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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996 Commission File Number 0-19503
BENTLEY INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Missouri 43-1325291
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9719 Conway Road 63124
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 569-1659
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
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value $.18
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.
Yes X . No .
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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-KSB or any amendment to this Form 10-KSB. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant: approximately $286,943 as of April 29,
1997.
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest practicable date: As
of April 29, 1997, 562,624 shares of Common Stock, par value $.18, were
outstanding.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
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GENERAL
Bentley International, Inc. (formerly Megacards, Inc.), a
Missouri corporation ("Bentley" or the "Company"), through its operating
subsidiary, Windsor Art, Inc., a Missouri corporation ("Windsor"),
manufactures and distributes decorative mirrors and framed prints.
Until September 1996, Bentley's Megacards division designed,
repackaged and marketed sports picture cards and sports picture card
accessories and sports memorabilia. The Company began its sports picture
cards and memorabilia operations ("Megacards") in 1984 by distributing
packages of original, vintage baseball cards sorted by team. The business
increased and Megacards expanded into additional sports-related products
(e.g., albums, trading card pages, proprietary sports picture cards and
memorabilia).
As a result of negative industry-wide trends in the sports
picture card market, Megacards reported net losses of $2.2 million and
$469,000 for the year ended December 31, 1994 and the six months ended
June 30, 1995, respectively. In light of adverse business conditions, the
Board of Directors of Megacards determined that a business combination with
Windsor and Janco Designs, Inc., a Missouri corporation ("Janco"), offered
the best available alternative amid substantial uncertainties. Windsor and
Janco were related by common ownership. Accordingly, in July 1995, the
Company acquired all of the outstanding capital stock ( the "Business
Combination") of Windsor and Janco. Unless the context otherwise indicates,
the term "Company" refers collectively to Windsor, Janco and Megacards.
Windsor manufactures and distributes decorative mirrors and
framed prints to furniture stores, designers, hotels and department stores
throughout the United States. Windsor was incorporated in November 1993, at
which time it purchased certain assets of Windsor Art Products, Inc., a
Delaware corporation, which was then subject to a bankruptcy proceeding.
Janco manufactured and distributed decorative mirrors and framed
prints to mass merchants, craft stores, designers and hotels throughout the
United States. Janco was incorporated in May 1990 and, in June 1990,
acquired the assets of BLD Marketing, Inc., at which time it began to
manufacture and distribute framed art and decorative mirrors. Throughout
1996, Janco experienced substantial operating losses. In December 1996,
Janco's management decided that it would terminate Janco's operations, as it
would be difficult to operate profitably and recover from the accumulated
losses of prior years. By the end of 1996, operations were discontinued at
its St. Louis facility and all equipment and inventory was sold to unrelated
parties. Janco's accounts receivable were pledged to its secured lenders and
were subsequently collected to be applied against amounts owed to these
secured lenders.
Subsequent to the consummation of the Business Combination, the
Company's management continued to reduce debt and curtail the losses
generated by Megacards. Unprofitable product lines were eliminated, staffing
was reduced and offices and its factory were closed. The manufacturing was
consolidated into Janco's factory and office space and administrative
personnel were shared by Megacards and Janco in an attempt to reduce fixed
expenses for both companies. Megacards' management recognized that it lacked
the personnel to rebuild the sales of the business and pursued opportunities
to attract a key sales executive. As a result of this search, discussions
commenced regarding the combination of Megacards with a company engaged in a
similar line of business, Quality
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Baseball Cards, Inc., a New York corporation ("Quality"). In August 1996, the
Company's management decided that a business combination with Quality would
provide the much needed marketing and product development talents, as well as
create operating efficiencies. On September 13, 1996, the Company and Quality
formed Legends, L.P. ("Legends"), a New York limited partnership, by
contributing substantially all of the assets of Megacards and Quality. The
Company received a 30% limited partnership interest, a note for $110,000 and
Legends assumed certain of Megacards' liabilities. In November 1996, Legends
discontinued manufacturing at the Janco factory and moved all of its operations
to its Rochester, New York facility.
WINDSOR BUSINESS
PRODUCTS
Framed Art Products. Windsor's framed art products consist of
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framed lithographs, original acrylic paintings, limited edition reproductions
and original prints. Sales of framed lithographs comprise the largest
portion of Windsor's revenues. Windsor's sales and design personnel select
images and framing materials to match fashion trends in the home furnishing
industry.
Framed Mirrors. Windsor's design staff develops frame designs
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and finishes in an attempt to offer unique and innovative products that
differentiate Windsor's products from those of its competitors. Some of the
mirror designs consist of traditional styles, such as Chippendale and Early
American, that enjoy enduring demand.
Tabletop Accessories. In October 1995, Windsor began selling
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tabletop accessories under the Dolbi Cashier name. In December 1996,
Windsor's management decided to suspend temporarily the selling of tabletop
accessories. Problems encountered during the importation of merchandise
caused the Dolbi Cashier line of glass tabletop accessories to distract and
dilute Windsor's focus on wall decor, where Windsor has established a
favorable reputation.
MARKETING AND DISTRIBUTION
Windsor markets its products through independent sales
representatives who are paid on a commission basis.
Windsor's products are sold primarily in the United States.
However, during 1996 Windsor sold limited amounts of products in the Far East
and Middle East. To date, Windsor's sales in international markets have not
been material to the Company's business.
COMPETITION
Windsor is subject to significant existing and potential
competition. Windsor competes for sales with other companies that market
framed art and mirrors. A number of such competitors have greater financial,
marketing and other resources than Windsor. Windsor believes that the
principal areas of competition are breadth of product line, new designs and
the ability to deliver product on a timely basis.
SOURCES OF SUPPLY
Windsor obtains print framing supplies and certain of its framed
print products from outside suppliers which include major publishers of
prints, artists and imported moldings and frames from
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Mexico and Thailand. Windsor does not anticipate significant difficulty in
obtaining desired quantities of print framing supplies, acrylic paintings or
print products. There can be no assurance, however, that Windsor will be able
to continue to obtain desired quantities of products on a timely basis at
favorable prices.
PROCESSING CAPABILITY
The Company's management believes that Windsor derives a
competitive advantage from its print framing capabilities.
SEASONALITY
Windsor's business historically has not been subject to seasonal
fluctuations, other than a brief slowdown in sales ahead of the major
industry shows occurring in April and October of each year.
JANCO BUSINESS
PRODUCTS
Framed Art Products. Janco's framed art products consisted
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almost entirely of framed lithographs. Janco's marketing and design staff
selected prints and framing materials to match the latest fashion trends.
Framed Mirrors. Janco sold traditional mirror designs.
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MARKETING AND DISTRIBUTION
Janco sold its products to mass merchants and craft stores
directly and through independent sales representatives.
Janco's products were sold primarily in the United States.
Janco's sales in international markets were not material to the Company's
business.
COMPETITION
Janco was subject to significant existing competition. Many such
competitors had greater financial, marketing and other resources than Janco.
SOURCES OF SUPPLY
Janco purchased framing supplies and framed print products from
outside suppliers, which include major publishers of prints and imported
moldings from Mexico and Brazil.
PROCESSING CAPABILITY
Janco's manufacturing facility has been closed.
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SEASONALITY
Janco's business historically has not been subject to seasonal
fluctuations, other than slight increases in sales during the fall.
MEGACARDS' BUSINESS
PRODUCTS
Baseball and Other Sports Picture Cards. Megacards marketed
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original, new and vintage baseball and other sports picture cards (including,
basketball, hockey and football) supplied by major card manufacturers.
Megacards sorted and repackaged the sports picture cards into various
assortments.
Baseball and Other Sports Picture Card Accessory Items.
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Megacards marketed sports picture card accessory items, including collecting
kits and collecting albums, display pages, individual card holders, price
guides and storage units.
Sports Memorabilia Products and Proprietary Baseball Card
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Products. Megacards discontinued selling sports memorabilia products and
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proprietary baseball card products prior to 1996.
RETAIL STORE
Effective October 1995, the Company sold the inventory and assets
related to its retail store activities and sub-leased the Company's retail
site at the St. Louis Galleria shopping mall. See Note 14 to the Company's
consolidated financial statements for the years ended December 31, 1995 and
1996 included elsewhere in this report.
MARKETING AND DISTRIBUTION
Megacards marketed its products to national and regional
retailers through independent sales representatives who were paid on a
commission basis.
Megacards' products were sold primarily in the United States.
International sales were not material to the Company's business.
LICENSE AGREEMENTS
Megacards did not have any license agreements in effect during
1996.
COMPETITION
Megacards was subject to significant existing and potential
competition. In addition to competing against companies in businesses
similar to Megacards, Megacards was competing for retail space with
manufacturers of new sports picture cards.
SOURCES OF SUPPLY
Megacards obtained its sports picture cards from major card
manufacturers. The Company no longer buys these types of products.
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PROCESSING CAPABILITY
Megacards manufactured display pages and assembled its card
packages and collector kits. All manufacturing and assembly has been
eliminated and the manufacturing equipment moved to Legends' facility in
Rochester, N.Y.
SEASONALITY
Megacards' business was highly seasonal, with the strongest sales
periods in the spring, summer and fall.
CUSTOMERS
Windsor's principal customers consist of various national and
regional retailers, including furniture stores, department stores and catalog
houses. For the year ended December 31, 1996, sales to J.C. Penney's
accounted for in excess of 10% of Windsor's sales.
Janco's principal customers consisted of mass merchants and craft
stores. For the year ended December 31, 1996, sales to Price Costco
accounted for in excess of 10% of Janco's sales.
Megacards' principal customers consisted of various national and
regional retailers, including mass merchants, toy stores, supermarkets, drug
stores, catalog houses and convenience stores. For the year ended
December 31, 1996, sales to Toys 'R' Us accounted for in excess of 10% of
Megacards' sales.
EMPLOYEES
As of April 30, 1997, the Company employed approximately 80
persons on a full-time basis. The Company has a collective bargaining unit
covering approximately 60 manufacturing employees at Windsor. The agreement
expires on February 28, 2002. The Company believes that its relations with
its employees are good. As part of its continuing efforts to reduce costs,
the Company has attempted to minimize its head count and payroll to ensure an
optimum level of staffing relative to production requirements.
ITEM 2. PROPERTIES
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The Company leases a production facility for its Windsor
operations in Pico Rivera, California for $20,000 per month plus a percentage
of sales over $1.0 million, not to exceed $30,000. The facility has
approximately 80,000 square feet. This lease expires in November 1998,
however, the Company may terminate such lease at any time prior to its
expiration with at least five months' notice to the lessor.
The Company believes the Windsor facility is adequate for the
Company's planned future operations.
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ITEM 3. LEGAL PROCEEDINGS
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On January 24, 1997, three of Janco's creditors filed an
involuntary petition against Janco pursuant to Chapter 7 of the United States
Bankruptcy Code in the United States District Court for the Eastern District
of Missouri, Case No. 97-40682-399.
The bankruptcy petition followed significant declines in Janco's
sales revenues and net income since the beginning of 1996. The declines were
attributable to, among other things, competition in the industry,
unauthorized chargebacks taken by one of Janco's largest customers and
allocation of fixed expenses over a smaller sales base. Despite management's
attempts to improve Janco's financial situation, Janco's sales revenues and
net income continued to decline. After careful review of the alternatives
for obtaining a work-out with Janco's creditors and restructuring Janco into
a viable concern, Janco's management decided to discontinue Janco's
operations and to wind up Janco's business affairs in coordination with
Janco's secured lenders.
On January 10, 1996, the Company filed suit in the U.S. District
Court, Eastern District of Missouri against Stephen G. Callendrella and Aztec
Capital Corporation, a Colorado corporation (collectively, the "Defendants"),
seeking an unspecified amount of damages for alleged violations of Section
13(d) of the Securities Exchange Act of 1934, as amended, and acts of common
law fraud in connection with the Defendants' purchase of the Company's Common
Stock. Moreover, the Company sought declaratory judgment relief with respect
to any causes of action arising in connection with the Business Combination
under federal securities and state laws.
On February 12, 1996, the Defendants filed suit (the
"Countersuit") in the U.S. District Court, District of Colorado against one
current and five former directors of the Company alleging, among other
things, breaches of their fiduciary duties to the Company in connection with
the Business Combination. The Company was not named as a defendant in the
Countersuit, however, the Company has certain obligations to indemnify and
hold harmless the defendants named in the Countersuit. The Company intends
to defend vigorously the Countersuit on behalf of the indemnified
individuals. Pursuant to the Company's motion to transfer, the Countersuit
was transferred to the U.S. District Court, Eastern District of Missouri and
consolidated with the related litigation pending there.
As of the date hereof, this litigation was in its preliminary
stages. While the Company believes that the claims asserted in the
Countersuit are without merit, there can be no assurance that the litigation
will not have a material adverse effect on the Company's financial condition
or results of operation.
Other than the above-discussed litigation, the Company is not a
party to any legal proceeding, other than routine proceedings in the ordinary
course of business, which is anticipated to have a material adverse effect on
its results of operation or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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There were no matters submitted during the fourth quarter of the
year ended December 31, 1996 to a vote of the Company's shareholders, through
the solicitation of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
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In July 1996, the Company's name was changed to Bentley
International, Inc. from Megacards, Inc. and the Company's common stock
symbol was changed to "BNTL" from "MEGX." The Company's Common Stock is
traded on the Nasdaq OTC Bulletin Board. As of January 1, 1997, the number
of shareholders of Common Stock was approximately 82. Set forth below are
the high and low transactions prices as reported by the Nasdaq OTC Bulletin
Board. Such prices reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
<TABLE>
<CAPTION>
Year Ended December 31,
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1996 1995
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High<F1><F2> Low<F1><F2> High<F1><F2> Low<F1><F2>
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
First Quarter $7.500 $3.750 $16.500 $9.750
Second Quarter 4.500 0.750 13.500 9.380
Third Quarter 2.250 0.750 15.750 8.250
Fourth Quarter 1.690 0.750 12.000 8.250
<FN>
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<F1> All share prices have been adjusted to reflect a one-for-six reverse
stock split effective July 8, 1996 and a one-for-three reverse stock
split of the Company's Common Stock effective November 16, 1994.
<F2> From November 19, 1995 to January 29, 1996 the Company's Common Stock
was delisted from the Nasdaq Small Cap Market. The Company appealed
such action and the stock was relisted effective January 29, 1996.
The Company's stock was again delisted from the Nasdaq Small Cap
Market in August 1996.
</TABLE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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OVERVIEW
Pursuant to the Business Combination effective in July 1995,
Bentley acquired all of the outstanding common stock of Windsor in exchange
for 423,500 shares of Bentley's Common Stock and acquired all of the
outstanding common stock of Janco for a nominal amount of cash. The
consolidated financial statements include the accounts of Bentley, Windsor
and Janco. All significant intercompany transactions have been eliminated
from the consolidated financial statements.
In 1996, the Company consolidated operations by closing the Iowa
sales offices and the Erie, Pennsylvania facility, and moved all
manufacturing and administrative functions of Megacards into the Janco
facility located in St. Louis. Efforts to reduce inventory continued through
Megacards' focus on selling products that used existing raw materials. The
effort to convert non-productive assets into cash resulted in a substantial
reduction in Megacards' debts.
In 1996, the Company purchased all of the outstanding common
stock of Alnick Realty, Inc. ("Alnick"), the lessor of the Company's Erie
facility. Simultaneously with the acquisition of the Alnick common stock,
the Company terminated its lease of the Erie facility and sold the real
estate owned by Alnick to a third party.
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During the summer of 1996 it became evident to Megacards'
management that overhead and inventories had been reduced to the greatest
extent practicable. For the business to survive, investment in new product
development, inventory and sales personnel would be necessary. Due to
Megacards' primary secured lender's desire to have the loan repaid and the
Company's commitment to the home furnishings industry, additional investment
in the sports picture card business did not seem consistent with long-term
Company goals. Therefore, management began to explore opportunities to
divest itself of Megacards. A business combination was negotiated with
Quality in which a limited partnership, Legends, was formed. Quality became
the general partner, and owned 70% of the partnership, while the Company
became a limited partner, owning 30% of the partnership. Substantially all
of the assets of Megacards, other than accounts receivable, and all of the
assets of Quality were contributed to Legends. The accounts receivable of
Megacards were collected and applied towards the repayment of the Megacards'
secured debt. As of December 31, 1996, secured debt related to Megacards'
operations and assets was $73,036. As of April 16, 1997, the secured debt
has been repaid.
Janco experienced operating difficulties in 1996, commencing with
its relocation to a new facility in St. Louis, Missouri. Delays in obtaining
occupancy permits in connection with improvements made to the manufacturing
facility resulted in Janco's inability to produce and ship merchandise during
the first two months of 1996. Due to the cost of the relocation and lower
than expected sales during the first quarter of 1996, Janco experienced
reduced cash flow in the second quarter of 1996. Personnel turnover at Janco
exacerbated the financial problems. Anticipated sales were repeatedly
delayed, postponing a recovery. Lower than expected sales and profit margins
resulted in operating losses throughout the year. In the third quarter of
1996, Janco's management recognized that a restructuring was necessary to
save the business. Suppliers of Janco were contacted in an attempt to
negotiate accommodations of debts. Certain of Janco's creditors accepted the
proposal, but the affirmative response was not sufficient to allow the
restructuring to proceed. In December 1996, Janco's management decided that
financial resources were not available to continue the operation of Janco.
Management commenced negotiations with Janco's secured lenders and its
landlord to develop a plan of liquidation that would maximize disposition
proceeds and minimize losses to Janco's creditors. Janco's secured creditors
and its landlord agreed to a plan of orderly liquidation of Janco's assets
and all of the tangible assets of Janco were sold to unrelated parties.
Janco's accounts receivable were collected through the first quarter of 1997
and the net proceeds applied to the repayment of Janco's secured debt. On
January 24, 1997, three unsecured creditors of Janco filed a petition for
involuntary bankruptcy. On February 18, 1997, Janco consented to the
involuntary bankruptcy. A hearing was scheduled for May 2, 1997. Pursuant
to certain agreements entered into in connection with the financing of Janco
by principal shareholders of Bentley, Bentley and Windsor are liable for
certain unpaid secured debts of Janco. See "Item 3. Legal Proceedings."
Windsor continued to operate without substantial changes
throughout 1996. During 1996, Windsor hired a new financial officer and
sales manager. It is believed that the new personnel will assist in
continuing to improve the operations of Windsor. During the fourth quarter
of 1996, Windsor negotiated new financing with Norwest Business Credit, Inc.
("Norwest"). Norwest provided Windsor with an asset based lending facility
of up to $2.0 million. Management believes that this facility should provide
Windsor with the financial resources needed to facilitate a reasonable growth
in sales. In December 1996, Windsor's management decided to concentrate its
design and marketing efforts on its wall decor products and to suspend
introduction of new table top accessories under the Dolbi Cashier name.
As a result of substantial losses reported for 1996, the opinion
of the Company's auditors indicates that the Company may not be able to
continue to operate as a going concern for a reasonable period of time. In
the event the Company is not able to negotiate extensions of certain debts of
Janco,
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for which Bentley and Windsor are liable, the Company may not be able to
continue to operate as a going concern for a reasonable period of time. It is
not possible to ascertain whether Bentley or Windsor may be liable for any
obligations of Janco, other than Janco's secured debts, as a result of the
Janco bankruptcy filing. In the event that Bentley is unable to retire the
Janco secured debt through the use of internally generated funds, Bentley
intends to seek to raise through a private offering of debt and/or equity, or a
sale of certain Company assets, funds sufficient to retire the maturing Janco
secured debt and necessary for other corporate purposes.
RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Inasmuch as the Business Combination was accounted for as a
reverse acquisition, the operations of Megacards from July 17, 1995 through
December 31, 1995 were included in the Company's consolidated financial
statements as above-indicated.
The following table presents the results of operation for 1996
and 1995 by the Company's business segments, sports picture cards (Megacards)
and decorative mirror/framed pictures (Windsor/Janco):
<TABLE>
<CAPTION>
1996 1995
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WINDSOR/ GENERAL WINDSOR/
JANCO MEGACARDS CORPORATE TOTAL JANCO MEGACARDS TOTAL
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $16,652 $3,483 $ -- $20,135 $16,677 $3,695 $20,372
Cost of sales 13,322 2,024 -- 15,346 12,425 3,067 15,492
------- ------ ----- ------- ------- ------ -------
Gross margin 3,330 1,459 -- 4,789 4,252 628 4,880
Selling, general and
administrative expenses $ 3,948 $2,131 $ 95 $ 6,174 $ 4,054 $1,173 $ 5,227
======= ====== ===== ======= ======= ====== =======
Income (loss) from
operations $ (618) $ (672) $ (95) $(1,385) $ 198 $ (545) $ (347)
Interest expense 296 167 -- 463 281 208 489
Other expense (income)--net 102 (85) 141 158 53 23 76
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Net loss $ (1016) $ (754) $(236) $(2,006) $ (136) $ (776) $ (913)
======= ====== ===== ======= ======= ====== =======
Net loss per common share $ (3.57) $ (1.87)
</TABLE>
Windsor's and Janco's combined net sales decreased by $24,000, or
0.1%, from the year ended December 31, 1995. This decrease resulted from a
decrease in Janco's sales of $1.7 million and an increase in Windsor's sales
of $1.6 million. Janco's decrease in sales was due primarily to the
reduction of sales to one customer, which represented approximately 50% of
Janco's net sales in 1995. The decrease in sales to this customer
contributed significantly to the losses incurred by Janco. The increase in
Windsor's sales was primarily attributable to sales generated by the
introduction of tabletop accessories under the Dolbi Cashier name.
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Cost of sales for the combined Windsor/Janco operations increased
$898,000, or 7.2%. This increase was a result of a decrease of $42,000 in
Janco's cost of sales and an increase of $940,000 in Windsor's cost of sales.
The decrease in Janco's cost of sales was attributable to decreased sales.
The increase in cost of goods sold at Windsor was attributable to increased
sales. However, as a percentage of net sales, Janco's cost of sales
increased by approximately 24%, while Windsor's cost of sales as a percentage
of sales decreased from 72.8% to 70.6%. The decrease at Windsor was
primarily attributable to lower material and overhead costs. In addition,
various charges were recognized in connection with the closing of Janco's
facility.
Selling general and administrative expenses for Windsor and Janco
decreased $106,000 from the year ended December 31, 1995 to 1996. The
decrease at Janco of $410,000 was primarily due to decreases in selling,
commissions and advertising costs. The increase at Windsor of $295,000 was
primarily due to increased sales related expenses and bad debts.
Interest expense for Windsor and Janco increased during 1996
compared to 1995 due to increased borrowings at Windsor and increases in
interest rates on the line of credit during the first part of the year.
Megacards' net sales decreased by $5.1 million from 1995 to 1996.
The reduction in sales was primarily due to continued softness in the sports
picture card business, and Megacards' failure to introduce any new products
in 1996. The operating loss was $672,145 in 1996 compared to $545,842 in
1995. The operating loss for 1996 was attributable to the period of time
preceding the formation of Legends on September 13, 1996, whereas the
operating loss for 1995 was attributable to the period of time subsequent to
the Business Combination on July 17, 1995. In 1996 the Company recognized
various changes in connection with the downsizing program, including costs
incurred in closing the Iowa office and Erie facility, as well as costs of
employee termination.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Company's operating, investing and financing
activities contributed $103,888 of cash to the business. Cash was generated
through the Company's efforts to reduce inventories in both business segments
and increased credit purchases at Janco, though most of the proceeds were
used to fund operating losses at Megacards and Janco and reduce debt.
Capital expenditures of $116,000 were made in 1996, primarily for
new equipment used in production of its framed art products and leasehold
improvements at the Janco facility. For tax purposes, the Company was
classified as an S-Corporation prior to the Business Combination in
July 1995. In connection with this classification, Windsor and Janco made
distributions aggregating $300,000 to their shareholders prior to the
Business Combination in respect of their tax liabilities attributable to
their ownership of Windsor and Janco stock.
As of December 31, 1996, Janco and Megacards had no available
borrowing capability under any of its debt agreements. The primary secured
debt of Megacards and Janco was repaid in full in 1997 from collection of the
accounts receivable and the secured debt of Windsor was refinanced with
Norwest Business Credit in 1997. As of April 16, 1997, Windsor had available
borrowing capacity sufficient to operate its business for a reasonable period
of time.
Management is currently exploring courses of action to retire the
Janco debts for which Bentley and Windsor are liable. The Company entered
into an agreement with the lessor of the Janco facility, which provided for
the release of Janco and Bentley from any future liability on the Janco
lease.
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The Company anticipates that additional working capital of $400,000 to
$700,000 will be required during the remainder of 1997 to repay the Janco
secured debt and provide sufficient capital to fund its planned operations.
The Company presently intends to seek to attain such financing pursuant to
the private placement of debt or equity securities or the sale of certain
assets of the Company. The Company is currently in discussions to sell
certain assets of the Company. The Company is not considering any
acquisition opportunities at this time. There can be no assurance that such
financing or asset sales will be available to the Company on favorable terms
or at all.
As of December 31, 1996, the Company reported an allowance for
doubtful accounts of $300,120. Management of the Company believes such
amount was appropriate in light of the amount and anticipated collectibility
of the Company's accounts receivable at that time. In order to maximize the
payment of its receivables, the Company employs a person, full-time, whose
responsibility is to seek payment of past due accounts. If such efforts are
unsuccessful, the Company engages a commercial collection agency to pursue
persons with past due accounts.
[The remainder of this page is intentionally left blank]
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ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
INDEPENDENT AUDITORS' REPORT
Board of Directors
Bentley International, Inc.
St. Louis, Missouri
We have audited the accompanying consolidated balance sheet of Bentley
International, Inc. and subsidiaries (formerly Megacards, Inc.) as of
December 31, 1996 and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Bentley as of December 31, 1996 and the results of their operations and
their cash flows for the year then ended in conformity with generally
accepted accounting principles.
As discussed in Note 1, the accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. The
Company has incurred recurring losses from operations and its liabilities
exceeded its assets at December 31, 1996. As a result of the historical net
losses, the possibility of continued losses in 1997 and the uncertainty about
bankruptcy proceedings entered into in 1997 (see Note 20), the Company may
experience difficulty in generating sufficient cash flow to meet its
obligations and sustain its operations (see Note 1). These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans concerning these matters are also described in Note 1.
The accompanying financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ Rubin, Brown, Gornstein & Co. LLP
March 21, 1997
- 13 -
<PAGE> 14
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of Bentley International, Inc.:
We have audited the accompanying consolidated statements of operations,
shareholders' equity, and cash flows of Bentley International, Inc. (formerly
Megacards, Inc.) and subsidiaries for the year ended December 31, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the consolidated results of their operations and their cash flows
for the year ended December 31, 1995 in conformity with generally accepted
accounting principles.
As discussed in Note 1, the accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. The
Company incurred a significant net loss for the year ended December 31,
1995 and was not in compliance with certain of its loan covenant
requirements related to its lines of credit. As a result of the historical
net losses, the possibility of continued losses in 1996 and the possibility
of lenders calling debt at any time, the Company may experience difficulty
in generating sufficient cash flow to meet its obligations and sustain its
operations (Note 1). These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans
concerning these matters are also described in Note 1. The accompanying
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
St. Louis, Missouri
March 29, 1996
- 14 -
<PAGE> 15
BENTLEY INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 349,799
Accounts receivable (net of allowance for returns and
doubtful accounts of $300,120 -- Notes 8 and 9) 2,499,570
Note receivable (Note 4) 110,000
Inventories (Notes 5, 8 and 9) 1,407,144
Other current assets 130,168
-----------
TOTAL CURRENT ASSETS 4,496,681
EQUIPMENT AND LEASEHOLD IMPROVEMENTS (NOTES 6, 8 AND 9) 196,392
OTHER ASSETS (NOTE 7) 69,800
-----------
$ 4,762,873
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable (Note 8) $ 2,382,036
Current maturities of long-term debt (Note 9) 30,232
Accounts payable and accrued expenses 2,519,654
-----------
TOTAL CURRENT LIABILITIES 4,931,922
-----------
LONG-TERM DEBT (NOTE 9) 36,635
-----------
EXCESS OF ACQUIRED ASSETS OVER COST (NOTE 10) 623,358
-----------
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.01 par value; 1,000,000 shares authorized,
none issued or outstanding --
Common stock, $0.18 par value; 10,000,000 shares authorized;
562,624 shares issued and outstanding 101,272
Additional paid-in capital 1,905,297
Retained earnings (accumulated deficit) (2,835,611)
-----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (829,042)
-----------
$ 4,762,873
===========
- -------------------
See the accompanying notes to consolidated financial statements.
