7(a).
(o) all other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered or
executed or recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES, L/CS, OR L/C GUARANTEES. The
following shall be conditions precedent to all advances, L/Cs, or L/C
Guarantees hereunder:
(a) the representations and warranties contained in this Agreement and
the other Loan Documents shall be true and correct in all respects on and as of
the date of such advance, L/C, or L/C Guaranty, as though made on and as of
such date (except to the extent that such representations and warranties relate
solely to an earlier date);
(b) no Event of Default or event which with the giving of notice or
passage of time would constitute an Event of Default shall have occurred and be
continuing on the date of such advance, L/C, or L/C Guaranty, nor shall either
result from the making thereof; and
(c) no injunction, writ, restraining order, or other order of any nature
prohibiting, directly or indirectly, the making of such advance or the issuance
of such L/C or L/C Guaranty shall have been issued and remain in force by any
governmental authority against Borrower, Foothill, or any of their Affiliates.
3.3 TERM; AUTOMATIC RENEWAL. This Agreement shall become effective upon
the execution and delivery hereof by Borrower and Foothill, and this Agreement
shall continue in full force and effect for a term ending on September 30, 2000
(the "Renewal Date"). Unless sooner terminated pursuant to the terms hereof,
this Agreement shall be renewed for successive one (1) year periods thereafter.
Either party may terminate this Agreement effective on the
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Renewal Date or on any anniversary of the Renewal Date by giving the other
party at least ninety (90) days prior written notice by registered or certified
mail, return receipt requested. The foregoing notwithstanding, Foothill shall
have the right to terminate its obligations under this Agreement immediately
and without notice upon the occurrence and during the continuation of an Event
of Default.
3.4 EFFECT OF TERMINATION. On the date of termination, all Obligations
(including contingent reimbursement obligations under any outstanding L/Cs or
L/C Guarantees) immediately shall become due and payable without notice or
demand. No termination of this Agreement, however, shall relieve or discharge
Borrower of Borrower's duties, Obligations, or covenants hereunder, and
Foothill's continuing security interests in the Collateral shall remain in
effect until all Obligations have been fully and finally discharged and
Foothill's obligation to provide advances hereunder is terminated. If Borrower
has sent a notice of termination pursuant to the provisions of Section 3.3, but
fails to pay all Obligations on the date set forth in said notice, then
Foothill may, but shall not be required to, renew this Agreement for an
additional term of one (1) year.
3.5 EARLY TERMINATION BY BORROWER. The provisions of Section 3.3 that
allow termination of this Agreement by Borrower only on the Renewal Date and
certain anniversaries thereof notwithstanding, Borrower has the option, at any
time upon sixty (60) days prior written notice to Foothill, to terminate this
Agreement by paying to Foothill, in cash, the Obligations (including an amount
equal to the full amount of the L/Cs or L/C Guarantees), together with a
premium (the "Early Termination Premium") equal to (a) One percent (1%) of the
lesser of the Maximum Amount or the Maximum Foothill Amount plus the
Participated Amount if this Agreement is terminated on or prior to September
30, 1998 or (b) One Half percent (0.5%) of the lesser of the Maximum Amount or
the Maximum Foothill Amount plus the Participated Amount if this Agreement is
terminated after the September 30, 1998 but on or before September 30, 1999 or
(c) One quarter of one percent (0.25%) of the lesser of the Maximum Amount or
the Maximum Foothill Amount plus the Participated Amount if this Agreement is
terminated after September 30, 1999 but on or before September 30, 2000.
Notwithstanding the foregoing, in the event that a Participant terminates its
commitment with Foothill and Foothill is unable to find another participant to
advance up to the Participated Amount or Foothill is unwilling to increase the
Maximum Foothill Amount to Twenty Five Million Dollars ($25,000,000), then the
Borrower may, upon fifteen (15) days prior written notice to Foothill,
terminate this Agreement without any Early Termination Premium by paying
Foothill in cash, the Obligations (including an amount equal to the full amount
of the L/Cs or L/C Guarantees).
3.6 TERMINATION UPON CHANGE OF OWNERSHIP. Notwithstanding the provision
of Section 3.5, in the event of a Change of Ownership, excluding a Change of
Ownership to Windmere-Durabable Holdings, Inc., Borrower may upon sixty (60)
days prior written notice to Foothill after the Change of Ownership terminate
this Agreement by paying to Foothill in cash, the Obligations (including an
amount equal to the full amount of the L/Cs or L/C Guarantees) together with a
premium (the "Change of Ownership Premium") equal to (a) One percent (1.%) of
the lesser of the Maximum Amount or the Maximum Foothill Amount plus the
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Participated Amount if this Agreement is terminated on or prior to September
30, 1998 or (b) One Half percent (.50%) of the lesser of the Maximum Amount or
the Maximum Foothill Amount plus the Participated Amount if this Agreement is
terminated after September 30, 1998 but on or before September 30, 1999 or (c)
One Quarter percent (.25%) of the lesser of the Maximum Amount or the Maximum
Foothill Amount plus the Participated Amount if this Agreement is terminated
after September 30, 1999, but on or before September 30, 2000.
3.7 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates this
Agreement upon the occurrence of an Event of Default, including a violation of
Section 7.9, in view of the impracticability and extreme difficulty of
ascertaining actual damages and by mutual agreement of the parties as to a
reasonable calculation of Foothill's lost profits as a result thereof, Borrower
shall pay to Foothill upon the effective date of such termination, a premium in
an amount equal to the Early Termination Premium. The Early Termination
Premium shall be presumed to be the amount of damages sustained by Foothill as
the result of the early termination and Borrower agrees that it is reasonable
under the circumstances currently existing. The Early Termination Premium
provided for in this Section 3.7 shall be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to Foothill a
continuing security interest in all currently existing and hereafter acquired
or arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of
its covenants and duties under the Loan Documents. Foothill's security
interests in the Collateral shall attach to all Collateral without further act
on the part of Foothill or Borrower. Anything contained in this Agreement or
any other Loan Document to the contrary notwithstanding, except for the sale of
Inventory to buyers in the ordinary course of business and the delivery of
tooling to vendors of the Borrower located outside of the United States,
Borrower has no authority, express or implied, to dispose of any item or
portion of the Collateral.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, Borrower shall,
immediately upon the request of Foothill, endorse and assign such Negotiable
Collateral to Foothill and deliver physical possession of such Negotiable
Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, NEGOTIABLE COLLATERAL.
