U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 1996
Action Performance Companies, Inc.
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(Exact name of small business issuer as specified in its charter)
Arizona 86-0704792
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(State or other jurisdiction of (IRS Employer Identification)
incorporation or organization)
2401 W. 1st St., Tempe, AZ 85281
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(602) 894-0100
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(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 xx No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity: 12,592,522 shares of common stock (as of August 9, 1996).
<PAGE>
PART I, ITEM 1. FINANCIAL STATEMENTS
ACTION PERFORMANCE COMPANIES, INC.
CONSOLIDATED BALANCE SHEET
As of June 30, 1996 and September 30, 1995
ASSETS
------
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS: (Unaudited)
Cash.................................................. $ 5,148,274 $ 6,759,984
Accounts receivable, net of allowance
for doubtful accounts of $207,761 and
$142,746, respectively............................. 5,984,828 4,057,124
Inventories........................................... 4,763,049 2,691,035
Deferred income taxes................................. 967,283 910,126
Income tax refund receivable.......................... 84,210 84,210
Prepaid royalties..................................... 2,071,799 1,109,647
Prepaid expenses and other assets..................... 699,655 482,593
----------- -----------
Total current assets............................... 19,719,098 16,094,719
PROPERTY AND EQUIPMENT, at cost less accumulated
depreciation of $2,840,681 and $1,671,102,
respectively......................................... 7,715,511 5,768,215
NOTES RECEIVABLE, net of current portion............... 941,031 947,092
DEPOSITS AND OTHER ASSETS.............................. 406,200 540,700
----------- -----------
$28,781,840 $23,350,726
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable...................................... $ 1,854,784 $ 1,623,219
Accrued royalties..................................... 1,198,630 860,069
Income taxes payable.................................. 1,027,836 1,317,343
Accrued expenses and other............................ 351,202 371,953
----------- -----------
Total current liabilities........................... 4,432,452 4,172,584
CAPITAL LEASE OBLIGATION................................ 394,972 287,852
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 5,000,000 shares
authorized; Class A Convertible Preferred
stock, $.01 stated value, -0- shares and 500 shares
issued and outstanding, respectively................ - 5
Common stock, $.01 par value, 25,000,000 shares
authorized; 12,592,022 shares and 5,610,704,
shares issued and outstanding, respectively......... 125,920 56,107
Additional paid-in capital............................ 18,165,811 16,908,415
Retained earnings..................................... 5,662,685 1,925,763
----------- -----------
Total shareholders' equity.......................... 23,954,416 18,890,290
----------- -----------
$28,781,840 $23,350,726
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
2
<PAGE>
ACTION PERFORMANCE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Nine and Three Month Periods Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
June 30, June 30,
-------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Collectible sales............... $28,644,790 $13,778,978 $11,597,886 $ 8,037,455
Consumer product sales.......... 1,410,069 993,044 684,741 431,970
Promotional sales............... - 1,492,020 - 20,171
----------- ----------- ----------- -----------
Net sales................. 30,054,859 16,264,042 12,282,627 $ 8,489,596
Cost of sales................... 17,442,007 10,114,293 6,858,245 5,086,183
----------- ----------- ----------- -----------
Gross profit.................... 12,612,852 6,149,749 5,424,382 3,403,413
Selling, general and
administrative expenses........ 6,453,132 4,369,386 2,486,432 1,662,599
----------- ----------- ----------- -----------
Income from operations.......... 6,159,720 1,780,363 2,937,950 1,740,814
Other income (expense):
Interest income and other, net 231,344 401,803 42,920 58,981
Interest expense.............. (67,124) (171,664) (19,717) (33,683)
----------- ----------- ----------- -----------
Total other income 164,220 230,139 23,203 25,298
----------- ----------- ----------- -----------
Income before provision for
income taxes.................. 6,323,940 2,010,502 2,961,153 1,766,112
----------- ----------- ----------- -----------
Provision for income taxes...... $(2,529,576) $ (673,518) $(1,184,461) $ (585,538)
----------- ----------- ----------- -----------
NET INCOME...................... $ 3,794,364 $ 1,336,984 $ 1,776,692 $ 1,180,574
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE:
Primary........................ $ 0.29 $ 0.14 $ 0.14 $ 0.11
=========== =========== =========== ===========
Fully Diluted(a)............... $ 0.29 $ 0.13 $ 0.14 $ 0.10
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary........................ 12,980,905 9,391,998 13,147,254 11,085,928
=========== =========== =========== ===========
Fully Diluted(a)............... 13,053,925 10,810,092 13,150,125 11,729,334
=========== =========== =========== ===========
</TABLE>
(a) Includes adjustments for interest expense and equivalent shares related
to the 10% Convertible Subordinated Debentures, if dilutive. See
Exhibit 11.2
The accompanying notes are an integral part
of these consolidated financial statements.
3
<PAGE>
ACTION PERFORMANCE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Nine Months Ended June 30, 1996
<TABLE>
<CAPTION>
Convertible
Common Stock Preferred Stock Additional
------------ --------------- ----------
Shares Shares Paid-In Retained
Issued Amount Issued Amount Capital Earnings Total
------ ------ ------ ------ -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, September 30, 1995 5,610,704 $ 56,107 500 $ 5 $16,908,415 $ 1,925,763 $18,890,290
---------- -------- ----- ------ ----------- ----------- -----------
Common stock issued upon
exercise of warrants......... 106,332 1,063 - - 510,265 - 511,328
Common stock issued upon
exercise of employee options. 130,750 1,308 - - 757,126 - 758,434
Common stock issued upon
conversion of Class A
convertible preferred stock.. 1,000,000 10,000 (500) (5) (9,995) - -
Two-for-one split of common
stock effected as a stock
dividend..................... 5,744,236 57,442 - - - (57,442) -
Net Income.................... - - - - - 3,794,364 3,794,364
---------- -------- ----- ------ ----------- ----------- -----------
BALANCE, June 30, 1996 12,592,022 $125,920 - $ - $18,165,811 $ 5,662,685 $23,954,416
========== ======== ===== ====== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE>
ACTION PERFORMANCE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income........................................... $ 3,794,364 $ 1,336,984
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization..................... 1,169,579 640,753
Gain on sale of assets............................ - (290,877)
Change in assets and liabilities, net of effect
of disposal of mini vehicle assets:
Accounts receivable............................ (1,927,704) (1,347,044)
Inventories.................................... (2,072,014) (308,370)
Deferred income taxes.......................... (57,157) 224,037
Prepaid royalties.............................. (962,152) (232,460)
Prepaid expenses and other assets.............. (101,202) 163,176
Accounts payable............................... 231,565 (381,630)
Income taxes payable........................... (289,507) 415,021
Accrued royalties.............................. 338,561 (129,909)
Accrued expenses and other..................... (70,819) (100,872)
----------- -----------
Net cash provided by (used in) operating
activities...................................... 53,514 (11,191)
Cash Flows from Investing Activities:
Acquisition of property and equipment.............. (2,883,845) (1,805,883)
Proceeds from the sale of property and equipment... - 237,567
----------- -----------
Net cash used in investing activities........ (2,883,845) (1,568,316)
Cash Flows from Financing Activities:
Borrowings on line of credit....................... 5,221,898 2,494,436
Payments on line of credit......................... (5,221,898) (2,494,436)
Proceeds from issuance of common stock............. 1,269,762 1,140,131
Payments for redemption of warrants................ - (403,683)
Issuance of Class A preferred stock................ - 2,000,000
Payments for notes receivable...................... (1,200) (24,781)
Collections on notes receivable.................... 25,901 154,351
Proceeds from issuance of notes payable............ - 70,155
Payments on notes payable.......................... - (239,810)
Principal payments on capital lease obligation..... (75,842) -
----------- -----------
Net cash provided by financing activities.... 1,218,621 2,696,363
----------- -----------
Increase (Decrease) in Cash.......................... (1,611,710) 1,116,856
Cash, Beginning of Period............................ 6,759,984 1,134,163
----------- -----------
Cash, End of Period.................................. $ 5,148,274 $ 2,251,019
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
5
<PAGE>
ACTION PERFORMANCE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(1) INTERIM FINANCIAL REPORTING
The accompanying unaudited Consolidated Financial Statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows for the periods presented have been made. The results of operations
for the three-month and nine-month periods ended June 30, 1996 are not
necessarily indicative of the operating results that may be expected for the
entire year ending September 30, 1996. These financial statements should be read
in conjunction with the Company's Form 10-KSB, as amended by Form 10-KSB/A, for
the fiscal year ended September 30, 1995.
(2) INVENTORIES
Inventories are stated at lower of cost (first-in, first-out method) or market
and consist of the following at June 30, 1996:
Raw materials....................................... $ 400,049
Finished goods...................................... 4,363,000
-----------
$ 4,763,049
===========
(3) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the respective assets,
which range from three to ten years.
Property and equipment consist of the following at June 30, 1996:
Tooling and molds................................... $ 7,370,443
Furniture, fixtures and equipment................... 2,330,524
Autos and trucks.................................... 342,142
Leasehold improvements.............................. 513,083
-----------
10,556,192
Less - accumulated depreciation..................... (2,840,681)
-----------
$ 7,715,511
===========
(4) SHAREHOLDERS' EQUITY
The Company effected a two-for-one stock split in the form of a stock dividend,
distributed on May 28, 1996. As a result, non-cash financing activities for the
three months ended June 30, 1996 include an increase to common stock of $57,442
and a corresponding decrease to retained earnings for the amount of the par
value of the shares issued.
On May 29, 1996, the Company issued 1,000,000 shares of its common stock upon
the conversion of all outstanding shares of Class A Convertible Preferred Stock.
(5) NET INCOME PER COMMON SHARE
Net income per common share is computed based on the weighted average number of
common shares and common share equivalents outstanding using the treasury stock
method, except when common share equivalents have an antidilutive effect.
All share amounts and per share data have been restated to reflect the
two-for-one stock split effected as a stock dividend on May 28, 1996.
6
<PAGE>
(6) SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments during the nine months ended June 30, 1996 and 1995 included
interest of $67,124 and $267,095, respectively, and income taxes of $2,872,000
and $39,000, respectively.
Non-cash financing and investing activities for the nine months ended June 30,
1996 included approximately $233,000 of assets acquired under capital lease
agreements.
The Company effected a two-for-one stock split in the form of a stock dividend
distributed on May 28, 1996. As a result, non-cash financing activities for the
three months ended June 30, 1996 include an increase to common stock of $57,442
and a corresponding decrease to retained earnings for the amount of the par
value of the shares issued.
Non-cash financing activities for the nine months ended June 30, 1996, include
the issuance of 1,000,000 shares of the Company's common stock upon the
conversion of all outstanding shares of Class A Convertible Preferred Stock.
Non-cash financing activities for the nine months ended June 30, 1995 included
the conversion of an aggregate of $2,600,000 of principal amount of 10%
Convertible Subordinated Debentures into 742,838 shares of the Company's common
stock.
(7) INCOME TAXES
Income taxes for the three- and nine-month periods ended June 30, 1996 were
calculated by applying the estimated effective tax rate for the fiscal year to
the income before income taxes.
(8) LICENSE AGREEMENT
On June 20, 1996, the Company and Hasbro, Inc. ("Hasbro") entered into a letter
of intent pursuant to which the Company and Hasbro have agreed to enter into a
license agreement. The Company and Hasbro currently are negotiating a definitive
license agreement, the terms of which may vary from the proposed terms set forth
in the letter of intent.
The license agreement will provide Hasbro with the rights to design,
manufacture, and sell in the mass-merchandise market motorsports-related
products utilizing license rights that the Company obtains with race drivers,
car owners, manufacturers, and sponsors. Under the license agreement, the
Company will be responsible for acquiring and maintaining the license rights,
and Hasbro will be responsible for all costs and other arrangements relating to
tooling, manufacturing, transportation, marketing, distribution, and sales of
licensed products. Hasbro will pay the Company royalties, with minimum annual
royalty payments in each year during the term of the license agreement. Hasbro
also will be responsible for royalties, including advances and guarantees, paid
to licensors for licensed products. The license agreement will provide a five
year term, and an option for an additional three years provided certain revenue
objectives are achieved.
(9) COMMITMENTS AND CONTINGENCIES
The Company is one of approximately 30 defendants in a lawsuit in which the
State of Arizona seeks recovery of certain cleanup costs under federal and state
environmental laws. See Part II, Item 1, "Legal Proceedings." The imposition of
damages on the Company could have a material effect on its earnings.
In December 1995, a lawsuit was instituted against the Company, the Company's
Chief Executive Officer, and others alleging that the Company, the Company's
Chief Executive Officer, and others breached contractual and other duties and
appropriated certain business opportunities of a dissolved Arizona corporation.
The Company believes the complaint is without merit and is vigorously defending
the lawsuit. See Part II, Item 1, "Legal Proceedings."
7
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Introduction
The Company designs and markets die-cast and pewter collectibles, which are
miniature replicas of motorsports vehicles and other items, and designs and
markets licensed motorsports consumer products, which include drink bottles, key
chains, and air fresheners. The Company's motorsports collectible and consumer
products are manufactured by third parties, generally utilizing the Company's
tools and dies.
The Company was incorporated in Arizona in May 1992 and began marketing die-cast
collectibles in July 1992. In August 1994, the Company acquired certain assets
and liabilities of Fan Fueler, Inc. and began marketing product lines of
licensed motorsports consumer products. During fiscal 1994 and the first two
quarters of fiscal 1995, the Company designed and marketed pedal, electric, and
gas-powered mini vehicles, primarily as specialty promotional items. The Company
sold the assets related to its mini vehicle operations in March 1995.
Results of Operations of the Company for the Three Months Ended June 30, 1996
and 1995
The Company had net income of $1,777,000, or $0.14 per share, for the
three-month period ended June 30, 1996, compared with net income of $1,181,000,
or $0.10 per share, for the three-month period ended June 30, 1995. The Company
attributes the improvement in net income for the third quarter of fiscal 1996
primarily to (i) growth in the motorsports collectible market and the capture of
additional market share, which enabled the Company to produce and sell increased
quantities of collectibles; (ii) increased sales as a result of growth in the
Company's retail collector club, which provides higher gross margins; and (iii)
increased sales as a result of the successful introduction of several new and
exclusive licensing programs for die-cast and pewter collectible product lines
in fiscal 1996.
During the three months ended June 30, 1995 and 1996, net sales were $8,490,000
and $12,283,000, respectively. The $3,793,000, or 45%, increase in net sales
resulted from an increase of $3,560,000 in collectible sales, a decrease of
$20,000 in promotional sales, and an increase of $253,000 in motorsports
consumer products sales.
The increase in collectible sales is primarily attributable to the continued
growth in the motorsports collectible market and the Company's ability to
satisfy consumer demand for high-quality die-cast collectibles. The Company
continues to realize sales increases from recently introduced product lines,
which include pewter replica vehicles and NHRA drag racing die-cast replicas.
The decrease in promotional sales is attributable to the sale of the Company's
mini vehicle operations in the second quarter of fiscal 1995.
During the three months ended June 30, 1995 and 1996, cost of sales increased
from $5,086,000 to $6,858,000, representing 60% and 56%, respectively, of net
sales. The decrease in cost of sales as a percentage of sales resulted primarily
from (i) the effect of higher sales volume on fixed cost components of cost of
sales, primarily depreciation charges related to the Company's tooling
equipment, and (ii) higher gross margins associated with the increased sales
through the Company's retail collector club.
During the three months ended June 30, 1995 and 1996, selling, general and
administrative expenses increased from $1,663,000 to $2,486,000, in each case
representing 20% of net sales. The increase in such expenses resulted from
increased expenditures in sales and marketing, particularly increased
advertising expenses and higher sales commissions as a result of greater sales.
8
<PAGE>
Interest expense decreased from $34,000 to $20,000 during the three months ended
June 30, 1995 and 1996, respectively. The decrease in interest expense resulted
from the conversion of the 10% Convertible Subordinated Debentures into shares
of the Company's Common Stock prior to May 31, 1995.
Results of Operations of the Company for the Nine Months Ended June 30, 1996 and
1995
The Company had net income of $3,794,000, or $0.29 per share, for the nine-month
period ended June 30, 1996, compared with net income of $1,337,000, or $0.13 per
share, for the nine-month period ended June 30, 1995. The Company attributes the
improvement in net income primarily to (i) growth in the motorsports collectible
market and the capture of additional market share, which enabled the Company to
produce and sell increased quantities of collectibles; (ii) the completion of
the transition to the Company's new overseas manufacturer, which began shipping
sufficient quantities of high-quality die-cast collectibles during the third
quarter of fiscal 1995 to meet the increased demand for the Company's products;
(iii) increased sales as a result of growth in the Company's retail collector
club, which provides higher gross margins; and (iv) increased sales as a result
of the successful introduction of several new and exclusive licensing programs
for die-cast and pewter collectible product lines in fiscal 1996.
During the nine months ended June 30, 1995 and 1996, net sales were $16,264,000
and $30,055,000, respectively. The $13,791,000, or 85%, increase in net sales
resulted from an increase of $14,866,000 in collectible sales, a decrease of
$1,492,000 in promotional sales, and an increase of $417,000 in motorsports
consumer products sales.
The increase in collectible sales is primarily attributable to the continued
growth in the motorsports collectible market and the Company's ability to
satisfy consumer demand for high-quality die-cast collectibles. The Company
continues to realize sales increases from recently introduced product lines,
which include pewter replica vehicles and NHRA drag racing die-cast replicas.
The decrease in promotional sales is attributable to the sale of the Company's
mini vehicle operations in the second quarter of fiscal 1995.
During the nine months ended June 30, 1995 and 1996, cost of sales increased
from $10,114,000 to $17,442,000, representing 62% and 58%, respectively, of net
sales. The decrease in cost of sales as a percentage of sales resulted from (i)
the effect of higher sales volume on fixed cost components of cost of sales,
primarily depreciation charges related to the Company's tooling equipment, and
(ii) higher gross margins associated with the increased sales through the
Company's retail collector club.
During the nine months ended June 30, 1995 and 1996, selling, general and
administrative expenses increased from $4,369,000 to $6,453,000, representing
27% and 21%, respectively, of net sales. The increase in such expenses resulted
from increased expenditures in sales and marketing, particularly increased
advertising expenses and higher sales commissions as a result of greater sales.
Interest expense decreased from $172,000 to $67,000 during the nine months ended
June 30, 1995 and 1996, respectively. The decrease in interest expense resulted
from the conversion of the 10% Convertible Subordinated Debentures into shares
of the Company's Common Stock prior to May 31, 1995.
Seasonality
Sales of collectibles and motorsports related souvenirs are lowest in the fourth
calendar quarter, corresponding with the end of the racing season.
Liquidity and Capital Resources of the Company
The Company's working capital position increased to $15,287,000 at June 30, 1996
from $11,922,000 at September 30, 1995. The increase of $3,365,000 is primarily
9
<PAGE>
attributable to results from operations and proceeds of approximately $1,270,000
from the exercise of certain stock options and warrants.
The Company provided net cash of approximately $54,000 from operations during
the nine months ended June 30, 1996. The major elements contributing to net
operating cash flow include earnings from operations and uses of cash from (i)
increases in accounts receivable as a result of increased shipments of the
Company's die-cast collectible products during the latter part of the third
quarter of fiscal 1996; (ii) investments in inventory to meet peak seasonal
requirements and inventory purchases related to the Company's Corvette die-cast
program; and (iii) royalty advances paid on new and existing multi-year license
agreements.
Investment in inventories has increased in response to continued growth in sales
through the Company's retail collector club and as a result of lower than
anticipated sales of the Corvette die-cast program introduced in the third
quarter of fiscal 1996. The Company has implemented several new plans to market
the Corvette product line, including the distribution of such products to
approximately 4,500 General Motors dealerships throughout the United States. The
Company also has reduced purchase commitments for future production of the
Corvette products until such time as it can determine the success of its current
marketing plans.
Capital expenditures for the nine-month period ended June 30, 1996 totalled
approximately $2,884,000, of which approximately $1,830,000 was utilized for the
Company's continued investment in tooling.
In May 1996, the Company entered into a new credit agreement with a foreign
bank. The credit agreement provides the Company's supplier of die-cast
collectible products with security for the Company's purchase orders, up to a
limit of $5.0 million, an increase of $1.5 million from the Company's previous
agreement. The agreement also provides for an import cash line of credit of $1.0
million, which allows the Company to finance its imports for up to 90 days from
the date of shipment. As of June 30, 1996, there were no amounts outstanding on
the import cash line of credit. Total purchase commitments of approximately
$506,000 at June 30, 1996, are secured by the assets of the Company. The credit
facilities under the credit agreement will expire on January 31, 1997.
The Company is one of approximately 30 defendants in a lawsuit in which the
State of Arizona is seeking recovery of certain clean-up costs under federal and
state environmental laws. The Company is vigorously defending this lawsuit on
various bases, including that neither the Company nor any of its predecessors
has produced or arranged for the transportation of hazardous substances as
alleged by the state. The imposition of damages in the case against the Company
could have a material adverse effect on the Company's earnings and liquidity.
In December 1995, a lawsuit was instituted against the Company, the Company's
Chief Executive Officer, and others alleging that the Company, the Company's
Chief Executive Officer, and others breached contractual and other duties and
appropriated certain business opportunities of a dissolved Arizona corporation.
The Company believes the complaint is without merit and is vigorously defending
the lawsuit.
The Company's current cash resources, letter of credit facility, and expected
cash flow from operations are expected to be sufficient to fund the Company's
capital needs during the next 12 months at its current level of operations.
However, the Company may be required to obtain additional capital to fund its
planned growth after such 12 month period and beyond, particularly to provide
guarantees under licensing arrangements or to obtain international letters of
credit in connection with purchase orders from its off-shore manufacturer of
die-cast collectibles. Potential sources of any such capital may include the
proceeds from the exercise of outstanding options, bank financing, strategic
alliances, and additional offerings of the Company's equity or debt securities.
There can be no assurance that such capital will be available from these or
other potential sources, and the lack of such capital could have a material
adverse effect on the Company's business.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
On May 17, 1993, the State of Arizona (the "State") instituted
a lawsuit against the Company and 29 other defendants in the
United States District Court for the District of Arizona. The
State seeks recovery of certain clean up costs under federal
and state environmental laws. Specifically, the State seeks
recovery of expenses that it has incurred to date for an
environmental investigation and clean up of property formerly
used as a site for recycling hazardous wastes. The State
alleges that the property has been contaminated with hazardous
substances. In addition, the State seeks a declaratory
judgment that the Company and the other defendants are jointly
and severally liable for all future costs incurred by the
State for investigative and remedial activities, and seeks a
mandatory permanent injunction requiring the Company to
undertake appropriate assessment and remedial action at the
property. The State has not specified the amounts it seeks to
collect from the Company. The State alleges that F.W. Leisure
Industries, Inc. and/or F.W. & Associates, Inc. were
predecessors of the Company that produced and arranged for the
transportation of hazardous substances to the property
involved in the lawsuit. The Company is defending this lawsuit
on various bases including that F.W. Leisure Industries, Inc.
and/or F.W. & Associates, Inc. were not predecessors of the
Company and that neither the Company nor any predecessor of
the Company has ever produced or transported hazardous
substances as alleged by the State. The State has settled a
portion of its claims with respect to a large number of the
other defendants to the lawsuit. The Company is not a party to
that settlement. On February 1, 1995, a number of the
defendants that agreed to the settlement with the State were
granted leave to file, and subsequently did file a cross-claim
against the Company seeking indemnity from the Company based
on the same predecessor liability theory asserted by the
State. The parties have filed and briefed motions for summary
judgment limited to the issue of any defendant's status as a
responsible party and regarding the Company's status as a
successor corporation. The court has scheduled oral arguments
on these motions for September 30, 1996. In the event that a
decision adverse to the Company is rendered, and in the event
that the Company has no insurance coverage with respect to
these claims, the resolution of such matter could have a
material adverse effect on the Company.
