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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-20802
CELEBRITY, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1289223
(State or other jurisdiction (IRS employer
of incorporation or organization) Identification Number)
PHYSICAL DELIVERY ADDRESS: MAILING ADDRESS:
4520 OLD TROUP ROAD P.O. BOX 6666
TYLER, TEXAS 75707 TYLER, TEXAS 75711
(Address of principal executive offices)
Registrant's telephone number including area code: (903)561-3981
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(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 [ ]
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 statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of September 8, 1997, was approximately $6,489,027 based on the
closing price of the registrant's common stock on such date as reported by the
Nasdaq National Market. For the purposes of this disclosure only, the
registrant has assumed that its directors, executive officers and beneficial
owners of 5% or more of the registrant's common stock are affiliates of the
registrant. As of September 8, 1997, the registrant had outstanding 6,307,419
shares of its common stock, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement for the annual
meeting of the Company to be held December 10, 1997, are incorporated by
reference into Part III of this Report.
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CELEBRITY, INC.
INDEX TO FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PART I
PAGE
<S> <C> <C>
ITEM 1. Business 1
ITEM 2. Properties 9
ITEM 3. Legal Proceedings 9
ITEM 4. Submission of Matters to a Vote of Security Holders 9
PART II
ITEM 5. Market for Registrant's Common Equity and Related Shareholder Matters 10
ITEM 6. Selected Consolidated Financial Data 11
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 12
ITEM 8. Financial Statements and Supplementary Data 17
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 17
PART III
ITEM 10. Directors and Executive Officers of the Registrant 18
ITEM 11. Executive Compensation 18
ITEM 12. Security Ownership of Certain Beneficial Owners and Management 18
ITEM 13. Certain Relationships and Related Transactions 18
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 19
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Index to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS.
GENERAL
Celebrity, Inc. (the "Company" or "Celebrity") is one of the largest
suppliers of high quality artificial flowers, foliage and flowering bushes and
other decorative accessories, selling primarily to craft store chains and other
retailers and to wholesale florists. Artificial floral products is one of the
largest product categories for craft store chains. The Company serves these
and other customers by offering a line of over 9,000 competitively priced
products and performing accurate and on-time delivery. Celebrity meets the
just-in-time inventory requirements of its customers for artificial floral
products from its distribution centers. The Company also arranges bulk
shipment of private label merchandise direct from manufacturers to customers.
Celebrity works closely with individual customers to devise marketing
strategies, planograms and merchandising concepts and advises them on
advertising, product promotion and store displays. The Company contributes to
the design of its products, and its Hong Kong staff contracts and oversees
their manufacture, exercises quality control and arranges the consolidation and
shipment of merchandise.
In February 1995 the Company acquired certain assets of India Exotics,
Inc. ("India Exotics"), an importer and distributor of decorative brass and
textile products. Management believes the acquisition has benefited the
Company by further diversifying its product offerings. Additionally, the
Company believes the complementary product lines of India Exotics provide the
Company a greater presence in the decorative accessories marketplace, thereby
affording it the opportunity to increase its share in a more broadly defined
market. In November 1993 the Company consummated a business combination with
The Cluett Corporation ("Cluett") of Winston-Salem, North Carolina, an
assembler of artificial trees, floor planters and floral arrangements, and
Centre Court Group, a related partnership ("Centre Court"). The combination
expanded the Company in parts of the U.S. market where Celebrity had not had a
strong presence. Management believes the combination has benefited the Company
because of the compatibility among product lines and because the Company
acquired additional distribution capabilities and customer accounts. In June
1992 the Company acquired certain assets of Magicsilk, Inc. ("Magicsilk"),
which had one of the best recognized trade names in the artificial floral
industry. The Company believes the acquisition broadened Celebrity's product
line into premium quality artificial floral products, diversified its customer
base and strengthened its leadership position in the industry. In 1984 Robert
H. Patterson, Jr. and Richard Yuen established Celebrity Exports International
Limited, a Hong Kong corporation ("Celebrity Hong Kong"), to serve as the
Company's exclusive purchasing agent in southeastern Asia. Contemporaneously
with the consummation of the Company's initial public offering in December
1992, Celebrity Hong Kong became a wholly- owned subsidiary of the Company.
MARKET OVERVIEW
In enhancing the warmth and style of their homes, many consumers
purchase artificial flowers as interior accent pieces and accessories.
Commercial consumers such as hotels, stores and malls also purchase artificial
floral products for interior decoration. The use of fabrics and advances in
manufacturing techniques have made the products more natural looking and more
aesthetically appealing than ever before. Consumers are also attracted to the
products' other characteristics. Artificial floral products are relatively
inexpensive as furnishing items, can last for years, require no maintenance and
can be fashioned to complement any decor. Home consumers purchase artificial
floral products, either as completed arrangements that are convenient
decorative accessories, or as individual components that they arrange
themselves for display at home, for gifts, or for resale at craft shows or
through small in-home businesses.
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Craft store chains and other specialty retailers have capitalized on the
demand of home consumers, specifically women aged 25 to 55 with above average
income, by devoting a substantial portion of their shelf space to a wide range
of artificial floral products, including completed arrangements, flowering
bushes and foliage and individual stems. In addition to artificial floral
products, craft store chains specialize in picture framing, creative craft
materials, art supplies and hobby items. Among major craft store chains,
artificial floral products is typically the largest single product category by
sales.
In addition to craft store chains, artificial floral products are sold
through other distribution channels. Pottery stores are high volume, lower
price retail stores with substantial square footage devoted to pottery, glass,
artificial floral and other products. These stores sell artificial floral
products in a manner and to customers similar to those of craft store chains.
Full line discount store chains with floral or craft departments sell small
arrangements and offer a reduced range of individual stems. Warehouse clubs
sell primarily artificial trees, floor planters and completed floral
arrangements. Retail florists often sell artificial as well as natural floral
products. These retailers are supplied broad ranges of individual artificial
floral products, as well as natural cut flowers, by wholesale florists.
Wholesale florists are a highly fragmented distribution channel consisting of a
few large multiple site distributors and numerous smaller single site
operations.
PRODUCTS
Celebrity's product line of approximately 9,000 items is comprised of a
full range of artificial floral products, including artificial flowers,
flowering bushes and foliage, pre-made floral arrangements, trees and floor
planters that the Company assembles, decorative brass containers, candlesticks
and accessories and a broad line of decorative textile products. Celebrity's
Christmas line consists of artificial Christmas trees, wreaths, garlands and
other ornamental products. Celebrity continually updates its product mix,
monitoring style and color trends that affect artificial floral product sales
and identifying product categories with growth potential. This requires
adding, deleting or modifying hundreds of the Company's stock keeping units
(SKUs) each year.
The Company uses identifiable brand names for most of its products.
These brand names identify the Company as the source of high quality artificial
floral products to retailers and consumers. Product lines, such as CELEBRITY
SILK(R) flowers and foliage and SILK ACCENTS(R) and ARTISTIC SILK(TM) stem
flowers, are marketed primarily through craft store chains and certain other
retailers. The Company's MAGICSILK(R) brands, consisting of MAGICSILK(R) and
KARISMA(R) flowers and BOTANIX(R) foliage and flowering bushes, are sold
primarily by retail florists. Artificial trees, floor planters and pre-made
floral arrangements assembled by Cluett are sold under the brand names GOLD
LEAF COLLECTION and Design(R) and INDOOR GARDEN COLLECTION(R), primarily by
discount retailers and warehouse clubs. The Company has introduced its
Magicsilk and Cluett product lines to its craft store chain customers.
The Company believes that its brand names give its customers assurance
of product quality and availability and distinguish its products from unbranded
artificial floral products sold by its competitors.
SERVICES
The Company serves its customers with accurate and on-time delivery of
its products. Craft store chain customers, in particular, demand this high
level of service because they typically stock hundreds of these products as
everyday items and seek to minimize inventory cost while assuring full product
availability. The Company offers a variety of distribution services depending
on the customers' needs and the product:
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o Assured Rapid Delivery. Celebrity reduces delivery times and
customers' inventory costs and meets their just-in-time delivery
requirements by quickly filling orders for artificial floral products
from the extensive inventory in its distribution center. Celebrity's
goal is to fill within 48 hours all orders placed for immediate shipment
with at least 90% of the ordered merchandise. Artificial trees, floor
planters and pre-made floral arrangements are assembled and shipped from
the Company's manufacturing facilities in Winston-Salem, North Carolina;
Tyler, Texas; and Vista, California. Shipments of decorative brass and
textile products are made from the India Exotics distribution center in
St. Louis, Missouri.
o Direct Shipment. Celebrity can provide substantial unit cost
savings by planning with customers for delivery of large orders.
Celebrity's Hong Kong staff arranges these shipments direct from
manufacturers in southeastern Asia to the customer's location. In
addition to assuring the high quality of the products shipped,
Celebrity's Hong Kong staff can also arrange private labeling, customs
documentation and financing for its customers. Similar services can be
provided for shipment of decorative brass products direct from
manufacturers in India. Even if a customer's order is not large enough
to meet minimum manufacturing lot sizes for direct shipment, Celebrity
can still offer cost savings to the customer by arranging to combine the
customer's order with its own orders or orders of other customers.
These combined shipments are delivered to the Company's distribution
centers, separated and shipped to the customers.
Customers who place direct shipment orders sometimes reorder the same
product from the distribution centers to replenish their inventory of that
product. Even large customers order low turnover products through the
distribution centers.
Celebrity provides customers a range of other services that it believes
make the Company an attractive source for artificial floral products and other
decorative accessories. Celebrity's sales force assists customers in
identifying products from the Company's lines that are most likely to fit the
customer's primary consumer market. Celebrity works closely with individual
customers to devise marketing strategies, planograms and merchandising concepts
and to furnish advice on advertising, product promotion and store displays. A
store's planogram indicates product display and establishes minimum inventory
levels of the Company's products. The Company's sales force provides thorough
in-store service, frequently checking stock levels and placing reorders.
The Company was one of the first in its industry to have all of its
products bar coded under the universal product code system at the factory.
Most of the Company's major customers require bar codes to track inventory
turnover and generate reorders. To speed order placement, customers use
Celebrity's toll-free ordering lines and the Company's sales force, equipped
with portable fax machines, quickly transmits written purchase orders. The
Company can directly monitor the rate of sale of its products sold by larger
retailers and warehouse clubs that provide on-line access to their point-of-
sale information systems. Celebrity also offers electronic data interchange,
which allows customers to electronically place orders for the Company's
products.
PRODUCT SUPPLY ARRANGEMENTS
The manufacture of high quality artificial flowers and foliage requires
semi-skilled labor that is attentive to detail. Southeastern Asia offers an
abundant, low-cost supply of this labor and dominates the manufacture of
artificial floral products. Factories are located primarily in the Guangdong
Province of the People's Republic of China (the "PRC") and also in Thailand,
Malaysia, the Philippines, Taiwan and South Korea. Nearly all the
manufacturers are privately owned, including those with factories in the PRC.
Most manufacturers produce only a limited product line and few have a
distribution network. The marketing
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efforts of most are limited to sales offices in Hong Kong, which are easily
accessible to Celebrity's Hong Kong staff.
Celebrity Hong Kong contracts and oversees product manufacture,
exercises quality control and arranges the consolidation and shipment of
merchandise to the Company's distribution centers or direct to customers. The
Company, through Celebrity Hong Kong, works closely with manufacturers to
modify product design, color and other features and to produce the Company's
original designs. The Company believes that it is one of the few U.S.
importers of artificial floral products that does not rely on third party
agents to obtain these services. Through Celebrity Hong Kong, the Company has
more control over the quality, production and shipment of products than most of
its competitors. Its Hong Kong presence also enables the Company to build
strong relationships with manufacturers and to judge better their capabilities
and financial stability.
There are numerous manufacturers of artificial floral products,
providing alternative sources of supply for each of the Company's products.
The Company works with approximately 60 manufacturers and purchases most of its
products from ten of them. Celebrity believes that it is the dominant customer
of these major suppliers and through this status obtains superior pricing and
service. Additionally, the Company purchases decorative brass and textile
products from approximately 20 suppliers located primarily in India. The
Company has entered into an agreement with its primary supplier of decorative
brass products pursuant to which the supplier agreed to supply these products
to the Company for a three-year period ending in 1998. See Note 11 to the
Consolidated Financial Statements.
QUALITY ASSURANCE
To assure delivery of high quality products, Celebrity carefully selects
its suppliers and performs periodic product inspections, both prior to shipment
and after receipt in the U.S. The Company has experienced negligible returns
of defective or damaged products.
SALES AND MARKETING
Celebrity's sales force is organized by geographic area and product
line. The Company employs 26 salespeople and contracts with 24 independent
sales representatives. Sales of artificial floral products outside the U.S.,
aggregating approximately $8.9 million in fiscal 1997, are made primarily to
customers in Europe. Most sales outside the U.S. are made by the staff of
Celebrity Hong Kong. See Note 12 to the Consolidated Financial Statements for
financial information by geographic area. Large corporate accounts are served
by the national sales managers. Company salespeople receive base salaries,
monthly commissions and year-end bonuses based on sales volume. Independent
sales representatives receive commissions based on a percentage of their net
sales.
Celebrity participates in the major artificial floral trade shows held
annually in Las Vegas, Dallas, Hong Kong and Frankfurt, Germany. Through these
shows Celebrity promotes its name and brands and introduces its products to
potential customers. Products sold through wholesale florists are promoted by
the Company through advertisements in florist trade publications.
The Company's existing distribution centers in Tyler, Texas and St.
Louis, Missouri, and floral arrangement production facilities in Winston-Salem,
North Carolina; Tyler, Texas; and Vista, California, assure rapid delivery to
customers over a broad geographic area.
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CUSTOMERS
During fiscal 1997 the Company sold products to approximately 3,000
customers, primarily in the South, Midwest and East. The majority of those
sales were to craft store chains and pottery stores, including Michaels Stores,
MJDesigns, Hobby Lobby, Frank's Nursery and Crafts and Garden Ridge Pottery,
and discount retailers and warehouse clubs, including Kmart and Sam's.
Approximately 7% of consolidated net sales were made by Celebrity Hong Kong to
European customers.
A single customer, Michaels Stores, accounted for $34.6 million , or
27.6%, of the Company's net sales in fiscal 1997. The loss of the largest
customer or a significant portion of its business, or the ability of such
customer to cause the Company to reduce its profit margins, could have a
material adverse effect on the Company.
COMPETITION
The artificial floral industry is highly competitive. The Company's
primary competitors are other importers and distributors. The Company believes
that some of its competitors may have greater financial, distribution and
marketing resources than the Company.
The Company believes that there are a variety of ways to compete in its
industry. For example, some competitors focus solely on price and others
specialize in a particular product segment. The Company competes primarily on
the basis of customer service, product quality, supply dependability, product
line breadth, price and brand name recognition.
The barriers to entry to the Company's industry are relatively low. The
Company believes, however, that attaining success in the industry is difficult.
The Company also believes that it has competitive advantages, including its
ability to fill orders quickly and completely from its distribution centers and
generally provide a high level of customer service, its Hong Kong presence,
high quality products, competitive prices and brand names. There is no
assurance that the Company will maintain these advantages or that they will not
be overcome by other factors that may develop.
TRADEMARKS
The Company has registered the BOTANIX(R), CELEBRITY DESIGNS(R),
CELEBRITY SILK(R), FLORA LACE COLLECTION and Design(R), CLUETT CANE
COLLECTION(R), GOLD LEAF COLLECTION(R), COLOR CONCEPTS(R), COLOR UNION(R), GOLD
LEAF COLLECTION and Design(R), INDIA EXOTICS and Design(R), INDOOR GARDEN
COLLECTION(R), KARISMA(R), MAGICSILK(R), MR. SILK SHINE(R) , OLIVER'S
GREENHOUSE COLLECTION(R), SEND A SILK(R), SILK ACCENTS(R), THE GREENHOUSE
COLLECTION(R), THE GREENHOUSE COLLECTION and Design(R), TROPICAL PALM(R) and
THE SILK GARDENER(R) trademarks with the U.S. Patent and Trademark Office in
conjunction with its products and services. The Company has applications
pending for 12 additional marks, pending registration in the United States
Patent and Trademark Office. The Company also has registered certain of its
trademarks in a number of foreign countries. The Company believes that its
trademarks have significant value in the marketing of its products and services
and protects its trademarks vigorously against infringement.
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TRADE REGULATION
The Company currently imports products manufactured in the PRC and other
locations throughout southeastern Asia. Products imported by the Company into
the U.S. are subject to U.S. customs duties on the price paid for the products,
which are payable when the products are brought over the U.S. border. The duty
is paid by either the Company or its customers, depending on which party
assumes responsibility for importation. Customer purchases of artificial
floral products directly from Celebrity Hong Kong, with customers responsible
for importation and paying their own import duties, accounted for approximately
28% of the Company's net sales in fiscal 1997.
Artificial floral products sold by Celebrity Hong Kong to customers
outside the U.S., accounting for approximately 7% of the Company's consolidated
net sales in fiscal 1997, may be subject to tariffs imposed by the destination
countries but would not be subject to U.S. tariffs. Although U.S. customs
duties paid by the Company, ranging from approximately 8% to 17% of the cost of
imported merchandise, have been relatively constant for several years, changes
in customs rates could adversely affect the Company's ability to import quality
products at favorable prices. Likewise, import quotas or embargoes could limit
the amount of merchandise the Company could import from time to time, affecting
the Company's ability to meet its customers' demands.
Most Favored Nation Treatment for the PRC. The PRC's exports to the
U.S., which include toys, discount apparel and footwear, have, since 1980,
received the same preferential tariff treatment accorded goods from countries
granted "most favored nation" status. However, preferential tariff treatment
for countries with nonmarket economies, including the PRC, is granted one year
at a time, and such treatment is renewed only upon the President's
recommendation to Congress that the objectives of U.S. trade law will be served
by extending preferential treatment for another year. Under U.S. trade law,
Congress may override the President's recommendation with a joint resolution to
bar the extension of preferential treatment. If such a joint resolution is
passed by Congress, the President may veto the resolution. If Congress cannot
override such a veto, preferential treatment continues.
Because of concerns regarding the labor and human rights practices of
the PRC and its trade policies that potentially deprive U.S. firms and products
of market access, the renewal of the PRC's most favored nation treatment has
been a contentious political issue for several years. President Clinton has
reversed his position that renewal of most favored nation status be based on
progress on human rights issues and has extended most favored nation status for
the PRC through June 1998 without placing significant conditions on future
renewal. In June 1997 the U.S. House of Representatives voted against a
resolution to override the President's extension and rescind the most favored
nation status of the PRC by a 259 to 173 vote, thereby continuing the U.S.
trade relationship with the PRC under most favored nation status. However, the
linkage between most favored nation status and the limitation of the
proliferation of nuclear weapons technology and provision of greater access to
markets, as well as progress on human rights issues in the PRC, may continue in
the future, and therefore prospects for continued preferential treatment are
difficult to determine.
Were the PRC to lose most favored nation treatment, the import duty on
goods manufactured in the PRC and imported into the U.S. would increase from
approximately 9% to 71.5%. According to U.S. Commerce Department statistics,
currently about three-fourths of the artificial floral products imported into
the U.S. come from the PRC. The Company believes this significant market share
is primarily attributable to the low cost of labor in the PRC. Although
increased duties on the Company's products would increase the cost of goods
from the PRC, all of the Company's competitors who import artificial floral
products from the PRC would be subject to the same increase in costs. In
addition, because labor costs in the PRC are significantly lower than those in
other countries, the Company believes the PRC would continue to be the lowest
cost source for artificial floral products even if the PRC lost most favored
nation treatment. If the
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Company were to face a substantial increase in tariff rates on products
imported into the U.S., the Company would (i) attempt to increase the prices
charged to its customers, (ii) ask its suppliers to reduce the prices charged
to the Company and (iii) seek to identify more favorable sources for its
products to assure the highest quality at the lowest price; however, there is
no assurance that these efforts will allow the Company to prevent its results
of operations from being affected adversely.
Additionally, even if most favored nation status is maintained for the
PRC, significant forces in the Congress and elsewhere are pressing for other
sanctions in response to the PRC's human rights, arms and intellectual rights
policies, and there is no assurance that these possible sanctions will not
affect the Company.
Section 301. Section 301 of the Trade Act of 1974, as amended ("Section
301"), directs the U.S. Trade Representative ("USTR") to designate those
countries that deny adequate and effective intellectual property rights or fair
and equitable market access to U.S. firms that rely on intellectual property.
From the countries designated, the USTR is to identify as "priority" foreign
countries those countries where the lack of intellectual property rights
protection is most egregious and has the greatest adverse impact on U.S. firms.
The USTR is authorized to take retaliatory action, including the imposition of
retaliatory tariffs and import restraints on goods from priority foreign
countries, if such countries do not respond to USTR investigations by entering
into good faith negotiations or by evidencing significant progress in
protecting intellectual property rights.
In October 1992 the PRC and the U.S. entered into a memorandum of
understanding ("MOU") concerning access to PRC markets. In the MOU the PRC
agreed to adjust its trade practices to international standards by reducing
barriers to U.S. goods, including the elimination of a variety of licensing
requirements, quotas, controls and restrictions, between December 1992 and
December 1997. As a result of concerns regarding the PRC's compliance with the
MOU, the USTR reopened negotiations with the PRC in late 1994. These
negotiations concluded with the re-signing of the MOU in February 1995. In
April 1996, however, the USTR again became concerned regarding the PRC's
trading policies and enforcement efforts and designated the PRC as a priority
foreign country. The USTR subsequently published a preliminary retaliation
list on $3 billion of PRC exports to the U.S., which did not include artificial
floral products. The USTR announced in June 1996 that no sanctions would be
imposed, however, as a result of the PRC's improved enforcement efforts with
respect to its trade agreements with the U.S.
The Company cannot predict the likelihood or effect of potential trade
retaliation against the PRC that may occur in the future. Trade retaliation in
the form of increased tariffs or quotas, or both, against products that are
manufactured on behalf of the Company now or in the future could increase the
cost of such products to the Company.
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EXECUTIVE OFFICERS
Set forth below is certain information as of September 25, 1997
regarding the executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE TITLE
- -------------- --- -----------------------------------
<S> <C> <C>
Robert H. Patterson, Jr . . . . . . 46 Chairman of the Board, President, Chief Executive Officer and
Secretary
Richard Yuen . . . . . . . . . . . 53 Managing Director of Celebrity Hong Kong
David J. Huffman . . . . . . . . . 46 Executive Vice President of Celebrity and President of the
Distribution Division
Clifford C. Condict . . . . . . . . 50 Vice President -- Merchandise
Roger D. Craft . . . . . . . . . . 50 Vice President -- Operations
C. David Gingrich . . . . . . . . . 46 President of The Cluett Corporation
</TABLE>
Robert H. Patterson, Jr. has served as Chairman of the Board of
Directors of Celebrity since 1989, as Chief Executive Officer since July 1995,
as President from 1978 to July 1995 and since September 1997, and as a director
since 1974.
Richard Yuen has managed Celebrity Hong Kong since 1984 and has been a
director of Celebrity since December 1992.
David J. Huffman has served as Executive Vice President of Celebrity and
President of the Distribution Division since September 1997. He served as
President of Celebrity from July 1995 to September 1997. From February 1991 to
July 1995, he was Vice President -- Sales of Celebrity. From February 1990 to
February 1991, he was the Sales Manager of the Celebrity Designs Division.
Clifford C. Condict has served as Vice President -- Merchandise of
Celebrity since March 1994. Mr. Condict served as President of Magicsilk,
Inc., a subsidiary of the Company, from June 1992 to December 1993, and as Vice
President -- Operations of Celebrity from 1988 to June 1992.
Roger D. Craft has served as Vice President -- Operations of Celebrity
since September 1993. Mr. Craft served as General Manager of Star Wholesale
Florist, Inc., a subsidiary of the Company, from 1986 to August 1993.
C. David Gingrich has served as the President of Cluett since February
1995. From August 1988 through February 1995, Mr. Gingrich served as Vice
President of Sales and Marketing of Seco, Inc. in Napierville, Illinois. He
served as Managing Director of Intercraft Industries, Inc. from December 1980
through August 1988.
Officers are elected annually by the Board of Directors and serve at its
discretion.
EMPLOYEES
At August 31, 1997, the Company had 727 full-time and part-time
employees, including 41 employed by Celebrity Hong Kong. The Company has not
entered into any collective bargaining agreements with its employees. The
Company believes that its relations with its employees are good.
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ITEM 2. PROPERTIES.
The Company owns certain facilities for offices, distribution centers
and floral arrangement production as follows:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
LOCATION TYPE OF FACILITY FOOTAGE
- ------------------------------------------- -------------------------------------------- -----------------
<S> <C> <C>
Tyler, Texas . . . . . . . . . . . . . . Office/Distribution Center 137,500
Winston-Salem, North Carolina . . . . . . Floral Arrangement Production Facility 110,000
Tyler, Texas . . . . . . . . . . . . . . Floral Arrangement Production Facility 100,000
</TABLE>
The Company also leases the space occupied by certain offices,
warehouses, distribution centers, showrooms, floral arrangement production
facilities and other facilities. The following table summarizes these leases.
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
LOCATION TYPE OF FACILITY FOOTAGE
- ------------------------------------------- -------------------------------------------- -----------------
<S> <C> <C>
Tyler, Texas . . . . . . . . . . . . . . Warehouse 60,000
Tyler, Texas . . . . . . . . . . . . . . Warehouse 56,000
Tyler, Texas . . . . . . . . . . . . . . Wholesale Supply House 23,000
Dallas, Texas . . . . . . . . . . . . . . Wholesale Supply House 70,000
Dallas, Texas . . . . . . . . . . . . . . Showroom 19,000
Atlanta, Georgia . . . . . . . . . . . . Showroom 20,000
Miami, Florida . . . . . . . . . . . . . Showroom 3,000
St. Louis, Missouri . . . . . . . . . . . Office/Distribution Center 100,000
Winston-Salem, North Carolina . . . . . . Warehouse 69,000
Vista, California . . . . . . . . . . . . Floral Arrangement Production Facility 35,000
Hong Kong . . . . . . . . . . . . . . . . Office/Showroom 20,000
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various legal proceedings that arise in the
ordinary course of its business. The Company believes that none of its current
litigation is likely to have a material adverse effect on its financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the shareholders of the Company
during the fourth quarter of fiscal 1997.
9
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
The Common Stock, par value $.01 per share, of the Company ("Common
Stock") is traded on the Nasdaq Stock Market's National Market under the symbol
"FLWR."
The following table sets forth, for the periods indicated, the high and
low closing sale prices of the Common Stock, as reported by the Nasdaq National
Market.
<TABLE>
<CAPTION>
FISCAL YEAR HIGH LOW
- ----------------------------------------------------- ----------- -----------
<S> <C> <C>
1996
First Quarter . . . . . . . . . . . . . . . . . . $7 7/8 $6 5/8
Second Quarter . . . . . . . . . . . . . . . . . . $7 1/4 $5
Third Quarter . . . . . . . . . . . . . . . . . . $5 7/8 $3 1/4
Fourth Quarter . . . . . . . . . . . . . . . . . . $5 $3 7/8
1997
First Quarter . . . . . . . . . . . . . . . . . . $4 1/4 $3 1/4
Second Quarter . . . . . . . . . . . . . . . . . . $3 3/4 $3 1/8
Third Quarter . . . . . . . . . . . . . . . . . . $4 $3 3/8
Fourth Quarter . . . . . . . . . . . . . . . . . . $3 1/2 $3 1/8
1998
First Quarter (through September 8, 1997) . . . . $3 $2 1/8
</TABLE>
On September 8, 1997, the closing sale price of the Common Stock as
reported by the Nasdaq National Market was $2 3/8 per share. As of September
8, 1997, there were 121 record holders of the Common Stock.
The Company has not paid cash dividends in the last five fiscal years.
Management presently intends to retain any earnings for the operation and
expansion of the Company's business and does not anticipate paying cash
dividends in the foreseeable future. The terms of the Company's revolving line
of credit with its principal lender currently restrict the payment of
dividends.
10
<PAGE> 13
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following selected consolidated balance sheet data as of June 30,
1997, 1996, 1995 and 1994, and selected consolidated statement of operations
data for each of the years in the four year period ended June 30, 1997, are
derived from audited consolidated financial statements of Celebrity. The
selected consolidated balance sheet data as of June 30, 1993, and selected
statement of operations data for the year ended June 30, 1993, are derived from
audited consolidated financial statements of Celebrity and audited combined
financial statements of Cluett and Centre Court. Certain events, such as the
acquisitions of India Exotics in February 1995, affect the comparability of the
data between years. See Note 3 to the Consolidated Financial Statements for
discussion of certain of these events.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ---------- ---------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales . . . . . . . . . . . . . . $ 125,170 $ 115,048 $ 118,810 $ 90,884 $ 73,183
Net income (loss) . . . . . . . . . . $ (5,761) $ (5,422) $ 3,782 $ 1,130 $ 2,893
Earnings (loss) per common share and
common equivalent share . . . . . $ (.91) $ (.86) $ .60 $ .18 $ .54
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(1)
Total assets . . . . . . . . . . . . $ 67,453 $ 73,363 $ 74,641 $ 47,105 $ 42,045
Notes payable, net of current portion $ 4,877 $ 31,081 $ 27,941 $ 11,701 $ 7,286
Redeemable common stock(2) . . . . . $ 175 $ 350 $ 525 $ 700 $ 875
</TABLE>
______________
(1) Celebrity Hong Kong, which was consolidated with Celebrity
contemporaneously with the initial public offering, paid cash dividends
of $711,000 for fiscal 1993. Celebrity has not paid cash dividends in
the last five fiscal years and does not anticipate declaring cash
dividends in the foreseeable future.
(2) At June 30, 1992, the Company had outstanding 48,193.29 Series A,
36,358.52 Series B and 84,551.70 Series C warrants, each representing
the right to purchase one share of Common Stock at a nominal exercise
price (the "Series A Warrants," "Series B Warrants" and "Series C
Warrants," respectively, or collectively, the "Warrants"), all of which
were issued in connection with the acquisition of Magicsilk.
The Warrants were exercised or redeemed in December 1992 in conjunction
with the Company's initial public offering. The Series A and B Warrants
were converted into an aggregate of 67,308 shares of Common Stock
("Redeemable Common Stock") at the initial public offering price of $13
per share. The Series C Warrants were redeemed for $1,099,000, an amount
obtained by multiplying the number of Series C Warrants by the initial
public offering price of $13 per share. The holders of the Redeemable
Common Stock have the right on September 30 of 1993, 1994, 1995, 1996 and
1997, to "put" to the Company, and the Company has the obligation to
purchase, shares of Redeemable Common Stock from such holders at a price
per share equal to the greater of the initial public offering price or
the fair market value per share at the time of the put (as determined
pursuant to the terms of the warrant agreement). The Company's purchase
obligations with respect to the Redeemable Common Stock are limited to
$100,000 and $75,000 on each put date, and $500,000 and $375,000 in the
aggregate over all put dates, for the Redeemable Common Stock relating to
the Series A Warrants and Series B Warrants, respectively. On September
30 in each of 1993, 1994, 1995 and 1996, 13,461 shares of Redeemable
Common Stock were put back to the Company at $13 per share. See Note 8
to the Consolidated Financial Statements. The Company
11
<PAGE> 14
has received notice that 13,461 shares of Redeemable Common Stock will
be put back to the Company on September 30, 1997 at $13 per share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS
This Annual Report on Form 10-K contains forward-looking statements
about the business, financial condition and prospects of Celebrity. The actual
results of Celebrity could differ materially from those indicated by the
forward-looking statements because of various risks and uncertainties,
including without limitation (i) changes in customer demand for the Company's
products at the retail level, (ii) trends in the retail and wholesale
decorative accessories industries, (iii) inventory risks attributable to
possible changes in customer demand, compounded by extended lead times in
ordering the Company's products from overseas suppliers and the Company's
strategy of maintaining a high merchandise in stock percentage, (iv) the
effects of economic conditions, (v) supply and/or shipment constraints or
difficulties, (vi) the impact of competitors' pricing, (vii) the effects of the
Company's accounting policies, (viii) changes in foreign trade regulations,
including changes in duty rates, possible trade sanctions, import quotas and
other restrictions imposed by U.S. and foreign governments, (ix) the effects of
the assumption of control over Hong Kong by the PRC on July 1, 1997 and (x)
other risks detailed in the Company's Securities and Exchange Commission
filings. These risks and uncertainties are beyond the ability of the Company
to control, and in many cases, the Company cannot predict the risks and
uncertainties that could cause its actual results to differ materially from
those indicated by the forward-looking statements. When used in this Annual
Report on Form 10-K, the words "believes," "expects," "plans," "intends" and
similar expressions as they relate to the Company or its management generally
are intended to identify forward-looking statements.
RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's
consolidated statements of income expressed as a percentage of net sales for
the years indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 100% 100%
Costs and operating expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . 78% 79% 76%
Selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4% 5% 4%
General and administrative . . . . . . . . . . . . . . . . . . . . 16% 19% 14%
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 2% 2% 1%
---- --- ---
100% 105% 95%
---- --- ---
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . % (5)% 5%
Interest and other, net . . . . . . . . . . . . . . . . . . . . . . . (3)% (3)% (1)%
--- -- --
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . (3)% (8)% 4%
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . (2)% (3)% 1%
--- --- ---
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . (5)% (5)% 3%
=== === ===
</TABLE>
12
<PAGE> 15
FISCAL 1997 COMPARED WITH FISCAL 1996
Net sales increased 9% from $115.0 million in fiscal 1996 to $125.2
million in fiscal 1997. The increase was attributable primarily to an increase
in sales to existing customers.
Cost of goods sold increased from $91.2 million, or 79% of net sales, in
fiscal 1996 to $97.5 million, or 78% of net sales, in fiscal 1997. The increase
was attributable to the higher sales volume in fiscal 1997. The increase in
overall gross margin was primarily attributable to the fact that the Company
discontinued certain product lines at the end of fiscal 1996 and recorded
special charges of approximately $3.8 million related to inventory adjustments
necessary to clear out the merchandise. The increase in gross margin resulting
from this fact was partially offset by several other factors. Gross margins
during fiscal 1997 were lower than expected due partially to the sale of the
closeout merchandise. The inventory reduction program was approximately 90%
complete as of June 30, 1997. Gross margins were also lower than expected due
to the sales mix being more heavily weighted toward lower margin products,
including artificial trees. In addition, the Company experienced unfavorable
labor rates and efficiency variances during the third and fourth quarters of
fiscal 1997, which also contributed to lower than expected gross margins.
Selling expenses decreased from $5.8 million, or 5% of net sales, in
fiscal 1996 to $5.5 million, or 4% of net sales, in fiscal 1997. The decrease
was attributable to lower salary and commission costs and trade show costs,
partially offset by higher travel expenses. Selling expenses decreased as a
percentage of net sales due to the higher sales volume in fiscal 1997.
General and administrative expenses decreased $1.8 million from $21.3
million, or 19% of net sales, in fiscal 1996 to $19.5 million, or 16% of net
sales, in fiscal 1997. The decrease was primarily attributable to cost saving
associated with lower inventory levels and the closure of one distribution
center and several satellite warehouse facilities. General and administrative
expenses decreased as a percentage of net sales due to the higher sales level
in fiscal 1997 and the cost savings associated with the inventory reductions
and closing of the distribution center and satellite warehouse facilities.
Depreciation and amortization increased from $2.1 million in fiscal 1996
to $2.2 million in fiscal 1997. The increase was primarily attributable to
higher depreciation associated with improvements to the Company's management
information systems and higher amortization expenses incurred by India Exotics.
As a result of the foregoing factors, operating income increased $5.8
million from a loss of $5.3 million in fiscal 1996 to income of $473,000 in
fiscal 1997.
Net interest expense decreased $473,000 from $3.7 million in fiscal 1996
to $3.2 million in fiscal 1997. The decrease was attributable to reductions in
notes payable and lower borrowings under the revolving line of credit.
As a result of the foregoing factors the net loss before income taxes
decreased from $9.0 million in fiscal 1996 to $2.7 million in fiscal 1997.
Provision for income taxes increased from a benefit of $3.5 million in
fiscal 1996 to a provision for income tax expense of $3.0 million in fiscal
1997. Included in the provision for income tax expense in fiscal 1997 is a
charge of $4.4 million to record a valuation allowance to reflect the estimated
amount of deferred tax assets that, at this time, are uncertain to be realized
in the future. These uncertainties relate primarily to the ability to utilize
net operating loss carryforwards and certain tax credit carryforwards prior to
their expiration. If the Company's U.S. operations are sufficiently profitable
in the future, this reserve will be released and the net operating loss
carryforwards will be available to shelter future U.S. taxable income.
13
<PAGE> 16
FISCAL 1996 COMPARED WITH FISCAL 1995
Net sales decreased 3% from $118.8 million in fiscal 1995 to $115.0
million in fiscal 1996. The decrease was attributable to a decrease in sales
to existing customers, primarily as a result of a slower than expected retail
environment beginning in the last quarter of calendar 1995 and continuing
through the first half of calendar 1996. Many of the Company's retailer
customers reduced their purchases from the Company during this period to lower
their inventories to desirable levels.
Cost of goods sold increased from $89.8 million, or 76% of net sales, in
fiscal 1995 to $91.2 million, or 79% of net sales, in fiscal 1996. Included in
cost of goods sold are charges amounting to $3.8 million, or 3% of net sales,
related to inventory adjustments resulting from the discontinuance of certain
product lines.
Selling expenses increased from $4.7 million, or 4% of net sales, in
fiscal 1995 to $5.8 million, or 5% of net sales, in fiscal 1996. The increase
in selling expenses is primarily attributable to expenses incurred by India
Exotics, acquired in February 1995, increases in salaries and commissions, and
increases in trade show expenses. Selling expenses increased as a percentage
of net sales primarily as a result of the lower sales volume in fiscal 1996.
General and administrative expenses increased from $16.2 million, or 14%
of net sales, in fiscal 1995 to $21.3 million, or 19% of net sales, in fiscal
1996. The increase in general and administrative expenses was attributable to
(i) general and administrative expenses incurred by India Exotics, (ii) floral
arrangement production facilities in Tyler, Texas and Vista, California, which
were expanded in fiscal 1995, being operational for a full year in fiscal 1996,
resulting in increases in compensation, facility costs and other expenses,
(iii) increases in rent for satellite warehouse space to accommodate the higher
inventory levels carried by the Company during fiscal 1996 and (iv) special
charges of approximately $600,000 relating to the planned closure of a
distribution center and several satellite warehouse facilities in conjunction
with the inventory reduction resulting from the Company's plan to discontinue
certain product lines. General and administrative expenses increased as a
percentage of net sales primarily as a result of (i) the lower sales volume in
fiscal 1996, (ii) the special charges relating to the planned closure of a
distribution center and several of the Company's satellite warehouse facilities
and (iii) the fact that direct shipment sales represented a lower percentage of
net sales in fiscal 1996 than in fiscal 1995. Direct shipment sales are those
for which products are shipped directly from Celebrity Hong Kong to the
customers and generally consist of large orders with lower gross margins but
also lower associated selling, general and administrative costs.
Depreciation and amortization increased from $1.6 million in fiscal 1995
to $2.1 million in fiscal 1996, primarily as a result of (i) depreciation and
amortization incurred by India Exotics and (ii) additional building and
equipment depreciation associated with the expansion in fiscal 1995 of floral
arrangement production facilities in Tyler, Texas and Vista, California.
As a result of the foregoing factors, the Company reported an operating
loss of $5.3 million, or 5% of net sales, in fiscal 1996, compared with
operating income of $6.6 million, or 5% of net sales, in fiscal 1995.
Net interest expenses increased from $2.0 million in fiscal 1995 to $3.7
million in fiscal 1996. The increase was attributable to increased borrowings
under the Company's revolving line of credit and debt issued in the third
quarter of fiscal 1995 in conjunction with the India Exotics acquisition.
14
<PAGE> 17
As a result of the foregoing factors, the Company reported a loss before
income taxes of $9.0 million, or 8% of net sales, in fiscal 1996, compared with
income before income taxes of $4.6 million, or 4% of net sales, in fiscal 1995.
INFLATION
The effect of inflation on operating costs has been minimal in recent
years. Most of the Company's operating expenses are inflation sensitive, with
increases in inflation generally resulting in increased costs of operation.
The effect of inflation-driven cost increases on the Company's overall
operating costs is not expected to be greater for the Company than its
competitors.
SEASONALITY
Celebrity markets and distributes products for all seasons. The
shipping period for each season is relatively long. When combined with
shipments of basic merchandise that is sold all year, there is no material
seasonal fluctuation in net sales or operating income.
LIQUIDITY AND CAPITAL RESOURCES
Celebrity's sales and marketing strategy and the growth of its business
have required a significantly increased investment in inventory. At the end of
fiscal 1996, however, the Company adopted a strategy to increase inventory
turnover by maintaining its sales growth while carrying reduced levels of
inventory. Inventory levels decreased approximately $2.7 million from
$33.3 million at June 30, 1996 to $30.6 million at June 30, 1997.
Additionally, the Company follows the industry practice of offering extended
terms to qualified customers for sales of Christmas merchandise. These sales
generally take place between the months of June and October on terms not
requiring payment until December 1. The Company has traditionally relied on
borrowings under its revolving line of credit and cash flows from operations to
fund these and other working capital needs.
Cash provided by operating activities in fiscal 1997 amounted to
approximately $2.0 million, which was primarily attributable to changes in
operating assets and liabilities. Inventory decreased $2.7 million during
fiscal 1997 (net of the reserve of $3.8 million established in fiscal 1996).
The decrease was primarily a result of the Company's inventory reduction
strategy. Accounts payable and accrued expenses increased $894,000, primarily
as a result of the timing of payment for merchandise purchased.
Cash used by financing activities amounted to $775,000, which was
primarily for reductions in notes payable.
The Company has a revolving line of credit for its Celebrity, Cluett,
India Exotics and Star Wholesale Florist, Inc. operations in a maximum
amount of $35.0 million. At August 31, 1997, the outstanding balance on this
line of credit was approximately $25.6 million. Borrowing limits are based on
specified percentages of eligible accounts receivable and inventories and, as a
result of such limits, the maximum amount the Company was eligible to borrow at
August 31, 1997, was $25.6 million. Interest is charged monthly on the daily
outstanding balance at the bank's prime rate of interest plus 3/4% per annum.
Amounts borrowed under the line of credit are secured by accounts receivable and
inventory of Celebrity and its Cluett, India Exotics and Star Wholesale Florist,
Inc. Subsidiaries. The line of credit contains certain covenants limiting the
incurrence of indebtedness, restricting the payment of dividends and requiring
the Company to maintain certain financial ratios. The Company was not in
compliance with certain of these financial covenants at June 30, 1997,
specifically the minimum net worth, debt to equity ratio, EBITDA to interest
expense ratio and minimum net income requirements. Although the Company
received waivers for these violations at June 30, 1997, the waivers did not
extend to any subsequent periods. At September 29, 1997 it is uncertain whether
the Company will be in compliance with these covenants at the September 30 or
future quarterly measurement dates during fiscal 1998. Therefore, the debt has
been classified as a current liability at June 30, 1997, which resulted in the
violation of the current ratio covenant contained in the line of credit
agreement. The Company has not received a waiver for this violation. However,
the Company is presently negotiating a renewal and extension of the line of
credit agreement that would reset the covenants and extend the term beyond June
30, 1998. The lender has provided written assurance to the Company of its
intent to renew the agreement. Management expects the revised line of credit
agreement to be finalized prior to December 31, 1997. There can be no
assurance, however, that discussions with the lender will be successful. See
note 7 to the Consolidated Financial Statements.
15
<PAGE> 18
covenants as of and for the quarter ended September 30, 1997. As soon as the
results of operations for the quarter are available, the Company will request
appropriate waivers from the lender. In addition, the Company is in
discussions with the lender to renew the line of credit, which expires in March
1998, and to adjust the financial covenants. See note 7 to the Consolidated
Financial Statements.
Celebrity Hong Kong generally makes full cash payments for products
ordered for Celebrity's account or for direct shipment to customers within ten
days after the manufacturers deliver products in Hong Kong for export. The
Company believes that its practice of making prompt payments has enhanced its
relationships with manufacturers. Celebrity Hong Kong finances these cash
payments through a credit facility with a Hong Kong bank. Generally, under the
terms of this facility the bank finances, with recourse, export bills for
specific shipments by Celebrity Hong Kong. The bank is reimbursed when payment
for these shipments is received. Under the terms of the facility, the maximum
aggregate amount of Celebrity Hong Kong export bills the bank is obligated to
finance at any time is $5.8 million. At August 31, 1997, export bills of
Celebrity Hong Kong aggregating $5.9 million were being financed by the bank.
All of these bills were related to direct shipments to customers and Celebrity
Hong Kong's related potential recourse liability was accounted for as a
contingent obligation.
In June 1997, the Company entered into a new revolving credit facility
with an additional bank, which matures in June 2004. Under the new credit
facility, the Company may borrow a maximum aggregate amount of $5.0 million. At
August 31, 1997, the outstanding balance under this facility was approximately
$5.0 million. Interest accrues on the principal amount outstanding under the
facility at the rate of LIBOR plus 2.65% per annum. Amounts borrowed under
the facility are secured by certain real estate owned by the Company, and the
facility contains covenants requiring the Company to maintain certain financial
ratios. While the Company was not in compliance with certain of these
financial covenants at June 30, 1997, it has obtained a waiver from the bank
with respect to such noncompliance through June 30, 1998. The Company used the
proceeds from this new facility to repay all the outstanding indebtedness under
a $5.0 million loan with a different bank.
In September 1997, Celebrity borrowed $500,000 from RHP Management, LLC,
an entity controlled by Robert H. Patterson, Jr., President and Chief Executive
Officer of the Company. All amounts outstanding under the promissory note are
due and payable on December 9, 1997. The principal amount outstanding accrues
interest at a fluctuating rate per annum equal to the prime rate of a specified
bank plus 1.5%. The proceeds from this loan were used to pay certain
intercompany accounts payable to Celebrity Hong Kong.
The Company does not plan to make any significant capital expenditures
in fiscal 1998 other than those incurred in the normal course of business for
replacement of transportation and warehouse equipment and those in connection
with the Company's continuing program to upgrade its management information
systems.
The Company's business is subject to U.S. law relating to imports,
including those imposing import duties. If the U.S. government were to
terminate most favored nation treatment for the PRC or impose punitive tariff
rates on products imported by the Company in retaliation for market access
barriers in the PRC, the duty on products imported by the Company from the PRC
would increase significantly. See "Business -- Trade Regulation." If the
Company were to face an increase in tariff rates on the products it imports
into the U.S., it would (i) attempt to increase the prices charged to its
customers, (ii) ask its suppliers to reduce the prices charged to the Company
and (iii) seek to identify more favorable sources; however, unless and until
these efforts were successful, the Company's results of operations could be
affected adversely.
The Company believes that its current financial position, credit
facilities and cash flows from operations will be adequate to fund its
operations and expansion plans for the foreseeable future. There is no
assurance, however, that these sources will be sufficient to fund its
operations and expansion plans or that any necessary additional financing will
be available, if at all, in amounts required or on terms satisfactory to the
Company.
16
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements, together with the report of
independent accountants and financial statement schedule, are included on pages
F-1 through F-23 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
17
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning the directors of the Company will be set
forth in the Proxy Statement to be delivered to shareholders in connection with
the Company's Annual Meeting of Shareholders to be held December 10, 1997 (the
"Proxy Statement"), under the headings "Election of Directors," "Board of
Directors and Committees" and "Section 16 Beneficial Ownership Reporting
Compliance," which information is incorporated herein by reference. The name,
age, position and business experience of each executive officer of the Company
is set forth under "Executive Officers" in Item 1 of this report, which
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information concerning management compensation and transactions with
management will be set forth in the Proxy Statement under the headings
"Management Compensation" and "Certain Transactions," which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information concerning security ownership of certain beneficial
owners and management will be set forth in the Proxy Statement under the heading
"Principal Shareholders and Management Ownership," which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information concerning certain relationships and related
transactions will be set forth in the Proxy Statement under the headings
"Management Compensation" and "Certain Transactions," which information is
incorporated herein by reference.
18
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Financial statements:
The financial statements filed as a part of this report
are listed in the Index to Consolidated Financial
Statements on page F-1.
