<PAGE> 1
FORM 10-K
U.S. Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
[ x ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1943 [No Fee Required]
Commission File Number: 0-21026
ROCKY SHOES & BOOTS, INC.
(Exact name of Registrant as specified in its charter)
OHIO NO. 31-1364046
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
39 EAST CANAL STREET
NELSONVILLE, OHIO 45764
(Address of principal executive offices, including zip code)
(614) 753-1951
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
without par value
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to the filing
requirements for at least the past 90 days. YES _X_ NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant was approximately $38,532,536 on February 28,
1997.
There were 3,697,653 shares of the Registrant's Common Stock
outstanding on February 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the
fiscal year ended December 31, 1996, are incorporated by reference in Part II.
Portions of the Registrant's Proxy Statement for 1997 Annual Meeting
of Shareholders are incorporated by reference in Part III.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
OVERVIEW
Rocky Shoes & Boots, Inc. (the "Company" or "Rocky") designs,
develops, manufactures, and markets premium quality men's and women's footwear.
Rocky offers footwear that is comfortable, lightweight, durable, and relatively
insensitive to changing fashion trends. The Company markets its footwear
through several distribution channels, primarily under the registered
trademark, ROCKY(R).
The Company's product line is organized into three primary categories:
rugged outdoor footwear, including hunting and hiking boots, with suggested
retail prices generally ranging from $60 to $190 per pair; nonmilitary
occupational footwear, with suggested retail prices generally ranging from $40
to $160; and handsewn casual footwear, with suggested retail prices generally
ranging from $100 to $150 per pair. The Company also sells footwear
accessories, such as waterproof socks and innersole support systems, and has a
factory outlet store in Nelsonville, Ohio.
Innovativeness, quality, and durability are hallmarks of the ROCKY(R)
brand name. The Company continually monitors the development of innovative raw
materials and has distinguished its branded products by incorporating new
fabric technologies into the design of its footwear. Rocky places an emphasis
on the manufacture of waterproof footwear and is currently the largest customer
of GORE-TEX(R) waterproof fabric for footwear. The Company was also the first
footwear manufacturer to market an all CORDURA(R) nylon fabric hunting boot.
The Company is the successor to the business of The Wm. Brooks Shoe
Company, a company established in 1932 by William Brooks, who was later joined
by F. M. Brooks (the grandfather of the Company's current Chairman, President,
and Chief Executive Officer, Mike Brooks). The business was sold in 1959 to a
company headquartered in Lancaster, Ohio. John W. Brooks (the father of Mike
Brooks) remained as an employee of the business when it was sold. In 1975, John
W. Brooks formed John W. Brooks, Inc. (nka Rocky Shoes & Boots Co. ("Rocky
Co.")) as an Ohio corporation, reacquired the Nelsonville, Ohio, operating
assets of the original company, and moved the business' principal executive
offices back to Nelsonville, Ohio. In 1987, Five Star Enterprises Ltd. ("Five
Star"), a Cayman Islands corporation, was formed by John W. Brooks, Mike
Brooks, and three other executive officers of the Company at the time, to
produce shoe and boot uppers at a manufacturing facility located in La Vega,
Dominican Republic. In 1988, Lifestyle Footwear, Inc., ("Lifestyle"), a
Delaware corporation, was established as a subsidiary of Rocky Co. and
commenced operations at a manufacturing facility in Aquadilla, Puerto Rico.
The Company was formed as an Ohio corporation in June 1992 in
anticipation of an initial public offering following the reorganization of the
business of Rocky Co. and Five Star. Effective February 3, 1993, the Company,
Rocky Co., Five Star, and the then shareholders of Rocky Co. and Five Star were
parties to a reorganization pursuant to which the then shareholders of Rocky
Co. and Five Star received in the aggregate 2,150,000 shares of Common Stock
of the Company, 100,000 shares of the Company's Series A Non-Voting Convertible
Preferred Stock, and $160,000 in cash in exchange for all outstanding shares of
capital stock of Rocky Co. and Five Star. Rocky Co. and Five Star then became
wholly owned subsidiaries of the Company (the "Reorganization"). The Company
sold 1,597,500 shares of its Common Stock and certain shareholders sold an
additional 300,000 shares of Common Stock to the public on February 3, 1993.
Effective December 26, 1996, Rocky Co. was merged with and into the Company.
- -----------------
ROCKY(R) is a federally registered trademark of Rocky Shoes & Boots, Inc. This
report also refers to trademarks of corporations other than the Company. See
"Business - Trademarks and Trade Names."
<PAGE> 3
PRODUCT LINES
The Company's product lines consist of rugged outdoor shoes and boots,
occupational footwear, and handsewn casual footwear. Accessories and retail
sales from Rocky's factory outlet store in Nelsonville, Ohio, also contribute
to the Company's net sales. The following table, which is derived from the
Company's internal sales records, indicates the percentage of net sales derived
from each major product line, accessories, and the factory outlet store for the
year ended December 31, 1996 ("Fiscal 1996"), the short transitional fiscal
period from July 1 to December 31, 1995 ("Transitional Fiscal 1995"), and the
fiscal years ended June 30, 1995 ("Fiscal 1995"), and June 30, 1994 ("Fiscal
1994"). Historical percentages may not be indicative of the Company's future
product mix.
PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
Transitional
Fiscal 1996 Fiscal 1995 Fiscal 1995 Fiscal 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Rugged outdoor footwear 57.8% 65.7% 57.6% 54.3%
Occupational footwear 23.3 20.9 24.0 25.8
Handsewn casual footwear 5.7 2.1 8.1 10.8
Factory outlet store 6.6 7.6 6.1 3.9
Other 6.6 3.7 4.2 5.2
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
</TABLE>
All of the Company's products feature advanced engineering and
biomechanically designed styles, incorporating many of the following premium
quality materials: full grain waterproof, breathable leather; CORDURA(R) nylon
fabric in a variety of colors and camouflages which will not mildew or retain
moisture, is durable, and is more abrasion resistant than leather; GORE-TEX(R)
waterproof fabric bootie liners, made from a guaranteed waterproof, yet
breathable material; THINSULATE(R) thermal insulation; CAMBRELLE(R) cushioned
linings which are manufactured from a material that breathes, absorbs
perspiration, and resists mildew and odors; innersole support systems which
form to the contours of the foot supporting the arch and metatarsal areas and
are removable and fully washable; VIBRAM(R) rubber outsoles which are
long-wearing, flexible, and slip-resistant and incorporate AIR-O-MAGIC(R)
air-cushioned footbeds; and the Company's polyurethane direct injected soles
which are lightweight insulated, flexible, slip-resistant, and oil-resistant.
Corporations other than the Company own the trademarks listed above. See
"Business - Trademarks and Trade Names."
All of the Company's footwear begins with a form or mold known as a
"last," which is shaped like a foot. The last is used to produce a number of
shoes with the same characteristics. Among other things, it determines the
height of the heel and the shape of the toe. The Company's footwear eventually
takes the shape of the last. The shape of the last largely determines the
comfort and fit of the shoe or boot. The lasts for the Company's footwear are
designed and developed by the Company and then produced by third-party
suppliers. Lasts are durable and do not require frequent replacement or rework,
and one last can be used with more than one style within a particular category
of footwear. The Company, for example, has used certain of its lasts for more
than 10 years. There are several suppliers capable of producing the Company's
lasts, and the Company is not dependent on any one supplier.
RUGGED OUTDOOR FOOTWEAR. Rugged outdoor footwear is the Company's
largest product line in terms of total net sales, representing 57.8%, or $42.3
million, of Fiscal 1996 net sales. Suggested retail prices for Rocky's rugged
outdoor footwear generally range from $60 to $190 per pair. The Company sells
its rugged outdoor footwear primarily to retail shoe, sporting goods, and
outdoor specialty stores and to mail order catalog companies. Although Rocky's
hunting boots must be somewhat responsive to new camouflage patterns, its
rugged outdoor footwear is relatively
- 2 -
<PAGE> 4
insensitive to changing fashion trends, significantly reducing the risk of
product obsolescence and inventory markdowns. For example, the ROCKY(R)
STALKERS(TM) boots and ROCKY(R) CORNSTALKERS(R) boots were first introduced in
1984 and 1988, respectively, and remain two of the Company's most popular boot
styles. The Company currently has six primary styles of rugged outdoor
footwear: ROCKY(R) STALKERS(TM) boots, ROCKY(R) CORNSTALKERS(R) boots, ROCKY(R)
SIDEWINDER(R) SERIES boots, ROCKY(R) BEAR CLAW(TM) SERIES boots, ROCKY(R)
SNOW/STALKERS(R) boots, and ROCKY(R) TUFF TERRAINERS(TM) Gore-Tex(R) handsewn
casual oxfords and boots.
ROCKY(R) STALKERS(TM) boots feature uppers of full grain waterproof
leather and CORDURA(R) nylon fabric, GORE-TEX(R) waterproof bootie liners,
THINSULATE(R) thermal insulation, innersole support systems, tridensity
polyurethane direct injected soles, and rustproof speed lacing hardware. The
ROCKY(R) CORNSTALKERS(R) boots, currently the most popular boot produced by the
Company, are similar in design to the ROCKY(R) STALKERS(TM) boots, but feature
uppers of all CORDURA(R) nylon fabric, Goodyear welt construction, and dual
density polyurethane, low impact, slip-resistant, and oil-resistant soles.
ROCKY(R) STALKERS(TM) and ROCKY(R) CORNSTALKERS(R) boots are marketed primarily
to hunters who desire a durable, waterproof, insulated all-season boot suited
to rugged terrain. ROCKY(R) SIDEWINDER(TM) SERIES boots are engineered to be
durable, comfortable, at lower prices than the ROCKY(R) BEAR CLAW SERIES(TM).
ROCKY(R) BEAR CLAW SERIES(TM) boots are designed for outdoor enthusiasts who
venture into slick, muddy areas. They feature 1/4-inch round cleats in the
center of the sole that provide additional traction in slippery situations.
ROCKY(R) SNOW/STALKERS(R) boots feature uppers of premium waterproof leathers
and a dual density polyurethane light weight rubber bottom, and incorporate the
BEAR CLAW(TM) SERIES outsole design. ROCKY(R) TUFF TERRAINERS(R) are handsewn
casual oxfords and six inch boots that feature Gore-Tex(R) liners.
OCCUPATIONAL FOOTWEAR. Duty or occupational footwear for the
non-military uniform market is the Company's second largest product line. In
Fiscal 1996, net sales of occupational footwear amounted to $17.0 million,
representing 23.3% of the Company's Fiscal 1996 net sales. Suggested retail
prices for Rocky's occupational footwear generally range from $40 to $160 per
pair. The Company sells its occupational footwear primarily to mail order
catalog companies and to retail uniform and specialty stores. The Company
currently has six primary styles of occupational shoes and boots which are
offered to the uniform market. All styles are designed to be comfortable,
flexible, lightweight, and durable and are typically worn by people who are
required to be on their feet at work. These products are similar in design to
certain of Rocky's rugged outdoor footwear styles, except they are primarily
black in color and feature innersole support systems, CAMBRELLE(R) cushioned
linings, and slip-resistant, oil-resistant, polyurethane soles. Certain of the
Company's occupational footwear also feature the GORE-TEX(R) waterproof bootie
liner.
In 1994, the Company introduced the 4 WAY STOP(TM) line of
occupational shoes designed for food service workers, who often encounter wet
slippery conditions. The 4 WAY STOP(TM) shoes have an exclusive "downspout"
design sole that causes liquid to flow through the sole and out the sides,
increasing traction. The 4 WAY STOP(TM) shoes exceed the U.S. government's
standards for slip resistance by a factor of two.
In 1995, the Company introduced the ROCKY(R) Professionals line of
occupational shoes with dress shoe styling designed for safety forces and
general occupational markets. This line features waterproof leather uppers,
lightweight soles and materials, slip resistant polyurethene injected soles,
breathable linings, and superior lateral stability.
The Company has a broad range of occupational shoes and boots which
are certified slip-resistant by the United States Postal Service. All shoes and
boots meeting the United States Postal Service specifications are required to
carry the "SR/USA" label, signifying "Slip resistant, made in the USA," and
have been authorized by that service for use by United States letter carriers
and other postal workers. Other consumers in the uniform trade include police
and hotel/restaurant employees, as well as FBI agents, special military units,
border patrol agents, customs inspectors, prison guards, United Parcel Service
employees, and employees of the National Park Service, Department of Fish and
Wildlife, and the United States Army Corps of Engineers.
HANDSEWN CASUAL FOOTWEAR. Aggregate sales of the Company's handsewn
casual footwear were $4.2 million in Fiscal 1996, which accounted for 5.7% of
net sales. Suggested retail prices for ROCKY(R) handsewn casual footwear
generally range from $90 to $150 per pair. The majority of handsewn casual
footwear sales in Fiscal 1996 were
- 3 -
<PAGE> 5
ROCKY(TM) TUFF TERRAINERS(TM). The introduction of the ROCKY(TM) TUFF
TERRAINERS(TM) in 1996, has substantially broadened the Company's retail
customer base.
FACTORY OUTLET STORE. In August 1994, the Company opened a 12,500
square foot factory outlet store in Nelsonville, Ohio, to replace a 3,000
square foot store. This expanded store, adjacent to the Company's manufacturing
facilities, primarily sells first-quality, irregular, and close-out ROCKY(R)
footwear and accessories, together with footwear and apparel from other
manufacturers. Retail sales from the factory outlet store for Fiscal 1996 were
approximately $4.8 million, representing 6.6% of the Company's net sales.
OTHER. The Company manufactures and/or markets a variety of footwear
accessories, including GORE-TEX(R) waterproof oversocks, GORE-TEX(R) waterproof
booties, innersole support systems, foot warmers, laces, and foot powder. The
GORE-TEX(R) waterproof oversocks are sold under the ROCKY(R) brand name and as
private label products. Additionally, the Company occasionally sells shoe
uppers to other footwear manufacturers. Aggregate sales of other products were
$4.8 million in Fiscal 1996, representing 6.6% percent of the Company's net
sales.
LICENSING. During Fiscal 1995, the Company initiated a program to
license its ROCKY(R) name and trademarks to manufacturers of various products
and apparel items. Revenues under this program were nominal in Fiscal 1996.
PRODUCT DESIGN
The Company has assembled a team led by Ted Kastner, Vice President of
Product Development and Sourcing, which also includes Mike Brooks, Chairman,
President, and Chief Executive Officer, and Diana Wurfbain, footwear designer,
to design and develop new products. Mr. Kastner has over 26 years of experience
in the footwear industry with an emphasis on product design and development.
Mr. Brooks has been instrumental in the design of many of the Company's
current products and is a pattern engineering and shoe design graduate of the
Ars Satoria in Milan, Italy. Ms. Wurfbain is an architect, civil engineer, and
artist with a diverse background in art, graphics, and design.
The Company's product design and development are initiated both
internally and externally by Rocky's customers and suppliers. Certain of
Rocky's marketing personnel and sales representatives work closely to identify
opportunities for new styles, camouflage patterns, or design improvements.
These opportunities are reported to the design team, which oversees the
development testing of the new footwear. The Company also receives design and
product innovation ideas from trade shows and from its customers and suppliers
who work with the Company to design footwear incorporating desired features or
product innovations. Once the product design has been approved for production,
the last is developed by the Company and then reproduced by a third-party
supplier. As part of the design process, the Company maintains a Computer Aided
Design (CAD) system, which significantly shortens the development period for
new footwear styles, enabling the Company to market its new designs more
quickly.
MANUFACTURING
The manufacture of footwear involves five primary operations:
production of the shoe or boot uppers; lasting the uppers to define the shape,
form, and size of the shoe or boot; bottoming the footwear; finishing the
footwear; and packaging the footwear. The Company's shoe or boot uppers are
relatively flat component parts consisting of leather and/or nylon fabric,
lining materials, and insulation. Shoe or boot uppers are produced at the
Company's manufacturing facilities by cutting individual shoe parts from the
appropriate materials and then assembling the appropriately matched parts by
stitching and combining machines. The unlasted, unformed shoe and boot uppers
are then ready for lasting and bottoming operations. The shoe or boot uppers
are attached to a last; innersoles are also attached to the bottom of the last;
forms or "counters" are inserted to shape and strengthen the heel and toe; and
the lasted footwear is run through a heating element resulting in the shoe or
boot taking the shape of the last. Outsoles are then attached by direct molding
of polyvinylchloride or polyurethane or by attaching a premolded outsole with
cement. Bottoming operations are modified when a GORE-TEX(R) bootie is
incorporated into the footwear style. Next, the footwear is "finished," which
- 4 -
<PAGE> 6
involves steps such as removing excess molding, polishing the leather, adding
laces, and attaching tags. The shoe or boot is then packaged for delivery to
customers.
During Fiscal 1996, most of the Company's products were manufactured
in the Company's own facilities located in Ohio, Puerto Rico, and the Dominican
Republic. Production planning for all facilities is centrally coordinated in
Ohio six months in advance and is updated weekly to assure that the Company is
able to respond quickly to changes in product demand or consumer preferences.
During Fiscal 1996, the Company's manufacturing facilities operated at record
production levels for most of the year.
Finished goods are stored in the Ohio warehouse until used to fill an
order. If the product ordered is in inventory, footwear can be shipped to
customers within one week of the order; however, a majority of the Company's
orders for rugged footwear are placed in January through April for delivery in
July through October.
The Company's manufacturing facilities in the Dominican Republic
produce shoe uppers, including all of the Company's handsewn casual shoe
uppers. In 1996, this manufacturing facility produced an average of 4,800
pairs of shoe uppers per day for shipment to the manufacturing facilities in
Ohio and Puerto Rico for bottoming, finishing, and packaging and has the
capacity to produce 8,000 pairs of shoe uppers a day. The Dominican Republic
manufacturing facility consists of approximately 94,000 square feet and, at
December 31, 1996, employed approximately 738 persons.
The Company operates a 20,500 square foot manufacturing facility and a
22,700 square foot manufacturing facility/warehouse in Aquadilla, Puerto Rico,
which, at December 31, 1996, employed approximately 266 persons. In 1996, these
facilities produced an average of 800 pairs of shoe uppers per day and an
average of 1,400 pairs of finished footwear per day which is shipped to the
Ohio warehouse. It has the capacity to produce 1,000 uppers and 3,000 finished
footwear daily.
The Company's manufacturing facility in Nelsonville, Ohio, primarily
is involved in bottoming, finishing, and packaging the Company's products and,
in 1996, produced an average of 3,200 pairs of footwear daily and has a
capacity of 6,000 pairs per day. This manufacturing facility, consisting of
approximately 41,000 square feet of manufacturing space, also houses the
Company's outsole molding equipment. At December 31, 1996, the manufacturing
operations in Ohio employed approximately 158 persons.
Although the Company's manufacturing facilities operated at close to
capacity during the third and fourth quarters of Fiscal 1996, the Company
anticipates that such facilities will operate at higher levels in the first and
second quarters of 1997. Additionally, the Company anticipates adding
additional employees to the second and third shifts at all of its manufacturing
facilities in 1997. There, however, can be no assurance that the Company will
operate at higher levels or will need to add additional personnel in the
future.
Most of the Company's footwear is produced in its own facilities. The
Company sources some product from manufacturers in the Far East, notably China.
A greater portion of the Company's product may be sourced in the future as the
Company's own manufacturing facilities reach capacity. The Company will source
product from outside facilities only after it is assured that these facilities
will maintain the high quality that has become associated with ROCKY(R) branded
footwear. All product sourcing is planned and implemented under the direction
and supervision of the Company's Vice President of Product Development and
Sourcing.
Because the Company manufactures most of its uppers in the Dominican
Republic and sources a portion of its product from the Far East, the Company's
business is subject to some of the risks generally associated with doing
business offshore, such as: the imposition of additional United States
legislation and regulations relating to imports, including quotas, duties,
taxes, or other charges or restrictions; foreign governmental regulations and
taxation; fluctuations in foreign exchange rates; changes in economic
conditions in the foreign country; and changes in relationships between the
United States and the foreign country. If any such factors were to render the
conduct of business in the foreign countries, particularly the Dominican
Republic, undesirable or impractical, such a development could have a material
adverse effect on the Company's business, financial condition, and results of
operations. Although
- 5 -
<PAGE> 7
management acknowledges these risks, the Company continues to manufacture a
large majority of its products at its own manufacturing facilities in Ohio,
Puerto Rico, and the Dominican Republic and management believes that it is
subject to less exposure to potential United States import restrictions and
duties than if it were to import a majority of its products from the Far East,
South America, or Europe. Due to Puerto Rico's status as a possession of the
United States, there are no import controls on the Company's products produced
in Puerto Rico.
During Fiscal 1994, Rocky completed the process of restructuring all
of its facilities to a team pass-through "modular manufacturing" system from a
piecework system. Operators are paid an incentive for team production, quality,
and attendance goals. This change required the purchase of additional equipment
and a reconfiguration of the work stations. The intent of the pass-through
system is to switch from a one process per worker assembly production line to a
system in which several workers apply multiple processes to each pair of
footwear to significantly reduce work-in-process, increase output per square
foot of manufacturing space, and lower factory damage rates. The Company began
achieving increased efficiencies in Fiscal 1995 and the Company continues to
refine its systems through ongoing process improvement. The Company benefited
from the "modular manufacturing" system throughout 1996. In late 1996 and early
1997, the Company added additional modules in all of its factories to increase
manufacturing capacity.
Compliance with federal, state, and local regulations with respect to
the environment has not had, nor is it expected to have, any material effect on
the earnings, manufacturing process, capital expenditures, or competitive
position of the Company.
DISTRIBUTION
The Company's footwear is distributed nationwide and in Canada from
the Company's warehouse located in Nelsonville, Ohio. During Fiscal 1994, the
Company increased the size of its distribution facilities in Nelsonville from
40,000 square feet to 98,000 square feet, installed an automated inventory
management system, and added a bar-code labeling system to facilitate inventory
control and handling. This has resulted in improved inventory management
controls, and the Company believes that additional improvements can be achieved
in future periods. The Company installed an incentive-based "teamwork"
distribution system for its associates early in 1995. At December 31, 1996, the
Company employed approximately 48 persons in warehousing and distribution in
Nelsonville. Beginning in January 1997, the Company entered into a lease for a
warehouse facility in Logan, Ohio, approximately 12 miles away from the
Company's manufacturing facility in Nelsonville, Ohio, to store raw materials.
The new warehouse space will enable the Company to use approximately 20,000
more square feet of the Nelsonville facility for storage of finished goods.
SUPPLIERS
The Company purchases raw materials from a number of domestic and
foreign sources. The Company does not have any long term supply contracts for
the purchase of its raw materials, except for blanket orders on leather to
protect the Company's selling prices for an extended period of time. The
principal raw materials used in the production of the Company's footwear, in
terms of dollar value, are leather, GORE-TEX(R) waterproof fabric, CORDURA(R)
material, and soling materials. Although the Company has no reason to believe
that these materials will not continue to be available from its current
suppliers, based on its experience in the footwear industry, the Company is
confident that there are acceptable present alternatives to these suppliers and
materials, with the exception of the GORE-TEX(R) waterproof fabric.
GORE-TEX(R) waterproof fabric is purchased directly from W. L. Gore &
Associates, Inc. ("Gore"), which is the Company's single largest supplier, in
terms of dollars spent on raw materials. A majority of the Company's footwear,
in terms of number of pairs produced directly by the Company, incorporates
GORE-TEX(R) waterproof fabric. Rocky, which has been a customer of Gore since
1980, was one of the first companies to use GORE-TEX(R) waterproof fabric in
the manufacture of footwear products. The Company was also the first footwear
manufacturer licensed by Gore to manufacture, promote, sell, and distribute
worldwide footwear using GORE-TEX(R) waterproof fabric. The Company
- 6 -
<PAGE> 8
is the largest customer of GORE-TEX(R) waterproof fabric for footwear. Although
other waterproofing techniques or materials are available, the Company places a
high value on its GORE-TEX(R) license because the GORE-TEX(R) trade name has
high brand name recognition and the GORE-TEX(R) waterproof fabric used in the
manufacture of ROCKY(R) footwear has a reputation for quality and proven
performance. The Company, based on its long, mutually beneficial relations with
Gore, has no reason to believe that its supply of GORE-TEX(R) waterproof fabric
will be interrupted in the future.
Under the Company's licensing agreement, a prototype or sample of each
style of shoe or boot designed and produced by the Company that incorporates
GORE-TEX(R) waterproof fabric must be tested and approved by Gore before the
Company is permitted to manufacture or sell commercial quantities of that style
of footwear. Gore's testing involves, for example, immersing the Company's
hunting boot prototype for days in a water exclusion tester and flexing the
boot 500,000 times, simulating a 500-mile march through several inches of
water. The footwear is then placed in a sweat absorption and transmission
tester to measure "breathability," this is, the amount of perspiration that can
escape from the footwear.
Until 1996, all of the Company's GORE-TEX(R) footwear was guaranteed
to be waterproof for two years from the date of purchase. Beginning in 1996,
all of the Company's GORE-TEX(R) footwear is guaranteed to be waterproof for
one year from the date of purchase. The Company changed this warranty policy to
be consistent with what it believes is the industry standard. When a customer
claims that a product is not waterproof, the product is returned to the Ohio
manufacturing facility for further testing. If the product fails this testing
process, it is either replaced or credit is given, at the customer's
discretion. Historically, the expenses associated with this guarantee have
been consistent with the footwear industry.
QUALITY ASSURANCE
Quality control is stressed at every stage of the manufacturing
process at each of the Company's manufacturing facilities. The Company's
Quality Assurance Manager reports directly to the President of the Company and
oversees all aspects of the quality assurance program. Each manufacturing
facility is staffed with trained quality assurance personnel. A portion of each
production employee's compensation is based on production of a quality product.
Factory visits are conducted by the Quality Assurance Manager to
observe the facility's quality control procedures and to correct any
deficiencies. Every pair of ROCKY(R) footwear, or its components parts,
produced at the Company's facilities is inspected by quality control employees
at least five times during the manufacturing process with some styles inspected
up to nine times. Every GORE-TEX(R) waterproof bootie liner is individually
tested by filling it with compressed air and submerging it in water to verify
that it is waterproof.
Quality control personnel at the Ohio warehouse also conduct quality
control testing on the raw material inventory and inspect random samples from
the finished goods inventory from each of the Company's manufacturing
facilities to ensure that these inventories meet the Company's high quality
standards.
SALES AND MARKETING
The Company has more than 2,600 active customer accounts and its
products are sold in these customers' 4,000 store locations and through 22 mail
order catalog companies. The Company's largest customers in Fiscal 1996
included Bass Pro Shops, Springfield, Missouri; Cabellas, Sidney, Nebraska;
Fechheimer Brothers Co., Cincinnati, Ohio; Dicks Clothing and Sporting Goods,
Pittsburgh, Pennsylvania; Galls Inc., Lexington, Kentucky; and R&R Uniforms
Inc., Nashville, Tennessee. No single customer accounted for more than 10% of
sales in 1996.
The Company has sales and marketing staff located in Nelsonville,
Ohio. Approximately 28 persons were employed in the sales and marketing
functions at December 31, 1996. In addition, the Company maintains a network
- 7 -
<PAGE> 9
of 55 independent sales representatives, operating in 14 geographic
territories, who sell the Company's products nationwide and in Canada. The
Company's independent sales representatives do not sell competing product lines
but may sell complementary categories of products or product lines, such as
outdoor apparel. The Company's independent sales representatives are paid on a
commission basis and are responsible for sales, service, and follow-up. Orders
are filled from the Company's warehouse on a daily basis and shipped via
commercial carrier directly to the retailing customer. Senior management is
actively involved in the marketing effort to major accounts.
The Company's sales terms generally specify F.O.B. Nelsonville, Ohio,
and payment net 30 days east of Colorado and net 45 days for Colorado and
points west. The Company also offers extended payment terms to its customers on
the sale of insulated boots. This program gives the Company an early indication
of the demand for its product and also evens out the shipping schedule. Rocky
assesses a finance charge of 1.5% per month for past due accounts. Additional
product is not shipped to customers with past due accounts. Customers are
required to make a minimum opening order of $3,000. The Company's returned
goods policy specifies that no product may be returned without prior
permission. Returned goods stickers are furnished for approved returns. When
approved, adjustments on worn shoes are based on the amount of wear shown. The
Company reserves the right to refuse any unauthorized returns.
The Company has developed marketing and advertising programs to gain
national exposure in its targeted markets for its branded products. By creating
strong brand awareness for the Company's products, the Company seeks to
increase the general level of retail prices for its products, expand its
customer base, and increase repeat business from customers across ROCKY(R)
product lines. In connection with its focus on brand name recognition, the
Company's marketing personnel have developed a product kit, product catalog,
and dealer support system which includes national print advertising,
point-of-sale displays, co-op advertising programs, and an award winning
national telemarketing operation.
The Company's national telemarketing operation is a "store-locator"
system. As part of the telemarketing operation, the Company places
advertisements containing a toll-free telephone number in various national and
international publications. A potential customer calls into the telemarketing
center where trained telemarketing representatives, who are familiar with all
styles of ROCKY(R) footwear, respond to questions, and refer the caller to one
to three retailers in or near the caller's area according to ZIP code. The
telemarketing representative records the name, address, and telephone number of
the caller and a letter is sent to the potential customer thanking him or her
for the inquiry, again identifying the nearby retailers, and inviting the
caller to visit the stores to try on a pair of ROCKY(R) shoes or boots. An
additional letter is sent to each of the retailers who were recommended to the
caller, providing the retailers with the name, address, and telephone number of
the caller and requesting that their staff contact the potential customer and
personally invite them to the store to shop for ROCKY(R) footwear. A ROCKY(R)
postcard is provided for the retailer's convenience. A similar process is used
with reader service cards placed in various publications which advertise the
Company's products.
ADVERTISING AND PROMOTIONS
The Company advertises and promotes the ROCKY(R) brand through a
variety of methods, including product packaging, national print advertising,
point-of-sale displays, and trade shows, which are an important source of new
orders. The Company has expanded the number of trade shows it attends in
response to increasing demand and favorable results received from attending
such shows. The Company's sales and marketing personnel are responsible for
conceiving, developing, and implementing all aspects of ROCKY(R) advertising
and promotion. The Company's marketing and advertising programs target specific
consumer markets to increase brand awareness through colorful catalogs, fliers,
and magazine advertisements. The rugged outdoor footwear market includes
hunters, fishermen, hikers, walkers, and other sportsmen. The Company's
occupational footwear is marketed to the non-military uniformed
- 8 -
<PAGE> 10
occupations, such as postal workers, police, FBI agents, border patrol, customs
inspectors, prison guards, overnight carrier employees, and hotel/restaurant
employees. In Fiscal 1996, Transitional Fiscal 1995, Fiscal 1995, and Fiscal
1994, the Company's advertising expense was approximately $1,399,000,
$1,890,000, $1,737,000, and $965,000, respectively. The Company anticipates its
advertising expense will increase to approximately $2,000,000 to $2,500,000 for
1997.
The Company places full page advertisements in a number of magazines
and other publications having national and international circulations,
including Sports Afield, Field & Stream, North American Hunter, Outdoor Life,
North American Fisherman, Police and Security News, Rescue, and Law and Order.
During Fiscal 1996, the Company significantly reduced its advertising expense.
The Company anticipates that its advertising expense in 1997 will normalize to
levels indicative of prior years. The Company places a high emphasis on its
waterproof footwear and advertises accordingly. Advertising materials also
emphasize that the Company's shoes and boots are innovative, lightweight,
comfortable, functional, and durable. Many of the Company's advertisements also
indicate that ROCKY(R) footwear is "Made in the U.S.A.," where appropriate.
SEASONALITY
The Company has historically experienced significant seasonal
fluctuations in the sale of its rugged outdoor footwear. A majority of the
orders for rugged outdoor footwear are placed in January through April for
delivery in July through October. In order to meet demand, the Company must
manufacture its rugged outdoor footwear year round to be in a position to ship
advance orders during the last two quarters of each calendar year. Accordingly,
inventory levels have been highest during the first two quarters of each
calendar year and sales have been highest in the last two quarters of each
calendar year. Because of seasonal fluctuations, there can be no assurance that
the results for any particular quarter will be indicative of results for the
full year or for future quarters.
Footwear retailers in general are placing orders closer to the season.
This increases the Company's business risk because it must produce and carry
inventories for relatively longer periods. In addition, the later placement of
orders may change the historical pattern of orders and sales. There can be no
assurance that the results for any particular quarter or year will be
indicative of results for the full year or for any future quarter or year.
Many of the Company's products, particularly its rugged outdoor
footwear line, are used by consumers in cold or wet weather. Mild or dry
weather can have a material adverse effect on sales of the Company's products,
particularly if mild or dry weather conditions occur in broad geographical
areas during late Fall or early Winter. Also, due to variations in weather
conditions from year to year, results for any single quarter or year may not be
indicative of results for any future quarter or year. Due to extremely cold
winters in 1995 and in 1996 and 1996 and 1997, the Company believes that a
significant portion of its customers' inventory have sold through at retail.
BACKLOG
At December 31, 1996, December 31, 1995, June 30, 1995, and June 30,
1994, the Company had unfilled orders from its customers in the amount of
approximately $3.3 million, $1.8 million, $20.9 million, and $23.7 million,
respectively. Substantially all of the orders at December 31, 1996, are
expected to be filled before March 1997. Because a majority of the Company's
orders are placed in January through April for delivery in July through
October, the Company's backlog is lowest during the October through December
period and peaks during the April through June period. Factors other than
seasonality could have a significant impact on the Company's backlog and,
therefore, the Company's backlog at any one point in time may not be indicative
of future results. Generally, orders may be canceled by customers prior to
shipment without penalty.
- 9 -
<PAGE> 11
PATENTS, TRADEMARKS AND TRADE NAMES
The Company owns United States Patent Nos. Des. 367,165, Des. 367,354,
Des. 368,797, Des. 368,361, Des. 369,018, and Des. 369,019 for shoe uppers. The
Company has ten other design patent applications for shoe uppers that have been
allowed, but for which patents have not yet been issued. The Company has six
additional design patent applications pending for shoe soles and a shoe uppers.
The Company is not aware of any infringement of its patents or that it
is infringing any patents owned by third parties.
The Company owns United States federal registrations for its marks
ROCKY(R), ROCKY BOOTS(R) (which claims a ram's head design as part of the
mark), CORNSTALKERS(R), COME WALK WITH U.S. and Design(R), ROCKY 911 SERIES and
Design(R), SNOW/STALKER(R), 4 WAY STOP and Design(R), BEAR CLAW(R), and
STALKERS(R). An additional mark variation for ROCKY BOOTS and Design(TM) (which
claims a ram's head design as part of the mark) is the subject of a pending
federal application for registration. In addition, the Company uses and has
common law rights in the marks ROCKY(R) MOUNTAIN STALKERS(TM), ROCKY(R) BEAR
CLAW(TM) SERIES, and other ROCKY(R) marks. During 1994, the Company began to
increase distribution of its goods in several other countries, including
countries in Western Europe and other similarly developed countries. The
Company has applied for trademark registration of its ROCKY(R) mark in a number
of countries.
The Company also uses in its advertising and in other documents
trademarks owned by corporations other than the Company. GORE-TEX(R) is a
registered trademark of W.L. Gore & Associates, Inc.; CORDURA(R) is a
registered trademark of E.I. Du Pont de Nemours and Company; THINSULATE(R) is a
registered trademark of Minnesota Mining and Manufacturing Company; VIBRAM(R)
is a registered trademark of Vibram S.P.A.; AIR-O-MAGIC(R) is a registered
trademark of WBS Co.; and CAMBRELLE(R) is a trademark of Koppers Industries,
Inc.
The Company is not aware of any material conflicts concerning its
marks or its use of marks owned by other corporations.
COMPETITION
The Company operates in a very competitive environment and many of its
competitors have greater financial, distribution, and marketing resources than
the Company. The Company has at least five major competitors in the rugged
outdoor footwear market and three major competitors in the occupational
footwear market. In the handsewn casual market there are numerous competitors.
All of these competitors have strong brand name recognition in the markets that
they serve.
Product function, design, comfort, and quality, continued
technological improvements, brand awareness, timeliness of product delivery,
and product pricing are all important elements of competition in the markets
for the Company's footwear. The Company believes that, based on these factors,
it maintains a strong competitive position in its outdoor footwear and
occupational footwear market niches.
The footwear industry is subject to rapid changes in consumer
preferences. Although demand for the Company's rugged outdoor and occupational
footwear is relatively less sensitive to changing fashion trends, as these
product lines are primarily classic styles which emphasize functionality and
performance, consumer preferences and fashion trends are becoming relatively
more important even in these lines. The Company's handsewn casual product line
and certain styles within its rugged outdoor and occupational product lines are
relatively more susceptible to fashion trends, and therefore, the success of
these products and styles are more dependent on the Company's ability to
anticipate and respond to changing fashion trends and consumer demands within
its niche market in a timely manner. The Company's inability or failure to do
so could adversely affect consumer acceptance of these product lines and
styles.
- 10 -
<PAGE> 12
EMPLOYEES
At December 31, 1996, the Company had approximately 1,530 full-time
employees and 13 part-time employees. In the United States, the Company
employed at December 31, 1996 approximately 368 full-time and 13 part-time
employees, including 158 in production, 48 in warehousing and distribution, 28
in sales and marketing, and the balance in support, managerial, and
administrative positions. In addition, at December 31, 1996, the Company had
approximately 1,162 full-time employees in the Dominican Republic and Puerto
Rico, including 1,004 in production and the balance in managerial and
administrative positions. The production employees at the Ohio facility are
represented by the Amalgamated Clothing and Textile Workers Union. The current
collective bargaining agreement between the Company and the union was reached
in May 1996 and will expire in May 1998. The Company believes the agreement is
consistent with other contracts in the footwear industry.
Management considers its relations with all of its employees, both
union and non-union, to be good.
BUSINESS RISKS
The Company desires to take advantage of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). In
addition to the other information in this report, readers should carefully
consider that the following important factors, among others, in some cases have
affected, and in the future could affect, the Company's actual results and
could cause the Company's actual consolidated results of operations for 1997
and beyond, to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company.
Footwear Retailing. Although the footwear industry is subject to rapid
changes in consumer preference, the Company believes that demand for its rugged
outdoor and occupational shoes and boots is relatively insensitive to changing
fashion trends, as these products are more classic styles which emphasize
functionality and performance. The Company's handsewn casual product line is
more susceptible to fashion trends. The future success of this product line
will depend more upon the Company's ability to anticipate and respond to
changing fashion trends and consumer demands in a timely manner. The Company's
failure to do so could adversely affect consumer acceptance of its handsewn
casual product line. In addition, sales of the Company's outdoor rugged and
handsewn casual footwear and, to a lesser extent, occupational footwear, are
likely to be negatively affected by weak consumer spending as a result of
adverse trends or uncertainties regarding the general economy. See "BUSINESS --
Seasonality."
Seasonality. The Company has historically experienced significant
seasonal fluctuations in the sale of its rugged outdoor footwear. A majority of
the orders for rugged outdoor footwear are placed in January through April for
delivery in July through October. In order to meet demand, the Company must
manufacture its rugged outdoor footwear year-round to be in a position to ship
advance orders during the quarters beginning in July and October of each year.
Accordingly, inventory levels have been highest during the quarter beginning in
April of each year and sales have been highest in the quarters beginning in
July and October of each year. Although the Company believes that sales of its
rugged outdoor footwear will continue to reflect this pattern, there is no
assurance that the results for any particular quarter will be indicative of
results for the full year or for future seasons. See "BUSINESS -- Seasonality."
Impact of Weather. Many of the Company's products, particularly its
rugged outdoor footwear line, are used by consumers in cold or wet weather.
Mild or dry weather can have a material adverse effect on sales of the
Company's products, particularly if mild or dry weather conditions occur in
broad geographical areas during late Fall or early Winter. Also due to
variations in weather conditions from year to year, results for any single
quarter or year may not be indicative of results for any future quarter or
year. See "BUSINESS -- Seasonality."
Competition. The Company operates in a competitive environment within
its targeted markets. The Company's diverse product line could make it
vulnerable to competitors who focus their resources on specific niches or
products.
- 11 -
<PAGE> 13
In addition, many of the Company's competitors have greater financial,
distribution, and marketing resources than the Company. The Company's future
success will depend to a significant degree upon its ability to remain
competitive in the areas of quality, timely delivery of product, and price. See
"BUSINESS -- Competition."
Reliance on Suppliers. The Company has been a customer of W. L. Gore &
Associates, Inc. ("Gore") since 1980 and was the first footwear manufacturer
licensed by Gore to manufacture, promote, sell, and distribute footwear
worldwide using GORE-TEX(R) waterproof fabric. The Company is currently one of
the largest customers of GORE-TEX(R) waterproof fabric for footwear. The
licensing agreement with Gore prohibits the Company from manufacturing any
products containing any taped waterproof, breathable products other than
GORE-TEX(R) products during the term of the agreement and for a period of three
years from its termination. Although other waterproofing techniques or
materials are available, the Company places a high value on its GORE-TEX(R)
license because the GORE-TEX(R) trade name has a high brand name recognition
and the GORE-TEX(R) waterproof fabric used in the manufacture of ROCKY(R)
footwear has a reputation for quality and proven performance. The Company's
licensing agreement with Gore may be terminated by either party upon 90 days
written notice; however, the Company has no reason to believe that its supply
of GORE-TEX(R) waterproof fabric will be interrupted in the future. See
"BUSINESS -- Suppliers."