In December 1995, a lawsuit, purportedly on behalf of Action
Products, Inc. ("API") a dissolved Arizona corporation, was
instituted against the Company, the Company's Chief Executive
Officer, and others in the United States District Court for
the District of Arizona (Case No. CIV 95-2926 PHX RCB). The
Complaint alleges that the Company, the Company's Chief
Executive Officer, and others breached contractual and other
duties to API and appropriated certain business opportunities
of API. The complaint requests damages, including punitive and
treble damages, in an unspecified amount. The complaint was
effectively amended subsequent to filing. In June 1996, the
court granted the Company's motion to dismiss with respect to
securities law claims, but denied the Company's motion to
dismiss with respect to certain federal RICO claims. The
Company is vigorously defending the lawsuit.
ITEM 2. Changes in Securities
Not applicable
ITEM 3. Defaults Upon Securities
Not applicable
11
<PAGE>
ITEM 4. Submissions of Matters to a Vote of Security Holders
Not applicable
ITEM 5. Other Information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.32 Credit Agreement by and between the Company
and Wells Fargo HSBC Trade Bank, N.A.
11.1 Computation of Primary Earnings Per Share
11.2 Computation of Fully Diluted Earnings Per
Share
27 Financial Data Schedule
(b) Reports on Form 8-K
On June 24, 1996, the Company filed a Current Report
on Form 8-K dated June 20, 1996, reporting the
execution of a Letter of Intent with Hasbro, Inc.,
with respect to a license agreement and other
agreements to be entered into between the Company and
Hasbro, Inc.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Signature:
ACTION PERFORMANCE COMPANIES, INC.
/s/ Fred W. Wagenhals Chairman of the Board, August 13, 1996
- ---------------------------------- President, and Chief
Executive Officer
(Principal Executive
Officer)
/s/ Christopher S. Besing Vice President and August 13, 1996
- ---------------------------------- Chief Financial Officer
(Principal Financial and
Accounting Officer)
13
================================================================================
CREDIT AGREEMENT
by and between
ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation
and
WELLS FARGO HSBC TRADE BANK, N.A.
Dated as of
April __, 1996
================================================================================
Exhibit A - Addendum to Agreement
Exhibit B - Facility Supplement(s)
<PAGE>
WELLS FARGO HSBC TRADE BANK CREDIT AGREEMENT
- -------------------------------------------------------------------------------
ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation ("Borrower"),
organized under the laws of the State of Arizona whose chief executive office is
located at the address specified after its signature to this Agreement
("Borrower's Address") and WELLS FARGO HSBC TRADE BANK, N.A. ("Trade Bank"),
whose address is specified after its signature to this Agreement, have entered
into this CREDIT AGREEMENT as of April __, 1996 ("Effective Date"). All
references to this "Agreement" include those covenants included in the Addendum
to Agreement ("Addendum") attached as Exhibit A hereto.
I. CREDIT FACILITIES
-----------------
1.1 The Facilities. Subject to the terms and conditions of this
Agreement, Trade Bank will make available to Borrower each of those credit
facilities ("Facilities") for which a Facility Supplement ("Supplement") is
attached as Exhibit B hereto. Additional terms for each individual Facility (and
each subfacility thereof ("Subfacility")) are set forth in the Supplement for
that Facility. Each Facility will be available from the Closing Date until the
Facility Termination Date for that Facility. Collateral and credit support
required for each Facility are also set forth in the Supplement for each
Facility. Definitions for those capitalized terms not otherwise defined are
contained in Article 8 below.
1.2 Credit Extension Limit. The aggregate outstanding amount of all
Credit Extensions may at no time exceed Five Million Dollars ($5,000,000)
("Overall Credit Limit"). The aggregate outstanding amount of all Credit
Extensions outstanding at any time under any Facility may not exceed that amount
specified as the "Credit Limit" in the Supplement for that Facility, and the
aggregate outstanding amount of all Credit Extensions outstanding at any time
under each Subfacility (or any subcategory thereof) may not exceed that amount
specified as the "Credit Sublimit" in the Supplement for the relevant Facility.
An amount equal to 100% of each unfunded Credit Extension shall be used in
calculating the outstanding amount of Credit Extensions under this Agreement.
1.3 Repayment; Interest and Fees. Each funded Credit Extension shall be
repaid by Borrower, and shall bear interest from the date of disbursement at
those per annum rates and such interest shall be paid, at the times specified in
the applicable Supplement, Note or Facility Document. With respect to each
Facility, Borrower agrees to pay to Trade Bank the fees specified in the related
Supplement as well as those fees specified in the relevant Facility Document(s).
Interest and fees will be calculated on the basis of a 360 day year, actual days
elapsed. Any overdue payments of principal (and interest to the extent permitted
by law) shall bear interest at a per annum floating rate equal to the Prime Rate
plus 6%.
1.4 Prepayments. Credit Extensions under any Facility may only be
prepaid in accordance with the terms of the related Supplement. At the time of
any prepayment (including, but not limited to, any prepayment which is a result
of the occurrence of an Event of Default and an acceleration of the Obligations)
Borrower will pay to Trade Bank all interest accrued on the amount so prepaid to
the date of such prepayment and all costs, expenses and fees specified in the
Loan Documents.
II. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants to Trade Bank that the following
representations and warranties are true and correct:
2.1 Legal Status. Borrower is duly organized and existing and in good
standing under the laws of the jurisdiction indicated in this Agreement, and is
qualified or licensed to do business in all jurisdictions in which such
qualification or licensing is required and in which the failure to so qualify or
to be so licensed could have a material adverse affect on Borrower.
2.2 Authorization and Validity. The execution, delivery and performance
of this Agreement, and all other Loan Documents to which Borrower is a party,
have been duly and validly authorized, executed and delivered by Borrower and
constitute legal, valid and binding agreements of Borrower, and are enforceable
against Borrower in accordance with their respective terms.
2.3 Borrower's Name. The name of Borrower set forth at the end of this
Agreement is its correct name. If Borrower is conducting business under a
fictitious business name, Borrower is in compliance with all laws relating to
the conduct of such business under such name.
2.4 Financial Condition and Statements. All financial statements of
Borrower delivered to Trade Bank have been prepared in conformity with GAAP, and
completely and accurately reflect the financial condition of Borrower (and any
consolidated Subsidiaries) at the times and for the periods stated in such
financial statements. Neither Borrower nor any Subsidiary has any material
contingent liability not reflected in the aforesaid financial statement. Since
the date of the financial statements delivered to Trade Bank for the last fiscal
period of Borrower to end before the Effective Date, there has been no material
adverse change in the financial condition, business or prospects of Borrower.
Borrower is solvent.
Page 1 of 8
<PAGE>
2.5 Litigation. Except as disclosed in writing to Trade Bank prior to
the Effective Date, there is no action, claim, suit, litigation, proceeding or
investigation pending or (to best of Borrower's knowledge) threatened by or
against or affecting Borrower or any Subsidiary in any court or before any
governmental authority, administrator or agency which may result in (a) any
material adverse change in the financial condition or business of Borrower, or
(b) any material impairment of the ability of Borrower to carry on its business
in substantially the same manner as it is now being conducted.
2.6 Other Obligations. Except as disclosed in writing to Trade Bank
prior to the Effective Date, neither Borrower nor any Subsidiary are in default
of any obligation for borrowed money, any purchase money obligation or any
material lease, commitment, contract, instrument or obligation.
2.7 No Defaults. No Event of Default, and event which with the giving
of notice or the passage of time or both would constitute an Event of Default,
has occurred and is continuing.
2.8 Information Provided to Trade Bank. The information provided to the
Trade Bank concerning Borrower's business is true and correct.
2.9 Environmental Matters. Except as disclosed by Borrower to Bank in
writing prior to the Effective Date, Borrower (as well as any Subsidiary) is
each in compliance in all material respects with all applicable Federal or state
environmental, hazardous waste, health and safety statutes, and any rules or
regulations adopted pursuant thereto, which govern or affect any of Borrower's
or any Subsidiary's operations and/or properties, including without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal
Resource Conservation and Recovery Act of 1976, the Federal Toxic Substances
Control Act and the California Health and Safety Code, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower or of any Subsidiary is the subject of any Federal or state
investigation evaluating whether any remedial action involving a material
expenditure is needed to respond to a release of any toxic or hazardous waste or
substance into the environment.
III. CONDITIONS TO EXTENDING FACILITIES
----------------------------------
3.1 Conditions to Initial Credit Extension. The obligation of Trade
Bank to make the first Credit Extension is subject to the fulfillment to Trade
Bank's satisfaction of the following conditions:
(a) Approval of Trade Bank Counsel. All legal matters
relating to making the Facilities available to Borrower
must be satisfactory to counsel for Trade Bank.
(b) Documentation. Trade Bank must have received, in form
and substance satisfactory to Trade Bank, the following
documents and instruments duly executed and in full
force and effect:
(1) a corporate borrowing resolution and incumbency
certificate if Borrower is a corporation, a
partnership or joint venture borrowing
certificate if Borrower is a partnership or
joint venture, and a limited liability company
borrowing certificate if Borrower is a limited
liability company;
(2) the Facility Documents for each Facility,
including, but not limited to, note(s) ("Notes")
for any Revolving Credit or Term Loan Facility,
Trade Bank's standard Continuing Commercial
Letter of Credit Agreement or Continuing Standby
Letter of Credit Agreement for any letter of
credit Facility;
(3) those guarantees, security agreements, deeds of
trust, subordination agreements, intercreditor
agreements, factoring agreements, tax service
contracts, and other Collateral Documents
required by Trade Bank to evidence the
collateral/credit support specified in the
Supplement;
(4) if an audit or inspection of any books, records
or property is specified in the Supplement for
any Facility, an audit or inspection report from
Wells Fargo or another auditor or inspector
acceptable to Trade Bank reflecting values and
property conditions satisfactory to Trade Bank;
(5) if an Eximbank guarantee is indicated in any
Facility Supplement, the Borrower Agreement
required by Eximbank together with the U.S.
Small Business Administration/Export-Import Bank
of the United States Joint Application For
Working Capital Guarantee, the "Loan
Authorization Agreement", the "Loan
Authorization Notice", and the latest "Country
Limitation Schedule of Eximbank";
(6) if Eximbank insurance is indicated in any
Facility Supplement, the "Export Credit
Insurance Policy" issued by Eximbank together
with a financial institution endorsement with
respect to that Insurance Policy and Eximbank's
premium payment report evidencing Borrower's
payment in full of all payments required under
the Insurance Policy in accordance with the
terms of the Insurance Policy, and an assignment
agreement accepted by Eximbank and acceptable to
Trade Bank;
Page 2 of 8
<PAGE>
(7) if an appraisal of any real property is
specified in any Facility Supplement, an
appraisal from an appraiser acceptable to Trade
Bank reflecting values satisfactory to Trade
Bank;
(8) if a policy of title insurance is specified in
any Facility Supplement, an ALTA policy
containing the endorsements, and issued by a
company, acceptable to Trade Bank; and
(9) if insurance is required in the Addendum, the
insurance policies specified in the Addendum (or
other satisfactory proof thereof) from insurers
acceptable to Trade Bank.
3.2 Conditions to Making Each Credit Extension. The obligation of
Trade Bank to make each Credit Extension is subject to the fulfillment to Trade
Bank's satisfaction of the following conditions:
(a) Representations and Warranties. The representations and
warranties contained in this Agreement, the Facility
Documents and the Collateral Documents will be true and
correct on as of the date of the Credit Extension with
the same effect as though such representations and
warranties had been made on and as of such date;
(b) Documentation. Trade Bank must have received, in form
and substance satisfactory to Trade Bank, the following
documents and instruments duly executed and in full
force and effect:
(1) if the Credit Extension is the issuance of a
Commercial Letter of Credit, Trade Bank's
standard Application For Commercial Letter of
Credit or standard Application and Agreement For
Commercial Letter of Credit;
(2) if the Credit Extension is the issuance of a
Standby Letter of Credit, Trade Bank's standard
Application For Standby Letter of Credit or
standard Application and Agreement For Standby
Letter of Credit;
(3) if the Credit Extension is supported by an
Eximbank guarantee, Eximbank's "Preliminary
Commitment and Eximbank's Export Certificate";
(4) if the Credit Extension is the discount of
foreign accounts receivable and the Credit
Extension is insured by Eximbank, an assignment
of the accounts being discounted in a form
acceptable to Eximbank and Trade Bank, a notice
to each account debtor on each such account, and
copies of the invoices, bills of lading or other
evidence of export, together with copies of the
purchase order or contract of sale, pertaining
to the accounts being discounted duly executed
by the account debtor;
(5) if the Credit Extension is insured by Eximbank
but is not the discount of foreign accounts
receivable, such documents and instruments as
are required by Eximbank;
(6) if a Borrowing Base Certificate is required for
the Credit Extension, a Borrowing Base
Certificate demonstrating compliance with the
requirements for such Credit Extension.
(c) Fees. Trade Bank must have received any fees required by
the Loan Documents to be paid at the time such Credit
Extension is made.
IV. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants that so long as Trade Bank remains committed to make
Credit Extensions to Borrower, and until payment of all Obligations and Credit
Extensions, Borrower will comply with each of the following covenants: (For
purposes of this Article IV, and Article V below, reference to "Borrower" may
also extend to Borrower's subsidiaries, if so specified in the Addendum.)
4.1 Punctual Payments. Punctually pay all principal, interest, fees
and other Obligations due under this Agreement or under any Loan Document at the
time and place and in the manner specified herein or therein.
4.2 Notification to Trade Bank. Promptly, but in no event more than 5
calendar days after the occurrence of each such event, provide written notice in
reasonable detail of each of the following:
(a) Occurrence of a Default. The occurrence of any Event of
Default or any event which with the giving of notice or
the passage of time or both would constitute an Event of
Default;
(b) Borrower's Trade Names; Place of Business. Any change of
Borrower's (or any Subsidiary's) name, trade name or
place of business, or chief executive officer;
Page 3 of 8
<PAGE>
(c) Litigation. Any action, claim, proceeding, litigation or
investigation threatened or instituted by or against or
affecting Borrower (or any Subsidiary) in any court or
before any government authority, administrator or agency
which may materially and adversely affect Borrower's (or
any Subsidiary's) financial condition or business or
Borrower's ability to carry on its business in
substantially the same manner as it is now being
conducted;
(d) Uninsured or Partially Uninsured Loss. Any uninsured or
partially uninsured loss through liability or property
damage or through fire, theft or any other cause
affecting Borrower's (or any Subsidiary's) property in
excess of the aggregate amount required hereunder;
(e) Reports Made to Insurance Companies. Copies of all
material reports made to insurance companies; and
(f) ERISA. The occurrence and nature of any Reportable Event
or Prohibited Transaction, each as defined in ERISA, or
any funding deficiency with respect to any Plan.
4.3 Books and Records. Maintain at Borrower's address books and records
in accordance with GAAP, and permit any representative of Trade Bank, at any
reasonable time, to inspect, audit and examine such books and records, to make
copies of them, and to inspect the properties of Borrower.
4.4 Tax Returns and Payments. Timely file all tax returns and reports
required by foreign, federal, state and local law, and timely pay all foreign,
federal, state and local taxes, assessments, deposits and contributions owed by
Borrower. Borrower may, however, defer payment of any contested taxes, provided
that Borrower (i) in good faith contests Borrower's obligation to pay the taxes
by appropriate proceedings promptly instituted and diligently conducted, (ii)
notifies Trade Bank in writing of the commencement of, and any material
development in, the proceedings, (iii) posts bonds or takes any other steps
required to keep the contested taxes from becoming a lien upon any of the
Collateral, and (iv) makes provision, to Trade Bank's satisfaction, for eventual
payment of such taxes in the event Borrower is obligated to make such payment.
4.5 Compliance with Laws. Comply in all material respects with the
provisions of all foreign, federal, state and local laws and regulations
relating to Borrower, including, but not limited to, those relating to
Borrower's ownership of real or personal property, the conduct and licensing of
Borrower's business, and health and environmental matters.
4.6 Insurance. Maintain and keep in force insurance of the types and in
amounts customarily carried in lines of business similar to that of Borrower,
including, but not limited to, fire, extended coverage, public liability, flood,
property damage and workers' compensation, with all such insurance to be in
amounts satisfactory to Trade Bank and to be carried with companies approved by
Trade Bank before such companies are retained, and deliver to Trade Bank from
time to time at Trade Bank's request schedules setting forth all insurance then
in effect. All insurance policies shall name Trade Bank as an additional loss
payee, and shall contain a lenders loss payee endorsement in form reasonably
acceptable to Trade Bank. (Upon receipt of the proceeds of any such insurance,
Trade Bank shall apply such proceeds in reduction of the outstanding funded
Credit Extensions and shall hold any remaining proceeds as collateral for the
outstanding unfunded Credit Extensions, as Trade Bank shall determine in its
sole discretion, except that, provided no Event of Default has occurred, Trade
Bank shall release to Borrower insurance proceeds with respect to equipment
totaling less than $100,000, which shall be utilized by Borrower for the
replacement of the equipment with respect to which the insurance proceeds were
paid, if Trade Bank receives reasonable assurance that the insurance proceeds so
released will be so used.) If Borrower fails to provide or pay for any
insurance, Trade Bank may, but is not obligated to, obtain the insurance at
Borrower's expense.
4.7 Further Assurances. At Trade Bank's request and in form and
substance satisfactory to Trade Bank, execute all documents and take all such
actions at Borrower's expense as Trade Bank may deem reasonably necessary or
useful to perfect and maintain Trade Bank's perfected security interest in the
Collateral and in order to fully consummate all of the transactions contemplated
by the Loan Documents.
V. NEGATIVE COVENANTS
------------------
Borrower covenants that so long as Trade Bank remains committed to make
any Credit Extensions to Borrower and all Obligations and Credit Extensions have
been paid, Borrower will not:
5.1 Merge or Consolidation, Transfer of Assets. Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business..
5.2 Liens. Except for Permitted Liens, mortgage, pledge, grant or
permit to exist a security interest in, or lien upon, all or any portion of
Borrower's assets now owned or hereafter acquired.
5.3 Use of Proceeds. Borrower will not use the proceeds of any Credit
Extension except for the purposes, if any, specified for such Credit Extension
in the Supplement covering the Facility under which such Credit Extension is
made.
Page 4 of 8
<PAGE>
VI. EVENTS OF DEFAULT AND REMEDIES
------------------------------
6.1 Events of Default. The occurrence of any of the following shall
constitute an "Event of Default":
(a) Failure to Make Payments When Due. Borrower's failure to
pay principal, interest, fees or other amounts when due
under any Loan Document.
(b) Failure to Perform Obligations. Any failure by Borrower
to comply with any covenant or obligation in this
Agreement or in any Loan Document (other than those
referred to in subsection (a) above), and such default
shall continue for a period of twenty calendar days from
the earlier of (i) Borrower's failure to notify Trade
Bank of such Event of Default pursuant to Section 4.2(a)
above, or (ii) Trade Bank's notice to Borrower of such
Event of Default.
(c) Untrue or Misleading Warranty or Statement. Any
warranty, representation, financial statement, report or
certificate made or delivered by Borrower under any Loan
Document is untrue or misleading in any material respect
when made or delivered.
(d) Defaults Under Other Loan Documents. Any "Event of
Default" occurs under any other Loan Document; any
Guaranty is no longer in full force and effect (or any
claim thereof made by Guarantor) or any failure of a
Guarantor to comply with the provisions thereof; or any
breach of the provisions of any Subordination Agreement
or Intercreditor Agreement by any party other than the
Trade Bank.
(e) Defaults Under Other Agreements or Instruments. Any
default in the payment or performance of any obligation,
or the occurrence of any event of default, under the
terms of any other agreement or instrument pursuant to
which Borrower, any Subsidiary or any Guarantor or
general partner of Borrower has incurred any debt or
other material liability to any person or entity.
(f) Concealing or Transferring Property. Borrower conceals,
removes or transfers any part of its property with
intent to hinder, delay or defraud its creditors, or
makes or suffers any transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law.
(g) Judgments and Levies Against Borrower. The filing of a
notice of judgment lien against Borrower, or the
recording of any abstract of judgment against Borrower,
in any county in which Borrower has an interest in real
property, or the service of a notice of levy and/or of a
writ of attachment or execution, or other like process,
against the assets of Borrower, or the entry of a
judgment against Borrower.
(h) Event or Condition Impairing Payment or Performance. Any
event occurs or condition arises which Trade Bank in
good faith believes impairs or is substantially likely
to impair the prospect of payment or performance by
Borrower of the Obligations, including, but not limited
to or any material adverse change in Borrower's
financial condition, business or prospects.
(i) Voluntary Insolvency. Borrower, any Subsidiary or any
Guarantor (i) becomes insolvent, (ii) suffers or
consents to or applies for the appointment of a
receiver, trustee, custodian or liquidator of itself or
any of its property, (iii) generally fails to pay its
debts as they become due, (iv) makes a general
assignment for the benefit of creditors, or (v) files a
voluntary petition in bankruptcy, or seeks
reorganization, in order to effect a plan or other
arrangement with creditors or any other relief under the
Bankruptcy Reform Act, Title 11 of the United States
Code, as amended or recodified from time to time
("Bankruptcy Code"), or under any state or Federal law
granting relief to debtors, whether now or hereafter in
effect.
(j) Involuntary Insolvency. Any involuntary petition or
proceeding pursuant to the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors is filed or
commenced against Borrower, any Subsidiary or Guarantor,
or (b) have an order for relief entered against it by
any court of competent jurisdiction under the Bankruptcy
Code or any other applicable state or federal law
relating to bankruptcy, reorganization or other relief
for debtors.
(k) Change in Ownership. Any change in the ownership of
Borrower, any general partner of Borrower or any
Guarantor which the Trade Bank determines, in its sole
discretion, may adversely affect the creditworthiness of
Borrower or credit support for the Obligations.