On or before the Closing Date, Foothill, Borrower, and the Lockbox Banks shall
enter into the Lockbox Agreements, in form and substance satisfactory to
Foothill in its sole discretion, pursuant to which all of Borrower's cash
receipts, checks, and other items of payment (including, insurance proceeds,
proceeds of cash sales, rental proceeds, and tax refunds) will be forwarded to
Foothill on a daily basis. At any time after an Event of Default or if
Foothill deems itself insecure (in accordance with Section 1208 of the Code),
Foothill or Foothill's designee may: (a) notify customers or Account Debtors of
Borrower that the Accounts, General
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Intangibles, or Negotiable Collateral have been assigned to Foothill or that
Foothill has a security interest therein; and (b) collect the Accounts, General
Intangibles, and Negotiable Collateral directly and charge the collection costs
and expenses to Borrower's loan account. Borrower agrees that it will hold in
trust for Foothill, as Foothill's trustee, any cash receipts, checks, and other
items of payment (including, insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds) that it receives and immediately will deliver said
cash receipts, checks, and other items of payment to Foothill in their original
form as received by Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time upon the
request of Foothill, Borrower shall execute and deliver to Foothill all
financing statements, continuation financing statements, fixture filings,
security agreements, chattel mortgages, pledges, assignments, endorsements of
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that
Foothill may reasonably request, in form satisfactory to Foothill, to perfect
and continue perfected Foothill's security interests in the Collateral, and in
order to fully consummate all of the transactions contemplated hereby and under
the other the Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes, constitutes,
and appoints Foothill (and any of Foothill's officers, employees, or agents
designated by Foothill) as Borrower's true and lawful attorney, with power to:
(a) if Borrower refuses to, or fails timely to execute and deliver any of the
documents described in Section 4.4, sign the name of Borrower on any of the
documents described in Section 4.4; (b) at any time that an Event of Default
has occurred and is continuing or Foothill deems itself insecure (in accordance
with Section 1208 of the Code), sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to Account
Debtors; (c) send requests for verification of Accounts; (d) endorse Borrower's
name on any checks, notices, acceptances, money orders, drafts, or other item
of payment or security that may come into Foothill's possession; (e) at any
time that an Event of Default has occurred and is continuing or Foothill deems
itself insecure (in accordance with Section 1208 of the Code), notify the post
office authorities to change the address for delivery of Borrower's mail to an
address designated by Foothill, to receive and open all mail addressed to
Borrower, and to retain all mail relating to the Collateral and forward all
other mail to Borrower; (f) at any time that an Event of Default has occurred
and is continuing or Foothill deems itself insecure (in accordance with Section
1208 of the Code), make, settle, and adjust all claims under Borrower's
policies of insurance and make all determinations and decisions with respect to
such policies of insurance; and (g) at any time that an Event of Default has
occurred and is continuing or Foothill deems itself insecure (in accordance
with Section 1208 of the Code), settle and adjust disputes and claims
respecting the Accounts directly with Account Debtors, for amounts and upon
terms which Foothill determines to be reasonable, and Foothill may cause to be
executed and delivered any documents and releases which Foothill determines to
be necessary. The appointment of Foothill as Borrower's attorney, and each and
every one of Foothill's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully and finally repaid and
performed and Foothill's obligation to extend credit hereunder is terminated.
Notwithstanding anything to the contrary in this Section 4.5, unless there is
an Event of Default or Foothill deems itself insecure (in accordance with
Section
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1208 of the Code), Foothill will only send requests for verification of
Accounts in a fictitious name.
4.6 RIGHT TO INSPECT. Foothill (through any of its officers, employees,
or agents) shall have the right, from time to time hereafter to inspect
Borrower's Books and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, quality, value, condition
of, or any other matter relating to, the Collateral provided, however, that
unless there is an Event of Default or Foothill deems itself insecure (in
accord with Section 1208 of the Code), any inspection as aforesaid shall only
be made during Borrower's normal business hours.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Foothill as follows:
5.1 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title
to the Collateral, free and clear of liens, claims, security interests, or
encumbrances, except for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are, at the time of the
creation thereof and as of each date on which Borrower includes them in a
Borrowing Base calculation or certification, bona fide existing obligations
created by the sale and delivery of Inventory to Account Debtors in the ordinary
course of Borrower's business, unconditionally owed to Borrower without material
defenses, disputes, offsets, counterclaims, or rights of return or
cancellation. The property giving rise to such Eligible Accounts has been
delivered to the Account Debtor, or to the Account Debtor's agent or to a third
party transportation service for immediate shipment to and unconditional
acceptance by the Account Debtor. At the time of the creation of an Eligible
Account and as of each date on which Borrower includes an Eligible Account in a
Borrowing Base calculation or certification, Borrower has not received notice
of actual or imminent bankruptcy, insolvency, or material impairment of the
financial condition of any applicable Account Debtor regarding such Eligible
Account.
5.3 ELIGIBLE INVENTORY. All Eligible Inventory is now and at all
times hereafter shall be of good and merchantable quality, free from defects.
5.4 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and Equipment
are not stored with a bailee, warehouseman, or similar party (without Foothill's
prior written consent) and are located only at the locations identified on
Schedule 6.15 or otherwise permitted by Section 6.15 except for tooling located
outside of the United States.
5.5 INVENTORY RECORDS. Borrower now keeps, and hereafter at all
times shall keep, correct and accurate records itemizing and describing the
kind, type, quality, and quantity of the Inventory, and Borrower's cost
therefor.
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5.6 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief executive office
of Borrower is located at the address indicated in the preamble to this
Agreement and Borrower's FEIN is 36-3777824.
5.7 DUE ORGANIZATION AND QUALIFICATION; NO SUBSIDIARIES. Borrower is duly
organized and existing and in good standing under the laws of the state of its
incorporation and qualified and licensed to do business in, and in good
standing in, any state where the failure to be so licensed or qualified could
reasonably be expected to have a material adverse effect on the business,
operations, condition (financial or otherwise), finances, or prospects of
Borrower or on the value of the Collateral to Foothill. Borrower has no
subsidiaries.
5.8 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's corporate powers, have
been duly authorized, and are not in conflict with nor constitute a breach of
any provision contained in Borrower's Articles or Certificate of Incorporation,
or By-laws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which its properties or assets may
be bound.
5.9 LITIGATION. There are no actions or proceedings pending by or against
Borrower before any court or administrative agency and Borrower does not have
knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower except for: (a) ongoing collection matters in which
Borrower is the plaintiff; (b) matters disclosed on Schedule 5.9; and (c) and
matters arising after the date hereof that, if decided adversely to Borrower,
would not materially impair the prospect of repayment of the Obligations or
materially impair the value or priority of Foothill's security interests in the
Collateral.