Changing Consumer Buying Patterns. Historically, the Company has
chosen not to sell products to discount mass merchandisers and large discount
store chains. A continued shift in the marketplace from the traditional
independent retailers to these large discount retailers has increased the
pressure on manufacturers such as the Company to sell to the large discount
retailers and at less than historic margins. This merchandising trend has
existed for a number of years and a number of marginal retail customers of the
Company have ceased doing business as a result. Although progressive
independent retailers have attempted to combat the buying power of mass
merchandisers by joining buying groups, stressing personal service, and
stocking more products that address specific local needs, a continued shift to
mass merchandisers could have a material adverse effect on the Company and
could cause the Company to reevaluate its strategies.
Reliance on Key Personnel. The Company believes that the development
of its business has been, and will continue to be, highly dependent upon Mike
Brooks, Chairman, President, and Chief Executive Officer of the Company. The
loss of the services of Mr. Brooks could have a material adverse effect upon
the Company's business and development.
Offshore Manufacturing. Most of the Company's rugged outdoor and
handsewn casual footwear uppers are produced in the Dominican Republic. The
Company's business is, therefore, subject to some of the risks generally
associated with doing business offshore, such as: the imposition of additional
United States legislation and regulations relating to imports, including
quotas, duties, taxes, or other charges or restrictions; foreign governmental
regulation and taxation; fluctuations in foreign exchange rates; changes in
economic conditions in the Dominican Republic; and changes in relationships
between the United States and the Dominican Republic. If any such factors were
to render the conduct of business in the Dominican Republic undesirable or
impracticable, such a development could have a material adverse effect on the
Company's business, financial condition, and results of operations. Although
the Company acknowledges the risks generally associated with doing business
offshore, the Company believes that the location of its manufacturing
facilities in Ohio, Puerto Rico, and the Dominican Republic gives the Company
less exposure to potential United States import restrictions and duties than if
it were to import its products from the Far East, South America or Europe. See
"Business -- Manufacturing."
Tax Benefits. The Company's tax rate typically has been substantially
below the United States federal statutory rates in past years. Prior to Fiscal
1996, the Company paid no foreign income tax on the income generated by its
subsidiary in the Dominican Republic. Beginning in the fourth quarter of Fiscal
1996, the Company elected to repatriate a portion of the income generated by
its subsidiary in the Dominican Republic. The Company has elected not to
repatriate the accumulated earnings prior to fourth quarter of Fiscal 1996 for
the Dominican Republic subsidiary. Accumulated earnings are afforded favorable
income tax treatment under the Internal Revenue Code for income generated by
the Company's subsidiary in Puerto Rico, and the Company receives local tax
abatements for its subsidiary in Puerto Rico. The Company has elected not to
repatriate the earnings its subsidiary in Puerto Rico and thus has not
- 12 -
<PAGE> 14
recorded any additional U.S. income taxes that would otherwise be assessed.
However, beginning in Fiscal 1994, the Company has provided for the 10%
tollgate tax on the annual earnings of its subsidiary in Puerto Rico in
accordance with the provisions of SFAS No. 109, "Accounting for Income Taxes."
The Company's future tax rate will vary depending on many factors,
including the level of relative earnings and tax rates in each jurisdiction in
which it operates and the repatriation of any foreign income to the United
States. The Company anticipates that it will continue to earn income in Puerto
Rico and, therefore, expects a lower effective tax rate than the United States
federal statutory rate of 34%, so long as the present tax laws remain in
effect. The Company cannot anticipate future changes in such laws.
Stock Ownership by Management and Principal Shareholders;
Anti-Takeover Measures. The directors and executive officers of the Company
beneficially own approximately 29.4% of the outstanding Common Stock, assuming
the conversion of all Series A Preferred Stock into 45,000 shares of Common
Stock. These shareholders are able to exert significant influence over the
election of the members of the Board of Directors of the Company and the
affairs of the Company. The Company has also adopted certain anti-takeover
measures which, individually or collectively, could delay or frustrate the
removal of incumbent directors and could make more difficult a merger, tender
offer or proxy contest involving the Company even if such events might be
deemed by certain shareholders to be beneficial to the interest of the
shareholders.
Volatility of Stock Price. The market price of the Common Stock could
be subject to significant fluctuations in response to variations in quarterly
operating results and other factors. In addition, the stock market in recent
years has experienced extreme price and volume fluctuations that often have
been unrelated or disproportionate to the operating performance of companies.
These broad fluctuations may adversely affect the market price of the Common
Stock.
Limited Protection of Proprietary Technology; Risk of Third Party
Infringement Claims. The Company regards certain of its shoe and boot designs
as proprietary and relies on patents to protect those designs. While the
Company believes that the ownership of the patents is a significant factor in
its business, its success does not depend only on the ownership of the patents
or future patents, but also on the innovative skills, technical competence,
quality of service and marketing abilities of its personnel. The Company
believes its patents provide a measure of security against competition, and the
Company intends to enforce its patents against infringement by third parties.
If the Company's patents are found to be invalid, to the extent they have
served, or would in the future serve, as a barrier to entry in this
marketplace, there may be increased competition in the market.
Existing intellectual property laws afford only limited protection,
and it may be possible for unauthorized third parties to copy the Company's
shoe and boot designs or to reverse engineer or obtain and use information that
the Company regards as proprietary. There can be no assurance that the
Company's competitors will not independently develop shoe and boot designs that
are substantially equivalent or superior to those of the Company.
The Company owns United States federal registrations for a number of
its marks and designs. Additional marks and designs are the subject of pending
federal applications for registration. The Company also uses and has common law
rights in certain marks. During 1994, the Company began to increase
distribution of its goods in several other countries, including countries in
Western Europe and other similarly developed countries. Accordingly, the
Company has applied for trademark registrations in a number of these countries.
The Company believes its trademark and trade name protection provides
it with a measure of security against competition, and with name recognition
and customer goodwill. The Company intends to enforce its trademarks and trade
names against unauthorized use by third parties. However, existing trademark
and trade name laws afford only limited protection, and it may be possible for
unauthorized third parties, especially in foreign countries, to use the
Company's trademarks or trade names and realize monetary gain at the Company's
expense. Although such unauthorized use may be illegal, the Company may be
forced to expend substantial resources to enforce its rights and nonetheless be
divested of a portion of its goodwill as a result of such unauthorized use.
- 13 -
<PAGE> 15
ITEM 2. PROPERTIES.
The Company owns a 25,000 square foot building in Nelsonville, Ohio,
subject to a mortgage. Opened in September 1994, the first floor of the new
building is a 12,500 square foot factory outlet store. The second floor, also
12,500 square feet, houses the Company's executive offices. This building is
located adjacent to the Company's Nelsonville factory.
The Company leases a 5,000 square foot building, formerly its
headquarters, in Nelsonville, Ohio, to a third party under a two year lease.
This building is owned by the Company subject to a mortgage. Subsequent to
December 31, 1996, the Company re-occupied this facility.
The Company leases its 41,000 square foot manufacturing facility in
Nelsonville, Ohio, from the William Brooks Real Estate Company, an entity owned
by certain members of the Brooks family, including Mike Brooks and Barbara
Brooks Fuller, who are also executive officers and directors of the Company.
The 10-year lease expires in 1997 and is renewable for two additional five-year
terms.
The Company also owns a warehouse in Nelsonville, Ohio, subject to a
mortgage, which was recently expanded to 98,000 square feet. This warehouse
receives and stores raw materials for all of the Company's manufacturing
facilities and stores and distributes finished goods to customers throughout
the United States and Canada.
Lifestyle leases a 20,500 square foot manufacturing facility and a
22,700 square foot manufacturing facility/warehouse in Puerto Rico from the
Puerto Rico Industrial Development Company under net noncancellable operating
leases, one of which expires in 1998 and the other expires in 2002. These
leases will automatically renew for additional 10-year periods unless otherwise
terminated.
Five Star's manufacturing facility, consisting of three connected
buildings, is located in a tax-free trade zone in the Dominican Republic. Five
Star leases this 82,600 square foot facility from the Dominican Republic
Corporation for Industrial Development under a Consolidation of Lease Contract,
dated as of December 13, 1993. The term of the Consolidation of Lease Contract
expires on February 1, 2003.
Additionally, under a two year lease entered in January 1997, the
Company leases 18,000 square feet of warehouse space in Logan, Ohio.
ITEM 3. LEGAL PROCEEDINGS.
The Company is, from time to time, a party to litigation which arises
in the normal course of its business. Although the ultimate resolution of
pending proceedings cannot be determined, in the opinion of management, the
resolution of such proceedings in the aggregate will not have a material
adverse effect on the Company's financial position, results of operations, or
liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
- 14 -
<PAGE> 16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET INFORMATION
The Company's Common Stock has traded on the Nasdaq National Market
under the symbol "RCKY" since February 3, 1993. The following table sets forth,
for the periods indicated, the range of high and low sales prices for the
common stock of the Company as reported by the Nasdaq National Market:
<TABLE>
<CAPTION>
QUARTER ENDED LOW HIGH
<S> <C> <C>
Fiscal 1995:
September 30, 1994 $9.25 $11.50
December 31, 1994 $8.50 $10.50
March 31, 1995 $8.25 $10.50
June 30, 1995 $8.00 $10.00
Transitional Fiscal 1995:
September 30, 1995 $5.25 $6.675
December 31, 1995 $5.75 $6.75
Fiscal 1996:
March 31, 1996 $5.00 $6.75
June 30, 1996 $5.25 $8.50
September 30, 1996 $6.75 $8.25
December 31, 1996 $6.75 $10.00
</TABLE>
The number of record holders of Common Stock of the Company as of
February 28, 1997 was 232. The closing sales price of the common stock on
February 28, 1997 was $14.00.
It is the current intention of the Board of Directors of the Company
not to pay cash dividends, but rather to use the Company's cash resources for
the expansion of its business. Although the Company paid cash dividends prior
to becoming a public company in Fiscal 1993, future dividend policy will depend
upon the earnings and financial condition of the Company and the Company's need
for funds and other factors. See also Note 4 of Notes to Consolidated Financial
Statements concerning restrictions on maintaining a certain level of tangible
net worth, as defined, under the terms of the Company's credit arrangement.
- 15 -
<PAGE> 17
MARKET MAKERS
The following broker-dealer firms are market makers in the Company's Common
Stock:
<TABLE>
<S> <C>
Barber & Bronson, Inc. J. C. Bradford & Co.
Herzog, Heine, Geduld, Inc. Mayer & Schweitzer, Inc.
McDonald & Company Securities, Inc. Nash, Weiss & Co.
The Ohio Company Troster Singer Corp.
</TABLE>
- 16 -
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL DATA
(in thousands, except for per share data)
<TABLE>
<CAPTION>
TWELVE
MONTHS SIX YEAR ENDED JUNE 30,
YEAR ENDED MONTHS
ENDED 12/31/95 ENDED
----- -------- -----
12/31/96 (UNAUDITED) 12/31/95 1995 1994 1993 1992
-------- ----------- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales............................ $73,148 $60,384 $36,124 $60,227 $52,895 $41,205 $32,504
Income (loss) before extraordinary
loss and cumulative effect of change
in accounting principle........... (490) 1,433 1,820 1,767 1,623
Extraordinary loss, net of income
taxes............................. (148)
Cumulative effect of change in
accounting principle.............. 134
Net income (loss).................... $2,806 $(537) $(490) $1,433 $1,820 $1,753 $1,623
BALANCE SHEET DATA
Total assets......................... $58,090 $49,081 $49,081 $59,458 $51,943 $38,528 $25,559
Total long-term debt................. 19,520 16,554 16,554 15,503 17,357 5,251 2,109
Shareholders' equity................. 26,375 23,569 23,569 24,059 22,627 21,594 6,047
PER SHARE
Income (loss) before extraordinary
loss and cumulative effect of change
in accounting principle........... $0.74 $(0.15) $(0.13) $0.38 $0.47 $0.61 $0.72
Extraordinary loss, net of income
taxes............................. (0.05)
Cumulative effect of change in
accounting principle.............. 0.04
Net income (loss).................... $0.74 $(0.15) $(0.13) $0.38 $0.47 $0.60 $0.72
Weighted average number of
common shares and equivalents
outstanding....................... 3,777 3,666 3,666 3,741 3,842 2,900 2,250
</TABLE>
- 17 -
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this item is included under the caption
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION" in the Company's Annual Report to Shareholders and is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's consolidated financial statements as of December 31,
1996 and 1995 and for the years ended December 31, 1996 and 1995 (unaudited),
the six months ended December 31, 1995, and the years ended June 30, 1995 and
1994, together with the independent auditors' report thereon appear in the
Company's Annual Report to Shareholders and are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is included under the captions
"ELECTION OF DIRECTORS" and "INFORMATION CONCERNING THE DIRECTORS, EXECUTIVE
OFFICERS, AND PRINCIPAL SHAREHOLDERS - EXECUTIVE OFFICERS" and "SECTION 16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in the Company's Proxy Statement for
the 1997 Annual Meeting of Shareholders (the "Proxy Statement") to be held on
May 20, 1997, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is included under the captions
"INFORMATION CONCERNING THE DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL
SHAREHOLDERS - MEETINGS, COMMITTEES, AND COMPENSATION OF THE BOARD OF
DIRECTORS," "- EXECUTIVE COMPENSATION," and "- COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION" in the Company's Proxy Statement, and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is included under the caption
"INFORMATION CONCERNING THE DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL
SHAREHOLDERS - OWNERSHIP OF COMMON STOCK BY MANAGEMENT" and "- OWNERSHIP OF
COMMON STOCK BY PRINCIPAL SHAREHOLDERS," in the Company's Proxy Statement, and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is included under the caption
"INFORMATION CONCERNING THE DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL
SHAREHOLDERS - COMPENSATION
- 18 -
<PAGE> 20
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" in the Company's Proxy
Statement, and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(1) The following Financial Statements are included in the
Company's Annual Report to Shareholders and are incorporated
herein by reference.
Consolidated Balance Sheets as of December 31, 1996 and
December 31, 1995
Consolidated Statements of Operations for the fiscal year
ended December 31, 1996, the twelve months ended
December 31, 1995 (unaudited), the six months ended
December 31, 1995 and the fiscal years ended June
30, 1995 and June 30, 1994
Consolidated Statements of Shareholders' Equity for the
fiscal year ended December 31, 1996, the six months
ended December 31, 1995 and the fiscal years ended
June 30, 1995 and June 30, 1994
Consolidated Statements of Cash Flows for the fiscal year
ended December 31, 1996, the twelve months ended
December 31, 1995 (unaudited), the six months ended
December 31, 1995 and the fiscal years ended June
30, 1995, and June 30, 1994
Notes to Consolidated Financial Statements for the fiscal
year ended December 31, 1996, the six months ended
December 31, 1995 and the fiscal years June 30,
1995, and June 30, 1994
Independent Auditors' Report
(2) The following financial statement schedule for the fiscal
year ended December 31, 1996, the six months ended December
31, 1995 and the fiscal years ended June 30, 1995, and June
30, 1994 is included in this Annual Report on Form 10-K and
should be read in conjunction with the Consolidated Financial
Statements contained in the Annual Report.
Schedule II -- Consolidated Valuation and Qualifying Accounts
Schedules not listed above are omitted because of the absence
of the conditions under which they are required or because
the required information is included in the Consolidated
Financial Statements or the notes thereto.
- 19 -
<PAGE> 21
(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER EXHIBIT INDEX
DESCRIPTION PAGE
NUMBER
<S> <C> <C>
3(i) Amended and Restated Articles of Incorporation of the Registrant (previously
filed as Exhibit 3.1 to the Registration Statement on Form S-1 (Registration
No. 33-56118) and incorporated herein by reference).
3(ii) Amended and Restated Code of Regulations of the Registrant
(previously filed as Exhibit 3.2 to the Registration Statement
on Form S-1 (Registration No. 33-56118) and incorporated herein by reference).
4.1 Form of Stock Certificate for the Registrant (previously filed, with the same
exhibit number, as an exhibit to the Registration Statement on Form S-1
(Registration No. 33-56118) and incorporated herein by reference).
4.2 Articles Fourth, Fifth, Sixth, Seventh, Eighth, Eleventh, Twelfth, and
Thirteenth of the Registrant's Amended and Restated Articles of Incorporation
(see Exhibit 3(i)).
4.3 Articles I and II of the Registrant's Code of Regulations (see Exhibit 3(ii)).
10.1 Form of Employment Agreement, dated July 1, 1995, for executive officers
(previously filed, with same exhibit number, as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1995, and
incorporated herein by reference). o
10.2 Information concerning Employment Agreements substantially similar to
Exhibit 10.1 (previously filed, with same exhibit number, as an exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1995, and incorporated herein by reference). o
10.3 Deferred Compensation Agreement, dated May 1, 1984, between Rocky
Shoes & Boots Co. and Mike Brooks (previously filed, with the same exhibit
number, as an exhibit to the Registration Statement on Form S-1 (Registration
No. 33-56118) and incorporated herein by reference). o
10.4 Information concerning Deferred Compensation Agreements substantially
similar to Exhibit 10.3 (previously filed, with the same exhibit number, as an
exhibit to the Registration Statement on Form S-1 (Registration No.
33-56118) and incorporated herein by reference). o
10.5 Form of Company's amended 1992 Stock Option Plan (previously filed, with
same exhibit number, as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1995, and incorporated herein by
reference). o
10.6 Form of Stock Option Agreement (previously filed, with the same exhibit
number, as an exhibit to the Registration Statement on Form S-1 (Registration
No. 33-56118) and incorporated herein by reference). o
</TABLE>
- 20 -
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER EXHIBIT INDEX
DESCRIPTION PAGE
NUMBER
<S> <C> <C>
10.7 Revolving Credit Loan Agreement, dated January 28, 1997, among Rocky
Shoes & Boots, Inc., Five Star Enterprises Ltd., Lifestyle Footwear, Inc., Bank
One Columbus, N.A., The Huntington National Bank, and Bank One,
Columbus, N.A., as Agent. __
10.8 Buy-Sell Agreement, dated December 21, 1992, among the Registrant, Mike
Brooks, Charles Stuart Brooks, Jay W. Brooks, Barbara Brooks Fuller, and
Patricia H. Robey (previously filed, with the same exhibit number, as an
exhibit to the Registration Statement on Form S-1 (Registration No.
33-56118) and incorporated herein by reference). o
10.9 Master Agreement, dated as of February 1, 1996, by and between
Bank One, Columbus, N.A., and Rocky Shoes & Boots Co.
(previously filed, with the same exhibit number, as an exhibit
to the Company's Annual Report on Form 10-K for the transition
period ended December 31, 1995 and incorporated herein by
reference).
10.10 Indemnification Agreement, dated December 21, 1992, between the Registrant
and Mike Brooks (previously filed, with the same exhibit number, as an
exhibit to the Registration Statement on Form S-1 (Registration No.
33-56118) and incorporated herein by reference). o
10.11 Information concerning Indemnification Agreements substantially similar to
Exhibit 10.10 (previously filed, with the same exhibit number, as an exhibit to
the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1993, and incorporated herein by reference). o
10.12 Trademark License Agreement and Manufacturing Certification Agreement,
each dated May 14, 1994, between Rocky Shoes & Boots Co. and W. L. Gore
& Associates, Inc. (previously filed, with the same exhibit number, as an
exhibit to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994, and incorporated herein by reference).
10.13 Decree of Tax Exemption from the Government of the Commonwealth of
Puerto Rico (previously filed, with the same exhibit number, as an exhibit to
the Registration Statement on Form S-1 (Registration No. 33-56118) and
incorporated herein by reference).
10.13A English Translation of Addendum to Exhibit 10. 13 (previously filed, with the
same exhibit number, as an exhibit to Amendment No. 1 to the Registration
Statement on Form S-1 (Registration No. 33-56118) and incorporated herein
by reference).
10.14 Lease Agreement, dated March 1, 1987, as amended, between Rocky Shoes &
Boots Co. and William Brooks Real Estate Company regarding Nelsonville
factory (previously filed, with the same exhibit number, as an exhibit to the
Registration Statement on Form S-1 (Registration No. 33-56118) and
incorporated herein by reference).
</TABLE>
- 21 -
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER EXHIBIT INDEX
DESCRIPTION PAGE
NUMBER
<S> <C> <C>
10.15 Lease Contract, dated August 31, 1988, between Lifestyle Footwear, Inc. and
The Puerto Rico Industrial Development Company regarding
factory location 1 (previously filed, with the same exhibit
number, as an exhibit to the Registration Statement on Form S-1
(Registration No. 33-56118) and incorporated herein by reference).
10.16 Lease Contract, undated, between Lifestyle Footwear, Inc. and The Puerto
Rico Industrial Development company regarding factory location 2
(previously filed, with the same exhibit number, as an exhibit to the
Registration Statement on Form S-1 (Registration No. 33-56118) and
incorporated herein by reference).
10.16A English translation of Exhibit 10.16 (previously filed, with the same exhibit
number, as an exhibit to Amendment No. 1 to the Registration Statement on
Form S-1 (Registration No. 33-56118) and incorporated herein by reference).
10.17 Lease Agreement, dated December 13, 1993, between Five Star
Enterprises Ltd. and the Dominican Republic Corporation for
Industrial Development regarding buildings and annexes of a
combined manufacturing surface of 75,526 square feet, located
in the Industrial Free Zone of La Vega (previously filed, as
exhibit number 10.2, as an exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995,
and incorporated herein by reference).
10.17A English translation of Exhibit 10.17 (previously filed, as
exhibit number 10.2A, as an exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995,
and incorporated herein by reference).
10.18 Continuing Security Agreement, dated January 28, 1997, among Rocky Shoes
& Boots, Inc., Five Star Enterprises Ltd., Lifestyle Footwear, Inc., and Bank
One, Columbus, N.A., as Agent. ____
10.19 Loan Purchase, Assignment and Master Amendment Agreement, dated
as of February 1, 1996, among Bank One Columbus, N.A., NBD
Bank, NBD Bank, as Agent, Rocky Shoes & Boots, Inc., Rocky
Shoes & Boots, Co., Five Star Enterprises Ltd., and Lifestyle
Footwear, Inc. (previously filed, with the same exhibit number,
as an exhibit to the Company's Annual Report on Form 10-K for
the transition period ended December 31, 1995 and incorporated
herein by reference).
10.20 Installment Business Loan Note, dated August 19, 1993, among
Rocky Shoes & Boots, Inc., Rocky Shoes & Boots Co., Five Star
Enterprises Ltd., Lifestyle Footwear, Inc., and NBD Bank
(previously filed, with the same exhibit number, as an exhibit
to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994, and incorporated herein by reference).
10.21 Second Amendment to Business Loan Note, dated January 28, 1997, among
Rocky Shoes & Boots, Inc., Five Star Enterprises Ltd., and Lifestyle
Footwear, Inc. ____
</TABLE>
- 22 -
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER EXHIBIT INDEX
DESCRIPTION PAGE
NUMBER
<S> <C> <C>
10.22 Term Lease Master Agreement, dated April 27, 1993, between
Rocky Shoes & Boots, Inc. and IBM Credit Corporation
(previously filed, with the same exhibit number, as an exhibit
to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1993, and incorporated herein by reference).
10.23 Fourth Amendment to Promissory Note, dated January 28, 1997, among
Rocky Shoes & Boots, Inc., Five Star Enterprises Ltd., and Lifestyle
Footwear, Inc. ____
10.24 Acceptance Credit Agreement, dated May 4, 1993, among Rocky Shoes &
Boots, Inc., Rocky Shoes & Boots Co., Five Star Enterprises
Ltd., Lifestyle Footwear, Inc., and NBD Bank (previously filed,
with the same exhibit number, as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1994, and incorporated herein by reference).
10.25 Adjustable Rate Note, dated May 23, 1988, between Nelsonville Home and
Savings Association and Rocky Shoes & Boots Co. (previously filed, with the
same exhibit number, as an exhibit to the Registration Statement on Form S-1
(Registration No. 33-56118) and incorporated herein by reference).
10.26 First Amendment to Acceptance Credit Agreement, dated October
20, 1993, among Rocky Shoes & Boots, Inc., Rocky Shoes & Boots
Co., Five Star Enterprises Ltd., Lifestyle Footwear, Inc., and
NBD Bank (previously filed, with the same exhibit number, as an
exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994, and incorporated herein by
reference).
10.27 Form of Company's 1995 Stock Option Plan (previously filed, with same
exhibit number, as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1995, and incorporated herein by reference). o
10.28 Form of Stock Option Agreement under the 1995 Stock Option Plan
(previously filed, with same exhibit number, as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1995, and
incorporated herein by reference). o
10.29 Open-End Mortgage, Security Agreement and Assignment of Rents and
Leases, dated March 30, 1995, between Rocky Shoes & Boots Co. and NBD
Bank, as Agent (previously filed as Exhibit No. 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, and
incorporated herein by reference).
10.30 Installment Business Loan Note, dated May 11, 1994, among Rocky
Shoes & Boots, Inc., Rocky Shoes & Boots Co., Five Star
Enterprises Ltd., Lifestyle Footwear, Inc., and NBD Bank
(previously filed, with the same exhibit number, as an exhibit
to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994, and incorporated herein by reference).
</TABLE>
- 23 -
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER EXHIBIT INDEX
DESCRIPTION PAGE
NUMBER
<S> <C>
10.31 Construction and Term Loan Agreement, dated October 27, 1993,
among Rocky Shoes & Boots, Inc., Rocky Shoes & Boots Co., Five
Star Enterprises Ltd., Lifestyle Footwear, Inc., and NBD Bank
(previously filed, with the same exhibit number, as an exhibit
to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994, and incorporated herein by reference).
10.32 Promissory Note, dated October 27, 1993, among Rocky Shoes &
Boots, Inc., Rocky Shoes & Boots Co., Five Star Enterprises
Ltd., Lifestyle Footwear, Inc., and NBD Bank (previously filed,
with the same exhibit number, as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1994, and incorporated herein by reference).
10.33 Open-End Mortgage, Security Agreement and Assignment of Rents
and Leases, dated October 27, 1993, among Rocky Shoes & Boots,
Inc., Rocky Shoes & Boots Co., Five Star Enterprises Ltd.,
Lifestyle Footwear, Inc., and NBD Bank (previously filed, with
the same exhibit number, as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994,
and incorporated herein by reference).
10.34 First Amendment to Construction and Term Loan Agreement, dated
January 28, 1994, among Rocky Shoes & Boots, Inc., Rocky Shoes
& Boots Co., Five Star Enterprises Ltd., Lifestyle Footwear,
Inc., and NBD Bank (previously filed, with the same exhibit
number, as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1994, and incorporated
herein by reference).
10.35 First Amendment to Promissory Note, dated January 28, 1994,
among Rocky Shoes & Boots, Inc., Rocky Shoes & Boots Co., Five
Star Enterprises Ltd., Lifestyle Footwear, Inc., and NBD Bank
(previously filed, with the same exhibit number, as an exhibit
to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994, and incorporated herein by reference).
10.36 First Amendment to Open-End Mortgage, Security Agreement and
Assignment of Rents and Leases, dated January 28, 1994, among
Rocky Shoes & Boots, Inc., Rocky Shoes & Boots Co., Five Star
Enterprises Ltd., Lifestyle Footwear, Inc., and NBD Bank
(previously filed, with the same exhibit number, as an exhibit
to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994, and incorporated herein by reference).
10.37 Promissory Note, dated December 20, 1993, between Rocky Shoes &
Boots, Inc. and Charles Stuart Brooks (previously filed, with
the same exhibit number, as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994,
and incorporated herein by reference).
10.38 Letter Agreement between the Registrant and the Kravetz Group, dated
August 3, 1994 (previously filed as Exhibit No. 10.6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, and
incorporated herein by reference).
</TABLE>
- 24 -
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER EXHIBIT INDEX
DESCRIPTION PAGE
NUMBER
<S> <C> <C>
10.39 Amendment to Buy-Sell Agreement, dated as of March 30, 1995, among the
Registrant, Mike Brooks, Barbara Brooks Fuller, Patricia H. Robey, Jay W.
Brooks and Charles Stuart Brooks (previously filed as Exhibit No. 10.7 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995, and incorporated herein by reference).
10.41 Amended and Restated Master Business Loan Note, dated March 30,
1995, among the Registrant, Rocky Shoes & Boots Co., Five Star
Enterprises Ltd., Lifestyle Footwear, Inc. (previously filed as
Exhibit No. 10.4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995, and incorporated herein
by reference).
10.42 Third Amendment to Construction and Term Loan Agreement, dated as of
March 30, 1995, among the Registrant, Rocky Shoes & Boots Co., Five Star
Enterprises Ltd., and Lifestyle Footwear, Inc. (previously filed as Exhibit No.
10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, and incorporated herein by reference).
10.43 Loan Agreement, dated as of October 7, 1994, between the
Director of Development of the State of Ohio and Rocky Shoes &
Boots Co. (previously filed, with same exhibit number, as an
exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995, and incorporated herein by
reference).
10.44 Promissory Note, dated October 7, 1994, by Rocky Shoes & Boots
Co. (previously filed, with same exhibit number, as an exhibit
to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1995, and incorporated herein by reference).
10.45 Security Agreement, dated as of October 7, 1994, between the
Director of Development of the State of Ohio and Rocky Shoes &
Boots Co. (previously filed, with same exhibit number, as an
exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995, and incorporated herein by
reference).
10.46 Form of Employment Agreement, dated September 7, 1995, for
executive officers (previously filed, as exhibit number 10.5,
as an exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995, and incorporated
herein by reference).
10.47 Information covering Employment Agreements substantially similar to
Exhibit 10.46 (previously filed, as exhibit number 10.5, as an exhibit tot he
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1995, and incorporated herein by reference.)
13 Portions of the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 1996. ___
21.1 Subsidiaries of the Registrant. ___
</TABLE>
- 25 -
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER EXHIBIT INDEX
DESCRIPTION PAGE
NUMBER
<S> <C> <C>
23.1 Consent of Deloitte & Touche LLP. ___
24.1 Powers of Attorney. ___
27.1 Financial Data Schedule. ___
</TABLE>
o Management contract or compensatory plan.
The Registrant agrees to furnish to the Commission upon its request
copies of any omitted schedules or exhibits to any Exhibit filed herewith.
(B) REPORTS ON FORM 8-K
None.
(C) EXHIBITS
The exhibits to this report begin on page _____.
(D) FINANCIAL STATEMENT SCHEDULES
The financial statement schedule and the independent auditors' report
thereon are included on the following pages.
- 26 -
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Rocky Shoes & Boots, Inc.
We have audited the consolidated financial statements of Rocky Shoes & Boots,
Inc. and subsidiaries as of December 31, 1996 and 1995 and for the year ended
December 31, 1996, the six months ended December 31, 1995, and the year ended
June 30, 1995 and 1994, and have issued our report thereon dated March 11,
1997; such financial statements and report are included in your 1996 Annual
Report to Stockholders and are incorporated herein by reference. Our audits
also included the consolidated financial statement schedule of Rocky Shoes &
Boots, Inc. and subsidiaries, listed in Item 14. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statement taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
- --------------------------
March 11, 1997
Columbus, Ohio
- 27 -
<PAGE> 29
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES SCHEDULE II
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR DECEMBER 31, 1996,
THE SIX MONTHS ENDED DECEMBER 31, 1995, AND
FOR THE FISCAL YEARS ENDED JUNE 30, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions Charged To
---------------------
Balance at Balance
Beginning Costs and Other at End
DESCRIPTION of Period Expenses Accounts Deductions of Period
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended December 31, 1996 $156,000 $384,813 $(249,813) $291,000
======== ======== ========= ========
Six months ended December 31, 1995 $285,000 $119,940 $(248,940) $156,000
======== ======== ========= ========
Fiscal year ended June 30, 1995 $180,000 $189,385 $ (84,385) $285,000
======== ======== ========= ========
Fiscal year ended June 30, 1994 $100,000 $113,731 $ (33,731) $180,000
======== ======== ========= ========
RESERVE FOR OBSOLETE INVENTORY -
Year ended December 31, 1996 $ 0 $642,000 $ 0 $642,000
======== ======== ========= ========
</TABLE>
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ROCKY SHOES & BOOTS, INC.
Date: March 28, 1997 By: /s/ MIKE BROOKS
---------------------------------
Mike Brooks, Chairman, President,
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Mike Brooks
- ----------------------------------------- Chairman, President and Chief March 28, 1997
Mike Brooks Executive Officer (Principal
Executive Officer)
* David S. Fraedrich
- ----------------------------------------- Executive Vice President, Treasurer, March 28, 1997
David S. Fraedrich Chief Financial Officer and Director
(Principal Financial and Accounting
Officer)
* Curtis A. Loveland
- ----------------------------------------- Secretary and Director March 28, 1997
Curtis A. Loveland
* Leonard L. Brown
- ----------------------------------------- Director March 28, 1997
Leonard L. Brown
* Barbara Brooks Fuller
- ----------------------------------------- Director March 28, 1997
Barbara Brooks Fuller
* Stanley I. Kravetz
- ----------------------------------------- Director March 28, 1997
Stanley I. Kravetz
* James L. Stewart
- ----------------------------------------- Director March 28, 1997
James L. Stewart
* Robert D. Stix
- ----------------------------------------- Director March 28, 1997
Robert D. Stix
*By: /s/ MIKE BROOKS
-------------------------------------
Mike Brooks, Attorney-in-Fact
</TABLE>
- 28 -
<PAGE> 31
ROCKY SHOES & BOOTS, INC.
------------------------
EXHIBIT INDEX
TO
ANNUAL REPORT
ON FORM 10-K
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996
---------------------------
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER EXHIBIT INDEX
DESCRIPTION PAGE
NUMBER
<S> <C> <C>
3(i) Amended and Restated Articles of Incorporation of the Registrant (previously
filed as Exhibit 3.1 to the Registration Statement on Form S-1 (Registration
No. 33-56118) and incorporated herein by reference).
3(ii) Amended and Restated Code of Regulations of the Registrant
(previously filed as Exhibit 3.2 to the Registration Statement
on Form S-1 (Registration No. 33-56118) and incorporated herein by reference).
4.1 Form of Stock Certificate for the Registrant (previously filed, with the same
exhibit number, as an exhibit to the Registration Statement on Form S-1
(Registration No. 33-56118) and incorporated herein by reference).
4.2 Articles Fourth, Fifth, Sixth, Seventh, Eighth, Eleventh, Twelfth, and
Thirteenth of the Registrant's Amended and Restated Articles of Incorporation
(see Exhibit 3(i)).
4.3 Articles I and II of the Registrant's Code of Regulations (see Exhibit 3(ii)).
10.1 Form of Employment Agreement, dated July 1, 1995, for executive officers
(previously filed, with same exhibit number, as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1995, and
incorporated herein by reference). o
10.2 Information concerning Employment Agreements substantially similar to
Exhibit 10.1 (previously filed, with same exhibit number, as an exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1995, and incorporated herein by reference). o
10.3 Deferred Compensation Agreement, dated May 1, 1984, between Rocky
Shoes & Boots Co. and Mike Brooks (previously filed, with the same exhibit
number, as an exhibit to the Registration Statement on Form S-1 (Registration
No. 33-56118) and incorporated herein by reference). o
10.4 Information concerning Deferred Compensation Agreements substantially
similar to Exhibit 10.3 (previously filed, with the same exhibit number, as an
exhibit to the Registration Statement on Form S-1 (Registration No.
33-56118) and incorporated herein by reference). o
10.5 Form of Company's amended 1992 Stock Option Plan (previously filed, with
same exhibit number, as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1995, and incorporated herein by
reference). o
10.6 Form of Stock Option Agreement (previously filed, with the same exhibit
number, as an exhibit to the Registration Statement on Form S-1 (Registration
No. 33-56118) and incorporated herein by reference). o
</TABLE>
- 30 -
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER EXHIBIT INDEX
DESCRIPTION PAGE
NUMBER
<S> <C> <C>
10.7 Revolving Credit Loan Agreement, dated January 28, 1997, among Rocky
Shoes & Boots, Inc., Five Star Enterprises Ltd., Lifestyle Footwear, Inc., Bank
One Columbus, N.A., The Huntington National Bank, and Bank One,
Columbus, N.A., as Agent. __
10.8 Buy-Sell Agreement, dated December 21, 1992, among the Registrant, Mike
Brooks, Charles Stuart Brooks, Jay W. Brooks, Barbara Brooks Fuller, and
Patricia H. Robey (previously filed, with the same exhibit number, as an
exhibit to the Registration Statement on Form S-1 (Registration No.
33-56118) and incorporated herein by reference). o
10.9 Master Agreement, dated as of February 1, 1996, by and between
Bank One, Columbus, N.A., and Rocky Shoes & Boots Co.
(previously filed, with the same exhibit number, as an exhibit
to the Company's Annual Report on Form 10-K for the transition
period ended December 31, 1995 and incorporated herein by
reference).
10.10 Indemnification Agreement, dated December 21, 1992, between the Registrant
and Mike Brooks (previously filed, with the same exhibit number, as an
exhibit to the Registration Statement on Form S-1 (Registration No.
33-56118) and incorporated herein by reference). o
10.11 Information concerning Indemnification Agreements substantially similar to
Exhibit 10.10 (previously filed, with the same exhibit number, as an exhibit to
the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1993, and incorporated herein by reference). o
10.12 Trademark License Agreement and Manufacturing Certification Agreement,
each dated May 14, 1994, between Rocky Shoes & Boots Co. and W. L. Gore
& Associates, Inc. (previously filed, with the same exhibit number, as an
exhibit to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994, and incorporated herein by reference).
10.13 Decree of Tax Exemption from the Government of the Commonwealth of
Puerto Rico (previously filed, with the same exhibit number, as an exhibit to
the Registration Statement on Form S-1 (Registration No. 33-56118) and
incorporated herein by reference).
10. 13A English Translation of Addendum to Exhibit 10. 13 (previously filed, with the
same exhibit number, as an exhibit to Amendment No. 1 to the Registration
Statement on Form S-1 (Registration No. 33-56118) and incorporated herein
by reference).
10.14 Lease Agreement, dated March 1, 1987, as amended, between Rocky Shoes &
Boots Co. and William Brooks Real Estate Company regarding Nelsonville
factory (previously filed, with the same exhibit number, as an exhibit to the
Registration Statement on Form S-1 (Registration No. 33-56118) and
incorporated herein by reference).
</TABLE>
- 31 -
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER EXHIBIT INDEX
DESCRIPTION PAGE
NUMBER
<S> <C> <C>
10.15 Lease Contract, dated August 31, 1988, between Lifestyle Footwear, Inc. and
The Puerto Rico Industrial Development Company regarding
factory location 1 (previously filed, with the same exhibit
number, as an exhibit to the Registration Statement on Form S-1
(Registration No. 33-56118) and incorporated herein by reference).
10.16 Lease Contract, undated, between Lifestyle Footwear, Inc. and The Puerto
Rico Industrial Development company regarding factory location 2
(previously filed, with the same exhibit number, as an exhibit to the
Registration Statement on Form S-1 (Registration No. 33-56118) and
incorporated herein by reference).
10.16A English translation of Exhibit 10.16 (previously filed, with the same exhibit
number, as an exhibit to Amendment No. 1 to the Registration Statement on
Form S-1 (Registration No. 33-56118) and incorporated herein by reference).
10.17 Lease Agreement, dated December 13, 1993, between Five Star
Enterprises Ltd. and the Dominican Republic Corporation for
Industrial Development regarding buildings and annexes of a
combined manufacturing surface of 75,526 square feet, located
in the Industrial Free Zone of La Vega (previously filed, as
exhibit number 10.2, as an exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995,
and incorporated herein by reference).
10.17A English translation of Exhibit 10.17 (previously filed, as
exhibit number 10.2A, as an exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995,
and incorporated herein by reference).
10.18 Continuing Security Agreement, dated January 28, 1997, among Rocky Shoes
& Boots, Inc., Five Star Enterprises Ltd., Lifestyle Footwear, Inc., and Bank
One, Columbus, N.A., as Agent. ____
10.19 Loan Purchase, Assignment and Master Amendment Agreement, dated
as of February 1, 1996, among Bank One Columbus, N.A., NBD
Bank, NBD Bank, as Agent, Rocky Shoes & Boots, Inc., Rocky
Shoes & Boots, Co., Five Star Enterprises Ltd., and Lifestyle
Footwear, Inc. (previously filed, with the same exhibit number,
as an exhibit to the Company's Annual Report on Form 10-K for
the transition period ended December 31, 1995 and incorporated
herein by reference).
10.20 Installment Business Loan Note, dated August 19, 1993, among
Rocky Shoes & Boots, Inc., Rocky Shoes & Boots Co., Five Star
Enterprises Ltd., Lifestyle Footwear, Inc., and NBD Bank
(previously filed, with the same exhibit number, as an exhibit
to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994, and incorporated herein by reference).