6.2 Remedies. Upon the occurrence of any Event of Default, or at any
time thereafter, Trade Bank, at its option, and without notice or demand of any
kind (all of which are hereby expressly waived by Borrower), may do any one or
more of the following: (a) terminate Trade Bank's obligation to make Credit
Extensions or to make available to Borrower the Facilities or other financial
accommodations; (b) accelerate and declare all or any part of the Obligations to
be immediately due, payable, and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Credit Extension; and/or (c) exercise all its rights, powers and remedies
available under the Loan Documents, or accorded by law, including, but not
limited to, the right to resort to any or all Collateral or other security for
any of the Obligations and to exercise any or all of the rights of a beneficiary
or secured party pursuant to applicable law. Notwithstanding the provisions in
the foregoing sentence, if any
Page 5 of 8
<PAGE>
Event of Default set out in subsections (i) and (j) of Section 6.1
above shall occur, then all the remedies specified in the preceding sentence
shall automatically take effect without notice or demand of any kind (all of
which are hereby expressly waived by Borrower) with respect to any and all
Obligations which are not supported by an Eximbank guarantee or are not insured
by Eximbank. All rights, powers and remedies of Trade Bank may be exercised at
any time by Trade Bank and from time to time after the occurrence of an Event of
Default, are cumulative and not exclusive, and shall be in addition to any other
rights, powers or remedies provided by law or equity.
VII. GENERAL PROVISIONS
------------------
7.1 Notices. All notices to be given under this Agreement shall be in
writing and shall be given personally or by regular first-class mail, by
certified mail return receipt requested, by a private delivery service which
obtains a signed receipt, or by facsimile transmission addressed to Trade Bank
or Borrower at the address indicated after their signature to this Agreement, or
at any other address designated in writing by one party to the other party.
Trade Bank is hereby authorized by Borrower to act on such instructions or
notices sent by facsimile transmission or telecommunications device which Trade
Bank believes come from Borrower. All notices shall be deemed to have been given
upon delivery, in the case of notices personally delivered or delivered by
private delivery service, upon the expiration of 3 calendar days following the
deposit of the notices in the United States mail, in the case of notices
deposited in the United States mail with postage prepaid, or upon receipt, in
the case of notices sent by facsimile transmission.
7.2 Waivers. No delay or failure of Trade Bank in exercising any
right, power or remedy under any of the Loan Documents shall affect or operate
as a waiver of such right, power or remedy; nor shall any single or partial
exercise of any such right, power or remedy preclude, waive or otherwise affect
any other or further exercise thereof or the exercise of any other right, power
or remedy. Any waiver, consent or approval by Trade Bank under any of the Loan
Documents must be in writing and shall be effective only to the extent set out
in such writing.
7.3 Benefit of Agreement. The provisions of the Loan Documents shall
be binding upon and inure to the benefit of the respective successors, assigns,
heirs, executors, administrators, beneficiaries and legal representatives of
Borrower and Trade Bank; provided, however, that Borrower may not assign or
transfer any of its rights under any Loan Document without the prior written
consent of Trade Bank, and any prohibited assignment shall be void. No consent
by Trade Bank to any assignment shall release Borrower from its liability for
the Obligations unless such release is specifically given by Trade Bank to
Borrower in writing. Trade Bank reserves the right to sell, assign, transfer,
negotiate or grant participations in all or any part of, or any interest in,
Trade Bank's rights and benefits under each of the Loan Documents. In connection
therewith, Trade Bank may disclose any information relating to the Facilities,
Borrower or its business, or any Guarantor or its business.
7.4 Joint and Several Liability. If Borrower consists of more than one
person or entity, the liability of each of them shall be joint and several, and
the compromise of any claim with, or the release of, any one such Borrower shall
not constitute a compromise with, or a release of, any other such Borrower.
7.5 No Third Party Beneficiaries. This Agreement is made and entered
into for the sole protection and benefit of Borrower and Trade Bank and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, any of the Loan Documents to which it is not a
party.
7.6 Governing Law and Jurisdiction. This Agreement shall, unless
provided differently in any Loan Document, be governed by, and be construed in
accordance with, the internal laws of the State of California, except to the
extent Trade Bank has greater rights or remedies under federal law whether as a
national bank or otherwise. Borrower and Trade Bank (a) agree that all actions
and proceedings relating directly or indirectly to this Agreement shall be
litigated in courts located within California; (b) consent to the jurisdiction
of any such court and consent to service of process in any such action or
proceeding by personal delivery or any other method permitted by law; and (c)
waive any and all rights Borrower may have to object to the jurisdiction of any
such court or to transfer or change the venue of any such action or proceeding.
7.7 Mutual Waiver of Jury Trial. Borrower and Trade Bank each hereby
waive the right to trial by jury in any action or proceeding based upon, arising
out of, or in any way relating to, (a) any Loan Document, (b) any other present
or future agreement, instrument or document between Trade Bank and Borrower, or
(c) any conduct, act or omission of Trade Bank or Borrower or any of their
directors, officers, employees, agents, attorneys or any other persons or
entities affiliated with Trade Bank or Borrower, which waiver will apply in all
of the mentioned cases whether the case is a contract or tort case or any other
case. Borrower represents and warrants that no officer, representative or agent
of Trade Bank has represented, expressly or otherwise, that Trade Bank would not
seek to enforce this waiver of jury trial.
7.8 Severability. Should any provision of any Loan Document be
prohibited by, or invalid under applicable law, or held by any court of
competent jurisdiction to be void or unenforceable, such defect shall not
affect, the validity of the other provisions of the Loan Documents.
7.9 Entire Agreement; Amendments. This Agreement and the other Loan
Documents are the final, entire and complete agreement between Borrower and
Trade Bank concerning the Credit Extensions and the Facilities; supersede all
prior and contemporaneous negotiations and oral representations and agreements.
There are no oral understandings, representations or agreements between the
parties concerning the Credit Extensions or the Facilities which are not set
forth in the Loan Documents. This Agreement and the Supplements may not be
waived, amended or superseded except in a writing executed by Borrower and Trade
Bank.
Page 6 of 8
<PAGE>
7.10 Collection of Payments. Unless otherwise specified in any Loan
Document, other than this Agreement or any Note, all principal, interest and any
fees due to Trade Bank by Borrower under this Agreement, the Addendum, any
Supplement, any Facility Document, any Collateral Document or any Note, will be
paid by Trade Bank having Wells Fargo debit any of Borrower's accounts with
Wells Fargo and forwarding such amount debited to Trade Bank, without
presentment, protest, demand for reimbursement or payment, notice of dishonor or
any other notice whatsoever, all of which are hereby expressly waived by
Borrower. Such debit will be made at the time principal, interest or any fee is
due to Trade Bank pursuant to this Agreement, the Addendum, any Supplement, any
Facility Document, any Collateral Document or any Note.
VIII. DEFINITIONS
-----------
8.1 "Agreement" means this Agreement and the Addendum attached hereto,
as corrected or modified from time to time by Trade Bank and Borrower.
8.2 "Banking Day" means each day except Saturday, Sunday and a day
specified as a holiday by federal or California statute.
8.3 "Closing Date" means the date on which the first Credit Extension
is made.
8.4 "Collateral" means all property securing the Obligations.
8.5 "Collateral Documents" means those security agreement(s), deed(s)
of trust, guarantee(s), subordination agreement(s), intercreditor agreement(s),
and other credit support documents and instruments required by the Trade Bank to
effect the collateral and credit support requirements set forth in the
Supplement with respect to the Facilities.
8.6 "Credit Extension" means each extension of credit under the
Facilities (whether funded or unfunded), including, but not limited to, (a) the
issuance of sight or usance commercial letters of credit or commercial letters
of credit supported by back-up letters of credit, (b) the issuance of standby
letters of credit, (c) the issuance of shipping guarantees, (d) the making of
loans against imports for letters of credit, (d) the making of clean import
loans outside letters of credit, (e) the making of advances against export
orders, (f) the making of advances against outgoing collections, (g) the making
of revolving credit working capital loans, (h) the making of term loans, (i) the
discounting of drafts or foreign receivables with recourse, (j) the discounting
or purchasing of promissory notes with recourse to Borrower, and (k) the entry
into foreign exchange contracts.
8.7 "Credit Limit" means, with respect to any Facility, the amount
specified under the column labeled "Credit Limit" in the Supplement for that
Facility.
8.8 "Credit Sublimit" means, with respect to any Subfacility, the
amount specified after the name of that Subfacility under the column labeled
"Credit Sublimit" in the Supplement for the related Facility.
8.9 "Dollars" and "$" means United States dollars.
8.10 "Eximbank" means the Export-Import Bank of the United States.
8.11 "Facility Documents" means, with respect to any Facility, those
documents specified in the Supplement for that Facility, and any other documents
customarily required by Trade Bank for such Facility.
8.12 "Facility Termination Date" means, with respect to any Facility,
the date specified in the Supplement for that Facility after which no further
Credit Extensions will be made under that Facility.
8.13 "GAAP" means generally accepted accounting principles, which are
applicable to the circumstances, as of the date of determination, set out in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and in the statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession.
8.14 "Loan Documents" means this Agreement, the Addendum, the
Supplements, the Facility Documents and the Collateral Documents.
8.15 "Note" has the meaning specified in Section 3.1(b)(2) above.
8.16 "Obligations" means (a) the obligation of Borrower to pay
principal, interest and fees on all funded Credit Extensions and fees on all
unfunded Credit Extensions, and (b) the obligation of Borrower to pay and
perform when due all other indebtedness, liabilities, obligations and covenants
required under the Loan Documents.
8.17 "Permitted Liens" shall have the meaning provided in the Addendum.
8.18 "Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof.
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<PAGE>
8.19 "Prime Rate" means the rate most recently announced by Wells Fargo
at its principal office in San Francisco, California as its "Prime Rate", with
the understanding that the Prime Rate is one of Wells Fargo's base rates and
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto, and is evidenced by the recording thereof
after its announcement in such internal publication or publications as Wells
Fargo may designate. Any change in an interest rate resulting from a change in
the Prime Rate shall become effective as of 12:01 a.m. of the Banking Day on
which each change in the Prime Rate is announced by Wells Fargo.
8.20 "Subsidiary" means (i) any corporation at least the majority of
whose securities having ordinary voting power for the election of directors
(other than securities having such power only by reason of the happening of a
contingency) are at the time owned by Borrower and/or one or more Subsidiaries,
and (ii) any joint venture or partnership in which Borrower and/or one or more
Subsidiaries has a majority interest..
8.21 "Wells Fargo" means Wells Fargo Bank, N.A.
Borrower and Trade Bank have caused this Agreement to be executed by
their duly authorized officers or representatives on the date specified below.
"BORROWER"
ACTION PERFORMANCE COMPANIES, INC.
By: /s/ Chris Besing
---------------------------------
Title: CFO
---------------------------------
Borrower's Address:
2401 W. First Street
Tempe, AZ. 85281
"LENDER"
WELLS FARGO HSBC TRADE BANK,
NATIONAL ASSOCIATION
By:
---------------------------------
Scott A. Kaiser
Title: Assistant Vice President
Lender's Address:
333 South Grand Avenue, 3rd Floor
Los Angeles, CA 90071
Page 8 of 8
<PAGE>
EXHIBIT A
ADDENDUM TO CREDIT AGREEMENT
----------------------------
THIS ADDENDUM IS ATTACHED TO THE CREDIT AGREEMENT ("CREDIT AGREEMENT") BETWEEN
WELLS FARGO HSBC TRADE BANK AND THE FOLLOWING BORROWER:
NAME OF BORROWER: ACTION PERFORMANCE COMPANIES, INC.
BY SIGNING HERE BORROWER AGREES TO THE DESIGNATED PROVISIONS IN THIS ADDENDUM:
/s/ Chris Besing
---------------------------------------
(SIGNATURE)
ADDITIONAL AFFIRMATIVE COVENANTS
--------------------------------
The following covenants are part of Article VI of the Credit Agreement:
|X| Reports. Borrower will furnish the following information or deliver the
following reports to Trade Bank at the times indicated below:
|X| Annual Financial Statements. Not later than 100 calendar days after and
as of the end of each of Borrower's fiscal years, an annual 10K Report.
| | Semi-Annual Financial Statements. Not later than ____ calendar days
after and as of the end of each of Borrower's second and fourth fiscal
quarters, a financial statement of Borrower prepared by Borrower, to
include_____________
|X| Quarterly Financial Statements. Not later than 40 calendar days after
and as of the end of each of Borrower's fiscal quarters, a quarterly
10Q Report.
|X| Projections. Not later than 30 calendar days after the start of each
fiscal year, an annual projections report prepared by Borrower.
| | Monthly Financial Statements. Not later than ____ calendar days after
and as of the end of each calendar month, a financial statement of
Borrower prepared by Borrower, to include ____________
|X| Certificate of Accuracy and No Event of Default. At the time each
financial statement of Borrower required above is delivered to
Trade Bank, a certificate of
|X| the president or chief financial officer
| | a general partner
| | a member
| | __________________
of Borrower that said financial statements are accurate and that
there exists no Event of Default under the Agreement nor any
condition, act or event which with the giving of notice or the
passage of time or both would constitute an Event of Default.
| | Federal Income Tax Returns. Not later than _____ calendar days
after filing, but in no event later than ________ calendar days
after the end of each of Borrower's tax years, a copy of
Borrower's filed federal income tax return for such year.
| | Proxies, Registrations and Reports. At the time they are sent or
filed, copies of all
| | proxy statements
| | financial statements
| | registration statements
| | reports
which Borrower sends to its shareholders or partners or files with
the Securities and Exchange Commission.
|X| Accounts Receivable and Inventory Report. Not later than 20 calendar
days after and as of the end of each quarter, an Accounts Receivable
and Inventory Report ("Accounts Receivable and Inventory Report" has
the meaning given to it below), certified as true and correct by an
authorized officer of Borrower.
"Accounts Receivable and Inventory Report" means a report based on the
determination of Borrower's accounts receivable in an aggregate amount
not to exceed 80% of Borrower's eligible accounts receivable and
Borrower's inventory in an aggregate amount not to exceed 40% of
Borrower's eligible inventory.
Without limiting the fact that the determination of which accounts are
eligible is a matter in Trade Bank's discretion, the following will not
be deemed eligible:
|X| Accounts from any one customer if 25% or more of its
accounts are aged more than 89 days from invoice date;
however, if less than 25% are aged more than 89 days
from invoice date, then only the amount which is aged
more than 89 days from invoice shall be considered
ineligible amounts.
|X| Accounts from trade debtors based in United States
Territories and outside the United States, except
accounts from Canada. With prior written consent of
Trade Bank, accounts from foreign trade debtors may be
acceptable if one of the following conditions are met:
i) are covered by an acceptable foreign accounts
receivable insurance or guarantee program, such as
provided by FCIA of U.S. Eximbank; or
ii) are sold under terms of letters of credit issued
by foreign banks and which are then confirmed by
Trade Bank or a U.S. bank acceptable to Trade
Bank.
|X| Account concentrations to any one customer that
represent 25% or more of gross accounts receivable,
however, only the portion of the accounts receivable
which are over the 25% will be ineligible, not the
entire accounts receivable.
|X| Accounts from subsidiaries or affiliated
companies.
Page 1 of 4
<PAGE>
Without limiting the fact that the determination of which inventory is
eligible is a matter of Trade Bank's discretion, the following will not
be deemed eligible:
|X| Goods stored or located outside the State of
Arizona
|X| Goods in transit purchased on a collection basis.
|X| Damaged, obsolete, slow-moving or unsaleable
goods.
| | Purchase Orders
| | At the time of application (a) for issuance of each new import
or domestic letter of credit which face amount is or exceeds
US$________ and (b) for each amendment to any issued and
outstanding letter of credit,________, Borrower will provide a
Purchase Order Certificate satisfactory in form and substance to
Trade Bank, evidencing that the aggregate amount of pre-negotiated
and pre-sold customer purchase orders constitute at least ___% of
the face amount of each letter of credit or extension thereof, in
accordance with subsections (a) and (b) above.
| | Within ______ days after the end of each month, Borrower will
submit Purchase Order Listing, on a monthly basis, satisfactory in
form and substance to Trade Bank.
| | Account Debtors Aged Listing
| | Not later than __ calendar days after and as of each
month end, and aged listing of accounts receivable,
including both factored and unfactored accounts.
| | Immediately upon each request from Trade Bank a list
of the names, addresses and phone numbers of all
Borrower's account debtors and an aged listing of their
balances.
| | Inventory List Not later than __ calendar days after and as of the end
of each ______________.
| | an inventory report showing the types, locations and
unit or dollar values of all the inventory collateral.
| | Account Debtors List.
| | Not later than _____ calendar days after and as of each ________
| | Immediately upon each request from Trade Bank a list of the
names, addresses and phone numbers of all Borrower's account
debtors and an aged listing of their balances.
| | Guarantor's Financial Statements. Not later than ____ calendar days
after and as of the end of each __________, a financial statement
of each Guarantor hereunder, prepared by ___________, to include __
| | Guarantor's Federal Income Tax Returns. Not later than _____ calendar
days after filing, but in no event later than ______ calendar days
after the end of each of Guarantor's tax years, a copy of Guarantor's
filed federal income tax return for such year.
|X| Insurance. Borrower will maintain in full force and effect insurance
coverage on all Borrower's property, including, but not limited to, the
following types of insurance coverage:
|X| policies of fire insurance
| | extended coverage insurance with
(| | replacement cost endorsements
| | mortgagee loss payable endorsements)
|X| marine cargo insurance
|X| business personal property insurance
| | life insurance on ______________________________________
| | insurance covering the following specific hazards:
___________________________________________________________
___________________________________________________________
All the insurance referred to in the preceding sentence must be in
form, substance and amounts, and issued by companies, satisfactory to
Trade Bank, and cover risks required by Trade Bank
|X| and contain loss payable endorsements in favor of Trade
Bank.
|X| Financial Covenants. Borrower will maintain the following (if Borrower
has any Subsidiaries which must be consolidated under GAAP, the
following applies to Borrower and the consolidated Subsidiaries):
|X| Current Ratio. Not at any time less than 3.0 to 1.0. ("Current
Ratio" means total current assets divided by total current
liabilities, and "current assets" and "current liabilities" have
the meanings given to them in accordance with GAAP; provided,
however, that "current liabilities" will
| | include
|X| exclude
indebtedness which is subordinated to the Obligations to Trade
Bank under a subordination agreement in form and substance
acceptable to Trade Bank or by subordination language acceptable
to Trade Bank in the instrument evidencing such indebtedness.)
| | Working Capital. Not at any time less than $__________.
("Working Capital" means total current assets minus total current
liabilities; provided, however, that "current liabilities" will
| | include
| | exclude
indebtedness which is subordinated to the Obligations to Trade Bank
under a subordination agreement in form and substance acceptable to
Trade Bank or by subordination language acceptable to Trade Bank in the
instrument evidencing such indebtedness.)
| | Net Worth. Not at any time less than $__________. ("Net Worth"
means the excess of total assets over total liabilities determined
in accordance with GAAP; provided, however, that "total
liabilities" will
| | include
| | exclude
indebtedness which is subordinated to the Obligations to Trade
Bank under a subordination agreement in form and substance
acceptable to Trade Bank or by subordination language acceptable
to Trade Bank in the instrument evidencing such indebtedness.)
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<PAGE>
|X| Tangible Net Worth. Not at any time less than $15,000,000. ("Tangible
Net Worth" means the excess of total assets over total liabilities
determined in accordance with GAAP, (a) excluding, however, in
determining total assets (i) all assets which would be classified as
intangible assets under GAAP, including, but not limited to, goodwill,
licenses, patents, trademarks, trade names, copyrights, capitalized
software and organizational costs, licenses and franchises, and (ii)
assets which Trade Bank determines in its business judgment would not
be available or would be of relatively small value in a liquidation of
Borrower=s business, including, but not limited to, prepaid expenses,
loans to officers or affiliates and other items, and (b) including, in
determining total liabilities, indebtedness which is subordinated to
the Obligations to Trade Bank.)
| | Effective Tangible Net Worth. Not at any time less than $ _________.
("Effective Tangible Net Worth" means the excess of total assets, with
the asset exclusions indicated above for "Tangible Net Worth", over
total liabilities determined in accordance with GAAP, but excluding, in
determining total liabilities, indebtedness which is subordinated to
the Obligations to Trade Bank under a subordination agreement in form
and substance acceptable to Trade Bank or by subordination language
acceptable to Trade Bank in the instrument evidencing such
indebtedness.)
|X| Total Liabilities divided by Tangible Net Worth. Not at any time
greater than 1.0 to 1.0. ("Tangible Net Worth" has the meaning given to
it above, and "Total Liabilities"
| | includes
|X| excludes
indebtedness which is subordinated to the Obligations to Trade Bank
under a subordination agreement in form and substance acceptable to
Trade Bank or by subordination language acceptable to Trade Bank in the
instrument evidencing such indebtedness.)
| | Total Liabilities divided by Effective Tangible Net Worth. Not at any
time greater than ___ to 1.0. ("Effective Tangible Net Worth" has the
meaning given to it above, and "Total Liabilities"
| | includes
| | excludes
indebtedness which is subordinated to the Obligations to Trade Bank
under a subordination agreement in form and substance acceptable to
Trade Bank or by subordination language acceptable to Trade Bank in the
instrument evidencing such indebtedness.)
|X| Quick Asset Ratio. Not at any time less than 1.50 to 1.0. ("Quick Asset
Ratio" means "Quick Assets" divided by total current liabilities, and
"Quick Assets" means cash on hand or on deposit in banks, readily
marketable securities issued by the United States, readily marketable
commercial paper rated AA-1@ by Standard & Poor=s Corporation (or a
similar rating by a similar rating organization), certificates of
deposit and banker=s acceptances, and accounts receivable (net of
allowance for doubtful accounts).)
| | Net Income After Taxes. Not less than $__________ on an annual basis
determined as of each fiscal year end.
| | Pre-Tax Profit. Not less than $___________ on a
| | quarterly basis (determined as of each fiscal quarter end)
| | year-to-date basis (determined as of each fiscal quarter
end)
| | year-to-date basis (determined as of the end of the second
fiscal quarter of each fiscal year).
| | EBITDA. Not less than $____________ as of each fiscal year end.
("EBITDA" means net profit before tax plus interest expense (net of
capitalized interest expense), depreciation expense and amortization
expense.)
| | EBITDA Coverage Ratio. Not less than ___ to 1.0 as of each fiscal
year end. ("EBITDA Coverage Ratio" means EBITDA divided by the
aggregate of total interest expense plus the prior period current
maturity of long-term debt and the prior period current maturity of
subordinated debt, and "EBITDA" has the meaning to it given above.)
| | Obligations for the Lease or Hire of Real or Personal Property. Not
in excess of an aggregate of $ ______________ in any one fiscal year.
|X| Minimum Quarterly Aggregate Collateral. Not less than $1,000,000.
("Aggregate Collateral" means 80% of eligible Accounts Receivable and
40% of eligible Inventory as evidenced by the Quarterly Accounts
Receivable and Inventory Report.)
|X| Consecutive Quarterly Losses. Not more than two (2) consecutive
quarterly losses.
