UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period for __________________ to ________________
Commission file number 0-21340
MARTIN COLOR-FI, INC.
(Exact name of registrant as specified in its charter)
South Carolina 57-0879569
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
306 Main Street
Edgefield, South Carolina 29824
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (803) 637-7000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No .
Indicate by check mark if disclosure of delinquent filers pursuant to
Rule 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 to Part III of this Form 10-K or any
amendments to this Form 10-K. ( )
Aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed on the basis of $7.875 per share (the closing price of such
stock on February 28, 1997 on The Nasdaq Stock Market): $21,018,036 For purposes
of the foregoing calculation only, all directors and executive officers of the
registrant have been deemed affiliates.
The number of shares of the registrant's Common Stock outstanding as of
March 26, 1997 was 6,700,129.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for the 1997 Annual Meeting of
Stockholders (the "Proxy Statement")(to be filed with the Securities and
Exchange Commission on or before April 30, 1997) are incorporated by reference
in Part III hereof.
Exhibit Index on sequentially numbered page 50
<PAGE>
MARTIN COLOR-FI, INC.
Cross Reference Sheet
Page No.
Part I -
Item 1. Business..........................................................3
Item 2. Properties........................................................7
Item 3. Legal Proceedings.................................................8
Item 4. Submission of Matters to a Vote of Security Holders...............8
Part II -
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters..............................................8
Item 6. Selected Financial Data..........................................9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................11
Item 8. Financial Statements and Supplementary Data.....................17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............................46
Part III -
Item 10. Directors and Executive Officers of the Registrant................46
Item 11. Executive Compensation............................................46
Item 12. Security Ownership of Certain Beneficial Owners and Management....46
Item 13. Certain Relationships and Related Transactions....................46
Part IV -
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....47
Signatures....................................................................51
Exhibit Index.................................................................52
2
<PAGE>
PART I
Item 1. Business
General
The principal business of Martin Color-Fi, Inc. (which, together with
its subsidiaries, is herein referred to as the "Company") is the production of
polyester fiber and pellets from recycled plastic materials (primarily
polyethylene terephthalate, or "PET"), such as beverage bottles, polyester fiber
waste, film waste and off-class packaging resin. The Company uses these waste
materials to produce polyester fibers of varying sizes (or "deniers") and
pelletized plastics for a wide range of markets. Examples of end use markets for
the Company's fiber products include automotive fabrics, carpet, apparel, home
furnishings, industrial materials and construction reinforcement materials. A
significant portion of the Company's pellet production is used internally for
manufacturing fiber, and the Company sells the balance into the plastics
industry.
Products and Markets
The following table presents the combined net sales (in thousands) and
percentage of net sales by business of the Company for the periods indicated.
For purposes of this data, intercompany transactions have been eliminated.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Net % of Net % of Net % of
Sales Total Sales Total Sales Total
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Fibers and Recycling
Division $ 69,873 61.1% $ 82,101 70.2% $ 81,623 79.7%
Carpet Division 30,871 27.0% 22,262 19.0% 11,398 11.1%
Yarn Division 8,959 7.8% 8,412 7.2% 4,818 4.7%
Pigments and Additives 4,713 4.1% 4,195 3.6% 4,654 4.5%
--------- ----- --------- ---- -------- ----
$ 114,416 100% $ 116,970 100% $102,493 100%
========= ==== ========= ==== ======== ====
</TABLE>
Fibers and Recycling Division
During 1996, the principal products of the Company were fibers which
are marketed to a broad spectrum of fiber related markets. The Company focuses
its marketing efforts on the development of market niches where its ability to
manufacture products to customer specifications regarding color, cut length,
denier, texture, finish and lot size are its key competitive advantages. The
Company currently has production capacity of approximately 148 million pounds of
fiber annually and approximately 125 million pounds of pellets annually. In the
fourth quarter of 1995, the Company refocused on the core business of this
division, the production and sale of fibers, and began de-emphasizing the
external plastics sales and trading and contract processing areas of this
division.