(2) Financial statement schedules:
The financial statement schedule filed as a part of this
report is listed in the Index to Consolidated Financial
Statements on page F-1.
(3) Exhibits:
The exhibits filed as a part of this report are listed
under "Exhibits" at subsection (c) of this Item 14.
(b) Reports on Form 8-K:
None.
(c) Exhibits:
2.1 -- Asset Purchase Agreement dated as of June 16, 1992,
among Registrant, Holdingflower, Inc., a Delaware
corporation, Magicsilk, Inc., a Delaware corporation, and
Magicsilk, Inc., a Texas corporation.(1)
2.2 -- Asset Purchase Agreement dated February 7, 1995, among India
Exotics, Inc., a Texas corporation, Registrant, India Exotics,
Inc., a Missouri corporation, Surendra Khokha, Rajneesh
Khokha, Asheesh Khokha and the Surendra K. Khokha Revocable
Trust, dated July 18, 1985.(7)
3.1 -- Restated Articles of Incorporation of the Registrant.(1)
3.2 -- Bylaws of the Registrant.(1)
4.1 -- Specimen Common Stock Certificate.(1)
4.2 -- Warrant Agreement dated as of June 16, 1992, between the
Registrant and Magicsilk, Inc.(1)
10.1 -- Loan Agreement dated May 10, 1993, among Registrant,
Magicsilk, Inc. and National Canada Finance Corp.(4)
10.2 -- First Amendment to Loan Agreement dated July 27, 1993,
among Registrant, Magicsilk, Inc. and National Canada Finance
Corp.(5)
10.3 -- Second Amendment to Loan Agreement dated effective as of
November 17, 1993, among Registrant, Magicsilk, Inc., The
Cluett Corporation and National Canada Finance Corp.(6)
19
<PAGE> 22
10.4 -- Third Amendment to Loan Agreement dated effective as of March
18, 1994, among Registrant, Magicsilk, Inc., The Cluett
Corporation and National Canada Finance Corp.(3)
10.5 -- Fourth Amendment to Loan Agreement dated effective as of
November 4, 1994, among Registrant, Magicsilk, Inc., The Cluett
Corporation and National Canada Finance Corp.(7)
10.6 -- Fifth Amendment to Loan Agreement dated effective as of
February 3, 1995, among Registrant, Magicsilk, Inc., The Cluett
Corporation, India Exotics, Inc. and National Canada Finance
Corp.(7)
10.7 -- Sixth Amendment to Loan Agreement dated effective as of March
14, 1995, among Registrant, Magicsilk, Inc., The Cluett
Corporation, India Exotics, Inc. and National Canada Finance
Corp.(8)
10.8 -- Seventh Amendment to Loan Agreement dated effective as of
August 4, 1995, among Registrant, Magicsilk, Inc., The Cluett
Corporation, India Exotics, Inc. and National Canada Finance
Corp.(9)
10.9 -- Eighth Amendment to Loan Agreement dated effective as of June
19, 1997 among Registrant, Magicsilk, Inc., The Cluett
Corporation, India Exotics, Inc. and National Canada Finance
Corp. (12)
10.10 -- Ninth Amendment to Loan Agreement dated effective as of
September 26, 1997 among Registrant, Magicsilk, Inc., The
Cluett Corporation, India Exotics, Inc., Star Wholesale
Florist, Inc. and National Canada Finance Corp. (12)
10.11 -- Promissory Note dated September 26, 1997, executed by
Registrant, Magicsilk, Inc., The Cluett Corporation, India
Exotics, Inc. and Star Wholesale Florist, Inc. in the principal
amount of $35,000,000, payable to the order of National Canada
Finance Corp.(12)
10.12 -- Amended and Restated Security Agreement dated September 26,
1997, among Registrant, Magicsilk, Inc., The Cluett Corporation,
India Exotics, Inc., Star Wholesale Florist, Inc. and National
Canada Finance Corp.(12)
10.13 -- Subordination Agreement dated July 14, 1992, among National
Canada Finance Corp., TBK Partners, L.P., ML-Lee Acquisition
Fund, L.P., The Bank of New York Commercial Corporation,
Registrant and Magicsilk, Inc.(1)
10.14 -- Letter agreement dated May 19, 1997, setting forth the terms
of a banking facility between Celebrity Exports International
Limited and The Hongkong and Shanghai Banking Corporation
Limited.(12)
10.15 -- General Security Agreement Relating to Goods between
Celebrity Exports International Limited and The Hongkong
and Shanghai Banking Corporation Limited dated April 30,
1984.(1)
10.16 -- Form of Guarantee by Limited Company executed by Registrant in
favor of The Hongkong and Shanghai Banking Corporation
Limited.(12)
10.17 -- Commitment of Celebrity Exports International Limited to
maintain a combined net worth of HK$50,000,000.(12)
10.18 -- Term WCMA Loan Agreement dated June 17, 1997 between
Registrant and Merrill Lynch Business Financial Services Inc.(12)
10.19 -- $5,000,000 Term WCMA Note dated June 17, 1997 signed by
Registrant and payable to Merrill Lynch Business Financial
Services Inc.(12)
20
<PAGE> 23
10.20 -- Unconditional Guaranty dated June 17, 1997, executed by
Magicsilk, Inc. in favor of Merrill Lynch Business Financial
Services Inc. (12)
10.21 -- Unconditional Guaranty dated June 17, 1997, executed by The
Cluett Corporation in favor of Merrill Lynch Business Financial
Services Inc.(12)
10.22 -- Unconditional Guaranty dated June 17, 1997, executed by India
Exotics, Inc. in favor of Merrill Lynch Business Financial
Services Inc. (12)
10.23 -- Deed of Trust, Security Agreement, Financing Statement and
Assignment of Rents from Celebrity, Inc. to Trustee for the
Benefit of Merrill Lynch Business Financial Services Inc.
relating to Winston-Salem, North Carolina property. (12)
10.24 -- Deed of Trust, Security Agreement, Financing Statement and
Assignment of Rents from Celebrity, Inc. to Trustee for the
Benefit of Merrill Lynch Business Financial Services Inc.
relating to Tyler, Texas property.(12)
10.25 -- Employment Agreement dated November 17, 1993, between The
Cluett Corporation and James N. Gammill, III.(2)
10.26 -- Employment Agreement dated February 7, 1995, between India
Exotics, Inc. and Surendra Khokha.(7)
10.27 -- Letter Agreement dated June 20, 1996, amending the Employment
Agreement dated February 7, 1995, between India Exotics, Inc. and
Surendra Khokha.(11)
10.28 -- Employment Agreement dated February 7, 1995, between India
Exotics, Inc. and Meena Khokha.(7)
10.29 -- Letter Agreement dated June 20, 1996, amending the Employment
Agreement dated February 7, 1995, between India Exotics, Inc. and
Meena Khokha.(11)
10.30 -- Noncompetition Agreement dated November 17, 1993, between
Registrant and James N. Gammill, III.(2)
10.31 -- Noncompetition Agreement dated February 7, 1995, among India
Exotics, Inc., Surendra Khokha, Rajneesh Khokha, Asheesh Khokha
and Meena Khokha.(7)
10.32 -- Promissory Note of India Exotics, Inc., a Texas corporation,
guaranteed by Registrant, dated February 7, 1995, payable to
the order of India Exotics, Inc., a Missouri corporation.(7)
10.33 -- First Amendment to Promissory Note dated June 20, 1996,
amending the Promissory Note of India Exotics, Inc., a Texas
corporation, guaranteed by Registrant, dated February 7, 1995,
payable to the order of India Exotics, Inc., a Missouri
corporation.(11)
10.34 -- Promissory Note of India Exotics, Inc., a Missouri corporation,
guaranteed by Registrant, dated February 7, 1995, in the
principal amount of $1,800,000 payable to the order of Surendra
Khokha and his successors, trustees of the Surendra K. Khokha
Revocable Trust, dated July 18, 1985.(7)
10.35 -- Form of Indemnity Agreement.(1)
10.36 -- Amended and Restated 1992 Stock Option Plan.(3)
10.37 -- Amended and Restated 1993 Employee Stock Purchase Plan.(7)
10.38 -- 1998 Employee Bonus Plan.(12)
10.39 -- Promissory Note of Registrant, dated September 10, 1997, in
the principal amount of $500,000 payable to the order of RHP
Management, LLC. (12)
21
<PAGE> 24
21.1 -- Subsidiaries of Registrant.(10)
23.1 -- Consent of Price Waterhouse LLP.(12)
27.1 -- Financial Data Schedule.(12)
_____________________
(1) Previously filed as an exhibit to Registration Statement No. 33-51820 on
Form S-1 and incorporated herein by reference.
(2) Previously filed as an exhibit to the Registrant's Current Report on
Form 8-K dated November 17, 1993, as amended, and incorporated herein by
reference.
(3) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1994, and incorporated herein
by reference.
(4) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1993, as amended, and
incorporated herein by reference.
(5) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1993, as amended, and
incorporated herein by reference.
(6) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1993, and incorporated
herein by reference.
(7) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1994, and incorporated
herein by reference.
(8) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995, and incorporated herein
by reference.
(9) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1995, and incorporated herein by
reference.
(10) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995, and incorporated
herein by reference.
(11) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1996 and incorporated herein by
reference.
(12) Filed herewith.
22
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Celebrity, Inc. has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CELEBRITY, INC.
By /s/ ROBERT H. PATTERSON, JR.
-------------------------------
Robert H. Patterson, Jr.
Chairman of the Board, President
and Chief Executive Officer
Date: September 26, 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
Company and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
------------------------------------------ ------------------------------------------ ------------------------
<S> <C> <C>
/s/ ROBERT H. PATTERSON, JR. Chairman of the Board, President and Chief September 26, 1997
------------------------------------------ Executive Officer (Principal Executive
Robert H. Patterson, Jr. Officer, Principal Financial Officer and
Principal Accounting Officer)
/s/ B.D. HUNTER Director September 26, 1997
------------------------------------------
B. D. Hunter
/s/ C. A. LANGNER Director September 26, 1997
------------------------------------------
C. A. Langner
/s/ VALERIE ANNE MARS Director September 26, 1997
------------------------------------------
Valerie Anne Mars
/s/ RICHARD YUEN Managing Director of Celebrity Exports September 26, 1997
------------------------------------------ International Limited and Director
Richard Yuen
</TABLE>
23
<PAGE> 26
CELEBRITY, INC.
CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 1997 AND 1996
<PAGE> 27
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants.............................................................. F - 3
Consolidated Balance Sheets as of June 30, 1997 and 1996....................................... F - 4
Consolidated Statements of Operations for the
Years Ended June 30, 1997, 1996 and 1995...................................................... F - 6
Consolidated Statements of Cash Flows for the
Years Ended June 30, 1997, 1996 and 1995...................................................... F - 7
Consolidated Statements of Changes in Shareholders'
Equity for the Years Ended June 30, 1997, 1996 and 1995....................................... F - 8
Notes to Consolidated Financial Statements..................................................... F - 9
Consolidated Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts.............................................. F - 23
Other financial statement schedules are omitted because they are not applicable
or the required information is shown in the consolidated financial
statements or notes thereto.
</TABLE>
F - 1
<PAGE> 28
(This page intentionally left bank.)
F - 2
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Celebrity, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Celebrity, Inc. and its subsidiaries at June 30, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended June 30, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Dallas, Texas
September 4, 1997, except as to Note 7
which is as of September 29, 1997
F - 3
<PAGE> 30
CELEBRITY, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 530 $ 1,166
Accounts receivable, net of $2,017 and
$1,119 allowance for doubtful accounts, respectively ......... 15,620 14,919
Inventories ................................................... 30,619 33,279
Deferred tax asset ............................................ 1,711 2,859
Other assets .................................................. 1,782 2,332
---------- ----------
Total current assets ....................................... 50,262 54,555
---------- ----------
Property, plant and equipment, net ............................... 11,522 11,774
Deferred tax asset ............................................... 462 1,622
Intangible assets, net ........................................... 4,718 5,048
Other assets ..................................................... 489 364
---------- ----------
Total assets ............................................... $ 67,453 $ 73,363
========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F - 4
<PAGE> 31
CELEBRITY, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................... $ 10,405 $ 8,662
Accrued expenses .................................... 3,285 4,134
Income taxes payable ................................ 667 936
Current portion of notes payable .................... 27,067 1,484
---------- ----------
Total current liabilities ........................ 41,424 15,216
Notes payable, net of current portion .................. 4,877 31,081
---------- ----------
Total liabilities ................................ 46,301 46,297
---------- ----------
Redeemable common stock (13,462 and 26,924 shares
at June 30, 1997 and 1996, respectively) .............. 175 350
---------- ----------
Shareholders' equity:
Preferred stock (10,000,000 shares of par value $.01
per share authorized; none issued and outstanding in
1997 or 1996)
Common stock (25,000,000 shares of par value $.01
per share authorized; 6,296,140 and 6,282,678 shares
issued and outstanding at June 30, 1997 and
1996, respectively) ................................ 63 63
Paid-in capital ..................................... 22,353 22,178
Subscriptions receivable ............................ (442) (461)
Retained earnings (accumulated deficit) ............. (469) 5,292
Cumulative translation adjustment ................... (3) (6)
Treasury stock, at cost ............................. (525) (350)
---------- ----------
Total shareholders' equity ....................... 20,977 26,716
---------- ----------
Commitments and contingencies
Total liabilities, redeemable common stock
and shareholders' equity ...................... $ 67,453 $ 73,363
========== ==========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F - 5
<PAGE> 32
CELEBRITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales ........................... $ 125,170 $ 115,048 $ 118,810
Costs and operating expenses:
Cost of goods sold ............... 97,479 91,169 89,774
Selling .......................... 5,508 5,842 4,715
General and administrative ....... 19,474 21,323 16,186
Depreciation and amortization .... 2,236 2,054 1,566
------------ ------------ ------------
124,697 120,388 112,241
------------ ------------ ------------
Operating income (loss) ............. 473 (5,340) 6,569
Interest income ..................... 192 193 205
Interest expense .................... (3,408) (3,882) (2,238)
Other, net .......................... (6) 60 87
------------ ------------ ------------
Income (loss) before income taxes ... (2,749) (8,969) 4,623
Provision (benefit) for
income taxes....................... 3,012 (3,547) 841
------------ ------------ ------------
Net income (loss) ................... $ (5,761) $ (5,422) $ 3,782
============ ============ ============
Earnings (loss) per common and common
equivalent share ................... $ (.91) $ (.86) $ .60
============ ============ ============
Average common and common
equivalent shares outstanding .... 6,309,602 6,309,602 6,338,702
============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F - 6
<PAGE> 33
CELEBRITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities:
Net income (loss) ....................................... $ (5,761) $ (5,422) $ 3,782
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operations:
Depreciation ........................................ 1,604 1,364 1,082
Amortization ........................................ 632 690 484
Deferred income taxes ............................... 2,308 (3,181) (617)
Changes in operating assets and liabilities:
Accounts receivable .............................. (701) 1,328 (239)
Inventories ...................................... 2,660 3,747 (16,322)
Other assets, net ................................ 593 (852) (447)
Accounts payable and accrued expenses ............ 894 2,370 3,819
Income taxes payable ............................. (269) (86) 157
---------- ---------- ----------
Net cash provided by (used in)
operating activities ........................... 1,960 (42) (8,301)
---------- ---------- ----------
Investing activities:
Purchases of equipment .................................. (1,351) (1,704) (1,537)
Purchase of land ........................................ (491)
Expenditures for building construction .................. (1,230)
Acquisition of India Exotics, net of cash acquired ...... (2,396)
Other ................................................... (470) (379)
---------- ---------- ----------
Net cash used in investing activities............. (1,821) (2,574) (5,163)
---------- ---------- ----------
Financing activities:
Proceeds from lines of credit ........................... 24,980 39,501 52,962
Payments on lines of credit ............................. (24,732) (35,708) (40,686)
Proceeds from notes payable ............................. 5,110 899 1,927
Payments on notes payable ............................... (5,979) (2,749) (1,187)
Proceeds from issuance of common stock .................. 24
Redemption of common stock .............................. (175) (175) (175)
Payments on subscriptions receivable .................... 19 93 114
Other ................................................... 2 (29)
---------- ---------- ----------
Net cash provided by (used in)
financing activities........................... (775) 1,861 12,950
---------- ---------- ----------
Decrease in cash and cash equivalents ....................... (636) (755) (514)
Cash and cash equivalents, beginning of period .............. 1,166 1,921 2,435
---------- ---------- ----------
Cash and cash equivalents, end of period .................... $ 530 $ 1,166 $ 1,921
========== ========== ==========
</TABLE>
See Notes 2, 6, and 7 for supplementary disclosures.
The accompanying notes are an integral part of
these consolidated financial statements.
F - 7
<PAGE> 34
CELEBRITY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Retained Cumulative
----------------------- Subscriptions Earnings Treasury
Par Value Paid-in Accumulated Translation Stock,
Shares Capital Receivable (Deficit) Adjustment At Cost
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 .................... 6,253,757 $ 63 $ 21,804 $ (668) $ 6,932 $ 12
Purchase of redeemable common stock ......... 13,461 175
Sale of common stock ........................ 2,000 24
Payment on stock subscriptions .............. 114
Net income .................................. 3,782
Currency translation ........................ (10)
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1995 .................... 6,269,218 63 22,003 (554) 10,714 2
Purchase of redeemable common stock ......... 13,461 175
Payment on stock subscriptions .............. 93
Net loss .................................... (5,422)
Currency translation ........................ (8)
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1996 ................... 6,282,679 63 22,178 (461) 5,292 (6)
Purchase of redeemable common stock ......... 13,461 175
Payment on stock subscriptions .............. 19
Net loss .................................... (5,761)
Currency translation ........................
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1997 .................... 6,296,140 $ 63 $ 22,353 $ (442) $ (469) $ (3)
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Balance at June 30, 1994 ....................
Purchase of redeemable common stock ......... $ (175)
Sale of common stock ........................
Payment on stock subscriptions ..............
Net income ..................................
Currency translation ........................
----------
Balance at June 30, 1995 .................... (175)
Purchase of redeemable common stock ......... (175)
Payment on stock subscriptions ..............
Net loss ....................................
Currency translation ........................
----------
Balance at June 30, 1996 ................... (350)
Purchase of redeemable common stock ......... (175)
Payment on stock subscriptions ..............
Net loss ....................................
Currency translation ........................ 3
----------
Balance at June 30, 1997 .................... $ (525)
==========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F - 8
<PAGE> 35
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Celebrity, Inc. ("Celebrity") and its wholly-owned subsidiaries, Celebrity
Exports International Limited ("Celebrity Hong Kong") and Star Wholesale
Florist, Inc. ("Star"), are suppliers of high quality artificial flowers,
foliage and flowering bushes, selling primarily to craft store chains and
other retailers and to wholesale florists. India Exotics, Inc. ("India
Exotics"), a wholly-owned subsidiary of Celebrity (Note 3), is a supplier
of decorative brass products and other decorative accessories, selling
primarily to craft store chains and other specialty retailers and to
wholesale florists. The Cluett Corporation ("Cluett"), a wholly-owned
subsidiary of Celebrity, assembles artificial trees, floor planters and
floral arrangements and markets them primarily to discount retailers and
warehouse clubs. Celebrity, Celebrity Hong Kong, Star, India Exotics and
Cluett are referred to herein collectively as "Celebrity" or the
"Company."
2. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
All majority-owned subsidiaries are consolidated and all material
intercompany accounts and transactions are eliminated.
REVENUE RECOGNITION
The Company recognizes revenue from merchandise sales at the time of
shipment. Title to merchandise transfers at point of shipment. Damaged or
defective products may be returned to the Company for replacement or
credit. The Company offers sales volume rebates to customers based on the
level of their sales activity. The effects of returns and discounts are
estimated and recorded at time of shipment. Volume rebates are estimated
and recorded based on sales activity.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include short-term investments with original
maturities of three months or less.
INVENTORIES
Inventories are valued at the lower of average cost or market. Costs
include material, labor and overhead.
F - 9
<PAGE> 36
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is
computed by the straight-line method over the estimated useful lives of
the assets as follows:
<TABLE>
<CAPTION>
Estimated Useful Life
---------------------
<S> <C>
Furniture, fixtures and equipment............... 5 to 10 years
Transportation equipment........................ 3 to 5 years
Buildings....................................... 20 to 31.5 years
</TABLE>
Maintenance and repairs are charged to expense as incurred. Renewals and
betterments are capitalized.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill, a customer list and trade
names related to purchase acquisitions, which are being amortized using
the straight-line method over 20, 10 and 20 years, respectively. The
carrying value of intangible assets is periodically reviewed by the
Company and impairments are recognized when the estimated undiscounted
future cash flows derived from such intangible assets is less than their
carrying value.
LONG-LIVED ASSETS
The Company periodically reviews long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. In such cases, if the future
undiscounted cash flows of the underlying assets are less than the
carrying amount, then the carrying amount of the long-lived asset will be
adjusted for impairment to a level commensurate with a discounted cash
flow analysis of the underlying assets. Based on its most recent analysis,
the Company believes no impairment of long-lived assets exists at June 30,
1997.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for
Income Taxes", which prescribes an asset and liability method that
requires the recognition of deferred tax assets and liabilities for the
anticipated future tax consequences of temporary differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities. The Company periodically reviews the realizability of its
deferred tax assets and records valuation allowances, as appropriate, when
realization of the deferred tax asset is not likely.
F - 10
<PAGE> 37
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREIGN CURRENCY TRANSLATION
All balance sheet asset and liability accounts of Celebrity Hong Kong are
translated to U.S. dollars using rates of exchange in effect at the
balance sheet date. Celebrity Hong Kong statements of operations are
translated at exchange rates approximating the actual rates on the dates
of the transactions. Cumulative translation adjustments are included as a
separate component of shareholders' equity.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share are computed by dividing net earnings or loss by
the weighted average number of shares of common stock and common stock
equivalents outstanding during the year. Common stock equivalents consist
of the dilutive effect of common shares that may be issued upon exercise
of stock options. Fully diluted earnings (loss) per share were not
presented, as the resulting per share amounts did not substantially differ
from primary earnings (loss) per share.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") was issued effective for interim and
annual periods ending after December 15, 1997. SFAS 128 establishes new
standards for computing and presenting earnings per share. If the Company
had computed earnings per share in accordance with SFAS 128, basic and
diluted earnings (loss) per share would have been the same as the amounts
presented on the accompanying consolidated statements of operations.
3. ACQUISITIONS
INDIA EXOTICS
In February 1995, the Company acquired, in a transaction accounted for as
a purchase, the business and certain assets of India Exotics, Inc. of St.
Louis, Missouri (the "Seller"). As consideration, the Company, through a
wholly-owned subsidiary, India Exotics, paid $2,500,000 in cash, issued a
$2,000,000 note payable to the Seller (subsequently reduced to
$1,830,000), repaid approximately $2,100,000 of bank debt of the Seller,
assumed a $1,800,000 note from the Seller to one of its shareholders and
assumed certain trade payables of the Seller. Additionally, India Exotics
entered into a noncompetition agreement (Note 15), employment agreements,
and certain building lease agreements (Note 11) with certain former
shareholders and officers of the Seller and related partnerships.
The purchase price was allocated to net assets acquired as follows:
current assets of $5,146,000 including inventories of $3,576,000, and
current liabilities of $2,728,000 (net of the $2,100,000 repayment of bank
indebtedness). The excess of purchase price over the fair value of net
assets acquired
F - 11
<PAGE> 38
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
was approximately $3,987,000. The results of operations and cash flows for
India Exotics are included in the Consolidated Financial Statements from
the date of acquisition.
The results of operations for the year ended June 30, 1995, on an
unaudited pro forma basis, as if the Seller's assets had been acquired on
July 1, 1994 (with appropriate adjustments for amortization of intangible
assets, interest expense, elimination of certain general and
administrative expenses and the related income tax effects), would have
been as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
Year ended
June 30, 1995
-------------
<S> <C>
Net sales ................ $ 125,484
==========
Net income ............... $ 4,166
==========
Earnings per share ....... $ .66
==========
</TABLE>
4. COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS
The composition of certain balance sheet accounts as of June 30 is as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Inventories:
Raw materials ................................................ $ 8,707 $ 6,165
Finished goods ............................................... 21,912 27,114
---------- ----------
$ 30,619 $ 33,279
========== ==========
Property, plant and equipment:
Buildings .................................................... $ 7,625 $ 7,625
Land ......................................................... 811 811
Furniture, fixtures and equipment ............................ 6,354 5,259
Transportation equipment ..................................... 697 624
Leasehold improvements ....................................... 1,318 1,415
---------- ----------
16,806 15,734
Less: accumulated depreciation .............................. (5,284) (3,960)
---------- ----------
$ 11,522 $ 11,774
========== ==========
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Intangible assets:
Excess of cost over fair value of net assets acquired ........ $ 4,224 $ 4,224
Customer list ................................................ 1,327 1,327
Trade names .................................................. 397 397
---------- ----------
5,948 5,948
</TABLE>
F - 12
<PAGE> 39
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
Less: accumulated amortization .... (1,230) (900)
-------- --------
$ 4,718 $ 5,048
======== ========
</TABLE>
5. SPECIAL CHARGES
The Company incurred special charges of approximately $4,400,000 for
fiscal year 1996 related to inventory adjustments ($3,800,000) resulting
from the discontinuance of certain product lines and a lease obligation
reserve ($600,000) resulting from the planned closure of a distribution
center and several of the Company's satellite warehouse facilities. The
charges were the result of actions taken by the Company in the fourth
quarter of 1996 to (i) discontinue and liquidate certain underperforming
product lines, and (ii) close a distribution center and several satellite
warehouse facilities pursuant to a plan to consolidate warehousing and
shipment operations and reduce costs. The charges related to inventory
adjustments and lease obligations are included in cost of goods sold and
general and administrative expenses, respectively, in the accompanying
statements of operations. At June 30, 1997, the remaining reserve related
to discontinued product lines was $433,000. The lease obligation reserve
was fully utilized during fiscal 1997.
6. INCOME TAXES
The components of income (loss) before income taxes are summarized below
(in thousands):
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Domestic ..................... $ (6,829) $(12,172) $ (703)
Foreign ...................... 4,080 3,203 5,326
-------- -------- --------
$ (2,749) $ (8,969) $ 4,623
======== ======== ========
</TABLE>
F - 13
<PAGE> 40
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the provisions (benefits) for income taxes are as
follows (in thousands):
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
State ............................ $ 74 $ 75 $ 71
Federal .......................... -- (924) 434
Foreign .......................... 630 483 953
-------- -------- --------
704 (366) 1,458
Deferred provision (benefit) ....... 2,308 (3,181) (617)
-------- -------- --------
$ 3,012 $ (3,547) $ 841
======== ======== ========
</TABLE>
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
June 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Special charges .................................. $ 188 $ 1,496
Net operating loss and other carryforwards ....... 4,454 1,255
Capitalized inventory costs ...................... 915 1,119
Provision for losses on accounts receivable ...... 563 216
Intangible assets ................................ 113 157
Accelerated depreciation ......................... 220 130
Other ............................................ 174 108
-------- --------
6,627 4,481
Less: Valuation allowance ........................ (4,454) --
-------- --------
$ 2,173 $ 4,481
======== ========
</TABLE>
During fiscal 1997, the Company recorded a valuation allowance of
$4,454,000 to reflect the amount of deferred tax assets that may not be
realized due to the expiration of net operating loss and tax credit
carryforwards.
The provision (benefit) for income taxes differs from those computed using
the statutory U.S. federal income tax rate as a result of the following
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Provision (benefit) at statutory rate ...... $ (935) (34%) $ (3,049) (34%) $ 1,572 34%
Meals and entertainment and
other disallowed expenses ................. 18 58 13 1
Valuation allowance ........................ 4,454 162
Other ...................................... 175 4 55 1
State tax expense .......................... 71 2 50 59 1
Foreign tax rate differentials ............. (671) (24) (606) (6) (858) (19)
-------- -------- -------- -------- -------- --------
$ 3,012 110% $ (3,547) (40%) $ 841 18%
======== ======== ======== ======== ======== ========
</TABLE>
Since the Company plans to continue financing Celebrity Hong Kong's
expansion through reinvestment of undistributed Celebrity Hong Kong
earnings, no provision is made for U.S. taxes on such earnings. If the
Celebrity Hong Kong earnings were distributed, the U.S. tax on the
distribution would be approximately $3,277,000.
F - 14
<PAGE> 41
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income taxes paid during fiscal 1997, 1996 and 1995 were $901,000,
$527,000 and $1,186,000, respectively. Included in other current assets at
June 30, 1997 and 1996 were U.S. federal income tax receivables of
$1,008,000 and $1,027,000, respectively.
As of June 30, 1997, the Company had net operating loss carryforwards of
$12,078,000, foreign tax credit carryforwards aggregating $253,000 and
minimum tax credit carryforwards of $87,000. The net operating loss
carryforward expires between 2011 and 2012. If certain substantial changes
in the Company's ownership should occur, there would be an annual
limitation on the amount of the carryforwards that could be utilized. The
foreign tax credit carryforwards expire between 1998 and 2000.
7. NOTES PAYABLE
Notes payable consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Revolving line of credit; interest at prime plus .75%
(9.25% at June 30, 1997); due March 1998; secured
by substantially all accounts receivable and inventory ......... $ 26,162 $ 25,914
Note payable to bank repaid in June 1997 ........................ -- 5,255
Note payable to bank; interest at LIBOR plus 2.65%
(8.78% at June 30, 1997) payable in monthly install-
ments of $28; due June 2004; secured by real estate ............ 5,000 --
Note payable to related partys; interest at prime
plus .5% (9.00% at June 30, 1997) payable in
quarterly installments of $125; due February 1998 .............. 375 875
Installment notes payable monthly through January 1999;
interest rates vary from 7% to 13%; secured
by automobiles ................................................. 137 177
Note payable to related party; interest at 8%; payable in
annual installments through May 1999 ........................... 64 93
Other ........................................................... 206 251
---------- ----------
31,944 32,565
Less: current portion .......................................... (27,067) (1,484)
---------- ----------
$ 4,877 $ 31,081
========== ==========
</TABLE>
F - 15
<PAGE> 42
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aggregate maturities of notes payable for the next five years and
thereafter are as follows (in thousands):
<TABLE>
<S> <C>
1998 ............... $ 27,067
1999 ............... 489
2000 ............... 374
2001 ............... 348
2002 ............... 333
Thereafter ......... 3,333
----------
Total ......... $ 31,944
==========
</TABLE>
The revolving line of credit provides for borrowings up to a maximum
amount of $35,000,000. Borrowing limits are based on specified percentages
of eligible accounts receivable and inventories and, as a result of such
limits, the maximum amount the Company would have been eligible to borrow
at June 30, 1997 was $26,262,000. The commitment fee for the unused
portion of the revolving line of credit is 1/2% of the average daily
unused portion of the line of credit during each quarter. At June 30,
1997, $96,894 of the revolving line of credit had been reserved as a
result of the issuance of letters of credit.
The $375,000 note payable to a related party was issued in conjunction
with the acquisition of the business and assets of India Exotics (Note 3)
and has been assigned to the shareholders of the Seller.
The $64,000 note payable to related party represents an amount due a
former Celebrity officer and director and is unsecured.
The revolving line of credit and note payable to bank contain certain
covenants limiting the incurrence of indebtedness, restricting the payment
of dividends and requiring the Company to maintain certain financial
ratios. The Company was not in compliance with certain of these financial
covenants at June 30, 1997, specifically the minimum net worth, debt to
equity ratio, EBITDA to interest expense and minimum net income
requirement. Although the Company received waivers for these violations
through December 31, 1997, the waivers related to the line of credit
agreement did not extend to any subsequent periods. At September 29, 1997,
it is uncertain whether the Company will be in compliance with these
covenants at the September 30 or future quarterly measurement dates during
fiscal 1998. Therefore, the debt has been classified as a current
liability at June 30, 1997, which resulted in the violation of the current
ratio covenant contained in the line of credit agreement. The Company has
not received a waiver for this violation. However, the Company is
presently negotiating a renewal and extension of the line of credit
agreement that would reset the covenants and extend the term beyond June
30, 1998. The lender has provided written assurance to the Company of its
intent to renew the agreement. Management expects the revised line of
credit agreement to be finalized prior to December 31, 1997.
Interest paid during the years ended June 30, 1997, 1996 and 1995 was
$3,435,000, $3,645,000 and $2,158,000, respectively.
8. REDEEMABLE COMMON STOCK
In conjunction with Celebrity's initial public offering in December 1992,
certain warrants were converted into an aggregate of 67,308 shares of
common stock at the initial public offering price of $13 per share. The
common stock obtained upon the exercise of these warrants may be put back
to the Company at a price per share equal to the greater of the initial
public offering price per share or the fair market value per share (as
determined pursuant to the terms of the warrant agreement). Celebrity's
maximum obligation to purchase common stock on each put date is limited to
an aggregate of $175,000. The common stock was put back to the Company
annually at September 30, 1993, 1994, 1995 and 1996. At June 30, 1997,
Celebrity's obligation to purchase common stock for the last
F - 16
<PAGE> 43
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
remaining put date was $175,000. The Company has been advised that the
holders intend to put the remaining common stock back at September 30,
1997.
9. EMPLOYEE BENEFIT PLANS
The Celebrity, Inc. 401(k) Plan is available to substantially all of the
Company's employees. Eligible employees may contribute up to 15% of their
compensation to this plan. Celebrity has contributed an amount equal to
50% of each employee's contribution up to 6% of the employee's
compensation. Employee contributions in excess of 6% of the employee's
compensation are not matched by Celebrity. The Company contributed
$111,000, $79,000 and $41,000 for fiscal 1997, 1996 and 1995,
respectively.
The Celebrity, Inc. 1993 Employee Stock Purchase Plan was adopted in
fiscal 1994. Under this plan, the Company may periodically offer to its
employees, at its sole discretion, the right to purchase shares of Common
Stock at the market value as of the date of the offer. Employee payment
for plan shares may be made either with cash or a promissory note. The
participants' shares are fully vested upon purchase. The Company has
reserved 300,000 shares of Common Stock for issuance under this plan.
Subscriptions receivable at June 30, 1997 for purchases of Common Stock
under this plan amounted to approximately $442,000 and will be paid over
periods of one to ten years.
10. STOCK OPTION PLAN
The Celebrity, Inc. 1992 Stock Option Plan (the "Plan") was adopted
effective with the completion of the Company's initial public offering. An
aggregate of 500,000 shares of Common Stock has been reserved for issuance
under the Plan. The Plan permits the granting of incentive stock options
to Celebrity's employees and nonqualified stock options to employees,
nonemployee members of the board of directors and advisors. Options are
exercisable during the period specified in each option agreement and are
generally exercisable in installments pursuant to a vesting schedule as
designated by the Compensation Committee of the board of directors. The
exercise price determined by the Compensation Committee may not be less
than the fair market value of the Common Stock on the date of grant. No
option will remain exercisable later than ten years after the date of
grant. Additional information with respect to stock options issued under
the Plan is as follows:
F - 17
<PAGE> 44
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Weighted
Number Average
Stock Option Activity of Shares Exercise Price
--------------------- --------- --------------
<S> <C> <C>
June 30, 1994 ..................... 147,900 $ 5.81
Granted ......................... 122,500 $ 5.05
Canceled or surrendered ......... (2,000) $ 5.38
----------
June 30, 1995 ..................... 268,400 $ 5.46
Granted ......................... 6,000 $ 5.75
Canceled or surrendered ......... (10,000) $ 5.88
----------
June 30, 1996 ..................... 264,400 $ 5.46
Granted ......................... 205,000 $ 3.39
Canceled or surrendered ......... (33,000) $ 5.43
----------
June 30, 1997 ..................... 436,400 $ 4.49
==========
</TABLE>
The following information is presented for stock options outstanding at
June 30, 1997. At June 30, 1997, 152,120 options are exercisable at a
weighted average exercise price of $5.55.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Price Remaining Exercise Exercise
Range Shares Life Price Shares Price
-------------- ------- --------- ------------ ------ -----------
<S> <C> <C> <C> <C> <C>
$3.19 to $4.00 215,000 9.7 years $ 3.38 12,000 $ 3.31
$4.88 to $6.50 219,400 6.4 years $ 5.50 138,120 $ 5.64
$12.50 2,000 5.5 years $ 12.50 2,000 $ 12.50
</TABLE>
Included in the table above are 20,000 fully vested nonqualified stock
options for three outside directors with exercise prices ranging from
$3.38 to $12.50 per share.
On May 18, 1995 the Compensation Committee of the board of directors
approved the amendment of the exercise price for options covering 130,900
shares of Common Stock granted under the Plan in fiscal 1993 from $13.00
to the fair market value on the amendment date ($5.88).
The Company adopted the disclosure-only option under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). On a pro forma basis, if the Company had
recorded compensation expense in accordance with SFAS 123, the pro forma
net loss and loss per share would have been ($6,058,000) and ($.96),
respectively, for fiscal 1997 and ($5,437,000) and ($.86), respectively,
for fiscal 1996.
The significant assumptions used to estimate the fair value of the stock
options granted in fiscal 1996 and 1997 include a risk-free rate of return
of 5.76% in fiscal 1996 and ranging from 6.13% to 6.54% in fiscal 1997, an
expected option life of 10 years, an expected volatility of 46.13% in
fiscal 1996 and ranging from 44.88% to 45.62% in fiscal 1997.
F - 18
<PAGE> 45
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. RELATED PARTIES
Celebrity leases certain office and distribution facilities in Tyler,
Texas from a shareholder. Amounts paid under this lease were approximately
$120,000 in each year for fiscal 1997, 1996 and 1995, respectively.
The Company leases, from a partnership controlled by a former officer of
India Exotics, one building in St. Louis, Missouri comprised of office and
warehouse space. The aggregate rentals paid on this lease during fiscal
1997 and 1996 were approximately $690,000 and $575,000, respectively. The
lease provides for minimum annual rental payments of $443,840 and expires
in April 2003. In addition to the minimum rentals, the Company pays for
taxes, insurance, utility services and certain maintenance items related
to the leased property.
Notes payable at June 30, 1997 includes a note payable to related
party (see Note 7).
The Company purchases decorative brass products and cotton goods from two
entities controlled by relatives of a former officer of India Exotics.
Purchases from these suppliers during fiscal 1997 and 1996 totaled
approximately $5,966,000 and $5,910,000, respectively. The amount due
these suppliers at June 30, 1997 and 1996 was approximately $1,481,000 and
$2,024,000, respectively, which amounts are included in accounts payable.
As part of the India Exotics acquisition, the Company entered into an
agreement with one of the suppliers whereby the supplier agreed to supply
decorative brass products for a three-year period ending in February 1998.
12. GEOGRAPHIC INFORMATION
The Company operates exclusively in a single industry. Celebrity exports
artificial flowers, foliage and flowering bushes from Asia to the U.S. and
Europe and distributes and markets its products in the U.S. using a direct
sales force and distribution centers, primarily to craft store chains and
other speciality retailers and to wholesale florists. Cluett assembles
artificial trees, floor planters and floral arrangements and markets them
primarily to discount retailers and warehouse clubs. India Exotics
distributes and markets decorative brass products and other decorative
accessories primarily to craft store chains and other speciality retailers
and to wholesale florists, primarily in the U.S., using a direct sales
force and a distribution center.
Financial information by geographic area for fiscal 1997, 1996 and 1995 is
summarized in the tables below. Intergeographic area sales are accounted
for at prices approximating arm's length market prices. Operating income
by geographic area is comprised of net sales less operating expenses that
are related to the operating revenue derived from the area. Identifiable
assets by geographic area are those assets that are used in the operations
of the Company in that area.
F - 19
<PAGE> 46
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Years ended June 30,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Net sales to unaffiliated customers:
Hong Kong ........................ $ 60,144 $ 54,662 $ 79,248
United States .................... 89,629 80,947 75,015
Intercompany sales ............... (24,603) (20,561) (35,453)
---------- ---------- ----------
Total ......................... $ 125,170 $ 115,048 $ 118,810
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Years ended June 30,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Operating earnings (loss):
Hong Kong .................... $ 4,216 $ 3,395 $ 5,947
United States ................ (3,863) (8,910) 962
Intercompany sales ........... 120 175 (340)
---------- ---------- ----------
Total ..................... $ 473 $ (5,340) $ 6,569
========== ========== ==========
Identifiable assets at year-end:
Hong Kong .................... $ 20,586 $ 15,693 $ 14,628
United States ................ 67,430 71,598 72,794
Eliminations ................. (20,563) (13,928) (12,781)
---------- ---------- ----------
Total ..................... $ 67,453 $ 73,363 $ 74,641
========== ========== ==========
</TABLE>
13. FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents,
accounts receivable, accounts payable and notes payable. The carrying
amounts of cash and cash equivalents, accounts receivable and accounts
payable approximate fair value because of their immediate or short
maturities. The carrying amounts of the revolving line of credit and other
variable-rate notes payable approximate their fair value because the
interest rates on these instruments change with market interest rates. The
fair value, based on market interest rates, of the Company's fixed-rate
notes payable at June 30, 1997 and 1996, respectively, did not
significantly differ from their carrying amount.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash, cash
equivalents and trade receivables. The Company limits its exposure to
credit risk on its cash and cash equivalents by placing these instruments
with high quality financial institutions. With respect to accounts
receivable, the Company is exposed to group concentrations of credit risk
as its customer base consists primarily of craft store chains, discount
retailers, specialty retailers and warehouse clubs. In addition, in fiscal
1997 and fiscal 1996, the Company had one customer that accounted for
sales of $34.6 million and $26.5 million, respectively. The June 30, 1997
accounts receivable balance for this customer was $4.2 million. The
Company had
F - 20
<PAGE> 47
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
two significant customers in fiscal 1995 that accounted for sales of $33.3
million and $12.5 million, respectively. The Company performs ongoing
evaluations of the financial conditions of its customers, but does not
require collateral to secure customer receivables. The Company establishes
an allowance for doubtful accounts based upon factors surrounding the
credit risk of specific customers, historical trends and other
information.
14. CERTAIN FACTORS THAT COULD AFFECT FUTURE OPERATIONS
The Company derives a substantial amount of its consolidated net sales
from products manufactured in and exported from the People's Republic of
China (the "PRC") and other locations throughout Asia. Risks inherent in
international operations include loss of revenue, property and equipment
from such hazards as expropriation, nationalization, war, insurrection and
other political risks. Other risks inherent in international operations
are the possibility of realizing economic currency exchange losses when
transactions are completed in currencies other than U.S. dollars and the
Company's ability to freely repatriate its earnings under existing
exchange control laws. To date, the Company's international operations
have not been materially affected by these risks.
A significant amount of the Company's international purchasing and
exporting activities are controlled in Hong Kong. As such, Celebrity's
success depends to some degree on the economic and social conditions in
Hong Kong. The PRC resumed control over Hong Kong in July 1997 in
accordance with the Sino-British Declaration of 1984 (the "Joint
Declaration"). Although the Joint Declaration establishes a framework for
the continuation of existing economic and social systems in Hong Kong
after 1997, there can be no assurances as to the manner in which this
framework will be implemented or whether it will be respected by the PRC
authorities. Although the Company believes that it could move its
purchasing and exporting activities to another location, the disruption of
the Company's operations in Hong Kong could have a materially adverse
effect on the Company's business.
15. COMMITMENTS AND CONTINGENCIES
RECEIVABLES SOLD WITH RECOURSE
During fiscal 1997, 1996 and 1995, proceeds of approximately $37,487,000,
$27,183,000 and $31,475,000, respectively, were received from a Hong Kong
bank in connection with the financing, with recourse, of Celebrity Hong
Kong accounts receivable related to shipments directly to customers. As of
June 30, 1997 and 1996, Celebrity was contingently liable to the Hong Kong
bank in respect of such financing activities for $5,859,000 and
$6,649,000, respectively. The Company has retained substantially the same
risk of credit loss as if the receivables had not been sold (Note 13).
Under a facility with the bank, a maximum aggregate of $5,800,000 in
accounts receivable may be financed by the bank at any time, with
recourse.
F - 21
<PAGE> 48
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LEASES
The Company leases certain buildings and equipment under noncancelable
operating leases. Future minimum lease payments for the next five fiscal
years and thereafter are as follows (in thousands):
<TABLE>
<C> <C>
1998 ....................... $ 1,618
1999 ....................... 1,280
2000 ....................... 1,201
2001 ....................... 921
2002 ....................... 931
Thereafter ................. 5,752
----------
Total minimum lease payments $ 11,704
==========
</TABLE>
Rent expense for operating leases was $3,601,000, $3,792,000 and
$2,464,000 for fiscal 1997, 1996 and 1995, respectively.
OTHER
The Company is involved in various legal proceedings that arise in the
ordinary course of its business. The Company believes that none of its
current litigation is likely to have a materially adverse effect on its
financial condition or results of operations.
As part of the India Exotics acquisition, the Company executed
noncompetition agreements with two former officers of India Exotics. The
agreements call for annual payments of $267,000 and $333,000 in fiscal
1998 and 1999, respectively. Amortization expense is recognized over the
terms of the agreements.