</TABLE>
- 15 -
<PAGE> 16
<TABLE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<CAPTION>
RETAINED TOTAL
ADDITIONAL EARNINGS SHAREHOLDERS'
COMMON STOCK PAID-IN (ACCUMULATED EQUITY
SHARES <F1> AMOUNT CAPITAL (DEFICIT) (DEFICIT)
----------- ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance -- January 1, 1995 423,500 $ 76,231 $ -- $ 384,440 $ 460,671
S-Corporation Distribution -- -- -- (300,592) (300,592)
Issuance Of Common Stock
In Connection With Reverse
Acquisition 139,124 25,041 1,905,297 -- 1,930,338
Net Loss -- -- -- (912,619) (912,619)
------- -------- ----------- ----------- -----------
Balance -- December 31, 1995 562,624 101,272 1,905,297 (828,771) 1,177,798
Net Loss -- -- -- (2,006,840) (2,006,840)
------- -------- ----------- ----------- -----------
Balance -- December 31, 1996 562,624 $101,272 $ 1,905,297 $(2,835,611) $ (829,042)
======= ======== =========== =========== ===========
<FN>
- -------------------
<F1> After giving retroactive effect to the July 1996 reverse stock split
(see Note 2).
- -------------------
See the accompanying notes to consolidated financial statements.
</TABLE>
- 16 -
<PAGE> 17
<TABLE>
BENTLEY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
Net sales $20,135,106 $20,371,585
Cost of sales 15,346,429 15,491,562
----------- -----------
Gross margin 4,788,677 4,880,023
Selling, general and administrative expenses 6,173,897 5,227,299
----------- -----------
Loss from operations (1,385,220) (347,276)
Interest expense 463,456 488,927
Other expense -- net 158,164 76,416
----------- -----------
Net loss $(2,006,840) $ (912,619)
=========== ===========
Net loss per common share <F1> $ (3.57) $ (1.87)
=========== ===========
Weighted-average number of common shares
outstanding <F1> 562,624 487,154
<FN>
- -------------------
<F1> After giving retroactive effect to the July 1996 reverse stock split
(see Note 2).
- -------------------
See the accompanying notes to consolidated financial statements.
</TABLE>
- 17 -
<PAGE> 18
<TABLE>
BENTLEY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
1996 1995
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,006,840) $ (912,619)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 113,908 234,415
Amortization of excess of acquired assets over cost (325,230) (325,230)
Loss on sale of equipment 699,568 53,634
Loss on investment in partnership 236,936 --
Net changes in assets and liabilities:
(Increase) decrease in accounts receivable 1,478,670 (612,005)
Decrease in inventories 3,050,291 1,041,221
Decrease in other current assets 23,236 162,565
Increase (decrease) in accounts payable and
accrued expenses (443,440) 627,980
----------- ----------
Net cash provided by operating activities 2,827,099 269,961
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (121,214) (257,719)
Cash acquired in reverse acquisition -- 135,725
Proceeds from sale of property and equipment 1,573,321 --
Payments to former owners -- (65,207)
Payments for acquisition of subsidiary (85,000) --
Proceeds from long-term investments 109,038 --
----------- ----------
Net cash provided by (used in) investing activities 1,476,145 (187,201)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under lines of credit (2,809,107) 168,199
Proceeds from long-term debt -- 25,073
Repayments of long-term debt (1,354,249) (300,592)
Net borrowings (repayments) of notes payable to shareholders (36,000) 250,000
----------- ----------
Net cash provided by (used in) financing activities (4,199,356) 142,680
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 103,888 225,440
CASH AND CASH EQUIVALENTS -- BEGINNING OF YEAR 245,911 20,471
CASH AND CASH EQUIVALENTS -- END OF YEAR $ 349,799 $ 245,911
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 473,508 $ 489,089
=========== ==========
Noncash investing and financing activities (Note 15)
- -------------------
See the accompanying notes to consolidated financial statements.
</TABLE>
- 18 -
<PAGE> 19
BENTLEY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GOING CONCERN BASIS
The accompanying financial statements have been prepared on
a going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. As
shown in the financial statements and discussed in the footnotes, the
Company incurred a net loss of $2,006,840 in 1996, and a net loss of
$912,619 in 1995. The uncertainties surrounding the Janco Design,
Inc.'s bankruptcy proceedings entered into in 1997 (see Note 20)
indicate that the Company may experience difficulty in generating
sufficient cash to meet its obligations as they become due. These
factors, among others, may indicate that the Company may be unable to
continue as a going concern for a reasonable period of time.
The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a
timely basis, to comply with the terms of its financing agreements, to
obtain additional financing or refinancing as required, and to
ultimately attain successful operations. Management is continuing its
efforts to reduce the costs of its operations and renegotiate its
credit agreements so that the Company can meet its obligations and
sustain operations from internally generated funds.
The Company has pursued a strategy of enhancing liquidity
by reducing and closely monitoring expenses, downsizing where feasible,
and combining or eliminating certain businesses to achieve economies of
scale and capitalize on shared administrative functions and
distribution outlets.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts
of Bentley International, Inc. (the "Company" and formerly Megacards,
Inc.) and its wholly-owned subsidiaries, Windsor Art, Inc. ("Windsor"),
Janco Designs, Inc. ("Janco") and Alnick Realty Company, Inc.
("Alnick"). All significant intercompany transactions have been
eliminated from the consolidated financial statements.
USE OF MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires that management make
certain estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements. The reported
amounts of revenues and expenses during the reporting period may also
be affected by the estimates and assumptions management is required to
make. Actual results may differ from those estimates.
- 19 -
<PAGE> 20
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market.
Inventory costs have been determined by the last-in, first-out (LIFO)
method for the Company's Windsor subsidiary which represents
approximately 95% (1996) and 41% (1995) of total inventories. Costs
for the remaining inventories were determined by the first-in,
first-out (FIFO) method.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are carried at cost,
less accumulated depreciation and amortization computed on the
straight-line method. The assets are depreciated and amortized over
periods ranging from five to seven years.
INVESTMENT IN PARTNERSHIP
The Company has a 30% interest in Legends, L.P., a limited
partnership. The investment is accounted for using the equity method
and carried at cost adjusted for the Company's share of undistributed
earnings or losses.
EXCESS OF ACQUIRED ASSETS OVER COST
Excess of acquired assets over cost in connection with the
acquisition of Windsor Arts, Inc. is treated as negative goodwill and
is amortized on the straight-line basis over five years.
INCOME TAXES
Prior to the Business Combination, Windsor and Janco were
taxed for federal income tax purposes as S-Corporations, whereby the
taxes related to their results were assessed to the individual
shareholders and not the corporate entities. Pursuant to the Business
Combination, the entities terminated their S-Corporation status.
Accordingly, the combined entities now file consolidated corporate
income tax returns under the C-Corporation status.
Deferred tax assets and liabilities are recorded for the
expected future tax consequences of events that have been included in
either the financial statements or tax returns of the Company. Under
this asset and liability approach, deferred tax assets and liabilities
are determined based on temporary differences between the financial
statement and tax bases of assets and liabilities by applying enacted
statutory tax rates applicable to future years in which the differences
are expected to reverse. As more fully discussed in Note 13, the
Company has established a full valuation allowance for its net deferred
tax assets.
- 20 -
<PAGE> 21
NET LOSS PER COMMON SHARE
Net loss per common share was computed based upon the
weighted-average number of common shares outstanding during the year.
Common share equivalents are not included in the calculation based on
their anti-dilutive effect.
NEW ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123), in 1996. Under the provisions of SFAS 123, companies can elect
to account for stock-based compensation plans using a fair-value based
method or continue measuring compensation expense for those plans using
the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related Interpretations. The Company elected to continue using the
intrinsic value method to account for the stock-based compensation
plan. SFAS 123 requires companies electing to continue to use the
intrinsic value method to make certain pro forma disclosures (see Note
17).
2. OPERATIONS
NATURE OF OPERATIONS
Bentley International, Inc., ("Bentley"), formerly
Megacards, Inc., designed, repackaged and marketed sports picture cards
produced by major sports picture card manufacturers and marketed sports
picture card accessories. Megacards, Inc. became Bentley in June 1996
as the Board of Directors believed that the change of the Corporate
name would better reflect the broadening of the scope of the businesses
of the Company. Windsor and Janco, which prior to the Business
Combination were affiliated through common ownership, manufacture and
distribute decorative mirrors and framed prints to furniture stores,
mass merchants, hotels and designers throughout the United States.
During 1996, the Company discontinued its Janco product line and its
sports picture card business segment in order to reduce costs and to
improve its liquidity position (see Note 3).
BUSINESS COMBINATIONS
Pursuant to an agreement dated April 29, 1996, the Company
acquired all the outstanding shares of Alnick for $85,000. Alnick was
an affiliated company prior to the acquisition. The acquisition was
accounted for as a purchase.
Pursuant to an agreement dated July 17, 1995, Bentley
acquired all of the outstanding common stock of Windsor in exchange for
423,500 shares of Bentley's common stock and acquired all of the
outstanding common stock of Janco for a nominal amount of cash (the
"Business Combination").
The Business Combination was accounted for as a reverse
acquisition under the purchase method of accounting. Under this
approach, the accounting for the transaction differs from the legal
form of the transaction as described above. Therefore, Bentley is not
assumed to be the acquiror in the Business Combination, but rather
Windsor and Janco are. The historical financial
- 21 -
<PAGE> 22
statements have been restated for all periods prior to the Business
Combination to include the combined results of operations and financial
position of both Windsor and Janco due to the common ownership of Windsor
and Janco prior to the Business Combination. Adjustments have been made
to eliminate the impact of intercompany transactions. The components of
shareholders' equity were stated in terms of Windsor's and Janco's
shareholders' equity on a combined basis prior to the Business
Combination with an adjustment to reflect the effects of the Business
Combination on the equity components.
The reverse acquisition was accounted for using the
purchase method. Accordingly, the purchase price valued in the
exchange at $1,930,339 was allocated to the assets acquired based on
their estimated fair market values at the date of the transaction as
follows:
<TABLE>
<S> <C>
Cash $ 135,725
Accounts receivable 1,282,348
Inventory 3,471,711
Property and equipment 2,309,683
Other assets 506,167
----------
Total assets 7,705,634
----------
Accounts payable 1,063,380
Long-term debt (including current portion) 209,428
Bank lines of credit 2,532,028
Other current liabilities 82,185
Capital lease obligation (including current portion) 1,888,274
----------
Total liabilities 5,775,295
----------
$1,930,339
==========
</TABLE>
The consolidated statements of operations include the
results of operations of Bentley, International, Inc. from July 18,
1995 through December 31, 1995. The following selected pro forma
information gives effect to the acquisition as if it had been
effected as of the beginning of 1995:
<TABLE>
<S> <C>
Net sales $25,058,641
Net loss (1,383,524)
Net loss per common share $ (2.46)
</TABLE>
REVERSE STOCK SPLIT
On July 8, 1996, the Company's Board of Directors
authorized a one-for-six reverse stock split of the Company's common
shares, and an increase in the par value, from $0.03 to $0.18. All
share and per share amounts have been restated to retroactively
reflect the reverse stock split.
- 22 -
<PAGE> 23
3. SALE OF BUSINESS SEGMENT AND DISCONTINUED LINE OF BUSINESS
SALE OF BUSINESS SEGMENT
In August 1996, the Board of Directors of the Company
adopted a plan to restructure the sports picture cards business
segment (Megacards). In September 1996, certain assets and
liabilities, consisting primarily of inventory and equipment, were
transferred to Legends, L.P. for a 30% limited partnership interest
and a note in the principal amount of $110,000. Such transfer was
partly a sale and partly a contribution to capital. There was no
gain or loss on disposal, as net assets were either sold or
transferred to Legends at their net book value, which approximated
fair value. Legends, L.P. is in the sports picture card business and
since the Company has a 30% equity interest in the limited
partnership, the activity of the sports picture card business segment
is part of continuing operations of the Company.
DISCONTINUED LINE OF BUSINESS
On December 27, 1996, Janco discontinued its operations
due to historical losses and in an effort to reduce costs and improve
overall corporate liquidity. Janco's operations represents a line of
business within the decorative mirrors and framed pictures segment,
and as such, the termination of operations is not considered
discontinued operations of a business segment. Certain assets
consisting of inventory and equipment were sold to a third party
prior to December 31, 1996. The loss on disposition of Janco was
$427,062. The net loss prior to the disposal date was $1,356,883.
Net loss per share related to the operating loss and loss on disposal
was $(2.41) and $(0.76), respectively.
The following is a summary of net liabilities as of
December 31, 1996 and results of operations of Janco for the year
ended December 31, 1996 and 1995:
<TABLE>
<S> <C>
ASSETS
Cash $ 146,115
Accounts receivable 715,345
Other current assets 77,455
----------
TOTAL ASSETS 938,915
----------
LIABILITIES
Accounts payable 1,356,533
Note payable 1,209,000
Other current liabilities 30,232
Long-term debt 36,635
TOTAL LIABILITIES 2,632,400
----------
NET LIABILITIES $1,693,485
==========
</TABLE>
- 23 -
<PAGE> 24
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Sales $ 5,022,354 $6,684,224
Costs and expenses 6,806,299 6,888,879
----------- ----------
NET LOSS $(1,783,945) $ (204,655)
=========== ==========
NET LOSS PER SHARE $ (3.17) $ (0.42)
=========== ==========
</TABLE>
Subsequent to the balance sheet date, an involuntary
bankruptcy case was filed against Janco by unsecured creditors as
described in Note 20.
4. NOTE RECEIVABLE
The note receivable is due from an affiliated partnership
(Legends, L.P.) in the amount of $110,000. Subsequent to year end,
Legends paid the Company $44,000 in cash against the note. The note
bears interest at 9.25% per annum and the balance is payable in full
on August 31, 1997.
5. INVENTORIES
Inventories consist of:
<TABLE>
<S> <C>
Finished goods $ 783,102
Raw materials 749,182
----------
1,532,284
Less: Adjustment from FIFO to LIFO 125,140
----------
$1,407,144
==========
</TABLE>
If the FIFO basis had been used for all inventories, net
loss for the years ended December 31, 1996 and 1995 would have
increased by $32,419 in 1996 and decreased by $75,363 in 1995.
6. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of:
<TABLE>
<S> <C>
Furniture and fixtures $141,290
Machinery and equipment 62,096
Leasehold improvements 112,789
--------
316,175
Less: Accumulated depreciation and
amortization 119,783
--------
$196,392
========
</TABLE>
- 24 -
<PAGE> 25
Depreciation and amortization charged against income from
continuing operations amounted to $113,908 in 1996 and $234,415 in
1995.
7. INVESTMENT IN PARTNERSHIP
As discussed in Note 3, in September 1996, as part of the
Company's plan to restructure its sports picture card business,
Bentley transferred certain net assets of Megacards to Legends, L.P.,
a newly-organized New York limited partnership ("Legends"). Such
transfer was partly a sale and partly a contribution to capital. As
partial consideration for the transfer, Bentley received a 30%
limited partnership interest. This investment is accounted for on
the equity method of accounting.
The investment was originally recorded at $286,936. The
asset is considered to be permanently impaired due to the financial
position of Legends. The impairment is estimated to be $236,936
based on an estimate of net realizable value less disposition costs.
Condensed financial information of Legends, L.P. is unavailable and
is not included in the Company's financial statements.
The investment in Legends, amounting to $50,000 at
December 31, 1996, is included in other assets on the consolidated
balance sheet.
8. NOTES PAYABLE
Notes payable consist of:
<TABLE>
<S> <C>
Borrowings under various lines of credit, secured by
inventories, accounts receivable, equipment and personal
guarantees of officers/shareholders, due on demand,
bearing interest at rates ranging from 5.57% to prime plus
1%, expiring at various dates through July 1997 $1,068,036
Notes payable -- shareholders, secured by collateral
agreement subordinate to third party debt, bearing
interest at the prime rate plus 2%, due July 1997 1,314,000
----------
$2,382,036
==========
</TABLE>
The Company's third party debt consists of various line
of credit and term loan (see Note 9) agreements with several
financial institutions. Borrowing availability is determined based
on certain requirements in each agreement including the level of
eligible accounts receivable and inventories. At December 31, 1996,
the Company's subsidiaries had $1,995,000 of total available
revolving credit of which $995,000 was outstanding. Also, the
Company's sports picture card operation, Megacards, has a revolving
line of credit with an original borrowing capacity of $5,000,000 that
has subsequently been amended, whereby no additional borrowings can
be made. The total balance outstanding at December 31, 1996 is
$73,036.
The agreements include certain covenants which require
the Company to meet certain ratios and levels of tangible net worth
and restrict the declaration and payment of dividends. As
- 25 -
<PAGE> 26
of December 31, 1996, the Company was not in compliance with certain of
the restrictive covenants. The lenders have not issued waivers related
to the noncompliance and can call the debt at any time. Subsequent to
year end, management has either paid off or renegotiated these credit
arrangements (see Note 20).
Interest expense on notes payable to shareholders
amounted to $138,880 and $143,861 in 1996 and 1995, respectively.
The Company's weighted-average interest rate on
borrowings under lines of credit was 8.37% and 9.73% in 1996 and
1995, respectively.
9. LONG-TERM DEBT
Long-term debt consists of a note payable to a bank,
secured by inventories, accounts receivable, and equipment, payable
in monthly installments of $2,520 including interest at 9.5%, with
final payment due in June 1999.
10. EXCESS OF ACQUIRED ASSETS OVER COST
In November 1993, Windsor purchased certain operating
assets of a company operating under the protection of the bankruptcy
laws. The acquisition was accounted for as a purchase and the
Company's equity in the assets acquired exceeded the purchase price
by approximately $1,627,000. This excess of acquired assets over
cost (so-called "negative goodwill") is being amortized over a
five-year period.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to
estimate the fair value of each class of financial instruments:
NOTE RECEIVABLE
The carrying value of the note approximates fair value
because of the short-term nature of the note.
INVESTMENT IN PARTNERSHIP
The Company owns a 30% interest in a limited partnership.
There is no market for the partnership interest. Because of the
financial position of the partnership, the investment is carried at
original cost less a permanent impairment to reflect its fair value.
The fair value was based upon an estimate of the investment's net
realizable value.
NOTES PAYABLE
The carrying values approximate fair values because the
stated interest rates primarily fluctuate with market interest rates
and also due to the short-term nature of the notes.
- 26 -
<PAGE> 27
LONG-TERM DEBT
The carrying amount approximates fair value because the
interest rate approximates the current rate the Company could obtain
for financing with similar terms, degree of risk and remaining
maturities.
12. DEFERRED COMPENSATION PLAN
The Company has a qualified, defined contribution profit
sharing plan covering eligible full-time and part-time employees.
The plan is qualified under Section 401(k) of the Internal Revenue
Code, and allows employees to contribute on a tax deferred basis.
The plan also provides for non-elective or discretionary
contributions by the Company in such amounts as the Board of
Directors may annually determine. There were no Company
contributions to the 401(k) plan in 1996 or 1995.
13. INCOME TAXES
Prior to the Business Combination, Windsor and Janco had
elected S-Corporation status and consequently were not subject to
federal corporate income taxes. At the time of the Business
Combination, the S-Corporation status was terminated and Windsor and
Janco became taxable entities for federal income tax purposes. As
discussed more fully below, the Company is in a net operating loss
position and has established a full valuation allowance for any net
operating loss carryforward benefits, as well as any other net
deferred tax assets. Consequently, there is no provision for income
taxes for 1996 or 1995.
Deferred income taxes represent the effect of temporary
differences between the tax basis of assets and liabilities and the
amounts of those assets and liabilities for financial reporting
purposes. Deferred income taxes also include the value of net
operating loss carryforwards. Management has determined that based
on the Company's history of prior operations and its expectations for
the future, the net deferred tax assets of the Company may not be
realizable, and consequently, a valuation allowance has been
recognized to offset the otherwise recognizable net deferred tax
assets. Temporary differences which give rise to a significant
portion of deferred tax assets and liabilities and the corresponding
valuation allowance as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
Deferred Tax Assets
Allowance for doubtful accounts $ 108,000
Inventories 11,000
Investment in limited partnership 37,500
Net operating loss carryforwards 1,558,000
-----------
Gross Deferred Tax Assets 1,714,500
Deferred Tax Liability - LIFO Inventory (224,000)
-----------
Net Deferred Tax Asset 1,490,500
Valuation Allowance (1,490,500)
-----------
$ --
===========
</TABLE>
- 27 -
<PAGE> 28
At December 31, 1996, the Company has available net
operating loss carryforwards to reduce future taxable income of
approximately $4,328,000 which expire in varying amounts through
2011. Certain of the available net operating loss carryforwards
relate to operations prior to the Business Combination and are
limited as to their use by the separate return limitation
regulations. As of December 31, 1996, approximately $1,000,000 of
the net operating loss carryforwards are limited by such regulations.
As a result of the ownership change in connection with the Business
Combination, these net operating loss carryforwards are also limited
in their use on an annual basis pursuant to section 382 of the
Internal Revenue Code of 1986, as amended.
14. RELATED PARTY TRANSACTIONS
CAPITAL LEASE
The Company had a capital lease agreement with an
affiliated company for its sports picture card warehouse and
processing facility in Erie, Pennsylvania until April 29, 1996, when
the Company acquired all of the outstanding shares of the affiliated
company. Upon purchase of the affiliated entity, the capital lease
obligation was terminated. The Company subsequently sold the
building.
SUBLEASE RETAIL SPACE
The Company leases retail space (see Note 16) under an
operating lease which expires on February 28, 2001. In October 1995,
the Company sold its inventory related to this retail store operation
and entered into a sublease for the space with a corporation whose
shareholders include a family member of a Director of the Company.
The sublease runs from January 1, 1996 through June 30, 1999. In
consideration for the sale, the Company received a note for $90,000
which was paid as of December 31, 1996.
OTHER
Windsor paid Lloyd R. Abrams a $2,000 per month allowance
beginning December 1996 for use of a condominium in Newport Beach,
California. The arrangement may be terminated by either party.
Included in other current assets on the balance sheet at
December 31, 1996 are advances to an affiliated partnership (Legends)
of $45,505.
15. STATEMENT OF CASH FLOWS
In September 1996, the Company transferred certain net
assets of its sports picture card segment for a 30% limited
partnership interest in Legends, L.P., a newly formed limited
partnership, and a note for $110,000. The net amounts transferred
are as follows:
<TABLE>
<S> <C>
Inventory $ 556,069
Equipment 283,198
Accounts payable (396,826)
---------
442,441
Less: Note receivable (110,000)
Advances receivable (45,505)
---------
Net Assets Transferred $ 286,936
=========
</TABLE>
- 28 -
<PAGE> 29
In April 1996, the Company terminated a capital lease
agreement for its sports picture card warehouse and processing
facility when the Company acquired the lessor. The Company wrote off
property under the capital lease of $1,380,299 and the capital lease
obligation of $1,889,007.
16. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
The Company is a party to various legal proceedings. An
involuntary bankruptcy case was filed against Janco subsequent to the
balance sheet date as discussed in Note 20.
On January 10, 1996, the Company filed suit in the U.S.
District Court, Eastern District of Missouri against Stephen G.
Callendrella and Aztec Capital Corporation, a Colorado corporation
(collectively, the "Defendants"), seeking an unspecified amount of
damages for alleged violations of Section 13(d) of the Securities
Exchange Act of 1934, as amended, and acts of common law fraud in
connection with the Defendants' purchase of the Company's Common
Stock. Moreover, the Company sought declaratory judgment relief with
respect to any causes of action arising in connection with the
Business Combination under federal securities and state laws.
On February 12, 1996, the Defendants filed suit (the
"Countersuit") in the U.S. District Court, District of Colorado
against one current and five former directors of the Company
alleging, among other things, breaches of their fiduciary duties to
the Company in connection with the Business Combination. The Company
was not named as a defendant in the Countersuit, however, the Company
has certain obligations to indemnify and hold harmless the defendants
named in the Countersuit. The Company intends to defend vigorously
the Countersuit on behalf of the indemnified individuals. Pursuant
to the Company's motion to transfer, the Countersuit was transferred
to the U.S. District Court, Eastern District of Missouri and
consolidated with the related litigation pending there. At the
present time, the Company is unable to evaluate the potential risk of
loss.
The other legal proceedings are not deemed to have a
material adverse affect on the financial position of the Company at
this time. However, the impact of these proceedings could change in
the future.
LEASE COMMITMENT
The Company leases office, production facility, showroom
facility and retail space under operating leases which expire over
the next five years. Certain of these leases provide for
- 29 -
<PAGE> 30
standard annual increases in base rent. Total rent expense under all
operating leases was $447,909 in 1996 and $519,046 in 1995.
The future minimum annual rentals under the lease are as
follows:
<TABLE>
<CAPTION>
TOTAL NET
LEASE SUBLEASE LEASE
COMMITMENTS INCOME COMMITMENTS
----------- -------- -----------
<S> <C> <C> <C>
1997 $396,781 $32,850 $ 429,631
1998 361,590 34,200 395,449
1999 136,449 -- 136,449
2000 65,631 -- 65,631
2001 34,200 -- 34,200
-------- ------- ----------
$994,651 $67,050 $1,061,360
======== ======= ==========
</TABLE>
17. STOCK OPTION PLAN
The Company has a Stock Option Plan (the "Plan") which
provides for granting to eligible employees, officers and consultants
of the Company, options to purchase a maximum of 350,000 shares of
the Company's common stock. The Plan provides for the granting of
options which qualify as incentive stock options, within the meaning
of Section 422 of the Internal Revenue Code, as well as the granting
of nonqualified stock options. All options granted under the Plan
must have an exercise price of not less than 100% of the fair market
value of the common stock on the date of grant and a maximum term of
ten years.
The Board of Directors of the Company may, in its sole
discretion, amend or terminate the Plan at any time, provided,
however, that it may not, without shareholder approval, change
(a) the maximum number of shares for which options may be granted
under the Plan; (b) the minimum option price; (c) the maximum period
during which an option may be granted or exercised; or (d) the
eligibility provisions regarding employees to whom options may be
granted.
The Company applies APB Opinion No. 25 and related
interpretations in accounting for the Option Plan. Accordingly, no
compensation cost has been recognized. Had compensation cost been
determined based on the fair value at the grant dates for awards
under the Plan, consistent with the alternative method set forth
under SFAS 123, the Company's net loss and net loss per common and
common equivalent share would have been reduced. The pro forma
amounts are indicated below:
<TABLE>
<S> <C>
Net Loss
As reported $(1,252,694)
Pro forma (1,278,418)
Net Loss Per Common Share
As reported $ (2.23)
Pro forma (2.27)
</TABLE>
- 30 -
<PAGE> 31
The fair value of each option granted is estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1996:
dividend yield of zero percent; expected volatility of 63.95;
risk-free interest rate of 8.5 percent; and expected lives of 1 to 3
years. The weighted-average fair value of options granted was $0.79
for the year ended December 31, 1996.
A summary of stock option activity for 1996 is as follows
(adjusted for the one-for-six reverse stock split):
<TABLE>
<CAPTION>
PLAN NON-PLAN
OPTIONS OPTIONS
------- --------
<S> <C> <C>
Outstanding on January 1 18,205 4,556
Granted -- 29,999
Exercised -- --
Forfeited/expired (15,816) (4,556)
------- ------
Outstanding on December 31 2,389 29,999
------- ------
Exercisable on December 31 -- --
------- ------
Shares available on December 31 for
options that may be granted 2,389 29,999
------- ------
</TABLE>
18. BUSINESS SEGMENTS
The Company currently classifies its manufactured
products into two core business segments: (a) sports picture cards
and (b) decorative mirrors and pictures. Information concerning the
Company's business segments is as follows:
<TABLE>
<CAPTION>
DECORATIVE MIRRORS AND
SPORTS PICTURE CARDS FRAMED PICTURES
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Identifiable assets $ 67,975 $5,710,556 $ 4,391,491 $ 6,649,779
Net sales 3,482,730 3,695,261 16,652,376 16,676,324
Operating (loss) income (672,145) (545,842) (618,411) 198,556
Capital expenditures 4,824 15,534 116,390 242,185
Depreciation and amortization 28,315 171,101 (239,637) (261,916)
</TABLE>
Included in the depreciation and amortization of the
decorative mirrors and framed pictures segment is $325,230 related to
the amortization of negative goodwill in 1996 and 1995 (see Note 10).