5.10 NO MATERIAL ADVERSE CHANGE IN FINANCIAL CONDITION. All balance
sheets, income statements and cash flow statements relating to Borrower that
have been delivered by Borrower to Foothill have been prepared in accordance
with GAAP and fairly present Borrower's financial condition as of the date
thereof and Borrower's results of operations for the period then ended subject
to normal year end adjustments. There has not been a material adverse change
in the financial condition of Borrower since the date of the latest financial
statements submitted to Foothill on or before the Closing Date.
5.11 SOLVENCY. Borrower is Solvent and will remain Solvent for the
reasonably foreseeable future following the consummation of the transactions
contemplated by this Agreement. No transfer of property is being made by
Borrower and no obligation is being incurred by Borrower in connection with the
transactions contemplated by this Agreement or the other Loan Documents with
the intent to hinder, delay, or defraud either present or future creditors of
Borrower.
5.12 EMPLOYEE BENEFITS. Each Plan is in compliance in all material
respects with the applicable provisions of ERISA and the IRC. Each Qualified
Plan and Multiemployer Plan has been determined by the Internal Revenue Service
to qualify under Section 401 of the
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IRC, and the trusts created thereunder have been determined to be exempt from
tax under Section 501 of the IRC, and, to the best knowledge of Borrower,
nothing has occurred that would cause the loss of such qualification or
tax-exempt status. There are no outstanding liabilities under Title IV of
ERISA with respect to any Plan maintained or sponsored by Borrower or any ERISA
Affiliate, nor with respect to any Plan to which Borrower or any ERISA
Affiliate contributes or is obligated to contribute which could reasonably be
expected to have a material adverse effect on the financial condition of
Borrower. No Plan subject to Title IV of ERISA has any Unfunded Benefit
Liability which could reasonably be expected to have a material adverse effect
on the financial condition of Borrower. Neither Borrower nor any ERISA
Affiliate has transferred any Unfunded Benefit Liability to a person other than
Borrower or an ERISA Affiliate or has otherwise engaged in a transaction that
could be subject to Sections 4069 or 4212(c) of ERISA which could reasonably be
expected to have a material adverse effect on the financial condition of
Borrower. Neither Borrower nor any ERISA Affiliate has incurred nor reasonably
expects to incur (x) any liability (and no event has occurred which, with the
giving of notice under Section 4219 of ERISA, would result in such liability)
under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan, or
(y) any liability under Title IV of ERISA (other than premiums due but not
delinquent under Section 4007 of ERISA) with respect to a Plan, which could, in
either event, reasonably be expected to have a material adverse effect on the
financial condition of Borrower. No application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the IRC has
been made with respect to any Plan. No ERISA Event has occurred or is
reasonably expected to occur with respect to any Plan which could reasonably be
expected to have a material adverse effect on the financial condition of
Borrower. Borrower and each ERISA Affiliate have complied in all material
respects with the notice and continuation coverage requirements of Section
4980B of the IRC.
5.13 ENVIRONMENTAL CONDITION. None of Borrower's properties or assets has
ever been used by Borrower or, to the best of Borrower's knowledge, by previous
owners or operators in the disposal of, or to produce, store, handle, treat,
release, or transport, any Hazardous Materials. None of Borrower's properties
or assets has ever been designated or identified in any manner pursuant to any
Environmental Laws as a Hazardous Materials disposal site, or a candidate for
closure pursuant to any Environmental Laws. No Environmental Lien arising
under any Environmental Laws has attached to any revenues or to any real or
personal property owned or operated by Borrower. Borrower has not received a
summons, citation, notice, or directive from the Environmental Protection
Agency or any other federal or state governmental agency concerning any action
or omission by Borrower resulting in the releasing or disposing of Hazardous
Materials into the environment or with respect to the violation of any
Environmental Laws.
5.14 AGREEMENT ENFORCEABLE. This Agreement and the Revolving Loan Note
constitute the legal, valid and binding obligations of the Borrower and are
enforceable against the Borrower in accord with their terms.
5.15 RELIANCE BY FOOTHILL; CUMULATIVE. Each warranty and representation
contained in this Agreement automatically shall be deemed repeated with each
advance or
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issuance of an L/C or L/C Guaranty and shall be conclusively presumed to have
been relied on by Foothill regardless of any investigation made or information
possessed by Foothill. The warranties and representations set forth herein
shall be cumulative and in addition to any and all other warranties and
representations that Borrower now or hereafter shall give, or cause to be
given, to Foothill.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, and
unless Foothill shall otherwise consent in writing, Borrower shall do all of the
following:
6.1 ACCOUNTING SYSTEM. Borrower shall maintain a standard and modern
system of accounting in accordance with GAAP with ledger and account cards or
computer tapes, discs, printouts, and records pertaining to the Collateral
which contain information as from time to time may be requested by Foothill.
Borrower also shall keep proper books of account showing all sales, claims, and
allowances on its Inventory.
6.2 COLLATERAL REPORTS. Borrower shall deliver to Foothill, no later
than the tenth (10th) day of each month during the term of this Agreement, a
detailed aging, by total, of the Accounts, a reconciliation statement, and a
summary aging, by vendor, of all accounts payable and any book overdraft.
Original sales invoices evidencing daily sales shall be mailed by Borrower to
each Account Debtor with, at Foothill's request, a copy to Foothill, and, at
Foothill's direction, and after an Event of Default or if Foothill shall deem
itself insecure (in accord with Section 1208 of the Code), the invoices shall
indicate on their face that the Account has been assigned to Foothill and that
all payments are to be made directly to Foothill. Borrower shall deliver to
Foothill, as Foothill may from time to time reasonably require, collection
reports, sales journals, invoices, original delivery receipts, customer's
purchase orders, shipping instructions, bills of lading, and other
documentation respecting shipment arrangements. Absent such a request by
Foothill, copies of all such documentation shall be held by Borrower as
custodian for Foothill. In addition, from time to time, Borrower shall deliver
to Foothill such other and additional information or documentation as Foothill
may request.
6.3 SCHEDULES OF ACCOUNTS. With such regularity as Foothill shall
require, Borrower shall provide Foothill with schedules describing all
Accounts. Foothill's failure to request such schedules or Borrower's failure
to execute and deliver such schedules shall not affect or limit Foothill's
security interests or other rights in and to the Accounts.
