<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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 No. 0-20802
CELEBRITY, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1289223
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Physical Delivery Address:
4520 Old Troup Road
Tyler, Texas 75707
Mailing Address:
P.O. Box 6666
Tyler, Texas 75711
(903) 561-3981
(Address, including zip code, of principal executive
offices and registrant's telephone number, including area
code)
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
------ -------
The registrant had 6,282,755 shares of Common Stock, par value $.01 per share,
outstanding as of November 9, 1998.
<PAGE> 2
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS Page
----
<S> <C> <C>
Condensed Consolidated Balance Sheets at
September 30, 1998 and June 30, 1998
(Unaudited)...................................................................2
Condensed Consolidated Statements of Operations
for the three months ended
September 30, 1998 and 1997 (Unaudited).......................................3
Condensed Consolidated Statements of Cash
Flows for the three months ended
September 30, 1998 and 1997 (Unaudited).......................................4
Notes to Condensed Consolidated Financial
Statements (Unaudited)........................................................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS....................................................................7
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................14
SIGNATURES......................................................................15
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
CELEBRITY, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
September 30, June 30,
1998 1998
------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ -0- $ 127
Accounts receivable, net 15,430 14,121
Inventories 21,261 22,766
Other current assets 2,921 3,607
----------- -----------
Total current assets 39,612 40,621
Property, plant and equipment, net 9,851 9,788
Other assets 1,263 1,310
----------- -----------
Total assets $ 50,726 $ 51,719
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,084 $ 9,466
Accrued expenses and income taxes payable 4,279 3,849
Current portion of notes payable 4,437 3,479
----------- -----------
Total current liabilities 16,800 16,794
Notes payable, net of current portion 25,908 26,588
----------- -----------
Total liabilities 42,708 43,382
----------- -----------
Shareholders' equity:
Common stock 63 63
Paid-in capital 22,751 22,751
Subscriptions receivable (565) (570)
Accumulated deficit (13,519) (13,198)
Treasury stock, at cost (700) (700)
Cumulative translation adjustment (12) (9)
----------- -----------
Total shareholders' equity 8,018 8,337
----------- -----------
Commitments and contingencies
Total liabilities, redeemable common stock and
shareholders' equity $ 50,726 $ 51,719
=========== ===========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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<PAGE> 4
CELEBRITY, INC.
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended September 30,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 27,126 $ 30,208
------------ ------------
Costs and operating expenses:
Cost of goods sold 20,360 22,669
Selling expenses 1,162 1,347
General and administrative expenses 4,474 5,139
Depreciation and amortization 453 517
------------ ------------
Total expenses 26,449 29,672
------------ ------------
Operating income 677 536
Interest expense, net (948) (805)
Other, net 29 (9)
------------ ------------
Loss before income taxes (242) (278)
Provision for income taxes 79 165
------------ ------------
Net loss $ (321) $ (443)
============ ============
Basic and diluted loss per share $ (.05) $ (.07)
============ ============
Average common and potentially dilutive
common shares outstanding 6,294 6,310
============ ============
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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<PAGE> 5
CELEBRITY, INC.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended September 30,
--------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Operating activities:
Net loss $ (321) $ (443)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 453 517
Changes in operating assets and liabilities:
Accounts receivable (1,309) (1,503)
Inventories 1,505 (1,361)
Other assets, net 691 1,033
Accounts payable and accrued expenses (952) 1,385
------------ ------------
Net cash provided by (used in) operating activities 67 (372)
------------ ------------
Investing activities:
Additions to property and equipment (474) (121)
Other -- 18
------------ ------------
Net cash used in investing activities (474) (103)
------------ ------------
Financing activities:
Net proceeds from (payments on) credit
facility 679 (153)
Proceeds from long-term debt 500 722
Payments on long-term debt (901) (284)
Proceeds on subscriptions receivable 5 14
Other (3) --
------------ ------------
Net cash provided by financing activities 280 299
------------ ------------
Decrease in cash (127) (176)
Cash and cash equivalents at beginning of period 127 530
------------ ------------
Cash and cash equivalents at end of period $ 0 $ 354
============ ============
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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<PAGE> 6
CELEBRITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. THE BUSINESS AND BASIS OF PRESENTATION
Description of Business
Celebrity, Inc. ("Celebrity" or the "Company") is a supplier of high
quality artificial flowers, ficus trees and plants, and decorative metal
products and other accessories to mass market retailers, craft store chains,
wholesale florists and other retailers throughout North America and Europe.
Celebrity imports and/or produces approximately 14,000 home accent, decorative
accessory and giftware items, including artificial floral arrangements, floor
planters and trees, a wide range of decorative metal products and a broad line
of seasonal items such as Christmas trees, wreaths, garlands and other
ornamental products.
Basis of Presentation
The Condensed Consolidated Financial Statements include the accounts of
Celebrity and its wholly-owned subsidiaries, Celebrity Exports International
Limited ("Celebrity Hong Kong"), The Cluett Corporation ("Cluett"), India
Exotics, Inc. ("India Exotics"), Magicsilk, Inc. ("Magicsilk"), Star Wholesale
Florist, Inc. ("Star Wholesale") and Value Florist Supplies, Inc. ("Value
Florist"). All intercompany accounts and transactions have been eliminated.
The accompanying Condensed Consolidated Financial Statements are
unaudited and, in the opinion of management, reflect all adjustments that are
necessary for a fair presentation of the financial position and results of
operations for the periods presented. All of such adjustments are of a normal
and recurring nature. The results of operations for the periods presented are
not necessarily indicative of the results to be expected for the entire year.
The Condensed Consolidated Financial Statements should be read in conjunction
with the financial statement disclosures contained in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1998.
2. INVENTORY
The composition of inventories is as follows (in thousands):
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------------- -------------
<S> <C> <C>
Raw materials $ 7,712 $ 8,460
Finished goods 13,549 14,306
------------- -------------
$ 21,261 $ 22,766
============= =============
</TABLE>
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<PAGE> 7
3. EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" effective December 31, 1997. For all periods presented
there were no differences between basic and diluted earnings per share.
4. CREDIT FACILITY
In February 1998, the Company entered into a three-year credit facility
for its Celebrity, Cluett, Color Concepts (a division of Celebrity that conducts
the operations formerly conducted by India Exotics), Star Wholesale and Value
Florist operations for borrowings up to $35.0 million. The credit facility
includes a revolving line of credit for borrowings up to $31.5 million and a
term loan with an initial principal amount of $3.5 million. Borrowing limits
under the revolving credit facility are based on specified percentages of
eligible accounts receivable and inventories. As a result of such limits, the
maximum amount the Company was eligible to borrow at September 30, 1998 was
$24.6 million, and the amount outstanding under the revolving credit facility
was $23.7 million. On July 7, 1998, the Company received a $1.0 million seasonal
overadvance under its revolving credit facility. The seasonal overadvance period
was scheduled to expire November 1, 1998, but has been extended to December 1,
1998. The Company is currently in discussions with the lender to further extend
the overadvance period to January 31, 1999. Also under discussion is a proposed
$5.0 million reduction in the revolving credit facility from $31.5 million to
$26.5 million. At current reduced inventory levels, the Company is not expected
to need more than $26.5 million of revolving credit availability and the
reduction will lower credit facility expenses. The commitment fee for the unused
portion of the revolving credit facility is .25% of the average unused portion
of the revolving credit facility. The term loan is payable in monthly
installments of principal of $200,000 that began on May 1, 1998, and the
remaining outstanding principal balance under the term loan is due and payable
upon the earlier of (i) September 1, 1999, or (ii) the termination of the
revolving credit facility. The outstanding principal balance under the revolving
credit facility bears interest at a reference bank's prime rate of interest plus
1.5% per annum, and the outstanding principal balance of the term loan bears
interest at 12.5% per annum. Interest is payable monthly. As a condition to
establishing the credit facility, the Company issued to the lender a five-year
warrant to purchase 100,000 shares of common stock, par value $.01 per share, of
the Company (the "Common stock") at $1.00 per share. The fair market value of
the warrant at the time of the issuance was estimated to be $70,000.
