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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1999
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
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CELEBRITY, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
TEXAS 75-1289223
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4520 OLD TROUP ROAD P.O. BOX 6666
TYLER, TEXAS 75707 TYLER, TEXAS 75711
(Physical Delivery Address) (Mailing Address)
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(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)
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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 21, 1999 was approximately $2,472,960 based on the
closing price of the registrant's common stock on such date as reported by the
Nasdaq SmallCap 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. The
registrant had 1,544,166 shares of common stock outstanding at September 21,
1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement for the annual meeting
of the Company's shareholders to be held November 9, 1999, are incorporated by
reference into Part III of this Report.
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CELEBRITY, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
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PART I
PAGE
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ITEM 1. BUSINESS.................................................................................... 1
ITEM 2. PROPERTIES.................................................................................. 7
ITEM 3. LEGAL PROCEEDINGS........................................................................... 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................... 7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS....................... 8
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA........................................................ 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....... 9
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK................................... 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................. 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........ 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................................... 17
ITEM 11. EXECUTIVE COMPENSATION...................................................................... 17
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............................. 17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................................. 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............................. 18
SIGNATURES............................................................................................... 21
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................................................... F-1
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PART I
ITEM 1. BUSINESS.
GENERAL
Celebrity, Inc. (the "Company" or "Celebrity") is one of the largest
suppliers of high quality artificial flowers, ficus trees and plants, and other
decorative accessories. The Company distributes its products to mass market
retailers, craft store chains, wholesale florists and other retailers under
several brand names, primarily Celebrity, Celebrity Exports International,
Cluett, Color Concepts and Star Wholesale Florist. The Company offers a broad
line of over 14,000 competitively priced products through the offices of its
wholly-owned subsidiary Celebrity Exports International Limited ("Celebrity Hong
Kong") and its domestic distribution centers, each coordinating the just-in-time
delivery requirements of many of its 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
Celebrity Hong Kong's staff contracts and oversees their manufacture, exercises
quality control and arranges the consolidation and shipment of merchandise.
Celebrity is a Texas corporation organized in 1968.
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 home 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.
Artificial floral products are sold through many distribution channels.
Craft stores devote significant shelf space to artificial flowers and related
products. 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. Pottery stores are high volume, lower price retail stores with
substantial square footage devoted to pottery, glass, artificial floral and
other products. Retail florists often sell artificial as well as natural floral
products and 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 14,000 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 and other decorative accessories.
Celebrity's Christmas line consists of artificial Christmas trees, wreaths,
garlands and other ornamental floral 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.
SERVICES
The Company serves its customers with accurate and on-time delivery of
its products. Mass market chain customers demand this high level of service
because they typically stock hundreds of these products as everyday items and
seek to minimize inventory costs 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 from the
extensive inventory in its Tyler 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 floral arrangement production facilities in
Winston-Salem, North Carolina; Tyler, Texas; and Vista,
California.
o Direct Shipment. Celebrity provides substantial unit cost
savings by planning with customers for delivery of large
orders. Celebrity Hong Kong's 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 Hong Kong's staff also
arranges private labeling, customs documentation and financing
for its customers. 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 center,
separated and shipped to the customers.
Customers who place direct shipment orders sometimes reorder the same
product from the distribution center to replenish their inventory of that
product. Even large customers order smaller volume, nonseasonal products through
Celebrity's distribution center.
Celebrity provides its customers with 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 service force provides thorough
in-store service, frequently checking stock levels and placing reorders.
The Company directly monitors 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 and
the Philippines. 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 efforts of most
of these manufacturers are limited to sales offices in Hong Kong, which are
easily accessible to Celebrity Hong Kong's 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 center 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. Through Celebrity Hong Kong, the Company has improved control over the
quality, production and shipment of products and developed strong business
relationships with many manufacturers.
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 70 manufacturers and purchases most of its
products from 12 of them. Celebrity believes that it is the dominant customer of
these major suppliers and through this status obtains superior pricing and
service. The Company's principal suppliers by U.S. dollar value of goods
purchased are Good Ocean Manufacturing Co. and Tung Nam Artificial Flowers
Factory.
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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 19 salespeople and contracts with 20 independent sales
representatives. The Company's sales of artificial floral products outside the
U.S., aggregating approximately $6.8 million in fiscal 1999, are made primarily
to customers in Europe. Most sales outside the U.S. are made by the staff of
Celebrity Hong Kong. See Note 11 to the Consolidated Financial Statements for
financial information by geographic area. Large corporate accounts are served by
the Company's national account 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 Dallas, Hong Kong and Frankfurt, Germany. Through these shows
Celebrity promotes its name and brands and introduces its products to potential
customers.
The Company's distribution center in Tyler, Texas 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.
CUSTOMERS
During fiscal 1999 the Company sold products to approximately 2,000
customers, primarily in the United States. The majority of those sales were to
mass market chains, including Michaels Stores, Hobby Lobby, Wal-Mart Stores, Jo-
Ann Stores, Inc. and Kmart. Approximately 5% of consolidated net sales were made
by Celebrity Hong Kong to European customers.
In fiscal 1999, Michaels Stores accounted for $36.3 million, or 32.8%,
of consolidated net sales. The loss of this 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, some of which 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 center 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," "Celebrity Designs,"
"Celebrity, Inc.," "Celebrity Silk," "Color Concepts," "Color Union," "Garden
Magic," "Gold Leaf Collection and Design," "Indoor Garden Collection,"
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"Karisma," "Magicsilk," "Mr. Silk Shine," "Oliver's Greenhouse Collection,"
"Send a Silk," "Silk Accents," "The Greenhouse Collection," "The Greenhouse
Collection and Design," "Tropical Palm" and "The Silk Gardener" trademarks with
the U.S. Patent and Trademark Office in conjunction with its products. The
Company has an application pending in the United States Patent and Trademark
Office for registration of an additional mark. 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.
CERTAIN RISK FACTORS
TRADE REGULATION RISKS. 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 35% of consolidated net sales in fiscal
1999.
Artificial floral products sold by Celebrity Hong Kong to customers
outside the U.S., accounting for approximately 5% of consolidated net sales in
fiscal 1999, 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.
Normal Trading Relations Treatment for the PRC. The PRC's exports to
the U.S., which include among other things toys, discount apparel and footwear,
have, since 1980, received the same preferential tariff treatment accorded goods
from countries granted "most favored nation"\ "normal trading relations" ("NTR")
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 PRC's trade policies that potentially
deprive U.S. firms and products of market access, its failure to support nuclear
nonproliferation efforts and its labor and human rights practices, the renewal
of the PRC's NTR status has been a contentious political issue for several
years. In mid-1993, President Clinton announced that the 1994 renewal of the
PRC's NTR status would be conditioned upon improvement in the PRC's trade
policies as well as other factors, including compliance with the Nuclear
Non-Proliferation Treaty and an improved record on labor and human rights
practices. President Clinton subsequently reversed his position that renewal of
NTR status be based on progress on nuclear non-proliferation and labor and human
rights issues and has extended NTR status for the PRC in subsequent years and
through June 2000, without placing significant conditions on future renewal.
However, the linkage between NTR status and providing greater access to markets,
nuclear nonproliferation efforts and progress on labor and human rights issues
in the PRC may be reasserted in the future, and the likelihood of continued NTR
status for the PRC is therefore difficult to predict.
Were the PRC to lose NTR status, 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 approximately
90% 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
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the lowest cost source for artificial floral products even if the PRC lost NTR
status. If the 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 NTR status is maintained for the PRC, significant
forces in Congress and elsewhere are pressing for other sanctions in response to
the PRC's labor and human rights, nuclear nonproliferation, market access and
intellectual property rights policies, and there is no assurance that these
possible sanctions would 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 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.
Admission of China to the World Trade Organization. The PRC has applied
to join the World Trade Organization (the "WTO"), which is the successor
organization to the General Agreement of Tariffs and Trade (GATT). Because all
members of the WTO must grant one another permanent NTR status, if the PRC is
admitted to the WTO, the U.S. would have to grant the PRC permanent NTR status.
To gain admission to the WTO, the PRC must come to terms with and gain the
approval of every current member of the WTO. In addition, since China would
necessarily be granted permanent NTR status by the U.S. if it is admitted to the
WTO, Congress must approve China's admission to the WTO. There can be no
assurance that China will be admitted to the WTO, particularly since the U.S.
has expressed dissatisfaction with China's progress in opening its domestic
market in a number of areas.
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.
ECONOMIC INSTABILITY IN THE FAR EAST. Although the situation has
recently improved, most economies in the Far East are suffering from high levels
of debt and declining corporate earnings and economic growth, and some have
experienced significant currency devaluation. All of these factors have affected
the import/export trade in the region. For example, Asian currency devaluations
from time to time resulted in an increased level of exportation from the PRC,
which resulted in a shortage of shipping containers in that region. If a
container shortage affected the delivery schedule of the Company over a longer
period, causing a long-term disruption in the delivery of the Company's
products, it could have a material adverse effect on the Company's business,
financial condition or results of operations.
The region has been affected by tightening credit markets from time to
time as well. Celebrity Hong Kong currently maintains export credit facilities
with three alternative financial institutions, providing sufficient export
credit financing to fund all of its export requirements. Should Celebrity Hong
Kong's export credit facilities be affected by changes in the credit markets, it
could have an adverse affect on the Company's export activities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
RISKS RELATING TO CURRENCY FLUCTUATIONS. While the Company transacts
business predominantly in U.S. dollars and most of its revenues are collected in
U.S. dollars, the Company's manufacturing suppliers use the Hong Kong dollar as
functional currency. The Hong Kong dollar has historically been "pegged" to a
fixed exchange rate vis-a-vis the U.S. dollar, and while there has been
significant pressure recently on Far East currencies, both the Hong Kong Special
Administrative Region ("SAR") and the PRC continue to make statements in favor
of continuing the current link between the Hong Kong dollar and the U.S. dollar.
If the Hong Kong dollar were to be devalued relative to the U.S. dollar, short
term purchasing gains could be realized by the Company. However, the Company
believes that over the longer term, costs and margins would stabilize at
historical levels.
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RISKS RELATING TO HONG KONG. The Company's business, financial
condition and results of operations may be influenced by the political situation
in Hong Kong and by the general state of the Hong Kong economy. On July 1, 1997,
sovereignty over Hong Kong was transferred from the United Kingdom to the PRC,
and Hong Kong became an SAR of the PRC. As provided in the Sino-British Joint
Declaration on the Question of Hong Kong and the Basic Law of the Hong Kong SAR
of the PRC (the "Basic Law"), the Hong Kong SAR has a high degree of autonomy
except in foreign affairs and defense. Under the Basic Law, the Hong Kong SAR
has its own legislature, legal and judicial system and economic autonomy for 50
years. Based on the current political conditions and the Company's understanding
of the Basic Law, the Company does not believe that the transfer of sovereignty
over Hong Kong has had or will have a material adverse effect on the Company's
business, financial condition or results of operations. There can be no
assurance, however, that changes in political, legal or other conditions will
not result in such an adverse effect.
RISKS RELATING TO THE PRC. The Company's operations and assets are
subject to significant political, economic, legal and other uncertainties in the
PRC, where the Company maintains relationships with a substantial number of its
manufacturing suppliers. Under its current leadership, the PRC has been pursuing
economic reform policies, including the encouragement of foreign trade and
investment and greater economic decentralization. No assurance can be given,
however, that the PRC will continue to pursue such policies, that such policies
will be successful if pursued, or that such policies will not be significantly
altered from time to time.
EXECUTIVE OFFICERS
Set forth below is certain information as of September 21, 1999
regarding the executive officers of the Company:
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NAME AGE TITLE
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Robert H. Patterson, Jr........ 48 Chairman of the Board, President and Chief
Executive Officer
Richard Yuen................... 55 Managing Director of Celebrity Hong Kong
David J. Huffman............... 48 Executive Vice President-- Sales and Marketing
Clifford C. Condict............ 52 Vice President-- Merchandise
Roger D. Craft................. 52 Vice President-- Manufacturing
Lynn Skillen................... 43 Vice President-- Finance, Chief Financial Officer,
Treasurer and Secretary
Laura Lockhart................. 40 Vice President-- Operations
Lisa L. Hill................... 41 Vice President-- Marketing
</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 1992.
David J. Huffman has served as Executive Vice President of Celebrity
since September 1997. He served as President of Celebrity from July 1995 to
September 1997. From 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 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 1992.
Roger D. Craft has served as Vice President -- Manufacturing of
Celebrity since February 1999. From February 1998 to February 1999, he served as
Vice President -- Star Operations. From 1993 to January 1998, Mr. Craft served
as Vice President -- Celebrity Operations. Mr. Craft served as General Manager
of Star Wholesale Florist, Inc., a subsidiary of the Company ("Star Wholesale"),
from 1986 to 1993.
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Lynn Skillen has served as Vice President -- Finance, Chief Financial
Officer, Treasurer and Secretary of Celebrity since March 1998. From October
1997 to March 1998, Mr. Skillen served as Vice President -- Finance of Dollar
Rental Car Systems, Inc., and from 1994 to October 1997, he was Vice President
and Chief Financial Officer of Snappy Car Rental, Inc. Prior to 1994, Mr.
Skillen was employed for 16 years at Safelite Auto Glass Corp., serving in
several finance management positions.
Laura Lockhart has served as Vice President -- Operations of Celebrity
since March 1998. Ms. Lockhart served as Operations Manager of the Company from
1992 to March 1998. From 1979 to 1992, Ms. Lockhart served in a variety of
operating and management positions at the Company.
Lisa L. Hill has served as Vice President -- Marketing of Celebrity
since March 1999. From 1993 to February 1999, Ms. Hill was Vice President --
Marketing and Vice President International Division for C.M. Offrey & Son Inc.
and from 1991 to 1993 she was Vice President -- Sales and Marketing for Horizon
Fabrics, Inc.
Officers are elected annually by the Board of Directors and serve at
its discretion.
EMPLOYEES
At August 31, 1999, the Company had 551 full-time and part-time
employees, including 46 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.
ITEM 2. PROPERTIES.
The Company leases the space occupied by the facilities listed in the
following table:
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APPROXIMATE
LOCATION TYPE OF FACILITY SQUARE FOOTAGE
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Tyler, Texas*......................... Office/Distribution Center 137,700
Winston-Salem, North Carolina*........ Floral Arrangement Production Facility 105,522
Tyler, Texas*......................... Floral Arrangement Production Facility 100,000
Tyler, Texas.......................... Warehouse 60,000
Tyler, Texas.......................... Retail Outlet Store 23,000
Dallas, Texas......................... Wholesale Supply House 70,000
Dallas, Texas......................... Showroom 19,000
Atlanta, Georgia...................... Showroom 8,606
Winston-Salem, North Carolina......... Warehouse 91,000
Vista, California..................... Floral Arrangement Production Facility 51,111
Hong Kong............................. Office/Showroom 24,599
</TABLE>
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*Subject to sale-leaseback transaction effected in April 1999. See Note 7 to the
Consolidated Financial Statements.
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 1999.
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<PAGE> 10
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 listed on the NASDAQ SmallCap Market under the symbol "FLWR". On
February 26, 1999, the Company held a special shareholders meeting, the purpose
of which was to request the shareholders' approval of certain amendments to the
Company's Amended and Restated Articles of Incorporation, the primary one of
which effected a four-to-one reverse split of the Common Stock. The reverse
stock split was effected to adjust the price per share of the Common Stock so
that it would be in excess of the minimum $1.00 per share continued listing
requirement on the Nasdaq SmallCap Market. The amendments were approved by a
vote of the holders of approximately 90% of all shares of Common Stock
outstanding and entitled to vote, and effective at the end of business on
February 26, 1999, the number of outstanding shares of Common Stock was reduced
from 6,176,655 to 1,544,166, reflecting the four-to-one reverse stock split.
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 SmallCap
Market. All prices have been adjusted to reflect the reverse stock split.
<TABLE>
<CAPTION>
FISCAL YEAR HIGH LOW
- ------------------------------------------------------------------------- --------- --------
<S> <C> <C>
1998
First Quarter.......................................................... $ 12 1/2 $ 8 1/4
Second Quarter......................................................... $ 12 $ 4 1/2
Third Quarter.......................................................... $ 9 $ 4
Fourth Quarter......................................................... $ 6 1/4 $ 4 1/2
1999
First Quarter.......................................................... $ 8 1/4 $ 3 3/4
Second Quarter......................................................... $ 4 1/2 $ 2
Third Quarter.......................................................... $ 4 1/2 $ 1 1/2
Fourth Quarter......................................................... $ 3 $ 1 1/16
2000
First Quarter (through September 21, 1999)............................. $ 4 1/8 $ 2 3/4
</TABLE>
On September 21, 1999, the closing sale price of the Common Stock as
reported by the Nasdaq SmallCap Market was $3 3/4 per share. As of September 21,
1999, there were 95 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. In addition, the terms of the Company's
primary credit facility prohibit the payment of dividends.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following selected consolidated balance sheet data as of June 30,
1999, 1998, 1997, 1996 and 1995, and selected consolidated statement of
operations data for each of the years in the five year period ended June 30,
1999, are derived from audited consolidated financial statements of Celebrity.
Certain events, such as the acquisition of the India Exotics assets and
operations ("India Exotics") in February 1995 and the Company's June 1998
decision to exit the India Exotics operations, affect the comparability of the
data between years. See Note 5 to the Consolidated Financial Statements for
discussion of certain of these events.
8
<PAGE> 11
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ------------ ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................... $ 110,662 $ 122,262 $ 125,170 $ 115,048 $ 118,810
Net income (loss)................................... $ 558 $ (12,729) $ (5,761) $ (5,422) $ 3,782
Earnings (loss) per common share (basic)............ $ .36 $ (8.09) $ (3.67) $ (3.44) $ 2.39
Earnings (loss) per common share and
common equivalent share (diluted)................ $ .36 $ (8.09) $ (3.67) $ (3.44) $ 2.39
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ------------ ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........................................ $ 46,271 $ 51,719 $ 67,453 $ 73,363 $ 74,641
Current liabilities................................. $ 10,270 $ 16,794 $ 41,424 $ 15,216 $ 14,122
Notes payable, net of current portion............... $ 27,083 $ 26,588 $ 4,877 $ 31,081 $ 27,941
Redeemable common stock............................. $ -- $ -- $ 175 $ 350 $ 525
</TABLE>
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,
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 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 and (xii) other risks detailed in the
Company's other Securities and Exchange Commission filings. See "Business --
Certain Risk Factors." 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.
9
<PAGE> 12
RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's
consolidated statements of operations expressed as a percentage of net sales for
the years indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30,
----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales ........................................ 100% 100% 100%
Costs and operating expenses:
Cost of goods sold ............................. 75% 80% 78%
Selling ........................................ 4% 4% 4%
General and administrative ..................... 16% 18% 16%
Depreciation and amortization .................. 1% 2% 2%
Restructuring charges .......................... -- % 3% -- %
---- ---- ----
96% 107% 100%
---- ---- ----
Operating income (loss) .......................... 4% (7)% -- %
Interest and other, net .......................... (3)% (3)% (3)%
---- ---- ----
Income (loss) before income taxes ................ 1% (10)% (3)%
Provision for income taxes ....................... -- % -- % (2)%
---- ---- ----
Income (loss) before extraordinary charge ........ 1% (10)% (5)%
Extraordinary charge ............................. -- % -- % -- %
---- ---- ----
Net income (loss) ................................ 1% (10)% (5)%
---- ---- ----
</TABLE>
FISCAL 1999 COMPARED WITH FISCAL 1998
Net sales decreased 10% from $122.3 million in fiscal 1998 to $110.7
million in fiscal 1999. The sales decrease was attributable to (i) lower sales
of The Cluett Corporation, a wholly-owned subsidiary of the Company ("Cluett"),
which had a sales decline to customers in the discount/mass-market retail
segment, (ii) lower sales in the Company's domestic floral division, due in part
to a bankruptcy of a major customer and (iii) lower sales of decorative metal
products resulting from the Company's June 1998 decision to exit the India
Exotics decorative metal products business.
Cost of goods sold decreased 16% from $97.7 million in fiscal 1998 to
$82.3 million in fiscal 1999. The decrease was primarily attributable to the
lower sales volume in fiscal 1999. Cost of goods sold as a percentage of net
sales was 75% in fiscal 1999, compared with 80% in fiscal 1998. Gross profits
increased from $24.6 million in fiscal 1998 to $28.3 million in fiscal 1999,
despite lower net sales in fiscal 1999. The lower cost of goods sold percentage
in fiscal 1999 is primarily attributable to an improved mix of product sales in
fiscal 1999, but also reflects the effects of inventory reduction strategies in
fiscal 1998, including a special charge of $1.1 million recorded in fiscal 1998
related to discontinued products.
Selling expenses decreased from $4.8 million in fiscal 1998 to $4.6
million in fiscal 1999. The decrease was attributable to expense reductions
resulting from reorganization of sales and marketing activities in fiscal 1999.
Selling expenses as a percentage of net sales were 4% in fiscal 1998 and fiscal
1999.
General and administrative expenses decreased from $22.1 million, or
18% of net sales, in fiscal 1998 to $17.6 million, or 16% of net sales, in
fiscal 1999. The decrease in expenses is attributable to expense reductions
implemented in the fourth quarter of fiscal 1998 and during fiscal 1999,
including the closure of the St. Louis, Missouri facility associated with the
exit of the India Exotics business and expense savings from the consolidation of
administrative offices.
Depreciation and amortization expenses decreased from $2.2 million, or
2% of net sales, in fiscal 1998 to $1.4 million, or 1% of net sales, in fiscal
1999. The decrease was attributable to the write-off of goodwill and other
intangibles in the fourth quarter of fiscal 1998 related to the exit of the
India Exotics business, the retirement of certain assets, and the full
depreciation of assets in late fiscal 1998 or early fiscal 1999.
10
<PAGE> 13
Restructuring charges of $4.5 million, or 3.6% of net sales, were
recorded in fiscal 1998, compared with no such charges in fiscal 1999. These
charges resulted from the Company's decision to exit the India Exotics
operations in St. Louis, Missouri in June 1998. See Note 5 to the Consolidated
Financial Statements.
Operating income (loss) increased from a loss of $8.9 million in fiscal
1998 to income of $4.8 million in fiscal 1999. The $13.7 million improvement in
operating income (loss) was primarily attributable to expense reductions
implemented in the fourth quarter of fiscal 1998 and in fiscal 1999. The
comparison of operating income (loss) between years is also affected by fiscal
1998 restructuring charges ($4.5 million) resulting from the closure of the
India Exotics facility in St. Louis, and special charges related to discontinued
inventory ($1.1 million).
Net interest expense increased from $3.5 million in fiscal 1998 to $3.8
million in fiscal 1999. The increase was primarily attributable to higher
financing costs of the Company's revolving credit facility and term loan
financing in fiscal 1999 compared with fiscal 1998. In July 1999, the Company's
credit facility was extended and amended, including provisions that lowered
applicable interest rates and other financing costs. See "--Liquidity and
Capital Resources" and Note 7 to the Consolidated Financial Statements.
As a result of the foregoing factors, income (loss) before income taxes
increased from a loss of $12.4 million in fiscal 1998 to income of $1.1 million
in fiscal 1999.
Provision for income taxes of $0.4 million was comparable in fiscal
1998 and fiscal 1999. The tax provision recognized in fiscal 1999 was
principally related to foreign operations. At June 30, 1999, a valuation
allowance on the Company's deferred tax asset totaled $9.2 million. The
valuation allowance reflects the amount of deferred tax assets that, at this
time, are uncertain to be realized in the future. These uncertainties relate
primarily to whether the Company will be able 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 and tax credit carryforwards
will be available to shelter future U.S. taxable income of the Company.
The extraordinary charge related to extinguishment of debt of $68,000,
which was recorded in fiscal 1999, resulted from the write-off of past deferred
financing fees related to real estate included in the sale-leaseback transaction
that occurred in April 1999. See Note 7 to the Consolidated Financial
Statements.
As a result of the foregoing factors net income (loss) increased from a
loss of $12.7 million in fiscal 1998 to net income of $0.6 million in fiscal
1999.
FISCAL 1998 COMPARED WITH FISCAL 1997
Net sales decreased 2% from $125.2 million in fiscal 1997 to $122.3
million in fiscal 1998. The decrease was attributable primarily to lower sales
of Cluett, resulting from a smaller presence of its products in the advertising
and promotional programs of one of its significant customers. As a result of
fewer promotions, the customer's sales of Cluett's products were lower, with a
similar reduction in product reorders from the customer.
Cost of goods sold increased from $97.5 million, or 78% of net sales,
in 1997 to $97.7 million, or 80% of net sales, in fiscal 1998. The increase in
the cost of goods sold percentage is attributable to inventory reduction plans
implemented in fiscal 1998. Inventory was reduced by $7.9 million, or 26%, from
$30.6 million at June 30, 1997 to $22.8 million at June 30, 1998. Price
incentives were offered on certain products and to certain customers to achieve
the inventory reduction. In addition, a special charge of $1.1 million was
recorded to cost of goods sold in the fourth quarter of fiscal 1998, related to
inventory categories on hand at June 30, 1998, that the Company had determined
to discontinue and liquidate. See Note 5 to the Consolidated Financial
Statements.
Selling expenses decreased from $5.5 million in fiscal 1997 to $4.8
million in fiscal 1998. The decrease was attributable to the lower sales volume
in fiscal 1998 and expense reductions resulting from consolidating certain sales
activities. Selling expenses as a percentage of net sales were 4% in fiscal 1997
and fiscal 1998.
General and administrative expenses increased from $19.5 million, or
16% of net sales, in fiscal 1997 to $22.1 million, or 18% of net sales, in
fiscal 1998. The increase was primarily attributable to higher bad-debt accruals
for
11
<PAGE> 14
certain accounts, higher facility and operating costs of the Dallas, Texas
facility of Star Wholesale, which opened in May 1997, and costs associated with
Cluett's additional inventory storage and handling requirements and other
expenses.
Depreciation and amortization expense of $2.2 million, or 2% of net
sales, in fiscal 1998 was approximately even with fiscal 1997 expenses.
Restructuring charges of $4.5 million, or 3.6% of net sales, were
recorded in fiscal 1998, compared with no such charges in fiscal 1997. These
charges resulted from the Company's decision to close the India Exotics
operations in St. Louis, Missouri in June 1998. The Company wrote down the
carrying value of certain assets ($3.6 million), primarily goodwill, other
intangibles and property and equipment, recorded as a fixed obligation ($0.6
million) the remaining payments due pursuant to a noncompetition agreement
related to the India Exotics acquisition, and recorded a charge ($0.2 million)
relating to the lease termination in St. Louis. See Note 5 to the Consolidated
Financial Statements.
Operating income (loss) decreased from income of $0.5 million in fiscal
1997 to a loss of $8.9 million in fiscal 1998. Of the factors described above
affecting operating income (loss), the most significant were the restructuring
charges resulting from the closure of the India Exotics facility in St. Louis
($4.5 million), special charges related to discontinued inventory ($1.1
million), as well as increased discounts in fiscal 1998 to certain customers on
certain products to effect a reduction of Company inventory levels.
Net interest expense increased from $3.2 million in fiscal 1997 to $3.5
million in fiscal 1998. The increase was primarily attributable to higher
financing costs of the Company's revolving credit facility and term loan
financing. In January 1998, the Company entered into a new three-year credit
agreement, replacing prior financing arrangements that were to mature in March
1998. See "-- Liquidity and Capital Resources" and Note 7 to the Consolidated
Financial Statements.
As a result of the foregoing factors, the Company's loss before income
taxes increased from $2.7 million in fiscal 1997 to $12.4 million in fiscal
1998.
Provision for income taxes decreased from $3.0 million in fiscal 1997
to $0.4 million in fiscal 1998. The tax provision recognized in fiscal 1998 was
principally related to foreign operations. A valuation allowance of $4.8 million
was recorded in fiscal 1998, bringing the total deferred tax valuation allowance
to $9.3 million. The valuation allowance reflects the amount of deferred tax
assets that, at this time, are uncertain to be realized in the future. These
uncertainties relate primarily to whether the Company will be able 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 and tax
credit carryforwards will be available to shelter future U.S.
taxable income of the Company.
As a result of the foregoing factors the net loss increased from $5.8
million in fiscal 1997 to $12.7 million in fiscal 1998.
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.
12
<PAGE> 15
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 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.
Cash provided by operating activities in fiscal 1999 amounted to
approximately $3.7 million, which was primarily attributable to changes in
operating assets and liabilities. Most significantly, inventory decreased $3.9
million during fiscal 1999. Cash used in investing activities in fiscal 1999 was
$1.0 million, primarily related to purchases of equipment. Cash used by
financing activities amounted to $2.3 million, resulting primarily from payments
on the Company's term loan.
The Company maintains a revolving credit facility for its Celebrity,
Cluett, Color Concepts, Star Wholesale and Value Florist operations. 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 June 30, 1999, was $20.2
million, and the amount outstanding under the revolving credit facility was
$19.7 million. In addition to the revolving credit facility, the lender made a
term loan to the Company in January 1998 in the original principal amount of
$3.5 million. The term loan was payable in monthly installments of principal of
$200,000 that began in May 1998. In fiscal 1999, interest on the outstanding
balance under the revolving credit facility was at a reference bank's prime rate
of interest plus 1.5% per annum, and interest on the outstanding balance of the
term loan was at a rate of 12.5% per annum. Interest is payable monthly. Amounts
borrowed under the revolving credit facility and the term loan are secured by
accounts receivable, inventory, equipment, and general intangibles (including
intellectual property) of Celebrity and its subsidiary borrowers. In addition,
substantially all stock of the Company's subsidiaries has been pledged to the
lender. The revolving credit facility and the term loan contain 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 all covenants of the revolving credit facility and the term
loan at June 30, 1999. In July 1999, the Company entered into an amended and
restated agreement with the lender whereby the following changes, among others,
were made: (i) the term of the revolving credit facility was extended from
January 2001 to July 2002, (ii) the interest rate charged by the lender was
reduced to prime plus applicable percentages, ranging from 0% to 0.5%, based on
specified EBITDA requirements, (iii) the financial ratio covenants were reset,
and (iv) monthly fees were reduced from $15,000 to $2,000. 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 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 is received for shipments it has
financed. At June 30, 1999, an aggregate of $2.7 million of export bills was
financed by the three banks. 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. The Company's revolving
credit facility restricts the aggregate amount of export bills that may be
financed under the export credit facilities at any time to $7.0 million.
In June 1997, the Company entered into a revolving credit facility with
an additional lender, which was scheduled to mature in June 2004. Amounts
borrowed under the facility were secured by certain real estate owned by the
Company, with interest accruing at the rate of LIBOR plus 2.65% per annum. In
April 1999 the Company executed the necessary documents to sell to Crest
Properties, Ltd., a Texas limited partnership ("Crest") (an entity controlled by
Robert H. Patterson, Jr., Chairman of the Board, President and Chief Executive
Officer of the Company), for $7,500,000 the real estate that secured the
revolving credit facility. As part of the same transaction the properties were
leased back to the Company. The same lender provided similar financing for
Crest, requiring the guarantee of the Company and Mr. Patterson. Due to the
continuing involvement of the Company in the financing and the related party
control of Crest, the sale-leaseback was accounted for as a financing lease, by
recording the sales proceeds as a liability and
13
<PAGE> 16
recording future rental payments, exclusive of an interest portion, as a
reduction of the liability. See Note 7 to the Consolidated Financial Statements.
In September 1997, Celebrity 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. The
principal amount outstanding accrued interest at a fluctuating rate per annum
equal to RHP's cost of borrowing, which was the prime rate of a reference bank
plus 1.5% per annum. In July 1998, the Company borrowed an additional $500,000
from RHP for seasonal working capital needs, which accrued interest at 10% per
annum. In April 1999, a portion of the proceeds from the sale-leaseback
transaction (see Note 7 to the Consolidated Financial Statements) was utilized
to pay the principal and accrued interest due RHP on the borrowings described
above.
The Company does not plan to make any significant capital expenditures
in fiscal 2000 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 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, changes in currency valuations, export credit availability, freight
carrier availability and cost, and U.S. trade policy and law related to imports.
If the U.S. government were to terminate NTR 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 ISSUE
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 December 31,
1999, 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 21, 1999, it had completed approximately 95% of the
initiatives it believes will be necessary to fully address potential Year 2000
issues related to its computer equipment and software. The projects comprising
the remaining 5% of the initiatives are in process and are expected to be
completed by December 31, 1999.
14
<PAGE> 17
<TABLE>
<CAPTION>
PERCENT
YEAR 2000 INITIATIVE TIME PERIOD COMPLETE
- ----------------------------------------------------------------- ----------------------------- --------
<S> <C> <C>
Initial IT system identification and assessment April 1997 to December 1998 100
Remediation and testing of central system June 1997 to December 1998 100
Remediation and testing of manufacturing and distribution systems June 1998 to June 1999 100
Identification and assessment of non-IT systems June 1998 to December 1999 75
Remediation and testing of non-IT systems January 1998 to December 1999 25
Remediation and testing of Star Wholesale POS system June 1999 to December 1999 25
</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. With respect to the Company's customers, the
Company's customers are predominantly large sophisticated retailers. If any of
these customers were not Year 2000 compliant by the end of 1999 and could not
buy products from the Company, it could have a material adverse effect on the
Company's results of operations. However, based on the size and sophistication
of the Company's primary customers, the Company's management anticipates that
these companies will have adequately addressed Year 2000 issues by December
1999.
The Company believes that the costs to modify its computer equipment
and software systems to be Year 2000 compliant, as well as the currently
anticipated costs with respect to Year 2000 issues of third parties, will not
exceed $250,000, which expenditures will be funded from operating cash flows.
All of the $250,000 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, 1999 and 2000. As of June 30, 1999, the Company had incurred costs of
approximately $100,000 related to its Year 2000 identification, assessment,
remediation and testing efforts. Other non-Year 2000 IT efforts have not been
materially delayed or affected 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 foregoing timetable and assessment of costs to become Year 2000
compliant reflect management's best estimates. These estimates are based on many
assumptions, including assumptions about the cost, availability and ability of
resources to locate, remediate and modify affected systems, equipment and
facilities. Based upon its activities to date, the Company does not believe that
these factors will cause results to differ significantly from those estimated.
However, the Company cannot reasonably estimate the potential impact on its
financial condition and results of operations if key third parties, including
among others suppliers, contractors, financial institutions, customers and
governments, do not become Year 2000 compliant on a timely basis. The Company is
currently identifying third parties whose business significantly affects the
Company, has contacted some significant third parties to determine the extent to
which interfaces with such entities are vulnerable to Year 2000 issues, and will
contact others as it completes the identification phase.
In the event the Company is unable to complete the remediation or
replacement of its critical systems, facilities and equipment, establish
alternative procedures in a timely manner, or if those with whom the Company
conducts business are unsuccessful in implementing timely Year 2000 solutions,
Year 2000 issues could have a material adverse effect on the Company's liquidity
and results of operations. At this time, the potential effects in the event the
Company and/or third parties are unable to timely resolve their Year 2000
problems is not determinable. 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. However, the Company currently believes
that it will be able to resolve its own Year 2000 issues in a timely manner.