19. SIGNIFICANT CUSTOMERS AND SUPPLIERS
During 1996, sales to one customer approximated 14% of
total net sales. Accounts receivable from the customer amounted to
approximately $373,000 at December 31, 1996. Four customers
represented approximately 43% of total net sales during 1995.
- 31 -
<PAGE> 32
20. SUBSEQUENT EVENTS
On January 14, 1997, Windsor entered into a credit and
security agreement with Norwest Business Credit, Inc. The Company
obtained a $2,000,000 line of credit expiring December 1, 1998. The
interest rate is 1.5% over the prime rate and is payable in arrears
on the first day of each month and on the termination date. The line
of credit balance is secured by Windsor's equipment, general
intangibles, inventory and receivables and is subject to various debt
covenants.
On January 24, 1997, an involuntary bankruptcy case was
filed against Janco, and on February 18, 1997, Janco consented to the
involuntary filing, so that it is now a Chapter 7 debtor. The case
is pending in the United States Bankruptcy Court for the Eastern
District of Missouri in St. Louis.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------ ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
On October 9, 1996, the Company dismissed the accounting firm of
Deloitte & Touche, LLP as its principal independent accountant. The former
principal accounting firm's report on the financial statements for each of
the past two years contained a qualification with respect to the Company's
ability to operate as a going concern. The Company's Board of Directors
approved the decision to change accounting firms. There were no
disagreements with the former accounting firm on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
On October 9, 1996, the Registrant engaged the accounting firm of
Rubin, Brown, Gornstein & Co., LLP as its principal independent accountant.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- ------ --------------------------------------------------
The name, age, principal occupation or position and other
directorships with respect to the directors and executive officers of the
Company is set forth below.
Lloyd R. Abrams, 43, has served as President, Chief Executive
Officer and director of the Company since July 1995. Since November 1993 he
has served as President of Windsor. For more than three years prior to
joining Windsor, he was President of Abrams, Rothman & Company, a real estate
development firm.
Janet L. Salk, 39, has served as a director of the Company
since July 1995. Ms. Salk principally has engaged in family, civic and
charitable activities for more than the past five years. Ms. Salk is the
spouse of Lloyd R. Abrams.
Robert L. Wolfson, 79, has served as Chairman of the Board of
the Company since October 1991 and prior to such time he served as an unpaid
consultant to the Company. Mr. Wolfson has been President of Wolfson Capital
Ventures, Ltd., a private investment firm, for more than the past five years.
- 32 -
<PAGE> 33
Ramakant Agarwal, 42, has served as Chief Financial Officer of
Windsor since August 1996 and Chief Financial Officer of the Company since
January 1997. From April 1996 to July 1996, Mr. Agarwal served as a
consultant to Retix, Inc., an internet hardware, software and
telecommunications company. From January 1993 to February 1996, Mr. Agarwal
served as Vice President of Finance and Corporate Planning for Sun West
Mortgage Company, Inc., a non-supervised mortgage company. From January 1992
to December 1992, Mr. Agarwal served as Chief Financial Officer of DXL USA,
Inc., a developer of specialized mass flow controllers for semi-conductor
manufacturing equipment.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons who own more than ten
percent of the Company's outstanding stock ("Reporting Persons") to file
reports of ownership and changes in ownership with the Securities and
Exchange Commission. During 1996, to the best of the Company's knowledge,
all Section 16(a) filing requirements applicable to Reporting Persons were
complied with except that Ramakant Agarwal failed to file timely a Form 3
upon becoming an executive officer of the Company. Mr. Agarwal did not
beneficially own any shares of the Company in 1996.
- 33 -
<PAGE> 34
ITEM 10. EXECUTIVE COMPENSATION
- ------- ----------------------
The following table sets forth the compensation of the named
executive of the Company for each of the last three years:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
SECURITIES
RESTRICTED UNDERLYING
OTHER ANNUAL STOCK OPTIONS/ ALL OTHER
SALARY BONUS COMPENSATION AWARDS SARs COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)
- --------------------------- ---- ------ ----- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lloyd R. Abrams 1996 265,000 -- -- -- -- --
President and Chief 1995 85,095 -- -- -- -- --
Executive Officer 1994 -- -- -- -- -- --
<FN>
- -------------------
<F1> Mr. Abrams became an executive officer of the Company in July 1995.
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------- --------------------------------------------------------------
The following table sets forth the beneficial ownership of shares
of the Company's Common Stock as of April 29, 1997 held by: (i) each person
who is known to the Company to beneficially own more than 5% of the
outstanding shares of the Company's Common Stock; (ii) each person who is a
director; and (iii) all the Company's directors and officers as a group.
Unless otherwise indicated, all shares are held with sole voting and
investment power.
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OWNED<F1> PERCENT OF CLASS<F1>
---------------- ---------------- --------------------
<S> <C> <C>
Group comprised of Lloyd R.
Abrams, Richard B. Rothman
and Leo M. Rodgers (the "Voting Trust Group")
9719 Conway Road
St. Louis, Missouri 63124 423,500<F2> 75.27%
Lloyd R. Abrams as Voting Trustee
of the Voting Trust, dated July 17, 1995
9719 Conway Road
St. Louis, Missouri 63124 423,500<F2><F3> 75.27
Lloyd R. Abrams
9719 Conway Road
St. Louis, Missouri 63124 256,200<F2><F3> 45.54
Richard B. Rothman
120 South Central Avenue
10th Floor, Chromalloy Plaza
St. Louis, Missouri 63105 84,700<F4> 15.05
Leo M. Rodgers
7167 Westmoreland Drive
St. Louis, Missouri 63130 89,783<F4><F5> 15.96
- 34 -
<PAGE> 35
Robert L. Wolfson
14 South Bemiston Road
Clayton, Missouri 63105 6,667<F6> 1.18
Janet L. Salk
9719 Conway Road
St. Louis, Missouri 63124 -- --
Ramakant Agarwal
9101 Perkins Street
Pico Rivera, California 90660 -- --
All directors and executive officers as a group
(4 persons) 432,267<F5> 76.83
<FN>
- ------------------------
<F1> Each beneficial owner's percentage ownership is based upon 562,624
shares of the Company's Common Stock issued and outstanding as of
April 29, 1997 and is determined by assuming options or warrants that
are held by such person (but not those held by any other person) and
which are exercisable within 60 days of April 29, 1997 have been
exercised.
<F2> In a Statement on Schedule 13D (the "Schedule 13D") filed with the
Securities and Exchange Commission (the "SEC") by the Voting Trust
Group and its members, the Voting Trust Group has reported that
423,500 shares of the Company's Common Stock were issued to the
Voting Trustee under the Voting Trust Agreement. Under the Voting
Trust Agreement, Mr. Abrams retains voting power over shares of the
Company's Common Stock deposited therein.
<F3> In a Form 5 dated January 27, 1997, Mr. Abrams reported that certain
shares of the Company's Common Stock attributed to him are
beneficially owned by him as trustee of each of The Abrams Family
Trust, The Stacey, Kevin and Meredith Trust dated 12/1/91 and The
Janet L. Salk Children's Trust in the amounts of 169,400 shares,
44,450 shares and 42,350 shares, respectively. Mr. Abrams has sole
investment power over all such shares of the Company's Common Stock.
<F4> In the Schedule 13D, Mr. Rothman and Mr. Rodgers reported that, shares
of the Company's Common Stock issued pursuant to the Agreement that
are attributable to Mr. Rothman and Mr. Rodgers were issued in the
name of the Voting Trustee. Under the Voting Trust Agreement, the
Voting Trustee retains voting power of shares of the Company's Common
Stock deposited therein. Mr. Rothman and Mr. Rodgers retain
investment power with regard to the number of shares of the Company's
Common Stock attributed to each of them.
<F5> In a Form 5 dated February 14, 1997, Mr. Rodgers reported that he
beneficially owns 89,783 shares of the Company's Common Stock.
<F6> Includes 6,667 shares of the Company's Common Stock issuable upon
exercise of stock options.
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
The Company's executive compensation program is administered
under the direction of the Board of Directors. Mr. Abrams is a member of the
Board of Directors and serves as an executive officer of the Company.
- 35 -
<PAGE> 36
Until April 1996, the Company had leased its Erie, Pennsylvania
production facility pursuant to a Project Sublease, dated as of February 4,
1991 (the "Sublease"), with Alnick Realty Co. ("Alnick"). Mr. Wolfson was a
shareholder of Alnick. The Sublease was for a minimum term expiring
January 2006. The Sublease originally provided for a base rental of $375,000
per year, subject to increase under certain circumstances based upon the
minimum employment level requirements specified in Alnick's industrial
development loan. The Company also was obligated under the Sublease to pay
Alnick additional rent equal to the amount of ad valorem taxes which would be
payable on the property if it were subject to such taxes and to pay all real
estate taxes and insurance on the property. Subsequent to the Business
Combination, Alnick agreed to reduce the rent payments payable under the
Sublease to an amount equal to the sum of: (i) the debt payments to be made
by Alnick on the underlying debt attributable to the property; and (ii) all
out-of-pocket tax liability incurred by the Alnick shareholders as a result
of rent payments by the Company in view of Alnick's status as an
S-Corporation for income tax purposes. Additionally, Alnick agreed to waive
all accrued but unpaid rents (aggregating $250,000) which accrued prior to
July 17, 1995. On April 29, 1996, the Company purchased the outstanding
shares of Alnick's capital stock for $85,000, sold Alnick's and its interests
in the Erie, Pennsylvania production facility and terminated its obligations
under the Sublease.
The Company and its subsidiaries borrowed money from certain
principal shareholders subject to notes in the aggregate amount of $1,314,000
which bear interest at prime plus 2% (10.25% at December 31, 1996) with
principal due on July 17, 1997. Interest expense on these secured notes was
$138,880 in 1996.
Windsor pays Mr. Abrams an allowance of $2,000 per month for use
of a condominium located in Newport Beach, California which is owned by The
Janet L. Salk Children's Trust.
- 36 -
<PAGE> 37
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
3.1 Restated Articles of Incorporation of Registrant filed as Exhibit
No. 3.1 to Registrant's Registration Statement on Form S-18
(Reg. No. 33-42393C) are incorporated herein by this reference.
3.2 By-laws of Registrant as currently in effect filed as Exhibit No.
3.2 to Registrant's Registration Statement on Form S-18 (Reg.
No. 33-42393C) are incorporated herein by this reference.
3.3 Amendment to Restated Articles of Incorporation filed as Exhibit
3.3 to Registrant's Form 10-K for the year ended December 31,
1995 is incorporated herein by this reference.
4.1 Form of Certificate for Common Stock filed as Exhibit No. 4.1 to
Registrant's Registration Statement on Form S-18 (Reg. No.
33-42393C) is incorporated herein by this reference.
4.2 Form of Warrant Agreement for Underwriter's Warrants filed as
Exhibit No. 4.2 to Registrant's Registration Statement on Form
S-18 (Reg. No. 33-42393C) is incorporated herein by this
reference.
9.1 Voting Trust Agreement, dated July 17, 1995, by and among Lloyd
Abrams, as Voting Trustee, Richard B. Rothman, Lloyd R. Abrams
as Trustee of each of the Abrams Family Trust, The Stacey Kevin
and Meredith Trust dated 12/1/91 and The Janet L. Salk
Children's Trust filed as Exhibit 9.1 to Registrant's Form 10-K
for the year ended December 31, 1995 is incorporated herein by
this reference.
10.1 Megacards Stock Option Plan filed as Exhibit No. 10.1 to
Registrant's Form 10-K for the year ended December 31, 1991 is
incorporated herein by this reference.
10.2 Project Sublease, dated February 4, 1991, between Registrant and
Alnick Realty Co., filed as Exhibit No. 10.4 to Registrant's
Registration Statement on Form S-18 (Reg. No. 33-42393C) is
incorporated herein by this reference.
10.3 Form of Demand Note, dated June 1991, made by Registrant in favor
of Alnick Realty Co. filed as Exhibit No. 10.8 to Registrant's
Registration Statement on Form S-18 (Reg. No. 33-42393C) is
incorporated herein by this reference.
10.4 Loan Agreement, dated September 5, 1990, by and among Registrant,
Alnick Realty Co. and Marine Bank filed as Exhibit No. 10.11 to
Registrant's Registration Statement on Form S-18 (Reg. No.
33-42393C) is incorporated herein by this reference.
10.5 Form of Option Agreements between Registrant and Andrew S.
Wolfson and M. Erwin Bry III filed as Exhibit No. 10.14 to
Registrant's Registration Statement on Form S-18 (Reg. No.
33-42393C) are incorporated herein by this reference.
- 37 -
<PAGE> 38
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.6 Credit Enhancement Agreement, dated August 7, 1991, between
Registrant and Alnick Realty Co. filed as Exhibit No. 10.15 to
Registrant's Registration Statement on Form S-18 (Reg. No.
33-42393C) is incorporated herein by this reference.
10.7 Leases between 123 Main Street Corporation and Bentley
International, Inc. filed as Exhibit No. 10.17 to Registrant's
Registration Statement on Form S-18 (Reg. No. 33-42393C) are
incorporated herein by this reference.
10.8 Lease Amendment, dated August 22, 1991, by and between Registrant
and Alnick Realty Co., filed as Exhibit No. 10.20 to
Registrant's Form 10-K for the year ended December 31, 1991, is
incorporated herein by this reference.
10.9 Lease, dated October 1, 1991, between Fitz-Randolph Labagh
Properties, Inc. and Registrant, filed as Exhibit No. 10.22 to
Registrant's Form 10-K for the year ended December 31, 1991, is
incorporated herein by this reference.
10.10 Lease, dated December 1, 1991, between Fitz-Randolph Labagh
Properties, Inc. and Registrant, filed as Exhibit No. 10.23 to
Registrant's Form 10-K for the year ended December 31, 1991, is
incorporated herein by this reference.
10.11 Lease, dated October 29, 1993, between Hycel Partners I, L.P. and
Registrant filed as Exhibit 10.29 to the Registrant's Form 10-K
for the year ended December 31, 1993 is incorporated herein by
this reference.
10.12 Lease, dated July 15, 1993, between Fitz-Randolph Labagh
Properties Inc. and Registrant filed as Exhibit 10.30 to the
Registrant's Form 10-K for the year ended December 31, 1993 is
incorporated herein by this reference.
10.13 First Amendment to Lease, dated September 15, 1993, by and
between John Hancock Mutual Life Insurance Company and
Registrant filed as Exhibit 10.31 to the Registrant's Form 10-K
for the year ended December 31, 1993 is incorporated herein by
this reference.
10.14 Agreement, dated as of July 17, 1995, by and among Registrant,
Leo M. Rodgers, Richard B. Rothman, The Abrams Family Trust,
The Stacey Kevin and Meredith Trust dated 12/1/91 and The Janet
L. Salk Children's Trust and Lloyd R. Abrams as Voting Trustee
under that certain Voting Trust Agreement dated July 17, 1995
by and among Richard B. Rothman, Lloyd R. Abrams as Trustee of
each of the Abrams Family Trust, The Stacey Kevin and Meredith
Trust dated 12/1/91 and The Janet L. Salk Children's Trust
filed as Exhibit 2.1 and to the Registrant's Form 8-K dated
July 24, 1995 is incorporated herein by this reference.
10.15 Second Lease Amendment, dated July 17, 1995, by and between
Registrant and Alnick Realty, Co. filed as Exhibit 10.26 to
Registrant's Form 10-K for the year ended December 31, 1996 is
incorporated herein by this reference.
10.16 Third Lease Amendment, dated September 5, 1995, by and between
Registrant and Alnick Realty, Co. filed as Exhibit 10.37 to
Registrant's Form 10-K for the year ended December 31, 1995 is
incorporated herein by this reference.
- 38 -
<PAGE> 39
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.17 Seventh Amendment to Revolving Credit Loan Agreement, dated as of
July 17, 1995, by and between Registrant and Mark Twain Bank
filed as Exhibit 10.38 to Registrant's Form 10-K for the year
ended December 31, 1995 is incorporated herein by this
reference.
10.18 Promissory Note, dated July 17, 1995, in the principal amount of
$500,000 payable by Windsor to Lloyd R. Abrams, Trustee of the
Janet L. Salk Children's Trust filed as Exhibit 10.18 to
Registrant's Form 10-K for the year ended December 31, 1995 is
incorporated herein by this reference.
10.19 Promissory Note, dated July 17, 1995, in the principal amount of
$400,000 payable by Windsor to Lloyd R. Abrams, Trustee of the
Janet L. Salk Children's Trust filed as Exhibit 10.19 is
incorporated herein by this reference.
10.20 Promissory Note, dated July 17, 1995, in the principal amount of
$90,000 payable by Janco to Richard B. Rothman, Trustee U/A of
Richard B. Rothman Trust dated 2/27/87 filed as Exhibit 10.20
of the Registrant's Form 10-K for the year ended December 31,
1995 is incorporated herein by this reference.
10.21 Promissory Note, dated July 17, 1995, in the principal amount of
$37,500 payable by Janco to The Richard B. Rothman QTIP Trust,
Patricia B. Rothman, Trustee filed as Exhibit 10.21 of the
Registrant's Form 10-K for the year ended December 31, 1995 is
incorporated herein by this reference. is incorporated herein
by this reference.
10.22 Promissory Note, dated July 17, 1995, in the principal amount of
$37,500 payable by Janco to Richard B. Rothman, Trustee of the
Winter Trust filed as Exhibit 10.44 is incorporated herein by
this reference.
10.23 Promissory Note, dated July 17, 1995, in the principal amount of
$37,500 payable by Janco to Richard B. Rothman, Trustee of the
Winter Trust filed as Exhibit 10.44 is incorporated herein by
this reference.
10.24 Promissory Note, dated July 17, 1995, in the principal amount of
$70,000 payable by Janco to Lloyd Abrams, Trustee of The Abrams
Family Trust filed as Exhibit 10.24 to the Registrant's Form
10-K for the year ended December 31, 1995 is incorporated
herein by this reference.
10.25 Promissory Note, dated July 17, 1995, in the principal amount of
$140,000 payable by Janco to Lloyd Abrams, Trustee of The
Abrams Family Trust filed as Exhibit 10.24 to the Registrant's
Form 10-K for the year ended December 31, 1995 is incorporated
herein by this reference.
10.26 Revolving Credit Loan Agreement, dated February 29, 1996, in the
principal amount of $500,000 payable by Janco to Lloyd Abrams,
Trustee, the Janet L. Salk Children's Trust filed as Exhibit
No. 10.26 to Registrant's Annual Report on Form 10-K (Reg. No.
33-42393C) is incorporated herein by this reference.
10.27 Sublease Agreement, dated October 9, 1995, by and between Bentley
International, Inc. and Jeanandy, Inc., filed as Exhibit 10.27
to the Registrant's Annual Report on Form 10-K for the ear
ended December 31, 1995 is incorporated herein by this
reference.
- 39 -
<PAGE> 40
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.28 Asset Purchase Agreement, dated October 9, 1995, by and between
the Registrant and Jeanandy, filed as Exhibit No. 10.28 to the
Registrant's Annual Report on Form 10-K for the ear ended
December 31, 1995 is incorporated herein by this reference.
10.29 Agreement of Sale, dated March 20, 1996, by and between the
Registrant, Alnick Realty Co. and Transportation Investment
Group, filed as Exhibit No. 10.29 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995 is
incorporated herein by this reference.
10.30 Letter Agreement, dated March 20, 1996, by and between the
Registrant and Alnick Realty Co. filed as Exhibit No. 10.30 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 is incorporated herein by this reference.
10.31 Industrial Modified Gross Lease, dated September 15, 1995, by and
between Janco Designs, Inc. and Tele/Systems Investments,
L.L.C. filed as Exhibit No. 10.31 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995 is
incorporated herein by this reference.
10.32 Agreement to Form Joint Venture dated September 13, 1996, by and
among Excell Recycling, Inc.; Quality Baseball Cards, Inc. and
Bentley International, Inc. filed as Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated September 27,
1996 is incorporated by this reference.
10.33 Limited Partnership Agreement Legends, LP dated September 12,
1996, by and among Excell Recycling, Inc.; Quality Baseball
Cards, Inc. and Bentley International, Inc. filed as Exhibit
2.2 to the Registrant's Current Report on Form 8-K dated
September 27, 1996 is incorporated by this reference.
10.34 Eighth Amendment to Revolving Credit Loan Agreement, dated as of
April 1, 1997, by and between Registrant and Mark Twain Bank is
filed herewith.
10.35 Tenth Amendment to Revolving Credit Loan Agreement, dated as of
September 13, 1997, by and between Registrant and Mark Twain
Bank is filed herewith.
10.36 Credit and Security Facility by and between Windsor Art, Inc. and
Norwest Business Credit, Inc. dated January 14, 1997 is filed
herewith.
24.1 Consent of Rubin, Brown, Gornstein & Co. LLP is filed herewith.
24.2 Consent of Deloitte & Touche, LLP is filed herewith.
99.1 Independent Auditor's Report of Rubin, Brown, Gornstein & Co. LLP
containing financial statements for the Year Ended December 31,
1994 of Janco Designs, Inc. is filed herewith.
</TABLE>
(b) Reports on Form 8-K:
On October 15, 1996, the Registrant filed a Current Report on
Form 8-K reporting a change in the Registrant's certifying accountant as
required by Item 4 of Form 8-K.
- 40 -
<PAGE> 41
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.
BENTLEY INTERNATIONAL, INC.
(Registrant)
By /s/ Lloyd R. Abrams
--------------------------------------
Lloyd R. Abrams, President and
Chief Executive Officer
Date: May 31, 1997
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 and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<C> <S> <C>
/s/ Lloyd R. Abrams Director and Principal Accounting Officer May 31, 1997
- --------------------------------
Lloyd R. Abrams
/s/ Robert L. Wolfson Director and Chairman May 31, 1997
- --------------------------------
Robert L. Wolfson
/s/ Janet L. Salk Director May 31, 1997
- --------------------------------
Janet L. Salk
</TABLE>
- 40 -
<PAGE> 1
EIGHTH AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT
---------------------------------------------------
THIS EIGHTH AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT
("Eighth Amendment") is made and entered into effective as of the 28th day
----
of June, 1996, by and among MEGACARDS, INC., a Missouri corporation with its
principal place of business at 1353 N. Warson Road, St. Louis, Missouri 63132
("Borrower"), and MARK TWAIN BANK, a Missouri state chartered banking
corporation, with an office at 12140 Woodcrest Executive Drive, St. Louis,
Missouri 63141 ("Bank").
W.I.T.N.E.S.S.E.T.H.:
WHEREAS, Borrower and Bank have heretofore entered into that certain
Revolving Credit Loan Agreement dated as of August 24, 1990, a First
Amendment to Revolving Credit Loan Agreement dated as of March 12, 1991
("First Amendment"), a Second Amendment to Revolving Credit Loan Agreement
dated as of July 30, 1991 ("Second Amendment"), a Third Amendment to
Revolving Credit Loan Agreement dated as of December 31, 1991 ("Third
Amendment"), a Fourth Amendment to Revolving Credit Loan Agreement dated as
of March 31, 1992 ("Fourth Amendment"), a Fifth Amendment to Revolving Credit
Loan Agreement dated as of June 15, 1993 ("Fifth Amendment"), a Sixth
Amendment to Revolving Credit Loan Agreement dated as of January 1, 1995
("Sixth Amendment"), and a Seventh Amendment to Revolving Credit Loan
Agreement dated as of July 17, 1995 ("Seventh Amendment"), pursuant to which
Bank agreed to make loans for the account of Borrower (hereinafter
collectively referred to as the "Loan Agreement");
WHEREAS, certain of the loans made pursuant to the Loan Agreement are
evidenced by that certain Revolving Credit Note dated as of July 17, 1995,
executed by Borrower to the order of Bank (the"Note");
WHEREAS, Borrower desires to modify the provisions of the Note and
other provisions of the Loan Agreement; and
WHEREAS, Bank is willing to consent to a modification of the Note and
other provisions of the Loan Agreement, upon the terms and conditions as
provided herein.
NOW, THEREFORE, for and in consideration of the foregoing premises and
mutual covenants contained herein and as a material inducement to Bank to
enter into this Eighth Amendment, Borrower and Bank, intending to be legally
bound, hereby agree as follows:
1. The recitals to this Eighth Amendment are material provisions
hereof, and are incorporated herein as if fully set forth herein. Unless
otherwise provided herein, all capitalized terms used herein shall have the
respective meanings assigned to them in the Loan Agreement.
2. The obligation of Bank to enter into this Eighth Amendment is
subject to the satisfaction or fulfillment by Borrower of each of the
following conditions precedent prior to Bank's execution hereof:
<PAGE> 2
(a) The Bank shall have received the following documents, duly
executed, acknowledged, attested and delivered by all parties thereto, and
otherwise satisfactory in form and content to the Bank and its counsel,
consisting of:
(i) Eighth Amendment. This Eighth Amendment.
----------------
(ii) Borrower's Approvals. A copy of the resolutions of
--------------------
the board of directors of Borrower approving the execution and delivery of,
and Borrowers' performance of, its obligations under this Eighth Amendment,
together with all other documents or instruments to be executed in connection
with or to carry out the purposes thereof (collectively the "Eighth Amendment
Loan Documents").
(iii) Certificate of Borrower's Secretary. A certificate
-----------------------------------
executed by the duly elected Secretary of Borrower dated the date hereof and
certifying (i) that the copies of Borrower's certificate and articles of
incorporation and bylaws now or heretofore furnished to Bank are true,
accurate and complete and contain all amendments thereto as of the date of
this Eighth Amendment, (ii) that the resolutions of the board of directors
have been duly adopted and are in full force and effect as of the date of
this Eighth Amendment, and (iii) the names, titles and true signatures of
such Borrower's officers who are authorized to sign the Eighth Amendment and
the Eighth Amendment Loan Documents.
(iv) Certificates of Good Standing. A certificate of
-----------------------------
good standing for Borrower issued by the Secretary of State of Borrower's
state of incorporation, and any jurisdiction in which it is licensed to do
business as a foreign corporation;
(b) Payment at closing of the fees and expenses of Bank in
connection with the transactions contemplated hereby including the fees and
expenses of counsel to Bank relating to the preparation, negotiation and
documentation of this Eighth Amendment, together with the other Eighth
Amendment Loan Documents not to exceed $1,500.
(c) Such other approvals, opinions, or documents as the Bank
may reasonably request.
3. As a material inducement to Bank to enter into this Eighth
Amendment, Borrower hereby represents, warrants and covenants to Bank, which
said representations, warranties and covenants shall survive the execution
and delivery of this Eighth Amendment, that as of the effective date of this
Eighth Amendment:
(a) All of the recitals to this Eighth Amendment are true and
correct.
(b) As of date, the execution and delivery of, and the
performance by Borrower of its obligations under, the Eighth Amendment Loan
Documents are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action taken as of the date on which
this Eighth Amendment has been executed and delivered to
- 2 -
<PAGE> 3
Bank, and do not contravene (i) the Borrower's articles of incorporation or
by-laws, or (ii) any law or contractual restriction binding on or affecting
the Borrower or its properties and do not result in or require the creation of
any lien, encumbrance or other charge upon or with respect to any of its
assets or properties other than in favor of Bank.
(c) No authorization or approval or other action by, and no
notice to or filing with, any person or any governmental authority or other
regulatory body is required for the due execution, delivery and performance
by the Borrower of the Eighth Amendment or any of the other Eighth Amendment
Loan Documents, or the exercise by the Bank of its rights thereunder.
(d) The Eighth Amendment and the other Eighth Amendment Loan
Documents, and the Loan Agreement, as amended by the First Amendment, the
Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth
Amendment, the Sixth Amendment, the Seventh Amendment and this Eighth
Amendment are the legal, valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with their respective terms,
except as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforceability of creditors' rights generally.
(e) All financial statements of Borrower heretofore delivered
to Bank are complete and accurate, have been prepared in accordance with
generally accepted accounting principles, consistently applied and fairly
present the financial condition and results of Borrower's operations as of
the dates and for the periods stated therein.
(f) No event has occurred and is continuing, or would result
from entering into this Eighth Amendment or any other Eighth Amendment Loan
Documents, which constitutes an Event of Default or would constitute an Event
of Default but for the requirement of the giving of notice or the passage of
time, or both.
(g) No consent, permit, license, approval or authorization of,
or notice to any person is necessary or required in connection with the
execution, delivery or performance by Borrower of its obligations under this
Eighth Amendment and/or any of the Eighth Amendment Loan Documents, or the
exercise by Bank of its rights and remedies under the Loan Agreement or any
of the Loan Documents.