6.4 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower agrees to
deliver to Foothill: (a) as soon as available, but in any event within thirty
(30) days after the end of each Fiscal Month during each of Borrower's fiscal
years, except within forty five (45) days after the end of each fiscal quarter,
a company prepared balance sheet, income statement, and cash flow statement
covering Borrower's operations during such period; and (b) as soon as
available, but in any event within ninety (90) days after the end of each of
Borrower's fiscal years, financial statements of Borrower for each such fiscal
year, audited by independent
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certified public accountants reasonably acceptable to Foothill and certified,
without any qualifications, by such accountants to have been prepared in
accordance with GAAP, together with a certificate of such accountants addressed
to Foothill stating that such accountants do not have knowledge of the
existence of any event or condition constituting an Event of Default, or that
would, with the passage of time or the giving of notice, constitute an Event of
Default. Such audited financial statements shall include a balance sheet,
profit and loss statement, and cash flow statement, and, if prepared, such
accountants' letter to management. If Borrower is a parent company of one or
more subsidiaries, or Affiliates, or is a subsidiary or Affiliate of another
company, then, in addition to the financial statements referred to above,
Borrower agrees to deliver financial statements prepared on a consolidating
basis so as to present Borrower and each such related entity separately, and on
a consolidated basis.
Together with the above, Borrower also shall deliver to Foothill Borrower's
Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K Current
Reports, and any other filings made by Borrower with the Securities and
Exchange Commission, if any, as soon as the same are filed, or any other
information that is provided by Borrower to its shareholders, and any other
report reasonably requested by Foothill relating to the Collateral, or the
financial condition of Borrower.
Each month, together with the financial statements provided pursuant to
Section 6.4(a), Borrower shall deliver to Foothill a certificate signed by its
chief financial officer to the effect that: (i) all reports, statements, or
computer prepared information of any kind or nature delivered or caused to be
delivered to Foothill hereunder have been prepared in accordance with GAAP and
fairly present the financial condition of Borrower; (ii) Borrower is in timely
compliance with all of its covenants and agreements hereunder; (iii) the
representations and warranties of Borrower contained in this Agreement and the
other Loan Documents are true and correct in all material respects on and as of
the date of such certificate, as though made on and as of such date (except to
the extent that such representations and warranties relate solely to an earlier
date); and (iv) on the date of delivery of such certificate to Foothill there
does not exist any condition or event that constitutes an Event of Default (or,
in each case, to the extent of any non-compliance, describing such
non-compliance as to which he or she may have knowledge and what action
Borrower has taken, is taking, or proposes to take with respect thereto).
Borrower shall have issued written instructions to its independent certified
public accountants authorizing them to communicate with Foothill and to release
to Foothill whatever financial information concerning Borrower that Foothill
may request. Borrower hereby irrevocably authorizes and directs all auditors,
accountants, or other third parties to deliver to Foothill, at Borrower's
expense, copies of Borrower's financial statements, papers related thereto, and
other accounting records of any nature in their possession, and to disclose to
Foothill any information they may have regarding Borrower's financial
statements and financial conditions.
6.5 TAX RETURNS. Borrower agrees to deliver to Foothill copies of each of
Borrower's future federal income tax returns, and any amendments thereto,
within thirty (30) days of the filing thereof with the Internal Revenue
Service.
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6.6 INTENTIONALLY OMMITTED.
6.7 DESIGNATION OF INVENTORY. Borrower shall now and from time to time
hereafter, but not less frequently than monthly, execute and deliver to
Foothill a designation of Inventory specifying the value of Borrower's raw
materials, work in process, and finished goods, at the lower of Landed Cost or
Market Value and further specifying such other information as Foothill may
reasonably request.
6.8 RETURNS. Returns and allowances, if any, as between Borrower and its
Account Debtors shall be on the same basis and in accordance with the usual
customary practices of Borrower, as they exist at the time of the execution and
delivery of this Agreement. If, at a time when no Event of Default has
occurred and is continuing, any Account Debtor returns any Inventory to
Borrower, Borrower promptly shall determine the reason for such return and, if
Borrower accepts such return, issue a credit memorandum (with a copy to be sent
to Foothill) in the appropriate amount to such Account Debtor. If, at a time
when an Event of Default has occurred and is continuing, any Account Debtor
returns any Inventory to Borrower, Borrower promptly shall determine the reason
for such return and, if Foothill consents (which consent shall not be
unreasonably withheld), issue a credit memorandum (with a copy to be sent to
Foothill) in the appropriate amount to such Account Debtor. On a daily basis,
Borrower shall provide Foothill with a copy of its credit memo journal and
shall notify Foothill of any material disputes or claims.
6.9 TITLE TO EQUIPMENT. Upon Foothill's request, Borrower immediately
shall deliver to Foothill, properly endorsed, any and all evidences of
ownership of, certificates of title, or applications for title to any items of
Equipment.
6.10 MAINTENANCE OF EQUIPMENT. Borrower shall keep and maintain the
Equipment in good operating condition and repair (ordinary wear and tear
excepted), and make all necessary replacements thereto so that the value and
operating efficiency thereof shall at all times be maintained and preserved.
Borrower shall not permit any item of Equipment to become a fixture to real
estate or an accession to other property, and the Equipment is now and shall at
all times remain personal property.
6.11 TAXES. All assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower
or any of its property have been paid, and shall hereafter be paid in full,
before delinquency or before the expiration of any extension period. Borrower
shall make due and timely payment or deposit of all federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute
and deliver to Foothill, on demand, appropriate certificates attesting to the
payment thereof or deposit with respect thereto. Borrower will make timely
payment or deposit of all tax payments and withholding taxes required of it by
applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state, and federal income taxes, and will, upon request,
furnish Foothill with proof satisfactory to Foothill indicating that Borrower
has made such payments or deposits.
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6.12 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral and all real
property leased to Borrower insured against loss or damage by fire, theft,
explosion, sprinklers, and all other hazards and risks, and in such amounts, as
are ordinarily insured against by other owners in similar businesses. Borrower
also shall maintain business interruption, public liability, product liability,
and property damage insurance relating to Borrower's ownership and use of the
Collateral as well as insurance against larceny, embezzlement, and criminal
misappropriation.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as may be reasonably satisfactory to Foothill.
All such policies of insurance (except those of public liability and property
damage) shall contain a lender's loss payable endorsement, or an equivalent
endorsement in a form satisfactory to Foothill, showing Foothill as sole loss
payee thereof, and shall contain a waiver of warranties, and shall specify that
the insurer must give at least ten (10) days prior written notice to Foothill
before canceling its policy for any reason. Borrower shall deliver to Foothill
certified copies of such policies of insurance and evidence of the payment of
all premiums therefor. All proceeds payable under any such policy shall be
payable to Foothill to be applied on account of the Obligations.
6.13 FINANCIAL COVENANTS. Borrower shall maintain:
(a) Total Liabilities to Tangible Net Worth Ratio. A ratio of
Borrower's total liabilities divided by Tangible Net Worth of not more than five
to one (5: 1.0), measured on a fiscal quarter-end basis;
(b) Tangible Net Worth. Tangible Net Worth of at least Fifteen
Million Dollars ($15,000,000), measured on a fiscal quarter-end basis; and
(c) EBITDA. EBITDA calculated on a rolling twelve month basis of not
less than Seven Million Five Hundred Thousand Dollars ($7,500,000) measured on a
semi annual and fiscal year end basis.