10.21 Second Amendment to Business Loan Note, dated January 28, 1997, among
Rocky Shoes & Boots, Inc., Five Star Enterprises Ltd., and Lifestyle
Footwear, Inc. ____
</TABLE>
- 32 -
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER EXHIBIT INDEX
DESCRIPTION PAGE
NUMBER
<S> <C> <C>
10.22 Term Lease Master Agreement, dated April 27, 1993, between
Rocky Shoes & Boots, Inc. and IBM Credit Corporation
(previously filed, with the same exhibit number, as an exhibit
to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1993, and incorporated herein by reference).
10.23 Fourth Amendment to Promissory Note, dated January 28, 1997, among
Rocky Shoes & Boots, Inc., Five Star Enterprises Ltd., and Lifestyle
Footwear, Inc. ____
10.24 Acceptance Credit Agreement, dated May 4, 1993, among Rocky Shoes &
Boots, Inc., Rocky Shoes & Boots Co., Five Star Enterprises
Ltd., Lifestyle Footwear, Inc., and NBD Bank (previously filed,
with the same exhibit number, as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1994, and incorporated herein by reference).
10.25 Adjustable Rate Note, dated May 23, 1988, between Nelsonville Home and
Savings Association and Rocky Shoes & Boots Co. (previously filed, with the
same exhibit number, as an exhibit to the Registration Statement on Form S-1
(Registration No. 33-56118) and incorporated herein by reference).
10.26 First Amendment to Acceptance Credit Agreement, dated October
20, 1993, among Rocky Shoes & Boots, Inc., Rocky Shoes & Boots
Co., Five Star Enterprises Ltd., Lifestyle Footwear, Inc., and
NBD Bank (previously filed, with the same exhibit number, as an
exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994, and incorporated herein by
reference).
10.27 Form of Company's 1995 Stock Option Plan (previously filed, with same
exhibit number, as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1995, and incorporated herein by reference). o
10.28 Form of Stock Option Agreement under the 1995 Stock Option Plan
(previously filed, with same exhibit number, as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1995, and
incorporated herein by reference). o
10.29 Open-End Mortgage, Security Agreement and Assignment of Rents and
Leases, dated March 30, 1995, between Rocky Shoes & Boots Co. and NBD
Bank, as Agent (previously filed as Exhibit No. 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, and
incorporated herein by reference).
10.30 Installment Business Loan Note, dated May 11, 1994, among Rocky
Shoes & Boots, Inc., Rocky Shoes & Boots Co., Five Star
Enterprises Ltd., Lifestyle Footwear, Inc., and NBD Bank
(previously filed, with the same exhibit number, as an exhibit
to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994, and incorporated herein by reference).
</TABLE>
- 33 -
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER EXHIBIT INDEX
DESCRIPTION PAGE
NUMBER
<S> <C>
10.31 Construction and Term Loan Agreement, dated October 27, 1993,
among Rocky Shoes & Boots, Inc., Rocky Shoes & Boots Co., Five
Star Enterprises Ltd., Lifestyle Footwear, Inc., and NBD Bank
(previously filed, with the same exhibit number, as an exhibit
to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994, and incorporated herein by reference).
10.32 Promissory Note, dated October 27, 1993, among Rocky Shoes &
Boots, Inc., Rocky Shoes & Boots Co., Five Star Enterprises
Ltd., Lifestyle Footwear, Inc., and NBD Bank (previously filed,
with the same exhibit number, as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1994, and incorporated herein by reference).
10.33 Open-End Mortgage, Security Agreement and Assignment of Rents
and Leases, dated October 27, 1993, among Rocky Shoes & Boots,
Inc., Rocky Shoes & Boots Co., Five Star Enterprises Ltd.,
Lifestyle Footwear, Inc., and NBD Bank (previously filed, with
the same exhibit number, as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994,
and incorporated herein by reference).
10.34 First Amendment to Construction and Term Loan Agreement, dated
January 28, 1994, among Rocky Shoes & Boots, Inc., Rocky Shoes
& Boots Co., Five Star Enterprises Ltd., Lifestyle Footwear,
Inc., and NBD Bank (previously filed, with the same exhibit
number, as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1994, and incorporated
herein by reference).
10.35 First Amendment to Promissory Note, dated January 28, 1994,
among Rocky Shoes & Boots, Inc., Rocky Shoes & Boots Co., Five
Star Enterprises Ltd., Lifestyle Footwear, Inc., and NBD Bank
(previously filed, with the same exhibit number, as an exhibit
to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994, and incorporated herein by reference).
10.36 First Amendment to Open-End Mortgage, Security Agreement and
Assignment of Rents and Leases, dated January 28, 1994, among
Rocky Shoes & Boots, Inc., Rocky Shoes & Boots Co., Five Star
Enterprises Ltd., Lifestyle Footwear, Inc., and NBD Bank
(previously filed, with the same exhibit number, as an exhibit
to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994, and incorporated herein by reference).
10.37 Promissory Note, dated December 20, 1993, between Rocky Shoes &
Boots, Inc. and Charles Stuart Brooks (previously filed, with
the same exhibit number, as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994,
and incorporated herein by reference).
10.38 Letter Agreement between the Registrant and the Kravetz Group, dated
August 3, 1994 (previously filed as Exhibit No. 10.6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, and
incorporated herein by reference).
</TABLE>
- 34 -
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER EXHIBIT INDEX
DESCRIPTION PAGE
NUMBER
<S> <C> <C>
10.39 Amendment to Buy-Sell Agreement, dated as of March 30, 1995, among the
Registrant, Mike Brooks, Barbara Brooks Fuller, Patricia H. Robey, Jay W.
Brooks and Charles Stuart Brooks (previously filed as Exhibit No. 10.7 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995, and incorporated herein by reference).
10.41 Amended and Restated Master Business Loan Note, dated March 30,
1995, among the Registrant, Rocky Shoes & Boots Co., Five Star
Enterprises Ltd., Lifestyle Footwear, Inc. (previously filed as
Exhibit No. 10.4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995, and incorporated herein
by reference).
10.42 Third Amendment to Construction and Term Loan Agreement, dated as of
March 30, 1995, among the Registrant, Rocky Shoes & Boots Co., Five Star
Enterprises Ltd., and Lifestyle Footwear, Inc. (previously filed as Exhibit No.
10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, and incorporated herein by reference).
10.43 Loan Agreement, dated as of October 7, 1994, between the
Director of Development of the State of Ohio and Rocky Shoes &
Boots Co. (previously filed, with same exhibit number, as an
exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995, and incorporated herein by
reference).
10.44 Promissory Note, dated October 7, 1994, by Rocky Shoes & Boots
Co. (previously filed, with same exhibit number, as an exhibit
to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1995, and incorporated herein by reference).
10.45 Security Agreement, dated as of October 7, 1994, between the
Director of Development of the State of Ohio and Rocky Shoes &
Boots Co. (previously filed, with same exhibit number, as an
exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995, and incorporated herein by
reference).
10.46 Form of Employment Agreement, dated September 7, 1995, for
executive officers (previously filed, as exhibit number 10.5,
as an exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995, and incorporated
herein by reference).
10.47 Information covering Employment Agreements substantially similar to
Exhibit 10.46 (previously filed, as exhibit number 10.5, as an exhibit tot he
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1995, and incorporated herein by reference.)
13 Portions of the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 1996. ___
21.1 Subsidiaries of the Registrant. ___
</TABLE>
- 35 -
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER EXHIBIT INDEX
DESCRIPTION PAGE
NUMBER
<S> <C> <C>
23.1 Consent of Deloitte & Touche LLP. ___
24.1 Powers of Attorney. ___
27.1 Financial Data Schedule. ___
</TABLE>
o Management contract or compensatory plan.
- 36 -
<PAGE> 1
EXHIBIT 10.7
===============================================================================
REVOLVING CREDIT LOAN AGREEMENT
among
ROCKY SHOES & BOOTS, INC.,
FIVE STAR ENTERPRISES LTD.,
LIFESTYLE FOOTWEAR, INC.,
BANK ONE, COLUMBUS, NA,
THE HUNTINGTON NATIONAL BANK
and
BANK ONE, COLUMBUS, NA, as Agent
Dated as of January 28, 1997
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
(This Table of Contents is not part of this Agreement
and is only for convenience of reference.)
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I: Definitions
Section 1.1 Definitions.................................................................... 1
Section 1.2 Use of Terms................................................................... 11
Section 1.3 Cross References; Headings..................................................... 12
Section 1.4 Accounting Terms............................................................... 12
ARTICLE II: Amount and Terms of Commitment, Revolving Credit Loans and Letters
of Credit
Section 2.1 Commitments to Make Revolving Credit Loans..................................... 12
Section 2.2 Amounts Drawn Under L/Cs....................................................... 13
Section 2.3 Loan Administration............................................................ 13
Section 2.4 Notes; Termination Date........................................................ 13
Section 2.5 Notice of Revolving Credit Loan Borrowing...................................... 14
Section 2.6 Mandatory Reduction and Termination of Commitments............................. 14
Section 2.7 Use of Proceeds................................................................ 14
Section 2.8 Fees........................................................................... 14
Section 2.9 Additional Costs............................................................... 15
Section 2.10 Illegality and Impossibility................................................... 16
ARTICLE III: Interest and Prepayments
Section 3.1 Interest....................................................................... 16
Section 3.2 Principal Payments............................................................. 17
Section 3.3 Prepayments.................................................................... 17
Section 3.4 General Provisions as to Payments and Funding of Loans
and L/Cs....................................................................... 18
Section 3.5 Security Set-Off............................................................... 19
ARTICLE IV: Letters of Credit
Section 4.1 Issuance of Commercial L/Cs.................................................... 19
Section 4.2 Issuance of Standby L/Cs....................................................... 21
Section 4.3 Participation of L/Cs.......................................................... 22
Section 4.4 Further Assurances............................................................. 23
Section 4.5 Obligations Absolute........................................................... 23
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V: Representations and Warranties
Section 5.1 Representations and Warranties................................................. 23
ARTICLE VI: Conditions of Lending
Section 6.1 Conditions to Initial Transaction.............................................. 29
Section 6.2 Conditions to Each Transaction................................................. 31
ARTICLE VII: Covenants
Section 7.1 Affirmative Covenants.......................................................... 32
Section 7.2 Negative Covenants............................................................. 37
ARTICLE VIII: Events of Default
Section 8.1 Events of Default.............................................................. 40
Section 8.2 Allocation of Proceeds......................................................... 43
ARTICLE IX: The Agent
Section 9.1 Appointment.................................................................... 43
Section 9.2 Delegation of Duties........................................................... 44
Section 9.3 Exculpatory Provisions......................................................... 44
Section 9.4 Reliance by Agent.............................................................. 44
Section 9.5 Notice of Default.............................................................. 44
Section 9.6 Non-Reliance on Agent and Other Banks.......................................... 45
Section 9.7 Indemnification................................................................ 45
Section 9.8 Bank One in Its Individual Capacity............................................ 46
Section 9.9 Successor Agent................................................................ 46
ARTICLE X: Assignment and Participation
Section 10.1 Assignments.................................................................... 46
Section 10.2 Participations................................................................. 46
Section 10.3 Disclosure of Information...................................................... 47
ARTICLE XI: Miscellaneous
Section 11.1 Expenses....................................................................... 47
Section 11.2 Covenants to Survive, Binding Agreement........................................ 48
Section 11.3 Waivers........................................................................ 48
Section 11.4 Notices........................................................................ 48
Section 11.5 Section Headings, Severability, Entire Agreement............................... 49
Section 11.6 Governing Law.................................................................. 50
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
Section 11.7 Right of Setoff................................................................ 50
Section 11.8 Amendments..................................................................... 50
Section 11.9 Taxes and Fees................................................................. 50
Section 11.10 Counterparts................................................................... 50
Section 11.11 Effective Date................................................................. 51
Section 11.12 Waiver of Jury Trial........................................................... 51
Section 11.13 Waiver of Subragation ......................................................... 51
Seciton 11.14 Confession of Judgment ........................................................ 51
Signatures ........................................................................................ 52
Exhibit A -- Bank One Note
Exhibit B -- HNB Note
Exhibit C -- Legal Opinions
Exhibit D -- Borrowing Base Certificate
Schedule 5.1(d) -- Litigation
Schedule 5.1(s) -- Intellectual Property
Schedule 5.1(u) -- Contingent Obligations
</TABLE>
-iii-
<PAGE> 5
REVOLVING CREDIT LOAN AGREEMENT
THIS REVOLVING CREDIT LOAN AGREEMENT (the "Agreement"), dated as of
January 28, 1997, is made and entered into by and among Rocky Shoes & Boots,
Inc., an Ohio corporation ("Rocky Inc."), Five Star Enterprises Ltd., a Cayman
Islands corporation ("Five Star"), Lifestyle Footwear, Inc., a Delaware
corporation ("Lifestyle") (the foregoing parties being referred to herein
individually as a "Borrower" and collectively as the "Borrowers"), Bank One,
Columbus, NA, a national banking association ("Bank One"), The Huntington
National Bank, a national banking association ("HNB")(Bank One and HNB shall be
referred to herein individually as a "Bank" and collectively as the "Banks"),
and Bank One, Columbus, NA, as Agent, acting in the manner and to the extent
described in Article IX (in such capacity, the "Agent").
BACKGROUND INFORMATION
A. The Borrowers have requested that the Banks provide revolving
credit and other credit facilities to the Borrowers, and the Banks have agreed
to provide such revolving credit and other credit facilities, upon and subject
to the terms and conditions as hereinafter set forth.
PROVISIONS
NOW, THEREFORE, in consideration of the provision of such revolving
credit and other credit facilities, the agreements and covenants hereinafter
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Banks, the Agent and the
Borrowers do hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. As used herein, in any certificate, document
or report delivered pursuant to this Agreement (unless otherwise defined in
such certificate, document or report), the following terms shall have the
following meanings:
"Accounts Receivable" shall mean, at any date, the total of
all accounts which would be properly classified in accordance with GAAP as
accounts receivable on the balance sheets of the Borrowers at such date.
"Affiliate" shall mean any Person which, directly or
indirectly, is in control of, is controlled by, or is under common control
with, a Borrower. For purposes of this definition, "control" means power,
directly or indirectly, either to (i) vote 10% or more of the securities having
ordinary voting power for the election of the governing body or person of such
Person or (ii) direct or cause the direction of the management and policies of
such Person whether by contract or otherwise.
<PAGE> 6
"Agent" shall mean the Agent as provided in Article IX , and
its successors and assigns.
"Aggregate Commitment" shall mean the collective, but
several, Commitments of the Banks to make Revolving Credit Loans to the
Borrowers and issue, provide and fund Commercial L/Cs and Standby L/Cs on
behalf of the Borrowers up to the following maximum aggregate amounts, subject
to the terms and conditions of this Agreement:
(i) from January 28, 1997 through and including May 31,
1997, the maximum aggregate amount of Twenty-Five Million Dollars
($25,000,000);
(ii) from June 1, 1997 through and including December 31,
1997, the maximum aggregate amount of Thirty-Five Million Dollars
($35,000,000); and
(iii) from January 1, 1998 through and including April 30,
1998, the maximum aggregate amount of Twenty-Five Million Dollars
($25,000,000).
"Agreement" shall mean this Revolving Credit Loan Agreement,
as the same may be amended, modified, supplemented, extended, restated or
replaced from time to time.
"Agreement Regarding Lease" shall mean the Agreement
Regarding Lease dated May 4, 1993, and a First Amendment thereof, among NBD,
Rocky Co. and William Brooks Real Estate Company regarding the Borrowers'
facility located at 45 Canal Street, Nelsonville, Ohio, as assigned by NBD to
Bank One pursuant to an Assignment of Agreement Regarding Lease dated February
2, 1996, as the same may be further amended, modified, supplemented, extended,
restated or replaced from time to time.
"Annual Review Date" shall mean April 30, 1997 and each April
30 thereafter while this Agreement is in effect.
"Available Commitment" shall mean, at any particular time, an
amount equal to the excess, if any, of (i) the Aggregate Commitment over (ii)
the sum of (x) the aggregate unpaid principal amount at such time of all
Revolving Credit Loans made by the Banks pursuant to Article II, plus (y) 100%
of the Dollar amount available to be drawn under outstanding Standby L/Cs at
such time, plus (z) 50% of the Dollar amount available to be drawn under
outstanding Commercial L/Cs at such time.
"Bank One Note" shall mean the Master Business Loan Note, in
the form of Exhibit A attached hereto, executed by the Borrowers and payable to
the order of Bank One in the maximum principal amount of Twenty-One Million
Dollars ($21,000,000), of even date herewith, as the same may be amended,
modified, supplemented, extended, restated or replaced from time to time.
-2-
<PAGE> 7
"Borrowing Base" shall mean the sum of (i) 80% of the amount
of Eligible Accounts Receivable, plus (ii) 50% of the amount of Inventory,
valued at the lower of cost or fair market value. Unless the Banks shall
otherwise permit, cost shall be calculated on a FIFO basis.
"Borrowing Base Certificate" shall have the meaning set forth
in Section 7.1(b)(iv).
"Business Day" shall mean any day excluding Saturday, Sunday
or any day that shall be in the City of Columbus, Ohio or New York, New York, a
legal holiday or a day on which banking institutions are authorized by law or
any Governmental Authority to close.
"Capital Expenditures" shall mean, with respect to the
Borrowers for any period, the sum of the aggregate of all expenditures (whether
paid in cash, capitalized as an asset or accrued as a liability) by the
Borrowers during such period which, in accordance with GAAP, are or should be
included in "capital expenditures" or similar items reflected in the statements
of cash flows of the Borrowers .
"Cash Flow Coverage" shall mean, with the following items of
the Borrowers being determined in accordance with GAAP, the ratio of (i) the
sum of net income, plus depreciation, plus interest expense, minus dividends
paid for the last four (4) Fiscal Quarters, to (ii) the sum of principal and
interest payments due with respect to Indebtedness, plus capital lease
payments, as determined at the end of each Fiscal Quarter of the Borrowers'
Fiscal Year, based on such financial data for the previous four (4) Fiscal
Quarters.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Collateral" shall have the meaning set forth in the Security
Agreement and as described in the Dominican Republic Documents and the Puerto
Rico Documents.
"Commercial L/C" shall mean an irrevocable letter of credit
under which Bank One agrees to make payments in Dollars for the account of a
Borrower, or on behalf of a Borrower, in respect of obligations of a Borrower
incurred pursuant to contracts made with respect to the importation of raw
materials.
"Commercial L/C Application" shall mean a Commercial Letter
of Credit Application and Agreement in Bank One's customary form at any time
with respect to a request to issue a Commercial L/C.
"Commitment" shall mean:
(a) with respect to Bank One, the commitment of Bank One to
make Revolving Credit Loans to the Borrowers and issue, provide and fund
Commercial L/Cs and
-3-
<PAGE> 8
Standby L/Cs on behalf of the Borrowers up to the following maximum aggregate
amounts, subject to the terms and conditions of this Agreement:
(i) from January 28, 1997 through and including
May 31,1997, the maximum aggregate amount of Fifteen Million Dollars
($15,000,000);
(ii) from June 1, 1997 through and including
December 31,1997, the maximum aggregate amount of Twenty-One Million Dollars
($21,000,000); and
(iii) from January 1, 1998 through and including
April 30, 1998, the maximum aggregate amount of Fifteen Million Dollars
($15,000,000)
(b) with respect to HNB, the commitment of HNB to make
Revolving Credit Loans to the Borrowers and to purchase participations from
Bank One with respect to Commercial L/Cs and Standby L/Cs on behalf of the
Borrowers up to the following maximum aggregate amounts, subject to the terms
and conditions of this Agreement:
(i) from January 28, 1997 through and including
May 31,1997, the maximum aggregate amount of Ten Million Dollars ($10,000,000);
(ii) from June 1, 1997 through and including
December 31,1997, the maximum aggregate amount of Fourteen Million Dollars
($14,000,000); and
(iii) from January 1, 1998 through and including
April 30,1998, the maximum aggregate amount of Ten Million Dollars
($10,000,000).
"Commitment Period" shall mean the period of time from the
date hereof through and including April 30, 1998, as such date may be extended
as provided in Section 2.4(b).
"Consolidated Current Assets" at any date shall mean the
total of all the Borrowers' assets treated as current assets in accordance with
GAAP, consistent with those used in the preparation of the Borrowers' financial
statements referred to in Section 5.1(g).
"Consolidated Current Liabilities" at any date shall mean the
total of all the Borrowers' liabilities treated as current liabilities in
accordance with GAAP, consistent with those used in the preparation of the
Borrowers' financial statements referred to at Section 5.1(g), and shall
include all outstanding Revolving Credit Loans made hereunder.
"Consolidated Earnings" at any date shall mean the amount
which would be set forth opposite the caption "net income" (or any like
caption) in a consolidated statement of income or operations of the Borrowers
at such date prepared in accordance with GAAP, consistently applied.
-4-
<PAGE> 9
"Consolidated Liabilities" at any date shall mean the total
of all accounts which would be properly classified as liabilities in a
consolidated balance sheet of the Borrowers at such date prepared in accordance
with GAAP, consistently applied.
"Consolidated Tangible Net Worth" at any time shall mean the
excess, if any, of the total amount of assets over the total amount of
liabilities, as the same would appear in a consolidated balance sheet of the
Borrowers at such date prepared in accordance with GAAP, less the book value of
all intangible assets, other than the deferred pension asset, determined in
accordance with GAAP.
"Contingent Obligation" shall mean as to any Person, any
reimbursement obligations of such Person in respect of drafts that may be drawn
under letters of credit and any obligation of such Person guaranteeing or in
effect guaranteeing any Indebtedness, leases, dividends or other obligations
primarily to pay money ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including
without limitation any obligation of such Person, whether or not contingent,
(a) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such primary obligation, or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the obligee under
any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation, or (d) otherwise to assure or hold harmless
the obligee under such primary obligation against loss in respect thereof;
provided, however, that the term "Contingent Obligation" shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business.
"Contractual Obligation" shall mean as to any Person, any
provision of any security issued by such Person or of any agreement, instrument
or undertaking to which such Person is a party or by which it or any of its
property is bound.
"Current Ratio" at any date shall mean the ratio of
Consolidated Current Assets to Consolidated Current Liabilities.
"Default" shall mean an event or condition which would
constitute an Event of Default with the giving of notice or lapse of time, or
otherwise.
"Dollar" and the sign "$" shall mean lawful money of the
United States of America.
"Dominican Republic Documents" shall mean the Chattel
Mortgage Agreement dated as of November 15, 1994 and the Agreement dated
October 7, 1994 entered into by and among NBD, Rocky Inc. and Five Star with
respect to property of Five Star located in the Dominican Republic, as assigned
to Bank One pursuant to a Loan
-5-
<PAGE> 10
Purchase, Assignment and Master Amendment Agreement among Bank One, NBD, NBD as
agent, and the Borrowers, dated as of February 1, 1996.
"Effective Federal Funds Rate" shall have the meaning set
forth in Section 3.4(c).
"Eligible Accounts Receivable" shall mean, at any date, the
total of all Accounts Receivable on the balance sheets of the Borrowers at such
date in which the Banks have a perfected first priority security interest,
excluding Accounts Receivable (i) which are more than ninety (90) days past
due, (ii) subject to offset, by credit or otherwise, or defense, (iii) which
arise from sales to Affiliates or are bonded, (iv) which arise from sales to
account debtors who are located outside the territorial limits of the United
States of America, (v) which arise from an account debtor which has more than
50% of its accounts payable owed to the Borrowers more than 90 days past due,
and (vi) which are otherwise unacceptable to the Agent, in its discretion.
"Environmental Laws" shall have the meaning assigned in
Section 5.1(p) .
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974 and all rules and regulations promulgated pursuant thereto, as the
same may from time to time be supplemented or amended.
"ERISA Event" shall mean, with respect to any Borrower, (a) a
Reportable Event (other than a Reportable Event not subject to the provision
for 30-day notice to the PBGC under regulations issued under Section 4043 of
ERISA), (b) the withdrawal of such Borrower or any Affiliate of such Borrower
from a Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA if such withdrawal would have a Material
Adverse Effect on such Person, (c) the filing by such Borrower of a notice of
intent to terminate a Plan under a distress termination or the treatment of a
Plan amendment as a distress termination under Section 4041(c) of ERISA, (d)
the institution of proceedings against such Borrower to terminate a Plan by the
PBGC under Section 4042 of ERISA, (e) the failure to make required
contributions that would result in the imposition of a lien under Section 412
of the Code or Section 302 of ERISA, (f) any Prohibited Transaction involving
any Plan, and (g) any other event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan.
"Event of Default" and "Events of Default" shall have the
meaning assigned in Section 8.1.
"Facility Documents" shall mean this Agreement, the Agreement
Regarding Lease, the Mortgage, the Security Agreement, the Notes, the Dominican
Republic Documents, the Puerto Rico Documents and any and all other documents
evidencing, securing or relating to the Revolving Credit Loans, the Commercial
L/Cs and/or the Standby
-6-
<PAGE> 11
L/Cs, as such documents may be amended, modified, supplemented, extended,
restated or replaced from time to time.
"Federal Funds Rate" shall mean, for any day, the rate per
annum (rounded, if necessary, to the nearest 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (i) if the day for which such rate is
to be determined is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as
so published on the next succeeding Business Day, and (ii) if such rate is not
so published for any day, the Federal Funds Rate for such day shall be the
average rate charged to Bank One on such day on such transaction as determined
by the Agent.
"Fiscal Quarter" shall mean, as to the Borrowers, any
consecutive three-month period ending on any March 31, June 30, September 30 or
December 31.
"Fiscal Year" shall mean, as to the Borrowers, any period of
twelve consecutive calendar months ending on December 31.
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect at the time any determination is made or
financial statement is required hereunder as promulgated by the American
Institute of Certified Public Accountants, the Accounting Principles Board, the
Financial Accounting Standards Board or other body existing from time to time
which is authorized to establish or interpret such principles.
"Governmental Authority" shall mean any national government,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Hazardous Substances" shall have the meaning assigned in
Section 5.1(p).
"HNB Note" shall mean the Master Business Loan Note, in the
form of Exhibit B attached hereto, executed by the Borrowers and payable to the
order of HNB in the maximum principal amount of Fourteen Million Dollars
($14,000,000), of even date herewith, as the same may be amended, modified,
supplemented, extended, restated or replaced from time to time.
"Indebtedness" shall mean as to any Person, at any particular
time (a) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services (including, without limitation, any such
indebtedness secured by assets of such Person); (b) all obligations of such
Person for the payment or rent or hire of property of any kind whatsoever under
leases or lease arrangements which under GAAP are required to be capitalized;
(c) all obligations of such Person under conditional sales or
-7-
<PAGE> 12
other title retention agreements; and (d) all indebtedness for borrowed money
secured by any lien upon property owned by such Person (whether or not the
holder of such indebtedness has any recourse against such Person).
"Inventory" shall mean at any date the total of all accounts
which would be properly classified in accordance with GAAP as inventory on the
balance sheets of the Borrowers at such date.
"Late Funding Charge" shall have the meaning set forth in
Section 3.4(c).
"Late Payment Charge" shall have the meaning set forth in
Section 3.4(a).
"L/C Funding" shall mean the funding of a draw pursuant to a
Commercial L/C or a Standby L/C to the beneficiary thereof.
"L/C Funding Commitment Percentage" shall mean the percentage
that each Bank's commitment to participate in the funding of Commercial L/Cs
and Standby L/Cs bears to the aggregate commitment of both Banks to participate
in the funding of draws under Commercial L/Cs and Standby L/Cs; specifically,
60% as to Bank One, and 40% as to HNB.
"L/C Funding Date" shall mean a date that a draw is funded
pursuant to a Commercial L/C or a Standby L/C to the beneficiary thereof.
"Lien" shall mean any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other), or
preference, priority or other security agreement, including without limitation,
any conditional sale or other title retention agreement, and the filing of any
financing statement under the Uniform Commercial Code or comparable law of any
jurisdiction in respect of any of the foregoing.
"Material Adverse Effect" shall mean, relative to any
occurrence of whatever nature (including any determination in litigation,
arbitration or governmental proceeding or investigation) that the Agent
reasonably determines will have a materially adverse effect on:
(a) the assets, business, profits, properties, condition
(financial or otherwise), operations or foreseeable financial
prospects of each Borrower, taken individually, or all of the
Borrowers, taken as a whole; or
(b) the inability of any Borrower to perform any of its
payment or other obligations under this Agreement, any other Facility
Documents or the transactions contemplated thereby; or
(c) the ability of any Borrower to perform any of its payment
or material obligations under the Notes or hereunder.
-8-
<PAGE> 13
"Mortgage" shall mean the Open-End Mortgage, Security
Agreement and Assignment of Rents and Leases, dated as of March 30, 1995,
executed by Rocky Co. which secures, among other obligations, the Notes, and
was recorded with the Athens County, Ohio Recorder in Official Record Volume
195, Page 475, on April 7, 1995, as assigned to the Agent pursuant to an
Assignment of Mortgage, dated as of February 2, 1996, and recorded with the
Athens County, Ohio Recorder in Official Record Volume 217, Page 494, as the
same may be amended, modified, supplemented, restated or replaced from time to
time.
"NBD" shall mean NBD Bank, an Ohio banking corporation, and
its predecessors and successors.
"Notes" shall mean, collectively, the Bank One Note and the
HNB Note.
"Notice of Borrowing" shall have the meaning assigned in
Section 2.5(a).
"Participant" shall mean any Person, now or at any time
hereafter, participating with either Bank in the Revolving Credit Loans to the
Borrowers or with respect to Commercial L/Cs or Standby L/Cs pursuant to this
Agreement, and its successors and assigns.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
"Person" shall mean an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or other
entity of whatever nature.
"Plan" shall mean any employee benefit plan or other plan
maintained for employees covered by Title 10 of ERISA.
"Prime Rate" shall mean the prime rate established and
announced by Bank One from time to time based on its consideration of economic,
money market, business and competitive factors, and it is not necessarily Bank
One's most favored rate, and adjusted to conform to changes as of the opening
of business on the date of any such change in such Prime Rate. In the event
Bank One shall abolish or abandon the practice of announcing its Prime Rate or
should the same be unascertainable, the Agent shall designate a comparable
reference rate which shall be deemed to be the Prime Rate under this Agreement
and the other Facility Documents.
"Prohibited Transaction" shall mean a transaction described
in Section 406 of ERISA which is not the subject of an exemption pursuant to
Section 408 of ERISA.
"Puerto Rico Documents" shall mean, collectively, (i) the
Chattel Mortgage Note, (ii) the Agreement for the Creation of Factor's Lien,
(iii) the Notice of Establishment
-9-
<PAGE> 14
of Factor's Lien and Assignment of Accounts Receivable, and (iv) the Personal
Property Mortgage and Affidavit, all dated as of October 7, 1994, executed by
Lifestyle in favor of NBD with respect to property of Lifestyle located in
Puerto Rico, as assigned to Bank One pursuant to a Loan Purchase, Assignment
and Master Amendment Agreement among Bank One, NBD, NBD as agent, and the
Borrowers, dated as of February 1, 1996.
"Real Property" shall have the meaning assigned in Section
5.1(p).
"Reportable Event" shall have the meaning given such term in
Section 4043(b) of ERISA.
"Required Property Insurance Coverage" shall mean at any time
insurance insuring all property of the Borrowers against loss or damage by
fire, lightening, vandalism and malicious mischief and all other perils covered
by standard "extended coverage" or "all-risk" insurance in an amount not less
than the replacement cost of such property and with not more than $5,000.00
deductible from the loss payable for any casualty. If any insurance policies
with respect to Required Property Insurance Coverage is written on a
co-insurance basis, such policy must contain an agreed amount endorsement as
evidence that the coverage is in an amount sufficient to insure the full amount
of such property.
"Required Public Liability Insurance Coverage" shall mean
comprehensive general accident and public liability insurance (including
coverage for elevators and escalators, if any, on property owned or leased by
the Borrowers) against injury, loss and/or damage to persons and property in an
amount which is not less than $1,000,000.00 for injury to persons and not less
than $1,000,000.00 for damage to property per occurrence, subject to an
aggregate of $2,000,000.00 per year, or such other additional amounts as may
from time to time be requested by the Banks.
"Requirements of Law" shall mean as to any Person, the
articles (certificate) of incorporation and code of regulations (by-laws) or
partnership agreement or other organizational or governing documents of such
Person, and any law, statute, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person
or any of its property is subject.
"Revolving Credit Borrowing Date" shall have the meaning set
forth in Section 2.4.
"Revolving Credit Loan" or "Revolving Credit Loans" shall
mean a loan or loans made from time to time to the Borrowers by the Banks
pursuant to Section 2.1 and as evidenced by the Notes.
"Revolving Credit Loan Commitment Percentage" shall mean the
percentage that each Bank's commitment to make Revolving Credit Loans bears to
the aggregate
-10-
<PAGE> 15
commitment of both Banks to make Revolving Credit Loans hereunder;
specifically, 60% as to Bank One, and 40% as to HNB.
"Rocky Co." shall mean Rocky Shoes & Boots Co., a former
subsidiary of Rocky Inc. which was merged into Rocky Inc. as of December 31,
1996.
"Security Agreement" shall mean the Continuing Security
Agreement entered into by and among the Borrowers and the Agent for the ratable
benefit of the Banks, dated of even date herewith, as the same may be modified,
amended, supplemented , restated or replaced from time to time.
"Setoff Obligation" shall mean and include all Total
Indebtedness of the Borrowers to the Banks, including, but not limited to, the
Indebtedness of the Borrowers arising under the Notes, the Commercial L/Cs, the
Standby L/Cs or any other document, instrument or agreement referred to herein.
"Standby L/C" shall mean an irrevocable letter of credit
under which Bank One agrees to make payments in Dollars for the account of a
Borrower, or on behalf of a Borrower, in respect of obligations of a Borrower
incurred pursuant to contracts made or performances undertaken or like matters
relating to contracts to which a Borrower is or proposing to become a party in
the ordinary course of such Borrower's business.
"Standby L/C Application" shall mean a Standby Letter of
Credit Application and Agreement in Bank One's customary form at any time with
respect to a request to issue a Standby L/C.
"Termination Date" shall mean the date upon which the
Commitment Period ends.
"Total Indebtedness" shall mean all Indebtedness and
liabilities of the Borrowers owing to the Banks from time to time, including
the indebtedness referred to herein.
"Uniform Customs" shall mean the Uniform Customs and Practice
for Documentary Credits, 1993 Revision, ICC Publication No. 500, or any
amendment thereof or successor thereto.
SECTION 1.2 Use of Terms. Unless otherwise defined or the context
otherwise requires, terms for which meanings are provided in this Agreement
shall have such meanings when used in the exhibits and schedules hereto, the
Facility Documents and any other communications delivered from time to time in
connection with this Agreement. Terms defined in the singular shall have a
comparable meaning when used in the plural, and vice versa, unless otherwise
defined in the plural.
-11-
<PAGE> 16
SECTION 1.3 Cross References; Headings. The words "hereof", "herein"
and "hereunder" and words of similar import when used in this Agreement or in
any of the other Facility Documents shall refer to this Agreement or such
Facility Documents as a whole and not to any particular provision of this
Agreement or such Facility Documents. Section, article, schedule and exhibit
references contained in this Agreement are references to sections, schedules
and exhibits in or to this Agreement unless otherwise specified. Any reference
in any section or definition to any clause is, unless otherwise specified, to
such clause of such section or definition. The various headings in this
Agreement and the other Facility Documents are inserted for convenience of
reference only and shall not affect the meaning or interpretation of this
Agreement or the other Facility Documents or any provision hereof or thereof.
SECTION 1.4 Accounting Terms. Any accounting term used in this
Agreement and in the other Facility Documents and any certificate or other
document made or delivered pursuant hereto that is not specifically defined
shall have the meaning customarily given in accordance with GAAP; provided,
however, that in the event that changes in GAAP shall be mandated by the
Financial Accounting Standards Board, or any similar accounting body of
comparable standing, and to the extent that such changes would modify or could
modify such accounting terms or the interpretation or computation thereof, such
changes shall be followed in defining such accounting terms only from and after
the date the Borrowers and the Banks shall have amended this Agreement to the
extent necessary to reflect any such changes in the financial covenants and
other terms and conditions of this Agreement.
ARTICLE II
AMOUNT AND TERMS OF COMMITMENT, REVOLVING CREDIT LOANS AND
LETTERS OF CREDIT
SECTION 2.1 Commitments to Make Revolving Credit Loans.
(a) Subject to the terms and conditions of this Agreement,
each Bank severally agrees to make Revolving Credit Loans to the Borrowers from
time to time during the Commitment Period; provided that, immediately after
each such Revolving Credit Loan is made, the aggregate principal amount of
Revolving Credit Loans by such Bank shall not exceed the amount of its
Commitment (as such Commitment may be reduced from time to time in accordance
with the terms of this Agreement), either as to Dollar amount or its Revolving
Credit Loan Commitment Percentage. During the Commitment Period and as long as
no Event of Default exists, the Borrowers may use the Aggregate Commitment by
borrowing, repaying the Revolving Credit Loans, in whole or in part, and
reborrowing, all in accordance with the terms and conditions hereof.
(b) Up to Three Million Dollars ($3,000,000) of the Aggregate
Commitment may be taken, from time to time, at the Borrowers' option, in the
form of Commercial L/Cs
-12-
<PAGE> 17
and/or Standby L/Cs pursuant to the terms hereof and the Commercial L/C
Applications and the Standby L/C Applications, respectively.
(c) Notwithstanding any provision hereof to the contrary, the
total amount of outstanding Revolving Credit Loans under the Aggregate
Commitment, when taken together with the total aggregate Dollar amount
available to be drawn under outstanding Commercial L/Cs and Standby L/Cs, shall
at no time exceed the lesser of (i) the Aggregate Commitment or (ii) the
Borrowing Base plus 50% of the Dollar amount available to be drawn under
outstanding Commercial L/Cs.
SECTION 2.2 Amounts Drawn Under L/Cs. Amounts paid against draws under
Commercial L/Cs and/or Standby L/Cs shall be considered to be Revolving Credit
Loans outstanding under the Aggregate Commitment until such amounts shall have
been reimbursed to the Banks pursuant to the terms of the Commercial L/C
Applications and/or the Standby L/C Applications, as the case may be.
SECTION 2.3 Loan Administration. The Banks shall have no obligation to
advance or re-advance any sums, make any Revolving Credit Loan or issue any
Commercial L/Cs or Standby L/Cs pursuant to terms of this Agreement at any time
when a Default or an Event of Default exists.
SECTION 2.4 Notes; Termination Date.
(a) The Revolving Credit Loans made by the Banks to the
Borrowers pursuant hereto shall be evidenced by the Notes, payable to the order
of the respective Bank and evidencing the obligation of the Borrowers to pay
the aggregate unpaid principal amount of the Revolving Credit Loans made by
such Bank, with interest thereon as prescribed in Article III and in the Notes.
Each Bank is hereby authorized to record electronically or otherwise the date
and amount of each Revolving Credit Loan disbursement made by such Bank, the
date and amount of each payment or repayment of principal thereof and such
other information as it deems necessary or appropriate and any such recordation
shall constitute prima facie evidence of the accuracy of the information so
recorded; provided, however, the failure of such Bank to make any such
recordation(s) shall not affect the obligation of the Borrowers to repay
outstanding principal, interest or any other amount due hereunder or under such
Note in accordance with the terms hereof and thereof.
(b) Each Note shall (i) be dated as of the date hereof, and
(ii) mature on the Termination Date; provided, however, that on or before each
Annual Review Date, the Banks, in their sole discretion, may elect to extend
the Commitment Period and the Borrowers' right to obtain Revolving Credit Loans
hereunder for an additional one (1) year period, or such other period as the
Banks may so elect, from the Termination Date then in effect, by providing
written notice to the Borrowers on or before an Annual Review Date. If the
Banks shall not have provided the Borrowers with written notice of their
intention to
-13-
<PAGE> 18
so extend, the Borrowers' right to obtain Revolving Credit Loans under this
Agreement shall terminate as of the then existing Termination Date.
SECTION 2.5 Notice of Revolving Credit Loan Borrowing.
(a) When the Borrowers desire to borrow under the Aggregate
Commitment, the Borrowers shall certify compliance with the conditions
precedent set forth in Article VI, and further shall give the Agent prior
written, telephonic or telegraphic notice (which notice shall be irrevocable)
(a "Notice of Borrowing") of their intention to borrow not later than 1:00
p.m., Columbus, Ohio time on the proposed date of the borrowing (a "Revolving
Credit Borrowing Date"), specifying the aggregate principal amount of the
Revolving Credit Loan to be made on the Revolving Credit Borrowing Date, which
amount shall not exceed the Available Commitment and otherwise conform to the
requirements hereof.
(b) Upon receipt of a Notice of Borrowing given in accordance
with Section 2.5(a), the Agent shall promptly (and in any event on or before
2:00 p.m. Columbus, Ohio time on the day such Notice of Borrowing is received
by the Agent) notify each Bank of the contents thereof and of such Bank's
Revolving Credit Loan in proportion to its Revolving Credit Loan Commitment
Percentage.