(h) The chief executive office and principal place of business
and the office where Borrower keeps all of its records concerning accounts
receivable and inventory is at: 1353 N. Warson, St. Louis, Missouri 63132,
and each location at which Borrower maintains any inventory is completely and
accurately set forth in Schedule 3(i) attached hereto and incorporated
-------------
herein by this reference.
4. Section 1.01(a) of the Loan Agreement is hereby amended effective
as of April 1, 1996 by deleting Section 1.01(a) in its entirety, and
inserting in lieu thereof, new Section 1.01(a) to read in words and figures
as follows:
- 3 -
<PAGE> 4
SECTION 1.01. Revolving Credit Loans.
----------------------
(a) Revolving Credit Loans. The Bank may, on the terms and
----------------------
conditions hereinafter set forth, make revolving credit loans to the Borrower
from time to time after the date hereof and prior to the earlier of July 17,
1996, or the occurrence of any Event of Default, in the aggregate amount not
to exceed at any time outstanding the LESSER of: (a) the Borrowing Base as
defined in Section 4.01(c) hereof, or (b) Two Million Five Hundred Thousand
Dollars ($2,500,000) (such lesser amount being referred to herein as the
"Commitment"). Within said limits, the Borrower may borrow, repay and
reborrow under this Section 1.01(a).
5. Section 1.05 of the Loan Agreement is hereby amended effective
------------
as of April 1, 1996 by deleting from said Section 1.05 the language "(a) the
Revolving Credit Note, as hereafter amended and/or restated from time to
time, shall bear interest at a rate per annum equal to two percent (2%) in
excess of the Prime Rate (as hereinafter defined) of the Bank," in its
entirety and substituting therefor, the new language in said Section 1.05, to
read in words and figures as follows: "(a) the Revolving Credit Note, as
hereafter amended and/or restated from time to time, shall bear interest at a
rate per annum equal to one and one-half percent (1 1/2%) in excess of the
Prime Rate (as hereinafter defined) of the Bank."
6. Modification to Revolving Credit Note. The headings and the
-------------------------------------
first and second paragraphs on page 1 of the Revolving Credit Note are hereby
amended effective as of April 1, 1996 by deleting and replacing the same with
the following:
REVOLVING CREDIT NOTE
---------------------
$2,500,000.00 April 1, 1996
St. Louis, Missouri
FOR VALUE RECEIVED, the undersigned, MEGACARDS, INC., a Missouri
corporation, with its principal place of business at 1353 N. Warson Road, St.
Louis, Missouri 63132 (the "Borrower"), PROMISES TO PAY to the order of MARK
TWAIN BANK (the "Bank") the principal sum of Two Million Five Hundred
Thousand Dollars ($2,500,000.00), or if less, the amount outstanding under
Section 1.01 of the Loan Agreement (as hereinafter defined) on the
Termination Date (as defined in the Loan Agreement), together with interest
on any and all principal amounts outstanding hereunder from the date hereof
until this Note is paid in full, payable on the last business day of each
month during the term hereof, commencing April 30, 1996, and at maturity of
this Note by termination, acceleration, scheduled maturity or otherwise, at a
fluctuating interest rate per annum which at all times shall be one and one
half percent (1.5%) above the Prime Rate (as defined in the Loan Agreement
referenced below) of the Bank in effect from time to time (calculated on the
basis of a 360-day year for the actual number of days [including the first
day but not excluding the last day] elapsed). Each change in the fluctuating
interest rate hereunder shall take effect simultaneously with the
corresponding change in the Prime Rate. Both principal and interest are
payable in lawful money of the United States of America to the Bank at its
office at 12140 Woodcrest Executive Drive, St. Louis, Missouri 63141, in
- 4 -
<PAGE> 5
immediately available funds or by Bank charging Borrower's deposit account at
the Bank. All advances made by the Bank to the Borrower pursuant to the Loan
Agreement and all payments made on account of principal hereof shall be
recorded by the Bank on its books. The unpaid principal balance set forth on
the books of the Bank shall be rebuttably presumptive evidence of the
principal amount owing and unpaid on this Note.
This Revolving Credit Note ("Note") is the Revolving Credit Note
referred to in, and is entitled to the benefits of, the Revolving Credit Loan
Agreement dated August 24, 1990, between the Borrower and the Bank, as
amended by that certain First Amendment to Revolving Credit Loan Agreement
dated as of March 12, 1991, that certain Second Amendment to Revolving Credit
Loan Agreement dated as of July 30, 1991, that certain Third Amendment to
Revolving Credit Loan Agreement dated as of December 31, 1991, that certain
Fourth Amendment to Revolving Credit Loan Agreement dated as of March 31,
1992, that certain Fifth Amendment to Revolving Credit Loan Agreement dated
as of June 15, 1995, that certain Sixth Amendment to Revolving Credit Loan
Agreement dated January 1, 1995, that certain Seventh Amendment to Revolving
Credit Loan Agreement dated July 17, 1995, and that certain Eighth Amendment
to Revolving Credit Loan Agreement of even date herewith, as the same may
hereafter be amended, modified, extended or restated from time to time
(collectively the "Loan Agreement") which Loan Agreement, among other things,
contains provisions for reborrowings hereunder prior to maturity upon the
provisions therein specified. All capitalized terms used not otherwise
defined herein shall have the same meaning given them in the Loan Agreement.
7. Name Change. Bank hereby consents to Borrower amending its
-----------
Articles of Incorporation solely for the purpose of changing its legal name
to "Bentley International, Inc." which is scheduled to be approved by
Borrowers' shareholders at their annual meeting held on June 21, 1996. Within
15 days from the date hereof, Borrower shall deliver to Bank and its counsel,
a certified copy of the Amendment to Articles of Incorporation duly filed and
certified by the Missouri Secretary of State. Failure to deliver a certified
copy of the Amendment to Articles of Incorporation as aforesaid shall
constitute an Event of Default under the Loan Agreement. Borrower agrees to
pay all costs and fees incurred by Bank in connection with such change in
name, and the further shall execute all documents, instruments, UCC-3
Amendments and other instruments and shall take all further action as Bank
may require to confirm said change in name.
8. Confirmation of Obligations, Liens and Security Interests. The
---------------------------------------------------------
Borrower hereby ratifies and confirms that except as expressly set forth
herein, or referred to herein, the Loan Agreement and all liens, security
interests and other rights in favor of Bank as provided therein and all
agreements delivered by or on behalf of Borrower to Bank in connection
therewith remain in full force and effect and remain enforceable against
Borrower in accordance with their respective terms.
8. Release. In consideration of the agreement of Bank to modify
-------
the terms of the Loan Agreement as set forth in this Eighth Amendment,
Borrower hereby releases, discharges and acquits forever the Bank and any of
its officers, directors, servants, agents, employees and attorneys, past and
present, from any and all claims, demands and causes of
- 5 -
<PAGE> 6
action, of whatever nature, whether in contract or tort accrued or to accrue,
contingent or vested, known or unknown, arising out of or relating to the
loans evidenced by the Loan Agreement, as hereby amended, or Bank's
administration of same or any other actions taken pursuant to the Loan
Agreement or under any other documents or instruments evidencing loans made by
Bank to Borrowers or the administration of same through the date hereof.
Borrower hereby further indemnifies and holds Bank, any officers, directors,
servants, agents, employees and attorneys of Bank, past or present, harmless
from any and all such claims, demands and causes of action by Borrower or
anyone claiming by, through or under Borrower or any of them, said indemnity
to cover all losses, expenses incurred by the Bank, its officers, directors,
servants, agents, employees or attorneys, past or present, in connection with
any such claims, demands, or cause of action, including all attorneys' fees
and costs. The Bank acknowledges, however, that the foregoing release and
indemnification shall not apply to any losses or expenses resulting from
Bank's gross negligence or willful misconduct.
10. Course of Dealing. No course of dealing heretofore or hereafter
-----------------
between Bank and Borrower and no failure or delay on the part of Bank in
exercising any rights or remedies under the Loan Agreement or existing at law
or in equity, including without limitation, any determination by Bank not to
exercise rights or remedies arising from any Event of Default, shall operate
as a waiver of any right or remedy of Bank with respect to the Borrower's
obligations.
Subsequent to the date on which the Amended Articles of Incorporation
are filed with the Secretary of State and certified copies thereof are
delivered to Bank, and its counsel, then all references in the Loan Agreement
and the other Eighth Amendment Loan Documents and the Loan Agreement (and all
agreements and documents delivered in connection with the Loan Agreement,
including the Revolving Credit Note) to Megacards, Inc. shall mean Bentley
International, Inc.
11. Incorporation by Reference. The Loan Agreement, (and all
--------------------------
agreements and documents delivered in connection with the Loan Agreement
including the Eighth Amendment), and the exhibits attached hereto and thereto
are incorporated by reference into this Eighth Amendment.
12. Reaffirmation. This Eighth Amendment is executed as a
-------------
modification of the Note, and not as a novation. Except as expressly provided
herein, all provisions of the Note are hereby reaffirmed in their entirety
and shall remain in full force and effect.
13. Governing Law. This Eighth Amendment shall be governed by, and
-------------
construed and enforced in accordance with, the internal laws of the State of
Missouri without regard to conflict of law rules.
14. No Oral Agreements. The following notice is given pursuant to
------------------
Section 432.045 of the Missouri Revised Statutes; nothing contained in such
notice shall be deemed to limit or modify the provisions hereof or the Loan
Agreement:
- 6 -
<PAGE> 7
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW
SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER) AND US (BANK)
FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING
SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND
EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER
AGREE IN WRITING TO MODIFY IT.
IN WITNESS WHEREOF, the parties hereto, by and through their duly
authorized representatives, have caused this Eighth Amendment to be executed
this 28th day of June, 1996, to be effective on the day and year first
----
written above.
MEGACARDS, INC.
By: /s/Lloyd R. Abrams
--------------------------------------
Name: Lloyd R. Abrams
Title: President and Chief
Executive Officer
ATTEST:
(SEAL)
By:/s/Kathy Siegel
----------------------------
Kathy Siegel, Secretary
MARK TWAIN BANK
By:
--------------------------------------
Ronald F. Guz
President
Commercial Finance Division
- 7 -
<PAGE> 8
ACKNOWLEDGMENTS
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF ST. LOUIS )
On this 28th day of June, 1996, before me appeared Lloyd R. Abrams
----
and Kathy Siegel, to me personally known, who, being by me duly sworn, did say
that they are the President and Chief Executive Officer and Secretary,
respectively, of Megacards, Inc., a corporation organized under the laws of
the State of Missouri, and that the seal affixed to the foregoing instrument
is the corporate seal of said corporation, and that said instrument was
signed and sealed in behalf of said corporation, by authority of its Board of
Directors, and said Lloyd R. Abrams and Kathy Siegel acknowledged said
instrument to be the free act and deed of said corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal in the County and State aforesaid, the day and year first above
written.
/s/ Kara Lea Villhard
------------------------------------------
Notary Public
My term expires:
STATE OF MISSOURI )
) ss.
OF ST. LOUIS )
- -------
On this day of June, 1996, before me appeared Ronald F. Guz, to
---
me personally known, who, being by me duly sworn, did say that he is the
President of Mark Twain Bank, Commercial Finance Division, a corporation of
the State of Missouri, and that the seal affixed to the foregoing instrument
is the corporate seal of said corporation, and that said instrument was
signed and sealed in behalf of said corporation, by authority of its Board of
Directors; and said Ronald F. Guz acknowledged said instrument to be the free
act and deed of said corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal in the County and State aforesaid, the day and year first above
written.
My term expires:
------------------------------------------
Notary Public
- 8 -
<PAGE> 9
SCHEDULE 3(j)
Inventory Locations
-------------------
5650 Wattsburg Road
Erie, Pennsylvania 16509
1353 N. Warson Road
St. Louis, Missouri 63132
- 9 -
<PAGE> 1
TENTH AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT
--------------------------------------------------
THIS TENTH AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT
("Tenth Amendment") is made and entered into effective as of the 13th day of
September, 1996, by and among BENTLEY INTERNATIONAL, INC. (formerly
Megacards, Inc.), a Missouri corporation with its principal place of business
at 1353 N. Warson Road, St. Louis, Missouri 63132 ("Borrower"), MARK TWAIN
BANK, a Missouri state chartered banking corporation, with an office at
12140 Woodcrest Executive Drive, St. Louis, Missouri 63141 ("Bank").
W.I.T.N.E.S.S.E.T.H.:
WHEREAS, Borrower and Bank have heretofore entered into that certain
Revolving Credit Loan Agreement dated as of August 24, 1990, a First
Amendment to Revolving Credit Loan Agreement dated as of March 12, 1991
("First Amendment"), a Second Amendment to Revolving Credit Loan Agreement
dated as of July 30, 1991 ("Second Amendment"), a Third Amendment to
Revolving Credit Loan Agreement dated as of December 31, 1991 ("Third
Amendment"), a Fourth Amendment to Revolving Credit Loan Agreement dated as
of March 31, 1992 ("Fourth Amendment"), a Fifth Amendment to Revolving Credit
Loan Agreement dated as of June 15, 1993 ("Fifth Amendment"), a Sixth
Amendment to Revolving Credit Loan Agreement dated as of January 1, 1995
("Sixth Amendment"), a Seventh Amendment to Revolving Credit Loan Agreement
dated as of July 17, 1995 ("Seventh Amendment"), an Eighth Amendment to
Revolving Credit Loan Agreement dated as of June 28, 1996 ("Eighth
Amendment"), and a Ninth Amendment to Revolving Credit Loan Agreement dated
as of August 1, 1996 ("Ninth Amendment") pursuant to which Bank agreed to
make loans for the account of Borrower (hereinafter collectively referred to
as the "Loan Agreement");
WHEREAS, Borrower desires to contribute certain of Bank's collateral to
Legends, LP, a New York Limited Partnership (the "Partnership") in exchange
for an interest in the Partnership and other good and valuable consideration,
all as more fully described in that certain Agreement To Form Joint Venture,
dated September 13, 1996, by and among Borrower, Quality Baseball Cards,
Inc., a New York corporation ("Quality") and Excell Recycling, Inc., a New
York corporation ("Excell") (the "Joint Venture Agreement");
WHEREAS, all indebtedness of Borrower to Bank is currently due and
payable and Borrower desires for Bank to consent to the contribution and
substitution of its collateral, and to extend the maturity date of the
Revolving Credit Note (as defined in the Loan Agreement); and
WHEREAS, the parties hereto have agreed to enter into this Tenth
Amendment in order to effect certain amendments to the Loan Agreement and to
set forth certain conditions precedent to Borrower entering into the Joint
Venture Agreement and complying with the provisions contained therein.
<PAGE> 2
NOW, THEREFORE, for and in consideration of the foregoing premises and
mutual covenants contained herein and as a material inducement to Bank to
enter into this Tenth Amendment, Borrower and Bank, intending to be legally
bound, hereby agree as follows:
1. The recitals to this Tenth Amendment are material provisions
hereof, and are incorporated herein as if fully set forth herein. Unless
otherwise provided herein, all capitalized terms used herein shall have the
respective meanings assigned to them in the Loan Agreement. The term "Loan
Documents" as originally defined in the Loan Agreement, shall also include
the Tenth Amendment Loan Documents, as well as any other note, document or
instrument executed by Borrower pursuant to any of the other amendments to
the Loan Agreement, and any and all references herein or in the Loan
Agreement to the Loan Documents or any of them shall be deemed to include any
such renewals, replacements, amendments, extensions, consolidations or
modifications thereof.
2. The obligation of Bank to enter into this Tenth Amendment is
subject to the satisfaction or fulfillment by Borrower of each of the
following conditions precedent prior to Bank's execution hereof:
(a) The Bank shall have received the following documents, duly
executed, acknowledged, attested and delivered by all parties thereto, and
otherwise satisfactory in form and content to the Bank and its counsel,
consisting of:
(i) Tenth Amendment. This Tenth Amendment.
---------------
(ii) Limited Guaranty. A Limited Guaranty duly executed
----------------
by Janco and Windsor, in the form of Exhibit A attached hereto and
---------
incorporated herein by this reference (the "Limited Guaranty").
(iii) Guaranty. A Guaranty, duly executed by Dr. Fuad
--------
Khuri, M.D., in the form of Exhibit B attached hereto and incorporated
---------
herein by this reference (the "Khuri Guaranty").
(iv) Intentionally left blank.
(v) Assignment of Partnership Interest. The Assignment
-----------------------------------
of Partnership Interest, duly executed by Borrower, in the form of Exhibit D
---------
attached hereto and incorporated herein by this reference (the "Assignment of
Partnership Interest") and the UCC-1 Financing Statements, duly executed by
Borrower in favor of the Bank, in such form as is acceptable to the Bank, in
its sole and absolute discretion.
(vi) Assignment of Promissory Note. Security Agreement
-------------------------------------------------
and Guaranty. The Assignment of Promissory Note, Security Agreement and
- -------------
Guaranty, duly executed by Borrower, in
- 2 -
<PAGE> 3
the form of Exhibit D attached hereto and incorporated herein by this
---------
reference (the "Assignment of Note") and UCC-3 Financing Statements
acknowledging the assignment to the Bank, in such form as deemed appropriate
by the Bank, in its sole and absolute discretion.
(vii) Original Note. Security Agreement and Guaranty. The
-----------------------------------------------
Promissory Note, in the original principal amount of $432,000.00 dated as
-----------
of September 13, 1996, duly executed by the Partnership in favor of Borrower
(the "Original Note") and duly endorsed "Pay to the order of Mark Twain Bank,
a Missouri state chartered banking corporation and its successors and
assigns" at the bottom of the Original Note by Borrower, together with
original Security Agreement, duly executed by the Partnership in favor of
Borrower and the Guaranty, duly executed by Fuad Khuri, M.D., in favor of
Borrower.
(viii) Acknowledgments. An Acknowledgment from the
----------------
Partnership, duly executed by the general partners of the Partnership, in the
form of Exhibit E attached hereto and incorporated herein by this reference
---------
(the "Acknowledgment") acknowledging and consenting to the Assignment of
Partnership Interest and the Assignment of Note and the other provisions
contained in the Acknowledgment.
(ix) Intercreditor Agreement. An Intercreditor
------------------------
Agreement, duly executed by Bentley and Khuri, Ronald A. Ruotolo and Carolyn
Ruotolo (the "Intercreditor Agreement").
(x) Borrower, Windsor and Janco Approvals. A copy of the
--------------------------------------
resolutions of the board of directors of Borrower approving the execution and
delivery of, and Borrowers' performance of, its Obligations under this Tenth
Amendment, together with all other documents or instruments to be executed by
Borrower in connection with or to carry out the purposes thereof
(collectively the "Tenth Amendment Loan Documents"), and a copy of the joint
resolutions of the shareholders and directors of Windsor and Janco approving
the execution and delivery of, and their performance of, their respective
joint and several obligations under the Limited Guaranty.
(xi) Certificate of Borrower's, Janco's and Windsor's
------------------------------------------------
Secretary. A certificate executed by the duly elected Secretary of each of
- ----------
Borrower, Janco and Windsor, each of which dated the date hereof and
certifying (i) that the copies of their respective certificate and articles
of incorporation and bylaws attached thereto are true, accurate and complete
and contain all amendments thereto as of the date of this Tenth Amendment,
(ii) that the resolutions of each of their respective board of directors and
shareholders have been duly adopted and are in full force and effect as of
the date of this Tenth Amendment, and (iii) the names, titles and true
signatures of such of Borrower's, Janco's and Windsor's respective officers
who are
- 3 -
<PAGE> 4
authorized to sign this Tenth Amendment and the Tenth Amendment Loan
Documents.
(xii) Partnership, Quality and Excell Approvals. A
------------------------------------------
resolution duly adopted by the Partnership, and by the board of directors of
each of its general partners, namely, Quality and Excell, approving the
execution and delivery of, and each parties' respective performance of, its
obligations, documents and/or instruments to be executed in connection with
or to carry out the purposes set forth in this Tenth Amendment.
(xiii) Certificate of Partnership, Quality and Excell's
------------------------------------------------
Secretary. A certificate executed by the duly elected secretary or general
- ----------
partner, as applicable, of each of the Partnership, Quality and Excell, each
of which dated the date hereof and certifying (i) that the copies of the
Partnership's Certificate of Limited Partnership and the Limited Partnership
Agreement attached thereto are true, accurate and complete and contain all
amendments thereto as of the date of this Tenth Amendment, (ii) with respect
to Quality and Excell, that the copies of Quality and Excell's Certificate
and Articles of Incorporation and Bylaw attached thereto are true, accurate
and complete and contain all amendments thereto as of the date of this Tenth
Amendment, (iii) that the resolutions of each of the respective Board of
Directors, general partners, shareholders and partners, as applicable, of the
Partnership, Quality and Excell have been duly adopted and are in full force
and effect as of the date of this Tenth Amendment, and (iv) the names, titles
and true signatures of such of the Partnership, Quality and Excell's
respective officers who are authorized to sign this Tenth Amendment and the
Tenth Amendment Loan Documents.
(xiv) Opinions. An opinion of Thompson Coburn, counsel for
--------
Borrower, Windsor and Janco and an opinion of Woods, Oviatt, Gilman, Sturman
& Clarke, L.L.P., counsel to the Partnership, Quality, Excell and Dr. Fuad
Khuri, covering the matters more particularly described in Exhibits F and G,
---------- -
respectively, attached hereto and incorporated herein by this reference.
(xv) Certificates of Good Standing. A certificate of good
-----------------------------
standing for Borrower, Janco, Windsor, Quality, Excell and the Partnership,
issued by the Secretary of State of their respective state of incorporation
or formation;
(b) Payment at closing of the fees and expenses of Bank in
connection with the transactions contemplated hereby including the fees and
expenses of counsel to Bank relating to the preparation, negotiation and
documentation of this Tenth Amendment, together with the other Tenth
Amendment Loan Documents.
(c) Such other approvals, opinions, or documents as the Bank
may reasonably request.
- 4 -
<PAGE> 5
3. As a material inducement to Bank to enter into this Tenth
Amendment, Borrower hereby represents, warrants and covenants to Bank, which
said representations, warranties and covenants shall survive the execution
and delivery of this Tenth Amendment, that as of the effective date of this
Tenth Amendment:
(a) As of the date hereof, the execution and delivery of, and
the performance by Borrower of its obligations under, the Tenth Amendment
Loan Documents are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action taken as of the date on which
this Tenth Amendment has been executed and delivered to Bank, and do not
contravene (i) the Borrower's articles of incorporation or by-laws, or (ii)
any law or contractual restriction binding on or affecting the Borrower or
its properties and do not result in or require the creation of any lien,
encumbrance or other charge upon or with respect to any of its assets or
properties other than in favor of Bank and in favor of the Partnership
pursuant to the provisions of the Joint Venture Agreement.
(b) No authorization or approval or other action by, and no
notice to or filing with, any person or any governmental authority or other
regulatory body is required for the due execution, delivery and performance
by the Borrower of the Tenth Amendment or any of the other Tenth Amendment
Loan Documents, or the exercise by the Bank of its rights thereunder.
(c) The Tenth Amendment and the other Tenth Amendment Loan
Documents, and the Loan Agreement as thereafter amended are the legal, valid
and binding obligations of the Borrower enforceable against the Borrower in
accordance with their respective terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforceability of creditors' rights generally.
(d) Except as set forth therein, all financial statements of
Borrower heretofore delivered to Bank are complete and accurate, have been
prepared in accordance with generally accepted accounting principles,
consistently applied and fairly present the financial condition and results
of Borrower's operations as of the dates and for the periods stated therein
except in the case of interim financial statements for the lack of footnotes
and subject to normal year-end adjustments.
(e) No consent, permit, license, approval or authorization of,
or notice to any person is necessary or required in connection with the
execution, delivery or performance by Borrower of its obligations under this
Tenth Amendment and/or any of the Tenth Amendment Loan Documents.
(f) The chief executive office and principal place of business
and the office where Borrower keeps all of its records concerning accounts
receivable is at: 1353 N. Warson,
- 5 -
<PAGE> 6
St. Louis, Missouri 63132, and each location at which Borrower maintains any
inventory is completely and accurately set forth in Schedule 3(i) attached
-------------
hereto and incorporated herein by this reference.
(g) The contribution by Borrower to the Partnership of the
property more particularly set forth on Schedule 4 to this Tenth Amendment in
exchange for Borrower's limited partnership interest therein and the other
consideration more particularly described in the Joint Venture Agreement was
negotiated at arm's length, and in Borrowers' judgment, constitutes
equivalent consideration to Borrower.
4. Consent to Contribution. Borrower has requested that Bank
-----------------------
consent to the substitution for certain of Bank's collateral more
particularly described on Schedule 4 hereto, of the property and rights more
particularly described in the Assignment of Note, the Assignment of
Partnership Interest and the Khuri Guaranty. Subject to the representations
and warranties set forth above and subject to the provisions and conditions
set forth herein, Bank hereby consents to the contribution and sale of its
collateral more particularly described on Schedule 4 to this Tenth Amendment,
to the Partnership, upon Bank's receipt of the substituted collateral
evidenced by the Assignment of Note, the Assignment of Partnership Interest
and the Khuri Guaranty. Upon Bank's receipt of documentation reasonably
satisfactory to Bank confirming Bank's perfected lien in the assets described
in the Assignment of Note and the Assignment of Partnership Interest, and
further confirming Borrower's first priority perfected lien in the assets
described on Schedule 4, Bank agrees to release its lien in the collateral
described on Schedule 4. Bank is not releasing, and shall not be deemed to
have released, any other property or rights which it may have against
Borrower or any Guarantor of Borrower, and Bank is not waiving, and shall not
be deemed to have waive, any Event of Default which may now or hereafter
exist under the Loan Agreement.
5. No Further Commitment to Make Revolving Credit Loans. Borrower
-----------------------------------------------------
and Bank hereby acknowledge and agree that as of August 31, 1996, Bank's
obligation to make revolving credit loans to Borrower has terminated, and all
Obligations were due and payable as of August 31, 1996. From and after the
date hereof, Bank shall have no commitment or obligation to make any
revolving credit loans or other advances of any kind whatsoever to Borrower
or any other person for any reason whatsoever, and Borrower hereby
acknowledges and consents to same; provided, however, and notwithstanding
-------- -------
the foregoing, Bank may make such advances to or for the benefit of Borrower
which Bank, in its sole and absolute discretion, deems necessary or advisable
to protect and/or preserve its collateral, and any such advance shall be
considered a revolving credit loan made pursuant to the Loan Agreement. All
obligations of Borrower, and all rights and remedies of Bank, under the Loan
Agreement, as amended hereby, shall continue in
- 6 -
<PAGE> 7
full force and effect until the date on which Bank is indefeasibly paid in
full.
6. Extension of Maturity Date. Bank hereby agrees to extend the
--------------------------
maturity date of the Revolving Credit Note until February 1, 1997. The
Revolving Credit Note is hereby amended to delete the words "the Termination
Date" and substitute in lieu thereof the following: "February 1, 1997".
7. Collection of Accounts. Borrower acknowledges and agrees that
-----------------------
Borrower is in the process of winding up its "Megacards" business and no
longer has any need for working capital in connection therewith. Borrower
further acknowledges and agrees that collections of all Accounts shall
continue to be deposited in the Special Deposit Account, and all such funds
shall immediately become the property of the Bank and shall be applied by the
Bank to reduce the Obligations, pursuant to Section 1.06 of the Loan
Agreement. Borrower acknowledges, covenants and agrees that it has sufficient
capital and/or resources to conduct its business in the manner which it
contemplates, without regard to any funds now or hereafter collected by the
Accounts.
8. Confirmation of Obligations, Liens and Security Interests. The
----------------------------------------------------------
Borrower hereby ratifies and confirms that except as expressly set forth
herein, or referred to herein, the Loan Agreement and all liens, security
interests and other rights in favor of Bank as provided therein and all
agreements delivered by or on behalf of Borrower to Bank in connection
therewith remain in full force and effect and remain enforceable against
Borrower in accordance with their respective terms.