ADDITIONAL NEGATIVE COVENANTS
-----------------------------
The following covenants are part of Article V of the Credit Agreement (Borrower
shall also cause any Subsidiary to comply with the following covenants):
|X| Use of Proceeds. Borrower will not use the proceeds of any Credit Extension
except for the purposes, if any, specified for such Credit Extension in the
Supplement covering the Facility under which such Credit Extension is made.
|X| Liens. Borrower will not create or permit any liens, charges, security
interests, encumbrances or adverse claims with respect to any of its
property or other assets except for the following "Permitted Liens":
| | purchase money security interests in specific items of
Borrower's equipment
| | leases of specific items of Borrower's equipment
| | liens for Borrower's taxes not yet payable
| | additional security interests and liens consented to in writing
by Trade Bank in its sole discretion
| | security interests being terminated substantially concurrently
with the effectiveness of the Agreement
|X| Acquisitions of Assets. Borrower will not acquire any assets or enter into
any other transaction outside the ordinary course of Borrower's business.
|X| Loans and Investments. Borrower will not make any loans or advances to, or
investments in, any person or entity except for accounts receivable created
in the ordinary course of Borrower's business.
|X| Indebtedness For Borrowed Money. Borrower will not incur any indebtedness
for borrowed money, except to Trade Bank and except for indebtedness
subordinated to the Obligations by an instrument or agreement in form
acceptable to Trade Bank.
Page 3 of 4
<PAGE>
|X| Guarantees. Borrower will not guarantee or otherwise become liable with
respect to the obligations of any other person or entity, except for
endorsement of instruments for deposit into Borrower's account in the
ordinary course of Borrower's business.
|X| Dividends and Distributions of Capital of Corporation. If Borrower is a
corporation, Borrower will not pay or declare any dividends or make any
distribution of capital on Borrower's stock (except for dividends payable
solely in stock of Borrower).
| | Distributions of Earnings or Capital of Partnership. If Borrower is a
partnership, Borrower will not make any distribution of earnings or capital
in cash or in kind to or for the benefit of any of its partners in excess
of % such partner's taxable income attributable to his or her partnership
interest.
|X| Stock Redemptions. Borrower will not redeem, retire, purchase or otherwise
acquire, directly or indirectly, any of Borrower's stock.
|X| Investments in, or Acquisitions of, Subsidiaries. Borrower will not make
any investments in, or form or acquire, any subsidiaries.
|X| Capital Expenditures. Borrower shall not, without the prior written consent
of Trade Bank, make any capital expenditures for tooling and molds (for the
manufacture of die-cast miniature replicas of motorsport vehicles) in any
fiscal year in an aggregate amount in excess of $1,000,000; and Borrower
shall not, without prior written consent of Trade Bank, make any other
capital expenditures to exceed $500,000.
|X| Compensation. Borrower will not, without the prior written consent of Trade
Bank, pay, accrue or obligate itself to pay, directly or indirectly, any
salaries, bonuses or other compensation or fees to its officers, directors,
shareholders or partners, or any members of their immediate families, in
any fiscal year in an aggregate amount in excess of $750,000.
|X| Accounts Receivable. Borrower may not, without prior written consent of
Trade Bank, exceed an aggregate $2,500,000 in Accounts Receivable to any
one customer at any one time.
|X| Management. Borrower shall not, without prior written consent of Trade
Bank, cause or make any changes to Borrower's business or to its existing
key management personnel.
Page 4 of 4
<PAGE>
EXHIBIT B
SIGHT COMMERCIAL LETTERS OF CREDIT SUPPLEMENT
---------------------------------------------
THIS SUPPLEMENT IS AN INTEGRAL PART OF THE CREDIT AGREEMENT BETWEEN WELLS FARGO
HSBC TRADE BANK AND THE FOLLOWING BORROWER:
NAME OF BORROWER: ACTION PERFORMANCE COMPANIES, INC.
FACILITY TERMINATION DATE: January 31, 1997
CREDIT LIMIT AND SUBLIMITS:
Credit Sublimits
----------------
| | Transferable Letters of Credit $
|X| Goods Consigned To, or Controlled By, Trade Bank $5,000,000
| | Goods Not Consigned To, or Controlled By, Trade Bank $
The aggregate amount of Credit Extensions outstanding under this Facility and
the following other Facilities may not at any one time exceed $5,000,000:
1. Loans under the Loans Against Imports for Letters of Credit Reimbursements
Supplement
FACILITY DESCRIPTION:
Trade Bank will issue sight commercial letters of credit (each a "Sight
Commercial Credit") for the account of Borrower as indicated under the heading
"Facility Purpose" below. Subject to the credit sublimits specified above, these
Sight Commercial Credits will be transferable or not transferable and have the
goods related to them consigned to or not consigned to, or controlled by or not
controlled by, Trade Bank. The Facility Credit Limit specified above refers to
the aggregate undrawn amount of all Sight Commercial Credits which may be at any
one time outstanding under this Facility together with the aggregate amount of
all drafts drawn under such Sight Commercial Credits which have not been
reimbursed as provided below at such time. The Facility Credit Sublimits
specified above refer to the aggregate undrawn amount of all Sight Commercial
Credits which may be at any one time outstanding under each subcategory under
this Facility together with the aggregate amount of all drafts drawn under such
Sight Commercial Credits which have not been reimbursed as provided below at
such time.
FACILITY PURPOSE: The Facility may only be used for the following purpose(s):
For the importation of die-cast miniature replicas of motorsport vehicles.
FACILITY DOCUMENTS:
Before the first Sight Commercial Credit is issued:
Trade Bank's standard form Continuing Commercial Letter of Credit
Agreement (Form TB 020)
Before each Sight Commercial Credit is issued:
Trade Bank's standard form Application For Commercial Letter of Credit
(Form TB 002)
Before each Sight Commercial Credit is amended:
Trade Bank's standard form Application For Amendment To Letter of
Credit (Form TB 010)
Subfacility Documents:
Transferable Letters of Credit:_______________________________________.
Goods consigned to, or controlled by, Trade Bank:______________________
Goods not consigned to, or controlled by, Trade Bank:__________________
TERM: No Sight Commercial Credit may expire more than 90 calendar days after the
date it is issued.
REIMBURSEMENTS FOR DRAWINGS:
The amount of each drawing paid by Trade Bank under a Sight Commercial Credit
will be reimbursed to Trade Bank as follows:
|X| by Trade Bank having Wells Fargo Bank debit any of Borrower's
accounts with Wells Fargo Bank and forwarding such amount debited
to Trade Bank, or
|X| immediately on demand of Trade Bank, or
|X| by treating such amount drawn as an advance to Borrower under
Borrower's Facility for Loans Against Imports For Letter of Credit
Reimbursements.
FEES: The following fees will apply to the Sight Commercial Credits:
Page 1 of 3
<PAGE>
|X| Facility Fee: Borrower will pay the following Facility Fee to
Trade Bank before this Facility is made available to
Borrower: $5,000.
|X| Issuance Fees/Fees For Increasing Credit Amounts or Extending
Expiration Dates: (Minimum $100.00) 1/8 of 1% per annum for
every 90-day period, of the amount of each Sight Commercial
Credit and of any increase in such amount
Payable: At the time each Sight Commercial Credit is issued
or increased and at the time the expiration date of any Sight
Commercial Credit is extended.
|X| Amendment Fees: (Minimum $75.00)
$75.00 for each amendment, unless the amendment is an
increase in the Sight Commercial Credit amount or an
extension of the expiration date, in which case the Issuance
Fee above will substitute for any Amendment Fee
Payable: At the time each amendment is issued.
|X| Negotiation/Payment/Examination Fees: (Minimum $75.00)
1/8 of 1% of the face amount of each drawing under each Sight
Commercial Credit
Payable: At the time any draft or other documents are
negotiated, paid or examined.
INTEREST RATE:
All drawings under Sight Commercial Credits not reimbursed on the day they are
paid by Trade Bank will bear interest at the following rate from the date they
are paid by Trade Bank to the date such payment is fully reimbursed:
| | As provided in the Loans Against Imports For Letter of Credit
Reimbursements Supplement
|X| Prime Rate: The Prime Rate plus 6.0% per annum
| | Fixed Rate: A fixed rate of__________% per annum
| | Other Rate:___________________________________________________
Interest Payment Dates: Interest on unreimbursed drawings under Sight
Commercial Credits will be paid :
| | on the dates indicated in the Loans Against Imports For
Letter of Credit Reimbursements Supplement
|X| on the date the unreimbursed drawing is fully reimbursed.
COLLATERAL/CREDIT SUPPORT DOCUMENTS:
|X| Personal Property Security From Borrower:
|X| first priority lien
in the following assets of Borrower:
|X| accounts receivable
|X| inventory
|X| equipment
|X| goods
| | Other:___________________________________________________
| | second priority lien
in the following assets of Borrower:
| | accounts receivable
| | inventory
| | equipment
| | goods
| | Other:___________________________________________________
|X| Collateral Documents:
| | Security Agreement: Rights to Payment
|X| Security Agreement: Rights to Payment and Inventory
|X| Security Agreement: Equipment and Fixtures
| | Security Agreement (Goods)
|X| UCC-1 Financing Statement
|X| UCC-3 Search
| | Notice of Assignment
| | Other:___________________________________________________
| | Real Property Security From Borrower:
| | first priority lien
| | second priority lien
in real property of Borrower ("Borrower's Property") located at:
_______________________________________________________________________
_______________________________________________________________________
| | Collateral Documents:
| | Deed of Trust
| | Landlord's Waiver
| | Appraisal of Borrower's Property
| | ALTA Policy of Title Insurance in the amount of
$________________
| | Tax Service Contract
Page 2 of 3
<PAGE>
| | Other:_______________________________________________________
| | Personal Property Security From Third Party: Name of Third Party:__________
| | first priority lien
in the following assets of Third Party:
| | accounts receivable
| | inventory
| | equipment
| | goods
| | Other:_______________________________________________________
| | second priority lien
in the following assets of Borrower:
| | accounts receivable
| | inventory
| | equipment
| | goods
| | Other:_______________________________________________________
| | Collateral Documents:
| | Third Party Security Agreement (Accounts Receivable,
Inventory, Equipment and/or Goods)
| | Third Party Pledge Agreement
| | UCC-1 Financing Statement
| | UCC-3 Search
| | Notice of Assignment
| | Other:_____________________________________________________ .
| | Real Property Security From Third Party: Name of Third Party:______________
| | first priority
| | second priority
in real property of Pledgor ("Pledgor's Property") located at______________
___________________________________________________________________________
___________________________________________________________________________
| |Collateral Documents:
| | Deed of Trust
| | Landlord's Waiver
| | Appraisal of Pledgor's Property
| | ALTA Policy of Title Insurance in the amount of
$______________
| | Tax Service Contract
| | Other:_______________________________________________________
| | Standby Letter of Credit in Favor of Trade Bank:_________________________
will issue its standby letter of credit in favor of Trade Bank in the
amount of $_____________
| | Guarantee:___________________________________________________________ will
guarantee the full payment or repayment when due of all Obligations under
this Facility.
| | Collateral Documents:
| | Personal Guarantee
| | Corporate Guarantee
| | Subordination Agreement: All obligations of Borrower to __________
___________________________________________________________________ will be
subordinated to the repayment of the Obligations under this Facility.
| | Collateral Documents:
| | Subordination Agreement: Payments Permitted
| | Subordination Agreement: Payments Not Permitted
| | Intercreditor Agreement: The creditor or creditors named below under the
heading "Collateral Documents" will enter into an intercreditor arrangement
with Trade Bank with respect to the Obligations under this Facility.
| | Collateral Documents:
| | Intercreditor Agreement with Wells Fargo Bank, N.A.
| | Intercreditor Agreement with________________________________.
ADDITIONAL PROVISIONS:
________________________________________________________________________________
________________________________________________________________________________
_______________________________________________________________________________.
BY INITIALING HERE BORROWER AGREES TO ALL THE TERMS OF THIS SUPPLEMENT:/s/CSB
---------
Page 3 of 3
<PAGE>
EXHIBIT B
---------
LOANS AGAINST IMPORTS FOR LETTER OF CREDIT REIMBURSEMENTS SUPPLEMENT
--------------------------------------------------------------------
THIS SUPPLEMENT IS AN INTEGRAL PART OF THE CREDIT AGREEMENT BETWEEN WELLS
FARGO HSBC TRADE BANK AND THE FOLLOWING BORROWER:
NAME OF BORROWER: ACTION PERFORMANCE COMPANIES, INC.
FACILITY TERMINATION DATE: January 31, 1997
CREDIT LIMIT AND SUBLIMITS:
<TABLE>
<CAPTION>
Credit Sublimits
-------------------------------------------
<S> <C> <C> <C>
| | Supported By a Standby Letter of Credit
In Favor of Trade Bank $
| |Floating Interest Rate $
| | Borrowing Base Accounts Receivable
and Inventory $
| | Borrowing Base Accounts Receivable $
| | Borrowing Base Inventory $
| | No Borrowing Base $
| | Fixed Interest Rate, Payment in Arrears $
| | Borrowing Base Accounts Receivable
and Inventory $
| | Borrowing Base Accounts Receivable $
| | Borrowing Base Inventory $
| | No Borrowing Base $
| |Fixed Interest Rate, Payment in Advance at a
Discount (Including Bankers' Acceptances) $
| | Borrowing Base Accounts Receivable
and Inventory $
| | Borrowing Base Accounts Receivable $
| | Borrowing Base Inventory $
| | No Borrowing Base $
|X| Supported by Guarantee or
Other Collateral $1,000,000
|X| Floating Interest Rate $1,000,000
| | Borrowing Base Accounts Receivable
and Inventory $
| | Borrowing Base Accounts Receivable $
| | Borrowing Base Inventory $
|X| No Borrowing Base $1,000,000
| | Fixed Interest Rate, Payment in Arrears $
| | Borrowing Base Accounts Receivable
and Inventory $
| | Borrowing Base Accounts Receivable $
| | Borrowing Base Inventory $
| | No Borrowing Base $
| | Fixed Interest Rate, Payment in Advance at a
Discount (Including Bankers' Acceptances) $
| | Borrowing Base Accounts Receivable
and Inventory $
| | Borrowing Base Accounts Receivable $
| | Borrowing Base Inventory $
| | No Borrowing Base $
| | Not supported by a Letter of Credit or a
Guarantee or Other Collateral $
| | Floating Interest Rate $
| | Borrowing Base Accounts Receivable
and Inventory $
| | Borrowing Base Accounts Receivable $
| | Borrowing Base Inventory $
| | No Borrowing Base $
| | Fixed Interest Rate, Payment in Arrears $
| | Borrowing Base Accounts Receivable
and Inventory $
| | Borrowing Base Accounts Receivable $
| | Borrowing Base Inventory $
| | No Borrowing Base $
| | Fixed Interest Rate, Payment in Advance at a
Page 1 of 4
<PAGE>
Discount (Including Bankers' Acceptances) $
| | Borrowing Base Accounts Receivable
and Inventory $
| | Borrowing Base Accounts Receivable $
| | Borrowing Base Inventory $
| | No Borrowing Base $
</TABLE>
The aggregate amount of Credit Extensions outstanding under this Facility and
the following other Facilities may not at any one time
exceed $1,000,000:
NONE
FACILITY DESCRIPTION:
Trade Bank will make loans to Borrower solely for the purpose of financing
Borrower's obligations to reimburse Trade Bank for amounts paid by Trade Bank
under sight and usance Commercial Credits issued by Trade bank for the account
of Borrower in conncection with Borrower's imports. Loans made by Trade Bank
under this Facility cannot be used by Borrower to repay outstanding clean import
loans that have matured. Subject to the credit sublimits specified above, these
loans may be supported by (i) a standby letter of credit in favor of Trade Bank
or (ii) a guarantee or other collateral.
FACILITY DOCUMENTS: Promissory Note (attached)
SubFacility Documents:
Supported by a Standby Letter of Credit in favor of Trade Bank: None
Supported by a Guarantee or Other Collateral:
See Collateral/Credit Support Documents Section below
Not supported by a Guarantee or a Letter of Credit or Other Collateral: None
TERM: Each loan made under this Facility must be repaid
|X| within 60 calendar days after it is made
| | on the maturity date requested by Borrower and stated in
the Promissory Note (or set forth in Trade Bank's records).
FEES: The following fees will apply to this Facility:
|X| Facility Fee: Borrower will pay the following Facility Fee to
Trade Bank before this Facility is made available to Borrower:
$5,000.
| | Other Fee:_____________________________________
INTEREST RATE: All advances under this Facility will bear interest at the
following rate:
|X| Prime Rate: The Prime Rate plus 1.0% per annum
| | Other Rate:_____________________________________________________ .
Interest Payment Dates: Interest on the outstanding loans under this
Facility will be paid as follows:
| | at least once each month.
| | at least once every three months
|X| Other: At the maturity of each advance.
PREPAYMENTS: Prepayments of the outstanding loans under this Facility are
|X| Permitted in any amounts
| | Permitted only in
| | minimum amounts of $____________ .
| | integral multiples of $____________ .
| | Not permitted
BORROWING BASE TERMS:
| | Borrowing Base Accounts Receivable Loans. The Revolving Credit Borrowing
Base Accounts Receivable Loans will be loans secured by Borrower's accounts
receivable in an aggregate amount at any one time outstanding not to exceed
______% of the Net Amount of those of Borrower's accounts receivable which
Trade Bank in its sole discretion shall deem eligible for borrowing. ("Net
Amount" of an account means the gross amount of the account, minus all
applicable sales, use, excise and other similar taxes and minus all
discounts, credits and allowances of any nature granted or claimed.)
Without limiting the fact that the determination of which accounts are
eligible for borrowing is a matter in Trade Bank's discretion, the
following will not be deemed eligible for borrowing:
| | accounts outstanding for more than ____days from the invoice date,
| | accounts subject to any contingencies (including, without
limitation, bill and hold, guaranteed sales, and consignments),
| | accounts owing from an account debtor outside the United States
(unless pre-approved by Trade Bank in its discretion, or backed by
a letter of credit satisfactory to Trade Bank, or FCIA insured, or
Eximbank or CEFO insured, in a manner and amount satisfactory to
Trade Bank),
| | accounts owing from the United States or any other governmental
agency or entity,
| | accounts owing from one account debtor to the extent they exceed
______% of the total eligible accounts outstanding,
| | accounts owing from any officer, director, employee, affiliated
company or other affiliate of Borrower, and
Page 2 of 4
<PAGE>
| | accounts owing from an account debtor to whom Borrower is or may
be liable for goods purchased from such account debtor or
otherwise.
In addition, if more than _____% of the accounts owing from an account
debtor are outstanding more than ______ calendar days from the invoice date
or are otherwise not eligible accounts, then all accounts owing from that
account debtor will be deemed ineligible for borrowing.
| | Verification of Accounts. Trade Bank may from time to time
verify directly with the account debtors the validity, amount and
other matters relating to Borrower=s accounts by means of mail,
telephone or otherwise, either in the name of Borrower or Trade
Bank or such other name as Trade Bank may reasonably choose.
| | Prior Notice of Verification. Borrower will be given prior
notice of such verification unless an Event of Default under
the Agreement is in existence when such verification is
attempted.
| | Borrowing Base Inventory Loans. The Revolving Credit Borrowing Base
Inventory Loans will be Loans secured by Borrower's Inventory in an
aggregate amount at any one time outstanding not to exceed the following
percentages of the AValue@ of the following categories of Borrower=s
inventory which Trade Bank in its discretion deems eligible for borrowing:
| | Total Inventory with the exception of____________: up
to _____%
| | Imported Inventory: up to _____%
| | Finished Goods (In State) : up to _____%
| | Finished Goods (Out of State) : up to _____%
| | Work In Process : up to _____%
| | Raw Materials (In State) : up to _____%
| | Raw Materials (Out of State): up to _____%
("Value" means Borrower's cost for the inventory or the wholesale
market value of the inventory, whichever is lower.) Without
limiting the fact that the determination of which inventory is
eligiblefor borrowing is a matter of Trade Bank's discretion,
inventory in transit to Borrower or damaged, obsolete, slow-moving
or unsalable inventory will not be deemed eligible for borrowing.
COLLATERAL/CREDIT SUPPORT DOCUMENTS:
|X| Personal Property Security From Borrower:
|X| first priority lien
in the following assets of Borrower:
|X| accounts receivable
|X| inventory
|X| equipment
|X| goods
| | Other:______________________________________________________
| | second priority lien
in the following assets of Borrower:
| | accounts receivable
| | inventory
| | equipment
| | goods
| | Other:_____________________________________________________
|X| Collateral Documents:
| | Security Agreement: Rights to Payment
|X| Security Agreement: Rights to Payment and Inventory
|X| Security Agreement: Equipment and Fixtures
| | Security Agreement (Goods)
|X| UCC-1 Financing Statement
|X| UCC-3 Search
| | Notice of Assignment
| | Other:_____________________________________________________
| | Real Property Security From Borrower:
| | first priority lien
| | second priority lien
in real property of Borrower ("Borrower's Property") located at:
_________________________________________________________________________
_________________________________________________________________________
| | Collateral Documents:
| | Deed of Trust
| | Landlord's Waiver
| | Appraisal of Borrower's Property
| | ALTA Policy of Title Insurance in the amount of $_________
| | Tax Service Contract
| | Other:____________________________________________________
| | Personal Property Security From Third Party: Name of Third Party:________
| | first priority lien
in the following assets of Third Party:
| | accounts receivable
| | inventory
| | equipment
| | goods
Page 3 of 4
<PAGE>
| | Other:____________________________________________________
| | second priority lien
in the following assets of Borrower:
| | accounts receivable
| | inventory
| | equipment
| | goods
| | Other:____________________________________________________
| | Collateral Documents:
| | Third Party Security Agreement (Accounts Receivable,
Inventory, Equipment and/or Goods)
| | Third Party Pledge Agreement
| | UCC-1 Financing Statement
| | UCC-3 Search
| | Notice of Assignment
| | Other:____________________________________________________.
| | Real Property Security From Third Party: Name of Third Party:___________
| | first priority
| | second priority
in real property of Pledgor ("Pledgor's Property") located at ___________
_________________________________________________________________________
_________________________________________________________________________
| | Collateral Documents:
| | Deed of Trust
| | Landlord's Waiver
| | Appraisal of Pledgor's Property
| | ALTA Policy of Title Insurance in the amount of $__________
| | Tax Service Contract
| | Other:_____________________________________________________
| | Standby Letter of Credit in Favor of Trade Bank:_________________________
will issue its standby letter of credit in favor of Trade Bank in the
amount of $__________.
| | Guarantee:________________________________will guarantee the full payment
or repayment when due of all Obligations under this Facility.
| | Collateral Documents:
| | Personal Guarantee
| | Corporate Guarantee
| | Subordination Agreement: All obligations of Borrower to_________________
_________________will be subordinated to the repayment of the Obligations
under this Facility.
| | Collateral Documents:
| | Subordination Agreement: Payments Permitted
| | Subordination Agreement: Payments Not Permitted
| | Intercreditor Agreement: The creditor or creditors named below under the
heading "Collateral Documents" will enter into an intercreditor
arrangement with Trade Bank with respect to the Obligations under this
Facility.
| | Collateral Documents:
| | Intercreditor Agreement with Wells Fargo Bank, N.A.
| | Intercreditor Agreement with_____________________________________
ADDITIONAL PROVISIONS:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
BY INITIALING HERE BORROWER AGREES TO ALL THE TERMS OF THIS SUPPLEMENT:/s/ CSB
-------
Page 4 of 4
<PAGE>
WELLS FARGO HSBC TRADE BANK LOANS AGAINST IMPORTS NOTES
- --------------------------------------------------------------------------------
April __, 1996
FOR VALUE RECEIVED, the undersigned ACTION PERFORMANCE COMPANIES, INC., an
Arizona corporation (jointly and severally, if the undersigned be more than one)
("Borrower") hereby promises to pay to the order of WELLS FARGO HSBC TRADE BANK,
N.A. ("Bank"), when due as provided herein, at its 333 South Grand Avenue, 3rd
Floor, Los Angeles, CA 90071 office, in lawful money of the United States and in
immediately available funds, the principal sum of One Million Dollars
($1,000,000) or, if less, the aggregate unpaid principal amount of all advances
made by Bank to Borrower from time to time, as evidenced on the records of Bank,
together with interest thereon as hereinafter provided.