(c) Not later than 3:00 p.m. Columbus, Ohio time on the
applicable Revolving Credit Borrowing Date, each Bank shall make available its
Revolving Credit Loan in proportion to its Revolving Credit Loan Commitment
Percentage in federal or other funds immediately available in Columbus, Ohio,
to the Agent at its address set forth in Section 11.4. Unless the Agent
determines that any applicable condition(s) specified in Article VI has not
been satisfied, the Agent will make the funds so received from the Banks
available to the Borrowers at the Agent's aforesaid address.
SECTION 2.6 Mandatory Reduction and Termination of Commitments. The
Commitments shall terminate on the Termination Date and any Revolving Credit
Loans then outstanding shall be due and payable. Accrued interest on the
Revolving Credit Loans and all other outstanding fees, charges and expenses on
or related the Revolving Credit Loans shall be paid by the Borrowers on the
Termination Date.
SECTION 2.7 Use of Proceeds. The Borrowers represent that the proceeds
of the Revolving Credit Loans made hereunder shall be used by them for general
working capital purposes which are legal and proper purposes and which are
consistent with all applicable laws and statutes.
SECTION 2.8 Fees.
(a) Aggregate Commitment. During the Commitment Period, the
Borrowers shall pay to the Agent for the benefit of each Bank a commitment fee
on the
-14-
<PAGE> 19
daily average unused amount of the Aggregate Commitment at a rate equal to
one-quarter of one percent (1/4%) per annum (calculated on the basis of a
360-day year for the actual number of days elapsed); provided, however, that
the aggregate Dollar amount available to be drawn under outstanding Commercial
L/Cs and Standy L/Cs shall not be included as usage in determining this
commitment fee. Such commitment fee shall accrue on the unused amount of the
Aggregate Commitment beginning on the date hereof and shall continue to accrue
thereafter through the Termination Date. The accrued commitment fee shall be
payable quarterly in arrears beginning on March 31, 1997, upon written notice
to the Borrowers by the Agent setting forth such accrued commitment fee.
(b) Commercial L/Cs. The Borrowers shall pay to the Agent the
fees with respect to the issuance of Commercial L/Cs as set forth in Article
IV.
(c) Standby L/Cs. The Borrowers shall pay to the Agent the
fees with respect to the issuance of Standby L/Cs as set forth in Article IV.
SECTION 2.9 Additional Costs. (a) In the event that any applicable
law, treaty, rule or regulation (whether domestic or foreign) now or hereafter
in effect and whether or not presently applicable to either Bank, or any
interpretation or administration thereof by any Governmental Authority charged
with the interpretation or administration thereof, or compliance by either Bank
with any guideline, request or directive of any such authority (whether or not
having the force of law), shall (i) affect the basis of taxation of payments to
either Bank of any amounts payable by the Borrowers under this Agreement (other
than taxes imposed on the overall net income of either Bank by the
jurisdiction, or by any political subdivision or taxing authority of such
jurisdiction, in which such Bank has its principal office), or (ii) impose,
modify or deem applicable any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit, including
Commercial L/Cs and Standby L/Cs, extended by either Bank, or (iii) impose any
other condition with respect to this Agreement, the Notes or the Revolving
Credit Loans, the Commercial L/Cs or Standby L/Cs and the result of any of the
foregoing is to increase the cost to either Bank of making, funding or
maintaining such Revolving Credit Loans or Commercial L/Cs or Standby L/Cs or
to reduce the amount of any sum receivable by either Bank thereon, then the
Borrowers shall pay to such Bank, from time to time, upon request by such Bank,
additional amounts sufficient to compensate such Bank for such increased cost
or reduced sum receivable to the extent such Bank is not compensated therefor
in the computation of the interest rate applicable to such Revolving Credit
Loan or fees on Commercial L/Cs or Standby L/Cs. A statement as to the amount
of such increased cost or reduced sum receivable, prepared in good faith and in
reasonable detail by such Bank and submitted by such Bank to the Borrowers,
shall be conclusive and binding for all purposes, absent manifest error in
computation.
(b) In the event that any applicable law, treaty, rule or
regulation (whether domestic or foreign) now or hereafter in effect and whether
or not presently applicable to either Bank or any interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by either Bank with
-15-
<PAGE> 20
any guideline, request or directive of any such authority (whether or not
having the force of law), including any risk-based capital guidelines, affects
or would affect the amount of capital required or expected to be maintained by
either Bank (or any corporation controlling such Bank) and such Bank determines
that the amount of such capital is increased by or based upon the existence of
such Bank's obligations hereunder and such increase has the effect of reducing
the rate of return on such Bank's (or such controlling corporation's) capital
as a consequence of such obligations hereunder to a level below that which such
Bank (or such controlling corporation) could have achieved but for such
circumstances (taking into consideration its policies with respect to capital
adequacy) by an amount deemed by such Bank to be material, then the Borrowers
shall pay to such Bank, from time to time, upon request by such Bank,
additional amounts sufficient to compensate such Bank (or such controlling
corporation) for any increase in the amount of capital and reduced rate of
return which such Bank reasonably determines to be allocable to the existence
of such Bank's obligations hereunder. A statement as to the amount of such
compensation, prepared in good faith and in reasonable detail by such Bank and
submitted by such Bank to the Borrowers, shall be conclusive and binding for
all purposes, absent manifest error in computation. Such Bank may, at its
option, specify that such amounts are to be paid by way of an increase in the
commitment fees payable by the Borrowers pursuant to Section 2.8.
SECTION 2.10 Illegality and Impossibility. In the event that any
applicable law, treaty, rule or regulation (whether domestic or foreign) now or
hereafter in effect and whether or not presently applicable to either Bank, or
any interpretation or administration thereof by any Governmental Authority
charged with the interpretation or administration thereof, or compliance by
either Bank with any request or directive of such authority (whether or not
having the force of law), including without limitation exchange controls, shall
make it unlawful or impossible for either Bank to maintain any loan or
transaction under this Agreement, the Borrowers shall, upon receipt of notice
thereof from such Bank, immediately repay in full the then outstanding
principal amount of all Revolving Credit Loans made by such Bank so affected,
together with all accrued interest thereon to the date of payment. This
provision is for the benefit of the Banks and is not intended to increase the
yield to the Banks above the rates of interests provided for in this Agreement.
This Section 2.10 shall apply only as long as such illegality exists. The Banks
shall use reasonable, lawful efforts to avoid the impact of such law, treaty,
rule or regulation.
ARTICLE III
INTEREST AND PREPAYMENTS
SECTION 3.1 Interest. The Notes and the Revolving Credit Loans
thereunder shall bear interest at the Prime Rate, computed on the basis of the
actual number of days elapsed in a year of 360 days, until maturity, whether by
demand, acceleration or otherwise. Upon the occurrence of an Event of Default
hereunder or under either Note, and during the continuance of such, the
interest rate per annum shall be 300 basis points above the interest rate then
in effect. Interest shall be payable monthly in arrears
-16-
<PAGE> 21
commencing on February 1, 1997, and continuing on the first day of each month
thereafter, and at maturity. The interest rate shall change on the effective
date of any change in the Prime Rate. Any change in the interest rate on a
Revolving Credit Loan resulting from a change in the Prime Rate shall become
effective automatically and immediately without notice to the Borrowers. Each
determination by the Agent of interest accrued on any Revolving Credit Loan
shall constitute prima facie evidence of the accuracy of such determination.
The Agent shall determine the interest rate applicable to the
Revolving Credit Loans hereunder. The Agent shall give prompt notice to the
Borrowers and the Banks by telex, cable or telecopy of each interest rate so
determined, and its determination shall be conclusive in the absence of
manifest error.
SECTION 3.2 Principal Payments. The Borrowers shall pay to the Agent
for the pro rata benefit of the Banks the principal amount of the Revolving
Credit Loans (together with all accrued interest thereon) on the Termination
Date.
SECTION 3.3 Prepayments.
(a) Optional Prepayments. At their option and upon prior
written, telephonic or telegraphic notice to the Agent not later than 1:00
p.m., Columbus, Ohio time on a Business Day which is at least one Business Day
prior to the proposed date of prepayment (which also must be a Business Day),
the Borrowers may prepay the Revolving Credit Loans in whole at any time or in
part from time to time, without premium or penalty. In their notice of
prepayment, the Borrowers shall specify the date of prepayment, the amount of
the prepayment and the Revolving Credit Loan(s) to be prepaid. Each such
optional prepayment shall be applied to prepay ratably the Revolving Credit
Loans of the Banks. Upon receipt of notice of prepayment pursuant to this
subsection, the Agent shall promptly notify each Bank of the contents thereof
and of such Bank's ratable share of such prepayment and such notice shall not
thereafter be revocable by the Borrowers.
(b) Mandatory Prepayment. The Borrower shall repay the
Revolving Credit Loans or provide cash to the Agent with respect to outstanding
and undrawn Commercial L/Cs and/or Standby L/Cs on each such date as and to the
extent the outstanding balance of all Revolving Credit Loans plus the Dollar
amount available to be drawn under outstanding Commercial L/Cs and/or Standby
L/Cs exceeds the lesser of (i) the Aggregate Commitment or (ii) the Borrowing
Base plus 50% of the Dollar amount of outstanding Commercial L/Cs. Each such
mandatory prepayment shall be applied to prepay ratably the Revolving Credit
Loans of the Banks. Upon receipt of any prepayment pursuant to this subsection,
the Agent shall promptly notify each Bank of such Bank's ratable share of such
prepayment.
-17-
<PAGE> 22
SECTION 3.4 General Provisions as to Payments and Funding of Loans and
L/Cs.
(a) The Borrowers shall make each payment of principal of,
and interest on, each Bank's Revolving Credit Loans and of each Bank's
commitment fees hereunder, not later than 10:00 a.m. (Columbus, Ohio time) on
the date when due, in federal or other funds immediately available at the place
where payment is due, to the Agent at the Agent's address set forth in Section
11.4. The Agent shall distribute such payments ratably to the Banks on the date
such payments are received in like funds as received. If such payment amount is
distributed by the Agent to a Bank on a date after the date such payments are
so received by the Agent, the Agent (and not the Borrowers) shall pay to such
Bank on demand an amount ("Late Payment Charge") equal to the product of (i)
the daily average Federal Funds Rate (as defined herein, except as reasonably
determined by such Bank) during such period as reasonably determined by such
Bank, multiplied by (ii) the amount of such Bank's Revolving Credit Loan
Commitment Percentage of such payment amount, multiplied by (iii) a fraction,
the numerator of which is the number of days that elapse from and including the
date on which the Agent received such payment amount to the date on which the
amount of such Bank's Revolving Credit Loan Commitment Percentage of such
payment amount shall have become immediately available to such Bank, and the
denominator of which is 360. A certificate of such Bank submitted to the Agent
with respect to any such Late Payment Charge shall be conclusive in the absence
of manifest error.
(b) Whenever any payment of principal of, or interest on, any
Revolving Credit Loan or of commitment fees shall be due on a day which is not
a Business Day, the day for payment thereof shall be extended to the next
succeeding Business Day. If the date for any payment of principal is so
extended or is extended by operation of law or otherwise, interest thereon
shall be payable for such extended time period.
(c) Unless the Agent shall have been notified in writing by
either Bank on or prior to a Revolving Credit Borrowing Date or an L/C Funding
Date, as the case may be, that such Bank will not make available to the Agent
the amount that would constitute its Revolving Credit Loan Commitment
Percentage of the borrowing or its L/C Funding Commitment Percentage of draws
made on such date and, in the case of an L/C Funding, not reimbursed by the
Borrowers, the Agent may assume that such Bank has made such amount available
to the Agent on such Revolving Credit Borrowing Date or L/C Funding Date in
accordance with this Agreement, and the Agent may in reliance upon such
assumption make available to the Borrowers a corresponding amount or fund a
draw under a Commercial L/C or Standby L/C, as the case may be. If such amount
is made available to the Agent on a date after such Revolving Credit Borrowing
Date or an L/C Funding Date, such Bank shall pay to the Agent on demand an
amount (the "Late Funding Charge") equal to the product of (i) the daily
average Federal Funds Rate during such period as quoted by the Agent,
multiplied by (ii) the amount of such Bank's applicable Revolving Credit Loan
Commitment Percentage of such borrowing or L/C Funding Commitment Percentage of
such funding, multiplied by (iii) a fraction, the numerator of which is the
number of days that elapse from and including such Revolving Credit Borrowing
Date or L/C Funding Date to the date on which such Bank's applicable Revolving
Credit Loan Commitment Percentage
-18-
<PAGE> 23
of such borrowing or L/C Funding Commitment Percentage of such funding shall
have become immediately available to the Agent, and the denominator of which is
360 (the "Effective Federal Funds Rate"). A certificate of the Agent submitted
to either Bank with respect to any Late Funding Charges shall be conclusive in
the absence of manifest error. If such amount is so available, such payment to
the Agent shall constitute such Bank's Revolving Credit Loan on such Revolving
Credit Borrowing Date or L/C Funding on such L/C Funding Date, as the case may
be, for all purposes of this Agreement. If such amount is not so made available
to the Agent within two (2) Business Days following such Revolving Credit
Borrowing Date or the L/C Funding Date, then the Agent shall immediately notify
the Borrowers of such failure and on the third Business Day following receipt
of such notice, the Borrowers shall pay to the Agent an amount equal to that
portion of such borrowing for which the Agent did not receive funds from such
Bank, together with interest thereon for each day that the Borrowers had the
use thereof at the Effective Federal Funds Rate. Nothing contained in this
subsection shall relieve a Bank which has failed to make available its ratable
portion of any borrowing or funding hereunder from any obligation to do so in
accordance with the terms hereof.
(d) The failure of either Bank to make the Revolving Credit
Loan or L/C Funding to be made by it on any Revolving Credit Borrowing Date or
L/C Funding Date, respectively, shall not relieve the other Bank of its
obligation, if any, hereunder to make its Revolving Credit Loan on such
Revolving Credit Borrowing Date or L/C Funding on such L/C Funding Date, but
neither Bank shall be responsible for the failure of the other Bank to make the
Revolving Credit Loan or L/C Funding to be made by such other Bank on such
Revolving Credit Borrowing Date or L/C Funding Date.
SECTION 3.5 Security Set-Off. The Borrowers hereby grant to each Bank,
as security for the full and punctual payment of and performance of the
obligations of the Borrowers under this Agreement, a continuing lien on and
security interest in deposits or other sums credited by or due from such Bank
to the Borrowers or subject to withdrawal by the Borrowers; and regardless of
the adequacy of any Collateral or other means of obtaining repayment of such
obligations, each Bank may at any time upon or after the occurrence of an Event
of Default, without notice to the Borrowers, set-off the whole or any portion
or portions of any or all such deposits and other sums against such obligations
whether or not any other Person or Persons could also withdraw money therefrom.
Any sums so set-off shall be held in trust by such Bank for the pro rata
benefit of both Banks with respect to their respective Revolving Credit Loans
and L/C Fundings.
ARTICLE IV
LETTERS OF CREDIT
SECTION 4.1 Issuance of Commercial L/Cs.
(a) Request to Issue. The Borrowers may request Bank One to
issue, extend or modify a Commercial L/C by delivery to Bank One of a
Commercial L/C
-19-
<PAGE> 24
Application completed to the satisfaction of Bank One, together with the
proposed form of such Commercial L/C and such other certificates, documents and
other papers and information as Bank One may reasonably request.
(b) Form and Expiry. Each Commercial L/C issued hereunder
shall, among other things, (i) be in such form requested by the Borrowers and
shall be acceptable to Bank One in its sole discretion, and (ii) have an expiry
date occurring not later than one year after such Commercial L/C's date of
issuance. If the Aggregate Commitment is terminated, not later than such
termination, all outstanding Commercial L/Cs shall be returned to Bank One or
the Borrowers shall provide cash to fully collateralize all outstanding
Commercial L/Cs. Each Commercial L/C Application and each Commercial L/C shall
be subject to the Uniform Customs and, to the extent not subject to the Uniform
Customs and to the extent not inconsistent therewith, the laws of the State of
Ohio.
(c) Procedure for Opening Commercial L/Cs. Upon receipt of
any Commercial L/C Application and the requested form of the Commercial L/C
from the Borrowers, Bank One will review such Commercial L/C Application and
the other certificates, documents, information and papers delivered to Bank One
in connection therewith, in accordance with its customary procedures and shall
promptly notify the Borrowers of its decision whether to issue the Commercial
L/C and, if its decision is to issue the Commercial L/C on the terms and in the
form requested, open such Commercial L/C by issuing the original of such
Commercial L/C to the beneficiary thereof and by furnishing a copy thereof to
the Borrowers.
(d) Payments. The Borrowers agree (a) to reimburse Bank One,
forthwith upon its demand and otherwise in accordance with the terms of the
Commercial L/C Application relating thereto, for any expenditure or payment
made by Bank One under or in connection with any Commercial L/C and (b) to pay
interest on any unreimbursed portion of any such payments from the date of such
payment until reimbursement in full thereof at a rate per annum equal to (i)
prior to the date which is one Business Day after the day on which Bank One
demands reimbursement from the Borrower for such payment, the rate which would
then be payable on any outstanding Revolving Credit Loan which is not in
default and (ii) thereafter, the rate which would then be payable on any
outstanding Revolving Credit Loan which is in default.
(e) Commercial L/C Fees. In lieu of any letter of credit
commissions and fees provided for in any Commercial L/C Application (other than
standard issuance, amendment and negotiation fees), the Borrowers agree to pay
Bank One, for the ratable benefit of the Banks, with respect to each Commercial
L/C, a nonrefundable Commercial L/C fee as follows, payable when issued: if the
Commercial L/C is payable via (i) a sight draft, the fee shall be one-quarter
of one percent (.25%) per annum of the face amount of such Commercial L/C, and
(ii) a time draft, the fee shall be one and one-half percent (1.5%) per annum
of the face amount of such Commercial L/C. In addition, Bank One shall charge
and retain for its own account its standard issuance, amendment and negotiation
fees, if any, with respect to the issuance and administration of the Commercial
L/Cs.
-20-
<PAGE> 25
SECTION 4.2 Issuance of Standby L/Cs.
(a) Request to Issue. The Borrowers may request Bank One to
issue, extend or modify a Standby L/C by delivery to Bank One of a Standby L/C
Application completed to the satisfaction of Bank One, together with the
proposed form of such Standby L/C and such other certificates, documents and
other papers and information as Bank One may reasonably request.
(b) Form and Expiry. Each Standby L/C issued hereunder shall,
among other things, (i) be in such form requested by the Borrowers and shall be
acceptable to Bank One in its sole discretion, and (ii) have an expiry date
occurring not later than one year after such Standby L/C's date of issuance. If
the Aggregate Commitment is terminated, not later than such termination, all
outstanding Standby L/Cs shall be returned to Bank One or the Borrowers shall
provide cash to fully collateralize all outstanding Standby L/Cs. Each Standby
L/C Application and each Standby L/C shall be subject to the Uniform Customs
and, to the extent not subject to the Uniform Customs and, to the extent not
inconsistent therewith, the laws of the State of Ohio.
(c) Procedure for Opening Standby L/Cs. Upon receipt of any
Standby L/C Application and the requested form of the Standby L/C from the
Borrowers, Bank One will review such Standby L/C Application and the other
certificates, documents, information and papers delivered to Bank One in
connection therewith, in accordance with its customary procedures and shall
promptly notify the Borrowers of its decision whether to issue the Standby L/C
and, if its decision is to issue the Standby L/C on the terms and in the form
requested, open such Standby L/C by issuing the original of such Standby L/C to
the beneficiary thereof and by furnishing a copy thereof to the Borrowers.
(d) Payments. The Borrowers agree (i) to reimburse Bank One
forthwith upon its demand and otherwise in accordance with the terms of the
Standby L/C Application relating thereto, for any expenditure or payment made
by Bank One under or in connection with any Standby L/C and (ii) to pay
interest on any unreimbursed portion of any such payment from the due date of
any such payment until reimbursement in full thereof at a rate per annum equal
to (x) prior to the date which is one Business Day after the date on which Bank
One demands reimbursement from the Borrowers for such payment, the rate which
would then be payable on any outstanding Revolving Credit Loan which is not in
default and (y) thereafter, the rate which would then be payable on any
outstanding Revolving Credit Loan which is in default.
(e) Standby L/C Fees. In lieu of any letter of credit
commissions and fees provided for in any Standby L/C Application (other than
standard issuance, amendment and negotiation fees), the Borrowers agree to pay
Bank One, for the ratable benefit of the Banks, with respect to each Standby
L/C a nonrefundable Standby L/C Fee of one and one-half percent (1.5%) per
annum of the face amount of each Standby L/C, payable in advance not later than
the date of issuance thereof. In addition, Bank One shall charge
-21-
<PAGE> 26
and retain for its own account its standard issuance, amendment and negotiation
fees, if any, with respect to the issuance and administration of the Standby
L/Cs.
SECTION 4.3 Participation of L/Cs.
(a) Purchase by HNB. HNB shall purchase from Bank One
participations in all Commercial L/Cs and Standby L/Cs issued pursuant to this
Agreement or which are currently outstanding which may hereafter be renewed or
otherwise extended or modified. Such participations shall be in an amount equal
to the Revolving Credit Loan Commitment Percentage for HNB. All interest
thereon and all fees and commissions, other than Bank One's standard issuance,
amendment and negotiation fees, with respect to the issuance or renewal of such
Commercial L/Cs and Standby L/Cs shall be shared ratably by the Banks in
accordance with their respective Revolving Credit Loan Commitment Percentage.
(b) Amendment of L/C. If any such Commercial L/C or Standby
L/C is amended whereby the amount is increased, each Bank's share of
participation shall be increased accordingly to its Revolving Credit Loan
Commitment Percentage.
(c) Payments. If the Borrowers do not immediately reimburse
Bank One for amounts funded under draws under Commercial L/Cs or Standby L/Cs,
HNB shall make payment to Bank One in an amount equivalent to its participation
in the Commercial L/Cs or Standby L/Cs at Bank One's address set forth in
Section 11.4 hereof, and in any event not later than the time of payment
provided for in the terms and conditions of the applicable Commercial L/C
Applications and Standby L/C Applications. HNB's obligation to purchase such
participations shall be primary, and not subject to any condition, precedent or
otherwise, except the issuance of the subject Commercial L/C or Standby L/C.
Until payment of HNB's participation to Bank One, Bank One shall be
entitled to all amounts of credits received by Bank One or either Bank from the
Borrowers, whether by voluntary payment, realization upon any security or
exercise of the right of setoff, or by payment from any source, except, that
upon default of the applicant, all payments received by either Bank shall be
applied in the proportion set forth in Section 8.2.
(d) No Liability. Bank One shall not be liable to HNB for any
action taken or omitted with respect to the Commercial L/Cs or Standby L/Cs
unless caused by its own gross negligence or willful misconduct. Bank One shall
exercise the same care as in dealing with its own letters of credit, but shall
not be responsible in any manner to ascertain or inquire as to the financial
condition of the Borrowers, or the Borrowers' authority to execute the
Commercial L/C Applications and Standby L/C Applications, or the existence or
possible existence of any event of default under the Commercial L/C
Applications and Standby L/C Applications, or be responsible to file or record
or refile or rerecord to maintain or establish the validity, priority or
enforceability of any rights in and to the Collateral given by the Borrowers
under terms and conditions of the Commercial L/C Applications and Standby L/C
Applications or other security agreement given by the Borrowers or by way of
hypothecation.
-22-
<PAGE> 27
SECTION 4.4 Further Assurances. The Borrowers hereby agree from time
to time, to do and perform any and all acts and to execute any and all further
instruments reasonably requested by the Agent more fully to effect the purposes
of this Agreement and the issuance of Commercial L/Cs and Standby L/Cs
hereunder, and further agrees to execute any and all instruments reasonably
requested by the Agent in connection with the obtaining and/or maintaining of
any insurance coverage, if any, applicable to any Commercial L/C or Standby
L/C.
SECTION 4.5 Obligations Absolute. The Commercial L/C and Standby L/C
payment obligations of the Borrowers under this Agreement and the Commercial
L/C Applications and the Standby L/C Applications shall be unconditional and
irrevocable and shall be paid strictly in accordance with the terms of this
Agreement and the Commercial L/C Applications and the Standby L/C Applications
under all circumstances, including the following:
(a) the existence of any claim, setoff, defense or other
right which the Borrowers may have at any time against any beneficiary, or any
transferee, of any Commercial L/C or Standby L/C (or any Person for whom any
such beneficiary or any such transferee may be acting), the Banks, or any other
Person, whether in connection with this Agreement, the Commercial L/C
Applications, the Standby L/C Applications, the transactions contemplated
herein and therein, or any unrelated transaction;
(b) any statement or any other document presented under any
Commercial L/C or Standby L/C proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect;
(c) payment by Bank One under any Commercial L/C or Standby
L/C against presentation of a draft or certificate which does not comply with
the terms of such Commercial L/C or Standby L/C provided that Bank One has made
such payment to the beneficiary set forth on the face of such Commercial L/C or
Standby L/C, as the case may be, and Bank One has not made such payment
negligently or with willful misconduct; or
(d) any other circumstances or happening whatsoever, whether
or not similar to any of the foregoing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.1 Representations and Warranties. Each Borrower represents
and warrants to the Banks that:
-23-
<PAGE> 28
(a) Good Standing and Qualification. Each Borrower (i) is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (ii) has all requisite corporate power and
authority to own and operate its properties and to carry on its business as
presently conducted, (iii) is duly qualified as a foreign corporation to do
business in and is in good standing under the laws of each jurisdiction where,
by the nature of its business or because of the character of the properties
owned or leased by it or the transaction of its business, failure to be so
qualified would have a Material Adverse Effect or where failure to qualify
would affect the ability of such Borrower to enforce any of its material
rights, and (iv) is in compliance with all Requirements of Law except to the
extent that the failure to comply therewith would not, in the aggregate, have a
Material Adverse Effect and would not materially and adversely affect the
ability of each Borrower to perform its obligations under this Agreement and
all other Facility Documents.
(b) Authority. Each Borrower has full power and authority to
enter into this Agreement and all other Facility Documents, to make the
borrowings contemplated hereby, to execute, deliver and perform the Notes, the
Commercial L/C Applications and the Standby L/C Applications and to incur the
obligations provided for herein and therein, all of which have been duly
authorized by all necessary and proper corporate action. No consent, waiver or
authorization of, or filing with, any Person (including without limitation any
Governmental Authority), is required to be made or obtained by any Borrower in
connection with the borrowings hereunder or the execution, delivery,
performance, validity or enforceability of this Agreement and all other
Facility Documents.
(c) Binding Agreements. This Agreement and all other Facility
Documents constitute, and the Notes, when executed and delivered pursuant
hereto for value received, shall constitute, the valid and legally binding
obligations of each Borrower, enforceable in accordance with their respective
terms, except as enforcement of such terms may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, or similar laws
affecting creditors' rights generally, provided, however, that the Borrowers
represent and warrant that no such limitations currently exist as of the date
of this Agreement, or (ii) equitable principles which may limit the
availability of the remedy of specific performance or other equitable remedies.
(d) Litigation. Except as set forth on Schedule 5.1(d), there
are no actions, suits, investigations or administrative proceedings of or
before any court, arbitrator or Governmental Authority, to the knowledge of
each Borrower, pending or threatened against any Borrower or any of its
properties or assets which: (i) either in any case or in the aggregate, if
adversely determined, would have a Material Adverse Effect on any Borrower; or
(ii) question the validity of this Agreement or any other Facility Documents or
any action to be taken in connection with the transactions contemplated hereby
and thereby.
(e) No Conflicting Law or Agreements. The execution, delivery
and performance by and of each Borrower of this Agreement and all other
Facility Documents: (i) do not violate any provision of the articles
(certificate) of incorporation and code of
-24-
<PAGE> 29
regulations (by-laws) of each Borrower; (ii) do not violate any order, decree
or judgment by which any Borrower is bound, or, to the best of each Borrower's
knowledge, any provision of any law, statute, rule or regulation; (iii) do not
violate or conflict with, result in a breach of or constitute (with notice,
lapse of time, or otherwise) a default under any agreement, mortgage, indenture
or contract to which any Borrower is a party, or by which any Borrower's
properties are bound; or (iv) do not, to each Borrower's knowledge, result in
the creation or imposition of any lien, security interest, charge or
encumbrance of any nature whatsoever upon any property or assets of any
Borrower, except for the security interests created by the Security Agreement,
the Dominican Republic Documents, the Puerto Rico Documents or hereunder.
(f) Taxes. With respect to all taxable periods of each
Borrower, each Borrower has filed all tax returns which are required to be
filed and all federal, state, municipal, franchise and other taxes shown to be
due and payable on such filed returns have been paid or have been reserved
against, as required by GAAP, and no Borrower knows of any unpaid assessment
against it.
(g) Financial Statements. The Borrowers have heretofore
delivered to the Banks (i) the audited annual consolidated balance sheet of the
Borrowers as of December 31, 1995 and the related statements of income,
shareholders' equity and cash flows for the year then ended, and (ii) the
unaudited consolidated balance sheet of the Borrowers as of September 30, 1996,
and the related statement of income for the period then ended. Such financial
statements, with accompanying footnotes, fairly present the financial
condition, results of operations and cash flows of the Borrowers as of the
dates and for the periods referred to and have been prepared in accordance with
GAAP consistently applied by the Borrowers throughout the periods involved. The
financial statements referred to in this Section 5.1 (g) do not, nor does this
Agreement or any written statement furnished by the Borrowers to the Banks in
connection herewith, contain any untrue statement of a material fact or omit a
material fact necessary to make the statements contained therein or herein not
misleading.
(h) Adverse Developments. Since the date of the financial
statements most recently furnished to the Banks, there has been no change in
the business, prospects, operations or condition, financial or otherwise, of
the Borrowers or any of the properties or assets of the Borrowers which would
have a Material Adverse Effect on the Borrowers.
(i) Existence of Assets and Title Thereto. Each Borrower has
good and marketable title to its properties and assets, including the
properties and assets reflected in the financial statements referred to above.
Such properties and assets are not subject to any Lien except as expressly
permitted under the terms of this Agreement or the Security Agreement, the
Dominican Republic Documents and the Puerto Rico Documents. Each Borrower shall
not cause or permit in the future (upon the happening of a contingency or
otherwise) any of its property whether now owned or hereafter acquired to be
subject to a Lien except as provided in this Section 5.1 (i).
-25-
<PAGE> 30
(j) Regulation U. No Borrower is engaged in nor will engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin stock" under
Regulation U of the Board of Governors of the Federal Reserve System as now or
from time to time in effect. No part of the proceeds of the borrowings
hereunder will be used, directly or indirectly, for the purpose of "purchasing"
or "carrying" any "margin stock". The terms "purchasing," "carrying" and
"margin stock" shall be as defined in Regulation U promulgated by the Board of
Governors of the Federal Reserve System. If requested by the Agent, the
Borrower will furnish to the Banks a statement in conformity with the
requirements of Federal Reserve Form U-1 referred to in said Regulation U to
the foregoing effect.
(k) Compliance. No event has occurred and no condition exists
which would constitute an Event of Default pursuant to this Agreement. No
Borrower is in default with respect to any order, writ, injunction or decree of
any court or of any federal, state, municipal or other Governmental Authority,
commission, board, bureau, agency, authority or official or, to the knowledge
of the Borrower, in violation of any law, statute, rule or regulation to which
it or its properties are subject, which default or violation might have a
Material Adverse Effect on any Borrower. No Borrower is in default in the
payment or performance of any of its obligations or in the performance of any
mortgage, indenture, lease, contract or other agreement to which it is a party
or by which it or any of its assets or properties may be bound, which default
might have a Material Adverse Effect on any Borrower. No Borrower has failed to
obtain any licenses, permits, franchises or other governmental or environmental
authorizations necessary to the ownership of its properties or to the conduct
of its business, which violation or failure might have a Material Adverse
Effect on any Borrower.
(l) Leases. Each Borrower enjoys quiet and undisturbed
possession under all leases under which it is operating, and all such leases
are valid and subsisting, and not in default.
(m) Pension Plans. No ERISA Event has occurred with respect
to any Plan of the Borrowers. The PBGC has not made a determination that, with
respect to any Plan of any Borrower, an event or condition has occurred which
constitutes grounds under Section 4042 of ERISA for the termination of, or for
the appointment of a trustee to administer, any such Plan. The Borrowers are
not in violation of any laws, ordinances, governmental rules or regulations to
which they are subject, including without limitation any laws, rulings or
regulations relating to ERISA or Section 4975 of the Code, which violation
might have a Material Adverse Effect on any Borrower.
(n) Investment Company Act. No Borrower is an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
(o) No Insolvency. On the date hereof and after giving effect
to all Indebtedness of the Borrower (including the Revolving Credit Loans), (a)
each Borrower
-26-
<PAGE> 31
will be able to pay its obligations as they become due and payable; (b) the
present fair saleable value of each Borrower's assets exceeds the amount that
will be required to pay its probable liability on its obligations as the same
become absolute and matured; (c) the sum of each Borrower's property at a fair
valuation exceeds such Borrower's Indebtedness; and (d) each Borrower will have
sufficient capital to engage in its business. The grant by the Borrowers of the
security interest in the Collateral for the Revolving Credit Loans, the
Commercial L/Cs and the Standby L/Cs pursuant to the Security Agreement, the
Dominican Republic Documents and the Puerto Rico Documents constitutes fair
consideration and reasonably equivalent value because of the receipt of the
proceeds of such credit facilities.
(p) Environmental Matters.
(i) No Borrower has used Hazardous Materials on,
from or affecting any real property owned, leased or used by any Borrower (the
"Real Property") in any manner which violates any Environmental Laws governing
the use, storage, treatment, transportation, manufacture, refinement, handling,
production or disposal of Hazardous Materials, and to the best knowledge of
each Borrower, no present or prior owner of the Real Property or any tenant,
subtenant, occupant, prior tenant, prior subtenant or prior occupant has used
Hazardous Materials on, from or affecting the Real Property in any manner which
violates any Environmental Laws governing the use, storage, treatment,
transportation, manufacture, refinement, handling, production or disposal of
Hazardous Materials;
(ii) No Borrower has ever received any notice of any
violation of any Environmental Laws governing the use, storage, treatment,
transportation, manufacture, refinement, handling, production or disposal of
Hazardous Materials, and to the best knowledge of each Borrower, there have
been no actions commenced or threatened by any party for noncompliance
therewith;
(iii) Each Borrower shall keep or cause the Real
Property to be free of Hazardous Materials except to the extent that such
Hazardous Materials are stored and/or used in compliance all applicable
Environmental Laws; and, without limiting the foregoing, no Borrower shall
cause or permit the Real Property to be used to generate, manufacture, refine,
transport, treat, store, handle, dispose of, transfer, produce or process
Hazardous Materials, except in compliance with all applicable Environmental
Laws, nor shall any Borrower knowingly cause or permit, as a result of any
intentional or negligent act or omission on the part of any Borrower, or any
tenant, subtenant or occupant, a release of Hazardous Materials onto the Real
Property; and
(iv) Each Borrower shall (x) conduct and complete
all investigations, studies, sampling and testing, and all remedial, removal
and other actions necessary to clean up and remove any Hazardous Materials on,
under, from or affecting the Real Property in accordance with all applicable
Environmental Laws, to the satisfaction of the Agent and in accordance with the
orders and directives of all Governmental Authorities and (y) defend, indemnify
and hold harmless the Agent and the Banks, their respective
-27-
<PAGE> 32
employees, agents, officers and directors, from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, costs or expenses
of whatsoever kind or nature, known or unknown, contingent or otherwise,
arising out of, or in any way relating to (A) the presence, disposal, release
or threatened release of any Hazardous Materials on, over and under, from or
affecting the Real Property or the soil, water, vegetation, buildings, personal
property, persons or animals thereon; and (B) any personal injury (including
wrongful death) or property damage (real or personal) arising out of or
relating to such Hazardous Materials including, without limitation, attorneys'
and consultants' fees, investigation and laboratory fees, court costs and
litigation expenses.
The provisions of this Section 5.1(p) shall be in addition to
any and all other obligations and liabilities each Borrower may have to the
Agent and the Banks at common law and shall survive (i) the repayment of all
sums due under the Notes, the Acceptance Credit Agreement and any other
Facility Document and (ii) the satisfaction of all other obligations of each
Borrower hereunder and under the other Facility Documents.
As used herein, "Hazardous Substances" shall mean and include
all hazardous and toxic substances, wastes, materials, compounds, pollutants
and contaminants (including, without limitation, asbestos, polychlorinated
biphenyls, and petroleum products) which are included under or regulated by the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. ss.9601, et seq., the Toxic Substances Control Act, 15
U.S.C. ss.2601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
ss.6901, et seq., the Water Quality Act of 1987, 33 U.S.C. ss.1251, et seq.,
the Clean Air Act, 42 U.S.C. ss.7401, et seq., and any other federal, state or
local statute, ordinance, law, code, rule, regulation or order regulating or
imposing liability (including strict liability) or standards of conduct
regarding Hazardous Substances (herein the "Environmental Laws").
(q) Flood Plain Area. Except for a portion of the Real
Property located at 294 South Harper Street, Nelsonville, Ohio (as to which
Real Estate the Borrowers have obtained, and will continue to maintain, flood
insurance), none of the Real Property or where any of the Collateral is
situated is located in any area designated as a "flood plain area" pursuant to
42 U.S.C. ss.4101 et seq., and the regulations promulgated thereunder.
(r) Accuracy of Information. All information, reports and
other papers and data (including without limitation, copies of all filings made
with all Governmental Authorities) furnished heretofore or contemporaneously
herewith by or on behalf of the Borrowers to the Agent, the Banks or any Person
furnishing an opinion required to be delivered hereunder for purposes of or in
connection with this Agreement and the other Facility Documents and the
transactions contemplated hereby and thereby, is, and all other such
information hereafter furnished by or on behalf of the Borrowers to the Agent,
the Banks or any Person furnishing an opinion required to be delivered
hereunder will be, true and accurate in every material respect on the date as
of which such information is dated or certified and not incomplete by omitting
to state any material fact necessary to make such information not misleading
and the Borrowers have notified the Banks of all events
-28-
<PAGE> 33
that have occurred since such date that would render such information
incomplete or misleading.
(s) Assets for Conduct of Business. The Borrowers possess
adequate assets, patents, patent applications, copyrights, trademarks,
servicemarks, and trade names or licenses thereto, to continue to conduct their
business as heretofore conducted, without any material conflict with the rights
of others, except that the failure to possess such asset or assets, in the
aggregate, would not have a Material Adverse Effect, and all material patents,
patent applications, copyrights, trademarks, servicemarks, trade names and
licenses in existence on the date hereof are listed on Schedule 5.1(s).
(t) Trade Relations. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship of any Borrower with any customer or any group of
customers whose purchases individually or in the aggregate are material to the
business of the Borrowers, taken as a whole, and there exists no present
condition or state of facts or circumstances known to the Borrowers that would
have a Material Adverse Effect or prevent the Borrowers from conducting their
business, taken as a whole, after the consummation of the transactions
contemplated by this Agreement in substantially the same manner in which such
business has heretofore been conducted.
(u) Contingent Obligations. The Borrowers have no Contingent
Obligations other than those disclosed in the financial statements of the
Borrowers previously furnished to the Banks or on Schedule 5.1(u).
ARTICLE VI
CONDITIONS OF LENDING
SECTION 6.1 Conditions to Initial Transaction. The agreement of the
Banks to make the initial transaction hereunder, whether such transaction be a
Revolving Credit Loan or the issuance of a Commercial L/C or a Standby L/C on
any date, is subject to the satisfaction of the following conditions precedent:
(a) Facility Documents. The Agent shall have received (i)
this Agreement, executed and delivered by duly authorized officers of the
Borrowers, (ii) the Notes, conforming to the requirements hereof and executed
and delivered by duly authorized officers of the Borrowers, (iii) the Security
Agreement, executed and delivered by duly authorized officers of the Borrowers,
and (iv) each of the other Facility Documents, conforming to the requirements
hereof and duly executed and delivered by or on behalf of each of the parties
thereto.
(b) Consents. The Agent shall have received true copies (in
each case certified as to authenticity on such date by such Person as may be
appropriate or may be reasonably required by the Agent) of all documents and
instruments, including all consents,
-29-
<PAGE> 34
authorizations and filings, required or advisable under any Requirements of Law
or by any Contractual Obligation in connection with the execution, delivery,
performance, validity and enforceability of this Agreement, the Notes, the
Security Agreement and the other Facility Documents, and such consents,
authorizations and filings shall be reasonably satisfactory in form and
substance to the Agent and its counsel and be in full force and effect.
(c) Corporate Documents. The Agent shall have received true
and complete certified copies of each Borrower's Articles (Certificate) of
Incorporation and Code of Regulations (By-Laws), and a copy of the resolutions
(in form and substance satisfactory to the Agent) of the Board of Directors of
each Borrower authorizing (i) the execution, delivery and performance of this
Agreement, the Notes, the Security Agreement and the other Facility Documents,
(ii) the consummation of the transactions contemplated hereby, (iii) the
borrowing and other financial transactions herein provided for, and (iv) the
documents provided for in this Agreement, certified by the Secretary or an
Assistant Secretary of each Borrower, as of the date hereof. Such certificate
shall state that the resolutions set forth therein have not been amended,
modified, revoked or rescinded as of the date hereof.