9. Release. In consideration of the agreement of Bank to modify
-------
the terms of the Loan Agreement as set forth in this Tenth Amendment, Borrower
hereby releases, discharges and acquits forever the Bank and any of its
officers, directors, servants, agents, employees and attorneys, past and
present, from any and all claims, demands and causes of action, of whatever
nature, whether in contract or tort accrued or to accrue, contingent or
vested, known or unknown, arising out of or relating to the loans evidenced
by the Loan Agreement, as hereby amended, or Bank's administration of same or
any other actions taken pursuant to the Loan Agreement or under any other
documents or instruments evidencing loans made by Bank to Borrowers or the
administration of same through the date hereof. Borrower hereby further
indemnifies and holds Bank, any officers, directors, servants, agents,
employees and attorneys of Bank, past or present, harmless from any and all
such claims, demands and causes of action by Borrower or anyone claiming by,
through or under Borrower or any of them, said indemnity to cover all losses
and expenses incurred by the Bank, its officers, directors, servants, agents,
employees or attorneys, past or present, in connection with any such claims,
demands, or cause of action, including all attorneys' fees and costs. The
Bank acknowledges, however, that
- 7 -
<PAGE> 8
the foregoing release and indemnification shall not apply to any losses or
expenses resulting from Bank's gross negligence or willful misconduct.
10. Course of Dealing. No course of dealing heretofore or hereafter
------------------
between Bank and Borrower and no failure or delay on the part of Bank in
exercising any rights or remedies under the Loan Agreement or existing at law
or in equity, including without limitation, any determination by Bank not to
exercise rights or remedies arising from any Event of Default, shall operate
as a waiver of any right or remedy of Bank with respect to the Borrower's
obligations.
11. Incorporation by Reference. The Loan Agreement, (and all
---------------------------
agreements and documents delivered in connection with the Loan Agreement
including the Tenth Amendment), and the exhibits attached hereto and thereto
are incorporated by reference into this Tenth Amendment.
12. Reaffirmation. This Tenth Amendment is executed as a
-------------
modification to the Loan Agreement and the Revolving Credit Note, and not as
a novation. Except as expressly provided herein, all provisions of the Loan
Agreement and the Revolving Credit Note are hereby reaffirmed in their
entirety, and shall remain in full force and effect.
13. Governing Law. This Tenth Amendment shall be governed by, and
-------------
construed and enforced in accordance with, the internal laws of the State of
Missouri without regard to conflict of law rules.
14. No Oral Agreements. The following notice is given pursuant to
------------------
Section 432.045 of the Missouri Revised Statutes; nothing contained in such
notice shall be deemed to limit or modify the provisions hereof or the Loan
Agreement:
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT
OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING
PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE.
TO PROTECT YOU (BORROWER) AND US (BANK) FROM
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE
REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING,
WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE
AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN
WRITING TO MODIFY IT.
IN WITNESS WHEREOF, the parties hereto, by and through their duly
authorized representatives, have caused this Tenth Amendment to be executed
the day and year first written above.
- 8 -
<PAGE> 9
BENTLEY INTERNATIONAL, INC.
By: /s/ Lloyd R. Abrams
--------------------------------------------
Name: Lloyd R. Abrams
Title: President and Chief
Executive Officer
ATTEST:
By: /s/ Dale Issak
---------------------------------------------
Dale Issak, Secretary
MARK TWAIN BANK
By: /s/ Dennis Hunter
--------------------------------------------
Dennis Hunter
Vice President
Commercial Finance Division
ACKNOWLEDGEMENTS
----------------
STATE OF MISSOURI )
) ss.
CITY OF ST. LOUIS )
On this 13th day of September, 1996, before me appeared Lloyd R. Abrams
and Dale Issak, to me personally known, who, being by me duly sworn, did say
that they are the President and Chief Executive Officer and Secretary,
respectively, of Megacards, Inc., a corporation organized under the laws of
the State of Missouri, and that the seal affixed to the foregoing instrument
is the corporate seal of said corporation, and that said instrument was
signed and sealed in behalf of said corporation, by authority of its Board of
Directors; and said Lloyd R. Abrams and Dale Issak acknowledged said
instrument to be the free act and deed of said corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal in the City and State aforesaid, the day and year first above
written.
/s/ Sara Kotthoff
------------------------------------------
Notary Public
My term expires:
- 9 -
<PAGE> 10
STATE OF MISSOURI )
) ss
COUNTY OF ST. LOUIS )
On this 13th day of September, 1996, before me appeared Dennis B.
Hunter, to me personally known, who, being by me duly sworn, did say that he
is the Assistant Vice President of Mark Twain Bank, Commercial Finance
Division, a corporation of the State of Missouri, and that the seal affixed
to the foregoing instrument is the corporate seal of said corporation, and
that said instrument was signed and sealed in behalf of said corporation, by
authority of its Board of Directors; and said Dennis B. Hunter acknowledged
said instrument to be the free act and deed of said corporation.
TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official
seal in the County and State aforesaid, the day and year first above written.
/s/ Regina A. Droska
------------------------------------------------
Notary Public
My term expires:
- 10 -
<PAGE> 1
-------------------------------------
-------------------------------------
CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
WINDSOR ART, INC.
AND
NORWEST BUSINESS CREDIT, INC.
As of January 14, 1997
-------------------------------------
-------------------------------------
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I DEFINITIONS 1
Section 1.1 Definitions........................................................................ 1
Section 1.2 Cross References................................................................... 9
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY............................................ 10
Section 2.1 Revolving Advances................................................................. 10
Section 2.2 Interest; Minimum Interest Charge; Default Interest; Participations; Usury......... 10
Section 2.3 Fees............................................................................... 12
Section 2.4 Computation of Interest and Fees; When Interest Due and Payable.................... 12
Section 2.5 Issuance of Letters of Credit...................................................... 12
Section 2.6 Payment of Amounts Drawn Under Letters of Credit................................... 13
Section 2.7 Collateral Account................................................................. 14
Section 2.8 Voluntary Prepayment Termination of Credit
Facility by the Borrower; Waiver of Termination Fees............................... 14
Section 2.9 Mandatory Prepayment............................................................... 15
Section 2.10 Payment............................................................................ 15
Section 2.11 Payment on Non-Banking Days........................................................ 15
Section 2.12 Use of Proceeds.................................................................... 15
Section 2.13 Liability Records.................................................................. 15
ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF............................................... 16
Section 3.1 Grant of Security Interest......................................................... 16
Section 3.2 Notification of Account Debtors and Other Obligors................................. 16
Section 3.3 Assignment of Insurance............................................................ 16
Section 3.4 Occupancy.......................................................................... 16
Section 3.5 License............................................................................ 17
Section 3.6 Financing Statement................................................................ 17
Section 3.7 Setoff............................................................................. 18
ARTICLE IV CONDITIONS OF LENDING.............................................................. 18
Section 4.1 Conditions Precedent to Lender's Making the Initial
Revolving Advance or Issuance of Initial Letter of Credit.......................... 18
Section 4.2 Conditions Precedent to All Advances............................................... 20
ARTICLE V REPRESENTATIONS AND WARRANTIES..................................................... 21
Section 5.1 Corporate Existence and Power; Name; Chief Executive
Office; Inventory and Equipment Locations; Tax Identification Number............... 21
Section 5.2 Authorization of Borrowing; No Conflict as to Law or Agreements.................... 21
-i-
<PAGE> 3
<CAPTION>
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<C> <S> <C>
Section 5.3 Legal Agreements................................................................... 22
Section 5.4 Subsidiaries....................................................................... 22
Section 5.5 Financial Condition; No Adverse Change............................................. 22
Section 5.6 Litigation......................................................................... 22
Section 5.7 Regulation U....................................................................... 22
Section 5.8 Taxes.............................................................................. 22
Section 5.9 Titles and Liens................................................................... 22
Section 5.10 Plans.............................................................................. 23
Section 5.11 Default............................................................................ 23
Section 5.12 Environmental Matters.............................................................. 23
Section 5.13 Submissions to Lender.............................................................. 24
Section 5.14 Financing Statements............................................................... 24
Section 5.15 Rights to Payment.................................................................. 24
Section 5.16 Obligations of Third Parties....................................................... 25
ARTICLE VI BORROWER'S AFFIRMATIVE COVENANTS................................................... 25
Section 6.1 Reporting Requirements............................................................. 25
Section 6.2 Books and Records; Inspection and Examination...................................... 28
Section 6.3 Account Verification............................................................... 28
Section 6.4 Compliance with Laws............................................................... 28
Section 6.5 Payment of Taxes and Other Claims.................................................. 28
Section 6.6 Maintenance of Properties.......................................................... 29
Section 6.7 Insurance.......................................................................... 29
Section 6.8 Preservation of Existence.......................................................... 29
Section 6.9 Delivery of Instruments, etc....................................................... 30
Section 6.10 Collateral Account................................................................. 30
Section 6.11 Key Person Life Insurance.......................................................... 30
Section 6.12 Performance by the Lender.......................................................... 30
Section 6.13 Minimum Debt Service Coverage Ratio................................................ 31
Section 6.14 Minimum Book Net Worth............................................................. 31
Section 6.15 Minimum Net Income................................................................. 31
ARTICLE VII NEGATIVE COVENANTS................................................................. 31
Section 7.1 Liens.............................................................................. 32
Section 7.2 Indebtedness....................................................................... 32
Section 7.3 Guaranties......................................................................... 32
Section 7.4 Investments and Subsidiaries....................................................... 33
Section 7.5 Dividends.......................................................................... 33
Section 7.6 Sale or Transfer of Assets; Suspension of Business Operations...................... 34
Section 7.7 Consolidation and Merger; Asset Acquisitions....................................... 34
Section 7.8 Sale and Leaseback................................................................. 34
Section 7.9 Restrictions on Nature of Business................................................. 34
Section 7.10 Capital Expenditures............................................................... 34
-ii-
<PAGE> 4
<CAPTION>
Page
----
<C> <S> <C>
Section 7.11 Accounting......................................................................... 34
Section 7.12 Discounts, etc..................................................................... 34
Section 7.13 Defined Benefit Pension Plans...................................................... 35
Section 7.14 Other Defaults..................................................................... 35
Section 7.15 Place of Business; Name............................................................ 35
Section 7.16 Organizational Documents; C Corporation Status..................................... 35
Section 7.17 Salaries........................................................................... 35
Section 7.18 Change in Ownership................................................................ 35
ARTICLE VIII EVENTS OF DEFAULT, RIGHTS AND REMEDIES............................................. 35
Section 8.1 Events of Default.................................................................. 35
Section 8.2 Rights and Remedies................................................................ 38
Section 8.3 Certain Notices.................................................................... 39
ARTICLE IX MISCELLANEOUS...................................................................... 39
Section 9.1 No Waiver; Cumulative Remedies..................................................... 39
Section 9.2 Amendments, Etc.................................................................... 39
Section 9.3 Addresses for Notices, Etc......................................................... 39
Section 9.4 [Intentionally Omitted]............................................................ 40
Section 9.5 Further Documents.................................................................. 40
Section 9.6 Collateral......................................................................... 40
Section 9.7 Costs and Expenses................................................................. 40
Section 9.8 Indemnity.......................................................................... 41
Section 9.9 Participants....................................................................... 41
Section 9.10 Execution in Counterparts.......................................................... 42
Section 9.11 Binding Effect; Assignment; Complete Agreement; Exchanging Information............. 42
Section 9.12 Severability of Provisions......................................................... 42
Section 9.13 Headings........................................................................... 42
Section 9.14 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial........................... 42
</TABLE>
iii
<PAGE> 5
CREDIT AND SECURITY AGREEMENT
Dated as of January 14, 1997
WINDSOR ART, INC., a Missouri corporation (the "Borrower"), and
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), hereby
agree as follows:
ARTICLE I
Definitions
-----------
Section 1.1 Definitions. For all purposes of this Agreement,
-----------
except as otherwise expressly provided or unless the context otherwise
requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well
as the singular; and
(b) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with GAAP.
"Accounts" means all of the Borrower's accounts, as such term is
defined in the UCC, including without limitation the aggregate unpaid
obligations of customers and other account debtors to the Borrower arising out
of the sale or lease of goods or rendition of services by the Borrower on an
open account or deferred payment basis.
"Advance" means a Revolving Advance.
"Affiliate" or "Affiliates" means Bentley International, Inc.,
Janco Designs, Inc., and any other Person controlled by, controlling or under
common control with the Borrower, including (without limitation) any
Subsidiary of the Borrower. For purposes of this definition, "control," when
used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement, as amended,
supplemented or restated from time to time.
"Banking Day" means a day other than a Saturday, Sunday or other
day on which banks are generally not open for business in Minneapolis,
Minnesota.
"Base Rate" means the rate of interest publicly announced from
time to time by Norwest Bank Minnesota as its "base rate" or, if such bank
ceases to announce a rate so designated, any similar successor rate designated
by the Lender.
<PAGE> 6
"Book Net Worth" means the aggregate of the common and preferred
stockholders' equity in the Borrower, determined in accordance with GAAP.
"Borrowing Base" means, at any time and subject to change from
time to time in the Lender's sole discretion, the lesser of:
(a) the Maximum Line; or
(b) the sum of:
(i) 80% of Eligible Accounts, and
(ii) the lesser of (A) the sum of (w) 60% of Eligible
Inventory consisting of raw materials, (x) 40%
of Eligible Inventory consisting of print
finished goods, (y) 60% of Eligible Inventory
consisting of mirror finished goods, and (z) 50%
of Eligible Inventory consisting of finished
goods manufactured for Dolbi-Cashier, or
(B) $900,000.00.;
"Capital Expenditures" for a period means any expenditure of money
for the purchase or construction of assets, or for improvements or additions
thereto, which are capitalized on the Borrower's balance sheet.
"Collateral" means all of the Borrower's Equipment, General
Intangibles, Inventory, Receivables, all sums on deposit in any Collateral
Account, and any items in any Lockbox; together with (i) all substitutions and
replacements for and products of any of the foregoing; (ii) proceeds of any
and all of the foregoing; (iii) in the case of all tangible goods, all
accessions; (iv) all accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with any
tangible goods; (v) all warehouse receipts, bills of lading and other
documents of title now or hereafter covering such goods; and (vi) the Life
Insurance Policy.
"Collateral Account" has the meaning given in the Collateral
Account Agreement.
"Collateral Account Agreement" means the Collateral Account
Agreement of even date herewith by and among the Borrower, Sanwa Bank
California, and the Lender.
"Credit Facility" means the credit facility being made available
to the Borrower by the Lender pursuant to Article II.
"Current Maturities of Long Term Debt" as of a given date means
the amount of the Borrower's long-term debt and capitalized leases which will
become due during the fiscal period beginning on the designated date.
"Debt" of any Person means all items of indebtedness or liability
which in accordance with GAAP would be included in determining total
liabilities as shown on the
-2-
<PAGE> 7
liabilities side of a balance sheet of that Person as at the date as of which
Debt is to be determined. For purposes of determining a Person's aggregate Debt
at any time, "Debt" shall also include the aggregate payments required to be
made by such Person at any time under any lease that is considered a capitalized
lease under GAAP.
"Debt Service Coverage Ratio" means the ratio of (i) the sum of
(A) Funds from Operations and (B) Interest Expense minus (C) Capital
-----
Expenditures to (ii) the sum of (A) Current Maturities of Long Term Debt and
(B) Interest Expense.
"Default" means an event that, with giving of notice or passage of
time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the first
day of any month during which a Default or Event of Default has occurred and
ending on the date the Lender notifies the Borrower in writing that such
Default or Event of Default has been cured or waived.
"Default Rate" means an annual rate equal to two percent (2%) over
the Floating Rate, which rate shall change when and as the Floating Rate
changes.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Excess Cash Flow" means Net Income, plus depreciation, minus the
---- -----
sum of (i) the current portion of any long term debt, (ii) the amount of any
unfinanced capital expenditures, (iii) twenty percent (20%) of the increase in
Accounts, if any, from the most recent audited year-end financial statement,
and (iv) fifty percent (50%) of the increase in Inventory, if any, from the
most recent audited year-end financial statement.
"Eligible Accounts" means all unpaid Accounts, net of any credits,
except the following shall not in any event be deemed Eligible Accounts:
(i) that portion of Accounts over 60 days past the due
date stated in the Account, but in no event shall any Account be
Eligible if it is unpaid more than 120 days after the invoice date
(except Accounts payable by Sears Roebuck & Co., which may be
unpaid up to 150 days past the invoice date and not be ineligible
by reason of this subparagraph (i);
(ii) That portion of Accounts that is disputed or subject
to a claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable, by the
Borrower to the customer;
(iv) Accounts owed by any unit of government, whether
foreign or domestic (provided, however, that there shall be
included in Eligible Accounts
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<PAGE> 8
that portion of Accounts owed by such units of government for which
the Borrower has provided evidence satisfactory to the Lender that
(A) the Lender has a first priority perfected security interest and
(B) such Accounts may be enforced by the Lender directly against
such unit of government under all applicable laws);
(v) Accounts owed by an account debtor located outside the
United States which are not (A) backed by a bank letter of credit
naming the Lender as beneficiary or assigned to the Lender, in the
Lender's possession and acceptable to the Lender in all respects,
in its sole discretion, or (B) covered by a foreign receivables
insurance policy acceptable to the Lender in its sole discretion;
(vi) Accounts owed by an account debtor that is insolvent,
the subject of bankruptcy proceedings or has gone out of business;
(vii) Accounts owed by a shareholder, subsidiary, Affiliate,
officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected security
interest in the Lender's favor or which are subject to any lien,
security interest or claim in favor of any Person other than the
Lender including without limitation any payment or performance
bond;
(ix) That portion of Accounts that has been restructured,
extended, amended or modified;
(x) That portion of Accounts that constitutes advertising,
finance charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless of
whether otherwise eligible, if 10% or more of the total amount due
under Accounts from such debtor is ineligible under clauses (i),
(ii) or (ix) above; and
(xii) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion, including,
without limitation, any portion of Accounts from a single account
debtor even if other Accounts from such account debtor are
eligible.
"Eligible Inventory" means all Inventory of the Borrower, at the
lower of cost or market value as determined in accordance with
GAAP; provided, however, that the following shall not in any event
be deemed Eligible Inventory:
(i) Inventory that is: in-transit; located at any
showroom, warehouse, job site or other premises not approved by
the Lender in writing; located outside of the states, or
localities, as applicable, in which the Lender has filed financing
statements to perfect a first priority security interest in such
Inventory; covered
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<PAGE> 9
by any negotiable or non-negotiable warehouse receipt, bill of
lading or other document of title; on consignment from any Person;
on consignment to any Person or subject to any bailment unless such
consignee or bailee has executed an agreement with the Lender;
(ii) Supplies, packaging, parts or sample Inventory;
(iii) Work-in-process Inventory;
(iv) Inventory that is damaged, obsolete, slow moving or
not currently saleable in the normal course of the Borrower's
operations;
(v) Inventory that the Borrower has returned, has
attempted to return, is in the process of returning or intends to
return to the vendor thereof;
(vi) Inventory that is perishable or live;
(vii) Inventory manufactured by the Borrower pursuant to a
license unless the applicable licenser has agreed in writing to
permit the Lender to exercise its rights and remedies against such
Inventory;
(viii) Inventory that is subject to a security interest
in favor of any Person other than the Lender; and
(ix) Inventory otherwise deemed ineligible by the Lender in
its sole discretion.
"Environmental Laws" has the meaning specified in Section 5.12.
"Equipment" means all of the Borrower's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired, including but not
limited to all present and future machinery, vehicles, furniture, fixtures,
manufacturing equipment, shop equipment, office and recordkeeping equipment,
parts, tools, supplies, and including specifically (without limitation) the
goods described in any equipment schedule or list herewith or hereafter
furnished to the Lender by the Borrower.
"Event of Default" has the meaning specified in Section 8.1.
"Floating Rate" means an annual rate equal to the sum of the Base
Rate plus one and one-half percent (1.5%), which annual rate shall change when
and as the Base Rate changes.
"Funding Date" has the meaning given in Section 2.1.
"Funds From Operations" for a given period means the sum of
(i) Net Income, (ii) depreciation and amortization, (iii) deferred income
taxes, and (iv) other non cash items, each as determined for such period in
accordance with GAAP.
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<PAGE> 10
"GAAP" means generally accepted accounting principles, applied on
a basis consistent with the accounting practices applied in the financial
statements described in Section 5.5, except for any change in accounting
practices to the extent that, due to a promulgation of the Financial
Accounting Standards Board changing or implementing any new accounting
standard, the Borrower either (i) is required to implement such change, or
(ii) for future periods will be required to and for the current period may in
accordance with generally accepted accounting principles implement such
change, for its financial statements to be in conformity with generally
accepted accounting principles (any such change is hereinafter referred to as
a "Required GAAP Change"), provided that (1) the Borrower shall fully disclose
in such financial statements any such Required GAAP Change and the effects of
the Required GAAP Change on the Borrower's income, retained earnings or other
accounts, as applicable, and (2) the Borrower's financial covenants set forth
in Article 6 and Section 7.10 shall be adjusted as necessary to reflect the
effects of such Required GAAP Change.
"General Intangibles" means all of the Borrower's general
intangibles, as such term is defined in the UCC, whether now owned or
hereafter acquired, including (without limitation) all present and future
patents, patent applications, copyrights, trademarks, trade names, trade
secrets, customer or supplier lists and contracts, manuals, operating
instructions, permits, franchises, the right to use the Borrower's name, and
the goodwill of the Borrower's business.
"Guarantor(s)" means Lloyd Abrams and Bentley International, Inc.
"Hazardous Substance" has the meaning given in Section 5.12.
"Interest Expense" means, for a fiscal year-to-date period, the
Borrower's total gross interest expense during such period (excluding interest
income), and shall in any event include, without limitation, (i) interest
expensed (whether or not paid) on all Debt, (ii) the amortization of debt
discounts, (iii) the amortization of all fees payable in connection with the
incurrence of Debt to the extent included in interest expense, and (iv) the
portion of any capitalized lease obligation allocable to interest expense.
"Inventory" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or materials,
whether acquired, held or furnished for sale, for lease or under service
contracts or for manufacture or processing, and wherever located.
"Issuer" means the issuer of any Letter of Credit which is not
issued directly by Lender.
"L/C Amount" means the sum of (i) the aggregate face amount of any
issued and outstanding Letters of Credit and (ii) the unpaid amount of the
Obligation of Reimbursement, provided, however, that in no event shall the L/C
-------- -------
Amount at any time exceed $200,000.
"L/C Application" means an application and agreement for letters
of credit in the Lender's then-current standard form or a form acceptable to
the Issuer and Lender.
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<PAGE> 11
"Letter of Credit" has the meaning specified in Section 2.5
hereof.
"Life Insurance Assignment" means an Assignment of Life Insurance
Policy as Collateral to be executed by the owner and the beneficiary thereof,
in form and substance satisfactory to the Lender, granting the Lender a lien
on the Life Insurance Policy to secure payment of the Obligations.
"Life Insurance Policy" has the meaning given in Section 6.11.
"Loan Documents" means this Agreement, the Note, the Security
Documents, and any L/C Applications.
"Lockbox" has the meaning given in the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox Agreement by and among the
Borrower, Sanwa Bank California, and the Lender, dated as of even date
herewith.
"Maturity Date" means December 1, 1998.
"Maximum Line" means $2,000,000.00.
"Minimum Interest Charge" has the meaning given in Section 2.2(b).
"Net Income" means fiscal year-to-date after-tax net income,
increased by the sum of any extraordinary, non-operating or non-cash income
- ---------
recorded by the Borrower and decreased by any extraordinary, non-cash or
---------
non-operating expense or loss recorded by the Borrower, as determined in
accordance with GAAP.
"Norwest Bank Minnesota" means Norwest Bank Minnesota, National
Association.
"Note" means the Revolving Note.
"Obligations" means the Note, the Obligation of Reimbursement, and
each and every other debt, liability and obligation of every type and
description which the Borrower may now or at any time hereafter owe to the
Lender, whether such debt, liability or obligation now exists or is hereafter
created or incurred, whether it arises in a transaction involving the Lender
alone or in a transaction involving other creditors of the Borrower, and
whether it is direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or sole, joint,
several or joint and several, and including specifically, but not limited to,
all indebtedness of the Borrower arising under this Agreement, the Note, the
Obligation of Reimbursement, or any other loan or credit agreement or guaranty
between the Borrower and the Lender, whether now in effect or hereafter
entered into.
"Obligation of Reimbursement" has the meaning given in Section 2.6
hereof.
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<PAGE> 12
"Original Maturity Date" means December 1, 1998.
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained for
the Borrower's employees and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession, including (without limitation) the
premises listed on Exhibit C attached hereto.
"Receivables" means each and every right of the Borrower to the
payment of money, whether such right to payment now exists or hereafter
arises, whether such right to payment arises out of a sale, lease or other
disposition of goods or other property, out of a rendering of services, out of
a loan, out of the overpayment of taxes or other liabilities, or otherwise
arises under any contract or agreement, whether such right to payment is
created, generated or earned by the Borrower or by some other person who
subsequently transfers such person's interest to the Borrower, whether such
right to payment is or is not already earned by performance, and howsoever
such right to payment may be evidenced, together with all other rights and
interests (including all liens and security interests) which the Borrower may
at any time have by law or agreement against any account debtor or other
obliger obligated to make any such payment or against any property of such
account debtor or other obligor; all including but not limited to all present
and future accounts, contract rights, loans and obligations receivable,
chattel papers, bonds, notes and other debt instruments, tax refunds and
rights to payment in the nature of general intangibles.
"Reportable Event" shall have the meaning assigned to that term in
Title IV of ERISA.
"Revolving Advance" has the meaning given in Section 2.1.
"Revolving Note" means the Borrower's revolving promissory note,
payable to the order of the Lender in substantially the form of Exhibit A
hereto, as the same may hereafter be amended, supplemented or restated from
time to time and any note or notes issued in substitution therefor.
"Security Documents" means this Agreement, the Collateral Account
Agreement, the Lockbox Agreement, the Life Insurance Assignment, and any other
document delivered to the Lender from time to time to secure the Obligations,
as the same may hereafter be amended, supplemented or restated from time to
time.
"Security Interest" has the meaning given in Section 3.1.
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<PAGE> 13
"Subordination Agreements" means, collectively, those certain
Subordination Agreement from the Subordinate Creditors fully subordinating
their liens on the Collateral to the Security Interest, and "Subordination
Agreement" means any one of them.
"Subordinate Creditors" means, collectively, The Stacey, Kevin and
Meredith Trust, the Abrams Family Trust, Richard B. Rothman, and the Janet L.
Salk Marital Trust, and "Subordinate Creditor" means any one of them.
"Subsidiary," means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such
corporation, irrespective of whether or not at the time stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency, is at the time directly or indirectly owned by
the Borrower, by the Borrower and one or more other Subsidiaries, or by one or
more other Subsidiaries.
"Tangible Net Worth" means the difference between (i) the tangible
assets of the Borrower, which, in accordance with GAAP are tangible assets,
after deducting adequate reserves in each case where, in accordance with GAAP,
a reserve is proper and (ii) all Debt of the Borrower; provided, however, that
-------- -------
notwithstanding the foregoing in no event shall there be included as such
tangible assets patents, trademarks, trade names, copyrights, licenses,
goodwill, receivables from Affiliates, directors, officers or employees,
prepaid expenses, deposits, deferred charges or treasury stock or any
securities or Debt of the Borrower or any other securities unless the same are
readily marketable in the United States of America or entitled to be used as a
credit against federal income tax liabilities, and any other assets designated
from time to time by the Lender, in its sole discretion.
"Tax Expense" as of any date means state and federal income taxes
recorded by the Borrower for the Applicable period ending on such date.
"Termination Date" means the earliest of (i) the Maturity Date,
(ii) the date the Borrower terminates the Credit Facility, or (iii) the date
the Lender demands payment of the Obligations.
"UCC" means the Uniform Commercial Code as in effect from time to
time in the state designated in Section 9.14 as the state whose laws shall
govern this Agreement, or in any other state whose laws are held to govern
this Agreement or any portion hereof.
Section 1.2 Cross References. All references in this Agreement to
----------------
Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
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<PAGE> 14
ARTICLE II
Amount and Terms of the Credit Facility
---------------------------------------
Section 2.1 Revolving Advances. The Lender agrees to make advances
------------------
to the Borrower from time to time from the date all of the conditions set
forth in Section 4.1 are satisfied (the "Funding Date") to the Termination
Date, on the terms and subject to the conditions herein set forth (the
"Revolving Advances"). The Lender shall not consider any request for a
Revolving Advance if, after giving effect to such requested Revolving Advance,
the sum of the outstanding and unpaid Revolving Advances plus the L/C Amount
would exceed the Borrowing Base. The Borrower's obligation to pay the
Revolving Advances shall be evidenced by the Revolving Note and shall be
secured by the Collateral as provided in Article III. Within the limits set
forth in this Section 2.1, the Borrower may request Revolving Advances, prepay
pursuant to this Article 2, and request additional Revolving Advances. The
Borrower agrees to comply with the following procedures in requesting
Revolving Advances under this Section 2.1:
(a) The Borrower shall make each request for a Revolving
Advance to the Lender before 12:00 noon (Minneapolis time) of the
day of the requested Revolving Advance. Requests may be made in
writing or by telephone, specifying the date of the requested
Revolving Advance and the amount thereof. Each request shall be
by (i) any officer of the Borrower; or (ii) any person designated
as the Borrower's agent by any officer of the Borrower in a
writing delivered to the Lender; or (iii) any person whom the
Lender reasonably believes to be an officer of the Borrower or
such a designated agent.