F - 22
<PAGE> 49
CELEBRITY, INC. SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED JUNE 30, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Allowance
for Balance at Charged to Balance
Doubtful beginning cost and Corporate at end
Accounts of period expenses acquisition Deductions of period
--------- ---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1997 $ 1,119 $ 1,553 $ $ (655) $ 2,017
1996 1,539 795 (1,215) 1,119
1995 886 574 425 (346) 1,539
</TABLE>
F - 23
<PAGE> 50
EXHIBIT INDEX
Exhibits:
2.1 -- Asset Purchase Agreement dated as of June 16, 1992, among
Registrant, Holdingflower, Inc., a Delaware corporation, Magicsilk,
Inc., a Delaware corporation, and Magicsilk, Inc., a Texas
corporation.(1)
2.2 -- Asset Purchase Agreement dated February 7, 1995, among India
Exotics, Inc., a Texas corporation, Registrant, India Exotics, Inc., a
Missouri corporation, Surendra Khokha, Rajneesh Khokha, Asheesh Khokha
and the Surendra K. Khokha Revocable Trust, dated July 18, 1985.(7)
3.1 -- Restated Articles of Incorporation of the Registrant.(1)
3.2 -- Bylaws of the Registrant.(1)
4.1 -- Specimen Common Stock Certificate.(1)
4.2 -- Warrant Agreement dated as of June 16, 1992, between the Registrant
and Magicsilk, Inc.(1)
10.1 -- Loan Agreement dated May 10, 1993, among Registrant, Magicsilk,
Inc. and National Canada Finance Corp.(4)
10.2 -- First Amendment to Loan Agreement dated July 27, 1993, among
Registrant, Magicsilk, Inc. and National Canada Finance Corp.(5)
10.3 -- Second Amendment to Loan Agreement dated effective as of November
17, 1993, among Registrant, Magicsilk, Inc., The Cluett Corporation
and National Canada Finance Corp.(6)
<PAGE> 51
10.4 -- Third Amendment to Loan Agreement dated effective as of March 18,
1994, among Registrant, Magicsilk, Inc., The Cluett Corporation and
National Canada Finance Corp.(3)
10.5 -- Fourth Amendment to Loan Agreement dated effective as of November
4, 1994, among Registrant, Magicsilk, Inc., The Cluett Corporation and
National Canada Finance Corp.(7)
10.6 -- Fifth Amendment to Loan Agreement dated effective as of February 3,
1995, among Registrant, Magicsilk, Inc., The Cluett Corporation, India
Exotics, Inc. and National Canada Finance Corp.(7)
10.7 -- Sixth Amendment to Loan Agreement dated effective as of March 14,
1995, among Registrant, Magicsilk, Inc., The Cluett Corporation, India
Exotics, Inc. and National Canada Finance Corp.(8)
10.8 -- Seventh Amendment to Loan Agreement dated effective as of August
4, 1995, among Registrant, Magicsilk, Inc., The Cluett Corporation,
India Exotics, Inc. and National Canada Finance Corp.(9)
10.9 -- Eighth Amendment to Loan Agreement dated effective as of June 19,
1997 among Registrant, Magicsilk, Inc., The Cluett Corporation, India
Exotics, Inc. and National Canada Finance Corp. (12)
10.10 -- Ninth Amendment to Loan Agreement dated effective as of
September 26, 1997 among Registrant, Magicsilk, Inc., The Cluett
Corporation, India Exotics, Inc., Star Wholesale Florist, Inc. and
National Canada Finance Corp. (12)
10.11 -- Promissory Note dated September 26, 1997, executed by Registrant,
Magicsilk, Inc., The Cluett Corporation, India Exotics, Inc. and Star
Wholesale Florist, Inc. in the principal amount of $35,000,000,
payable to the order of National Canada Finance Corp.(12)
10.12 -- Amended and Restated Security Agreement dated September 26, 1997,
among Registrant, Magicsilk, Inc., The Cluett Corporation, India
Exotics, Inc., Star Wholesale Florist, Inc. and National Canada
Finance Corp.(12)
10.13 -- Subordination Agreement dated July 14, 1992, among National
Canada Finance Corp., TBK Partners, L.P., ML-Lee Acquisition
Fund, L.P., The Bank of New York Commercial Corporation,
Registrant and Magicsilk, Inc.(1)
10.14 -- Letter agreement dated May 19, 1997, setting forth the terms of
a banking facility between Celebrity Exports International
Limited and The Hongkong and Shanghai Banking Corporation
Limited.(12)
10.15 -- General Security Agreement Relating to Goods between Celebrity
Exports International Limited and The Hongkong and Shanghai
Banking Corporation Limited dated April 30, 1984.(1)
10.16 -- Form of Guarantee by Limited Company executed by Registrant in
favor of The Hongkong and Shanghai Banking Corporation
Limited.(12)
10.17 -- Commitment of Celebrity Exports International Limited to maintain a
combined net worth of HK$50,000,000.(12)
10.18 -- Term WCMA Loan Agreement dated June 17, 1997 between Registrant
and Merrill Lynch Business Financial Services Inc.(12)
<PAGE> 52
10.19 -- $5,000,000 Term WCMA Note dated June 17, 1997 signed by
Registrant and payable to Merrill Lynch Business Financial
Services Inc.(12)
10.20 -- Unconditional Guaranty dated June 17, 1997, executed by Magicsilk,
Inc. in favor of Merrill Lynch Business Financial Services Inc. (12)
10.21 -- Unconditional Guaranty dated June 17, 1997, executed by The Cluett
Corporation in favor of Merrill Lynch Business Financial Services
Inc.(12)
10.22 -- Unconditional Guaranty dated June 17, 1997, executed by India
Exotics, Inc. in favor of Merrill Lynch Business Financial Services
Inc.(12)
10.23 -- Deed of Trust, Security Agreement, Financing Statement and
Assignment of Rents from Celebrity, Inc. to Trustee for the Benefit of
Merrill Lynch Business Financial Services Inc. relating to Winston-
Salem, North Carolina property. (12)
10.24 -- Deed of Trust, Security Agreement, Financing Statement and
Assignment of Rents from Celebrity, Inc. to Trustee for the Benefit of
Merrill Lynch Business Financial Services Inc. relating to Tyler,
Texas property.(12)
10.25 -- Employment Agreement dated November 17, 1993, between The Cluett
Corporation and James N. Gammill, III.(2)
10.26 -- Employment Agreement dated February 7, 1995, between India
Exotics, Inc. and Surendra Khokha.(7)
10.27 -- Letter Agreement dated June 20, 1996, amending the Employment
Agreement dated February 7, 1995, between India Exotics, Inc. and
Surendra Khokha.(11)
10.28 -- Employment Agreement dated February 7, 1995, between India
Exotics, Inc. and Meena Khokha.(7)
10.29 -- Letter Agreement dated June 20, 1996, amending the Employment
Agreement dated February 7, 1995, between India Exotics, Inc. and
Meena Khokha.(11)
10.30 -- Noncompetition Agreement dated November 17, 1993, between
Registrant and James N. Gammill, III.(2)
10.31 -- Noncompetition Agreement dated February 7, 1995, among India
Exotics, Inc., Surendra Khokha, Rajneesh Khokha, Asheesh Khokha
and Meena Khokha.(7)
10.32 -- Promissory Note of India Exotics, Inc., a Texas corporation,
guaranteed by Registrant, dated February 7, 1995, payable to
the order of India Exotics, Inc., a Missouri corporation.(7)
<PAGE> 53
10.33 -- First Amendment to Promissory Note dated June 20, 1996,
amending the Promissory Note of India Exotics, Inc., a Texas
corporation, guaranteed by Registrant, dated February 7, 1995,
payable to the order of India Exotics, Inc., a Missouri
corporation.(11)
10.34 -- Promissory Note of India Exotics, Inc., a Missouri corporation,
guaranteed by Registrant, dated February 7, 1995, in the principal
amount of $1,800,000 payable to the order of Surendra Khokha and his
successors, trustees of the Surendra K. Khokha Revocable Trust, dated
July 18, 1985.(7)
10.35 -- Form of Indemnity Agreement.(1)
10.36 -- Amended and Restated 1992 Stock Option Plan.(3)
10.37 -- Amended and Restated 1993 Employee Stock Purchase Plan.(7)
10.38 -- 1998 Employee Bonus Plan.(12)
10.39 -- Promissory Note of Registrant, dated September 10, 1997, in the
principal amount of $500,000 payable to the order of RHP
Management, LLC. (12)
21.1 -- Subsidiaries of Registrant.(10)
23.1 -- Consent of Price Waterhouse LLP.(12)
27.1 -- Financial Data Schedule.(12)
- ----------------
(1) Previously filed as an exhibit to Registration Statement No. 33-51820
on Form S-1 and incorporated herein by reference.
(2) Previously filed as an exhibit to the Registrant's Current Report on
Form 8-K dated November 17, 1993, as amended, and incorporated herein
by reference.
(3) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1994, and incorporated
herein by reference.
(4) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1993, as amended,
and incorporated herein by reference.
(5) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993, as amended, and
incorporated herein by reference.
(6) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1993, and incorporated
herein by reference.
(7) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1994, and incorporated
herein by reference.
(8) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995, and incorporated
herein by reference.
(9) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995, and incorporated
herein by reference.
(10) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995, and incorporated
herein by reference.
(11) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996 and incorporated
herein by reference.
(12) Filed herewith.
<PAGE> 1
EXHIBIT 10.9
EIGHTH AMENDMENT TO LOAN AGREEMENT
This Eighth Amendment to Loan Agreement is made and effective as of
June 19, 1997, by and between CELEBRITY, INC., a Texas corporation
("Celebrity"), MAGICSILK, INC., a Texas corporation ("Magicsilk"), THE CLUETT
CORPORATION, a California corporation ("Cluett"), and INDIA EXOTICS, INC., a
Texas corporation ("India"), (collectively, the "Borrowers") and NATIONAL
CANADA FINANCE CORP., a Delaware corporation (the "Lender").
WITNESSETH:
WHEREAS, the Lender, Celebrity, and Magicsilk entered into a Loan
Agreement dated May 10, 1993, as amended pursuant to a First Amendment to Loan
Agreement dated as of July 27, 1993, a Second Amendment to Loan Agreement dated
as of November 17, 1993, a Third Amendment to Loan Agreement dated as of March
18, 1994, a Fourth Amendment to Loan Agreement dated as of November 4, 1994, a
Fifth Amendment to Loan Agreement dated as of February 3, 1995, a Sixth
Amendment to Loan Agreement dated as of March 14, 1995, a Seventh Amendment to
Loan Agreement dated as of August 4, 1995, and Waiver and Modification Letters
dated May 15, 1996 and September 26, 1996, respectively (as so amended, the
"Loan Agreement"), pursuant to which the Lender committed, among other things,
to make loans, advances, and other credit facilities available to Celebrity,
Magicsilk, Cluett, and India;
WHEREAS, the parties desire to amend the Loan Agreement in certain
respects, as hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing, for other valuable
consideration hereby acknowledged, and subject to the other terms and
conditions hereof, the Lender and the Borrowers agree that the following
provisions of the Loan Agreement shall be amended, effective the date hereof,
as follows:
1. A new defined term is added in Section One, as follows:
"'Merrill Lynch' means Merrill Lynch Business
Financial Services, Inc., a Delaware corporation."
2. Part (i) of the definition of "Permitted Encumbrances" is
amended and restated in its entirety as follows:
"(i) liens on certain real property located in Smith
County, Texas and Forsyth County, North Carolina and
security interests related thereto in favor of
Merrill Lynch to secure indebtedness of Celebrity to
Merrill Lynch of up to the maximum principal amount
of $5,000,000, plus accrued interest thereon,
provided that Merrill Lynch executes and delivers to
the
-1-
<PAGE> 2
Lender one or more Mortgagee's Waivers and Consents,
in form and content satisfactory to the Lender; and"
3. Part (e) of Section 7.1 of the Loan Agreement, permitting
indebtedness up to the principal amount of $1,800,000 to Tyler Bank and Trust,
N.A., and certain other matters therein set forth, is deleted and intentionally
left blank.
4. Part (h) of Section 7.1 of the Loan Agreement, permitting
indebtedness of up to the principal amount of $1,500,000 to Southern National
Bank of North Carolina and certain other matters therein set forth, is deleted
and intentionally left blank.
5. Part (i) of Section 7.1 of the Loan Agreement, permitting
indebtedness of up to the maximum principal amounts of $2,200,000 and
$1,000,000 to NationsBank and certain other matters therein set forth, is
amended and restated in its entirety, as follows:
"(i) Indebtedness of up to the maximum principal
amount of $5,000,000, plus accrued interest
thereon to Merrill Lynch under and pursuant
to that certain Term WCMA Note dated June
6, 1997 and the related Term WCMA Loan
Agreement of even date with such note
executed by Celebrity in favor of Merrill
Lynch, and any and all amendments,
renewals, restatements, extensions, and
supplements thereof, in whole or in part,
but not any increases thereof;"
6. Section 7.3 of the Loan Agreement is amended and restated in its
entirety, as follows:
"Except for (i) the guaranty by Celebrity of up to
Hong Kong 31,000,000 of indebtedness of Celebrity
Exports International to The Hongkong and Shanghai
Banking Corporation, Ltd., plus post-default
interest and expenses of enforcement as provided in
the instrument of guaranty which evidences such
guaranty, (ii) guaranties by Celebrity of the
indebtedness of India, as described in subsections
(k) and (l) of Section 7.1, above, and (iii) the
guaranty by Cluett, Magicsilk, and India of
indebtedness of Celebrity to Merrill Lynch, as
described in subsection (i) of Section 7.1, above,
guarantee or otherwise in any way become or be
responsible for the indebtedness or obligations of
any other Person, by any means whatsoever, whether
by agreement to purchase the indebtedness of any
other Person or agreement for the furnishing of
funds to any other Person though the purchase of
goods, supplies, or services (or by way of stock
purchase, capital contribution, advance, or loan)
for the purpose of paying or discharging the
indebtedness of any other Person, or otherwise,
except for the endorsement of negotiable instruments
by a Borrower in the ordinary course of business for
collection."
7. By their execution hereof, each of the Borrowers hereby certifies
to the Lender that as of the date hereof (a) all representations and warranties
heretofore made by them under the
-2-
<PAGE> 3
Loan Agreement and the other loan papers related thereto are true in all
material respects, including but not limited to the fact that Cluett is a
corporation duly organized,validly existing, and in good standing under the
laws of the State of California, and (b) the Borrowers do not have or claim to
have any offset, counterclaim, or defense to any of their obligations under the
Loan Agreement or any of the other loan papers related thereto.
8. Subject to satisfaction of the requirements for the effectiveness
of this Eighth Amendment, as set forth in paragraph 10 hereof, and the
agreement of the Borrowers to the terms and provisions in this Eighth
Amendment, the Lender hereby agrees to all of the foregoing amendments to the
Loan Agreement.
9. Except as expressly set forth herein, all terms and provisions of
the Loan Agreement and the other loan papers related thereto are hereby
confirmed as in full force and effect. The Borrowers expressly agree by their
execution hereof that all security interests, liens, and benefits created and
conferred by the Loan Agreement and such loan papers cover and extend to all
obligations evidenced and created by the Note, the Loan Agreement as amended
hereby, and all renewals, extensions, and modifications thereof, in whole or in
part. All terms with their initial letters capitalized herein and not otherwise
defined herein have the same meanings set forth in the Loan Agreement.
10. This Eighth Amendment shall not be effective until the Lender
shall have received the following, each dated such day and in form and
substance satisfactory to the Lender:
a. This Eighth Amendment, duly executed by all parties hereto;
b. Certified copies (i) of the resolutions of the Board of
Directors of each of the Borrowers, upon which the Borrowers
rely for authorization of this Eighth Amendment and all
documents executed in connection herewith, and (ii) of all
documents evidencing other necessary corporate action,
including all governmental and other consents and approvals,
if any, with respect hereto and all other documents executed
in connection herewith; and
c. A certificate of the Secretary or an Assistant Secretary of
each of the Borrowers, certifying the names and genuine
signatures of the officer or officers of each of the
Borrowers authorized to sign this Eighth Amendment and the
other documents to be executed and delivered by each of the
Borrowers hereunder.
11. This Eighth Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument. In making proof hereof, it shall not be necessary to produce or
account for any counterpart other than one signed by the party against which
enforcement is sought.
===============================================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
===============================================================================
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Eighth
Amendment to be executed by their respective officers thereunto duly authorized
as of the date first above written.
NATIONAL CANADA FINANCE CELEBRITY, INC.
CORP.
By: /s/ WILLIAM HANDLEY By: /s/ JAMES R. THOMPSON
------------------------------- -------------------------------
Print Name: William Handley Print Name: James R. Thompson
-------------------- --------------------
Title: Vice President Title: Vice President
------------------------- -------------------------
By: /s/ LARRY L. SEARS MAGICSILK, INC.
-------------------------------
Print Name: Larry L. Sears
--------------------
Title: Group Vice President By: /s/ JAMES R. THOMPSON
------------------------- -------------------------------
Print Name: James R. Thompson
--------------------
Title: Vice President
-------------------------
THE CLUETT CORPORATION
By: /s/ JAMES R. THOMPSON
-------------------------------
Print Name: James R. Thompson
--------------------
Title: Vice President
-------------------------
INDIA EXOTICS, INC.
By: /s/ JAMES R. THOMPSON
-------------------------------
Print Name: James R. Thompson
--------------------
Title: Vice President
-------------------------
-4-
<PAGE> 1
EXHIBIT 10.10
NINTH AMENDMENT TO LOAN AGREEMENT
This Ninth Amendment to Loan Agreement is made and effective as of
September 26, 1997, by and between CELEBRITY, INC., a Texas corporation
("Celebrity"), MAGICSILK, INC., a Texas corporation ("Magicsilk"), THE CLUETT
CORPORATION, a California corporation ("Cluett"), and INDIA EXOTICS, INC., a
Texas corporation ("India"), and STAR WHOLESALE FLORIST, INC., a Texas
corporation ("Star") (collectively, the "Borrowers") and NATIONAL CANADA
FINANCE CORP., a Delaware corporation (the "Lender").
WITNESSETH:
WHEREAS, the Lender, Celebrity, and Magicsilk entered into a Loan
Agreement dated May 10, 1993, as amended pursuant to a First Amendment to Loan
Agreement dated as of July 27, 1993, a Second Amendment to Loan Agreement dated
as of November 17, 1993 (by which Second Amendment, Cluett was added as one of
the Borrowers), a Third Amendment to Loan Agreement dated as of March 18, 1994,
a Fourth Amendment to Loan Agreement dated as of November 4, 1994, a Fifth
Amendment to Loan Agreement dated as of February 3, 1995 (by which Fifth
Amendment, India was added as on of the Borrowers), a Sixth Amendment to Loan
Agreement dated as of March 14, 1995, a Seventh Amendment to Loan Agreement
dated as of August 4, 1995, an Eighth Amendment to Loan Agreement dated as of
July 22, 1999, and Waiver and Modification Letters dated May 15, 1996 and
September 26, 1996, respectively (as so amended, the "Loan Agreement"),
pursuant to which the Lender committed, among other things, to make loans,
advances, and other credit facilities available to Celebrity, Magicsilk,
Cluett, and India;
WHEREAS, the parties desire to amend the Loan Agreement in certain
respects, as hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing, for other valuable
consideration hereby acknowledged, and subject to the other terms and
conditions hereof, the Lender and the Borrowers agree that the following
provisions of the Loan Agreement shall be amended, effective the date hereof,
as follows:
1. The definition of "Borrower" is amended in its entirety to
include Celebrity, Magicsilk, Cluett, India, and Star.
2. The definition of "Borrowing Base" in Exhibit A to the Loan
Agreement is amended and restated in its entirety, as follows:
-1-
<PAGE> 2
"Borrowing Base
The Borrowing Base is the sum of the following :
A. Fifty percent (50%) of the Inventory Value of the
Acceptable Inventory of Celebrity and Cluett located in
or in transit to the Continental United States,
consisting of raw materials or finished goods; plus
B. Forty percent (40%) of the Inventory Value of the
Acceptable Inventory of India and Star located in or in
transit to the Continental United States, consisting of
raw materials or finished goods; provided that in the
case of Star, such Inventory Value shall be net of any
reserves required by the Lender to be established for
payment of sales taxes or other matters; plus
C. Eighty percent (80%) of the amount due and owing on all
of the Borrowers' Acceptable Accounts owed by debtors
located in the Continental United States;
provided, however, that (i) the maximum amount of the
Loan, based on the Borrowers' Acceptable Inventory
located in or in transit to the Continental United
States, shall never exceed at any one time outstanding
the sum of Seventeen Million Five Hundred Thousand
Dollars ($17,500,000), and (ii) any or all of the
percentages set forth in parts A., B., and C., above,
may be increased or decreased in the reasonable
discretion of the Lender, upon written notice to the
Borrowers.
(NOTE: Although the Borrowing Base is limited as set forth above, the Lender's
Security Interest covers and includes all of the Borrowers' Inventory, Accounts
Receivable, and other collateral, both now owned or hereafter acquired, as more
particularly described in the Security Agreement, as amended from time to
time.)"
3. The definition of "LIBOR Rate" now contained in the Fourth
Amendment to the Loan Agreement is amended and restated in its entirety, as
follows:
"LIBOR Rate" means a rate per annum equal to the sum of two and
three-quarters of one percent (2 3/4%) plus the rate determined
pursuant to the following formula:
London Interbank Rate
------------------------------------
100% minus LIBOR Reserve Percentage"
4. The definition of "Prime Rate Loan" now contained in the Fourth
Amendment to the Loan Agreement is amended and restated in its entirety, as
follows:
-2-
<PAGE> 3
"Prime Rate Loan" means a Loan bearing interest at a per annum rate,
fluctuating from day to day, equal to the Prime Rate plus one percent
(1%)."
5. The definition of "Security Agreement" is amended and restated in
its entirety, as follows:
"Security Agreement" means that certain Amended and Restated Security
Agreement dated as of September 26, 1997 executed by each and all of
the Borrowers, together with any future renewals, extensions, or
modifications thereto."
6. The provision in the third sentence of Section 2.13(a) of the Loan
Agreement, now contained in the Fourth Amendment to the Loan Agreement, that
refers to "(x) the rate equal to (i) one-half of one percent (1/2%) per annum,
plus (ii) the Prime Rate" is changed to read "(x) the rate equal to (i) one
percent (1%) per annum plus (ii) the Prime Rate."
7. Failure of the Celebrity Group to satisfy the minimum Net Worth
requirement set forth in Section 6.15 of the Loan Agreement for the fiscal
quarter ended as of June 30, 1997 is hereby waived by the Lender.
8. Failure of the Celebrity Group to satisfy the debt to equity
requirement set forth in Section 6.16(a) of the Loan Agreement as of June 30,
1997 is hereby waived by the Lender, and such required ratio is hereby changed
to 3.00 to 1.00 for the fiscal year ended June 30, 1998, and for all periods
thereafter, 2.00 to 1.00.
9. Failure of the Celebrity Group to satisfy the EBITDA to interest
expense requirement set forth in Section 6.16(c) of the Loan Agreement as of
June 30, 1997 is hereby waived by the Lender.
10. Failure of the Celebrity Group to satisfy the minimum Net Income
requirement set forth in Section 6.17 of the Loan Agreement as of June 30, 1997
is hereby waived by the Lender.
11. By their execution hereof, Celebrity, Magicsilk, Cluett, and India
hereby certify to the Lender that as of the date hereof (a) all representations
and warranties heretofore made by them under the Loan Agreement and the other
loan papers related thereto are true in all material respects, and (b)
Celebrity, Magicsilk, Cluett, and India do not have or claim to have any
offset, counterclaim, or defense to any of their obligations under the Loan
Agreement or any of the other loan papers related thereto. By its execution
hereof, Star makes the same representations and warranties to the Lender
regarding Star and its operations as of the date of this Ninth Amendment,
except that Star is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Texas.
12. Subject to satisfaction of the requirements for the effectiveness
of this Ninth Amendment, as set forth in paragraph 14 hereof, and the agreement
of the Borrowers to the terms
-3-
<PAGE> 4
and provisions in this Ninth Amendment, the Lender hereby agrees to all of the
foregoing waivers and amendments to the Loan Agreement.
13. Except as expressly set forth herein, all terms and provisions of
the Loan Agreement and the other loan papers related thereto are hereby
confirmed as in full force and effect. The Borrowers expressly agree by their
execution hereof that all security interests, liens, and benefits created and
conferred by the Loan Agreement and such loan papers cover and extend to all
obligations evidenced and created by the Note, the Loan Agreement as amended
hereby, and all renewals, extensions, and modifications thereof, in whole or in
part. All terms with their initial letters capitalized herein and not otherwise
defined herein have the same meanings set forth in the Loan Agreement.
14. This Ninth Amendment shall not be effective until the Lender shall
have received the following, each dated such day and in form and substance
satisfactory to the Lender:
a. This Ninth Amendment, duly executed by all parties
hereto;
b. A new Note in the form attached hereto as Exhibit A,
duly executed by all parties thereto;
c. A new Security Agreement in the form attached hereto as
Exhibit B, duly executed by all parties thereto;
d. Such Uniform Commercial Code Financing Statements as
the Lender may require in order to give record notice of
the security interest in the items listed in the
Security Agreement, as executed by Star, accompanied by
the Borrowers' check or checks in an amount sufficient
to pay all recording fees and taxes for the recording of
such financial statements;
e. Certified copies (i) of the resolutions of the Board
of Directors of each of the Borrowers, upon which the
Borrowers rely for authorization of this Ninth Amendment
and all documents executed in connection herewith, and
(ii) of all documents evidencing other necessary
corporate action, including all governmental and other
consents and approvals, if any, with respect hereto and
all other documents executed in connection herewith;
f. A certificate of the Secretary or an Assistant
Secretary of each of the Borrowers, certifying the names
and genuine signatures of the officer or officers of
each of the Borrowers authorized to sign this Ninth
Amendment and the other documents to be executed and
delivered by each of the Borrowers hereunder;
g. Certificates of Good Standing for Star, from the State
of its incorporation and such other States as the Lender
shall require, together with copies of
-4-
<PAGE> 5
the Charter and By-Laws of Star, recently certified by
an appropriate corporate officer to be true and correct
copies of such documents, and that such documents are in
full force and effect;
h. Uniform Commercial Code searches from such recording
offices as the Lender shall specify, evidencing the
priority of the Lender's security interest under the
Security Agreement, as executed by Star, over any other
liens or encumbrances;
i. Payment by the Borrowers to the Lender of an amendment
fee of $25,000; and
j. A favorable opinion of legal counsel for the Borrowers',
such legal counsel to be acceptable to the Lender,
regarding (i) the corporate existence and good standing
of the Borrowers, (ii) the authorization, execution,
legality, validity, and legal enforceability of this
Ninth Amendment; and (iii) such other matters as the
Lender may reasonably request.
k. A waiver and/or subordination of the landlord's lien
on any property of Star located in or on the premises
leased by Star, as the tenant, at 8223 N. Stemmons,
Dallas, Texas 75247; provided however that the failure
to deliver such a document to the Lender by the date
hereof shall not adversely affect the effectiveness of
this Ninth Amendment if such document is delivered to
the Lender within thirty (30) days of the date hereof.
15. This Ninth Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument. In making proof hereof, it shall not be necessary to produce or
account for any counterpart other than one signed by the party against which
enforcement is sought.
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THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
===============================================================================
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Ninth
Amendment to be executed by their respective officers thereunto duly authorized
as of the date first above written.
NATIONAL CANADA FINANCE CELEBRITY, INC.
CORP.
By: /s/ WILLIAM HANDLEY By: /s/ ROBERT H. PATTERSON, JR.
--------------------------------- ---------------------------------
Print Name: William Handley Print Name: Robert H. Patterson
--------------------- --------------------
Title: Vice President Title: Chairman
-------------------------- --------------------------
By: /s/ DOUG CLARK MAGICSILK, INC
---------------------------------
Print Name: Doug Clark
--------------------- By: /s/ ROBERT H. PATTERSON, JR.
Title: Vice President ----------------------------------
-------------------------- Print Name: Robert H. Patterson
---------------------
Title: Chairman
---------------------------
THE CLUETT CORPORATION
By: /s/ ROBERT H. PATTERSON, JR.
----------------------------------
Print Name: Robert H. Patterson
---------------------
Title: Chairman
---------------------------
INDIA EXOTICS, INC.
By: /s/ ROBERT H. PATTERSON, JR.
----------------------------------
Print Name: Robert H. Patterson
---------------------
Title: Chairman
---------------------------
STAR WHOLESALE FLORIST, INC.
By: /s/ ROBERT H. PATTERSON, JR.
----------------------------------
Print Name: Robert H. Patterson
---------------------
Title: Chairman
---------------------------
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<PAGE> 1
EXHIBIT 10.11
(Inventory, Accounts Receivable, Etc.)
PROMISSORY NOTE
U.S. $35,000,000.00 New York, New York
September 26, 1997
ON OR BEFORE March 31, 1998 (the "Termination Date"), for value
received, the undersigned, CELEBRITY, INC., a Texas corporation ("Celebrity"),
MAGICSILK, INC., a Texas corporation ("MagicSilk"), THE CLUETT CORPORATION, a
California corporation, INDIA EXOTICS, INC., a Texas corporation ("India") and
STAR WHOLESALE FLORIST, INC., a Texas corporation (collectively, the "Makers"),
jointly and severally promise to pay to the order of NATIONAL CANADA FINANCE
CORP., a Delaware corporation having a place of business in New York, New York
(the "Lender"), the principal sum of THIRTY FIVE MILLION DOLLARS (U.S.
$35,000,000.00), or so much thereof as shall be disbursed and remain unpaid,
together with interest from the date of disbursement until paid, upon disbursed
and unpaid principal balances, at the applicable rate specified, and payable as
provided, in the Loan Agreement (hereinafter defined), with the final
installment of interest being due and payable concurrently on the same date
that the principal balance is due hereunder.
The "Termination Date" may be extended pursuant to the provisions of
that certain Loan Agreement dated May 10, 1993, as amended by a First Amendment
dated July 27, 1993, a Second Amendment, dated November 17, 1993, a Third
Amendment, dated March 18, 1994, a Fourth Amendment dated November 4, 1994, a
Fifth Amendment dated February 3, 1995, a Sixth Amendment dated March 14, 1995,
and a Seventh Amendment dated August 4, 1995, an Eighth Amendment dated July
22, 1997, and a Ninth Amendment of even date herewith (as so amended, and as
further amended, restated or otherwise modified from time to time, the "Loan
Agreement"), among the Lender and the Makers; and if so extended, such extended
date shall thereupon constitute the Termination Date. Unless otherwise defined
herein, terms used herein shall have the meanings ascribed to them in the Loan
Agreement.
Any payment not made when due shall bear interest after maturity at a
rate per annum, adjusted daily, equal to the lesser of (a) the Maximum Rate, or
(b) the Prime Rate, plus two percent (2%) per annum.
In the event that the foregoing provisions should be construed by a
court of competent jurisdiction not to constitute a valid, enforceable
designation of a rate of interest or method of determining same, the
indebtedness hereby evidenced shall bear interest at the Maximum Rate, or at
the rate of eighteen percent (18%) per annum, whichever is less.
This Note is given in further renewal, amendment, and increase of that
certain Promissory
<PAGE> 2
Note dated May 10, 1993 executed by Celebrity and Magicsilk payable to the
order of the Lender in the original principal sum of Five Million Dollars (U.S.
$5,000,000) as heretofore renewed, amended, and increased by that certain
Promissory Note dated July 27, 1993 executed by Celebrity and Magicsilk payable
to the order of the Lender in the original principal sum of Seven Million
Dollars (U.S. $7,000,000), as heretofore renewed, amended, and increased by
that certain Promissory Note dated November 17, 1993 executed by Celebrity,
Cluett, and Magicsilk payable to the order of the Lender in the original
principal sum of Fifteen Million Dollars (U.S. $15,000,000), as renewed,
amended, and increased by that certain Promissory Note dated November 4, 1994
executed by Celebrity, Magicsilk, and Cluett payable to the order of Lender in
the original principal sum of Twenty Million Dollars (U.S. $20,000,000), as
renewed and amended by that certain Promissory Note dated February 3,1995
executed by the Makers payable to the order of Lender in the original principal
sum of Twenty Million Dollars (U.S. $20,000,000), as renewed, amended, and
increased by that certain Promissory Note dated March 14, 1995 in the original
principal sum of Twenty Five Million Dollars (U.S. $25,000,000), as renewed,
amended, and increased by that certain Promissory Note dated August 4, 1995
executed by Celebrity, Magicsilk, Cluett, and India in the original principal
sum of Thirty-Five Million Dollars (U.S. $35,000,000) and is secured by that
certain Amended and Restated Security Agreement (the "Security Agreement") of
even date herewith, covering Makers' Inventory, Accounts Receivable, Contract
Rights, etc., all as is more particularly described in the Security Agreement;
and may now or hereafter be secured by other mortgages, trust deeds,
assignments, security agreements, or other instruments of pledge or
hypothecation.
This Note is payable at the offices of Lender, at 125 West 55th
Street, 23rd Floor, New York, New York 10009, or at such other place as the
holder may designate in writing, in lawful money of the United States of
America, which shall be legal tender in payment of all debts and dues, public
and private, at the time of payment.
Upon the Termination Date, or, at the option of the Lender (a) if the
undersigned shall fail to make payment of any installment of interest, as above
provided, or (b) upon any default in the terms and provisions of the Security
Agreement, or any trust deed, mortgage, or other instrument of pledge or
hypothecation which now or hereafter secures the payment of the indebtedness
evidenced hereby, or (c) upon the occurrence of any Event of Default as that
term is defined in the Loan Agreement, or (d) upon default in the payment when
due of any other indebtedness, liabilities, or obligations of any of the Makers
to the Lender, whether now existing or hereafter created or arising, absolute
or contingent, due or to become due, joint, several, or joint and several, the
entire unpaid balance of the indebtedness hereby evidenced, together with all
interest then accrued, shall at once become due and payable for all purposes,
without demand or notice, the same being hereby expressly waived.
If this Note is placed in the hands of an attorney for collection, by
suit or otherwise, or to protect the security for its payment, or to enforce
its collection, or to represent the rights of the Lender in connection with any
loan documentation executed in connection herewith, or to defend successfully
against any claim, cause of action or suit brought by the Makers against the
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<PAGE> 3
Lender, the Makers shall pay on demand all costs of collection and litigation
(including court costs), together with a reasonable attorney's fee.
The Makers and any endorsers or guarantors hereof waive protest,
demand, presentment and notice of dishonor, and agree that this Note may be
extended, in whole or in part, without limit as to the number of such
extensions, or the period or periods thereof, and without notice to them and
without affecting their liability thereon.
It is the intention of the Lender and the Makers to comply strictly
with all applicable usury laws; and, accordingly, in no event and upon no
contingency shall the holder hereof ever be entitled to receive, collect, or
apply as interest any interest, fees, charges, or other payments equivalent to
interest, in excess of the maximum rate which the Lender may lawfully charge
under applicable statutes and laws from time to time in effect; and, in the
event that the holder hereof ever receives, collects, or applies as interest,
any such excess, such amount which, but for this provision, would be excessive
interest, shall be applied to the reduction of the principal amount of the
indebtedness evidenced hereby; and, if the principal amount of the indebtedness
evidenced hereby, and all lawful interest thereon, is paid in full, any
remaining excess shall forthwith be paid to the Makers, or other party lawfully
entitled thereto. All interest paid or agreed to be paid by the Makers shall,
to the maximum extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full period until payment in full of the
principal, so that the interest hereon for such full period shall not exceed
the maximum amount permitted by applicable law. Any provision hereof, or of any
other agreement between the Lender and the Makers, that operates to bind,
obligate, or compel the Makers to pay interest in excess of such maximum lawful
contract rate shall be construed to require the payment of the maximum rate
only. The provisions of this paragraph shall be given precedence over any other
provision contained herein or in any other agreement between the Lender and the
Makers that is in conflict with the provisions of this paragraph.
This Note shall be governed and construed according to the internal
statutes and laws of the State of New York (without consideration of principles
of conflicts of laws).
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THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
===============================================================================
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<PAGE> 4
CELEBRITY, INC. THE CLUETT CORPORATION
By: /s/ ROBERT H. PATTERSON, JR. By: /s/ ROBERT H. PATTERSON, JR.
------------------------------ --------------------------------
Print Name: Robert H. Patterson Print Name: Robert H. Patterson
----------------------- ------------------------
Title: Chairman Title: Chairman
--------------------------- -----------------------------
MAGICSILK, INC. INDIA EXOTICS, INC.
By: /s/ ROBERT H. PATTERSON, JR. By: /s/ ROBERT H. PATTERSON, JR.
------------------------------ --------------------------------
Print Name: Robert H. Patterson Print Name: Robert H. Patterson
----------------------- ------------------------
Title: Chairman Title: Chairman
--------------------------- -----------------------------
STAR WHOLESALE FLORIST, INC.
By: /s/ ROBERT H. PATTERSON, JR.
--------------------------------
Print Name: Robert H. Patterson
-----------------------
Title: Chairman
-----------------------------
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<PAGE> 1
EXHIBIT 10.12
AMENDED AND RESTATED
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, entered into as of this 26th day of
September, 1997, by and between CELEBRITY, INC., a Texas corporation
("Celebrity") whose address is 4520 Old Troup Road, Tyler, Texas 75707,
MAGICSILK, INC., a Texas corporation ("Magicsilk") whose address is 4520 Old
Troup Road, Tyler, Texas 75707, THE CLUETT CORPORATION, a California
corporation ("Cluett") whose address is 3200 Centre Park Boulevard,
Winston-Salem, North Carolina _______, INDIA EXOTICS, INC., a Texas corporation
whose address is 4346 Green Ash Drive, Earth City, Missouri 63045 ("India"),
and STAR WHOLESALE FLORIST, INC., a Texas corporation ("Star") whose address is
8223 N. Stemmons, Dallas, Texas 75247 (collectively, the "Grantors"), and
NATIONAL CANADA FINANCE CORP., a Delaware corporation, having an address at 125
North 55th Street, 23rd Floor, New York, New York 10009 ("NCFC"), Individually
and as Agent for National Bank of Canada, a commercial banking institution
organized and existing under the laws of Canada with a United States domestic
branch office located in New York, New York (the "Bank"), the said NCFC,
Individually and as such Agent being herein sometimes called the "Lender";
W I T N E S S E T H:
That for good and valuable considerations, the receipt and sufficiency of which
are hereby acknowledged, the Grantors hereby agree with the Lender as follows:
1. Definitions. Reference is made to the Loan Agreement dated May 10,
1993, as amended by a First Amendment dated July 27, 1993, a Second Amendment
dated November 17, 1993, a Third Amendment dated March 18,1994, a Fourth
Amendment dated November 4, 1994, a Fifth Amendment dated February 3, 1995, a
Sixth Amendment dated as of March 14, 1995, a Seventh Amendment dated as of
August 4, 1995, an Eighth Amendment dated as of July 22, 1997, and a Ninth
Amendment of even date herewith (as so amended and as hereafter amended or
modified from time to time, the "Loan Agreement"), among Celebrity, Magicsilk,
Cluett, India, Star, and the Lender, said Loan Agreement being incorporated
herein by reference. All terms used in this Security Agreement which are
defined in the Loan Agreement or in Article 9 of the Uniform Commercial Code
(the "Code") of the State of New York and which are not otherwise defined
herein shall have the same meanings herein as set forth therein.
2. Grant of Security Interest. As collateral security for all of the
Obligations (as defined in Section 3 hereof), the Grantors hereby jointly,
severally, and jointly and severally pledge and assign to Lender, and grant to
Lender a continuing security interest in, the following (the "Collateral"):
<PAGE> 2
(a) All of the Grantors' U.S. inventory in all of its forms,
wherever located and whether now or hereafter existing, and all
accessions thereto and products thereof, including raw materials,
materials awaiting manufacture, work-in-process, finished products,
and materials used or consumed in Grantor's business (collectively
hereinafter called "Inventory");
(b) All warehouse receipts, bills of lading, and other
documents of title of every kind and character, now or at any time
hereafter evidencing or representing all or any part of Inventory;
(c) All of the Grantors' U.S. accounts, accounts receivable,
chattel paper, instruments, and other obligations of any kind, whether
or not evidenced by an instrument or chattel paper, and whether or not
earned by performance (collectively hereinafter called "Accounts
Receivable" or "Receivables") whether now or hereafter existing,
arising out of or in connection with the sale or lease of goods or the
rendering of services or otherwise, and all rights now or hereafter
existing in and to all security agreements, leases and other contracts
securing or otherwise relating to any such Accounts Receivable;
(d) All claims for tax refund, whether now existing or
hereafter arising, of any of the Grantors against any city, county,
state or federal government or any agency or authority or other
subdivision thereof, and the proceeds thereof;
(e) To the extent applicable to Inventory, all of the
Grantors' contract rights and general intangibles ("General
Intangibles") of every kind, character, and description, both now
owned and hereafter acquired, including, without limitation, goodwill,
trademarks, trade styles, trade names, patents, patent applications,
and deposit accounts;
(f) To the extent applicable to Receivables, all of the
Grantors' customer lists, original books and records, ledger and
account cards, computer tapes, discs, and printouts, whether now in
existence or hereafter created;
(g) All proceeds ("Proceeds") of any and all of the foregoing
Collateral and, to the extent not otherwise included, all payments
under insurance (whether or not Lender is the loss payee thereof), any
indemnity, warranty, or guaranty, payable by reason of loss or damage
to or otherwise with respect to any of the foregoing Collateral, and
including, without limitation, all moneys due or to become due in
connection with any of the Collateral, guaranties and security for the
payment of such moneys, the right of stoppage in transit, and all
returned or repossessed goods arising from a sale or lease thereof.
(Although proceeds are covered, Lender does not authorize the sale or
other transfer of any of the Collateral or the transfer of any
interest in the Collateral, except for the sale of goods in the
ordinary course of the Grantors' business);
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<PAGE> 3
in each case, whether now owned or hereafter acquired by any of the
Grantors and howsoever such Grantor's interest therein may arise or
appear (whether by ownership, lease, security interest, claim, or
otherwise). The Collateral described in subparagraphs (a) and (f) of
this Section is hereinafter sometimes called the "Tangible
Collateral."
3. Security for Obligations. The security interest created hereby in
the Collateral constitutes continuing collateral security for all of the
following obligations, whether now existing or hereafter incurred (the
"Obligations"):
(a) The full and prompt payment, when due, of the
indebtedness (and interest thereon) evidenced and to be evidenced by
that certain promissory note of even date herewith, in the principal
sum of Thirty-five Million Dollars (U.S. $35,000,000.00), executed by
the Grantors, and payable to the order of NCFC, and any and all
renewals, modifications, and extensions of said note, in whole or in
part;
(b) The due performance and observance by each of the
Grantors of all of its covenants, agreements, representations,
liabilities, obligations, and undertakings as set forth herein, or in
the Loan Agreement (as the same may be modified, renewed or extended
from time to time) or in any other instrument or document which now or
at any time hereafter evidences or secures, in whole or in part, all
or any part of the Obligations hereby secured; and
(c) The prompt payment and performance of any and all
obligations of any of the Grantors with respect to any letters of
credit or banker's acceptances now or at any time hereafter (i) issued
by NCFC at the request and for the benefit of a Borrower, or (ii)
issued by the Bank at the request and for the benefit of any of the
Grantors.
4. Representations and Warranties. Each of the Grantors represents
and warrants as follows:
(a) Such Grantor's chief place of business and chief
executive office, where such Grantor keeps its records concerning
Accounts Receivable and all originals of all chattel paper which
constitute Accounts Receivable are located at the address specified
for such Grantor in the initial paragraph hereof. None of the Accounts
Receivable is evidenced by a promissory note or other instrument.
(b) (i) Except for Permitted Encumbrances, each of the
Grantors owns the Collateral free and clear of any lien, security
interest or other charge or encumbrance except for the security
interest created by this Agreement; and (ii) except for the financing
statements filed in favor of the Lender relating to this Agreement,
and except for any financing statements filed with respect to
Permitted Encumbrances, no other financing statement or other
instrument similar in effect covering all or any part of the
Collateral is on file in any recording office.
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<PAGE> 4
(c) The exercise by the Lender of its rights and remedies
hereunder will not contravene any law or governmental regulation or
any contractual restriction binding on or affecting such Grantor or
any of its properties and will not result in or require the creation
of any lien, security interest or other charge or encumbrance upon or
with respect to any of its properties.
(d) To the best knowledge of such Grantor, except with regard
to amounts payable by the government of the United States under any
Government Contract, no authorization or approval or other action by,
and no notice to or filing with, any governmental authority or other
regulatory body is required either for the grant by such Grantor of
the security interest created hereby in the Collateral or for the
exercise by the Lender of its rights and remedies hereunder.
(e) This Agreement creates a valid security interest in favor
of the Lender in the Collateral. The taking possession by the Lender
of all instruments and chattel paper constituting Collateral from time
to time, and the filing of financing statements with the filing
offices designated on Exhibit A hereto will perfect and establish the
priority of the Lender's security interest hereunder in the
Collateral, subject to no other liens and encumbrances, except
Permitted Encumbrances. Except as set forth in this Section 4(e), and
except with regard to amounts payable by the government of the United
States under any Government Contract, no action is necessary or
desirable to perfect or otherwise protect such security interest.
5. Covenants as to the Collateral. So long as any of the Obligations
shall remain outstanding, unless the Lender shall otherwise consent in writing:
(a) Further Assurances. The Grantors will at their expense,
at any time and from time to time, promptly execute and deliver all
further instruments and documents and take all further action that the
Lender deems necessary or desirable or that the Lender may request in
order (i) to perfect and protect the security interest created or
purported to be created hereby; (ii) to enable the Lender to exercise
and enforce its rights and remedies hereunder in respect of the
Collateral; or (iii) to otherwise effect the purposes of this
Agreement, including, without limitation: (A) executing and filing
such financing or continuation statements, or amendments thereto, as
the Lender deems necessary or desirable or that the Lender may request
in order to perfect and preserve the security interest created or
purported to be created hereby; (B) furnishing to the Lender from time
to time statements and schedules further identifying and describing
the Collateral and such other reports in connection with the
Collateral as the Lender may reasonably request, all in reasonable
detail; (C) marking conspicuously each chattel paper included in the
Accounts Receivable and, at the request of the Lender, each of the
Grantors' respective records pertaining to the Account Receivable with
a legend, in form and substance satisfactory to the Lender, indicating
that such chattel paper is subject to the security interest created
hereby; (D) if any Account Receivable shall be evidenced by a
promissory note or other instrument or chattel paper, delivering and
pledging to the
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<PAGE> 5
Lender hereunder such note, instrument or chattel paper duly
endorsed and accompanied by executed instruments of transfer or
assignment, all in form and substance satisfactory to the Lender; and
(E) if any Inventory shall be represented by a warehouse receipt or
other document of title, delivering such warehouse receipt or other
document to Lender duly endorsed or assigned to the Lender, all in
form and substance satisfactory to the Lender.
(b) Location of Tangible Collateral. Except for items of
Inventory temporarily in transit to a Grantor following the purchase
of same by such Grantor, each of the Grantors will keep all of the
Tangible Collateral, both now owned and hereafter acquired, at the
location(s) described in EXHIBIT "B," hereto attached, or at such
other location or locations to which the Lender shall consent in
writing in advance of placing Tangible Collateral at such location(s).
(c) Taxes. The Grantors will pay promptly when due all
property and other taxes, assessments, and governmental charges or
levies imposed upon, and all claims (including claims for labor,
materials, and supplies) against, the Collateral, except to the extent
the validity thereof is being contested diligently and in good faith
by proper proceedings satisfactory to the Lender.
(d) Insurance. (i) The Grantors will, at their own expense,
maintain insurance with respect to the Inventory in such amounts,
against such risks, in such form and with such insurers, as shall be
satisfactory to the Lender from time to time, and in accordance with
the provisions of the Loan Agreement.
(e) As to Receivables and General Intangibles.
(i) Each of the Grantors will (A) keep its chief
place of business and chief executive office and all
originals of all chattel paper which constitute Accounts
Receivable and all documents which constitute or create
General Intangibles, at the location(s) specified in
paragraph 4(a) hereof, and (B) maintain and preserve complete
and accurate records concerning the Receivables, General
Intangibles, and such chattel paper.
(ii) As of the time any Receivable becomes subject
to the security interest granted by this Security Agreement,
including, without limitation, as of each time any specific
assignment or transfer or identification is made to the
Lender of any Receivable, the Grantor that owns such
Receivable shall be deemed to have warranted that such
Receivable and all papers and documents relating thereto are
genuine and in all respects what they purport to be; that
such Receivable is valid and subsisting and arises out of a
bona fide sale of goods sold and delivered, or in the process
of being delivered, or out of and for services theretofore
actually rendered, to the account debtor named in such
Receivable; that the amount of such Receivable represented as
owing is the correct amount
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<PAGE> 6
actually and unconditionally owing except for normal cash
discounts and is not disputed except for immaterial claims
not in excess of $5,000 in any one instance, and except for
such normal cash discount and immaterial claims, is not
subject to any set-offs, credits, deductions or
counter-charges; that such Grantor is the owner thereof free
and clear of all prior liens, except for the security
interest in favor of the Lender and any Permitted
Encumbrances; and that no surety bond was required or given
in connection with such Receivable or the contracts or
purchase orders out of which the same arose; and that such
Grantor has no notice of or reason to believe that the
account debtor is subject to any pending bankruptcy
proceeding, insolvency proceeding or operations of any
creditors' committee.
(iii) The Lender shall have the privilege at any
time upon its request, of inspection during reasonable
business hours of any of the business, properties or premises
of the Grantors and the books and records of the Grantors
relating to said Receivables and Inventory or the processing
or collection thereof as well as those relating to their
general business affairs and financial condition. The Lender
shall have the right at any time, whether before or after an
Event of Default, to notify any and all account debtors to
make payment thereof directly to the Lender; but to the
extent the Lender does not so elect, each of the Grantors
shall continue to collect such Grantor's Receivables. Except
as the Lender shall otherwise expressly agree in writing, all
proceeds of collection of Receivables received by the
Grantors shall be forthwith accounted for and transmitted to
the Lender in the form as received by the Grantors and shall
not be commingled with any funds of the Grantors. In the
event the account debtor of any Receivable included in this
Security Agreement shall also be indebted to any of the
Grantors in any other respect and such account debtor shall
make payment without designating the particular indebtedness
against which it is to apply, such payment shall be
conclusively presumed to be payment on the Receivable of such
account debtor included in this Security Agreement. Any
proceeds of Receivables so transmitted to the Lender shall be
handled and administered by the Lender in and through a
Remittance or similar account, but the Grantors acknowledge
that the maintenance of such an account by the Lender is
solely for its convenience in facilitating its own operations
pursuant hereto and that the Grantors have no, and shall not
have any, right, title or interest in said Receivable or in
the amounts at any time to the credit thereof. Except to the
extent the Lender may from time to time in its discretion
release proceeds to any of the Grantors for use in its
business, all proceeds received by the Lender shall be
applied on the Obligations secured hereby, whether or not
such Obligations shall have by their terms matured, such
application to be made at such intervals as the Lender may
determine, except that the Lender need not apply or give
credit for any item included in such proceeds until two (2)
business days after receipt by NCFC of such item at its main
office in New York City, New York. Items received after 1:00
o'clock p.m. current New York time on any business day shall
be deemed
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<PAGE> 7
to have been received the following business day. In
administering the collection of proceeds as herein provided
for, the Lender may accept checks or drafts in any amount and
bearing any notation without incurring liability to any of
the Grantors for so doing.