Fibers
The Company has historically produced polyester fibers in
deniers from 2 to 1000 in various cut lengths for use in numerous end markets,
including automotive fabrics, floor coverings, home furnishings, industrial,
construction reinforcement and apparel. The Company also produces a small
quantity of nylon and polypropylene fiber. The following chart sets forth the
approximate percentages of the Company's total shipments of fiber products in
pounds with respect to its primary markets for the past eight quarters and
illustrates the Company's market diversification and ability to shift production
as necessary to quickly respond to changing market conditions and demands.
3
<PAGE>
<TABLE>
<CAPTION>
Percentage of Pounds of Fiber Shipped
-------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
End Markets 1996 1996 1996 1996 1995 1995 1995 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Automotive Fabrics 20% 20% 19% 25% 21% 35% 31% 27%
Floor Coverings 7% 8% 7% 5% 4% 3% 3% 4%
Home Furnishings & Domestic:
Fiberfill (slick) 19% 15% 14% 16% 25% 17% 20% 22%
Fiberfill (high loft) 17% 17% 18% 17% 13% 9% 9% 8%
Other 11% 12% 9% 8% 11% 10% 5% 4%
Industrial 22% 20% 28% 23% 23% 22% 24% 30%
Construction Reinforcement 3% 5% 4% 4% 2% 3% 5% 4%
Apparel 1% 3% 1% 2% 1% 1% 3% 1%
--- --- --- --- --- --- --- ---
100% 100% 100% 100% 100% 100% 100% 100%
</TABLE>
Plastics
The Company produces pellets for internal use and for sale to
manufacturers of plastic products such as non-food containers, strapping, oil
containers, plastic trays, laundry powder scoops, paint roller trays and for
sale to other fiber producers. A significant portion of its pellet production is
utilized internally as a raw material for the Company's fiber manufacturing.
During the latter part of 1995, the Company exited the market for sale of
pellets to customers because of unfavorable market conditions including higher
cost and reduced availability of raw materials, and the resulting lower gross
profit margins. The Company is in the process of evaluating this area of the
business and has not reached a final decision about whether, or the extent to
which, it will continue to operate in this area of the business. The revenue and
net income in 1996 related to this area was not material. Operations do,
however, continue on a very limited basis.
Trading and Contract Processing
The Company engages in the trading of synthetic fibers and
plastics. The Company utilizes the contacts developed through marketing its
products and purchasing its raw materials as an introduction to sources and
customers for products it does not produce. These products are distributed
through the Company's sales channels. During the latter part of 1995, the
Company significantly reduced this area of the business due to lower profit
margins and now is limited to the sale of waste by-products from its fiber
operation. The Company is in the process of evaluating this area of the business
and has not reached a final decision about whether, or the extent to which, it
will continue to operate in this area of the business. The revenue and net
income in 1996 related to this area was not material.
The Company also provides processing services on a contract
basis to selected customers to maximize utilization of its production capacity.
The Company receives raw materials from these customers on a consignment basis
and, for a fee, converts them to finished products which meet the customer's
specifications. During 1995, the Company exited these markets due to the
expiration of all existing contracts. The Company is in the process of
evaluating this area of the business and has not reached a final decision about
whether, or the extent to which, it will continue to operate in this area of the
business. Operations do, however, continue on a very limited basis. The revenue
and net income in 1996 related to this area was not material.
4
<PAGE>
Carpet Division
Through its wholly owned subsidiary, Buchanan Industries, Inc., the
Company manufactures specialty carpets under the Forum Contract Carpet name for
hospitality, restaurant, health care and corporate markets. Under the Condor
name the Company manufactures carpets for the manufactured housing, recreational
vehicle and automotive industries. The Division produces approximately 6 million
square yards of carpet annually.
Yarn Division
Through its wholly owned subsidiary, Palmetto Spinning Corporation, the
Company processes spun yarns, continuous filament twisted and heat set yarns,
and space dyed yarns for use in a variety of applications such as residential,
commercial and automotive carpets, craft, rug, bath rug and industrial markets.