(d) Good Standing Certificates. The Agent shall have received
copies of certificates dated as of a recent date from the Secretary of State,
or other appropriate authority of such jurisdiction, evidencing the good
standing of each Borrower in the jurisdiction of its incorporation.
(e) Incumbency Certificates. The Agent shall have received a
certificate of the Secretary or an Assistant Secretary of each Borrower, dated
as of the date hereof, as to the incumbency and signature of the officers of
each Borrower executing this Agreement, the Notes, the Security Agreement, the
other Facility Documents and any certificate or other documents to be delivered
pursuant hereto or thereto.
(f) Release of Existing Liens. The Agent shall have received
all filing receipts, acknowledgments or other evidence satisfactory to it
evidencing any recordation or filing necessary to release all Liens (except
Liens pursuant to the Security Agreement, the Dominican Republic Documents and
the Puerto Rico Documents) on the assets or properties of the Borrowers.
(g) Financial Information. The Agent shall have received a
copy of each of the financial statements referred to in Section 5.1(g).
(h) No Litigation. No suit, action, investigation, inquiry or
other proceeding (including, without limitation, the enactment or promulgation
of a statute or rule) by or before any arbitrator or any Governmental Authority
shall be pending and no preliminary or permanent injunction or order by a state
or federal court shall have been entered (i) in connection with this Agreement,
the Notes, the Security Agreement, the other Facility Documents or any of the
transactions contemplated hereby or thereby, or (ii) which, in the reasonable
judgment of the Agent, would have a Material Adverse Effect.
-30-
<PAGE> 35
(i) No Violation. The consummation of the transactions
contemplated hereby and by the Notes, the Security Agreement and the other
Facility Documents shall not contravene, violate or conflict with, nor involve
the Agent or the Bank in a violation of, any Requirement of Law.
(j) Legal Opinion. The Agent shall have received the executed
legal opinions of Porter, Wright, Morris & Arthur and Hunter & Hunter, legal
counsel to the Borrowers, substantially in the form of Exhibit C attached
hereto.
(k) Filings. The Agent shall have received all filing
receipts, acknowledgments or other evidence satisfactory to it evidencing any
recordation or filing necessary to perfect the security interests granted
pursuant to the Security Agreement, the Dominican Republic Documents and the
Puerto Rico Documents in favor of the Agent and the Banks in the Collateral and
evidence satisfactory to the Agent that such security interests constitute
valid and perfected first security interests.
(l) Insurance Certificates and Policies. The Agent shall have
received the certificates of insurance and copies of hazard insurance policies
referred to in Section 7.1(j).
SECTION 6.2 Conditions to Each Transaction. The agreement of the Banks
to make any transaction hereunder, whether such transaction be a Revolving
Credit Loan or the issuance of a Commercial L/C or a Standby L/C on any date
(including, without limitation, the initial transaction hereunder), is subject
to the satisfaction of the following conditions precedent as of the date such
transaction is requested to be made:
(a) Representations and Warranties. Each of the
representations and warranties made by each Borrower in or pursuant to this
Agreement, the Notes, the Security Agreement or any other Facility Document
delivered in connection herewith or therewith shall be true and correct in all
material respects on and as of such date as if made on and as of such date.
(b) No Default. No Event of Default and no Default shall have
occurred and be continuing on such date or after giving effect to the
transaction requested to be made on such date.
(c) No Litigation. No litigation, investigation or proceeding
before or by any arbitrator or Governmental Authority shall be continuing or
threatened against any Borrower questioning the enforceability of or such
Borrower's authority to enter into this Agreement, the Notes, the Security
Agreement or the other Facility Documents.
(d) Additional Documents. The Agent shall have received each
additional document, instrument or item of information reasonably requested by
the Agent, including, without limitation, a copy of any debt instrument,
security agreement or other material contract to which any Borrower may be a
party.
-31-
<PAGE> 36
(e) Additional Matters. All corporate and other proceedings,
and all documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement, the Notes, the Security Agreement
and the other Facility Documents shall be reasonably satisfactory in form and
substance to the Agent and the Banks.
Each such transaction by the Borrowers hereunder shall constitute a
representation and warranty by the Borrowers to the Agent and the Banks as of
the date of such transaction that the conditions contained in this Section 6.2
have been satisfied.
ARTICLE VII
COVENANTS
SECTION 7.1 Affirmative Covenants. So long as the Borrowers may borrow
(including pursuant to Commercial L/Cs and Standby L/Cs) under this Agreement
and until payment in full of the Notes, any L/C Funding or any other amount or
obligation owing to the Banks hereunder, the Borrowers shall, unless the Banks
shall otherwise consent in writing:
(a) Financial Statements. Furnish to each of the Banks:
(i) as soon as available, but in any event within
ninety (90) days after the end of each Fiscal Year of the Borrowers, a copy of
the audited consolidated balance sheet of the Borrowers as at the end of such
Fiscal Year and the related audited consolidated statements of income and
shareholders' equity and cash flows for such Fiscal Year, setting forth in each
case in comparative form the figures for the previous year, together with the
opinion of independent certified public accountants of nationally recognized
standing, which opinion shall not contain a "going concern" or like
qualification or exception, or qualification arising out of the scope of the
audit or qualification which would affect the computation of financial
covenants contained herein other than a qualification for consistency due to a
change in the application of GAAP with which the Borrowers' independent
certified public accountants concur; and
(ii) as soon as available, but in any event not
later than forty-five (45) days after the end of each month, the unaudited
unconsolidated balance sheet of each Borrower (other than Rocky Inc.) as at the
end of such month and the related unaudited unconsolidated statements of income
and shareholders equity of each such Borrower for such month and the portion of
the Fiscal Year through such date, setting forth in each case in comparative
form the figures for the previous year, certified by an appropriate officer as
being fairly stated in all material respects.
-32-
<PAGE> 37
(b) Certificates; Other Information. Furnish to each of the
Banks:
(i) concurrently with the delivery of each annual
financial statement referred to in Section 7.1(a)(i) and each monthly financial
statement referred to in Section 7.1(a)(ii) above that ends on the last day of
a Fiscal Quarter, a certificate of an appropriate officer of the Borrowers (in
such form as shall be reasonably acceptable to the Banks) stated to have been
made after due examination by such officer (x) stating that, to the best of
such officer's knowledge, the Borrowers during such period have observed or
performed in all material respects all of its covenants and other agreements,
and satisfied every condition, contained in this Agreement, the Notes and the
other Facility Documents to be observed, performed or satisfied by them and
that such officer has obtained no knowledge of any Default or Event of Default
except as specified in such certificate, (y) showing in detail the calculations
supporting such statement in respect of Sections 7.2 (l) (i), (ii), (iii), (iv)
and (v), and (z) stating that, to the best of such officer's knowledge, the
representations and warranties expressed in Article V are true, correct and
complete in all material respects on and as of the date of such financial
statements delivered concurrently therewith, except in each case of (x), (y) or
(z) as may otherwise be specifically set forth in such certificate;
(ii) promptly after the same are sent, copies of all
quarterly financial statements, reports and notice which any Borrower sends to
its stockholders as stockholders and promptly after the same are filed, copies
of all financial statements and reports (including, without limitation, reports
on Forms 10-K, 10-Q and 8-K) which any Borrower may make to, or file with, and
copies of all material notices any Borrower receives from, the Securities and
Exchange Commission or any public body succeeding to any or all of the
functions of the Securities and Exchange Commission;
(iii) promptly after receipt thereof, a copy of all
material, detailed financial and management reports regarding the Borrowers, or
any of them, submitted to any of them by its independent certified public
accountants in connection with each annual or interim audit report made by such
accountants of the books of any of them, including information with respect to
such accountants annual review of the internal control procedures of the
Borrowers;
(iv) on or prior to thirty (30) days after the last
day of each calendar month after the date hereof, a certificate substantially
in the form of Exhibit D (a "Borrowing Base Certificate"), certified by an
officer of the Borrowers as true and correct, setting forth the amount of
Eligible Accounts Receivable and Inventory, in each case as of the last
Business Day of said calendar month; provided that, in addition, the Borrowers
may provide to the Agent a Borrowing Base Certificate as of a more recent date,
certified by an officer of the Borrowers as true and correct, setting forth the
amount of Eligible Accounts Receivable and Inventory, in each case as of such
more recent date ; provided further, that if such more recent Borrowing Base
Certificate does not contain the amount of Inventory as of such more recent
date, the amount of Inventory shall be the amount on the last monthly Borrowing
Base Certificate less the amount that Eligible Accounts Receivable have
increased since the last monthly Borrowing Base Certificate furnished to the
Agent; and
-33-
<PAGE> 38
(iv) promptly, on reasonable notice to the
Borrowers, such additional financial and other information as the Banks may
from time to time reasonably request.
(c) Monthly Inventory, Accounts Receivable and Other Reports.
Furnish to the Banks as soon as available, but in no event no more than thirty
(30) days after the end of each calendar month, an Inventory listing, an aging
schedule of Accounts Receivable and backlog, orders booked and sales variance
reports as of the last day of, or for, such month, each in form and substance
satisfactory to the Banks.
(d) Payment of Obligations. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all their Indebtedness, including without limitation all amounts due under
the Notes and hereunder, and other material obligations of whatever nature,
except, without prejudice to the effectiveness of subpart (iv) of Section
8.1(b), for any Indebtedness or other obligations (including any obligations
for taxes), when the amount or validity thereof is currently being contested in
good faith by appropriate proceedings and reserves in conformity with GAAP with
respect thereto have been provided on the books of the Borrowers.
(e) Maintenance of Rights. Preserve, renew and keep in full
force and effect, and take all reasonable action to maintain, all rights,
privileges, licenses, permits, contracts, copyrights, patents, trademarks,
trade names and franchises necessary or desirable in the normal conduct of
their business; and comply with all Requirements of Law.
(f) Inspection of Property; Books and Records; Discussions.
Keep proper books of record and account in which full, true and correct entries
in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to their business and activities, subject
in the case of interim statements to year-end audit adjustments; and permit
representatives of the Agent and the Banks to visit and inspect any of their
properties, and examine and make abstracts from any of the books and records at
any reasonable time and as often as may reasonably be requested, and to discuss
the business, operations, properties and financial and other condition of the
Borrowers and, if notice thereof is given to the Borrowers prior to the date of
such discussions, with their independent certified public accountants.
The Borrowers shall permit the Agent and/or each
Bank, at each of their option, to do quarterly audits of the Collateral and
other assets of the Borrowers. The Borrowers shall pay to the Agent and/or each
Bank, as the case may be, the costs for such audits. Should the Borrowers fail
to pay to the Agent and/or each Bank, as the case may be, upon demand, the
costs of such audits, interest shall accrue thereon from the date of demand
until paid in full at the default rate of interest set forth in the Notes.
-34-
<PAGE> 39
(g) Notices. Promptly give notice to the Banks:
(i) of the occurrence of any Default or Event of
Default of which a Borrower has actual knowledge;
(ii) of any (x) default or event of default, under
any loan, letter of credit agreement or acceptance agreement, (y) default under
any other obligations that would enable the obligee of such obligations to
compel the Borrowers to immediately pay all amounts owing thereunder or
otherwise accelerate payments thereunder and would have a Material Adverse
Effect, or (z) litigation, investigation or proceeding which may exist at any
time between any Borrower and any Governmental Authority, which, if adversely
determined, would have a Material Adverse Effect;
(iii) of any litigation or proceeding affecting or
threatened in writing against any Borrower (x) in which the amount involved is
$250,000.00 or more (or $1,000,000 or more as to such threatened litigation or
proceeding) and not covered by insurance and which, in the reasonable opinion
of an appropriate officer of such Borrower, would, if adversely determined,
have a Material Adverse Effect on the Borrowers taken as a whole, or (y) in
which injunctive or similar relief is sought and which, in the reasonable
opinion of an appropriate officer of such Borrower, would, if adversely
determined, have a Material Adverse Effect on the Borrowers taken as a whole;
(iv) of the following events, as soon as possible
and in any event within thirty (30) days after the Borrowers know or have
reason to know thereof: (x) the occurrence of any Reportable Event with respect
to any Plan with respect to which the PBGC has not waived the thirty (30) day
reporting requirement, or (y) the institution of proceedings or the taking or
expected taking of any other action by PBGC or the Borrowers to terminate or
withdraw or partially withdraw from any Plan under circumstances which could
lead to material liability to the PBGC or, with respect to a Multiemployer
Plan, the Reorganization or Insolvency (as each such term is defined in ERISA)
of the Plan and in addition to such notice, deliver to the Banks whichever of
the following may be applicable: (A) a certificate of an appropriate officer of
the Borrowers setting forth details as to such Reportable Event and the action
the Borrowers propose to take with respect thereto, together with a copy of any
notice of such Reportable Event that may be required to be filed with PBGC, or
(B) any notice delivered by PBGC evidencing its intent to institute such
proceedings or any notice to PBGC that such Plan is to be terminated, as the
case may be; and
(v) of a material adverse change (other than with
respect to changes in the normal course of any Borrower's business, such as
seasonal fluctuations) in the business, operations, property or financial or
other condition of the Borrowers taken as a whole; a "material adverse change"
for the purposes of this paragraph (v) shall be deemed to have occurred only if
such change or changes in condition involve in the aggregate an amount
exceeding $250,000.00.
-35-
<PAGE> 40
Each notice pursuant to this Section 7.1 (g) shall be accompanied by a
statement of the chief executive officer or chief financial officer of the
Borrowers setting forth details of the occurrence referred to therein and
stating what action the Borrowers propose to take with respect thereto.
(h) Other Information. Furnish to the Banks (i) promptly upon
receipt thereof, copies of any reports submitted to the Borrowers by its
independent certified public accountants in connection with any internal audit
of the Borrowers made by such accountants; and (ii) such additional
information, reports or statements as the Banks may from time to time
reasonably request.
(i) Taxes. Pay and discharge all taxes, assessments,
governmental charges and levies upon or collected by the Borrowers as and when
they become due and payable, unless, and only to the extent that, such taxes,
assessments, governmental charges and levies shall be contested in good faith
by appropriate proceedings and shall have been reserved against as required by
GAAP, by the Borrowers.
(j) Maintenance of Property; Insurance. Keep all property
useful in and necessary to its business in good working order and condition;
and shall keep their property continuously insured with Required Property
Insurance Coverage and maintain Required Public Liability Insurance Coverage.
All insurance shall be obtained and maintained either by
means of policies with generally recognized, responsible insurance companies
qualified to do business in the jurisdiction where such property is located or
pursuant to other arrangements satisfactory to the Agent. The insurance to be
provided may be by blanket policy. The Banks shall be named as additional
insureds, loss payees and mortgagees on each policy of insurance to the extent
of its interest in the Collateral, and each policy of insurance shall be
written so as not to be subject to cancellation or substantial modification
upon less than thirty (30) days advance written notice to the Agent. The
Borrowers shall deposit with the Agent certificates or other evidence
satisfactory to it that (i) the insurance required hereby has been obtained and
is in full force and effect, and (ii) all premiums thereon have been paid in
full. Prior to the expiration of any such insurance, the Borrowers shall
furnish the Agent with evidence satisfactory to it that such insurance has been
renewed or replaced and that all premiums thereon have been paid in full.
All policies providing the Required Property Insurance
Coverage shall contain standard loss payable clauses requiring all proceeds
resulting from any claim from loss or damage in excess of $500,000.00 with
respect to the Collateral to be paid to the Agent and shall be paid and applied
as set forth in the Security Agreement. Any proceeds of policies providing
Required Public Liability Insurance Coverage shall be applied toward the
extinguishment or satisfaction of the liability with respect to which such
insurance proceeds have been paid.
-36-
<PAGE> 41
In the event the Borrowers fail to provide, maintain, keep in
force and deliver and furnish to the Agent, the policies of insurance required
by this Section 7.1 (j), the Agent and/or the Banks may procure such insurance
or single-interest insurance for such risk covering the Banks' interest and the
Borrowers will pay all premiums thereon promptly upon demand by the Agent,
together with interest thereon at the rate then in effect under the Notes.
(k) ERISA Funding Requirements. Comply with all funding
requirements of ERISA with respect to any Plan of any Borrower.
(l) Indemnification. Defend, indemnify and hold the Agent and
the Banks and any of their respective officers, directors and employees
harmless against any and all loss, cost, expense, claims or actions arising out
of the execution and delivery of this Agreement, the Notes, the Security
Agreement and the other Facility Documents, and the transactions contemplated
hereby and thereby, regardless of whether or not the disbursement of any
Revolving Credit Loans shall actually occur, unless any such loss, cost,
expense, claim or action are due to the gross negligence or willful misconduct
of the Banks. The provisions of this Section 7.1 (l) shall survive the
termination of this Agreement.
(m) Performance Under Facility Documents. Perform all
obligations required to be performed by each under the terms of this Agreement
and the other Facility Documents and any other agreements now or hereafter
existing or entered into between the Borrowers and the Banks.
(n) Corporate Existence; Foreign Qualification. Do or cause
to be done at all times all things necessary to: (i) maintain and preserve
their respective corporate existence; (ii) be duly qualified to do business and
be in good standing as a foreign corporation in each jurisdiction where failure
to do so will have a Material Adverse Effect; and (iii) comply with all
Contractual Obligations.
SECTION 7.2 Negative Covenants. So long as the Borrowers may borrow
(including pursuant to Commercial L/Cs and Standby L/Cs) under this Agreement
and until payment in full of the Notes, or any other amount or obligation is
owing to the Banks hereunder, the Borrowers shall not, unless the Banks shall
otherwise consent in writing:
(a) Indebtedness. Create, incur, assume or suffer to exist
any Indebtedness or liability for borrowed money, except for: (i) Indebtedness
to the Banks pursuant to this Agreement; (ii) Indebtedness existing on the date
hereof; and (iii) accounts payable and other liabilities created in the
ordinary course of business, including but not limited to obligations described
in Sections 7.2(c) and (d), but not including any liability or Indebtedness
incurred in connection with the borrowing of money.
(b) Mortgages and Pledges. Create, incur, assume or suffer to
exist (i) any Lien of any kind (including the charge on property purchased
under conditional sales
-37-
<PAGE> 42
or other title retention agreements) upon, or any security interest in, any of
their property or assets, whether now owned or hereafter acquired except as
specifically permitted under this Agreement, or (ii) an agreement with any
Person (other than the Banks) which prohibits or restricts the granting of any
such Lien of any kind in favor of the Banks, except:
(i) liens securing taxes, assessments or
governmental charges or levies or the claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like persons, provided
the payment thereof is not at the time required by Section 7.1(i);
(ii) liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance, social security and other like laws;
(iii) attachment, judgment or other similar liens
arising in connection with court proceedings, provided the execution or other
enforcement of such liens is effectively stayed and the claims secured thereby
are being actively contested in good faith and by appropriate proceedings,
provided, however, that if, in the opinion of the Agent, any such lien against
any Collateral is subject to imminent loss or forfeiture, the Borrowers shall
discharge any such attachment, judgment or other similar lien;
(iv) reservations, exceptions, encroachments,
easements, rights of way, covenants, conditions, restrictions, leases and other
similar title exceptions (but not including any real estate mortgages or other
similar liens) affecting real property, provided they do not in the aggregate
materially detract from the value of said property or materially interfere with
its use in the ordinary conduct of the owning Borrower's business;
(v) purchase money security interests not exceeding
in amount the purchase price of the property purchased and up to an aggregate
total of $250,000 (when aggregated with the amount of lease obligations
permitted under Section 7.2(f)); and
(vi) inchoate liens arising under ERISA to secure
the contingent liability of the Borrowers.
(c) Merger, Consolidation and Acquisition of Assets. Enter
into any transaction or merger, consolidation, amalgamation or reorganization
or liquidate, wind up or dissolve any of the Borrowers (or suffer any
liquidation or dissolution), or convey, sell, lease, transfer or otherwise
dispose of, in one transaction or a series of transactions, all or any
substantial part of their business or assets, whether now owned or hereafter
acquired, or make any material change in the method by which they conduct the
business, or acquire all or any material part of the business assets of, or any
stock or other evidence of beneficial ownership of, any Person.
(d) Sale of Assets. Sell, lease or otherwise dispose of any
material part of its assets outside the ordinary course of business.
-38-
<PAGE> 43
(e) Contingent Liabilities. Assume, guarantee, endorse, sell
with recourse, contingently agree to purchase, discount, or otherwise become or
remain liable with respect to any Contingent Obligations, or enter into any
agreement for the purchase or other acquisition of any product, materials or
supplies, or for transportation or for the payment for services, if in any such
case payment therefor is to be made regardless of the non-delivery of the
product, materials or supplies or the non-furnishing of the transportation or
services.
(f) Obligations as Lessee. Enter into any arrangements as
lessee of real or personal property, except for (i) those existing as of the
date hereof, (ii) those entered into in the ordinary course of business not to
exceed an aggregate balance of $250,000 (when aggregated with the amount of
purchased assets subject to purchase money security interests permitted by
Section 7.2(b)(v)), and (iii) those which are hereafter disclosed to and
approved by the Banks.
(g) Transactions with Affiliates. Enter into any
transactions, including without limitation, the purchase, sale or exchange of
property or the rendering of any service, with any Affiliate, except (i) in the
ordinary course of and pursuant to the reasonable requirements of its business
and upon fair and reasonable terms no less favorable to the Borrower as would
obtain in any arm's length transaction with a person not an Affiliate, and (ii)
those transactions existing on the date hereof.
(h) Investments; Loans. Purchase, acquire, exercise an option
to purchase or acquire, or own the assets, obligations, stock or any other
interest of or in, or make loans or advances to, or investments in, any Person,
except for investments by the Borrowers in (i) certificates of deposit issued
by the Banks; (ii) commercial paper accorded the highest quality rating by two
national rating agencies accustomed to giving such rating; (iii) readily
marketable direct obligations of the United States of America or any agency
thereof or readily marketable obligations fully guaranteed by the United States
of America or any agency thereof; (iv) investment grade state and/or municipal
bonds, tax-free state and/or municipal bonds, and preferred stocks of
utilities; or (v) deposits to secure the performance of bids, tenders or
contracts or to secure statutory obligations or surety or appeal bonds, or to
secure indemnity, performance or other similar bonds, all in the ordinary
course of business.
(i) Sale and Leaseback. Enter into any arrangements whereby
any Borrower shall sell or transfer any of its property and then or within one
year thereafter, as lessee, rent or lease such property.
(j) Compliance with ERISA. (i) Allow or suffer to exist any
Prohibited Transaction involving any Plan, (ii) incur or suffer to exist any
accumulated funding deficiency, whether or not waived, involving any such Plan,
or (iii) allow any occurrence of or suffer to exist any ERISA Event, or any
other event or condition, that presents a material risk of termination of any
such Plan by the PBGC; if such Prohibited Transaction,
-39-
<PAGE> 44
accumulated funding deficiency or ERISA Event would result in a liability of
the Borrowers to the PBGC which is material to the Borrowers.
(k) Sale of Subsidiary Securities. Sell any security, debt or
equity of Five Star or Lifestyle, or permit Five Star or Lifestyle to sell or
issue any security, debt or equity to any Person other than Rocky Inc.
(l) Financial Covenants.
(i) Current Ratio. Permit the Current Ratio to be
less than (x) 1.2 to 1.0 from and including June 30 through and including
December 30 of each Fiscal Year, and (y) 1.3 to 1.0 from and including December
31 of each Fiscal Year through and including June 29 of the succeeding Fiscal
Year.
(ii) Consolidated Tangible Net Worth. Permit
Consolidated Tangible Net Worth to be less than $23,750,000, which amount shall
increase annually on the last day of each Fiscal Year by 75% of Consolidated
Earnings for such Fiscal Year (but not decreased by any losses), commencing
with the Fiscal Year ending December 31, 1996.
(iii) Debt to Worth Ratio. Permit the ratio of
Consolidated Liabilities to Consolidated Tangible Net Worth to exceed (x) 2.25
to 1.0 from and including June 30 through and including December 30 of each
Fiscal Year, and (y) 1.5 to 1.0 from and including December 31 of each Fiscal
Year through and including June 29 of the succeeding Fiscal Year.
(iv) Cash Flow Coverage. Permit Cash Flow Coverage
to be less than 1.3 to 1.0.
(v) Capital Expenditures. Permit Capital
Expenditures to exceed (x) $2,750,000 in the Fiscal Year ending December 31,
1996, and (y) $2,500,000 in each Fiscal Year thereafter.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1 Events of Default. The occurrence of any of the following
shall constitute an "Event of Default":
(a) Any Borrower fails to pay when due any amount payable
under this Agreement or the Notes or make any reimbursement in connection with
any Commercial L/C or Standby L/C due in accordance with the terms of the
Commercial L/C Application and the Standby L/C Application, and such failure
continues for more than five (5) days after such payment or reimbursement
became due;
-40-
<PAGE> 45
(b) Any Borrower (i) fails to observe or perform any other
term of the Notes, the Commercial L/Cs or the Standby L/Cs, and such failure to
observe or perform continues for more than fifteen (15) days after such failure
shall first become known to any officer of any Borrower, provided, however,
that such fifteen (15) day cure period shall not apply to (x) any such failure
which in the Agent's good faith opinion is incapable of cure; (y) any such
failure which has previously occurred; or (z) any failure to maintain and keep
in effect any insurance required by any Facility Document; (ii) makes any
materially incorrect or misleading representation, warranty, or certificate to
the Agent or the Banks; (iii) makes any materially incorrect or misleading
representation in any financial statement or other information delivered to the
Agent or the Banks; or (iv) defaults under the terms of any agreement or
instrument relating to any Indebtedness (other than the Indebtedness evidenced
by the Notes) such that the creditor declares the Indebtedness debt due before
its maturity;
(c) Any other default occurs under the terms of this
Agreement, the Security Agreement or any other Facility Document or any default
occurs under the terms of any other loan agreement, mortgage, security
agreement or any other agreement executed as part of any other obligation or
Indebtedness of any Borrower owed to either Bank at any time, and such default
continues for more than fifteen (15) days after such default shall first become
known to any officer of any Borrower, provided, however, that such fifteen (15)
day cure period shall not apply to (w) any failure to provide to the Banks the
financial statements, documents and information required to be provided
pursuant to Sections 7.1(a), (b), and (c); (x) any default which in the Agent's
good faith opinion is incapable of cure; (y) any default which has previously
occurred; or (z) any failure to maintain and keep in effect any insurance
required by any Facility Document;
(d) A Reportable Event occurs that would permit the PBGC to
terminate any Plan of any Borrower or any Affiliate of any Borrower, or the
occurrence of an ERISA Event which shall not have been cured within thirty (30)
days after any officer of any Borrower has knowledge thereof ;
(e) Any Borrower becomes insolvent or unable to pay its debts
as they become due;
(f) Any Borrower (i) makes an assignment for the benefit of
creditors; (ii) consents to the appointment of a custodian, receiver, or
trustee for itself or for a substantial part of its assets; or (iii) commences
or consents to any proceeding under any bankruptcy, reorganization,
liquidation, insolvency or similar laws of any jurisdiction;
(g) A custodian, receiver or trustee is appointed for any
Borrower or for a substantial part of its assets without its consent and is not
removed within sixty (60) days after such appointment;
-41-
<PAGE> 46
(h) Proceedings are commenced against any Borrower under any
bankruptcy, reorganization, liquidation, or similar laws of any jurisdiction,
and such proceedings remain undismissed for sixty (60) days after commencement;
(i) Any judgment is entered against any Borrower, or any
attachment, levy or garnishment is issued against any property of any Borrower,
in excess of $250,000.00, and which judgment, attachment, levy or garnishment
has not been discharged or stayed within thirty (30) days after issuance, or
for such longer period as the Banks may agree to in writing;
(j) Any Borrower, without the Banks' written consent, (i) is
dissolved; (ii) merges or consolidates with any third party; (iii) sells a
material part of its assets or business outside the ordinary course of its
business, or (iv) agrees to do any of the foregoing;
(k) There is a substantial change (other than with respect to
changes in the normal course of any Borrower's business, such as seasonal
fluctuations) in the existing or prospective financial condition of any
Borrower which the Banks in good faith determines to be materially adverse; or
(l) The Banks in good faith deem themselves insecure.
Upon the happening of any Event of Default, (i) all obligations of the
Banks to make further Revolving Credit Loans and issue Commercial L/Cs and
Standby L/Cs hereunder shall terminate, (ii) all amounts owing under the Notes,
this Agreement and all other Facility Documents, shall become immediately due
and payable, without notice, at either Bank's option, and (iii) the Agent and
the Banks shall have all of the rights and remedies provided by any law or
agreement, including the right to cause all or any part of the Collateral
securing the Notes and other Indebtedness owed to the Banks to be transferred
to or registered in the name of the Agent and/or the Banks or in the name of
any other Person, with or without designation of the capacity of such nominee.
Any requirement of reasonable notice shall be met if the Agent sends the notice
to the Borrowers at least seven (7) days prior to the date of any public or
private sale, disposition or other event giving rise to the required notice.
The Borrowers shall be liable for any deficiency remaining after disposition of
the Collateral securing the Notes. The Borrowers are liable to the Agent and
the Banks for all reasonable costs and expenses of every kind incurred in the
making or collection of amounts due hereunder and under the Notes, including,
without limitation, reasonable attorneys' fees and court costs. These costs and
expenses shall include, without limitation, any costs or expenses incurred by
the Agent and the Banks in any bankruptcy, reorganization, insolvency or other
similar proceeding.
If one Bank exercises its option to accelerate the maturity of its
Note and pursue any remedy provided for herein, such Bank shall give immediate
notice of the same to the other Bank and the Agent and such other Bank shall
then accelerate the maturity of its
-42-
<PAGE> 47
Note and pursue remedies hereunder. The Banks, to the extent possible, shall
cooperate with each other and the Agent in pursuing such remedies.
SECTION 8.2 Allocation of Proceeds. Any moneys (including, without
limitation, the proceeds of any sale of the Collateral, any part thereof or any
interest therein) received by the Agent and/or the Banks pursuant to the
exercise of any remedies provided herein or in the other Facility Documents or
by law shall be applied in the following order of priority:
First: the payment of each Bank and the Agent for all moneys
reasonably advanced by each for taxes, assessments,
insurance, costs incurred for the protection of the
Collateral and costs incurred in the collection thereof
(including, without limitation, reasonable attorneys' fees
and expenses);
Second: the payment to Bank One and HNB of all unpaid interest and
other sums and/or charges owing to the Banks;
Third: the payment to Bank One and HNB in proportion to the ratio of
the principal amount of the Indebtedness owed to each Bank to
the aggregate principal amount of the Indebtedness owed to
both Banks (calculated in the case of an action in
foreclosure, as of the date of the foreclosure sale, or if
the action is not pursued to foreclosure, the date of
dismissal of the action) of all unpaid principal constituting
the Indebtedness owing to the Banks; and
Fourth: To, or at the direction of, the Borrowers, or as a court of
competent jurisdiction otherwise directs.
ARTICLE IX
THE AGENT
SECTION 9.1 Appointment. Each Bank hereby irrevocably designates and
appoints Bank One as Agent of such Bank under this Agreement, each of the
Notes, the Security Agreement and the other Facility Documents, and each Bank
hereby irrevocably authorizes Bank One, as Agent for such Bank, to take such
action on its behalf under the provisions of this Agreement, the Notes, the
Security Agreement and the other Facility Document and to exercise such powers
and perform such duties as are expressly delegated to Agent by the terms of
this Agreement, the Notes, the Security Agreement and the other Facility
Documents, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement, any Note, the Security Agreement or any other Facility Documents,
the Agent shall not have any duties or responsibilities, except those expressly
set forth herein, or any fiduciary relationship with any Banks, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement, any Note, the Security Agreement or any
other Facility Documents, or otherwise exist against the Agent.
-43-
<PAGE> 48
SECTION 9.2 Delegation of Duties. The Agent may execute any of its
duties under this Agreement by or through agents or attorneys-in-fact and shall
be entitled to advice of counsel concerning all matters pertaining to such
duties. The Agent shall not be responsible for the negligence or misconduct of
any agents or attorneys-in-fact selected by it with reasonable care.
SECTION 9.3 Exculpatory Provisions. Neither the Agent nor any of its
officers, directors, employees, agents or attorneys-in-fact shall be (i) liable
for any action lawfully taken or omitted to be taken by it or such Person under
or in connection with this Agreement, any Note, the Security Agreement or any
other Facility Documents (except for its or such Person's own gross negligence
or willful misconduct) or (ii) responsible in any manner to either of the Banks
for any recitals, statements, representations or warranties made by the
Borrowers or any officer thereof contained in this Agreement, any Note, the
Security Agreement or any other Facility Documents or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Agent under or in connection with, this Agreement, any Note, the
Security Agreement or any other Facility Documents or for the value, or
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement, any Note, the Security Agreement or any other Facility Documents, or
for any failure of any Borrower to perform its obligations hereunder or
thereunder. The Agent shall be under no obligation to either Bank to ascertain
or to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement, any Note, the Security
Agreement or any other Facility Documents, or to inspect the properties, books
or records of the Borrowers.
SECTION 9.4 Reliance by Agent. The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, facsimile,
telecopy, telex or teletype message, statement, order or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to the Borrowers),
independent accountants and other experts selected by the Agent. The Agent may
deem and treat the payee of any Note as the owner thereof for all purposes. The
Agent shall be fully justified in failing or refusing to take any action under
this Agreement, any Note, the Security Agreement or any other Facility
Documents unless it shall first receive such advice or concurrence of the Banks
or it shall first be indemnified to its satisfaction by all Banks against any
and all liability and expense which may be incurred by it by reason of taking
or continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement, either
Note, the Security Agreement or any other Facility Documents in accordance with
a request of both Banks, and such request and any action taken or failure to
act pursuant thereto shall be binding upon the Banks and all future holders of
the Notes.
SECTION 9.5 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent
-44-
<PAGE> 49
has received notice from either Bank or the Borrowers referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". If the Agent receives such a notice or any
other notice from a Borrower, the Agent shall promptly give notice thereof to
the Banks. The Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Banks; provided that,
unless and until the Agent shall have received such directions, the Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Default or Event of Default as it shall reasonably
deem advisable in the best interest of the Banks.
SECTION 9.6 Non-Reliance on Agent and Other Banks. Each Bank expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates has made any representations
or warranties to it and that no act by the Agent hereinafter taken, including
any review of the affairs of the Borrowers shall be deemed to constitute any
representation or warranty by the Agent to either Bank. Each Bank represents to
the Agent that it has, independently and without reliance upon the Agent or the
other Bank, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Borrowers and made its own decision to make its extensions of credit hereunder
and enter into this Agreement. Each Bank also represents that it will,
independently and without reliance upon the Agent or the other Bank, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement, the Notes the Security Agreement and
the other Facility Documents, and to make such investigation as it deems
necessary to inform itself as to the business, operations, property, financial
and other condition and creditworthiness of the Borrowers. Except for notices,
reports and other documents expressly required to be furnished to the Banks by
the Agent hereunder, the Agent shall not have any duty or responsibility to
provide either Bank with any credit or other information concerning the
business, operations, property, financial and other condition or
creditworthiness of the Borrowers which may come into the possession of the
Agent or any of its officers, directors, employees, agents, attorneys-in-fact
or affiliates.
SECTION 9.7 Indemnification. Each Bank agrees to indemnify the Agent
in its capacity as such (to the extent not reimbursed by the Borrowers and
without limiting the obligation of the Borrowers to do so), ratably according
to the respective Revolving Credit Loan Commitment Percentages, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expense or disbursements of any kind
whatsoever which may at any time (including, without limitation, at any time
following the payment of the Notes) be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of this Agreement, the
Notes, the Security Agreement and the other Facility Documents or any documents
contemplated by or referred to herein or the transactions contemplated hereby
or any action taken or omitted by the Agent under or in connection with any of
the foregoing; provided that neither Bank shall be liable for the payment of
any portion of such liabilities, obligations, losses, damages, penalties,
actions,
-45-
<PAGE> 50
judgments, suits, costs, expenses or disbursements resulting solely from the
Agent's gross negligence or willful misconduct. The agreements in this
subsection shall survive the payment of the Notes and all other amounts payable
hereunder.
SECTION 9.8 Bank One in Its Individual Capacity. Bank One and its
affiliates may make Loans to, accept deposits from and generally engage in any
kind of business with the Borrowers as though Bank One were not the Agent
hereunder. With respect to its Revolving Credit Loans made or renewed by it and
any Note issued to it either as Bank One or the Agent, Bank One shall have the
same rights and powers under this Agreement as either Bank and may exercise the
same as though it were not the Agent, and the terms "Bank" and "Banks" shall
include Bank One in its individual capacity.
SECTION 9.9 Successor Agent. The Agent may resign as agent upon 30
days' notice to the Banks. If the Agent shall resign as agent under this
Agreement, then the Banks shall appoint from among the Banks a successor Agent
for the Banks, whereupon such successor Agent shall succeed to the rights,
powers and duties of the Agent, and the term "Agent" shall mean such successor
agent effective upon its appointment, and the former Agent's rights, powers and
duties as Agent shall be terminated, without any other or further act or deed
on the part of such former Agent or any of the parties to this Agreement or any
holders of the Notes. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article IX shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement.
ARTICLE X
ASSIGNMENT AND PARTICIPATION
SECTION 10.1 Assignments. No Bank may sell or assign its rights and
interests under this Agreement without the written consent of each Bank and the
Borrowers, provided that after the occurrence of a Default or an Event of
Default that has not been waived by all Banks, the consent of the Borrowers
shall not be required.
SECTION 10.2 Participations.
(a) Each Bank may sell participations to one or more
Participants in or to all or a portion of its rights and obligations under this
Agreement (including all or a portion of its Commitment and Revolving Credit
Loans) and any other Indebtedness that may now or hereafter be owed by any
Borrower to such Bank; provided, however, that (i) such Bank's obligations
under this Agreement (including its Commitment to the Borrowers hereunder)
shall remain unchanged; (ii) such Bank shall remain solely responsible to the
other parties hereto for the performance of such obligations; (iii) the
Borrowers, the Agent and the other Bank shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement; (iv) each such participation shall be solely to a
Participant; and (v) any Participant which is not an affiliate of such Bank
-46-
<PAGE> 51
shall have no right to require such Bank to take or omit to take any action
under this Agreement, the Notes or other Facility Documents, including, but not
limited to, action extending the final maturity date of any Revolving Credit
Loan in which the Participant has a participation, reducing the interest rate,
fees or commissions on any Revolving Credit Loans in which such participation
was sold, forgiving any principal of or interest, fees or commissions payable
on any Revolving Credit Loans in which such participation was sold or releasing
of all or substantially all of the Collateral as security for the Revolving
Credit Loans. Each Bank agrees to incorporate the requirements set forth in the
preceding sentence into each participation agreement which such Bank enters
into with any Participant. The Borrowers agree that if amounts outstanding
under this Agreement are due and unpaid, or shall have been declared or shall
have become due and payable, each Participant shall, to the extent permitted by
applicable law, be deemed to have all rights of payment (including, without
limitation, rights of setoff) in respect of its participating interest in
amounts owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Bank under this
Agreement; provided, however, that any Participant exercising such right shall
be obligated to share with the Banks, as if such Participant were a "Bank"
hereunder, the amount of any such payment or setoff in accordance with this
Agreement.
(b) If a Participant shall at any time participate with a
Bank in making Revolving Credit Loans hereunder or under any other agreement
between such Bank and the Borrowers, the Borrowers hereby grant to such
Participant (in addition to any other rights that such Participant shall have)
and such Participant shall have and is hereby given a continuing lien and
security interest in any money, securities or other property of the Borrowers
in the custody or possession of the Participant, including the right to
set-off, to the extent of Participant's participation in the obligations of the
Borrowers to such Bank, as it would have if it were a direct lender to the
Borrowers.
SECTION 10.3 Disclosure of Information. A Bank may, in connection with
any participation or proposed participation pursuant to this Article X,
disclose to the Participant or proposed Participant any information relating to
the Borrowers furnished to the Bank by or on behalf of the Borrowers; provided
that such proposed Participant, if not an affiliate of such Bank, executes a
confidentiality letter in favor of the Borrowers.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Expenses. Whether or not the transactions herein
contemplated shall be consummated, the Borrowers agree to pay all out-of-pocket
expenses (including reasonable fees and expenses of counsel) of the Agent and
the Banks incurred in connection with the preparation of this Agreement, the
Notes, any amendments or supplements to this Agreement, the Security Agreement
and the other Facility Documents, any audit, appraisal or other such service
deemed necessary or desirable by the Agent or the Banks for the preparation of
the Agreement, underwriting documents or enforcing the
-47-
<PAGE> 52
Agent's and the Banks' rights hereunder, and all out-of-pocket expenses
(including reasonable fees and expenses of their respective counsel) incidental
to the enforcement of the rights of the Agent and the Banks under any
provisions of this Agreement, the Notes and any other Facility Document.