(iv) Following the occurrence of an Event of
Default, the Lender shall have the right, but shall incur no
liability for failing to do so, in its own name, or in the
name of the Grantor to demand, collect, receive, receipt for,
sue for, compound and give acquittance for, any and all
amounts due or to become due on the Receivables, to adjust,
settle or compromise the amount or payment thereof, in the
same manner and to the same extent as any of the Grantors
might have done, and to endorse the name of any of the
Grantors on all commercial paper given in payment or part
payment thereof, and in its discretion to file any claim or
take any action or proceedings which the Lender may deem
necessary or appropriate to protect and preserve and realize
upon the security interest of the Lender in the Receivables
and the proceeds thereof.
(v) Each of the Grantors will from time to time
execute such further instruments and do such further acts and
things as the Lender may reasonably require by way of further
assurance to the Lender of the matters and things herein
provided for or intended so to be. Without limiting the
foregoing, each of the Grantors agrees to execute and deliver
to the Lender an assignment or other form of identification
in the form required by the Lender of all Receivables at any
time included under this Security Agreement, together with
such other evidence of the existence and identity of such
Receivables as the Lender may reasonably require; each of the
Grantors will mark its books and records to reflect this
Security Agreement. Each of the Grantors will accompany each
transmission of proceeds of Receivables to the Lender with a
report in such form as the Lender may require in order to
identify the Receivables to which such proceeds apply.
(vi) Returned or repossessed goods arising from or
relating to any Receivables, if requested by the Lender,
shall be held separate and apart from any other property.
Each of the Grantors shall as often as required by Lender,
but not less often than weekly, report to the Lender the
appropriate identifying information with respect to such
goods and the Receivables out of which or to which such goods
relate.
(f) Transfers and Other Liens. Without the prior consent of
the Lender the Grantors shall not (i) sell, assign (by operation of
law or otherwise), exchange, or otherwise dispose of any of the
Collateral (except for sale or other use of Inventory in the ordinary
course of business as presently conducted); or (ii) create or suffer
to exist any lien, security interest or other charge or encumbrance
upon or with respect to any of the Collateral except for the security
interest created by this Agreement and Permitted Encumbrances.
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<PAGE> 8
(g) Damage to Collateral. Each of the Grantors will promptly
furnish to the Lender a statement respecting any material loss or
damage to any of the Tangible Collateral.
(h) Field Warehouse Arrangement. Following the occurrence of
an Event of Default, if the Lender shall so require, each of the
Grantors will at its own expense continue in force and effect and
comply with and operate under a field warehouse arrangement
satisfactory in form and substance to the Lender with an independent
field warehouse company selected by such Grantor and satisfactory to
the Lender, providing for the warehousing of such portion or portions
of such Grantor's Inventory as the Lender may designate and for the
issuance of non-negotiable warehouse receipts in the name of the
Lender for or representing the Inventory located therein.
6. Additional Provisions Concerning the Collateral.
(a) Each of the Grantors hereby authorizes Lender to file,
without the signature of such Grantor where permitted by law, one or
more financing or continuation statements, and amendments thereto,
relating to the Collateral.
(b) Each of the Grantors hereby irrevocably appoints the
Lender such Grantor's attorney-in-fact and proxy, with full authority
in the place and stead of such Grantor and in the name of such Grantor
or otherwise, from time to time in the Lender's discretion following
the occurrence of an Event of Default, to take any action and to
execute any instrument which the Lender may deem necessary or
advisable to accomplish the purposes of this Agreement, including,
without limitation: (i) to obtain and adjust insurance required to be
paid to the Lender pursuant to Section 5(d) hereof; (ii) to ask,
demand, collect, sue for, recover, compound, receive, and give
acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral; (iii) to receive, endorse, and
collect any checks, drafts or other instruments, documents, and
chattel paper in connection with clause (i) or (ii) above; (iv) to
sign its name on any invoice or bill of lading relating to any
Receivable, on drafts against customers, on schedules and assignments
of Receivables, on notices of assignment, financing statements and
other public records, on verification of accounts and on notices to
customers (including notices directing customers to make payment
direct to the Lender); (v) to notify the post office authorities to
change the address for delivery of its mail to an address designated
by the Lender, to receive, open and process all mail addressed to the
Grantor, to send requests for verification of Receivables to
customers; and (vi) to file any claims or take any action or institute
any proceedings which the Lender may deem necessary or desirable for
the collection of any of the Collateral or otherwise to enforce the
rights of the Lender with respect to any of the Collateral. Each of
the Grantors hereby ratifies and approves all acts of said attorney;
and so long as the attorney acts in good faith, it shall have no
liability to any such Grantor for any act or omission as such attorney.
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<PAGE> 9
(c) If any of the Grantors fails to perform any agreement
contained herein, the Lender may itself perform, or cause performance
of, such agreement or obligation, and the costs and expenses of the
Lender incurred in connection therewith shall be payable by the
Grantors under Section 9 hereof, and shall be fully secured hereby.
(d) The powers conferred on the Lender hereunder are solely
to protect its interest in the Collateral and shall not impose any
duty upon it to exercise any such powers. Except for the safe custody
of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Lender shall have no duty as to
any Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to any
Collateral.
(e) Anything herein to the contrary notwithstanding, (i) the
Grantors shall remain liable under any contracts and agreements
relating to the Collateral to the extent set forth therein to perform
all of their obligations thereunder to the same extent as if this
Agreement had not been executed; (ii) the exercise by the Lender of
any of its rights hereunder shall not release any of the Grantors from
any obligations under the contracts and agreements relating to the
Collateral; and (iii) the Lender shall not have any obligation or
liability by reason of this Agreement under any contracts and
agreements relating to the Collateral, nor shall the Lender be
obligated to perform any of the obligations or duties of any of the
Grantors thereunder or to take any action to collect or enforce any
claim for payment assigned hereunder.
7. Remedies Upon Default. If an Event of Default shall have
occurred:
(a) The Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on
default under the Code (whether or not the Code applies to the
affected Collateral), and also may (i) require the Grantors to, and
the Grantors hereby agree that they will at their expense and upon
request of the Lender forthwith, assemble all or part of the
Collateral as directed by the Lender and make it available to the
Lender at a place to be designated by the Lender which is reasonably
convenient to the Lender; and (ii) without notice except as specified
below, sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any of the Lender's offices or
elsewhere, for cash, on credit or for future delivery, and at such
price or prices and upon such other terms as the Lender may deem
commercially reasonable. The Grantors agree that, to the extent notice
of sale shall be required by law, at least five (5) days' notice to
the Grantors of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. The Lender shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Lender
may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was
so adjourned.
-9-
<PAGE> 10
(b) Any cash held by the Lender as Collateral and all cash
proceeds received by the Lender in respect of any sale of, collection
from, or other realization upon, all or any part of the Collateral
shall be applied as follows:
(i) First, to the repayment of the reasonable costs
and expenses, including reasonable attorneys' fees and legal
expenses, incurred by the Lender in connection with (A) the
administration of this Agreement, (B) the retaking, custody,
preservation, use, or operation of, or the sale of,
collection from, or other realization upon, any Collateral,
(C) the exercise or enforcement of any of the rights of the
Lender hereunder, or (D) the failure of any of the Grantors
to perform or observe any of the provisions hereof;
(ii) Second, to the reimbursement of the Lender for
the amount of any obligations of the Grantor paid or
discharged by the Lender pursuant to the provisions of this
Agreement, and of any expenses of the Lender payable by the
Grantors hereunder;
(iii) Third, to the satisfaction of the Obligations,
in such order as Lender shall elect;
(iv) Fourth, to the payment of any other amounts
required by applicable law [including, without limitation,
Section 47-9-504(1)(c) of the Code or any successor or
similar, applicable statutory provision]; and
(v) Fifth, the surplus proceeds, if any, to the
Grantors or to whomsoever shall be lawfully entitled to
receive the same or as a court of competent jurisdiction
shall direct.
(c) In the event that the proceeds of any such sale,
collection or realization are insufficient to pay all amounts to which
the Lender is legally entitled, the Grantors shall be liable for the
deficiency, together with interest thereon at such rate(s) as shall be
fixed by instrument(s) evidencing the Obligation(s) with respect to
which such deficiency exists, together with the costs of collection
and the reasonable fees of any attorneys employed by the Lender to
collect such deficiency.
8. Rights and Duties of the Lender, Etc. The Lender undertakes, as to
this Agreement, to exercise only such duties as are specifically set forth in
this Agreement and to exercise such of the rights, powers and remedies as are
vested in it by this Agreement or by law. The Lender may consult with counsel,
and the written advice or opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.
-10-
<PAGE> 11
9. Indemnity and Expenses.
(a) The Grantors agree to indemnify the Lender from and
against any and all claims, losses, and liabilities growing out of or
resulting from this Agreement (including, without limitation,
enforcement of this Agreement and any matter growing out of or
resulting from the ordinary negligence of the Lender), except claims,
losses, or liabilities resulting solely and directly from the Lender's
gross negligence or willful misconduct.
(b) The Grantors will upon demand pay to Lender the amount of
any and all costs and expenses, including the reasonable fees and
disbursements of the Lender's counsel and of any experts and agents,
which the Lender may incur in connection with (i) the administration
of this Agreement (excluding the salary of the Lender's employees and
the Lender's normal and usual overhead expenses); (ii) the custody,
preservation, use, or operation of, or the sale of, collection from,
or other realization upon, any Collateral; (iii) the exercise or
enforcement of any of the rights of Lender hereunder; or (iv) the
failure by the Grantor to perform or observe any of the provisions
hereof, even if such failure constitutes ordinary negligence, except
expenses resulting solely and directly from the Lender's gross
negligence or willful misconduct.
10. Notices, Etc. All notices and other communications provided
for hereunder (except for routine informational communications) shall be in
writing and shall be mailed, by registered or certified mail, return receipt
requested, sent by recognized national overnight courier service, telecopied by
facsimile machine, or delivered, if to any of the Grantors, to it at its
address specified in the first paragraph of this Agreement, with copies (if
other than routine informational communication) to Celebrity, 4520 Old Troup
Road, Tyler, Texas 75707, Attention: Ken Cichocki (Telecopy No.: 903/509-3631)
and Thompson & Knight, P.C., Suite 3300, 1700 Pacific Avenue, Dallas, Texas
75201-4693, Attention: James W. McKeller (Telecopy No.: 214/969-1751; and if to
Lender, to it at Suite 1850, 2121 San Jacinto, Dallas, Texas 75201, Attention:
William W. Handley (Telecopy No.: 214/871-2015). All such notices and other
communications shall be effective (i) if mailed, when received or three (3)
days after mailing, whichever is earlier; (ii) if sent by recognized national
overnight courier service, one (1) business day after sending; and (iii) if
telecopied, upon receipt, or (iv) if delivered, upon delivery.
11. Security Interest Absolute. All rights of the Lender, and all
security interests and all obligations of the Grantors hereunder, shall be
absolute and unconditional irrespective of: (i) any lack of validity or
enforceability of the Loan Agreement, any guaranty, or any other agreement or
instrument relating thereto; (ii) any change in the time, manner, or place of
payment of, or in any other term in respect of, all or any of the Obligations,
or any other amendment or waiver of or consent to any departure from this
Agreement, or any guaranty, or any other agreement or instrument relating
thereto; (iii) any increase in, addition to, or exchange, release, or
non-perfection of, any other collateral, or any release or amendment or waiver
of or consent to departure from any guaranty, for all or any of the
Obligations; (iv) any other circumstance which might otherwise constitute a
defense available to, or a discharge of,
-11-
<PAGE> 12
any of the Grantors in respect of the Obligations or this Agreement; or (v) the
absence of any action on the part of the Lender to obtain payment or
performance of the Obligations from the Grantors or any other party.
12. Miscellaneous.
(a) No amendment of any provision of this Security Agreement
shall be effective unless it is in writing and signed by the Grantors
and the Lender, and no waiver of any provision of this Agreement, and
no consent to any departure by the Grantor therefrom, shall be
effective unless it is 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.
(b) No failure on the part of the Lender to exercise, and no
delay in exercising, any right hereunder or under any other instrument
or document shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The rights and
remedies of the Lender provided herein and in the other instruments
and documents are cumulative and are in addition to, and not exclusive
of, any rights or remedies provided by law. The rights of the Lender
under any Loan Agreement between the parties, any guaranty, any other
instrument which now or hereafter evidences or secures all or part of
the Obligations, or any related document against any party thereto are
not conditional or contingent on any attempt by the Lender to exercise
any of its rights under any other such instrument or document against
such party or against any other party.
Any provision of this Security Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or invalidity without
invalidating the remaining portions hereof or thereof or affecting the
validity or enforceability of such provision in any other
jurisdiction.
(d) This Agreement shall create a continuing security
interest in the Collateral and shall (i) remain in full force and
effect until the payment in full of all of the Obligations, (ii) be
binding on the Grantors and their respective successors and permitted
assigns and shall inure, together with all rights and remedies of the
Lender hereunder, to the benefit of the Lender and its successors,
transferees, and assigns. None of the rights or obligations of the
Grantors hereunder may be assigned or otherwise transferred without
the prior written consent of the Lender.
(e) Upon the satisfaction in full of all of the Obligations,
the Lender will, upon the Grantors' request and at the Grantors'
expense, (i) return to the Grantor such of the Collateral as shall not
have been sold or otherwise disposed of or applied pursuant to the
terms hereof; and (ii) execute and deliver to the Grantors such
documents as the Grantors shall reasonably request to evidence
termination of the security interest herein granted.
-12-
<PAGE> 13
(f) This Agreement shall be governed by and construed in
accordance with the internal statutes and laws of the state of New
York, (without regard to principles of conflicts of law), except as
required by mandatory provisions of law and except to the extent that
the validity or perfection of the security interest created hereby, or
remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New
York. If any provision hereof is in conflict with the provisions of
the Loan Agreement, the provisions of the Loan Agreement shall
control.
13. Effect of Prior Documents. This Agreement is given in renewal,
extension, consolidation, and modification, and as a complete restatement of
(i) that certain Security Agreement dated as of May 10, 1993 executed by
Celebrity and Magicsilk in favor of the Lender, (ii) that certain Security
Agreement dated as of November 17, 1993 executed by Cluett in favor of the
Lender, and (iii) that certain Security Agreement dated as of February 3, 1995
executed by India in favor of the Lender; provided however, that nothing herein
shall be deemed to be an extinguishment or novation of any of the liens,
security interests, obligations, or duties evidenced or created by any of the
above-described documents.
14. Special Provisions. If any Rider, initialed by the parties, is
attached hereto, the provisions of such Rider are made a part hereof by
reference as fully and particularly as if set out herein verbatim. Should there
be any conflict between the provisions hereof and the provisions contained in
such Rider, the provisions of such Rider shall control.
===============================================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
===============================================================================
-13-
<PAGE> 14
IN WITNESS WHEREOF, the Grantors have caused this Agreement to be
executed and delivered by their respective duly authorized officers on this the
day and year first above written.
CELEBRITY, INC. INDIA EXOTICS, INC.
By: /s/ ROBERT H. PATTERSON, JR. By: /s/ ROBERT H. PATTERSON, JR.
-------------------------------- -------------------------------
Print Name: Robert H. Patterson Print Name: Robert H. Patterson
-------------------- -------------------
Title: Chairman Title: Chairman
------------------------- ----------------------
MAGICSILK, INC. STAR WHOLESALE FLORIST, INC.
By: /s/ ROBERT H. PATTERSON, JR. By: /s/ ROBERT H. PATTERSON, JR.
-------------------------------- -------------------------------
Print Name: Robert H. Patterson Print Name: Robert H. Patterson
-------------------- -------------------
Title: Chairman Title: Chairman
------------------------- ----------------------
THE CLUETT CORPORATION
By: /s/ ROBERT H. PATTERSON, JR.
--------------------------------
Print Name: Robert H. Patterson
--------------------
Title: Chairman
-------------------------
-14-
<PAGE> 15
EXHIBIT A
TO SECURITY AGREEMENT
(List of UCC Filing Offices)
1. Celebrity:
a. Secretary of State - Texas
2. Magicsilk:
a. Secretary of State - Texas
3. Cluett:
a. Secretary of State - North Carolina
b. Register of Deeds - Forsyth County, North Carolina
c. Secretary of State - California
d. County Recorder - San Diego County, California
4. India:
a. Secretary of State - Texas
b. Secretary of State - Missouri
c. Recorder of Deeds - St. Louis County, Missouri
d. Office of Clerk of Superior Court - Fulton County, Missouri
5. Star:
a. Secretary of State - Texas
-15-
<PAGE> 16
EXHIBIT B
TO SECURITY AGREEMENT
(List of Locations of Tangible Collateral)
A. Inventory Locations for Celebrity:
1. 4501 and 4520 Old Troup Road, Tyler, Texas 75707;
2. 3637 Shiloh Road, Tyler, Texas 75707; and
3. 15150 State Line Drive, Charlotte, North Carolina 28244.
B. Inventory Locations for Magicsilk:
1. 4520 Old Troup Road, Tyler, Texas 75707; and
2. 15150 State Line Drive, Charlotte, North Carolina 28244.
C. Inventory Locations for Cluett:
1. 3200 Centre Park Boulevard, Winston-Salem, North Carolina;
2. 1289 Birmingham Drive, Encinitas, California 92024; and
3. 2590 Pioneer Avenue, Suite D, Vista, California _____.
D. Inventory Locations for India:
1. 4346 Green Ash Drive, Earth City, Missouri 63045;
2. 4333 Green Ash Drive, Earth City, Missouri 63045;
3. 4341 Green Ash Drive, Earth City, Missouri 63045;
4. 13527-31 Earth City Expressway, Earth City, Missouri 63045;
and
5. 230 Spring Street, N.W., Suite 111-GA, Atlanta, Georgia 30303.
E. Inventory Locations for Star:
1. 8223 N. Stemmons, Dallas, Texas 75247;
2. 8700 Sovereign Row, Dallas, Texas 75247
3. 2301 N. Broadway, Tyler, Texas 75701
-16-
<PAGE> 1
EXHIBIT 10.14
Hongkong Bank
The Hongkong and Shanghai Banking Corporation Limited
Mongkok Office: 675 Nathan Road, Kowloon, Hong Kong
CORPORATE BANKING CENTRE
PRIVATE AND CONFIDENTIAL
Celebrity Exports International Ltd
12/F Empire Centre
68 Mody Road
Tsimshatsui East
Kowloon
Attn: Mr K C Lee 19 May 1997
Dear Sir
BANKING FACILITIES
A/C NO. 001-523950-001
We refer to our recent discussions and are pleased to advise that we have
reviewed your undermentioned banking facilities and offered a renewal within
the following revised limits which will be made available on the specific terms
and conditions outlined herein and upon the satisfactory completion of the
security detailed below. These facilities are subject to review at any time
and, in any event by 31 March 1998, and also subject to our overriding right of
withdrawal and repayment on demand, including the right to call for cash cover
on demand for prospective and contingent liabilities.
<TABLE>
<CAPTION>
Existing New
-------- ---
<S> <C> <C>
Export Facilities HKD45,000,000*# HKD55,000,000@#o
- -----------------
Purchase of D/P bills on approved drawees
with ECIC cover assigned to us.
within which HKD45,000,000*# HKD55,000,0000@#o
- ------------
D/A bills on approved drawees up to 60 days
with ECIC cover assigned to us.
</TABLE>
* within which HKD15,000,000 can be
used as Export DP/DA bills (60 usance
days) drawn on Celebrity Group
companies.
(A/C No. 001-523950-096)
<PAGE> 2
Existing New
@ within which HKD20,000,000 can be
used as Export DP/DA bills (60 usance
days) drawn on Celebrity Group
companies.
(A/C No. 001-523950-096)
# of which HKD2,000,000 can be used
as Overdraft facility. Interest will
continue to be charged on daily
balances over our best lending rate
(currently 8-3/4% per annum, but
subject to fluctuation at our discretion)
and payable monthly in arrears to the
debit of your current account.
o of which HKD5,000,000 temporarily
available until 31 October 1997.
Commission Structure
Our opening commission on Documentary Credits and commission in lieu of
exchange will continue to be charged as follows:
For the first USD50,000 or its equivalent 1/4%
Balance in excess of USD50,000 or its equivalent 1/8%
Security
As security, we are holding:
1) A Corporate Guarantee in our favour from Celebrity Inc. for
HKD45,000,000 with Board Resolution.
2) A Letter of Undertaking from Celebrity Exports International Ltd with
Board Resolution that their net worth is and will be maintained for
not less than HKD30 million for all times.
3) A Letter of Negative Pledge from your company.
In view of the foregoing revised facilities, we require:
<PAGE> 3
A) A Corporate Guarantee from Celebrity Inc. for HKD55,000,000. Our
standard form of Guarantee is enclosed for their completion and return
which should be verified by their banker and accompanied by the
undermentioned documents.
i) A certified true copy of a board resolution authorizing a
named person or the holder of a particular office to execute
a guarantee in our favour on behalf of the Corporation. This
certified true copy of the resolution should be signed and
sealed by the Secretary or an Assistant Secretary of the
Corporation.
ii) A certificate of incumbency to be signed and sealed by the
Secretary or an Assistant Secretary of the Corporation. Our
draft form is enclosed for consideration which should be
typed on their stationery.
iii) A counsel's opinion which may be given by the Corporation's
in-house counsel, as per the attached format.
B) A Letter of Undertaking from Celebrity Exports International Ltd with
Board Resolution that their net worth maintaining for not less than
HKD50 million for all times. Our standard forms of "Letter of
Undertaking" and "Board Resolution" are enclosed for your completion
and return.
Upon receipt of which, we shall return the existing guarantee and Letter of
Undertaking as mentioned at the above security items 1) and 2) for your
cancellation.
Please note that an arrangement fee of HKD15,000 will be charged to the debit
of your current account upon receipt of your acceptance to this letter.
Our above commitment will remain open for acceptance until the close of
business on 10 June 1997 and if not accepted by that date, will be deemed to
have lapsed.
Kindly arrange for the authorized signatories of your company, in accordance
with the terms of the mandate given to the Bank, to sign and return to us the
duplicate copy of this letter to signify your confirmation as to the
correctness of the security held, and your understanding and acceptance of the
terms and conditions under which these facilities are granted.
We are pleased to be of continued assistance.
Yours faithfully
Roger Lim
Corporate Relationship Manager
Enc
EML
<PAGE> 1
EXHIBIT 10.16
The Hongkong and Shanghai Banking Corporation Limited
Hong Kong
GUARANTEE BY LIMITED COMPANY (LIMITED AMOUNT - UNDER SEAL)
1. Definitions
"Bank" means The Hongkong and Shanghai Banking Corporation Limited at
its office specified in the Schedule and its successors and assigns;
"Banking Facilities" means such facilities as the Bank may make or
continue to make available to the Customer or to any other person at
the request of the Customer;
"Customer" means the person whose name and address are specified in
the Schedule;
"Default Interest" means interest at such rate as the Bank may
specify, compounded monthly if not paid on the dates specified by the
Bank;
"Exchange Rate" means the rate for converting one currency into
another currency which the Bank determines to be prevailing in the
relevant foreign exchange market at the relevant time, such
determination to be conclusive and binding on the Guarantor;
"Guaranteed Moneys" means (i) all moneys in any currency owing by the
Customer to the Bank at any time, actually or contingently, in any
capacity, alone or jointly with any other person, (ii) interest on
such moneys (both before and after any demand or judgment), to the
date on which the Bank receives payment, at the rates payable by the
Customer or which would have been payable but for any circumstance
which restricts payment and (iii) expenses of the Bank in enforcing
this Guarantee on a full indemnity basis;
"Guarantor" means the person whose name and address are specified in
the Schedule;
"Maximum Liability" means the sum specified in the Schedule plus
Default Interest on that sum and expenses of the Bank in enforcing
this Guarantee on a full indemnity basis; where a liability for
Guaranteed Moneys is incurred in a currency different from the
currency in which the Maximum Liability is stated and the equivalent
of that liability in the currency in which the Maximum Liability is
stated, calculated at the Exchange Rate, has increased since it was
incurred, that increase shall be added to the Maximum Liability;
"person" includes an individual, firm, company, corporation and an
unincorporated body of persons; and
"Process Agent" means that person, if any, whose name and Hong Kong
address are specified in the Schedule.
<PAGE> 2
2. Guarantee
2.01 In consideration of the Banking Facilities, the Guarantor
guarantees to pay the Guaranteed Moneys to the Bank on demand.
2.02 The liability of the Guarantor shall not exceed the Maximum
Liability.
2.03 The Guarantor shall pay Default Interest (to the extent that
it is not paid by the Customer) on the Guaranteed Moneys from
the date of demand by the Bank on the Guarantor until the
Bank receives payment of the whole of the Guaranteed Moneys
(both before and after any demand or judgment or any
circumstance which restricts payment by the Customer).
2.04 A certificate of balance signed by any duly authorized
officer of the Bank shall be conclusive evidence against the
Guarantor of the amount of the Guaranteed Moneys owing at any
time.
2.05 The Bank shall be entitled to retain this Guarantee and any
security it has in respect of the Guaranteed Moneys for such
period as the Bank may certify to the Guarantor to be
appropriate in order to protect the interests of the Bank in
respect of the Guaranteed Moneys.
3. Continuing and Additional Security
3.01 This Guarantee is a continuing security and shall secure the
whole of the Guaranteed Moneys until one calendar month after
receipt by the Bank of notice in writing by the Guarantor or
a liquidator or receiver of the Guarantor to terminate it.
Nevertheless and despite the giving of such notice, this
Guarantee shall continue to apply to the Guaranteed Moneys in
respect of which the Customer is or becomes actually or
contingently liable up to such termination and the Guarantor
guarantees to pay such Guaranteed Moneys to the Bank on
demand whether that demand is made before, at the time of or
after such termination.
3.02 This Guarantee is in addition to, shall not be affected by
and may be enforced despite the existence of any other
guarantee or security held by the Bank.
4. Customer's Accounts
The Bank may, at any time and despite the termination of this
Guarantee, continue any existing account and open any new account in
the name of the Customer and no subsequent transactions, receipts or
payments involving such new accounts shall affect the liability of the
Guarantor.
5. Payments
<PAGE> 3
5.01 Payments by the Guarantor shall be made to the Bank as
specified by the Bank without any set-off, counterclaim,
withholding or condition of any kind except that, if the
Guarantor is compelled by law to make such withholding, the
sum payable by the Guarantor shall be increased so that the
amount actually received by the Bank is the amount it would
have received if there had been no withholding.
5.02 Payment by the Guarantor to the Bank shall be in the currency
of the relevant liability or, if the Bank so agrees in
writing, in a different currency, in which case the
conversion to that different currency shall be made at the
Exchange Rate.
5.03 No payment to the Bank under this Guarantee pursuant to any
judgment, court order or otherwise shall discharge the
obligation of the Guarantor in respect of which it was made
unless and until payment in full has been received in the
currency in which it is payable under this Guarantee and, to
the extent that the amount of any such payment shall, on
actual conversion into such currency, at the Exchange Rate,
fall short of the amount of the obligation, expressed in that
currency, the Guarantor shall be liable for the shortfall.
5.04 Any moneys paid to the Bank in respect of the Guaranteed
Moneys may be applied in or towards satisfaction of the same
or placed to the credit of such account as the Bank may
determine with a view to preserving its rights to prove for
the whole of the Guaranteed Moneys.
5.05 If any moneys paid to the Bank in respect of the Guaranteed
Moneys are required to be repaid by virtue of any law
relating to insolvency, bankruptcy or liquidation or for any
other reason, the Bank shall be entitled to enforce this
Guarantee as if such moneys had not been paid.
6. Set-off
The Bank may, at any time and without notice, apply any credit balance
to which the Guarantor is entitled on any account with the Bank in or
towards satisfaction of the Guaranteed Moneys. For this purpose, the
Bank is authorized to purchase, at the Exchange Rate, such other
currencies as may be necessary to effect such application with the
moneys standing to the credit of such account.
7. Lien
The Bank is authorized to exercise a lien over all property of the
Guarantor coming into the possession or control of the Bank, for
custody or any other reason and whether or not in the ordinary course
of banking business, with power for the Bank to sell such property to
satisfy the Guaranteed Moneys.
<PAGE> 4
8. Guarantor as Principal Debtor
The liability of the Guarantor under this Guarantee shall not be
discharged or otherwise affected by reason of the Bank entering into
any agreement or arrangement with the Customer or any other person or
by reason of any legal limitation, disability or incapacity or any
other act, omission or circumstance which, but for this provision,
would discharge the Guarantor to any extent. Any Guaranteed Moneys
which may not be recoverable from the Customer for any such reason
shall be recoverable by the Bank from the Guarantor as principal
debtor by way of indemnity, on demand, together with Default Interest
thereon in accordance with Clause 2.03.
9. Guarantor as Trustee
9.01 The Guarantor shall not, until the whole of the Guaranteed
Moneys have been received by the Bank, exercise its rights of
subrogation, indemnity, set-off or counterclaim against the
Customer or its rights to participate in any security the
Bank has in respect of the Guaranteed Moneys or, unless
required by the Bank to do so, to prove in the bankruptcy or
liquidation of the Customer. The Guarantor shall hold any
amount recovered, as a result of the exercise of any of such
rights, on trust for the Bank and shall pay the same to the
Bank immediately on receipt.
9.02 The Guarantor has not taken any security from the Customer
and agrees not to do so until the Bank has received the whole
of the Guaranteed Moneys. Any security taken by the Guarantor
in breach of this provision shall be held in trust for the
Bank as security for the Guaranteed Moneys and all moneys at
any time received in respect thereof shall be paid to the
Bank immediately on receipt.
10. No Waiver
No act or omission by the Bank pursuant to this Guarantee shall affect
its rights, powers and remedies hereunder or any further or other
exercise of such rights, powers or remedies.
11. Assignment
The Guarantor may not assign or transfer any of its rights or
obligations hereunder. The Bank may assign any of its rights hereunder
to a person in whose favour it has made an assignment of all or any of
the Banking Facilities.
12. Communications
Any notice, demand or other communication under this Guarantee shall
be in writing addressed to the Guarantor at its registered office
address or at the last address registered with the Bank and addressed
to the Bank at its office specified in the
<PAGE> 5
Schedule or such other address as the Bank may notify to the Guarantor
for this purpose and may be delivered personally, by leaving it at
such address, by post, facsimile transmission or telex and shall be
deemed to have been delivered to the Guarantor at the time of personal
delivery or on leaving it at such address or on the second day
following the day of posting or on the day of dispatch, if sent by
facsimile transmission or telex, and to the Bank on the day of actual
receipt.
13. Severability
Each of the provisions of this Guarantee is severable and distinct
from the others and, if one or more of such provisions is or becomes
illegal, invalid or unenforceable, the remaining provisions shall not
be affected in any way.
14. Governing Law and Jurisdiction
14.01 This Guarantee is governed by and shall be construed in
accordance with the laws of Hong Kong.
14.02 The Guarantor submits to the non-exclusive jurisdiction of
the Hong Kong Courts but this Guarantee may be enforced in
the Courts of any competent jurisdiction.
15. Governing Version
This Guarantee is executed in an English version and a Chinese
version. The English version is the governing version and shall
prevail whenever there is any discrepancy between the English version
and the Chinese version.
16. Process Agent
If a Process Agent is specified in the Schedule, service of any legal
process on the Process Agent shall constitute service on the
Guarantor.
17. Execution
This Guarantee has been entered into by the Guarantor under its common
or corporate seal, whichever may be affixed below, on May 17, 1997.
<PAGE> 6
SCHEDULE
Bank's Office HSBC, 2/F Corporate Banking Centre, 673 Nathan Road , Hong
------------------------------------------------------
Kong.
Customer Celebrity Exports, Int'L Ltd. of 12/F Empire Centre,
---------------------------------------- ----------------------
68 Mody Road, Tsimshatsui East, Kowloon.
- -------------------------------------------------------------------------------
Guarantor Celebrity Inc. of P.O. Box 6666,
------------------------------------------------ ------------------
4520 Old Troup Hwy., Tyler, Texas 75711, U.S.A.
- -------------------------------------------------------------------------------
Specified Sum in Respect of Maximum Liability HKD55,000,000.00
--------------------------------
Process Agent of
----------------------------------- ---------------------------
Hong Kong.
- ------------------------------------------------------------------,
Executed under the Seal of the Guarantor in the )
presence of the following director(s) and/or secretary: )
Celebrity, Inc.
/s/ JAMES R. THOMPSON
- -----------------------------------
Signature
Name James R. Thompson
-----------------------------
Office Vice President
----------------------------
Identification
--------------------
- -----------------------------------
Signature
Name
------------------------------
Office
----------------------------
Identification
--------------------
<PAGE> 1
EXHIBIT 10.17
[CELEBRITY EXPORTS INTERNATIONAL LIMITED LETTERHEAD]
To: The Manager 19 May, 1997
The Hongkong and Shanghai Banking Corporation Limited
673 Nathan Road,
Kowloon
Dear Sirs,
RE: BANKING FACILITIES
In consideration of your agreeing to grant credit facilities and other
financial accommodation to us or at our request upon and subject to such terms
and conditions as you shall from time to time think fit, we, Celebrity Exports
International Limited, hereby irrevocably and unconditionally covenant and
undertake with you that our net worth maintaining for not less than HKD50
Million for all times.
Yours faithfully,
For and on behalf of
CELEBRITY EXPORTS INTERNATIONALLY LTD.
/s/ ROBERT H. PATTERSON, JR.
- ---------------------------------------
Authorized Signature
<PAGE> 1
EXHIBIT 10.18
[MERRILL LYNCH LOGO] No. 9706340301
================================================================================
TERM WCMA(R) LOAN AGREEMENT
TERM WCMA LOAN AGREEMENT ("Loan Agreement") dated as of June 17, 1997, between
CELEBRITY, INC., a corporation organized and existing under the laws of the
State of Texas having its principal office at P.O. Box 6666, Tyler, TX 75711
("Customer"), and MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a corporation
organized and existing under the laws of the State of Delaware having its
principal office at 33 West Monroe Street, Chicago, IL 60603 ("MLBFS").
In accordance with that certain WORKING CAPITAL MANAGEMENT(R) ACCOUNT AGREEMENT
NO. 54D-07052 ("WCMA Agreement") between Customer and MLBFS' affiliate, MERRILL
LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S"), Customer has subscribed
to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by
this reference incorporated as a part hereof. In conjunction therewith,
Customer has requested that MLBFS make the Term WCMA Loan hereinafter described
(the "Loan"); and, subject to the terms and conditions herein set forth, MLBFS
has agreed to make the Loan to Customer.
The Loan combines the equivalent of seven successive one-year term loans, each
equal to that portion of the Loan which will be fully amortized in the ensuing
year, with a line of credit under the WCMA Program ("WCMA Line of Credit")
equal to that portion of the Loan which will not be amortized in the ensuing
year. Subject to the terms hereof, each year after the initial funding there
will be an additional funding on account of the term portion of the Loan, with
the proceeds deposited into Customer's WCMA Account concurrently with a
corresponding reduction in the Maximum WCMA Line of Credit.
This structure provides Customer with substantially the same initial funding
and loan amortization as a conventional term loan. However, unlike most
conventional term loans, it permits both a prepayment in whole or in part at
any time without penalty, and, subject to the terms and conditions herein set
forth, a re-borrowing on a revolving basis of any such amounts prepaid on
account of the WCMA Line of Credit portion of the Loan. The structure of the
Loan therefore enables Customer at its option to use any free cash balances
that it may have from time to time to reduce interest expense on the line of
credit portion of the Loan without impairing its working capital.
Accordingly, and in consideration of the premises and of the mutual covenants
of the parties hereto, Customer and MLBFS hereby agree as follows:
ARTICLE I. DEFINITIONS
1.1 SPECIFIC TERMS. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
(a)"Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement, whether with or from Customer or
any other party, which are contemplated hereby or otherwise reasonably required
by MLBFS in connection herewith, or which evidence the creation, guaranty or
collateralization of any of the Obligations or the granting or perfection of
liens or security interests upon any collateral for the Obligations, and shall
include, without limitation, the Term WCMA Note.
(b)"Bankruptcy Event" shall mean any of the following: (i) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt
or receivership law or statute shall be filed or consented to by Customer or
any Guarantor; or (ii) any such proceeding shall be filed against Customer or
any Guarantor and shall not be dismissed or withdrawn within sixty (60) days
after filing; or (iii) Customer or any Guarantor shall make a general
assignment for the benefit of creditors; or (iv) Customer or
<PAGE> 2
any Guarantor shall become insolvent or generally fail to pay or admit in
writing its inability to pay its debts as they become due; or (v) Customer or
any Guarantor shall be adjudicated a bankrupt or insolvent.
(c)"Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(d)"Closing Date" shall mean the date upon which all conditions precedent to
MLBFS' obligation to make the Loan shall have been met to the satisfaction of
MLBFS.
(e)"Commitment Expiration Date" shall mean July 17, 1997.
(f)"Commitment Fee" shall mean a fee of $50,000.00 due to MLBFS in connection
with this Loan Agreement.
(g)"General Funding Conditions" shall mean each of the following conditions to
any loan or advance by MLBFS hereunder: (i) no Event of Default, or event which
with the giving of notice, passage of time, or both, would constitute an Event
of Default, shall have occurred and be continuing or would result from the
making of such loan or advance hereunder by MLBFS; (ii) there shall not have
occurred and be continuing any material adverse change in the business or
financial condition of Customer or any Guarantor; (iii) all representations and
warranties of Customer or any Guarantor herein or in any Additional Agreements
shall then be true and correct in all material respects; (iv) MLBFS shall have
received this Loan Agreement and all Additional Agreements (including, without
limitation, each of the Additional Agreements described in the definition of
"Real Property Funding Condition"), duly executed and filed or recorded where
applicable, all of which shall be in form and substance reasonably satisfactory
to MLBFS; (v) the Commitment Fee shall have been paid in full; (vi) MLBFS shall
have received, as and to the extent applicable, copies of invoices, bills of
sale, loan payoff letters and/or other evidence reasonably satisfactory to it
that the proceeds of the Loan will satisfy the Loan Purpose; (vii) MLBFS shall
have received evidence reasonably satisfactory to it as the ownership of and
the perfection and priority of MLBFS' liens and security interests on any
collateral for the Obligations furnished pursuant to any of the Additional
Agreements; and (viii) any additional conditions specified in the "Term WCMA
Approval" letter executed by MLBFS with respect to the transactions
contemplated hereby shall have been met to the reasonable satisfaction of
MLBFS.
(h)"Guarantor" shall mean a person or entity who has either guaranteed or
provided collateral for any or all of the Obligations; and "Business Guarantor"
shall mean any such Guarantor that is a corporation, partnership,
proprietorship, limited liability company or other entity regularly engaged in
a business activity.
(i)"Interest Rate" shall have the meaning set forth in the Term WCMA Note.
(j)"Loan Amount" shall mean an amount equal to the lesser of (i) 100% of the
aggregate cost to Customer of satisfying or fulfilling the Loan Purpose, (ii)
the aggregate amount which Customer shall request be advanced by MLBFS on
account of the Loan Purpose, or (iii) $5,000,000.00.
(k)"Loan Purpose" shall mean the purpose for which the proceeds of the Loan
will be used; to wit: to refinance the mortgages on the properties located at
4520 Old Troup Highway, Tyler, Smith Co., Texas and 3200 Centre Park Blvd.,
Winston-Salem, North Carolina with Nations Bank and to finance working capital
expenditures.
(l)"Maximum WCMA Line of Credit" shall mean the maximum aggregate line of
credit which MLBFS will extend to Customer subject to the terms and conditions
hereof, as the same shall be reduced from time to time in accordance with the
terms hereof.
(m)"Obligations" shall mean all liabilities, indebtedness and other obligations
of Customer to MLBFS, howsoever created, arising or evidenced, whether now
existing or hereafter arising, whether direct or indirect, absolute or
contingent, due or to become due, primary or secondary or joint or several,
and, without limiting the foregoing, shall include interest accruing after the
filing of any petition in bankruptcy, and all present and future liabilities,
indebtedness and obligations of Customer under this Loan Agreement and the Term
WCMA Note.
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<PAGE> 3
(n)"Real Property" shall mean the real property and improvements thereon
commonly known as 4520 Old Troup Highway, Tyler, Texas and 3200 Centre Park
Blvd., Winson-Salem, North Carolina.
(o)"Real Property Funding Condition" shall mean that Customer, at Customer's
expense, shall have furnished or caused to be furnished to MLBFS all of the
following, in form and substance reasonably satisfactory to MLBFS: (i) first
mortgages or deed of trusts upon the Real Property in favor of MLBFS (including
assignments of rents and security agreements granting to MLBFS first security
interests upon all fixtures now or hereafter located upon the Real Property);
(ii) a policy or commitment for a policy of ALTA mortgagee's title insurance
for each location insuring MLBFS' liens upon the Real Property for the full
amount of the Loan, issued by Chicago Title Insurance Company or one of its
agents or another title insurance company selected by MLBFS, with such special
endorsements as may reasonably be required by MLBFS and subject only to
exceptions reasonably acceptable to MLBFS; (iii) Phase 1 Environmental Audit
Reports on the Real Property, prepared by an environmental specialist selected
by MLBFS, disclosing no conditions that are reasonably unacceptable to MLBFS;
(iv) appraisals of the Real Property prepared by an M.A.I. appraiser selected
by MLBFS demonstrating an aggregate fair market value of not less than
$6,625,000.00; (v) current as-built ALTA surveys of the Real Property certified
in favor of MLBFS and the title insurance company; and (vi) such other
agreements, documents and instruments in connection with the Real Property or
MLBFS' lien thereon as MLBFS or the title insurance company may reasonably
require.
(p)"Term WCMA Note" shall mean and refer to the Term WCMA Note executed by
Customer and dated as of the date hereof which incorporates both a WCMA Note
evidencing amounts owing on account of the WCMA Line of Credit portion of the
Loan, and a Term Note evidencing amounts owing on account of the term portion
of the Loan.
(q)"WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as WCMA Account No. 54D-07052.
(r)"WCMA Loan" shall mean each advance made by MLBFS pursuant to the WCMA Line
of Credit.
(s)"WCMA Loan Balance" shall mean an amount equal to the aggregate unpaid
principal balance of all WCMA Loans.
1.2 OTHER TERMS. Except as otherwise defined herein: (i) all terms used in this
Loan Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized
terms used herein which are defined in the WCMA Agreement shall have the
meanings set forth in the WCMA Agreement.
ARTICLE II. THE LOAN
2.1 COMMITMENT. Subject to the terms and conditions hereof, MLBFS hereby agrees
to make the Loan to Customer, and Customer hereby agrees to borrow the Loan
from MLBFS. Unless otherwise hereafter agreed by MLBFS, the entire proceeds of
the Loan will be disbursed either directly to the applicable third party or
parties on account of the Loan Purpose or to reimburse Customer for amounts
directly expended by it; all as directed by Customer in a Closing Certificate
to be executed and delivered to MLBFS prior to the date of funding.
2.2 OPERATION OF LOAN.
(a) TERM WCMA NOTE. The Loan will be evidenced by and shall be repayable in
accordance with the terms of the Term WCMA Note and this Loan Agreement. The
Term WCMA Note combines two promissory notes, one evidencing the term portion
of the Loan (the "Term Note") and the other evidencing the WCMA Line of Credit
portion of the Loan (the "WCMA Note"). The balance owing by Customer on account
of the Loan at any
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<PAGE> 4
time shall be an amount equal to the sum of the then outstanding balances under
the WCMA Note and the Term Note included in the Term WCMA Note. The Term WCMA
Note is hereby incorporated as a part hereof.
(b) TERM NOTE PRINCIPAL. The principal balance owing under the Term Note at any
time shall be an amount equal to the unpaid portion of the amount funded from
time to time on account of the Term Note, as hereinafter provided. So long as
there shall be any moneys owing by Customer to MLBFS hereunder or there shall
be a WCMA Line of Credit, no reduction in the unpaid principal balance of the
Term Note to zero shall be deemed a payment of the Term Note in full or an
extinguishment of any of the obligations of Customer thereunder or hereunder.
(c) TERM NOTE FUNDING. Subject to the terms hereof, the Term Note will be
funded by MLBFS in seven annual installments, with the first six installments
each equal to one-fifteenth of the Loan Amount, and the final installment equal
to nine-fifteenths of the Loan Amount. The first one-fifteenth installment
funded by MLBFS will be funded on the Closing Date and applied on account of
the Loan Purpose, as aforesaid. Subsequent installments will be funded on a
date chosen by MLBFS in its sole discretion which will be on or within two
weeks before or after each subsequent anniversary of the last day of the
calendar month in which the Closing Date occurs (each, a "Subsequent Funding
Date"). Each Term Note funding after the first shall be deposited into
Customer's WCMA Account.
(d) ACTIVATION OF WCMA LINE. On the Closing Date, MLBFS will activate and make
available as an integral part of the Loan a WCMA Line of Credit equal to
fourteen-fifteenths of the Loan Amount, all of which will be immediately
disbursed on account of the Loan Purpose as part of the Loan in accordance with
the directions of Customer set forth in the Closing Certificate, as aforesaid.
(e) SUBSEQUENT FUNDINGS. On the first Subsequent Funding Date, concurrently
with MLBFS' funding of the second installment of the debt evidenced by the Term
Note into the WCMA Account, the Maximum WCMA Line of Credit will be reduced to
an amount equal to thirteen-fifteenths of the Loan Amount. On the second
Subsequent Funding Date, the Maximum WCMA Line of Credit will be reduced to an
amount equal to twelve-fifteenths of the Loan Amount; on the third Subsequent
Funding Date the Maximum WCMA Line of Credit will be reduced to an amount equal
to eleven-fifteenths of the Loan Amount; on the fourth Subsequent Funding Date
the Maximum WCMA Line of Credit will be reduced to an amount equal to ten-
fifteenths of the Loan Amount; and on the fifth Subsequent Funding Date, the
Maximum WCMA Line of Credit will be reduced to an amount equal to nine-
fifteenths of the Loan Amount.
(f) WCMA MATURITY DATE. On the sixth Subsequent Funding Date (the "WCMA
Maturity Date"), the WCMA Line of Credit will be terminated and the WCMA
Account, at the option of Customer, will either be converted to a WCMA Cash
Account (subject to any requirements of MLPF&S) or terminated.
2.3 CONDITIONS OF MLBFS' OBLIGATION. The Closing Date and MLBFS' obligation to
make the Loan on the Closing Date are subject to the prior fulfillment of each
of the following conditions: (a) MLBFS shall have received a written request
from Customer that the Loan be funded in accordance with the terms hereof,
together with a written direction from Customer as to the method of payment and
payee(s) of the proceeds of the Loan, which request and direction shall have
been received by MLBFS not less than two Business Days prior to any requested
funding date; (b) the Commitment Expiration Date shall not then have occurred;
and (c) each of the General Funding Conditions and the Real Property Funding
Condition shall have been met or satisfied to the reasonable satisfaction of
MLBFS.
2.4 CONDITIONS OF SUBSEQUENT FUNDINGS. The obligation of MLBFS to fund
installments of the term portion of the Loan on any Subsequent Funding Date
shall be subject to each of the conditions specified in Section 2.3(c) hereof
being met at such date, and the further condition that all payments due under
the Term Note on or prior to any Subsequent Funding Date shall have been paid
in full; provided, however, that notwithstanding the failure of any such
conditions to have been met, MLBFS may in its sole discretion fund such
installment and/or any other installments, and no such funding shall constitute
a waiver by MLBFS of any of its rights hereunder or under any of the Additional
Agreements. Without limiting the foregoing, it is understood that no funding by
MLBFS of any sum hereunder while an Event of Default shall have occurred and is
continuing
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<PAGE> 5
shall under any circumstances be deemed a waiver by MLBFS of such Event of
Default, or a waiver of any of MLBFS' rights hereunder.
2.5 COMMITMENT FEE. In consideration of the agreement by MLBFS to extend the
Loan to Customer in accordance with and subject to the terms hereof, Customer
has paid or shall, on or before the Closing Date pay, the Commitment Fee to
MLBFS. Customer acknowledges and agrees that the Commitment Fee has been fully
earned by MLBFS, and that it will not under any circumstances be refundable.
2.6 ACKNOWLEDGMENTS OF CUSTOMER. Customer acknowledges, covenants and agrees
that:
(a) PAYMENT OF WCMA INTEREST; ADDITIONAL DEPOSITS. Under the terms of this Loan
Agreement, interest accrued on amounts outstanding on the WCMA Line of Credit
each month will, subject to the terms hereof, ordinarily be paid from the
proceeds of a borrowing of an additional sum under the WCMA Line of Credit.