15
<PAGE> 18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company's revolving credit facility provides for borrowings that
bear interest at variable rates based on a prime rate. During fiscal 1999 the
applicable rate was prime plus 1.5%. At June 30, 1999, the amount outstanding
under the revolving credit facility was $19.7 million. The Company believes that
the effect, if any, of reasonably possible near-term changes in interest rates
on the Company's financial position, results of operations and cash flows should
not be material.
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-24 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
16
<PAGE> 19
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 November 9, 1999 (the
"Proxy Statement"), under the headings "Election of Directors," "Board of
Directors and Committees" and "Section 16(a) 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.
17
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report on
Form 10-K:
(1) Financial statements:
The financial statements filed as a part of this Annual Report on Form
10-K 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 Annual Report
on Form 10-K 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:
The Registrant filed a Report on Form 8-K on June 4, 1999, to report
the sale of certain real property to Crest Properties, Ltd, an entity controlled
by Robert H. Patterson, Jr., and the subsequent leaseback of the same real
property to the Registrant and one of its subsidiaries by Crest Properties, Ltd.
(c) Exhibits:
2.1 -- 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.(3)
3.1 -- Amended and Restated Articles of Incorporation of the
Registrant.(10)
3.2 -- Articles of Correction of the Registrant.(10)
3.3 -- Bylaws of the Registrant.(1)
4.1 -- Specimen Common Stock Certificate.(1)
4.2 -- Warrant, dated February 3, 1998, issued by Registrant to
Foothill Capital Corporation.(5)
4.3 -- Warrant, dated April 22, 1999, issued to RHP Management,
LLC.(9)
10.1 -- 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.(4)
10.2 -- General Security Agreement Relating to Goods between
Celebrity Exports International Limited and The Hongkong and
Shanghai Banking Corporation Limited dated April 30, 1984.(1)
10.3 -- Form of Guarantee by Limited Company executed by Registrant
in favor of The Hongkong and Shanghai Banking Corporation
Limited.(4)
10.4 -- Commitment of Celebrity Exports International Limited to
maintain a combined net worth of HK$50,000,000.(4)
10.5 -- Loan Agreement dated July 27, 1998 by and between The China
State Bank Limited and Celebrity Exports International
Limited.(7)
10.6 -- Deed of Guarantee dated August 31, 1998 by and between
Celebrity, Inc., as Guarantor, and The China State Bank
Limited, as Lender.(7)
10.7 -- Loan Agreement dated September 29, 1998 by and between
State Street Bank and Trust Company and Celebrity Exports
International Limited.(7)
18
<PAGE> 21
10.8 -- Continuing Guarantee dated September 29, 1998 granted by
Celebrity, Inc. for the benefit of State Street Bank and Trust
Company.(7)
10.9 -- Loan and Security Agreement dated as of January 30, 1998
among Registrant, The Cluett Corporation, Star Wholesale
Florist, Inc. Value Florist, Inc. and India Exotics, Inc., as
borrowers, on the one hand, and Foothill Capital Corporation,
on the other.(5)
10.10 -- Amendment Number One to Loan and Security Agreement dated
effective as of June 5, 1998 by and among Foothill Capital
Corporation and Registrant and certain of its
subsidiaries.(10)
10.11 -- Amendment Number Two to Loan and Security Agreement dated
effective as of July 7, 1998 by and among Foothill Capital
Corporation and Registrant and certain of its
subsidiaries.(10)
10.12 -- Amendment Number Three to Loan and Security Agreement dated
effective as of December 31, 1998 by and among Foothill
Capital Corporation and Registrant and certain of its
subsidiaries.(8)
10.13 -- Amended and Restated Loan and Security Agreement dated
effective as of July 15, 1999 by and among Foothill Capital
Corporation and Registrant and certain of its
subsidiaries.(10)
10.14 -- Lease Agreement, dated April 22, 1999, between the
Registrant, as lessee, and Crest Properties, Ltd., as lessor,
relating to property at 4520 Old Troup Highway, Tyler,
Texas.(9)
10.15 -- Lease Agreement, dated April 22, 1999, between The Cluett
Corporation, as lessee, and Crest Properties, Ltd., as lessor,
relating to property at 3200 Centre-Park Boulevard,
Winston-Salem, North Carolina.(9)
10.16 -- Agreement for Purchase and Sale of Promissory Note, dated
May 28, 1999, by and among the Registrant, RHP Real Estate,
Ltd. and The Residuary Trust Created Under the Last Will and
Testament of Robert H. Patterson, Sr., Deceased.(9)
10.17 -- Form of Guaranty of the Term Loan and Security Agreement
dated April 16, 1999 between Merrill Lynch Business Financial
Services, Inc. and Crest Properties, Ltd. by each of
Celebrity, Inc., India Exotics, Inc., Star Wholesale, Inc.,
MagicSilk, Inc. and The Cluett Corporation.(10)
10.18 -- Promissory Note of Registrant, amended and restated as of
February 16, 1998 payable to the order of RHP Management,
LLC.(5)
10.19 -- Promissory Note of Registrant, dated July 7, 1998 payable
to the order of RHP Management, LLC.(6)
10.20 -- 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.(6)
10.21 -- Form of Indemnity Agreement.(1)
10.22* -- Amended and Restated Stock Option Plan.(10)
10.23* -- Amended and Restated 1993 Employee Stock Purchase Plan.(3)
10.24* -- Fiscal 2000 Management Bonus Plan.(10)
21.1 -- Subsidiaries of Registrant.(2)
23.1 -- Consent of PricewaterhouseCoopers LLP.(10)
27.1 -- Financial Data Schedule as of and for the Year Ended June
30, 1999.(11)
- ----------
* Exhibits 10.22 through 10.24 constitute management compensatory plans
or contracts.
(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 Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995,
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 December 31, 1994,
and incorporated herein by reference.
19
<PAGE> 22
(4) Previously filed as an exhibit to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1997
and incorporated herein by reference.
(5) Previously filed as an exhibit to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1997
and incorporated herein by reference.
(6) Previously filed as an exhibit to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1998
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 September 30, 1998
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 December 31, 1998
and incorporated herein by reference.
(9) Previously filed as an exhibit to the Registrant's Report on
Form 8-K filed on June 4, 1999, and incorporated herein by
reference.
(10) Filed herewith.
(11) Included with EDGAR version only.
20
<PAGE> 23
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 27, 1999
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 September 27, 1999
Robert H. Patterson, Jr. Chief Executive Officer (Principal
Executive Officer)
/s/ LYNN SKILLEN
- --------------------------------- Vice President -- Finance, Treasurer September 27, 1999
Lynn Skillen and Chief Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
/s/ B. D. HUNTER
- --------------------------------- Director September 27, 1999
B. D. Hunter
/s/ C. A. LANGNER
- --------------------------------- Director September 27, 1999
C. A. Langner
/s/ VALERIE ANNE MARS
- --------------------------------- Director September 27, 1999
Valerie Anne Mars
/s/ RICHARD YUEN
- --------------------------------- Managing Director of Celebrity Exports September 27, 1999
Richard Yuen International Limited and Director
</TABLE>
21
<PAGE> 24
CELEBRITY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of June 30, 1999 and 1998.... F-3
Consolidated Statements of Operations and Comprehensive
Income for the Years Ended June 30, 1999, 1998 and 1997... F-5
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended June 30, 1999, 1998 and 1997.......... F-6
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1999, 1998 and 1997.............................. F-7
Notes to Consolidated Financial Statements.................. F-8
Consolidated Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts.......... F-24
</TABLE>
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.
F-1
<PAGE> 25
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, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended June 30, 1999 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule listed in the accompanying index present fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule 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.
PricewaterhouseCoopers LLP
Dallas, Texas
August 11, 1999
F-2
<PAGE> 26
CELEBRITY, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1999 1998
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 558 $ 127
Accounts receivable, net 13,157 14,121
Inventories, net 18,847 22,766
Deferred tax asset 2,173 2,173
Other assets 579 1,434
------- -------
Total current assets 35,314 40,621
------- -------
Property, plant and equipment, net 9,479 9,788
Intangible assets, net 888 1,059
Other assets 590 251
------- -------
Total assets $46,271 $51,719
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 27
CELEBRITY, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,800 $ 9,466
Accrued expenses 1,774 3,251
Income taxes payable 496 598
Current maturities of long-term obligations 1,200 3,479
-------- --------
Total current liabilities 10,270 16,794
-------- --------
Long-term obligations, net of current portion (Note 7) 27,083 26,588
-------- --------
Total liabilities 37,353 43,382
-------- --------
Shareholders' equity:
Preferred stock (10,000,000 shares of par value $.01
per share authorized; none issued and outstanding, respectively) -- --
Common stock (25,000,000 shares of par value $.01 per share
authorized; 1,544,166 and 1,586,951 shares issued, respectively) 15 16
Paid-in capital 21,577 22,798
Subscriptions receivable -- (570)
Accumulated deficit (12,640) (13,198)
Accumulated other comprehensive loss (34) (9)
Treasury stock, at cost (0 and 53,847 shares, respectively) -- (700)
-------- --------
Total shareholders' equity 8,918 8,337
-------- --------
Commitments and contingencies (Note 14)
Total liabilities and shareholders' equity $ 46,271 $ 51,719
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 28
CELEBRITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 110,662 $ 122,262 $ 125,170
Costs and operating expenses:
Cost of goods sold 82,335 97,660 97,479
Selling 4,570 4,750 5,508
General and administrative 17,571 22,095 19,474
Depreciation and amortization 1,410 2,176 2,236
Restructuring charges -- 4,454 --
--------- --------- ---------
105,886 131,135 124,697
--------- --------- ---------
Operating income (loss) 4,776 (8,873) 473
Interest income 133 202 192
Interest expense (3,903) (3,699) (3,408)
Other, net 60 13 (6)
--------- --------- ---------
Income (loss) before income taxes 1,066 (12,357) (2,749)
Provision for income taxes 440 372 3,012
--------- --------- ---------
Income (loss) before extraordinary charge 626 (12,729) (5,761)
Extraordinary charge related to extinguishment of
debt, net of tax 68 -- --
--------- --------- ---------
Net income (loss) $ 558 $ (12,729) $ (5,761)
--------- --------- ---------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (25) (6) 3
--------- --------- ---------
Other comprehensive income (loss), net of tax (25) (6) 3
--------- --------- ---------
Comprehensive income (loss) $ 533 $ (12,735) $ (5,758)
========= ========= =========
Basic and diluted income (loss) per share:
Income (loss) before extraordinary charge $ .40 $ (8.09) $ (3.67)
Extraordinary charge (.04) -- --
--------- --------- ---------
Income (loss) per common share $ .36 $ (8.09) $ (3.67)
Basic weighted average common shares outstanding 1,559 1,573 1,568
Diluted weighted average common shares outstanding 1,561 1,573 1,568
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 29
CELEBRITY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS
------------------------ PAID-IN SUBSCRIPTIONS (ACCUMULATED
SHARES PAR VALUE CAPITAL RECEIVABLE DEFICIT)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996, as previously
reported 6,282,679 $ 63 $ 22,178 $ (461) $ 5,292
Four-to-one reverse common stock split (4,712,009) (47) 47 -- --
---------- ---------- ---------- ---------- ----------
Balance at June 30, 1996 as adjusted 1,570,760 16 22,225 (461) 5,292
Purchase of redeemable common stock 3,365 -- 175 -- --
Payments on stock subscriptions receivable -- -- -- 19 --
Net loss -- -- -- -- (5,761)
Other comprehensive income, net of tax -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance at June 30, 1997 1,574,035 16 22,400 (442) (469)
Purchase of redeemable common stock 3,366 -- 175 -- --
Employee stock purchase plan 9,550 -- 153 (153) --
Payments on stock subscriptions receivable -- -- -- 25 --
Issuance of warrants -- -- 70 -- --
Net loss -- -- -- -- (12,729)
Other comprehensive loss, net of tax -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance at June 30, 1998 1,586,951 16 22,798 (570) (13,198)
Payments on stock subscriptions receivable -- -- -- 12 --
Cancellation of employee stock subscriptions
receivable (26,525) (1) (557) 558 --
Retirement of treasury stock (16,260) -- (700) -- --
Issuance of warrants -- -- 36 -- --
Net income -- -- -- -- 558
Other comprehensive loss, net of tax -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance at June 30, 1999 1,544,166 $ 15 $ 21,577 $ -- $ (12,640)
========== ========== ========== ========== ==========
<CAPTION>
ACCUMULATED
OTHER TREASURY
COMPREHENSIVE STOCK,
LOSS AT COST TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Balance at June 30, 1996, as previously
reported $ (6) $ (350) $ 26,716
Four-to-one reverse common stock split -- -- --
---------- ---------- ----------
Balance at June 30, 1996 as adjusted (6) (350) 26,716
Purchase of redeemable common stock -- (175) --
Payments on stock subscriptions receivable -- -- 19
Net loss -- -- (5,761)
Other comprehensive income, net of tax 3 -- 3
---------- ---------- ----------
Balance at June 30, 1997 (3) (525) 20,977
Purchase of redeemable common stock -- (175) --
Employee stock purchase plan -- -- --
Payments on stock subscriptions receivable -- -- 25
Issuance of warrants -- -- 70
Net loss -- -- (12,729)
Other comprehensive loss, net of tax (6) -- (6)
---------- ---------- ----------
Balance at June 30, 1998 (9) (700) 8,337
Payments on stock subscriptions receivable -- -- 12
Cancellation of employee stock subscriptions
receivable -- -- --
Retirement of treasury stock -- 700 --
Issuance of warrants -- -- 36
Net income -- -- 558
Other comprehensive loss, net of tax (25) -- (25)
---------- ---------- ----------
Balance at June 30, 1999 $ (34) $ -- $ 8,918
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 30
CELEBRITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 558 $(12,729) $ (5,761)
Adjustments to reconcile net income (loss) to net
cash provided by operations:
Depreciation 1,239 1,693 1,604
Amortization 171 483 632
Noncash interest expense 194 87 --
Extraordinary charge related to extinguishment of debt 68 -- --
Restructuring charges -- 4,454 --
Deferred income taxes -- -- 2,308
Changes in operating assets and liabilities:
Accounts receivable 964 1,499 (701)
Inventories 3,919 7,853 2,660
Other assets, net 829 789 670
Accounts payable and accrued expenses (4,143) (1,179) 894
Income taxes payable (102) (69) (269)
-------- -------- --------
Net cash provided by operating activities 3,697 2,881 2,037
-------- -------- --------
Investing activities:
Purchases of equipment (1,043) (447) (1,351)
Other 88 43 (468)
-------- -------- --------
Net cash used in investing activities (955) (404) (1,819)
-------- -------- --------
Financing activities:
Net proceeds from (payments on) new credit facility (911) 23,724 --
Net proceeds from (payments on) old credit facility -- (26,162) 248
Proceeds from other long-term obligations 500 500 5,110
Payments on other long-term obligations (8,770) (581) (5,979)
Proceeds from sale-leaseback of facilities 7,500 -- --
Payments for debt issuance cost (554) (299) (77)
Redemption of common stock (88) (87) (175)
Payments on subscriptions receivable 12 25 19
-------- -------- --------
Net cash used in financing activities (2,311) (2,880) (854)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 431 (403) (636)
Cash and cash equivalents, beginning of period 127 530 1,166
-------- -------- --------
Cash and cash equivalents, end of period $ 558 $ 127 $ 530
======== ======== ========
</TABLE>
See Notes 6, 7 and 8 for supplementary disclosures.
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE> 31
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"), The
Cluett Corporation ("Cluett") and Star Wholesale Florist, Inc. ("Star
Wholesale"), are suppliers of high quality artificial floral products,
including artificial flowers, flowering bushes and foliage, pre-made
floral arrangements, trees and floor planters that the Company
assembles, and other decorative accessories, selling primarily to mass
market retailers, craft store chains and other retailers and to
wholesale florists. Celebrity, Celebrity Hong Kong, Cluett and Star
Wholesale are referred to herein collectively as the "Company."
2. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
All majority-owned subsidiaries are consolidated and all material
intercompany accounts and transactions are eliminated. Certain prior
period amounts have been reclassified for comparative purposes.
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. The Company establishes valuation
reserves for discontinued or obsolete products.
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 3 to 10 years
Transportation equipment 3 to 5 years
Buildings 20 to 31.5 years
</TABLE>
F-8
<PAGE> 32
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Maintenance and repairs are charged to expense as incurred. Renewals
and betterments are capitalized and amortized over the lesser of the
estimated useful life or the term of the lease.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill and a customer list
related to purchase acquisitions, which are being amortized using the
straight-line method over 20 and 10 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 are less than their carrying
value.
CAPITALIZED SOFTWARE
In March 1998, Statement of Position ("SOP") 98-1, Accounting for Costs
of Computer Software Developed or Obtained for Internal Use, was
issued. This SOP requires that certain costs related to the development
or purchase of internal-use software be capitalized and amortized over
the estimated useful life of the software. The provisions of SOP 98-1
are effective for financial statements issued for fiscal years
beginning after December 15, 1998, although early adoption is allowed.
The Company adopted the provisions of this SOP in fiscal 1999.
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. Assets are grouped at the
lowest level for which there are identifiable cash flows that are
largely independent of the cash flows of other groups of assets. 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.
During the fourth quarter of fiscal 1998, the Company decided to exit
the operations of India Exotics, Inc. ("India Exotics"), a wholly-owned
subsidiary that supplied decorative metal products and other decorative
accessories to craft store chains and other specialty retailers, which
was acquired in fiscal 1995. As a result of this decision, certain
long-lived assets were written down to their estimated fair value less
cost to sell (Note 5).
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("FAS 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-9
<PAGE> 33
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
ADVERTISING COSTS
Advertising costs are expensed in the period incurred. Advertising
expense for fiscal 1999, 1998 and 1997 was $718,000, $447,000, and
$662,000, respectively.
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income ("FAS 130"). FAS 130 establishes
standards for reporting comprehensive income and its components in
financial statements. Comprehensive income, as defined, includes all
changes in equity during a period from non-owner sources. Accumulated
other comprehensive loss, as presented on the accompanying consolidated
balance sheets, consists of cumulative translation adjustments.
EARNINGS (LOSS) PER SHARE
The Company calculates earnings per share pursuant to Statement of
Financial Accounting Standards No. 128, Earnings per Share. Basic
earnings per share are computed by dividing net income (loss) by the
weighted average number of common shares outstanding. Diluted earnings
per share are computed by dividing net income (loss) by the weighted
average number of common shares and dilutive potential common shares
outstanding.
For fiscal 1999, common share equivalents related to shares issuable
upon the exercise of stock options approximated 2,000 shares. Options
to purchase 149,725 shares of Common Stock and a warrant to purchase
25,000 shares of Common Stock were excluded from the diluted earnings
per share calculation because their exercise prices were greater than
the average market price of the Common Stock. Outstanding options were
excluded from the diluted earnings per share calculations for fiscal
1998 and 1997, respectively, because their inclusion would be
antidilutive due to the net losses incurred for those fiscal years.
FOREIGN CURRENCY TRANSLATION
All balance sheet asset and liability accounts of Celebrity Hong Kong
are translated to U.S. dollars using the rate 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 not
included in determining net income but are included as a separate
component of shareholders' equity in accumulated other comprehensive
income (loss).
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
significantly from those estimates.
F-10
<PAGE> 34
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. REVERSE STOCK SPLIT
A four-to-one reverse split of the Common Stock occurred in February
1999. All references in the financial statements to shares, share
prices, per share amounts and stock plans have been adjusted
retroactively to reflect the four-to-one reverse Common Stock split.
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>
1999 1998
-------- --------
<S> <C> <C>
Accounts receivable:
Accounts receivable $ 14,850 $ 16,070
Less: allowance for doubtful accounts and customer
deductions, returns and allowances (1,693) (1,949)
-------- --------
$ 13,157 $ 14,121
======== ========
Inventories:
Raw materials $ 6,663 $ 8,460
Finished goods 13,026 15,958
Less: inventory reserves (842) (1,652)
-------- --------
$ 18,847 $ 22,766
======== ========
Property, plant and equipment:
Assets under capital lease $ 9,738 $ --
Buildings -- 7,625
Land -- 811
Furniture, fixtures and equipment 5,606 7,624
Transportation equipment 387 695
Leasehold improvements 1,753 310
-------- --------
17,484 17,065
Less: accumulated depreciation (8,005) (7,277)
-------- --------
$ 9,479 $ 9,788
======== ========
Intangible assets:
Excess of cost over fair value of net assets acquired $ 765 $ 765
Customer list 1,327 1,327
-------- --------
2,092 2,092
Less: accumulated amortization (1,204) (1,033)
-------- --------
$ 888 $ 1,059
======== ========
</TABLE>
F-11
<PAGE> 35
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. SPECIAL CHARGES
In the fourth quarter of fiscal 1998, the Company recorded
restructuring charges of approximately $4,454,000. These charges
resulted from the Company's June 1998 decision to exit the India
Exotics operations. The Company wrote down the carrying value of
certain assets ($3,634,000), primarily goodwill, other intangible
assets and property and equipment to their estimated fair value, less
cost to sell, and recorded as a fixed obligation the remaining payments
($614,000) due pursuant to a noncompetition agreement related to the
India Exotics acquisition (Note 7). The charge also included a
contractual lease termination obligation ($206,000) resulting from the
closure of the India Exotics office/distribution center in St. Louis,
Missouri. Substantially all activities of India Exotics had ceased by
June 30, 1998. The following table presents unaudited operating results
for India Exotics (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales $ 12,398 $ 13,120
Operating loss $ (6,326) $ (2,272)
</TABLE>
The Company also recorded special charges of approximately $1,128,000
in the fourth quarter of fiscal 1998 related to inventory adjustments
resulting from the Company's decision to exit the India Exotics
operations and actions taken by the Company to discontinue and
liquidate certain underperforming product lines, primarily at Cluett.
These charges are included in cost of goods sold in the accompanying
statements of operations.
There were no amounts reclassified from the reserve or released from
the reserve. The assets that were written down during fiscal 1998 were
completely disposed of in fiscal 1999 with no adjustment to the
estimated fair value. The following table summarizes activities in
these reserves during fiscal 1999 (in thousands):
<TABLE>
<CAPTION>
SETTLEMENT LEASE INVENTORY TOTAL
AGREEMENT TERMINATION WRITE-DOWN RESERVE
--------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Balance at June 30, 1998 $ 614 $ 206 $1,128 $1,948
Charges against reserve 239 206 1,128 1,573
------ ------ ------ ------
Balance at June 30, 1999 $ 375 $ -- $ -- $ 375
====== ====== ====== ======
</TABLE>
F-12
<PAGE> 36
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. INCOME TAXES
The components of income (loss) before income taxes are summarized
below (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Domestic $ (1,935) $(14,547) $ (6,829)
Foreign 3,001 2,190 4,080
-------- -------- --------
$ 1,066 $(12,357) $ (2,749)
======== ======== ========
</TABLE>
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Current:
State $ -- $ -- $ 74
Federal -- -- --
Foreign 440 372 630
------ ------ ------
440 372 704
Deferred provision -- -- 2,308
------ ------ ------
$ 440 $ 372 $3,012
====== ====== ======
</TABLE>
The components of the net deferred tax asset are as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Special charges $ 1,367 $ 2,182
Net operating loss and other carryforwards 8,665 7,855
Capitalized inventory costs 531 619
Provision for losses on accounts receivable 466 482
Intangible assets 151 162
Accelerated depreciation 325 319
Other (140) (125)
-------- --------
11,365 11,494
Less: valuation allowance (9,192) (9,321)
-------- --------
$ 2,173 $ 2,173
======== ========
</TABLE>
F-13
<PAGE> 37
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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,
------------------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Provision (benefit) at statutory rate $ 362 34% $(4,201) (34)% $ (935) (34)%
Meals and entertainment and
other disallowed expenses 12 1 92 1 18 1
Valuation allowance 693 65 4,867 39 4,454 161
Other -- -- (14) -- 75 3
State tax expense -- -- -- -- 71 3
Foreign tax rate differentials (627) (59) (372) (3) (671) (24)
------- ------- ------- ------- ------- -------
$ 440 41% $ 372 3% $ 3,012 110%
======= ======= ======= ======= ======= =======
</TABLE>
Because 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 $7,065,000 before consideration of
any available tax loss carryforwards.
Income taxes paid during fiscal 1999, 1998 and 1997 were $540,000,
$488,000 and $901,000, respectively.
At June 30, 1999, the Company had net operating loss carryforwards of
approximately $24,700,000, foreign tax credit carryforwards aggregating
$167,000 and minimum tax credit carryforwards of $87,000. The net
operating loss carryforwards expire between 2011 and 2014. 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 in 2000.
At June 30, 1999, a valuation allowance on the Company's deferred tax
asset totaled $9,192,000 to reflect the estimated amount of the
deferred tax asset that, at this time, is uncertain to be realized in
the future. These uncertainties relate primarily to whether the Company
will be able to utilize net operating loss carryforwards and certain
tax credit carryforwards prior to their expiration. The valuation
allowance was $9,321,000 at June 30, 1998.
F-14
<PAGE> 38
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. LONG-TERM OBLIGATIONS
Notes payable consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Revolving credit facility; interest at prime rate plus 1.5%
(9.25% at June 30, 1999); secured by substantially all accounts
receivable and inventory $ 19,713 $ 20,624
Term loan; interest at 12.5%; payable in monthly installments of
$200 with balance due October 1, 1999 secured by substantially all
accounts receivable and inventory 700 3,100
Note payable to a financial institution, secured by real estate -- 4,694
Noninterest bearing obligation; payable in
monthly installments of $42; through March 2000 375 875
Financing lease obligations to related party; payable in
monthly installments of $75 with balance due April 2024 7,491 --
Note payable to related party; interest at 10%; due
September 1999 -- 500
Installment notes payable monthly through January 1999;
interest rates vary from 7% to 13%; secured by automobiles 17 49
Note payable to related party; interest at 8%; payable in
annual installments through May 1999 -- 33
Other 62 252
-------- --------
28,358 30,127
Less: current maturities (1,200) (3,479)
Less: unamortized debt discounts (75) (60)
-------- --------
$ 27,083 $ 26,588
======== ========
</TABLE>
In April 1999, the Company completed the sale and leaseback of its
office, production and distribution facilities to a partnership, which
is controlled by an officer and principal shareholder of the Company,
for $7,500,000. The partnership assumed the Company's obligations under
a promissory note of $4,444,000 secured by the property; however, the
Company has guaranteed the debt to the lender. The partnership's
assumption of the Company's debt resulted in an extraordinary loss of
$68,000, or $.04 per share, related to the write-off of unamortized
financing
F-15
<PAGE> 39
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
costs. A promissory note for $1,036,000 was issued to the Company by
the partnership as part of the consideration. This note was
subsequently purchased from the Company by a partnership controlled by
the officer and principal shareholder and a relative of the officer and
principal shareholder. Including the sale of the promissory note, the
Company received proceeds from the transaction of approximately
$2,846,000, net of fees of approximately $210,000. Notes payable to the
officer in the amount of $1,077,000, which includes accrued interest,
were repaid with a portion of the proceeds. The remaining proceeds were
utilized for working capital purposes. Due to the continuing
involvement of the Company, the transaction was accounted for as a
financing lease by recording the sales proceeds as a liability and
recording lease payments, exclusive of an interest portion, as a
reduction of the liability in accordance with Statement of Financial
Accounting Standards No. 98, Accounting for Leases. In connection with
the sale transaction and the subsequent leaseback, and in consideration
for the officer and principal shareholder's personal guarantee of the
partnership's debt, the Company issued to the partnership a five-year
warrant to purchase 75,000 shares of Common Stock at $3.00 per share.
The fair value of the warrant was estimated to be $36,000. Accordingly,
the proceeds from the sales transaction were allocated between
long-term obligations and paid-in capital, resulting in a debt discount
that will be accreted to the redemption amount over the term of the
lease.
In January 1998, the Company entered into a new three-year revolving
credit facility for its Celebrity, Cluett, and Star Wholesale
operations for borrowings up to $35,000,000. This credit facility
replaced the Company's prior line of credit with another bank. The new
credit facility included a revolving credit facility for borrowings of
up to $31,500,000 and a term loan with an initial principal amount of
$3,500,000. In December 1998, the maximum borrowing under the revolving
credit facility was reduced to $26,500,000. 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 June
30, 1999 was $20,219,000. The amount outstanding under the revolving
credit facility at June 30, 1999 was $19,713,000. The term loan was
payable in monthly installments of principal of $200,000 beginning in
May 1998, and the remaining outstanding principal balance under the
term loan was due and payable upon the earlier of (i) October 1, 1999,
or (ii) the termination of the revolving credit facility. As a
condition to establishing the credit facility, the Company issued to
the lender a five-year warrant to purchase 25,000 shares of Common
Stock at $4.00 per share. The fair value of the warrant was estimated
to be $70,000. Accordingly, the proceeds from the new 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 new credit facility. Amounts borrowed under the revolving credit
facility and the term loan are secured by accounts receivable,
inventory, equipment, and general intangibles (including intellectual
property) of the Company and its subsidiary borrowers. In addition,
substantially all stock of the Company's subsidiaries has been pledged
to the lender. The revolving credit facility and the term loan contain
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 all covenants at
June 30, 1999. The commitment fee for the unused portion of the
revolving credit facility is .25% of the average unused portion of the
credit facility during the year. Unused borrowing availability under
the credit facility was approximately $506,000 at June 30, 1999.
F-16
<PAGE> 40
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In July 1999, the Company entered into an amended and restated
agreement with the lender whereby the following changes, among others,
were made: (i) the term of the revolving credit facility was extended
from January 2001 to July 2002, (ii) the interest rate charged by the
lender was reduced to prime plus applicable percentages, ranging from
0% to 0.5%, based on specified EBITDA requirements, (iii) the financial
ratio covenants were reset, and (iv) the monthly fees were reduced from
$15,000 to $2,000.
In the third quarter of fiscal 1998, the Company renegotiated the
payment terms of all of its remaining obligations to the former owners
of India Exotics related to the 1995 acquisition of the business. The
obligations renegotiated included those remaining under a note, a
noncompetition agreement and employment agreements with the former
owners, and certain other obligations. The note was canceled and all
payment obligations under the note and all other agreements with the
former owners were consolidated into one agreement obligating the
Company to make payments of approximately $42,000 per month from April
1, 1998 through March 1, 2000.
Interest paid during fiscal 1999, 1998 and 1997 was $3,634,000,
$3,507,000 and $3,435,000, respectively.
Aggregate maturities of notes payable for the next five years and
thereafter, as adjusted to reflect the July 1999 credit facility
amendment, are as follows (in thousands):
<TABLE>
<S> <C>
2000 $ 1,200
2001 77
2002 73
2003 19,796
2004 91
Thereafter 7,121
--------
Total $ 28,358
========
</TABLE>
8. 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 annual compensation to this plan. The Company's matching
contributions are determined each year by the Company. The Company made
matching contributions equal to 100% of the first 3% of the employees'
contributions for fiscal 1999, 1998 and 1997, contributing $113,000,
$129,000 and $111,000, respectively.
The Celebrity, Inc. 1993 Employee Stock Purchase Plan was adopted in
fiscal 1994. Under this plan, the Company periodically offered to its
employees the right to purchase shares of Common Stock at the market
value as of the date of the offer. Employee payment for plan shares was
made either with cash or a promissory note, which were classified as
subscriptions receivable on the balance sheet. The participants' shares
were fully vested upon purchase. In fiscal 1999, the Company cancelled
all subscriptions receivable from employees that were outstanding under
this plan and the related Common Stock.
F-17
<PAGE> 41
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. STOCK OPTION PLAN
The Celebrity, Inc. Amended and Restated Stock Option Plan (the "Plan")
was adopted effective with the completion of the Company's initial
public offering. An aggregate of 250,000 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. A
summary of options granted and outstanding under the plan is summarized
below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
STOCK OPTION ACTIVITY OF SHARES PRICE
---------------------------- --------- ---------
<S> <C> <C>
June 30, 1996 66,100 $ 21.84
Granted 51,250 $ 13.56
Canceled or surrendered (8,250) $ 21.72
-------
June 30, 1997 109,100 $ 17.96
Granted 91,500 $ 5.72
Canceled or surrendered (23,125) $ 17.44
-------
June 30, 1998 177,475 $ 11.72
Granted 12,750 $ 2.28
Canceled or surrendered (29,000) $ 10.74
-------
June 30, 1999 161,225 $ 10.89
=======
</TABLE>
F-18
<PAGE> 42
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following information is presented for stock options outstanding at
June 30, 1999. At June 30, 1999, options to purchase an aggregate of
60,725 shares of Common Stock were exercisable at a weighted average
exercise price of $15.99 per share.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------- ---------------------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
PER SHARE AVERAGE PER SHARE AVERAGE
EXERCISE PRICE REMAINING EXERCISE EXERCISE
RANGE SHARES LIFE PRICE SHARES PRICE
------------------ ----------------- ------------------ ------------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 2.00 - 2.50 11,500 9.7 years $ 2.07 1,500 $ 2.50
$ 4.25 - 5.52 51,500 9.0 years $ 4.77 11,250 $ 4.86
$ 7.75 25,000 8.7 years $ 7.75 5,000 $ 7.75
$ 12.75 - 16.00 37,750 7.8 years $ 13.43 10,250 $ 13.81
$ 19.52 - 26.00 35,225 4.3 years $ 21.95 32,475 $ 22.16
$ 50.00 250 3.5 years $ 50.00 250 $ 50.00
</TABLE>
Included in the table above are fully-vested nonqualified options to
purchase an aggregate of 8,250 shares of Common Stock. These are held
by three outside directors and have exercise prices ranging from $2.50
to $50.00 per share.
The Company adopted the disclosure-only option under Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("FAS 123"). On a pro forma basis, if the Company had
recorded compensation expense in accordance with FAS 123, for fiscal
1999, the net income would have been $510,000 and the basic and diluted
income per share would have been $0.33, for fiscal 1998, the net loss
would have been $12,766,000 and the basic and diluted loss per share
would have been $8.12, and for fiscal 1997, the net loss would have
been $5,774,000 and the basic and diluted loss per share would have
been $3.68.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants during fiscal 1999, 1998
and 1997:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Dividend yield -- -- --
Expected volatility 49.1% 50.1% 43.7%
Risk free interest rate 5.7% 5.7% 6.5%
Option term 10 years 10 years 10 years
</TABLE>
F-19
<PAGE> 43
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. RELATED PARTIES
Celebrity leased a warehouse in Tyler, Texas from a shareholder. This
lease was terminated in April 1999. Amounts paid under this lease were
approximately $96,000 in fiscal 1999 and $120,000 in each of fiscal
1998 and 1997.
Long-term obligations at June 30, 1999 include a financing lease
obligation to a related party (Note 7).
11. SEGMENT REPORTING
In June 1997, Statement of Financial Accounting Standards No. 131,
Disclosure About Segments of an Enterprise and Related Information
("FAS 131") was issued. FAS 131 establishes standards for the way that
public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises
report selected information about operating segments in interim
financial reports issued to shareholders. FAS 131 is effective for
financial statements for periods beginning after December 15, 1997. The
Company has adopted FAS 131 for fiscal 1999.
The Company operates and management monitors the results in a single
operating segment. Celebrity Hong Kong exports artificial flowers,
foliage and flowering bushes from southeastern Asia to the U.S. and
Europe and Celebrity distributes and markets its products in the U.S.
using a direct sales force and a distribution center, primarily to mass
market retailers, craft store chains and other specialty retailers and
to wholesale florists.