SECTION 11.2 Covenants to Survive, Binding Agreement. This Agreement
shall be binding upon and inure to the benefit of the Agent, the Banks, the
Borrowers and their respective successors or assigns; provided, however, that
the Borrowers may not assign or otherwise dispose of any of its rights or
obligations hereunder. All covenants, agreements, warranties and
representations made herein, and in all certificates and documents delivered in
connection with this Agreement by or on behalf of the Borrowers shall survive
the execution and delivery hereof and thereof, and all such covenants,
agreements, representations and warranties shall inure to the respective
successors and assigns of the Banks whether or not so expressed.
SECTION 11.3 Waivers. No failure on the part of the Agent or the Banks
to exercise and no delay in exercising any right or remedy hereunder or under
the Notes, the Security Agreement or the Facility Documents shall operate as a
waiver thereof, nor shall any single or partial exercise by the Agent or the
Banks of any right, remedy or power hereunder thereunder preclude any other
right, remedy or power. The rights, remedies and powers provided herein, in the
Notes, the Security Agreement and the other Facility Documents are cumulative
and not exclusive of any other rights, remedies or powers which the Agent, the
Banks or any holder of the Notes, would otherwise have. Notice to or demand on
the Borrowers in any circumstance in which the terms of this Agreement, the
Notes, the Security Agreement or the other Facility Documents do not require
notice or demand to be given shall not entitle the Borrowers to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Agent, the Banks or the holder of any Notes to take
any other further action in any circumstances without notice or demand.
SECTION 11.4 Notices. Notice from one party to another relating to
this Agreement shall be deemed effective if made in writing (including
telecommunications) and delivered to the recipient's address, telex number or
telecopy number set forth below (or to such other address or number as such
party shall give notice) by any of the following means: (i) hand delivery, (ii)
registered or certified mail, postage prepaid, with return receipt requested,
(iii) Federal Express, Airborne Express or like overnight courier service or
(iv) telecopy, telex or other wire transmission with request for assurance of
receipt in a manner typical with respect to communications of that type. Notice
made in accordance with this section shall be deemed delivered on receipt if
delivered by hand or wire transmission, on the third business day after mailing
if mailed by registered or certified mail, or the next business day after
mailing or deposit with an overnight courier service if delivered by express
mail or overnight courier for next day delivery.
If to the Banks: Bank One, Columbus, NA
Attn: Corporate Banking, Metropolitan Division
-48-
<PAGE> 53
100 East Broad Street, 7th Floor
Columbus, OH 43271-0170
Telecopier: (614) 248-5518
The Huntington National Bank
Attn: Commercial Banking
41 South High Street
Columbus, OH 43287
Telecopier: (614) 480-5791
If to the Agent: Bank One, Columbus, NA, as Agent
Attn: Corporate Banking, Metropolitan Division
100 East Broad Street, 7th Floor
Columbus, OH 43271-0170
Telecopier: (614) 248-5518
If to the Borrowers: Rocky Shoes & Boots, Inc.
Attn: David S. Fraedrich,
Executive Vice President
39 East Canal Street
Nelsonville, OH 45764
Telecopier: (614) 753-4024
Five Star Enterprises Ltd.
Attn: David S. Fraedrich,
Executive Vice President
39 East Canal Street
Nelsonville, OH 45764
Telecopier: (614) 753-4024
Lifestyle Footwear, Inc.
Attn: David S. Fraedrich,
Executive Vice President
39 Canal Street
Nelsonville, OH 45764
Telecopier: (614) 753-4024
SECTION 11.5 Section Headings, Severability, Entire Agreement. Section
and subsection headings have been inserted herein for convenience only and
shall not be construed as part of this Agreement. Every provision of this
Agreement, the Notes, the Security Agreement and the other Facility Documents
is intended to be severable; if any term or provision of this Agreement, the
Notes, the Security Agreement or the other Facility Documents delivered in
connection herewith shall be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions hereof or thereof shall not in any way be affected or impaired
thereby. All Exhibits and
-49-
<PAGE> 54
Schedules to this Agreement shall be annexed hereto and shall be deemed to be
part of this Agreement. This Agreement and the Exhibits and Schedules attached
hereto and the other Facility Documents embody the entire agreement and
understanding between the Borrowers, the Agent and the Bank and supersede all
prior agreements and understandings relating to the subject matter hereof.
SECTION 11.6 Governing Law. This Agreement, the Notes and all other
Facility Documents are being delivered, and are intended to be performed in,
the State of Ohio and shall be construed and enforceable in accordance with,
and governed by, the laws of the State of Ohio.
SECTION 11.7 Right of Setoff. The Borrowers hereby grant to the Banks,
for the ratable benefit of both Banks, a right of setoff for all Setoff
Obligations of the Borrowers to the Banks hereunder in and to any and all
moneys of the Borrowers and the proceeds thereof now or hereafter held or
received by or in transit to the Banks from or for the account of the
Borrowers, whether for safekeeping, pledge, transmission, collection or
otherwise, and also upon any and all deposits (general and special), account
balances and credits of the Borrowers with the Banks at any time existing. Each
Bank, for the ratable benefit of both Banks, is hereby expressly and
irrevocably authorized by the Borrowers at any time and from time to time,
without notifying the Borrowers, to setoff, appropriate and apply against any
and all items hereinbefore referred to in this Section 11.7 against all Setoff
Obligations of the Borrowers to the Banks and the Borrowers shall continue to
be liable to the Banks for any deficiency with interest at the applicable
rates. The Borrowers hereby irrevocably consent that the Banks shall have the
right of, and hereby irrevocably appoints each Bank as their agent for the
purpose of, possessing, setting-off, appropriating and applying such items for
the benefit of the Banks and paying or delivering over to the Banks any of such
items for application in accordance with the provisions hereof.
SECTION 11.8 Amendments. The Banks and the Borrowers may, from time to
time, enter into agreements, amendatory or supplemental hereto, for the purpose
of changing any provisions of this Agreement, the Notes, the Security Agreement
or the other Facility Documents or changing in any manner the rights of the
Banks or the Borrowers hereunder and thereunder. Any such amendatory or
supplemental agreement or waiver shall be binding on the Borrowers and the
Banks.
SECTION 11.9 Taxes and Fees. Should any tax (other than a tax based
upon the net income of the Banks) or any recording or filing fees become
payable in respect of this Agreement, the Notes, the Security Agreement or the
other Facility Documents or any amendment, modification or supplement hereof or
thereof, the Borrowers agree to pay the same together with any interest or
penalties thereon and agree to hold the Banks harmless with respect thereof.
SECTION 11.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original and all of which
shall constitute one
-50-
<PAGE> 55
agreement. It shall not be necessary in making proof of this Agreement or of
any document required to be executed and delivered in connection herewith to
produce or account for more than one counterpart.
SECTION 11.11 Effective Date. This Agreement shall be effective at
such time as executed counterparts of this Agreement have been delivered by the
Borrowers to the Banks.
SECTION 11.12 WAIVER OF JURY TRIAL. THE BANKS, THE AGENT AND EACH
BORROWER, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH
COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM
MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS
AGREEMENT, THE NOTES, THE OTHER FACILITY DOCUMENTS, OR ANY RELATED INSTRUMENT
OR AGREEMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY, OR ANY COURSE OF
CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF ANY OF
THEM. THIS WAIVER SHALL NOT IN ANY WAY AFFECT THE AGENT'S OR THE BANKS' ABILITY
TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION
CONTAINED IN ANY FACILITY DOCUMENT. NEITHER THE BANKS, THE AGENT NOR ANY
BORROWER SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN
WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL
CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE
BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY THE BANKS, THE AGENT OR THE
BORROWERS EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY ALL OF THEM.
SECTION 11.13 Waiver of Subrogation. Each Borrower expressly waives
any and all rights of subrogation, contribution, reimbursement, indemnity,
exoneration, implied contract, recourse to security or any other claim
(including any claim, as that term is defined in the federal Bankruptcy Code,
and any amendments) which such Borrower may now have or later acquire against
any other Borrower, any other entity directly or contingently liable for the
obligations of the Borrowers under this Agreement and the other Facility
Documents or against the Collateral, arising from the existence or performance
of such Borrower's obligations under this Agreement and the other Facility
Documents.
SECTION 11.14 Confession of Judgment. Each Borrower irrevocably
authorizes any attorney-at-law, including any attorney-at-law employed or
retained by the Banks or the Agent, to appear for the Borrower in any court of
record in Franklin County, Ohio (which the Borrower acknowledges to be the
place where this Agreement was made) or any other state or jurisdiction wherein
the Borrower may then reside, to (i) waive the issuing and service of process,
(ii) confess judgment against the Borrower in favor of the holder of this
Agreement for all amounts then due hereunder, together with costs of suit,
(iii) release all errors, and (iv) waive all rights of appeal. Each Borrower
consents to the jurisdiction and
-51-
<PAGE> 56
venue of that court. Each Borrower waives any conflict of interest that any
attorney-at-law employed or retained by the Banks or the Agent may have in
confessing judgment hereunder and consents to payment of a legal fee to any
attorney-at-law confessing judgment hereunder. After judgment is entered
against one or more of the Borrowers, the power conferred may be exercised as
to one or more of the other Borrowers.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the date first written
above.
BORROWERS:
Rocky Shoes & Boots Inc.,
an Ohio corporation
By: /s/ DAVID FRAEDRICH
------------------------------
Title: Executive Vice President
& Chief Financial Officer
WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
Five Star Enterprises LTD., Lifestyle Footwear, Inc.,
a Cayman Islands Corporation a Delaware Corporation
By: /s/ DAVID FRAEDRICH By: /s/ DAVID FRAEDRICH
-------------------------------- -------------------------------
Title: Treasurer Title: Treasurer
-52-
<PAGE> 57
BANKS:
Bank One, Columbus, NA,
a national banking association
By: /s/ Elizabeth Calwalder
----------------------------
Title: Vice President
-------------------------
The Huntington National Bank,
a national banking association
By: /s/ Geoffrey E. Mowery
----------------------------
Title: Vice President
-------------------------
AGENT:
Bank One, Columbus, NA,
a national banking association
By: /s/ Elizabeth Calwalder
----------------------------
Title: Vice President
-------------------------
-53-
<PAGE> 58
EXHIBIT A
Bank One Note
<PAGE> 59
MASTER BUSINESS LOAN NOTE
Due: April 30, 1998 $21,000,000.00
No. ________________ Date: January 28, 1997
Promise to Pay: On or before April 30, 1998 (or such later date as may be
provided in the Loan Agreement (defined below)), for value received, the
undersigned, Rocky Shoes & Boots, Inc., an Ohio corporation, Five Star
Enterprises Ltd., a Cayman Islands corporation, and Lifestyle Footwear, Inc., a
Delaware corporation (collectively referred to as the "Borrower"), promise to
pay, jointly and severally, to Bank One, Columbus, NA, a national banking
association (the "Bank"), or order, at the office of the Agent (defined below)
located at 100 East Broad Street, Columbus, Ohio 43271-0170, or at such other
address as the Agent may give notice of to the Borrower, the sum of Twenty-One
Million Dollars ($21,000,000.00) or such lesser sum as is indicated on the
Bank's records, plus interest computed on the basis of the actual number of
days elapsed in a year of 360 days at the rate per annum announced from time to
time by the Bank as its "prime" rate (which rate may not be the lowest rate
charged by the Bank to any of its customers) until maturity, whether by demand,
acceleration or otherwise. Such interest rate shall be referred to herein as
the "Note Rate." Upon the occurrence of an Event of Default (defined below)
hereunder and during the continuance of such, the interest rate per annum shall
be 300 basis points above the Note Rate then in effect. Each change in the
"prime" rate will immediately change the Note Rate, effective as of the opening
of business on the date of the change.
In no event shall the interest rate exceed the maximum rate allowed by law; any
interest payment which would for any reason be deemed unlawful under applicable
law shall be applied to principal.
Interest will be computed on the unpaid principal balance from the date of each
borrowing until paid.
Until maturity, whether by demand, acceleration or otherwise, the Borrower shall
pay consecutive monthly installments of interest only commencing February 1,
1997, and continuing on the first day of each month thereafter.
The Borrower may at any time prepay this Note, in whole or in part, without
premium or penalty, together with accrued interest on the amount of any such
prepayment, in accordance with the terms of the Loan Agreement (defined below).
The Bank shall have the right to assess a late payment processing fee in the
amount of the greater of $50.00 and 5% of the scheduled payment in the event of
a default in payment that remains uncured for a period of five (5) days.
<PAGE> 60
Master Note: The Bank has authorized a committed credit facility to the
Borrower in a principal amount not to exceed the face amount of this Note. The
credit facility is in the form of loans made from time to time by the Bank to
the Borrower. This Note evidences the Borrower's obligation to repay those
loans. The aggregate principal amount of debt evidenced by this Note shall be
the amount reflected from time to time in the records of the Bank, but shall
not exceed the face amount of this Note.
Credit Agreement: This Note evidences a certain debt under the terms of a
Revolving Credit Loan Agreement (the "Loan Agreement") between the Bank, the
Borrower, The Huntington National Bank and Bank One, Columbus, NA, as Agent
(the "Agent"), dated as of January 28, 1997, as the same may be amended,
modified, supplemented, restated or replaced from time to time. Reference is
made to the Loan Agreement for additional provisions relating to the debt
evidenced by this Note.
Security: To secure the payment of this Note and other present and future
liabilities of the Borrower to the Bank, the Borrower has pledged and granted
to the Agent, for the ratable benefit of the Bank and The Huntington National
Bank, a continuing security interest in certain assets of the Borrower pursuant
to a Continuing Security Agreement dated as of January 28, 1997, as the same
may be amended, modified, supplemented, restated or replaced from time to time.
The Bank shall have the right at any time to apply its own debt or liability to
the Borrower or to any other party liable on this Note in whole or partial
payment of this Note or other present or future liabilities, without any
requirement for mutual maturity.
Related Documents: The terms of any other documents executed as part of the
loan evidenced by this Note are incorporated herein by reference.
Representations by Borrower: Each Borrower represents that it is a corporation
duly organized and existing under the laws of its jurisdiction of formation,
and that the execution and delivery of this Note and the performance of the
obligations it imposes are within its corporate powers, have been duly
authorized by all necessary action of its directors and do not contravene the
terms of its articles (certificate) of incorporation and code of regulations
(by-laws). Each Borrower represents that the execution and delivery of this
Note and the performance of the obligations it imposes do not violate any law,
do not conflict with any agreement by which it is bound, do not require the
consent or approval of any governmental authority or any third party, and that
this Note is a valid and binding agreement, enforceable according to its terms,
except as enforcement of such terms may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, or similar laws
affecting creditors' rights generally, provided, however, that each Borrower
represents and warrants that no such limitations currently exist as of the date
of this Note, or (ii) equitable principles which may limit the availability of
the remedy of specific performance or other equitable remedies. Each Borrower
also represents that this Note evidences a business loan exempt from the
Federal Truth In Lending Act (15 USC ss.1601, et seq.), and the Board of
Governors of the Federal Reserve System's Regulation Z (12 CFR ss.226, et
seq.).
<PAGE> 61
Additional Terms and Conditions
Events of Default: If any of the following events (each an "Event of Default")
occurs:
1. Any Borrower fails to pay when due any amount payable under this
Note, and such failure continues for more than five (5) days after such payment
became due;
2. Any Borrower (a) fails to observe or perform any other term of this
Note, and such failure to observe or perform continues for more than fifteen
(15) days after such failure shall first become known to any officer of any
Borrower, provided, however, that such fifteen (15) day cure period shall not
apply to (i) any such failure which in the Bank's good faith opinion is
incapable of cure; and (ii) any such failure which has previously occurred; (b)
makes any materially incorrect or misleading representation, warranty, or
certificate to the Agent or the Bank; (c) makes any materially incorrect or
misleading representation in any financial statement or other information
delivered to the Agent or the Bank; or (d) defaults under the terms of any
agreement or instrument relating to any debt for borrowed money (other than the
debt evidenced by this Note) such that the creditor declares the debt due
before its maturity;
3. Any default occurs under the terms of any loan agreement, mortgage,
security agreement, or any other document, including the Loan Agreement,
executed as part of the loan evidenced by this Note or any other obligation or
indebtedness of any Borrower owed to the Bank at any time, and such default
continues for more than fifteen (15) days after such default shall first become
known to any officer of any Borrower, provided, however that such fifteen (15)
day cure period shall not apply to (a) any default which in the Bank's good
faith opinion is incapable of cure; (b) any default which has previously
occurred; (c) any failure to maintain and keep in effect any insurance required
under the Loan Agreement; or (d) any failure to provide to the Bank the
financial statements, documents and information required to be provided
pursuant to Sections 7.1(a), (b), and (c) of the Loan Agreement;
4. A "reportable event" (as defined in the Employee Retirement Income
Security Act of 1974, as amended) occurs that would permit the Pension Benefit
Guaranty Corporation to terminate any employee benefit plan of any Borrower or
any affiliate of any Borrower, or the occurrence of an "ERISA Event" (as
defined in the Loan Agreement) which shall not have been cured within thirty
(30) days after any officer of any Borrower has knowledge thereof;
5. Any Borrower becomes insolvent or unable to pay its debts as they
become due;
6. Any Borrower (a) makes an assignment for the benefit of creditors;
(b) consents to the appointment of a custodian, receiver, or trustee for itself
or for a substantial part of its assets; or (c) commences or consents to any
proceeding under any bankruptcy, reorganization, liquidation, insolvency or
similar laws of any jurisdiction;
<PAGE> 62
7. A custodian, receiver or trustee is appointed for any Borrower or
for a substantial part of its assets without its consent and is not removed
within sixty (60) days after such appointment;
8. Proceedings are commenced against any Borrower under any
bankruptcy, reorganization, liquidation, or similar laws of any jurisdiction,
and such proceedings remain undismissed for sixty (60) days after commencement;
9. Any judgment is entered against any Borrower, or any attachment,
levy or garnishment is issued against any property of any Borrower, in excess
of $250,000.00, and which judgment, attachment, levy or garnishment has not
been discharged or stayed within thirty (30) days after issuance, or for such
longer period as the Bank may agree to in writing;
10. Any Borrower, without the Bank's written consent, (a) is
dissolved, (b) merges or consolidates with any third party, (c) sells a
material part of its assets or business outside the ordinary course of its
business, or (d) agrees to do any of the foregoing;
11. There is a substantial change (other than with respect to changes
in the normal course of any Borrower's business, such as seasonal fluctuations)
in the existing or prospective financial condition of any Borrower which the
Bank in good faith determines to be materially adverse; or
12. The Bank in good faith deems itself insecure:
then this Note shall become due immediately, without notice, at the Bank's
option.
Remedies: If this Note is not paid at maturity, whether by demand, acceleration
or otherwise, the Agent and the Bank shall have all of the rights and remedies
provided by any law or agreement. Any requirement of reasonable notice shall be
met if the Agent or the Bank sends the notice to the Borrower at least seven
(7) days prior to the date of public or private sale, disposition or other
event giving rise to the required notice. Upon default, the Agent and the Bank
are authorized to cause all or any part of any collateral securing this Note to
be transferred to or registered in its (their) name(s) or in the name of any
other person, firm or corporation, with or without designation of the capacity
of such nominee. The Borrower shall be liable for any deficiency remaining
after disposition of any collateral securing this Note. The Borrower is liable
to the Agent and the Bank for all reasonable costs and expenses of every kind
incurred in the making or collection of this Note, including, without
limitation, reasonable attorneys' fees and court costs. These costs and
expenses shall include, without limitation, any costs or expenses incurred by
the Agent and the Bank in any bankruptcy, reorganization, insolvency or other
similar proceeding.
Waiver: Each endorser and any other party liable on this Note severally waives
demand, presentment, notice of dishonor and protest, and consents to any
extension or postponement of time of its payment without limit as to the number
or period, to any substitution, exchange or release of all or part of the
collateral securing this Note, to the
<PAGE> 63
addition of any party, and to the release or discharge of, or suspension of any
rights and remedies against, any person who may be liable for the payment of
this Note. No delay on the part of the Bank in the exercise of any right or
remedy shall operate as a waiver. No single or partial exercise by the Bank of
any right or remedy shall preclude any other future exercise of it or the
exercise of any other right or remedy. No waiver or indulgence by the Bank of
any default shall be effective unless in writing and signed by the Bank, nor
shall a waiver on one occasion be construed as a bar to or waiver of that right
on any future occasion.
Miscellaneous: Each Borrower shall be jointly and severally liable under this
Note. This Note shall be binding on each Borrower and its successors, and shall
inure to the benefit of the Bank, its successors and assigns. Any reference to
the Bank shall include any holder of this Note. This Note is delivered in the
State of Ohio and governed by Ohio law. Section headings are for convenience of
reference only and shall not affect the interpretation of this Note. This Note
and all related loan documents embody the entire agreement between the Borrower
and the Bank regarding the terms of the loan evidenced by this Note, and
supersede all oral statements and prior writings relating to that loan.
WAIVER OF JURY TRIAL. EACH BORROWER, THE AGENT AND THE BANK, AFTER CONSULTING
OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN
ANY LITIGATION BASED UPON OR ARISING OUT OF THIS NOTE, THE LOAN AGREEMENT, OR
ANY RELATED INSTRUMENT OR AGREEMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREBY, OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN), OR ACTIONS OF ANY OF THEM. THIS WAIVER SHALL NOT IN ANY WAY AFFECT
THE BANK'S OR THE AGENT'S ABILITY TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION
OF JUDGMENT OR COGNOVIT PROVISION CONTAINED HEREIN, IN THE LOAN AGREEMENT OR
ANY RELATED INSTRUMENT OR AGREEMENT. NO BORROWER NOR THE BANK AND THE AGENT
SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A
JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN
MODIFIED IN ANY RESPECT OR RELINQUISHED BY THE BORROWER, THE AGENT OR THE BANK
EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY ALL OF THEM.
Each Borrower irrevocably authorizes any attorney-at-law, including any
attorney-at-law employed or retained by the Bank or the Agent, to appear for
the Borrower in any court of record in Franklin County, Ohio (which the
Borrower acknowledges to be the place where this Note was made) or any other
state or jurisdiction wherein the Borrower may then reside, to (i) waive the
issuing and service of process, (ii) confess judgment against the Borrower in
favor of the holder of this Note for the amount then due, together with costs
of suit, (iii) release all errors, and (iv) waive all rights of appeal. Each
Borrower consents to the jurisdiction and venue of that court. Each Borrower
waives any conflict of interest that any attorney-at-law employed or retained
by the Bank or the Agent may have in confessing
<PAGE> 64
judgment under this Note and consents to payment of a legal fee to any
attorney-at-law confessing judgment under the Note. After judgment is entered
against one or more of the Borrowers, the power conferred may be exercised as
to one or more of the other Borrowers.
The undersigned have executed this Note in Columbus, Ohio, as of the date and
year first above written.
Rocky Shoes & Boots Inc.,
an Ohio corporation
By: /s/ DAVID FRAEDRICH
------------------------------
Title: Executive Vice President
& Chief Financial Officer
WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
FIVE STAR ENTERPRISES LTD., LIFESTYLE FOOTWEAR, INC.,
A CAYMAN ISLANDS CORPORATION A DELAWARE CORPORATION
By: /s/ DAVID FRAEDRICH By: /s/ DAVID FRAEDRICH
-------------------------------- -------------------------------
Title: Treasurer Title: Treasurer
<PAGE> 65
EXHIBIT B
HNB Note
<PAGE> 66
MASTER BUSINESS LOAN NOTE
Due: April 30, 1998 $14,000,000.00
No. ________________ Date: January 28, 1997
Promise to Pay: On or before April 30, 1998 (or such later date as may be
provided in the Loan Agreement (defined below)), for value received, the
undersigned, Rocky Shoes & Boots, Inc., an Ohio corporation, Five Star
Enterprises Ltd., a Cayman Islands corporation, and Lifestyle Footwear, Inc., a
Delaware corporation (collectively referred to as the "Borrower"), promise to
pay, jointly and severally, to The Huntington National Bank, a national banking
association (the "Bank"), or order, at the office of the Agent (defined below)
located at 100 East Broad Street, Columbus, Ohio 43271-0170, or at such other
address as the Agent may give notice of to the Borrower, the sum of Fourteen
Million Dollars ($14,000,000.00) or such lesser sum as is indicated on the
Bank's records, plus interest computed on the basis of the actual number of
days elapsed in a year of 360 days at the rate per annum announced from time to
time by the Agent as its "prime" rate (which rate may not be the lowest rate
charged by the Agent to any of its customers) until maturity, whether by
demand, acceleration or otherwise. Such interest rate shall be referred to
herein as the "Note Rate." Upon the occurrence of an Event of Default (defined
below) hereunder and during the continuance of such, the interest rate per
annum shall be 300 basis points above the Note Rate then in effect. Each change
in the "prime" rate will immediately change the Note Rate, effective as of the
opening of business on the date of the change.
In no event shall the interest rate exceed the maximum rate allowed by law; any
interest payment which would for any reason be deemed unlawful under applicable
law shall be applied to principal.
Interest will be computed on the unpaid principal balance from the date of each
borrowing until paid.
Until maturity, whether by demand, acceleration or otherwise, the Borrower
shall pay consecutive monthly installments of interest only commencing January,
1997, and continuing on the first day of each month thereafter.
The Borrower may at any time prepay this Note, in whole or in part, without
premium or penalty, together with accrued interest on the amount of any such
prepayment, in accordance with the terms of the Loan Agreement (defined below).
The Bank shall have the right to assess a late payment processing fee in the
amount of the greater of $50.00 and 5% of the scheduled payment in the event of
a default in payment that remains uncured for a period of five (5) days.
<PAGE> 67
Master Note: The Bank has authorized a committed credit facility to the
Borrower in a principal amount not to exceed the face amount of this Note. The
credit facility is in the form of loans made from time to time by the Bank to
the Borrower. This Note evidences the Borrower's obligation to repay those
loans. The aggregate principal amount of debt evidenced by this Note shall be
the amount reflected from time to time in the records of the Bank, but shall
not exceed the face amount of this Note.
Credit Agreement: This Note evidences a certain debt under the terms of a
Revolving Credit Loan Agreement (the "Loan Agreement") between the Bank, the
Borrower, Bank One, Columbus, NA and Bank One, Columbus, NA, as Agent (the
"Agent"), dated as of January 28, 1997, as the same may be amended, modified,
supplemented, restated or replaced from time to time. Reference is made to the
Loan Agreement for additional provisions relating to the debt evidenced by this
Note.
Security: To secure the payment of this Note and other present and future
liabilities of the Borrower to the Bank, the Borrower has pledged and granted
to the Agent, for the ratable benefit of the Bank and Bank One, Columbus, NA, a
continuing security interest in certain assets of the Borrower pursuant to a
Continuing Security Agreement dated as of January 28, 1997, as the same may be
amended, modified, supplemented, restated or replaced from time to time. The
Bank shall have the right at any time to apply its own debt or liability to the
Borrower or to any other party liable on this Note in whole or partial payment
of this Note or other present or future liabilities, without any requirement
for mutual maturity.
Related Documents: The terms of any other documents executed as part of the
loan evidenced by this Note are incorporated herein by reference.
Representations by Borrower: Each Borrower represents that it is a corporation
duly organized and existing under the laws of its jurisdiction of formation,
and that the execution and delivery of this Note and the performance of the
obligations it imposes are within its corporate powers, have been duly
authorized by all necessary action of its directors and do not contravene the
terms of its articles (certificate) of incorporation and code of regulations
(by-laws). Each Borrower represents that the execution and delivery of this
Note and the performance of the obligations it imposes do not violate any law,
do not conflict with any agreement by which it is bound, do not require the
consent or approval of any governmental authority or any third party, and that
this Note is a valid and binding agreement, enforceable according to its terms,
except as enforcement of such terms may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, or similar laws
affecting creditors' rights generally, provided, however, that each Borrower
represents and warrants that no such limitations currently exist as of the date
of this Note, or (ii) equitable principles which may limit the availability of
the remedy of specific performance or other equitable remedies. Each Borrower
also represents that this Note evidences a business loan exempt from the
Federal Truth In Lending Act (15 USC ss.1601, et seq.), and the Board of
Governors of the Federal Reserve System's Regulation Z (12 CFR ss.226, et
seq.).
<PAGE> 68
Additional Terms and Conditions
Events of Default: If any of the following events (each an "Event of Default")
occurs:
1. Any Borrower fails to pay when due any amount payable under this
Note, and such failure continues for more than five (5) days after such payment
became due;
2. Any Borrower (a) fails to observe or perform any other term of this
Note, and such failure to observe or perform continues for more than fifteen
(15) days after such failure shall first become known to any officer of any
Borrower, provided, however, that such fifteen (15) day cure period shall not
apply to (i) any such failure which in the Bank's good faith opinion is
incapable of cure; and (ii) any such failure which has previously occurred; (b)
makes any materially incorrect or misleading representation, warranty, or
certificate to the Agent or the Bank; (c) makes any materially incorrect or
misleading representation in any financial statement or other information
delivered to the Agent or the Bank; or (d) defaults under the terms of any
agreement or instrument relating to any debt for borrowed money (other than the
debt evidenced by this Note) such that the creditor declares the debt due
before its maturity;
3. Any default occurs under the terms of any loan agreement, mortgage,
security agreement, or any other document, including the Loan Agreement,
executed as part of the loan evidenced by this Note or any other obligation or
indebtedness of any Borrower owed to the Bank at any time, and such default
continues for more than fifteen (15) days after such default shall first become
known to any officer of any Borrower, provided, however that such fifteen (15)
day cure period shall not apply to (a) any default which in the Bank's good
faith opinion is incapable of cure; (b) any default which has previously
occurred; (c) any failure to maintain and keep in effect any insurance required
under the Loan Agreement; or (d) any failure to provide to the Bank the
financial statements, documents and information required to be provided
pursuant to Sections 7.1(a), (b), and (c) of the Loan Agreement;
4. A "reportable event" (as defined in the Employee Retirement Income
Security Act of 1974, as amended) occurs that would permit the Pension Benefit
Guaranty Corporation to terminate any employee benefit plan of any Borrower or
any affiliate of any Borrower, or the occurrence of an "ERISA Event" (as
defined in the Loan Agreement) which shall not have been cured within thirty
(30) days after any officer of any Borrower has knowledge thereof;
5. Any Borrower becomes insolvent or unable to pay its debts as they
become due;
6. Any Borrower (a) makes an assignment for the benefit of creditors;
(b) consents to the appointment of a custodian, receiver, or trustee for itself
or for a substantial part of its assets; or (c) commences or consents to any
proceeding under any bankruptcy, reorganization, liquidation, insolvency or
similar laws of any jurisdiction;
<PAGE> 69
7. A custodian, receiver or trustee is appointed for any Borrower or
for a substantial part of its assets without its consent and is not removed
within sixty (60) days after such appointment;
8. Proceedings are commenced against any Borrower under any
bankruptcy, reorganization, liquidation, or similar laws of any jurisdiction,
and such proceedings remain undismissed for sixty (60) days after commencement;
9. Any judgment is entered against any Borrower, or any attachment,
levy or garnishment is issued against any property of any Borrower, in excess
of $250,000.00, and which judgment, attachment, levy or garnishment has not
been discharged or stayed within thirty (30) days after issuance, or for such
longer period as the Bank may agree to in writing;
10. Any Borrower, without the Bank's written consent, (a) is
dissolved, (b) merges or consolidates with any third party, (c) sells a
material part of its assets or business outside the ordinary course of its
business, or (d) agrees to do any of the foregoing;
11. There is a substantial change (other than with respect to changes
in the normal course of any Borrower's business, such as seasonal fluctuations)
in the existing or prospective financial condition of any Borrower which the
Bank in good faith determines to be materially adverse; or
12. The Bank in good faith deems itself insecure:
then this Note shall become due immediately, without notice, at the Bank's
option.
Remedies: If this Note is not paid at maturity, whether by demand, acceleration
or otherwise, the Agent and the Bank shall have all of the rights and remedies
provided by any law or agreement. Any requirement of reasonable notice shall be
met if the Agent or the Bank sends the notice to the Borrower at least seven
(7) days prior to the date of public or private sale, disposition or other
event giving rise to the required notice. Upon default, the Agent and the Bank
are authorized to cause all or any part of any collateral securing this Note to
be transferred to or registered in its their name(s) or in the name of any
other person, firm or corporation, with or without designation of the capacity
of such nominee. The Borrower shall be liable for any deficiency remaining
after disposition of any collateral securing this Note. The Borrower is liable
to the Agent and the Bank for all reasonable costs and expenses of every kind
incurred in the making or collection of this Note, including, without
limitation, reasonable attorneys' fees and court costs. These costs and
expenses shall include, without limitation, any costs or expenses incurred by
the Agent and the Bank in any bankruptcy, reorganization, insolvency or other
similar proceeding.
Waiver: Each endorser and any other party liable on this Note severally waives
demand, presentment, notice of dishonor and protest, and consents to any
extension or postponement of time of its payment without limit as to the number
or period, to any substitution, exchange or release of all or part of the
collateral securing this Note, to the
<PAGE> 70
addition of any party, and to the release or discharge of, or suspension of any
rights and remedies against, any person who may be liable for the payment of
this Note. No delay on the part of the Bank in the exercise of any right or
remedy shall operate as a waiver. No single or partial exercise by the Bank of
any right or remedy shall preclude any other future exercise of it or the
exercise of any other right or remedy. No waiver or indulgence by the Bank of
any default shall be effective unless in writing and signed by the Bank, nor
shall a waiver on one occasion be construed as a bar to or waiver of that right
on any future occasion.
Miscellaneous: Each Borrower shall be jointly and severally liable under this
Note. This Note shall be binding on each Borrower and its successors, and shall
inure to the benefit of the Bank, its successors and assigns. Any reference to
the Bank shall include any holder of this Note. This Note is delivered in the
State of Ohio and governed by Ohio law. Section headings are for convenience of
reference only and shall not affect the interpretation of this Note. This Note
and all related loan documents embody the entire agreement between the Borrower
and the Bank regarding the terms of the loan evidenced by this Note, and
supersede all oral statements and prior writings relating to that loan.
WAIVER OF JURY TRIAL. EACH BORROWER, THE AGENT AND THE BANK, AFTER CONSULTING
OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN
ANY LITIGATION BASED UPON OR ARISING OUT OF THIS NOTE, THE LOAN AGREEMENT, OR
ANY RELATED INSTRUMENT OR AGREEMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREBY, OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN), OR ACTIONS OF ANY OF THEM. THIS WAIVER SHALL NOT IN ANY WAY AFFECT
THE BANK'S OR THE AGENT'S ABILITY TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION
OF JUDGMENT OR COGNOVIT PROVISION CONTAINED HEREIN, IN THE LOAN AGREEMENT OR
ANY RELATED INSTRUMENT OR AGREEMENT. NO BORROWER NOR THE BANK AND THE AGENT
SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A
JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN
MODIFIED IN ANY RESPECT OR RELINQUISHED BY THE BORROWER, THE AGENT OR THE BANK
EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY ALL OF THEM.
Each Borrower irrevocably authorizes any attorney-at-law, including any
attorney-at-law employed or retained by the Bank or the Agent, to appear for
the Borrower in any court of record in Franklin County, Ohio (which the
Borrower acknowledges to be the place where this Note was made) or any other
state or jurisdiction wherein the Borrower may then reside, to (i) waive the
issuing and service of process, (ii) confess judgment against the Borrower in
favor of the holder of this Note for the amount then due, together with costs
of suit, (iii) release all errors, and (iv) waive all rights of appeal. Each
Borrower consents to the jurisdiction and venue of that court. Each Borrower
waives any conflict of interest that any attorney-at-law employed or retained
by the Bank or the Agent may have in confessing
<PAGE> 71
judgment under this Note and consents to payment of a legal fee to any
attorney-at-law confessing judgment under the Note. After judgment is entered
against one or more of the Borrowers, the power conferred may be exercised as
to one or more of the other Borrowers.
The undersigned have executed this Note in Columbus, Ohio, as of the date and
year first above written.
Rocky Shoes & Boots Inc.,
an Ohio corporation
By: /s/ DAVID FRAEDRICH
------------------------------
Title: Executive Vice President
& Chief Financial Officer
WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
FIVE STAR ENTERPRISES LTD., LIFESTYLE FOOTWEAR, INC.,
A CAYMAN ISLANDS CORPORATION A DELAWARE CORPORATION
By: /s/ DAVID FRAEDRICH By: /s/ DAVID FRAEDRICH
-------------------------------- -------------------------------
Title: Treasurer Title: Treasurer
<PAGE> 1
Exhibit 10.18
===============================================================================
CONTINUING SECURITY AGREEMENT
among
ROCKY SHOES & BOOTS, INC.,
FIVE STAR ENTERPRISES LTD.,
LIFESTYLE FOOTWEAR, INC.
and
BANK ONE, COLUMBUS, NA, as Agent
Dated as of January 28, 1997
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
(This Table of Contents is not part of this Agreement
and is only for convenience of reference.)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 1. Definitions............................................................ 1
Section 2. Security for the Facility and Other
Indebtedness.......................................................... 3
Section 3. Provisions Concerning the Collateral
(a) Accounts Receivable.............................................. 5
(b) Inventory........................................................ 5
(c) Equipment........................................................ 6
(d) Intellectual Property and General
Intangibles..................................................... 6
Section 4. Representations, Warranties and Covenants
of the Debtor......................................................... 6
Section 5. Insurance.............................................................. 7
Section 6. Taxes and Assessments.................................................. 8
Section 7. Maintenance of Collateral.............................................. 8
Section 8. Ownership of Collateral................................................ 8
Section 9. Events of Default...................................................... 8
Section 10. Remedies............................................................... 10
Section 11. Waiver of Jury Trial................................................... 11
Section 12. Miscellaneous.......................................................... 11
Signatures............................................................. 13
</TABLE>
(i)
<PAGE> 3
Schedule A -- Collateral Locations
Schedule B -- UCC Financing Statements
(ii)
<PAGE> 4
CONTINUING SECURITY AGREEMENT
THIS CONTINUING SECURITY AGREEMENT (the "Agreement"), dated as of
January 28, 1997, is made and entered into by and among Rocky Shoes & Boots,
Inc., an Ohio corporation, whose address is 39 East Canal Street, Nelsonville,
Ohio 45764 ("Rocky Inc."), Five Star Enterprises Ltd., a Cayman Islands
corporation, whose address is 39 East Canal Street, Nelsonville, Ohio 45764
("Five Star"), and Lifestyle Footwear, Inc., a Delaware corporation, whose
address is 39 East Canal Street, Nelsonville, Ohio 45764 ("Lifestyle") (Rocky
Inc., Five Star and Lifestyle shall be referred to herein individually as a
"Debtor" and collectively as the "Debtors"), and Bank One, Columbus, NA, a
national banking association, whose address is 100 East Broad Street, 7th
Floor, Columbus, Ohio 43271-0170, as Agent (in this capacity, hereinafter
referred to as the "Secured Party") under a certain Revolving Credit Loan
Agreement (referred to below), for the ratable benefit of Bank One, Columbus,
NA, a national banking association ("Bank One"), and The Huntington National
Bank, a national banking association ("HNB") (Bank One and HNB shall be
referred to herein individually as a "Bank" and collectively as the "Banks").
BACKGROUND INFORMATION
A. The Banks have provided revolving credit and other credit
facilities to the Debtors.
B. To secure the repayment of such revolving credit and other credit
facilities and all other present and future obligations owing by the Debtors to
the Banks, the Debtors desire to grant a security interest in certain
collateral to the Secured Party, as agent for and for the ratable benefit of
the Banks, all as hereinafter set forth.
PROVISIONS
NOW, THEREFORE, as an inducement to and in consideration of the
provision of such revolving credit and other credit facilities and all other
present and future obligations owing by the Debtors to the Banks, the mutual
obligations contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto do hereby agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have
the following meanings:
"Bank One Notes" shall mean, collectively, the Construction
Loan Note, the Master Business Loan Note and the Term Note, as the same may
have been or may be amended, modified, supplemented, restated or replaced from
time to time.
"Collateral" shall have the meaning set forth in Section 2
hereof.
<PAGE> 5
"Construction Loan Agreement" shall mean the Construction and
Term Loan Agreement dated as of October 27, 1993 entered into by and among the
Debtors, Rocky Co. and NBD, as modified by (i) a First Amendment to
Construction and Term Loan Agreement dated January 28, 1994, (ii) a Second
Amendment to Construction and Term Loan Agreement dated December 31, 1994, and
(iii) a Third Amendment to Construction and Term Loan Agreement dated March 30,
1995, as assigned to Bank One pursuant to a Loan Purchase, Assignment and
Master Amendment Agreement among Bank One, NBD, NBD as agent, the Debtors and
Rocky Co., dated as of February 1, 1996, as the same may be further amended,
modified, supplemented, restated or replaced from time to time.
"Construction Loan Note" shall mean the Promissory Note dated
October 27, 1993 executed by the Debtors and Rocky Co. originally payable to
the order of NBD in the original principal amount of $2,000,000, as modified by
(i) a First Amendment to Promissory Note dated January 28, 1994, (ii) a Second
Amendment to Promissory Note dated December 31, 1994, and (iii) a Third
Amendment to Promissory Note dated March 30, 1995, as endorsed payable to the
order of Bank One pursuant to a Loan Purchase, Assignment and Master Amendment
Agreement dated as of February 1, 1996, as the same may be further amended,
modified, supplemented, restated or replaced from time to time.