(b) Upon fulfillment of the applicable conditions set
forth in Article IV, the Lender shall disburse the proceeds of the
requested Revolving Advance by crediting the same to the
Borrower's demand deposit account maintained with a financial
institution reasonably acceptable to Lender, unless the Lender and
the Borrower shall agree in writing to another manner of
disbursement. Upon the Lender's request, the Borrower shall
promptly confirm each telephonic request for an Advance by
executing and delivering an appropriate confirmation certificate
to the Lender. The Borrower shall repay all Advances even if the
Lender does not receive such confirmation and even if the person
requesting an Advance was not in fact authorized to do so. Any
request for an Advance, whether written or telephonic, shall be
deemed to be a representation by the Borrower that the conditions
set forth in Section 4.2 have been satisfied as of the time of the
request.
Section 2.2 Interest; Minimum Interest Charge; Default
------------------------------------------
Interest; Participations; Usury. Interest accruing on the Note shall be due
- -------------------------------
and payable in arrears on the first day of each month.
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<PAGE> 15
(a) Revolving Note. Except as set forth in Sections
2.2(c), 2.2(d) and 2.2(f), the outstanding principal balance of
the Revolving Note shall bear interest at the Floating Rate.
(b) Minimum Interest Charge. Notwithstanding the
interest payable pursuant to Section 2.2(a), the Borrower shall
pay to the Lender interest of not less than $8,000.00 per calendar
month (the "Minimum Interest Charge") during the term of this
Agreement, and the Borrower shall pay any deficiency between the
Minimum Interest Charge and the amount of interest otherwise
calculated under Sections 2.2(a) and 2.2(d) on the date and in the
manner provided in Section 2.4.
(c) Default Interest Rate. At any time during any
Default Period, in the Lender's sole discretion and without
waiving any of its other rights and remedies, the principal of the
Advances outstanding from time to time shall bear interest at the
Default Rate, effective for any periods designated by the Lender
from time to time during that Default Period.
(d) Participations. If any Person shall acquire a
participation in the Advances under this Agreement, the Borrower
shall be obligated to the Lender to pay the full amount of all
interest calculated under, along with all other fees, charges and
other amounts due under this Agreement, regardless if such Person
elects to accept interest with respect to its participation at a
lower rate than the Floating Rate, or otherwise elects to accept
less than its prorata share of such fees, charges and other
amounts due under this Agreement.
(e) Usury. In any event no rate change shall be put into
effect which would result in a rate greater than the highest rate
permitted by law. Notwithstanding anything to the contrary
contained in any Loan Document, all agreements which either now
are or which shall become agreements between the Borrower and the
Lender are hereby limited so that in no contingency or event
whatsoever shall the total liability for payments in the nature of
interest, additional interest and other charges exceed the
applicable limits imposed by the usury laws of the States of
Missouri and California. If any payments in the nature of
interest, additional interest and other charges made under any
Loan Document are held to be in excess of the applicable limits
imposed by the usury laws of the States of Missouri and
California, it is agreed that any such amount held to be in excess
shall be considered payment of principal hereunder, and the
indebtedness evidenced hereby shall be reduced by such amount so
that the total liability for payments in the nature of interest,
additional interest and other charges shall not exceed the
applicable limits imposed by the usury laws of the States of
Missouri and California, in compliance with the desires of the
Borrower and the Lender. This provision shall never be superseded
or waived and shall control every other provision of the Loan
Documents and all agreements between the Borrower and Lender, or
their successors and assigns.
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<PAGE> 16
Section 2.3 Fees.
----
(a) Origination Fee. The Borrower hereby agrees to pay
the Lender a fully earned and non-refundable origination fee of
$10,000.00, due and payable upon the execution of this Agreement.
The Lender acknowledges receipt of $20,000.00 toward payment of
this fee and the fees, costs and expenses described in Sections
2.3(b) and 9.7.
(b) Audit Fees. Except for the preliminary audit of the
Collateral made before the Funding Date, which fees will be split
equally between Borrower and Lender, the Borrower hereby agrees to
pay the Lender, on demand, audit fees in connection with any
audits or inspections conducted by the Lender of any Collateral or
the Borrower's operations or business at the rates established
from time to time by the Lender as its audit fees (which fees are
currently $400.00 per day per auditor), together with all actual
out-of-pocket costs and expenses incurred in conducting any such
audit or inspection; provided, however, that except during Default
-------- -------
Periods, the Borrower shall not have to reimburse the Lender for
such fees, costs and expenses to the extent they exceed $8,400.00
per annum.
(c) Facility Fee. The Borrower hereby agrees to pay a
Facility Fee of one-half of one percent (0.5%) on the difference
between the Maximum Line and the aggregate of all Advances and
Letter of Credit, payable for each fiscal quarter on the first day
of the month following the end of such quarter, commencing January
1, 1997.
(d) Letter of Credit Fees. The Borrower agrees to pay
a fee of two percent (2%) of the face amount of each Letter of
Credit, payable upon issuance of the Letter of Credit.
Section 2.4 Computation of Interest and Fees; When Interest Due and
-------------------------------------------------------
Payable. Interest accruing on the outstanding principal balance of the
- -------
Advances and fees hereunder outstanding from time to time shall be computed on
the basis of actual number of days elapsed in a year of 360 days. Interest
shall be payable in arrears on the first day of each month and on the
Termination Date.
Section 2.5 Issuance of Letters of Credit.
-----------------------------
(a) The Lender agrees, on the terms and subject to the
conditions herein set forth, to issue or cause to be issued by an
Issuer one or more letters of credit for the account of the Borrower
(each a "Letter of Credit") from time to time during the period from
the date hereof until the Termination Date, in an aggregate amount
at any time outstanding not to exceed the lesser of (x) $200,000.00,
or (y) the Borrowing Base less the sum of (i) all outstanding and
unpaid Advances hereunder and (ii) the unpaid amount of the
Obligation of Reimbursement. Each Letter of Credit, if any, shall
be issued pursuant to a
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<PAGE> 17
separate L/C Application entered into between the Borrower and the
Lender, or by the Borrower and the Lender as co-applicants for the
benefit of the Issuer, completed in a manner satisfactory to the
Lender and the Issuer. The terms and conditions set forth in each
such L/C Application shall supplement the terms and conditions
hereof, but in the event of inconsistency between the terms of any
such L/C Application and the terms hereof, the terms hereof shall
control.
(b) No Letter of Credit shall be issued under this
Agreement if, after the issuance of such requested Letter of
Credit, the sum of the face amounts of all issued and outstanding
Letters of Credit would exceed the lesser of (x) $200,000.00, or
(y) the Borrowing Base less the sum of (i) all outstanding and
unpaid Advances hereunder and (ii) the unpaid amount of the
Obligation of Reimbursement.
(c) No Letter of Credit shall be issued with an expiry
date later than the Termination Date in effect as of the date of
issuance.
(d) Any request for the issuance of a Letter of Credit
shall be deemed to be a representation by the Borrower that
(i) the condition set forth in subsection (b) hereof has been met,
and (ii) the statements set forth in Section 4.2 hereof are
correct as of the time of the request.
Section 2.6 Payment of Amounts Drawn Under Letters of Credit.
------------------------------------------------
Draws under any Letter of Credit issued by Lender shall be reimbursed to the
Lender in accordance with the applicable L/C Application and as set forth
below. In the case of Letters of Credit not issued by the Lender, the
Borrower acknowledges that the Lender, as co-applicant, will be liable to the
Issuer of any Letter of Credit for reimbursement of any and all draws
thereunder and all other amounts required to be paid under the applicable L/C
Application. Accordingly, the Borrower agrees to pay to the Lender any and
all amounts required to be paid under the applicable L/C Application, when and
as required to be paid thereby, and the amounts designated below, when and as
designated.
(a) The Borrower hereby agrees to pay the Lender on the
day a draft is honored under any Letter of Credit a sum equal to
all amounts drawn under such Letter of Credit plus any and all
reasonable charges and expenses that the Issuer or the Lender may
pay or incur relative to such draw, plus interest on all such
amounts, charges and expenses as set forth below (all such amounts
are hereinafter referred to, collectively, as the "Obligation of
Reimbursement").
(b) The Borrower hereby agrees to pay the Lender on demand
interest on all amount, charges and expenses payable by the
Borrower to the Lender under this Section, accrued from the date
any such draft, charge or expense is paid by the Lender or Issuer
until payment in full by the Borrower at the Default Rate.
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<PAGE> 18
If the Borrower fails to pay to the Lender promptly the amount of its
Obligation of Reimbursement in accordance with the terms hereof and the L/C
Application pursuant to which such Letter of Credit was issued, the Lender is
hereby irrevocably authorized and directed, in its sole discretion, to make an
Advance in an amount sufficient to discharge the Obligation of Reimbursement,
including all interest accrued thereon but unpaid at the time of such Advance,
and such Advance shall be evidenced by the Note and shall bear interest as
provided in this Agreement.
Section 2.7 Collateral Account. If the Lender terminates the
------------------
Credit Facility upon an Event of Default, or the Credit Facility is otherwise
terminated for any reason whatsoever, while any Letter of Credit is
outstanding, the Borrower shall thereupon pay the Lender in immediately
available funds for deposit in the Collateral Account an amount equal to the
maximum aggregate amount available to be drawn under all Letters of Credit
then outstanding, assuming compliance with all conditions for drawing
thereunder. The Collateral Account shall be maintained for the Lender by any
financial institution acceptable to the Lender. Any interest earned on
amounts deposited in the Collateral Account shall be credited to the
Collateral Account. Amounts on deposit in the Collateral Account may be
applied by the Lender at any time or from time to time to the Borrower's
Obligation of Reimbursement or any other Obligations, in the Lender's sole
discretion, and shall not be subject to withdrawal by the Borrower so long as
the Lender maintains a security interest therein. The Lender agrees to
transfer any balance in the Collateral Account to the Borrower at such time as
the Lender is required to release its security interest in the Collateral
Account under applicable law.
Section 2.8 Voluntary Prepayment; Termination of Credit Facility by
-------------------------------------------------------
the Borrower; Waiver of Termination Fees. Except as otherwise provided
- ----------------------------------------
herein, the Borrower may terminate the Credit Facility or prepay the Advances
in whole at any time or from time to time in part and, subject to payment and
performance of all Obligations and termination of the Credit Facility, the
Lender shall release or terminate the Security Interest and the Security
Documents to which the Borrower is entitled by law.
(a) Termination by Borrower. The Borrower may
terminate the Credit Facility as of the Maturity Date by giving at
least 90 days' prior written notice to the Lender of the
Borrower's intention to terminate the Credit Facility as of the
specified Maturity Date. The Borrower may also terminate the
Credit Facility at any time by (i) giving at least 30 days' prior
written notice to the Lender of the Borrower's intention to
terminate the Credit Facility; and (ii) paying the Lender
termination fees in accordance with subsection (b) if the Borrower
terminates the Credit Facility effective as of any date other than
the Maturity Date.
(b) Termination Fee. If the Borrower desires to
terminate the Credit Facility as of any date other than the
Maturity Date, or as of the Maturity Date but without giving at
least 90 days' prior written notice thereof, it shall give at
least 30 days' prior written notice to the Lender of the
Borrower's intention to do so and pay to the Lender a premium in
an amount equal to a percentage of the Maximum Line as follows:
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<PAGE> 19
(A) two percent (2.0%) if the termination occurs on
or before the first anniversary of the Funding Date;
(B) one percent (1.0%) if the termination occurs
after the first anniversary of the Funding Date but on or
before the second anniversary of the Funding Date; provided,
--------
however, that no termination fee shall be payable if the
-------
Credit Facility is terminated within 30 days before the
Maturity Date.
(c) Waiver of Termination Fees. The Borrower will
not be required to pay the termination fees otherwise due under
subsection (b) if such prepayment is made because of increased
cash flow generated from the Borrower's operations or refinancing
by an affiliate of the Lender.
Section 2.9 Mandatory Prepayment. Without notice or demand, if the
--------------------
outstanding principal balance of the Revolving Advances plus the L/C Amount
shall at any time exceed the Borrowing Base, the Borrower shall immediately
prepay the Revolving Advances to the extent necessary to eliminate such
excess. Any payment received by the Lender under this section or the
immediately preceding section may be applied to the Obligations, in such order
and in such amounts as the Lender, in its discretion, may from time to time
determine.
Section 2.10 Payment. All payments to the Lender shall be made in
-------
immediately available funds and shall be applied to the Obligations two
Banking Days after receipt by the Lender. The Lender may hold all payments
not constituting immediately available funds for three (3) additional days
before applying them to the Obligations. Notwithstanding anything in Section
2.1, the Borrower hereby authorizes the Lender, in its discretion at any time
or from time to time without the Borrower's request and even if the conditions
set forth in Section 4.2 would not be satisfied, to make a Revolving Advance
in an amount equal to the portion of the Obligations from time to time due and
payable.
Section 2.11 Payment on Non-Banking Days. Whenever any payment to
---------------------------
be made hereunder shall be stated to be due on a day which is not a Banking
Day, such payment may be made on the next succeeding Banking Day, and such
extension of time shall in such case be included in the computation of
interest on the Advances or the fees hereunder, as the case may be.
Section 2.12 Use of Proceeds. The Borrower shall use the proceeds
---------------
of Advances for repayment of indebtedness to Commerce Bank of St. Louis, N.A.,
and for ordinary working capital purposes.
Section 2.13 Liability Records. The Lender may maintain from time
-----------------
to time, at its discretion, liability records as to the Obligations. All
entries made on any such record shall be presumed correct until the Borrower
establishes the contrary. Upon the Lender's demand, the Borrower will admit
and certify in writing the exact principal balance of the Obligations that the
Borrower then asserts to be outstanding. Any billing statement or
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<PAGE> 20
accounting rendered by the Lender shall be conclusive and fully binding on the
Borrower unless the Borrower gives the Lender specific written notice of
exception within 30 days after receipt.
ARTICLE III
Security Interest; Occupancy; Setoff
------------------------------------
Section 3.1 Grant of Security Interest. The Borrower hereby
--------------------------
pledges, assigns and grants to the Lender a security interest (collectively
referred to as the "Security Interest") in the Collateral, as security for the
payment and performance of the Obligations.
Section 3.2 Notification of Account Debtors and Other Obligors.
--------------------------------------------------
The Lender may at any time (whether or not a Default Period then exists)
notify any account debtor or other person obligated to pay the amount due that
such right to payment has been assigned or transferred to the Lender for
security and shall be paid directly to the Lender. The Borrower will join in
giving such notice if the Lender so requests. At any time after the Borrower
or the Lender gives such notice to an account debtor or other obliger, the
Lender may, but need not, in the Lender's name or in the Borrower's name,
(a) demand, sue for, collect or receive any money or property at any time
payable or receivable on account of, or securing, any such right to payment,
or grant any extension to, make any compromise or settlement with or otherwise
agree to waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obliger; and (b) as the
Borrower's agent and attorney-in-fact, notify the United States Postal Service
to change the address for delivery of the Borrower's mail to any address
designated by the Lender, otherwise intercept the Borrower's mail, and
receive, open and dispose of the Borrower's mail, applying all Collateral as
permitted under this Agreement and holding all other mail for the Borrower's
account or forwarding such mail to the Borrower's last known address.
Section 3.3 Assignment of Insurance. As additional security for
-----------------------
the payment and performance of the Obligations, the Borrower hereby assigns to
the Lender any and all monies (including, without limitation, proceeds of
insurance and refunds of unearned premiums) due or to become due under, and
all other rights of the Borrower with respect to, any and all policies of
insurance now or at any time hereafter covering the Collateral or any evidence
thereof or any business records or valuable papers pertaining thereto, and the
Borrower hereby directs the issuer of any such policy to pay all such monies
directly to the Lender. At any time, whether or not a Default Period then
exists, the Lender may (but need not), in the Lender's name or in the
Borrower's name, execute and deliver proof of claim, receive all such monies,
endorse checks and other instruments representing payment of such monies, and
adjust, litigate, compromise or release any claim against the issuer of any
such policy.
Section 3.4 Occupancy.
---------
(a) The Borrower hereby irrevocably grants to the Lender
the right to take possession of the Premises at any time during a
Default Period.
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<PAGE> 21
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that
the Lender may in good faith deem to be related or incidental
purposes.
(c) The Lender's right to hold the Premises shall cease
and terminate upon the earlier of (i) payment in full and
discharge of all Obligations, and (ii) final sale or disposition
of all goods constituting Collateral and delivery of all such
goods to purchasers.
(d) The Lender shall not be obligated to pay or account
for any rent or other compensation for the possession, occupancy
or use of any of the Premises; provided, however, that if the
Lender does pay or account for any rent or other compensation for
the possession, occupancy or use of any of the Premises, the
Borrower shall reimburse the Lender promptly for the full amount
thereof. In addition, the Borrower will pay, or reimburse the
Lender for, all taxes, fees, duties, imposts, charges and expenses
at any time incurred by or imposed upon the Lender by reason of
the execution, delivery, existence, recordation, performance or
enforcement of this Agreement or the provisions of this Section 3.4.
Section 3.5 License. The Borrower hereby grants to the
-------
Lender a nonexclusive, worldwide and royalty-free license to use or otherwise
exploit all trademarks, franchises, trade names, copyrights and patents of the
Borrower for the purpose of selling, leasing or otherwise disposing of any or
all Collateral during any Default Period.
Section 3.6 Financing Statement. A carbon, photographic or
-------------------
other reproduction of this Agreement or of any financing statements signed by
the Borrower is sufficient as a financing statement and may be filed as a
financing statement in any state to perfect the security interests granted
hereby. For this purpose, the following information is set forth:
Name and address of Debtor:
Windsor Art, Inc.
9101 Perkins Street
Pico Rivera, CA 90660
Federal Tax Identification No. 43-1325291
Name and address of Secured Party:
Norwest Business Credit, Inc.
100 South Brentwood Boulevard
Suite 300
St. Louis, MO 63105
Federal Tax Identification No. 41-1237652
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<PAGE> 22
Section 3.7 Setoff. The Borrower agrees that the Lender may
------
at any time or from time to time, at its sole discretion and without demand
and without notice to anyone, set off any liability owed to the Borrower by
the Lender, whether or not due, against any Obligation, whether or not due.
In addition, each other Person holding a participating interest in any
Obligations shall have the right to appropriate or set off any deposit or
other liability then owed by such Person to the Borrower, whether or not due,
and apply the same to the payment of said participating interest, as fully as
if such Person had lent directly to the Borrower the amount of such
participating interest.
ARTICLE IV
Conditions of Lending
---------------------
Section 4.1 Conditions Precedent to Lender's Making the Initial
---------------------------------------------------
Revolving Advance or Issuance of Initial Letter of Credit. The Lender's
- ---------------------------------------------------------
obligation to make the initial Revolving Advance hereunder or to issue or
cause to be issued any Letter of Credit hereunder shall be subject to the
condition precedent that the Lender shall have received all of the following,
each in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Note, properly executed by the Borrower.
(c) A true and correct copy of any and all leases pursuant
to which the Borrower is leasing the Premises, together with a
landlord's disclaimer and consent with respect to each such lease.
(d) A true and correct copy of any and all mortgages
pursuant to which the Borrower has mortgaged the Premises,
together with a mortgagee's disclaimer and consent with respect to
each such mortgage.
(e) A true and correct copy of any and all agreements
pursuant to which the Borrower's property is in the possession of
any Person other than the Borrower, together with, in the case of
any goods held by such Person for resale, (i) a consignee's
acknowledgment and waiver of liens, (ii) UCC financing statements
sufficient to protect the Borrower's and the Lender's interests in
such goods, and (iii) UCC searches showing that no other secured
party has filed a financing statement against such Person and
covering property similar to the Borrower's other than the
Borrower, or if there exists any such secured party, evidence that
each such secured party has received notice from the Borrower and
the Lender sufficient to protect the Borrower's and the Lender's
interests in the Borrower's goods from any claim by such secured
party.
(f) An acknowledgment and waiver of liens from each
warehouse in which the Borrower is storing Inventory.
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<PAGE> 23
(g) A true and correct copy of any and all agreements
pursuant to which the Borrower's property is in the possession of
any Person other than the Borrower, together with, (i) an
acknowledgment and waiver of liens from each subcontractor who has
possession of the Borrower's goods from time to time, (ii) UCC
financing statements sufficient to protect the Borrower's and the
Lender's interests in such goods, and (iii) UCC searches showing
that no other secured party has filed a financing statement
covering such Person's properly other than the Borrower, or if
there exists any such secured party, evidence that each such
secured party has received notice from the Borrower and the Lender
sufficient to protect the Borrower's and the Lender's interests in
the Borrower's goods from any claim by such secured party.
(h) The Life Insurance Assignment, properly executed by
the beneficiary and owner thereof, and the Life Insurance Policy,
each in form and substance satisfactory to the Lender, together
with such evidence as the Lender may request that the Life
Insurance Policy is subject to no assignments or encumbrances
other than the Life Insurance Assignment.
(i) The Collateral Account Agreement, properly executed by
the parties thereto.
(j) The Lockbox Agreement, properly executed by the
parties thereto.
(k) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain
in effect against the Borrower, (ii) no financing statements have
been filed and remain in effect against the Borrower except those
financing statements relating to Permitted Liens or to liens held
by Persons who have agreed in writing that upon receipt of
proceeds of the Advances, they will deliver UCC releases and/or
terminations satisfactory to the Lender, and (iii) the Lender has
duly filed all financing statements necessary to perfect the
Security Interest, to the extent the Security Interest is capable
of being perfected by filing.
(l) A certificate of the Borrower's Secretary or Assistant
Secretary certifying as to (i) the resolutions of the Borrower's
directors and, if required, shareholders, authorizing the
execution, delivery and performance of the Loan Documents,
(ii) the Borrower's articles of incorporation and bylaws, and
(iii) the signatures of the Borrower's officers or agents
authorized to execute and deliver the Loan Documents and other
instruments, agreements and certificates, including Advance
requests, on the Borrower's behalf.
(m) A current certificate issued by the Secretary of State
of Missouri certifying that the Borrower is in compliance with all
applicable organizational requirements of the State of Missouri.
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<PAGE> 24
(n) Evidence that the Borrower is duly licensed or
qualified to transact business in all jurisdictions where the
character of the property owned or leased or the nature of the
business transacted by it makes such licensing or qualification
necessary.
(o) A certificate of an officer of the Borrower
confirming, in his personal capacity, the representations and
warranties set forth in Article V.
(p) An opinion of counsel to the Borrower, addressed to
the Lender.
(q) Certificates of the insurance required hereunder, with
all hazard insurance containing a lender's loss payable
endorsement in the Lender's favor and with all liability insurance
naming the Lender as an additional insured.
(r) A separate guaranty, properly executed by each
Guarantor, pursuant to which each Guarantor unconditionally
guarantees the full and prompt payment of all Obligations, except
for certain limitations contained in the Guaranty executed by
Lloyd Abrams.
(s) A waiver of interest, properly executed by the spouse
of Lloyd Abrams, waiving any and all interest such spouse may have
in the assets disclosed to the Lender in the financial statements
of such Guarantor and in any future earnings or assets acquired by
such Guarantor.
(t) An opinion of counsel to each Guarantor, addressed to
the Lender.
(u) Payment of the fees and commissions due through the
date of the initial Advance and expenses incurred by the Lender
through such date and required to be paid by the Borrower under
Section 9.7, including all legal expenses incurred through the
date of this Agreement.
(v) Evidence that the Borrower shall have, after paying
(i) all indebtedness to Commerce Bank of St. Louis, N.A.,
(ii) trade accounts payable older than sixty (60) days, (iii) book
overdraft, and (iv) all closing costs and expenses, more than
$150,000 available to be borrowed under this Agreement.
(w) Such other documents as the Lender in its sole
discretion may require, including, without limitation, properly
executed L/C Applications in the case of issuance of any Letter of
Credit.
Section 4.2 Conditions Precedent to All Advances. The Lender will
------------------------------------
not make any Advance or issue or cause to be issued any Letter of Credit
unless on such date:
(a) the representations and warranties contained in
Article V are correct on and as of the date of such Advance or
issuance of such Letter of Credit
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<PAGE> 25
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
(b) no event has occurred and is continuing, or would
result from such Advance or issuance of such Letter of Credit, as
the case may be, which constitutes a Default or an Event of
Default.
ARTICLE V
Representations and Warranties
------------------------------
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Corporate Existence and Power; Name; Chief Executive
----------------------------------------------------
Office; Inventory and Equipment Locations; Tax Identification Number. The
- --------------------------------------------------------------------
Borrower is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Missouri and is duly licensed or
qualified to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it makes
such licensing or qualification necessary. The Borrower has all requisite
power and authority, corporate or otherwise, to conduct its business, to own
its properties and to execute and deliver, and to perform all of its
obligations under, the Loan Documents. During its existence, the Borrower has
done business solely under the names set forth in Schedule 5.1 hereto. The
Borrower's chief executive office and principal place of business is located
at the address set forth in Schedule 5.1 hereto, and all of the Borrower's
records relating to its business or the Collateral are kept at that location.
All Inventory and Equipment is located at that location or at one of the other
locations set forth in Schedule 5.1 hereto. The Borrower's tax identification
number is correctly set forth in Section 3.6 hereto.
Section 5.2 Authorization of Borrowing; No Conflict as to Law or
----------------------------------------------------
Agreements. The execution, delivery and performance by the Borrower of the
- ----------
Loan Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not
(i) require any consent or approval of the Borrower's stockholders;
(ii) require any authorization, consent or approval by, or registration,
declaration or filing with, or notice to, any governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, or
any third party, except such authorization, consent, approval, registration,
declaration, filing or notice as has been obtained, accomplished or given
prior to the date hereof; (iii) violate any provision of any law, rule or
regulation (including, without limitation, Regulation X of the Board of
Governors of the Federal Reserve System) or of any order, writ, injunction or
decree presently in effect having applicability to the Borrower or of the
Borrower's articles of incorporation or bylaws; (iv) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other material agreement, lease or instrument to which the Borrower is a party
or by which it or its properties may be bound or affected; or (v) result in,
or require, the creation or imposition of any mortgage, deed of trust, pledge,
lien, security interest or other charge or encumbrance of any nature (other
than
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<PAGE> 26
the Security Interest) upon or with respect to any of the properties now
owned or hereafter acquired by the Borrower.
Section 5.3 Legal Agreements. This Agreement constitutes and, upon
----------------
due execution by the Borrower, the other Loan Documents will constitute the
legal, valid and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their respective terms.
Section 5.4 Subsidiaries. Except as set forth in Schedule 5.4
------------
hereto, the Borrower has no Subsidiaries.
Section 5.5 Financial Condition; No Adverse Change. The Borrower
--------------------------------------
has heretofore furnished to the Lender audited financial statements of the
Borrower for its fiscal year ended December 31, 1995 and unaudited financial
statements of the Borrower for the fiscal year-to-date period ended October
31, 1996, and those statements fairly present the Borrower's financial
condition on the dates thereof and the results of its operations and cash
flows for the periods then ended and were prepared in accordance with
generally accepted accounting principles. Since the date of the most recent
financial statements, there has been no material adverse change in the
Borrower's business, properties or condition (financial or otherwise).
Section 5.6 Litigation. Other than as is shown on Schedule 5.6
----------
hereto, there are no actions, suits or proceedings pending or, to the
Borrower's knowledge, threatened against or affecting the Borrower or any of
its Affiliates or the properties of the Borrower or any of its Affiliates
before any court or governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, which, if determined adversely to the
Borrower or any of its Affiliates, would have a material adverse effect on the
financial condition, properties or operations of the Borrower or any of its
Affiliates.
Section 5.7 Regulation U. The Borrower is not engaged in the
------------
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Advance will be
used to purchase or carry any margin stock or to extend credit to others for
the purpose of purchasing or carrying any margin stock.