Because all or substantially all of the Maximum WCMA Line of Credit will
ordinarily be drawn on the Closing Date, CUSTOMER AGREES THAT IT WILL, WITHOUT
DEMAND, INVOICING OR THE REQUEST OF MLBFS, FROM TIME TO TIME MAKE SUFFICIENT
DEPOSITS INTO THE WCMA ACCOUNT IN ORDER TO ASSURE THAT THE MAXIMUM WCMA LINE OF
CREDIT IS NOT EXCEEDED. Installments of principal and interest under the Term
Note shall be paid directly to MLBFS in accordance with the terms of the Term
Note.
(b) ADDITIONAL INTEREST CHARGES. SUBJECT TO THE TERMS HEREOF, ON EACH
SUBSEQUENT FUNDING DATE MLBFS WILL DEPOSIT THE AMOUNT FUNDED INTO THE WCMA
ACCOUNT. DUE TO POSSIBLE DELAYS IN POSTING AS WELL AS CERTAIN DELAYS IN
RECOGNITION OF DEPOSITS INHERENT IN THE WCMA PROGRAM, CUSTOMER WILL NOT RECEIVE
CREDIT FOR THE AMOUNT DEPOSITED FOR UP TO SEVERAL DAYS THEREAFTER, RESULTING IN
AN INTEREST CHARGE FOR THAT PERIOD OF TIME ACCRUING AND CHARGED IN THE WCMA
ACCOUNT. ON THE OTHER HAND, BECAUSE MLBFS BORROWS ALL OR SUBSTANTIALLY ALL OF
THE FUNDS THAT IT LENDS ON THE DATE OF FUNDING, IT MUST CHARGE INTEREST ON THE
AMOUNT FUNDED ON EACH SUBSEQUENT FUNDING DATE FROM THE DATE OF ITS DEPOSIT INTO
THE WCMA ACCOUNT, WHETHER OR NOT SUCH DEPOSIT IS IMMEDIATELY RECOGNIZED. THE
TIMING DIFFERENCES BETWEEN THE DATE OF DEPOSIT AND DATE OF RECOGNITION OF THE
DEPOSIT IN THE WCMA ACCOUNT WILL THEREFORE RESULT IN EXTRA INTEREST CHARGES TO
CUSTOMER, WHICH CUSTOMER ACKNOWLEDGES ARE AN ADDITIONAL COST OF THE LOAN AND
HEREBY UNCONDITIONALLY AGREES TO PAY.
ARTICLE III. THE WCMA LINE OF CREDIT
3.1 WCMA NOTE.
All amounts owing under the WCMA Line of Credit shall be deemed owing under and
evidenced by the WCMA Note included in the Term WCMA Note.
3.2 WCMA LOANS.
(a) LOAN COMMITMENT AND REQUESTS. Subject to the terms and conditions hereof:
(i) on the Closing Date, MLBFS will make a WCMA Loan to Customer in an amount
equal to the Maximum WCMA Line of Credit, the entire proceeds of which will be
disbursed on account of the Loan Purpose, as aforesaid; and (ii) during the
period from and after the Closing Date to the WCMA Maturity Date: (x) Customer
may repay said WCMA Loan and any other WCMA Loans in whole or in part at any
time without premium or penalty, and request a re-borrowing of amounts repaid
on a revolving basis, and (y) MLBFS will make such additional WCMA Loans as
Customer may from time to time request in accordance with the terms hereof.
Customer may request WCMA Loans by use of WCMA Checks, FTS, Visa(R) charges,
wire transfers, or such other means of access to the WCMA Line of Credit as may
be permitted by MLBFS from time to time; it being understood that so long as
the WCMA Line of Credit shall be in effect, any charge or debit to the WCMA
Account which but for the WCMA Line of Credit would under the terms of the WCMA
Agreement result in an overdraft, shall be deemed a request by Customer for a
WCMA Loan.
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<PAGE> 6
(b) CONDITIONS OF WCMA LOANS. Notwithstanding the foregoing, MLBFS shall not be
obligated to make any WCMA Loan, and may without notice refuse to honor any
such request by Customer, if at the time of receipt by MLBFS of Customer's
request: (i) the making of such WCMA Loan would cause the Maximum WCMA Line of
Credit to be exceeded; or (ii) the Maturity Date shall have occurred, or the
WCMA Line of Credit shall have otherwise been terminated in accordance with the
terms hereof; or (iii) an event shall have occurred and is continuing which
shall have caused any of the General Funding Conditions to not then be met or
satisfied to the reasonable satisfaction of MLBFS. The making by MLBFS of any
WCMA Loan at a time when any one or more of said conditions shall not have been
met shall not in any event be construed as a waiver of said condition or
conditions or of any Event of Default, and shall not prevent MLBFS at any time
thereafter while any condition shall not have been met from refusing to honor
any request by Customer for a WCMA Loan.
(c) FORCE MAJEURE. MLBFS shall not be responsible, and shall have no liability
to Customer or any other party, for any delay or failure of MLBFS to honor any
request of Customer for a WCMA Loan or any other act or omission of MLBFS,
MLPF&S or any of their affiliates due to or resulting from any system failure,
error or delay in posting or other clerical error, loss of power, fire, Act of
God or other cause beyond the reasonable control of MLBFS, MLPF&S or any of
their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential damages arising from any
act or omission by MLBFS, MLPF&S or any of their affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.
(d) INTEREST. The WCMA Loan Balance shall bear interest at the Interest Rate.
Interest shall be computed for the actual number of days elapsed on the basis
of a year consisting of 360 days. Except as otherwise provided herein, accrued
and unpaid interest on the WCMA Loan Balance shall be payable monthly on the
last Business Day of each calendar month, commencing with the last Business Day
of the calendar month in which the Closing Date shall occur. Customer hereby
irrevocably authorizes and directs MLPF&S to pay MLBFS such accrued interest
from any available free credit balances in the WCMA Account, and if such
available free credit balances are insufficient to satisfy any interest payment
due, to liquidate any investments in the Money Accounts (other than any
investments constituting any Minimum Money Accounts Balance under the WCMA
Directed Reserve program) in an amount up to the balance of such accrued
interest, and pay to MLBFS the available proceeds on account thereof. If
available free credit balances in the WCMA Account and available proceeds of
the Money Accounts are insufficient to pay the entire balance of accrued
interest, and Customer otherwise fails to make such payment when due, MLBFS
may, in its sole discretion, make a WCMA Loan in an amount equal to the balance
of such accrued interest and pay the proceeds of such WCMA Loan to itself on
account of such interest. The amount of any such WCMA Loan will be added to the
WCMA Loan Balance. If MLBFS declines to extend a WCMA Loan to Customer under
these circumstances, Customer hereby authorizes and directs MLPF&S to make all
such interest payments to MLBFS from any Minimum Money Accounts Balance. If
there is no Minimum Money Accounts Balance, or it is insufficient to pay all
such interest, MLBFS will invoice Customer for payment of the balance of the
accrued interest, and Customer shall pay such interest as directed by MLBFS
within 5 Business Days of receipt of such invoice.
(e) PAYMENTS. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may
be made by the delivery of checks (other than WCMA Checks), or by means of FTS
or wire transfer of funds (other than funds from the WCMA Line of Credit) to
MLPF&S for credit to Customer's WCMA Account. Notwithstanding anything in the
WCMA Agreement to the contrary, Customer hereby irrevocably authorizes and
directs MLPF&S to apply available free credit balances in the WCMA Account to
the repayment of the WCMA Loan Balance prior to application for any other
purpose. Payments to MLBFS from funds in the WCMA Account shall be deemed to be
made by Customer upon the same basis and schedule as funds are made available
for investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. The acceptance by or on behalf of MLBFS of a check or other payment
for a lesser amount than shall be due from Customer, regardless of any
endorsement or statement thereon or transmitted therewith, shall not be deemed
an accord and satisfaction or anything other than a payment on account, and
MLBFS or anyone acting on behalf of MLBFS may accept such check or other
payment without
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<PAGE> 7
prejudice to the rights of MLBFS to recover the balance actually due or to
pursue any other remedy under this Loan Agreement or applicable law for such
balance. All checks accepted by or on behalf of MLBFS in connection with the
Loan and WCMA Line of Credit are subject to final collection.
(f) EXCEEDING THE MAXIMUM WCMA LINE OF CREDIT. In the event that the WCMA Loan
Balance shall at any time exceed the Maximum WCMA Line of Credit, Customer
shall within 1 Business Day of the first to occur of (i) any request or demand
of MLBFS, or (ii) receipt by Customer of a statement from MLPF&S showing a WCMA
Loan Balance in excess of the Maximum WCMA Line of Credit, deposit sufficient
funds into the WCMA Account to reduce the WCMA Loan Balance below the Maximum
WCMA Line of Credit.
(g) STATEMENTS. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
should be directed to MLBFS; and any questions with respect to any other matter
in such statements or about or affecting the WCMA Program should be directed to
MLPF&S.
ARTICLE IV. GENERAL PROVISIONS
4.1 REPRESENTATIONS AND WARRANTIES.
Customer represents and warrants to MLBFS that:
(a)ORGANIZATION AND EXISTENCE. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Texas and is
qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary; and, where applicable, each Business Guarantor is duly organized,
validly existing and in good standing under the laws of the state of its
formation and is qualified to do business and in good standing in each other
state where the nature of its business or the property owned by it make such
qualification necessary.
(b)EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and performance
by Customer of this Loan Agreement and by Customer and each Guarantor of such
of the Additional Agreements to which it is a party: (i) have been duly
authorized by all requisite action, (ii) do not and will not violate or
conflict with any law or other governmental requirement, or any of the
agreements, instruments or documents which formed or govern Customer or any
such Guarantor, and (iii) do not and will not breach or violate any of the
provisions of, and will not result in a default by Customer or any such
Guarantor under, any other agreement, instrument or document to which it is a
party or by which it or its properties are bound.
(c)NOTICES AND APPROVALS. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is
required in connection with the execution, delivery or performance by Customer
or any Guarantor of such of this Loan Agreement, the Term WCMA Note and the
other Additional Agreements to which it is a party.
(d)ENFORCEABILITY. This Loan Agreement, the Term WCMA Note and such of the
other Additional Agreements to which Customer or any Guarantor is a party are
the respective legal, valid and binding obligations of Customer and such
Guarantor, enforceable against it or them, as the case may be, in accordance
with their respective terms, except as enforceability may be limited by
bankruptcy and other similar laws affecting the rights of creditors generally
or by general principles of equity.
(e)FINANCIAL STATEMENTS. Except as expressly set forth in Customer's or any
Business Guarantor's financial statements, all financial statements of Customer
and each Business Guarantor furnished to MLBFS have been prepared in conformity
with generally accepted accounting principles, consistently applied, are true
and correct, and fairly present the financial condition of it as at such dates
and the results of its operations for the periods then ended; and since the
most recent date covered by such financial statements, there has been no
material adverse change in any such financial condition or operation. All
financial statements furnished to MLBFS of any Guarantor other than a Business
Guarantor are true and correct and fairly represent such
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Guarantor's financial condition as of the date of such financial statements,
and since the most recent date of such financial statements, there has been no
material adverse change in such financial condition.
(f)LITIGATION. No litigation, arbitration, administrative or governmental
proceedings are pending or, to the knowledge of Customer, threatened against
Customer or any Guarantor, which would, if adversely determined, materially and
adversely affect the liens and security interests of MLBFS hereunder or under
any of the Additional Agreements, the financial condition of Customer or any
such Guarantor or the continued operations of Customer or any Business
Guarantor.
(g)TAX RETURNS. All federal, state and local tax returns, reports and
statements required to be filed by Customer and each Guarantor have been filed
with the appropriate governmental agencies and all taxes due and payable by
Customer and each Guarantor have been timely paid (except to the extent that
any such failure to file or pay will not materially and adversely affect either
the liens and security interests of MLBFS hereunder or under any of the
Additional Agreements, the financial condition of Customer or any Guarantor, or
the continued operations of Customer or any Business Guarantor).
Each of the foregoing representations and warranties: (i) has been and will be
relied upon as an inducement to MLBFS to make the Loan, and (ii) is continuing
and shall be deemed remade by Customer on the Closing Date, on each Subsequent
Funding Date and concurrently with each request for a WCMA Loan.
4.2 FINANCIAL AND OTHER INFORMATION.
Customer shall furnish or cause to be furnished to MLBFS during the term of
this Loan Agreement all of the following:
(a)SEC REPORTS. Customer shall furnish to MLBFS with a copy of each 10-K and
10-Q report filed with the SEC not later than 10 days after the date filed with
the SEC.
(b)OTHER INFORMATION. Customer shall furnish or cause to be furnished to MLBFS
such other information as MLBFS may from time to time reasonably request
relating to Customer or any Guarantor.
4.3 OTHER COVENANTS. Customer further covenants and agrees during the term of
this Loan Agreement that:
(a) FINANCIAL RECORDS; INSPECTION. Customer and each Business Guarantor will:
(i) maintain at its principal place of business complete and accurate books and
records, and maintain all of its financial records in a manner consistent with
the financial statements heretofore furnished to MLBFS, or prepared on such
other basis as may be approved in writing by MLBFS; and (ii) permit MLBFS or
its duly authorized representatives, upon reasonable notice and at reasonable
times, to inspect its properties (both real and personal), operations, books
and records.
(b) TAXES. Customer and each Guarantor will pay when due all taxes, assessments
and other governmental charges, howsoever designated, and all other liabilities
and obligations, except to the extent that any such failure to pay will not
materially and adversely affect either any liens and security interests of
MLBFS under any Additional Agreements, the financial condition of Customer or
any Guarantor or the continued operations of Customer or any Business
Guarantor.
(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Neither Customer nor any Guarantor
will violate any law, regulation or other governmental requirement, any
judgment or order of any court or governmental agency or authority, or any
agreement, instrument or document to which it is a party or by which it is
bound, if any such violation will materially and adversely affect either any
liens and security interests of MLBFS under any Additional Agreements, the
financial condition of Customer or any Guarantor, or the continued operations
of Customer or any Business Guarantor.
(d) USE OF LOAN PROCEEDS; SECURITIES TRANSACTIONS. The proceeds of the Loan
(including the initial WCMA Loan) shall be used by Customer solely for the Loan
Purpose, or, with the prior written consent of MLBFS, for
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other lawful business purposes of Customer not prohibited hereby. The proceeds
of each WCMA Loan other than the initial WCMA Loan shall be used by Customer
solely for working capital in the ordinary course of Customer's business, or,
with the prior written consent of MLBFS, for other lawful business purposes of
Customer not prohibited hereby. CUSTOMER AGREES THAT UNDER NO CIRCUMSTANCES
WILL THE LOAN OR FUNDS BORROWED FROM MLBFS THROUGH THE TERM WCMA LINE OF CREDIT
BE USED: ((i) FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OF ANY PERSON
WHATSOEVER, OR (ii) TO PURCHASE, CARRY OR TRADE IN SECURITIES, OR REPAY DEBT
INCURRED TO PURCHASE, CARRY OR TRADE IN SECURITIES, WHETHER IN OR IN CONNECTION
WITH THE WCMA ACCOUNT, ANOTHER ACCOUNT OF CUSTOMER WITH MLPF&S OR AN ACCOUNT OF
CUSTOMER AT ANY OTHER BROKER OR DEALER IN SECURITIES.
(e) NOTIFICATION BY CUSTOMER. Customer shall provide MLBFS with prompt written
notification of: (i) any Event of Default, or event which with the giving of
notice, passage of time, or both, would constitute an Event of Default; (ii)
any materially adverse change in the business, financial condition or
operations of Customer or any Business Guarantor; and (iii) any information
which indicates that any financial statements of Customer or any Guarantor fail
in any material respect to present fairly the financial condition and results
of operations purported to be presented in such statements. Each notification
by Customer pursuant hereto shall specify the event or information causing such
notification, and, to the extent applicable, shall specify the steps being
taken to rectify or remedy such event or information.
(f) NOTICE OF CHANGE. Customer shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business or residence of Customer or any Guarantor.
(g) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) neither Customer nor any Business
Guarantor shall be a party to any merger or consolidation with, or purchase or
otherwise acquire all or substantially all of the assets of, or any material
stock, partnership, joint venture or other equity interest in, any person or
entity, or sell, transfer or lease all or any substantial part of its assets,
if any such action would result in either: (A) a material change in the
principal business, ownership or control of Customer or such Business
Guarantor, or (B) a material adverse change in the financial condition or
operations of Customer or such Business Guarantor; (ii) Customer and each
Business Guarantor shall preserve their respective existence and good standing
in the jurisdictions of establishment and operation, and shall not operate in
any material business substantially different from their respective business in
effect as of the date of application by Customer for credit from MLBFS; and
(iii) neither Customer nor any Business Guarantor shall cause or permit any
material change in its controlling ownership.
(h) DEBT TO WORTH. The ratio of Customer's total debt to Customer's tangible
net worth shall not at any time exceed 2.5 to 1. For the purposes hereof, the
term "tangible net worth" shall mean Customer's net worth as shown on
Customer's regular financial statements prepared in a manner consistent with
the terms hereof, but excluding an amount equal to (i) any assets which are
ordinarily classified as "intangible" in accordance with generally accepted
accounting principles, and (ii) any amounts now or hereafter directly or
indirectly owing to Customer by officers, shareholders or affiliates of
Customer.
4.4 EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
(a) FAILURE TO PAY. Customer shall fail to pay to MLBFS or deposit into the
WCMA Account when due any amount owing or required to be paid or deposited by
Customer under this Loan Agreement or the Term WCMA Note, or shall fail to pay
when due any other Obligations, and any such failure shall continue for more
than five (5) Business Days after written notice thereof shall have been given
by MLBFS to Customer.
(b) FAILURE TO PERFORM. Customer or any Guarantor shall default in the
performance or observance of any covenant or agreement on its part to be
performed or observed under this Loan Agreement, the Term WCMA Note or any of
the other Additional Agreements (not constituting an Event of Default under any
other clause of
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this Section), and such default shall continue unremedied for ten (10) Business
Days after written notice thereof shall have been given by MLBFS to Customer.
(c) BREACH OF WARRANTY. Any representation or warranty made by Customer or any
Guarantor contained in this Loan Agreement, the Term WCMA Note or any of the
other Additional Agreements shall at any time prove to have been incorrect in
any material respect when made.
(d) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Customer or
any Guarantor shall occur under the terms of any other agreement, instrument or
document with or intended for the benefit of MLBFS, MLPF&S or any of their
affiliates, and any required notice shall have been given and required passage
of time shall have elapsed.
(e) BANKRUPTCY EVENT. Any Bankruptcy Event shall occur.
(f) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of full payment or performance
by Customer or any Guarantor of any of their respective liabilities or
obligations under this Loan Agreement, the Term WCMA Note or any of the other
Additional Agreements to which Customer or such Guarantor is a party has been
materially impaired.
(g) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall occur which
results in the acceleration of the maturity of any indebtedness of $100,000.00
or more of Customer or any Guarantor to another creditor under any indenture,
agreement, undertaking, or otherwise.
4.5 REMEDIES.
(a) REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of
any Event of Default, MLBFS may at its sole option do any one or more or all of
the following, at such time and in such order as MLBFS may in its sole
discretion choose:
(i) TERMINATION. MLBFS may without notice terminate its obligation to make the
Loan (if the Loan has not then been funded),), or fund any further amount on
account of the Term WCMA Note, or make or continue to make the WCMA Line of
Credit available to Customer, or otherwise extend any credit to or for the
benefit of Customer (it being understood, however, that upon the occurrence of
any Bankruptcy Event the WCMA Line of Credit and all such obligations shall
automatically terminate without any action on the part of MLBFS); and upon any
such termination MLBFS shall be relieved of all such obligations.
(ii) ACCELERATION. MLBFS may declare the principal of and interest on the Term
Note and WCMA Note included in the Term WCMA Note, and all other Obligations to
be forthwith due and payable, whereupon all such amounts shall be immediately
due and payable, without presentment, demand for payment, protest and notice of
protest, notice of dishonor, notice of acceleration, notice of intent to
accelerate or other notice or formality of any kind, all of which are hereby
expressly waived; provided, however, that upon the occurrence of any Bankruptcy
Event all such principal, interest and other Obligations shall automatically
become due and payable without any action on the part of MLBFS.
(b) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Term WCMA Note, the other Additional Agreements, at
law or in equity, and any one or more of such rights and remedies may be
exercised simultaneously or successively.
4.6 MISCELLANEOUS.
(a) NON-WAIVER. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement, the Term WCMA Note or
any of the other Additional Agreements shall operate as a waiver thereof, and
no single or partial exercise of any such right, power or remedy shall preclude
any other or further exercise thereof, or the exercise of any other right,
power or remedy. Neither any waiver of any provision of this Loan Agreement,
the Term WCMA Note or any of the other Additional Agreements, nor any consent
to any departure by Customer therefrom, shall be effective unless the same
shall be in writing and signed by MLBFS. Any waiver of any
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provision of this Loan Agreement, the Term WCMA Note or any of the other
Additional Agreements and any consent to any departure by Customer from the
terms thereof shall be effective only in the specific instance and for the
specific purpose for which given. Except as otherwise expressly provided
herein, no notice to or demand on Customer shall in any case entitle Customer
to any other or further notice or demand in similar or other circumstances.
(b) DISCLOSURE. Customer hereby irrevocably authorizes MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Customer.
(c) COMMUNICATIONS. All notices and other communications required or permitted
hereunder or in connection with any of the Additional Agreements shall be in
writing, and shall be either delivered personally, mailed by postage prepaid
certified mail or sent by express overnight courier or by facsimile. Such
notices and communications shall be deemed to be given on the date of personal
delivery, facsimile transmission or actual delivery of certified mail, or one
Business Day after delivery to an express overnight courier. Unless otherwise
specified in a notice sent or delivered in accordance with the terms hereof,
notices and other communications in writing shall be given to the parties
hereto at their respective addresses set forth at the beginning of this Loan
Agreement, or, in the case of facsimile transmission, to the parties at their
respective regular facsimile telephone number.
(d) COSTS, EXPENSES AND TAXES. Customer shall upon demand pay or reimburse
MLBFS for: (i) all Uniform Commercial Code and other filing and search fees and
expenses incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in any collateral for the
Obligations; (ii) any and all stamp, transfer and other taxes and fees payable
or determined to be payable in connection with the execution, delivery and/or
recording of this Loan Agreement or any of the Additional Agreements; (iii) any
and all reasonable fees and out-of-pocket expenses incurred by MLBFS in
connection with the title insurance, environmental audit, appraisal, survey and
other instruments or documents referred to in the definition of Real Property
Funding Condition; and (iv) all reasonable fees and out-of-pocket expenses
(including, but not limited to, reasonable fees and expenses of outside
counsel) incurred by MLBFS in connection with the preparation of this Loan
Agreement and any of the Additional Agreements and closing of the transactions
contemplated hereby or thereby, the collection of any sum payable hereunder or
under any of the Additional Agreements not paid when due, the enforcement of
this Loan Agreement or any of the Additional Agreements and the protection of
MLBFS' rights hereunder or thereunder, excluding, however, salaries and normal
overhead attributable to MLBFS' employees. The obligations of Customer under
this paragraph shall survive the expiration or termination of this Loan
Agreement and the discharge of the other Obligations.
(e) RIGHT TO PERFORM OBLIGATIONS. If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation
or warranty on the part of Customer contained in this Loan Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 Business Days written
notice is sent to Customer (or such lesser notice, including no notice, as is
reasonable under the circumstances), do the same or cause it to be done or
remedy any such breach, and may expend its funds for such purpose. Any and all
reasonable amounts so expended by MLBFS shall be repayable to MLBFS by Customer
upon demand, with interest at the Interest Rate during the period from and
including the date funds are so expended by MLBFS to the date of repayment, and
all such amounts shall be additional Obligations. The payment or performance by
MLBFS of any of Customer's obligations hereunder shall not relieve Customer of
said obligations or of the consequences of having failed to pay or perform the
same, and shall not waive or be deemed a cure of any Event of Default.
(f) LATE CHARGE. Any payment required to be made by Customer pursuant to this
Loan Agreement or any of the Additional Agreements not paid within ten (10)
days of the applicable due date shall be subject to a late charge in an amount
equal to the lesser of: (i) 5% of the overdue amount, or (ii) the maximum
amount permitted by applicable law. Such late charge shall be payable on
demand, or, without demand, may in the
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sole discretion of MLBFS be paid by a WCMA Loan and added to the WCMA Loan
Balance in the same manner as provided herein for accrued interest with respect
to the WCMA Line of Credit.
(g) FURTHER ASSURANCES. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement, the Term WCMA Note or any of the other
Additional Agreements.
(h) BINDING EFFECT. This Loan Agreement, the Term WCMA Note and the other
Additional Agreements shall be binding upon, and shall inure to the benefit of
MLBFS, Customer and their respective successors and assigns. Customer shall not
assign any of its rights or delegate any of its obligations under this Loan
Agreement, the Term WCMA Note or any of the other Additional Agreements without
the prior written consent of MLBFS. Unless otherwise expressly agreed to in a
writing signed by MLBFS, no such consent shall in any event relieve Customer of
any of its obligations under this Loan Agreement, the Term WCMA Note or any of
the other Additional Agreements.
(i) HEADINGS. Captions and section and paragraph headings in this Loan
Agreement are inserted only as a matter of convenience, and shall not affect
the interpretation hereof.
(j) GOVERNING LAW. This Loan Agreement, the Term WCMA Note and, unless
otherwise expressly provided therein, each of the other Additional Agreements,
shall be governed in all respects by the laws of the State of Illinois.
(k) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this Loan
Agreement, the Term WCMA Note and the other Additional Agreements shall be
interpreted in such manner as to be effective and valid under applicable law.
Any provision of this Loan Agreement, the Term WCMA Note or any of the other
Additional Agreements which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
of this Loan Agreement, the Term WCMA Note and the other Additional Agreements
or affecting the validity or enforceability of such provision in any other
jurisdiction.
(l) TERM. This Loan Agreement shall become effective on the date accepted by
MLBFS at its office in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as either MLBFS shall be obligated
to make the Loan, or, after the Closing Date, there shall be any moneys
outstanding under the Term Note or WCMA Note included in the Term WCMA Note or
under this Loan Agreement, or there shall be any other Obligations outstanding.
(m) COUNTERPARTS. This Loan Agreement may be executed in one or more
counterparts which, when taken together, constitute one and the same agreement.
(n) JURISDICTION; WAIVER. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT, THE TERM WCMA NOTE AND THE
OTHER ADDITIONAL AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER
JURISDICTION WHERE CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE
LOCATED. CUSTOMER CONSENTS TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE
IN ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND
CUSTOMER WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE.
CUSTOMER FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY
JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND
CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST
THE OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN
ANY WAY CONNECTED WITH THE LOAN, THIS LOAN AGREEMENT, THE TERM WCMA NOTE, ANY
OTHER ADDITIONAL
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AGREEMENTS AND/OR ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THIS
LOAN AGREEMENT.
(o) INTEGRATION. THIS LOAN AGREEMENT, TOGETHER WITH THE TERM WCMA NOTE AND THE
OTHER ADDITIONAL AGREEMENTS, CONSTITUTES THE ENTIRE UNDERSTANDING AND
REPRESENTS THE FULL AND FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE
SUBJECT MATTER HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN
AGREEMENTS OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. WITHOUT
LIMITING THE FOREGOING, CUSTOMER ACKNOWLEDGES THAT: (I) NO PROMISE OR
COMMITMENT HAS BEEN MADE TO IT BY MLBFS, MLPF&S OR ANY OF THEIR RESPECTIVE
EMPLOYEES, AGENTS OR REPRESENTATIVES TO MAKE THE LOAN ON ANY TERMS OTHER THAN
AS EXPRESSLY SET FORTH HEREIN AND IN THE TERM WCMA NOTE, OR TO MAKE ANY OTHER
LOAN OR OTHERWISE EXTEND ANY OTHER CREDIT TO CUSTOMER OR ANY OTHER PARTY; AND
(II) EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, THIS LOAN AGREEMENT
SUPERSEDES AND REPLACES ANY AND ALL PROPOSALS, LETTERS OF INTENT AND APPROVAL
AND COMMITMENT LETTERS FROM MLBFS TO CUSTOMER, NONE OF WHICH SHALL BE
CONSIDERED AN ADDITIONAL AGREEMENT. NO AMENDMENT OR MODIFICATION OF THIS
AGREEMENT OR ANY OF THE ADDITIONAL AGREEMENTS TO WHICH CUSTOMER IS A PARTY
SHALL BE EFFECTIVE UNLESS IN A WRITING SIGNED BY BOTH MLBFS AND CUSTOMER.
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and
year first above written.
CELEBRITY, INC.
By: /s/ JAMES R. THOMPSON
---------------------------------------------------------------------
Signature (1) Signature (2)
James R. Thompson
---------------------------------------------------------------------
Printed Name Printed Name
Vice President - Finance
---------------------------------------------------------------------
Title Title
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By: /s/ BRIAN R. CONNORS
--------------------------------------
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EXHIBIT 10.19
[MERRILL LYNCH LOGO] No. 9706340301
================================================================================
$5,000,000.00 June 17, 1997
TERM WCMA(R) NOTE
FOR VALUE RECEIVED, CELEBRITY, INC., a corporation organized and existing under
the laws of the State of Texas ("Customer"), hereby promises to pay to the
order of MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a corporation
organized and existing under the laws of the State of Delaware ("MLBFS"), in
lawful money of the United States, the principal sum of $5,000,000.00, or, if
more or less, an amount equal to the sum of the principal balances from time to
time outstanding under the "Term Note" and "WCMA Note" included herein, plus
accrued and unpaid interest thereon and any other charges hereinafter set forth
or payable in accordance with the terms of the Loan Agreement, as follows:
DEFINITIONS
In addition to terms defined elsewhere in this Note, as used herein, the
following terms shall have the following meanings:
(i)"Closing Date" shall mean the date of the first advancement of funds
hereunder.
(ii)"Excess Interest" shall mean any amount of interest in excess of the
maximum amount of interest permitted to be charged by law.
(iii)"Initial Loan Amount" shall mean an amount equal to the sum of: (a) the
amount advanced on the Closing Date on account of the Term Note, and (b) the
Maximum WCMA Line of Credit immediately after activation of the WCMA Line of
Credit on the Closing Date.
(iv)"Interest Rate" shall mean a variable per annum rate equal to the sum of
(i) 2.65% per annum, and (ii) the interest rate from time to time published in
the "Money Rates" section of The Wall Street Journal as the one-month London
Interbank Offered Rate (the "One-Month LIBOR"). The Interest Rate will change
as of the date of publication in The Wall Street Journal of a One-Month LIBOR
that is different from that published on the preceding Business Day. In the
event that The Wall Street Journal shall, for any reason, fail or cease to
publish the One-Month LIBOR, MLBFS will choose a reasonably comparable index or
source to use as the basis for the Interest Rate.
(v)"Loan Agreement" shall mean that certain TERM WCMA LOAN AGREEMENT NO.
9706340301 between Customer and MLBFS, as the same may have been or may
hereafter be amended or supplemented.
(vi)"Note" shall mean this TERM WCMA NOTE.
Capitalized terms used herein and not defined herein shall have the meaning set
forth in the Loan Agreement. Without limiting the foregoing, the terms
"Additional Agreements", "Bankruptcy Event", "Event of Default" and "WCMA Loan
Balance" shall have the respective meanings set forth in the Loan Agreement.
TERM NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, in
lawful money of the United States, an amount equal to the outstanding principal
balance of the term portion of the Term WCMA Loan, as increased from time to
time by additional fundings pursuant to the provisions of Section 2.2 (c) of
the
<PAGE> 2
Loan Agreement (the "Term Note Balance"); together with interest on the Term
Note Balance, from the date of advancement of funds hereunder until payment, at
the Interest Rate.
Said indebtedness shall be payable in 84 consecutive monthly installments
commencing on the first day of the second calendar month following the Closing
Date, and continuing on the first day of each calendar month thereafter until
this Note shall be paid in full. The first 83 such installments shall each be
in an amount equal to the sum of (i) accrued and unpaid interest at the
Interest Rate (with the first such installment including interest accrued from
the Closing Date), and (ii) 1/180th of the Initial Loan Amount, and the 84th
installment shall be a balloon in an amount equal to the sum of all accrued and
unpaid interest hereunder, the then unpaid principal balance hereof and all
other sums then payable hereunder. Each payment received hereunder shall be
applied first to any fees and expenses of MLBFS payable by Customer under the
terms of the Loan Agreement, next to any late charges payable hereunder, next
to accrued and unpaid interest at the Interest Rate, with the balance applied
on account of the unpaid principal hereof. All sums payable hereunder shall be
payable at the office of MLBFS at 33 West Monroe Street, Chicago, Illinois
60603, or at such other place or places as the holder hereof may from time to
time appoint in writing.
Customer may prepay this Term Note at any time in whole or in part without
premium or penalty. Any partial prepayment shall be applied to installments of
the Initial Loan Amount in the chronological order such installments become
due. Customer shall not have the right to re-borrow amounts prepaid on account
of this Term Note.
WCMA NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at
the times and in the manner set forth in the Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing, the
following: (a) on the WCMA Maturity Date, the then WCMA Loan Balance; and (b)
interest at the Interest Rate on the outstanding WCMA Loan Balance, from and
including the date on which the initial WCMA Loan is made until the date of
payment of all WCMA Loans in full. Interest shall be payable in the manner and
on the dates specified in, or determined in accordance with, the Loan
Agreement.
PROVISIONS APPLICABLE TO BOTH TERM NOTE AND WCMA NOTE
Any part of the principal hereof or interest hereon or other sums payable
hereunder or under the Loan Agreement not paid within ten (10) days of the
applicable due date shall be subject to a late charge equal to the lesser of
(i) 5% of the overdue amount, or (ii) the maximum amount permitted by law. All
interest shall be computed on the basis of actual days elapsed over a 360-day
year.
This Term WCMA Note constitutes and includes both the "Term Note" and the "WCMA
Note" referred to in, and is entitled to all of the benefits of the Loan
Agreement. The Loan Agreement is by this reference hereby incorporated as a
part hereof.
If Customer shall fail to pay when due any installment or other sum due
hereunder, and any such failure shall continue for more than five (5) Business
Days after written notice thereof from the holder hereof to Customer, or if any
other Event of Default shall occur and be continuing, then at the option of the
holder hereof (or, upon the occurrence of any Bankruptcy Event, automatically,
without any action on the part of the holder hereof), and in addition to all
other rights and remedies available to such holder under the Loan Agreement and
otherwise, an amount equal to the sum of the WCMA Loan Balance and the Term
Note Balance at such time remaining unpaid, together with all accrued and
unpaid interest thereon and all other sums then owing by Customer under the
Loan Agreement, may be declared to be and thereby become immediately due and
payable.
It is expressly understood, however, that nothing contained in the Loan
Agreement, any other agreement, instrument or document executed by Customer, or
otherwise, shall affect or impair the right, which is unconditional and
absolute, of the holder hereof to enforce payment of all sums due under this
Term WCMA Note at or after maturity, whether by acceleration or otherwise, or
shall affect the obligation of Customer,
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which is also unconditional and absolute, to pay the sums payable under this
Term WCMA Note in accordance with its terms. Except as otherwise expressly set
forth herein or in the Loan Agreement, Customer hereby waives presentment,
demand for payment, protest and notice of protest, notice of dishonor, notice
of acceleration, notice of intent to accelerate and all other notices and
formalities in connection with this Term WCMA Note.
Wherever possible each provision of this Term WCMA Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Term WCMA Note shall be prohibited by or invalid under such
law, such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the
remaining provisions of this Term WCMA Note. Notwithstanding any provision to
the contrary in this Term WCMA Note, the Loan Agreement or any of the
Additional Agreements, no provision of this Term WCMA Note, the Loan Agreement
or any of the Additional Agreements shall require the payment or permit the
collection of any Excess Interest. If any Excess Interest is provided for, or
is adjudicated as being provided for, in this Term WCMA Note, the Loan
Agreement or any of the Additional Agreements, then: (a) Customer shall not be
obligated to pay any Excess Interest; and (b) any Excess Interest that MLBFS
may have received under this Term WCMA Note, the Loan Agreement or any of the
Additional Agreements shall, at the option of MLBFS, be: (i) applied as a
credit against the then unpaid principal balance of this Term WCMA Note, or
accrued and unpaid interest hereon not to exceed the maximum amount permitted
by law, or both, (ii) refunded to the payor thereof, or (iii) any combination
of the foregoing.
This Term WCMA Note shall be construed in accordance with the laws of the State
of Illinois and may be enforced by the holder hereof in any jurisdiction in
which the Loan Agreement may be enforced.
IN WITNESS WHEREOF, this Term WCMA Note has been executed by Customer as of the
day and year first above written.
CELEBRITY, INC.
By: /s/ JAMES R. THOMPSON
---------------------------------------------------------------------
Signature (1) Signature (2)
James R. Thompson
---------------------------------------------------------------------
Printed Name Printed Name
Vice President - Finance
---------------------------------------------------------------------
Title Title
-3-
<PAGE> 1
EXHIBIT 10.20
[MERRILL LYNCH LOGO] Ref. No. 9706340301
================================================================================
UNCONDITIONAL GUARANTY
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend
credit to or for the benefit of CELEBRITY, INC., a corporation organized and
existing under the laws of the State of Texas (with any successor-in interest,
including, without limitation, any successor by merger or by operation of law,
herein collectively referred to as "Customer") under: (a) that certain TERM
WCMA LOAN AGREEMENT NO. 9706340301 between MLBFS and Customer (the "Loan
Agreement"), (b) any "Additional Agreements", as that term is defined in the
Loan Agreement (including, without limitation, the TERM WCMA NOTE incorporated
by reference into the Loan Agreement), and (c) all present and future
amendments, restatements, supplements and other evidences of any extensions,
increases, renewals, modifications and other changes of or to the Loan
Agreement or Additional Agreements (collectively, the "Guaranteed Documents"),
the undersigned, MAGICSILK, INC., a corporation duly organized and validly
existing under the laws of the State of Texas ("Guarantor"), HEREBY
UNCONDITIONALLY GUARANTEES TO MLBFS: (i) the prompt and full payment when due,
by acceleration or otherwise, of all sums now or any time hereafter due from
Customer to MLBFS under the Guaranteed Documents, (ii) the prompt, full and
faithful performance and discharge by Customer of each and every other covenant
and warranty of Customer set forth in the Guaranteed Documents, and (iii) the
prompt and full payment and performance of all other indebtedness, liabilities
and obligations of Customer to MLBFS, howsoever created or evidenced, and
whether now existing or hereafter arising (collectively, the "Obligations").
Guarantor further agrees to pay all reasonable costs and expenses (including,
but not limited to, court costs and reasonable attorneys' fees) paid or
incurred by MLBFS in endeavoring to collect or enforce performance of any of
the Obligations, or in enforcing this Guaranty. Guarantor acknowledges that
MLBFS is relying on the execution and delivery of this Guaranty in advancing
moneys to or extending or continuing to extend credit to or for the benefit of
Customer.
This Guaranty is absolute, unconditional and continuing and shall remain in
effect until all of the Obligations shall have been fully and indefeasibly
paid, performed and discharged. Upon the occurrence and during the continuance
of any default or Event of Default under the Guaranteed Documents, any or all
of the indebtedness hereby guaranteed then existing shall, at the option of
MLBFS, become immediately due and payable from Guarantor (it being understood,
however, that upon the occurrence of any "Bankruptcy Event", as defined in the
Guaranteed Documents, all such indebtedness shall automatically become due and
payable without action on the part of MLBFS). Notwithstanding the occurrence of
any such event, this Guaranty shall continue and remain in full force and
effect. To the extent MLBFS receives payment with respect to the Obligations,
and all or any part of such payment is subsequently invalidated, declared to be
fraudulent or preferential, set aside, required to be repaid by MLBFS or is
repaid by MLBFS pursuant to a settlement agreement, to a trustee, receiver or
any other person or entity, whether under any Bankruptcy law or otherwise (a
"Returned Payment"), this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, to the extent of such payment or repayment by
MLBFS, and the indebtedness or part thereof intended to be satisfied by such
Returned Payment shall be revived and continued in full force and effect as if
said Returned Payment had not been made.
The liability of Guarantor hereunder shall in no event be affected or impaired
by any of the following, any of which may be done or omitted by MLBFS from time
to time, without notice to or the consent of Guarantor: (a) any renewals,
amendments, modifications or supplements of or to any of the Guaranteed
Documents, or any extensions, forbearances, compromises or releases of any of
the Obligations or any of MLBFS' rights under any of the Guaranteed Documents;
(b) any acceptance by MLBFS of any collateral or security for, or other
guarantees of, any of the Obligations; (c) any failure, neglect or omission on
the part of MLBFS to realize upon or protect any of the Obligations, or any
collateral or security therefor, or to exercise any lien upon or right of
appropriation of any moneys, credits or property of Customer or any other
guarantor, possessed by or
<PAGE> 2
under the control of MLBFS or any of its affiliates, toward the liquidation or
reduction of the Obligations; (d) any invalidity, irregularity or
unenforceability of all or any part of the Obligations, of any collateral
security for the Obligations, or the Guaranteed Documents; (e) any application
of payments or credits by MLBFS; (f) the granting of credit from time to time
by MLBFS to Customer in excess of the amount set forth in the Guaranteed
Documents; or (g) any other act of commission or omission of any kind or at any
time upon the part of MLBFS or any of its affiliates or any of their respective
employees or agents with respect to any matter whatsoever. MLBFS shall not be
required at any time, as a condition of Guarantor's obligations hereunder, to
resort to payment from Customer or other persons or entities whatsoever, or any
of their properties or estates, or resort to any collateral or pursue or
exhaust any other rights or remedies whatsoever.
No release or discharge in whole or in part of any other guarantor of the
Obligations shall release or discharge Guarantor unless and until all of the
Obligations shall have been indefeasibly fully paid and discharged. Guarantor
expressly waives presentment, protest, demand, notice of dishonor or default,
notice of acceptance of this Guaranty, notice of advancement of funds under the
Guaranteed Documents and all other notices and formalities to which Customer or
Guarantor might be entitled, by statute or otherwise, and, so long as there are
any Obligations or MLBFS is committed to extend credit to Customer, waives any
right to revoke or terminate this Guaranty without the express written consent
of MLBFS.
So long as there are any Obligations, Guarantor shall not have any claim,
remedy or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right, or remedy of MLBFS
against Customer or any security which MLBFS now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law, or otherwise.
MLBFS is hereby irrevocably authorized by Guarantor at any time during the
continuance of an Event of Default under the Loan Agreement or any other of the
Guaranteed Documents or in respect of any of the Obligations, in its sole
discretion and without demand or notice of any kind, to appropriate, hold, set
off and apply toward the payment of any amount due hereunder, in such order of
application as MLBFS may elect, all cash, credits, deposits, accounts,
securities and any other property of Guarantor which is in transit to or in the
possession, custody or control of MLBFS or Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("MLPF&S"), or any of their respective agents, bailees or
affiliates, including, without limitation, all securities accounts with MLPF&S
and all cash, securities and other financial assets therein or controlled
thereby, and all proceeds thereof. Guarantor hereby collaterally assigns and
grants to MLBFS a continuing security interest in all such property as
additional security for the Obligations. Upon the occurrence and during the
continuance of an Event of Default, MLBFS shall have all rights in such
property available to collateral assignees and secured parties under all
applicable laws, including, without limitation, the UCC.
Guarantor agrees to furnish to MLBFS such financial information concerning
Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may
otherwise from time to time reasonably request. Guarantor further hereby
irrevocably authorizes MLBFS and each of its affiliates, including without
limitation MLPF&S, to at any time (whether or not an Event of Default shall
have occurred) obtain from and disclose to each other any and all financial and
other information about Guarantor.
No delay on the part of MLBFS in the exercise of any right or remedy under the
Guaranteed Documents, this Guaranty or any other agreement shall operate as a
waiver thereof, and, without limiting the foregoing, no delay in the
enforcement of any security interest, and no single or partial exercise by
MLBFS of any right or remedy shall preclude any other or further exercise
thereof or the exercise of any other right or remedy. This Guaranty may be
executed in any number of counterparts, each of which counterparts, once they
are executed and delivered, shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same Guaranty.
This Guaranty shall be binding upon Guarantor and its successors and assigns,
and shall inure to the benefit of MLBFS and its successors and assigns. If
there is more than one guarantor of the Obligations, all of the obligations and
agreements of Guarantor are joint and several with such other guarantors.
This Guaranty shall be governed by the laws of the State of Illinois. WITHOUT
LIMITING THE RIGHT OF MLBFS TO ENFORCE THIS GUARANTY IN ANY JURISDICTION AND
VENUE PERMITTED BY
-2-
<PAGE> 3
APPLICABLE LAW, GUARANTOR AGREES THAT THIS GUARANTY MAY AT THE OPTION OF MLBFS
BE ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUE IN WHICH ANY OF THE
GUARANTEED DOCUMENTS MAY BE ENFORCED. GUARANTOR AND MLBFS HEREBY EACH EXPRESSLY
WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY IN ANY
WAY RELATED TO OR ARISING OUT OF THIS GUARANTY OR THE OBLIGATIONS. Wherever
possible each provision of this Guaranty shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Guaranty shall be prohibited by or invalid under such law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Guaranty. No modification or waiver of any of the provisions of this
Guaranty shall be effective unless in writing and signed by both Guarantor and
an officer of MLBFS.
Each signatory on behalf of Guarantor warrants that he has authority to sign on
behalf of Guarantor, and by so signing, to bind Guarantor hereunder.
Dated as of June 17, 1997.
MAGICSILK, INC.
By: /s/ JAMES R. THOMPSON
---------------------------------------------------------------------
Signature (1) Signature (2)
James R. Thompson
---------------------------------------------------------------------
Printed Name Printed Name
Vice President
---------------------------------------------------------------------
Title Title
ADDRESS OF GUARANTOR:
P. O. Box 6666
Tyler, TX 75711
-3-
<PAGE> 1
EXHIBIT 10.21
[MERRILL LYNCH LOGO] Ref. No. 9706340301
================================================================================
UNCONDITIONAL GUARANTY
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend
credit to or for the benefit of CELEBRITY, INC., a corporation organized and
existing under the laws of the State of Texas (with any successor-in interest,
including, without limitation, any successor by merger or by operation of law,
herein collectively referred to as "Customer") under: (a) that certain TERM
WCMA LOAN AGREEMENT NO. 9706340301 between MLBFS and Customer (the "Loan
Agreement"), (b) any "Additional Agreements", as that term is defined in the
Loan Agreement (including, without limitation, the TERM WCMA NOTE incorporated
by reference into the Loan Agreement), and (c) all present and future
amendments, restatements, supplements and other evidences of any extensions,
increases, renewals, modifications and other changes of or to the Loan
Agreement or Additional Agreements (collectively, the "Guaranteed Documents"),
the undersigned, THE CLUETT CORPORATION, a corporation duly organized and
validly existing under the laws of the State of California ("Guarantor"),
HEREBY UNCONDITIONALLY GUARANTEES TO MLBFS: (i) the prompt and full payment
when due, by acceleration or otherwise, of all sums now or any time hereafter
due from Customer to MLBFS under the Guaranteed Documents, (ii) the prompt,
full and faithful performance and discharge by Customer of each and every other
covenant and warranty of Customer set forth in the Guaranteed Documents, and
(iii) the prompt and full payment and performance of all other indebtedness,
liabilities and obligations of Customer to MLBFS, howsoever created or
evidenced, and whether now existing or hereafter arising (collectively, the
"Obligations"). Guarantor further agrees to pay all reasonable costs and
expenses (including, but not limited to, court costs and reasonable attorneys'
fees) paid or incurred by MLBFS in endeavoring to collect or enforce
performance of any of the Obligations, or in enforcing this Guaranty. Guarantor
acknowledges that MLBFS is relying on the execution and delivery of this
Guaranty in advancing moneys to or extending or continuing to extend credit to
or for the benefit of Customer.