"Credit Agreement" shall mean the Revolving Credit Loan
Agreement of even date herewith entered into by and among the Debtors, the
Secured Party and the Banks, as the same may be amended, modified,
supplemented, extended, restated or replaced from time to time.
"Credit Facilities" shall mean the credit facilities extended
by the Banks to the Debtors pursuant the Construction Loan Agreement, the
Credit Agreement, the Letter of Credit Documents, the Swap Agreement and the
Notes, as such credit facilities may be amended, modified, supplemented,
extended, restated or replaced from time to time.
"Facility Documents" shall have the meaning set forth in
Section 2 hereof.
"HNB Note" shall mean the Master Business Loan Note of even
date herewith executed by the Debtors and payable to the order of HNB in the
maximum principal amount of $14,000,000, as the same may be amended, modified,
supplemented, extended, restated or replaced from time to time.
"Letter of Credit Documents" shall mean, collectively,
"Commercial L/Cs", "Commercial L/C Applications", "Standby L/Cs" and "Standby
L/C Applications", as such terms are defined in the Credit Agreement.
"Master Business Loan Note" shall mean the Master Business
Loan Note of even date herewith executed by the Debtors and payable to the
order of Bank One in the maximum principal amount of $21,000,000, as the same
may be amended, modified, supplemented, extended, restated or replaced from
time to time.
-2-
<PAGE> 6
"NBD" shall mean NBD Bank, an Ohio banking association, and
its predecessors, successors and assigns.
"Notes" shall mean, collectively, the Bank One Notes and the
HNB Note.
"Rocky Co." shall mean Rocky Shoes & Boots Co., a former
subsidiary of Rocky Inc. which was merged into Rocky Inc. as of December 31,
1996.
"Swap Agreement" shall mean the ISDA Master Agreement dated
as of February 1, 1996 entered into by and among Bank One and Rocky Inc. (as
successor to Rocky Co.), as the same may be amended, modified, supplemented,
extended, restated or replaced from time to time.
"Swap Obligations" shall mean all repayment, reimbursement
and other obligations of Rocky Inc. (as successor to Rocky Co.) owed to Bank
One under the Swap Agreement.
"Term Note" shall mean Installment Business Loan dated as of
May 11, 1994 executed by the Debtors and Rocky Co. and originally payable to
the order of NBD in the principal amount of $815,000, as endorsed payable to
the order of Bank One pursuant to a Loan Purchase, Assignment and Master
Amendment Agreement dated as of February 1, 1996, as the same may be amended,
modified, supplemented, restated or replaced from time to time.
"Total Indebtedness" shall have the meaning set forth in
Section 2 hereof.
"UCC" shall mean the Uniform Commercial Code as adopted in
the State of Ohio, as amended from time to time.
SECTION 2. Security for the Facility and Other Indebtedness. For the
purpose of securing: (i) all payments to be made by the Debtors under the Notes
and pursuant to the Construction Loan Agreement, the Credit Agreement and the
Letter of Credit Documents, (ii) the payment of the Swap Obligations under the
Swap Agreement, (iii) the payment of all other present or future indebtedness
and liabilities of the Debtors owed to the Banks (all such present and future
indebtedness and liabilities, including the Credit Facilities and the Swap
Obligations, being collectively referred to herein as the "Total
Indebtedness"), (iv) any amounts advanced or costs incurred by the Secured
Party and/or the Banks for the protection of the Collateral or in connection
with the enforcement of this Agreement, the Construction Loan Agreement, the
Credit Agreement, the Letter of Credit Documents, the Swap Agreement, the Notes
and any other documents now or hereafter relating to the Total Indebtedness
(all such documents being collectively referred to as the "Facility
Documents"), and (v) the performance and observance of each covenant and
agreement of the Debtors contained in this Agreement, the Construction Loan
Agreement, the Credit Agreement, the Letter of Credit Documents, the Swap
Agreement, the Notes and any other Facility Documents, each Debtor does hereby
assign and grant a security interest to the
-3-
<PAGE> 7
Secured Party, its successors and assigns, for the ratable benefit of the
Banks, in the following property (the "Collateral"), whether now owned or
hereafter acquired, and, whether a Debtor's interest therein as owner,
co-owner, lessee, consignee, secured party or otherwise, be now owned or
existing or hereafter arising or acquired and wherever located, together with
all substitutions, replacements, additions and accessions therefor or thereto,
all documents, negotiable documents, documents of title, warehouse receipts,
storage receipts, express bills, freight bills, air bills, bills of lading, and
other documents (as defined in the UCC) relating thereto, all products thereof
and all cash and non-cash proceeds thereof, including, but not limited to,
notes, drafts, checks, instruments, insurance proceeds, indemnity proceeds,
warranty and guaranty proceeds, and all cash, accounts, chattel paper and
general intangibles arising from the sale, rent, lease, casualty loss or other
disposition of the Collateral, and any Collateral returned to, repossessed by
or stopped in transit by each Debtor:
(a) "Accounts Receivable", which shall consist of accounts,
chattel paper, and general intangibles as those terms are defined in the UCC,
and any other debit owed to or receivable owned, acquired or received by each
Debtor. Also included is any right to a refund of taxes and assessments paid at
any time to any governmental entity. Also included are letters of credit, and
drafts under them, given in support of Accounts Receivable.
(b) "Inventory", which shall consist of all property held at
any location by or for each Debtor for sale, rent or lease, or furnished or to
be furnished by each Debtor under any contract of service, or raw materials or
work in process and their products, or materials used or consumed in its
business, and shall include containers and shelving useful for storage. Without
limiting the security interest granted, Inventory is presently located at the
locations set forth on Schedule A attached hereto.
(c) "Equipment", which shall consist of any goods at any time
acquired, owned or held by each Debtor at any location primarily for use in its
business and goods which are not included in the definitions of inventory, farm
products or consumer goods (as such terms are defined in the UCC), including,
but not limited to, machinery, furniture, furnishings and vehicles, and any
accessions, parts, attachments, accessories, tools, dies, additions,
substitutions, replacements and appurtenances to them or intended for use with
them. Without limiting the security interest granted, Equipment is presently
located at the locations set forth on Schedule A attached hereto.
(d) "Instruments", which shall consist of each Debtor's
interest of any kind in any negotiable instrument or security (whether
certificated or uncertificated) as those terms are defined in the UCC, or any
other writing which evidences a right to payment of money and is not itself a
security agreement or lease and is of a type which is, in the ordinary course
of business, transferred by delivery alone or by delivery with any necessary
endorsement or assignment.
-4-
<PAGE> 8
(e) "Intellectual Property", which shall consist of all trade
secrets and other proprietary information, trademarks, trade names, service
marks, and business names and the goodwill of business relating thereto;
copyrights (including without limitation, copyrights for computer programs) and
all tangible property embodying the copyrights; unpatented inventions (whether
or not patentable); patent applications and patents; license agreements
relating to any of the foregoing and income therefrom; books, records, computer
tapes or discs, flow diagrams, specific sheets, source codes, object codes and
other physical manifestations of the foregoing; and the right to sue for all
past, present and future infringements of the foregoing.
SECTION 3. Provisions Concerning the Collateral
(a) Accounts Receivable
(i) Each Debtor represents and warrants that each
Account Receivable reflected in each Debtor's books and records is, or will at
the time it arises be, owned by such Debtor free and clear of all liens,
security interests and any other encumbrances in favor of any third party; with
respect to a sale of Inventory, will be a bona fide existing obligation created
by the final sale and delivery of goods or the completed performance of
services by such Debtor in the ordinary course of its business; will be for a
liquidated amount maturing as stated in the supporting data covering such
transaction; and will not be subject to any known deduction, offset,
counterclaim, return privilege or condition except as reflected on such
Debtor's books and records. No Debtor shall redate any invoice. Any allowances
between any Debtor and its customers will be in accordance with the usual
customary practices of such Debtor, as they exist on the date of this
Agreement.
(ii) If any Accounts Receivable shall arise out of a
contract with the United States of America or any department, agency,
subdivision or instrumentality thereof, the Debtors shall promptly notify the
Secured Party thereof in writing and take all other action and execute all
other documents requested by the Secured Party to perfect the Secured Party's
security interest in such Accounts Receivable under the provisions of the
Federal laws on assignment of claims.
(b) Inventory
(i) Each Debtor represents and warrants that each
item of Inventory shall be valued by such Debtor in accordance with the methods
employed as of the date of this Agreement by the Debtors' independent certified
public accountants in the preparation of the Debtors' audited annual financial
statements. The Inventory is located or has been located at any time during the
past four months at the locations set forth on Schedule A attached hereto. Each
Debtor shall not permit any Inventory to be removed from such current locations
or stored at locations other than such current locations, except (x) for
shipment to purchasers in the ordinary course of each Debtor's business or (y)
to
-5-
<PAGE> 9
such other locations as to which each Debtor shall give 30 days prior written
notice to the Secured Party. Inventory may be moved from one such current
location to another.
(ii) Each Debtor shall keep all of its Inventory in
good order and condition and shall maintain full, accurate and complete books
and records with respect to its Inventory at all times.
(c) Equipment
(i) Each Debtor represents and warrants that its
Equipment is located or has been located at any time during the past four
months at the locations set forth on Schedule A attached hereto. Each Debtor
shall not permit any Equipment to be located at any place other than (x) such
current locations, and (y) at such other locations as to which such Debtor
shall give 30 days prior written notice to the Secured Party. Equipment may be
moved from one such current location to another.
(ii) Each Debtor shall keep and maintain all of its
Equipment in good operating condition and repair, make all necessary
replacements thereto so that the value and operating efficiency thereof shall
at all times be maintained and preserved. Each Debtor shall not permit any item
of Equipment to become a fixture to real estate or accession to other property
and the Equipment is now and shall at all times remain and be personal
property.
(d) Intellectual Property and General Intangibles
(i) Each Debtor shall maintain and preserve all
Intellectual Property and other general intangibles and the like which are
necessary or useful for the conduct of its business.
SECTION 4. Representations, Warranties and Covenants of the Debtors.
The Debtors hereby represent, warrant and covenant to the Secured Party as
follows:
(a) The Debtors shall pay their Total Indebtedness, in
accordance with its terms, to the Secured Party, for the ratable benefit of the
Banks, secured by this Agreement.
(b) The Debtors have good title to the Collateral and have
full right and authority to grant the security interest granted herein.
(c) No financing statement or security agreement purporting
to cover any of the Collateral has heretofore been signed by any Debtor or
names any Debtor as a "debtor" and no such financing statement or security
agreement is now on file at any public office, except those set forth in
Schedule B attached hereto.
-6-
<PAGE> 10
(d) The Debtors shall not directly or indirectly create or
permit to remain, and shall promptly discharge, any mortgage, lien, encumbrance
or charge on, pledge of, security interest in or conditional sale or other
title retention agreement with respect to the Collateral or any part thereof
(including, without limitation, any lien, encumbrance or charge arising by
operation of law) other than this Agreement, those set forth on Schedule B
attached hereto and those permitted by the Credit Agreement.
(e) The Debtors will defend the Collateral against all claims
and demands of all persons at any time claiming an interest therein adverse to
the Secured Party.
(f) The Debtors will join with the Secured Party, at the
Secured Party's request, in executing such documents, in such form and at such
time, as the Secured Party deems necessary or advisable, to maintain, perfect
and continue the effectiveness of the security interest granted hereby,
including, but not limited to, executing, refiling and rerecording any such
financing statements as may be requested by the Secured Party and any and all
documents, instruments and filings that may be necessary or advisable to grant
and perfect a security interest or other lien in Collateral which is located
outside of the United States of America, such as Collateral located at the
Debtors' facilities in Puerto Rico and the Dominican Republic. The Debtors
hereby irrevocably appoint the Secured Party and the Secured Party's designees
as the Debtors' true and lawful attorney-in-fact with power to sign the name of
the Debtors on any such documents. The Debtors ratify and approve all acts of
the Secured Party and its designees as attorney-in-fact. The Secured Party or
its designees as attorney-in-fact will not be liable for any acts or omissions,
or for any error or judgment or mistake of fact or law, except for bad faith.
The Debtors shall pay all reasonable costs and expenses in connection with any
of the foregoing, including the cost of all filings made pursuant to this
subsection.
(g) The Debtors shall promptly perform all of its covenants
and duties under this Agreement, the Notes, the Credit Agreement and all other
Facility Documents.
(h) The Debtors shall not sell, transfer, assign or otherwise
dispose of the Collateral, except in the ordinary course of business and as
provided herein, without the prior written consent of the Secured Party.
(i) Each Debtor warrants that its chief executive office is
at the address shown above.
SECTION 5. Insurance. The Debtors shall keep the Collateral
continuously insured against loss or damage by fire, lightening, vandalism,
malicious mischief and all perils covered by standard "extended coverage" or
"all risks" insurance in a amount not less than the replacement cost of the
Collateral at any time, with loss payable clauses in favor the Secured Party,
and shall furnish evidence of such insurance satisfactory to the Secured Party.
All insurance policies shall be issued by carriers acceptable to the Secured
Party and qualified to transact business in the jurisdictions where the
Collateral is located and shall be written so as not to be subject to
cancellation upon less than thirty (30) days
-7-
<PAGE> 11
advance written notice to the Secured Party. The Debtors shall assign and
direct any insurer to pay to the Secured Party the proceeds of all such
insurance and authorizes the Secured Party to endorse in the name of the Debtor
any instrument for such proceeds and refunds, and, at the option of the Secured
Party, to apply such proceeds and refunds to any unpaid balance of the Notes or
other Total Indebtedness, whether or not then due, or to restoration of the
Collateral, returning any excess to the Debtor.
SECTION 6. Taxes and Assessments. The Debtors shall pay promptly when
due and before penalty or interest accrue thereon, all taxes, assessments and
other governmental charges of any kind whatsoever that now or may at any time
hereafter be assessed or levied against or with respect to the Collateral
which, if not paid, may become or be made a lien on the Collateral.
Notwithstanding the preceding sentence, the Debtors may, at their expense and
after prior written notice to the Secured Party and by appropriate legal
proceedings diligently prosecuted, contest in good faith the validity or amount
of any such taxes, assessments or other charges and may permit the items
contested to remain unpaid during the period of contest. If at any time,
however, the Secured Party shall notify the Debtors that, in its opinion, by
nonpayment of any such items the security interest created by this Agreement as
to any part of the Collateral will be materially affected or the Collateral or
any part thereof will be subject to imminent loss or forfeiture, the Debtors
shall promptly pay such taxes, assessments or charges. During the period when
the taxes, assessments or other charges so contested remain unpaid, the Debtors
shall provide adequate reserves with respect to such taxes, assessments or
charges.
SECTION 7. Maintenance of Collateral. The Debtors, at their expense,
will keep or cause to be kept the Collateral in good order and condition
(ordinary wear and tear excepted) and will make all necessary or appropriate
repairs, replacements and renewals thereof unless the Secured Party otherwise
consents in writing.
SECTION 8. Ownership of Collateral. The Debtors are and shall continue
to be the owners of the Collateral.
SECTION 9. Events of Default. The Debtors shall be in default upon the
occurrence of any of the following (each an "Event of Default"):
(a) Any Debtor fails to pay when due any amount payable under
the Notes and such failure continues for more than five (5) days after such
payment becomes due;
(b) Any Debtor (i) fails to observe or perform any other term
of the Notes and such failure to observe or perform continues for more than
fifteen (15) days after such failure shall first become known to any officer of
any Debtor; provided, however, that such fifteen (15) day cure period shall not
apply to (x) any such failure which in the Secured Party's good faith opinion
is incapable of cure, and (y) any such failure which has previously occurred;
(ii) makes any materially incorrect or misleading representation,
-8-
<PAGE> 12
warranty, or certificate to the Secured Party and/or the Banks; (iii) makes any
materially incorrect or misleading representation in any financial statement or
other information delivered to the Secured Party and/or the Banks; or (iv)
defaults under the terms of any agreement or instrument relating to any debt
for borrowed money (other than the debt evidenced by the Notes) such that the
creditor declares the debt due before its maturity;
(c) Any default occurs under the terms of this Agreement, the
Construction Loan Agreement, the Credit Agreement, the Letter of Credit
Documents or any other Facility Document or any default occurs under the terms
of any other loan agreement, mortgage, security agreement or any other
agreement executed as part of the Total Indebtedness of any Debtor owed to the
Secured Party and/or either Bank at any time and such default continues for
more than fifteen (15) days after such default shall first become known to any
officer of any Debtor, provided, however, that such fifteen (15) day cure
period shall not apply to (i) any default which in the Secured Party's good
faith opinion is incapable of cure; (ii) any default which has previously
occurred; (iii) any failure to maintain and keep in effect any insurance
required by any Facility Document; or (iv) any failure to provide to the Banks
the financial statements, documents and information required to be provided
pursuant to Sections 7.1(a), (b), and (c) of the Credit Agreement;
(d) A "reportable event" (as defined in the Employee
Retirement Income Security Act of 1974, as amended) occurs that would permit
the Pension Benefit Guaranty Corporation to terminate any employee benefit plan
of any Debtor or any affiliate of any Debtor, or the occurrence of an "ERISA
Event" (as defined in the Credit Agreement) which shall not have been cured
within thirty (30) days after any officer of any Borrower has knowledge
thereof;
(e) Any Debtor becomes insolvent or unable to pay its debts
as they become due;
(f) Any Debtor (i) makes an assignment for the benefit of
creditors; (ii) consents to the appointment of a custodian, receiver, or
trustee for itself or for a substantial part of its assets; or (iii) commences
or consents to any proceeding under any bankruptcy, reorganization,
liquidation, insolvency or similar laws of any jurisdiction;
(g) A custodian, receiver or trustee is appointed for any
Debtor or for a substantial part of its assets without its consent and is not
removed within sixty (60) days after such appointment;
(h) Proceedings are commenced against any Debtor under any
bankruptcy, reorganization, liquidation, or similar laws of any jurisdiction,
and such proceedings remain undismissed for sixty (60) days after commencement;
(i) Any judgment is entered against any Debtor, or any
attachment, levy or garnishment is issued against any property of any Debtor,
in excess of $250,000, and which judgment, attachment, levy or garnishment has
not been discharged or stayed within
-9-
<PAGE> 13
thirty (30) days after issuance, or for such longer period as the Secured Party
may agree to in writing;
(j) Any Debtor, without the Secured Party's written consent,
(i) is dissolved; (ii) merges or consolidates with any third party; (iii)
except as otherwise permitted by the Credit Agreement, sells a material part of
its assets or business outside the ordinary course of its business, or (iv)
agrees to do any of the foregoing;
(k) There is a substantial change (other than with respect to
changes in the normal course of any Debtor's business, such as seasonal
fluctuations) in the existing or prospective financial condition of any Debtor
which the Secured Party in good faith determines to be materially adverse; or
(l) The Banks in good faith deem themselves insecure.
SECTION 10. Remedies. Upon the occurrence of an Event of Default, the
Secured Party, for the ratable benefit of the Banks, shall have the rights and
remedies provided by law, this Agreement, the Construction Loan Agreement, the
Credit Agreement, the Letter of Credit Documents or any other Facility
Documents, or any other written agreement executed by any Debtor, including but
not limited to, the right to require the Debtors to assemble the Collateral and
make it available to the Secured Party at a place to be designated by the
Secured Party which is reasonably convenient to both parties, the right to take
possession of the Collateral with or without demand and with or without process
of law, and the right to sell and dispose of it and distribute the proceeds
according to law. In connection with the right of the Secured Party to take
possession of the Collateral, the Secured Party may take possession of any
other items of property in or on the Collateral at the time of taking
possession and hold them for the Debtors without liability on the part of the
Secured Party. Any requirement of reasonable notice shall be met if the
Secured Party sends the notice to the Debtors at least seven (7) days prior to
the date of public or private sale, disposition or other event giving rise to
the required notice. Upon default, the Secured Party is authorized to cause
all or any part of any Collateral to be transferred to or registered in its
name or in the name of any other person, firm or corporation, with or without
designation of the capacity of such nominee. The Debtors shall be liable for
any deficiency remaining after disposition of the Collateral. The Debtors are
liable to the Secured Party for all reasonable costs and expenses of every kind
incurred in the making or collection of the Total Indebtedness, including the
Credit Facilities, secured hereby, including, without limitation, reasonable
attorneys' fees and court costs. These costs and expenses shall include,
without limitation, any costs or expenses incurred by the Secured Party and the
Banks in any bankruptcy, reorganization, insolvency or other similar
proceeding.
Any moneys (including, without limitation, the proceeds of any sale of
the Collateral, any part thereof or any interest therein) received by the
Secured Party and/or the Banks pursuant to the exercise of any remedies
provided in the Facility Documents or by law shall be applied as set forth in
the Credit Agreement.
-10-
<PAGE> 14
SECTION 11. WAIVER OF JURY TRIAL. THE SECURED PARTY, FOR ITSELF AND ON
BEHALF OF THE BANKS, AND EACH DEBTOR, AFTER CONSULTING OR HAVING HAD THE
OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED
UPON OR ARISING OUT OF THIS AGREEMENT, THE CREDIT AGREEMENT, THE NOTES, THE
FACILITY DOCUMENTS, OR ANY RELATED INSTRUMENT OR AGREEMENT, OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREBY, OR ANY COURSE OF CONDUCT, DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF ANY OF THEM. THIS WAIVER
SHALL NOT IN ANY WAY AFFECT THE SECURED PARTY'S OR THE BANKS' ABILITY TO PURSUE
REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED
IN ANY FACILITY DOCUMENT. NEITHER THE SECURED PARTY, THE BANKS NOR THE DEBTORS
SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A
JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN
MODIFIED IN ANY RESPECT OR RELINQUISHED BY EITHER THE SECURED PARTY OR THE
DEBTORS EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY ALL OF THEM.
SECTION 12. Miscellaneous.
(a) At its option, the Secured Party may, but shall be under
no duty or obligation to, discharge taxes, liens, security interests or other
encumbrances at any time levied or placed upon the Collateral, pay for
insurance on the Collateral, and pay for the maintenance or preservation of the
Collateral and the Debtors agree to reimburse the Secured Party on demand for
any payment made or expense incurred by the Secured Party, with interest
thereon at the highest rate then in effect under the Notes.
(b) No delay on the part of the Secured Party in the exercise
of any right or remedy shall operate as a waiver, no single or partial exercise
by the Secured Party of any right or remedy shall preclude any other exercise
of it or the exercise of any other right or remedy, and no waiver or indulgence
by the Secured Party of any default shall be effective unless in writing and
signed by the Secured Party, nor shall a waiver on one occasion be construed as
a waiver of that right on any future occasion.
(c) If any provision of this Agreement is unenforceable for
any reason in any jurisdiction, it shall be ineffective only to that extent,
and the remaining provisions shall remain valid, effective and enforceable.
(d) Notice from one party to another relating to this
Agreement shall be deemed effective if made in writing (including
telecommunications) and delivered to the recipient's address, telex number or
telecopy number set forth below by any of the following means: (i) hand
delivery, (ii) registered or certified mail, postage prepaid, with return
receipt requested, (iii) Federal Express, Airborne Express or like overnight
courier
-11-
<PAGE> 15
service or (iv) telecopy, telex or other wire transmission with request for
assurance of receipt in a manner typical with respect to communications of that
type. Notice made in accordance with this section shall be deemed delivered on
receipt if delivered by hand or wire transmission, on the third business day
after mailing if mailed by registered or certified mail, or the next business
day after mailing or deposit with an overnight courier service if delivered by
express mail or overnight courier for next day delivery.
If to the Secured Party: Bank One, Columbus, NA, as Agent
Attn: Corporate Banking, Metropolitan Division
100 East Broad Street, 7th Floor
Columbus, OH 43271-0170
Telecopier: (614) 248-5518
If to the Debtors: Rocky Shoes & Boots, Inc.
Attn.: David S. Fraedrich, Executive Vice President
39 East Canal Street
Nelsonville, OH 45764
Telecopier: (614) 753-4024
Five Star Enterprises Ltd.
Attn.: David S. Fraedrich, Executive Vice President
39 East Canal Street
Nelsonville, OH 45764
Telecopier: (614) 753-4024
Lifestyle Footwear, Inc.
Attn.: David S. Fraedrich, Executive Vice President
39 East Canal Street
Nelsonville, OH 45764
Telecopier: (614) 753-4024
(e) All rights of the Secured Party shall inure to the
benefit of the Secured Party's successors and assigns; and all obligations of
the Debtors shall bind the Debtors' heirs, executors, administrators,
successors and assigns.
(f) A carbon, photographic or other reproduction of this
Agreement is sufficient, and can be filed as a financing statement.
(g) The terms and provisions of this Agreement shall be
governed by Ohio law.
-12-
<PAGE> 16
IN WITNESS WHEREOF, the Debtors and the Secured Party, on behalf of
and for the ratable benefit of the Banks, have caused this Agreement to be duly
executed and delivered as of the date first above written.
DEBTORS: SECURED PARTY:
Rocky Shoes & Boots, Inc., Bank One, Columbus, NA, as Agent,
an Ohio corporation a national banking association
By: /s/ DAVID FRAEDRICH By: /s/ ELIZABETH CALLWALLADER
-------------------------------- ------------------------------
Title: Executive Vice President & Title: Vice President
Chief Financial Officer
Five Star Enterprises Ltd.,
a Cayman Islands corporation
By: /s/ DAVID FRAEDRICH
--------------------------------
Title: Treasurer
Lifestyle Footwear, Inc.
a Delaware corporation
By: /s/ DAVID FRAEDRICH
--------------------------------
Title: Treasurer
-13-
<PAGE> 17
SCHEDULE A
(to Continuing Security Agreement by Rocky Shoes & Boots, Inc.,
Five Star Enterprises Ltd., and Lifestyle Footwear, Inc.
in favor of Bank One, Columbus, NA, as Agent)
COLLATERAL LOCATIONS
294 South Harper Street
Nelsonville, Ohio 45764
45 Canal Street
Nelsonville, Ohio 45764
39 East Canal Street
Nelsonville, Ohio 45764
Highway 476, Old Borinquen Road
Aguadilla, Puerto Rico
Zona Franca La Vega
La Vega, Dominican Republic
<PAGE> 18
SCHEDULE B
(to Continuing Security Agreement by Rocky Shoes & Boots, Inc.,
Five Star Enterprises Ltd., and
Lifestyle Footwear,Inc. in favor of Bank One, Columbus, NA, as Agent)
UCC Financing Statements
OSOS=Ohio Secretary of State
ACOR=Athens County, Ohio Recorder
<TABLE>
<CAPTION>
Secured Filed Filing
Debtor Party With Number
- ------ ----- ---- ------
<S> <C> <C> <C>
Rocky Inc. American Tech. OSOS AK96483
Credit Inc.
Rocky Inc. Citizens Bank OSOS AL44103
Rocky Inc. Yale Financial OSOS AM90505
Rocky Inc. Yale Financial OSOS AM96191
Rocky Co. Director of OSOS AL33947
Development of
the State of Ohio
Rocky Co. Pitney Bownes OSOS AL43270
AK92195
AM95166
Rocky Inc. American Tech. ACOR 94-59983
Credit Inc.
Rocky Co. Pitney Bownes ACOR 94-61365
94-59873
93-58488
</TABLE>
All UCC Financing Statements in favor of the Banks.
Lien and Security interest of Rocky Co. in assets of Lifestyle pursuant to
agreements dated March 19, 1991.
<PAGE> 1
Exhibit 10.21
SECOND AMENDMENT TO INSTALLMENT BUSINESS LOAN NOTE
This Second Amendment to Installment Business Loan Note (the
"Amendment"), is made and entered into as of January 28, 1997, by and among
Bank One, Columbus, NA, a national banking association, with its principal
place of business located at 100 East Broad Street, Columbus, Ohio 43271-0170
(hereinafter the "Bank"), and Rocky Shoes & Boots, Inc., an Ohio corporation
("Rocky Inc."), individually and as successor by merger to Rocky Shoes & Boots
Co., an Ohio corporation ("Rocky Co."), Five Star Enterprises Ltd., a Cayman
Islands corporation ("Five Star"), and Lifestyle Footwear, Inc., a Delaware
corporation ("Lifestyle") (Rocky Inc., Five Star and Lifestyle shall
hereinafter be referred to individually as a "Borrower" and collectively as the
"Borrowers"), with their principal place of business located at 39 East Canal
Street, Nelsonville, Ohio 45764.
Background Information
A. The Borrowers and Rocky Co. executed and delivered to NBD Bank a
certain Installment Business Loan Note in the principal amount of $815,000,
dated as of May 11, 1994, as amended by a First Amendment to Installment
Business Loan Note, dated as of August 11, 1994 (such note, as so amended, the
"Note").
B. The Bank purchased the Note from NBD Bank pursuant to a Loan
Purchase, Assignment and Master Amendment Agreement dated as of February 1,
1996, and the Note was endorsed payable to the order of the Bank.
C. The Bank and the Borrowers desire to amend the Note, all as
hereinafter set forth.
Provisions
NOW, THEREFORE, in consideration of the foregoing, the
agreement of the Bank to enter into this Amendment, the agreements and
covenants hereinafter contained and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Bank and the
Borrowers do hereby agree as follows:
Section 1. Amendment of the Note. Effective as of January 28, 1997,
the reference to "prime" rate in the first paragraph entitled Promise to Pay on
page 1 of the Note shall be amended to be the "prime" rate as announced from
time to time by the Bank.
Section 2. Continuing Effect of Note. Except as set forth in this
Amendment, all terms, conditions and provisions of the Note shall remain the
same and continue to be in full force and effect.
Section 3. Governing Law. This Amendment is being delivered, and is
intended to be performed in, the State of Ohio and shall be construed and
enforced in accordance with, and governed by, the laws of the State of Ohio.
<PAGE> 2
Section 4. WAIVER OF JURY TRIAL. EACH BORROWER AND THE BANK, AFTER
CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL
BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THE NOTE OR ANY RELATED
INSTRUMENT OR AGREEMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY, OR
ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR
ACTIONS OF ANY OF THEM. THIS WAIVER SHALL NOT IN ANY WAY AFFECT THE BANK'S
ABILITY TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT
PROVISION CONTAINED HEREIN, IN THE NOTE OR ANY RELATED INSTRUMENT OR AGREEMENT.
NO BORROWER NOR THE BANK SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR
OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER
ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS
SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY ANY
BORROWER OR THE BANK EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY ALL OF THEM.
Section 5. Confession of Judgment. Each Borrower irrevocably
authorizes any attorney-at-law, including any attorney-at-law employed or
retained by the Bank, to appear for the Borrower in any court of record in
Franklin County, Ohio (which the Borrower acknowledges to be the place where
the Note and this Amendment were made) or any other state or jurisdiction
wherein the Borrower may then reside, to (i) waive the issuing and service of
process, (ii) confess judgment against the Borrower in favor of the holder of
the Note for the amount then due, together with costs of suit, (iii) release
all errors, and (iv) waive all rights of appeal. The Borrower consents to the
jurisdiction and venue of that court. The Borrower waives any conflict of
interest that any attorney-at-law employed or retained by the Bank may have in
confessing judgment under the Note (as amended by this Amendment) and consents
to payment of a legal fee to any attorney-at-law confessing judgment under the
Note (as amended by this Amendment). After judgment is entered against one or
more of the Borrowers, the power conferred may be exercised as to one or more
of the other Borrowers.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have executed this Amendment at
Columbus, Ohio, as of the date first above written.
Rocky Shoes & Boots Inc.,
an Ohio corporation
By: /s/ DAVID FRAEDRICH
---------------------------
Title: Executive Vice President
& Chief Financial Officer
WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
Five Star Enterprises Ltd., Lifestyle Footwear, Inc.,
a Cayman Islands Corporation a Delaware Corporation
By: /s/ DAVID FRAEDRICH By: /s/ DAVID FRAEDRICH
----------------------------- -----------------------------
Title: Treasurer Title: Treasurer
Bank One, Columbus, NA,
a national banking association
By: /s/ Elizabeth Calwalder
-----------------------------
Title: Vice President
-3-
<PAGE> 1
Exhibit 10.23
FOURTH AMENDMENT TO PROMISSORY NOTE
THIS FOURTH AMENDMENT TO PROMISSORY NOTE (the "Amendment") is made and
entered into as of January 28, 1997, by and among Bank One, Columbus, NA, a
national banking association, with its principal place of business located at
100 East Broad Street, Columbus, Ohio 43271-0170 (hereinafter the "Bank"), and
Rocky Shoes & Boots, Inc., an Ohio corporation ("Rocky Inc."), individually and
as successor by merger to Rocky Shoes & Boots Co., an Ohio corporation ("Rocky
Co."), Five Star Enterprises Ltd., a Cayman Islands corporation ("Five Star"),
and Lifestyle Footwear, Inc., a Delaware corporation ("Lifestyle") (Rocky Inc.,
Five Star and Lifestyle shall hereinafter be referred to individually as a
"Borrower" and collectively as the "Borrowers"), with their principal place of
business located at 39 East Canal Street, Nelsonville, Ohio 45764.
Background Information
A. NBD Bank, Rocky Co. and the Borrowers entered into a certain
Construction and Term Loan Agreement, dated as of October 27, 1993, as amended
by a certain (i) First Amendment to Construction and Term Loan Agreement, dated
as of January 28, 1994, (ii) Second Amendment to Construction and Term Loan
Agreement, dated as of December 31, 1994, and (iii) Third Amendment to
Construction and Term Loan Agreement, dated as of March 30, 1995 (such
agreement, as so amended, being referred to herein as the "Agreement").
B. The "Loan" (as defined in the Agreement) by the Bank to the
Borrowers is evidenced by a certain Promissory Note, dated October 27, 1993,
executed and delivered by Rocky Co. and the Borrowers to NBD Bank in the
original principal amount of $2,000,000.00, as amended by a certain (i) First
Amendment to Promissory Note, dated January 28, 1994, (ii) Second Amendment to
Promissory Note, dated December 31, 1994, and (iii) Third Amendment to
Promissory Note, dated March 30, 1995 (such note, as so amended, being referred
to herein as the "Note").
C. The Bank purchased the Note from NBD Bank pursuant to a Loan
Purchase, Assignment and Master Amendment Agreement dated as of February 1,
1996, and the Note was endorsed payable to the order of the Bank.
D. The Bank and the Borrowers desire to amend the Note, all as
hereinafter set forth.
Provisions
NOW, THEREFORE, in consideration of the foregoing, the agreement of
the Bank to enter into this Amendment, the agreements and covenants hereinafter
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Bank and the Borrowers do
hereby agree as follows:
<PAGE> 2
Section 1. Amendment of Note.
(a) Effective as of January 28, 1997, the reference to "Prime
Rate" in subsection (a) of the second paragraph on page 1 of the Note shall be
amended to be the "prime" rate as announced from time to time by the Bank.
(b) The language in the parenthetical (ii) in subsection (b)
of the second paragraph on Page 1 of the Note shall be amended in its entirety
to read as follows:
(ii) the sum of (y) the yield on United State
Treasury issues (as published in The Wall Street Journal, as
determined by the Bank) having a comparable term to the remaining term
of this Note, plus (z) 275 basis points.
Section 2. Continuing Effect of Note. Except as set forth in this
Amendment, all terms, conditions and provisions of the Note shall remain the
same and continue to be in full force and effect.
Section 3. Governing Law. This Amendment is being delivered, and is
intended to be performed in, the State of Ohio and shall be construed and
enforced in accordance with, and governed by, the laws of the State of Ohio.
Section 4. WAIVER OF JURY TRIAL. EACH BORROWER AND THE BANK, AFTER
CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL
BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THE NOTE, THE AGREEMENT,
OR ANY RELATED INSTRUMENT OR AGREEMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREBY, OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN), OR ACTIONS OF ANY OF THEM. THIS WAIVER SHALL NOT IN ANY WAY AFFECT
THE BANK'S ABILITY TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR
COGNOVIT PROVISION CONTAINED HEREIN, IN THE NOTE, IN THE AGREEMENT OR ANY
RELATED INSTRUMENT OR AGREEMENT. NO BORROWER NOR THE BANK SHALL SEEK TO
CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS
BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT
BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY
RESPECT OR RELINQUISHED BY ANY BORROWER OR THE BANK EXCEPT BY A WRITTEN
INSTRUMENT EXECUTED BY ALL OF THEM.
Section 5. Confession of Judgment. Each Borrower irrevocably
authorizes any attorney-at-law, including any attorney-at-law employed or
retained by the Bank, to appear for the Borrower in any court of record in
Franklin County, Ohio (which the Borrower acknowledges to be the place where
the Note and this Amendment were made) or any other state or jurisdiction
wherein the Borrower may then reside, to (i) waive the issuing and service of
process, (ii) confess judgment against the Borrower in favor of the holder of
the
-2-
<PAGE> 3
Note for the amount then due, together with costs of suit, (iii) release all
errors, and (iv) waive all rights of appeal. The Borrower consents to the
jurisdiction and venue of that court. The Borrower waives any conflict of
interest that any attorney-at-law employed or retained by the Bank may have in
confessing judgment under the Note (as amended by this Amendment) and consents
to payment of a legal fee to any attorney-at-law confessing judgment under the
Note (as amended by this Amendment). After judgment is entered against one or
more of the Borrowers, the power conferred may be exercised as to one or more
of the other Borrowers.
IN WITNESS WHEREOF, the undersigned have executed this Amendment at
Columbus, Ohio, as of the date first above written.
Rocky Shoes & Boots Inc.,
an Ohio corporation
By: /s/ DAVID FRAEDRICH
------------------------------
Title: Executive Vice President
& Chief Financial Officer
WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
Five Star Enterprises LTD., Lifestyle Footwear, Inc.,
a Cayman Islands Corporation a Delaware Corporation
By: /s/ DAVID FRAEDRICH By: /s/ DAVID FRAEDRICH
-------------------------------- -------------------------------
Title: Treasurer Title: Treasurer
-3-
<PAGE> 4
Bank One, Columbus, NA,
a national banking association
By: /s/ Elizabeth Calwalder
------------------------------
Title: Vice President
-4-
<PAGE> 1
Exhibit 13
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
References to Fiscal 1995 and Fiscal 1994 are to fiscal years of the Company
ended June 30, of the respective years. Effective December 31, 1995, the
Company changed its year-end from June 30 to December 31. References to the
Transition Period are to the six month period ended December 31, 1995.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
YEAR ENDED TWELVE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, FISCAL YEARS ENDED JUNE 30,
DECEMBER 31, 1996 DECEMBER 31, 1995 1995 1994 1995 1994
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold 75.3 81.7 80.0 78.2 80.3 81.8
----- ----- ----- ----- ----- -----
Gross Margin 24.7 18.3 20.0 21.8 19.7 18.2
Selling, General
and Administrative Expenses 16.9 17.5 19.0 13.2 14.3 12.9
----- ----- ----- ----- ----- -----
Income from Operations 7.8% 0.8% 1.0% 8.6% 5.4% 5.3%
===== ===== ===== ===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO TWELVE MONTHS ENDED DECEMBER 31, 1995
NET SALES. Net sales for the year ended December 31, 1996 rose $12,764,160, or
21.1 percent, to $73,147,821 from $60,383,661 for 1995. The Company's sales of
rugged outdoor footwear increased 15.9%. Net sales also benefited to a lesser
extent from increases in occupational footwear sales by 14.9%, factory outlet
store sales by 17.0%, and handsewn casual footwear sales by 50.0%. Additionally,
net sales increased in 1996 due to further diversification of the customer base
including increased penetration in certain geographic markets, the addition of
many smaller customers and substantial re-orders. The Company also entered new
retail sales channels through regional and national department stores. Sales
prices were approximately 3% higher in 1996 than 1995.
GROSS MARGIN. The Company's gross margin increased $6,995,405, or 63.3%, to
$18,044,243 for the year ended December 31, 1996 from $11,048,838 for the same
period in 1995. As a percentage of net sales, gross margin rose to 24.7% for
1996 versus 18.3% for the prior year. The increase in gross margin was due to
improved factory utilization in all of the Company's manufacturing facilities
to support higher level of orders and re-orders by a growing number of
customers. In addition, increased sales of ROCKY(R) branded handsewn casual
footwear contributed to the improved gross margin for 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1,762,695 or 16.7% to $12,332,519 for 1996
versus $10,569,824 in the prior year. As a percentage of net sales, selling,
general and administrative expenses declined to 16.9% in 1996 from 17.5% a year
ago. The decrease as a percentage of net sales was due to increased sales volume
with no increase in the fixed cost component of expenses combined with a
decrease in advertising expenses. In 1995, the Company implemented specific
marketing initiatives including increased advertising and additional sales
personnel. The impact of such initiatives resulted in greater sales volumes in
1996 with minimal additional costs. Advertising expense in future periods will
continue to be based on market conditions and targeted programs for specific
customers. The Company anticipates its advertising expense will increase to
approximately $2,000,000 to $2,500,000 for 1997.
<PAGE> 2
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
INTEREST EXPENSE AND OTHER. Interest expense increased $3,187, or 0.2%, to
$2,103,556 for the period ended December 31, 1996 versus $2,100,369 last year.
Interest expense remained relatively constant due to improved cash flow in
1996, similar average balances outstanding on the Company's revolving credit
facility, and generally stable interest rates during 1996 and 1995.