Financial information by geographic area for fiscal 1999, 1998 and 1997
is summarized in the tables below:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Net sales to external customers:
Hong Kong $ 38,505 $ 38,607 $ 35,541
United States 72,157 83,655 89,629
-------- -------- --------
Total $110,662 $122,262 $125,170
======== ======== ========
</TABLE>
Sales are attributed to countries in which the sales originated (i.e.,
where the subsidiary is domiciled).
F-20
<PAGE> 44
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AT JUNE 30,
-------------------------------
1999 1998 1997
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Long-lived assets:
Hong Kong $ 387 $ 141 $ 164
United States 9,980 10,706 16,076
------- ------- -------
Total $10,367 $10,847 $16,240
======= ======= =======
</TABLE>
12. FINANCIAL INSTRUMENTS AND CONCENTRATIONS
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 credit facility 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, 1999 and 1998, respectively, did
not significantly differ from their carrying amounts.
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 1999, the Company had one customer that accounted
for net sales of $36.3 million. The June 30, 1999 accounts receivable
balance for this customer was $3.4 million. Additionally, the Company
had one other customer whose accounts receivable balance at June 30,
1999 was $2.1 million. In fiscal 1998, two customers accounted for net
sales of $35.8 million and $13.9 million, respectively. The June 30,
1998 accounts receivable balance for one of these customers was $4.4
million. In fiscal 1997, one customer accounted for net sales of $34.6
million. The June 30, 1997 accounts receivable balance for this
customer was $4.2 million. 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.
F-21
<PAGE> 45
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. CERTAIN FACTORS THAT COULD AFFECT FUTURE OPERATIONS
A substantial portion of the Company's consolidated net sales is
derived from products manufactured in and exported from the Far East,
primarily from the People's Republic of China (the "PRC"). Risks
inherent in such international operations include loss of revenue,
property and equipment from such hazards as expropriation,
nationalization, war, insurrection and other political risks, and
include other factors that could affect the Company's source of supply
or cost of supply, including: general economic conditions in the Far
East, changes in currency valuations, export credit availability,
freight carrier availability and cost and U.S. trade policy and laws
related to imports. If the U.S. government were to terminate normal
trading relations status for the PRC or impose higher tariff rates on
products imported by the Company from the PRC, the duty on products
imported by the Company from the PRC could increase substantially. To
date, the Company's international operations have not been materially
affected by these risks. However, if the Company's supply or cost of
products were to be significantly affected, it could have a material
adverse effect on the Company's results of operations.
14. COMMITMENTS AND CONTINGENCIES
RECEIVABLES SOLD WITH RECOURSE
During fiscal 1999, 1998 and 1997, proceeds of approximately
$34,277,000, $33,539,000, and $37,487,000, respectively, were received
from Hong Kong banks in connection with the financing, with recourse,
of Celebrity Hong Kong accounts receivable related to shipments
directly to customers. As of June 30, 1999 and 1998, the Company was
contingently liable to the Hong Kong banks with respect to such
financing activities for $2,672,000 and $4,085,000, respectively. The
Company has retained substantially the same risk of credit loss as if
the receivables had not been sold (Note 12). The Company's revolving
credit facility restricts the aggregate amount that may be financed
under the export credit facilities at any time to $7,000,000.
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>
<S> <C>
2000 $ 1,671
2001 1,640
2002 804
2003 756
2004 756
Thereafter 4,494
---------
Total minimum lease payments $ 10,121
=========
</TABLE>
F-22
<PAGE> 46
CELEBRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Rent expense for operating leases was $1,854,000, $3,223,000 and
$3,601,000 for fiscal 1999, 1998 and 1997, 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 material adverse effect on its
financial condition or results of operations.
15. UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The Company's historical unaudited quarterly results of operations for
fiscal 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
FISCAL 1999 (1)
-----------------------------------------------------
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1999 1999 1998 1998
-------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Net sales $ 31,790 $ 25,760 $ 25,986 $ 27,126
Net income (loss) before extraordinary item 715 (79) 230 (240)
Net income (loss) 647 (79) 230 (240)
Basic and diluted income (loss) per share
before extraordinary item $ .46 $ (.05) $ .15 $ (.15)
Basic and diluted income (loss) per share $ .42 $ (.05) $ .15 $ (.15)
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1998
------------------------------------------------------
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1998 1998 1997 1997
-------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Net sales $ 30,681 $ 31,519 $ 29,854 $ 30,208
Net income (loss) (9,642) (1,417) (1,227) (443)
Basic and diluted income (loss) per share $ (6.12) $ (.90) $ (.78) $ (.28)
</TABLE>
(1) Quarterly data reflects restatement from data previously filed on Form
10-Q for the quarters ended March 31, 1999, December 31, 1998 and
September 30, 1998. The Company previously reported earnings (loss) per
share of $(.09), $.07, $(.20) per share for these quarters, respectively.
The results presented above reflect certain adjustments that should have
been reported in the results of operations for those quarters.
F-23
<PAGE> 47
CELEBRITY, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED JUNE 30, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
Allowance
for Balance at Charged to Balance
Doubtful beginning cost and at end
Accounts of period expenses Deductions of period
- ---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1999 $ 1,949 $ 773 $ (1,029) $ 1,693
1998 2,017 2,869 (2,937) 1,949
1997 1,119 1,553 (655) 2,017
</TABLE>
<TABLE>
<CAPTION>
Balance at Charged to Balance
Inventory beginning cost and at end
Reserves of period expenses Deductions of period
- ---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1999 $ 1,652 $ 316 $ (1,126) $ 842
1998 433 1,332 (113) 1,652
1997 3,800 -- (3,367) 433
</TABLE>
F-24
<PAGE> 48
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBITS
- ----------- --------
<S> <C>
2.1 -- 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.(3)
3.1 -- Amended and Restated Articles of Incorporation of the
Registrant.(10)
3.2 -- Articles of Correction of the Registrant.(10)
3.3 -- Bylaws of the Registrant.(1)
4.1 -- Specimen Common Stock Certificate.(1)
4.2 -- Warrant, dated February 3, 1998, issued by Registrant to
Foothill Capital Corporation.(5)
4.3 -- Warrant, dated April 22, 1999, issued to RHP Management,
LLC.(9)
10.1 -- 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.(4)
10.2 -- General Security Agreement Relating to Goods between
Celebrity Exports International Limited and The Hongkong and
Shanghai Banking Corporation Limited dated April 30, 1984.(1)
10.3 -- Form of Guarantee by Limited Company executed by Registrant
in favor of The Hongkong and Shanghai Banking Corporation
Limited.(4)
10.4 -- Commitment of Celebrity Exports International Limited to
maintain a combined net worth of HK$50,000,000.(4)
10.5 -- Loan Agreement dated July 27, 1998 by and between The China
State Bank Limited and Celebrity Exports International
Limited.(7)
10.6 -- Deed of Guarantee dated August 31, 1998 by and between
Celebrity, Inc., as Guarantor, and The China State Bank
Limited, as Lender.(7)
10.7 -- Loan Agreement dated September 29, 1998 by and between
State Street Bank and Trust Company and Celebrity Exports
International Limited.(7)
10.8 -- Continuing Guarantee dated September 29, 1998 granted by
Celebrity, Inc. for the benefit of State Street Bank and Trust
Company.(7)
10.9 -- Loan and Security Agreement dated as of January 30, 1998
among Registrant, The Cluett Corporation, Star Wholesale
Florist, Inc. Value Florist, Inc. and India Exotics, Inc., as
borrowers, on the one hand, and Foothill Capital Corporation,
on the other.(5)
10.10 -- Amendment Number One to Loan and Security Agreement dated
effective as of June 5, 1998 by and among Foothill Capital
Corporation and Registrant and certain of its
subsidiaries.(10)
10.11 -- Amendment Number Two to Loan and Security Agreement dated
effective as of July 7, 1998 by and among Foothill Capital
Corporation and Registrant and certain of its
subsidiaries.(10)
10.12 -- Amendment Number Three to Loan and Security Agreement dated
effective as of December 31, 1998 by and among Foothill
Capital Corporation and Registrant and certain of its
subsidiaries.(8)
10.13 -- Amended and Restated Loan and Security Agreement dated
effective as of July 15, 1999 by and among Foothill Capital
Corporation and Registrant and certain of its
subsidiaries.(10)
10.14 -- Lease Agreement, dated April 22, 1999, between the
Registrant, as lessee, and Crest Properties, Ltd., as lessor,
relating to property at 4520 Old Troup Highway, Tyler,
Texas.(9)
10.15 -- Lease Agreement, dated April 22, 1999, between The Cluett
Corporation, as lessee, and Crest Properties, Ltd., as lessor,
relating to property at 3200 Centre-Park Boulevard,
Winston-Salem, North Carolina.(9)
10.16 -- Agreement for Purchase and Sale of Promissory Note, dated
May 28, 1999, by and among the Registrant, RHP Real Estate,
Ltd. and The Residuary Trust Created Under the Last Will and
Testament of Robert H. Patterson, Sr., Deceased.(9)
</TABLE>
<PAGE> 49
<TABLE>
<S> <C>
10.17 -- Form of Guarantee of the Term Loan and Security Agreement
dated April 16, 1999 between Merrill Lynch Business Financial
Services, Inc. and Crest Properties, Ltd. by each of
Celebrity, Inc., India Exotics, Inc., Star Wholesale, Inc.,
MagicSilk, Inc. and The Cluett Corporation.(10)
10.18 -- Promissory Note of Registrant, amended and restated as of
February 16, 1998 payable to the order of RHP Management,
LLC.(5)
10.19 -- Promissory Note of Registrant, dated July 7, 1998 payable
to the order of RHP Management, LLC.(6)
10.20 -- 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.(6)
10.21 -- Form of Indemnity Agreement.(1)
10.22* -- Amended and Restated Stock Option Plan.(10)
10.23* -- Amended and Restated 1993 Employee Stock Purchase Plan.(3)
10.24* -- Fiscal 2000 Management Bonus Plan.(10)
21.1 -- Subsidiaries of Registrant.(2)
23.1 -- Consent of PricewaterhouseCoopers LLP.(10)
27.1 -- Financial Data Schedule as of and for the Year Ended June
30, 1999.(11)
</TABLE>
- ----------
* Exhibits 10.22 through 10.24 constitute management compensatory plans
or contracts.
(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 Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995,
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 December 31, 1994,
and incorporated herein by reference.
(4) Previously filed as an exhibit to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1997
and incorporated herein by reference.
(5) Previously filed as an exhibit to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1997
and incorporated herein by reference.
(6) Previously filed as an exhibit to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1998
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 September 30, 1998
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 December 31, 1998
and incorporated herein by reference.
(9) Previously filed as an exhibit to the Registrant's Report on
Form 8-K filed on June 4, 1999, and incorporated herein by
reference.
(10) Filed herewith.
(11) Included with EDGAR version only.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION [STAMP]
OF
CELEBRITY, INC.
ARTICLE ONE
Celebrity, Inc., a Texas corporation (the "Corporation"), pursuant to
the provisions of Article 4.07 of the Texas Business Corporation Act, hereby
adopts the attached Amended and Restated Articles of Incorporation that
accurately copy the Articles of Incorporation of the Corporation and all
previous amendments thereto and further amend the Articles of Incorporation as
provided therein (these "Restated Articles"). These Restated Articles contain no
other change in any provision of the Articles of Incorporation.
ARTICLE TWO
The Articles of Incorporation of the Corporation are hereby amended by
these Restated Articles as follows:
(1) Article Four is amended to effect a four-to-one reverse stock
split of the issued common stock, par value $.01 per share (the
"Old Common Stock"), of the Corporation, while maintaining the
current number of authorized shares of each class of capital
stock and their respective par values. Effective as of the close
of business on the date of filing these Restated Articles (the
"Effective Time"), the filing of these Restated Articles shall
effect a reverse stock split (the "Reverse Stock Split") pursuant
to which each share of Old Common Stock currently issued shall be
reclassified and converted into one-fourth of a share of common
stock, par value $.01 per share (the "New Common Stock"), of the
Corporation, thereby reducing the number of issued shares of
Common Stock from 6,176,655 to 1,544,164 (with any fractional
share equal to or greater than one-half being rounded up to the
nearest whole share and any fractional share less than one-half
being rounded down to the nearest whole share). Each stock
certificate that prior to the Effective Time represented shares
of Old Common Stock shall, following the Effective Time,
represent the number of shares of New Common Stock into which
such shares of Old Common Stock shall have been converted.
(2) Article Six is amended to eliminate the name and address of the
sole member of the Board of Directors in place at the time the
Articles of Incorporation of the Corporation were previously
restated, and now reflects the names and addresses of the current
members of the Board of Directors of the Corporation.
(3) Articles Seven and Twelve are amended to effect certain technical
changes.
<PAGE> 2
ARTICLE THREE
Each amendment made by these Restated Articles has been effected in
conformity with the provisions of the Texas Business Corporation Act. The number
of shares of Common Stock outstanding at the time these Restated Articles were
adopted was 6,176,655, and the number of shares of such Common Stock entitled to
vote on the Restated Articles as so amended was 6,176,655. At a meeting held on
the date these Restated Articles were filed, the shareholders of the Corporation
voted for and against the Restated Articles as follows:
<TABLE>
<CAPTION>
CLASS FOR AGAINST
----- --- -------
<S> <C> <C>
Common Stock 5,571,744 207,196
</TABLE>
ARTICLE FOUR
These Restated Articles maintain the par value of the Common Stock at
$.01 per share and effect a reverse stock split of the Old Common Stock in the
ratio of four-to-one. Accordingly, the stated capital of the Corporation has
been decreased from $61,766.55 to $15,441.64, with $46,324.91 being transferred
to the Corporation's capital surplus.
ARTICLE FIVE
The Articles of Incorporation and all of the amendments and supplements
thereto are hereby superseded by the attached Amended and Restated Articles of
Incorporation, which accurately copy the entire text thereof, as amended as
above set forth.
EXECUTED as of the 26th day of February, 1999.
CELEBRITY, INC.
By /s/ LYNN SKILLEN
---------------------------------
Lynn Skillen
Vice President - Finance, Chief
Financial Officer, Treasurer
and Secretary
<PAGE> 3
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CELEBRITY, INC.
ARTICLE ONE
The name of the Corporation is Celebrity, Inc.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose for which the Corporation is organized is the transaction
of any or all lawful business for which corporations may be incorporated under
the Texas Business Corporation Act.
ARTICLE FOUR
The aggregate number of shares of capital stock that the Corporation
will have authority to issue is 35,000,000, 25,000,000 of which will be shares
of Common Stock, having a par value of $.01 per share, and 10,000,000 of which
will be shares of preferred stock, having a par value of $.01 per share.
Preferred stock may be issued in one or more series as may be
determined from time to time by the Board of Directors. All shares of any one
series of preferred stock will be identical except as to the date of issue and
the dates from which dividends on shares of the series issued on different dates
will cumulate, if cumulative. Authority is hereby expressly granted to the Board
of Directors to authorize the issuance of one or more series of preferred stock,
and to fix by resolution or resolutions providing for the issue of each such
series the voting powers, designations, preferences, and relative,
participating, optional, redemption, conversion, exchange or other special
rights, qualifications, limitations or restrictions of such series, and the
number of shares in each series, to the full extent now or hereafter permitted
by law.
Effective as of the close of business on the date of filing these
Restated Articles (the "Effective Time"), the filing of these Restated Articles
shall effect a reverse stock split (the "Reverse Stock Split") pursuant to which
each share of common stock, par value $.01 per share (the "Old Common Stock"),
of the Corporation currently issued shall be reclassified and converted into
one-fourth of a share of common stock, par value $.01 per share (the "New Common
Stock"), of the
<PAGE> 4
Corporation, thereby reducing the number of issued shares of Common Stock from
6,176,655 to 1,544,164 (with any fractional share equal to or greater than
one-half being rounded up to the nearest whole share and any fractional share
less than one-half being rounded down to the nearest whole share). The number of
authorized shares and the par value of the New Common Stock as set forth in the
first paragraph of this Article Four shall not be affected by the Reverse Stock
Split. Each stock certificate that prior to the Effective Time represented
shares of Old Common Stock shall, following the Effective Time, represent the
number of shares of New Common Stock into which such shares of Old Common Stock
shall have been converted.
ARTICLE FIVE
The post office address of the Corporation's registered office is 350
North St. Paul, Dallas, Texas 75201, and the name of its registered agent at
such address is CT Corporation.
ARTICLE SIX
The number of directors of the Corporation shall be specified or
determined in the manner provided in the Bylaws, and such number may from time
to time be increased or decreased in such manner as may be prescribed in the
Bylaws. The names and addresses of the current members of the Board of Directors
who will serve as such until the next annual meeting of shareholders or until
their respective successors are elected and qualified, are as follows:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Robert H. Patterson, Jr. 4520 Old Troup Road
Tyler, Texas 75707
Post Office address:
P.O. Box 6666
Tyler, Texas 75711
Richard Yuen 4520 Old Troup Road
Tyler, Texas 75707
Post Office address:
P.O. Box 6666
Tyler, Texas 75711
B. D. Hunter 4520 Old Troup Road
Tyler, Texas 75707
Post Office address:
P.O. Box 6666
Tyler, Texas 75711
</TABLE>
<PAGE> 5
C. A. Langner 4520 Old Troup Road
Tyler, Texas 75707
Post Office address:
P.O. Box 6666
Tyler, Texas 75711
Valerie Anne Mars 4520 Old Troup Road
Tyler, Texas 75707
Post Office address:
P.O. Box 6666
Tyler, Texas 75711
ARTICLE SEVEN
No shareholder of the Corporation will, solely by reason of holding
shares of any class, have any preemptive or preferential right to purchase or
subscribe for any shares of the Corporation, now or hereafter to be authorized,
or any notes, debentures, bonds or other securities convertible into or carrying
warrants, rights or options to purchase shares of any class, now or hereafter to
be authorized, whether or not the issuance of any such shares or such notes,
debentures, bonds or other securities would adversely affect the dividend,
voting or any other rights of such shareholder. The Board of Directors may
authorize the issuance of, and the Corporation may issue, shares of any class of
stock of the Corporation, or any notes, debentures, bonds or other securities
convertible into or carrying warrants, rights or options to purchase any such
shares, without offering any shares of any class to the existing holders of any
class of stock of the Corporation.
ARTICLE EIGHT
Shareholders of the Corporation will not have the right of cumulative
voting for the election of directors or for any other purpose.
ARTICLE NINE
The Board of Directors is expressly authorized to alter, amend or
repeal the Bylaws of the Corporation or to adopt new Bylaws.
ARTICLE TEN
In addition to any other manner of calling a special meeting of
shareholders that may be set forth in the Bylaws of the Corporation, a special
meeting of shareholders may be called at the request of the holders of at least
50% of all shares issued, outstanding and entitled to vote.
<PAGE> 6
ARTICLE ELEVEN
Any action required or permitted by law, these Articles of
Incorporation or the Bylaws of the Corporation to be taken at a meeting of the
shareholders of the Corporation may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall have been signed by the holder or holders of shares
having not less than the minimum number of votes that would be necessary to take
such action at a meeting at which the holders of all shares entitled to vote on
the action were present and voted. Prompt notice of the taking of any action by
shareholders without a meeting by less than unanimous written consent shall be
given to those shareholders who did not consent in writing to the action.
ARTICLE TWELVE
(a) The Corporation will, to the fullest extent permitted by the Texas
Business Corporation Act, as the same exists or may hereafter be amended,
indemnify any and all persons it has power to indemnify under such Act from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by such Act. Such indemnification (i) may be provided pursuant to any
Bylaw, agreement, vote of shareholders or disinterested directors or otherwise,
both as to action in a director or officer capacity and as to action in another
capacity while holding such office, (ii) will continue as to a person who has
ceased to be a director, officer, employee or agent, and (iii) will inure to the
benefit of the heirs, executors and administrators of such a person.
(b) If a claim under paragraph (a) of this Article is not paid in full
by the Corporation within 30 days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant will be entitled to be paid also the expense of
prosecuting such claim. It will be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct that make it permissible under the laws of the
State of Texas for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense will be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because the claimant has met the applicable standard
of conduct set forth in the laws of the State of Texas nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its shareholders) that the claimant has not met such
applicable standard of conduct, will be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
<PAGE> 7
ARTICLE THIRTEEN
To the fullest extent permitted by the laws of the State of Texas as
the same exist or may hereafter be amended, a director of the Corporation will
not be liable to the Corporation or its shareholders for monetary damages for an
act or omission in the director's capacity as a director. Any repeal or
modification of this Article will not increase the personal liability of any
director of the Corporation for any act or occurrence taking place before such
repeal or modification, or adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
The provisions of this Article shall not be deemed to limit or preclude
indemnification of a director by the Corporation for any liability of a director
that has not been eliminated by the provisions of this Article.
ARTICLE FOURTEEN
With respect to any matter, a quorum will be present at a meeting of
shareholders if the holders of one-third of the shares entitled to vote on that
matter are represented at the meeting in person or by proxy.
EXECUTED as of the 26th day of February, 1999.
By /s/ LYNN SKILLEN
---------------------------------
Lynn Skillen
Vice President - Finance, Chief
Financial Officer, Treasurer
and Secretary
<PAGE> 1
EXHIBIT 3.2
ARTICLES OF CORRECTION
OF [STAMP]
CELEBRITY, INC.
This correction is submitted pursuant to article 1302-7.02 of the Texas
Miscellaneous Corporation Laws Act, by Celebrity, Inc., a Texas corporation, to
correct a document that is an inaccurate record of an entity action, contains an
inaccurate or erroneous statement, or was defectively or erroneously executed,
sealed, acknowledged or verified.
ARTICLE ONE
The name of the entity is Celebrity, Inc. (the "Corporation").
ARTICLE TWO
The document to be corrected is the Corporation's Amended and Restated
Articles of Incorporation (the "Restated Articles"), which instrument was filed
in the Office of the Secretary of State of Texas on the 26th day of February,
1999.
ARTICLE THREE
The inaccuracy to be corrected is contained in the third paragraph of
Article Four. The third paragraph of Article Four incorrectly states the number
of shares of new common stock, par value $.01 per share (the "New Common
Stock"), of the Corporation to be issued pursuant to the four-to-one reverse
stock split (the "Reverse Split"), effectuated by the Restated Articles as
1,544,164 shares. The correct number of shares of New Common Stock to be issued
pursuant to the Reverse Split is 1,544,166 shares.
ARTICLE FOUR
As corrected, the inaccurate, erroneous or defective portion of the
document reads as follows:
ARTICLE FOUR
The aggregate number of shares of capital stock that the Corporation
will have authority to issue is 35,000,000, 25,000,000 of which will be
shares of Common Stock, having a par value of $.01 per share, and 10,000,000
of which will be shares of preferred stock, having a par value of $.01 per
share.
Preferred stock may be issued in one or more series as may be
determined from time to time by the Board of Directors. All shares of any
one series of preferred stock will be
<PAGE> 2
identical except as to the date of issue and the dates from which dividends on
shares of the series issued on different dates will cumulate, if cumulative.
Authority is hereby expressly granted to the Board of Directors to authorize
the issuance of one or more series of preferred stock, and to fix by resolution
or resolutions providing for the issue of each such series the voting powers,
designations, preferences, and relative, participating, optional, redemption,
conversion, exchange or other special rights, qualifications, limitations or
restrictions of such series, and the number of shares in each series, to the
full extent now or hereafter permitted by law.
Effective as of the close of business on the date of filing these
Restated Articles (the "Effective Time"), the filing of these Restated Articles
shall effect a reverse stock split (the "Reverse Stock Split") pursuant to which
each share of common stock, par value $.01 per share (the "Old Common Stock"),
of the Corporation currently issued shall be reclassified and converted into
one-fourth of a share of common stock, par value $.01 per share (the "New Common
Stock"), of the Corporation, thereby reducing the number of issued shares of
Common Stock from 6,176,655 to 1,544,166 (with any fractional share equal to or
greater than one-half being rounded up to the nearest whole share and any
fractional share less than one-half being rounded down to the nearest whole
share). The number of authorized shares and the par value of the New Common
Stock as set forth in the first paragraph of this Article Four shall not be
affected by the Reverse Stock Split. Each stock certificate that prior to the
Effective Time represented shares of Old Common Stock shall, following the
Effective Time, represent the number of shares of New Common Stock into which
such shares of Old Common Stock shall have been converted.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Correction to be executed on its behalf by the undersigned officer effective as
of March 26, 1999.
CELEBRITY, INC.
By: /s/ ROBERT H. PATTERSON, JR.
---------------------------------
Robert H. Patterson, Jr.
Chairman of the Board, President
and Chief Executive Officer
-2-
<PAGE> 1
EXHIBIT 10.10
AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT
This Amendment Number One to Loan and Security Agreement ("Amendment")
is entered into as of June 5, 1998, by and between FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), and Celebrity, Inc., a
Texas corporation, and certain of its subsidiaries (collectively, the
"Borrowers"), in light of the following:
FACT ONE: Borrowers and Foothill have previously entered into that
certain Loan and Security Agreement, dated as of January 30, 1998 (the
"Agreement").
FACT TWO: Borrowers and Foothill desire to amend the Agreement as
provided for and on the conditions herein.
NOW, THEREFORE, Borrowers and Foothill hereby amend and supplement the
Agreement as follows:
1. DEFINITIONS. All initially capitalized terms used in this Amendment
shall have the meanings given to them in the Agreement unless specifically
defined herein.
2. AMENDMENTS.
2.1 Paragraph (h) of the definition of "Eligible Accounts"
contained in Section 1.1 of the Agreement is hereby amended by raising the
maximum permitted concentration ratio for Michaels Stores, Inc. to 45% from its
present 35%.
2.2 Clause (b) of the definition of "Excess Availability" is hereby
amended in its entirety to read as follows:
(b) the aggregate amount of the outstanding Obligations (including
Letters of Credit).
2.3 The following new definition is hereby added to Section 1.1 of
the Agreement:
"Patterson Senior Loan" means the senior unsecured Indebtedness of
Borrowers owing to Robert Patterson, not to exceed $500,000 at any one
time, which amount shall be due and payable on or before December 31,
2000.
2.4 Section 2.3 of the Agreement is hereby amended in its entirety
to read as follows:
1
<PAGE> 2
2.3 TERM LOAN. Foothill has agreed to make a term loan (the "Term
Loan") to Borrowers in the original principal amount of $3,500,000. The
Term Loan shall be repaid in monthly installments of principal commencing
May 1, 1998 and continuing on the first day of each succeeding month until
and including the date on which the unpaid balance of the Term Loan is paid
in full. The first 17 installments shall be in the amount of $200,000 each,
and the final installment shall be in the amount of $100,000. The
outstanding principal balance and all accrued and unpaid interest under the
Term Loan shall be due and payable upon the earlier of (a) October 1, 1999
or (b) the termination of this Agreement, whether by its terms, by
prepayment, by acceleration, or otherwise. The unpaid principal balance of
the Term Loan may be prepaid in whole or in part without penalty or premium
at any time during the term of this Agreement upon 30 days prior written
notice by Borrowers to Foothill, all such prepaid amounts to be applied to
the installments due on the Term Loan in the inverse order of their
maturity. All amounts outstanding under the Term Loan shall constitute
Obligations.
2.5 Section 3.3(e) of the Agreement is hereby amended in its entirety
to read as follows:
(e) by April 15, 1999 Foothill shall have received from Celebrity a
business plan (with projections) for Borrowers reflecting periods through
June 30, 2000, and by April 15, 2000 Foothill shall have received from
Celebrity a business plan (with projections) for Borrowers reflecting
periods through June 30, 2001, in each case acceptable to Foothill in its
sole discretion.
2.6 Section 7.1(e) is hereby deleted and replaced with the following:
(e) the Patterson Senior Loan; and
(f) refinancings, renewals, or extensions of Indebtedness permitted
under clauses (b), (c) or (d) of this Section 7.1 (and continuance or
renewal of any Permitted Liens associated therewith) so long as: (i) the
terms and conditions of such refinancings, renewals, or extensions do not
materially impair the prospects of repayment of the Obligations by
Borrowers, (ii) the net cash proceeds of such refinancings, renewals, or
extensions do not result in an increase in the aggregate principal amount
of the Indebtedness so refinanced, renewed, or extended, except for the
refinancing of the Senior Real Estate Loan, which refinancing may be for an
amount up to the appraised fair market value of the real property securing
such Indebtedness, (iii) such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted maturity
of the Indebtedness so
2
<PAGE> 3
refinanced, renewed, or extended, and (iv) to the extent that Indebtedness
that is refinanced was subordinated in right of payment to the Obligations,
then the subordination terms and conditions of the refinancing Indebtedness
must be at least as favorable to Foothill as those applicable to the
refinanced Indebtedness.
2.7 the reference to Section 7.1(e) contained in Section 7.2 of the
Agreement is hereby amended to refer to Section 7.1(f).
2.8 Section 7.8(a) of the Agreement is hereby amended in its
entirety to read as follows:
(a) Prepay, redeem, retire, defease, purchase, or otherwise acquire
any Indebtedness owing to any Person, except (i) payments of the
Obligations in accordance with this Agreement, (ii) in connection with a
refinancing permitted by Section 7.1(f); (iii) prepayments of the Senior
Real Estate Loan from a Permitted Sale/Leaseback; (iv) in connection with
Permitted Equipment Dispositions; and, (v) upon prior notice to Foothill
specifying such contemplated payment, and so long as no Event of Default
has occurred and is continuing (or would arise from the making of such
payment), repayments of the Patterson Senior Loan from Borrowers' borrowing
availability hereunder, and the repayment of the $500,000 Indebtedness
owing to RHP Management, LLC, in monthly installments not to exceed
$125,000 each, pursuant to the terms of the Subordination Agreement, and
2.9 Section 7.20(c) of the Agreement is hereby amended in its
entirety to read as follows:
(c) Tangible Net Worth. Tangible Net Worth of at least the following
amounts as of the following dates:
<TABLE>
<CAPTION>
Date Minimum Tangible Net Worth
---- --------------------------
<S> <C>
June 30, 1998 $ 5,000,000
September 30, 1998 $ 5,000,000
December 31, 1998 $ 5,000,000
March 31, 1999 $ 5,000,000
June 30, 1999 $ 5,000,000
</TABLE>
Borrowers acknowledge that Foothill will establish appropriate levels for
this financial covenant for quarterly periods beyond June 30, 1999 upon
receipt and approval of the Borrowers' business plan required under Section
3.3(e). Such extensions of this financial covenant will be determined by
Foothill in
3
<PAGE> 4
its reasonable credit judgment (based on no more than 85% of projected
performance) and this Section 7.20 will be amended accordingly upon
Foothill's notification to Celebrity of such levels without any
requirement of Borrowers' further consent thereto.
2.10 Section 7.20(d) of the Agreement is hereby amended in its
entirety to read as follows:
(d) EBITDA. EBITDA of at least the following amounts as of the
following dates:
<TABLE>
<CAPTION>
Date Minimum EBITDA
---- --------------
<S> <C>
June 30, 1998 ($ 3,500,000)
September 30, 1998 $ 1,500,000
December 31, 1998 $ 1,100,000
March 31, 1999 $ 500,000
June 30, 1999 $ 1,300,000
</TABLE>
Borrowers acknowledge that Foothill will establish appropriate levels
for this financial covenant for quarterly periods beyond June 30, 1999
upon receipt and approval of the Borrowers' business plan required
under Section 3.3(e). Such extensions of this financial covenant will
be determined by Foothill in its reasonable credit judgment (based on
no more than 85% of projected performance) and this Section 7.20 will
be amended accordingly upon Foothill's notification to Celebrity of
such levels without any requirement of Borrowers' further consent
thereto.
3. REPRESENTATIONS AND WARRANTIES. Each Borrower hereby affirms to
Foothill that all of such Borrower's representations and warranties set forth
in the Agreement are true, complete and accurate in all respects as of the date
hereof.
4. NO DEFAULTS. Each Borrower hereby affirms to Foothill that no
Event of Default has occurred and is continuing as of the date hereof.
5. CONDITION PRECEDENT. The effectiveness of this Amendment is
expressly conditioned upon the receipt by Foothill of an executed copy of this
Amendment.
6. COSTS AND EXPENSES. Borrowers shall pay to Foothill all of
Foothill's out-of-pocket costs and expenses (including, without limitation, the
fees and expenses of its counsel, which counsel may include any local counsel
deemed necessary, search fees, filing and recording fees, documentation fees,
appraisal fees, travel expenses, and other fees) arising in connection with the
preparation, execution, and delivery of this Amendment and all related
documents.
4
<PAGE> 5
7. LIMITED EFFECT. In the event of a conflict between the terms and
provisions of this Amendment and the terms and provisions of the Agreement, the
terms and provisions of this Amendment shall govern. In all other respects, the
Agreement, as amended and supplemented hereby, shall remain in full force and
effect.
8. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in
any number of counterparts and by different parties on separate counterparts,
each of which when so executed and delivered shall be deemed to be an original.
All such counterparts, taken together, shall constitute but one and the same
Amendment. This Amendment shall become effective upon the execution of a
counterpart of this Amendment by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the date first set forth above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ ALBERT R. JOSEPH
------------------------------
Title: Vice President
---------------------------
CELEBRITY, INC.,
a Texas corporation
By: /s/ ROBERT H. PATTERSON, JR.
------------------------------
Title: Chairman
---------------------------
THE CLUETT CORPORATION,
a California corporation
By: /s/ ROBERT H. PATTERSON, JR.
------------------------------
Title: Chairman
---------------------------
5
<PAGE> 6
STAR WHOLESALE FLORIST, INC.,
a Texas corporation
By /s/ ROBERT H. PATTERSON JR.
-----------------------------
Title: President
-------------------------
INDIA EXOTICS, INC.,
a Texas corporation
By /s/ ROBERT H. PATTERSON JR.
-----------------------------
Title: Chairman
-------------------------
VALUE FLORIST SUPPLIES, INC.,
a Texas corporation
By /s/ ROBERT H. PATTERSON JR.
-----------------------------
Title: President
-------------------------
6
<PAGE> 7
The undersigned has executed a Continuing Guaranty in favor of
Foothill Capital Corporation ("Foothill") respecting the obligations of the
above-referenced Borrowers owing to Foothill. The undersigned acknowledges the
terms of the above Amendment and reaffirms and agrees that: its Continuing
Guaranty remains in full force and effect; nothing in such Continuing Guaranty
obligates Foothill to notify the undersigned of any changes in the financial
accommodations made available to the Borrowers or to seek reaffirmations of the
Continuing Guaranty; and no requirement to so notify the undersigned or to seek
reaffirmations in the future shall be implied by the execution of this
reaffirmation.
MAGICSILK, INC.,
a Texas corporation
By: /s/ ROBERT H. PATTERSON, JR.
-------------------------------
Name: Robert H. Patterson, Jr.
-----------------------------
Title: President
----------------------------
7
<PAGE> 1
EXHIBIT 10.11
AMENDMENT NUMBER TWO TO LOAN AND SECURITY AGREEMENT
This Amendment Number Two to Loan and Security Agreement ("Amendment")
is entered into as of July 7, 1998, by and between FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), and CELEBRITY, INC., a
Texas corporation, and certain of its subsidiaries (collectively, the
"Borrowers"), in light of the following:
FACT ONE: Borrowers and Foothill have previously entered into that
certain Loan and Security Agreement, dated as of January 30, 1998 as amended by
Amendment Number One to Loan and Security Agreement, dated as of June 5, 1998
(the "Agreement").