Accordingly, the proceeds from the credit facility were allocated between debt
and paid-in capital, resulting in a debt discount that will be accreted to the
redemption amount over the term of the credit facility. Amounts borrowed under
the revolving credit facility and the term loan are secured by accounts
receivable, inventory, equipment, certain interests in real property, and
general intangibles (including intellectual property) of Celebrity and its
subsidiary borrowers. In addition, all of the stock of the Company's
subsidiaries has been pledged to the lender. The revolving credit facility and
the term loan are subject to certain covenants limiting the incurrence of
indebtedness, prohibiting the payment of dividends and requiring the Company to
maintain certain financial ratios. The Company was in compliance with, or
received a waiver for, all covenants at September 30, 1998.
-6-
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS
This Quarterly Report on Form 10-Q contains forward-looking statements
about the business, financial condition and prospects of Celebrity. The actual
results of operations 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,
including the economic instability in the Far East, (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 People's Republic of
China (the "PRC") on July 1, 1997, (x) risks associated with a heavy reliance on
products coming from manufacturers in the PRC, (xi) currency risks, including
changes in the relationship between the U.S. dollar and the Hong Kong dollar,
(xii) risks associated with the Year 2000 issue, and (xiii) 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 herein, 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.
-7-
<PAGE> 9
RESULTS OF OPERATIONS
The following table sets forth certain items in the condensed
consolidated statements of operations of Celebrity expressed as a percentage of
net sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
-------------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales 100% 100%
-------- --------
Costs and operating expenses:
Cost of goods sold 75% 75%
Selling expenses 4% 4%
General and administrative expenses 17% 17%
Depreciation and amortization 2% 2%
-------- --------
Total expenses 98% 98%
-------- --------
Operating income 2% 2%
Interest expense, net (3)% (3)%
-------- --------
Loss before income taxes (1)% (1)%
Provision (benefit) for income taxes 0% (1)%
-------- --------
Net loss (1)% (2)%
======== ========
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1997
Net sales decreased 10.2% from $30.2 million in the first quarter of
fiscal 1998 to $27.1 million in the first quarter of fiscal 1999. The decrease
was primarily attributable to lower direct export sales in Hong Kong, related to
a shortage of shipping containers in the first quarter of fiscal 1999. Certain
of these products are expected to be shipped in the second quarter of fiscal
1999.
Cost of goods sold decreased 10.1% from $22.7 million in the first
quarter of fiscal 1998 to $20.4 million in the first quarter of fiscal 1999. The
decrease was primarily attributable to the lower sales volume in the first
quarter of fiscal 1999. Cost of goods sold as a percentage of net sales was
comparable at 75%.
-8-
<PAGE> 10
Selling expenses decreased from $1.3 million in the first quarter of
fiscal 1998 to $1.2 million in the first quarter of fiscal 1999. Selling
expenses as a percentage of net sales were comparable at 4% for both periods.
The decrease in selling expenses was attributable to expense reductions
implemented in the fourth quarter of fiscal 1998.
General and administrative expenses of $4.5 million in the first
quarter of fiscal 1999 decreased $665,000, or 13%, from $5.1 million in the
first quarter of fiscal 1998. The decrease is attributable to expense reductions
implemented in the fourth quarter of fiscal 1998. As a percent of net sales,
general and administrative expenses were comparable at 17% for both periods.
Depreciation and amortization expenses of $453,000 in the first quarter
of fiscal 1999 decreased from $517,000 in the first quarter of fiscal 1998. The
decrease was primarily attributed to the writeoff of goodwill and other
intangibles in the fourth quarter of fiscal 1998, related to the exit of the
India Exotics operations.
LIQUIDITY AND CAPITAL RESOURCES
Celebrity's sales and marketing strategy has required significant
investment in inventory and receivables. 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 credit facility and
cash flows from operations to fund these and other working capital needs.
In February 1998, the Company entered into a new three-year revolving
credit facility for its Celebrity, Cluett, Color Concepts, Star Wholesale and
Value Florist operations in a maximum amount of $31.5 million. Borrowing limits
under the revolving credit facility are based on specified percentages of
eligible accounts receivable and inventories. As a result of such limits, the
maximum amount the Company was eligible to borrow at September 30, 1998, was
$24.6 million, and the amount outstanding under the revolving credit facility
was $23.7 million. On July 7, 1998 the Company received a $1.0 million seasonal
overadvance under its revolving credit facility. The seasonal advance period was
scheduled to expire November 1, 1998, but has been extended to December 1, 1998.
The Company is currently in discussions with the lender to further extend the
overadvance period to January 31, 1999. Also, under discussion is a proposed
$5.0 million reduction in the revolving credit facility from $31.5 million to
$26.5 million. At current reduced inventory levels, the Company is not expected
to need more than $26.5 million of revolving credit availability, and the
reduction will lower credit facility expenses. In addition to the revolving
credit facility, the lender has made a term loan to the Company in the original
principal amount of $3.5 million The term loan is payable in monthly
installments of principal of $200,000 that began on May 1, 1998, and the
remaining outstanding principal balance under the term loan is due and payable
upon the earlier of (i) September 1, 1999, or (ii) the termination of the
revolving credit facility. Interest on the outstanding balance under the
revolving credit facility bears interest at a reference bank's prime rate of
interest plus 1.5% per annum, and interest on the outstanding balance of the
term loan bears interest at a rate of 12.5% per annum.
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<PAGE> 11
Interest is payable monthly. Amounts borrowed under the revolving credit
facility and the term loan are secured by accounts receivable, inventory,
equipment, certain interests in real property, and general intangibles
(including intellectual property) of Celebrity and its subsidiary borrowers. In
addition, all of the stock of the Company's subsidiaries has been pledged to the
lender. The revolving credit facility and the term loan are subject to certain
covenants limiting the incurrence of indebtedness, prohibiting the payment of
dividends and requiring the Company to maintain certain financial ratios. The
Company was in compliance with, or received a waiver for, all covenants at
September 30, 1998.
Celebrity Hong Kong generally makes full cash payments for products
ordered for Celebrity's account or for direct shipment to customers after the
manufacturers deliver products in Hong Kong for export. Celebrity Hong Kong
finances cash payments to its vendors through export credit facilities
established with three Hong Kong banks, each of which is guaranteed by the
Company. Generally, under the terms of these facilities, each bank finances,
with recourse, export bills for specific shipments by Celebrity Hong Kong to its
customers. Each bank is reimbursed when payment for these shipments is received.
At September 30, 1998, an aggregate of $2.0 million of export bills was financed
by the three banks, of a $10.2 million aggregate maximum amount under the export
credit facilities. Covenants under the Company's revolving credit facility
restrict aggregate borrowings under the export credit facilities to $7.0
million. All of these export 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 revolving credit facility with
an additional lender, which matures in June 2004. At September 30, 1998, the
outstanding balance under the facility was approximately $4.5 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; however, the lender
has waived these financial ratio covenants through June 30, 1999.
In September 1997, the Company borrowed $500,000 from a related party,
RHP Management, LLC ("RHP"), an entity controlled by Robert H. Patterson, Jr.,
Chairman of the Board, President and Chief Executive Officer of the Company. In
February 1998, the parties amended the promissory note to extend the repayment
date to September 30, 1999, subject to repayment restrictions under the
revolving credit facility. The principal amount outstanding accrues interest at
a fluctuating rate per annum equal to RHP's cost of borrowing, which is
currently the prime rate of a reference bank plus 1.5% per annum. The proceeds
from this loan were used to pay certain intercompany accounts payable to
Celebrity Hong Kong. In July 1998, the Company borrowed an additional $500,000
from RHP for seasonal working capital needs, which accrues interest at 10% per
annum. The note was scheduled to mature November 1, 1998, but repayment is
subject to certain restrictions under the revolving credit facility and is
expected to be repaid after January 31, 1999.
The Company does not plan to make any significant capital expenditures
in fiscal 1999 other than those incurred in the normal course of business for
facilities and equipment, and those
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<PAGE> 12
in connection with the Company's continuing program to upgrade its management
information systems.