6.14 NO SETOFFS OR COUNTERCLAIMS. All payments hereunder and under the
other Loan Documents made by or on behalf of Borrower shall be made without
setoff or counterclaim and free and clear of, and without deduction or
withholding for or on account of, any federal, state, or local taxes.
6.15 LOCATION OF INVENTORY AND EQUIPMENT. Except with respect to tooling
in the possession of Borrower's foreign vendors and located outside of the
United States, Borrower shall keep the Inventory and Equipment only at the
locations identified on Schedule 6.15; provided, however, that Borrower may
amend Schedule 6.15 so long as such amendment occurs by written notice to
Foothill not less than thirty (30) days prior to the date on which the
Inventory or Equipment is moved to such new location, so long as such new
location is within the continental United States, and so long as, at the time
of such written notification, Borrower
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provides any financing statements or fixture filings necessary to perfect and
continue perfected (in terms of both priority and right) Foothill's security
interests in such assets and also provides to Foothill a landlord's waiver in
form and substance satisfactory to Foothill.
6.16 COMPLIANCE WITH LAWS. Borrower shall comply with the requirements of
all applicable laws, rules, regulations, and orders of any governmental
authority, including the Fair Labor Standards Act and the Americans With
Disabilities Act, other than laws, rules, regulations, and orders the
non-compliance with which, individually or in the aggregate, would not have and
could not reasonably be expected to have a material adverse effect on the
business, operations, condition (financial or otherwise), finances, or
prospects of Borrower or on the value of the Collateral to Foothill.
6.17 EMPLOYEE BENEFITS.
(a) Borrower shall deliver to Foothill a written statement by the chief
financial officer of Borrower specifying the nature of any of the following
events and the actions which Borrower proposes to take with respect thereto
promptly, and in any event within ten (10) days of becoming aware of any of
them, and when known, any action taken or threatened by the Internal Revenue
Service, PBGC, Department of Labor, or other party with respect thereto: (i)
an ERISA Event with respect to any Plan; (ii) the incurrence of an obligation
to pay additional premium to the PBGC under Section 4006(a)(3)(E) of ERISA with
respect to any Plan; and (iii) any lien on the assets of Borrower arising in
connection with any Plan.
(b) Borrower shall also promptly furnish to Foothill copies prepared or
received by Borrower or an ERISA Affiliate of: (i) at the request of Foothill,
each annual report (Internal Revenue Service Form 5500 series) and all
accompanying schedules, actuarial reports, financial information concerning the
financial status of each Plan, and schedules showing the amounts contributed to
each Plan by or on behalf of Borrower or its ERISA Affiliates for the most
recent three (3) plan years; (ii) all notices of intent to terminate or to have
a trustee appointed to administer any Plan; (iii) all written demands by the
PBGC under Subtitle D of Title IV of ERISA; (iv) all notices required to be
sent to employees or to the PBGC under Section 302 of ERISA or Section 412 of
the IRC; (v) all written notices received with respect to a Multiemployer Plan
concerning (x) the imposition or amount of withdrawal liability pursuant to
Section 4202 of ERISA, (y) a termination described in Section 4041A of ERISA,
or (z) a reorganization or insolvency described in Subtitle E of Title IV of
ERISA; (vi) the adoption of any new Plan that is subject to Title IV of ERISA
or Section 412 of the IRC by Borrower or any ERISA Affiliate; (vii) the
adoption of any amendment to any Plan that is subject to Title IV of ERISA or
Section 412 of the IRC, if such amendment results in a material increase in
benefits or Unfunded Benefit Liability; or (viii) the commencement of
contributions by Borrower or any ERISA Affiliate to any Plan that is subject to
Title IV of ERISA or Section 412 of the IRC.
6.18 LEASES. Borrower shall pay when due all rents and other amounts
payable under any leases to which Borrower is a party or by which Borrower's
properties and assets are bound, unless such payments are the subject of a
Permitted Protest. To the extent that Borrower fails timely to make payment of
such rents and other amounts payable when due under its leases,
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Foothill shall be entitled, in its discretion, and without the necessity of
declaring an Event of Default, to reserve an amount equal to such unpaid
amounts from the loan availability created under Section 2.1 hereof.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, Borrower will
not do any of the following without Foothill's prior written consent:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or otherwise
become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth in the latest financial statements of
Borrower submitted to Foothill on or prior to the Closing Date provided, however
that Borrower shall, until all obligations are paid to Foothill, not make any
payments to any holders of the Subordinated Debt except that regularly scheduled
quarterly interest payments may be made to Allied Capital Corporation pursuant
to the Second Amended and Restated 10% Subordinated Debenture, dated July 28,
1994;
(c) Indebtedness secured by Permitted Liens; and
(d) refinancings, renewals, or extensions of Indebtedness permitted
under clauses (b) and (c) of this Section 7.1 (and continuance or renewal of any
Permitted Liens associated therewith) so long as: (i) the terms and conditions
of such refinancings, renewals, or extensions do not materially impair the
prospects of repayment of the Obligations by Borrower, (ii) the net cash
proceeds of such refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended, (iii) such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv) to the extent that
Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to Foothill as those applicable to
the refinanced Indebtedness.
7.2 LIENS. Create, incur, assume, or permit to exist, directly or
indirectly, any lien on or with respect to any of its property or assets, of
any kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced
under Section 7.1(d) and so long as the replacement liens secure only those
assets or property that secured the original Indebtedness).
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7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any acquisition,
merger, consolidation, reorganization, or recapitalization, or reclassify its
capital stock, or liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, assign, lease, transfer, or
otherwise dispose of, in one transaction or a series of transactions, all or
any substantial part of its business, property, or assets, whether now owned or
hereafter acquired, or acquire by purchase or otherwise all or substantially
all of the properties, assets, stock, or other evidence of beneficial ownership
of any Person.
7.4 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter into any
transaction not in the ordinary and usual course of Borrower's business,
including the sale, lease, or other disposition of, moving, relocation, or
transfer, whether by sale or otherwise, of any of Borrower's properties or
assets (other than sales of Inventory to buyers in the ordinary course of
Borrower's business as currently conducted or the disposition or moving of any
tooling in the possession of Borrower's foreign vendors and located outside the
United States).
7.5 CHANGE NAME. Change Borrower's name, FEIN, business structure, or
identity, or add any new fictitious name.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable with
respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to Foothill.