This Guaranty is absolute, unconditional and continuing and shall remain in
effect until all of the Obligations shall have been fully and indefeasibly
paid, performed and discharged. Upon the occurrence and during the continuance
of any default or Event of Default under the Guaranteed Documents, any or all
of the indebtedness hereby guaranteed then existing shall, at the option of
MLBFS, become immediately due and payable from Guarantor (it being understood,
however, that upon the occurrence of any "Bankruptcy Event", as defined in the
Guaranteed Documents, all such indebtedness shall automatically become due and
payable without action on the part of MLBFS). Notwithstanding the occurrence of
any such event, this Guaranty shall continue and remain in full force and
effect. To the extent MLBFS receives payment with respect to the Obligations,
and all or any part of such payment is subsequently invalidated, declared to be
fraudulent or preferential, set aside, required to be repaid by MLBFS or is
repaid by MLBFS pursuant to a settlement agreement, to a trustee, receiver or
any other person or entity, whether under any Bankruptcy law or otherwise (a
"Returned Payment"), this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, to the extent of such payment or repayment by
MLBFS, and the indebtedness or part thereof intended to be satisfied by such
Returned Payment shall be revived and continued in full force and effect as if
said Returned Payment had not been made.
The liability of Guarantor hereunder shall in no event be affected or impaired
by any of the following, any of which may be done or omitted by MLBFS from time
to time, without notice to or the consent of Guarantor: (a) any renewals,
amendments, modifications or supplements of or to any of the Guaranteed
Documents, or any extensions, forbearances, compromises or releases of any of
the Obligations or any of MLBFS' rights under any of the Guaranteed Documents;
(b) any acceptance by MLBFS of any collateral or security for, or other
guarantees of, any of the Obligations; (c) any failure, neglect or omission on
the part of MLBFS to realize upon or protect any of the Obligations, or any
collateral or security therefor, or to exercise any lien upon or right of
appropriation of any moneys, credits or property of Customer or any other
guarantor, possessed by or under the control of MLBFS or any of its affiliates,
toward the liquidation or reduction of the Obligations; (d)
<PAGE> 2
any invalidity, irregularity or unenforceability of all or any part of the
Obligations, of any collateral security for the Obligations, or the Guaranteed
Documents; (e) any application of payments or credits by MLBFS; (f) the
granting of credit from time to time by MLBFS to Customer in excess of the
amount set forth in the Guaranteed Documents; or (g) any other act of
commission or omission of any kind or at any time upon the part of MLBFS or any
of its affiliates or any of their respective employees or agents with respect
to any matter whatsoever. MLBFS shall not be required at any time, as a
condition of Guarantor's obligations hereunder, to resort to payment from
Customer or other persons or entities whatsoever, or any of their properties or
estates, or resort to any collateral or pursue or exhaust any other rights or
remedies whatsoever.
No release or discharge in whole or in part of any other guarantor of the
Obligations shall release or discharge Guarantor unless and until all of the
Obligations shall have been indefeasibly fully paid and discharged. Guarantor
expressly waives presentment, protest, demand, notice of dishonor or default,
notice of acceptance of this Guaranty, notice of advancement of funds under the
Guaranteed Documents and all other notices and formalities to which Customer or
Guarantor might be entitled, by statute or otherwise, and, so long as there are
any Obligations or MLBFS is committed to extend credit to Customer, waives any
right to revoke or terminate this Guaranty without the express written consent
of MLBFS.
So long as there are any Obligations, Guarantor shall not have any claim,
remedy or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right, or remedy of MLBFS
against Customer or any security which MLBFS now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law, or otherwise.
MLBFS is hereby irrevocably authorized by Guarantor at any time during the
continuance of an Event of Default under the Loan Agreement or any other of the
Guaranteed Documents or in respect of any of the Obligations, in its sole
discretion and without demand or notice of any kind, to appropriate, hold, set
off and apply toward the payment of any amount due hereunder, in such order of
application as MLBFS may elect, all cash, credits, deposits, accounts,
securities and any other property of Guarantor which is in transit to or in the
possession, custody or control of MLBFS or Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("MLPF&S"), or any of their respective agents, bailees or
affiliates, including, without limitation, all securities accounts with MLPF&S
and all cash, securities and other financial assets therein or controlled
thereby, and all proceeds thereof. Guarantor hereby collaterally assigns and
grants to MLBFS a continuing security interest in all such property as
additional security for the Obligations. Upon the occurrence and during the
continuance of an Event of Default, MLBFS shall have all rights in such
property available to collateral assignees and secured parties under all
applicable laws, including, without limitation, the UCC.
Guarantor agrees to furnish to MLBFS such financial information concerning
Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may
otherwise from time to time reasonably request. Guarantor further hereby
irrevocably authorizes MLBFS and each of its affiliates, including without
limitation MLPF&S, to at any time (whether or not an Event of Default shall
have occurred) obtain from and disclose to each other any and all financial and
other information about Guarantor.
No delay on the part of MLBFS in the exercise of any right or remedy under the
Guaranteed Documents, this Guaranty or any other agreement shall operate as a
waiver thereof, and, without limiting the foregoing, no delay in the
enforcement of any security interest, and no single or partial exercise by
MLBFS of any right or remedy shall preclude any other or further exercise
thereof or the exercise of any other right or remedy. This Guaranty may be
executed in any number of counterparts, each of which counterparts, once they
are executed and delivered, shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same Guaranty.
This Guaranty shall be binding upon Guarantor and its successors and assigns,
and shall inure to the benefit of MLBFS and its successors and assigns. If
there are more than one guarantor of the Obligations, all of the obligations
and agreements of Guarantor are joint and several with such other guarantors.
This Guaranty shall be governed by the laws of the State of Illinois. WITHOUT
LIMITING THE RIGHT OF MLBFS TO ENFORCE THIS GUARANTY IN ANY JURISDICTION AND
VENUE PERMITTED BY APPLICABLE LAW, GUARANTOR AGREES THAT THIS GUARANTY MAY AT
THE OPTION OF MLBFS
-2-
<PAGE> 3
BE ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUE IN WHICH ANY OF THE
GUARANTEED DOCUMENTS MAY BE ENFORCED. GUARANTOR AND MLBFS HEREBY EACH EXPRESSLY
WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY IN ANY
WAY RELATED TO OR ARISING OUT OF THIS GUARANTY OR THE OBLIGATIONS. Wherever
possible each provision of this Guaranty shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Guaranty shall be prohibited by or invalid under such law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Guaranty. No modification or waiver of any of the provisions of this
Guaranty shall be effective unless in writing and signed by both Guarantor and
an officer of MLBFS.
Each signatory on behalf of Guarantor warrants that he has authority to sign on
behalf of Guarantor, and by so signing, to bind Guarantor hereunder.
Dated as of June 17, 1997.
THE CLUETT CORPORATION
By: /s/ JAMES R. THOMPSON
---------------------------------------------------------------------
Signature (1) Signature (2)
James R. Thompson
---------------------------------------------------------------------
Printed Name Printed Name
Vice President - Finance
---------------------------------------------------------------------
Title Title
ADDRESS OF GUARANTOR:
-3-
<PAGE> 1
EXHIBIT 10.22
[MERRILL LYNCH LOGO] Ref. No. 9706340301
================================================================================
UNCONDITIONAL GUARANTY
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend
credit or lease property to or for the benefit of, or modify its credit
relationship with, or enter into any other financial accommodations with
CELEBRITY, INC. (with any successor-in interest, including, without limitation,
any successor by merger or by operation of law, herein collectively referred to
as "Customer"), under: (a) that certain TERM WCMA LOAN AGREEMENT NO. 9706340301
between MLBFS and Customer (the "Loan Agreement"), (b) any "Additional
Agreements", as that term is defined in the Loan Agreement including, without
limitation, the TERM WCMA NOTE incorporated by reference into the Loan
Agreement, and (c) all present and future amendments, restatements, supplements
and other evidences of any extensions, increases, renewals, modifications and
other changes of or to the Loan Agreement or any Additional Agreements
(collectively, the "Guaranteed Documents"), and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, THE
UNDERSIGNED, INDIA EXOTICS, INC., a corporation organized and existing under
the laws of the State of Texas ("Guarantor"), HEREBY UNCONDITIONALLY GUARANTEES
TO MLBFS (i) the prompt and full payment when due, by acceleration or
otherwise, of all sums now or any time hereafter due from Customer to MLBFS
under the Guaranteed Documents, (ii) the prompt, full and faithful performance
and discharge by Customer of each and every other covenant and warranty of
Customer set forth in the Guaranteed Documents, and (iii) the prompt and full
payment and performance of all other indebtedness, liabilities and obligations
of Customer to MLBFS, howsoever created or evidenced, and whether now existing
or hereafter arising (collectively, the "Obligations"). Guarantor further
agrees to pay all reasonable costs and expenses (including, but not limited to,
court costs and reasonable attorneys' fees) paid or incurred by MLBFS in
endeavoring to collect or enforce performance of any of the Obligations, or in
enforcing this Guaranty. Guarantor acknowledges that MLBFS is relying on the
execution and delivery of this Guaranty in advancing moneys to or extending or
continuing to extend credit to or for the benefit of Customer.
This Guaranty is absolute, unconditional and continuing and shall remain in
effect until all of the Obligations shall have been fully and indefeasibly
paid, performed and discharged. Upon the occurrence and during the continuance
of any default or Event of Default under the Guaranteed Documents, any or all
of the indebtedness hereby guaranteed then existing shall, at the option of
MLBFS, become immediately due and payable from Guarantor (it being understood,
however, that upon the occurrence of any "Bankruptcy Event", as defined in the
Guaranteed Documents, all such indebtedness shall automatically become due and
payable without action on the part of MLBFS). Notwithstanding the occurrence of
any such event, this Guaranty shall continue and remain in full force and
effect. To the extent MLBFS receives payment with respect to the Obligations,
and all or any part of such payment is subsequently invalidated, declared to be
fraudulent or preferential, set aside, required to be repaid by MLBFS or is
repaid by MLBFS pursuant to a settlement agreement, to a trustee, receiver or
any other person or entity, whether under any Bankruptcy law or otherwise (a
"Returned Payment"), this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, to the extent of such payment or repayment by
MLBFS, and the indebtedness or part thereof intended to be satisfied by such
Returned Payment shall be revived and continued in full force and effect as if
said Returned Payment had not been made.
The liability of Guarantor hereunder shall in no event be affected or impaired
by any of the following, any of which may be done or omitted by MLBFS from time
to time, without notice to or the consent of Guarantor: (a) any renewals,
amendments, restatements, modifications or supplements of or to any of the
Guaranteed Documents, or any extensions, forbearances, compromises or releases
of any of the Obligations or any of MLBFS' rights under any of the Guaranteed
Documents; (b) any acceptance by MLBFS of any collateral or security for, or
other guarantees of, any of the Obligations; (c) any failure, neglect or
omission on the part of MLBFS to realize upon or protect any of the
Obligations, or any collateral or security therefor, or to exercise
<PAGE> 2
any lien upon or right of appropriation of any moneys, credits or property of
Customer or any other guarantor, possessed by or under the control of MLBFS or
any of its affiliates, toward the liquidation or reduction of the Obligations;
(d) any invalidity, irregularity or unenforceability of all or any part of the
Obligations, of any collateral security for the Obligations, or the Guaranteed
Documents; (e) any application of payments or credits by MLBFS; (f) the
granting of credit from time to time by MLBFS to Customer in excess of the
amount set forth in the Guaranteed Documents; or (g) any other act of
commission or omission of any kind or at any time upon the part of MLBFS or any
of its affiliates or any of their respective employees or agents with respect
to any matter whatsoever. MLBFS shall not be required at any time, as a
condition of Guarantor's obligations hereunder, to resort to payment from
Customer or other persons or entities whatsoever, or any of their properties or
estates, or resort to any collateral or pursue or exhaust any other rights or
remedies whatsoever.
No release or discharge in whole or in part of any other guarantor of the
Obligations shall release or discharge Guarantor unless and until all of the
Obligations shall have been indefeasibly fully paid and discharged. Guarantor
expressly waives presentment, protest, demand, notice of dishonor or default,
notice of acceptance of this Guaranty, notice of advancement of funds under the
Guaranteed Documents and all other notices and formalities to which Customer or
Guarantor might be entitled, by statute or otherwise, and, so long as there are
any Obligations or MLBFS is committed to extend credit to Customer, waives any
right to revoke or terminate this Guaranty without the express written consent
of MLBFS.
So long as there are any Obligations, Guarantor shall not have any claim,
remedy or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right, or remedy of MLBFS
against Customer or any security which MLBFS now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law, or otherwise.
MLBFS is hereby irrevocably authorized by Guarantor at any time during the
continuance of an Event of Default under the Loan Agreement or any other of the
Guaranteed Documents or in respect of any of the Obligations, in its sole
discretion and without demand or notice of any kind, to appropriate, hold, set
off and apply toward the payment of any amount due hereunder, in such order of
application as MLBFS may elect, all cash, credits, deposits, accounts,
securities and any other property of Guarantor which is in transit to or in the
possession, custody or control of MLBFS or Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("MLPF&S"), or any of their respective agents, bailees or
affiliates, including, without limitation, all securities accounts with MLPF&S
and all cash, securities and other financial assets therein or controlled
thereby, and all proceeds thereof. Guarantor hereby collaterally assigns and
grants to MLBFS a continuing security interest in all such property as
additional security for the Obligations. Upon the occurrence and during the
continuance of an Event of Default, MLBFS shall have all rights in such
property available to collateral assignees and secured parties under all
applicable laws, including, without limitation, the UCC.
Guarantor agrees to furnish to MLBFS such financial information concerning
Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may
otherwise from time to time reasonably request. Guarantor further hereby
irrevocably authorizes MLBFS and each of its affiliates, including without
limitation MLPF&S, to at any time (whether or not an Event of Default shall
have occurred) obtain from and disclose to each other any and all financial and
other information about Guarantor.
No delay on the part of MLBFS in the exercise of any right or remedy under the
Guaranteed Documents, this Guaranty or any other agreement shall operate as a
waiver thereof, and, without limiting the foregoing, no delay in the
enforcement of any security interest, and no single or partial exercise by
MLBFS of any right or remedy shall preclude any other or further exercise
thereof or the exercise of any other right or remedy. This Guaranty may be
executed in any number of counterparts, each of which counterparts, once they
are executed and delivered, shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same Guaranty.
This Guaranty shall be binding upon Guarantor and its successors and assigns,
and shall inure to the benefit of MLBFS and its successors and assigns. If
there are more than one guarantor of the Obligations, all of the obligations
and agreements of Guarantor are joint and several with such other guarantors.
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<PAGE> 3
This Guaranty shall be governed by the laws of the State of Illinois. WITHOUT
LIMITING THE RIGHT OF MLBFS TO ENFORCE THIS GUARANTY IN ANY JURISDICTION AND
VENUE PERMITTED BY APPLICABLE LAW, GUARANTOR AGREES THAT THIS GUARANTY MAY AT
THE OPTION OF MLBFS BE ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUE IN WHICH
ANY OF THE GUARANTEED DOCUMENTS MAY BE ENFORCED. GUARANTOR AND MLBFS HEREBY
EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER
PARTY IN ANY WAY RELATED TO OR ARISING OUT OF THIS GUARANTY OR THE OBLIGATIONS.
Wherever possible each provision of this Guaranty shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Guaranty shall be prohibited by or invalid under such law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Guaranty. No modification or waiver of any of the
provisions of this Guaranty shall be effective unless in writing and signed by
both Guarantor and an officer of MLBFS. Each signatory on behalf of Guarantor
warrants that he or she has authority to sign on behalf of Guarantor, and by so
signing, to bind Guarantor hereunder.
Dated as of June 17, 1997.
INDIA EXOTICS, INC.
By: /s/ JAMES R. THOMPSON
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Signature (1) Signature (2)
James R. Thompson
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Printed Name Printed Name
Vice President
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Title Title
Address of Guarantor:
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<PAGE> 1
EXHIBIT 10.23
FOR RECORDER'S USE ONLY
PREPARED BY AND
WHEN RECORDED MAIL TO:
Merrill Lynch Business Financial
Services Inc.
Attn: Jennifer Zabel
33 West Monroe Street
22nd Floor
Chicago, Illinois 60603
Tax Lot No: Parcel Identification No:
DEED OF TRUST, SECURITY AGREEMENT,
FINANCING STATEMENT AND ASSIGNMENT OF RENTS
FROM
CELEBRITY, INC.
GRANTOR
TO
THOMAS M. SMITH
TRUSTEE
FOR THE BENEFIT OF
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
BENEFICIARY
[MERRILL LYNCH LOGO] North Carolina
================================================================================
<PAGE> 2
[MERRILL LYNCH LOGO]
================================================================================
DEED OF TRUST, SECURITY AGREEMENT,
FINANCING STATEMENT AND ASSIGNMENT OF RENTS
THIS DEED OF TRUST ("Deed of Trust") is made as of June 6, 1997 by CELEBRITY,
INC., a corporation organized and existing under the laws of the State of Texas
having its principal office at 3200 Centre Park Blvd., Winston-Salem, NC
("Grantor") to Thomas M. Smith whose address is ________________________, as
Trustee ("Trustee") for the benefit of MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC., a Delaware corporation having its principal office at 33 West
Monroe Street, 22nd Floor, Chicago, Illinois 60603 ("Beneficiary"), and
pertains to the real property described on Exhibit "A" attached hereto and made
a part hereof and the Other Property described herein.
I. DEFINITIONS
1.01 SPECIFIC TERMS. In addition to terms defined elsewhere in this Deed of
Trust, when used herein the following terms shall have the following meanings:
(a)"Additional Agreements" shall have the meaning set forth in the Loan
Agreement.
(b)"Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(c)"Documents" shall mean collectively the Loan Agreement, the Note, this Deed
of Trust and the other Additional Agreements.
(d)"Interest Rate" shall have the meaning set forth in the Note and/or Loan
Agreement (or if there shall be more than one Interest Rate, then "Interest
Rate" shall mean the highest of such rates). (e)"Loan Agreement" shall mean
that certain TERM WCMA LOAN AGREEMENT NO. 9706340301 between Grantor and
Beneficiary, as the same may from time to time be or have been amended,
renewed, restated, extended or supplemented. (f)"Note" shall mean that certain
TERM WCMA NOTE in the original principal amount of $5,000,000.00 dated as of
June 6, 1997, given by Grantor to Beneficiary, as the same may from time to
time be amended, renewed, restated, extended or supplemented.
(g)"Obligations" shall mean all indebtedness, obligations and liabilities of
Grantor to Beneficiary, howsoever created, arising or evidenced, whether now
existing or hereafter arising, whether direct or indirect, absolute or
contingent, due or to become due, primary or secondary, or joint and several,
and, without limiting the foregoing, shall include all present and future
liabilities, indebtedness and obligations of Customer under the Documents.
(h)"Other Property" shall have the meaning set forth in Section 2.01 hereof.
(i)"Property" shall mean the Real Property and the Other Property,
collectively.
(j)"Real Property" shall mean the real property commonly known as 3200 Centre
Park Blvd., Winson-Salem, North Carolina, and more fully described in Exhibit
"A" attached hereto and made a part hereof, and all improvements thereon.
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<PAGE> 3
II. THE GRANT; ASSIGNMENT OF RENTS AND LEASES
2.01 GRANT. In order to induce Beneficiary to extend or continue to extend
credit to Grantor under the Loan Agreement or otherwise, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and to secure the payment and performance of the Obligations and
the covenants and agreements herein contained, Grantor does hereby grant,
bargain, sell, convey, mortgage and warrant to Trustee and its successors and
assigns forever, with power of sale, the Real Property, and all of Grantor's
estate, right, title and interest therein, together with the following
described property (the "Other Property"):
(a) All buildings and other improvements of every kind and description now or
hereafter erected or placed on the Real Property, and all materials intended
for construction, reconstruction, alteration and repair of such improvements
now or hereafter erected thereon, all of which materials shall be deemed to be
included as part of the Other Property immediately upon the delivery thereof to
the Real Property;
(b) All right, title, and interest of Grantor, including any after-acquired
title or reversion, in and to the rights-of- ways, streets, avenues, sidewalks,
and alleys adjoining the Real Property;
(c) Each and all of the tenements, hereditaments, easements, appurtenances,
passages, waters, water courses, riparian rights, other rights, liberties and
privileges of the Real Property in any way now or hereafter appertaining
thereto, including homestead and any other claim at law or in equity, as well
as any after-acquired title, franchise or license and the reversions and
remainders thereof;
(d) All rents, issues, deposits and profits accruing and to accrue from the
Real Property and Other Property and the avails thereof;
(e) All of Grantor's rights and claims, in and to all accounts, accounts
receivable, security deposits, insurance premium rebates, writings evidencing a
monetary obligation, contract rights and other creditor's interests existing in
favor of, owned or acquired by Grantor with respect to the Real Property; all
contracts relating to the use, operation, occupation, maintenance, repair or
construction of the Real Property; all permits, licenses, franchises benefiting
the Real Property, together with the benefit of any deposits or payments now or
hereafter made by Grantor or on its behalf in connection with the foregoing;
and all books and records, including but not limited to all lease documents,
relating to the Real Property and Other Property;
(f) All machinery, equipment, fittings, apparatus, appliances, fixtures
(including, without limitation, all heating, air conditioning, ventilating,
waste disposal, sprinkler and fire and theft protection equipment, and all
plumbing, lighting, communications and elevator fixtures) and other property of
every kind and description now or hereafter owned by Grantor and located upon
or in, and used or useful in connection with, the operation, maintenance or
occupancy of the Real Property or the Property, and all renewals or
replacements thereof or articles in substitution therefor; and
(g) All judgments, awards of damages or settlements related to and all proceeds
of the conversion, voluntary or involuntary, of any of the foregoing into cash
or liquidated claims, including but not limited to proceeds of insurance and/or
condemnation, and all products, additions, accessions, attachments, parts,
replacements and substitutes therefor.
TO HAVE AND TO HOLD the Property, together with all and singular the rights,
hereditaments, and appurtenances in anywise appertaining or belonging thereto,
unto Trustee and Trustee's successors or substitutes in this trust, and
Trustee's successors and assigns, in trust and for the uses and purposes
hereinafter set forth, forever.
2.02 SPECIAL TERMS CONCERNING THIS DEED OF TRUST. All of the Other Property is
pledged hereunder primarily, on a parity with the Real Property, and not
secondarily. This Deed of Trust is given as equal security
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<PAGE> 4
for all of the Obligations without preference or priority of any part of the
Obligations for any reason whatsoever. The Note secured by this Deed of Trust
contemplates a variable rate of interest.
This Deed of Trust is given in part to secure certain line of credit
obligations, as evidenced and witnessed by the Note, and secures not only the
indebtedness from Grantor existing on the date hereof, but all such future
advances, whether such advances are obligatory or to be made at the option of
Beneficiary, or otherwise as are made within 15 years from the date hereof, to
the same extent as if such future advances were made on the date of the
execution of this Deed of Trust, and although there may be no indebtedness
outstanding at the time any advance is made. The lien of this Deed of Trust as
to third persons without actual notice thereof shall be valid as to all
indebtedness and future advances from the time this Deed of Trust is filed for
record in the Office of the Register of Deeds of the County set forth on
Exhibit A attached hereto. The total amount of revolving indebtedness that may
be secured by this Deed of Trust may increase or decrease from time to time,
but the total unpaid balance of the Note secured at any one time, shall not
exceed the maximum principal amount of the Note plus interest thereon and any
disbursements made by Beneficiary to protect and preserve the lien of this Deed
of Trust (including, but not limited to, real estate taxes, water and sewer
assessments, and insurance premiums), with interest on such disbursements.
2.03 OTHER PROPERTY. Grantor acknowledges and agrees that all of the Other
Property now and hereafter owned by Grantor and placed by Grantor on the Real
Property or used in connection with the operation or maintenance thereof shall,
so far as permitted by law, be deemed for the purposes of this Deed of Trust to
be part of the Real Property and covered by this Deed of Trust, and as to any
of the Other Property which is not part of the Real Property or does not
constitute a "fixture," as such term is defined in the Uniform Commercial Code
(the "Code"), as enacted in the state in which the Real Property is located,
this Deed of Trust shall be deemed to be, as well, a security agreement under
the Code for the purpose of creating hereby a security interest in such
property, which Grantor hereby grants to Beneficiary as "secured party," as
such term is defined in the Code. All Other Property acquired by Borrower after
the date hereof which is required or intended by the terms of this Deed of
Trust to be subjected to the lien and security interest of this Deed of Trust
shall, immediately upon the acquisition thereof by Borrower, and without any
further deed of trust, conveyance, assignment or transfer, become subject to
the lien and security interest of this Deed of Trust.
2.04 OTHER AMOUNTS SECURED. At all times, this Deed of Trust secures, in
addition to the Note, all other Obligations; provided, however, that in no
event shall the aggregate principal indebtedness secured by this Deed of Trust
exceed an amount equal to 3 times the original principal amount of the Note,
together with moneys advanced by Beneficiary to protect and preserve the lien
of this Deed of Trust, as aforesaid.
2.05 ASSIGNMENTS OF RENTS AND LEASES. Grantor hereby assigns, transfers and
sets over unto Beneficiary all the rents, fees or payments now or hereafter
due, under or by virtue of any lease or other agreement, whether oral or
written, for the use or occupancy of any part of the Property and to all
amendments and guarantees thereof, whether heretofore, now or hereafter agreed
to; together with the right to let and relet the Property or any part thereof,
in Beneficiary's sole discretion, and to do anything with respect to the
Property as Grantor might do. Any proceeds received hereunder may be applied by
Beneficiary as otherwise provided in Section 4.11 of this Deed of Trust.
Grantor hereby directs all tenants, lessees and occupants of the Property to
pay all rental, payments or fees for use and occupancy of the Property in
accordance herewith. Beneficiary agrees not to exercise its rights granted in
this Section unless and until an Event of Default, as hereafter defined, shall
have occurred and is continuing, provided that this assignment shall
nevertheless be deemed a present assignment. Grantor shall execute,
acknowledge, and deliver to Beneficiary, within 5 Business Days after any
request by Beneficiary, such assignment of rent documents as may be required by
Beneficiary, in form and substance satisfactory to Beneficiary. Grantor further
agrees to pay to Beneficiary all reasonable costs and expenses incurred by
Beneficiary in connection with the preparation, execution and recording of any
such documents.
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<PAGE> 5
III. GENERAL AGREEMENTS
3.01 PAYMENT OF OBLIGATIONS. Grantor shall pay or cause the payment on or
before the applicable due date of each installment payable under the Note and
all other Obligations, and Grantor shall timely perform or cause the
performance of all of its other Obligations.
3.02 PROPERTY TAXES. Grantor shall pay on or before the applicable due date,
all taxes, assessments and other charges that may be asserted against the
Property or any part thereof or interest therein, except to the extent that any
such failure to pay will not materially and adversely affect either any liens
and security interests of Beneficiary hereunder, under the Loan Agreement or
any Additional Agreements, the financial condition of Grantor or the continued
operations of Grantor. Grantor shall furnish to Beneficiary duplicate receipts
or other evidence of payment of such taxes, assessments and other charges
within 30 days after payment thereof.
3.03 RIGHT TO PERFORM OBLIGATIONS. If Grantor shall fail to do any act or thing
which it has covenanted to do hereunder, Beneficiary may, in its sole
discretion, after 5 Business Days written notice is sent to Grantor (or such
lesser notice, including no notice, as is reasonable under the circumstances),
do the same or cause it to be done, and may expend its funds for such purpose.
Any and all reasonable amounts so expended by Beneficiary shall be payable to
Beneficiary by Grantor on demand, with interest at the Interest Rate during the
period from and including the date funds are so expended by Beneficiary to the
date of repayment, and all such amounts shall be additional Obligations. The
payment or performance by Beneficiary of any of Grantor's obligations hereunder
shall not relieve Grantor of said obligations or of the consequences of having
failed to pay or perform the same, and shall not waive or be deemed a cure of
any Event of Default.
3.04 INSURANCE.
(a) HAZARD. Grantor shall keep the improvements now existing or hereafter
erected on the Real Property insured under a replacement cost form of insurance
policy against loss or damage resulting from such hazards as may be reasonably
required by Beneficiary (including, but not limited to, flood insurance in an
amount necessary to comply with applicable law), and shall pay promptly, when
due, all premiums on such insurance. Without limiting the foregoing, during
construction of any improvements on the Real Property, Grantor shall maintain
"Builders Risk" insurance with extended coverage over fire and other casualties
using completed values for the amount of the full insurable value for all such
improvements under construction at any time on the Real Property, including
equipment and materials delivered to the Real Property for incorporation into
the Property. All such insurance shall be in form and with insurers approved in
writing by Beneficiary and shall have attached thereto: (i) standard
non-contributing deed of trust clauses entitling Beneficiary, as its interest
may appear, to collect any and all proceeds payable under such insurance, and
(ii) standard waiver of subrogation endorsements, so long as such subrogation
endorsement can be obtained without material additional cost to Grantor.
In the event of any casualty loss, Grantor shall give immediate notice thereof
to Beneficiary. Grantor hereby authorizes Beneficiary, at Beneficiary's option,
to adjust and compromise any such losses under any of the aforesaid insurance
and, after deducting any of Beneficiary's reasonable costs of collection, to
use, apply, or disburse the balance of such insurance proceeds: (i) toward
repairing, restoring and rebuilding the aforesaid improvements, provided such
repair, restoration or rebuilding is economically feasible and the security of
this Deed of Trust is not thereby impaired, in which event Beneficiary shall
not be obliged to see to the proper application thereof nor shall the amount so
released for such purposes be deemed a payment on the indebtedness secured
thereby; or (ii) as a credit upon any portion of the indebtedness secured
hereby, with the excess, if any, paid to Grantor; provided, however, that so
long as no Event of Default shall then exist and no Event of Default shall
exist at any time during the period of any repair, restoration and/or
rebuilding of the aforesaid improvements, and subject to the provisions of the
immediately following Section, upon Grantor's written request to Beneficiary
made on or before the disbursement of such insurance proceeds to Beneficiary,
such insurance proceeds shall be used to repair, restore and/or rebuild the
aforesaid improvements. Unless Grantor and Beneficiary otherwise agree in
writing, any such application of proceeds to the sums secured by
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<PAGE> 6
this Deed of Trust shall not extend or postpone the due date of any portion of
the indebtedness secured hereby or change the amount of any installment due on
such indebtedness.
To the extent any such insurance proceeds are used toward repairing, restoring
and rebuilding such improvements, such proceeds shall be made available, from
time to time, upon Beneficiary being furnished with satisfactory evidence of
the estimated cost of such repairs, restoration and rebuilding and with such
architect's certificates, waivers of lien, certificates, contractors' sworn
statements and other evidence of the estimated cost thereof and of payments as
Beneficiary may reasonably require and approve, and if the estimated cost of
the work exceeds 5% of the original principal amount of the Note, with all
plans and specifications for such plans, restoration and rebuilding as
Beneficiary may reasonably require and approve. Payments made prior to the
final completion of the work shall not exceed 90% of the value of the work
performed, from time to time, and at all times the undisbursed balance of such
proceeds remaining in the hands of Beneficiary shall be at least sufficient to
pay for the cost of completion of the work, free and clear of any liens except
the lien of this Deed of Trust. Beneficiary shall have the right to require
that all funds shall be paid through a construction escrow with a title
insurance company selected by Beneficiary. In the event of foreclosure of this
Deed of Trust, sale pursuant to the power of sale, or other transfer of title
to the Property in extinguishment of the Obligations, all right, title and
interest of Grantor in and to any such insurance policies then in force, and
any claims or proceeds thereunder, shall pass to Beneficiary or any purchaser
or grantee therefrom.
(b) LIABILITY. Grantor shall carry and maintain such comprehensive public
liability and worker's compensation insurance as may be reasonably required
from time to time by Beneficiary; provided, however, that the amounts of
liability coverage shall not be less than $2,000,000.00 single limit.
Beneficiary shall be named as an additional party insured.
(c) PROOF OF INSURANCE. All insurance shall be in amount, form and content and
with insurers approved in writing by Beneficiary. Grantor shall deliver to
Beneficiary a copy or certificate of each policy or policies, with evidence of
premiums prepaid, and, prior to any expiration or cancellation, each renewal or
replacement thereof. Each policy shall contain provision for not less than 10
days' notice to Beneficiary prior to any cancellation thereof.
3.05 CONDEMNATION AND EMINENT DOMAIN. Any and all awards heretofore or
hereafter made or to be made to the present, or any subsequent, owner of the
Property, by any governmental or other lawful authority for the taking, by
condemnation or eminent domain, of all or any part of the Property or any
easement thereon or appurtenance thereof, are hereby assigned by Grantor to
Trustee and Beneficiary, which awards Trustee and Beneficiary are hereby
authorized to collect and receive from the condemnation authorities and give
appropriate receipts therefor. Grantor shall give Trustee and Beneficiary
immediate notice of the actual or threatened commencement of any condemnation
or eminent domain proceedings affecting all or any part of the Real Property,
or any easement thereon or appurtenance thereof (including severance of,
consequential damage to, or change in grade of streets), and shall deliver to
Trustee and Beneficiary copies of any and all papers served in connection with
any such proceedings. Grantor further agrees to make, execute and deliver to
Trustee and Beneficiary, at any time upon request, free, clear and discharged
of any encumbrance of any kind whatsoever, any and all further assignments and
other instruments deemed necessary by either Trustee or Beneficiary for the
purpose of validly and sufficiently assigning all awards and other compensation
heretofore and hereafter made to Grantor for any taking, either permanent or
temporary, under any such proceeding. In the event of any damage or taking by
eminent domain of less than substantially all of the Property, Beneficiary
shall make available the proceeds of any award received in compensation for any
such damage or taking, less Beneficiary's reasonable costs of collection, for
the purpose of rebuilding and restoring the Property, subject to the same terms
and conditions as set forth in Section 3.04 (a). If any of the foregoing
conditions are not or cannot be satisfied, then Beneficiary may use or apply
the award to the Obligations.
3.06 USE, MAINTENANCE AND REPAIR. (a) Grantor shall not desert or abandon the
Property or, without the prior written consent of Beneficiary, cause or permit
a material change in the use of the Property.
(b) Grantor shall at its expense maintain the Property in good, safe and
insurable condition and repair, and in compliance with all applicable laws and
other governmental requirements. Grantor further agrees not to permit,
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<PAGE> 7
commit or suffer any waste, impairment or deterioration of the Property or any
part thereof; to effect such repairs as Beneficiary may reasonably require,
and, from time to time, to make all necessary and proper replacements thereof
and additions thereto so that all of the Property will, at all times, be in
good condition and repair, and fit for the purposes for which originally
erected or installed.
(c) Grantor shall not, without the prior written consent of Beneficiary, cause
or permit the demolition, removal, construction, restoration, addition or
material alteration to the Property or any portion thereof, except that without
such consent: (i) Grantor may in the ordinary course of its business or
operations replace any worn, broken, unfit or obsolete personal property or
fixtures included in the Other Property with like property, or property which
serves the same function, which is new or substantially new and free of all
liens other than the lien of the Deed of Trust, and (ii) Grantor may make
non-structural interior alterations having an aggregate cost in any calendar
year of not in excess of $100,000.00.
3.07 LIENS AND TRANSFERS. Except upon the prior written consent of Beneficiary,
Grantor shall not sell, transfer, convey, assign, hypothecate or otherwise
transfer the title to or any beneficial interest in all or any portion of the
Property, whether by operation of law, voluntarily, or otherwise, or contract
to do any of the foregoing, or create, suffer or permit to be created or filed
against the Property or any part thereof hereafter any deed of trust lien or
other lien upon the Property other than the lien of this Deed of Trust;
provided, however, that without such consent Grantor may: (a) permit the
existence of a lien arising from any work performed, materials furnished, or
other obligations incurred by Grantor to the extent being contested by Grantor
in good faith by appropriate proceedings but only if, not later than 5 Business
Days after the filing thereof, Grantor shall have furnished to Beneficiary
security and indemnification satisfactory to Beneficiary for the final payment
and discharge thereof, and (b) Grantor may replace worn, broken, unfit or
obsolete property to the extent permitted by Section 3.06 hereof.
3.08 STAMP TAXES. If at any time the United States government, or any federal,
state, county or municipal governmental subdivision, requires or imposes
documentary stamps, levies, or any tax on this Deed of Trust or on the
Obligations, then Grantor shall pay the same on or before the applicable due
date, or to the extent Beneficiary has or will make any payment related
thereto, then to the greatest extent permitted by law such indebtedness shall
be and become due and payable by Grantor to Beneficiary within 5 Business Days
after the receipt by Grantor of written notice of such indebtedness from
Beneficiary.
3.09 CHANGE IN LAWS. In the event of the enactment, after the date of this Deed
of Trust, of any law of the state in which the Real Property is located
imposing upon Beneficiary the payment of all or any part of the taxes,
assessments, charges, or liens hereby required to be paid by Grantor, or
changing in any ways the laws relating to the taxation of deeds of trust or
debts secured by deeds of trust or Grantor's interest in the Property, or the
manner of collection of taxes, so as to affect this Deed of Trust or the
indebtedness secured hereby or the holder thereof, then Grantor, upon demand by
Beneficiary, shall pay such taxes, assessments, charges or liens or reimburse
Beneficiary therefor; provided, however, that if, in the opinion of counsel for
Beneficiary, it might be unlawful to require Grantor to make such payment or
the making of such payment might result in the imposition of interest beyond
the maximum amount permitted by law, then Beneficiary may elect, by notice in
writing given to Grantor, to declare all of the indebtedness secured hereby to
become due and payable within 60 days after the giving of such notice;
provided, further, that nothing contained in this Section shall be construed as
obligating Grantor to pay any portion of Beneficiary's federal income tax or
other corporate taxes of Beneficiary that are unrelated to the taxation of
deeds of trust or debts secured by deeds of trust or Grantor's interest in the
Property.
3.10 INSPECTION OF PROPERTY. Grantor shall permit Beneficiary and its
representatives and agents to inspect the Property from time to time during
normal business hours and as frequently as Beneficiary considers reasonable.
3.11 ENVIRONMENTAL CONDITIONS. (a) Grantor hereby represents and warrants to
Beneficiary that no Hazardous Substances [as defined in Section 3.11 (b)] are
presently stored or otherwise located on the Real Property and, to the best of
its knowledge, on any adjacent parcels of real estate, except in accordance
with all applicable Hazardous Substances Laws [as defined in Section 3.11 (b)].
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<PAGE> 8
(b) Neither Grantor nor any other persons from time to time present on the Real
Property shall use, generate, manufacture, store, release, dispose of, or
permit or suffer to exist in, on, under or about the Real Property or transport
to or from the Real Property any flammable materials, explosives, petroleum
products (including crude oil), radioactive materials, hazardous wastes, toxic
substances or related materials, including, without limitation, any asbestos,
asbestos containing materials, PCB's or any substances defined as or included
in the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," or "toxic substances" (collectively, the "Hazardous Substances"),
under any Federal, state or local law, ordinance or regulation dealing with or
otherwise pertaining to toxic or hazardous substances, wastes or materials or
to occupational safety (collectively, the "Hazardous Substances Laws").
Notwithstanding the foregoing, Grantor may bring reasonable quantities of
Hazardous Substances onto the Real Property for their customary and ordinary
application, storage and use for landscape purposes, janitorial services and
pest control purposes, and as otherwise necessary for the conduct of Grantor's
business in its ordinary course.
Upon the written request of Beneficiary to Grantor, Beneficiary's attorneys,
employees, agents or other persons or entities designated by Beneficiary shall,
from time to time, and at any reasonable time, be allowed to enter upon the
Real Property and conduct environmental examinations and environmental audits
of the Real Property, all in form, manner and type as Beneficiary may then
require in its sole discretion. Grantor shall fully cooperate and make the Real
Property available to Beneficiary at such times as Beneficiary may reasonably
request in order to conduct such environmental examinations and environmental
audits.
(c) Grantor hereby agrees to give immediate notice of any violation of any
Hazardous Substances Laws affecting the Real Property. Grantor covenants and
agrees to promptly contain and clean up any and all releases of Hazardous
Substances on the Real Property. Notwithstanding any language or provision of
this Deed of Trust to the contrary, Grantor hereby unconditionally gives
Beneficiary the right, but not the obligation, and Beneficiary does not so
obligate itself, to undertake to contain and clean up releases of Hazardous
Substances on the Real Property. Grantor hereby indemnifies and saves
Beneficiary harmless of and from any and all loss, costs (including reasonable
attorneys' fees), liability and damage whatsoever incurred by Beneficiary, by
reason of any violation of any applicable Hazardous Substances Laws or by
reason of the imposition of any governmental lien for the recovery of
environmental clean-up costs related to the Real Property expended by reason of
such violation; provided that, to the extent that Beneficiary is strictly
liable under any Hazardous Substances Laws, Grantor's obligation to Beneficiary
under this indemnity shall likewise be without regard to fault on the part of
Grantor with respect to the violation of Hazardous Substances Laws that results
in liability to Beneficiary. Grantor further agrees that this indemnity shall
continue and remain in full force and effect beyond the term of Obligations and
shall be terminated only when there is no further obligation of any kind
whether in law or in equity or otherwise of Beneficiary in connection with any
such Hazardous Substances involving the Real Property.
3.12 SECURITY INSTRUMENTS. Grantor shall execute, acknowledge and deliver to
Beneficiary, within 5 Business Days after request by Beneficiary, a security
agreement, financing statements and any other similar security instrument
required by Beneficiary, in form and of content satisfactory to Beneficiary,
covering all property of any kind whatsoever owned by Grantor which, in the
sole opinion of Beneficiary, is essential to the operation of the Property and
concerning which there may be any doubt whether title thereto has been
conveyed, or a security interest therein perfected, by this Deed of Trust under
applicable law.
3.13 INTEREST LAWS. Grantor hereby warrants and represents that the proceeds of
the Note will be paid to an entity and/or used for the purposes specified in
Section 205/4(c) of Chapter 815, of the Illinois Compiled Statutes and that the
principal obligations secured hereby constitutes a business loan which comes
within the purview and operation of such Section. It being the intention of
Beneficiary and Grantor to comply with the laws of the State of Illinois and
the laws of the State in which the Property is located, it is agreed that
notwithstanding any provision to the contrary in any of the Documents, no
provision of any of the Documents shall require the payment or permit the
collection of any amount in excess of the maximum amount of interest permitted
to be charged by law ("Excess Interest"). If any Excess Interest is provided
for, or is adjudicated as being provided for, in any of the Documents, then:
(a) Grantor shall not be obligated to pay any such Excess Interest; and (b) any
Excess Interest that Beneficiary may have received hereunder shall, at the
option of Beneficiary, be: (i) applied as a credit against the then unpaid
principal balance of the Note, or accrued and unpaid interest thereon not to
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exceed the maximum amount permitted by law, or both, (ii) refunded to the payor
thereof, or (iii) any combination of the foregoing.
IV. EVENTS OF DEFAULT AND REMEDIES
4.01 EVENTS OF DEFAULT. Each of the following events shall constitute an Event
of Default under this Deed of Trust:
(a) Grantor shall fail to pay when due any amount owed by Grantor to
Beneficiary under the Note, the Loan Agreement or other Documents or any other
Obligations, and such failure shall continue for more than 5 Business Days
after written notice thereof shall have been given by Beneficiary to Grantor;
or
(b) Grantor shall default in the performance or observance of any term,
covenant, condition or agreement to be performed by Grantor under this Deed of
Trust (not constituting an Event of Default under any other clause of this
Section 4.01) and such default shall continue unremedied for 10 Business Days
after written notice thereof shall have been given by Beneficiary to Grantor;
or
(c) Any representation or warranty made by Grantor in this Deed of Trust shall
at any time prove to have been incorrect in any material respect when made; or
(d) Any default or Event of Default (howsoever such terms are defined) shall
occur under the Documents.
4.02 REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default,
Beneficiary may, at Beneficiary's option, do any one or more of the following:
(a) Beneficiary may declare the entire unpaid balance of the Obligations
immediately due and payable, and upon such declaration the entire unpaid
balance of the Obligations shall be immediately due and payable.
(b) Beneficiary may request Trustee to sell the Property, and in such event
Trustee is hereby authorized and empowered, and it shall be Trustee's special
duty, upon such request of Beneficiary to sell the Property, or any part
thereof, at public auction to the highest bidder or bidders for cash or credit,
as directed by Beneficiary, at the location, at such time or times and in such
manner as may be permitted by applicable law after having first given notice of
hearing as to commencement of foreclosure proceedings and obtained such
findings or leave of court as then may be required by law and giving such
notice and advertising the time and place of such sale in such manner as then
may be provided by law.
The sale of a part of the Property shall not exhaust the power of sale, but
sales may be made from time to time until the Obligations are paid and
performed in full. It shall not be necessary to have present or to exhibit at
any such sale any of the personal property (the "Personal Property") which is
located on or included in the Property.
(c) In addition to the rights and powers of sale granted under the preceding
subsection 4.02(b), if default is made in the payment of any installment of the
Obligations, Beneficiary may, at its option, at once or at any time thereafter
while any matured installment remains unpaid, without declaring the entire
Obligations to be due and payable, orally or in writing direct Trustee to
enforce this Trust and to sell the Property subject to such unmatured
indebtedness and the assignments, liens, and security interest securing its
payment, in the same manner, on the same terms, at the same place and time, and
after having given notice in the same manner, all as provided in the preceding
provisions of subsection 4.02(b). After such sale, Trustee shall make due
conveyance to the purchaser or purchasers.
(d) It is intended by each of the foregoing provisions of subsection 4.02(b)
and subsection 4.02(c) that Trustee may, after any request or direction by
Beneficiary, sell not only the real estate portion of the Property but also the
Personal Property and Other Property, or any part thereof, all as a unit and as
a part of a single sale, or may sell any part of the Property separately from
the remainder of the Property. The sale or sales by
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Trustee of less than the whole of the Property shall not exhaust the power of
sale herein granted and Trustee is specifically empowered to make successive
sale or sales under such power until the whole of the Property shall be sold;
and if the proceeds of such sale or sales of less than the whole of such
Property shall be less than the aggregate of the Obligations and the expense of
executing this trust, this Deed of Trust and the assignments, liens, and
security interests hereof shall remain in full force and effect as to the
unsold portion of the Property just as though no sale or sales of less than the
whole of the Property had occurred.
(e) Grantor and Beneficiary agree that, in any assignments, deeds, bills of
sale, notices of sale, or postings, given by Trustee or Beneficiary, any and
all statements of fact or other recitals therein made as to the identity of
Beneficiary, or as to the occurrence or existence of any Event of Default, or
as to the acceleration of the maturity of the Obligations, or as to the request
to sell, posting of notice of sale, notice of sale, time, place, terms, and
manner of sale and receipt, distribution, and application of the money realized
therefrom, or as to the due and proper appointment of substitute trustee and
without being limited by the foregoing, as to any other act or thing having
been duly done by Beneficiary or by Trustee, shall be taken by all courts of
law and equity as prima facie evidence that the said statements or recitals
state facts and are without further questions to be so accepted, and Grantor
does hereby ratify and confirm any and all acts that Trustee may lawfully do in
the premises by virtue hereof.
(f) Beneficiary may, or Trustee may upon written request of Beneficiary,
proceed by suit or suits, at law or in equity, to enforce the payment and
performance of the Obligations in accordance with the terms hereof or of the
other Documents, to foreclose or otherwise enforce the assignments, liens, and
security interests created or evidenced by the other Documents or this Deed of
Trust as against all or any part of the Property, and to have all or any part
of the Property sold under the judgment or decree of a court of competent
jurisdiction.
(g) To the extent permitted by law, Beneficiary, as a matter of right without
the necessity of filing any judicial or other proceeding other than the
proceeding for appointment of a receiver, shall be entitled to the appointment
of a receiver or receivers of the Property, or any thereof, and of the income,
rents, issues, and profits thereof, if applicable, and Grantor hereby expressly
consents to any such appointment. Such appointment may be made before or after
sale, without notice; without regard to the solvency or insolvency at the time
of application for such receiver of the person or persons, if any, liable for
the payment of the indebtedness secured hereby; without regard to the value of
the Property at such time, whether or not the same is then occupied as a
homestead, and without bond being required of the applicant. Such receiver
shall have the power to take possession, control and care of the Property and
to collect all rents, issues, deposits, profits and avails thereof during the
pendency of such foreclosure suit or sale pursuant to power of sale and, in
the event of a sale and a deficiency where Grantor has not waived its statutory
rights of redemption, during the full statutory period of redemption, as well
as during any further times when Grantor or its devisees, legatees, heirs,
executors, administrators, legal representatives, successors or assigns, except
for the intervention of such receiver, would be entitled to collect such rents,
issues, deposits, profits and avails, and shall have all other powers that may
be necessary or useful in such cases for the protection, possession, control,
management and operation of the Property during the whole of any such period.