Borrower may from time to time from the date of this Note up to and including
January 31, 1997, borrow and partially or wholly repay its outstanding advances,
and reborrow, subject to all of the limitations, terms and conditions of this
Note and of that certain Credit Agreement between Borrower and Trade Bank dated
as of April __, 1996, as amended from time to time ("Credit Agreement") executed
in connection with or governing this Note; provided that the total advances made
under this Note shall not exceed the principal amount stated above. The unpaid
principal balance of this obligation at any time shall be the total amounts
advanced hereunder by the holder hereof less the amount of principal payments
made hereon by or for any Borrower, which balance may be endorsed hereon from
time to time by the holder.
The principal amount and maturity of each advance shall be agreed upon by
Borrower and Bank prior to the making of each advance, and such terms, together
with the applicable interest rate of each advance and all payments of principal
and interest made on this Note shall be inscribed by Bank on its records. Each
advance shall be payable on the earlier of (i) the due date thereof, as
inscribed by Bank on its records, or (ii) 60 days after the date such advance is
made. All payments shall be made free of any setoff, counterclaims or
withholdings. Each entry set forth on Bank's records shall be the prima facie
evidence of the facts so set forth. No failure by Bank to make, or no error by
Bank in making, any inscription on its records shall affect Borrower's
obligation to repay the full principal amount advanced by Bank to or for the
account of Borrower, or Borrower's obligation to pay interest thereon at the
agreed upon rate.
Each advance shall bear interest at the Prime Rate (defined herein) plus one
percent (1.0%). Interest will be calculated for each day at 1/360th of the
applicable per annum rate, which will result in a higher effective annual rate.
Accrued interest shall be payable at such times and dates as shall be agreed
upon by Borrower and Bank prior to the making of each advance and evidenced on
the records of Bank, provided that, all accrued interest on an advance shall be
due and payable at the maturity (by acceleration or otherwise) of such advance.
After maturity, whether by acceleration or otherwise, accrued interest shall be
payable on demand. "Prime Rate" means the rate of interest most recently
announced by Wells Fargo Bank, N.A. at its principal office in San Francisco,
California as its "Prime Rate", with the understanding that the Prime Rate is
one of Wells Fargo Bank's base rates and serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto, and is evidenced by the recording thereof after its announcement in
such internal publication or publications as Wells Fargo Bank may designate. Any
change in an interest rate resulting from a change in the Prime Rate shall
become effective as of 12:01 a.m. of the Banking Day on which each change in the
Prime Rate is announced by Wells Fargo Bank.
Advances hereunder, to the total amount of the principal sum stated above and up
to and including the date set forth in the preceding paragraph, may be made by
the holder at the oral or written request of
_______________________________________, any one acting alone, who are
authorized to request advances and direct the disposition of any advances until
written notice of the revocation of such authority is received by the holder at
the office designated above, or (b) any person, with respect to advances
deposited to the credit of any account of any Borrower with the holder, which
advances, when so deposited, shall be conclusively presumed to have been made to
or for the benefit of each Borrower regardless of the fact that persons other
than those authorized to request advances may have authority to draw against
such account. The holder shall have no obligation to determine whether any
person requesting an advance is or has been authorized by any Borrower.
Upon the occurrence of any Event of Default as defined in the Credit Agreement,
the holder of this Note, at the holder's option, may declare all sums of
principal and interest outstanding hereunder to be immediately due and payable
without presentment, demand, protest or notice of dishonor, all of which are
expressly waived by each Borrower, and the obligation, if any, of the holder to
extend any further credit hereunder shall immediately cease and terminate. Each
Borrower shall pay to the holder immediately upon demand the full amount of all
payments, advances, charges, costs and expenses, including reasonable attorneys'
fees (to include outside counsel fees and all allocated costs of the holder's
in-house counsel), incurred by the holder in connection with the enforcement of
the holder's rights and/or the collection of any amounts which become due to the
holder under this Note, and the prosecution or defense of any action in any way
related to this Note, including without limitation, any action for declaratory
relief, and including any of the foregoing incurred in connection with any
bankruptcy proceeding relating to any Borrower.
Should more than one person or entity sign this Note as a Borrower, the
obligations of each such Borrower shall be joint and several.
Page 1 of 2
<PAGE>
This Note shall be governed by and construed in accordance with the laws of the
State of California, except to the extent Bank has greater rights or remedies
under Federal law, whether as a national bank or otherwise, in which case such
choice of California law shall not be deemed to deprive Bank of any such rights
and remedies as may be available under Federal law.
"BORROWER"
ACTION PERFORMANCE COMPANIES, INC.
By: /s/ Chris Besing
------------------------------------------
Title: CFO
------------------------------------------
Borrower's Address:
2401 W. First Street
Tempe, AZ. 85281
Page 2 of 2
<PAGE>
WELLS FARGO HSBC TRADE BANK CONTINUING COMMERCIAL LETTER OF CREDIT AGREEMENT
- --------------------------------------------------------------------------------
TO: WELLS FARGO HSBC TRADE BANK, N.A.
In consideration of Wells Fargo HSBC Trade Bank, N.A., at the request and for
the account of the undersigned Applicant, and, unless otherwise specifically
provided in any Loan Document, at the option of Trade Bank, issuing commercial
letters of credit pursuant to applications for commercial letters of credit and
the terms and conditions of this Agreement, Applicant hereby agrees that the
terms and conditions hereinafter set forth shall apply to each such Application,
to the Credit issued by Trade Bank pursuant to such Application, to the issuance
of each such Credit, and to transactions under each such Application, each such
Credit and this Agreement.
SECTION 1. DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth after each term: "Acceptance" shall mean any
time draft drawn or made, or purported to be drawn or made, under any Credit,
and accepted for payment by Trade Bank or by any other bank specified by Trade
Bank to accept such time draft for payment. "Acceptance Fee" shall mean the fee,
computed at the acceptance fee rate specified by Trade Bank or specified in any
Loan Document, charged by Trade Bank when each Acceptance is created on the
amount of each Acceptance for the time period each such Acceptance is to be
outstanding. "Agreement" shall mean this Continuing Commercial Letter of Credit
Agreement as it may be revised or amended from time to time pursuant to its
terms. "Applicant" shall mean the person or persons or the entity or entities
signing this Agreement. "Application" shall mean Trade Bank's printed form
titled "Application For Commercial Letter of Credit" or any other form
acceptable to Trade Bank on which Applicant applies for the issuance by Trade
Bank of a Credit and/or an application for amendment of a Credit or any
combination of such applications, as the context may require. "Beneficiary"
shall mean the person or entity named on an Application as the beneficiary or
any person or entity who is the transferee of any such beneficiary. "Collateral"
shall mean the Property, together with the proceeds of such Property, securing
any or all the obligations and liabilities of Applicant to Trade Bank at any
time existing under or in connection with any Letter of Credit Document and/or
any Loan Document. "Credit" shall mean an instrument or document titled
"Irrevocable Commercial Letter of Credit" or "Irrevocable Documentary Credit",
or any instrument or document whatever it is titled or whether or not it is
titled functioning as a commercial letter of credit, issued under or pursuant to
an Application, and all renewals, extensions and amendments of such instrument
or document. "Deferred Payment Fee" shall mean the fee, computed at the deferred
payment fee rate specified by Trade Bank or specified in any Loan Document,
charged by Trade Bank on the amount of each Demand presented under a Credit
providing for deferred payment of Demands which are not time drafts, which fee
will be payable when the Demand is determined by Trade Bank to comply with such
Credit and cover the time period from the date of such determination to the date
such Demand is payable. "Delivery Authorization" shall mean any agreement,
undertaking, guarantee, indemnity, release, bond, letter, document or
authorization given or executed by Trade Bank, at its option in each case, at
the request of Applicant or Applicant's agent to or in favor of a carrier or
other person or entity in order to permit delivery to Applicant or Applicant's
agent of Property referred to in or shipped under any Credit. "Demand" shall
mean any sight or time draft (before it is accepted), electronic or telegraphic
transmission or other written demand drawn or made, or purported to be drawn or
made, under or in connection with any Credit. "Document" shall mean any
instrument, statement, certificate or other document, including, but not limited
to, shipping documents, warehouse receipts and policies or certificates of
insurance, referred to in or related to any Credit or required by any Credit to
be presented with any Demand. "Dollars" shall mean the lawful currency at any
time for the payment of public or private debts in the United States of America.
"Event of Default" shall mean any of the events set forth in Section 14 of this
Agreement. "Expiration Date" shall mean the date any Credit expires. "Guarantor"
shall mean any person or entity guaranteeing the payment and/or performance of
any or all the obligations of Applicant to Trade Bank under or in connection
with any Letter of Credit Document and/or any Loan Document. "Holding Company"
shall mean any company or other entity directly or indirectly controlling Trade
Bank. "Issuance Fee" shall mean the fee, computed at the issuance fee rate
specified by Trade Bank or specified in any Loan Document, charged by Trade Bank
on the amount of each Credit and on the amount of each increase in a Credit at
the time each Credit is issued and the time the amount of each Credit is
increased. "Letter of Credit Document" shall mean this Agreement, each
Application, each Credit, each Demand and each Acceptance. "Loan Document" shall
mean each and any promissory note, loan agreement, security agreement, pledge
agreement, guarantee or other agreement or document executed in connection with,
or relating to, any extension of credit under which any Credit is issued.
"Negotiation Fee" shall mean the fee, computed at the negotiation fee rate
specified by Trade Bank or specified in any Loan Document, charged by Trade Bank
on the amount of each Demand paid or accepted by Trade Bank or any other bank
specified by Trade Bank when each Demand is paid or accepted. "Payment Office"
shall mean the office specified by Trade Bank or specified in any Loan Document,
as the office where reimbursements and other payments under or in connection
with any Letter of Credit Document are to be made by Applicant. "Prime Rate"
shall mean the rate of interest most recently announced by Wells Fargo as its
Prime Rate, with the understanding that the Prime Rate is a base rate and serves
as the basis upon which effective rates of interest are calculated for those
loans making reference thereto and is evidenced by the recording thereof after
its announcement in such Wells Fargo publication or publications as Wells Fargo
may designate. "Property" shall mean all forms of property, whether tangible or
intangible, real, personal or mixed. "Rate of Exchange" shall mean Wells Fargo's
then current selling rate of exchange in San Francisco, California for sales of
the currency of payment of any Demand or Acceptance, or of any fees or expenses
or other amounts payable under this Agreement, for cable transfer to the country
of which such currency is the legal tender. "Trade Bank" shall mean Wells Fargo
HSBC Trade Bank, N.A., a national banking association. "UCP" shall mean the
Uniform Customs and Practice for Documentary Credits, an International Chamber
of Commerce publication, or any substitution therefor or replacement thereof.
"Unpaid and Undrawn Balance" shall mean at any time and from time to time the
entire amount which has not been paid by Trade Bank under all the Credits issued
for the account of Applicant, including, but not limited to, the amount of each
Demand and Acceptance on which Trade Bank has not yet effected payment as well
as the amount undrawn under all such Credits. "Wells Fargo" shall mean Wells
Fargo Bank, N.A., a national banking association.
SECTION 2. HONORING DEMANDS AND DOCUMENTS. Applicant agrees that Trade
Bank may receive, accept and honor, as complying with the terms of any Credit,
any Demand and any Documents accompanying such Demand; provided, however, that
(a) such Demand and accompanying Documents appear on their face to comply
substantially with the provisions of such Credit, and (b) such Demand and
accompanying Documents are, or appear on their face to be, signed or issued by
(i) a person or entity authorized under such Credit to draw, sign or issue such
Demand and such accompanying Documents, or (ii) an administrator, executor,
trustee in bankruptcy, debtor in possession, assignee for the benefit of
creditors, liquidator, receiver or other legal representative or successor in
interest by operation of law of any such person or entity. Notwithstanding the
preceding sentence,
Page 1 of 7
<PAGE>
Applicant agrees that (x) in consideration for Trade Bank giving or executing a
Delivery Authorization at its option at any time, Trade Bank may, in its sole
discretion, receive, accept and honor, as complying with the terms of the Credit
related to the Delivery Authorization, any Demand and any Documents accompanying
such Demand which are presented under such Credit and relate to any Property
covered by such Delivery Authorization even if such Demand or any such Document
does not conform to the requirements of such Credit or is not otherwise in order
or any other term or condition of such Credit has not been complied with; and
(y) in consideration for Trade Bank issuing a Credit, which, at the request of
Applicant and at the option of Trade Bank, contains provisions that (i) any
Demand made under such Credit will be honored only if and when Trade Bank
receives written notice that the Property referred to in the Documents
accompanying such Demand has been inspected and passed and/or released and/or
approved by the United States Food and Drug Administration or by any other state
or federal government agency or regulatory authority or by any other party or
entity, and (ii) the Documents accompanying such Demand are to be released by
Trade Bank to Applicant or Applicant's agent for the purpose of arranging such
inspection against Applicant or Applicant's agent signing a receipt for such
Documents, Trade Bank may in its sole discretion honor and accept such Demand
and such Documents as complying with the terms of such Credit without having
received written notice that such Property has been inspected and passed and/or
released and/or approved as aforesaid (I) if such Demand and accompanying
Documents appear on their face to comply substantially with all other terms of
such Credit, or Applicant has waived any failure of such Demand or Documents to
comply with the terms of such Credit, and (II) if Applicant or Applicant's agent
does not promptly (A) sign such a receipt which is in form and substance
acceptable to Trade Bank and (B) comply with all the terms of such receipt and
(C) arrange such inspection of such Property.
SECTION 3. REIMBURSEMENT FOR PAYMENT OF DEMANDS AND ACCEPTANCES.
Applicant agrees to reimburse Trade Bank for all amounts paid by Trade Bank on
each Demand and on each Acceptance, including, but not limited to, all amounts
paid by Trade Bank on each Demand and on each Acceptance to any paying,
accepting, negotiating or other bank. If in connection with the issuance of any
Credit Trade Bank agrees to pay any other bank the amount of any payment or
negotiation made by such other bank under such Credit upon receipt by Trade Bank
of a cable, telex or other written telecommunication advising Trade Bank of such
payment or negotiation, or authorizes any other bank to debit Wells Fargo's
account for the amount of such payment or negotiation, Applicant agrees to
reimburse Trade Bank for all such amounts paid by Trade Bank, or debited to
Wells Fargo's account with such other bank, even if any Demand or Document
specified in such Credit fails to arrive in whole or in part or if, upon the
arrival of any such Demand or Document, the terms of such Credit have not been
complied with or such Demand or Document does not conform to the requirements of
such Credit or is not otherwise in order.
SECTION 4. FEES AND EXPENSES. Applicant agrees to pay to Trade Bank (a)
all Issuance Fees, Negotiation Fees, Acceptance Fees, Deferred Payment Fees,
cable fees, amendment fees, non-usance fees, cancellation fees and Delivery
Authorization charges of, and all out-of-pocket expenses incurred by, Trade Bank
under or in connection with any Letter of Credit Document, and (b) all fees and
charges of banks other than Trade Bank under or in connection with any Letter of
Credit Document if any Application (i) does not indicate who will pay such fees
and charges, (ii) indicates that such fees and charges are to be paid by
Applicant, or (iii) indicates that such fees and charges are to be paid by the
Beneficiary and the Beneficiary does not, for any reason whatsoever, pay such
fees or charges. There shall be no refund of any portion of any Issuance Fee in
the event any Credit is used, reduced, amended, modified or terminated before
its Expiration Date; and there shall be no refund of any portion of any
Acceptance Fee or Deferred Payment Fee if any Acceptance or deferred payment
Demand is reimbursed by Applicant before it matures.
SECTION 5. DEFAULT INTEREST. Unless otherwise specified in any Loan
Document or on an Application and agreed to by Trade Bank, all amounts to be
reimbursed by Applicant to Trade Bank pursuant to Section 3 of this Agreement
and all fees and expenses to be paid by Applicant to Trade Bank pursuant to
Section 4 of this Agreement, and all other amounts due from Applicant to Trade
Bank under or in connection with the Letter of Credit Documents, will bear
interest (to the extent permitted by law), payable on demand, from the date
Trade Bank paid the amounts to be reimbursed or the date such fees, expenses and
other amounts were due until such amounts are reimbursed in full or such fees,
expenses and other amounts are paid in full, at that interest rate per annum,
calculated for the actual days elapsed in a year of 360 days, which is six
percent (6.0%) above the Prime Rate in effect from time to time.
SECTION 6. TIME AND METHOD OF REIMBURSEMENT AND PAYMENT. Unless
otherwise specified in this Section 6, in any Loan Document or on an Application
and agreed to by Trade Bank, all amounts to be reimbursed by Applicant to Trade
Bank pursuant to Section 3 of this Agreement, all fees and expenses to be paid
by Applicant to Trade Bank pursuant to Section 4 of this Agreement, all interest
due to Trade Bank pursuant to Section 5 of this Agreement, and all other amounts
due to Trade Bank from Applicant under or in connection with the Letter of
Credit Documents will be reimbursed or paid at the Payment Office in Dollars in
immediately available funds without setoff or counterclaim on demand or, at
Trade Bank's option, by Trade Bank having Wells Fargo debit any of Applicant's
accounts with Wells Fargo and forwarding such amount debited to Trade Bank,
without presentment, protest, demand for reimbursement or payment, notice of
dishonor or any other notice whatsoever, all of which are hereby expressly
waived by Applicant. Such debit will be made (a) at the time each Demand is paid
by Trade Bank or on the maturity of each Acceptance or, if earlier, at the time
each amount is paid by Trade Bank to any paying, accepting, negotiating or other
bank, (b) at the time each fee and expense referenced in Section 4 of this
Agreement is to be paid, (c) at the time interest is due to Trade Bank pursuant
to Section 5 of this Agreement, and (d) at the time each other amount is due
under or in connection with the Letter of Credit Documents. If any Demand or
Acceptance or any fee, expense, interest or other amount payable under or in
connection with the Letter of Credit Documents is payable in a currency other
than Dollars, Applicant agrees to reimburse Trade Bank for all amounts paid by
Trade Bank on such Demand and on such Acceptance, and/or to pay Trade Bank all
such fees, expenses, interest and other amounts, in one of the three following
ways, as determined by Trade Bank in its sole discretion in each case, (i) at
such place as Trade Bank shall direct, in such other currency, or (ii) at the
Payment Office in the Dollar equivalent of the amount of such other currency
calculated at the Rate of Exchange on the date determined by Trade Bank in its
sole discretion, or (iii) at the Payment Office in the Dollar equivalent, as
determined by Trade Bank (which determination shall be deemed correct absent
manifest error), of such fees, expenses, interest or other amounts or of the
actual cost to Trade Bank of paying such Demand or Acceptance, and Applicant
assumes all political, economic and other risks of disruptions or interruptions
in any currency exchange.
SECTION 7. AGREEMENTS OF APPLICANT. Applicant agrees that (a) unless
otherwise specifically provided in any Loan Document, Trade Bank shall not be
obligated at any time to issue any Credit for the account of Applicant; (b)
unless otherwise specifically provided in any Loan Document, if any Credit is
issued by Trade Bank for the account of Applicant, Trade Bank shall not be
obligated to issue any further Credit for the account of Applicant or to make
other extensions of credit to Applicant or in any other manner to extend any
financial consideration to Applicant; (c) Trade Bank has not given Applicant any
legal or other
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advice with regard to any Letter of Credit Document or Loan Document; (d) if
Trade Bank at any time discusses with Applicant the wording for any Credit, any
such discussion will not constitute legal or other advice by Trade Bank or any
representation or warranty of Trade Bank that any wording or Credit will satisfy
Applicant's needs; (e) Applicant is responsible for the wording of each Credit,
including, but not limited to, any drawing conditions, and will not rely on
Trade Bank in any way in connection with the wording of any Credit or the
structuring of any transaction related to any Credit; (f) Applicant and not
Trade Bank is responsible for entering into the contracts relating to the
Credits between Applicant and the Beneficiaries and for causing Credits to be
issued; (g) Trade Bank may, as Trade Bank deems appropriate, modify or alter and
use in any Credit the terminology contained on the Application for such Credit;
(h) unless the Application for a Credit specifies whether the Documents to be
presented with a Demand under such Credit must be sent to Trade Bank in one
parcel or in two parcels or may be sent to Trade Bank in any number of parcels,
Trade Bank may, if it so desires, make such determination and specify in the
Credit whether such Documents must be sent in one parcel or two parcels or may
be sent in any number of parcels; (i) Trade Bank shall not be deemed the agent
of Applicant, any Beneficiary or any other user of any Credit, and neither
Applicant, nor any Beneficiary nor any other user of any Credit shall be deemed
an agent of Trade Bank; (j) Applicant will promptly examine all Documents and
each Credit if and when they are delivered to Applicant and, in the event of any
claim of noncompliance of any Documents or any Credit with Applicant's
instructions or any Application, or in the event of any other irregularity, will
promptly notify Trade Bank in writing of such noncompliance or irregularity,
Applicant being conclusively deemed to have waived any such claim of
noncompliance or irregularity unless such notice is promptly given; (k) all
directions and correspondence relating to any Letter of Credit Document are to
be sent at the risk of Applicant; (l) if any Credit has a provision concerning
the automatic extension of the Expiration Date of such Credit, Trade Bank may,
at its sole option, give notice of nonrenewal of such Credit and if Applicant
does not at any time want such Credit to be renewed Applicant will so notify
Trade Bank at least fifteen (15) calendar days before Trade Bank is to notify
the Beneficiary of such Credit or any advising bank of such nonrenewal pursuant
to the terms of such Credit; (m) Applicant will not seek to obtain, apply for,
or acquiesce in any temporary restraining order, restraining order, preliminary
injunction, permanent injunction or any type of pretrial or permanent injunctive
relief or any similar relief, however named, restraining, prohibiting or
enjoining Trade Bank, any of Trade Bank's correspondents or any advising,
confirming, negotiating, paying, accepting or other bank from paying or
negotiating any Demand or creating or paying any Acceptance or honoring any
other obligation under or in connection with any Credit; and (n) except for any
of Applicant's obligations which are specifically affected by the actions
referred to in subsection (vi) of this Section 7(n), Applicant's obligations
under or in connection with each Letter of Credit Document and each Loan
Document shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of each such Letter of Credit
Document and each such Loan Document under all circumstances whatsoever,
including, but not limited to, the following circumstances, the circumstances
listed in Section 13(b) through (dd) of this Agreement, and any other event or
circumstance similar to such circumstances: (i) any lack of validity or
enforceability of any Letter of Credit Document, any Loan Document, any Document
or any agreement relating to any Letter of Credit Document, any Loan Document or
any Document; (ii) any amendment of or waiver relating to, or any consent to or
departure from, any Letter of Credit Document, any Loan Document or any
Document; (iii) any release or substitution at any time of any Property which
may be held as Collateral; (iv) the existence of any claim, set-off, defense or
other right which Applicant may have at any time against Trade Bank or any
Beneficiary (or any person or entity for whom any Beneficiary may be acting) or
any other person or entity, whether under or in connection with any Letter of
Credit Document, any Loan Document, any Document or any Property referred to in
or related to any Letter of Credit Document, any Loan Document or any Document
or under or in connection with any unrelated transaction; (v) any breach of
contract or other dispute between or among any two or more of Applicant, Trade
Bank, any Beneficiary, any transferee of any Beneficiary, any person or entity
for whom any Beneficiary or any transferee of any Beneficiary may be acting, or
any other person or entity; or (vi) any delay, extension of time, renewal,
compromise or other indulgence granted or agreed to by Trade Bank with or
without notice to, or approval by, Applicant in respect of any of Applicant's
indebtedness or other obligations to Trade Bank under or in connection with any
Letter of Credit Document or any Loan Document.