7.7 RESTRUCTURE. Make any change in Borrower's financial structure, the
principal nature of Borrower's business operations, or the date of its fiscal
year.
7.8 PREPAYMENTS. Except in connection with a refinancing permitted by
Section 7.1(d), prepay any Indebtedness owing to any third Person.
7.9 CHANGE OF OWNERSHIP. Cause, permit, or suffer, directly or
indirectly, any Change of Ownership except a Change of Ownership, to
Windmere-Durable Holdings, Inc.
7.10 CAPITAL EXPENDITURES. Make any capital expenditure, or any commitment
therefor, in excess of Two Million Dollars ($2,000,000) for any individual
transaction or where the aggregate amount of such capital expenditures, made or
committed for in any fiscal year, is in excess of Four Million Dollars
($4,000,000).
7.11 CONSIGNMENTS. Consign any Inventory or sell any Inventory on bill and
hold, sale or return, sale on approval, or other conditional terms of sale.
7.12 DISTRIBUTIONS. Make any distribution or declare or pay any dividends
(in cash or in stock) on, or purchase, acquire, redeem, or retire any of
Borrower's capital stock, of any class, whether now or hereafter outstanding.
7.13 ACCOUNTING METHODS. Modify or change its method of accounting or
enter into, modify, or terminate any agreement currently existing, or at any
time hereafter entered into
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with any third party accounting firm or service bureau for the preparation or
storage of Borrower's accounting records without said accounting firm or
service bureau agreeing to provide Foothill information regarding the
Collateral or Borrower's financial condition. Borrower waives the right to
assert a confidential relationship, if any, it may have with any accounting
firm or service bureau in connection with any information requested by Foothill
with respect to any financial statements of the Borrower or the Borrower's
financial condition and agrees that Foothill may contact directly any such
accounting firm or service bureau in order to obtain such information provided,
however that Borrower or its agent may attend any meeting between Foothill or
its agent and any accounting firm a service bureau engaged by Borrower.
7.14 INVESTMENTS. Directly or indirectly make or acquire any beneficial
interest in (including stock, partnership interest, or other securities of), or
make any loan, advance, or capital contribution to, any Person.
7.15 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms, that are fully disclosed to Foothill, and that are
no less favorable to Borrower than would be obtained in arm's length
transaction with a non-Affiliate.
7.16 SUSPENSION. Suspend or go out of a substantial portion of its
business.
7.17 COMPENSATION. Increase the annual fee or per-meeting fees paid to
directors during any year by more than fifteen percent (15%) over the prior
year; pay or accrue total cash compensation, during any year, to officers and
senior management employees in an aggregate amount in excess of one hundred
fifteen percent (115%) of that paid or accrued in the prior year other than
payments made pursuant to a bonus program, the terms and conditions of which
shall be acceptable to Foothill in its sole and absolute discretion.
7.18 USE OF PROCEEDS. Use the proceeds of the advances made hereunder for
any purpose other than: (a) on the Closing Date, to repay in full the
outstanding principal, accrued interest, and accrued fees and expenses owing to
Old Lender; (b) to pay transactional costs and expenses incurred in connection
with this Agreement; and (c) thereafter, consistent with the terms and
conditions hereof, for its lawful and permitted corporate purposes.
7.19 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND EQUIPMENT
WITH BAILEES. Borrower covenants and agrees that it will not, without thirty
(30) days prior written notification to Foothill, relocate its chief executive
office to a new location and so long as, at the time of such written
notification, Borrower provides any financing statements or fixture filings
necessary to perfect and continue perfected Foothill's security interests and
also provides to Foothill a landlord's waiver in form and substance
satisfactory to Foothill. The Inventory and Equipment shall not at any time
now or hereafter be stored with a bailee, warehouseman, or similar party
without Foothill's prior written consent.
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7.20 PAYMENT OF SUBORDINATED DEBT. Make any payment of any Subordinated
Debt except pursuant to any Subordination Agreement or Standstill Agreement in
form and content acceptable to Foothill and regularly scheduled quarterly
interest payments may be made to Allied Capital Corporation pursuant to the
Second Amended and Restated 10% Subordinated Debenture, dated July 28, 1994.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of default
(each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when declared due and
payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
8.2 If Borrower fails or neglects to perform, keep, or observe any term,
provision, condition, covenant, or agreement contained in this Agreement, in
any of the Loan Documents, or in any other present or future agreement between
Borrower and Foothill except that the Borrower shall have the time period set
forth opposite the following Sections of this Agreement after notice to cure
any failure to comply with the terms of said Section:
Section 6.2 5 days
6.3 5 days
6.4 15 days
6.5 15 days
6.6 15 days
6.7 5 days
8.3 If there is a material impairment of the prospect of repayment of any
portion of the Obligations owing to Foothill or a material impairment of the
value or priority of Foothill's security interests in the Collateral.
8.4 If any material portion of Borrower's properties or assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon,
or comes into the possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower and any of
the following events occur: (a) Borrower consents to the institution of the
Insolvency Proceeding against it; (b) the petition commencing the Insolvency
Proceeding is not timely controverted; (c) the petition commencing the
Insolvency Proceeding is not dismissed within forty-five (45) calendar days of
the date of the filing thereof; provided, however, that, during
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the pendency of such period, Foothill shall be relieved of its obligation to
make additional advances or issue additional L/Cs or L/C Guarantees hereunder;
(d) an interim trustee is appointed to take possession of all or a substantial
portion of the properties or assets of, or to operate all or any substantial
portion of the business of, Borrower; or (e) an order for relief shall have
been issued or entered therein;
8.7 If Borrower is enjoined, restrained, or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs;
8.8 If a notice of lien, levy, or assessment is filed of record with
respect to any of Borrower's properties or assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes or debts
owing at any time hereafter to any one or more of such entities becomes a lien,
whether choate or otherwise, upon any of Borrower's properties or assets and
the same is not paid on the payment date thereof;
8.9 If a judgment or other claim becomes a lien or encumbrance upon any
material portion of Borrower's properties or assets and is not removed within
five (5) days;
8.10 If there is a default in any material agreement with obligations of
One Hundred Thousand Dollars ($100,000) or more to which Borrower is a party
with one or more third Persons resulting in a right by such third Persons,
irrespective of whether exercised, to accelerate the maturity of Borrower's
obligations thereunder, excluding any defaults under those certain Second
Amended and Restated 10% Subordinated Debentures, each dated July 28, 1994,
issued by the Borrower in favor of each of Mesirow Capital Partners III,
Mesirow Capital Partners IV, Mesirow Capital Partners V, and Allied Capital
Corporation or under that certain Third Amended and Restated Promissory Note
executed by the Borrower in favor of Financo Investors Fund, L.P.; provided,
that a Standstill Agreement in form and substance satisfactory to Foothill is
in existence at the time of such default;
8.11 If Borrower makes any payment on account of Indebtedness that has been
contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;
8.12 If any misstatement or misrepresentation exists now or hereafter in
any warranty, representation, statement, or report made to Foothill by Borrower
or any officer, employee, agent, or director of Borrower, or if any such
warranty or representation is withdrawn;