To the extent permitted by law, such receiver may be authorized by the court to
extend or modify any then existing leases and to make new leases of the
Property or any part thereof, which extensions, modifications and new leases
may provide for terms to expire, or for options to lessees to extend or renew
terms to expire, beyond the maturity date of the indebtedness secured hereby,
it being understood and agreed that any such leases, and the options or other
such provisions to be contained therein, shall be binding upon Grantor and all
persons whose interests in the Property are subject to the lien hereof, and
upon the purchaser or purchasers at any such foreclosure sale or sale pursuant
to power of sale, notwithstanding any redemption from sale, discharge of
indebtedness, satisfaction of foreclosure decree, or issuance of certificate of
sale or deed to any purchaser.
(h) To the extent permitted by law, Beneficiary may enter upon the Property,
take possession of the Property, and remove the Personal Property or any part
thereof, with or without judicial process, and, in connection therewith,
without any responsibility or liability on the part of Beneficiary, including,
without limitation, any
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liability for consequential damages of any kind, and Beneficiary may take
possession of any property located on or in the Property which is not a part of
the Property and hold or store such property at Grantor's expense.
(i) Beneficiary may surrender the insurance policies maintained pursuant to the
terms hereof, or any part thereof, and receive and apply the unearned premiums
as a credit to the Obligations, and, in connection therewith, Grantor hereby
irrevocably appoints Beneficiary (or any officer of Beneficiary), as the true
and lawful agent and attorney-in-fact for Grantor (with full powers of
substitution), which power of attorney shall be deemed to be a power coupled
with an interest and therefore irrevocable, to collect such premiums.
(j) Beneficiary may buy the Property, or any part thereof, at any public sale
or judicial sale and, if the Property being sold is of a type customarily sold
in a recognized market or a type which is the subject of widely distributed
standard price quotations, Beneficiary may also buy the Property, or any part
thereof, at any private sale.
(k) Beneficiary shall have and may exercise any and all other rights and
remedies which Beneficiary may have at law or in equity, or by virtue of any
other security instrument, or under the Uniform Commercial Code in effect in
the States of Illinois and North Carolina (the "UCC") or otherwise.
4.03 PURCHASE BY BENEFICIARY. If Beneficiary is the purchaser of the Property,
or any part thereof, at any sale thereof (including any sale of the Personal
Property), whether such sale be under the power of sale hereinabove vested in
Trustee, or upon any other foreclosure or enforcement of the assignments,
liens, and security interest hereof, or otherwise, Beneficiary shall, upon any
such purchase, acquire good and marketable title to the Property so purchased,
free of the assignments, liens, and security interests created hereby.
4.04 CARE OF PROPERTY BY BENEFICIARY. Should any part of the Property come into
the possession of Beneficiary, Beneficiary may (without any liability therefor)
use, operate, and/or make repairs, alterations, additions, and improvements to
the Property for the purpose of preserving it or its value, pursuant to the
order of a court of appropriate jurisdiction, or in accordance with any other
rights held by Beneficiary with respect to the Property. Grantor covenants to
promptly reimburse and pay to Beneficiary, at the place where the Note is
payable, or at such other place as may be designated by Beneficiary in writing,
the amount of all reasonable expenses (including the cost of any insurance,
taxes, or other charges) incurred by Beneficiary in connection with its
custody, preservation, use, or operation of the Property, together with
interest thereon from the date incurred by Beneficiary at the highest lawful
rate, and all such expenses, cost, taxes, interest, and other charges shall be
a part of the Obligations.
4.05 RIGHT OF POSSESSION. If the assignments, liens, or security interest
hereof shall be foreclosed or otherwise enforced by a Trustee's sale, or by any
other judicial or non-judicial action, then the purchaser at any such sale
shall receive, as an incident to his ownership, immediate possession of that
portion of the Property purchased, and if Grantor or Grantor's successors or
lessees shall hold possession of any of said portion of the Property subsequent
to such foreclosure, Grantor and Grantor's successors or lessees in possession
shall be considered as tenants at sufferance of the purchaser at such
foreclosure sale or sale pursuant to power of sale, and anyone occupying the
Property (or any part thereof) after demand made of possession thereof shall be
guilty of forcible detainer and shall be subject to eviction and removal,
forcible or otherwise, with or without process of law, and all damages which
might be alleged by Grantor or Grantor's successors or lessees by reason
thereof are hereby expressly waived.
In any case in which, under the provisions of this Deed of Trust, Beneficiary
has a right to exercise any remedy, whether or not the entire principal sum
secured hereby becomes immediately due and payable as aforesaid, or whether
before or after the institution of proceedings to foreclose the lien hereof or
before or after sale under any foreclosure or power of sale, Grantor shall,
forthwith upon demand of Beneficiary, surrender to Beneficiary, and Beneficiary
shall be entitled to take actual possession of, the Property or any part
thereof, personally or by its agent or attorneys, and Beneficiary, in its
discretion, may enter upon and take and maintain possession of all or any part
of the Property, together with all documents, books (or copies
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thereof), records (or copies thereof), papers, and accounts of Grantor or the
then owner of the Property relating thereto, and may exclude Grantor, such
owner, and any agents and servants thereof wholly therefrom and may, as
attorney-in-fact or agent of Grantor or such owner, or in its own name as
Beneficiary and under the powers herein granted:
(a) hold, operate, manage, and control all or any part of the Property and
conduct the business, if any, thereof, either personally or by its agents, with
full power to use such measures, legal or equitable, as in its sole and
arbitrary discretion may be deemed proper or necessary to enforce the payment
or security of the rents, issues, deposits, profits, and avails of the
Property, including without limitation actions for recovery of rent, actions in
forcible detainer, and actions in distress for rent, all without notice to
Grantor;
(b) cancel or terminate any lease or sublease of all or any part of the
Property for any cause or on any ground that would entitle Grantor to cancel
the same;
(c) elect to disaffirm any lease or sublease of all or any part of the Property
made subsequent to this Deed of Trust or subordinated to the lien hereof;
(d) extend or modify any then existing leases and make new leases of all or any
part of the Property, which extensions, modifications and new leases may
provide for terms to expire, or for options to lessees to extend or renew terms
to expire, beyond the maturity date of the loan evidenced by the Note and the
issuance of a deed or deeds to a purchaser or purchasers at a foreclosure sale
or sale pursuant to the power of sale, it being understood and agreed that any
such leases, and the options or other such provisions to be contained therein,
shall be binding upon Grantor, all persons whose interests in the Property are
subject to the lien hereof, and the purchaser or purchasers at any foreclosure
sale or sale pursuant to the power of sale, notwithstanding any redemption from
sale, discharge of the indebtedness secured hereby, satisfaction of any
foreclosure decree, or issuance of any certificate of sale or deed to any such
purchaser; and
(e) make all necessary or proper repairs, decorations, renewals, replacements,
alterations, additions, betterments and improvements in connection with the
Property as may reasonably necessary, to insure and reinsure the Property and
all risks incidental to Beneficiary's possession, operation, and management
thereof, and to receive all rents, issues, deposits, profits and avails
therefrom.
4.06 DEED OF TRUST. Upon the occurrence of a Event of Default, this Deed of
Trust may be foreclosed as to the Property in any manner permitted by the laws
of North Carolina. Any foreclosure suit may be brought by Trustee or any
Beneficiary. If a foreclosure hereunder is commenced by Trustee, Beneficiary
may, at any time before the sale, direct Trustee, to abandon the sale, and may
then institute suit for the collection of the Note, and for the foreclosure of
enforcement of the assignments, liens, and security interests hereof. If
Beneficiary should institute a suit for the collection of the Note, and for a
foreclosure or enforcement of the assignments, liens, and security interests
hereof, it may, at any time before entry of a final judgment in said suit,
dismiss the same and require Trustee to sell the Property, or any part thereof,
in accordance with the provisions of this Deed of Trust.
4.07 APPLICATION OF DEPOSITS. Beneficiary may, at its option, without being
required to do so, apply any money or securities that constitute deposits made
to or held by Beneficiary or any depository pursuant to any of the provisions
of this Deed of Trust toward payment of any of the Obligations in such order
and manner as Beneficiary may elect. When the Obligations have been fully paid,
any remaining deposits shall be paid to Grantor or its successors or assigns,
or to the then owner or owners of the Property, or to whoever else may then be
adjudged entitled thereto.
4.08 EXERCISE RIGHTS OF SECURED PARTY. To the extent that this Deed of Trust
may operate as a security agreement under the Uniform Commercial Code,
Beneficiary may exercise any or all of the remedies of a secured party under
said Code.
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4.09 CONTINUING REMEDIES. The failure of Beneficiary to exercise any remedy
granted to Beneficiary hereunder or under applicable law in any one or more
instances, or the acceptance by Beneficiary of partial payments of such
indebtedness, shall neither constitute a waiver of any such Event of Default or
of Beneficiary's remedies hereunder or under applicable law nor establish,
extend or affect any grace period for payments due under the Note, but such
remedies shall remain continuously in force. Acceleration of maturity, once
claimed hereunder by Beneficiary, may at Beneficiary's option be rescinded by
written acknowledgment to that effect by Beneficiary and shall not affect
Beneficiary's right to accelerate maturity upon or after any future Event of
Default.
4.10 FORBEARANCE BY BENEFICIARY NOT A WAIVER. Any forbearance by Beneficiary in
exercising any right or remedy hereunder, or otherwise afforded by law, shall
not be a waiver or preclude the exercise of any such right or remedy.
4.11 APPLICATION OF PROCEEDS. The proceeds of any foreclosure sale or sale
pursuant to the power of sale of the Property, or any part thereof, shall be
distributed and applied in the following order of priority:
(a) first, on account of all reasonable costs and expenses incident to the
foreclosure proceedings or sale pursuant to the power of sale, including,
without limitation, the items described in Section 4.15 hereof;
(b) next, in any order as determined by Beneficiary in its sole discretion, on
account of the outstanding balance of the Note, all other items that, under the
terms of this Deed of Trust, constitute secured indebtedness additional to that
evidenced by the Note and all other unpaid Obligations; and
(c) the balance, to Grantor or its successors or assigns, as their interests
and rights may appear or whoever else may then be adjudged entitled thereto.
4.12 PRIORITY OF PAYMENTS. Any rents, issues, deposits, profits, and avails of
the Property received by Beneficiary after taking possession of all or any part
of the Property, or pursuant to any assignment thereof to Beneficiary under the
provisions of this Deed of Trust, shall (unless otherwise required by court
order) be applied in payment of or on account of the following, in the order
listed:
(a) operating expenses of the Property (including reasonable compensation to
Beneficiary, any receiver of the Property, any agent or agents to whom
management of the Property has been delegated, and also including lease
commissions and other compensation for and expenses of seeking and procuring
tenants and entering into leases, establishing claims for damages, if any, and
paying premiums on insurance hereinabove authorized);
(b) taxes, special assessments, and water and sewer charges now due or that may
hereafter become a lien thereon prior to the lien of this Deed of Trust;
(c) any and all reasonable repairs, decorating, renewals, replacements,
alterations, additions, betterments, and improvements of the Property
(including, without limitation, the cost of placing the Property in such
condition as will, in the judgment of Beneficiary or any receiver, make it
readily rentable or salable);
(d) all indebtedness secured by this Deed of Trust and other Obligations,
including, without limitation, any deficiency that may result from any
foreclosure sale or sale pursuant to the power of sale pursuant hereto; and
(e) any remaining funds to Grantor or its successors or assigns, as their
interests and rights may appear or to whoever else may then be adjudged
entitled thereto.
4.13 RENT. During the continuance of any Event of Default and if Beneficiary or
any judicially appointed representative has a right to exclude Grantor from all
or any part of the Property, Grantor agrees to pay the fair and reasonable
rental value for the use and occupancy of the Property, or any portion thereof
which are
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in its possession and being occupied for such period and, upon default of any
such payment, will vacate and surrender possession of the Property to
Beneficiary or to a receiver, if any, and in default thereof may be evicted by
any summary action or proceeding for the recovery or possession of premises for
non-payment of rent, however designated.
4.14 REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of
Beneficiary herein are severable and cumulative and in addition to all other
rights and remedies available in the other Documents, at law or in equity, and
any one or more of such rights and remedies may be exercised simultaneously or
successively.
4.15 LITIGATION EXPENSES. In any proceeding to foreclose the lien of this Deed
of Trust, enforce the power of sale or enforce any other right or remedy of
Beneficiary under this Deed of Trust or any of the other Documents, or in any
other proceeding whatsoever in connection with any of the Property in which
Beneficiary is named as a party, there shall be allowed and included, as
additional indebtedness in the judgment or decree resulting therefrom, all
reasonable expenses paid or incurred in connection with such proceeding by or
on behalf of Beneficiary, including, but not limited to, reasonable attorneys'
fees and expenses.
4.16 PERFORMANCE BY BENEFICIARY. During the continuance of any Event of
Default, Beneficiary may, but need not, make any payment or perform any act
herein required of Grantor in any form and manner deemed expedient by
Beneficiary, and Beneficiary may, but need not, make full or partial payments
of principal or interest on encumbrances, if any; purchase, discharge,
compromise, or settle any tax lien or other prior or junior lien or title or
claim thereof; redeem from any tax sale or forfeiture affecting the Property;
or contest any tax or assessment thereon. All moneys paid for any of the
purposes authorized herein and all reasonable expenses paid or incurred in
connection therewith, including reasonable attorney's fees, and any other
moneys advanced by Beneficiary to protect the Property and the lien of this
Deed of Trust, shall be additional indebtedness secured hereby, and shall
become immediately due and payable by Grantor to Beneficiary without notice,
with interest at the Interest Rate. Inaction of Beneficiary shall never be
construed to be a waiver of any right accruing to it by reason of any Event of
Default.
4.17 WAIVER OF STATUTORY RIGHTS. To the greatest extent permitted by law: (a)
Grantor hereby waives the benefit of, and agrees that it will not apply for or
avail itself of, any appraisement, valuation, redemption, stay, extension or
exemption laws, or any so-called "moratorium laws," now existing or hereafter
enacted, in order to prevent or hinder the enforcement of the power of sale, or
enforcement or foreclosure of this Deed of Trust; and (b) Grantor, for itself,
any and all persons or entities who may claim through or under it and each and
every person or entity acquiring any interest in the Property or title to the
Real Property subsequent to the date of this Deed of Trust, hereby also waives
(i) any and all rights to have the Property and estates comprising the Property
marshaled upon any foreclosure of the lien hereof or sale pursuant to power of
sale, and agrees that any court having jurisdiction to foreclose such lien may
order the Property sold in its entirety; and (ii) any and all rights of (A)
redemption from sale under any order or decree of foreclosure of the lien
hereof or sale pursuant to power of sale pursuant to the rights herein
granted; and (B) homestead in the Real Property which Grantor may now or
hereafter have under the laws of the State in which the Property is located;
and (iii) all rights to void liens under Section 506 of the United States
Bankruptcy Code (11 U.S.C. Section 506), or any amendment or successor thereto.
V. MISCELLANEOUS
5.01 APPOINTMENT; SUBSTITUTION OF TRUSTEE. (a) If at the time of execution
hereof by Grantor, the name and/or address of Trustee is not filled in, Grantor
irrevocably authorizes and empowers Beneficiary or any authorized agent of
Beneficiary to appoint Trustee and fill in the name and address of such Trustee
at all appropriate places on this Deed of Trust at any time prior to the
recording hereof.
(b) Trustee may resign by an instrument in writing addressed to Beneficiary, or
Trustee may be removed at any time with or without cause by Beneficiary. In
case of the death, resignation, removal or disqualification of
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<PAGE> 15
Trustee or if for any reason Beneficiary shall deem it desirable to appoint a
substitute or successor trustee to act instead of the herein named Trustee or
any substitute or successor trustee, then Beneficiary shall have the right and
is hereby authorized and empowered to appoint a successor trustee, or a
substitute trustee, without other formality than appointment, designation in
writing executed by Beneficiary and recordation thereof in accordance with
Chapter 47 of the North Carolina General Statutes as may be amended from time
to time, and the authority hereby conferred shall extend to the appointment of
other successor and substitute trustees successively until the indebtedness
secured hereby has been paid in full or until the Property is sold hereunder.
Any reference in this instrument to Trustee shall include, as appropriate, any
successor or substitute trustee. Such appointment may be executed by any
authorized agent of Beneficiary; and if Beneficiary be a corporation and such
appointment be executed in its behalf by any officer of such corporation, such
appointment shall be conclusively presumed to be executed with authority and
shall be valid and sufficient without proof of any action by the board of
directors or any superior officer of the corporation. Grantor hereby ratifies
and confirms any and all acts which the herein named Trustee, or his successor
or successors in this Trust, shall do lawfully by virtue hereof. Grantor hereby
agrees, on behalf of itself and its successors and assigns, that the recitals
contained in any deed or deeds executed in due form by Trustee or any
substitute trustee, acting under the provisions of this instrument, shall be
prima facie evidence of the facts recited, and that it shall not be necessary
to prove in any court, otherwise than by such recitals, the existence of the
facts essential to authorize the execution and delivery of such deed or deeds
and the passing of title thereby.
5.02 ASSIGNMENT. Grantor hereby assigns and transfers as additional security to
Beneficiary all damages, royalties and revenue of every kind, nature and
description whatsoever that Grantor may be entitled to receive from any person,
company or corporation owning or having or hereafter acquiring a right to the
oil, gas or mineral rights and reservations of the Property with the right in
Beneficiary to receive and receipt therefor and apply the same to said
indebtedness either before or after any Event of Default hereunder, and
Beneficiary may demand, sue for and recover any such payments but shall not be
required so to do.
5.03 NO RIGHT OF OFFSET. No offset or claim that Grantor now has or may in the
future have against Beneficiary shall relieve Grantor from paying installments
or performing any other obligation herein or secured hereby. Grantor within ten
(10) days after any request of Beneficiary, will furnish a written statement of
the amount due on the Note and a description of any alleged offsets,
counterclaims, or defenses to the payment thereof.
5.04 CORRECTIONS. Grantor will, upon request of Trustee, promptly correct any
defect, error or omission which may be discovered in the contents of this Deed
of Trust or in the execution or acknowledgments hereof, and will execute,
acknowledge and deliver such further instruments and do such further acts as
may be necessary or as may be reasonably requested by Trustee or by Beneficiary
to carry out more effectively the purposes of this Deed of Trust, to subject to
the lien and security interest hereby created any of Grantor's properties,
rights or interest covered or intended to be covered hereby, and to perfect and
maintain the lien and security interest. If any rights, easements or other
hereditaments shall hereafter become appurtenant to the Property, or any part
thereof, Grantor shall deliver to Beneficiary, upon demand, a supplemental Deed
of Trust in the form approved by Beneficiary covering such rights and
interests.
5.05 FURTHER ASSURANCES. Grantor will execute and deliver to Beneficiary, upon
demand, any additional instruments or security documents necessary to secure to
Beneficiary or to Trustee any right or interest granted by this Deed of Trust.
If any rights, easements or other hereditaments shall hereafter become
appurtenant to the Property, or any part thereof, Grantor shall deliver to
Beneficiary, upon demand, a supplemental Deed of Trust in the form approved by
Beneficiary covering such rights and interests.
5.06 NOTICES. All notices hereunder shall be given and become effective in
accordance with the provisions of the Loan Agreement.
5.07 COVENANTS RUN WITH LAND. All of the covenants of this Deed of Trust shall
run with the land constituting the Real Property.
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<PAGE> 16
5.08 GOVERNING LAW. The validity and interpretation of this Deed of Trust shall
be governed and construed in accordance with the laws of the State in which the
Property is located.
5.09 SEVERABILITY. Whenever possible, each provision of this Deed of Trust
shall be interpreted in such manner as to be effective and valid under
applicable law. Any provision of this Deed of Trust which is prohibited or
unenforceable shall be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Deed of
Trust.
5.10 NON-WAIVER. No failure or delay on the part of Beneficiary in exercising
any right, power or remedy pursuant to this Deed of Trust or any of the other
Documents shall operate as a waiver thereof, and no single or partial exercise
of any such right, power or remedy shall preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. Neither any
waiver of any provision of this Deed of Trust or any of the other Documents,
nor any consent to any departure by Grantor therefrom, shall be effective
unless the same shall be in writing and signed by Beneficiary. Any waiver of
any provision of this Deed of Trust or any of the other Documents and any
consent to any departure by Grantor from the terms of this Deed of Trust or any
of the other Documents shall be effective only in the specific instance and for
the specific purpose for which given. Except as otherwise expressly provided
herein, no notice to or demand on Grantor shall in any case entitle Grantor to
any other or further notice or demand in similar or other circumstances.
Acceleration of maturity, once claimed hereunder by Beneficiary, may at
Beneficiary's option be rescinded by written acknowledgment to that effect by
Beneficiary and shall not affect Beneficiary's right to accelerate maturity
upon or after any future Event of Default.
5.11 HEADINGS. Captions and headings in Sections and Paragraphs of this Deed of
Trust are inserted only as a matter of convenience and shall not affect the
interpretation hereof.
5.12 GRAMMAR. As used in this Deed of Trust, the singular shall include the
plural, and masculine, feminine and neuter pronouns shall be fully
interchangeable, where the context so requires.
5.13 DEED IN TRUST. If title to the Property or any part thereof is now or
shall hereafter becomes vested in a trustee, any prohibition or restriction
contained herein against the creation of any lien on the Property shall be
construed as a similar prohibition or restriction against the creation of any
lien on or security interest in the beneficial interest or power of direction
of such trust.
5.14 SUCCESSORS AND ASSIGNS. This Deed of Trust and all provisions hereof shall
be binding upon Grantor, and its successors, assigns, legal representatives and
all other persons or entities claiming under or through Grantor and the word
"Grantor," when used herein, shall include all such persons and entities. The
word "Beneficiary," when used herein, shall include Beneficiary's successors,
assigns, and legal representatives, including all other holders, from time to
time, of the Note.
5.15 RELEASE. Beneficiary shall release this Deed of Trust and the lien hereof
upon payment in full of all Obligations and all other indebtedness secured by
this Deed of Trust.
5.16 TIME OF THE ESSENCE. Time is of the essence to this Deed of Trust, and all
provisions pertaining thereto shall be strictly construed.
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<PAGE> 17
IN WITNESS WHEREOF, Grantor has caused this Deed of Trust to be executed under
seal as of the date hereinabove first written expressly intending this Deed of
Trust to be an instrument executed under seal.
CELEBRITY, INC.
By: /s/ JAMES R. THOMPSON
--------------------------------------------- Seal
Signature
James R. Thompson
- -------------------------------------------------
Printed Name
Vice President
- -------------------------------------------------
Title
ATTEST:
By: /s/ LISA K. BORK
---------------------------------------------
Signature
Lisa K. Bork
- -------------------------------------------------
Printed Name
Assistant Secretary
- -------------------------------------------------
Title
-16-
<PAGE> 18
STATE OF TEXAS )
) SS.
COUNTY OF DALLAS)
I, Betty A. McClain, a Notary Public of the County and State aforesaid, certify
that Lisa K. Bork personally appeared before me this day and acknowledged that
he is _____ Secretary of CELEBRITY, INC., a Texas corporation, and that by
authority duly give and as the act of the corporation, the foregoing instrument
was signed in its name by its Vice President, sealed with the seal of said
corporation and attested by her as its Asst. Secretary.
Witness my hand and official stamp or seal, this _______ day of ______________,
1997.
/s/ Betty A. McClain
- ------------------------------------
NOTARY PUBLIC
My Commission Expires:
[SEAL]
- ------------------------------------
(AFFIX NOTARIAL STAMP OR SEAL)
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<PAGE> 19
EXHIBIT A ATTACHED TO AND HEREBY MADE A PART OF
DEED OF TRUST, SECURITY AGREEMENT, FINANCING STATEMENT AND ASSIGNMENT OF RENTS
AMONG CELEBRITY, INC.,
_____________________________________________ AND
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
COMMON ADDRESS OF REAL PROPERTY: 3200 CENTRE PARK BLVD.
WINSON-SALEM, NORTH CAROLINA
================================================================================
RECORD OWNER: CELEBRITY, INC.
TAX LOT NUMBER:
LEGAL DESCRIPTION:
<PAGE> 20
EXHIBIT "A"
TO UCC FINANCING STATEMENT BETWEEN CELEBRITY, INC., DEBTOR, AND MERRILL LYNCH
BUSINESS FINANCIAL SERVICES INC., SECURED PARTY.
================================================================================
THIS UCC FINANCING STATEMENT COVERS THE FOLLOWING ITEMS OR TYPES OF PROPERTY:
ALL MACHINERY, EQUIPMENT, FITTINGS, APPARATUS, APPLIANCES, FIXTURES (INCLUDING,
WITHOUT LIMITATION, ALL HEATING, AIR CONDITIONING, VENTILATING, WASTE DISPOSAL,
SPRINKLER AND FIRE AND THEFT PROTECTION EQUIPMENT, AND ALL PLUMBING, LIGHTING,
COMMUNICATIONS AND ELEVATOR FIXTURES) AND OTHER PROPERTY OF EVERY KIND AND
DESCRIPTION NOW OR HEREAFTER OWNED BY DEBTOR AND LOCATED UPON OR IN, AND USED
OR USEFUL IN CONNECTION WITH, THE OPERATION, MAINTENANCE OR OCCUPANCY OF THE
REAL PROPERTY DESCRIBED BELOW, OR ANY IMPROVEMENTS THEREON, AND ALL RENEWALS OR
REPLACEMENTS THEREOF AND ARTICLES IN SUBSTITUTION THEREFOR, AND ANY AND ALL
PROCEEDS OF ANY OF THE FOREGOING.
RECORD OWNER: CELEBRITY, INC.
COMMON ADDRESS: 3200 CENTRE PARK BLVD.
WINSON-SALEM, NORTH CAROLINA
LEGAL DESCRIPTION:
<PAGE> 1
EXHIBIT 10.24
FOR RECORDER'S USE ONLY
WHEN RECORDED MAIL TO:
Merrill Lynch Business Financial
Services Inc.
Attn: Jennifer Zabel
33 West Monroe Street
22nd Floor
Chicago, Illinois 60603
DEED OF TRUST, SECURITY AGREEMENT,
FINANCING STATEMENT AND ASSIGNMENT OF RENTS
FROM
CELEBRITY, INC.
GRANTOR
TO
THOMAS M. SMITH
TRUSTEE
FOR THE BENEFIT OF
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
BENEFICIARY
[MERRILL LYNCH LOGO] Texas
================================================================================
<PAGE> 2
[MERRILL LYNCH LOGO]
================================================================================
DEED OF TRUST, SECURITY AGREEMENT,
FINANCING STATEMENT AND ASSIGNMENT OF RENTS
THIS DEED OF TRUST ("Deed of Trust") is made as of June 6, 1997 by CELEBRITY,
INC., a corporation organized and existing under the laws of the State of
having its principal office at 4520 Old Troup Highway, Tyler, TX ("Grantor")
to Thomas M. Smith whose address is ____________________________________, as
Trustee ("Trustee") for the benefit of MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC., a Delaware corporation having its principal office at 33 West
Monroe Street, 22nd Floor, Chicago, Illinois 60603 ("Beneficiary"), and
pertains to the real property described on Exhibit "A" attached hereto and made
a part hereof and the Other Property described herein.
I. DEFINITIONS
1.01 SPECIFIC TERMS. In addition to terms defined elsewhere in this Deed of
Trust, when used herein the following terms shall have the following meanings:
(a)"Additional Agreements" shall have the meaning set forth in the Loan
Agreement.
(b)"Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(c)"Documents" shall mean collectively the Loan Agreement, the Note, this Deed
of Trust and the other Additional Agreements.
(d)"Interest Rate" shall have the meaning set forth in the Note and/or Loan
Agreement (or if there shall be more than one Interest Rate, then "Interest
Rate" shall mean the highest of such rates).
(e)"Loan Agreement" shall mean that certain TERM WCMA LOAN AGREEMENT NO.
9706340301 between Grantor and Beneficiary, as the same may from time to time
be or have been amended, renewed, restated, extended or supplemented.
(f)"Note" shall mean that certain TERM WCMA NOTE in the original principal
amount of $5,000,000.00 dated as of June 6, 1997, given by Grantor to
Beneficiary, as the same may from time to time be amended, renewed, restated,
extended or supplemented.
(g)"Obligations" shall mean all indebtedness, obligations and liabilities of
Grantor to Beneficiary, howsoever created, arising or evidenced, whether now
existing or hereafter arising, whether direct or indirect, absolute or
contingent, due or to become due, primary or secondary, or joint and several,
and, without limiting the foregoing, shall include all present and future
liabilities, indebtedness and obligations of Customer under the Documents.
(h)"Other Property" shall have the meaning set forth in Section 2.01 hereof.
(i)"Property" shall mean the Real Property and the Other Property,
collectively.
(j)"Real Property" shall mean the real property commonly known as 4520 Old
Troup Highway, Tyler, Texas, and more fully described in Exhibit "A" attached
hereto and made a part hereof, and all improvements thereon.
-1-
<PAGE> 3
II. THE GRANT; ASSIGNMENT OF RENTS AND LEASES
2.01 GRANT. In order to induce Beneficiary to extend or continue to extend
credit to Grantor under the Loan Agreement or otherwise, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and to secure the payment and performance of the Obligations and
the covenants and agreements herein contained, Grantor does hereby grant,
bargain, sell, convey, mortgage and warrant to Trustee and its successors and
assigns forever the Real Property, and all of Grantor's estate, right, title
and interest therein, together with the following described property (the
"Other Property"):
(a) All buildings and other improvements of every kind and description now or
hereafter erected or placed on the Real Property, and all materials intended
for construction, reconstruction, alteration and repair of such improvements
now or hereafter erected thereon, all of which materials shall be deemed to be
included as part of the Other Property immediately upon the delivery thereof to
the Real Property;
(b) All right, title, and interest of Grantor, including any after-acquired
title or reversion, in and to the rights-of-ways, streets, avenues, sidewalks,
and alleys adjoining the Real Property;
(c) Each and all of the tenements, hereditaments, easements, appurtenances,
passages, waters, water courses, riparian rights, other rights, liberties and
privileges of the Real Property in any way now or hereafter appertaining
thereto, including homestead and any other claim at law or in equity, as well
as any after-acquired title, franchise or license and the reversions and
remainders thereof;
(d) All rents, issues, deposits and profits accruing and to accrue from the
Real Property and Other Property and the avails thereof;
(e) All of Grantor's rights and claims, in and to all accounts, accounts
receivable, security deposits, insurance premium rebates, writings evidencing a
monetary obligation, contract rights and other creditor's interests existing in
favor of, owned or acquired by Grantor with respect to the Real Property; all
contracts relating to the use, operation, occupation, maintenance, repair or
construction of the Real Property; all permits, licenses, franchises benefiting
the Real Property, together with the benefit of any deposits or payments now or
hereafter made by Grantor or on its behalf in connection with the foregoing;
and all books and records, including but not limited to all lease documents,
relating to the Real Property and Other Property;
(f) All machinery, equipment, fittings, apparatus, appliances, fixtures
(including, without limitation, all heating, air conditioning, ventilating,
waste disposal, sprinkler and fire and theft protection equipment, and all
plumbing, lighting, communications and elevator fixtures) and other property of
every kind and description now or hereafter owned by Grantor and located upon
or in, and used or useful in connection with, the operation, maintenance or
occupancy of the Real Property or the Other Property, and all renewals or
replacements thereof or articles in substitution therefor; and
(g) All judgments, awards of damages or settlements related to and all proceeds
of the conversion, voluntary or involuntary, of any of the foregoing into cash
or liquidated claims, including but not limited to proceeds of insurance and/or
condemnation, and all products, additions, accessions, attachments, parts,
replacements and substitutes therefor.
TO HAVE AND TO HOLD the Property, together with all and singular the rights,
hereditaments, and appurtenances in anywise appertaining or belonging thereto,
unto Trustee and Trustee's successors or substitutes in this trust, and
Trustee's successors and assigns, in trust and for the uses and purposes
hereinafter set forth, forever.
2.02 SPECIAL TERMS CONCERNING THIS DEED OF TRUST. All of the Other Property is
pledged hereunder primarily, on a parity with the Real Property, and not
secondarily. This Deed of Trust is given as equal security
-2-
<PAGE> 4
for all of the Obligations without preference or priority of any part of the
Obligations for any reason whatsoever. The Note secured by this Deed of Trust
contemplates a variable rate of interest.
This Deed of Trust is given in part to secure certain line of credit
obligations, as evidenced and witnessed by the Note, and secures not only the
indebtedness from Grantor existing on the date hereof, but all such future
advances, whether such advances are obligatory or to be made at the option of
Beneficiary, or otherwise as are made within 20 years from the date hereof, to
the same extent as if such future advances were made on the date of the
execution of this Deed of Trust, and although there may be no indebtedness
outstanding at the time any advance is made. The lien of this Deed of Trust as
to third persons without actual notice thereof shall be valid as to all
indebtedness and future advances from the time this Deed of Trust is filed for
record in the Office of the Recorder of Deeds of the County set forth on
Exhibit A attached hereto. The total amount of revolving indebtedness that may
be secured by this Deed of Trust may increase or decrease from time to time,
but the total unpaid balance of the Note secured at any one time, shall not
exceed the maximum principal amount of the Note plus interest thereon and any
disbursements made by Beneficiary to protect and preserve the lien of this Deed
of Trust (including, but not limited to, real estate taxes, water and sewer
assessments, and insurance premiums), with interest on such disbursements.
2.03 OTHER PROPERTY. Grantor acknowledges and agrees that all of the Other
Property now and hereafter owned by Grantor and placed by Grantor on the Real
Property or used in connection with the operation or maintenance thereof shall,
so far as permitted by law, be deemed for the purposes of this Deed of Trust to
be part of the Real Property and covered by this Deed of Trust, and as to any
of the Other Property which is not part of the Real Property or does not
constitute a "fixture," as such term is defined in the Uniform Commercial Code
(the "Code"), as enacted in the state in which the Real Property is located,
this Deed of Trust shall be deemed to be, as well, a security agreement under
the Code for the purpose of creating hereby a security interest in such
property, which Grantor hereby grants to Beneficiary as "secured party," as
such term is defined in the Code. All Other Property acquired by Borrower after
the date hereof which is required or intended by the terms of this Deed of
Trust to be subjected to the lien and security interest of this Deed of Trust
shall, immediately upon the acquisition thereof by Borrower, and without any
further deed of trust, conveyance, assignment or transfer, become subject to
the lien and security interest of this Deed of Trust.
2.04 OTHER AMOUNTS SECURED. At all times, this Deed of Trust secures, in
addition to the Note, all other Obligations; provided, however, that in no
event shall the aggregate principal indebtedness secured by this Deed of Trust
exceed an amount equal to 3 times the original principal amount of the Note,
together with moneys advanced by Beneficiary to protect and preserve the lien
of this Deed of Trust, as aforesaid.
2.05 ASSIGNMENTS OF RENTS AND LEASES. Grantor hereby assigns, transfers and
sets over unto Beneficiary all the rents, fees or payments now or hereafter
due, under or by virtue of any lease or other agreement, whether oral or
written, for the use or occupancy of any part of the Property and to all
amendments and guarantees thereof, whether heretofore, now or hereafter agreed
to; together with the right to let and relet the Property or any part thereof,
in Beneficiary's sole discretion, and to do anything with respect to the
Property as Grantor might do. Any proceeds received hereunder may be applied by
Beneficiary as otherwise provided in Section 4.11 of this Deed of Trust.
Grantor hereby directs all tenants, lessees and occupants of the Property to
pay all rental, payments or fees for use and occupancy of the Property in
accordance herewith. Beneficiary agrees not to exercise its rights granted in
this Section unless and until an Event of Default, as hereafter defined, shall
have occurred and is continuing, provided that this assignment shall
nevertheless be deemed a present assignment. Grantor shall execute,
acknowledge, and deliver to Beneficiary, within 5 Business Days after any
request by Beneficiary, such assignment of rent documents as may be required by
Beneficiary, in form and substance satisfactory to Beneficiary. Grantor further
agrees to pay to Beneficiary all reasonable costs and expenses incurred by
Beneficiary in connection with the preparation, execution and recording of any
such documents.
-3-
<PAGE> 5
III. GENERAL AGREEMENTS
3.01 PAYMENT OF OBLIGATIONS. Grantor shall pay or cause the payment on or
before the applicable due date of each installment payable under the Note and
all other Obligations, and Grantor shall timely perform or cause the
performance of all of its other Obligations.
3.02 PROPERTY TAXES. Grantor shall pay on or before the applicable due date,
all taxes, assessments and other charges that may be asserted against the
Property or any part thereof or interest therein, except to the extent that any
such failure to pay will not materially and adversely affect either any liens
and security interests of Beneficiary hereunder, under the Loan Agreement or
any Additional Agreements, the financial condition of Grantor or the continued
operations of Grantor. Grantor shall furnish to Beneficiary duplicate receipts
or other evidence of payment of such taxes, assessments and other charges
within 30 days after payment thereof.
3.03 RIGHT TO PERFORM OBLIGATIONS. If Grantor shall fail to timely do any act
or thing which it has covenanted to do hereunder, Beneficiary may, in its sole
discretion, after 5 Business Days written notice is sent to Grantor (or such
lesser notice, including no notice, as is reasonable under the circumstances),
do the same or cause it to be done, and may expend its funds for such purpose.
Any and all reasonable amounts so expended by Beneficiary shall be payable to
Beneficiary by Grantor on demand, with interest at the Interest Rate during the
period from and including the date funds are so expended by Beneficiary to the
date of repayment, and all such amounts shall be additional Obligations. The
payment or performance by Beneficiary of any of Grantor's obligations hereunder
shall not relieve Grantor of said obligations or of the consequences of having
failed to pay or perform the same, and shall not waive or be deemed a cure of
any Event of Default.
3.04 INSURANCE.
(a) HAZARD. Grantor shall keep the improvements now existing or hereafter
erected on the Real Property insured under a replacement cost form of insurance
policy against loss or damage resulting from such hazards as may be reasonably
required by Beneficiary (including, but not limited to, flood insurance in an
amount necessary to comply with applicable law), and shall pay promptly, when
due, all premiums on such insurance. Without limiting the foregoing, during
construction of any improvements on the Real Property, Grantor shall maintain
"Builders Risk" insurance with extended coverage over fire and other casualties
using completed values for the amount of the full insurable value for all such
improvements under construction at any time on the Real Property, including
equipment and materials delivered to the Real Property for incorporation into
the Property. All such insurance shall be in form and with insurers approved in
writing by Beneficiary and shall have attached thereto: (i) standard non-
contributing deed of trust clauses entitling Beneficiary, as its interest may
appear, to collect any and all proceeds payable under such insurance, and (ii)
standard waiver of subrogation endorsements, so long as such subrogation
endorsement can be obtained without material additional cost to Grantor.
In the event of any casualty loss, Grantor shall give immediate notice thereof
to Beneficiary. Grantor hereby authorizes Beneficiary, at Beneficiary's option,
to adjust and compromise any such losses under any of the aforesaid insurance
and, after deducting any of Beneficiary's reasonable costs of collection, to
use, apply, or disburse the balance of such insurance proceeds: (i) toward
repairing, restoring and rebuilding the aforesaid improvements, provided such
repair, restoration or rebuilding is economically feasible and the security of
this Deed of Trust is not thereby impaired, in which event Beneficiary shall
not be obliged to see to the proper application thereof nor shall the amount so
released for such purposes be deemed a payment on the indebtedness secured
thereby; or (ii) as a credit upon any portion of the indebtedness secured
hereby, with the excess, if any, paid to Grantor; provided, however, that so
long as no Event of Default shall then exist and no Event of Default shall
exist at any time during the period of any repair, restoration and/or
rebuilding of the aforesaid improvements, and subject to the provisions of the
immediately following Section, upon Grantor's written request to Beneficiary
made on or before the disbursement of such insurance proceeds to Beneficiary,
such insurance proceeds shall be used to repair, restore and/or rebuild the
aforesaid improvements. Unless Grantor and Beneficiary otherwise agree in
writing, any such application of proceeds to the sums secured by
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<PAGE> 6
this Deed of Trust shall not extend or postpone the due date of any portion of
the indebtedness secured hereby or change the amount of any installment due on
such indebtedness.
To the extent any such insurance proceeds are used toward repairing, restoring
and rebuilding such improvements, such proceeds shall be made available, from
time to time, upon Beneficiary being furnished with satisfactory evidence of
the estimated cost of such repairs, restoration and rebuilding and with such
architect's certificates, waivers of lien, certificates, contractors' sworn
statements and other evidence of the estimated cost thereof and of payments as
Beneficiary may reasonably require and approve, and if the estimated cost of
the work exceeds 5% of the original principal amount of the Note, with all
plans and specifications for such plans, restoration and rebuilding as
Beneficiary may reasonably require and approve. Payments made prior to the
final completion of the work shall not exceed 90% of the value of the work
performed, from time to time, and at all times the undisbursed balance of such
proceeds remaining in the hands of Beneficiary shall be at least sufficient to
pay for the cost of completion of the work, free and clear of any liens except
the lien of this Deed of Trust. Beneficiary shall have the right to require
that all funds shall be paid through a construction escrow with a title
insurance company selected by Beneficiary. In the event of foreclosure of this
Deed of Trust or other transfer of title to the Property in extinguishment of
the Obligations, all right, title and interest of Grantor in and to any such
insurance policies then in force, and any claims or proceeds thereunder, shall
pass to Beneficiary or any purchaser or grantee therefrom.
(b) LIABILITY. Grantor shall carry and maintain such comprehensive public
liability and worker's compensation insurance as may be reasonably required
from time to time by Beneficiary; provided, however, that the amounts of
liability coverage shall not be less than $2,000,000.00 single limit.
Beneficiary shall be named as an additional party insured.
(c) PROOF OF INSURANCE. All insurance shall be in amount, form and content and
with insurers approved in writing by Beneficiary. Grantor shall deliver to
Beneficiary a copy or certificate of each policy or policies, with evidence of
premiums prepaid, and, prior to any expiration or cancellation, each renewal or
replacement thereof. Each policy shall contain provision for not less than 10
days' notice to Beneficiary prior to any cancellation thereof.
3.05 CONDEMNATION AND EMINENT DOMAIN. Any and all awards heretofore or
hereafter made or to be made to the present, or any subsequent, owner of the
Property, by any governmental or other lawful authority for the taking, by
condemnation or eminent domain, of all or any part of the Property or any
easement thereon or appurtenance thereof, are hereby assigned by Grantor to
Trustee and Beneficiary, which awards Trustee and Beneficiary are hereby
authorized to collect and receive from the condemnation authorities and give
appropriate receipts therefor. Grantor shall give Trustee and Beneficiary
immediate notice of the actual or threatened commencement of any condemnation
or eminent domain proceedings affecting all or any part of the Real Property,
or any easement thereon or appurtenance thereof (including severance of,
consequential damage to, or change in grade of streets), and shall deliver to
Trustee and Beneficiary copies of any and all papers served in connection with
any such proceedings. Grantor further agrees to make, execute and deliver to
Trustee and Beneficiary, at any time upon request, free, clear and discharged
of any encumbrance of any kind whatsoever, any and all further assignments and
other instruments deemed necessary by either Trustee or Beneficiary for the
purpose of validly and sufficiently assigning all awards and other compensation
heretofore and hereafter made to Grantor for any taking, either permanent or
temporary, under any such proceeding. In the event of any damage or taking by
eminent domain of less than substantially all of the Property, Beneficiary
shall make available the proceeds of any award received in compensation for any
such damage or taking, less Beneficiary's reasonable costs of collection, for
the purpose of rebuilding and restoring the Property, subject to the same terms
and conditions as set forth in Section 3.04 (a). If any of the foregoing
conditions are not or cannot be satisfied, then Beneficiary may use or apply
the award to the Obligations.
3.06 USE, MAINTENANCE AND REPAIR. (a) Grantor shall not desert or abandon the
Property or, without the prior written consent of Beneficiary, cause or permit
a material change in the use of the Property.
(b) Grantor shall at its expense maintain the Property in good, safe and
insurable condition and repair, and in compliance with all applicable laws and
other governmental requirements. Grantor further agrees not to permit,
-5-
<PAGE> 7
commit or suffer any waste, impairment or deterioration of the Property or any
part thereof; to effect such repairs as Beneficiary may reasonably require,
and, from time to time, to make all necessary and proper replacements thereof
and additions thereto so that all of the Property will, at all times, be in
good condition and repair, and fit for the purposes for which originally
erected or installed.
(c) Grantor shall not, without the prior written consent of Beneficiary, cause
or permit the demolition, removal, construction, restoration, addition or
material alteration to the Property or any portion thereof, except that without
such consent: (i) Grantor may in the ordinary course of its business or
operations replace any worn, broken, unfit or obsolete personal property or
fixtures included in the Other Property with like property, or property which
serves the same function, which is new or substantially new and free of all
liens other than the lien of the Deed of Trust, and (ii) Grantor may make non-
structural interior alterations having an aggregate cost in any calendar year
of not in excess of $100,000.00.
3.07 LIENS AND TRANSFERS. Except upon the prior written consent of Beneficiary,
Grantor shall not sell, transfer, convey, assign, hypothecate or otherwise
transfer the title to or any beneficial interest in all or any portion of the
Property, whether by operation of law, voluntarily, or otherwise, or contract
to do any of the foregoing, or create, suffer or permit to be created or filed
against the Property or any part thereof hereafter any deed of trust lien or
other lien upon the Property other than the lien of this Deed of Trust;
provided, however, that without such consent Grantor may: (a) permit the
existence of a lien arising from any work performed, materials furnished, or
other obligations incurred by Grantor to the extent being contested by Grantor
in good faith by appropriate proceedings but only if, not later than 5 Business
Days after the filing thereof, Grantor shall have furnished to Beneficiary
security and indemnification satisfactory to Beneficiary for the final payment
and discharge thereof, and (b) Grantor may replace worn, broken, unfit or
obsolete property to the extent permitted by Section 3.06 hereof.
3.08 STAMP TAXES. If at any time the United States government, or any federal,
state, county or municipal governmental subdivision, requires or imposes
documentary stamps, levies, or any tax on this Deed of Trust or on the
Obligations, then Grantor shall pay the same on or before the applicable due
date, or to the extent Beneficiary has or will make any payment related
thereto, then to the greatest extent permitted by law such indebtedness shall
be and become due and payable by Grantor to Beneficiary within 5 Business Days
after the receipt by Grantor of written notice of such indebtedness from
Beneficiary.
3.09 CHANGE IN LAWS. In the event of the enactment, after the date of this Deed
of Trust, of any law of the state in which the Real Property is located
imposing upon Beneficiary the payment of all or any part of the taxes,
assessments, charges, or liens hereby required to be paid by Grantor, or
changing in any ways the laws relating to the taxation of deeds of trust or
debts secured by deeds of trust or Grantor's interest in the Property, or the
manner of collection of taxes, so as to affect this Deed of Trust or the
indebtedness secured hereby or the holder thereof, then Grantor, upon demand by
Beneficiary, shall pay such taxes, assessments, charges or liens or reimburse
Beneficiary therefor; provided, however, that if, in the opinion of counsel for
Beneficiary, it might be unlawful to require Grantor to make such payment or
the making of such payment might result in the imposition of interest beyond
the maximum amount permitted by law, then Beneficiary may elect, by notice in
writing given to Grantor, to declare all of the indebtedness secured hereby to
become due and payable within 60 days after the giving of such notice;
provided, further, that nothing contained in this Section shall be construed as
obligating Grantor to pay any portion of Beneficiary's federal income tax or
other corporate taxes of Beneficiary that are unrelated to the taxation of
deeds of trust or debts secured by deeds of trust or Grantor's interest in the
Property.
3.10 INSPECTION OF PROPERTY. Grantor shall permit Beneficiary and its
representatives and agents to inspect the Property from time to time during
normal business hours and as frequently as Beneficiary considers reasonable.
3.11 ENVIRONMENTAL CONDITIONS. (a) Grantor hereby represents and warrants to
Beneficiary that no Hazardous Substances [as defined in Section 3.11 (b)] are
presently stored or otherwise located on the Real Property and, to the best of
its knowledge, on any adjacent parcels of real estate, except in accordance
with all applicable Hazardous Substances Laws [as defined in Section 3.11 (b)].