INCOME TAXES. Income taxes for the year ended December 31, 1996 were $918,154
versus a benefit of $988,395 the previous year. The Company's relatively low
effective tax rate of 24.7% for 1996 resulted from favorable income tax
treatment afforded under the Internal Revenue Code for income earned by the
Company's subsidiary in Puerto Rico and local tax abatements available to the
Company's subsidiary in Puerto Rico. In addition, during the first three
quarters of 1996, the Company provided no income taxes on the earnings of its
Dominican Republic subsidiary as the Company intends to reinvest such earnings
in that subsidiary on a long-term basis.
In the fourth quarter of 1996, the Company determined that it would repatriate
future earnings from its subsidiary in the Dominican Republic and, accordingly,
began to provide appropriate income taxes on such earnings. In future years,
the Company will pay a higher effective tax rate since the repatriation of
earnings from its subsidiary in the Dominican Republic is subject to Federal
income tax, but is exempt from state and local taxation.
The high effective tax benefit rate in 1995 64.8% was due to the reasons
cited for 1996 and to losses incurred domestically for which a full tax benefit
is obtained versus earnings in its Puerto Rican and Dominican Republic
subsidiaries for which the related tax effect was minimal.
RESULTS OF OPERATIONS - TRANSITION PERIOD
The Company's operations are seasonal in nature with sales of footwear generally
higher in the summer and fall months (June through October) than the balance of
the year. Because of this seasonality, results of the six month Transition
Period should not be annualized and compared with the results of 1996, Fiscal
1995 and Fiscal 1994.
NET SALES. Net sales increased $156,834, or 0.4%, to $36,123,862 for the
Transition Period versus $35,967,028 for the same period in 1994. The Company's
sales of rugged outdoor footwear increased 8.5%, sales of occupational footwear
increased 5.1%, and sales in the factory outlet store increased 20.4%. This was
offset by a decline in sales of handsewn footwear of 73.7% as a result of the
discontinuation of private label sales to a major customer. Prices were
approximately 3% higher in the Transition Period, versus the same period in
1994.
GROSS MARGIN. The Company's gross margin declined $595,652, or 7.6%, to
$7,237,307 in the Transition Period versus $7,832,959 for the same period in
the prior year. As a percentage of net sales, gross margin declined to 20.0% in
the Transition Period from 21.8% in the prior year. The decline was due to
lower absorption of the Company's fixed component of manufacturing overhead.
Due to limited sales growth and a desire to lower the Company's inventory, the
Company significantly reduced its production schedules in all three of its
manufacturing facilities during the latter part of 1995. This strategy
negatively affected operating results in the Transition Period.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general, and
administrative expenses increased $2,107,638, or 44.3%, to $6,863,623, for the
Transition Period versus $4,755,985 for the same period in the prior year. As a
percentage of net sales, selling, general, and administrative expenses were
19.0% for the Transition Period versus 13.2% the same period in the prior year.
The increased expense was primarily a result of increased advertising expense
as well as increased sales management salaries and to a lesser extent increased
professional fees due to its
<PAGE> 3
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
change of fiscal year. Experiencing a weak retail environment for most of 1995,
the Company elected to increase its advertising budget substantially during the
Transition Period in an effort to maintain market share. The Company also
expanded its in-house sales force to secure sales growth in 1996. As a
percentage of net sales, these expenses increased substantially due to the
expenditures for increased advertising and additional sales and marketing
personnel in advance of higher expected sales which did not occur during the
Transition Period.
INTEREST EXPENSE. Interest expense decreased $6,580, or 0.5%, to $1,211,646 for
the Transition Period versus $1,218,226 for the same period a year ago. The
Company's outstanding balances and interest rates were relatively the same in
the Transition Period as in the similar period in 1994.
INCOME TAXES. Income taxes for the Transition Period resulted in a net benefit
of $333,185 as compared to an expense of $458,770 for the same period in the
prior year. The Company's effective tax rate was 40.5% for the Transition
Period versus 23.4% for the same period in the prior year. The change in the
effective tax rate was due to nearly break-even operations for the Company's
subsidiaries in Puerto Rico and the Dominican Republic and a loss from domestic
operations during the Transition Period. A larger portion of the Company's
income was earned by the subsidiaries in Puerto Rico and the Dominican Republic
for the same period in the prior year, for which minimal or no income taxes
were recorded based on the Company's intent to reinvest such earnings on a long
term basis.
FISCAL YEAR ENDED JUNE 30, 1995, COMPARED TO FISCAL YEAR ENDED JUNE 30, 1994
NET SALES. Net sales for Fiscal 1995, increased $7,332,061, or 13.9%, to
$60,226,827 from $52,894,766 for Fiscal 1994. Net sales growth was primarily
attributable to 21.8% and 6.2% sales increases in rugged outdoor footwear and
occupational footwear, respectively. This sales growth was due in part to the
addition of over 350 additional customer accounts in Fiscal 1995 as well as to a
3% increase in the average selling price over Fiscal 1994. In addition, the
Company's factory outlet store was expanded and sales increased 76.2% over
Fiscal 1994. Net sales for Fiscal 1995 included $4,319,041 to The Rockport
Company of private label handsewn casual footwear. The Company discontinued all
Rockport production late in Fiscal 1995.
GROSS MARGIN. Gross margin rose $2,236,704, or 23.2%, to $11,860,451 in Fiscal
1995 compared to $9,623,747 for Fiscal 1994. As a percentage of net sales,
gross margin was 19.7% in Fiscal 1995 versus 18.2% in Fiscal 1994. The increase
was primarily attributable to higher selling prices as well as lower direct
labor costs per pair resulting from the full implementation of a modular "Team
Pass Through" manufacturing system which gives the Company greater flexibility
in increasing or decreasing production due to sales needs. In addition, the
Fiscal 1994 gross margin was negatively impacted by the production shut down
and training associated with the conversion to the modular manufacturing
system. The labor efficiencies were offset by higher manufacturing overhead
rates due to a decrease in the Company's production schedule in the last six
months of the fiscal year to reduce inventory levels as a result of lower than
expected sales volumes. Sales volumes were lower than expected due to the
unusually warm weather conditions in November and December of 1994 which slowed
retail sales of cold weather footwear and resulted in higher inventory levels.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general, and
administrative expenses increased $1,814,949, or 26.6%, to $8,629,172 for
Fiscal 1995 compared to $6,814,223 for Fiscal 1994. Selling, general, and
administrative expenses as a percentage of net sales were 14.3% in Fiscal 1995
versus 12.9% for Fiscal 1994. The increased expense was due primarily to
increased advertising expense. As a percent of net sales, the expense increased
from Fiscal 1994 due to lower than expected sales volumes as discussed above.
<PAGE> 4
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
INTEREST EXPENSE. Interest expense increased $1,220,477, or 138.0%, to
$2,104,787 for Fiscal 1995 versus $884,310 for Fiscal 1994. The increase in
interest expense was a result of increased borrowings and rates of interest on
the Company's revolving line of credit to support increased inventory balances
during the year as well as increased borrowings to support the significant
fixed asset additions made in Fiscal 1995 and Fiscal 1994.
INCOME TAXES. Income taxes decreased $499,567 to an income tax benefit of
$196,440 in Fiscal 1995 from an income tax expense of $303,127 for Fiscal 1994.
Differences in the effective tax rates from the statutory rates were due to a
significant amount of profits being generated in the subsidiaries with low or
no income taxes.
LIQUIDITY AND CAPITAL RESOURCES. The Company has principally funded its working
capital requirements and capital expenditures through borrowings under its line
of credit and other indebtedness. Working capital is used to support changes in
accounts receivable and inventory as a result of the Company's seasonal
business cycle and business expansion. These requirements are generally lowest
in the months of January through March of each year and highest during the
months of April through September. In addition, the Company requires financing
to support additions to machinery, equipment, and facilities, as well as the
introduction of new footwear styles.
At December 31, 1996, the Company had working capital of $30,608,581 versus
$25,454,094 on that same date in 1995. The Company has a revolving line of
credit with its bank which provides for advances based on a percentage of
eligible accounts receivable and inventory with maximum borrowings of
$35,000,000 until January 28, 1997 and the same amount from June 1, 1997 to
January 1, 1998. The line of credit decreases to $25,000,000 between January
29, 1997 and May 31, 1997 and on January 1, 1998. The line of credit expires on
April 30, 1998. Changes in the line of credit during each calendar year match
the Company's seasonal requirements for working capital. As of December 31,
1996, the Company had borrowed $19,820,000 against its available line of credit
of $23,258,000 based upon the criteria previously discussed.
Cash paid for capital expenditures during the twelve months ended December 31,
1996 totaled $3,302,761 and were funded through operating cash flows and
long-term debt financing. Capital expenditures for 1997 are anticipated to be
$2,500,000, and will be primarily for lasts, dies, and patterns for new styles
of footwear, retail in-store displays, and replacement machinery and equipment.
It is expected that such items will be financed through additional long-term
borrowing or operating cash flows. The Company believes it has sufficient
manufacturing capacity to handle increased production needs for 1997.
In early 1997, the Company initiated negotiations with its primary lender to
refinance fixed asset loans and increase its revolving line of credit. It is
anticipated that a new agreement will be completed during the first half of the
year to provide the Company with working capital necessary to finance its
operations in 1997 and beyond.
INFLATION. The Company cannot determine the precise effects of inflation;
however, inflation continues to have an influence on the cost of raw materials,
salaries and employee benefits. The Company attempts to minimize or offset the
effects of inflation through increased selling prices, productivity
improvements, and reduction of costs.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
Except for the historical information contained herein, the matters discussed
in this Annual Report are forward-looking statements which involve risks and
uncertainties, including but not limited to, economic and competitive factors
affecting the Company's operations, markets, products, prices, and other
factors discussed in the Company's prior filings with the Securities and
Exchange Commission, including the Annual Report on Form 10-K for the year
ended December 31, 1996.
<PAGE> 5
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 349,637 $ 1,853,974
Accounts receivable - trade 12,409,920 9,842,909
Other receivables 678,293 1,464,847
Inventories 25,389,902 18,336,892
Deferred income taxes 926,297 242,684
Other current assets 706,097 633,885
----------- -----------
Total current assets 40,460,146 32,375,191
FIXED ASSETS, AT COST:
Property, plant and equipment 25,544,360 22,184,142
Less - accumulated depreciation (10,035,763) (7,649,966)
----------- -----------
Total fixed assets - net 15,508,597 14,534,176
DEFERRED PENSION ASSETS 953,211 804,316
OTHER ASSETS 1,168,217 1,366,891
----------- -----------
TOTAL ASSETS $58,090,171 $49,080,574
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $3,036,705 $1,429,217
Current maturities - long-term debt 3,609,645 4,392,341
Accrued taxes - other 447,203 388,878
Accrued income taxes 802,658 118,812
Accrued salaries and wages 921,034 132,027
Accrued other 1,034,320 459,822
----------- -----------
Total current liabilities 9,851,565 6,921,097
LONG-TERM DEBT - Less current maturities 19,520,029 16,553,890
DEFERRED LIABILITIES:
Deferred compensation 246,500 197,099
Deferred income taxes 1,344,507 598,519
Deferred pension liability 752,481 1,240,839
----------- -----------
Total deferred liabilities 2,343,488 2,036,457
----------- -----------
Total liabilities 31,715,082 25,511,444
SHAREHOLDERS' EQUITY:
Preferred stock, Series A, no par value, $.06 stated
value; 100,000 shares issued 6,000 6,000
Common stock, no par value; 10,000,000 shares
authorized; 3,782,500 shares issued 14,543,947 14,543,947
Stock held in treasury, at cost - 116,952 common
shares and 7,143 preferred shares (1,226,059) (1,226,059)
Retained earnings 13,051,201 10,245,242
----------- -----------
Total shareholders' equity 26,375,089 23,569,130
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $58,090,171 $49,080,574
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, YEAR ENDED JUNE 30
1996 1995 1995 1995 1994
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES $73,147,821 $60,383,661 $36,123,862 $60,226,827 $52,894,766
COST OF GOODS SOLD 55,103,578 49,334,823 28,886,555 48,366,376 43,271,019
---------- ------------ ------------ ----------- -----------
GROSS MARGIN 18,044,243 11,048,838 7,237,307 11,860,451 9,623,747
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 12,332,519 10,569,824 6,863,623 8,629,172 6,814,223
---------- ------------ ------------ ----------- -----------
INCOME FROM OPERATIONS 5,711,724 479,014 373,684 3,231,279 2,809,524
---------- ------------ ------------ ----------- -----------
OTHER INCOME AND (EXPENSES):
Interest expense (2,103,556) (2,100,369) (1,211,646) (2,104,787) (884,310)
Other - net 115,945 95,999 14,523 109,649 197,910
---------- ------------ ------------ ----------- -----------
Total other net (1,987,611) (2,004,370) (1,197,123 (1,995,138) (686,400)
---------- ------------ ------------ ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 3,724,113 (1,525,356) (823,439) 1,236,141 2,123,124
INCOME TAX EXPENSE (BENEFIT) 918,154 (988,395) (333,185) (196,440) 303,127
---------- ------------ ------------ ----------- -----------
NET INCOME (LOSS) $2,805,959 $ (536,961) $ (490,254) $ 1,432,581 $ 1,819,997
---------- ------------ ------------ ----------- -----------
NET INCOME (LOSS) PER SHARE $ 0.74 $ (0.15) $ (0.13) $ 0.38 $ 0.47
---------- ------------ ------------ ----------- -----------
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES AND EQUIVALENTS
OUTSTANDING 3,777,200 3,665,548 3,665,548 3,741,388 3,841,717
---------- ------------ ------------ ----------- -----------
</TABLE>
See notes to consolidated financial statements.
<PAGE> 8
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON PREFERRED RETAINED TREASURY SHAREHOLDERS'
STOCK STOCK EARNINGS STOCK EQUITY
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1994:
Balance, June 30, 1993 $14,105,447 $6,000 $ 7,482,918 $21,594,365
Net income 1,819,997 1,819,997
Purchase of treasury shares $(1,226,059) (1,226,059)
Stock options exercised 332,500 332,500
Tax benefit related to stock options 106,000 106,000
----------- ------ ----------- ----------- -----------
BALANCE, JUNE 30, 1994 14,543,947 6,000 9,302,915 (1,226,059) 22,626,803
YEAR ENDED JUNE 30, 1995 - Net income 1,432,581 1,432,581
----------- ------ ----------- ----------- -----------
BALANCE, JUNE 30, 1995 14,543,947 6,000 10,735,496 (1,226,059) 24,059,384
SIX MONTHS ENDED DECEMBER 31, 1995 - Net loss (490,254) (490,254)
----------- ------ ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 14,543,947 6,000 10,245,242 (1,226,059) 23,569,130
YEAR ENDED DECEMBER 31, 1996 - Net income 2,805,959 2,805,959
----------- ------ ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996 $14,543,947 $6,000 $13,051,201 $(1,226,059) $26,375,089
=========== ====== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 9
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED JUNE 30
DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------
1996 1995 1995 1995 1994
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 2,805,959 $ (536,961) $ (490,254) $ 1,432,581 $ 1,819,997
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,392,716 2,053,338 1,039,829 1,815,624 1,195,695
Deferred income taxes 62,375 (701,200) (572,335) 34,587 (149,673)
Deferred compensation and pension - net (587,852) 132,525 189,288 (56,763) 132,628
Loss on sale of fixed assets 94,614
Change in assets and liabilities:
Receivables (1,780,457) (2,330,912) 2,871,466 144,463 (5,699,619)
Inventories (7,053,010) 4,777,807 8,854,652 (1,809,282) (8,073,067)
Other current assets (72,212) 915,979 1,287,108 (1,403,781) 10,892
Other assets 198,674 (789,528) (751,521) (18,538) (88,274)
Accounts payable 1,665,330 (1,467,104) (5,336,585) 3,159,331 (417,039)
Accrued liabilities 2,105,676 (173,688) (443,705) (232,169) 593,884
Net cash provided by (used in)
operating activities (168,187) 1,880,256 6,647,943 3,066,053 (10,674,576)
----------- ------------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES - Purchase of fixed assets (3,302,761) (2,695,732) (683,542) (6,546,127) (5,533,918)
----------- ------------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from long-term debt 34,913,394 22,734,117 13,370,000 20,799,547 16,772,204
Payments on long-term debt (32,946,783) (21,693,655) (17,658,248) (17,393,407) (5,523,027)
Proceeds from exercise of stock
options, net of tax benefit 438,500
Acquisition of treasury stock (306,515)
----------- ------------- ------------ ------------ ------------
Net cash provided by (used in) 1,966,611 1,040,462 (4,288,248) 3,406,140 11,381,162
financing activities ----------- ------------- ------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,504,337) 224,986 1,676,153 (73,934) (4,827,332)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,853,974 1,628,988 177,821 251,755 5,079,087
----------- ------------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 349,637 $ 1,853,974 $ 1,853,974 $ 177,821 $ 251,755
=========== ============= ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 10
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996, THE SIX MONTHS
ENDED DECEMBER 31, 1995 AND THE YEARS ENDED JUNE 30, 1995 AND 1994
- --------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of Rocky Shoes & Boots, Inc. ("Rocky
Inc.") and its wholly-owned subsidiaries, Lifestyle Footware, Inc.
("Lifestyle") and Five Star Enterprises Ltd. ("Five Star"), collectively
referred to as the "Company." All significant intercompany transactions
have been eliminated.
FISCAL YEAR - Effective December 31, 1995, the Company changed its fiscal
year end from June 30 to December 31. The following presents unaudited
summarized consolidated financial information, which includes all normal
recurring adjustments the Company considers necessary for a fair
presentation of such financial information in accordance with generally
accepted accounting principles, for the six months ended December 31,
1994:
Net sales $35,967,028
Gross margin 7,832,959
Income taxes 458,770
Net income 1,479,288
Net income per share $ 0.39
BUSINESS ACTIVITY - The Company designs, manufactures, and markets high
quality men's and women's footwear primarily under the registered
trademark, ROCKY(R). The Company maintains a nationwide network of
independent and Company sales representatives who sell the Company's
products primarily through independent shoe, sporting goods, specialty,
and uniform stores and catalogs throughout the United States. The Company
had one customer that accounted for 14.7% of consolidated net sales for
the six months ended December 31, 1995 and 11.9% of consolidated net
sales for the year ended June 30, 1995 and two customers that each
accounted for 10.5% and 10.1% of consolidated net sales for the year
ended June 30, 1994.
<PAGE> 11
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
CASH EQUIVALENTS - The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents. The Company's cash and cash equivalents are primarily held
in four banks.
TRADE RECEIVABLES - Trade receivables are presented net of the related
allowance for doubtful accounts of approximately $291,000, and $156,000
at December 31, 1996 and 1995, respectively.
CONCENTRATION OF CREDIT RISK - The Company's exposure to credit risk is
impacted by the economic climate affecting its industry. The Company
manages this risk by performing ongoing credit evaluations of its
customers and maintains reserves for potential uncollectible accounts.
The Company's largest account receivable balance was approximately
$1,300,000 at December 31, 1995.
SUPPLIER AND LABOR CONCENTRATIONS - The Company purchases raw materials
from a number of domestic and foreign sources. The Company currently buys
all of its waterproof fabric, a component used in a significant portion
of the Company's shoes and boots, from one supplier (GORE-TEX). The
Company has had a relationship with this supplier for over 16 years and
has no reason to believe that such relationship will not continue.
A significant portion of the "uppers" for the Company's shoes and boots
are produced in the Company's Dominican Republic operations. The Company
has conducted operations in the Dominican Republic since 1989 and is not
aware of any governmental or economic restrictions that would alter its
current operations.
INVENTORIES - Inventories are valued at the lower of cost, determined on
a first-in, first-out (FIFO) basis, or market.
During the fiscal year ended June 30, 1995, the Company exchanged
inventory totaling approximately $1,200,000 for prepaid advertising
credits. No gain or loss was recognized on the transaction.
FIXED ASSETS - The Company records fixed assets at historical cost and
generally utilizes the straight-line method of computing depreciation for
financial reporting purposes over the estimated useful lives of the
assets as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Building and improvements 5-40
Machinery and equipment 5-12
Furniture and fixtures 8-12
Lasts, dies, and patterns 7-12
</TABLE>
For income tax purposes the Company generally computes depreciation
utilizing accelerated methods.
<PAGE> 12
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
ADVERTISING - The Company expenses advertising costs as incurred.
Advertising expense was $1,399,398 for the year ended December 31, 1996,
$1,890,400 for the six months ended December 31, 1995 and $1,736,617 and
$964,577 in fiscal 1995 and 1994, respectively.
REVENUE RECOGNITION - Revenue is recognized at the time footwear product
is shipped to the customer and is recorded net of estimated sales
discounts and returns.
PER SHARE INFORMATION - Per share information for all periods is computed
based upon the weighted average number of common shares and equivalents
(when dilutive) outstanding. Stock options and the Company's Series A
preferred stock are deemed to be common stock equivalents for purposes of
computing per share amounts.
2. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Raw materials $ 4,482,381 $ 3,437,802
Work-in-process 5,192,326 2,359,778
Manufactured finished goods 13,891,772 10,085,634
Factory outlet finished goods 1,823,423 2,453,678
----------- -----------
Total $25,389,902 $18,336,892
=========== ===========
</TABLE>
3. FIXED ASSETS
Fixed assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Land $ 218,130 $ 218,130
Building and improvements 5,060,261 4,816,248
Machinery and equipment 14,432,261 12,607,489
Furniture and fixtures 2,014,616 1,206,935
Lasts, dies and patterns 3,782,250 3,319,135
Construction work-in-progress 36,896 16,205
----------- -----------
Total 25,544,360 22,184,142
Less - accumulated depreciation (10,035,763) (7,649,966)
----------- -----------
Net fixed assets $15,508,597 $14,534,176
=========== ===========
</TABLE>
<PAGE> 13
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
4. LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Bank - revolving credit facility $19,820,000 $16,850,000
Equipment and other obligations 1,027,952 1,687,606
Real estate obligations 1,596,292 1,710,942
Note payable - shareholder 367,818 551,727
Other 317,612 145,956
----------- -----------
Total long-term debt 23,129,674 20,946,231
Less current maturities 3,609,645 4,392,341
----------- -----------
Net long-term debt $19,520,029 $16,553,890
=========== ===========
</TABLE>
The Company has a loan agreement with a bank that provides for advances
based on a percentage of eligible accounts receivable and inventory with
maximum borrowings that range from $25,000,000 to $35,000,000 through
April 30, 1998. Interest on the revolving credit facility is payable
monthly as a factor of the bank's prime rate (8.25% at December 31, 1996)
and the principal is due April 30, 1998. At December 31, 1996,
$23,258,000 was available under the credit agreement of which $19,820,000
had been borrowed. At December 31, 1996 and 1995, $2,820,000 and
$3,350,000, respectively, were classified as current based on the
expected reduction in the available line in the subsequent year in
accordance with management's projection of eligible accounts receivable
and inventory balances.
Any amounts borrowed under the agreement are secured by the accounts
receivable, inventories, and equipment of the Company. The agreement
contains restrictive covenants which, among others, require the Company
to maintain a certain level of tangible net worth, as defined. At
December 31, 1996 approximately $ 668,000 of retained earnings are
available for distribution.
Equipment and other obligations at December 31, 1996 bear interest at
fixed and variable rates ranging from 3% to 9.25% and are payable in
monthly installments to 2001. The obligations are secured by equipment
and are subject to the security agreement and covenants applicable to the
revolving credit facility.
Real estate obligations at December 31, 1996 bear interest at variable
rates ranging from 7.875% to 8.50% and are payable in monthly
installments through 2010. The obligations are secured by real estate and
are subject to the security agreement and covenants applicable to the
revolving credit facility.
In December 1993, the Company entered into a Stock Purchase and Pledge
Agreement with a shareholder of the Company whereby the Company purchased
116,952 shares of its common stock and 7,143 shares of preferred stock
for $1,226,059, including a note for $919,544. The note bears interest at
the prime rate, as defined, plus 2% (total of 10.25% at December 31,
1996) and is payable in five equal annual installments through December
20, 1998.
<PAGE> 14
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
At December 31, 1996, essentially all trade accounts receivable,
inventories and property are held as collateral for the Company's
long-term debt.
Long-term debt matures as follows for the years ended December 31:
<TABLE>
<S> <C>
1997 $ 3,609,645
1998 17,729,460
1999 334,071
2000 250,301
2001 244,498
Thereafter 961,699
-----------
Total $23,129,674
===========
</TABLE>
The estimated fair value of the Company's long-term obligations
approximated their carrying amount at December 31, 1996 and 1995, based
on current market prices for the same or similar issues or on debt
available to the Company with similar rates and maturities.
5. OPERATING LEASES
The Company leases certain machinery and manufacturing facilities under
operating leases that generally provide for renewal options. The Company
incurred approximately $541,000, $245,000, $455,000 and $378,000 in rent
expense under operating lease arrangements for the year ended December
31, 1996, the six months ended December 31, 1995 and the years ended June
30, 1995 and 1994, respectively.
Included in total rent expense above are payments of $6,000 per month for
the Company's Ohio manufacturing facility leased from an entity in which
the owners are also shareholders of the Company.
Future minimum lease payments under non-cancelable operating leases are
as follows for the years ended December 31:
<TABLE>
<S> <C>
1997 $ 338,266
1998 281,759
1999 176,298
2000 96,710
2001 52,900
----------
Total $ 945,933
==========
</TABLE>
<PAGE> 15
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
6. INCOME TAXES
Rocky Inc. and its wholly-owned subsidiary doing business in Puerto Rico,
Lifestyle, are subject to U.S. Federal income taxes; however, the
Company's income earned in Puerto Rico is allowed favorable tax treatment
under Section 936 of the Internal Revenue Code if conditions as defined
therein are met. Five Star is incorporated in the Cayman Islands and
conducts its operations in a "free trade zone" in the Dominican Republic
and, accordingly, is currently not subject to Cayman Islands or Dominican
Republic income taxes.
At December 31, 1996, a provision has not been made for U.S. taxes on the
accumulated undistributed earnings of Five Star through the third quarter
of 1996 of approximately $3,079,000 that would become payable upon
repatriation to the United States. In addition, the Company has not
provided any U.S. tollgate taxes on approximately $2,257,000 of
accumulated undistributed earnings of Lifestyle prior to the fiscal year
ended June 30, 1994 that would be payable if such earnings were
repatriated to the United States. It is the intention of the Company to
reinvest all such earnings. If the Five Star and Lifestyle undistributed
earnings were distributed to the Company in the form of dividends, the
related taxes on such distributions would be approximately $1,047,000 and
$226,000, respectively.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for
Income Taxes," which requires an asset and liability approach to
financial accounting and reporting for income taxes. Accordingly,
deferred income taxes have been provided for the temporary differences
between the financial reporting and the income tax basis of the Company's
assets and liabilities by applying enacted statutory tax rates applicable
to future years to the basis differences.
Income taxes (benefits) are summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, YEAR ENDED JUNE 30,
1996 1995 1995 1994
<S> <C> <C> <C> <C>
Federal:
Current $ 640,053 $217,000 $(296,827) $ 368,000
Deferred 115,883 (635,234) 172,685 (110,661)
---------- ---------- ---------- ----------
Total Federal 755,936 (418,234) (124,142) 257,339
State and local:
Current 215,726 22,150 65,800 84,800
Deferred (53,508) 62,899 (138,098) (39,012)
---------- ---------- ---------- ----------
Total state and local 162,218 85,049 (72,298) 45,788
---------- ---------- ---------- ----------
Total $ 918,154 $(333,185) $(196,440) $ 303,127
========== ========== ========== ==========
</TABLE>
<PAGE> 16
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
A reconciliation of recorded Federal income tax expense (benefit) to the
expected expense computed by applying the Federal statutory rate of 34%
for all periods to income before income taxes follows:
Deferred income taxes recorded in the consolidated balance sheets at
December 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, YEAR ENDED JUNE 30,
1996 1995 1995 1994
<S> <C> <C> <C> <C>
Expected (benefit) expense at
statutory rate $1,266,198 $(279,969) $ 420,288 $ 721,862
Increase (decrease) in income
taxes resulting from:
Exempt income from operations in
Puerto Rico, net of tollgate taxes (279,414) 8,279 (362,540) (297,975)
Exempt income from Dominican
Republic operations (158,075) (72,527) (298,775) (159,647)
State and local income taxes (55,154) (28,917) 24,581 (15,568)
Other - net (17,619) (45,100) 92,304 8,667
---------- ---------- ---------- ---------
Total $ 755,936 $(418,234) $(124,142) $ 257,339
========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Deferred tax assets:
State and local income taxes $ 38,167 $ 28,802
Asset valuation allowances 600,973 147,767
Pension and deferred compensation 197,673 304,122
Net operating loss carryforwards 359,075 470,000
Inventories 152,423
Alternative minimum tax 187,000
------------ ------------
Total deferred tax assets 1,348,311 1,137,691
------------ ------------
Deferred tax liabilities:
Inventories (240,404)
Fixed assets (1,260,837) (940,800)
Tax on Fivestar earnings ( 64,339)
Tollgate tax on Lifestyle earnings (441,345 (312,322)
------------ ------------
Total deferred tax liabilities (1,766,521) (1,493,526)
------------ ------------
Net deferred tax liability $ (418,210) $ (355,835)
============ ============
</TABLE>
<PAGE> 17
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
At December 31, 1996, the Company has approximately $1,056,000 of net
operating loss carryforwards for Federal income tax purposes with annual
utilization limitations over the next five years and expiring in 2010.
Effective in fiscal 1994, under the provisions of SFAS No. 109 the
Company began to provide for the 10% tollgate tax on the annual earnings
of Lifestyle. Effective during 1996 the Company began to provide U.S.
income taxes on the earnings of Fivestar based on the Company's intention
to repatriate these earnings in the future.
7. RETIREMENT PLANS
The Company sponsors separate noncontributory defined benefit pension
plans covering the union and non-union workers of the Company's Ohio and
Puerto Rico operations. Benefits under the union plan are primarily based
upon negotiated rates and years of service. Benefits under the non-union
plan are based upon years of service and highest compensation levels as
defined. Annually, the Company contributes to the plans at least the
minimum amount required by regulation.
Net pension cost of the Company's plans is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, YEAR ENDED JUNE 30,
1996 1995 1995 1994
<S> <C> <C> <C> <C>
Service cost $ 182,955 $ 86,551 $130,310 $152,220
Interest 231,140 111,767 204,551 191,966
Actual return on plan assets (306,853) (171,109) (135,486) 15,129
Amortization and deferral 177,854 126,980 72,263 (69,493)
--------- --------- -------- --------
Net pension cost $ 285,096 $ 154,189 $271,638 $289,822
========= ========= ======== ========
</TABLE>
<PAGE> 18
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
The funded status of the Company's plans and reconciliation of accrued
pension cost at December 31, 1996 and 1995 are presented below
(information with respect to benefit obligations and plan assets is as of
September 30):
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Plan assets at fair value $ 2,669,944 $1,877,574
----------- ----------
Actuarial present value of benefit obligations:
Vested 3,590,876 3,025,959
Nonvested 131,549 92,454
----------- ----------
Accumulated benefit obligation 3,722,425 3,118,413
Effects of salary progression 359,989 306,635
----------- ----------
Projected benefit obligation 4,082,414 3,425,048
----------- ----------
Funded status - excess of projected benefit
obligation over plan assets 1,412,470 1,547,474
Remaining unrecognized benefit obligation existing
at transition (343,931) 371,823)
Unrecognized prior service costs due to
plan amendments (610,320) (467,119)
Unrecognized net loss (358,949) (272,009)
Adjustment required to recognize minimum liability 953,211 804,316
Additional contributions (September 30 - December 31) (300,000)
----------- ----------
Accrued pension cost $ 752,481 $1,240,839
</TABLE>
<PAGE> 19
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
The assets of the plans consist primarily of common stocks, bonds, and
cash equivalents. The Company's unrecognized benefit obligations existing
at the date of transition for the union and non-union plans are being
amortized over 23 and 21 years, respectively. Actuarial assumptions used
in the accounting for the plans were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Discount rate 7.0% 7.0%
Average rate of increase in compensation levels
(non-union only) 3.0% 3.0%
Expected long-term rate of return on plan assets 9.0% 9.0%
</TABLE>
Statement of Financial Accounting Standards No. 87, "Employers'
Accounting for Pensions," generally requires the Company to recognize a
minimum liability in instances in which a plan's accumulated benefit
obligation exceeds the fair value of plan assets. In accordance with the
Statement, the Company has recorded in the accompanying financial
statements a non-current pension liability and a non-current intangible
asset of $953,211 and $804,316 as of December 31, 1996 and 1995,
respectively.
8. CAPITAL STOCK
The Company has authorized 250,000 shares of voting preferred stock
without par value. No shares are issued or outstanding. Also, the Company
has authorized 250,000 shares of non-voting preferred stock without par
value. Of these, 125,000 shares have been designated Series A non-voting
convertible preferred stock with a stated value of $.06 per share, of
which 100,000 shares are issued and 92,857 shares are outstanding at
December 31, 1996 and 1995. The Series A preferred stock has dividend and
liquidation rights essentially identical to those of the Company's common
stock. In addition, each share of Series A preferred stock is convertible
into one share of the Company's common stock any time after February 3,
1995, with mandatory conversion by February 3, 1998.
On December 21, 1992, the Board of Directors and the sole shareholder of
Rocky Inc. adopted the 1992 Stock Option Plan which provides for the
issuance of options to purchase up to 400,000 common shares of Rocky Inc.
On October 11, 1995, the Board of Directors and the shareholders adopted
the 1995 Stock Option Plan which provides for the issuance of options to
purchase up to 400,000 common shares of Rocky Inc. All employees,
officers, directors, consultants and advisors providing services to the
Company are eligible to receive options under the Plans. In addition, the
Plans provide for the annual issuance of options to purchase 3,000 shares
of common stock to each non-employee director of the Company. The plans
generally provide for grants with the exercise price equal to fair value
on the date of grant, graduated vesting periods of up to 5 years, and
lives not exceeding 8 years.
<PAGE> 20
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
The following summarizes all stock option transactions from July 1, 1993
through December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
<S> <C> <C>
Outstanding at June 30, 1993 107,500 $ 9.53
Issued 56,750 $ 10.83
Exercised (35,000) $ 9.50
Forfeited (2,000) $ 9.75
----------
Outstanding at June 30, 1994 127,250 $ 10.12
Issued 170,300 $ 9.79
Forfeited (9,900) $ 9.82
----------
Outstanding at June 30, 1995 287,650 $ 9.94
Issued 97,250 $ 7.59
----------
Outstanding at December 31, 1995 384,900 $ 9.34
Issued 93,000 $ 6.25
Forfeited (30,000) $ 8.81
----------
Outstanding at December 31, 1996 447,900 $ 8.74
----------
</TABLE>
At December 31, 1996, the exercise price for options outstanding range
from $5.625 to $20.00.
The following table summarizes information about options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES NUMBER LIFE PRICE NUMBER PRICE
<S> <C> <C> <C> <C> <C> <C>
$5.625 - $6.00 104,000 6.3 $5.93 14,000 $5.87
$7.50 - 8.875 76,250 5.8 $8.30 22,250 $8.38
$9.50 - $10.125 26,650 3.8 $9.72 198,003 $9.71
$20.00 6,000 2.9 $20.00 6,000 $20.00
------- -------
Total 447,900 $ 8.74 240,253 $ 9.62
======= =======
</TABLE>
<PAGE> 21
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans. Accordingly, no compensation cost
has been recognized for its stock option plans. Had compensation costs
for the Company's stock-based compensation plans been determined based on
the fair value at the grant dates for awards under those plans consistent
with the method of FASB Statement No. 123, the Company's net earnings and
net earnings per common share, net of related income tax benefits, would
have resulted in the amounts as reported below. In determining the
estimated fair value of each option granted on the date of grant the
Company uses the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in the year ended December
31, 1996 and 1995, respectively; dividend yield of 0%; expected
volatility of 47%; risk-free interest rates of 6.50%; and expected life
of 6 years. The weighted average grant date fair value of options issued
during the year ended December 31, 1996 and the six months ended December
31, 1995 was $3.39 and $4.01, respectively.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
<S> <C> <C>
Net income (loss):
As reported $2,805,959 $(490,254)
Pro forma $2,561,260 $(675,838)
Earnings per share:
As reported $ 0.74 $ (0.13)
Pro forma $ 0.68 $ (0.18)
</TABLE>
The pro forma amounts are not representative of the effects on reported
net income (loss) for future years.
<PAGE> 22
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
9. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and Federal, state and local income taxes was as
follows:
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, YEAR ENDED JUNE 30
1996 1995 1995 1995 1994
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest $ 2,066,365 $1,956,831 $1,262,057 $1,913,000 $760,000
=========== ========== ========== ========== ========
Federal, state and local
income taxes - net of
refunds $ (813,225) $ 22,150 $ 10,150 $ 487,000 $717,000
=========== ========== ========== ========== ========
</TABLE>
During the year ended December 31, 1996 and the six months ended December
31, 1995, the Company entered into capital lease arrangements for certain
equipment which had a present value of $216,832 and $111,591,
respectively. During the year ended June 30, 1994, the Company acquired
treasury stock for $1,226,059, including a note payable of $919,544.
Accounts payable at December 31, 1996 and 1995 include a total of
$42,994, and $100,836, respectively, relating to the purchase of fixed
assets.
<PAGE> 23
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Rocky Shoes & Boots, Inc.:
We have audited the accompanying consolidated balance sheets of Rocky Shoes &
Boots, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year ended December 31, 1996, the six months ended December 31, 1995, and
the years ended June 30, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Rocky Shoes & Boots, Inc. and
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for the year ended December 31, 1996, the six months ended
December 31, 1995, and the years ended June 30, 1995 and 1994 in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Columbus, Ohio
March 11, 1997
<PAGE> 1
Exhibit 21.1
-----------------------------
Subsidiaries of the President
-----------------------------
Five Star Enterprises Ltd.,
a Cayman Islands corporation
Lifestyle Footwear, Inc.,
a Delaware corporation
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
No. 33-65052 and 333-4434 of Rocky Shoes & Boots, Inc. on Form S-8 of our
reports dated March 11, 1997, appearing in and incorporated by reference in
this Annual Report on Form 10-K of Rocky Shoes & Boots, Inc., for the year
ended December 31, 1996.
Columbus, Ohio
March 28, 1997
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
Each director and officer of Rocky Shoes & Boots, Inc. (the
"Corporation") whose signature appears below hereby appoints Mike Brooks and
Curtis A. Loveland, or either of them, as his or her attorney-in-fact, to
sign, in his or her name and behalf and in any and all capacities stated below,
and to cause to be filed with the Securities and Exchange Commission, the
Corporation's Annual Report on Form 10-K (the "Annual Report") for the fiscal
year ended December 31, 1996, and likewise to sign and file any amendments,
including post-effective amendments, to the Annual Report, and the Corporation
hereby also appoints such persons as its attorneys-in-fact and each of them as
its attorney-in-fact with like authority to sign and file the Annual Report and
any amendments thereto in its name and behalf, each such person and the
Corporation hereby granting to such attorney-in-fact full power of substitution
and revocation, and hereby ratifying all that such attorney-in-fact or his
substitute may do by virtue hereof.
IN WITNESS WHEREOF, we have executed this Power of Attorney, in
counterparts if necessary, effective as of March 23, 1997.
DIRECTORS/OFFICERS:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Mike Brooks
- -------------------------------------- Chairman, Chief Executive Officer, and
Mike Brooks President (principal executive officer)
/s/ David S. Fraedrich
- -------------------------------------- Executive Vice President, Chief Financial
David S. Fraedrich Officer, Treasurer and a Director (principal financial
and principal accounting officer)
/s/ Curtis A. Loveland
- -------------------------------------- Secretary and a Director
Curtis A. Loveland
/s/ Stanley I. Kravetz
- -------------------------------------- Director
Stanley I. Kravetz
/s/ Barbara B. Fuller
- -------------------------------------- Director
Barbara B. Fuller
/s/ Leonard L. Brown
- -------------------------------------- Director
Leonard L. Brown
/s/ Robert D. Stix
- -------------------------------------- Director
Robert D. Stix
/s/ James L. Stewart
- -------------------------------------- Director
James L. Stewart
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 349
<SECURITIES> 0
<RECEIVABLES> 13,379
<ALLOWANCES> 291
<INVENTORY> 25,390
<CURRENT-ASSETS> 40,460
<PP&E> 25,544
<DEPRECIATION> 10,036
<TOTAL-ASSETS> 58,090
<CURRENT-LIABILITIES> 9,852
<BONDS> 19,520
6
0
<COMMON> 14,544
<OTHER-SE> 11,825
<TOTAL-LIABILITY-AND-EQUITY> 26,375
<SALES> 73,148
<TOTAL-REVENUES> 73,366
<CGS> 55,104
<TOTAL-COSTS> 67,436
<OTHER-EXPENSES> 2,205
<LOSS-PROVISION> 385
<INTEREST-EXPENSE> 2,104
<INCOME-PRETAX> 3,724
<INCOME-TAX> 918
<INCOME-CONTINUING> 2,806
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,806
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
</TABLE>