The Company's products are primarily sourced in the Far East, with a
majority produced in the PRC. The Company's source or cost of supply could be
affected by a variety of factors, including general economic conditions in the
Far East, change in currency valuations, export credit availability, freight
carrier availability and costs, and U.S. trade policy and law related to
imports. If the U.S. government were to terminate most favored nation status 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. If the Company were to
face an increase in product cost from any of these factors, 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
or that any necessary additional financing will be available, if at all, in
amounts required or on terms satisfactory to the Company.
YEAR 2000 ISSUES
The Year 2000 issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year. The
Company's computer equipment and software and devices with embedded technology
that are time-sensitive may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations,
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
The Company has undertaken various initiatives intended to ensure that
the computer equipment and software used by the Company will function properly
with respect to dates in the Year 2000 and thereafter. For this purpose, the
term "computer equipment and software" includes systems thought of as
information technology ("IT") systems, including accounting, data processing and
telephone/PBX systems and other miscellaneous systems that may contain embedded
technology, as well as systems that are not commonly thought of as IT systems,
such as materials handling systems, alarm systems, fax machines or other
miscellaneous systems that may contain embedded technology. Based upon its
identification and assessment efforts to date, the Company believes that certain
of the computer equipment and software systems it currently uses will require
replacement or modification. In addition, in the ordinary course of replacing
computer equipment and software, the Company attempts to obtain replacements
that are Year 2000 compliant. Utilizing both internal and external resources to
identify and assess needed Year 2000 remediation, the Company currently
anticipates that its Year 2000 identification, assessment, remediation and
testing efforts, which began in April 1997, will be completed by June 30, 1999,
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<PAGE> 13
and that such efforts will be completed prior to any currently anticipated
impact on its computer equipment and software systems. The Company estimates
that as of September 30, 1998, it had completed approximately 90% of the
initiatives that it believes will be necessary to fully address potential Year
2000 issues related to its computer equipment and software. The projects
comprising the remaining 10% of the initiatives are in process and are expected
to be completed by June 30, 1999.
<TABLE>
<CAPTION>
PERCENT
YEAR 2000 INITIATIVE TIME PERIOD COMPLETE
-------------------- ----------- --------
<S> <C> <C>
Initial IT system identification and assessment April 1997 to December 1998 95
Remediation and testing of central system June 1997 to December 1998 90
Remediation and testing of manufacturing and June 1998 to June 1999 40
distribution systems
Identification and assessment of non-IT systems June 1998 to December 1998 20
Remediation and testing of non-IT systems January 1999 to June 1999 0
</TABLE>
Substantially all of the Company's products are manufactured in
Southeastern Asia. The Company currently has relationships with approximately 70
manufacturers and purchases most of its products from 12 of them. Celebrity has
made its own assessment of the manufacturing operations of its significant
suppliers and their relative dependence on computer equipment and software. As a
result of this independent assessment, the Company has concluded that because
the manufacturing processes of the Company's suppliers utilize very little
technology, the risks associated with the Year 2000 readiness of its significant
suppliers are not significant. The Company is currently beginning the assessment
of the Year 2000 readiness of its customers. The Company plans to contact its
significant customers to determine their state of Year 2000 readiness, and
expects to complete its assessment of such customers' Year 2000 readiness by
March 1999.
The Company believes that the costs to modify its computer equipment
and software systems to be Year 2000 complaint, as well as the currently
anticipated costs with respect to Year 2000 issues of third parties, will not
exceed $200,000, which expenditures will be funded from operating cash flows.
All of the $200,000 relates to analysis, repair or replacement of existing
software, upgrades of existing software or evaluation of information received
from significant suppliers or customers. Such amount represents approximately
50% of the Company's total actual and anticipated IT expenditures for fiscal
1998 and 1999. As of September 30, 1998, the Company had incurred costs of
approximately $50,000 related to its Year 2000 identification, assessment,
remediation and testing efforts. Other non-Year 2000 IT efforts have not been
materially delayed or impacted by Year 2000 initiatives. However, if all Year
2000 issues are not properly identified, or assessment, remediation and testing
are not effected timely, there can be no assurance that the Year 2000 issue will
not have a material adverse effect on the Company's results of operations, or
adversely affect the Company's relationships with customers, suppliers or
others. Additionally, there can be no assurance that the Year 2000 issues of
other entities will not have a material adverse effect on the Company's systems
or results of operations.
The Company has begun, but not yet completed, a comprehensive analysis
of the operational problems and costs (including loss of revenues) that would be
reasonably likely to
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<PAGE> 14
result from the failure by the Company and certain third parties to complete
efforts necessary to achieve Year 2000 compliance on a timely basis. A
contingency plan has not been developed for dealing with the most reasonably
likely worst case scenario, and such scenario has not yet been clearly
identified. The Company currently plans to complete such analysis and
contingency planning by December 31, 1999.
The costs of the Company's Year 2000 identification, assessment,
remediation and testing efforts and the date by which the Company believes it
will complete such efforts are based upon management's best estimates, which are
derived utilizing numerous assumptions regarding future events, including the
continued availability of certain resources, third-party remediation plans, and
other factors. However, there can be no assurance that these estimates will
prove to be accurate, and actual results could differ materially from those
currently anticipated. Specific factors that might cause such material
differences include but are not limited to the availability and cost of
personnel trained in Year 2000 issues, the ability to identify, assess,
remediate and test all relevant computer codes and embedded technology, and
similar uncertainties.
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<PAGE> 15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1 Lease Termination Agreement dated as of July 31, 1998 among
436 Investments, L.L.C., India Exotics, Inc., a Texas
corporation, Surendra Khokha, Rajneesh Khokha, Asheesh Khokha
and Meena Khokha and Registrant. (1)
10.2 Loan Agreement dated July 27, 1998 by and between The China
State Bank Limited and Celebrity Exports International
Limited. (2)
10.3 Deed of Guarantee dated August 31, 1998 by and between
Celebrity, Inc., as Guarantor, and The China State Bank
Limited, as Lender. (2)
10.4 Loan Agreement dated September 29, 1998 by and between State
Street Bank and Trust Company and Celebrity Exports
International Limited. (2)
10.5 Continuing Guarantee dated September 29,1998 granted by
Celebrity, Inc, for the Benefit of State Street Bank and Trust
Company. (2)
27 Financial Data Schedule. (3)
(b) Reports of Form 8-K:
None.
- -------------------
(1) Previously filed as an exhibit to the Registrant's Annual Report of
Form 10-K for the fiscal year ended June 30, 1998, and incorporated
herein by reference.
(2) Filed herewith.
(3) Included with EDGAR version only.
-14-
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CELEBRITY, INC.
Dated: November 12, 1998 By: /s/ ROBERT H. PATTERSON, JR.
-------------------------------------------
Robert H. Patterson, Jr., Chairman of the
Board, President and Chief Executive
Officer (Authorized Officer)
Dated: November 12, 1998 By: /s/ LYNN SKILLEN
-------------------------------------------
Lynn Skillen
Vice President - Finance
(Principal Financial and Accounting
Officer)
-15-
<PAGE> 17
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<S> <C>
10.1 Lease Termination Agreement dated as of July 31, 1998 among
436 Investments, L.L.C., India Exotics, Inc., a Texas
corporation, Surendra Khokha, Rajneesh Khokha, Asheesh Khokha
and Meena Khokha and Registrant. (1)
10.2 Loan Agreement dated July 27, 1998 by and between The China
State Bank Limited and Celebrity Exports International
Limited. (2)
10.3 Deed of Guarantee dated August 31, 1998 by and between
Celebrity, Inc., as Guarantor, and The China State Bank
Limited, as Lender. (2)
10.4 Loan Agreement dated September 29, 1998 by and between State
Street Bank and Trust Company and Celebrity Exports
International Limited. (2)
10.5 Continuing Guarantee dated September 29,1998 granted by
Celebrity, Inc, for the Benefit of State Street Bank and Trust
Company. (2)
27 Financial Data Schedule. (3)
</TABLE>
- -------------------
(1) Previously filed as an exhibit to the Registrant's Annual Report of
Form 10-K for the fiscal year ended June 30, 1998, and incorporated
herein by reference.
(2) Filed herewith.
(3) Included with EDGAR version only.