The Yarn Division produces both single and plied heat set yarns. The Company
processes nylon, polyester, polypropylene, olefin acrylic and rayon fibers, both
natural and predyed, in a wide variety of carpet deniers. The Division has the
production capacity to produce approximately 13 million pounds of spun and
filament yarns annually.
Pigments and Additives Division
Through its wholly owned subsidiary, Custom Colorants, Inc., the
Company produces pigments and additives used in the manufacture of fiber and
plastic pellets. The Company markets these products to fiber extrusion companies
for various applications and also utilizes these products internally for its
production of fiber and pellets.
Marketing, Customer Dependency and Seasonality
The Company markets its products through a direct sales force which is
assigned to the areas of either textile fibers, plastics, construction
reinforcement, carpet sales, pigments and additives or yarn. The sales
representative in each area of sales is then assigned a geographic area of
responsibility. The Company has a diverse customer base and does not experience
seasonality in sales volume.
Raw Materials
Fibers and Recycling Division
The Company uses plastic waste products such as post-consumer polyester
beverage bottles, post-industrial fiber waste, film producer waste and off-class
packaging resins as its primary raw materials to manufacture textile staple
fiber and plastic pellets. In recent years, the cost of plastic waste products
used by the Company has been less than the cost of using petrochemical
feedstocks. The Company's raw material costs compare favorably to comparable raw
material costs of producers that use virgin petrochemical feedstocks, but there
can be no assurance that the cost of the Company's raw materials will remain
lower than the cost of petrochemical feedstocks in the future. Beginning in the
latter part of 1995 and through the first quarter of 1997, the Company has
focused on post- industrial fiber waste, film producer waste and off-class
packaging resins as its primary raw material sources and has reduced its
reliance on post-consumer PET beverage bottles as a raw material source because
industrial fiber waste, film producer waste and off-class packaging resins are
currently less expensive than converted post-consumer PET beverage bottles. The
Company changes the mix of raw materials used based on a number of factors which
include cost, availability and end-products to be produced.
The Company generally maintains raw material inventories of at least 35
to 52 million pounds, which is adequate for approximately three to four months
of production. Beginning in the latter part of 1995 and through the first
quarter of 1997, the supply of raw material returned to normal levels from the
lower levels experienced during a significant portion of 1995.
5
<PAGE>
Other Divisions
The Company's Yarn Division primarily uses polyester staple fiber and
nylon fiber supplied internally from the Fibers and Recycling Division. Other
fibers used are supplied by third party suppliers. The Carpet Division primarily
uses yarn from the Yarn Division and from third party suppliers. The Pigments
and Additives Division purchases raw material from third party suppliers also.
The Company has not experienced and does not foresee a problem with availability
of raw material from third party suppliers.
Competition
The Company faces competition both from other recyclers of waste
plastics as well as major producers of synthetic fibers from petrochemical
feedstocks. Four virgin domestic polyester fiber producers manufacture
approximately ninety (90%) percent of the industry output. Many of the Company's
competitors have greater financial resources than the Company.
The demand for synthetic fibers and related products tends to vary with
general economic conditions in the United States and the level of foreign
imports. An increase in foreign imports can result in generally lower sales
prices and more intense competition among major fiber producers, particularly
for commodity products. For example, the Company's average sales price per pound
for all of its fiber products ranged from a low of $.6301 in 1991 to a high of
$.826 in 1995.
The Company competes on the basis of price, quality, and its ability to
produce custom orders of solution- dyed fibers on relatively short notice.
Although the Company has increased its sales of higher value solution-dyed
fibers, it also has increased its overall production capacity. As a result, the
Company continues to sell a majority of its production as commodity products,
such as dry or slippery fiberfill, which are subject to greater price
competition.
The yarn, carpet and pigment and additive markets have historically
displayed price and volume cyclicality. The markets are subject to changes in
consumer preferences and spending and retail sales patterns, which are driven by
general economic conditions. Consequently, a downturn in the domestic economy
could adversely affect the Company's business.