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(b) Neither Grantor nor any other persons from time to time present on the Real
Property shall use, generate, manufacture, store, release, dispose of, or
permit or suffer to exist in, on, under or about the Real Property or transport
to or from the Real Property any flammable materials, explosives, petroleum
products (including crude oil), radioactive materials, hazardous wastes, toxic
substances or related materials, including, without limitation, any asbestos,
asbestos containing materials, PCB's or any substances defined as or included
in the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," or "toxic substances" (collectively, the "Hazardous Substances"),
under any Federal, state or local law, ordinance or regulation dealing with or
otherwise pertaining to toxic or hazardous substances, wastes or materials or
to occupational safety (collectively, the "Hazardous Substances Laws").
Notwithstanding the foregoing, Grantor may bring reasonable quantities of
Hazardous Substances onto the Real Property for their customary and ordinary
application, storage and use for landscape purposes, janitorial services and
pest control purposes, and as otherwise necessary for the conduct of Grantor's
business in its ordinary course.
Upon the written request of Beneficiary to Grantor, Beneficiary's attorneys,
employees, agents or other persons or entities designated by Beneficiary shall,
from time to time, and at any reasonable time, be allowed to enter upon the
Real Property and conduct environmental examinations and environmental audits
of the Real Property, all in form, manner and type as Beneficiary may then
require in its sole discretion. Grantor shall fully cooperate and make the Real
Property available to Beneficiary at such times as Beneficiary may reasonably
request in order to conduct such environmental examinations and environmental
audits.
(c) Grantor hereby agrees to give immediate notice of any violation of any
Hazardous Substances Laws affecting the Real Property. Grantor covenants and
agrees to promptly contain and clean up any and all releases of Hazardous
Substances on the Real Property. Notwithstanding any language or provision of
this Deed of Trust to the contrary, Grantor hereby unconditionally gives
Beneficiary the right, but not the obligation, and Beneficiary does not so
obligate itself, to undertake to contain and clean up releases of Hazardous
Substances on the Real Property. Grantor hereby indemnifies and saves
Beneficiary harmless of and from any and all loss, costs (including reasonable
attorneys' fees), liability and damage whatsoever incurred by Beneficiary, by
reason of any violation of any applicable Hazardous Substances Laws or by
reason of the imposition of any governmental lien for the recovery of
environmental clean-up costs related to the Real Property expended by reason of
such violation; provided that, to the extent that Beneficiary is strictly
liable under any Hazardous Substances Laws, Grantor's obligation to Beneficiary
under this indemnity shall likewise be without regard to fault on the part of
Grantor with respect to the violation of Hazardous Substances Laws that results
in liability to Beneficiary. Grantor further agrees that this indemnity shall
continue and remain in full force and effect beyond the term of Obligations and
shall be terminated only when there is no further obligation of any kind
whether in law or in equity or otherwise of Beneficiary in connection with any
such Hazardous Substances involving the Real Property.
3.12 SECURITY INSTRUMENTS. Grantor shall execute, acknowledge and deliver to
Beneficiary, within 5 Business Days after request by Beneficiary, a security
agreement, financing statements and any other similar security instrument
required by Beneficiary, in form and of content satisfactory to Beneficiary,
covering all property of any kind whatsoever owned by Grantor which, in the
sole opinion of Beneficiary, is essential to the operation of the Property and
concerning which there may be any doubt whether title thereto has been
conveyed, or a security interest therein perfected, by this Deed of Trust under
applicable law.
3.13 INTEREST LAWS. Grantor hereby warrants and represents that the proceeds of
the Note will be paid to an entity and/or used for the purposes specified in
Section 205/4(c) of Chapter 815, of the Illinois Compiled Statutes and that the
principal obligations secured hereby constitutes a business loan which comes
within the purview and operation of such Section. It being the intention of
Beneficiary and Grantor to comply with the laws of the State of Illinois and
the laws of the State in which the Property is located, it is agreed that
notwithstanding any provision to the contrary in any of the Documents, no
provision of any of the Documents shall require the payment or permit the
collection of any amount in excess of the maximum amount of interest permitted
to be charged by law ("Excess Interest"). If any Excess Interest is provided
for, or is adjudicated as being provided for, in any of the Documents, then:
(a) Grantor shall not be obligated to pay any such Excess Interest; and (b) any
Excess Interest that Beneficiary may have received hereunder shall, at the
option of Beneficiary, be: (i) applied as a credit against the then unpaid
principal balance of the Note, or accrued and unpaid interest thereon not to
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exceed the maximum amount permitted by law, or both, (ii) refunded to the payor
thereof, or (iii) any combination of the foregoing.
IV. EVENTS OF DEFAULT AND REMEDIES
4.01 EVENTS OF DEFAULT. Each of the following events shall constitute an Event
of Default under this Deed of Trust:
(a) Grantor shall fail to pay when due any amount owed by Grantor to
Beneficiary under the Note, the Loan Agreement or other Documents or any other
Obligations, and such failure shall continue for more than 5 Business Days
after written notice thereof shall have been given by Beneficiary to Grantor;
or
(b) Grantor shall default in the performance or observance of any term,
covenant, condition or agreement to be performed by Grantor under this Deed of
Trust (not constituting an Event of Default under any other clause of this
Section 4.01) and such default shall continue unremedied for 10 Business Days
after written notice thereof shall have been given by Beneficiary to Grantor;
or
(c) Any representation or warranty made by Grantor in this Deed of Trust shall
at any time prove to have been incorrect in any material respect when made; or
(d) Any default or Event of Default (howsoever such terms are defined) shall
occur under the Documents.
4.02 REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default,
Beneficiary may, at Beneficiary's option, do any one or more of the following:
(a) Beneficiary may declare the entire unpaid balance of the Obligations
immediately due and payable, and upon such declaration the entire unpaid
balance of the Obligations shall be immediately due and payable.
(b) Beneficiary may request Trustee to sell the Property, and in such event
Trustee is hereby authorized and empowered, and it shall be Trustee's special
duty, upon such request of Beneficiary, to sell the Property, or any part
thereof, to the highest bidder or bidders for cash or credit, as directed by
Beneficiary, at the location, at such time or times and in such manner as may
be permitted by applicable law, including, without limitation, Section 51.002
of the Texas Property Code, as amended from time to time.
Without limiting the foregoing, it is understood that except as otherwise then
permitted and/or required by applicable law, any such sale may be conducted in
accordance with the following rules. Such sale shall be held in the county in
the State of Texas wherein the Property is situated; provided, however, that if
the Property is situated in more than one county, then such sale of the
Property, or part thereof, may be made in any county in the State of Texas
wherein any part of the Property is situated. Any such sale shall be made at
public sale at auction held between the hours of ten o'clock (10:00) a.m. and
four o'clock (4:00) p.m. on the first (1st) Tuesday in any month. Written or
printed notice of such sale shall be posted at the courthouse door in the
county, or if more than one, then in each of the counties, wherein the Property
to be sold is situated. Such notice shall designate the county where the
Property, or part thereof, will be sold, and such notice shall be posted at
least twenty-one (21) days prior to the date of sale. Such notice shall also be
filed, at least twenty-one (21) days prior to the date of sale, with the county
clerk in the county, or if more than one, then in each of the counties wherein
the Property is located. Beneficiary shall, at least twenty-one (21) days
preceding the date of sale, serve written notice of the proposed sale by
certified mail on Grantor and on each debtor obligated to pay the Obligations
according to the records of Beneficiary.
After such sale, Trustee shall make to the purchaser or purchasers thereunder
good and sufficient assignments, deeds, bills of sale, and other instruments,
in the name of Grantor, conveying the Property, or part thereof, so sold to the
purchaser or purchasers with general warranty of title by Grantor. The sale of
a part of the Property shall not exhaust the power of sale, but sales may be
made from time to time until the
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Obligations are paid and performed in full. It shall not be necessary to have
present or to exhibit at any such sale any of the personal property (the
"Personal Property") which is located on or included in the Property.
(c) In addition to the rights and powers of sale granted under the preceding
subsection 4.02(b), if default is made in the payment of any installment of the
Obligations, Beneficiary may, at its option, at once or at any time thereafter
while any matured installment remains unpaid, without declaring the entire
Obligations to be due and payable, orally or in writing direct Trustee to
enforce this Trust and to sell the Property subject to such unmatured
indebtedness and the assignments, liens, and security interest securing its
payment, in the same manner, on the same terms, at the same place and time, and
after having given notice in the same manner, all as provided in the preceding
provisions of subsection 4.02(b). After such sale, Trustee shall make due
conveyance to the purchaser or purchasers. Sales made without accelerating the
Obligations may be made hereunder whenever there is a Event of Default in the
payment of any installment of the Obligations without affecting in any way the
power of sale granted under this subsection 4.02(c), the unmatured balance of
the Obligations (except as to any proceeds of any sale which Beneficiary may
apply as a prepayment of the Obligations), or the assignments, liens, and
security interests securing the payment of the Obligations.
(d) It is intended by each of the foregoing provisions of subsection 4.02(b)
and subsection 4.02(c) that Trustee may, after any request or direction by
Beneficiary, sell not only the real estate portion of the Property but also the
Personal Property and Other Property, or any part thereof, all as a unit and as
a part of a single sale, or may sell any part of the Property separately from
the remainder of the Property. The sale or sales by Trustee of less than the
whole of the Property shall not exhaust the power of sale herein granted and
Trustee is specifically empowered to make successive sale or sales under such
power until the whole of the Property shall be sold; and if the proceeds of
such sale or sales of less than the whole of such Property shall be less than
the aggregate of the Obligations and the expense of executing this trust, this
Deed of Trust and the assignments, liens, and security interests hereof shall
remain in full force and effect as to the unsold portion of the Property just
as though no sale or sales of less than the whole of the Property had occurred.
(e) Grantor and Beneficiary agree that, in any assignments, deeds, bills of
sale, notices of sale, or postings, given by Trustee or Beneficiary, any and
all statements of fact or other recitals therein made as to the identity of
Beneficiary, or as to the occurrence or existence of any Event of Default, or
as to the acceleration of the maturity of the Obligations, or as to the request
to sell, posting of notice of sale, notice of sale, time, place, terms, and
manner of sale and receipt, distribution, and application of the money realized
therefrom, or as to the due and proper appointment of substitute trustee and
without being limited by the foregoing, as to any other act or thing having
been duly done by Beneficiary or by Trustee, shall be taken by all courts of
law and equity as prima facie evidence that the said statements or recitals
state facts and are without further questions to be so accepted, and Grantor
does hereby ratify and confirm any and all acts that Trustee may lawfully do in
the premises by virtue hereof.
(f) Beneficiary may, or Trustee may upon written request of Beneficiary,
proceed by suit or suits, at law or in equity, to enforce the payment and
performance of the Obligations in accordance with the terms hereof or of the
other Documents, to foreclose or otherwise enforce the assignments, liens, and
security interests created or evidenced by the other Documents or this Deed of
Trust as against all or any part of the Property, and to have all or any part
of the Property sold under the judgment or decree of a court of competent
jurisdiction.
(g) To the extent permitted by law, Beneficiary, as a matter of right without
the necessity of filing any judicial or other proceeding other than the
proceeding for appointment of a receiver, shall be entitled to the appointment
of a receiver or receivers of the Property, or any thereof, and of the income,
rents, issues, and profits thereof, if applicable, and Grantor hereby expressly
consents to any such appointment. Such appointment may be made before or after
sale, without notice; without regard to the solvency or insolvency at the time
of application for such receiver of the person or persons, if any, liable for
the payment of the indebtedness secured hereby; without regard to the value of
the Property at such time, whether or not the same is then occupied as a
homestead, and without bond being required of the applicant. Such receiver
shall have the power to take possession, control and care of the Property and
to collect all rents, issues, deposits, profits and avails thereof during the
pendency of such foreclosure suit and, in the event of a sale and a
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deficiency where Grantor has not waived its statutory rights of redemption,
during the full statutory period of redemption, as well as during any further
times when Grantor or its devisees, legatees, heirs, executors, administrators,
legal representatives, successors or assigns, except for the intervention of
such receiver, would be entitled to collect such rents, issues, deposits,
profits and avails, and shall have all other powers that may be necessary or
useful in such cases for the protection, possession, control, management and
operation of the Property during the whole of any such period. To the extent
permitted by law, such receiver may be authorized by the court to extend or
modify any then existing leases and to make new leases of the Property or any
part thereof, which extensions, modifications and new leases may provide for
terms to expire, or for options to lessees to extend or renew terms to expire,
beyond the maturity date of the indebtedness secured hereby, it being
understood and agreed that any such leases, and the options or other such
provisions to be contained therein, shall be binding upon Grantor and all
persons whose interests in the Property are subject to the lien hereof, and
upon the purchaser or purchasers at any such foreclosure sale, notwithstanding
any redemption from sale, discharge of indebtedness, satisfaction of
foreclosure decree, or issuance of certificate of sale or deed to any
purchaser.
(h) To the extent permitted by law, Beneficiary may enter upon the Property,
take possession of the Property, and remove the Personal Property or any part
thereof, with or without judicial process, and, in connection therewith,
without any responsibility or liability on the part of Beneficiary, including,
without limitation, any liability for consequential damages of any kind, and
Beneficiary may take possession of any property located on or in the Property
which is not a part of the Property and hold or store such property at
Grantor's expense.
(i) Beneficiary may surrender the insurance policies maintained pursuant to the
terms hereof, or any part thereof, and receive and apply the unearned premiums
as a credit to the Obligations, and, in connection therewith, Grantor hereby
irrevocably appoints Beneficiary (or any officer of Beneficiary), as the true
and lawful agent and attorney-in-fact for Grantor (with full powers of
substitution), which power of attorney shall be deemed to be a power coupled
with an interest and therefore irrevocable, to collect such premiums.
(j) Beneficiary may buy the Property, or any part thereof, at any public sale
or judicial sale and, if the Property being sold is of a type customarily sold
in a recognized market or a type which is the subject of widely distributed
standard price quotations, Beneficiary may also buy the Property, or any part
thereof, at any private sale.
(k) Beneficiary shall have and may exercise any and all other rights and
remedies which Beneficiary may have at law or in equity, or by virtue of any
other security instrument, or under the Uniform Commercial Code in effect in
the States of Illinois and Texas (the "UCC") or otherwise.
4.03 PURCHASE BY BENEFICIARY. If Beneficiary is the purchaser of the Property,
or any part thereof, at any sale thereof (including any sale of the Personal
Property), whether such sale be under the power of sale hereinabove vested in
Trustee, or upon any other foreclosure or enforcement of the assignments,
liens, and security interest hereof, or otherwise, Beneficiary shall, upon any
such purchase, acquire good and marketable title to the Property so purchased,
free of the assignments, liens, and security interests created hereby.
4.04 CARE OF PROPERTY BY BENEFICIARY. Should any part of the Property come into
the possession of Beneficiary, Beneficiary may (without any liability therefor)
use, operate, and/or make repairs, alterations, additions, and improvements to
the Property for the purpose of preserving it or its value, pursuant to the
order of a court of appropriate jurisdiction, or in accordance with any other
rights held by Beneficiary with respect to the Property. Grantor covenants to
promptly reimburse and pay to Beneficiary, at the place where the Note is
payable, or at such other place as may be designated by Beneficiary in writing,
the amount of all reasonable expenses (including the cost of any insurance,
taxes, or other charges) incurred by Beneficiary in connection with its
custody, preservation, use, or operation of the Property, together with
interest thereon from the date incurred by Beneficiary at the Interest Rate,
and all such expenses, cost, taxes, interest, and other charges shall be a part
of the Obligations.
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4.05 RIGHT OF POSSESSION. If the assignments, liens, or security interest
hereof shall be foreclosed or otherwise enforced by a Trustee's sale, or by any
other judicial or non-judicial action, then the purchaser at any such sale
shall receive, as an incident to his ownership, immediate possession of that
portion of the Property purchased, and if Grantor or Grantor's successors or
lessees shall hold possession of any of said portion of the Property subsequent
to such foreclosure, Grantor and Grantor's successors or lessees in possession
shall be considered as tenants at sufferance of the purchaser at such
foreclosure sale, and anyone occupying the Property (or any part thereof) after
demand made of possession thereof shall be guilty of forcible detainer and
shall be subject to eviction and removal, forcible or otherwise, with or
without process of law, and all damages which might be alleged by Grantor or
Grantor's successors or lessees by reason thereof are hereby expressly waived.
In any case in which, under the provisions of this Deed of Trust, Beneficiary
has a right to exercise any remedy, whether or not the entire principal sum
secured hereby becomes immediately due and payable as aforesaid, or whether
before or after the institution of proceedings to foreclose the lien hereof or
before or after sale under any foreclosure or power of sale, Grantor shall,
forthwith upon demand of Beneficiary, surrender to Beneficiary, and Beneficiary
shall be entitled to take actual possession of, the Property or any part
thereof, personally or by its agent or attorneys, and Beneficiary, in its
discretion, may enter upon and take and maintain possession of all or any part
of the Property, together with all documents, books (or copies thereof),
records (or copies thereof), papers, and accounts of Grantor or the then owner
of the Property relating thereto, and may exclude Grantor, such owner, and any
agents and servants thereof wholly therefrom and may, as attorney-in-fact or
agent of Grantor or such owner, or in its own name as Beneficiary and under the
powers herein granted:
(a) hold, operate, manage, and control all or any part of the Property and
conduct the business, if any, thereof, either personally or by its agents, with
full power to use such measures, legal or equitable, as in its sole and
arbitrary discretion may be deemed proper or necessary to enforce the payment
or security of the rents, issues, deposits, profits, and avails of the
Property, including without limitation actions for recovery of rent, actions in
forcible detainer, and actions in distress for rent, all without notice to
Grantor;
(b) cancel or terminate any lease or sublease of all or any part of the
Property for any cause or on any ground that would entitle Grantor to cancel
the same;
(c) elect to disaffirm any lease or sublease of all or any part of the Property
made subsequent to this Deed of Trust or subordinated to the lien hereof;
(d) extend or modify any then existing leases and make new leases of all or any
part of the Property, which extensions, modifications and new leases may
provide for terms to expire, or for options to lessees to extend or renew terms
to expire, beyond the maturity date of the loan evidenced by the Note and the
issuance of a deed or deeds to a purchaser or purchasers at a foreclosure sale,
it being understood and agreed that any such leases, and the options or other
such provisions to be contained therein, shall be binding upon Grantor, all
persons whose interests in the Property are subject to the lien hereof, and the
purchaser or purchasers at any foreclosure sale, notwithstanding any redemption
from sale, discharge of the indebtedness secured hereby, satisfaction of any
foreclosure decree, or issuance of any certificate of sale or deed to any such
purchaser; and
(e) make all necessary or proper repairs, decorations, renewals, replacements,
alterations, additions, betterments and improvements in connection with the
Property as may reasonably necessary, to insure and reinsure the Property and
all risks incidental to Beneficiary's possession, operation, and management
thereof, and to receive all rents, issues, deposits, profits and avails
therefrom.
4.06 DEED OF TRUST. Upon the occurrence of a Event of Default, this Deed of
Trust may be foreclosed as to the Property in any manner permitted by the laws
of Texas. Any foreclosure suit may be brought by Trustee or any Beneficiary. If
a foreclosure hereunder is commenced by Trustee, Beneficiary may, at any time
before the sale, direct Trustee, to abandon the sale, and may then institute
suit for the collection of the Note, and for
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the foreclosure of enforcement of the assignments, liens, and security
interests hereof. If Beneficiary should institute a suit for the collection of
the Note, and for a foreclosure or enforcement of the assignments, liens, and
security interests hereof, it may, at any time before entry of a final judgment
in said suit, dismiss the same and require Trustee to sell the Property, or any
part thereof, in accordance with the provisions of this Deed of Trust.
4.07 APPLICATION OF DEPOSITS. Beneficiary may, at its option, without being
required to do so, apply any money or securities that constitute deposits made
to or held by Beneficiary or any depository pursuant to any of the provisions
of this Deed of Trust toward payment of any of the Obligations in such order
and manner as Beneficiary may elect. When the Obligations have been fully paid,
any remaining deposits shall be paid to Grantor or its successors or assigns,
or to the then owner or owners of the Property, or to whoever else may then be
adjudged entitled thereto.
4.08 EXERCISE RIGHTS OF SECURED PARTY. To the extent that this Deed of Trust
may operate as a security agreement under the Uniform Commercial Code,
Beneficiary may exercise any or all of the remedies of a secured party under
said Code.
4.09 CONTINUING REMEDIES. The failure of Beneficiary to exercise any remedy
granted to Beneficiary hereunder or under applicable law in any one or more
instances, or the acceptance by Beneficiary of partial payments of such
indebtedness, shall neither constitute a waiver of any such Event of Default or
of Beneficiary's remedies hereunder or under applicable law nor establish,
extend or affect any grace period for payments due under the Note, but such
remedies shall remain continuously in force. Acceleration of maturity, once
claimed hereunder by Beneficiary, may at Beneficiary's option be rescinded by
written acknowledgment to that effect by Beneficiary and shall not affect
Beneficiary's right to accelerate maturity upon or after any future Event of
Default.
4.10 FORBEARANCE BY BENEFICIARY NOT A WAIVER. Any forbearance by Beneficiary in
exercising any right or remedy hereunder, or otherwise afforded by law, shall
not be a waiver or preclude the exercise of any such right or remedy.
4.11 APPLICATION OF PROCEEDS. The proceeds of any foreclosure sale of the
Property, or any part thereof, shall be distributed and applied in the
following order of priority:
(a) first, on account of all reasonable costs and expenses incident to the
foreclosure proceedings, including, without limitation, the items described in
Section 4.15 hereof;
(b) next, in any order as determined by Beneficiary in its sole discretion, on
account of the outstanding balance of the Note, all other items that, under the
terms of this Deed of Trust, constitute secured indebtedness additional to that
evidenced by the Note and all other unpaid Obligations; and
(c) the balance, to Grantor or its successors or assigns, as their interests
and rights may appear or whoever else may then be adjudged entitled thereto.
4.12 PRIORITY OF PAYMENTS. Any rents, issues, deposits, profits, and avails of
the Property received by Beneficiary after taking possession of all or any part
of the Property, or pursuant to any assignment thereof to Beneficiary under the
provisions of this Deed of Trust, shall (unless otherwise required by court
order) be applied in payment of or on account of the following, in the order
listed:
(a) operating expenses of the Property (including reasonable compensation to
Beneficiary, any receiver of the Property, any agent or agents to whom
management of the Property has been delegated, and also including lease
commissions and other compensation for and expenses of seeking and procuring
tenants and entering into leases, establishing claims for damages, if any, and
paying premiums on insurance hereinabove authorized);
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(b) taxes, special assessments, and water and sewer charges now due or that may
hereafter become a lien thereon prior to the lien of this Deed of Trust;
(c) any and all reasonable repairs, decorating, renewals, replacements,
alterations, additions, betterments, and improvements of the Property
(including, without limitation, the cost of placing the Property in such
condition as will, in the judgment of Beneficiary or any receiver, make it
readily rentable or salable);
(d) all indebtedness secured by this Deed of Trust and other Obligations,
including, without limitation, any deficiency that may result from any
foreclosure sale pursuant hereto; and
(e) any remaining funds to Grantor or its successors or assigns, as their
interests and rights may appear or to whoever else may then be adjudged
entitled thereto.
4.13 RENT. During the continuance of any Event of Default and if Beneficiary or
any judicially appointed representative has a right to exclude Grantor from all
or any part of the Property, Grantor agrees to pay the fair and reasonable
rental value for the use and occupancy of the Property, or any portion thereof
which are in its possession and being occupied for such period and, upon
default of any such payment, will vacate and surrender possession of the
Property to Beneficiary or to a receiver, if any, and in default thereof may be
evicted by any summary action or proceeding for the recovery or possession of
premises for non-payment of rent, however designated.
4.14 REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of
Beneficiary herein are severable and cumulative and in addition to all other
rights and remedies available in the other Documents, at law or in equity, and
any one or more of such rights and remedies may be exercised simultaneously or
successively.
4.15 LITIGATION EXPENSES. In any proceeding to foreclose the lien of this Deed
of Trust or enforce any other right or remedy of Beneficiary under this Deed of
Trust or any of the other Documents, or in any other proceeding whatsoever in
connection with any of the Property in which Beneficiary is named as a party,
there shall be allowed and included, as additional indebtedness in the judgment
or decree resulting therefrom, all reasonable expenses paid or incurred in
connection with such proceeding by or on behalf of Beneficiary, including, but
not limited to, reasonable attorneys' fees and expenses.
4.16 PERFORMANCE BY BENEFICIARY. During the continuance of any Event of
Default, Beneficiary may, but need not, make any payment or perform any act
herein required of Grantor in any form and manner deemed expedient by
Beneficiary, and Beneficiary may, but need not, make full or partial payments
of principal or interest on encumbrances, if any; purchase, discharge,
compromise, or settle any tax lien or other prior or junior lien or title or
claim thereof; redeem from any tax sale or forfeiture affecting the Property;
or contest any tax or assessment thereon. All moneys paid for any of the
purposes authorized herein and all reasonable expenses paid or incurred in
connection therewith, including reasonable attorney's fees, and any other
moneys advanced by Beneficiary to protect the Property and the lien of this
Deed of Trust, shall be additional indebtedness secured hereby, and shall
become immediately due and payable by Grantor to Beneficiary without notice,
with interest at the Interest Rate. Inaction of Beneficiary shall never be
construed to be a waiver of any right accruing to it by reason of any Event of
Default.
4.17 WAIVER OF STATUTORY RIGHTS. To the greatest extent permitted by law: (a)
Grantor hereby waives the benefit of, and agrees that it will not apply for or
avail itself of, any appraisement, valuation, redemption, stay, extension or
exemption laws, or any so-called "moratorium laws," now existing or hereafter
enacted, in order to prevent or hinder the enforcement or foreclosure of this
Deed of Trust; and (b) Grantor, for itself, any and all persons or entities who
may claim through or under it and each and every person or entity acquiring any
interest in the Property or title to the Real Property subsequent to the date
of this Deed of Trust, hereby also waives (i) any and all rights to have the
Property and estates comprising the Property marshaled upon any foreclosure of
the lien hereof, and agrees that any court having jurisdiction to foreclose
such lien may order the Property sold in its entirety; and (ii) any and all
rights of (A) redemption from sale under any order or decree of foreclosure of
the lien hereof pursuant to the rights herein granted; and (B) homestead in the
Real
-13-
<PAGE> 15
Property which Grantor may now or hereafter have under the laws of the State in
which the Property is located; and (iii) all rights to void liens under Section
506 of the United States Bankruptcy Code (11 U.S.C. Section 506), or any
amendment or successor thereto.
V. MISCELLANEOUS
5.01 APPOINTMENT; SUBSTITUTION OF TRUSTEE. (a) If at the time of execution
hereof by Grantor, the name and/or address of Trustee is not filled in, Grantor
irrevocably authorizes and empowers Beneficiary or any authorized agent of
Beneficiary to appoint Trustee and fill in the name and address of such Trustee
at all appropriate places on this Deed of Trust at any time prior to the
recording hereof.
(b) Trustee may resign by an instrument in writing addressed to Beneficiary, or
Trustee may be removed at any time with or without cause by Beneficiary. In
case of the death, resignation, removal or disqualification of Trustee or if
for any reason Beneficiary shall deem it desirable to appoint a substitute or
successor trustee to act instead of the herein named Trustee or any substitute
or successor trustee, then Beneficiary shall have the right and is hereby
authorized and empowered to appoint a successor trustee, or a substitute
trustee, without other formality than appointment and designation in writing
executed by Beneficiary, and the authority hereby conferred shall extend to the
appointment of other successor and substitute trustees successively until the
indebtedness secured hereby has been paid in full or until the Property is sold
hereunder. Any reference in this instrument to Trustee shall include, as
appropriate, any successor or substitute trustee. Such appointment may be
executed by any authorized agent of Beneficiary; and if Beneficiary be a
corporation and such appointment be executed in its behalf by any officer of
such corporation, such appointment shall be conclusively presumed to be
executed with authority and shall be valid and sufficient without proof of any
action by the board of directors or any superior officer of the corporation.
Grantor hereby ratifies and confirms any and all acts which the herein named
Trustee, or his successor or successors in this Trust, shall do lawfully by
virtue hereof. Grantor hereby agrees, on behalf of itself and its successors
and assigns, that the recitals contained in any deed or deeds executed in due
form by Trustee or any substitute trustee, acting under the provisions of this
instrument, shall be prima facie evidence of the facts recited, and that it
shall not be necessary to prove in any court, otherwise than by such recitals,
the existence of the facts essential to authorize the execution and delivery of
such deed or deeds and the passing of title thereby.
5.02 ASSIGNMENT. Grantor hereby assigns and transfers as additional security to
Beneficiary all damages, royalties and revenue of every kind, nature and
description whatsoever that Grantor may be entitled to receive from any person,
company or corporation owning or having or hereafter acquiring a right to the
oil, gas or mineral rights and reservations of the Property with the right in
Beneficiary to receive and receipt therefor and apply the same to said
indebtedness either before or after any Event of Default hereunder, and
Beneficiary may demand, sue for and recover any such payments but shall not be
required so to do.
5.03 NO RIGHT OF OFFSET. No offset or claim that Grantor now has or may in the
future have against Beneficiary shall relieve Grantor from paying installments
or performing any other obligation herein or secured hereby. Grantor within ten
(10) days after any request of Beneficiary, will furnish a written statement of
the amount due on the Note and a description of any alleged offsets,
counterclaims, or defenses to the payment thereof.
5.04 CORRECTIONS. Grantor will, upon request of Trustee, promptly correct any
defect, error or omission which may be discovered in the contents of this Deed
of Trust or in the execution or acknowledgments hereof, and will execute,
acknowledge and deliver such further instruments and do such further acts as
may be necessary or as may be reasonably requested by Trustee or by Beneficiary
to carry out more effectively the purposes of this Deed of Trust, to subject to
the lien and security interest hereby created any of Grantor's properties,
rights or interest covered or intended to be covered hereby, and to perfect and
maintain the lien and security interest. If any rights, easements or other
hereditaments shall hereafter become appurtenant to the Property, or any part
thereof, Grantor shall deliver to Beneficiary, upon demand, a supplemental Deed
of Trust in the form approved by Beneficiary covering such rights and
interests.
-14-
<PAGE> 16
5.05 FURTHER ASSURANCES. Grantor will execute and deliver to Beneficiary, upon
demand, any additional instruments or security documents necessary to secure to
Beneficiary or to Trustee any right or interest granted by this Deed of Trust.
If any rights, easements or other hereditaments shall hereafter become
appurtenant to the Property, or any part thereof, Grantor shall deliver to
Beneficiary, upon demand, a supplemental Deed of Trust in the form approved by
Beneficiary covering such rights and interests.
5.06 NOTICES. All notices hereunder shall be given and become effective in
accordance with the provisions of the Loan Agreement.
5.07 COVENANTS RUN WITH LAND. All of the covenants of this Deed of Trust shall
run with the land constituting the Real Property.
5.08 GOVERNING LAW. The validity and interpretation of this Deed of Trust shall
be governed and construed in accordance with the laws of the State in which the
Property is located.
5.09 SEVERABILITY. Whenever possible, each provision of this Deed of Trust
shall be interpreted in such manner as to be effective and valid under
applicable law. Any provision of this Deed of Trust which is prohibited or
unenforceable shall be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Deed of
Trust.
5.10 NON-WAIVER. No failure or delay on the part of Beneficiary in exercising
any right, power or remedy pursuant to this Deed of Trust or any of the other
Documents shall operate as a waiver thereof, and no single or partial exercise
of any such right, power or remedy shall preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. Neither any
waiver of any provision of this Deed of Trust or any of the other Documents,
nor any consent to any departure by Grantor therefrom, shall be effective
unless the same shall be in writing and signed by Beneficiary. Any waiver of
any provision of this Deed of Trust or any of the other Documents and any
consent to any departure by Grantor from the terms of this Deed of Trust or any
of the other Documents shall be effective only in the specific instance and for
the specific purpose for which given. Except as otherwise expressly provided
herein, no notice to or demand on Grantor shall in any case entitle Grantor to
any other or further notice or demand in similar or other circumstances.
Acceleration of maturity, once claimed hereunder by Beneficiary, may at
Beneficiary's option be rescinded by written acknowledgment to that effect by
Beneficiary and shall not affect Beneficiary's right to accelerate maturity
upon or after any future Event of Default.
5.11 HEADINGS. Captions and headings in Sections and Paragraphs of this Deed of
Trust are inserted only as a matter of convenience and shall not affect the
interpretation hereof.
5.12 GRAMMAR. As used in this Deed of Trust, the singular shall include the
plural, and masculine, feminine and neuter pronouns shall be fully
interchangeable, where the context so requires.
5.13 DEED IN TRUST. If title to the Property or any part thereof is now or
shall hereafter becomes vested in a trustee, any prohibition or restriction
contained herein against the creation of any lien on the Property shall be
construed as a similar prohibition or restriction against the creation of any
lien on or security interest in the beneficial interest or power of direction
of such trust.
5.14 SUCCESSORS AND ASSIGNS. This Deed of Trust and all provisions hereof shall
be binding upon Grantor, and its successors, assigns, legal representatives and
all other persons or entities claiming under or through Grantor and the word
"Grantor," when used herein, shall include all such persons and entities. The
word "Beneficiary," when used herein, shall include Beneficiary's successors,
assigns, and legal representatives, including all other holders, from time to
time, of the Note.
5.15 RELEASE. Beneficiary shall release this Deed of Trust and the lien hereof
by proper instrument upon payment in full of all Obligations and all other
indebtedness secured by this Deed of Trust.
-15-
<PAGE> 17
5.16 TIME OF THE ESSENCE. Time is of the essence to this Deed of Trust, and all
provisions pertaining thereto shall be strictly construed.
IN WITNESS WHEREOF, Grantor has caused this Deed of Trust to be executed as of
the date hereinabove first written.
CELEBRITY, INC.
By: /s/ JAMES R. THOMPSON
----------------------------------------
Signature
James R. Thompson
- --------------------------------------------
Printed Name
Vice President
- --------------------------------------------
Title
ATTEST:
By: /s/ LISA K. BORK
----------------------------------------
Signature
Lisa K. Bork
- --------------------------------------------
Printed Name
Assistant Secretary
- --------------------------------------------
Title
-16-
<PAGE> 18
STATE OF TEXAS )
) SS.
COUNTY OF SMITH )
Before me, the undersigned authority, notary public and in for said county and
state, on this day personally appeared James R. Thompson known to me to be the
person whose name is subscribed to the foregoing instrument, and known to me to
be the Vice President - Finance of CELEBRITY, INC., a corporation, and
acknowledged to me that such person executed said instrument for the purposes
and consideration therein expressed and as the act of said corporation.
GIVEN under my hand and seal of office this 20th day of June, 1997.
/s/ DEBRA B. LAMBERT
- --------------------------------
NOTARY PUBLIC
My Commission Expires:
- --------------------------------
[S E A L]
-17-
<PAGE> 19
EXHIBIT A ATTACHED TO AND HEREBY MADE A PART OF
DEED OF TRUST, SECURITY AGREEMENT, FINANCING STATEMENT AND ASSIGNMENT OF RENTS
AMONG CELEBRITY, INC., _____________________________________________ AND
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
================================================================================
COMMON ADDRESS OF REAL PROPERTY: 4520 OLD TROUP HIGHWAY
TYLER, TEXAS
RECORD OWNER: CELEBRITY, INC.
PIN NUMBER:
LEGAL DESCRIPTION:
<PAGE> 20
EXHIBIT "A"
TO UCC FINANCING STATEMENT BETWEEN CELEBRITY, INC., DEBTOR, AND MERRILL LYNCH
BUSINESS FINANCIAL SERVICES INC., SECURED PARTY.
================================================================================
THIS UCC FINANCING STATEMENT COVERS THE FOLLOWING ITEMS OR TYPES OF PROPERTY:
ALL MACHINERY, EQUIPMENT, FITTINGS, APPARATUS, APPLIANCES, FIXTURES (INCLUDING,
WITHOUT LIMITATION, ALL HEATING, AIR CONDITIONING, VENTILATING, WASTE DISPOSAL,
SPRINKLER AND FIRE AND THEFT PROTECTION EQUIPMENT, AND ALL PLUMBING, LIGHTING,
COMMUNICATIONS AND ELEVATOR FIXTURES) AND OTHER PROPERTY OF EVERY KIND AND
DESCRIPTION NOW OR HEREAFTER OWNED BY DEBTOR AND LOCATED UPON OR IN, AND USED
OR USEFUL IN CONNECTION WITH, THE OPERATION, MAINTENANCE OR OCCUPANCY OF THE
REAL PROPERTY DESCRIBED BELOW, OR ANY IMPROVEMENTS THEREON, AND ALL RENEWALS OR
REPLACEMENTS THEREOF AND ARTICLES IN SUBSTITUTION THEREFOR, AND ANY AND ALL
PROCEEDS OF ANY OF THE FOREGOING.
RECORD OWNER: CELEBRITY, INC.
COMMON ADDRESS: 4520 OLD TROUP HIGHWAY
TYLER, TEXAS
LEGAL DESCRIPTION:
<PAGE> 1
EXHIBIT 10.38
CELEBRITY, INC.
1998 EMPLOYEE BONUS PLAN
1. This bonus plan will be effective only for fiscal 1998.
2. Bonuses will be based on the consolidated per share earnings of
Celebrity, Inc. (the "Company") for fiscal 1998 after accruals for
income taxes, bonus plans and Company contributions to the 401(k)
Plan, excluding extraordinary items (the "Earnings Per Share").
3. If the Company attains Earnings Per Share in any of the ranges set
forth in the table below, the employees listed below shall receive the
corresponding bonus set forth in the table.
Earnings Per Share
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Employee Name $.55 - .60 $.61 - .65 $.66 - 70 $.71 - .75 over $.75
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Robert Patterson $35,000 $60,000 $95,000 $125,000 $165,000
- ----------------------------------------------------------------------------------------------------------------
David Huffman 20,000 35,000 55,000 75,000 95,000
- ----------------------------------------------------------------------------------------------------------------
David Gingrich 20,000 35,000 55,000 75,000 95,000
- ----------------------------------------------------------------------------------------------------------------
James Thompson 15,000 25,000 35,000 50,000 60,000
- ----------------------------------------------------------------------------------------------------------------
Roger Craft 10,000 17,500 27,500 35,000 45,000
- ----------------------------------------------------------------------------------------------------------------
Pete Condict 10,000 17,500 27,500 35,000 45,000
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
4. Each participant will be given a copy of this bonus plan.
5. In the event a participant's employment with the Company is terminated
for any reason other than death, disability or retirement prior to the
end of fiscal 1998, all rights to any bonus under this plan will be
forfeited. In case of death, disability or retirement, the bonus
under this plan will be calculated on a pro rata share basis in
accordance with the time spent in service to the Company.
6. Bonuses will be payable in one payment within 75 days after the end of
fiscal 1998.
<PAGE> 1
EXHIBIT 10.39
PROMISSORY NOTE
September 10, 1997
TOTAL PRINCIPAL MATURITY DATE: DECEMBER 9, 1997
AMOUNT: $500,000.00
FOR VALUE RECEIVED, on or before the Maturity Date, the undersigned
(hereinafter referred to as "Borrower"), promises to pay to the order of RHP
MANAGEMENT, LLC. ("Lender") at its offices in Tyler, Texas, the Total Principal
Amount, or such amount less than the Total Principal Amount which is
outstanding from time to time if the total amount outstanding under this
Promissory Note ("Note") is less than the Total Principal Amount, together with
interest on such portion of the Total Principal Amount which has been advanced
to Borrower from the date advanced until paid at a fluctuating rate per annum
which shall be equal to the lesser of (a) the Maximum Rate (as hereinafter
defined), or (b) a rate equal to 1.5000% per annum over the Index Rate (as
defined in the next sentence), calculated on the basis of the actual number of
days over 360 days per year and the actual number of days elapsed, each change
in the rate to be charged on this Note to become effective without notice to
Borrower on the effective date of each change in the Index Rate. The Index
Rate shall mean the Texas Commerce Bank - Dallas rate of Interest Floating, the
general reference rate of interest based upon statutory or constitutional
authority enacted subsequent to the date of this Note. If the Index Rate is
redefined or becomes unavailable, then Lender may select another index which is
substantially similar.
The term "Maximum Rate," as used herein, shall mean at the particular
time in question 18% per annum, or if less, the maximum rate of interest
which, under applicable law, may then be charged on this Note. If such maximum
rate of interest changes after the date hereof, the Maximum Rate shall be
automatically increased or decreased, as the case may be, without notice to
Borrower from time to time as of the effective date of each change in such
maximum rate.
The outstanding principal balance of this Note, together with all
accrued but unpaid interest, shall be due and payable on the Maturity Date.
Notwithstanding anything herein to the contrary, upon an Event of
Default (as hereinafter defined) or at maturity whether by acceleration or
otherwise, all principal of this Note shall, at the option of Lender, bear
interest at 4% above the stated contract rate or the Maximum Rate, whichever is
less, until paid.
All payments and prepayments of principal of or interest on this Note
shall be made in lawful money of the United States of America in immediately
available funds, at the offices of Lender or such other place as the holder of
this Note shall designate in writing to Borrower. If any payment of principal
of or interest on this Note shall become due on a day which is not a Business
Day (as
<PAGE> 2
hereinafter defined), such payment shall be made on the next succeeding
Business Day and any such extension of time shall be included in computing
interest in connection with such payment. As used herein, the term "Business
Day" shall mean any day other than a Saturday, Sunday or any other day on which
national banking associations are authorized to be closed. The books and
records of Lender shall be prima facie evidence of all outstanding principal of
and accrued and unpaid interest on this Note.
Borrower agrees that upon the occurrence of any one or more of the
following events of default ("Event of Default"):
(a) failure of Borrower to pay any installment of
principal of or interest on this Note or on any other indebtedness of
Borrower to Lender when due; or
(b) the bankruptcy or insolvency of, the assignment for
the benefit of creditors by, or the appointment of a receiver for any
of the property of, or the liquidation, termination, or dissolution
of, any party liable for the payment of this Note, whether as maker,
endorser, guarantor, surety or otherwise; or
(c) failure to perform any obligation or breach of any
warranty or covenant to Lender contained in this Note or any other
present or future written agreement regarding this or any indebtedness
of Borrower to Lender; or
(d) providing or causing any false or misleading
signature or representation to be provided to Lender; or
(e) the entry or service of any garnishment, judgment,
tax levy, attachment or lien against Borrower or any of its property;
the holder of this Note may, at its option, without further notice or demand,
(i) declare the outstanding principal balance of and accrued but unpaid
interest on this Note at once due and payable, (ii) pursue any and all other
rights, remedies and recourses available to the holder hereof, at law or in
equity, or (iii) pursue any combination of the foregoing.
The failure to exercise the option to accelerate the maturity of this
Note or any other right, remedy or recourse available to the holder hereof upon
the occurrence of an Event of Default hereunder shall not constitute a waiver
of the right of the holder of this Note to exercise the same at that time or at
any subsequent time with respect to such Event of Default or any other Event of
Default. The rights, remedies and recourses of the holder hereof, as provided
in this Note, shall be cumulative and concurrent and may be pursued separately,
successively or together as often as occasion therefore shall arise, at the
sole discretion of the holder hereof. The acceptance by the holder hereof of
any payment under this Note which is less than the payment in full of all
amounts due and payable at the time of such payment shall not constitute a
waiver of or impair, reduce, release or extinguish any right, remedy or
recourse of the holder hereof, or nullify any prior exercise of any such right,
remedy or recourse.
2
<PAGE> 3
This Note is intended to be performed in accordance with, and only to
the extent permitted by, all applicable usury laws. If any provision hereof
shall, for any reason and to any extent, be invalid or unenforceable, the
remainder of this Note shall not be affected thereby and shall be enforced to
the greatest extent permitted by law. It is expressly stipulated and agreed to
be the intent of the holder hereof to at all times comply with the usury and
other applicable laws now or hereafter governing the interest payable on the
indebtedness evidenced by this Note. If the applicable law is ever revised,
repealed or judicially interpreted so as to render usurious any amount called
for under this Note, or contracted for, charged, taken, reserved or received
with respect to the indebtedness evidenced by this Note, or if Lender's
exercise of the option to accelerate the maturity of this Note, or if any
prepayment by Borrower results in Borrower having paid any interest in excess
of that permitted by law, then it is the express intent of Borrower and Lender
that all excess amounts theretofore collected by Lender be credited on the
principal balance of this Note (or, if this Note has been paid in full,
refunded to Borrower), and the provisions of this Note shall immediately be
deemed reformed and the amounts thereafter collectable hereunder reduced,
without the necessity of the execution of any new document, so as to comply
with the then applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder. All sums paid, or agreed to be paid, by
Borrower for the use, forbearance, detention, taking, charging, receiving or
reserving of the indebtedness of Borrower to Lender under this Note, shall to
the maximum extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of such indebtedness until
payment in full so that the rate or amount of interest on account of such
indebtedness does not exceed the usury ceiling from time to time in effect and
applicable to such indebtedness for so long as such indebtedness is
outstanding. To the extent federal law permits Lender to contract for, charge
or receive a greater amount of interest, Lender will rely on federal law
instead of TEX. REV. CIV. STAT. ANN. art. 5069-1.04, as amended, for the
purpose of determining the Maximum Rate. Additionally, to the maximum extent
permitted by applicable law now or hereafter in effect, Lender may, at its
option and from time to time, implement any other method of computing the
Maximum Rate under such Article 5069-1.04, as amended, or under other
applicable law by giving notice, if required, to Borrower as provided by
applicable law now or hereafter in effect. Notwithstanding anything to the
contrary contained herein, it is not the intention of Lender to accelerate the
maturity of any interest that has not accrued at the time of such acceleration
or to collect unearned interest at the time of such acceleration.
In no event shall TEX. REV. CIV. STAT. ANN. art. 5069 Ch. 15 (which
regulates certain revolving loan accounts and revolving tri-party accounts)
apply to this Note. To the extent that TEX. REV. CIV. STAT. ANN. art.
5069-1.04, as amended, is applicable to this Note, the "indicated rate ceiling"
specified in such article is the applicable ceiling; provided that, if any
applicable law permits greater interest, the law permitting the greatest
interest shall apply.
If this Note is placed in the hands of an attorney for collection, or
is collected in whole or in part by suit or through probate, bankruptcy or
other legal proceedings of any kind, Borrower agrees to pay, in addition to all
other sums payable hereunder, all reasonable costs and expenses of collection,
including but not limited to reasonable attorneys' fees.
Borrower and any and all endorsers and guarantors of this Note
severally waive presentment for payment, notice of nonpayment, protest, demand,
notice of protest, notice of intent to accelerate,
3
<PAGE> 4
notice of acceleration and dishonor, diligence in enforcement and indulgences
of every kind and without further notice hereby agree to renewals, extensions,
indulgences or partial payments, either before or after maturity.
THIS NOTE HAS BEEN EXECUTED UNDER, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT AS SUCH LAWS ARE
PREEMPTED BY APPLICABLE FEDERAL LAWS.
BORROWER:
CELEBRITY, INC.
By: /s/ C. A. LANGNER
---------------------------------------
Name: C.A. Langner
-------------------------------
Title: Director
------------------------------
4
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-74368 and no. 33-69492) and in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-75276), as
amended, of Celebrity, Inc. of our report dated September 4, 1997, except as to
Note 7, which is as of September 29, 1997, appearing on page F-3 of this Form
10-K.
PRICE WATERHOUSE LLP
Dallas, Texas
September 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 530
<SECURITIES> 0
<RECEIVABLES> 15,620
<ALLOWANCES> 2,017
<INVENTORY> 30,619
<CURRENT-ASSETS> 50,262
<PP&E> 11,522
<DEPRECIATION> 0
<TOTAL-ASSETS> 67,453
<CURRENT-LIABILITIES> 41,424
<BONDS> 0
0
0
<COMMON> 63
<OTHER-SE> 20,914
<TOTAL-LIABILITY-AND-EQUITY> 67,453
<SALES> 125,170
<TOTAL-REVENUES> 125,170
<CGS> 97,479
<TOTAL-COSTS> 124,697
<OTHER-EXPENSES> (6)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,408)
<INCOME-PRETAX> (2,749)
<INCOME-TAX> 3,012
<INCOME-CONTINUING> (5,761)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,761)
<EPS-PRIMARY> (.91)
<EPS-DILUTED> (.91)
</TABLE>