-16-
<PAGE> 1
Exhibit 10.2
THE CHINA STATE BANK, LTD.
Our Ref: F/0145/98KT CONFIDENTIAL
Date: 27th July 1998
Messrs. Celebrity Exports International Limited
12/F.,
Empire Centre,
68 Mody Road,
Tsim Sha Tsui East,
Kowloon.
Dear Sirs,
BANKING FACILITIES
We are pleased to inform you that the banking facilities are made available to
you on the terms and conditions as follows:
FACILITIES
Export Line for negotiation of the bills under L/C with discrepancy and/or
purchase of D/P & D/A (Tenor: up to 60 days) bills to the extent of
HKD10,000,000.00, additional limit of HKD4,000,000.00 will only be available
later. Drawing limit for purchase of D/P & D/A bills is 90% of the amount of the
bills deposited & acceptable to us.
SECURITIES
Guarantee for HKD50,000,000.00 given by Celebrity Inc. with legal opinion from
legal advisor of U.S.A. should be obtained & acceptable to us.
ECIC insurance policy should be lodged with us.
FEES
1. Handling charge for HKD6,000.00 will be charged upon granting the
facilities.
2. Annual renewal fee for HKD6,000.00 will be charged.
3. Legal fee for preparation of the Guarantee and the legal opinion will be
charged by the relevant solicitors.
The fees quoted above are subject to fluctuation at our discretion.
Notwithstanding the foregoing arrangement, all facilities are subject to our
periodic review and overriding right of repayment on demand.
The availability of all facilities is subject to completion of all necessary
security documentation and resolution to our satisfaction.
Please sign and return to us the copy of this letter to signify your acceptance
of the above terms and conditions.
We are pleased to be of service and hoping for a close relationship with you.
Yours faithfully,
For THE CHINA STATE BANK, LTD. Confirmed by:
Hong Kong Branch
For and on behalf of
CELEBRITY EXPORTS INTERNATIONAL LTD.
/s/ TANG KWOK FU /s/ RICHARD YUEN
- --------------------------------- -----------------------------------
Authorized Signature
MT/LAM/pry
39 - 41. Des Voeux Road Central, Hong Kong. Tel.: 28419333
Telex: 73410 KHWAB HX Cable: 4999 Telefax: (852) 28450584
<PAGE> 1
Exhibit 10.3
Dated the 31ST day of AUGUST,1998.
CELEBRITY, INC.
(as Guarantor)
to
THE CHINA STATE BANK LIMITED
(as Lender)
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&
DEED OF GUARANTEE
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&
WAT & CO.,
SOLICITORS,
16TH FLOOR, FUNG HOUSE,
19 & 20 CONNAUGHT ROAD CENTRAL
HONG KONG.
<PAGE> 2
THIS GUARANTEE is given this 31st day of August one thousand
nine hundred and ninety eight
BY
(1) CELEBRITY, INC. a corporation incorporated under the laws of the State
of Texas, United States of America and having a place of business in Hong Kong
at Units 2105-19, Chevalier Commercial Centre, No.8 Wang Hoi Road, Kowloon Bay,
Kowloon, Hong Kong ("the Guarantor")
TO
(2) THE CHINA STATE BANK LIMITED a banking corporation incorporated in the
People's Republic of China with limited liability and having a branch in Hong
Kong at China State Bank Building, Nos.39 & 41 Des Voeux Road Central, Hong Kong
("the
Lender")
WHEREBY IT IS AGREED as follows :-
1. DEFINITIONS AND INTERPRETATIONS
1.01 In this Guarantee the following expressions, except where the context
otherwise requires, shall have the following meanings :
"Guarantee" means this Guarantee as originally executed or as it may be amended
and/or supplemented from time to time;
"Guarantor" means Celebrity, Inc. a corporation incorporated under the laws of
the State of Texas, United States of America and having a place of business in
Hong Kong at 12th Floor, Empire Centre, No.68 Mody Road, Kowloon, Hong Kong and
its successors;
"Principal" means Celebrity Exports International Limited
-1-
<PAGE> 3
[Chinese characters] (Business Registration Certificate No.08848672-000-02 and
Company No.133493) a company incorporated under the laws of Hong Kong and having
its registered office situate at units 2105-19, Chevalier Commercial Centre,
No.8 Wang Hoi Road, Kowloon Bay, Kowloon, Hong Kong and its successors;
"Hong Kong" means Hong Kong Special Administrative Region of the People's
Republic of China;
"Hong Kong dollars" and the sign "HK$" mean the lawful currency for the time
being of Hong Kong;
"Lender" means The China State Bank Limited a banking corporation incorporated
in the People's Republic of China with limited liability and having a branch in
Hong Kong at China State Bank Building, Nos. 39 & 41 Des Voeux Road Central,
Hong Kong and its successors and assigns.
1.02 words (including words defined in this Guarantee) denoting the singular
will include the plural and vice versa and references to persons shall include
companies and vice versa.
1.03 References to Clauses are references to clauses of this Guarantee.
1.04 References to any document or agreement (including this Guarantee) shall be
deemed to include references to such document or agreement as amended, novated,
supplemented or replaced from time to time.
1.05 References to provisions of statutes rules or regulations shall be deemed
to include references to such provisions as amended modified or re-enacted from
time to time.
-2-
<PAGE> 4
1.06 References to the "Guarantor" and "Lender" shall include their executors,
administrators, successors and permitted assigns. 1.07 Headings used in this
Guarantee are solely for convenience and shall not affect the interpretation of
this Guarantee.
2. GUARANTEE
2.01 In consideration of the Lender from time to time making or continuing loans
or advances to or coming under liabilities or discounting bills for or otherwise
giving credit or granting banking facilities or accommodation or granting time
to or on account of the Principal, the Guarantor hereby unconditionally
guarantees to and agrees with the Lender that the Guarantor will pay to the
Lender on demand all money which is now or shall at any time or times after this
date be due or owing or payable to the Lender from or by the Principal under or
in respect of any dealing, transaction or engagement whatsoever, either solely
or jointly with any other person, firm or company and whether as principal or
surety, and whether upon current account or other banking account or accounts or
otherwise or in respect of bills, drafts, notes or other negotiable instruments
made, drawn, accepted, advised, indorsed or paid by the Lender or on the
Lender's account for the Principal, either solely or jointly as stated above, or
which the Lender may from time to time become liable to pay in respect of any
bills, drafts, notes, letters of credit or any other dealing, transaction or
engagement on account of or for the benefit or accommodation of the Principal,
either solely or jointly as stated above, together with all interest, costs,
commissions and other
-3-
<PAGE> 5
banking charges and expenses which the Lender may in the course of the Lender's
business as bankers charge against the Principal and all legal and other costs,
charges and expenses which the Lender may incur in enforcing or obtaining
payment of any such money from the Principal, or attempting so to do provided
that the total amount recoverable from the Guarantor under this guarantee shall
not exceed Hong Kong Dollars Fifty Million (HK$50,000,000.00) together with a
further sum for all interest, costs, commissions and other costs, charges and
expenses as stated above as shall have accrued or shall accrue due to the Lender
at any time before or at any time after the date of such demand as stated above.
2.02 For all purposes including any legal proceedings a copy of any statement of
account purporting to show the amount due to the Lender from the Principal
signed as correct by any duly authorised officer of the Lender (save for any
manifest error) shall be conclusive evidence as against the Guarantor of the
amount so due.
2.03 This Guarantee shall be a continuing security and shall cover and secure
the ultimate balance from time to time owing to the Lender by the Principal
notwithstanding the bankruptcy, liquidation, incapacity or any change in the
constitution of the Principal or the Guarantor or any settlement of account or
other matter whatsoever. This Guarantee and the Lender's rights under it shall
be in addition to and shall not be in any way prejudiced or affected by any
other guarantee, lien, bill, note, mortgage, charge or other security now or
hereafter held by the Lender for Principal. The Lender may at any time or times
and notwithstanding
-4-
<PAGE> 6
the determination of this Guarantee continue any accounts of the Principal or
open one or more new accounts and no liability actual or contingent of the
Guarantor shall in any manner be reduced or affected by any payment subsequent
to such determination into or out of any such account or by any transactions
subsequent to such determination on any account.