8.13 INTENTIONALLY OMITTED.
8.14 If (a) with respect to any Plan, there shall occur any of the
following which could reasonably be expected to have a material adverse effect
on the financial condition of Borrower: (i) the violation of any of the
provisions of ERISA; (ii) the loss by a Plan intended
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to be a Qualified Plan of its qualification under Section 401(a) of the IRC;
(iii) the incurrence of liability under Title IV of ERISA; (iv) a failure to
make full payment when due of all amounts which, under the provisions of any
Plan or applicable law, Borrower or any ERISA Affiliate is required to make;
(v) the filing of a notice of intent to terminate a Plan under Sections 4041 or
4041A of ERISA; (vi) a complete or partial withdrawal of Borrower or an ERISA
Affiliate from any Plan; (vii) the receipt of a notice by the plan
administrator of a Plan that the PBGC has instituted proceedings to terminate
such Plan or appoint a trustee to administer such Plan; (viii) a commencement
or increase of contributions to, or the adoption of or the amendment of, a
Plan; and (ix) the assessment against Borrower or any ERISA Affiliate of a tax
under Section 4980B of the IRC; or (b) the Unfunded Benefit Liability of all of
the Plans of Borrower and its ERISA Affiliates shall, in the aggregate, exceed
One Dollar ($1.00).
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable;
(b) Cease advancing money or extending credit to or for the benefit
of Borrower under this Agreement, under any of the Loan Documents, or under any
other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan Documents as
to any future liability or obligation of Foothill, but without affecting
Foothill's rights and security interests in the Collateral and without
affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Foothill considers advisable, and in
such cases, Foothill will credit Borrower's loan account with only the net
amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust for
Foothill, segregate all returned Inventory from all other property of Borrower
or in Borrower's possession and conspicuously label said returned Inventory as
the property of Foothill;
(f) Without notice to or demand upon Borrower make such payments
and do such acts as Foothill considers necessary or reasonable to protect its
security interests in the Collateral. Borrower agrees to assemble the
Collateral if Foothill so requires, and to make the Collateral available to
Foothill as Foothill may designate. Borrower authorizes Foothill to enter the
premises where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance,
38
<PAGE> 44
charge, or lien that in Foothill's determination appears to conflict with its
security interests and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's owned premises, Borrower hereby grants
Foothill a license to enter into possession of such premises and to occupy the
same, without charge, for up to one hundred twenty (120) days in order to
exercise any of Foothill's rights or remedies provided herein, at law, in
equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly waived), and
without constituting a retention of any collateral in satisfaction of an
obligation (within the meaning of Section 9505 of the Code), set off and apply
to the Obligations any and all (i) balances and deposits of Borrower held by
Foothill (including any amounts received in the Lockbox Accounts), or (ii)
indebtedness at any time owing to or for the credit or the account of Borrower
held by Foothill;
(h) Hold, as cash collateral, any and all balances and deposits of
Borrower held by Foothill, and any amounts received in the Lockbox Accounts, to
secure the full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Foothill is hereby granted a license or other right to use,
without charge, Borrower's labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale, and selling any Collateral
and Borrower's rights under all licenses and all franchise agreements shall
inure to Foothill's benefit;
(j) Sell the Collateral at either a public or private sale, or both, by
way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including Borrower's premises) as Foothill
determines is commercially reasonable. It is not necessary that the Collateral
be present at any such sale;
(k) Foothill shall give notice of the disposition of the Collateral as
follows:
(1) Foothill shall give Borrower and each holder of a security
interest in the Collateral who has filed with Foothill a written request for
notice, a notice in writing of the time and place of public sale, or, if the
sale is a private sale or some other disposition other than a public sale is
to be made of the Collateral, then the time on or after which the private sale
or other disposition is to be made;
(2) The notice shall be personally delivered or mailed, postage
prepaid, to Borrower as provided in Section 12, at least five (5) days before
the date fixed for the sale, or at least five (5) days before the date on or
after which the private sale or other disposition is to be made; no notice needs
to be given prior to the disposition of any portion of the Collateral that is
perishable or threatens to decline speedily in value or that is of a type
39
<PAGE> 45
customarily sold on a recognized market. Notice to Persons other than Borrower
claiming an interest in the Collateral shall be sent to such addresses as they
have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill also shall give notice
of the time and place by publishing a notice one time at least five (5) days
before the date of the sale in a newspaper of general circulation in the county
in which the sale is to be held;
(l) Foothill may credit bid and purchase at any public sale; and
(m) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any excess will be
returned, without interest and subject to the rights of third Persons, by
Foothill to Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Foothill shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed an election, and no waiver by Foothill of any
Event of Default shall be deemed a continuing waiver. No delay by Foothill
shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, rents, assessments,
insurance premiums, or otherwise) due to third Persons, or fails to make any
deposits or furnish any required proof of payment or deposit, all as required
under the terms of this Agreement, then, to the extent that Foothill determines
that such failure by Borrower could have a material adverse effect on
Foothill's interests in the Collateral, in its discretion and without prior
notice to Borrower, Foothill may do any or all of the following: (a) make
payment of the same or any part thereof; (b) set up such reserves in Borrower's
loan account as Foothill deems necessary to protect Foothill from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type described in Section 6.12, and take any action with respect to such
policies as Foothill deems prudent. Any such amounts paid by Foothill shall
constitute Foothill Expenses. Any such payments made by Foothill shall not
constitute an agreement by Foothill to make similar payments in the future or a
waiver by Foothill of any Event of Default under this Agreement. Foothill need
not inquire as to, or contest the validity of, any such expense, tax, security
interest, encumbrance, or lien and the receipt of the usual official notice for
the payment thereof shall be conclusive evidence that the same was validly due
and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Foothill on which Borrower may in any way be
liable.
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<PAGE> 46
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill complies
with its obligations, if any, under Section 9207 of the Code, Foothill shall
not in any way or manner be liable or responsible for: (a) the safekeeping of
the Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (c) any diminution in the value thereof; or
(d) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other Person. All risk of loss, damage, or destruction of the Collateral
shall be borne by Borrower.