SECTION 8. COMPLIANCE WITH LAWS AND REGULATIONS. Applicant represents
and warrants to Trade Bank that no Application, Credit or transaction under any
Application and/or any Credit will contravene any law or regulation of the
government of the United States or any state thereof. Applicant agrees (a) to
comply with all federal, state and foreign exchange regulations and other
government laws and regulations now or hereafter applicable to any Letter of
Credit Document, to any payments under or in connection with any Letter of
Credit Document, to each transaction under or in connection with any Letter of
Credit Document, or to the import, export, shipping or financing of the Property
referred to in or shipped under or in connection with any Credit, and (b) to
reimburse Trade Bank for such amounts as Trade Bank may be required to expend as
a result of such laws or regulations, any change in such laws or regulations or
any change in the interpretation of such laws or regulations by any court or
administrative or government authority charged with the administration of such
laws or regulations.
SECTION 9. TAXES, RESERVES AND CAPITAL ADEQUACY REQUIREMENTS. In
addition to, and notwithstanding, any other provision of any Letter of Credit
Document or any Loan Document, in the event that any law, treaty, rule,
regulation, guideline, request, order, directive or determination (whether or
not having the force of law) of or from any government authority, including, but
not limited to, any court, central bank or government regulatory authority, or
any change therein or in the interpretation or application thereof, (a) does or
shall subject Trade Bank to any tax of any kind whatsoever with respect to the
Letter of Credit Documents or the Loan Documents, or change the basis of
taxation of payments to Trade Bank of any amount payable thereunder (except for
changes in the rate of tax on the net income of Trade Bank); or (b) does or
shall impose, modify or hold applicable any reserve, special deposit,
assessment, compulsory loan, Federal Deposit Insurance Corporation insurance or
similar requirement against assets held by, deposits or other liabilities in or
for the account of, advances or loans by, other credit extended by or any other
acquisition of funds by, any office of Trade Bank; or (c) does or shall impose,
modify or hold applicable any capital adequacy requirements (whether or not
having the force of law); or (d) does or shall impose on Trade Bank any other
condition; and the result of any of the foregoing is (i) to increase the cost to
Trade Bank of issuing or maintaining any Credit or of performing any transaction
under any Letter of Credit Document or any Loan Document, or (ii) to reduce any
amount receivable by Trade Bank under any Letter of Credit Document or any Loan
Document, or (iii) to reduce the rate of return on the capital of Trade Bank or
the Holding Company to a level below that which Trade Bank or the Holding
Company could have achieved but for any imposition, modification or application
of any capital adequacy requirement (taking into consideration the policy of
Trade Bank or the Holding Company, as the case may be, with respect to capital
adequacy), and any such increase or reduction is material (as determined by
Trade Bank or the Holding Company, as the case may be, in its sole discretion);
then, in any such case, Applicant agrees to pay to Trade Bank or the Holding
Company, as the case may be, such amount or amounts as may be necessary to
compensate Trade Bank or the Holding Company for (1) any such additional cost,
(2) any reduction in the amount received by Trade Bank under any Letter of
Credit Document or any Loan Document, or (3) to the extent allocable (as
determined by Trade Bank or the Holding Company, as the case
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may be, in its sole discretion) to any Letter of Credit Document or any Loan
Document, any reduction in the rate of return on the capital of Trade Bank or
the Holding Company.
SECTION 10. COLLATERAL. In addition to, and not in substitution for,
any Property delivered, conveyed, transferred or assigned to Trade Bank under
any Loan Document as security for any or all of the obligations and liabilities
of Applicant to Trade Bank at any time existing under or in connection with any
Letter of Credit Document or any Loan Document, Applicant grants to Trade Bank a
security interest in and to the following Collateral, whether or not any such
Collateral is in Trade Bank's possession or control or in the possession or
control of Trade Bank's agents or correspondents or in transit to, or set apart
for, Trade Bank or any of Trade Bank's agents or correspondents (a) with respect
to each Credit and until such time as all the obligations and liabilities of
Applicant to Trade Bank at any time existing under or in connection with each
Letter of Credit Document and each Loan Document have been fully paid and
discharged, all as security for such obligations and liabilities (i) all
Property referred to in each Credit or at any time shipped under or pursuant to
each Credit or in any way related to each Credit or to any Demand made or
Acceptance created under each Credit, whether or not Trade Bank receives the
Documents covering such Property or releases such Documents to Applicant on
trust or bailee receipt or otherwise, (ii) all Documents accompanying any Demand
made under each Credit, and (iii) all the proceeds of the Property and the
Documents referred to in subsections (i) and (ii) of this Section 10 (a), and
(b) with respect to all the Credits and until such time as all the obligations
and liabilities of Applicant to Trade Bank at any time existing under or in
connection with each Letter of Credit Document and each Loan Document have been
fully paid and discharged, all as security for such obligations and liabilities,
(i) all the property, claims, demands, right, title and interest of Applicant in
and to the balance of every deposit account of Applicant with Wells Fargo now or
at any time hereafter existing, and all evidences of such deposit accounts, (ii)
all Property belonging to Applicant or in which Applicant may have an interest,
now or at any time hereafter delivered, conveyed, assigned, pledged or paid to
Trade Bank or its agents or correspondents in any manner whatsoever, whether as
security or for safekeeping or otherwise, including, but not limited to, any
items received for collection or transmission, and the proceeds of such items,
whether or not such Property is in whole or in part released to Applicant on
trust or bailee receipt or otherwise, and (iii) where more than one person or
entity is an Applicant, all right, title and interest of each Applicant in and
to all the Property which any Applicant may now or hereafter obtain as security
for the obligations of the other Applicants or Applicant to such Applicant
arising under or in connection with the transaction to which any Credit relates.
Further, in addition to, and not in substitution for, any Property delivered,
conveyed, transferred or assigned to Trade Bank under any Loan Document as
security for any or all of the obligations and liabilities of Applicant to Trade
Bank at any time existing under or in connection with any Letter of Credit
Document or any Loan Document, Applicant agrees to deliver, convey, transfer and
assign to Trade Bank, on demand, as security, Property of a value and character
satisfactory to Trade Bank (x) if Trade Bank at any time feels insecure about
Applicant's ability or willingness to repay any amounts which Trade Bank has
paid or may pay in the future on any Demand or Acceptance or in honoring any
other obligation of Trade Bank under or in connection with any Credit, or (y)
without limiting the generality of the foregoing subsection (x), if any
temporary restraining order, restraining order, preliminary injunction,
permanent injunction or any type of pretrial or permanent injunctive relief or
any similar relief, however named, is obtained restraining, prohibiting or
enjoining Trade Bank, any of Trade Bank's correspondents or any advising,
confirming, negotiating, paying or other bank from paying or negotiating any
Demand or creating or paying any Acceptance or honoring any other obligation
under or in connection with any Credit. Applicant agrees that the receipt by
Trade Bank or any of Trade Bank's agents or correspondents at any time of any
kind of security, including, but not limited to, cash, shall not be deemed a
waiver of any of Trade Bank's rights or powers under this Agreement. Applicant
agrees to sign and deliver to Trade Bank, on demand, all such deeds of trust,
security agreements, financing statements and other documents as Trade Bank
shall at any time request which are necessary or desirable (in the sole opinion
of Trade Bank) to grant to Trade Bank an effective and perfected security
interest in and to any or all of the Collateral. Applicant agrees to pay all
filing and recording fees related to the perfection of any security interest
granted to Trade Bank in accordance with this Section 10. Applicant hereby
agrees that any or all of the Collateral may be held and disposed of by Trade
Bank as provided in this Agreement. Upon any transfer, sale, delivery, surrender
or endorsement of any Document or Property which is or was part of the
Collateral, Applicant will indemnify and hold Trade Bank and Trade Bank's agents
and correspondents harmless from and against each and every claim, demand,
action or suit which may arise against Trade Bank or any such agent or
correspondent by reason of such transfer, sale, delivery, surrender or
endorsement.
SECTION 11. LICENSES AND INSURANCE FOR PROPERTY. Applicant agrees (a)
to procure promptly any necessary import, export or other licenses for the
import, export or shipping of the Property referred to in or shipped under,
pursuant to or in connection with any Credit; (b) to furnish such instruments,
certificates and other documents as Trade Bank may at any time require with
respect to such import, export or other licenses and with respect to the
compliance by Applicant with all federal, state and foreign government laws,
regulations, guidelines, requests, directives and/or determinations with regard
to the import, export, shipping and financing of the Property referred to in or
shipped under, pursuant to or in connection with any Credit; (c) to keep such
Property adequately covered by insurance in amounts, against risks and with
companies satisfactory to Trade Bank; (d) to make the loss or adjustment, if
any, under these policies or certificates of insurance payable to Trade Bank;
(e) to require the insurers under these policies or certificates of insurance to
give Trade Bank 30 days written notice of any change in, or termination of, the
insurance; (g) to assign the policies or certificates of insurance to Trade Bank
at its option; and (h) to furnish to Trade Bank, upon demand of Trade Bank,
evidence of such insurance and/or evidence of acceptance by the insurers of the
assignment of such policies or certificates of insurance. Should the insurance
on any Property referred to in or shipped under, pursuant to or in connection
with any Credit for any reason be unsatisfactory to Trade Bank, Trade Bank may,
at Applicant's expense, obtain insurance satisfactory to Trade Bank.
SECTION 12. INDEMNIFICATION. Except to the extent caused by Trade
Bank's lack of good faith, and notwithstanding any other provision of this
Agreement, Applicant agrees to reimburse and indemnify Trade Bank for (a) all
amounts paid by Trade Bank to any person or entity under or in connection with
any Delivery Authorization, and (b) all damages, losses, liabilities, actions,
claims, suits, penalties, judgments, obligations, costs or expenses, of any kind
whatsoever and howsoever caused, including, but not limited to, attorneys' fees
and interest, paid, suffered or incurred by, or imposed upon, Trade Bank
directly or indirectly arising out of or in connection with (i) any Letter of
Credit Document, any Loan Document, any Document or any Property referred to in
or related to any Credit; (ii) the failure of Applicant to comply with any of
its obligations under this Agreement; (iii) the issuance of any Credit; (iv) the
transfer of any Credit; (v) any Delivery Authorization; (vi) the collection of
any amounts owed to Trade Bank by Applicant under or in connection with any
Letter of Credit Document or any Loan Document; (vii) the foreclosure against,
or other enforcement of, any Collateral; (viii) the protection, exercise or
enforcement of Trade Bank's rights and remedies under or in connection with any
Letter of Credit Document or any Loan Document; (ix) any court decrees or
orders, including, but not limited to, temporary restraining orders, restraining
orders, preliminary injunctions, permanent injunctions or any type of pretrial
or
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<PAGE>
permanent injunctive relief or any similar relief, however named, restraining,
prohibiting or enjoining or seeking to restrain, prohibit or enjoin Trade Bank,
any of Trade Bank's correspondents or any advising, confirming, negotiating,
paying, accepting or other bank from paying or negotiating any Demand or
creating or paying any Acceptance or honoring any other obligation under or in
connection with any Credit; or (x) any Credit being governed by laws or rules
other than the UCP in effect on the date such Credit is issued. The indemnity
provided in this Section 12 will survive the termination of this Agreement and
the expiration or cancellation of any or all the Credits.
SECTION 13. LIMITATION OF LIABILITY. Notwithstanding any other
provision of this Agreement, neither Trade Bank nor any of its agents or
correspondents will have any liability to Applicant for any action, neglect or
omission, if done in good faith, under or in connection with any Letter of
Credit Document, Loan Document or Credit, including, but not limited to, the
issuance or any amendment of any Credit, the failure to issue or amend any
Credit, or the honoring or dishonoring of any Demand under any Credit, and such
good faith action, neglect or omission will bind the Applicant. Notwithstanding
any other provision of any Letter of Credit Document, in no event shall Trade
Bank or its officers or directors be liable or responsible, regardless of
whether any claim is based on contract or tort, for (a) any special,
consequential, indirect or incidental damages, including, but not limited to,
lost profits, arising out of or in connection with the issuance of any Credit or
any action taken or not taken by Trade Bank in connection with any Letter of
Credit Document, any Loan Document or any Document or Property referred to in or
related to any Credit; (b) the honoring of any Demand or Acceptance in
accordance with any order or directive of any court or government or regulatory
body or entity requiring such honor despite any temporary restraining order,
restraining order, preliminary injunction, permanent injunction or any type of
pretrial or permanent injunctive relief or any similar relief, however named,
restraining, prohibiting or enjoining such honor; (c) the dishonoring of any
Demand or Acceptance in accordance with any legal or other restriction in force
at the time and in the place of presentment, payment or acceptance; (d)
verifying the existence or reasonableness of any act or condition referenced, or
any statement made, in connection with any drawing or presentment under any
Credit; (e) the use which may be made of any Credit; (f) the validity of any
purported transfer of any Credit or the identity of any purported transferee of
any Beneficiary; (g) any acts or omissions of any Beneficiary or any other user
of any Credit; (h) the existence, character, quality, quantity, condition,
packing, value or delivery of the Property referred to in or related to any
Credit or purporting to be represented by any Document; (i) any difference in
the character, quality, quantity, condition or value of the Property referred to
in or related to any Credit or purporting to be represented by any Document from
that expressed in any Credit or any Document; (j) the time, place, manner or
order in which shipment is made of, or the failure or omission to ship, or the
partial or incomplete shipment of, any or all of the Property referred to in or
related to any Credit or any Document; (k) the form, validity, sufficiency,
correctness, genuineness or legal effect of any Demand or any Document, or of
any signatures or endorsements on any Demand or Document, even if any Demand or
any Document should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; (l) any deviation from instructions, delay,
default or fraud by the shipper or anyone else in connection with any Document
or any Property referred to in or related to any Credit or the shipping of any
such Property; (m) any delay in giving or failure to give any notice, including,
but not limited to, notice of arrival of any Property referred to in or related
to any Credit or any Document; (n) any delay in arrival or failure to arrive of
any Property referred to in or related to any Credit or any Document; (o) any
breach of contract between the shippers or vendors and the consignees or buyers;
(p) the character, adequacy, validity or genuineness of any insurance or the
solvency or responsibility of any insurer of any risk; (q) the solvency of any
person or entity issuing any Document or the responsibility of any such person
or entity for, or the relationship of any such person or entity to, any Property
referred to in or related to any Document; (r) payment or acceptance by Trade
Bank of any Demand when the Demand and any Documents which accompany such Demand
appear on their face to comply substantially with the terms of the Credit to
which they relate or dishonor by Trade Bank of any Demand when the Demand and
any Documents which accompany such Demand do not strictly comply on their face
with the terms of the Credit to which they relate; (s) the failure of any Demand
or Document to bear any reference or adequate reference to the Credit to which
it relates; (t) the failure of any Document to accompany any Demand; (u) the
failure of any person or entity to note the amount of any Demand on the Credit
to which it relates or on any Document; (v) the failure of any person or entity
to surrender or take up any Credit; (w) the failure of any Beneficiary to comply
with the terms of any Credit or to meet the obligations of such Beneficiary to
Applicant; (x) the failure of any person or entity to send or forward Documents
if and as required by the terms of any Credit; (y) any errors, inaccuracies,
omissions, interruptions or delays in transmission or delivery of any messages,
directions or correspondence by mail, cable, telegraph, wireless or otherwise,
whether or not they are in cipher; (z) any notice of nonrenewal of a Credit sent
by Trade Bank not being received on time or at any time by the Beneficiary of
such Credit; (aa) any inaccuracies in the translation of any messages,
directions or correspondence; (bb) any Beneficiary's use of the proceeds of any
Demand or Acceptance; (cc) any Beneficiary's failure to repay to Trade Bank or
Applicant the proceeds of any Demand or Acceptance if the terms of any Credit
require such repayment; or (dd) any act, error, neglect, default, negligence,
gross negligence, omission, willful misconduct, lack of good faith, insolvency
or failure in business of any of Trade Bank's agents or correspondents or of any
advising, confirming, negotiating, paying, accepting or other bank. The
occurrence of any one or more of the contingencies referred to in the preceding
sentence shall not affect, impair or prevent the vesting of any of Trade Bank's
rights or powers under this Agreement or any Loan Document or Applicant's
obligation to make reimbursement or payment to Trade Bank under this Agreement
or any Loan Document. The provisions of this Section 13 will survive the
termination of this Agreement and any Loan Documents and the expiration or
cancellation of any or all the Credits.
SECTION 14. EVENTS OF DEFAULT. Applicant agrees that each of the
following shall constitute an Event of Default under this Agreement: (a)
Applicant's or any Guarantor's failure to pay any principal, interest, fee or
other amount when due under or in connection with any Letter of Credit Document
or any Loan Document; (b) Applicant's failure to deliver to Trade Bank Property
of a value and character satisfactory to Trade Bank at any time Trade Bank has
demanded security from Applicant pursuant to Section 10 of this Agreement; (c)
the occurrence and continuance of any default or defined event of default under
any Loan Document or any other agreement, document or instrument signed or made
by Applicant or any Guarantor in favor of Trade Bank; (d) Applicant's or any
Guarantor's failure to perform or observe any term, covenant or agreement
contained in this Agreement or any Loan Document (other than those referred to
in subsections (a), (b) and (c) of this Section 14), or the breach of any other
obligation owed by Applicant or any Guarantor to Trade Bank, and any such
failure or breach shall be impossible to remedy or shall remain unremedied for
thirty (30) calendar days after such failure or breach occurs; (e) any
representation, warranty or certification made or furnished by Applicant or any
Guarantor under or in connection with any Letter of Credit Document, any Loan
Document or any Collateral, or as an inducement to Trade Bank to enter into any
Letter of Credit Document or any Loan Document or to accept any Collateral,
shall be materially false, incorrect or incomplete when made; (f) any material
provision of this Agreement or any Loan Document shall at any time for any
reason cease to be valid and binding on Applicant or any Guarantor, or shall be
declared to be null and void, or the validity or enforceability thereof shall be
contested by Applicant, any Guarantor or any government agency or authority, or
Applicant or any Guarantor shall deny that it has any or further liability or
obligation under this Agreement or any Loan
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<PAGE>
Document; (g) Applicant's or any Guarantor's failure to pay or perform when due
any indebtedness or other obligation of Applicant or such Guarantor to any
person or entity other than Trade Bank if such failure gives the payee of such
indebtedness or the beneficiary of the performance of such obligation the right
to accelerate the time of payment of such indebtedness or the performance of
such obligation; (h) any guarantee of, or any security covering, any
indebtedness of Applicant to Trade Bank arising under or in connection with any
Letter of Credit Document or any Loan Document fails to be in full force and
effect at any time; (i) any adverse change deemed material by Trade Bank occurs
in the financial condition of Applicant or any Guarantor; (j) Applicant or any
Guarantor suspends the transaction of its usual business or is expelled or
suspended from any exchange; (k) Applicant or any Guarantor dies or is
incapacitated; (l) Applicant or any Guarantor dissolves or liquidates; (m)
Applicant or any Guarantor is generally not paying its debts as they become due;
(n) Applicant or any Guarantor becomes insolvent, however such insolvency may be
evidenced, or makes any general assignment for the benefit of creditors; (o) a
petition is filed by or against Applicant or any Guarantor seeking the
liquidation or reorganization of Applicant or Guarantor under the Bankruptcy
Reform Act, Title 11 of the United States Code, as amended or recodified from
time to time, or a similar action is brought by or against Applicant or any
Guarantor under any federal, state or foreign law; (p) a proceeding is
instituted by or against Applicant or any Guarantor for any relief under any
bankruptcy, insolvency or other law relating to the relief of debtors,
reorganization, readjustment or extension of indebtedness or composition with
creditors; (q) a custodian or a receiver is appointed for, or a writ or order of
attachment, execution or garnishment is issued, levied or made against, any of
the Property or assets of Applicant or any Guarantor; (r) an application is made
by any judgment creditor of Applicant or any Guarantor for an order directing
Trade Bank or Wells Fargo to pay over money or to deliver other Property of
Applicant or such Guarantor; or (s) any government authority or any court takes
possession of any substantial part of the Property or assets of Applicant or any
Guarantor or assumes control over the affairs of Applicant or any Guarantor.
SECTION 15. REMEDIES. Upon the occurrence and continuance of any Event
of Default, Trade Bank may, as it may at any time during the term of this
Agreement, exercise its rights under Section 7 of this Agreement and refuse to
issue any Credit or Credits for the account of Applicant, and all amounts paid
by Trade Bank on any Demand or Acceptance which have not previously been repaid
to Trade Bank, together with all interest on such amounts, and the Unpaid and
Undrawn Balance, if any, shall automatically be owing by Applicant to Trade Bank
and shall be due and payable by Applicant on demand. Applicant agrees that upon
payment of the Unpaid and Undrawn Balance to Trade Bank Applicant shall have no
further legal or equitable interest therein, and that Trade Bank will not be
required to segregate on its books or records the Unpaid and Undrawn Balance
paid by Applicant. After Trade Bank receives the Unpaid and Undrawn Balance,
Trade Bank agrees to pay to Applicant, upon termination of all of Trade Bank's
liability under all the Credits, Demands and Acceptances, a sum equal to the
amount which has not been drawn under all the Credits less all amounts due and
owing to Trade Bank from Applicant under or in connection with the Letter of
Credit Documents and the Loan Documents. Further, upon the occurrence and
continuance of any Event of Default, Trade Bank may sell immediately, without
demand for payment, advertisement or notice to Applicant, all of which are
hereby expressly waived, any and all Collateral, received or to be received, at
private sale or public auction or at brokers' board or upon any exchange or
otherwise, at Trade Bank's option, in such parcel or parcels, at such time or
times, at such place or places, for such price or prices and upon such terms and
conditions as Trade Bank may deem proper, and Trade Bank may apply the net
proceeds of such sale or sales, together with any sums due from Trade Bank to
Applicant, to the payment of any and all obligations and liabilities due to
Trade Bank by Applicant under or in connection with the Letter of Credit
Documents and the Loan Documents, all without prejudice to the rights of Trade
Bank against Applicant with respect to any and all such obligations and
liabilities which may be or remain unpaid. If any sale pursuant to the preceding
sentence be at brokers' board or at public auction or upon any exchange, Trade
Bank may itself be a purchaser at such sale free from any right of redemption,
which Applicant hereby expressly waives and releases. All rights and remedies of
Trade Bank existing under the Letter of Credit Documents and the Loan Documents
are in addition to, and not exclusive of, any rights or remedies otherwise
available to Trade Bank under applicable law. In addition to any rights now or
hereafter granted under applicable law, and not by way of limitation of any such
rights, upon the occurrence and continuance of any Event of Default, Trade Bank
is hereby authorized by Applicant at any time or from time to time, without
notice to Applicant or to any other person (any such notice being hereby
expressly waived by Applicant) and to the extent permitted by law, to
appropriate and to apply any and all deposits (general or special, including,
but not limited to, indebtedness evidenced by certificates of deposit) at Wells
Fargo or elsewhere, whether matured or unmatured, and any other indebtedness at
any time held or owing by Trade Bank to or for the credit or the account of
Applicant, against and on account of the obligations and liabilities of
Applicant to Trade Bank under or in connection with any of the Letter of Credit
Documents or the Loan Documents, irrespective of whether or not Trade Bank shall
have made any demand for payment of any or all such obligations and liabilities
or declared any or all such obligations and liabilities to be due and payable,
and although any or all such obligations and liabilities shall be contingent or
unmatured.