FACT TWO: Borrowers and Foothill desire to amend the Agreement as
provided for and on the conditions herein.
NOW, THEREFORE, Borrowers and Foothill hereby amend and supplement the
Agreement as follows:
1. DEFINITIONS. All initially capitalized terms used in this
Amendment shall have the meanings given to them in the Agreement unless
specifically defined herein.
2. AMENDMENTS.
2.1 Section 1.1 of the Agreement is hereby amended by adding
the following new definitions thereto:
"Bridge Advances" means Advances made pursuant to
Section 2.1(a)(w).
"Bridge Limit" means the following amounts during the
following periods:
Period Bridge Limit
------ ------------
July 7, 1998 through October 10, 1998 $1,000,000
October 11, 1998 through October 17, 1998 $ 750,000
October 18, 1998 through October 24, 1998 $ 500,000
October 25, 1998 through October 31, 1998 $ 250,000
November 1, 1998 and thereafter $ 0 ;
<PAGE> 2
provided, however, that on the consummation of the Permitted
Sale/Leaseback, irrespective of whether that occurs prior to November
1, 1998, the Bridge Limit shall be $0.
"Bridge Period" means the period of time commencing on June
15, 1998 and ending on the earlier to occur of (a) October 31, 1998,
and (b) the consummation of the Permitted Sale/Leaseback.
"Color Concepts Inventory" means any Inventory of Exotics
that was purchased by Celebrity pursuant to the Color Concepts
Purchase, and any Inventory of the "Color Concepts" division of
Celebrity purchased subsequent to the Color Concepts Purchase that is
of the same type as that purchased by Exotics prior to the Color
Concepts Purchase and that is stored and reported separately from all
other Inventory of Celebrity.
"Color Concepts Purchase" means the purchase by Celebrity of
substantially all of the Equipment and Inventory of Exotics, at book
value and on other terms and conditions disclosed in advance and
reasonably acceptable to Foothill.
"RHP" means RHP Management, LLC, a Texas limited liability
company.
"RHP Loan" means that certain $500,000 loan by RHP to
Celebrity, dated on or about December 10, 1997 and evidenced by a
Promissory Note, Amended and Restated as of such date.
"RHP Senior Loan" means that certain $500,000 loan by RHP to
Celebrity, dated on or about July 7, 1998 and evidenced by a
Promissory Note as of such date.
2.2 The definition of "Excess Availability" is hereby amended
to read as follows:
"Excess Availability" means the amount, as determined by
Foothill at any time, equal to: (a) (i) the amount of the Advances
available to Borrowers as of such time based upon the applicable
lending formulas set forth in Section 2.1 (exclusive of clause (w)
thereof), subject to the sublimits and reserves from time to time
established in accordance with Sections 2.1(b), 6.15 and 10, minus (b)
the sum of (i) the amount of the outstanding Obligations (including
Letters of Credit), plus (ii) the aggregate amount of trade payables
payable by Borrowers that are more than 90 days from invoice date.
2
<PAGE> 3
2.3 The definition of "Subordination Agreement" is hereby
amended to read as follows:
"Subordination Agreement" means that certain Amended and
Restated Subordination Agreement, dated on or about July 7, 1998
between Foothill and RHP.
2.4 Section 2.1(a) of the Agreement is hereby amended to
read as follows:
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to make advances ("Advances") to Borrowers in an
amount outstanding not to exceed at any one time the lesser of (i) the
Maximum Revolving Amount less the outstanding balance of all undrawn
or unreimbursed Letters of Credit, or (ii) the Borrowing Base less (A)
the aggregate amount of all undrawn or unreimbursed Letters of Credit
(other than Inventory Letters of Credit), less (B) 35% of the
aggregate amount of all undrawn or unreimbursed Inventory Letters of
Credit issued respecting Inventory of Celebrity (other than the Color
Concepts Inventory), Florist Supplies, or Star, and less (C) 50% of
the aggregate amount of all undrawn and unreimbursed Inventory Letters
of Credit issued respecting Inventory of Cluett, and less (D) 70% of
the aggregate amount of all undrawn or unreimbursed Inventory Letters
of Credit issued respecting Inventory of Exotics or Color Concepts
Inventory. For purposes of this Agreement, "Borrowing Base", as of any
date of determination, shall mean the result of:
(w) the Bridge Limit (during the Bridge Period only), plus
(x) the lesser of (i) (1) 50% of the value of the
MJDesigns Account (so long as it remains an Eligible Account) plus (2)
85% of all other Eligible Accounts, less (3) the amount, if any, of
the Dilution Reserve, and (ii) an amount equal to Borrowers'
Collections with respect to Accounts for the immediately preceding 90
day period, plus
(y) the least of (i) 1.50 times the credit availability
created by clause (x) above, (ii) $17,500,000, and (iii) 65% of the
Value of Eligible Inventory of Celebrity (other than the Color
Concepts Inventory), Florist Supplies, and Star plus 50% of the Value
of Eligible Inventory of Cluett plus 30% of the Value of Eligible
Inventory of Exotics and the Color Concepts Inventory (but in no event
shall Advances against Eligible In-Transit Inventory of Borrowers
exceed, in the aggregate at any one time, $2,500,000, and in no event
shall the aggregate Advances against Eligible Inventory of Borrowers,
plus the outstanding principal balance of the Term Loan, exceed, at
any one time, the lower of: (1) the applicable OLV Multiplier times
the OLV of Borrowers' Inventory or (2) the applicable
3
<PAGE> 4
Value Multiplier times the Value of Borrowers' Inventory) minus the
amount of the Inventory Reserve (if any), minus
(z) the aggregate amount of reserves, if any, established
by Foothill under Sections 2.1(b), 6.15 and 10.
2.5 Section 2.2(a)(i) of the Agreement is hereby amended to
read as follows:
(i) the sum of 35% of the aggregate amount of all undrawn
and unreimbursed Inventory Letters of Credit issued respecting
Inventory of Celebrity (other than the Color Concepts Inventory),
Florist Supplies, or Star, plus 50% of the aggregate amount of all
undrawn and unreimbursed Inventory Letters of Credit issued respecting
Inventory of Cluett, plus 70% of the aggregate amount of all undrawn
and unreimbursed Inventory Letters of Credit issued respecting
Inventory of Exotics and the Color Concepts Inventory, plus 100% of
the aggregate amount of all other types of undrawn and unreimbursed
Letters of Credit, would exceed the Borrowing Base less the amount of
outstanding Advances; or
2.6 Sections 2.6(a) and 2.6(c) of the Agreement are hereby
amended to read as follows:
(a) Interest Rate. Except as provided in clause (c) below,
(i) all Obligations (except for undrawn Letters of Credit, Bridge
Advances, and the Term Loan) shall bear interest on the Daily Balance
at a per annum rate of 1.50 percentage points above the Reference
Rate, and (ii) Bridge Advances and the Term Loan shall bear interest
at a per annum rate of 12.5%.
. . .
(c) Default Rate. Upon the occurrence and during the
continuation of an Event of Default, (i) all Obligations (except for
undrawn Letters of Credit, Bridge Advances, and the Term Loan) shall
bear interest on the Daily Balance at a per annum rate equal to 4.50
percentage points above the Reference Rate, and (ii) Bridge Advances
and the Term Loan shall bear interest at a per annum rate equal to
15.5%, and (iii) the Letter of Credit fee provided in Section 2.6(b)
shall be increased to 4.50% per annum times the aggregate undrawn
amount of all Letters of Credit outstanding as of the end of each day.
2.7 Section 7.1(e) of the Agreement is hereby amended to
read as follows:
(e) the RHP Loan and the RHP Senior Loan;
4
<PAGE> 5
2.8 Section 7.8(a) of the Agreement is hereby amended in its
entirety to read as follows:
(a) Prepay, redeem, retire, defease, purchase, or otherwise
acquire any Indebtedness owing to any Person, except (i) payments of
the Obligations in accordance with this Agreement, (ii) in connection
with a refinancing permitted by Section 7.1(f); (iii) prepayments of
the Senior Real Estate Loan from a Permitted Sale/Leaseback; (iv) in
connection with Permitted Equipment Dispositions; and, (v) upon prior
notice to Foothill specifying such contemplated payment, and so long
as no Event of Default has occurred and is continuing (or would arise
from the making of such payment), repayments of the RHP Senior Loan
and the RHP Loan, pursuant to the terms of the Subordination
Agreement, and
2.9 Section 8.13 of the Agreement is hereby amended to read
as follows:
8.13 If the obligation of any guarantor under its guaranty,
of RHP under the Subordination Agreement, or of any other third Person
under any Loan Document is breached, limited or terminated by
operation of law or by the guarantor, the subordinating creditor, or
such other third Person thereunder, or any such guarantor, such
subordinating creditor or other third Person becomes the subject of an
Insolvency Proceeding.
3. COLOR CONCEPTS PURCHASE. Notwithstanding anything contained in the
Agreement to the contrary, Foothill hereby consents to the Color Concepts
Purchase, provided that all material terms thereof are disclosed in writing to
Foothill and are reasonably acceptable to Foothill, as confirmed by Foothill in
writing, prior to the consummation of such transaction.
4. REPRESENTATIONS AND WARRANTIES. Each Borrower hereby affirms to
Foothill that all of such Borrower's representations and warranties set forth
in the Agreement are true, complete and accurate in all respects as of the date
hereof.
5. NO DEFAULTS. Each Borrower hereby affirms to Foothill that no Event
of Default has occurred and is continuing as of the date hereof.
6. CONDITION PRECEDENT. The effectiveness of this Amendment is
expressly conditioned upon the receipt by Foothill of:
(a) an executed copy of this Amendment;
(b) an availability forecast through September 30, 1998,
satisfactory to Foothill;
5
<PAGE> 6
(c) a release, fully executed by the Borrowers and RHP,
satisfactory to Foothill;
(d) a fully executed Subordination Agreement;
(e) a copy of the promissory note evidencing the RHP Senior
Loan bearing the legend thereon required by the Subordination Agreement and
evidence that the RHP Senior Loan has been fully funded; and
(f) a fully executed copy of Borrowers' engagement letter
with American Corporate Real Estate, Inc., or a similar firm acceptable to
Foothill, pursuant to which Borrowers have engaged such firm to conduct the
Permitted Sale/Leaseback, which letter is satisfactory to Foothill.
7. COSTS AND EXPENSES. Borrowers shall pay to Foothill all of
Foothill's out-of-pocket costs and expenses (including, without limitation, the
fees and expenses of its counsel, which counsel may include any local counsel
deemed necessary, search fees, filing and recording fees, documentation fees,
appraisal fees, travel expenses, and other fees) arising in connection with the
preparation, execution, and delivery of this Amendment and all related
documents.
8. LIMITED EFFECT. In the event of a conflict between the terms and
provisions of this Amendment and the terms and provisions of the Agreement, the
terms and provisions of this Amendment shall govern. In all other respects, the
Agreement, as amended and supplemented hereby, shall remain in full force and
effect.
9. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which when so executed and delivered shall be deemed to be an original. All
such
6
<PAGE> 7
counterparts, taken together, shall constitute but one and the same Amendment.
This Amendment shall become effective upon the execution of a counterpart of
this Amendment by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first set forth above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ ALBERT R. JOSEPH
--------------------------------
Title: Vice President
------------------------------
CELEBRITY, INC.,
a Texas corporation
By: /s/ ROBERT H. PATTERSON JR.
--------------------------------
Title: Chairman
------------------------------
THE CLUETT CORPORATION,
a California corporation
By: /s/ ROBERT H. PATTERSON JR.
--------------------------------
Title: Chairman
------------------------------
STAR WHOLESALE FLORIST, INC.,
a Texas corporation
By: /s/ ROBERT H. PATTERSON JR.
--------------------------------
Title: President
------------------------------
7
<PAGE> 8
INDIA EXOTICS, INC.,
a Texas corporation
By: /s/ ROBERT H. PATTERSON JR.
--------------------------------
Title: Chairman
------------------------------
VALUE FLORIST SUPPLIES, INC.,
a Texas corporation
By: /s/ ROBERT H. PATTERSON JR.
--------------------------------
Title: President
------------------------------
The undersigned has executed a Continuing Guaranty in favor of
Foothill Capital Corporation ("Foothill") respecting the obligations of the
above-referenced Borrowers owing to Foothill. The undersigned acknowledges the
terms of the above Amendment and reaffirms and agrees that: its Continuing
Guaranty remains in full force and effect; nothing in such Continuing Guaranty
obligates Foothill to notify the undersigned of any changes in the financial
accommodations made available to the Borrowers or to seek reaffirmations of the
Continuing Guaranty; and no requirement to so notify the undersigned or to seek
reaffirmations in the future shall be implied by the execution of this
reaffirmation.
MAGICSILK, INC.,
a Texas corporation
By: /s/ ROBERT H. PATTERSON JR.
----------------------------
Name: Robert H. Patterson Jr.
--------------------------
Title: Chairman
-------------------------
8
<PAGE> 1
EXHIBIT 10.13
================================================================================
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
AMONG
CELEBRITY, INC.,
THE CLUETT CORPORATION,
STAR WHOLESALE FLORIST, INC.,
VALUE FLORIST SUPPLIES, INC.,
AND
INDIA EXOTICS, INC.,
AS BORROWERS, ON THE ONE HAND,
AND
FOOTHILL CAPITAL CORPORATION,
ON THE OTHER HAND
DATED AS OF JULY 15, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
1. DEFINITIONS AND CONSTRUCTION.......................................................................1
1.1 Definitions...............................................................................1
1.2 Accounting Terms.........................................................................20
1.3 Code.....................................................................................20
1.4 Construction.............................................................................20
1.5 Schedules and Exhibits...................................................................20
2. LOAN AND TERMS OF PAYMENT.........................................................................20
2.1 Revolving Advances.......................................................................20
2.2 Letters of Credit........................................................................21
2.3 [Intentionally Deleted]..................................................................24
2.4 [Intentionally Deleted]..................................................................24
2.5 Overadvances.............................................................................24
2.6 Interest and Letter of Credit Fees: Rates, Payments, and
Calculations.............................................................................24
2.7 Collection of Accounts...................................................................26
2.8 Crediting Payments; Application of Collections...........................................26
2.9 Designated Account.......................................................................27
2.10 Maintenance of Loan Account; Statements of Obligations...................................27
2.11 Fees.....................................................................................27
3. CONDITIONS; TERM OF AGREEMENT.....................................................................28
3.1 Conditions Precedent to the Effectiveness of this Agreement..............................28
3.2 Conditions Precedent to all Advances and all Letters of Credit...........................29
3.3 Condition Subsequent.....................................................................29
3.4 Term; Automatic Renewal..................................................................30
3.5 Effect of Termination....................................................................30
3.6 Early Termination by Borrowers...........................................................30
3.7 Termination Upon Event of Default........................................................31
4. CREATION OF SECURITY INTEREST.....................................................................31
4.1 Grant of Security Interest...............................................................31
4.2 Negotiable Collateral....................................................................31
4.3 Collection of Accounts, General Intangibles, and Negotiable
Collateral...............................................................................31
4.4 Delivery of Additional Documentation Required............................................32
4.5 Power of Attorney........................................................................32
4.6 Right to Inspect.........................................................................33
5. REPRESENTATIONS AND WARRANTIES....................................................................33
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
5.1 No Encumbrances..........................................................................33
5.2 Eligible Accounts........................................................................33
5.3 Eligible Inventory.......................................................................33
5.4 Equipment................................................................................33
5.5 Location of Inventory and Equipment......................................................33
5.6 Inventory Records........................................................................34
5.7 FEIN.....................................................................................34
5.8 Due Organization and Qualification; Subsidiaries.........................................34
5.9 Due Authorization; No Conflict...........................................................34
5.10 Litigation...............................................................................35
5.11 GAAP Financial Statements; No Material Adverse Change. ..................................36
5.12 Solvency.................................................................................36
5.13 Employee Benefits........................................................................36
5.14 Environmental Condition..................................................................36
6. AFFIRMATIVE COVENANTS.............................................................................37
6.1 Accounting System........................................................................37
6.2 Collateral Reporting.....................................................................37
6.3 Financial Statements, Reports, Certificates..............................................37
6.4 Tax Returns..............................................................................39
6.5 Guarantor Reports........................................................................39
6.6 Returns..................................................................................39
6.7 Title to Equipment.......................................................................39
6.8 Maintenance of Equipment.................................................................40
6.9 Taxes....................................................................................40
6.10 Insurance................................................................................40
6.11 No Setoffs or Counterclaims..............................................................41
6.12 Location of Inventory and Equipment......................................................42
6.13 Compliance with Laws.....................................................................42
6.14 Employee Benefits........................................................................42
6.15 Leases...................................................................................43
7. NEGATIVE COVENANTS................................................................................43
7.1 Indebtedness.............................................................................43
7.2 Liens....................................................................................44
7.3 Restrictions on Fundamental Changes......................................................44
7.4 Disposal of Assets.......................................................................44
7.5 Change Name..............................................................................44
7.6 Guarantee................................................................................44
7.7 Nature of Business.......................................................................45
7.8 Prepayments and Amendments...............................................................45
7.9 Change of Control........................................................................45
7.10 Consignments.............................................................................45
7.11 Distributions............................................................................45
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
7.12 Accounting Methods.......................................................................45
7.13 Investments..............................................................................46
7.14 Transactions with Affiliates.............................................................46
7.15 Suspension...............................................................................46
7.16 Intentionally Deleted....................................................................46
7.17 Use of Proceeds..........................................................................46
7.18 Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees...................................................................46
7.19 No Prohibited Transactions Under ERISA...................................................46
7.20 Financial Covenants......................................................................47
7.21 Capital Expenditures.....................................................................48
8. EVENTS OF DEFAULT.................................................................................48
9. FOOTHILL'S RIGHTS AND REMEDIES....................................................................50
9.1 Rights and Remedies......................................................................50
9.2 Remedies Cumulative......................................................................52
10. TAXES AND EXPENSES................................................................................52
11. WAIVERS; INDEMNIFICATION..........................................................................53
11.1 Demand; Protest; etc.....................................................................53
11.2 Foothill's Liability for Collateral......................................................53
11.3 Indemnification..........................................................................53
11.4 Joint Borrowers..........................................................................54
12. NOTICES...........................................................................................60
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER........................................................61
14. DESTRUCTION OF BORROWERS' DOCUMENTS...............................................................62
15. GENERAL PROVISIONS................................................................................62
15.1 Effectiveness............................................................................62
15.2 Successors and Assigns...................................................................62
15.3 Section Headings.........................................................................63
15.4 Interpretation...........................................................................63
15.5 Severability of Provisions...............................................................63
15.6 Amendments in Writing....................................................................63
15.7 Counterparts; Telefacsimile Execution....................................................63
15.8 Revival and Reinstatement of Obligations.................................................63
15.9 Integration..............................................................................64
</TABLE>
iii
<PAGE> 5
SCHEDULES AND EXHIBITS
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule 5.8 Subsidiaries
Schedule 5.10 Litigation
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Existing Indebtedness
Exhibit C-1 Form of Compliance Certificate
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<PAGE> 6
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (THIS
"AGREEMENT"), is entered into as of July 15, 1999, among FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), with a place of business
located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California
90025-3333, on the one hand, and each of the Borrowers, with their chief
executive offices all at 4520 Old Troup Highway, Tyler, Texas 75707, on the
other hand.
RECITALS
A. Borrowers and Foothill have entered into that certain Loan and
Security Agreement, dated as of January 30, 1998, as amended by Amendments One
through Five thereto (the "Original Loan Agreement");
B. Borrowers have requested that Foothill amend certain provisions of
the Original Loan Agreement, and Foothill has agreed; and
C. Foothill and Borrowers are amending and restating the Original Loan
Agreement in accordance with the terms and conditions set forth herein.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following
terms shall have the following definitions:
"Account Debtor" means any Person who is or who may become
obligated under, with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing to a
Person arising out of the sale or lease of goods or the rendition of services by
such Person, irrespective of whether earned by performance, and any and all
credit insurance, guaranties, or security therefor.
"Advances" has the meaning set forth in Section 2.1(a).
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<PAGE> 7
"Affiliate" means, as applied to any Person, any other
Person who directly or indirectly controls, is controlled by, is under common
control with or is a director or officer of such Person. For purposes of this
definition, "control" means the possession, directly or indirectly, of the power
to vote 20% or more of the securities having ordinary voting power for the
election of directors or the direct or indirect power to direct the management
and policies of a Person.
"Agreement" has the meaning set forth in the preamble
hereto.
"Amortized Seasonal Amount" means, for any day for which
the Seasonal Limit is being determined, the result of: A - [A/60 x B] where A is
the aggregate outstanding amount of Seasonal Borrowing Facility Advances as of
the last day of the most recent Seasonal Borrowing Period, and B is the number
of days since the last day of the most recent Seasonal Borrowing Period.
"Applicable Margin" means, with respect to any Advance:
commencing on the first day of the first month following an adjustment as
provided in the immediately succeeding sentence, the amount set forth below
which corresponds to the EBITDA set forth below for the four fiscal quarter
period of Celebrity ended with the most recent fiscal quarter of Celebrity for
which Foothill receives the financial statements and EBITDA Certificate required
below, determined and adjusted as provided herein. The Applicable Margin shall
be adjusted after each delivery to Foothill of the financial statements of
Celebrity required pursuant to Section 6.3 for each fiscal quarter of Celebrity
commencing with the quarter ending on or about June 30, 1999, together with the
corresponding EBITDA Certificate for the four fiscal quarter period ending on
the last day of such fiscal quarter, each such adjustment to be effective on the
first day of the first calendar month after each such delivery.
<TABLE>
<CAPTION>
EBITDA Applicable Margin
------ -----------------
<S> <C>
Less than $5,000,000 0.50%
Equal to or greater than
$5,000,000, but equal to or less
than $8,000,000 0.25%
Greater than $8,000,000 0.00%
</TABLE>
Notwithstanding anything in this definition to the
contrary, (i) in the event that Foothill shall fail to receive any such
financial statements and the related EBITDA Certificate for any fiscal quarter
of Celebrity within 45 days following the end of such fiscal quarter, then the
Applicable Margin shall, at the end of such thirtieth day, immediately and
without notice or further action be the highest Applicable Margin provided
herein (such
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<PAGE> 8
Applicable Margin to be in effect until the first day of the first calendar
month after Foothill receives the quarterly financial statements of Celebrity
required under Section 6.3 for the last month of the most recent fiscal quarter
of Celebrity and the related EBITDA Certificate) and (ii) in the event that,
with respect to any four fiscal quarter period of Celebrity which shall be a
Fiscal Year, the audited financial statements of Celebrity required under
Section 6.3 for such Fiscal Year shall indicate an EBITDA for such four fiscal
quarter period (as determined by Foothill) less than that reflected in the
EBITDA Certificate delivered to Foothill for such four fiscal quarter period,
the Applicable Margin shall be adjusted retroactively (to the effective date of
the Applicable Margin which was determined based upon the delivery of such
incorrect EBITDA Certificate) to reflect an Applicable Margin based upon the
EBITDA determined from the audited financial statements and Celebrity shall make
payments to Foothill to reflect such adjustment.
"Authorized Person" means any officer or other employee of
Borrower.
"Average Unused Portion of Maximum Revolving Amount"
means, as of any date of determination, (a) the Maximum Revolving Amount, less
(b) the sum of (i) the average Daily Balance of Advances that were outstanding
during the immediately preceding month, plus (ii) the average Daily Balance of
the undrawn Letters of Credit that were outstanding during the immediately
preceding month.
"Bankruptcy Code" means the United States Bankruptcy Code
(11 U.S.C. Section 101 et seq.), as amended, and any successor statute.
"Benefit Plan" means a "defined benefit plan" (as defined
in Section 3(35) of ERISA) for which any Borrower, any Subsidiary of any
Borrower, or any ERISA Affiliate has been an "employer" (as defined in Section
3(5) of ERISA) within the past six years.
"Borrower" means any one of Celebrity, Cluett, Exotics,
Florist Supplies, or Star.
"Borrowers' Books" means all of Borrowers' books and
records including: ledgers; records indicating, summarizing, or evidencing
Borrowers' properties or assets (including the Collateral) or liabilities; all
information relating to Borrowers' business operations or financial condition;
and all computer programs, disk or tape files, printouts, runs, or other
computer prepared information.
"Borrowing Base" has the meaning set forth in Section
2.1(a).
"Business Day" means any day that is not a Saturday,
Sunday, or other day on which national banks are authorized or required to
close.
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<PAGE> 9
"Celebrity" means Celebrity, Inc., a Texas corporation.
"Celebrity Hong Kong" means Celebrity Exports
International Limited, a Hong Kong corporation.
"Change of Control" shall be deemed to have occurred at
such time as: (a) Robert H. Patterson, Jr., any corporation or partnership under
the control of Mr. Patterson, or the trustee of any trust of which Mr. Patterson
is the settlor or primary beneficiary) ceases to own more than 40% of the total
voting power of all classes of stock then outstanding of Celebrity entitled to
vote in the election of directors ("Voting Stock"); provided, however, that a
Change of Control shall be deemed to occur if, during a time when Mr.
Patterson's holdings of Voting Stock are 50% or less, any other "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934 (the "Act")) shall become the "beneficial owner" (as
defined in Rule 13d-3 under the Act) of more than 20% of the Voting Stock; (b)
Celebrity ceases to own, directly or indirectly, all of the voting power of all
of the Voting Stock of each other Borrower or (c) Robert H. Patterson, Jr., the
existing chief executive officer of Celebrity, shall no longer serve in such
capacity.
"Closing Date" means July 16, 1999.
"Cluett" means The Cluett Corporation, a California
corporation.
"Code" means the California Uniform Commercial Code.
"Collateral" means each Borrower's right, title, and
interest in each of the following:
(a) Accounts,
(b) Borrowers' Books,
(c) Equipment,
(d) General Intangibles,
(e) Inventory,
(f) Investment Property,
(g) Negotiable Collateral,
4
<PAGE> 10
(h) [Intentionally Deleted],
(i) any money, or other assets of Borrowers that now or
hereafter come into the possession, custody, or control of Foothill, and
(j) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance covering
any or all of the Collateral of Borrowers, and any and all Accounts, Borrowers'
Books, Equipment, General Intangibles, Inventory, Investment Property,
Negotiable Collateral, Real Property, money, deposit accounts, or other tangible
or intangible property resulting from the sale, exchange, collection, or other
disposition of any of the foregoing, or any portion thereof or interest therein,
and the proceeds thereof.
"Collateral Access Agreement" means a landlord waiver,
mortgagee waiver, bailee letter, or acknowledgment agreement of any
warehouseman, processor, lessor, consignee, or other Person in possession of,
having a Lien upon, or having rights or interests in the Equipment or Inventory
of any Borrower, in each case, in form and substance satisfactory to Foothill.
"Collections" means all cash, checks, notes, instruments,
and other items of payment (including, insurance proceeds, proceeds of cash
sales, rental proceeds, and tax refunds).
"Compliance Certificate" means a certificate substantially
in the form of Exhibit C-1 and delivered by the chief accounting officer of a
Borrower to Foothill.
"Daily Balance" means, with respect to each day during the
term of this Agreement, the amount of an Obligation owed at the end of such day.
"deems itself insecure" means that the Person deems itself
insecure in accordance with the provisions of Section 1208 of the Code.
"Default" means an event, condition, or default that, with
the giving of notice, the passage of time, or both, would be an Event of
Default.
"Designated Account" means account number 182215394 of
Borrowers maintained with Borrowers' Designated Account Bank, or such other
deposit account of Borrowers (located within the United States) which has been
designated, in writing and from time to time, by Borrowers to Foothill.
5
<PAGE> 11
"Designated Account Bank" means Bank One Texas, N.A.,
whose office is located at Dallas, Texas, and whose ABA number is 111000614.
"Dilution" means, for any Borrower, in each case based
upon the experience of the immediately prior 3 months, the result of dividing
the Dollar amount of (a) bad debt write-downs, discounts, advertising, returns,
promotions, credits, or other dilutive items with respect to the Accounts of
such Borrower, by (b) such Borrower's Collections (excluding extraordinary
items) plus the Dollar amount of clause (a).
"Dilution Reserve" means, as of any date of determination,
an aggregate amount sufficient to reduce Foothill's advance rates against
Eligible Accounts of each Borrower by the amount, expressed as a percent, by
which Dilution for such Borrower is in excess of 4.0%. As an example, if
Dilution for Cluett were 4.75%, then such advance rate for Cluett would be
reduced by 0.75 percentage points.
"Dollars or $" means United States dollars.
"Early Termination Premium" has the meaning set forth in
Section 3.6.
"EBITDA" means, at any time of determination, the
consolidated net income of Celebrity and its Subsidiaries (excluding
extraordinary items) for the prior 12 month period (a) plus all interest
expense, income tax expense, depreciation and amortization (including
amortization of any goodwill or other intangibles) for the period, (b) plus or
minus any other non-cash charges which have been subtracted or amounts which
have been added in calculating consolidated net income for the period.
"EBITDA Certificate" means a certificate of the chief
financial officer of Celebrity to be delivered in connection with the end of
each fiscal quarter of Celebrity, and setting forth Celebrity's EBITDA as of the
last day of such fiscal quarter of Celebrity, together with such supporting
documentation and calculations as Foothill may reasonably request with respect
to such EBITDA.
"Eligible Accounts" means those Accounts created by a
Borrower in the ordinary course of business, that arise out of such Borrower's
sale of goods or rendition of services, that strictly comply with each and all
of the representations and warranties respecting Accounts made by such Borrower
to Foothill in the Loan Documents, and that are and at all times continue to be
acceptable to Foothill in all respects; provided, however, that standards of
eligibility may be fixed and revised from time to time by Foothill in Foothill's
reasonable credit judgment. In determining the
6
<PAGE> 12
amount to be so included, Accounts shall be valued net of any sales taxes
thereon or debit memos. Eligible Accounts shall not include the following:
(a) Accounts with selling terms of more than 180 days, or
Accounts that the Account Debtor has failed to pay within 60 days after their
due date (or within 30 days after their due date with respect to Accounts with
selling terms of greater than 90 days);
(b) Accounts owed by an Account Debtor or its Affiliates
where 50% or more of all Accounts owed by that Account Debtor (or its
Affiliates) are deemed ineligible under clause (a) above;
(c) Accounts with respect to which the Account Debtor is
an employee, Affiliate, or agent of a Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(e) Accounts that are not payable in Dollars or with
respect to which the Account Debtor: (i) does not maintain its chief executive
office in the United States, or (ii) is not organized under the laws of the
United States or any State thereof, or (iii) is the government of any foreign
country or sovereign state, or of any state, province, municipality, or other
political subdivision thereof, or of any department, agency, public corporation,
or other instrumentality thereof, unless (y) the Account is supported by an
irrevocable letter of credit satisfactory to Foothill (as to form, substance,
and issuer or domestic confirming bank) that has been delivered to Foothill and
is directly drawable by Foothill, or (z) the Account is covered by credit
insurance in form and amount, and by an insurer, satisfactory to Foothill;
(f) Accounts with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts owing by AAFES or any other
military post exchange, or Accounts with respect to which the relevant Borrower
has complied, to the satisfaction of Foothill, with the Assignment of Claims
Act, 31 U.S.C. ss. 3727), or (ii) any State of the United States (exclusive,
however, of Accounts owed by any State that does not have a statutory
counterpart to the Assignment of Claims Act);
(g) Accounts with respect to which the Account Debtor is a
creditor of any Borrower, has or has asserted a right of setoff, has disputed
its liability, or has made any claim with respect to the Account;
7
<PAGE> 13
(h) Accounts with respect to an Account Debtor whose total
obligations owing to Borrowers exceed 10% of all Eligible Accounts of Borrowers
in the aggregate (except where the Account Debtor is Wal-Mart Stores, Inc.,
Kmart Corporation, or Hobby Lobby Stores, Inc., in which case such percentage
shall be 15% for each, or, where the Account Debtor is Michaels Stores, Inc., in
which case such percentage shall be 45%), to the extent of the obligations owing
by such Account Debtor in excess of such percentage;
(i) Accounts with respect to which the Account Debtor is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business;
(j) Accounts the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(k) Accounts with respect to which the goods giving rise
to such Account have not been shipped and billed to the Account Debtor, the
services giving rise to such Account have not been performed and accepted by the
Account Debtor, or the Account otherwise does not represent a final sale;
(l) Accounts that represent progress payments or other
advance billings that are due prior to the completion of performance by a
Borrower of the subject contract for goods or services.
"Eligible In-Transit Inventory" means those items of
Inventory of a Borrower that do not qualify as Eligible Landed Inventory solely
because they are not in a location set forth on Schedule E-1 but: (a) such
Inventory is currently in-transit from a location not set forth on Schedule E-1
to a location set forth on Schedule E-1, (b) title to such Inventory has passed
to a Borrower, (c)(i) either documents of title with respect to such Inventory
have been delivered to Foothill or its agent, or Foothill is satisfied that its
security interest in such documents (and the Inventory represented thereby) has
been perfected and is not subject to another Lien, and (ii) upon Foothill's
request, any such documents of title shall have been issued naming Foothill as
consignee; (d) such Inventory is insured against types of loss, damage, hazards,
and risks, and in amounts, satisfactory to Foothill in its discretion, and (e)
such Inventory either (i) has been paid for or, (ii) if purchased under an
Inventory Letter of Credit, such Inventory Letter of Credit either has been
drawn upon in full and reimbursed, or expired undrawn, or (iii) if purchased on
open account, the seller has disclaimed (or Foothill is otherwise satisfied that
there does not exist) any lien on or security interest in such Inventory or the
documents of title therefor; in each case, with documentation therefor
(including agreements with shippers, customs brokers or other holders of
documents of title) in form and substance satisfactory to Foothill in its
discretion.
8
<PAGE> 14
"Eligible Inventory" means the Eligible In-Transit
Inventory and the Eligible Landed Inventory.
"Eligible Landed Inventory" means Inventory consisting of
first quality finished goods held for sale in the ordinary course of a
Borrower's business and raw materials for such finished goods, that are located
at or in-transit between such Borrower's premises identified on Schedule E-1,
that strictly comply with each and all of the representations and warranties
respecting Inventory made by such Borrower to Foothill in the Loan Documents,
and that are and at all times continue to be acceptable to Foothill in all
respects; provided, however, that standards of eligibility may be fixed and
revised from time to time by Foothill in Foothill's reasonable credit judgment.
An item of Inventory shall not be included in Eligible Landed Inventory if:
(a) it is not owned solely by such Borrower or such
Borrower does not have good, valid, and marketable title thereto;
(b) it is not located at one of the locations set forth on
Schedule E-1 and is not in transit between any such locations;
(c) it is not located on property owned or leased by a
Borrower or in a contract warehouse, in each case, subject to a Collateral
Access Agreement executed by the mortgagee, lessor, the warehouseman, or other
third party, as the case may be, and segregated or otherwise separately
identifiable from goods of others, if any, stored on the premises;
(d) it is not subject to a valid and perfected first
priority security interest in favor of Foothill;
(e) it consists of goods returned or rejected by such
Borrower's customers; and
(f) it is obsolete or slow moving, out of season, work-in-
process, a component that is not part of finished goods, or constitutes spare
parts, packaging and shipping materials, supplies used or consumed in such
Borrower's business, Inventory subject to a Lien in favor of any third Person,
bill and hold goods, defective goods, "seconds," or Inventory acquired on
consignment.