2.04 Should any purported obligation of the Principal, which if valid or
enforceable would be the subject of this Guarantee, be or become wholly or in
part invalid or unenforceable against the Principal by reason of any defect in
or insufficiency or want of powers of the Principal or irregular or improper
purported exercise thereof or breach or want of authority by any person
purporting to act on behalf of the Principal or because the Lender's rights have
become barred by reason of any legal limitation, disability, incapacity or any
other fact or circumstance whether or not always known to the Lender or if for
any other reason whatsoever the Principal is not or ceases to be legally liable
to discharge any money, obligation or liability undertaken or purported to be
undertaken on its behalf the Guarantor shall nevertheless be liable to the
Lender (notwithstanding the avoidance or invalidity of any assurance, security
or payment on any ground whatsoever including (without limitation) avoidance
under any enactment relating to liquidation) in respect of that purported
obligation or liability as if the same were wholly valid and enforceable and the
Guarantor were the principal debtor in respect thereof. The Lender is not to be
concerned to see or enquire into the power of the Principal or
-5-
<PAGE> 7
its officers, employees or agents purporting to act on its behalf. The Guarantor
hereby agrees to keep the Lender fully indemnified against all damages, losses,
costs and expenses arising from any failure of the Principal to carry out any
such purported obligation.
2.05 The Guarantor agrees that the Lender may from time to time without
discharging or in any way affecting the liability of the Guarantor hereunder and
without the assent or knowledge of the Guarantor grant to the Principal or to
any other person any time or indulgence or renew any bills, promissory notes or
other negotiable or non-negotiable instruments or securities, give up, deal
with, exchange, vary, realise, release or abstain from perfecting or enforcing
any guarantees, liens, bills, notes, mortgages, charges, securities or other
rights which the Lender may now or hereafter have from or against the Principal
or any other person whether hereunder or otherwise, renew, determine, vary or
increase any credit or facilities to or the terms or conditions in respect of
any transaction with the Principal or compound with, discharge, release or vary
the liability of the Principal or any other person or concur in accepting or
varying any compromise, arrangement or settlement or omit to claim or enforce
payment of any dividend or composition when and in such manner as the Lender may
think expedient and no such act or omission an the part of the Lender shall in
any way discharge or diminish the validity of this Guarantee or affect the
liability of the Guarantor hereunder. The Lender may enforce this Guarantee
notwithstanding that the Lender
-6-
<PAGE> 8
may hold any other guarantee, lien or security or have any outstanding remedy
against the Principal or any other person. 2.06 The Guarantor declares that it
has not received any security or giving this Guarantee and agrees that should
any such security be created while any money, obligation or liability, payment
whereof is hereby guaranteed, remains undischarged any such security shall be
forthwith pledged or sub-pledged to the Lender to secure the obligations of the
Guarantor hereunder and shall forthwith be deposited with the Lender
accordingly. The Guarantor agrees that if default is made in observing the
preceding provisions of this Clause, any security taken in contravention and all
moneys at any time received in respect thereof shall be held in trust for the
Lender as security for the liability of the Guarantor to the Lender hereunder.
2.07 The Guarantor agrees that the Lender shall be entitled at any time after
the security hereby constituted has become enforceable without notice to set off
or transfer any moneys standing to the credit of the Guarantor in any account
with the Lender (whether current, deposit or of any other nature whatsoever and
whether subject to notice or not) in any currency against the liability of the
Guarantor under this Guarantee and shall have a lien on and be entitled to
retain as security for the liabilities of the Guarantor hereunder any cheques,
drafts, bills, notes or negotiable or non-negotiable instruments and any stocks,
shares or marketable securities and goods and chattels of all kinds of the
Guarantor
-7-
<PAGE> 9
from time to time deposited with the Lender whether held for safe custody or
otherwise.
2.08 This Guarantee shall apply to the ultimate balance owing by the Principal
to the Lender and until all moneys, obligations and liabilities due hereunder
have been paid, discharged and satisfied in full (which expression shall not
embrace payment of a dividend in liquidation or bankruptcy of less than one
hundred per centum (100%)), the Guarantor waives all rights of subrogation and
agrees not to demand or accept repayment in whole or in part of any loans or
advances then or thereafter due to the Guarantor from the Principal or to demand
or accept any security in respect thereof or to assign the same or charge the
same as security or to take any step to enforce any right against the Principal
or to claim any set-off or counter-claim against the Principal or to claim or
prove in competition with the Lender or to have the benefit of any share in any
payment or composition from the Principal or any other person or in any other
guarantee or security now or hereafter held by the Lender.
2.09 Any money received by virtue of or in connection with this Guarantee may be
placed to the credit of an interest bearing suspense account with a view to
preserving the rights of the Lender to prove for the whole of the Lender's
claims against the Principal in the event of any proceedings in or analogous to
liquidation, composition or arrangement.
2.10 Any release, discharge or settlement between the Guarantor and the Lender
shall be conditional upon no security disposition or
-8-
<PAGE> 10
payment to the Lender by the Principal, the Guarantor or any other person being
avoided or reduced pursuant to any provisions or enactments relating to
bankruptcy, liquidation or insolvency and the Lender shall be entitled to retain
any security held for the liabilities of the Guarantor hereunder for a period of
seven (7) months after the payment, discharge or satisfaction of all moneys,
obligations and liabilities that are or may become due, owing or incurred to the
Lender from the Principal or in the event of a bankruptcy petition or the
commencement of winding-up for such further period as the Lender may determine
and to enforce this Guarantee against the Guarantor subsequently as if such
release, discharge or settlement had not occurred.
2.11 All payments under this Guarantee shall be grossed up so that after
deduction or withholding for or on account of any present or future taxes,
levies, imposts, duties or other charges of whatsoever nature imposed by any
Government or any political subdivision or taxing authority they shall not be
less than the payment provided for under this Guarantee.
2.12 The Lender is to be at liberty but not bound to resort for its
own benefit to any other means of payment at any time and in any order the
Lender thinks fit without in consequence diminishing the liability of the
Guarantor and the Lender may enforce this Guarantee either for the payment of
the ultimate balance after resorting to other means of payment or for the
balance due at any time notwithstanding that other means of payment have not
been resorted to and in the latter case without entitling the Guarantor
-9-
<PAGE> 11
to any benefit from such other means of payment so long as any money remains due
or owing or payable (whether actually or contingently) from or by the Principal
to the Lender.
2.13 This Guarantee shall take effect as a guarantee of the whole and every part
of the obligations liabilities and all moneys due or owing or payable and to
become due or owing or payable as stated above and accordingly the Guarantor
shall not be entitled as against the Lender to any right of proof in the
bankruptcy, liquidation or insolvency of the Principal or any other surety or
other right of a surety (including any right of contribution from any other
surety) discharging, in whole or in part, its or their liability in respect of
the principal debt or to share in any security held or money received by the
Lender on account of the obligations of the Principal or any other surety or to
have or exercise any rights as surety (including any such right of contributions
as stated above) in competition with the Lender unless and until the whole of
such obligations, liabilities and moneys shall have first been completely
discharged and satisfied. Furthermore, until such obligations, liabilities and
moneys shall have been discharged and satisfied in full the Guarantor shall not,
if any money shall have become payable or shall have been paid by the Guarantor
under this Guarantee, take any step to enforce repayment or to exercise any
other rights, claims or remedies of any kind which may accrue howsoever to the
Guarantor in respect either of the amount so payable or so paid (including any
such right of contribution as stated above) or of any other money for
-10-
<PAGE> 12
the time being due to the Guarantor from the Principal or any other surety
provided that in the event of the bankruptcy, liquidation or insolvency of the
Principal or any other surety the Guarantor shall, if so directed by the Lender
but not otherwise, prove for the whole or any part of the money due to the
Guarantor from the Principal or any other surety as stated above on terms that
the benefit of such proof and of all money to be received by the Guarantor in
respect thereof shall be held in trust for the Lender and applied in discharging
the obligations of the Guarantor to the Lender under this Guarantee. For the
purpose of enabling the Lender to sue the Principal or any other surety or prove
in the bankruptcy, liquidation or insolvency of the Principal or any other
surety for the whole of such moneys as stated above, or to preserve intact the
liability of any other party, the Lender may at any time place and keep, for
such time as the Lender may think prudent, any money received, or realised under
this Guarantee or under any other guarantee or security to the credit, either-of
the Guarantor, or such other person or transaction (if any) as the Lender shall
think fit, without any intermediate obligation on the part of the Lender to
apply the same or any part of it in or towards the discharge of the moneys as
stated above, or any intermediate right on the part of the Guarantor to sue the
Principal or any other surety or to prove in the bankruptcy, liquidation or
insolvency of the Principal or any other surety in competition with or so as to
diminish any dividend or other advantage that would or might come to the Lender,
or to treat the liability of the Principal or any other surety as
-11-
<PAGE> 13
diminished. As used in this Clause the expression "any other surety" includes
any other person constituting the Guarantor and any party or person referred to
in Clause 2.05 above.