Section 5.8 Taxes. The Borrower and its Affiliates have paid or
-----
caused to be paid to the proper authorities when due all federal, state and
local taxes required to be withheld by each of them. The Borrower and its
Affiliates have filed all federal, state and local tax returns which to the
knowledge of the officers of the Borrower or any Affiliate, as the case may
be, are required to be filed, and the Borrower and its Affiliates have paid or
caused to be paid to the respective taxing authorities all taxes as shown on
said returns or on any assessment received by any of them to the extent such
taxes have become due.
Section 5.9 Titles and Liens. The Borrower has good and absolute
----------------
title to all Collateral described in the collateral reports provided to the
Lender and all other Collateral, properties and assets reflected in the latest
financial statements referred to in Section 5.5 and all proceeds thereof, free
and clear of all mortgages, security interests, liens and encumbrances,
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<PAGE> 27
except for Permitted Liens. No financing statement naming the Borrower as
debtor is on file in any office except to perfect only Permitted Liens.
Section 5.10 Plans. Except for the Borrower's 401(k) plan, which
-----
has been disclosed to the Lender prior to the date hereof, neither the
Borrower nor any of its Affiliates maintains or has maintained any Plan.
Neither the Borrower nor any Affiliate has received any notice or has any
knowledge to the effect that it is not in full compliance with any of the
requirements of ERISA. No Reportable Event or other fact or circumstance
which may have an adverse effect on the Plan's tax qualified status exists in
connection with any Plan. Neither the Borrower nor any of its Affiliates has:
(a) Any accumulated funding deficiency within the meaning
of ERISA; or
(b) Any liability or knows of any fact or circumstances
which could result in any liability to the Pension Benefit
Guaranty Corporation, the Internal Revenue Service, the Department
of Labor or any participant in connection with any Plan (other
than accrued benefits which or which may become payable to
participants or beneficiaries of any such Plan).
Section 5.11 Default. The Borrower is in compliance with all
-------
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or
default of which could have a material adverse effect on the Borrower's
financial condition, properties or operations.
Section 5.12 Environmental Matters.
---------------------
(a) Definitions. As used in this Agreement, the following
-----------
terms shall have the following meanings:
(i) "Environmental Law" means any federal, state,
local or other governmental statute, regulation, law or
ordinance dealing with the protection of human health and
the environment.
(ii) "Hazardous Substances" means pollutants,
contaminants, hazardous substances, hazardous wastes,
petroleum and fractions thereof, and all other chemicals,
wastes, substances and materials listed in, regulated by or
identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not
present in, on or under the Premises any Hazardous Substances in
such form or quantity as to create any liability or obligation for
either the Borrower or the Lender under common law of any
jurisdiction or under any Environmental Law, and no Hazardous
Substances have ever been stored, buried, spilled, leaked,
discharged, emitted or released in, on or under the Premises in
such a way as to create any such liability.
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<PAGE> 28
(c) To the Borrower's best knowledge, the Borrower has not
disposed of Hazardous Substances in such a manner as to create any
liability under any Environmental Law.
(d) There are not and there never have been any requests,
claims, notices, investigations, demands, administrative
proceedings, hearings or litigation, relating in any way to the
Premises or the Borrower, alleging liability under, violation of,
or noncompliance with any Environmental Law or any license, permit
or other authorization issued pursuant thereto. To the Borrower's
best knowledge, no such matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's
businesses are and have in the past always been conducted in
accordance with all Environmental Laws and all licenses, permits
and other authorizations required pursuant to any Environmental
Law and necessary for the lawful and efficient operation of such
businesses are in the Borrower's possession and are in full force
and effect. No permit required under any Environmental Law is
scheduled to expire within 12 months and there is no threat that
any such permit will be withdrawn, terminated, limited or
materially changed.
(f) To the Borrower's best knowledge, the Premises are not
and never have been listed on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability
Information System or any similar federal, state or local list,
schedule, log, inventory or database.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other
documents describing or relating in any way to the Premises or
Borrower's businesses.
Section 5.13 Submissions to Lender. All financial and other
---------------------
information provided to the Lender by or on behalf of the Borrower in
connection with the Borrower's request for the credit facilities contemplated
hereby is true and correct in all material respects and, as to projections,
valuations or proforma financial statements, present a good faith opinion as
to such projections, valuations and proforma condition and results.
Section 5.14 Financing Statements. The Borrower has provided to
--------------------
the Lender signed financing statements sufficient when filed to perfect the
Security Interest and the other security interests created by the Security
Documents. When such financing statements are filed in the offices noted
therein, the Lender will have a valid and perfected security interest in all
Collateral and all other collateral described in the Security Documents which
is capable of being perfected by filing financing statements. None of the
Collateral or other collateral covered by the Security Documents is or will
become a fixture on real estate, unless a sufficient fixture filing is in
effect with respect thereto.
Section 5.15 Rights to Payment. Each right to payment and each
-----------------
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other
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<PAGE> 29
collateral covered by the Security Documents is (or, in the case of all future
Collateral or such other collateral, will be when arising or issued) the valid,
genuine and legally enforceable obligation, subject to no defense, setoff or
counterclaim, of the account debtor or other obligor named therein or in the
Borrower's records pertaining thereto as being obligated to pay such obligation.
Section 5.16 Obligations of Third Parties. Except as set forth on
----------------------------
Schedule 7.2 hereof, Borrower has not guaranteed and is not otherwise liable
in any way for the indebtedness or other obligations of any other person or
entity, including, without limitation, any Affiliate, except to the extent of
Borrower's assets pledged to secure indebtedness of Janco, Inc., which lien is
subordinated to Lender's lien pursuant to the Subordination Agreements.
ARTICLE VI
Borrower's Affirmative Covenants
--------------------------------
So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1 Reporting Requirements. The Borrower will deliver, or
----------------------
cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days
after the end of each fiscal year of the Borrower and the
corporate Guarantor, as the case may be, such Borrower's or
Guarantor's audited financial statements with the unqualified
opinion of independent certified public accountants selected by
the Borrower and acceptable to the Lender, which annual
financial statements shall include the Borrower's and corporate
Guarantor's balance sheet as at the end of such fiscal year and
the related statements of the Borrower's income, retained
earnings and cash flows for the fiscal year then ended,
prepared, if the Lender so requests, on a consolidating and
consolidated basis to include any Affiliates, all in reasonable
detail and prepared in accordance with GAAP, together with
(i) copies of all management letters prepared by such
accountants; (ii) a report signed by such accountants stating
that in making the investigations necessary for said opinion
they obtained no knowledge, except as specifically stated, of
any Default or Event of Default hereunder and all relevant facts
in reasonable detail to evidence, and the computations as to,
whether or not the Borrower is in compliance with the
requirements set forth in Sections 6.13, 6.14, 6.15, and 7.10;
and (iii) a certificate of the Borrower's chief financial
officer stating that such financial statements have been
prepared in accordance with GAAP and whether or not such officer
has knowledge of the occurrence of any Default or Event of
Default hereunder and, if so, stating in reasonable detail the
facts with respect thereto;
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<PAGE> 30
(b) as soon as available and in any event within 21 days
after the end of each month, an unaudited/internal balance sheet
and statements of income and retained earnings of the Borrower
as at the end of and for such month and for the year to date
period then ended, prepared, if the Lender so requests, on a
consolidating and consolidated basis to include any Affiliates,
in reasonable detail and stating in comparative form the figures
for the corresponding date and periods in the previous year, all
prepared in accordance with GAAP, subject to year-end audit
adjustments; and accompanied by a certificate of the Borrower's
chief financial officer, substantially in the form of Exhibit B
hereto stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit
adjustments, (ii) whether or not such officer has knowledge of
the occurrence of any Default or Event of Default hereunder not
theretofore reported and remedied and, if so, stating in
reasonable detail the facts with respect thereto, and (iii) all
relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Borrower is in compliance
with the requirements set forth in Sections 6.13, 6.14, 6.15,
and 7.10;
(c) within 15 days after the end of each month or more
frequently if the Lender so requires, agings of the Borrower's
accounts receivable and its accounts payable, an inventory
certification report, and a calculation of the Borrower's
Accounts, Eligible Accounts, Inventory and Eligible Inventory as
at the end of such month or shorter time period;
(d) at least 30 days before the beginning of each fiscal
year of the Borrower, the projected balance sheets and income
statements for each month of such year, each in reasonable
detail, representing the Borrower's good faith projections and
certified by the Borrower's chief financial officer as being the
most accurate projections available and identical to the
projections used by the Borrower for internal planning purposes,
together with such supporting schedules and information as the
Lender may in its discretion require;
(e) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any
governmental or regulatory agency affecting the Borrower of the
type described in Section 5.12 or which seek a monetary recovery
against the Borrower in excess of $10,000.00;
(f) as promptly as practicable (but in any event not later
than five business days) after an officer of the Borrower
obtains knowledge of the occurrence of any breach, default or
event of default under any Security Document or any event which
constitutes a Default or Event of Default hereunder, notice of
such occurrence, together with a detailed statement by a
responsible officer of the Borrower of the steps being taken by
the Borrower to cure the effect of such breach, default or
event;
(g) as soon as possible and in any event within 30 days
after the Borrower knows or has reason to know that any
Reportable Event with respect
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<PAGE> 31
to any Plan has occurred, the statement of the Borrower's chief
financial officer setting forth details as to such Reportable Event
and the action which the Borrower proposes to take with respect
thereto, together with a copy of the notice of such Reportable Event
to the Pension Benefit Guaranty Corporation;
(h) as soon as possible, and in any event within 10 days
after the Borrower fails to make any quarterly contribution
required with respect to any Plan under Section 412(m) of the
Internal Revenue Code of 1986, as amended, the statement of the
Borrower's chief financial officer setting forth details as to
such failure and the action which the Borrower proposes to take
with respect thereto, together with a copy of any notice of such
failure required to be provided to the Pension Benefit Guaranty
Corporation;
(i) promptly upon knowledge thereof, notice of (i) any
disputes or claims by the Borrower's customers exceeding
$25,000.00 individually, or $50,000.00 in the aggregate for any
of Borrower's customers (except J.C. Penney Co., for which such
aggregate limit shall be $150,000.00) during any fiscal year;
(ii) any goods returned to or recovered by the Borrower in an
amount exceeding $25,000.00 individually, and in an aggregate of
$50,000.00 to any one customer during any fiscal year, and
(iii) any change in the persons constituting the Borrower's
officers and directors;
(j) promptly upon knowledge thereof, notice of any loss of
or material damage to any Collateral or other collateral covered
by the Security Documents or of any substantial adverse change
in any Collateral or such other collateral or the prospect of
payment thereof;
(k) promptly upon their distribution, copies of all
financial statements, reports and proxy statements which the
Borrower or the corporate Guarantor shall have sent to its
stockholders;
(l) promptly after the sending or filing thereof, copies
of all regular and periodic reports which the Borrower or the
corporate Guarantor shall file with the Securities and Exchange
Commission or any national securities exchange;
(m) as soon as possible, and in any event by not later
than April 30th of each year, copies of the tax returns and all
schedules thereto of each owner of the Borrower and each
Guarantor and such other financial information about each
Guarantor as Lender may request;
(n) promptly upon knowledge thereof, notice of the
Borrower's violation of any law, rule or regulation, the
non-compliance with which could materially and adversely affect
the Borrower's business or its financial condition; and
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<PAGE> 32
(o) from time to time, with reasonable promptness, any and
all receivables schedules, collection reports, deposit records,
equipment schedules, copies of invoices in amounts greater than
$10,000.00 to account debtors, copies of all credit memos in
excess of $5,000.00, shipment documents and delivery receipts
for goods sold, and such other material, reports, records or
information as the Lender may request.
Section 6.2 Books and Records; Inspection and Examination. The
---------------------------------------------
Borrower will keep accurate books of record and account for itself pertaining
to the Collateral and pertaining to the Borrower's business and financial
condition and such other matters as the Lender may from time to time request
in which true and complete entries will be made in accordance with GAAP and,
upon the Lender's request, will permit any officer, employee, attorney or
accountant for the Lender to audit, review, make extracts from or copy any and
all corporate and financial books and records of the Borrower at all times
during ordinary business hours, to send and discuss with account debtors and
other obligors requests for verification of amounts owed to the Borrower, and
to discuss the Borrower's affairs with any of its directors, officers,
employees or agents. The Borrower will permit the Lender, or its employees,
accountants, attorneys or agents, to examine and inspect any Collateral, other
collateral covered by the Security Documents or any other property of the
Borrower at any time during ordinary business hours.
Section 6.3 Account Verification. The Lender may at any time and
--------------------
from time to time send or require the Borrower to send requests for
verification of accounts or notices of assignment to account debtors and other
obligors. The Lender may also at any time and from time to time telephone
account debtors and other obligors to verify accounts.
Section 6.4 Compliance with Laws.
--------------------
(a) The Borrower will (i) comply with the requirements of
applicable laws and regulations, the noncompliance with which
would materially and adversely affect its business or its
financial condition and (ii) use and keep the Collateral, and
require that others use and keep the Collateral, only for lawful
purposes, without violation of any federal, state or local law,
statute or ordinance.
(b) Without limiting the foregoing undertakings, the
Borrower specifically agrees that it will comply with all
applicable Environmental Laws and obtain and comply with all
permits, licenses and similar approvals required by any
Environmental Laws, and will not generate, use, transport, treat,
store or dispose of any Hazardous Substances in such a manner as
to create any liability or obligation under the common law of any
jurisdiction or any Environmental Law.
Section 6.5 Payment of Taxes and Other Claims. The Borrower will
---------------------------------
pay or discharge, when due, (a) all taxes, assessments and governmental
charges levied or imposed upon it or upon its income or profits, upon any
properties belonging to it (including, without limitation, the Collateral) or
upon or against the creation, perfection or continuance of the Security
Interest, prior to the date on which penalties attach thereto, (b) all
federal, state and
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<PAGE> 33
local taxes required to be withheld by it, and (c) all lawful claims for labor,
material and supplies which, if unpaid, might by law become a lien or charge
upon any properties of the Borrower, provided, that the Borrower shall not be
required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.
Section 6.6 Maintenance of Properties.
-------------------------
(a) The Borrower will keep and maintain the Collateral,
the other collateral covered by the Security Documents and all of
its other properties necessary or useful in its business in good
condition, repair and working order (normal wear and tear
excepted) and will from time to time replace or repair any worn,
defective or broken parts; provided, however, that nothing in this
Section 6.6 shall prevent the Borrower from discontinuing the
operation and maintenance of any of its properties if such
discontinuance is, in the Lender's judgment, desirable in the
conduct of the Borrower's business and not disadvantageous in any
material respect to the Lender.
(b) The Borrower will defend the Collateral against all
claims or demands of all persons (other than the Lender) claiming
the Collateral or any interest therein.
(c) The Borrower will keep all Collateral and other
collateral covered by the Security Documents free and clear of all
security interests, liens and encumbrances except Permitted Liens.
Section 6.7 Insurance. The Borrower will obtain and at all times
---------
maintain insurance with insurers believed by the Borrower to be responsible
and reputable, in such amounts and against such risks as may from time to time
be required by the Lender, but in all events in such amounts and against such
risks as is usually carried by companies engaged in similar business and
owning similar properties in the same general areas in which the Borrower
operates. Without limiting the generality of the foregoing, the Borrower will
at all times maintain business interruption insurance including coverage for
force majeure and keep all tangible Collateral insured against risks of fire
(including so-called extended coverage), theft, collision (for Collateral
consisting of motor vehicles) and such other risks and in such amounts as the
Lender may reasonably request, with any loss payable to the Lender to the
extent of its interest, and all policies of such insurance shall contain a
lender's loss payable endorsement for the Lender's benefit. All policies of
liability insurance required hereunder shall name the Lender as an additional
insured.
Section 6.8 Preservation of Existence. The Borrower will preserve
-------------------------
and maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.
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<PAGE> 34
Section 6.9 Delivery of Instruments, etc. Upon request by the
----------------------------
Lender, the Borrower will promptly deliver to the Lender in pledge all
documents and chattel papers constituting Collateral, duly endorsed or
assigned by the Borrower.
Section 6.10 Collateral Account.
------------------
(a) If, notwithstanding the instructions to debtors to
make payments to the Lockbox, the Borrower receives any payments
on Receivables, the Borrower shall deposit such payments into the
Collateral Account. Until so deposited, the Borrower shall hold
all such payments in trust for and as the property of the Lender
and shall not commingle such payments with any of its other funds
or property.
(b) Amounts deposited in the Collateral Account shall not
bear interest and shall not be subject to withdrawal by the
Borrower, except after full payment and discharge of all
Obligations.
(c) All deposits in the Collateral Account shall
constitute proceeds of Collateral and shall not constitute payment
of the Obligations. The Lender from time to time at its
discretion may, after allowing 2 Banking Days, apply deposited
funds in the Collateral Account to the payment of the Obligations,
in any order or manner of application satisfactory to the Lender,
by transferring such funds to the Lender's general account.
(d) All items deposited in the Collateral Account shall be
subject to final payment. If any such item is returned uncollected,
the Borrower will immediately pay the Lender, or, for items
deposited in the Collateral Account, the bank maintaining
such account, the amount of that item, or such bank at its
discretion may charge any uncollected item to the Borrower's
commercial account or other account. The Borrower shall be liable
as an endorser on all items deposited in the Collateral Account,
whether or not in fact endorsed by the Borrower.
Section 6.11 Key Person Life Insurance. The Borrower shall
-------------------------
maintain insurance upon the life of Lloyd Abrams, its President and CEO, with
the death benefit thereunder in an amount not less than $2,000,000.00 (the
"Life Insurance Policy"). The right to receive the proceeds of the Life
Insurance Policy shall be assigned to the Lender by the Life Insurance
Assignment.
Section 6.12 Performance by the Lender. If the Borrower at any
-------------------------
time fails to perform or observe any of the foregoing covenants contained in
this Article VI or elsewhere herein, and if such failure shall continue for a
period of ten calendar days after the Lender gives the Borrower written notice
thereof (or in the case of the agreements contained in Sections 6.5 and 6.7,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on
behalf and in the name, place and stead of the Borrower (or, at the Lender's
option, in the Lender's name) and may, but need
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<PAGE> 35
not, take any and all other actions which the Lender may reasonably deem
necessary to cure or correct such failure (including, without limitation, the
payment of taxes, the satisfaction of security interests, liens or encumbrances,
the performance of obligations owed to account debtors or other obligors, the
procurement and maintenance of insurance, the execution of assignments, security
agreements and financing statements, and the endorsement of instruments); and
the Borrower shall thereupon pay to the Lender on demand the amount of all
monies expended and all costs and expenses (including reasonable attorneys' fees
and legal expenses) incurred by the Lender in connection with or as a result of
the performance or observance of such agreements or the taking of such action by
the Lender, together with interest thereon from the date expended or incurred
at the Floating Rate. To facilitate the Lender's performance or observance of
such covenants of the Borrower, the Borrower hereby irrevocably appoints the
Lender, or the Lender's delegate, acting alone, as the Borrower's attorney in
fact (which appointment is coupled with an interest) with the right (but not
the duty) from time to time to create, prepare, complete, execute, deliver,
endorse or file in the name and on behalf of the Borrower any and all
instruments, documents, assignments, security agreements, financing
statements, applications for insurance and other agreements and writings
required to be obtained, executed, delivered or endorsed by the Borrower under
this Section 6.12.
Section 6.13 Minimum Debt Service Coverage Ratio. The Borrower
-----------------------------------
will maintain, during each period described below, its Debt Service Coverage
Ratio, determined as at the end of each fiscal quarter, at not less than the
ratio set forth opposite such period:
<TABLE>
<CAPTION>
Period Minimum Debt Service
------ --------------------
Coverage Ratio
--------------
<S> <C>
Funding Date through 3/31/97 2.5 to 1.00
4/1/97 and thereafter through the 3.0 to 1.00
Termination Date
</TABLE>
Section 6.14 Minimum Book Net Worth. The Borrower will have as of
----------------------
the Funding Date a Book Net Worth in an amount not less than $765,000;
provided, however, that the item designated "excess of acquired assets" on
- -------- -------
Borrower's financial statement shall be excluded from the calculation of Book
Net Worth for purposes of this covenant.
Section 6.15 Minimum Net Income. The Borrower will achieve each
------------------
month during the term of this Agreement a Net Income of not less than a
negative $25,000.00.
ARTICLE VII
Negative Covenants
------------------
So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrower agrees that, without the
Lender's prior written consent:
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<PAGE> 36
Section 7.1 Liens. The Borrower will not create, incur or suffer
-----
to exist any mortgage, deed of trust, pledge, lien, security interest,
assignment or transfer upon or of any of its assets, now owned or hereafter
acquired, to secure any indebtedness; excluding, however from the
--------- -------
operation of the foregoing, the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is
not Collateral or other collateral described in the Security
Documents, covenants, restrictions, rights, easements and minor
irregularities in title which do not materially interfere with
the Borrower's business or operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and
listed in Schedule 7.1 hereto, securing indebtedness for
borrowed money permitted under Section 7.2;
(c) the Security Interest and liens and security interests
created by the Security Documents;
(d) purchase money security interests relating to the
acquisition of machinery and equipment of the Borrower not
exceeding the lesser of cost or fair market value thereof, not
exceeding $25,000.00 for any one purchase or $50,000.00 in the
aggregate during any fiscal year, and so long as no Default
Period is then in existence and none would exist immediately
after such acquisition; and
(e) the security interests subject to the Subordination
Agreements.
Section 7.2 Indebtedness. The Borrower will not incur, create,
------------
assume or permit to exist any indebtedness or liability on account of deposits
or advances or any indebtedness for borrowed money or letters of credit issued
on the Borrower's behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
(a) indebtedness (including all Obligations of
Reimbursement) arising hereunder or pursuant to this Agreement;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Schedule 7.2 hereto; and
(c) indebtedness relating to liens permitted in accordance
with Section 7.1.
Section 7.3 Guaranties. The Borrower will not assume, guarantee,
----------
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
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<PAGE> 37
(a) the endorsement of negotiable instruments by the
Borrower for deposit or collection or similar transactions in the
ordinary course of business; and
(b) guaranties, endorsements and other direct or
contingent liabilities in connection with the obligations of other
Persons, in existence on the date hereof and listed in Schedule
7.2 hereto.
Section 7.4 Investments and Subsidiaries.
----------------------------
(a) The Borrower will not purchase or hold beneficially
any stock or other securities or evidences of indebtedness of, make
or permit to exist any loans or advances to, or make any investment
or acquire any interest whatsoever in, any other Person, including
specifically but without limitation any partnership or joint
venture, except:
(i) investments in direct obligations of the United
States of America or any agency or instrumentality thereof
whose obligations constitute full faith and credit obligations
of the United States of America having a maturity of one year
or less, commercial paper issued by U.S. corporations rated
"A-1" or "A-2" by Standard & Poors Corporation or "P-1" or
"P-2" by Moody's Investors Service or certificates of deposit
or bankers' acceptances having a maturity of one year or less
issued by members of the Federal Reserve System having
deposits in excess of $100,000,000 (which certificates of
deposit or bankers' acceptances are fully insured by the
Federal Deposit Insurance Corporation);
(ii) travel advances or loans to the Borrower's
officers and employees not exceeding at any one time an
aggregate of $10,000.00; and
(iii) advances in the form of progress payments,
prepaid rent not exceeding six months or security deposits.
(b) The Borrower will not create or permit to exist any
Subsidiary, other than any Subsidiary in existence on the date
hereof and listed in Schedule 5.4 hereto.
Section 7.5 Dividends. Except as set forth below, the Borrower
---------
will not declare or pay any dividends (other than dividends payable solely in
stock of the Borrower) on any class of its stock or make any payment on
account of the purchase, redemption or other retirement of any shares of such
stock or make any distribution in respect thereof, either directly or
indirectly. Notwithstanding the provisions of this Section 7.5, the Borrower
may (a) make distributions to Bentley, Inc. for management fees up to an
aggregate of $180,000 per year, and (b) make cash dividends to its
shareholders to the extent of seventy-five percent (75%) of the Borrower's
Excess Cash Flow (as shown on the Borrower's year-end audited financial
statements), but only (i) after the first anniversary of the Funding Date and
after Lender has
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<PAGE> 38
received the Borrower's audited year-end financial statements for calendar year
1997, (ii) if the Borrower's Borrowing Base, as certified to Lender, has an
average excess availability of more than $250,000 for the sixty-day period
immediately before the date of such proposed dividend, (iii) if the Borrower
will have an average excess availability of more than $250,000 for the sixty-day
periods immediately after the date of payment of such proposed dividend, (iv) if
the Borrower's accounts payable are all less than 60 days past due, and (v) no
default or event of default has occurred and is continuing hereunder.
Section 7.6 Sale or Transfer of Assets; Suspension of Business
--------------------------------------------------
Operations. The Borrower will not sell, lease, assign, transfer or otherwise
- ----------
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate;
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration.
Section 7.7 Consolidation and Merger, Asset Acquisitions. The
--------------------------------------------
Borrower will not be acquired by, consolidate with or merge into any Person,
or permit any other Person to merge into it, or acquire (in a transaction
analogous in purpose or effect to a consolidation or merger) all or
substantially all the assets of any other Person.
Section 7.8 Sale and Leaseback. The Borrower will not enter into
------------------
any arrangement, directly or indirectly, with any other Person whereby the
Borrower shall sell or transfer any real or personal property, whether now
owned or hereafter acquired, and then or thereafter rent or lease as lessee
such property or any part thereof or any other property which the Borrower
intends to use for substantially the same purpose or purposes as the property
being sold or transferred.
Section 7.9 Restrictions on Nature of Business. The Borrower will
----------------------------------
not engage in any line of business materially different from that presently
engaged in by the Borrower and will not purchase, lease or otherwise acquire
assets not related to its business.
Section 7.10 Capital Expenditures. The Borrower will not incur or
--------------------
contract to incur Capital Expenditures of more than $50,000.00 in the
aggregate during any fiscal year, or more than $25,000.00 in any one
transaction.
Section 7.11 Accounting. The Borrower will not adopt any material
----------
change in accounting principles other than as required by GAAP. The Borrower
will not adopt, permit or consent to any change in its fiscal year.
Section 7.12 Discounts, etc. The Borrower will not, after notice
--------------
from the Lender, grant any discount, credit or allowance to any customer of
the Borrower or accept any return of goods sold, or at any time (whether
before after notice from the Lender) modify, amend, subordinate, cancel or
terminate the obligation of any account debtor or other obligor of the
Borrower.
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<PAGE> 39
Section 7.13 Defined Benefit Pension Plans. The Borrower will not
-----------------------------
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
Section 7.14 Other Defaults. The Borrower will not permit any
--------------
breach, default or event of default to occur under any note, loan agreement,
indenture, lease, mortgage, contract for deed, security agreement or other
contractual obligation binding upon the Borrower.
Section 7.15 Place of Business; Name. The Borrower will not
-----------------------
transfer its chief executive office or principal place of business, or move,
relocate, close or sell any business location. The Borrower will not permit
any tangible Collateral or any records pertaining to the Collateral to be
located in any state or area in which, in the event of such location, a
financing statement covering such Collateral would be required to be, but has
not in fact been, filed in order to perfect the Security Interest. The
Borrower will not change its name.
Section 7.16 Organizational Documents; C Corporation Status. The
----------------------------------------------
Borrower will not amend its certificate of incorporation, articles of
incorporation or bylaws. The Borrower shall not change or rescind its status
as an C Corporation.
Section 7.17 Salaries. The Borrower will not pay excessive or
--------
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the salary, bonus, commissions, consultant fees or
other compensation of any director, officer or consultant, or any member of
their families, by more than 10% in any one year, either individually or for
all such persons in the aggregate, or pay any such increase from any source
other than profits earned in the year of payment.
Section 7.18 Change in Ownership. The Borrower will not issue or
-------------------
sell any stock of the Borrower so as to change the percentage of voting and
non-voting stock owned by each of the Borrower's shareholders, and the
Borrower will not permit or suffer to occur the sale, transfer, assignment,
pledge or other disposition of any or all of the issued and outstanding shares
of stock of the Borrower.