"Equipment" means all of a Person's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts, goods
(other than consumer goods, farm products, or Inventory), wherever located,
including all attachments, accessories,
9
<PAGE> 15
accessions, replacements, substitutions, additions, and improvements to any of
the foregoing.
"ERISA" means the Employee Retirement Income Security Act
of 1974, 29 U.S.C. Sections 1000 et seq., amendments thereto, successor
statutes, and regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to
ERISA whose employees are treated as employed by the same employer as the
employees of a Borrower under IRC Section 414(b), (b) any trade or business
subject to ERISA whose employees are treated as employed by the same employer as
the employees of a Borrower under IRC Section 414(c), (c) solely for purposes of
Section 302 of ERISA and Section 412 of the IRC, any organization subject to
ERISA that is a member of an affiliated service group of which a Borrower is a
member under IRC Section 414(m), or (d) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any party subject to ERISA that is a party to
an arrangement with a Borrower and whose employees are aggregated with the
employees of such Borrower under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to
any Benefit Plan or Multiemployer Plan, (b) the withdrawal of a Borrower, any of
its Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in
which it was a "substantial employer" (as defined in Section 4001(a)(2) of
ERISA), (c) the providing of notice of intent to terminate a Benefit Plan in a
distress termination (as described in Section 4041(c) of ERISA), (d) the
institution by the PBGC of proceedings to terminate a Benefit Plan or
Multiemployer Plan, (e) any event or condition (i) that provides a basis under
Section 4042(a)(1), (2), or (3) of ERISA for the termination of, or the
appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan,
or (ii) that may result in termination of a Multiemployer Plan pursuant to
Section 4041A of ERISA, (f) the partial or complete withdrawal within the
meaning of Sections 4203 and 4205 of ERISA, of a Borrower, any of its
Subsidiaries or ERISA Affiliates from a Multiemployer Plan, or (g) providing any
security to any Plan under Section 401(a)(29) of the IRC by a Borrower or its
Subsidiaries or any of their ERISA Affiliates.
"Event of Default" has the meaning set forth in Section 8.
"Exotics" means India Exotics, Inc., a Texas corporation.
"FEIN" means Federal Employer Identification Number.
"Florist Supplies" means Value Florist Supplies, Inc., a
Texas corporation.
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<PAGE> 16
"Foothill" has the meaning set forth in the preamble to
this Agreement.
"Foothill Account" has the meaning set forth in Section
2.7.
"Foothill Expenses" means all: costs or expenses
(including taxes, and insurance premiums) required to be paid by a Borrower
under any of the Loan Documents that are paid or incurred by Foothill; fees or
charges paid or incurred by Foothill in connection with Foothill's transactions
with Borrowers, including, fees or charges for photocopying, notarization,
couriers and messengers, telecommunication, public record searches (including
tax lien, litigation, and UCC searches and including searches with the patent
and trademark office, the copyright office, or the department of motor
vehicles), filing, recording, publication, appraisal (including periodic
Collateral appraisals), real estate surveys, real estate title policies and
endorsements, and environmental audits; costs and expenses incurred by Foothill
in the disbursement of funds to Borrowers (by wire transfer or otherwise);
charges paid or incurred by Foothill resulting from the dishonor of checks;
costs and expenses paid or incurred by Foothill to correct any default or
enforce any provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral or any portion thereof, irrespective
of whether a sale is consummated; costs and expenses paid or incurred by
Foothill in examining Borrowers' Books; costs and expenses of third party claims
or any other suit paid or incurred by Foothill in enforcing or defending the
Loan Documents or in connection with the transactions contemplated by the Loan
Documents or Foothill's relationship with Borrowers or any guarantor; and
Foothill's reasonable attorneys fees and expenses incurred in advising,
structuring, drafting, reviewing, administering, amending, terminating,
enforcing, defending, or concerning the Loan Documents (including attorneys fees
and expenses incurred in connection with a "workout," a "restructuring," or an
Insolvency Proceeding concerning Borrowers or any guarantor of the Obligations),
irrespective of whether suit is brought.
"GAAP" means generally accepted accounting principles as
in effect from time to time in the United States, consistently applied.
"General Intangibles" means all of any Person's present
and future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, infringement claims, computer
programs, information contained on computer disks or
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<PAGE> 17
tapes, literature, reports, catalogs, deposit accounts, insurance premium
rebates, tax refunds, and tax refund claims), other than goods, Accounts, and
Negotiable Collateral.
"Governing Documents" means the certificate or articles of
incorporation, by-laws, or other organizational or governing documents of any
Person.
"Governmental Authority" means any nation or government,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guaranty" means that certain Continuing Guaranty dated as
of January 30, 1998, by Magicsilk in favor of Foothill.
"Hazardous Materials" means (a) substances that are
defined or listed in, or otherwise classified pursuant to, any applicable laws
or regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Indebtedness" means: (a) all obligations of a Person for
borrowed money, (b) all obligations of a Person evidenced by bonds, debentures,
notes, or other similar instruments and all reimbursement or other obligations
of a Person in respect of letters of credit, bankers acceptances, interest rate
swaps, or other financial products, (c) all obligations of a Person under
capital leases, (d) all obligations or liabilities of others secured by a Lien
on any property or asset of a Person, irrespective of whether such obligation or
liability is assumed, and (e) any obligation of a Person guaranteeing or
intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or
sold with recourse to such Person) any indebtedness, lease, dividend, letter of
credit, or other obligation of any other Person.
"Insolvency Proceeding" means any proceeding commenced by
or against any Person under any provision of the Bankruptcy Code or under any
other bankruptcy or insolvency law, assignments for the benefit of creditors,
formal or
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informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.
"Intellectual Property Security Agreement" means each of
the agreements so denominated, dated as of January 30, 1998, between Foothill,
on the one hand, and a Borrower or Magicsilk, on the other hand.
"Intangible Assets" means, with respect to any Person,
that portion of the book value of all of such Person's assets that would be
treated as intangibles under GAAP.
"Inventory" means all present and future inventory in
which a Person has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of such Person's present and
future raw materials, work in process, finished goods, and packing and shipping
materials, wherever located.
"Inventory Letter of Credit" means a documentary Letter of
Credit issued to support the purchase by a Borrower of Inventory prior to
transit to a location set forth on Schedule E-1, that provides that all draws
thereunder must require presentation of customary documentation (including, if
applicable, commercial invoices, packing list, certificate of origin, bill of
lading or airway bill, customs clearance documents, quota statement, inspection
certificate, beneficiaries statement, and bill of exchange, bills of lading,
dock warrants, dock receipts, warehouse receipts, or other documents of title)
in form and substance satisfactory to Foothill and reflecting the passage to
such Borrower of title to first quality Inventory conforming to such Borrower's
contract with the seller thereof. Any such Letter of Credit shall cease to be an
"Inventory Letter of Credit" at such time, if any, as the goods purchased
thereunder become Eligible Landed Inventory.
"Inventory Reserves" means reserves (determined from time
to time by Foothill in its discretion) for (a) the estimated costs relating to
unpaid freight charges, warehousing or storage charges, taxes, duties, and other
similar unpaid costs associated with the acquisition of Eligible In-Transit
Inventory by Borrowers, plus (b) the estimated reclamation claims of unpaid
sellers of Inventory sold to Borrowers, plus (c) commissions payable by any
Borrower in respect of its Inventory, plus (d) ad valorem taxes, if any, that
would result in a choate or inchoate Lien that is or could be prior to the
Foothill security interest.
"Investment Property" means all of each Borrower's
"investment property" as that term is defined in Section 9115 of the Code.
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<PAGE> 19
"IRC" means the Internal Revenue Code of 1986, as amended,
and the regulations thereunder.
"L/C" has the meaning set forth in Section 2.2(a).
"L/C Guaranty" has the meaning set forth in Section
2.2(a).
"Letter of Credit" means an L/C or an L/C Guaranty, as the
context requires.
"Lien" means any interest in property securing an
obligation owed to, or a claim by, any Person other than the owner of the
property, whether such interest shall be based on the common law, statute, or
contract, whether such interest shall be recorded or perfected, and whether such
interest shall be contingent upon the occurrence of some future event or events
or the existence of some future circumstance or circumstances, including the
lien or security interest arising from a mortgage, deed of trust, encumbrance,
pledge, hypothecation, assignment, deposit arrangement, security agreement,
adverse claim or charge, conditional sale or trust receipt, or from a lease,
consignment, or bailment for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances affecting Real
Property.
"Loan Account" has the meaning set forth in Section 2.10.
"Loan Documents" means this Agreement, the Letters of
Credit, the Lockbox Agreements, the Guaranty, the Intellectual Property Security
Agreements, the Stock Pledges, any note or notes executed by any Borrower and
payable to Foothill, and any other agreement entered into, now or in the future,
in connection with this Agreement.
"Lockbox Account" shall mean a depositary account
established pursuant to one of the Lockbox Agreements.
"Lockbox Agreements" means those certain Lockbox Operating
Procedural Agreements and those certain Depository Account Agreements, in form
and substance satisfactory to Foothill, each of which is among a Borrower or
Borrowers, Foothill, and one of the Lockbox Banks.
"Lockbox Banks" means Bank One Texas, N.A., or such other
banks as may be agreed to by Foothill and Borrowers from time to time.
"Lockboxes" has the meaning set forth in Section 2.7.
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<PAGE> 20
"Magicsilk" means Magicsilk, Inc. a Texas corporation.
"Material Adverse Change" means (a) a material adverse
change in the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of a Borrower, (b) the
material impairment of a Borrower's ability to perform its obligations under the
Loan Documents to which it is a party or of Foothill to enforce the Obligations
or realize upon the Collateral, (c) a material adverse effect on the value of
the Collateral or the amount that Foothill would be likely to receive (after
giving consideration to delays in payment and costs of enforcement) in the
liquidation of such Collateral, or (d) a material impairment of the priority of
Foothill's Liens with respect to the Collateral.
"Maximum Revolving Amount" means $26,500,000.
"MLBFS Guaranty" means that certain guarantee by one or
more of the Borrowers in favor of Merrill Lynch Business Financial Services,
Inc. ("MLBFS"), dated on or about April 22, 1999, respecting the obligations of
Crest Properties, Ltd. under its $4,500,000 Term Loan Agreement with MLBFS.
"Multiemployer Plan" means a "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA) to which a Borrower, any of its
Subsidiaries, or any ERISA Affiliate has contributed, or was obligated to
contribute, within the past six years.
"Negotiable Collateral" means all of a Person's present
and future letters of credit, notes, drafts, instruments, Investment Property,
securities (including the shares of stock of Subsidiaries of such Person),
documents, personal property leases (wherein such Person is the lessor), and
chattel paper.
"Obligations" means all loans, Advances, debts, principal,
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), contingent reimbursement obligations under any
outstanding Letters of Credit, premiums (including Early Termination Premiums),
liabilities (including all amounts charged to Borrowers' Loan Account pursuant
hereto), obligations, fees, charges, costs, or Foothill Expenses (including any
fees or expenses that, but for the provisions of the Bankruptcy Code, would have
accrued), lease payments, guaranties, covenants, and duties owing by a Borrower
to Foothill of any kind and description (whether pursuant to or evidenced by the
Loan Documents or pursuant to any other agreement between Foothill and any
Borrower, and irrespective of whether for the payment of money), whether direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability, or obligation owing from a
Borrower to others that Foothill may have obtained by assignment or otherwise,
and
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<PAGE> 21
further including all interest not paid when due and all Foothill Expenses that
a Borrower is required to pay or reimburse by the Loan Documents, by law, or
otherwise.
"OLV" means, with respect to a Borrower's Inventory, the
orderly liquidation value of such Inventory, net of all operating costs and fees
associated with such liquidation, as determined by one or more appraisers
acceptable to Foothill.
"Overadvance" has the meaning set forth in Section 2.5.
"Participant" means any Person to which Foothill has sold
a participation interest in its rights under the Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation as
defined in Title IV of ERISA, or any successor thereto.
"Permitted Equipment Dispositions" means a sale or
disposition of Equipment that is no longer used or useful in the business of a
Borrower; provided, however, that (a) in the event of any such sale or
disposition of Equipment effected without replacement of such Equipment, or
where replacement Equipment is leased or purchased subject to a Permitted Lien,
then such Borrower shall deliver all cash proceeds of any such sale or
disposition to Foothill to be applied to the Obligations, (b) in the event of
any such sale or disposition of Equipment that is not covered by the preceding
clause (a), then such Borrower shall give Foothill evidence of the use of the
proceeds of such sale or disposition to finance replacement Equipment which
shall be subject to a first priority Lien in favor of Foothill, and (c) the
aggregate amount of all Permitted Equipment Dispositions during any calendar
year may not exceed $250,000.
"Permitted Liens" means (a) Liens held by Foothill, (b)
Liens for unpaid taxes that either (i) are not yet due and payable or (ii) are
the subject of Permitted Protests, (c) Liens set forth on Schedule P-1, (d) the
interests of lessors under operating leases and purchase money security
interests and Liens of lessors under capital leases to the extent that the
acquisition or lease of the underlying asset is permitted under Section 7.21 and
so long as the Lien only attaches to the asset purchased or acquired and only
secures the purchase price of the asset, (e) Liens arising by operation of law
in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers,
or suppliers, incurred in the ordinary course of business of a Borrower and not
in connection with the borrowing of money, and which Liens either (i) are for
sums not yet due and payable, or (ii) are the subject of Permitted Protests, (f)
Liens arising from deposits made in connection with obtaining worker's
compensation or other unemployment insurance, (g) Liens or deposits to secure
performance of bids, tenders, or leases (to the extent permitted under this
Agreement), incurred in the ordinary course of business of a Borrower and not in
connection with the borrowing of money, (h) Liens
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<PAGE> 22
arising by reason of security for surety or appeal bonds in the ordinary course
of business of a Borrower, (i) Liens of or resulting from any judgment or award
that would not cause a Material Adverse Change and as to which the time for the
appeal or petition for rehearing of which has not yet expired, or in respect of
which a Borrower is in good faith prosecuting an appeal or proceeding for a
review, and in respect of which a stay of execution pending such appeal or
proceeding for review has been secured, (j) [intentionally deleted], and (k)
with respect to any Real Property, easements, rights of way, zoning and similar
covenants and restrictions, and similar encumbrances that customarily exist on
properties of Persons engaged in similar activities and similarly situated and
that in any event do not materially interfere with or impair the use or
operation of the Collateral by any Borrower or the value of Foothill's Lien
thereon or therein, or materially interfere with the ordinary conduct of the
business of a Borrower.
"Permitted Protest" means the right of a Borrower to
protest any Lien (other than any such Lien that secures the Obligations), tax
(other than payroll taxes or taxes that are the subject of a United States
federal tax lien), or rental payment, provided that (a) a reserve with respect
to such obligation is established on the books of such Borrower in an amount
that is reasonably satisfactory to Foothill, (b) any such protest is instituted
and diligently prosecuted by such Borrower in good faith, and (c) Foothill is
satisfied that, while any such protest is pending, there will be no impairment
of the enforceability, validity, or priority of any of the Liens of Foothill in
and to the Collateral.
"Person" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Plan" means any employee benefit plan, program, or
arrangement maintained or contributed to by a Borrower or with respect to which
it may incur liability.
"Real Property" means any estates or interests in real
property now owned or hereafter acquired by a Borrower.
"Reference Rate" means the variable rate of interest, per
annum, most recently announced by Wells Fargo Bank, National Association, or any
successor thereto, as its "base rate," irrespective of whether such announced
rate is the best rate available from such financial institution.
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<PAGE> 23
"Renewal Date" has the meaning set forth in Section 3.4.
"Reportable Event" means any of the events described in
Section 4043(c) of ERISA or the regulations thereunder other than a Reportable
Event as to which the provision of 30 days notice to the PBGC is waived under
applicable regulations.
"Retiree Health Plan" means an "employee welfare benefit
plan" within the meaning of Section 3(1) of ERISA that provides benefits to
individuals after termination of their employment, other than as required by
Section 601 of ERISA.
"Seasonal Borrowing Facility" means that portion of the
Borrowing Base set forth in Section 2.1 (a).
"Seasonal Borrowing Facility Advances" means Advances
outstanding under the Seasonal Borrowing Facility, as determined by Foothill.
"Seasonal Borrowing Period" means either of the periods of
July 15, 1999 through September 14, 1999 and January 15, 2000 through February
14, 2000.
"Seasonal Limit" means the following Dollar amounts during
the following periods:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
7/15/99 through
9/13/99 $750,000
1/15/00 through
2/14/00, $500,000
each day from
9/14/99 through
11/11/99, and from
2/15/00 through
4/14/00, the Amortized Seasonal Amount
11/12/99 through
1/14/00, and on and
after 4/15/00 $0.00
</TABLE>
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<PAGE> 24
"Solvent" means, with respect to any Person on a
particular date, that on such date (a) at fair valuations, all of the properties
and assets of such Person are greater than the sum of the debts, including
contingent liabilities, of such Person, (b) the present fair salable value of
the properties and assets of such Person is not less than the amount that will
be required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it will,
incur debts beyond such Person's ability to pay as such debts mature, and (e)
such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's properties and
assets would constitute unreasonably small capital after giving due
consideration to the prevailing practices in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount that, in light of
all the facts and circumstances existing at such time, represents the amount
that reasonably can be expected to become an actual or matured liability.
"Star" means Star Wholesale Florist, Inc., a Texas
corporation.
"Stock Pledges" means either of the Security Agreement
Stock Pledges, dated as of January 30, 1998, by Celebrity and Star,
respectively, in favor of Foothill.
"Subsidiary" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly or
indirectly owns or controls the shares of stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors (or
appoint other comparable managers) of such corporation, partnership, limited
liability company, or other entity.
"Tangible Net Worth" means, as of any date of
determination, the difference of (a) a Person's total stockholder's equity,
minus (b) the sum of: (i) all Intangible Assets of such Person, (ii) all of such
Person's prepaid expenses, and (iii) all amounts due to such Person from
Affiliates.
"Value" means, with respect to a Borrower's Inventory, the
lower of such Borrower's cost or market value, determined on a basis consistent
with such Borrower's current and historical accounting practices.
"Voidable Transfer" has the meaning set forth in Section
15.8.
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<PAGE> 25
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrowers on a consolidated basis
unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in the
Code shall be construed and defined as set forth in the Code unless otherwise
defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. An Event of Default
shall "continue" or be "continuing" until such Event of Default has been waived
in writing by Foothill. Section, subsection, clause, schedule, and exhibit
references are to this Agreement unless otherwise specified. Any reference in
this Agreement or in the Loan Documents to this Agreement or any of the Loan
Documents shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, and supplements, thereto
and thereof, as applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to make advances ("Advances") to Borrowers in an amount
outstanding not to exceed at any one time the lesser of (i) the Maximum
Revolving Amount less the outstanding balance of all undrawn or unreimbursed
Letters of Credit, or (ii) the Borrowing Base less (A) the aggregate amount of
all undrawn or unreimbursed Letters of Credit (other than Inventory Letters of
Credit), less (B) 45% of the aggregate amount of all undrawn or unreimbursed
Inventory Letters of Credit. For purposes of this Agreement, "Borrowing Base",
as of any date of determination, shall mean the result of:
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<PAGE> 26
(w) up to the Seasonal Limit; provided, however, that
Advances will only be made under this clause (w) during a
Seasonal Borrowing Period and only so long as at the time of
such request Celebrity's EBITDA for its most recently
completed four fiscal quarters (as set forth on the most
current EBITDA Certificate) is at least $5,000,000, plus
(x) the lesser of (i) (1) 85% of all Eligible
Accounts, less (2) the amount, if any, of the Dilution
Reserve, and (ii) an amount equal to Borrowers' Collections
with respect to Accounts for the immediately preceding 90 day
period, plus
(y) the least of (i) 1.50 times the credit
availability created by clause (x) above, (ii) $17,500,000,
and (iii) 55% of the Value of Eligible Inventory (but in no
event shall Advances against Eligible In-Transit Inventory of
Borrowers exceed, in the aggregate at any one time,
$2,500,000, and in no event shall the aggregate Advances
against Eligible Inventory of Borrowers exceed, at any one
time, 90.5% of the OLV of Borrowers' Inventory minus the
amount of the Inventory Reserve (if any), minus
(z) the aggregate amount of reserves, if any,
established by Foothill under Sections 2.1(b), 6.15 and 10.
(b) Anything to the contrary in Section 2.1(a) above
notwith standing, Foothill may create reserves against the Borrowing Base or
reduce its advance rates based upon Eligible Accounts or Eligible Inventory
without declaring an Event of Default if it determines that there has occurred a
Material Adverse Change.
(c) Foothill shall have no obligation to make Advances
hereunder to the extent they would cause the outstanding Obligations to exceed
the Maximum Revolving Amount.
(d) Amounts borrowed pursuant to this Section 2.1 may be
repaid and, subject to the terms and conditions of this Agreement, reborrowed at
any time during the term of this Agreement.
2.2 LETTERS OF CREDIT.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to issue letters of credit for the account of a Borrower (each,
an "L/C") or to issue guarantees of payment (each such guaranty, an "L/C
Guaranty") with respect
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<PAGE> 27
to letters of credit issued by an issuing bank for the account of a Borrower.
Foothill shall have no obligation to issue a Letter of Credit if any of the
following would result:
(i) the sum of 55% of the aggregate amount of all
undrawn and unreimbursed Inventory Letters of Credit, plus
100% of the aggregate amount of all other types of undrawn and
unreimbursed Letters of Credit, would exceed the Borrowing
Base less the amount of outstanding Advances; or
(ii) the aggregate amount of all undrawn or
unreimbursed Letters of Credit (including Inventory Letters of
Credit) would exceed the lower of: (x) the Maximum Revolving
Amount less the amount of outstanding Advances; or (y)
$1,000,000; or
(iii) the outstanding Obligations would exceed the
Maximum Revolving Amount.
Each Borrower expressly understands and agrees that Foothill shall have no
obligation to arrange for the issuance by issuing banks of the letters of credit
that are to be the subject of L/C Guarantees. Each Letter of Credit shall have
an expiry date no later than 60 days prior to the date on which this Agreement
is scheduled to terminate under Section 3.4 (without regard to any potential
renewal term) and all such Letters of Credit shall be in form and substance
acceptable to Foothill in its sole discretion. If Foothill is obligated to
advance funds under a Letter of Credit, Borrowers immediately shall reimburse
such amount to Foothill and, in the absence of such reimbursement, the amount so
advanced immediately and automatically shall be deemed to be an Advance
hereunder and, thereafter, shall bear interest at the rate then applicable to
Advances under Section 2.6.
(b) Each Borrower hereby agrees to indemnify, save,
defend, and hold Foothill harmless from any loss, cost, expense, or liability,
including payments made by Foothill, expenses, and reasonable attorneys fees
incurred by Foothill arising out of or in connection with any Letter of Credit.
Each Borrower agrees to be bound by the issuing bank's regulations and
interpretations of any letters of credit guarantied by Foothill and opened to or
for such Borrower's account or by Foothill's interpretations of any Letter of
Credit issued by Foothill to or for such Borrower's account, even though this
interpretation may be different from such Borrower's own, and Borrowers
understand and agree that Foothill shall not be liable for any error,
negligence, or mistake, whether of omission or commission, in following any
Borrower's instructions or those contained in the Letter of Credit or any
modifications, amendments, or supplements thereto. Each Borrower understands
that the L/C Guarantees may require Foothill to indemnify the issuing bank for
certain costs or liabilities arising out of claims
22
<PAGE> 28
by a Borrower against such issuing bank. Each Borrower hereby agrees to
indemnify, save, defend, and hold Foothill harmless with respect to any loss,
cost, expense (including reasonable attorneys fees), or liability incurred by
Foothill under any L/C Guaranty as a result of Foothill's indemnification of any
such issuing bank.
(c) Each Borrower hereby authorizes and directs any bank
that issues a letter of credit guaranteed by Foothill to deliver to Foothill all
instruments, documents, and other writings and property received by the issuing
bank pursuant to such letter of credit, and to accept and rely upon Foothill's
instructions and agreements with respect to all matters arising in connection
with such letter of credit and the related application. A Borrower may or may
not be the "applicant" or "account party" with respect to such letter of credit.
(d) Any and all charges, commissions, fees, and costs
incurred by Foothill relating to the letters of credit guaranteed by Foothill
shall be considered Foothill Expenses for purposes of this Agreement and
immediately shall be reimbursable by Borrowers to Foothill.
(e) Immediately upon the termination of this Agreement,
Borrowers agree to either (i) provide cash collateral to be held by Foothill in
an amount equal to 102% of the maximum amount of Foothill's obligations under
outstanding Letters of Credit, or (ii) cause to be delivered to Foothill
releases of all of Foothill's obligations under outstanding Letters of Credit.
At Foothill's discretion, any proceeds of Collateral received by Foothill after
the occurrence and during the continuation of an Event of Default may be held as
the cash collateral required by this Section 2.2(e).
(f) If by reason of (i) any change in any applicable law,
treaty, rule, or regulation or any change in the interpretation or application
by any governmental authority of any such applicable law, treaty, rule, or
regulation, or (ii) compliance by the issuing bank or Foothill with any
direction, request, or requirement (irrespective of whether having the force of
law) of any governmental authority or monetary authority including, without
limitation, Regulation D of the Board of Governors of the Federal Reserve System
as from time to time in effect (and any successor thereto):
(A) any reserve, deposit, or similar requirement is or
shall be imposed or modified in respect of any Letters of Credit issued
hereunder, or
(B) there shall be imposed on the issuing bank or
Foothill any other condition regarding any letter of credit, or Letter of
Credit, as applicable, issued pursuant hereto;
23
<PAGE> 29
and the result of the foregoing is to increase, directly or indirectly, the cost
to the issuing bank or Foothill of issuing, making, guaranteeing, or maintaining
any letter of credit, or Letter of Credit, as applicable, or to reduce the
amount receivable in respect thereof by such issuing bank or Foothill, then, and
in any such case, Foothill may, at any time within a reasonable period after the
additional cost is incurred or the amount received is reduced, notify Borrowers,
and Borrowers shall pay on demand such amounts as the issuing bank or Foothill
may specify to be necessary to compensate the issuing bank or Foothill for such
additional cost or reduced receipt, together with interest on such amount from
the date of such demand until payment in full thereof at the rate set forth in
Section 2.6(a)(i) or (c)(i), as applicable. The determination by the issuing
bank or Foothill, as the case may be, of any amount due pursuant to this Section
2.2(f), as set forth in a certificate setting forth the calculation thereof in
reasonable detail, shall, in the absence of manifest or demonstrable error, be
final and conclusive and binding on all of the parties hereto.
2.3 [INTENTIONALLY DELETED]
2.4 [INTENTIONALLY DELETED]
2.5 OVERADVANCES. If, at any time or for any reason, the
amount of Obligations owed by Borrowers to Foothill pursuant to Sections 2.1 and
2.2 is greater than either the Dollar or percentage limitations set forth in
Sections 2.1 or 2.2 (an "Overadvance"), Borrowers immediately shall pay to
Foothill, in cash, the amount of such excess to be used by Foothill first, to
repay Advances outstanding under Section 2.1 and, thereafter, to be held by
Foothill as cash collateral to secure Borrower's obligation to repay Foothill
for all amounts paid pursuant to Letters of Credit.
2.6 INTEREST AND LETTER OF CREDIT FEES: RATES, PAYMENTS, AND
CALCULATIONS.
(a) Interest Rate. Except as provided in clause (c) below,
(i) all Obligations (except for undrawn Letters of Credit and the Seasonal
Borrowing Facility Advances) shall bear interest on the Daily Balance at a per
annum rate equal to the Applicable Margin plus the Reference Rate, and (ii) the
Seasonal Borrowing Facility Advances shall bear interest at a per annum rate of
1.00% above the Reference Rate.
(b) Letter of Credit Fee. Borrowers shall pay Foothill a
fee (in addition to the charges, commissions, fees, and costs set forth in
Section 2.2(d)) equal to 1.50% per annum times the aggregate undrawn amount of
all Letters of Credit outstanding as of the end of each day.
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<PAGE> 30
(c) Default Rate. Upon the occurrence and during the
continuation of an Event of Default, (i) all Obligations (except for undrawn
Letters of Credit) shall bear interest on the Daily Balance at a per annum rate
equal to 4.50 percentage points above the Reference Rate, and (ii) the Letter of
Credit fee provided in Section 2.6(b) shall be increased to 4.50% per annum
times the aggregate undrawn amount of all Letters of Credit outstanding as of
the end of each day.
(d) Minimum Interest. In no event shall the rate of
interest chargeable hereunder for any day be less than 6.0% per annum. To the
extent that interest accrued hereunder at the rate set forth herein would be
less than the foregoing minimum daily rate, the interest rate chargeable
hereunder for such day automatically shall be deemed increased to the minimum
rate.
(e) Payments. Interest and Letter of Credit fees payable
hereunder shall be due and payable, in arrears, on the first day of each month
during the term hereof. Each Borrower hereby authorizes Foothill, at its option,
without prior notice to such Borrower, to charge such interest and Letter of
Credit fees, all Foothill Expenses (as and when incurred), the charges,
commissions, fees, and costs provided for in Section 2.2(d) (as and when accrued
or incurred), the fees and charges provided for in Section 2.11 (as and when
accrued or incurred), and all installments or other payments due under any Loan
Document to Borrowers' Loan Account, which amounts thereafter shall accrue
interest at the rate then applicable to Advances hereunder. Any interest not
paid when due shall be compounded and shall thereafter accrue interest at the
rate then applicable to Advances hereunder.
(f) Computation. The Reference Rate as of the date of this
Agreement is 8.0% per annum. In the event the Reference Rate is changed from
time to time hereafter, the applicable rate of interest hereunder automatically
and immediately shall be increased or decreased by an amount equal to such
change in the Reference Rate. All interest and fees chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for the actual number
of days elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. In no
event shall the interest rate or rates payable under this Agreement, plus any
other amounts paid in connection herewith, exceed the highest rate permissible
under any law that a court of competent jurisdiction shall, in a final
determination, deem applicable. Borrowers and Foothill, in executing and
delivering this Agreement, intend legally to agree upon the rate or rates of
interest and manner of payment stated within it; provided, however, that,
anything contained herein to the contrary notwithstanding, if said rate or rates
of interest or manner of payment exceeds the maximum allowable under applicable
law, then, ipso facto as of the date of this Agreement, Borrowers are and shall
be liable only for the payment of such maximum as allowed by law, and payment
received from
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Borrowers in excess of such legal maximum, whenever received, shall be applied
to reduce the principal balance of the Obligations to the extent of such excess.
2.7 COLLECTION OF ACCOUNTS. Borrowers shall at all times
maintain lockboxes (the "Lockboxes") and shall instruct all Account Debtors with
respect to the Accounts, General Intangibles, and Negotiable Collateral of
Borrowers to remit all Collections in respect thereof to such Lockboxes.
Borrowers, Foothill, and the Lockbox Banks shall enter into the Lockbox
Agreements, which among other things shall provide for the opening of a Lockbox
Account for the deposit of Collections at a Lockbox Bank. Each Borrower agrees
that all Collections and other amounts received by such Borrower from any
Account Debtor or any other source immediately upon receipt shall be deposited
into a Lockbox Account. No Lockbox Agreement or arrangement contemplated thereby
shall be modified by a Borrower without the prior written consent of Foothill.
Upon the terms and subject to the conditions set forth in the Lockbox
Agreements, all amounts received in each Lockbox Account shall be wired each
Business Day into an account (the "Foothill Account") maintained by Foothill at
a depositary selected by Foothill.
2.8 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The
receipt of any Collections by Foothill (whether from transfers to Foothill by
the Lockbox Banks pursuant to the Lockbox Agreements or otherwise) immediately
shall be applied provisionally to reduce the Obligations outstanding under
Section 2.1, but shall not be considered a payment on account unless such
Collection item is a wire transfer of immediately available federal funds and is
made to the Foothill Account or unless and until such Collection item is honored
when presented for payment. Foothill shall be entitled to charge Borrowers for
one Business Day of "clearance" or "float" at the rate set forth in Section
2.6(a)(i) or Section 2.6(c)(i), as applicable, on all Collections that are
received by Foothill (regardless of whether forwarded by the Lockbox Banks to
Foothill, whether provisionally applied to reduce the Obligations under Section
2.1, or otherwise). This across-the-board one Business Day clearance or float
charge on all Collections is acknowledged by the parties to constitute an
integral aspect of the pricing of Foothill's financing of Borrowers, and shall
apply irrespective of the characterization of whether receipts are owned by a
Borrower or Foothill, and whether or not there are any outstanding Advances, the
effect of such clearance or float charge being the equivalent of charging one
Business Day of interest on such Collections. Should any Collection item not be
honored when presented for payment, then Borrowers shall be deemed not to have
made such payment, and interest shall be recalculated accordingly. Anything to
the contrary contained herein notwithstanding, any Collection item shall be
deemed received by Foothill only if it is received into the Foothill Account on
a Business Day on or before 11:00 a.m. California time. If any Collection item
is received into the Foothill Account on a non-Business Day or after 11:00 a.m.
California time on a
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Business Day, it shall be deemed to have been received by Foothill as of the
opening of business on the immediately following Business Day.
2.9 DESIGNATED ACCOUNT. Foothill is authorized to make the
Advances, and to arrange for the Letters of Credit, under this Agreement based
upon telephonic or other instructions received from anyone purporting to be an
Authorized Person, or without instructions if pursuant to Section 2.6(e).
Borrowers agree to establish and maintain a single Designated Account with the
Designated Account Bank for the purpose of receiving the proceeds of the
Advances requested by Borrowers and made by Foothill hereunder. Unless otherwise
agreed by Foothill and Borrowers, any Advance requested by Borrowers and made by
Foothill hereunder shall be made to the Designated Account.
2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS.
At the request of Borrowers, to facilitate and expedite the administration and
accounting processes and procedures of their borrowings under this Agreement,
Foothill has agreed, in lieu of maintaining separate loan accounts on Foothill's
books in the name of each of the Borrowers, that Foothill shall maintain a
single account on its books in the names of all of the Borrowers (the "Loan
Account"). All Advances made by Foothill to Borrowers or for Borrower's account,
including accrued interest, Foothill Expenses, and any other payment Obligations
of Borrowers shall be made jointly and severally to the Borrowers and shall be
charged to the Loan Account. In accordance with Section 2.8, the Loan Account
will be credited with all payments received by Foothill from any Borrower or for
any Borrowers' account, including all amounts received in the Foothill Account
from any Lockbox Bank. Foothill shall render one statement regarding the Loan
Account to Celebrity on behalf of Borrowers, including principal, interest,
fees, and including an itemization of all charges and expenses constituting
Foothill Expenses owing, and such statements shall be conclusively presumed to
be correct and accurate and constitute an account stated between Borrowers and
Foothill unless, within 30 days after receipt thereof by Borrowers, Borrowers
shall deliver to Foothill written objection thereto describing the error or
errors contained in any such statements. Each Borrower hereby expressly agrees
and acknowledges that Foothill shall have no obligation to account separately to
such Borrower.