2.14 This Guarantee shall continue to bind the Guarantor notwithstanding any
amalgamation or merger that may be effected by the Lender with any other company
or companies and notwithstanding any reconstruction by the Lender involving the
formation of and transfer of the whole or any part of its undertaking any assets
to a new company and notwithstanding the sale or transfer of the whole or any
part of its undertaking and assets to another company, whether the company or
companies with which it amalgamates or merges or the company to which it
transfers the whole or any part of its undertaking and assets either on a
reconstruction or sale or transfer as stated above shall or shall not differ
from it in its objects, character or constitution, it being the intent of the
Guarantor that this Guarantee shall remain valid and effectual in all respects
in favour of, against and with reference to, and that the benefit of this
Guarantee and all rights conferred upon the Lender by this Guarantee may be
assigned to and enforced by, any such company or companies and proceeded on in
the same manner to all intents and purposes as if such company or companies had
been named in this Guarantee instead of and/or in addition to the Lender.
2.15 The Guarantor agrees that if any judgment or order is given or made for the
payment of any amount due under this Guarantee and is expressed in a currency
other than that in which such amount is
-12-
<PAGE> 14
payable by the Guarantor under this Guarantee the Guarantor shall indemnify the
Lender against any loss incurred by the Lender as a result of any variation
having occurred in rates of exchange between the date as at which such amount is
converted into such other currency for the purposes of such judgment or order
and the date of actual payment pursuant to it. This indemnity shall constitute a
separate and independent obligation of the Guarantor and shall apply
irrespective of any indulgence granted to the Guarantor from time to time and
shall continue in full force and effect notwithstanding any such judgment or
order as stated above.
2.16 No delay or omission on the part of the Lender in exercising any right,
power, privilege or remedy in respect of this Guarantee shall impair such right,
power, privilege or remedy or be construed as a waiver of it nor shall any
single or partial exercise of any such right, power, privilege or remedy
preclude any further exercise of it or the exercise of any other right, power,
privilege or remedy. The rights, powers, privileges and remedies provided in
this Guarantee are cumulative arid not exclusive of any rights, powers,
privileges or remedies provided by law.
2.17 The Guarantor agrees to be bound by this Guarantee notwithstanding that any
other guarantee or guarantees or securities which is or are intended to be given
to the Lender to further guarantee the obligations of the Principal and/or the
Guarantor to the Lender may not ultimately be so given. The Lender shall be at
liberty to release compound with or otherwise vary or agrees to vary the
liability of or to grant time or indulgence to
-13-
<PAGE> 15
or make other arrangements with the Principal or any other person without
prejudice to or affecting the rights and remedies of the Lender against the
Guarantor.
3. ASSIGNMENT
3.01 The Lender may assign or transfer all or any part of its rights or benefits
under this Guarantee. the Guarantor shall enter into all documents specified by
the Lender to be necessary to give effect to any such assignment or transfer.
3.02 The Lender may disclose on a confidential basis to, any actual or potential
assignee or transferee of any rights or benefits under this Guarantee such
information about the Guarantor and its business and financial condition as the
Lender shall reasonably consider appropriate.
4. DETERMINATION
4.01 The Guarantor may at any time give the Lender notice in writing to
determine this Guarantee at a date ("the Cessation Date") not less than 3
calendar months after the receipt by the Lender of such notice and this
Guarantee shall cease with respect to transactions after the Cessation Date
provided that the Guarantor shall remain liable under this Guarantee:
(a) In respect of all obligations of the Principal to the Lender
outstanding at the Cessation Date, with interest on such
obligations until actual payment at the rate charged by the
Lender against the Principal, and
(b) In respect of all money, interest, costs, commissions and
other banking charges and expenses which will or may
-14-
<PAGE> 16
become due to the Lender from the Principal under or in
respect of any dealing, transaction or engagement effected or
entered into either prior to the Cessation Date or on or after
the Cessation Date pursuant to any commitment, express or
implied, assumed or undertaken by the Lender to the Principal
prior to the Cessation Date, and
(c) For all legal and other costs, charges and expenses which the
Lender may incur as stated above.
5. NOTICES
5.01 Any notice, certificate, demand or other communication required to be given
by the Guarantor to the Lender or by the Lender to the Guarantor shall be in
writing and shall be deemed to have been so given if addressed to the respective
addressee at its registered office or its address (as the case may be) herein
mentioned or such other address in Hong Kong as may from time to time be
notified by the Guarantor to the Lender or vice versa.
5.02 Any notice, certificate, demand and other communication delivered
personally shall be deemed to have been given at the time of such delivery. Any
notice, certificate, demand or other communication despatched by letter postage
prepaid shall be deemed to have been given 48 hours after posting. Any notice,
certificate, demand or other communication sent by telex or fax shall be deemed
to have been given at the time of despatch and any notice, certificate, demand
or other communication sent by cable shall be deemed to have been given 24 hours
after despatch,
-15-
<PAGE> 17
provided however that any notice, certificate, demand or other communication to
be given by the Guarantor to the Lender as aforesaid shall only be effective
upon receipt thereof by the Lender.
5.03 Any legal process including any writ or originating summons or otherwise
and any other summons or notice to be served on the Guarantor by the Lender or
by the Guarantor on the Lender in any legal proceeding or action in any court or
tribunal shall be deemed to be sufficiently and duly served 48 hours after
having been left or sent by registered prepaid post to the addressee's
registered office or address herein mentioned or such other address as may from
time to time be notified by the Guarantor to the Lender or vice versa and in
proving such service it shall be sufficient to prove that the legal process or
summons or notice was properly addressed and posted or properly left (as the
case may be) irrespective of whether the same is returned through the post
undelivered to the addressee.
6. MISCELLANEOUS
6.01 No provisions hereof may be amended, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party against whom
enforcement of the amendment, waiver, discharge or termination is sought.
6.02 If at any time any provision hereof is or becomes illegal, invalid or
unenforceable in any respect, the remaining provisions hereof shall in no way be
affected or impaired thereby.
-16-
<PAGE> 18
6.03 This Guarantee shall be binding upon the Guarantor and its successors.
7. GOVERNING LAW AND JURISDICTION
7.01 This Guarantee shall be governed by and construed in all respects in
accordance with the laws of Hong Kong. The Guarantor hereby submits to the
non-exclusive jurisdiction of the Courts of Hong Kong.
7.02 The submission of the Guarantor to the jurisdiction of the Courts of Hong
Kong shall not restrict the right of the Lender to take proceedings against the
Guarantor in any other courts having, claiming or accepting jurisdiction over
the Guarantor or its assets, nor shall the taking of proceedings in any one or
more jurisdictions preclude the taking of proceedings in any other jurisdiction
whether concurrently or not.
7.03 The Guarantor agrees that in any legal action or proceedings against it or
its assets in connection with this Guarantee, no immunity from such legal action
or proceedings shall be claimed by ,or on behalf of the Guarantor or with
respect to its assets, and the Guarantor irrevocably waives any such right of
immunity which it or its assets now has/have or may hereafter acquire or which
may be attributed to it or its assets and consents generally in respect of any
such legal action or proceedings to the giving of any relief or the issue of any
process in connection with such action or proceedings including, without
limitation, the making, enforcement or execution against any property
whatsoever, of any order or judgment which may be made or given in such action
or proceedings.