Research and Development
The Company does not have significant expenditures in research and
development activities.
Foreign Activities
The Company exports to international markets, primarily Europe, South
America and Canada, through its Fibers and Recycling Division and Pigments and
Additives Division. See Note 11 to the Consolidated Financial Statements for
additional information relating to the Company's foreign activities.
Trademarks and Patents
Although the Company has several trademarks and patents, none is
considered by the Company to be material to the Company's business at the
present time.
Employees
As of December 31, 1996, the Company employed approximately 991
persons, of whom approximately 188 employees were in management, sales and
administration and the balance of whom were involved in the
6
<PAGE>
manufacturing process. None of the Company's employees are covered by a
collective bargaining agreement. The Company believes it has a good relationship
with its employees.
Environmental Compliance
Except to the extent described below, the Company believes its
facilities are in compliance in all material respects with all laws and
regulations pertaining to environmental protection. The nature of the Company's
present operations is such that it does not expect expenditures for
environmental compliance to be material.
In December, 1993, the Company's wholly owned subsidiary, Star Fibers
Corp., acquired a plant site in Edgefield, South Carolina (the "Star Facility"),
under which certain groundwater contamination exists. All evidence indicates
that the contamination resulted from contamination on an adjacent property. In
connection with the acquisition of the Star Facility, the Company was
indemnified from liability with respect to the pre-existing contamination by a
party believed by the Company to be financially responsible, and believes that
it will have no material liability as a result of any contamination at the Star
Facility.
Item 2. Properties
The location and general description of the principal properties owned
or leased (the majority of which are leased on a month to month basis) by the
Company as of December 31, 1996 are set forth in the table below:
<TABLE>
<CAPTION>
Location Principal Function Square Footage Ownership
- -------- ------------------ -------------- ---------
<S> <C> <C>
Edgefield, South Carolina Corporate/Sales 7,500 Leased
Edgefield, South Carolina Fiber Manufacturing, Recycling 200,000 Owned
Operations and Warehousing
Edgefield, South Carolina Warehousing 70,400 Leased
Trenton, South Carolina Fiber Manufacturing, Recycling 407,350 Owned
Operations and Warehousing
Sumter, South Carolina Fiber Manufacturing, Recycling 405,000 Owned
Operations and Warehousing
Sumter, South Carolina Warehousing 248,700 Leased
Dalton, Georgia Pigments and Additives 35,000 Leased
Manufacturing and Warehousing
Pensacola, Florida Pigments and Additives 9,500 Leased
Manufacturing and Warehousing
Elkhart, Indiana Carpet Warehousing and
Distribution Center 32,000 Owned
Dalton, Georgia Carpet Manufacturing and
Warehousing 187,000 Owned
Laurens, South Carolina Yarn Manufacturing and
Warehousing 123,670 Owned
</TABLE>
7
<PAGE>
The Company considers the facilities suitable and adequate for its
operations.
- ----------------------------------
Item 3. Legal Proceedings
In March 1995, litigation was commenced by a shareholder of the Company
against the Company and James F. Martin, Chairman and Chief Executive Officer of
the Company, in the United States District Court for the District of South
Carolina, Greenville Division. In the litigation, the plaintiff alleges, among
other things, that the Company failed to prepare its financial statements in
accordance with generally accepted accounting principles and issued false and
misleading business and financial information to the investing public which
misstated the Company's financial condition, earnings and prospects, in
violation of the Federal securities laws and common law. The plaintiff seeks to
have the action certified as a class action on behalf of non-insider
shareholders who purchased the common stock of the Company from April 21, 1993
through February 28, 1995. A definitive written settlement agreement has been
reached with the class plaintiff under which the Company's settlement liability
is fixed at $2,000,000. In exchange for a written release, the Company's
insurance carrier has provided $850,000 of this amount. By order dated March 12,
1997, the United States District Court certified the class in the matter,
appointed the class plaintiffs' counsel as settlement administrator and gave
preliminary approval to the settlement. The settlement was funded by the Company
on March 20, 1997. Final settlement of the matter remains subject to final court
approval.