2.11 FEES. Borrowers shall pay to Foothill the following fees:
(a) [Intentionally Deleted]
(b) Unused Line Fee. On the first day of each month
during the term of this Agreement, an unused line fee in an amount equal to
0.25% per annum times the Average Unused Portion of the Maximum Revolving
Amount;
(c) [Intentionally Deleted]
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(d) Financial Examination, Documentation, and Appraisal
Fees. Foothill's customary fee of $750 per day per examiner, plus out-of-pocket
expenses for each financial analysis and examination (i.e., audits) of Borrowers
performed by personnel employed by Foothill; Foothill's customary appraisal fee
of $1,500 per day per appraiser, plus out-of-pocket expenses for each appraisal
of the Collateral performed by personnel employed by Foothill; and, the actual
charges paid or incurred by Foothill if it elects to employ the services of one
or more third Persons to perform such financial analyses and examinations (i.e.,
audits) of Borrowers or to appraise the Collateral; provided that there will be
no fewer than three appraisals per year; and provided further that $50,000 per
year shall be the maximum liability of Borrowers under this Section 2.11(d) for
fees and costs of audits and appraisals conducted while there are no continuing
Events of Default and while Celebrity's EBITDA for its most recently completed
four fiscal quarters (as set forth on the most recent EBITDA Certificate) is at
least $6,000,000; and, on each January 30 during the term of this Agreement,
Foothill's customary fee of $1,000 per year for its loan documentation review;
and
(e) Servicing Fee. On the first day of each month during
the term of this Agreement, and thereafter so long as any Obligations are
outstanding, a servicing fee in an amount equal to $2,000.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AGREEMENT. The
effectiveness of this Agreement, is subject to the fulfillment, to the
satisfaction of Foothill and its counsel, of each of the following conditions on
or before the Closing Date:
(a) Foothill shall have received UCC searches reflecting
the filing of its financing statements and fixture filings or otherwise
satisfactory to Foothill;
(b) Foothill shall have received such Collateral Access
Agreements from lessors, warehousemen, bailees, and other third persons as
Foothill may require;
(c) Foothill shall have received satisfactory evidence
that all tax returns required to be filed by Borrowers have been timely filed
and all taxes upon each Borrower or its properties, assets, income, and
franchises (including real property taxes and payroll taxes) have been paid
prior to delinquency, except such taxes that are the subject of a Permitted
Protest; and
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<PAGE> 34
(d) all other documents and legal matters in connection
with the transactions contemplated by this Agreement shall have been delivered,
executed, or recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND ALL LETTERS OF
CREDIT. The following shall be conditions precedent to all Advances and all
Letters of Credit:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all respects
on and as of the date of such extension of credit, as though made on and as of
such date (except to the extent that such representations and warranties relate
solely to an earlier date);
(b) no Default or Event of Default shall have occurred
and be continuing on the date of such extension of credit, nor shall either
result from the making thereof; and
(c) no injunction, writ, restraining order, or other
order of any nature prohibiting, directly or indirectly, the extending of such
credit shall have been issued and remain in force by any governmental authority
against any Borrower, Foothill, or any of their Affiliates.
3.3 CONDITION SUBSEQUENT. As a condition subsequent to the
effectiveness of this Agreement, Borrowers shall perform or cause to be
performed the following on or before July 30, 1999 (the failure by Borrowers to
so perform or cause to be performed constituting an Event of Default):
(a) Foothill shall have received duly executed amendments
and restatements to, or reaffirmation of, each of the following documents, as
Foothill shall require, and each such document shall be in full force and
effect:
(i) the Lockbox Agreements;
(ii) the Intellectual Property Security Agreements;
(iii) the Continuing Guaranty by Magicsilk in favor
of Foothill, together with Magicsilk's Intellectual Property Security Agreement;
and
(iv) the Stock Pledges;
(b) Foothill shall have received a certificate from the
Secretary or Assistant Secretary of each Borrower attesting to the resolutions
of each Borrower's Board of Directors authorizing its execution, delivery, and
performance of this
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Agreement and the other Loan Documents to which such Borrower is a party and
authorizing specific officers of such Borrower to execute the same;
(c) Foothill shall have received copies of each
Borrower's Governing Documents, as amended, modified, or supplemented to the
Closing Date, certified by the Secretary or Assistant Secretary of such
Borrower;
(d) Foothill shall have received an opinion of Borrowers'
counsel in form and substance satisfactory to Foothill in its sole discretion.
3.4 TERM; AUTOMATIC RENEWAL. This Agreement shall become
effective upon the execution and delivery hereof by Borrowers and Foothill and
shall continue in full force and effect for a term ending on the date (the
"Renewal Date") that is three years from the Closing Date and automatically
shall be renewed for successive one year periods thereafter, unless sooner
terminated pursuant to the terms hereof. Either party may terminate this
Agreement effective on the Renewal Date or on any one year anniversary of the
Renewal Date by giving the other party at least 90 days prior written notice.
The foregoing notwithstanding, Foothill shall have the right to terminate its
obligations under this Agreement immediately and without notice upon the
occurrence and during the continuation of an Event of Default.
3.5 EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations (including contingent reimbursement obligations of
Borrowers with respect to any outstanding Letters of Credit, and the accrued and
unpaid amount of any fees) immediately shall become due and payable without
notice or demand. No termination of this Agreement, however, shall relieve or
discharge Borrowers of Borrowers' duties, Obligations, or covenants hereunder,
and Foothill's continuing security interests in the Collateral shall remain in
effect until all Obligations have been fully and finally discharged and
Foothill's obligation to provide additional credit hereunder is terminated. If
Borrowers have sent a notice of termination pursuant to the provisions of
Section 3.4, but fail to pay the Obligations in full on the date set forth in
said notice, then Foothill may, but shall not be required to, renew this
Agreement for an additional term of one year.
3.6 EARLY TERMINATION BY BORROWERS. The provisions of Section
3.4 that allow termination of this Agreement by Borrowers only on the Renewal
Date and certain anniversaries thereof notwithstanding, Borrowers have the
option, at any time upon 90 days prior written notice to Foothill, to terminate
this Agreement by paying to Foothill, in cash, the Obligations (including an
amount equal to 102% of the undrawn amount of the Letters of Credit, and the
accrued and unpaid amount of any fees), in full, together with a premium (the
"Early Termination Premium") equal to (a) 2% of the Maximum Revolving Amount if
the termination is effective on or before the first
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anniversary of the Closing Date, and (b) 1% of the Maximum Revolving Amount if
the termination is effective after the first anniversary of the Closing Date but
on or before the Renewal Date, or during the first six months of any automatic
one year renewal period if the term of this Agreement has been renewed pursuant
to Section 3.4.
3.7 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates
this Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, Borrowers shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the Early
Termination Premium. The Early Termination Premium shall be presumed to be the
amount of damages sustained by Foothill as the result of the early termination
and Borrowers agree that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this Section 3.7 shall
be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Each Borrower hereby grants to
Foothill a continuing security interest in all of such Borrower's currently
existing and hereafter acquired or arising Collateral in order to secure prompt
repayment of any and all Obligations and in order to secure prompt performance
by such Borrower of each of its covenants and duties under the Loan Documents.
Foothill's security interests in the Collateral shall attach to all Collateral
without further act on the part of Foothill or Borrowers. Anything contained in
this Agreement or any other Loan Document to the contrary notwithstanding,
except as specifically permitted by Section 7.3, no Borrower has any authority,
express or implied, to dispose of any item or portion of the Collateral.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrowers, immediately upon the request of Foothill, shall endorse and deliver
physical possession of such Negotiable Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND
NEGOTIABLE COLLATERAL. At any time, Foothill or Foothill's designee may, after
the occurrence of an Event of Default, (a) notify customers or Account Debtors
of any Borrower that the Accounts, General Intangibles, or Negotiable Collateral
of such Borrower have been assigned to Foothill or that Foothill has a security
interest therein, and (b) collect the Accounts, General Intangibles, and
Negotiable Collateral of such Borrower directly and charge the collection costs
and expenses to the Loan Account. Each Borrower agrees that it will hold in
trust for Foothill, as Foothill's trustee, any Collections that it receives
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and immediately will deliver said Collections to Foothill in their original form
as received by Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time
upon the request of Foothill, Borrowers shall execute and deliver to Foothill
all financing statements, continuation financing statements, fixture filings,
security agreements, pledges, assignments, control agreements, endorsements of
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that
Foothill reasonably may request, in form satisfactory to Foothill, to perfect
and continue perfected Foothill's security interests in the Collateral, and in
order to fully consummate all of the transactions contemplated hereby and under
the other the Loan Documents.
4.5 POWER OF ATTORNEY. Each Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as such Borrower's true and lawful attorney,
with power to (a) if such Borrower refuses to, or fails timely to execute and
deliver any of the documents described in Section 4.4, sign the name of such
Borrower on any of the documents described in Section 4.4, (b) at any time that
an Event of Default has occurred and is continuing or Foothill deems itself
insecure, sign such Borrower's name on any invoice or bill of lading relating to
any Account of such Borrower, drafts against Account Debtors, schedules and
assignments of Accounts of such Borrower, verifications of Accounts of such
Borrower, and notices to Account Debtors, (c) send requests for verification of
Accounts of such Borrower, (d) endorse such Borrower's name on any Collection
item that may come into Foothill's possession, (e) at any time that an Event of
Default has occurred and is continuing or Foothill deems itself insecure, notify
the post office authorities to change the address for delivery of such
Borrower's mail to an address designated by Foothill, to receive and open all
mail addressed to such Borrower, and to retain all mail relating to the
Collateral of such Borrower and forward all other mail to such Borrower, (f) at
any time that an Event of Default has occurred and is continuing or Foothill
deems itself insecure, make, settle, and adjust all claims under such Borrower's
policies of insurance and make all determinations and decisions with respect to
such policies of insurance, and (g) at any time that an Event of Default has
occurred and is continuing or Foothill deems itself insecure, settle and adjust
disputes and claims respecting the Accounts of such Borrower directly with
Account Debtors, for amounts and upon terms that Foothill determines to be
reasonable, and Foothill may cause to be executed and delivered any documents
and releases that Foothill determines to be necessary. The appointment of
Foothill as such Borrower's attorney, and each and every one of Foothill's
rights and powers, being coupled with an interest, is irrevocable until all of
the Obligations have been fully and finally repaid and performed and Foothill's
obligation to extend credit hereunder is terminated.
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4.6 RIGHT TO INSPECT. Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter to
inspect Borrowers' Books and to check, test, and appraise the Collateral in
order to verify Borrowers' financial condition or the amount, quality, value,
condition of, or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement, each
Borrower makes the following representations and warranties which shall be true,
correct, and complete in all respects as of the date hereof, and shall be true,
correct, and complete in all respects as of the Closing Date, and at and as of
the date of the making of each Advance or Letter of Credit, made thereafter, as
though made on and as of the date of such Advance or Letter of Credit (except to
the extent that such representations and warranties relate solely to an earlier
date) and such representations and warranties shall survive the execution and
delivery of this Agreement:
5.1 NO ENCUMBRANCES. Each Borrower has good and indefeasible
title to its Collateral, free and clear of Liens except for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts of each Borrower
are bona fide existing obligations created by the sale and delivery of Inventory
or the rendition of services to Account Debtors in the ordinary course of such
Borrower's business, unconditionally owed to such Borrower without defenses,
disputes, offsets, counterclaims, or rights of return or cancellation except in
the ordinary course of business with respect to immaterial claims and disputes.
The property giving rise to such Eligible Accounts has been delivered to the
Account Debtor, or to the Account Debtor's agent for immediate shipment to the
Account Debtor. Borrowers have not received notice of actual or imminent
bankruptcy, insolvency, or material impairment of the financial condition of any
Account Debtor regarding any Eligible Account.
5.3 ELIGIBLE INVENTORY. All Eligible Inventory of Borrowers is
of good and merchantable quality, free from defects.
5.4 EQUIPMENT. All of the Equipment of Borrowers is used or
held for use in Borrowers' business and is fit for such purposes.
5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment of Borrowers are not stored with a bailee, warehouseman, or similar
party (without Foothill's prior written consent) and are located only at the
locations identified on Schedule 6.12 or otherwise permitted by Section 6.12.
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5.6 INVENTORY RECORDS. Each Borrower keeps correct and
accurate records itemizing and describing the kind, type, and quantity of its
Inventory, and such Borrower's cost therefor.
5.7 FEIN. Each Borrower's FEIN is set forth below:
<TABLE>
<CAPTION>
Borrower FEIN
-------- ----
<S> <C>
Celebrity 75-1289223
Cluett 33-0063809
Exotics 75-2578734
Star 75-2122345
Florist Supplies 01135-6462
</TABLE>
5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each Borrower is duly organized and existing and in
good standing under the laws of the jurisdiction of its incorporation and
qualified and licensed to do business in, and in good standing in, any state
where the failure to be so licensed or qualified reasonably could be expected to
cause a Material Adverse Change.
(b) Set forth on Schedule 5.8, is a complete and accurate
list of each Borrower's direct and indirect Subsidiaries, showing: (i) the
jurisdiction of their incorporation; (ii) the number of shares of each class of
common and preferred stock authorized for each of such Subsidiaries; and (iii)
the number and the percentage of the outstanding shares of each such class owned
directly or indirectly by such Borrower. All of the outstanding capital stock of
each such Subsidiary has been validly issued and is fully paid and
non-assessable.
(c) Except as set forth on Schedule 5.8, no capital stock
(or any securities, instruments, warrants, options, purchase rights, conversion
or exchange rights, calls, commitments or claims of any character convertible
into or exercisable for capital stock) of any direct or indirect Subsidiary of
any Borrower is subject to the issuance of any security, instrument, warrant,
option, purchase right, conversion or exchange right, call, commitment or claim
of any right, title, or interest therein or thereto.
5.9 DUE AUTHORIZATION; NO CONFLICT.
(a) The execution, delivery, and performance by each
Borrower of this Agreement and the Loan Documents to which it is a party have
been duly authorized by all necessary corporate action.
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(b) The execution, delivery, and performance by each
Borrower of this Agreement and the Loan Documents to which it is a party do not
and will not (i) violate any provision of federal, state, or local law or
regulation (including Regulations T, U, and X of the Federal Reserve Board)
applicable to such Borrower, the Governing Documents of such Borrower, or any
order, judgment, or decree of any court or other Governmental Authority binding
on such Borrower, (ii) conflict with, result in a breach of, or constitute (with
due notice or lapse of time or both) a default under any material contractual
obligation or material lease of such Borrower, (iii) result in or require the
creation or imposition of any Lien of any nature whatsoever upon any properties
or assets of such Borrower, other than Permitted Liens, or (iv) require any
approval of stockholders or any approval or consent of any Person under any
material contractual obligation of such Borrower.
(c) Other than the filing of appropriate financing
statements, fixture filings, and mortgages, the execution, delivery, and
performance by each Borrower of this Agreement and the Loan Documents to which
such Borrower is a party do not and will not require any registration with,
consent, or approval of, or notice to, or other action with or by, any federal,
state, foreign, or other Governmental Authority or other Person.
(d) This Agreement and the Loan Documents to which any
Borrower is a party, and all other documents contemplated hereby and thereby,
when executed and delivered by such Borrower, will be the legally valid and
binding obligations of such Borrower, enforceable against such Borrower in
accordance with their respective terms, except as enforcement may be limited by
equitable principles or by bankruptcy, insolvency, reorganization, moratorium,
or similar laws relating to or limiting creditors' rights generally.
(e) The Liens granted by each Borrower to Foothill in and
to its properties and assets pursuant to this Agreement and the other Loan
Documents are validly created, perfected, and first priority Liens, subject only
to Permitted Liens.
5.10 LITIGATION. There are no actions or proceedings pending
by or against any Borrower before any court or administrative agency and no
Borrower has any knowledge or belief of any pending, threatened, or imminent
litigation, governmental investigations, or claims, complaints, actions, or
prosecutions involving any Borrower or any guarantor of the Obligations, except
for: (a) ongoing collection matters in which a Borrower is the plaintiff; (b)
matters disclosed on Schedule 5.10; and (c) matters arising after the date
hereof that, if decided adversely to a Borrower, would not cause a Material
Adverse Change.
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5.11 GAAP FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE.
All financial statements relating to any Borrower or any guarantor of the
Obligations that have been delivered by any Borrower to Foothill have been
prepared in accordance with GAAP (except, in the case of unaudited financial
statements, for the lack of footnotes and being subject to year-end audit
adjustments) and fairly present such Borrower's (or such guarantor's, as
applicable) financial condition as of the date thereof and such Borrower's
results of operations for the period then ended. There has not been a Material
Adverse Change with respect to any Borrower (or such guarantor, as applicable)
since the date of the latest financial statements submitted to Foothill on or
before the Closing Date.
5.12 SOLVENCY. Each Borrower is Solvent. No transfer of
property is being made by any Borrower and no obligation is being incurred by
any Borrower in connection with the transactions contemplated by this Agreement
or the other Loan Documents with the intent to hinder, delay, or defraud either
present or future creditors of any Borrower.
5.13 EMPLOYEE BENEFITS. None of Borrowers, any of their
Subsidiaries, or any of their ERISA Affiliates maintains or contributes to any
Benefit Plan. No ERISA Event has occurred nor has any other event occurred that
may result in an ERISA Event that reasonably could be expected to result in a
Material Adverse Change. None of Borrowers or their Subsidiaries, any ERISA
Affiliate, or any fiduciary of any Plan is subject to any direct or indirect
liability with respect to any Plan under any applicable law, treaty, rule,
regulation, or agreement. None of Borrowers or their Subsidiaries or any ERISA
Affiliate is required to provide security to any Plan under Section 401(a)(29)
of the IRC.
5.14 ENVIRONMENTAL CONDITION. None of Borrowers' properties or
assets has ever been used by any Borrower or, to the best of each Borrower's
knowledge, by previous owners or operators in the disposal of, or to produce,
store, handle, treat, release, or transport, any Hazardous Materials, except in
compliance with applicable law. None of Borrowers' properties or assets has ever
been designated or identified in any manner pursuant to any environmental
protection statute as a Hazardous Materials disposal site, or a candidate for
closure pursuant to any environmental protection statute. No Lien arising under
any environmental protection statute has attached to any revenues or to any real
or personal property owned or operated by any Borrower. No Borrower has received
a summons, citation, notice, or directive from the Environmental Protection
Agency or any other federal or state governmental agency concerning any action
or omission by any Borrower resulting in the releasing or disposing of Hazardous
Materials into the environment.
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6. AFFIRMATIVE COVENANTS.
Each Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, such Borrower shall do all of the following:
6.1 ACCOUNTING SYSTEM. Maintain a standard and accurate system
of accounting that enables such Borrower to produce financial statements in
accordance with GAAP, and maintain records pertaining to its Collateral that
contain information as from time to time may be requested by Foothill. Such
Borrower also shall keep a modern inventory reporting system that shows all
additions, sales, claims, returns, and allowances with respect to its Inventory.
6.2 COLLATERAL REPORTING. Provide Foothill with the following
documents at the following times in form satisfactory to Foothill: (a) on each
Business Day, a sales journal, collection journal, and credit register for each
of Exotics, Cluett, and Celebrity since the last such schedule and a calculation
of the Borrowing Base as of such date, (b) on a monthly basis and, in any event,
by no later than the 10th day of each month during the term of this Agreement,
(1) a detailed calculation of the Borrowing Base for each of Exotics, Cluett,
and Celebrity and on a consolidated basis, and (2) a detailed aging, by total,
of such Borrower's Accounts, together with a reconciliation to the detailed
calculation of the Borrowing Base previously provided to Foothill, (c) on a
monthly basis and, in any event, by no later than the 10th day of each month
during the term of this Agreement, a summary aging, by vendor, of such
Borrower's accounts payable and any book overdraft, (d) on a weekly basis,
Inventory reports specifying such Borrower's cost of its Inventory by category,
with additional detail showing additions to and deletions from its Inventory,
(e) upon request, notice of all returns, disputes, or claims, (f) upon request,
copies of invoices in connection with its Accounts, customer statements, credit
memos, remittance advices and reports, deposit slips, shipping and delivery
documents in connection with its Accounts and for Inventory and Equipment
acquired by such Borrower, purchase orders and invoices, (g) on a quarterly
basis, a detailed list of such Borrower's customers, (h) upon request, such
Borrower's electronic data; and (i) such other reports as to the Collateral or
the financial condition of such Borrower or the financial condition and agings
of Celebrity Hong Kong, as Foothill may request from time to time.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver or
cause to be delivered to Foothill: (a) upon request by Foothill, Celebrity's
"Weekly Consolidated Tactical Cash Model"; (b) as soon as available, but in any
event within 30 days after the end of each month, a company prepared balance
sheet as of month end, and an income statement and statement of cash flows
covering each Borrower's operations during such period; (c) as soon as
available, but in any event within 90 days after the end of
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Celebrity's fiscal years, consolidated financial statements of Celebrity for
each such fiscal year, audited by independent certified public accountants
reasonably acceptable to Foothill and certified, without any qualifications, by
such accountants to have been prepared in accordance with GAAP, together with a
certificate of such accountants addressed to Foothill stating that such
accountants have reviewed Sections 6.1, 6.11, 6.14, 6.15, 7.1, 7.2, 7.4, 7.10,
7.11, 7.12, 7.14, 7.18, 7.20, and 7.21 of this Agreement, insofar as such
Sections relate to financial and accounting matters, and that as a result of
such review such accountants do not have knowledge of any failure to comply with
such Sections on the part of Borrowers; and (d) by April 15, of each year during
the term of this Agreement, Foothill shall have received from Celebrity a
business plan (with projections) for Borrowers reflecting periods through June
30 of the following year, in each case acceptable to Foothill in its sole
discretion. Such audited financial statements shall include a balance sheet,
income statement, and statement of cash flows and, if prepared, such
accountants' letter to management. All such monthly financial statements
required under clause (b) of the first sentence of Section 6.3 shall be prepared
on a consolidated basis and shall be accompanied by a consolidating income
statement prepared so as to present Celebrity and each of its Subsidiaries
separately.
Together with the above, Celebrity also shall deliver to
Foothill its Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K
Current Reports, and any other filings it makes with the Securities and Exchange
Commission, as soon as the same are filed, or any other information that is
provided by Celebrity to its shareholders generally, and any other report
reasonably requested by Foothill relating to the financial condition of any
Borrower.
Each month, together with the financial statements
provided pursuant to Section 6.3, such Borrower shall deliver to Foothill an
EBITDA Certificate (if such month is also the last month of a fiscal quarter of
Celebrity) and a Compliance Certificate signed by its chief financial officer to
the effect that: (i) all financial statements delivered or caused to be
delivered to Foothill hereunder have been prepared in accordance with GAAP
(except, in the case of unaudited financial statements, for the lack of
footnotes and being subject to year-end audit adjustments) and fairly present
the financial condition of such Borrower, (ii) the representations and
warranties of such Borrower contained in this Agreement and the other Loan
Documents are true and correct in all material respects on and as of the date of
such certificate, as though made on and as of such date (except to the extent
that such representations and warranties relate solely to an earlier date),
(iii) for each month that also is the date on which a financial covenant in
Section 7.20 is to be tested, such Borrower is in compliance at the end of such
period with the applicable financial covenants contained in Section 7.20 (and
demonstrating such compliance in reasonable detail), and (iv) on the date of
delivery of such certificate to Foothill there does not exist any condition or
event that constitutes a Default or Event of Default (or, in the case of clauses
(i), (ii), or (iii), to the extent of
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any non-compliance, describing such non-compliance as to which he or she may
have knowledge and what action such Borrower has taken, is taking, or proposes
to take with respect thereto).
Such Borrower shall issue written instructions to its
independent certified public accountants authorizing them to communicate with
Foothill and to release to Foothill whatever financial information concerning
such Borrower that Foothill may request. Such Borrower hereby irrevocably
authorizes and directs all auditors, accountants, or other third parties to
deliver to Foothill, at such Borrower's expense, copies of such Borrower's
financial statements, papers related thereto, and other accounting records of
any nature in their possession, and to disclose to Foothill any information they
may have regarding such Borrower's business affairs and financial conditions.
6.4 TAX RETURNS. Deliver to Foothill copies of each of such
Borrower's future federal income tax returns, and any amendments thereto, within
30 days of the filing thereof with the Internal Revenue Service.
6.5 GUARANTOR REPORTS. Cause any guarantor of any of the
Obligations to deliver its annual financial statements (to the extent not
included in the financial statements delivered under Section 6.3) at the time
when Celebrity provides its audited financial statements to Foothill and copies
of all federal income tax returns as soon as the same are available and in any
event no later than 30 days after the same are required to be filed by law.
6.6 RETURNS. Cause returns and allowances, if any, as between
such Borrower and its Account Debtors to be on the same basis and in accordance
with the usual customary practices of such Borrower, as they exist at the time
of the execution and delivery of this Agreement. If, at a time when no Event of
Default has occurred and is continuing, any Account Debtor returns any Inventory
to such Borrower, such Borrower promptly shall determine the reason for such
return and, if such Borrower accepts such return, issue a credit memorandum
(with a copy to be sent to Foothill upon Foothill's request) in the appropriate
amount to such Account Debtor. If, at a time when an Event of Default has
occurred and is continuing, any Account Debtor returns any Inventory to such
Borrower, such Borrower promptly shall determine the reason for such return and,
if Foothill consents (which consent shall not be unreasonably withheld), issue a
credit memorandum (with a copy to be sent to Foothill upon Foothill's request)
in the appropriate amount to such Account Debtor.
6.7 TITLE TO EQUIPMENT. Upon Foothill's request, such Borrower
immediately shall deliver to Foothill, properly endorsed, any and all evidences
of ownership of, certificates of title, or applications for title to any items
of its Equipment.
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6.8 MAINTENANCE OF EQUIPMENT. Maintain its Equipment in good
operating condition and repair (ordinary wear and tear excepted), and make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. Other than those items
of Equipment that constitute fixtures or accessions on the Closing Date, such
Borrower shall not permit any item of its Equipment to become a fixture to real
estate or an accession to other property (other than to repair or replace any
such fixture or accession), and such Equipment shall at all times remain
personal property.
6.9 TAXES. Cause all assessments and taxes, whether real,
personal, or otherwise, due or payable by, or imposed, levied, or assessed
against such Borrower or any of its property to be paid in full, before
delinquency or before the expiration of any extension period, except to the
extent that the validity of such assessment or tax shall be the subject of a
Permitted Protest. Such Borrower shall make due and timely payment or deposit of
all such federal, state, and local taxes, assessments, or contributions required
of it by law, and will execute and deliver to Foothill, on demand, appropriate
certificates attesting to the payment thereof or deposit with respect thereto.
Such Borrower will make timely payment or deposit of all tax payments and
withholding taxes required of it by applicable laws, including those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Foothill with proof satisfactory
to Foothill indicating that such Borrower has made such payments or deposits.
6.10 INSURANCE.
(a) At its expense, keep its Collateral insured against
loss or damage by fire, theft, explosion, sprinklers, and all other hazards and
risks, and in such amounts, all as are ordinarily insured against by other
owners in similar businesses. Such Borrower also shall maintain business
interruption, public liability, product liability, and property damage insurance
relating to such Borrower's ownership and use of its Collateral, as well as
insurance against larceny, embezzlement, and criminal misappropriation.
(b) Intentionally Deleted
(c) Intentionally Deleted.
(d) All such policies of insurance shall be in such form,
with such companies, and in such amounts as may be reasonably satisfactory to
Foothill. All insurance required herein shall be written by companies which are
authorized to do insurance business in the State of California. All hazard
insurance and such other insurance as Foothill shall specify, shall contain a
California Form 438BFU
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(NS) mortgagee endorsement, or an equivalent endorsement satisfactory to
Foothill, showing Foothill as a loss payee thereof, and shall contain a waiver
of warranties. Every policy of insurance referred to in this Section 6.10 shall
contain an agreement by the insurer that it will not cancel such policy except
after 30 days prior written notice to Foothill and that any loss payable
thereunder shall be payable notwithstanding any act or negligence of such
Borrower or Foothill which might, absent such agreement, result in a forfeiture
of all or a part of such insurance payment. Such Borrower shall deliver to
Foothill certified copies of such policies of insurance and evidence of the
payment of all premiums therefor.
(e) Certificates satisfactory to Foothill evidencing such
insurance shall be delivered to Foothill at least 30 days prior to the
expiration of the existing or preceding policies. Such Borrower shall give
Foothill prompt notice of any single loss (in excess of $25,000) covered by such
insurance. Foothill shall have the exclusive right to adjust any losses in
excess of $25,000 (or, if an Event of Default has occurred and is continuing, or
Foothill deems itself insecure, to adjust all losses) payable under any such
insurance policies without any liability to such Borrower whatsoever in respect
of such adjustments. Any monies received as payment for any loss under any
insurance policy including the insurance policies mentioned above, shall be paid
over to Foothill to be applied at the option of Foothill either to the
prepayment of the Obligations without premium, in such order or manner as
Foothill may elect, or shall be disbursed to such Borrower under stage payment
terms satisfactory to Foothill for application to the cost of repairs,
replacements, or restorations. All repairs, replacements, or restorations shall
be effected with reasonable promptness and shall be of a value at least equal to
the value of the items or property destroyed prior to such damage or
destruction. Upon the occurrence of an Event of Default, Foothill shall have the
right to apply all prepaid premiums to the payment of the Obligations in such
order or form as Foothill shall determine.
(f) Such Borrower shall not take out separate insurance
concurrent in form or contributing in the event of loss with that required to be
maintained under this Section 6.10, unless Foothill is included thereon as named
insured with the loss payable to Foothill under a standard California 438BFU
(NS) Mortgagee endorsement, or its local equivalent. Such Borrower immediately
shall notify Foothill whenever such separate insurance is taken out, specifying
the insurer thereunder and full particulars as to the policies evidencing the
same, and originals of such policies immediately shall be provided to Foothill.
6.11 NO SETOFFS OR COUNTERCLAIMS. Make payments hereunder and
under the other Loan Documents by or on behalf of such Borrower without setoff
or counterclaim and free and clear of, and without deduction or withholding for
or on account of, any federal, state, or local taxes.
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6.12 LOCATION OF INVENTORY AND EQUIPMENT. Keep its Inventory
(other than In-Transit Inventory) and Equipment only at the locations identified
on Schedule 6.12 (or in transit between them); provided, however, that Borrowers
may amend Schedule 6.12 so long as such amendment occurs by written notice to
Foothill not less than 30 days prior to the date on which the Inventory or
Equipment of Borrowers is moved to such new location, so long as such new
location is within the continental United States, and so long as, at the time of
such written notification, Borrowers provide any financing statements or fixture
filings necessary to perfect and continue perfected Foothill's security
interests in such assets and also provides to Foothill a Collateral Access
Agreement.
6.13 COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any governmental authority,
including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, would not have and could not reasonably be
expected to cause a Material Adverse Change.
6.14 EMPLOYEE BENEFITS.
(a) Deliver to Foothill: (i) promptly, and in any event
within 10 Business Days after such Borrower or any of its Subsidiaries knows or
has reason to know that an ERISA Event has occurred that reasonably could be
expected to result in a Material Adverse Change, a written statement of the
chief financial officer of such Borrower describing such ERISA Event and any
action that is being taking with respect thereto by such Borrower, any such
Subsidiary or ERISA Affiliate, and any action taken or threatened by the IRS,
Department of Labor, or PBGC. Such Borrower or such Subsidiary, as applicable,
shall be deemed to know all facts known by the administrator of any Benefit Plan
of which it is the plan sponsor, (ii) promptly, and in any event within 3
Business Days after the filing thereof with the IRS, a copy of each funding
waiver request filed with respect to any Benefit Plan and all communications
received by such Borrower, any of its Subsidiaries or, to the knowledge of such
Borrower, any ERISA Affiliate with respect to such request, and (iii) promptly,
and in any event within 3 Business Days after receipt by such Borrower, any of
its Subsidiaries or, to the knowledge of such Borrower, any ERISA Affiliate, of
the PBGC's intention to terminate a Benefit Plan or to have a trustee appointed
to administer a Benefit Plan, copies of each such notice.
(b) Cause to be delivered to Foothill, upon Foothill's
request, each of the following: (i) a copy of each Plan (or, where any such plan
is not in writing, complete description thereof) (and if applicable, related
trust agreements or other funding instruments) and all amendments thereto, all
written interpretations thereof and
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written descriptions thereof that have been distributed to employees or former
employees of such Borrower or its Subsidiaries; (ii) the most recent
determination letter issued by the IRS with respect to each Benefit Plan; (iii)
for the three most recent plan years, annual reports on Form 5500 Series
required to be filed with any governmental agency for each Benefit Plan; (iv)
all actuarial reports prepared for the last three plan years for each Benefit
Plan; (v) a listing of all Multiemployer Plans, with the aggregate amount of the
most recent annual contributions required to be made by such Borrower or any
ERISA Affiliate to each such plan and copies of the collective bargaining
agreements requiring such contributions; (vi) any information that has been
provided to such Borrower or any ERISA Affiliate regarding withdrawal liability
under any Multiemployer Plan; and (vii) the aggregate amount of the most recent
annual payments made to former employees of such Borrower or its Subsidiaries
under any Retiree Health Plan.
6.15 LEASES. Pay when due all rents and other amounts payable
under any leases to which such Borrower is a party or by which such Borrower's
properties and assets are bound, unless such payments are the subject of a
Permitted Protest. To the extent that such Borrower fails timely to make payment
of such rents and other amounts payable when due under its leases, Foothill
shall be entitled, in its discretion, to reserve an amount equal to such unpaid
amounts against the Borrowing Base.
7. NEGATIVE COVENANTS.
Each Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, such Borrower will not do any of the following:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness to any Person other than a Borrower, except:
(a) Indebtedness evidenced by this Agreement, together
with Indebtedness to issuers of letters of credit that is the subject of L/C
Guarantees;
(b) Indebtedness set forth in the latest financial
statements of Borrowers submitted to Foothill on or prior to the Closing Date,
or in Schedule 7.1;
(c) Indebtedness secured by Permitted Liens;
(d) the guaranty of Indebtedness of Celebrity Hong Kong,
which such Indebtedness shall not exceed $7,000,000 outstanding at any one time
and the MLBFS Guaranty, which shall not exceed $4,500,000 at any one time; and
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(e) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b), (c) or (d) of this Section 7.1 (and continuance or
renewal of any Permitted Liens associated therewith) so long as: (i) the terms
and conditions of such refinancings, renewals, or extensions do not materially
impair the prospects of repayment of the Obligations by Borrowers, (ii) the net
cash proceeds of such refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended, (iii) such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv) to the extent that
Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to Foothill as those applicable to
the refinanced Indebtedness.
7.2 LIENS. Create, incur, assume, or permit to exist, directly
or indirectly, any Lien on or with respect to any of its property or assets, of
any kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
Section 7.1(e) and so long as the replacement Liens only encumber those assets
or property that secured the original Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any
merger, consolidation, reorganization, or recapitalization (other than reverse
stock splits), or reclassify its capital stock, or liquidate, wind up, or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
assign, lease, transfer, or otherwise dispose of, in one transaction or a series
of transactions, all or any substantial part of its property or assets;
provided, however, that any Borrower may be merged or liquidated into any other
Borrower upon 30 days' advance written notice to Foothill.