ARTICLE VIII
Events of Default, Rights and Remedies
--------------------------------------
Section 8.1 Events of Default: "Event of Default" when used herein
-----------------
means any one of the following events:
(a) Default in the payment of the Obligations on demand or
on any portion of the Obligations that otherwise becomes due and
payable;
(b) Default in the payment of any fees, commissions, costs
or expenses required to be paid by the Borrower under this
Agreement;
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<PAGE> 40
(c) Default in the performance, or breach, of any covenant
or agreement of the Borrower contained in this Agreement;
(d) The Borrower or any Guarantor shall be or become
insolvent, or admit in writing its or his inability to pay its
or his debts as they mature, or make an assignment for the
benefit of creditors; or the Borrower or any Guarantor shall
apply for or consent to the appointment of any receiver,
trustee, or similar officer for it or him or for all or any
substantial part of its or his property, or such receiver,
trustee or similar officer shall be appointed without the
application or consent of the Borrower or such Guarantor, as the
case may be; or the Borrower or any Guarantor shall institute
(by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation or similar
proceeding relating to it or him under the laws of any
jurisdiction; or any such proceeding shall be instituted (by
petition, application or otherwise) against the Borrower or any
such Guarantor; or any judgment, writ, warrant of attachment or
execution or similar process shall be issued or levied against a
substantial part of the property of the Borrower or any
Guarantor;
(e) A petition shall be filed by or against the Borrower
or any Guarantor under the United States Bankruptcy Code naming
the Borrower or such Guarantor as debtor;
(f) The Life Insurance Policy shall be terminated, by the
Borrower or otherwise; or the Life Insurance Policy shall be
scheduled to terminate within 30 days and the Borrower shall not
have delivered a satisfactory renewal thereof to the Lender, or
the Borrower shall fail to pay any premium on the Life Insurance
Policy when due; or the Borrower shall take any other action that
impairs the value of the Life Insurance Policy.
(g) Any representation or warranty made by the Borrower in
this Agreement, by any Guarantor in any guaranty delivered to
the Lender, or by the Borrower (or any of its officers) or any
Guarantor in any agreement, certificate, instrument or financial
statement or other statement contemplated by or made or
delivered pursuant to or in connection with this Agreement or
any such guaranty shall prove to have been incorrect in any
material respect when deemed to be effective;
(h) The rendering against the Borrower of a final
judgment, decree or order for the payment of money in excess of
$10,000.00 and the continuance of such judgment, decree or order
unsatisfied and in effect for any period of 30 consecutive days
without a stay of execution;
(i) A default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person
other than the Lender, or under any indenture or other
instrument under which any such evidence of indebtedness
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<PAGE> 41
has been issued or by which it is governed, or under any lease of
any of the Premises, and the expiration of the applicable period
of grace, if any, specified in such evidence of indebtedness,
indenture, other instrument or lease;
(j) Any Reportable Event, which the Lender determines in
good faith might constitute grounds for the termination of any
Plan or for the appointment by the appropriate United States
District Court of a trustee to administer any Plan, shall have
occurred and be continuing 30 days after written notice to such
effect shall have been given to the Borrower by the Lender; or a
trustee shall have been appointed by an appropriate United
States District Court to administer any Plan; or the Pension
Benefit Guaranty Corporation shall have instituted proceedings
to terminate any Plan or to appoint a trustee to administer any
Plan; or the Borrower shall have filed for a distress
termination of any Plan under Title IV of ERISA; or the Borrower
shall have failed to make any quarterly contribution required
with respect to any Plan under Section 412(m) of the Internal
Revenue Code of 1986, as amended, which the Lender determines in
good faith may by itself, or in combination with any such
failures that the Lender may determine are likely to occur in
the future, result in the imposition of a lien on the Borrower's
assets in favor of the Plan;
(k) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed
of trust, assignment or other instrument or agreement securing
any obligations of the Borrower hereunder or under any note;
(l) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its
business in the ordinary course, or sell all or substantially
all of its assets, without the Lender's prior written consent;
(m) The Borrower shall fail to pay, withhold, collect or
remit any tax or tax deficiency when assessed or due (other than
any tax deficiency which is being contested in good faith and by
proper proceedings and for which it shall have set aside on its
books adequate reserves therefor) or notice of any state or
federal tax liens shall be filed or issued;
(n) Default in the payment of any amount owed by the
Borrower to the Lender other than any indebtedness arising
hereunder;
(o) Any Guarantor shall repudiate, purport to revoke or
fail to perform any such Guarantor's obligations under such
Guarantor's guaranty in favor of the Lender, any individual
Guarantor shall die or any other Guarantor shall cease to exist;
(p) The Borrower shall take or participate in any action
which would be prohibited under the provisions of any
Subordination Agreement or make any
-37-
<PAGE> 42
payment on the Subordinated Indebtedness (as defined in the
Subordination Agreement) that any Person was not entitled to receive
under the provisions of the Subordination Agreement;
(q) Any event or circumstance with respect to the Borrower
shall occur such that the Lender shall believe in good faith that
the prospect of payment of all or any part of the Obligations or
the performance by the Borrower under the Loan Documents is
impaired or any material adverse change in the business or
financial condition of the Borrower shall occur.
(r) Any breach, default or event of default by or
attributable to any Affiliate under any agreement between such
Affiliate and the Lender.
Section 8.2 Rights and Remedies. During any Default Period, the
-------------------
Lender may exercise any or all of the following rights and remedies:
(a) The Lender may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable, whereupon all
Obligations shall become and be forthwith due and payable, without
presentment, notice of dishonor, protest or further notice of any
kind, all of which the Borrower hereby expressly waives;
(b) The Lender may, without notice to the Borrower and
without further action, apply any and all money owing by the
Lender to the Borrower to the payment of the Obligations;
(c) The Lender may exercise and enforce any and all rights
and remedies available upon default to a secured party under the
UCC, including, without limitation, the right to take possession
of Collateral, or any evidence thereof, proceeding without
judicial process or by judicial process (without a prior hearing
or notice thereof, which the Borrower hereby expressly waives) and
the right to sell, lease or otherwise dispose of any or all of the
Collateral, and, in connection therewith, the Borrower will on
demand assemble the Collateral and make it available to the Lender
at a place to be designated by the Lender which is reasonably
convenient to both parties;
(d) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(e) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (d) or (e) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
-38-
<PAGE> 43
Section 8.3 Certain Notices. If notice to the Borrower of any
---------------
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 9.3) at least ten
calendar days before the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
-------------
Section 9.1 No Waiver; Cumulative Remedies. No failure or delay by
------------------------------
the Lender in exercising any right, power or remedy under the Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy under the Loan Documents.
The remedies provided in the Loan Documents are cumulative and not exclusive
of any remedies provided by law.
Section 9.2 Amendments, Etc. No amendment, modification,
---------------
termination or waiver of any provision of any Loan Document or consent to any
departure by the Borrower therefrom or any release of a Security Interest
shall be effective unless the same shall be in writing and signed by the
Lender, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No notice to
or demand on the Borrower in any case shall entitle the Borrower to any other
or further notice or demand in similar or other circumstances.
Section 9.3 Addresses for Notices, Etc. Except as otherwise
--------------------------
expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States mail,
(c) sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in each case addressed or telecopied to the party to whom notice is
being given at its address or telecopier number as set forth below:
If to the Borrower:
Windsor Art, Inc.
9101 Perkins Street
Pico Rivera, CA 90660
Telecopier: 310/949-1386
Attention: Ramakant Agarwal
-39-
<PAGE> 44
If to the Lender:
Norwest Business Credit, Inc.
Norwest Center
100 South Brentwood Blvd.
Suite 300
St. Louis, MO 63105
Telecopier 314/726-0903
Attention: Loan Officer: Windsor Art, Inc.
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given
on (a) the date received if personally delivered, (b) when deposited in the
mail if delivered by mail, (c) the date sent if sent by overnight courier, or
(d) the date of transmission if delivered by telecopy, except that notices or
requests to the Lender pursuant to any of the provisions of Article II shall
not be effective until received by the Lender.
Section 9.4 [Intentionally Omitted]
---------------------
Section 9.5 Further Documents. The Borrower will from time to time
-----------------
execute and deliver or endorse any and all instruments, documents,
conveyances, assignments, security agreements, financing statements and other
agreements and writings that the Lender may reasonably request in order to
secure, protect, perfect or enforce the Security Interest or the Lender's
rights under the Loan Documents (but any failure to request or assure that the
Borrower executes, delivers or endorses any such item shall not affect or
impair the validity, sufficiency or enforceability of the Loan Documents and
the Security Interest, regardless of whether any such item was or was not
executed, delivered or endorsed in a similar context or on a prior occasion).
Section 9.6 Collateral. This Agreement does not contemplate a sale
----------
of accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any
deficiency. The Lender's duty of care with respect to Collateral in its
possession (as imposed by law) shall be deemed fulfilled if it exercises
reasonable care in physically keeping such Collateral, or in the case of
Collateral in the custody or possession of a bailee or other third person,
exercises reasonable care in the selection of the bailee or other third
person, and the Lender need not otherwise preserve, protect, insure or care
for any Collateral. The Lender shall not be obligated to preserve any rights
the Borrower may have against prior parties, to realize on the Collateral at
all or in any particular manner or order or to apply any cash proceeds of the
Collateral in any particular order of application.
Section 9.7 Costs and Expenses. The Borrower agrees to pay on
------------------
demand all costs and expenses, including (without limitation) attorneys' fees,
incurred by the Lender in connection with the Obligations, this Agreement, the
Loan Documents, and any other document or agreement related hereto or thereto,
and the transactions contemplated herein, including without limitation all
such costs, expenses and fees incurred in connection with the negotiation,
-40-
<PAGE> 45
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interest.
Section 9.8 Indemnity. In addition to the payment of expenses
---------
pursuant to Section 9.7, the Borrower agrees to indemnify, defend and hold
harmless the Lender, and any of its participants, parent corporations,
subsidiary corporations, affiliated corporations, successor corporations, and
all present and future officers, directors, employees, attorneys and agents of
the foregoing (the "Indemnitees") from and against any of the following
(collectively, "Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by
reason of the execution and delivery of the Loan Documents, the
making of the Advances or the issuance of any Letter of Credit;
(ii) any claims, loss or damage to which any Indemnitee may
be subjected if any representation or warranty contained in
Section 5.12 proves to be incorrect in any respect or as a result
of any violation of the covenant contained in Section 6.4(b); and
(iii) any and all other liabilities, losses, damages,
penalties, judgments, suits, claims, costs and expenses of any kind
or nature whatsoever (including, without limitation, the
reasonable fees and disbursements of counsel) in connection with
the foregoing and any other investigative, administrative or
judicial proceedings, whether or not such Indemnitee shall be
designated a party thereto, which may be imposed on, incurred by
or asserted against any such Indemnitee, in any manner related to
or arising out of or in connection with the making of the Advances
and the Loan Documents or the use or intended use of the proceeds
of the Advances.
If any investigative, judicial or administrative proceeding arising from any
of the foregoing is brought against any Indemnitee, upon such Indemnitee's
request, the Borrower, or counsel designated by the Borrower and satisfactory
to the Indemnitee, will resist and defend such action, suit or proceeding to
the extent and in the manner directed by the Indemnitee, at the Borrower's
sole costs and expense. Each Indemnitee will use its best efforts to
cooperate in the defense of any such action, suit or proceeding. If the
foregoing undertaking to indemnify, defend and hold harmless may be held to be
unenforceable because it violates any law or public policy, the Borrower shall
nevertheless make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
The Borrower's obligation under this Section 9.8 shall survive the termination
of this Agreement and the discharge of the Borrower's other obligations
hereunder.
Section 9.9 Participants. The Lender and its participants, if any,
------------
are not partners or joint venturers, and the Lender shall not have any
liability or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the
-41-
<PAGE> 46
Lender may be transferred or delegated to any of the Lender's participants,
successors or assigns.
Section 9.10 Execution in Counterparts. This Agreement and other
-------------------------
Loan Documents may be executed in any number of counterparts, each of which
when so executed and delivered shall be deemed to be an original and all of
which counterparts, taken together, shall constitute but one and the same
instrument.
Section 9.11 Binding Effect; Assignment; Complete Agreement;
----------------------------------------------
Exchanging Information. The Loan Documents shall be binding upon and inure to
- ----------------------
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its
rights thereunder or any interest therein without the Lender's prior written
consent. This Agreement, together with the Loan Documents, comprises the
complete and integrated agreement of the parties on the subject matter hereof
and supersedes all prior agreements, written or oral, on the subject matter
hereof. Without limiting the Lender's right to share information regarding
the Borrower and its Affiliates with the Lender's participants, accountants,
lawyers and other advisors, the Lender, Norwest Corporation, and all direct
and indirect subsidiaries of Norwest Corporation, may exchange any and all
information they may have in their possession regarding the Borrower and its
Affiliates, and the Borrower waives any right of confidentiality it may have
with respect to such exchange of such information.
Section 9.12 Severability of Provisions. Any provision of this
--------------------------
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.13 Headings. Article and Section headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
Section 9.14 Governing Law; Jurisdiction; Venue; Waiver of Jury
--------------------------------------------------
Trial. The Loan Documents shall be governed by and construed in accordance
- -----
with the substantive laws (other than conflict laws) of the State of Missouri.
The Guaranty shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Missouri. The
parties hereto hereby (i) consents to the personal jurisdiction of the state
and federal courts located in the State of Missouri in connection with any
controversy related to this Agreement; (ii) waives any argument that venue in
any such forum is not convenient, (iii) agrees that any litigation initiated
by the Lender or the Borrower in connection with this Agreement or the other
Loan Documents shall be venued in any state court located in St. Louis County,
Missouri or the United States District Court, Eastern District of Missouri,
and (iv) agrees that a final judgment in any such suit, action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. THE PARTIES WAIVE ANY
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR
PERTAINING TO THIS AGREEMENT.
-42-
<PAGE> 47
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized as of
the date first above written.
NORWEST BUSINESS CREDIT, INC. WINDSOR ART, INC.
By /s/ Gary P. Yakel /s/Lloyd R. Abrams
--------------------------------- --------------------------------
Gary P. Yakel Lloyd R. Abrams
--------------------------------- --------------------------------
Its Assistant Vice President Its President
----------------------------- ----------------------------
-43-
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the incorporation by reference in the Registration
Statement (No. 33-47456) on Form S-8 of Bentley International, Inc. (the
"Company") of our report dated March 21, 1997, relating to the consolidated
financial statements of the Company appearing in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1996 (the "Annual Report"). We
also hereby consent to the filing in the Annual Report of our report dated
February 16, 1996, relating to the financial statements of Janco Designs, Inc.
for the year ended December 31, 1994.
/s/ Rubin, Brown, Gornstein & Co. LLP
St. Louis, Missouri
June 3, 1997
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-47456 of Bentley International, Inc. on Form S-8 of our report
dated March 29, 1996, in this Annual Report on Form 10-KSB of Bentley
International, Inc. for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
/s/ Deloitte & Touche LLP
St. Louis, Missouri
June 2, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE COMPANY'S FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 349,799
<SECURITIES> 0
<RECEIVABLES> 2,799,690
<ALLOWANCES> 300,120
<INVENTORY> 1,407,144
<CURRENT-ASSETS> 4,496,681
<PP&E> 186,392
<DEPRECIATION> 113,908
<TOTAL-ASSETS> 4,762,873
<CURRENT-LIABILITIES> 4,931,922
<BONDS> 0
<COMMON> 101,272
0
0
<OTHER-SE> 1,905,297
<TOTAL-LIABILITY-AND-EQUITY> 4,762,873
<SALES> 20,135,106
<TOTAL-REVENUES> 20,135,106
<CGS> 15,346,429
<TOTAL-COSTS> 15,346,429
<OTHER-EXPENSES> 6,143,956
<LOSS-PROVISION> 188,105
<INTEREST-EXPENSE> 463,456
<INCOME-PRETAX> (2,006,840)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,006,840)
<EPS-PRIMARY> (3.57)
<EPS-DILUTED> (3.57)
</TABLE>
<PAGE> 1
[letterhead of Rubin, Brown, Gornstein & Co. LLP]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Janco Designs, Inc.
St. Louis, Missouri
We have audited the accompanying balance sheet of Janco Designs, Inc. as of
December 31, 1994 and the related statements of income, retained earnings and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our report dated March 1, 1995, we expressed an opinion that the balance
sheet of Janco Designs, Inc. presented fairly, in all material respects, the
financial position of Janco Designs, Inc. as of December 31, 1994 in
conformity with generally accepted accounting principles. However, the scope
of our work was not sufficient to enable us to express an opinion on the
results of operations and cash flows for the year ended December 31, 1994
because we did not observe the taking of the physical inventory or confirm
the accounts receivable as of the end of the prior year, December 31, 1993,
since that date was prior to our appointment as auditors for the Company. We
have since been engaged to perform additional audit procedures to satisfy
ourselves regarding inventory quantities and accounts receivable balances as
of December 31, 1993. Accordingly, our present opinion on the 1994 financial
statements, as presented herein, is different from that expressed in our
previous report.
In our opinion, the accompanying financial statements referred to above
present fairly, in all material respects, the financial position of Janco
Designs, Inc. as of December 31, 1994 and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Rubin, Brown, Gornstein & Co. LLP
February 16, 1996
<PAGE> 2
JANCO DESIGNS, INC.
- -------------------------------------------------------------------------------
<TABLE>
BALANCE SHEET
DECEMBER 31, 1994
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 14,718
Accounts receivable (less allowance for
doubtful accounts of $6,962 - Note 6) 636,806
Inventories (Notes 3 and 6) 876,751
Prepaid expenses 21,366
Other receivables 5,822
------------
TOTAL CURRENT ASSETS 1,555,463
EQUIPMENT AND LEASEHOLD IMPROVEMENTS (NOTES 4 AND 6) 104,378
OTHER ASSETS (NOTE 5) 53,817
------------
$1,713,658
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable - bank (Note 6) $ 845,000
Notes payable - stockholders (Note 7) 200,000
Accounts payable 460,484
Accrued expenses 64,988
------------
TOTAL CURRENT LIABILITIES 1,570,472
------------
STOCKHOLDERS' EQUITY
Common stock:
Authorized 30,000 shares of $1 par value; issued
and outstanding 5,000 shares 5,000
Retained earnings 138,186
------------
TOTAL STOCKHOLDERS' EQUITY 143,186
------------
$1,713,658
============
</TABLE>
- -------------------------------------------------------------------------------
See the accompanying report letter and notes to financial statements. Page 2
<PAGE> 3
JANCO DESIGNS, INC.
- -------------------------------------------------------------------------------
<TABLE>
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1994
<CAPTION>
STATEMENT OF INCOME
AMOUNT %
-------------------------------
<S> <C> <C>
SALES $ 4,991,196 100.0
COST OF SALES 3,729,918 74.7
-------------------------------
GROSS PROFIT 1,261,278 25.3
OPERATING EXPENSES 1,011,549 20.3
-------------------------------
INCOME FROM OPERATIONS 249,729 5.0
OTHER EXPENSE (NOTE 9) (254,023) 5.1
-------------------------------
NET LOSS $ (4,294) (0.1)
===============================
<CAPTION>
STATEMENT OF RETAINED EARNINGS
<S> <C>
BALANCE - BEGINNING OF YEAR $ 142,480
NET LOSS (4,294)
-------------
BALANCE - END OF YEAR $ 138,186
=============
</TABLE>
- -------------------------------------------------------------------------------
See the accompanying report letter and notes to financial statements. Page 3
<PAGE> 4
JANCO DESIGNS, INC.
- -------------------------------------------------------------------------------
<TABLE>
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (4,294)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 22,207
Non-recurring write-offs 191,575
Changes in assets and liabilities:
Increase in accounts receivable (263,995)
Increase in inventories (526,603)
Increase in prepaid expenses (9,454)
Increase in other receivables (5,822)
Decrease in other assets 7,340
Increase in accounts payable 288,427
Decrease in accrued expenses (70,565)
-----------
NET CASH USED IN OPERATING ACTIVITIES (371,184)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for equipment and leasehold improvements (22,550)
Payments for advances to affiliate (29,206)
-----------
NET CASH USED IN INVESTING ACTIVITIES (51,756)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in cash overdraft (36,342)
Proceeds from notes payable - bank 374,000
Proceeds from notes payable - stockholders 100,000
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 437,658
-----------
NET INCREASE IN CASH 14,718
CASH (OVERDRAFT) - BEGINNING OF YEAR --
-----------
CASH - END OF YEAR $ 14,718
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 72,270
-----------
</TABLE>
- -------------------------------------------------------------------------------
See the accompanying report letter and notes to financial statements. Page 4
<PAGE> 5
JANCO DESIGNS, INC.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE
The Company provides an allowance for doubtful accounts equal to the
estimated collection losses that will be incurred in collection of
accounts receivable. The estimated losses are based on historical
collection experience coupled with a review of the current status of
the existing receivables.
INVENTORIES
Inventories of raw materials are stated at the lower of cost or market
with cost determined on the first-in, first-out method (FIFO).
Work-in-process and finished goods inventories are valued at the
cost of raw materials plus labor and overhead costs, not in excess
of market.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are carried at cost, less
accumulated depreciation and amortization computed using
straight-line and accelerated methods ranging from five to
thirty-nine years.
GOODWILL
The excess of cost over fair value of assets in connection with the
acquisition of the operating assets of Fleetwood Enterprises, Inc.
is being amortized on a straight-line basis over forty years.
2. OPERATIONS
The Company designs and manufactures framed art and mirrors. The
Company purchases components, such as prints, moulding and glass,
from various suppliers, and then assembles the finished product in
its 47,000 square foot plant located in St. Louis County, Missouri.
Account representatives, most of whom are independent contractors,
market the Company's products throughout the United States and a few
foreign countries. Purchasers of the Company's product include mass
merchants, furniture stores, hotels and designers.
Pursuant to an agreement dated July 17, 1995, Megacards, Inc. acquired
all of the outstanding common stock of Janco Designs, Inc.
- -------------------------------------------------------------------------------
See the accompanying report letter. Page 5
<PAGE> 6
JANCO DESIGNS, INC.
- -------------------------------------------------------------------------------
Notes To Financial Statements (Continued)
3. INVENTORIES
Inventories consist of:
<TABLE>
<S> <C>
Raw materials $ 634,760
Finished goods 146,740
Work in process 95,251
-----------
$ 876,751
===========
</TABLE>
4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of:
<TABLE>
<S> <C>
Machinery and equipment $ 132,181
Furniture and fixtures 8,669
Data processing equipment 13,142
Leasehold improvements 55,630
-----------
209,622
Less: Accumulated depreciation
and amortization 105,244
-----------
$ 104,378
===========
</TABLE>
Depreciation and amortization charged against income amounted to
$20,275.
5. OTHER ASSETS
Other assets consist of:
<TABLE>
<S> <C>
Goodwill $ 48,690
Noncompete agreement 1,400
Organization costs 2,175
Deposits 8,886
-----------
61,151
Less: Accumulated amortization 7,334
-----------
$ 53,817
===========
</TABLE>
- -------------------------------------------------------------------------------
See the accompanying report letter. Page 6
<PAGE> 7
JANCO DESIGNS, INC.
- -------------------------------------------------------------------------------
Notes To Financial Statements (Continued)
Amortization charged against income amounted to $1,932.
6. NOTES PAYABLE - BANK
The notes payable - bank consist of borrowings under $500,000, $250,000
and $95,000 revolving lines of credit from a bank. The notes bear
interest at rates ranging from 4.5% to the prime rate plus 2%. The
notes are secured by accounts receivable, inventories, equipment and
the guarantees of the stockholders of the Company.
7. NOTES PAYABLE - STOCKHOLDERS
The notes payable - stockholders consist of unsecured notes, due on
demand, bearing interest at rates ranging from the prime rate to 10%.
8. INCOME TAXES
The Company has elected S Corporation status under provisions of the
Internal Revenue Code and similar provisions of the Missouri tax
laws. Therefore, the Company is not subject to corporate income
taxes and the stockholders report their distributive shares of the
Company's taxable income or losses on their income tax returns. No
liability for federal and state income taxes is reflected in the
financial statements.
9. OTHER INCOME (EXPENSE)
Other income (expense) consists of:
<TABLE>
<S> <C>
Interest income $ 5,838
Miscellaneous 3,984
Non-recurring write-offs (191,575)
Interest expense (72,270)
------------
$ (254,023)
============
</TABLE>
- -------------------------------------------------------------------------------
See the accompanying report letter. Page 7
<PAGE> 8
JANCO DESIGNS, INC.
- -------------------------------------------------------------------------------
Notes To Financial Statements (Continued)
In 1992 and 1993 the Company made advances to affiliated corporations
in an effort to vertically integrate. In 1994 the Company abandoned
the efforts and the affiliated companies are considered insolvent
resulting in the non-recurring write-offs.
10. DEFERRED COMPENSATION PLAN
The Company has a qualified contributory profit sharing plan, which
includes a thrift provision qualifying under Section 401(k) of the
Internal Revenue Code, covering eligible full-time employees. The
plan allows the participants to make contributions to the plan
through salary deferrals. The plan provides for discretionary
annual contributions as determined by the Board of Directors. The
Company contributed $1,125 in 1994.
11. LEASE COMMITMENTS
The Company leases its warehouse facilities under a noncancellable
operating lease agreement. The Company exercised its option to
renew the lease through December 1, 1995. Rent expense amounted to
$108,454.
- -------------------------------------------------------------------------------
See the accompanying report letter. Page 8
<PAGE> 9
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY DATA
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules of cost of sales, cost
of goods manufactured and operating expenses are presented for purposes of
additional analysis and are not a required part of the basic financial
statements. Such information has not been subjected to the auditing
procedures applied in the audit of the basic financial statements and,
accordingly, we express no opinion on it.
February 16, 1996
- -------------------------------------------------------------------------------
See the accompanying independent auditors' report on supplementary data. Page 9
<PAGE> 10
JANCO DESIGNS, INC.
- -------------------------------------------------------------------------------
<TABLE>
SCHEDULE OF COST OF SALES
FOR THE YEAR ENDED DECEMBER 31, 1994
<S> <C>
FINISHED GOODS INVENTORY - BEGINNING OF YEAR $ 43,766
COST OF GOODS MANUFACTURED 3,832,892
------------
3,876,658
LESS: FINISHED GOODS INVENTORY - END OF YEAR 146,740
------------
TOTAL COST OF SALES $3,729,918
============
</TABLE>
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See the accompanying independent auditors' report on supplementary data. Page 10
<PAGE> 11
JANCO DESIGNS, INC.
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<TABLE>
SCHEDULE OF COST OF GOODS MANUFACTURED
FOR THE YEAR ENDED DECEMBER 31, 1994
<S> <C>
WORK-IN-PROCESS INVENTORY - BEGINNING OF YEAR $ 25,004
------------
MATERIAL COSTS
Inventory - beginning of year 282,653
Purchases 2,980,985
Freight-in 79,454
------------
3,343,092
Less: Inventory - end of year 634,760
------------
TOTAL MATERIAL COSTS 2,708,332
------------
DIRECT LABOR
Wages 589,101
Payroll taxes 45,088
------------
TOTAL DIRECT LABOR 634,189
------------
FACTORY OVERHEAD
Salaries 217,566
Payroll taxes 21,410
Depreciation 15,238
Insurance 106,226
Miscellaneous 4,888
Rent 97,009
Repairs and maintenance 16,767
Telephone 3,208
Tools and supplies 34,279
Trash removal 30,941
Utilities 13,086
------------
TOTAL FACTORY OVERHEAD 560,618
------------
3,928,143
LESS: WORK-IN-PROCESS INVENTORY - END OF YEAR 95,251
------------
TOTAL COST OF GOODS MANUFACTURED $3,832,892
============
</TABLE>
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See the accompanying independent auditors' report on supplementary data. Page 11
<PAGE> 12
JANCO DESIGNS, INC.
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<TABLE>
SCHEDULE OF OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1994
<CAPTION>
AMOUNT %
-------------------------------
<S> <C> <C>
Salaries - office $ 372,077 7.5
Payroll taxes 25,023 0.5
Retirement plan contribution 3,092 0.1
Advertising 69,844 1.4
Catalogues 5,778 0.1
Commissions 132,936 2.7
Conventions 12,163 0.2
Depreciation and amortization 6,969 0.1
Dues and subscriptions 2,144 --
Employment and training 8,897 0.2
Freight out 22,303 0.4
Insurance 18,865 0.4
Miscellaneous 15,897 0.3
Office supplies and expense 152,399 3.1
Outside consulting 13,333 0.3
Postage 7,740 0.2
Professional fees 31,011 0.6
Provision for bad debts 24,788 0.5
Rent 18,922 0.4
Repairs and maintenance 5,282 0.1
Taxes and licenses 7,149 0.1
Travel and entertainment 29,111 0.6
Utilities and telephone 25,826 0.5
-------------------------------
TOTAL OPERATING EXPENSES $ 1,011,549 20.3
===============================
</TABLE>
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See the accompanying independent auditors' report on supplementary data. Page 12