-17-
<PAGE> 19
IN WITNESS WHEREOF, this Deed of Guarantee has been duly executed and
delivered as a Deed by the proper officers thereunto duly authorised on the day
and year first above written.
CELEBRITY,INC.
/s/ ROBERT H. PATTERSON, JR.
---------------------------------------
(Robert H. Patterson, Jr.)
President
/s/ LYNN SKILLEN
---------------------------------------
(Lynn Skillen)
Secretary
-18-
<PAGE> 20
Witnesses :-
/s/ PHILLIP MATHEWS
- ------------------------------------
/s/ LAURA LOCKHART
- ------------------------------------
County of Smith
State of Texas
Subscribed and Sworn to
before me this 31st day of August, 1998
/s/ Julie D. Davis
--------------------------------------
(Notary Public)
-19-
<PAGE> 1
Exhibit 10.4
STATE STREET BANK. State Street Bank and Trust Company
Hong Kong Branch
32nd Floor, Two Exchange Square
8 Connaught Place, Central.
Hong Kong.
Sept. 29, 1998 Telephone: (852) 2840 5388
Facsimile: (852) 2840 5453
Swift: SBOSHKHXTFD
Celebrity Exports International, Ltd.
21st Floor,
Chevalier Commercial Centre,
8 Wang Hoi Road,
Kowloon Bay,
Hong Kong.
Attn: Mr. Jackie Ng, Deputy General Manager
Dear Sirs,
It is with great pleasure that I write to confirm to you that State Street Bank
& Trust Company, Hong Kong Branch ("SSHK") has, subject to terms and conditions
set out below, approved a line of credit ("the Facility") for the use of
Celebrity Exports International Ltd. (Celebrity HK), detailed as follows:
Availability
US$5,000,000 available for discounting export D/A bills insured by The Hong Kong
ECIC (max. 60 days). For all D/A bills, drawees' acceptance must be obtained
prior to discounting. Within the line is a US$1,000,000 sublimit for
ECIC-insured D/P discounting and a US$500,000 sublimit for export L/C bills
negotiation under L/G's.
Security
The facility is to be supported by:
1. Assignment of insurance policy to SSHK with ECIC's acknowledgment;
2. Corporate guarantee from Celebrity, Inc.
Documentation
The facility will become available upon receipt by SSHK of the enclosed copy of
this letter with the form of acceptance thereon duly executed on your behalf,
together with relevant board resolution approving such acceptance and execution.
<PAGE> 2
Celebrity Exports International, Ltd.
Sept. 29, 1998
Page 2
Pricing
The following charges schedule will apply for the various usages under the
facility:
1) Commission In-lieu of Exchange
1/4% on the first US$50,000;
1/8% on balance.
2) Collection Commission
1/8% on 1st US$50M;
1/16% on balance.
3) Discount Interest
Prime + 0.25% p.a.
Financial Statements
Celebrity HK will provide SSHK with the following financial statements of
Celebrity HK and Celebrity, Inc.:
1) Within 60 days of the end of each quarter of fiscal year, copies of their
balance sheets and income statements as of the end of the respective quarter.
2) Within 180 days of the end of the fiscal year, copies of their audited
balance sheets and income statements together with the explanatory notes.
Cancellation
The facility, which is subject to review at least once annually, is cancellable
at any time by SSHK at its sole discretion and without notice to you. Upon
cancellation, all of Celebrity HK's liabilities to SSHK, whether actual, future
or contingent, will be due and payable.
<PAGE> 3
Celebrity Exports International, Ltd.
Sept. 29, 1998
Page 3
Acceptance
Please indicate your acceptance of the facility and agreement with the terms and
conditions by signing and returning the attached copy of this letter to the
writer.
We at State Street are very glad that we can be of help to your good company and
look forward to doing much more in the future.
Yours faithfully,
/s/ PETER B. LAM
- ------------------------
Enc.
/s/ RICHARD YUEN
- ------------------------
<PAGE> 1
Exhibit 10.5
STATE STREET
CONTINUING GUARANTEE
To: State Street Bank and Trust Company
Hong Kong Branch
In consideration of State Street Bank and Trust Company, Hong Kong
Branch (hereinafter called "the Lender" which expression shall where the context
so admits include the Lender's respective successors and assigns) at my/our
request making or continuing to make advances or otherwise giving credit or
affording credit and general finance and borrowing facilities for as long as the
Lender may think fit to Celebrity Exports International Limited (hereinafter
called "the Customer"), either alone or jointly with any other persons, or
agreeing not to require immediate payment of any sums owing to the Lender by the
Customer. I/We, the undersigned Celebrity, Inc. (hereinafter called "the
Guarantor" which expression shall where not inapplicable include the Guarantor
and his/their respective executors, administrators and successors) HEREBY
JOINTLY AND SEVERALLY GUARANTEE payment of AND AGREE TO PAY and SATISFY to the
Lender on demand all sums of money and liabilities whether certain or contingent
whether now or at any time hereafter owing or incurred to the Lender from or by
the Customer on any account of the Customer with the Lender or in any manner
whatever whether as principal or surety and whether alone or jointly with any
other person, firm or corporation or from any firm in which the Customer may be
a partner and in whatever name, style or form, including, but without prejudice
to the generality of the foregoing: -- the amount of notes or bills discounted
or paid and other loans, credits or advances made to or for the accommodation or
at the request either of the Company solely or jointly with any other person,
firm or company or of any such firm as aforesaid or for any money for which the
Customer may be liable as surety or in any other way whatsoever together with
interest on all such moneys, debts and liabilities at such rate or rates as may
from time to time be charged by the Lender and all handling charges, legal and
other costs, charges and expenses. PROVIDED that "the liability of the Guarantor
hereunder shall be unlimited/the total amount recoverable from the Guarantor
hereunder is limited to the principal sum of US Dollars Five Million Only (USD
5,000,000.00) with interest thereon at such rate or rates as the Lender may from
time to time charge from date of demand from or date of discontinuance by the
Guarantor of this Guarantee until payment AND the Guarantor hereby further
agrees and undertakes with the Lender as follows: --
1. This guarantee shall not be considered as satisfied by any intermediate
payment or satisfaction of the whole or any part of any sum or sums of
money owing as aforesaid but shall be a continuing security and shall
extend to cover any sum or sums of money which shall for the time being
constitute the balance due from the Customer to the Lender upon any
such account as hereinbefore mentioned.
2. This guarantee shall be binding as a continuing security on the
Guarantor until the expiration of three calendar months after he or in
the case of his dying or becoming under disability his executors,
administrators or legal representatives shall have given to the Lender
notice in writing to discontinue and determine it, but such
determination shall not release the Guarantor from this guarantee in
respect of liability, actual or contingent, undertaken by the Lender
during the currency of this guarantee, but not maturing till after the
determination of this guarantee.
<PAGE> 2
3. In the event of this guarantee ceasing from any cause whatsoever to be
binding as a continuing security on the Guarantor, the Lender shall be
at liberty without thereby affecting its rights hereunder to open a
fresh account or accounts and to continue any then existing account
with the Customer and no money paid from time to time into any such
account or accounts by or on behalf of the Customer and subsequently
drawn out by the Customer shall on settlement of any claim in respect
of this guarantee be appropriated towards or have the effect of payment
of any part of the money due from the Customer at the time of this
guarantee ceasing to be so binding as a continuing security or of the
interest thereon unless the person or persons paying in the money shall
at the time in writing direct the Lender specially to appropriate it to
that purpose.
4. The Lender shall be at liberty without thereby affecting its rights
against the Guarantor hereunder at any time to determine, enlarge, or
vary any credit to the Customer; to vary, exchange, abstain from
perfecting or releasing any other securities held or to be held by the
Lender for or on account of the monies intended to be hereby secured or
any part thereof; to renew bills and promissory notes in any manner and
to compound with or give time for payment; to accept compositions from
and make any other arrangements with the Customer or any obligants on
bills, notes or other securities held or to be held by the Lender for
and on behalf of the Customer.