7.4 DISPOSAL OF ASSETS. Sell, lease, assign, transfer, or
otherwise dispose of any of such Borrower's properties or assets other than: (a)
sales of Inventory to buyers in the ordinary course of such Borrower's business
as currently conducted; and (b) Permitted Equipment Dispositions.
7.5 CHANGE NAME. Change such Borrower's name, FEIN, corporate
structure (within the meaning of Section 9402(7) of the Code), or identity, or
add any new fictitious name.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable
with respect to the obligations of any third Person except (a) as permitted by
Section 7.1, and
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(b) by endorsement of instruments or items of payment for deposit to the account
of such Borrower or which are transmitted or turned over to Foothill.
7.7 NATURE OF BUSINESS. Make any change in the principal
nature of such Borrower's business.
7.8 PREPAYMENTS AND AMENDMENTS.
(a) Prepay, redeem, retire, defease, purchase, or
otherwise acquire any Indebtedness owing to any Person, except (i) payments of
the Obligations in accordance with this Agreement, (ii) in connection with a
refinancing permitted by Section 7.1(e), and (iii) in connection with Permitted
Equipment Dispositions; and
(b) Directly or indirectly, amend, modify, alter,
increase, or change any of the terms or conditions of any agreement, instrument,
document, indenture, or other writing evidencing or concerning Indebtedness for
borrowed money.
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 CONSIGNMENTS. Consign any Inventory or sell any of its
Inventory on bill and hold, sale or return, sale on approval, or other
conditional terms of sale.
7.11 DISTRIBUTIONS. Make any distribution or declare or pay
any dividends (in cash or other property, other than capital stock) on, or
purchase, acquire, redeem, or retire any of such Borrower's capital stock, of
any class, whether now or hereafter outstanding, except for (i) dividends
payable to a Borrower; (ii) purchases, acquisitions, or redemptions of a
Borrower's stock from, or retirements of a Borrower's stock held by, another
Borrower; and (iii) the repurchase of up to $175,000 of common stock pursuant to
existing stock purchase obligations.
7.12 ACCOUNTING METHODS. Modify or change its method of
accounting or enter into, modify, or terminate any agreement whether currently
existing or at any time hereafter entered into, with any third party accounting
firm or service bureau for the preparation or storage of such Borrower's
accounting records without said accounting firm or service bureau agreeing to
provide Foothill information regarding the Collateral or such Borrower's
financial condition. Such Borrower waives the right to assert a confidential
relationship, if any, it may have with any accounting firm or service bureau in
connection with any information requested by Foothill pursuant to or in
accordance with this Agreement, and agrees that Foothill may contact directly
any such accounting firm or service bureau in order to obtain such information.
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7.13 INVESTMENTS. Directly or indirectly make, acquire, or
incur any liabilities (including contingent obligations) for or in connection
with (a) the acquisition of the securities (whether debt or equity) of, or other
interests in, a Person (other than a Borrower), (b) loans, advances, capital
contributions, or transfers of property to a Person (other than a Borrower), or
(c) the acquisition of all or substantially all of the properties or assets of a
Person (other than a Borrower), except for (i) trade credit in the ordinary
course; and (ii) up to $50,000 per month of advances to employees for expenses
in the ordinary course of business.
7.14 TRANSACTIONS WITH AFFILIATES. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate of
such Borrower (other than another Borrower) except for transactions that are in
the ordinary course of such Borrower's business, upon fair and reasonable terms,
that are fully disclosed to Foothill, and that are no less favorable to such
Borrower than would be obtained in an arm's length transaction with a
non-Affiliate.
7.15 SUSPENSION. Suspend or go out of a substantial portion of
its business.
7.16 INTENTIONALLY DELETED.
7.17 USE OF PROCEEDS. Use the proceeds of the Advances made
hereunder for any purpose other than, consistent with the terms and conditions
hereof, for its lawful and permitted corporate purposes.
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY
AND EQUIPMENT WITH BAILEES. Relocate its chief executive office to a new
location without providing 30 days prior written notification thereof to
Foothill and so long as, at the time of such written notification, such Borrower
provides any financing statements or fixture filings necessary to perfect and
continue perfected Foothill's security interests and also provides to Foothill a
Collateral Access Agreement with respect to such new location. The Inventory and
Equipment of such Borrower shall not at any time now or hereafter be stored with
a bailee, warehouseman, or similar party without Foothill's prior written
consent.
7.19 NO PROHIBITED TRANSACTIONS UNDER ERISA. Directly or
indirectly:
(a) engage, or permit any Subsidiary of such Borrower to
engage, in any prohibited transaction which is reasonably likely to result in a
civil penalty or excise tax described in Sections 406 of ERISA or 4975 of the
IRC for which
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a statutory or class exemption is not available or a private exemption has not
been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of
the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of such Borrower to
fail, to pay timely required contributions or annual installments due with
respect to any waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of such Borrower
to terminate, any Benefit Plan where such event would result in any liability of
such Borrower, any of its Subsidiaries or any ERISA Affiliate under Title IV of
ERISA;
(e) fail, or permit any Subsidiary of such Borrower to
fail, to make any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of such Borrower to
fail, to pay any required installment or any other payment required under
Section 412 of the IRC on or before the due date for such installment or other
payment;
(g) amend, or permit any Subsidiary of such Borrower to
amend, a Plan resulting in an increase in current liability for the plan year
such that either of such Borrower, any Subsidiary of such Borrower or any ERISA
Affiliate is required to provide security to such Plan under Section 401(a)(29)
of the IRC; or
(h) withdraw, or permit any Subsidiary of such Borrower
to withdraw, from any Multiemployer Plan where such withdrawal is reasonably
likely to result in any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of such Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $100,000.
7.20 FINANCIAL COVENANTS. Have Celebrity fail to maintain:
(a) [Intentionally Deleted.]
(b) [Intentionally Deleted.]
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(c) Tangible Net Worth. Tangible Net Worth of at least
the $6,500,000 at all times; and
(d) EBITDA. EBITDA of at least $4,000,000 as of the end
of each of its fiscal quarters.
7.21 CAPITAL EXPENDITURES. Allow Borrowers, in the aggregate,
to make capital expenditures in any fiscal year in excess of $2,000,000.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
8.1 If Borrowers fail to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the Bankruptcy
Code, would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
8.2 If any Borrower fails to perform, keep, or observe any
term, provision, condition, covenant, or agreement contained in this Agreement,
in any of the Loan Documents, or in any other present or future agreement
between such Borrower and Foothill; provided, however, that Borrowers' failure
to perform, keep, or observe the terms of Sections 6.2, 6.3, 6.4, 6.7, 6.8, 6.13
or 6.15 shall not constitute an Event of Default unless such failure continues
for five days or more;
8.3 If there is a Material Adverse Change;
8.4 If any material portion of any Borrower's properties or
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by any Borrower;
8.6 If an Insolvency Proceeding is commenced against any
Borrower and any of the following events occur: (a) such Borrower consents to
the institution of the Insolvency Proceeding against it; (b) the petition
commencing the Insolvency Proceeding is not timely controverted; (c) the
petition commencing the Insolvency Proceeding is not dismissed within 45
calendar days of the date of the filing thereof; provided, however, that, during
the pendency of such period, Foothill shall be relieved of its obligation to
extend credit hereunder; (d) an interim trustee is appointed to take
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possession of all or a substantial portion of the properties or assets of, or to
operate all or any substantial portion of the business of, such Borrower; or (e)
an order for relief shall have been issued or entered therein;
8.7 If any Borrower is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs;
8.8 If a notice of Lien, levy, or assessment (other than a
Permitted Lien) is filed of record with respect to any of any Borrower's
properties or assets by the United States Government, or any department, agency,
or instrumentality thereof, or by any state, county, municipal, or governmental
agency, or if any taxes or debts owing at any time hereafter to any one or more
of such entities becomes a Lien (other than a Permitted Lien), whether choate or
otherwise, upon any of such Borrower's properties or assets and the same is not
paid on the payment date thereof; provided, however, that no such notice of
Lien, levy, or assessment, and no such Lien, shall constitute an Event of
Default under this Section 8.8 to the extent that Borrower is diligently
pursuing the cure thereof by appropriate means and that (a) the aggregate amount
in respect of all such Liens or notices under this provision is less than
$50,000, (b) such Lien, levy, or assessment is not a federal tax lien, and (c)
such Lien, levy, or assessment is satisfied within 30 days of the date that it
arose; provided further, however, that Foothill may establish a reserve as
provided under Section 10 during the pendency of such period;
8.9 If a judgment or other claim becomes a Lien or encumbrance
upon any material portion of any Borrower's properties or assets; provided,
however, that no such Lien or encumbrance shall constitute an Event of Default
under this Section 8.9 to the extent that Borrower is diligently pursuing the
cure thereof by appropriate means and that (a) the aggregate amount of all
judgments and claims subject to such Liens or encumbrances does not exceed at
any one time $50,000; and (b) such Lien or encumbrance is satisfied or released
within 30 days of the date thereof or has been and remains stayed pending
appeal; provided further, however, that Foothill may establish a reserve as
provided in Section 10 during the pendency of such period;
8.10 If there is a default in any agreement concerning
Indebtedness of more than $100,000 or any other material agreement to which any
Borrower is a party with one or more third Persons and such default (a) occurs
at the final maturity of the obligations thereunder, or (b) results in a right
by such third Person(s), irrespective of whether exercised, to accelerate the
maturity of such Borrower's obligations thereunder or terminate such contract;
8.11 If any Borrower makes any payment on account of
Indebtedness that has been contractually subordinated in right of payment to the
payment of the
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Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;
8.12 If any material misstatement or misrepresentation exists
now or hereafter in any warranty, representation, statement, or report made to
Foothill by any Borrower or any officer, employee, agent, or director of any
Borrower, or if any such warranty or representation is withdrawn in any material
respect; or
8.13 If the obligation of any guarantor under its guaranty or
of any other third Person under any Loan Document is breached, limited or
terminated by operation of law or by the guarantor or other third Person
thereunder, or any such guarantor or other third Person becomes the subject of
an Insolvency Proceeding.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrowers:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;
(b) Cease advancing money or extending credit to or for
the benefit of Borrowers under this Agreement, under any of the Loan Documents,
or under any other agreement between Borrowers and Foothill;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Foothill, but without
affecting Foothill's rights and security interests in the Collateral and without
affecting the Obligations;
(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Foothill considers advisable,
and in such cases, Foothill will credit Borrowers' Loan Account with only the
net amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
(e) Cause Borrowers to hold all of their returned
Inventory in trust for Foothill, segregate all such returned Inventory from all
other property of any
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Borrower or in any Borrower's possession and conspicuously label said returned
Inventory as the property of Foothill;
(f) Without notice to or demand upon any Borrower or any
guarantor, make such payments and do such acts as Foothill considers necessary
or reasonable to protect its security interests in the Collateral. Borrowers
agree to assemble the Collateral if Foothill so requires, and to make the
Collateral available to Foothill as Foothill may designate. Each Borrower
authorizes Foothill to enter the premises where the Collateral is located, to
take and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or Lien that in
Foothill's determination appears to conflict with its security interests and to
pay all expenses incurred in connection therewith. With respect to any of
Borrowers' owned or leased premises, each Borrower hereby grants Foothill a
license to enter into possession of such premises and to occupy the same,
without charge, for up to 120 days in order to exercise any of Foothill's rights
or remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to any Borrower (such notice being
expressly waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of Section 9505 of the Code),
set off and apply to the Obligations any and all (i) balances and deposits of
any Borrower held by Foothill (including any amounts received in the Lockbox
Accounts), or (ii) indebtedness at any time owing to or for the credit or the
account of any Borrower held by Foothill;
(h) Hold, as cash collateral, any and all balances and
deposits of any Borrower held by Foothill, and any amounts received in the
Lockbox Accounts, to secure the full and final repayment of all of the
Obligations;
(i) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Foothill is hereby granted a license or other right
to use, without charge, any Borrower's labels, patents, copyrights, rights of
use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling any
Collateral and each Borrower's rights under all licenses and all franchise
agreements shall inure to Foothill's benefit;
(j) Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including any Borrower's premises) as
Foothill determines is commercially reasonable. It is not necessary that the
Collateral be present at any such sale;
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(k) Foothill shall give notice of the disposition of the
Collateral as follows:
(1) Foothill shall give Borrowers and each holder of a
security interest in the Collateral who has filed with Foothill a written
request for notice, a notice in writing of the time and place of public sale,
or, if the sale is a private sale or some other disposition other than a public
sale is to be made of the Collateral, then the time on or after which the
private sale or other disposition is to be made;
(2) The notice shall be personally delivered or
mailed, postage prepaid, to Borrowers as provided in Section 12, at least 5 days
before the date fixed for the sale, or at least 5 days before the date on or
after which the private sale or other disposition is to be made; no notice needs
to be given prior to the disposition of any portion of the Collateral that is
perishable or threatens to decline speedily in value or that is of a type
customarily sold on a recognized market. Notice to Persons other than Borrowers
claiming an interest in the Collateral shall be sent to such addresses as they
have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill also
shall give notice of the time and place by publishing a notice one time at least
5 days before the date of the sale in a newspaper of general circulation in the
county in which the sale is to be held;
(l) Foothill may credit bid and purchase at any public
sale; and
(m) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrowers. Any excess
will be returned, without interest and subject to the rights of third Persons,
by Foothill to Borrowers.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Foothill shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by
Foothill of one right or remedy shall be deemed an election, and no waiver by
Foothill of any Event of Default shall be deemed a continuing waiver. No delay
by Foothill shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If any Borrower fails to pay any monies (whether taxes,
assessments, insurance premiums, or, in the case of leased properties or assets,
rents or other amounts payable under such leases) due to third Persons, or fails
to make any deposits or furnish
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any required proof of payment or deposit, all as required under the terms of
this Agreement, then, to the extent that Foothill determines that such failure
by such Borrower could result in a Material Adverse Change, in its discretion
and without prior notice to Borrowers, Foothill may do any or all of the
following: (a) make payment of the same or any part thereof unless such payment
obligations are subject of a Permitted Protest; (b) set up such reserves in
Borrowers' Loan Account as Foothill deems necessary to protect Foothill from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type described in Section 6.10, and take any action with respect to such
policies as Foothill deems prudent. Any such amounts paid by Foothill shall
constitute Foothill Expenses. Any such payments made by Foothill shall not
constitute an agreement by Foothill to make similar payments in the future or a
waiver by Foothill of any Event of Default under this Agreement. Foothill need
not inquire as to, or contest the validity of, any such expense, tax, or Lien
and the receipt of the usual official notice for the payment thereof shall be
conclusive evidence that the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Each Borrower waives demand,
protest, notice of protest, notice of default or dishonor, notice of payment and
nonpayment, nonpayment at maturity, release, compromise, settlement, extension,
or renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Foothill on which such Borrower may in any way be liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill
complies with its obligations, if any, under Section 9207 of the Code, Foothill
shall not in any way or manner be liable or responsible for: (a) the safekeeping
of the Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (c) any diminution in the value thereof; or
(d) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other Person. All risk of loss, damage, or destruction of the Collateral
shall be borne by Borrowers.
11.3 INDEMNIFICATION. Borrowers shall pay, indemnify, defend,
and hold Foothill, each Participant, and each of their respective officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all reasonable attorneys fees and disbursements
and other costs and expenses actually incurred in connection therewith (as and
when they are incurred and irrespective of whether suit is brought), at any time
asserted against, imposed upon, or incurred by any of them in connection with or
as a result of or related to the execution, delivery, enforcement, performance,
and administration (including any of the foregoing arising out of the
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administration of the credit facilities hereunder on a joint borrowing basis) of
this Agreement and any other Loan Documents or the transactions contemplated
herein, and with respect to any investigation, litigation, or proceeding related
to this Agreement, any other Loan Document, or the use of the proceeds of the
credit provided hereunder (irrespective of whether any Indemnified Person is a
party thereto), or any act, omission, event or circumstance in any manner
related thereto (all the foregoing, collectively, the "Indemnified
Liabilities"). Borrowers shall have no obligation to any Indemnified Person
under this Section 11.3 with respect to any Indemnified Liability that a court
of competent jurisdiction finally determines to have resulted from the gross
negligence or willful misconduct of such Indemnified Person. This provision
shall survive the termination of this Agreement and the repayment of the
Obligations.
11.4 JOINT BORROWERS.
(a) Each Borrower agrees that it is jointly and severally,
directly and primarily liable to Foothill for payment in full of all
Obligations, whether for principal, interest or otherwise and that such
liability is independent of the duties, obligations, and liabilities of the
other Borrowers. Foothill may bring a separate action or actions on each, any,
or all of the Obligations against any Borrower, whether action is brought
against the other Borrowers or whether the other Borrowers are joined in such
action. In the event that any Borrower fails to make any payment of any
Obligations on or before the due date thereof, the other Borrowers immediately
shall cause such payment to be made or each of such Obligations to be performed,
kept, observed, or fulfilled.
(b) The Loan Documents are a primary and original
obligation of each Borrower, are not the creation of a surety relationship, and
are an absolute, unconditional, and continuing promise of payment and
performance which shall remain in full force and effect without respect to
future changes in conditions, including any change of law or any invalidity or
irregularity with respect to the Loan Documents. Each Borrower agrees that its
liability under the Loan Documents shall be immediate and shall not be
contingent upon the exercise or enforcement by Foothill of whatever remedies it
may have against the other Borrowers, or the enforcement of any lien or
realization upon any security Foothill may at any time possess. Each Borrower
consents and agrees that Foothill shall be under no obligation (under Section
2899 or 3433 of the California Civil Code or otherwise) to marshal any assets of
any Borrower against or in payment of any or all of the Obligations.
(c) Each Borrower acknowledges that it is presently
informed as to the financial condition of the other Borrowers and of all other
circumstances which a diligent inquiry would reveal and which bear upon the risk
of nonpayment of the Obligations. Each Borrower hereby covenants that it will
continue to keep informed as
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to the financial condition of the other Borrowers, the status of the other
Borrowers and of all circumstances which bear upon the risk of nonpayment of the
Obligations. Absent a written request from any Borrower to Foothill for
information, such Borrower hereby waives any and all rights it may have to
require Foothill to disclose to such Borrower any information which Foothill may
now or hereafter acquire concerning the condition or circumstances of the other
Borrowers.
(d) The liability of each Borrower under the Loan
Documents includes Obligations arising under successive transactions continuing,
compromising, extending, increasing, modifying, releasing, or renewing the
Obligations, changing the interest rate, payment terms, or other terms and
conditions thereof, or creating new or additional Obligations after prior
Obligations have been satisfied in whole or in part. To the maximum extent
permitted by law, each Borrower hereby waives any right to revoke its liability
under the Loan Documents as to future indebtedness, and in connection therewith,
each Borrower hereby waives any rights it may have under Section 2815 of the
California Civil Code. If such a revocation is effective notwithstanding the
foregoing waiver, each Borrower acknowledges and agrees that (a) no such
revocation shall be effective until written notice thereof has been received by
Foothill, (b) no such revocation shall apply to any Obligations in existence on
such date (including, any subsequent continuation, extension, or renewal
thereof, or change in the interest rate, payment terms, or other terms and
conditions thereof), (c) no such revocation shall apply to any Obligations made
or created after such date to the extent made or created pursuant to a legally
binding commitment of Foothill in existence on the date of such revocation, (d)
no payment by such Borrower or from any other source prior to the date of such
revocation shall reduce the maximum obligation of the other Borrowers hereunder,
and (e) any payment by such Borrower or from any source other than Borrowers,
subsequent to the date of such revocation, shall first be applied to that
portion of the Obligations as to which the revocation is effective and which are
not, therefore, guaranteed hereunder, and to the extent so applied shall not
reduce the maximum obligation of each Borrower hereunder.
(e) (i) Each Borrower absolutely, unconditionally,
knowingly, and expressly waives:
(1) (A) notice of acceptance hereof; (B) notice of any
loans or other financial accommodations made or extended under the Loan
Documents or the creation or existence of any Obligations; (C) notice
of the amount of the Obligations, subject, however, to each Borrower's
right to make inquiry of Foothill to ascertain the amount of the
Obligations at any reasonable time; (D) notice of any adverse change in
the financial condition of the other Borrowers or of any other fact
that might increase such Borrower's risk hereunder; (E) notice of
presentment for payment, demand, protest, and notice
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thereof as to any instruments among the Loan Documents; and (F) all
notices (except if such notice is specifically required to be given to
Borrowers hereunder or under the Loan Documents) and demands to which
such Borrower might otherwise be entitled.
(2) its right, under Sections 2845 or 2850 of the
California Civil Code, or otherwise, to require Foothill to institute
suit against, or to exhaust any rights and remedies which Foothill has
or may have against, the other Borrowers or any third party, or against
any Collateral provided by the other Borrowers, or any third party. In
this regard, each Borrower agrees that it is bound to the payment of
all Obligations, whether now existing or hereafter accruing, as fully
as if such Obligations were directly owing to Foothill by such
Borrower. Each Borrower further waives any defense arising by reason of
any disability or other defense (other than the defense that the
Obligations shall have been fully and finally performed and
indefeasibly paid) of the other Borrowers or by reason of the cessation
from any cause whatsoever of the liability of the other Borrowers in
respect thereof.
(3) (A) any rights to assert against Foothill any
defense (legal or equitable), set-off, counterclaim, or claim which
such Borrower may now or at any time hereafter have against the other
Borrowers or any other party liable to Foothill; (B) any defense,
set-off, counterclaim, or claim, of any kind or nature, arising
directly or indirectly from the present or future lack of perfection,
sufficiency, validity, or enforceability of the Obligations or any
security therefor; (C) any defense such Borrower has to performance
hereunder, and any right such Borrower has to be exonerated, provided
by Sections 2819, 2822, or 2825 of the California Civil Code, or
otherwise, arising by reason of: the impairment or suspension of
Foothill's rights or remedies against the other Borrowers; the
alteration by Foothill of the Obligations; any discharge of the other
Borrowers' obligations to Foothill by operation of law as a result of
Foothill's intervention or omission; or the acceptance by Foothill of
anything in partial satisfaction of the Obligations; (D) the benefit of
any statute of limitations affecting such Borrower's liability
hereunder or the enforcement thereof, and any act which shall defer or
delay the operation of any statute of limitations applicable to the
Obligations shall similarly operate to defer or delay the operation of
such statute of limitations applicable to such Borrower's liability
hereunder.
(ii) Each Borrower absolutely, unconditionally, knowingly,
and expressly waives any defense arising by reason of or deriving from (i) any
claim or defense based upon an election of remedies by Foothill including any
defense based upon an election of remedies by Foothill under the provisions of
Sections 580a, 580b, 580d, and 726 of the California Code of Civil Procedure or
any similar law of California or
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any other jurisdiction; or (ii) any election by Foothill under Bankruptcy Code
Section 1111(b) to limit the amount of, or any collateral securing, its claim
against the Borrowers. Pursuant to California Civil Code Section 2856(b):
"Each Borrower waives all rights and
defenses arising out of an election of remedies by the
creditor, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a
guaranteed obligation, has destroyed such Borrower's rights of
subrogation and reimbursement against the other Borrowers by
the operation of Section 580(d) of the California Code of
Civil Procedure or otherwise."
"Each Borrower waives all rights and
defenses that Guarantor may have because another Borrower's
Obligations are secured by real property. This means, among
other things:
"(1) Foothill may collect from such Borrower
without first foreclosing on any real or personal
property collateral pledged by another Borrower.
"(2) If Foothill forecloses on any real
property collateral pledged by another Borrower:
(A) The amount of the Obligations
may be reduced only by the price for which that
collateral is sold at the foreclosure sale, even if
the collateral is worth more than the sale price.
(B) Foothill may collect from such
Borrower even if Foothill, by foreclosing on the real
property collateral, has destroyed any right such
Borrower may have to collect from another Borrower.
"This is an unconditional and irrevocable
waiver of any rights and defenses such Borrower may
have because the Obligations are secured by real
property. These rights and defenses include, but are
not limited to, any rights or defenses based upon
Section 580a, 580b, 580d, or 726 of the California
Code of Civil Procedure."
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If any of the Obligations at any time is secured by a mortgage or deed of trust
upon real property, Foothill may elect, in its sole discretion, upon a default
with respect to the Obligations, to foreclose such mortgage or deed of trust
judicially or nonjudicially in any manner permitted by law, before or after
enforcing the Loan Documents, without diminishing or affecting the liability of
any Borrower hereunder except to the extent the Obligations are repaid with the
proceeds of such foreclosure. Each Borrower understands that (a) by virtue of
the operation of California's antideficiency law applicable to nonjudicial
foreclosures, an election by Foothill nonjudicially to foreclose such a mortgage
or deed of trust probably would have the effect of impairing or destroying
rights of subrogation, reimbursement, contribution, or indemnity of such
Borrower against the other Borrowers or other guarantors or sureties, and (b)
absent the waiver given by such Borrower, such an election would prevent
Foothill from enforcing the Loan Documents against such Borrower. Understanding
the foregoing, and understanding that such Borrower is hereby relinquishing a
defense to the enforceability of the Loan Documents, such Borrower hereby waives
any right to assert against Foothill any defense to the enforcement of the Loan
Documents, whether denominated "estoppel" or otherwise, based on or arising from
an election by Foothill nonjudicially to foreclose any such mortgage or deed of
trust. Each Borrower understands that the effect of the foregoing waiver may be
that each Borrower may have liability hereunder for amounts with respect to
which such Borrower may be left without rights of subrogation, reimbursement,
contribution, or indemnity against the other Borrower or other guarantors or
sureties. Each Borrower also agrees that the "fair market value" provisions of
Section 580a of the California Code of Civil Procedure shall have no
applicability with respect to the determination of such Borrower's liability
under the Loan Documents.
(iii) Until such time as all Obligations have been fully,
finally, and indefeasibly paid in full, in cash, each Borrower hereby
absolutely, unconditionally, knowingly, and expressly postpones: (1) any right
of subrogation such Borrower has or may have as against the other Borrowers with
respect to the Obligations; (2) any right to proceed against the other Borrowers
or any other Person, now or hereafter, for contribution, indemnity,
reimbursement, or any other suretyship rights and claims, whether direct or
indirect, liquidated or contingent, whether arising under express or implied
contract or by operation of law, which such Borrower may now have or hereafter
have as against the other Borrowers with respect to the Obligations; and (3) any
right to proceed or seek recourse against or with respect to any property or
asset of the other Borrowers.
(IV) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER
OR OTHER PROVISION SET FORTH IN THIS SECTION 11.4, EACH BORROWER HEREBY
ABSOLUTELY, KNOWINGLY, UNCONDITIONALLY, AND EXPRESSLY WAIVES AND AGREES NOT TO
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ASSERT ANY AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR INDIRECTLY UNDER ANY
ONE OR MORE OF CALIFORNIA CIVIL CODE SECTIONS 2799, 2808, 2809, 2810, 2815,
2819, 2820, 2821, 2822, 2825, 2839, 2845, 2848, 2849, AND 2850, CALIFORNIA CODE
OF CIVIL PROCEDURE SECTIONS 580A, 580B, 580C, 580D, AND 726, AND CHAPTER 2 OF
TITLE 14 OF THE CALIFORNIA CIVIL CODE.
(f) Each Borrower consents and agrees that, without notice
to or by such Borrower, and without affecting or impairing the liability of such
Borrower hereunder, Foothill may, by action or inaction:
(i) compromise, settle, extend the duration or the
time for the payment of, or discharge the
performance of, or may refuse to or otherwise
not enforce the Loan Documents, or any part
thereof, with respect to the other Borrowers;
(ii) release the other Borrowers or grant other
indulgences to the other Borrowers in respect
thereof; or
(iii) release or substitute any guarantor, if any, of
the Obligations, or enforce, exchange, release,
or waive any security for the Obligations or any
guaranty of the Obligations, or any portion
thereof.
(g) Foothill shall have the right to seek recourse against
each Borrower to the fullest extent provided for herein, and no election by
Foothill to proceed in one form of action or proceeding, or against any party,
or on any obligation, shall constitute a waiver of Foothill's right to proceed
in any other form of action or proceeding or against other parties unless
Foothill has expressly waived such right in writing. Specifically, but without
limiting the generality of the foregoing, no action or proceeding by Foothill
under the Loan Documents shall serve to diminish the liability of any Borrower
thereunder except to the extent that Foothill finally and unconditionally shall
have realized indefeasible payment by such action or proceeding.
(h) The Obligations shall not be considered indefeasibly
paid for purposes of this Section 11.4 unless and until all payments to Foothill
are no longer subject to any right on the part of any person, including any
Borrower, any Borrower as a debtor in possession, or any trustee (whether
appointed pursuant to 11 U.S.C., or otherwise) of any Borrower's assets to
invalidate or set aside such payments or to seek to recoup the amount of such
payments or any portion thereof, or to declare same to be
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fraudulent or preferential. Upon such full and final performance and
indefeasible payment of the Obligations, Foothill shall have no obligation
whatsoever to transfer or assign its interest in the Loan Documents to any
Borrower. In the event that, for any reason, any portion of such payments to
Foothill is set aside or restored, whether voluntarily or involuntarily, after
the making thereof, then the obligation intended to be satisfied thereby shall
be revived and continued in full force and effect as if said payment or payments
had not been made, and each Borrower shall be liable for the full amount
Foothill is required to repay plus any and all costs and expenses (including
attorneys' fees and attorneys' fees incurred pursuant to 11 U.S.C.) paid by
Foothill in connection therewith.
Borrowers and each of them warrant and agree that each of the
waivers and consents set forth herein are made after consultation with legal
counsel and with full knowledge of their significance and consequences, with the
understanding that events giving rise to any defense or right waived may
diminish, destroy or otherwise adversely affect rights which Borrowers otherwise
may have against other Borrowers, the Lender Group or others, or against
Collateral. If any of the waivers or consents herein are determined to be
contrary to any applicable law or public policy, such waivers and con sents
shall be effective to the maximum extent permitted by law.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Loan Document shall
be in writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by registered or certified mail (postage prepaid,
return receipt requested), overnight courier, or telefacsimile to Borrower or to
Foothill, as the case may be, at its address set forth below:
IF TO BORROWERS: C/O CELEBRITY, INC.
MAILING ADDRESS: P.O. Box 6666
Tyler, Texas 75711
Attn: Robert H. Patterson, Jr.
PHYSICAL DELIVERY
ADDRESS: 4520 Old Troup Highway
Tyler, Texas 75707
Attn: Robert H. Patterson, Jr.
Fax No. 903.509.3631
60
<PAGE> 66
WITH COPIES TO: THOMPSON & KNIGHT, P.C.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Attn: Fred W. Fulton, Esq.
Fax No. 214.969.1751
IF TO FOOTHILL: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.478.9788
WITH COPIES TO: BUCHALTER, NEMER, FIELDS &
YOUNGER
601 South Figueroa, Suite 2400
Los Angeles, California 90017
Attn: Robert C. Colton, Esq.
Fax No. 213.896.0400
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or 3 days
after the deposit thereof in the mail. Each Borrower acknowledges and agrees
that notices sent by Foothill in connection with Sections 9504 or 9505 of the
Code shall be deemed sent when deposited in the mail or personally delivered,
or, where permitted by law, transmitted by telefacsimile or other similar method
set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND
61
<PAGE> 67
THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND
FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT
THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE
LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER
THE MATTER IN CONTROVERSY. EACH BORROWER AND FOOTHILL WAIVE, TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE
OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS
BROUGHT IN ACCORDANCE WITH THIS SECTION 13. EACH BORROWER AND FOOTHILL HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH
BORROWER AND FOOTHILL REPRESENTS THAT THEY HAVE REVIEWED THIS WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWERS' DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill 4
months after they are delivered to or received by Foothill, unless Borrowers
request, in writing, the return of said documents, schedules, or other papers
and makes arrangements, at Borrowers' expense, for their return.
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrowers and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and assigns of each of the
parties; provided, however, that no Borrower may assign this Agreement or any
rights or duties hereunder without Foothill's prior written consent and any
prohibited assignment shall be absolutely void. No consent to an assignment by
Foothill shall release the assigning Borrower from its Obligations. Foothill may
assign this Agreement and its rights and
62
<PAGE> 68
duties hereunder and no consent or approval by Borrowers is required in
connection with any such assignment. Foothill reserves the right to sell,
assign, transfer, negotiate, or grant participations in all or any part of, or
any interest in Foothill's rights and benefits hereunder. In connection with any
such assignment or participation, Foothill may disclose all documents and
information which Foothill now or hereafter may have relating to any Borrower or
any Borrower's business. To the extent that Foothill assigns its rights and
obligations hereunder to a third Person, Foothill thereafter shall be released
from such assigned obligations to Borrowers and such assignment shall effect a
novation between Borrowers and such third Person.
15.3 SECTION HEADINGS. Headings and numbers have been set
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against Foothill
or Borrowers, whether under any rule of construction or otherwise. On the
contrary, this Agreement has been reviewed by all parties and shall be construed
and interpreted according to the ordinary meaning of the words used so as to
fairly accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement can only be amended
by a writing signed by both Foothill and Borrowers.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Obligations by any Borrower or any guarantor of the
Obligations or the transfer by either or both of such parties to Foothill of any
property of either or both of
63
<PAGE> 69
such parties should for any reason subsequently be declared to be void or
voidable under any state or federal law relating to creditors' rights, including
provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, and other voidable or recoverable payments of money or transfers of
property (collectively, a "Voidable Transfer"), and if Foothill is required to
repay or restore, in whole or in part, any such Voidable Transfer, or elects to
do so upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Foothill is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of
Foothill related thereto, the liability of Borrowers or such guarantor
automatically shall be revived, reinstated, and restored and shall exist as
though such Voidable Transfer had never been made.
15.9 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof, and amends and
restates and supersedes the Original Loan Agreement in its entirety.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in Los Angeles, California.
CELEBRITY, INC.,
a Texas corporation
By /s/ LYNN SKILLEN
----------------------------------------
Title: Vice President & Chief Financial
------------------------------------
Officer
THE CLUETT CORPORATION,
a California corporation
By /s/ LYNN SKILLEN
----------------------------------------
Title: Vice President & Chief Financial
------------------------------------
Officer
64
<PAGE> 70
STAR WHOLESALE FLORIST, INC.,
a Texas corporation
By /s/ LYNN SKILLEN
----------------------------------------
Title: Vice President
------------------------------------
INDIA EXOTICS, INC.,
a Texas corporation
By /s/ LYNN SKILLEN
----------------------------------------
Title: Vice President
------------------------------------
VALUE FLORIST SUPPLIES, INC.,
a Texas corporation
By /s/ LYNN SKILLEN
----------------------------------------
Title: Vice President
------------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ KEVIN M. COYLE
----------------------------------------
Title: Senior Vice President
------------------------------------
65
<PAGE> 71
COMPLIANCE CERTIFICATE SAMPLE COPY
(AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT SECTION 6.3)
Date , 199
--------------- --
FOOTHILL CAPITAL CORPORATION
111111 Santa Monica Boulevard, Suite 1500
Santa Monica, California 90025-3333
Attention:
------------------------
RE: AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, DATED AS OF
______________ ___, 199___ (THE "AGREEMENT") BY AND BETWEEN FOOTHILL
CAPITAL CORPORATION ("FOOTHILL") AND ________________________
(COLLECTIVELY, "BORROWERS").