At December 31, 1995, the Company accrued the estimated settlement
amount, which includes legal fees less insurance proceeds, as a liability. The
Company's portion of the settlement has been funded by bank debt.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock is traded on The Nasdaq Stock Market
(National Market) under the symbol MRCF. The following table sets forth high and
low bid information for the Common Stock on The Nasdaq Stock Market for the
fiscal periods indicated. Such over-the counter market quotations reflect
interdealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
No dividends have been declared nor does the Company anticipate
declaring any dividends in the near future. Certain covenants under the
Company's loan agreements restrict its ability to pay dividends. See Note 6 to
the Company's Consolidated Financial Statements.
As of March 26, 1997, the Company had approximately 1700 stockholders
based on the number of holders of record and an estimate of the number of
individual participants represented by security position listings.
8
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1996
----------------------
High Low
----------------------
First Quarter 5 1/4 3 1/4
Second Quarter 6 4 3/4
Third Quarter 6 3/8 4 5/8
Fourth Quarter 8 1/4 5 3/4
For the Year 8 1/4 3 1/4
1995
----------------------
High Low
----------------------
First Quarter 6 4
Second Quarter 7 1/2 4 1/2
Third Quarter 9 5 3/4
Fourth Quarter 6 3/8 3 1/2
For the Year 9 3 1/2
Item 6. Selected Financial Data
The following table sets forth selected income statement, pro forma,
and balance sheet data of the Company. The selected income statement and balance
sheet data for each of the five years in the period ended December 31, 1996 are
derived from the financial statements of the Company. The audited financial
statements for the three most recent years appear elsewhere herein. The pro
forma information is unaudited and reflects the effect of the income tax
provisions that would have been made for each of the two years in the period
ended December 31, 1993 if the Company's income had been taxable to the Company
rather than directly to its shareholders during such periods or portion of
periods. The data presented below should be read in conjunction with the audited
financial statements, including the related notes thereto, included elsewhere in
this report.
9
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<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share data)
Statements of Income Data:
<S> <C> <C> <C> <C> <C>
Net sales ................................................. $ 114,416 $ 116,970 $ 102,493 $ 73,971 $69,838
Cost of sales .......................................... 91,453 95,265 89,229 63,051 59,326
--------- --------- --------- -------- -------
Gross profit .............................................. 22,963 21,705 13,264 10,920 10,512
Selling, general and administrative
expenses ............................................ 12,026 12,611 9,624 5,153 4,799
--------- --------- --------- -------- -------
Operating income .......................................... 10,937 9,094 3,640 5,767 5,713
Interest expense, net .................................. (4,335) (4,658) (3,366) (2,055) (2,286)
Other income ........................................... 234 244 141 121 92
--------- --------- --------- -------- -------
Income before income taxes ................................ 6,836 4,680 415 3,833 3,519
Provision for income taxes ................................ 2,402 1,724 204 2,183 --
--------- --------- --------- -------- -------
Income before extraordinary item .......................... 4,434 2,956 211 1,650 3,519
Extraordinary item: Extinguishment of debt
(less applicable income tax benefit of $68) ........... - - (117) - -
--------- --------- --------- -------- -------
Net income ................................................ $ 4,434 $ 2,956 $ 94 $ 1,650 $ 3,519
--------- --------- --------- ======== =======
Income before extraordinary item
per share .............................................. $ 0.67 $ 0.44 $ 0.03 $ 0.28 -
========= ========= ========= ======== =======
Net income per share ...................................... $ 0.67 $ 0.44 $ 0.01 $ 0.28 -
========= ========= ========= ======== =======
Pro forma net income data:
Net income before income taxes and
extraordinary item, as reported ........................ $ 6,836 $ 4,680 $ 415 $ 3,833 $ 3,519
Pro forma income tax provision (1) ........................ 2,402 1,724 204 1,403 1,354
--------- --------- --------- -------- -------
Pro forma income before
extraordinary item ..................................... 4,434 2,956 211 2,430 2,165