SECTION 16. WAIVERS. Applicant agrees that no delay, extension of time,
renewal, compromise or other indulgence which may occur or be granted by Trade
Bank under any Letter of Credit Document or any Loan Document from time to time
shall impair Trade Bank's rights or powers under this Agreement or any
Application. Trade Bank shall not be deemed to have waived any of its rights
under this Agreement or any Application unless such waiver is in writing signed
by an authorized representative of Trade Bank. No such waiver, unless expressly
provided in such waiver, shall be effective as to any transactions which occur
subsequent to the date of such waiver, or as to any continuance of any Event of
Default after such waiver. No amendment or modification of this Agreement shall
be effective unless such amendment or modification is in writing signed by
authorized representatives of Trade Bank and Applicant.
SECTION 17. AMENDMENTS AND MODIFICATIONS TO CREDITS. At the verbal or
written request or with the verbal or written consent of Applicant, and without
extinguishing or otherwise affecting the obligations of Applicant under this
Agreement or any Loan Document, Trade Bank may, in writing or by any other
action, but will not be obligated to, (a) increase the amount of any Credit, (b)
extend the time for, and amend or modify the terms and conditions governing, the
making and honoring of any Demand, Acceptance or Document or any other terms and
conditions of any Credit, or (c) waive the failure of any Demand or Document to
comply with the terms of the Credit to which it relates, and any Collateral
pledged or granted to Trade Bank in connection with such Credit will secure
Applicant's obligations to Trade Bank with respect to such Credit as amended,
modified or waived. No amendment to, or modification of, the terms of any Credit
will become effective if the Beneficiary of such Credit or any confirming bank
objects to such amendment or modification. If any Credit is amended or modified
in accordance with this Section 17, Applicant shall be bound by, and obligated
under, the provisions of this Agreement with respect to such Credit as so
amended or modified and any action taken by Trade Bank or any advising,
confirming, negotiating, paying, accepting or other bank in accordance with such
amendment or modification.
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SECTION 18. SUCCESSORS AND ASSIGNS. Applicant agrees that the terms and
conditions of this Agreement and each Application shall bind the heirs,
executors, administrators, successors and assigns of Applicant, and that all
rights, benefits and privileges conferred on Trade Bank under or in connection
with each Letter of Credit Document and each Loan Document shall be and hereby
are extended to, conferred upon and may be enforced by the successors and
assigns of Trade Bank. Applicant will not assign this Agreement or Applicant's
obligations or liabilities to Trade Bank under or in connection with any Letter
of Credit Document or any Loan Document to any person or entity without the
prior written approval of Trade Bank.
SECTION 19. GOVERNING LAW. This Agreement and each Application, and the
performance by Applicant and Trade Bank under this Agreement and each
Application, shall be governed by and be construed in accordance with the laws
of the State of California. Unless Trade Bank otherwise specifically agrees in
writing, each Credit, the opening of each Credit, the performance by Trade Bank
under each Credit, and the performance by the Beneficiary and any advising,
confirming, negotiating, paying, accepting or other bank under each Credit,
shall be governed by and be construed in accordance with the UCP in force on the
date of the issuance of each Credit.
SECTION 20. JURISDICTION AND SERVICE OF PROCESS. Any suit, action or
proceeding against Applicant under or with respect to any Letter of Credit
Document may, at Trade Bank's sole option, be brought in (a) the courts of the
State of California, (b) the United States District Courts in California, (c)
the courts of the jurisdiction of Applicant's incorporation or principal office,
or (d) the courts of the jurisdiction where any Beneficiary, any advising,
confirming, negotiating, paying, accepting or other bank, or any other person or
entity has brought any suit, action or proceeding against Trade Bank with
respect to any Credit, any Demand or any Acceptance, and Applicant hereby
submits to the nonexclusive jurisdiction of such courts for the purpose of any
such suit, action, proceeding or judgment and waives any other preferential
jurisdiction by reason of domicile. Applicant further agrees that it will accept
joinder in any suit, action or proceeding brought in any court or jurisdiction
against Trade Bank by any Beneficiary, any advising, confirming, negotiating,
paying, accepting or other bank or any other person or entity with respect to
any Credit, any Demand or any Acceptance. Applicant irrevocably waives trial by
jury and any objection, including, but not limited to, any objection of the
laying of venue or any objection based on the grounds of forum non conveniens,
which Applicant may now or hereafter have to the bringing of any such action or
proceeding. Applicant further waives any right to transfer or change the venue
of any suit, action or proceeding brought against Applicant by Trade Bank under
or in connection with any Letter of Credit Document. Applicant irrevocably
consents to the service of process in any action or proceeding in any court by
the mailing of copies thereof by registered or certified mail, postage prepaid,
to Applicant at its address specified next to its signature on this Agreement or
at such other address as Applicant shall have notified to Trade Bank in writing,
such service to be effective ten (10) days after such mailing.
SECTION 21. JOINT APPLICANTS. If this Agreement is signed by more than
one person or entity, each Applicant agrees that this Agreement and the
Applications shall be the joint and several agreement of all such Applicants and
that all references to Applicant in this Agreement and the Applications shall
refer to all such Applicants jointly and severally.
SECTION 22. SEVERABILITY. Any provision of any Letter of Credit
Document which is prohibited or unenforceable in any jurisdiction shall be, only
as to such jurisdiction, ineffective to the extent of such prohibition or
unenforceability, but all the remaining provisions of such Letter of Credit
Document and all the other Letter of Credit Documents shall remain valid.
SECTION 23. HEADINGS. The headings used in this Agreement are for
convenience of reference only and shall not define or limit the provisions of
this Agreement.
SECTION 24. COMPLETE AGREEMENT. This Agreement and the Application for
each Credit contain the entire agreement entered into by Trade Bank and
Applicant with respect to such Credit; provided, however, that such entire
agreement will also include any written document or instrument signed by Trade
Bank and/or Applicant, and approved by Trade Bank, which specifically references
this Agreement, any Application or any Credit. Except as specifically provided
in this Agreement, in any Application or in any written document or instrument
referred to in the preceding sentence, no statements or representations not
contained in this Agreement, such Application or such written document or
instrument shall have any force or effect on this Agreement, such Application or
such written document or instrument.
This Agreement is signed by Applicant's duly authorized representative or
representatives on the date specified below.
Dated: April __, 1996
"APPLICANT"
ACTION PERFORMANCE COMPANIES, INC.
By: /s/ Chris Besing
-------------------------------------------
Title: CFO
-------------------------------------------
Applicant's Address:
2401 W. First Street
Tempe, AZ. 85281
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SECURITY AGREEMENT
WELLS FARGO HSBC TRADE BANK EQUIPMENT AND FIXTURES
- -------------------------------------------------------------------------------
1. GRANT OF SECURITY INTEREST. For valuable consideration, the
undersigned ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation, or any
of them if more than one debtor ("Debtor"), hereby grants and transfers to WELLS
FARGO HSBC TRADE BANK, NATIONAL ASSOCIATION ("Trade Bank") a security interest
in all goods, tools, machinery, furnishings, furniture and other equipment and
fixtures, now or at any time hereafter, and prior to the termination hereof,
owned or acquired by Debtor, wherever located, whether in the possession of
Debtor or any other person and whether located on Debtor's property or
elsewhere, and all improvements, replacements, accessions and additions thereto
(collectively called "Collateral"), and including all of the foregoing which are
now or hereafter affixed or to be affixed to, and whether or not severed and
removed from, the real property described on Schedule 1 attached hereto and
incorporated herein by this reference, together with whatever is receivable or
received when any of the Collateral or proceeds thereof are sold, leased,
collected, exchanged or otherwise disposed of, whether such disposition is
voluntary or involuntary, including without limitation, (a) all accounts,
contract rights, chattel paper, instruments, general intangibles and rights to
payment of every kind now or at any time hereafter arising out of any such sale,
lease, collection, exchange or other disposition of any of the foregoing, (b)
all rights to payment, including returned premiums, with respect to any
insurance relating to any of the foregoing, and (c) all rights to payment with
respect to any cause of action affecting or relating to any of the foregoing
(hereinafter called "Proceeds").
2. OBLIGATIONS SECURED. The obligations secured hereby are the payment
and performance of: (a) all present and future Indebtedness of Debtor to Trade
Bank; (b) all obligations of Debtor and rights of Trade Bank under this
Agreement; and (c) all present and future obligations of Debtor to Trade Bank of
other kinds. The word "Indebtedness" is used herein in its most comprehensive
sense and includes any and all advances, debts, obligations and liabilities of
Debtor, or any of them, heretofore, now or hereafter made incurred or created,
whether voluntary or involuntary and however arising, whether due or not due,
absolute or contingent, liquidated or unliquidated, determined or undetermined,
and whether Debtor may be liable individually or jointly with others, or whether
recovery upon such Indebtedness may be or hereafter becomes unenforceable.
3. TERMINATION. This Agreement will terminate upon the performance of
all obligations of Debtor to Trade Bank, including without limitation, the
payment of all Indebtedness of Debtor to Trade Bank existing or committed by
Trade Bank at the time Trade Bank receives written notice from Debtor of the
termination of this Agreement.
4. OBLIGATIONS OF TRADE BANK. Trade Bank has no obligation to make any
loans hereunder. Any money received by Trade Bank in respect of the Collateral
may be deposited, at Trade Bank's option, into a non-interest bearing account
over which Debtor shall have no control, and the same shall, for all purposes,
be deemed Collateral hereunder.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Trade Bank that: (a) Debtor is the owner and has possession or control of the
Collateral and Proceeds; (b) Debtor has the right to grant a security interest
in the Collateral and Proceeds; (c) all Collateral and Proceeds are genuine,
free from liens, adverse claims, setoffs, default, prepayment, defenses and
conditions precedent of any kind or character, except as heretofore disclosed to
Trade Bank in writing; (d) all statements contained herein are true and
complete; (e) no financing statement covering any of the Collateral or Proceeds,
and naming any secured party other than Trade Bank, is on file in any public
office; and (f) Debtor is not in the business of selling goods of the kind
included within the Collateral subject to this Agreement, and Debtor
acknowledges that no sale of any Collateral, including without limitation, any
Collateral which Debtor may deem to be surplus, has been or shall be consented
to or acquiesced in by Trade Bank, except as specifically set forth in writing
by Trade Bank.
6. COVENANTS OF DEBTOR.
(a) Debtor agrees in general: (i) to pay Indebtedness secured hereby
when due; (ii) to indemnify Trade Bank against all losses, claims,
demands, liabilities and expenses of every kind caused by property
subject hereto; (iii) to pay all costs and expenses, including
reasonable attorneys' fees, incurred by Trade Bank in the perfection,
preservation, realization, enforcement and exercise of its rights,
powers and remedies hereunder; (iv) to permit Trade Bank to exercise
its powers; (v) to execute and deliver such documents as Trade Bank
deems necessary to create, perfect and continue the security interests
contemplated hereby; and (vi) not to change its chief place of business
or the places where Debtor keeps any of the Collateral or Debtor's
records concerning the Collateral and Proceeds without first giving
Trade Bank written notice of the address to which Debtor is moving
same.
(b) Debtor Agrees with Regard to the Collateral and Proceeds: (i) to
insure the Collateral with Trade Bank as loss payee, in form and
amounts, under agreements, against risks and liabilities, and with
insurance companies satisfactory to Trade Bank; (ii) to operate the
Collateral in accordance with all applicable statutes, rules and
regulations relating to the use and control thereof, and not to use the
Collateral for any unlawful purpose or in any way that would void any
insurance required to be carried in connection therewith; (iii) not to
permit any lien on the Collateral or Proceeds, including without
limitation, liens arising from repairs to or storage of the Collateral,
except in favor of Trade Bank; (iv) to pay when due all license fees,
registration fees and other charges in connection with any Collateral;
(v) not to remove the Collateral from Debtor's premises without Trade
Bank's prior written consent, unless the Collateral consists of mobile
goods as defined in the California Uniform Commercial Code, in which
case Debtor agrees not to remove or permit the removal of the
Collateral from its state of domicile for a period in excess of thirty
(30) calendar days; (vi) not to sell, hypothecate or otherwise dispose
of any of the Collateral or Proceeds, or any interest therein, without
Trade Bank's prior written consent; (vii) not to rent, lease or charter
the Collateral without Trade Bank's prior written consent; (viii) to
permit Trade Bank to inspect the Collateral at any time; (ix) to keep,
in accordance with generally accepted accounting principles, complete
and accurate records regarding all Collateral and Proceeds, and to
permit Trade Bank to inspect the same and make copies thereof at any
reasonable time; (x) if requested by Trade Bank, to receive and use
reasonable diligence to collect Proceeds, in trust and as the property
of Trade Bank, and to immediately endorse as appropriate and deliver
such Proceeds to Trade Bank daily in the exact form in which they are
received together with a collection report in form satisfactory to
Trade Bank; (xi) not to commingle Proceeds or collections thereunder
with other property; (xii) to give only normal allowances and credits
and to advise Trade Bank thereof immediately in writing if they effect
any Collateral or Proceeds; (xiii) in the event Trade Bank
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elects to receive payments of Proceeds hereunder, to pay all expenses
incurred by Trade Bank in connection therewith, including expenses of
accounting, correspondence, collection efforts, reporting to account or
contract debtors, filing, recording, record keeping and expenses
incidental thereto; and (xiv) to provide any service and do any other
acts which may be necessary to maintain, preserve and protect all
Collateral and, as appropriate and applicable, to keep the Collateral
in good and saleable condition and repair, to deal with the Collateral
in accordance with the standards and practices adhered to generally by
owners of like property, and to keep all Collateral and Proceeds free
and clear of all defenses, rights of offset and counterclaims.
7. POWERS OF TRADE BANK. Debtor appoints Trade Bank its true attorney
in fact to perform any of the following powers, which are coupled with an
interest, are irrevocable until termination of this Agreement and may be
exercised from time to time by Trade Bank's officers and employees, or any of
them, whether or not Debtor is in default: (a) to perform any obligation of
Debtor hereunder in Debtor's name or otherwise; (b) to give notice of Trade
Bank's rights in the Collateral and Proceeds, to enforce the same and make
extension agreements with respect thereto; (c) to release persons liable on
Proceeds and to give receipts and acquittances and compromise disputes in
connection therewith; (d) to release security; (e) to resort to security in any
order; (f) to prepare, execute, file, record or deliver notes, assignments,
schedules, designation statements, financing statements, continuation
statements, termination statements, statements of assignment, applications for
registration or like papers to perfect, preserve or release Trade Bank's
interest in the Collateral and Proceeds; (g) to receive, open and read mail
addressed to Debtor; (h) to take cash, instruments for the payment of money and
other property to which Trade Bank is entitled; (i) to verify facts concerning
the Collateral and Proceeds by inquiry of obligors thereon, or otherwise, in its
own name or a fictitious name; (j) to endorse, collect, deliver and receive
payment under instruments for the payment of money constituting or relating to
Proceeds; (k) to prepare, adjust, execute, deliver and receive payment under
insurance claims, and to collect and receive payment of and endorse any
instrument in payment of loss or returned premiums or any other insurance refund
or return, and to apply such amounts received by Trade Bank, at Trade Bank's
sole option, toward repayment of the Indebtedness or replacement of the
Collateral; (l) to exercise all rights, powers and remedies which Debtor would
have, but for this Agreement, with respect to all the Collateral and Proceeds
subject hereto; (m) to enter onto Debtor's premises in inspecting the
Collateral; and (n) to do all acts and things and execute all documents in the
name of Debtor or otherwise, deemed by Trade Bank as necessary, proper and
convenient in connection with the preservation, perfection or enforcement of its
rights hereunder.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor
agrees to pay, prior to delinquency, all insurance premiums, taxes, charges,
liens and assessments against the Collateral and Proceeds, and upon the failure
of Debtor to do so, Trade Bank at its option may pay any of them and shall be
the sole judge of the legality or validity thereof and the amount necessary to
discharge the same. Any such payments made by Trade Bank shall be obligations of
Debtor to Trade Bank, due and payable immediately upon demand, together with
interest at a rate determined in accordance with the provisions of Section 12
hereof, and shall be secured by the Collateral and Proceeds, subject to all
terms and conditions of this Agreement.
9. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement: (a) any default in the
payment or performance of any obligation, or any defined event of default, under
(i) any contract or instrument evidencing any Indebtedness, or (ii) any other
agreement between any Debtor and Trade Bank, including without limitation any
loan agreement, relating to or executed in connection with any Indebtedness; (b)
any representation or warranty made by any Debtor herein shall prove to be
incorrect, false or misleading in any material respect when made; (c) any Debtor
shall fail to observe or perform any obligation or agreement contained herein;
(d) any attachment or like levy on any property of any Debtor; and (e) Trade
Bank, in good faith, believes any or all of the Collateral and/or Proceeds to be
in danger of misuse, dissipation, commingling, loss, theft, damage or
destruction, or otherwise in jeopardy or unsatisfactory in character or value.
10. REMEDIES. Upon the occurrence of any Event of Default, Trade Bank
shall have the right to declare immediately due and payable all or any
Indebtedness secured hereby and to terminate any commitments to make loans or
otherwise extend credit to Debtor. Trade Bank shall have all other rights,
powers, privileges and remedies granted to a secured party upon default under
the California Uniform Commercial Code or otherwise provided by law, including
without limitation, the right to contact all persons obligated to Debtor on any
Collateral or Proceeds and to instruct such persons to deliver all Collateral
and/or Proceeds directly to Trade Bank. All rights, powers, privileges and
remedies of Trade Bank shall be cumulative. No delay, failure or discontinuance
of Trade Bank in exercising any right, power, privilege or remedy hereunder
shall affect or operate as a waiver of such right, power, privilege or remedy;
nor shall any single or partial exercise of any such right, power, privilege or
remedy preclude, waive or otherwise affect any other or further exercise thereof
or the exercise of any other right, power, privilege or remedy. Any waiver,
permit, consent or approval of any kind by Trade Bank of any default hereunder,
or any such waiver of any provisions or conditions hereof, must be in writing
and shall be effective only to the extent set forth in writing. It is agreed
that public or private sales, for cash or on credit, to a wholesaler or retailer
or investor, or user of property of the types subject to this Agreement, or
public auction, are all commercially reasonable since differences in the sales
prices generally realized in the different kinds of sales are ordinarily offset
by the differences in the costs and credit risks of such sales. While an Event
of Default exists: (a) Debtor will deliver to Trade Bank from time to time, as
requested by Trade Bank, current lists of all Collateral and Proceeds; (b)
Debtor will not dispose of any of the Collateral or Proceeds except on terms
approved by Trade Bank; (c) at Trade Bank's request, Debtor will assemble and
deliver all Collateral and Proceeds, and books and records pertaining thereto,
to Trade Bank at a reasonably convenient place designated by Trade Bank; and (d)
Trade Bank may, without notice to Debtor, enter onto Debtor's premises and take
possession of the Collateral.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or
any part of the Indebtedness, Trade Bank may transfer all or any part of the
Collateral or Proceeds and shall be fully discharged thereafter from all
liability and responsibility with respect to any of the foregoing so
transferred, and the transferee shall be vested with all rights and powers of
Trade Bank hereunder with respect to any of the foregoing so transferred; but
with respect to any Collateral or Proceeds not so transferred, Trade Bank shall
retain all rights, powers, privileges and remedies herein given. Any proceeds of
any disposition of any of the Collateral or Proceeds, or any part thereof, may
be applied by Trade Bank to the payment of expenses incurred by Trade Bank in
connection with the foregoing, including reasonable attorneys' fees, and the
balance of such proceeds may be applied by Trade Bank toward the payment of the
Indebtedness in such order of application as Trade Bank may from time to time
elect.
12. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Trade Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel
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<PAGE>
fees and all allocated costs of Trade Bank's in-house counsel), incurred by
Trade Bank in exercising any right, power, privilege or remedy conferred by this
Agreement or in the enforcement thereof, including any of the foregoing incurred
in connection with any Trade Bankruptcy proceeding relating to Debtor or the
valuation of the Collateral and/or Proceeds, including without limitation, the
seeking of relief from or modification of the automatic stay or the negotiation
and drafting of a cash collateral order. All of the foregoing shall be paid by
Debtor with interest at a rate per annum equal to the greater of ten percent
(10%) or the Prime Rate in effect from time to time. The "Prime Rate" is a base
rate that Wells Fargo Bank, N.A. from time to time establishes and which serves
as the basis upon which effective rates of interest are calculated for those
loans making reference thereto.
13. STATUTE OF LIMITATIONS. Until all Indebtedness shall have been paid
in full, the power of sale and all other rights, powers, privileges and remedies
granted to Trade Bank hereunder shall continue to exist and may be exercised by
Trade Bank at any time and from time to time irrespective of the fact that the
Indebtedness or any part thereof may have become barred by any statute of
limitations, or that the personal liability of Debtor may have ceased, unless
such liability shall have ceased due to the payment in full of all Indebtedness
secured hereunder.
14. MISCELLANEOUS. The obligations of Debtor are joint and several;
presentment, protest, notice of protest, notice of dishonor and notice of
nonpayment are waived with respect to any Proceeds to which Trade Bank is
entitled hereunder; any right to direct the application of payments or security
for any Indebtedness of Debtor, or indebtedness of customers of Debtor, and any
right to require proceedings against others or to require exhaustion of security
are waived; and consent to extensions, forbearances or alterations of the terms
of Indebtedness, the release or substitution of security, and the release of
guarantors is given with respect to Proceeds subject to this Agreement; provided
however, that in each instance, Trade Bank believes in good faith that the
action in question is commercially reasonable in that it does not unreasonably
increase the risk of nonpayment of the Indebtedness to which the action applies.
Until all indebtedness shall have been paid in full, no Debtor shall have any
right of subrogation or contribution, and each Debtor hereby waives any benefit
of or right to participate in any of the Collateral or Proceeds or any other
security now or hereafter held by Trade Bank.
15. OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this
Agreement as Debtor hereby expressly agrees that recourse may be had against his
or her separate property for all his or her Indebtedness to Trade Bank secured
by the Collateral and Proceeds under this Agreement.
16. NOTICES. All notices, requests and demands required under this
Agreement must be in writing, addressed to Trade Bank at the address specified
in any other loan documents entered into between Debtor and Trade Bank and to
Debtor at the address of its chief executive office (or personal residence, if
applicable) specified below or to such other address as any party may designate
by written notice to each other party, and shall be deemed to have been given or
made as follows: (a) if personally delivered, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
17. GOVERNING LAW; SUCCESSORS, ASSIGNS. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California, and shall be binding upon and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors and assigns of the
parties.
18. SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
Debtor warrants that its chief executive office (or personal residence,
if applicable) is located at the following address:
2401 W. First Street
Tempe, AZ. 85281
IN WITNESS WHEREOF, this Agreement has been duly executed as of
5/8/96.
- ------
"BORROWER"
ACTION PERFORMANCE COMPANIES, INC.
By: /s/ Chris Besing
----------------------------------------
Title: CFO
----------------------------------------
Page 3 of 4
<PAGE>
SCHEDULE 1 TO SECURITY AGREEMENT Please initial
/s/ CSB
-----------
This Schedule 1 is attached to and made a part of that certain Security
Agreement: Equipment and Fixtures dated as of April __, 1996, executed by ACTION
PERFORMANCE COMPANIES, INC., an Arizona corporation ("Debtor") for the benefit
of WELLS FARGO Trade Bank, NATIONAL ASSOCIATION ("Trade Bank").
DESCRIPTION OF REAL PROPERTY:
NONE
Page 4 of 4
<PAGE>
CONTINUING SECURITY AGREEMENT
WELLS FARGO HSBC TRADE BANK RIGHTS TO PAYMENT AND INVENTORY
- --------------------------------------------------------------------------------
1. GRANT OF SECURITY INTEREST. For valuable consideration, the
undersigned ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation, or any
of them if more than one debtor ("Debtor"), hereby grants and transfers to WELLS
FARGO HSBC TRADE BANK, NATIONAL ASSOCIATION ("Trade Bank") a security interest
in all accounts, deposit accounts, accounts receivable, chattel paper,
instruments, documents and general intangibles (collectively called "Rights to
Payment"), now existing or at any time hereafter, and prior to the termination
hereof, arising (whether they arise from the sale, lease or other disposition of
inventory or from performance of contracts for service, manufacture,
construction, repair or otherwise or from any other source whatsoever),
including all securities, guaranties, warranties, indemnity agreements,
insurance policies and other agreements pertaining to the same or the property
described therein, and in all goods returned by Debtor's customers, together
with a security interest in all inventory, goods held for sale or lease or to be
furnished under contracts for service, goods so leased or furnished, raw
materials, component parts, work in process or materials used or consumed in
Debtor's business and all warehouse receipts, bills of lading and other
documents evidencing goods owned or acquired by Debtor, and all goods covered
thereby, now or at any time hereafter, and prior to the termination hereof,
owned or acquired by Debtor, wherever located, and all products thereof
(collectively called "Inventory"), whether in the possession of Debtor,
warehousemen, bailees or any other person and whether located at Debtor's places
of business or elsewhere (with all Rights to Payment and Inventory referred to
herein collectively as the "Collateral"), together with whatever is receivable
or received when any of the Collateral or proceeds thereof are sold, leased,
collected, exchanged or otherwise disposed of, whether such disposition is
voluntary or involuntary, including without limitation, all Rights to Payment,
including returned premiums, with respect to any insurance relating to any of
the foregoing, and all Rights to Payment with respect to any cause of action
affecting or relating to any of the foregoing (hereinafter called "Proceeds").
2. OBLIGATIONS SECURED. The obligations secured hereby are the payment
and performance of: (a) all present and future Indebtedness of Debtor to Trade
Bank; (b) all obligations of Debtor and rights of Trade Bank under this
Agreement; and (c) all present and future obligations of Debtor to Trade Bank of
other kinds. The word "Indebtedness" is used herein in its most comprehensive
sense and includes any and all advances, debts, obligations and liabilities of
Debtor, or any of them, heretofore, now or hereafter made, incurred or created,
whether voluntary or involuntary and however arising, whether due or not due,
absolute or contingent, liquidated or unliquidated, determined or undetermined,
and whether Debtor may be liable individually or jointly with others, or whether
recovery upon such Indebtedness may be or hereafter becomes unenforceable.
3. TERMINATION. This Agreement will terminate upon the performance of
all obligations of Debtor to Trade Bank, including without limitation, the
payment of all Indebtedness of Debtor to Trade Bank existing or committed by
Trade Bank at the time Trade Bank receives written notice from Debtor of the
termination of this Agreement.
4. OBLIGATIONS OF TRADE BANK. Trade Bank has no obligation to make any
loans hereunder. Any money received by Trade Bank in respect of the Collateral
may be deposited, at Trade Bank's option, into a non-interest bearing account
over which Debtor shall have no control, and the same shall, for all purposes,
be deemed Collateral hereunder.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Trade Bank that: (a) Debtor is the owner and has possession or control of the
Collateral and Proceeds; (b) Debtor has the right to grant a security interest
in the Collateral and Proceeds; (c) all Collateral and Proceeds are genuine,
free from liens, adverse claims, setoffs, default, prepayment, defenses and
conditions precedent of any kind or character, except as heretofore disclosed to
Trade Bank in writing; (d) all statements contained herein and, where
applicable, in the Collateral are true and complete; (e) no financing statement
covering any of the Collateral or Proceeds, and naming any secured party other
than Trade Bank, is on file in any public office; (f) all persons appearing to
be obligated on Rights to Payment and Proceeds have authority and capacity to
contract and are bound as they appear to be; (g) all property subject to chattel
paper has been properly registered and filed in compliance with law and to
perfect the interest of Debtor in such property; and (h) all Rights to Payment
and Proceeds comply with all applicable laws concerning form, content and manner
of preparation and execution, including where applicable Federal Reserve
Regulation Z and any State consumer credit laws.
6. COVENANTS OF DEBTOR.
(a) Debtor Agrees in General: (i) to pay Indebtedness secured hereby
when due; (ii) to indemnify Trade Bank against all losses, claims, demands,
liabilities and expenses of every kind caused by property subject hereto; (iii)
to pay all costs and expenses, including reasonable attorneys' fees, incurred by
Trade Bank in the perfection, preservation, realization, enforcement and
exercise of its rights, powers and remedies hereunder; (iv) to permit Trade Bank
to exercise its powers; (v) to execute and deliver such documents as Trade Bank
deems necessary to create, perfect and continue the security interests
contemplated hereby; and (vi) not to change its chief place of business or the
places where Debtor keeps any of the Collateral or Debtor's records concerning
the Collateral and Proceeds without first giving Trade Bank written notice of
the address to which Debtor is moving same.
(b) Debtor Agrees with Regard to the Collateral and Proceeds: (i) to
insure Inventory and, where applicable, Rights to Payment with Trade Bank as
loss payee, in form and amounts, under agreements, against risks and
liabilities, and with insurance companies satisfactory to Trade Bank; (ii) not
to use any Inventory for any unlawful purpose or in any way that would void any
insurance required to be carried in connection therewith; (iii) not to remove
Inventory from Debtor's premises without Trade Bank's prior written consent and
upon such terms and conditions as Trade Bank may require, except for deliveries
to buyers in the ordinary course of Debtor's business and except Inventory which
consists of mobile goods as defined in the California Uniform Commercial Code,
in which case Debtor agrees not to remove or permit the removal of the Inventory
from its state of domicile for a period in
Page 1 or 4
<PAGE>
(c) excess of thirty (30) calendar days; (iv) not to permit any lien on
the Collateral or Proceeds, including without limitation, liens arising from the
storage of Inventory, except in favor of Trade Bank; (v) not to sell,
hypothecate or dispose of any of the Collateral or Proceeds, or any interest
therein, except sales of Inventory to buyers in the ordinary course of Debtor's
business, without Trade Bank's prior written consent; (vi) to furnish reports to
Trade Bank of all acquisitions, returns, sales and other dispositions of
Inventory in such form and detail and at such times as Trade Bank may require;
(vii) to permit Trade Bank to inspect the Collateral at any time; (viii) to
keep, in accordance with generally accepted accounting principles, complete and
accurate records regarding all Collateral and Proceeds, and to permit Trade Bank
to inspect the same and make copies thereof at any reasonable time; (ix) if
requested by Trade Bank, to receive and use reasonable diligence to collect
Rights to Payment and Proceeds, in trust and as the property of Trade Bank, and
to immediately endorse as appropriate and deliver such Rights to Payment and
Proceeds to Trade Bank daily in the exact form in which they are received
together with a collection report in form satisfactory to Trade Bank; (x) not to
commingle Rights to Payment, Proceeds or collections thereunder with other
property; (xi) to give only normal allowances and credits and to advise Trade
Bank thereof immediately in writing if they affect any Rights to Payment or
Proceeds; (xii) on demand, to deliver to Trade Bank returned property resulting
from, or payment equal to, such allowances or credits on any Rights to Payment
or Proceeds or to execute such documents and do such other things as Trade Bank
may reasonably request for the purpose of perfecting, preserving and enforcing
its security interest in such returned property; (xiii) from time to time, when
requested by Trade Bank, to prepare and deliver a schedule of all Collateral and
Proceeds subject to this Agreement and to assign in writing and deliver to Trade
Bank all accounts, contracts, leases and other chattel paper, instruments,
documents and other evidences thereof; (xiv) in the event Trade Bank elects to
receive payments of Rights to Payment or Proceeds hereunder, to pay all expenses
incurred by Trade Bank in connection therewith, including expenses of
accounting, correspondence, collection efforts, reporting to account or contract
debtors, filing, recording, record keeping and expenses incidental thereto; and
(xv) to provide any service and do any other acts which may be necessary to
maintain, preserve and protect all Collateral and, as appropriate and
applicable, to keep all Collateral in good and saleable condition, to deal with
the Collateral in accordance with the standards and practices adhered to
generally by users and manufacturers of like property, and to keep all
Collateral and Proceeds free and clear of all defenses, rights of offset and
counterclaims.
7. POWERS OF TRADE BANK. Debtor appoints Trade Bank its true attorney
in fact to perform any of the following powers, which are coupled with an
interest, are irrevocable until termination of this Agreement and may be
exercised from time to time by Trade Bank's officers and employees, or any of
them, whether or not Debtor is in default: (a) to perform any obligation of
Debtor hereunder in Debtor's name or otherwise; (b) to give notice of Trade
Bank's rights in the Collateral and Proceeds, to enforce the same and make
extension agreements with respect thereto; (c) to release persons liable on
Collateral or Proceeds and to give receipts and acquittances and compromise
disputes in connection therewith; (d) to release security; (e) to resort to
security in any order; (f) to prepare, execute, file, record or deliver notes,
assignments, schedules, designation statements, financing statements,
continuation statements, termination statements, statements of assignment,
applications for registration or like papers to perfect, preserve or release
Trade Bank's interest in the Collateral and Proceeds; (g) to receive, open and
read mail addressed to Debtor; (h) to take cash, instruments for the payment of
money and other property to which Trade Bank is entitled; (i) to verify facts
concerning the Collateral and Proceeds by inquiry of obligors thereon, or
otherwise, in its own name or a fictitious name; (j) to endorse, collect,
deliver and receive payment under instruments for the payment of money
constituting or relating to Proceeds; (k) to prepare, adjust, execute, deliver
and receive payment under insurance claims, and to collect and receive payment
of and endorse any instrument in payment of loss or returned premiums or any
other insurance refund or return, and to apply such amounts received by Trade
Bank, at Trade Bank's sole option, toward repayment of the Indebtedness or
replacement of the Collateral; (l) to exercise all rights, powers and remedies
which Debtor would have, but for this Agreement, with respect to all Collateral
and Proceeds subject hereto; (m) to enter onto Debtor's premises in inspecting
the Collateral; (n) to make withdrawals from and to close deposit accounts or
other accounts with any financial institution, wherever located, into which
Proceeds may have been deposited, and to apply funds so withdrawn to payment of
the Indebtedness; (o) to preserve or release the interest evidenced by chattel
paper to which Trade Bank is entitled hereunder and to endorse and deliver
evidences of title incidental thereto; and (p) to do all acts and things and
execute all documents in the name of Debtor or otherwise, deemed by Trade Bank
as necessary, proper and convenient in connection with the preservation,
perfection or enforcement of its rights hereunder.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor
agrees to pay, prior to delinquency, all insurance premiums, taxes, charges,
liens and assessments against the Collateral and Proceeds, and upon the failure
of Debtor to do so, Trade Bank at its option may pay any of them and shall be
the sole judge of the legality or validity thereof and the amount necessary to
discharge the same. Any such payments made by Trade Bank shall be obligations of
Debtor to Trade Bank, due and payable immediately upon demand, together with
interest at a rate determined in accordance with the provisions of Section 12
hereof, and shall be secured by the Collateral and Proceeds, subject to all
terms and conditions of this Agreement.
9. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement: (a) any default in the
payment or performance of any obligation, or any defined event of default, under
(i) any contract or instrument evidencing any Indebtedness, or (ii) any other
agreement between any Debtor and Trade Bank, including without limitation any
loan agreement, relating to or executed in connection with any Indebtedness; (b)
any representation or warranty made by any Debtor herein shall prove to be
incorrect, false or misleading in any material respect when made; (c) any Debtor
shall fail to observe or perform any obligation or agreement contained herein;
(d) any attachment or like levy on any property of any Debtor; and (e) Trade
Bank, in good faith, believes any or all of the Collateral and/or Proceeds to be
in danger of misuse, dissipation, commingling, loss, theft, damage or
destruction, or otherwise in jeopardy or unsatisfactory in character or value.
10. REMEDIES. Upon the occurrence of any Event of Default, Trade Bank
shall have the right to declare immediately due and payable all or any
Indebtedness secured hereby and to terminate any commitments to make loans or
otherwise extend credit to Debtor. Trade Bank shall have all other rights,
powers, privileges and remedies granted to a secured party upon default under
the California Uniform Commercial Code or otherwise provided by law, including
without limitation, the right to contact all persons obligated to Debtor on any
Collateral or Proceeds and to instruct such persons to deliver all Collateral
and/or Proceeds directly to
Page 2 of 4
<PAGE>
Trade Bank. All rights, powers, privileges and remedies of Trade Bank shall be
cumulative. No delay, failure or discontinuance of Trade Bank in exercising any
right, power, privilege or remedy hereunder shall affect or operate as a waiver
of such right, power, privilege or remedy; nor shall any single or partial
exercise of any such right, power, privilege or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power, privilege or remedy. Any waiver, permit, consent or approval
of any kind by Trade Bank of any default hereunder, or any such waiver of any
provisions or conditions hereof, must be in writing and shall be effective only
to the extent set forth in writing. It is agreed that public or private sales,
for cash or on credit, to a wholesaler or retailer or investor, or user of
property of the types subject to this Agreement, or public auction, are all
commercially reasonable since differences in the sales prices generally realized
in the different kinds of sales are ordinarily offset by the differences in the
costs and credit risks of such sales. While an Event of Default exists: (a)
Debtor will deliver to Trade Bank from time to time, as requested by Trade Bank,
current lists of all Collateral and Proceeds; (b) Debtor will not dispose of any
of the Collateral or Proceeds except on terms approved by Trade Bank; (c) at
Trade Bank's request, Debtor will assemble and deliver all Collateral and
Proceeds, and books and records pertaining thereto, to Trade Bank at a
reasonably convenient place designated by Trade Bank; and (d) Trade Bank may,
without notice to Debtor, enter onto Debtor's premises and take possession of
the Collateral. With respect to any sale by Trade Bank of any Collateral subject
to this Agreement, Debtor hereby expressly grants to Trade Bank the right to
sell such Collateral using any or all of Debtor's trademarks, trade names, trade
name rights and/or proprietary labels or marks.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or
any part of the Indebtedness, Trade Bank may transfer all or any part of the
Collateral or Proceeds and shall be fully discharged thereafter from all
liability and responsibility with respect to any of the foregoing so
transferred, and the transferee shall be vested with all rights and powers of
Trade Bank hereunder with respect to any of the foregoing so transferred; but
with respect to any Collateral or Proceeds not so transferred, Trade Bank shall
retain all rights, powers, privileges and remedies herein given. Any proceeds of
any disposition of any of the Collateral or Proceeds, or any part thereof, may
be applied by Trade Bank to the payment of expenses incurred by Trade Bank in
connection with the foregoing, including reasonable attorneys' fees, and the
balance of such proceeds may be applied by Trade Bank toward the payment of the
Indebtedness in such order of application as Trade Bank may from time to time
elect.
12. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Trade Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Trade Bank's in-house counsel), incurred
by Trade Bank in exercising any right, power, privilege or remedy conferred by
this Agreement or in the enforcement thereof, including any of the foregoing
incurred in connection with any bankruptcy proceeding relating to Debtor or the
valuation of the Collateral and/or Proceeds, including without limitation, the
seeking of relief from or modification of the automatic stay or the negotiation
and drafting of a cash collateral order. All of the foregoing shall be paid by
Debtor with interest at a rate per annum equal to the greater of ten percent
(10%) or the Prime Rate in effect from time to time. The "Prime Rate" is a base
rate that Wells Fargo Bank, N.A. from time to time establishes and which serves
as the basis upon which effective rates of interest are calculated for those
loans making reference thereto.
13. STATUTE OF LIMITATIONS. Until all Indebtedness shall have been paid
in full, the power of sale and all other rights, powers, privileges and remedies
granted to Trade Bank hereunder shall continue to exist and may be exercised by
Trade Bank at any time and from time to time irrespective of the fact that the
Indebtedness or any part thereof may have become barred by any statute of
limitations, or that the personal liability of Debtor may have ceased, unless
such liability shall have ceased due to the payment in full of all Indebtedness
secured hereunder.
14. MISCELLANEOUS. The obligations of Debtor are joint and several;
presentment, protest, notice of protest, notice of dishonor and notice of
nonpayment are waived with respect to any Proceeds to which Trade Bank is
entitled hereunder; any right to direct the application of payments or security
for any Indebtedness of Debtor, or indebtedness of customers of Debtor, and any
right to require proceedings against others or to require exhaustion of security
are waived; and consent to extensions, forbearances or alterations of the terms
of Indebtedness, the release or substitution of security, and the release of
guarantors is given with respect to Proceeds subject to this Agreement; provided
however, that in each instance Trade Bank believes in good faith that the action
in question is commercially reasonable in that it does not unreasonably increase
the risk of nonpayment of the Indebtedness to which the action applies. Until
all Indebtedness shall have been paid in full, no Debtor shall have any right of
subrogation or contribution, and each Debtor hereby waives any benefit of or
right to participate in any of the Collateral or Proceeds or any other security
now or hereafter held by Trade Bank.
15. OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this
Agreement as Debtor hereby expressly agrees that recourse may be had against his
or her separate property for all his or her Indebtedness to Trade Bank secured
by the Collateral and Proceeds under this Agreement.
16. NOTICES. All notices, requests and demands required under this
Agreement must be in writing, addressed to Trade Bank at the address specified
in any other loan documents entered into between Debtor and Trade Bank and to
Debtor at the address of its chief executive office (or personal residence, if
applicable) specified below or to such other address as any party may designate
by written notice to each other party, and shall be deemed to have been given or
made as follows: (a) if personally delivered, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
17. GOVERNING LAW; SUCCESSORS, ASSIGNS. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California, and shall be binding upon and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors and assigns of the
parties.
Page 3 of 4
<PAGE>
18. SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
Debtor warrants that its chief executive office (or personal residence,
if applicable) is located at the following address:
2401 W. First Street
Tempe, AZ. 85281
IN WITNESS WHEREOF, this Agreement has been duly executed as of
5/8/96.
- ------
"BORROWER"
ACTION PERFORMANCE COMPANIES, INC.
By: /s/ Chris Besing
---------------------------------------
Title: CFO
---------------------------------------
Page 4 of 4
EXHIBIT 11.1
COMPUTATION OF PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
June 30, June 30,
--------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 11,516,782 8,580,154 11,868,540 9,406,158
Additional shares assuming
conversion of:
Stock Options 530,988 366,968 576,160 503,850
Warrants 44,246 104,216 42,554 175,920
Preferred Stock 888,889 340,660 660,000 1,000,000
---------- ---------- ---------- ----------
Weighted average shares
outstanding 12,980,905 9,391,998 13,147,254 11,085,928
========== ========== ========== ==========
Net Income $3,794,364 $1,336,984 $1,776,692 $1,180,574
========== ========== ========== ==========
Primary Earnings
Per Share $ 0.29 $ 0.14 $ 0.14 $ 0.11
========== ========== ========== ==========
</TABLE>
All share data reflects the Company's two-for-one stock split effected
in the form of a stock dividend on May 28, 1996.
EXHIBIT 11.2
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
June 30, June 30,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 11,516,782 8,580,154 11,868,540 9,406,158
Additional shares assuming
conversion of:
Stock Options 595,180 568,606 576,911 568,606
Warrants 53,074 248,848 44,674 248,848
Convertible Debentures - 1,071,824 - 505,722
Preferred Stock 888,889 340,660 660,000 1,000,000
---------- ---------- ---------- ----------
Weighted average shares
outstanding 13,053,925 10,810,092 13,150,125 11,729,334
========== ========== ========== ==========
Net Income $3,794,364 $1,336,984 $1,776,692 $1,180,574
========== ========== ========== ==========
Interest Expense on
Convertible Debentures
(Assuming Conversion) - 115,015 - 24,605
---------- ---------- ---------- ----------
Net income attributable
to fully diluted
weighted shares outstanding 3,794,364 1,451,999 1,776,692 1,205,179
---------- ---------- ---------- ----------
Fully Diluted Earnings
Per Share $ 0.29 $ 0.13 $ 0.14 $ 0.10
========== ========== ========== ==========
</TABLE>
All share data reflects the effect of the Company's two-for-one stock
split effected in the form of a stock dividend on May 28, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This exhibit shall not be deemed filed for purposes of Section 11 of the
Securities Act of 1933 and Section 18 of the Securities Exchange Act of
1934, or otherwise subject to the liability of such Sections, nor shall it
be deemed a part of any other filing which incorporates this report by
reference, unless such other filing expressly incorporates this Exhibit by
reference.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 5,148
<SECURITIES> 0
<RECEIVABLES> 6,926
<ALLOWANCES> 208
<INVENTORY> 4,763
<CURRENT-ASSETS> 19,719
<PP&E> 10,556
<DEPRECIATION> 2,841
<TOTAL-ASSETS> 28,782
<CURRENT-LIABILITIES> 4,432
<BONDS> 0
0
0
<COMMON> 126
<OTHER-SE> 18,166
<TOTAL-LIABILITY-AND-EQUITY> 28,782
<SALES> 30,055
<TOTAL-REVENUES> 30,055
<CGS> 17,442
<TOTAL-COSTS> 17,442
<OTHER-EXPENSES> 6,453
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67
<INCOME-PRETAX> 6,324
<INCOME-TAX> 2,530
<INCOME-CONTINUING> 3,794
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,794
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