Dear :
---------------
In accordance with Section 6.3 of the Agreement, this letter shall serve as
certification to Foothill that to the best of my knowledge: (i) all financial
statements have been prepared in accordance with GAAP and fairly represent the
financial condition of Borrowers, (ii) the representations and warranties of
Borrowers set forth in the Agreement and other Loan Documents are true and
correct in all material respects on and as of the date of this certification,
(iii) as demonstrated on Exhibit 1 attached hereto, Borrowers are in compliance
with each of their financial covenants set forth in Section 7.20 of the
Agreement as of the date of this certification, and (iv) there does not exist
any condition or event that constitutes a Default or Event of Default. Such
certification is made as of the fiscal month ending , 199 .
-------------- --
Sincerely,
Chief Financial Officer
EXHIBIT C-1
<PAGE> 1
EXHIBIT 10.17
[MERRILL LYNCH LOGO] 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 CREST PROPERTIES,
LTD., a limited partnership 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 LOAN AND SECURITY AGREEMENT NO.
9904770301 between MLBFS and Customer (the "Loan Agreement"), (b) any
"Additional Agreements", as that term is defined in the Loan Agreement,
including, without limitation, the NOTE incorporated by reference in 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, ____________, a corporation organized and existing under the laws
of the State of _________ ("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, however created or evidenced, and as specified under the Loan
Agreement (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 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,
investment property, 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. 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.
<PAGE> 2
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 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 April 16, 1999.
- ---------------------------
By:
-----------------------------------------------------------------------
Signature(2) Signature(2)
- --------------------------------------------------------------------------
Printed Name Printed Name
- --------------------------------------------------------------------------
Title Title
Address of Guarantor:
X
X
-2-
<PAGE> 3
[MERRILL LYNCH LOGO] SECRETARY'S CERTIFICATE
(Guaranty by Corporation)
THE UNDERSIGNED HEREBY CERTIFIES TO MERRILL LYNCH BUSINESS FINANCIAL SERVICES,
INC. that the undersigned is the duly appointed and acting Secretary (or
Assistant Secretary) of ___________________, a corporation duly organized,
validly existing and in good standing under the laws of the State of _____; and
that the following is a true, accurate and compared transcript of resolutions
duly, validly and lawfully adopted on the 14 day of April, 1999 by the Board of
Directors of said Corporation acting in accordance with the laws of the state of
incorporation and the charter and by-laws of said Corporation:
"RESOLVED, that it is advisable and in the best interests and to the benefit of
this Corporation to guaranty the obligations of CREST PROPERTIES, LTD.
("Customer") to MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS"); and
"FURTHER RESOLVED, that the President, any Vice President, Treasurer, Secretary
or other officer of this Corporation, or any one or more of them, be and each of
them hereby is authorized and empowered for and on behalf of this Corporation
to: (a) execute and deliver to MLBFS: (i) an Unconditional Guaranty of the
obligations of Customer, (ii) any other agreements, instruments and documents
required by MLBFS in connection therewith, including, without limitation, any
agreements, instruments and documents evidencing liens or security interests on
any of the property of this Corporation as collateral for said Unconditional
Guaranty and/or the obligations of Customer to MLBFS, and (iii) any present or
future amendments to any of the foregoing; all in such form as such officer
shall approve, as evidenced by his signature thereon; and (b) to do and perform
all such acts and things deemed by any such officer to be necessary or advisable
to carry out and perform the undertakings and agreements of this Corporation set
forth therein; and all prior acts of each of said officers in these premises are
hereby ratified and confirmed; and
"FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing
resolutions until it receives written notice of any change or revocation from an
authorized officer of this Corporation, which change or revocation shall not in
any event affect the obligations of this Corporation with respect to any
transaction conditionally agreed or committed to by MLBFS or having its
inception prior to the receipt of such notice by MLBFS."
THE UNDERSIGNED FURTHER CERTIFIES that: (a) the foregoing resolutions have not
been rescinded, modified or repealed in any manner, are not in conflict with any
agreement of said Corporation and are in full force and effect as of the date of
this Certificate, and (b) the following individuals are now the duly elected and
acting officers of said Corporation and THE SIGNATURES SET FORTH BELOW ARE THE
TRUE SIGNATURES OF SAID OFFICERS.
President:
--------------------------------------------------
Vice President:
---------------------------------------------
Treasurer:
--------------------------------------------------
Secretary:
--------------------------------------------------
:
----------------------- -----------------------------------
Additional title
IN WITNESS WHEREOF, the undersigned has executed this Certificate and has
affixed the seal of said corporation hereto, pursuant to due authorization, all
as of this 22 day of April, 1999.
(Corporate Seal)
----------------------------
Secretary
Printed Name:
----------------------------
-3-
<PAGE> 1
EXHIBIT 10.22
CELEBRITY, INC.
AMENDED AND RESTATED STOCK OPTION PLAN(1)
ARTICLE 1
THE PLAN
1.1 NAME. This plan will be known as the "Celebrity, Inc. Amended and
Restated Stock Option Plan."
1.2 PURPOSE. The purpose of the Plan is to promote the growth and
general prosperity of the Company by permitting the Company to grant to its
Employees, Nonemployee Directors and advisors Options to purchase Common Stock
of the Company. The Plan is designed to help the Company and its subsidiaries
and affiliates attract and retain superior personnel for positions of
substantial responsibility and to provide Employees, Nonemployee Directors and
advisors with an additional incentive to contribute to the success of the
Company. The Company intends that Incentive Stock Options granted pursuant to
Article 3 will qualify as "incentive stock options" within the meaning of
Section 422 of the Code. Any Option granted pursuant to Article 4 will be
clearly and specifically designated as not being an incentive stock option as
defined in Section 422 of the Code.
1.3 EFFECTIVE DATE. The Plan became effective upon the Effective Date.
- ---------------------
(1) This Amended and Restated Stock Option Plan reflects (i) the effects of
the increase in the number of shares available under the Plan approved
by the shareholders at the annual meeting held November 16, 1998, (ii)
the effects of the 4-for-1 reverse stock split approved by the
shareholders at the special meeting held February 26, 1999 and (ii)
certain amendments adopted by the Committee at a meeting held July 27,
1999.
<PAGE> 2
1.4 ELIGIBILITY TO PARTICIPATE. Any Employee, Nonemployee Director or
advisor is eligible to participate in the Plan; provided that Incentive Stock
Options may be granted only to persons who are Employees. The Committee may
grant Options in accordance with such determinations as the Committee from time
to time in its sole discretion may make. Nonemployee Directors will receive
Options as provided in Section 4.5.
1.5 SHARES SUBJECT TO THE PLAN. The Plan Shares subject to the Plan
will be shares of Common Stock.
1.6 MAXIMUM NUMBER OF PLAN SHARES. Subject to adjustment pursuant to
the provisions of Section 5.2, and subject to any additional restrictions
elsewhere in the Plan, the number of Plan Shares that may be issued and sold
hereunder will not exceed 250,000. Plan Shares may be either authorized and
unissued shares or shares issued and thereafter acquired by the Company.
1.7 OPTIONS GRANTED UNDER PLAN. Plan Shares with respect to which an
Option has been exercised will not again be available for grant hereunder. If
Options terminate for any reason without being wholly exercised, new Options may
be granted hereunder covering the number of Plan Shares to which such Option
termination relates.
1.8 CONDITIONS PRECEDENT. The Company will not issue or deliver any
Option Agreement or any certificate for Plan Shares pursuant to the Plan prior
to fulfillment of all of the following conditions:
(a) The admission of the Plan Shares to listing on all stock
exchanges on which the Common Stock is then listed, unless the
Committee determines in its sole discretion that such listing is
neither necessary nor advisable;
(b) The completion of any registration or other qualification of
the sale of the Plan Shares under any federal or state law or under the
rulings or regulations of the Securities
-2-
<PAGE> 3
and Exchange Commission or any other governmental regulatory body that
the Committee in its sole discretion deems necessary or advisable; and
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency that the Committee in its sole
discretion determines to be necessary or advisable.
1.9 RESERVATION OF SHARES OF COMMON STOCK. During the term of the Plan,
the Company will at all times reserve and keep available such number of shares
of Common Stock as may be necessary to satisfy the requirements of the Plan as
to the number of Plan Shares. In addition, the Company will from time to time,
as is necessary to accomplish the purposes of the Plan, use its best efforts to
obtain from any regulatory agency having jurisdiction any requisite authority
necessary to issue Plan Shares hereunder. The inability of the Company to obtain
from any regulatory agency having jurisdiction the authority deemed by the
Company's counsel to be necessary for the lawful issuance of any Plan Shares
will relieve the Company of any liability in respect of the nonissuance of Plan
Shares as to which the requisite authority has not been obtained.
1.10 TAX WITHHOLDING.
(a) Condition Precedent. The issuance, delivery or exercise of any
Options under the Plan is subject to the condition that if at any time
the Committee determines, in its discretion, that the satisfaction of
withholding tax or other withholding liabilities under any federal,
state or local law is necessary or desirable as a condition of, or in
connection with, the issuance, delivery or exercise of the Options,
then the issuance, delivery or exercise of the Options will not be
effective unless the withholding has been effected or obtained in a
manner acceptable to the Committee.
-3-
<PAGE> 4
(b) Manner of Satisfying Withholding Obligation. When an Optionee
is required to pay to the Company an amount required to be withheld
under applicable income tax laws in connection with the exercise of an
Option, the Optionee may satisfy the withholding obligation, in whole
or in part, by electing to (x) have the Company withhold a portion of
the Plan Shares acquired upon the exercise of the Option and having a
Fair Market Value on the date the amount of tax to be withheld is to be
determined (the "Tax Date") equal to the amount required to be withheld
or (y) deliver to the Company shares of Common Stock already owned
by the Optionee and having a Fair Market Value on the Tax Date equal to
the amount required to be withheld.
(c) Notice of Disposition of Stock Acquired Pursuant to Incentive
Stock Options. The Company may require as a condition to the issuance
of Plan Shares covered by any Incentive Stock Option that the party
exercising such Option give a written representation to the Company,
which is satisfactory in form and substance to its counsel and upon
which the Company may reasonably rely, that he will report to the
Company any disposition of such shares prior to the expiration of the
holding periods specified by Section 422(a)(1) of the Code. If and to
the extent that the realization of income in such a disposition imposes
upon the Company federal, state or local withholding tax requirements,
or any such withholding is required to secure for the Company an
otherwise available tax deduction, the Company will have the right to
require that the recipient remit to the Company an amount sufficient to
satisfy those requirements; and the Company may require as a condition
to the issuance of Plan Shares covered by an Incentive Stock Option
that the party exercising such Option give a satisfactory written
representation promising to make such a remittance.
-4-
<PAGE> 5
1.11 EXERCISE OF OPTIONS.
(a) Method of Exercise. Each Option will be exercisable in
accordance with the terms of the Option Agreement pursuant to which the
Option was granted. No Option may be exercised for a fraction of a Plan
Share.
(b) Payment of Purchase Price. The purchase price of any Plan
Shares purchased will be paid at the time of exercise of the Option
either (i) in cash, (ii) by certified or cashier's check, (iii) by
shares of Common Stock, if permitted by the Committee, (iv) by cash or
certified or cashier's check for the par value of the Plan Shares plus
a promissory note for the balance of the purchase price, which note
will contain such terms and provisions as the Committee may approve,
including without limitation the right to repay the note partially or
wholly with Common Stock or (v) by delivery of a copy of irrevocable
instructions from the Optionee to a broker or dealer, reasonably
acceptable to the Company, to sell certain of the Plan Shares purchased
upon exercise of the Option or to pledge them as collateral for a loan
and promptly deliver to the Company the amount of sale or loan proceeds
necessary to pay such purchase price. If any portion of the purchase
price or a note given at the time of exercise is paid in shares of
Common Stock, those shares will be valued at the then Fair Market
Value.
1.12 ACCELERATION OF RIGHT OF EXERCISE OF OPTIONS. Notwithstanding the
provisions of any Option Agreement regarding the time for exercise of an Option,
the following provisions will apply:
(a) Mergers and Reorganizations. If the Company or its
shareholders enter into an agreement to dispose of all or substantially
all of the assets of the Company by means of a sale, merger or other
reorganization, liquidation or otherwise in a transaction in which the
Company is not the surviving corporation, any Option will become
immediately exercisable
-5-
<PAGE> 6
with respect to the full number of shares subject to that Option during
the period commencing as of the date of the agreement to dispose of all
or substantially all of the assets of the Company and ending when the
disposition of assets contemplated by that agreement is consummated or
the Option is otherwise terminated in accordance with its provisions or
the provisions of the Article pursuant to which it was granted,
whichever occurs first; provided that no Option will be immediately
exercisable under this Section on account of any agreement of merger or
other reorganization when the shareholders of the Company immediately
before the consummation of the transaction will own at least fifty
percent of the total combined voting power of all classes of stock
entitled to vote of the surviving entity immediately after the
consummation of the transaction. The Option will not become immediately
exercisable if the transaction contemplated in the agreement is a
merger or reorganization in which the Company will survive.
(b) Change in Control. In the event of a change in control or
threatened change in control of the Company, all Options granted prior
to the change in control or threatened change in control will become
immediately exercisable. The term "change in control" for purposes of
this Section refers to the acquisition of ten percent or more of the
voting securities of the Company by any person or by persons acting as
a group within the meaning of Section 13(d)(3) of the Exchange Act
(other than an acquisition by a person or group meeting the
requirements of clauses (i) and (ii) of Rule 13d-1(b)(1) promulgated
under the Exchange Act); provided that no change in control or
threatened change in control will be deemed to have occurred if prior
to the acquisition of, or offer to acquire, ten percent or more of the
voting securities of the Company, the full Board has adopted by not
less than two-thirds vote a resolution specifically approving such
acquisition or offer. The term "person"
-6-
<PAGE> 7
for purposes of this Section refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity
not specifically listed herein. Whether a change in control is
threatened will be determined solely by the Committee.
1.13 WRITTEN NOTICE REQUIRED. Any Option will be deemed to be exercised
for purposes of the Plan when written notice of exercise has been received by
the Company at its principal office from the person entitled to exercise the
Option and payment for the Plan Shares with respect to which the Option is
exercised has been received by the Company in accordance with Section 1.11.
1.14 COMPLIANCE WITH SECURITIES LAWS. Plan Shares will not be issued
with respect to any Option unless the exercise of the Option and the issuance
and delivery of the Plan Shares complies with all relevant provisions of federal
and state law, including without limitation the Securities Act, the rules and
regulations promulgated thereunder and the requirements of any stock exchange
upon which the Plan Shares may then be listed, and will be further subject to
the approval of counsel for the Company with respect to such compliance. The
Committee may also require an Optionee to furnish evidence satisfactory to the
Company, including without limitation a written and signed representation letter
and consent to be bound by any transfer restrictions imposed by law, legend,
condition or otherwise, that the Plan Shares are being acquired only for
investment and without any present intention to sell or distribute the shares in
violation of any federal or state law, rule or regulation. Further, each
Optionee will consent to the imposition of a legend on the certificate
representing the Plan Shares issued upon the exercise of the Option restricting
their transferability as required by law or by this Section.
1.15 EMPLOYMENT OF OPTIONEE; EXPIRATION OF OPTIONS UPON TERMINATION OF
EMPLOYMENT. Nothing in the Plan or in any Option granted hereunder will confer
upon any
-7-
<PAGE> 8
Optionee any right to continued employment by the Company or any of its
subsidiaries or affiliates or limit in any way the right of the Company or any
subsidiary or affiliate at any time to terminate or alter the terms of that
employment. The provisions of Sections 1.16, 1.18 and 1.19 relating to the
timing of expiration of Options upon termination of an Optionee's employment
will apply only to Optionees who are Employees. Unless otherwise specifically
provided herein, upon termination of an Optionee's employment or association
with the Company, the Optionee's Options will remain exercisable in accordance
with the terms of his Option Agreement.
1.16 OPTION UPON TERMINATION OF EMPLOYMENT. If an Optionee ceases to be
employed by the Company or any of its subsidiaries or affiliates for any reason
other than for cause, retirement, disability or death, his Option may be
exercised (to the extent exercisable on the date of termination of employment)
at any time within three months after the date of termination of employment,
unless either the Option Agreement or the Article pursuant to which it was
issued otherwise provides for earlier termination. If an Optionee ceases to be
employed by the Company or any of its subsidiaries or affiliates because the
Optionee has retired under a qualified retirement plan of the Company, as
determined by the Committee, his Option will be exercisable (to the extent
exercisable on the effective date of such retirement) at any time within 12
months (three months in the case of Incentive Stock Options) after the effective
date of such retirement unless by its terms the Option expires sooner.
1.17 TERMINATION OF EMPLOYMENT OR ASSOCIATION FOR CAUSE; DISCOVERY OF
PREVIOUS WRONGDOING. If an Optionee ceases to be employed by the Company or any
of its subsidiaries or affiliates because the Optionee is terminated for cause,
the Optionee's Option will automatically expire. If a Director of the Company is
removed for cause or a consultant or other Optionee who is not an employee of
the Company has his relationship with the Company terminated for cause, any
-8-
<PAGE> 9
Option held by that Optionee will automatically expire. For purposes of this
Section, "cause" will mean an act or acts involving a felony, fraud, willful
misconduct, the commission of any act that causes or reasonably may be expected
to cause substantial injury to the Company or other good cause. The term "other
good cause" as used in this Section will include, but will not be limited to,
habitual impertinence, a pattern of conduct that tends to hold the Company up to
ridicule in the community, conduct disloyal to the Company, conviction of any
crime of moral turpitude and substantial dependence, as judged by the Committee,
on alcohol or any controlled substance. "Controlled substance" means a drug,
immediate precursor or other substance listed in Schedules I-V or Penalty Groups
1-4 of the Texas Controlled Substances Act, as amended, or a drug, immediate
precursor or other substance listed in Schedules I-V of the Federal
Comprehensive Drug Abuse Prevention and Control Act of 1970, as amended. If any
facts that would constitute cause for termination or removal of an Optionee are
discovered after the Optionee's relationship with the Company has ended, any
Options then held by the Optionee may be immediately terminated by the
Committee. Notwithstanding the foregoing, if an Optionee is an Employee employed
pursuant to a written employment agreement or is a consultant retained pursuant
to a written agreement, the Optionee's relationship with the Company will be
deemed terminated for "cause" for purposes of the Plan only if the Optionee is
considered under the circumstances to have been terminated for cause for
purposes of such written agreement.
1.18 OPTION UPON DISABILITY OF OPTIONEE. If an Optionee becomes
disabled within the meaning of Section 22(e)(3) of the Code while employed by
the Company or any of its subsidiaries or affiliates, and the Optionee's
employment shall consequently terminate, his Option will become fully
exercisable and will expire 12 months after the date of such termination, unless
either the
-9-
<PAGE> 10
Option Agreement or the Article under which it was issued otherwise provides for
earlier termination.
1.19 OPTION UPON DEATH OF OPTIONEE. Except as otherwise limited by the
Committee at the time of the grant of an Option, if an Optionee dies while
employed by the Company or any of its subsidiaries or affiliates, or within
three months after ceasing to be an Employee, his Option will become fully
exercisable and will expire 12 months after the date of death, unless by its
terms it expires sooner.
1.20 TRANSFERABILITY OF OPTIONS. Unless the Committee otherwise
provides in any Option Agreement, Nonqualified Stock Options granted hereunder
to Optionees who are not Reporting Optionees may be transferred to members of
the Optionee's immediate family, trusts for the benefit of such immediate family
members and partnerships in which such immediate family members are the only
partners, provided that there cannot be any consideration for the transfer.
Incentive Stock Options may not be transferred or assigned other than by will or
the laws of descent and distribution and may be exercised during the lifetime of
the Optionee only by the Optionee or by the Optionee's legally authorized
representative, and each Option Agreement will so provide. The designation by an
Optionee of a beneficiary will not constitute a transfer of the Option.
1.21 INFORMATION TO OPTIONEES. The Company will furnish to each
Optionee copies of annual reports, proxy statements and all other reports sent
to the Company's shareholders. Upon written request, the Company will furnish to
each Optionee a copy of its most recent Annual Report on Form 10-K and each
quarterly report to shareholders issued since the end of the Company's most
recent fiscal year.
-10-
<PAGE> 11
ARTICLE 2
ADMINISTRATION
2.1 COMMITTEE. The Plan will be administered by a Committee of not
fewer than two members, who will be Nonemployee Directors. Subject to the
provisions of the Plan, the Committee will have the sole discretion and
authority to determine the Employees and advisors to whom and the time or times
at which Options may be granted and the number of Plan Shares subject to each
Option.
2.2 APPOINTMENT OF COMMITTEE. The Committee will be appointed by the
Board and will consist solely of Nonemployee Directors; provided that the Board
may remove any Committee member, with or without cause.
2.3 MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. A majority of the members
of the Committee will constitute a quorum, and any action taken by a majority
present at a meeting at which a quorum is present or any action taken without a
meeting evidenced by a writing executed by all members of the Committee will
constitute the action of the Committee. Meetings of the Committee may take place
by telephone conference call.
2.4 COMPANY ASSISTANCE. The Company will supply full and timely
information to the Committee on all matters relating to Employees, their
employment, retirement, disability, death or other termination of employment,
and such other pertinent facts as the Committee may require. The Company will
furnish the Committee with such clerical and other assistance as is necessary to
the performance of its duties.
-11-
<PAGE> 12
ARTICLE 3
INCENTIVE STOCK OPTIONS
3.1 OPTION TERMS AND CONDITIONS. The terms and conditions of Options
granted under this Article may differ from one another as the Committee may, in
its discretion, determine, as long as all Options granted under this Article
satisfy the requirements of this Article.
3.2 DURATION OF OPTIONS. Each Option granted under this Article will
expire on the date determined by the Committee, but in no event will any Option
granted under this Article expire earlier than one year or later than ten years
after the date on which the Option is granted. In addition, each Option will be
subject to early termination as provided elsewhere in the Plan.
3.3 PURCHASE PRICE. The purchase price for Plan Shares acquired
pursuant to the exercise, in whole or in part, of any Option granted under this
Article will not be less than the Fair Market Value of the Plan Shares at the
time of the grant of the Option.
3.4 MAXIMUM AMOUNT OF OPTIONS FIRST EXERCISABLE IN ANY CALENDAR YEAR.
The maximum aggregate Fair Market Value of Plan Shares (determined at the time
the Option is granted) with respect to which Options issued under this Article
are exercisable for the first time by any Employee during any calendar year
under all incentive stock option plans of the Company and its subsidiaries and
affiliates will not exceed $100,000. Any Option granted under the Plan and
first exercisable in excess of the foregoing limitations will be considered
granted under Article 4 and will be clearly and specifically designated as not
being an Incentive Stock Option.
3.5 REQUIREMENTS AS TO CERTAIN OPTIONS. In the event of the grant of
any Option to an individual who, at the time the Option is granted, owns shares
of stock possessing more than ten percent of the total combined voting power of
all classes of stock of the Company or any of its subsidiaries or affiliates
within the meaning of Section 422 of the Code, the purchase price for the
-12-
<PAGE> 13
Plan Shares subject to that Option must be at least 110% of the Fair Market
Value of those Plan Shares at the time the Option is granted, and the Option
must not be exercisable after the expiration of five years from the date of its
grant.
3.6 INDIVIDUAL OPTION AGREEMENTS. Each Employee receiving Options under
this Article will be required to enter into a written Option Agreement with the
Company as a precondition to receiving an Option under this Article. In such
Option Agreement, the Employee will agree to be bound by the terms and
conditions of the Plan and such other matters as the Committee deems
appropriate.
ARTICLE 4
NONQUALIFIED STOCK OPTIONS
4.1 OPTION TERMS AND CONDITIONS. Subject to Section 4.5, the terms and
conditions of Options granted under this Article may differ from one another as
the Committee may, in its discretion, determine, as long as all Options granted
under this Article satisfy the requirements of this Article.
4.2 DURATION OF OPTIONS. Subject to Section 4.5, each Option granted
under this Article and all rights thereunder will expire on the date determined
by the Committee, but in no event will any Option granted under this Article
expire later than ten years after the date on which the Option is granted. In
addition, each Option will be subject to early termination as provided elsewhere
in the Plan.
4.3 PURCHASE PRICE. The purchase price for Plan Shares acquired
pursuant to the exercise, in whole or in part, of any Option granted under this
Article will not be less than the Fair Market Value of the Plan Shares at the
time of the grant of the Option.
-13-
<PAGE> 14
4.4 INDIVIDUAL OPTION AGREEMENTS. Each Employee receiving Options under
this Article will be required to enter into a written Option Agreement with the
Company as a precondition to receiving an Option under this Article. In such
Option Agreement, the Employee will agree to be bound by the terms and
conditions of the Plan and such other matters as the Committee deems
appropriate.
4.5 OPTION GRANTS TO NONEMPLOYEE DIRECTORS. Immediately and
automatically upon initial election to the Board of Directors, each Nonemployee
Director will receive a Nonqualified Stock Option to purchase 1,250 shares of
Common Stock. In addition, each Nonemployee Director will receive a Nonqualified
Stock Option to purchase 500 shares of Common Stock on the date of each annual
meeting of shareholders of the Company subsequent to his initial election as a
director. The purchase price for Plan Shares acquired pursuant to the exercise,
in whole or in part, of any Option received by Nonemployee Directors will be the
Fair Market Value of the Plan Shares on the date of grant. Each such Option will
be fully exercisable on the date of grant of such Option. Each such Option will
expire on the day prior to the tenth anniversary of the date of grant of such
Option.
ARTICLE 5
TERMINATION, AMENDMENT AND ADJUSTMENT
5.1 TERMINATION AND AMENDMENT. The Plan will terminate on August
30, 2002. No Options will be granted under the Plan after that date of
termination. Subject to the limitations contained in this Section, the Board or
the Committee may at any time amend or revise the terms of the Plan, including
the form and substance of the Option Agreements to be used in connection
herewith; provided that, without shareholder approval, no amendment or revision
may (i) increase the maximum aggregate number of Plan Shares, except as
permitted under Section 5.2, (ii) change
-14-
<PAGE> 15
the minimum purchase price for shares under Article 3 or Article 4, (iii)
increase the maximum term established under the Plan for any Option or (iv)
permit the granting of an Option to anyone other than as provided in the Plan;
and provided further that, without shareholder approval, no amendment to the
Plan will be effective that increases the number of securities that may be
issued under the Plan or changes the class of employees who are eligible to
receive incentive stock options unless in the opinion of counsel for the Company
such shareholder approval is not required. No amendment, suspension or
termination of the Plan may, without the consent of the Optionee who has
received an Option hereunder, alter or impair any of that Optionee's rights or
obligations under any Option granted under the Plan prior to that amendment,
suspension or termination.
5.2 ADJUSTMENT. If the outstanding Common Stock is increased,
decreased, changed into, or exchanged for a different number or kind of shares
or securities through merger, consolidation, combination, exchange of shares,
other reorganization, recapitalization, reclassification, stock dividend, stock
split or reverse stock split, an appropriate and proportionate adjustment will
be made in the maximum number and kind of Plan Shares as to which Options may be
granted under the Plan. A corresponding adjustment will be made in the number or
kind of shares allocated to and purchasable under unexercised Options or
portions thereof granted prior to any such change. Any such adjustment in
outstanding Options will be made without change in the aggregate purchase price
applicable to the unexercised portion of the Option, but with a corresponding
adjustment in the price for each share purchasable under the Option. The
foregoing adjustments and the manner of application of the foregoing provisions
will be determined solely by the Committee, and any such adjustment may provide
for the elimination of fractional share interests.
-15-
<PAGE> 16
ARTICLE 6
MISCELLANEOUS
6.1 OTHER COMPENSATION PLANS. The adoption of the Plan will not affect
any other stock option or incentive or other compensation plans in effect for
the Company or any of its subsidiaries or affiliates, nor will the Plan preclude
the Company or any of its subsidiaries or affiliates from establishing any other
forms of incentive or other compensation for Employees.
6.2 PLAN BINDING ON SUCCESSORS. The Plan will be binding upon the
successors and assigns of the Company and any of its subsidiaries or affiliates
that adopt the Plan.
6.3 NUMBER AND GENDER. Whenever used herein, nouns in the singular
include the plural where appropriate, and masculine pronouns include the
feminine gender.
6.4 HEADINGS. Headings of articles and sections hereof are inserted for
convenience of reference and constitute no part of the Plan.
ARTICLE 7
DEFINITIONS
As used herein with initial capital letters, the following terms have
the meanings hereinafter set forth unless the context clearly indicates to the
contrary:
7.1 "Board" means the Board of Directors of the Company.
7.2 "Code" means the Internal Revenue Code of 1986.
7.3 "Committee" means the Committee appointed in accordance with
Section 2.2.
7.4 "Common Stock" means the Common Stock, par value $.01 per share, of
the Company or, in the event that the outstanding shares of such Common Stock
are hereafter changed
-16-
<PAGE> 17
into or exchanged for shares of a different stock or security of the Company or
some other corporation, such other stock or security.
7.5 "Company" means Celebrity, Inc., a Texas corporation.
7.6 "Effective Date" means August 31, 1992 (the date of the Plan's
adoption by the Board and approval by the sole shareholder of the Company).
7.7 "Employee(s)" means full-time, compensated employee(s) of the
Company or of any of its subsidiaries or affiliates that adopt the Plan.
7.8 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
7.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
7.10 "Fair Market Value" means such value as will be determined by the
Committee on the basis of such factors as it deems appropriate; provided that if
the Common Stock is traded on a national securities exchange or transactions in
the Common Stock are quoted on the NASDAQ National Market or the NASDAQ SmallCap
Market, such value will be determined by the Committee on the basis of the last
reported sale price for the Common Stock on the date for which such
determination is relevant, as reported on the national securities exchange or
the NASDAQ National Market or the NASDAQ SmallCap Market, as the case may be. If
the Common Stock is not listed and traded upon a recognized securities exchange
or on the NASDAQ National Market or the NASDAQ SmallCap Market, the Committee
will make a determination of Fair Market Value on the basis of the closing bid
and asked quotations for such stock on the date for which such determination is
relevant (as reported by a recognized stock quotation service) or, in the event
that there are no bids or asked quotations on the date for which such
determination is relevant, then on the basis of the average of the closing bid
and asked quotations on the date nearest preceding the date for which such
determination is relevant for which such bid and asked quotations were
available.
-17-
<PAGE> 18
7.11 "Incentive Stock Option" means an Option granted under Article 3.
7.12 "Nonemployee Director" means any director of the Company who is
not an officer of the Company or an Employee.
7.13 "Nonqualified Stock Option" means an Option granted under Article
4.
7.14 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
7.15 "Optionee" means an Employee, Nonemployee Director or advisor to
whom an Option has been granted hereunder.
7.16 "Option Agreement" means an agreement between the Company and an
Optionee with respect to one or more Options.
7.17 "Plan" means the Celebrity, Inc. Amended and Restated Stock Option
Plan, as amended from time to time, the terms of which are set forth herein.
7.18 "Plan Shares" means shares of Common Stock issuable pursuant to
the Plan.
7.19 "Securities Act" means the Securities Act of 1933, as amended.
-18-
<PAGE> 1
EXHIBIT 10.24
CELEBRITY, INC.
FISCAL 2000 MANAGEMENT BONUS PLAN
The Celebrity, Inc. Fiscal 2000 Management Bonus Plan (the "Plan") will be
effective only for fiscal 2000.
Bonuses under this Plan will be based on the consolidated net after-tax earnings
of Celebrity, Inc. (the "Company") for fiscal 2000, after recording an accrual
for the bonuses due pursuant to the Plan, and excluding extraordinary items
("After-Tax Earnings"), which determination will be made in the sole judgment of
the Compensation Committee of the Board of Directors (the "Committee").
If the Company attains After-Tax Earnings in any of the ranges set forth below,
approximately 8 employees will participate in bonus payments at the average and
ranges listed below, with such percentage applied to their effective annual base
salary at June 30, 2000. The Committee shall approve the participants in the
Plan.
<TABLE>
<CAPTION>
After-Tax Earnings (000 omitted)
- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
From $1,000 $2,001 $3,001 $4,001 over
To $2,000 $3,000 $4,000 $5,000 $5,000
</TABLE>
<TABLE>
<CAPTION>
Bonus as a percentage of effective annual base salary:
<S> <C> <C> <C> <C> <C>
From 10.0% 20.0% 50.0% 75.0% 100.0%
To 15.0% 25.0% 60.0% 90.0% 125.0%
Average 12.5% 22.5% 55.0% 82.5% 112.5%
</TABLE>
The bonus will be computed based upon final audited results of operations for
fiscal 2000, with payout no later than September 1, 2000. To be eligible, the
participant must satisfactorily perform his or her job functions and management
duties throughout fiscal 2000, with continuing employment through the payment
date.
In the event a participant's employment with the Company is terminated for any
reason other than death, disability or retirement prior to the payment date, all
rights to any bonus under the Plan will be forfeited. In case of death,
disability or retirement, the bonus under the Plan will be calculated on a pro
rata basis in accordance with the time spent in service to the Company.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-74368, relating to the Celebrity, Inc. Amended and
Restated Stock Option Plan) of Celebrity, Inc. of our report dated August 11,
1999 relating to the Financial Statements and the Financial Statements
Schedule, which appear in this Form 10-K.
PricewaterhouseCoopers LLP
Dallas, Texas
September 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 558
<SECURITIES> 0
<RECEIVABLES> 14,850
<ALLOWANCES> 1,693
<INVENTORY> 18,847
<CURRENT-ASSETS> 35,314
<PP&E> 17,484
<DEPRECIATION> 8,005
<TOTAL-ASSETS> 46,271
<CURRENT-LIABILITIES> 10,270
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 8,903
<TOTAL-LIABILITY-AND-EQUITY> 46,271
<SALES> 110,662
<TOTAL-REVENUES> 110,662
<CGS> 82,335
<TOTAL-COSTS> 105,886
<OTHER-EXPENSES> 60
<LOSS-PROVISION> 773
<INTEREST-EXPENSE> 3,770
<INCOME-PRETAX> 1,066
<INCOME-TAX> 440
<INCOME-CONTINUING> 626
<DISCONTINUED> 0
<EXTRAORDINARY> 68
<CHANGES> 0
<NET-INCOME> 558
<EPS-BASIC> 0.36<F1>
<EPS-DILUTED> 0.36<F1>
<FN>
<F1>FEBRUARY 26, 1999, THE SHAREHOLDERS OF THE COMPANY APPROVED CERTAIN AMENDMENTS
TO THE COMPANY'S AMENDED AND RESTATED ARTICLES OF INCORPORATION THAT EFFECTED A
FOUR-TO-ONE REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK. THE EFFECTIVE
TIME OF THE REVERSE STOCK SPLIT WAS THE END OF BUSINESS ON FEBRUARY 26, 1999.
PRIOR FINANCIAL DATA SCHEDULES HAVE NOT BEEN RESTATED TO REFLECT THE REVERSE
STOCK SPLIT.
</FN>
</TABLE>