Pro forma extraordinary item, net of
income tax benefit ..................................... - - (117) - -
--------- --------- --------- -------- -------
Pro forma net income (1) .................................. $ 4,434 $ 2,956 $ 94 $ 2,430 $ 2,165
========= ========= ========= ======== =======
Pro forma income before extraordinary
item per share ......................................... $ 0.67 $ 0.44 $ 0.03 $ 0.41 $ 0.43
========= ========= ========= ======== =======
Pro forma net income per share (1)(2) ..................... $ 0.67 $ 0.44 $ 0.01 $ 0.41 $ 0.43
========= ========= ========= ======== =======
Weighted average shares outstanding (4).................... 6,660 6,657 6,590 5,985 5,000
========= ========= ========= ======== =======
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Working capital ........................................ $ 30,479 $27,969 $10,910 $11,126 $ 7,493
Property, plant and equipment, net ..................... 42,873 40,214 39,294 27,055 17,840
Total assets ........................................... 102,616 94,966 93,678 71,491 52,648
Total short-term debt(3) ............................... 6,725 4,472 24,577 24,604 20,104
Total long-term debt(3) ................................ 44,429 45,168 30,315 16,624 16,995
Shareholders' equity ................................... 30,173 25,632 22,656 21,008 8,701
</TABLE>
(1) For the 1992 period and until April 21, 1993, the Company was an S
Corporation for federal and state income tax purposes and, accordingly, was
not subject to corporate income taxes. The pro forma information has been
computed as if the Company were subject to corporate income taxes for all
periods presented, based on the tax laws in effect during the respective
periods.
(2) Supplemental earnings per share for 1993, assuming the offering was
consummated on January 1, 1993, would be $0.41 per share.
(3) Includes notes payable to shareholders for periods ending 1992 through
1993.
(4) On March 2, 1993, the Company effected a 6.01083-for-1 stock split of its
outstanding common shares. Accordingly, the weighted average shares
outstanding have been restated to reflect the stock split.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical in
nature, are intended to be, and are hereby identified as, "forward looking
statements" for purposes of the safe harbor provided by Section 21E of the
Securities Exchange Act of 1934, as amended. The Company cautions readers that
forward looking statements, including without limitation, those relating to the
Company's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs, and income, are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward looking statements, due to several important factors
herein identified, among others, and other risks and factors identified from
time to time in the Company's reports filed with the Securities and Exchange
Commission.
11
<PAGE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Results of Operations
Net Sales. Net sales decreased 2.2% to $114.4 million in the year ended
December 31, 1996, from $117.0 million in the year ended December 31, 1995. Net
sales in the Fibers Division decreased to $69.9 million in 1996 from $82.1
million in 1995. Net sales from PET fiber before intercompany eliminations
decreased $3.9 million due primarily to a decrease in the average PET fiber
sales price per pound to $0.766 in 1996 from $0.826 in 1995 offset by an
increase in shipments to 92.9 million pounds in 1996 from 90.9 million in 1995.
Net sales from shipments of nylon fiber, pellets, trading materials, PET
plastics, and chemical polymer sales decreased to $1.6 million in 1996 from $8.7
million in 1995 which was directly related to a decrease in shipments for all of
the areas. The decrease in shipments is a result of management's decision to
temporarily exit these markets due to market conditions. Operations do, however,
continue in the Fibers Division on a very limited basis.
Net sales of the Pigment, Yarn and Carpet Divisions, after intercompany
eliminations, increased to $44.5 million in 1996 from $34.9 million in 1995. The
increase relates primarily to increased sales of the Carpet Division due to
volume growth.
Gross Profit. Gross profit increased 6.0% to $23.0 million in 1996 as
compared to $21.7 million in 1995. As a percentage of net sales, gross profit
increased to 20.1% in 1996 compared to 18.6% in 1995. The increase in the gross
profit percentage to relates directly to the increases in gross profit
percentage in the Fibers, Pigment, and Yarn Divisions offset by a slight
decrease in the gross profit percentage in the Carpet Division.