11.3 INDEMNIFICATION. Borrower agrees to defend, indemnify, save, and hold
Foothill and its officers, employees, and agents harmless against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
Person arising out of or relating to the transactions contemplated by this
Agreement or any other Loan Document, and (b) all losses (including attorneys
fees and disbursements) in any way suffered, incurred, or paid by Foothill as a
result of or in any way arising out of, following, or consequential to the
transactions contemplated by this Agreement or any other Loan Document except
this indemnification shall not apply in the event any loss to Foothill was
caused by its gross negligence or wilful misconduct. This provision shall
survive the termination of this Agreement.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other Loan Document shall be in
writing and (except for financial statements and other informational documents
which may be sent by first-class mail, postage prepaid) shall be personally
delivered or sent by registered or certified mail, postage prepaid, return
receipt requested, or by prepaid telex, TWX, telefacsimile, or telegram (with
messenger delivery specified) to Borrower or to Foothill, as the case may be, at
its address set forth below:
If to Borrower: SALTON/MAXIM HOUSEWARES, INC.
550 Business Center Drive
Mount Prospect, Illinois 60056
Attn.: Leon Dreimann
Telefacsimile No. (708) 803-8080
If to Foothill: FOOTHILL CAPITAL CORPORATION
60 State Street
Suite 1150
Boston, Massachusetts 02109
Attn.: Business Finance Division Manager
Telefacsimile No. (617) 722-9493
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<PAGE> 47
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this Section 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or three
(3) days after the deposit thereof in the mail. Borrower acknowledges and
agrees that notices sent by Foothill in connection with Sections 9504 or 9505
of the Code shall be deemed sent when deposited in the mail or transmitted by
telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS
ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
GIVING EFFECT TO ITS CONFLICT OF LAWS PRINCIPLES. THE PARTIES AGREE THAT ALL
ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED
AND LITIGATED ONLY IN THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER
COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH
HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF
BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY
RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF
THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
OR STATUTORY CLAIMS. BORROWER AND FOOTHILL REPRESENT THAT EACH HAS REVIEWED
THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY
OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers delivered to
Foothill may be destroyed or otherwise disposed of by Foothill four (4) months
after they are delivered to or received by Foothill, unless Borrower requests,
in writing, the return of said documents, schedules, or other papers and makes
arrangements, at Borrower's expense, for their return.
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<PAGE> 48
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
duties hereunder without Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Foothill
shall release Borrower from its Obligations. Foothill may not sell or assign
the Maximum Foothill Amount without notification to Borrower, provided, however
that nothing contained herein shall prohibit Foothill from assigning this
Agreement and its rights and duties hereunder upon the sale of Foothill or the
sale by Foothill of a material portion of its assets and no consent or approval
by Borrower is required in connection with any such sale or transfer. Foothill
reserves the right to sell, assign, transfer, negotiate, or grant
participations in Foothill's rights and benefits hereunder provided, however,
that after the granting of a participation, unless Foothill shall have sold,
transferred or assigned a majority of its assets, Foothill shall have the
primary obligation for servicing the Obligations of Borrower hereunder. In
connection with any such assignment or participation, Foothill may disclose all
documents and information which Foothill now or hereafter may have relating to
Borrower or Borrower's business. To the extent that Foothill assigns its
rights and obligations hereunder to a third Person, Foothill thereafter shall
be released from such assigned obligations to Borrower and such assignment
shall effect a novation between Borrower and such third Person.
15.3 SECTION HEADINGS. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Foothill or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the
purpose of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement can only be amended by a
writing signed by both Foothill and Borrower.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed
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<PAGE> 49
counterpart of this Agreement by telefacsimile shall be equally as effective as
delivery of a manually executed counterpart of this Agreement. Any party
delivering an executed counterpart of this Agreement by telefacsimile also
shall deliver a manually executed counterpart of this Agreement but the failure
to deliver a manually executed counterpart shall not affect the validity,
enforceability, and binding effect of this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or
payment of the Obligations by Borrower or the transfer by Borrower to Foothill
of any property of Borrower should for any reason subsequently be declared to
be void or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, and other voidable or recoverable payments of money
or transfers of property (collectively, a "Voidable Transfer"), and if Foothill
is required to repay or restore, in whole or in part, any such Voidable
Transfer, or elects to do so upon the reasonable advice of its counsel, then,
as to any such Voidable Transfer, or the amount thereof that Foothill is
required or elects to repay or restore, and as to all reasonable costs,
expenses, and professional fees (including legal, paralegal and accountants'
fees) fees of Foothill related thereto, which shall without limiting the
generality of the definition of "Foothill Expense" contained in Section 1.1
constitute Foothill Expenses, the liability of Borrower automatically shall be
revived, reinstated, and restored and shall exist as though such Voidable
Transfer had never been made.
15.9 RELEASE. Borrower hereby remises, releases, acquits, satisfies and
forever discharges Foothill and its officers, directors and each Participant
and their officers and directors of and from all, and all manner of, action and
actions, cause and causes of action, suits, losses, (including attorneys' fees)
collection costs, expenses, covenants, controversies, promises, damages, and
demands whatsoever in law or in equity that Borrower ever had, now has, or that
any successor or assign can, shall or may have, against Foothill and its
officers and directors and each Participant and their officers and directors
arising under or in connection with any actions taken or actions not taken by
Foothill or any Participant in connection with this Agreement prior to its
amendment and restatement through and including the date hereof, save and
except any obligations of Foothill or any Participant accruing after the date
hereof in connection with this Agreement.
15.10 INTEGRATION. This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
15.11 AMENDED AND RESTATED AGREEMENT. This Agreement amends and restates
that certain Loan and Security Agreement entered into on or about July 28, 1994
by and between Foothill and Borrower, as amended from time to time.
44
<PAGE> 50
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in Los Angeles, California.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: ________________________________
Title: _________________________
SALTON/MAXIM HOUSEWARES, INC.,
a Delaware corporation
By: ________________________________
Title: _________________________
45
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from balance
sheet and statement of operations.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-29-1996
<PERIOD-END> JUN-28-1997
<CASH> 2,613
<SECURITIES> 0
<RECEIVABLES> 25,647
<ALLOWANCES> 2,400
<INVENTORY> 41,968
<CURRENT-ASSETS> 76,784
<PP&E> 19,000
<DEPRECIATION> 10,684
<TOTAL-ASSETS> 102,343
<CURRENT-LIABILITIES> 58,788
<BONDS> 4,933
0
0
<COMMON> 130
<OTHER-SE> 38,492
<TOTAL-LIABILITY-AND-EQUITY> 102,343
<SALES> 182,806
<TOTAL-REVENUES> 182,806
<CGS> 121,590
<TOTAL-COSTS> 129,399
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,063
<INCOME-PRETAX> 6,400
<INCOME-TAX> 2,001
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,399
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