5. This Guarantee shall be in addition to and shall not be in any way
prejudiced or affected by any collateral or other security now or
hereafter held by the Lender for all or any part of the money hereby
guaranteed nor shall such collateral or other security or any lien to
which the Lender may be otherwise entitled or the liability of any
person or persons not parties hereto for all or any part of the monies
hereby secured be in anywise prejudiced or affected by this present
guarantee. And the Lender shall have full power at its discretion to
give time for payment or to make any arrangement with any such other
person(s) without prejudice to this present guarantee or any liability
hereunder. And all money received by the Lender from the Guarantor or
the Customer or any person or persons liable to pay the same may be
applied by the Lender to any account or item of account or to any
transaction to which the same may be applicable.
6. The liability of the Guarantor hereunder shall not be affected by any
failure by the Lender to take any security or by any invalidity of any
security taken or by any existing or future agreement by the Lender as
to the application of any advances made or to be made to the Customer.
7. Any admission or acknowledgment in writing by the Customer or by any
person authorized by the Customer of the amount of indebtedness of the
Customer to the Lender and any judgment recovered by the Lender against
the Customer in respect of such indebtedness shall be binding and
conclusive on and against the Guarantor. A certificate by an officer of
the Lender as to the money and liabilities for the time being due or
incurred to the Lender from or by the Customer shall be conclusive
evidence against the Guarantor.
8. Although the Guarantor's ultimate liability hereunder cannot exceed the
limit hereinbefore mentioned (if any) yet this present guarantee shall
be construed and take effect as a guarantee of the whole and every part
of the principal money and interest owing and to become owing as
aforesaid and accordingly the Guarantor is not to be entitled as
against the Lender to any right of proof in the bankruptcy or
insolvency of the Customer or other right of a surety discharging his
liability in respect of the principal debt unless and until the whole
of the principal money and interest shall have first been completely
discharged and satisfied.
9. The Guarantor hereby declares that he has not taken in respect of the
liability hereby undertaken by him on behalf of the Customer and hereby
agrees that he will not take from the Customer either directly or
indirectly without the consent of the Lender any promissory note, bill
of exchange,
<PAGE> 3
mortgage, charge or other counter-security whether merely personal or
involving a charge on any property whatsoever of the Customer whereby
the Guarantor or any person claiming through him by indorsement,
assignment or otherwise would or might on the bankruptcy or insolvency
of the Customer and to the prejudice of the Lender increase the proofs
in such bankruptcy or insolvency or diminish the property distributable
amongst the creditors of the Customer. And as regards any such
counter-security as aforesaid which the Guarantor may have taken or may
take with such consent as aforesaid, the counter-security shall be a
security to the Lender for the fulfillment of the Guarantor's
obligations hereunder and shall be forthwith deposited by the Guarantor
with the Lender for that purpose.
10. If the name of the Customer hereinbefore inserted is that either of a
firm or of a limited company or other corporation or of any committee
or association or other unincorporated body any of the provisions
hereinbefore contained which are primarily and literally applicable to
the case of a single and individual customer only shall be construed
and take effect so as to give the Lender hereunder a guarantee for the
money owing from that firm and every member thereof or from that
limited company or corporation or committee or association or other
unincorporated body as identical or analogous as may be with or to that
which would have been given for the money owing from a single
individual if the Customer had been a single individual and any money
shall be deemed to be so owing notwithstanding any defect, informality
or insufficiency in the borrowing powers of the Customer or in the
exercise thereof which might be a defense as between the Customer and
the Lender. In the case of a firm, this guarantee shall be deemed to be
a continuing guarantee of all money owing on any such account as
hereinbefore mentioned from the person(s) carrying on business in the
name of or in succession to the firm or from any one or more of such
persons although by death, retirement or admission of partners or other
causes the constitution of the firm may have been in part or wholly
varied. In the case of a limited company or other corporation any
reference to bankruptcy shall be deemed to be a reference to
liquidation or other analogous proceeding and the money owing as
aforesaid and hereby guaranteed shall be deemed to include any money
owing in respect of debentures or debenture stock of the limited
company or other corporation held by or on behalf of the Lender.
11. The Guarantor agrees to be liable as a principal debtor for the payment
of any moneys secured hereunder so that this Guarantee may be enforced
against the Guarantor without the Lender's first instituting legal
proceedings against the Customer in the first instance or to join in
the Customer as a party in the same proceedings against the Guarantor.
12. The security hereby created shall not be discharged or affected by the
death, bankruptcy, insolvency or liquidation of the Customer but shall
continue to be operative until determined as to future transactions by
notice in writing given to the Lender by the Guarantor pursuant to
Clause 2 hereof.
13. So long as any money remains owing hereunder, the Lender shall have a
lien on any moneys standing to the credit of any accounts of the
Guarantor with the Lender and on any securities now or at any time
hereafter deposited with or otherwise placed in the hands of the Lender
belonging to or under the control of the Guarantor. The Lender may
also, without notice to the Guarantor, combine or consolidate all or
any of the accounts of the Guarantor with any liabilities to the Lender
and set-off or transfer any sum or sums in whatever currency standing
to the credit of any one or more of such accounts in or towards
satisfaction of any of the Guarantor's liabilities to the Lender on any
other account or in any other respect whatsoever irrespective of
whether such liabilities be incurred by the Guarantor singly or by the
Guarantor jointly with others in partnership or otherwise or incurred
by the Guarantor as principal or as surety of the Customer or of some
other person, body, corporate or firm and irrespective of whether such
liabilities be actual or contingent, primary or collateral and several
or joint.
<PAGE> 4
14. If the Guarantor shall consist of more than one person, their
liabilities to the Lender hereunder shall be deemed to be joint and
several and the Lender may release or discharge any of them from his or
their obligations hereunder or compound with or enter into any
arrangement with any of them without thereby in any way affecting its
rights hereunder against any other or others of them.
15. Any notice or demand required to be given by the Lender shall be in
writing and shall be deemed to have been properly given if addressed to
the Guarantor at his last known address as recorded in the books of the
Lender. Any notice or demand delivered personally shall be deemed to
have been given at the time of delivery. Any notice or demand sent by
letter, postage prepaid, shall be deemed to have been given 48 hours
after posting. Any notice or demand sent by cable or telex shall be
deemed to have been given at the time of dispatch.
16. In this guarantee where the singular is used, it shall be taken to
include the plural where applicable and where words importing the
masculine gender are used, they shall where applicable include the
feminine gender and the neuter gender.
17. This guarantee and all rights, obligations and liabilities arising
hereunder shall be construed and governed in all respects by and in
accordance with the laws of Hong Kong.
<TABLE>
<S> <C>
Dated September 29, 1998
----------------------------------------
Name of Guarantor: Celebrity, Inc. Signature of Guarantor:
----------------------------
H.K.I.D. Card/Passport No.: /s/ ROBERT H. PATTERSON, JR.
------------------- ------------------------------
Address: 4520 Old Troup Road, Tyler, Title: Chairman of the Board, President and Chief
-------------------------------------- Executive Officer
Texas 75711, U.S.A.
--------------------------------------
Occupation: Corporation
-----------------------------------
Name of Guarantor:
----------------------------
H.K.I.D. Card/Passport No.: Signature of Guarantor:
-------------------
Address:
--------------------------------------
--------------------------------------
Occupation: WITNESS to the signature(s) of Guarantor(s):
-----------------------------------
Name of Witness:
------------------------------
</TABLE>
Delete as appropriate.
N.B. If executed by a limited company, a resolution duly approving the present
guarantee must be attached.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 15,430
<ALLOWANCES> 0
<INVENTORY> 21,261
<CURRENT-ASSETS> 39,612
<PP&E> 9,851
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,726
<CURRENT-LIABILITIES> 16,800
<BONDS> 0
0
0
<COMMON> 63
<OTHER-SE> 7,955
<TOTAL-LIABILITY-AND-EQUITY> 50,726
<SALES> 27,126
<TOTAL-REVENUES> 27,126
<CGS> 20,360
<TOTAL-COSTS> 20,360
<OTHER-EXPENSES> (29)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 948
<INCOME-PRETAX> (242)
<INCOME-TAX> 79
<INCOME-CONTINUING> (321)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (321)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