Selling, General and Administrative. Selling, general and
administrative expenses ("SG&A") were $12.0 million, or 10.5% of net sales in
1996 compared to $12.6 million, or 10.8% of net sales in 1995. The decrease is a
result of an accrual of $1.2 million in 1995 which is the amount estimated to be
paid for the settlement of a lawsuit which was not present in 1996. Excluding
the settlement accrual in 1995, the SG&A expenses as a percent of net sales
would have been 9.8%. The increase as a percent of net sales excluding the
settlement accrual in 1995 was
12
<PAGE>
due to the fact that the Carpet Division is a distribution company and has
higher selling, general and administrative expenses as a percent of its net
sales than the rest of the Company and this division's sales grew by $8.6
million in 1996 compared to 1995.
Interest Expense. Interest expense decreased to $4.3 million in 1996
from $4.7 million in 1995, due primarily to a decrease in the weighted average
interest rate during the year ended December 31, 1996, compared to the year
ended December 31, 1995.
Income Tax Provision. Income tax expense for 1996 increased to $2.4
million compared to $1.7 million for 1995. The increase is primarily due to the
increase in pretax income.
Net Income and Net Income Per Share. Net income increased to $4.4
million or $0.67 per share in 1996 compared to a net income of $3.0 million or
$0.44 per share in 1995. The increase related directly to the increase in gross
profit and gross profit percentage and decreases in selling, general and
administrative expenses and interest expense.
Financial Condition
Current assets increased to $53.3 million at December 31, 1996 from
$48.0 million at December 31, 1995. The increase was primarily related to an
increase in accounts receivable by $2.2 million, an increase in inventories by
$1.8 million and an increase in other assets by $856 thousand. The change in
accounts receivable resulted directly from higher fourth quarter sales in 1996
of $27.7 million versus $23.1 million in the fourth quarter of 1995. The
increase in inventories was primarily related to an increase in raw material
inventories at the Carpet Division due directly to the growth in sales volume
during the year which required a larger raw material inventory.
The increase in other assets is due directly to an amount to be
reimbursed via an insurance contract for the stop loss portion related to the
Company's health insurance plan. The Company is self insured up to a certain
amount and has an insurance policy for amounts greater than a stated amount.
The increase in property, plant and equipment by $2.7 million resulted
primarily from purchases of $6.7 million, primarily related to the new
production line discussed herein, offset by depreciation expense of $3.8
million.
Current liabilities increased by $2.8 million primarily due to an
increase in the current portion of debt by $2.3 million.
13
<PAGE>
Outlook
During the third quarter of 1995, the market conditions for polyester
fiber changed rapidly as a result of a significant reduction in demand from
China and a corresponding redirection of production from other Asian countries
from China to European and U.S. markets. The Company believes this change caused
its international customers to delay purchases, relying instead on existing
inventories that they had built up during the second quarter due to their
perception of a shortage of polyester fiber. Also, the availability of
low-priced Asian imports caused a reduction in shipments of the Company's
commodity product lines.
The above market conditions resulted in a weakened demand for the
Company's polyester fibers. Demand remained at a lower level during 1996 and is
expected to remain at this level into the first part of 1997. The weakening of
the polyester market has resulted in decreasing recycled raw material costs
resulting in a downward pressure on polyester fiber selling prices. The Company
anticipates its polyester fiber selling prices will follow these general market
trends.
The Company installed a new production line during the latter part of
the third quarter of 1996 for the manufacture of fine denier, solution-dyed
fiber. The Company began test production during the third quarter and is
expected to begin shipping products during the first quarter of 1997. The new
line will enhance the Company's diversity of product mix in fibers for
automotive and industrial fabrics, nonwovens, home furnishings and apparel. The
fine denier line is expected to enable the Company to produce in excess of 20
million pounds of 2 denier fiber each year.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. Net sales increased 14.1% to $117.0 million in the year
ended December 31, 1995, from $102.5 million in the year ended December 31,
1994. This net sales growth was primarily related to the inclusion of a full
year's net sales in 1995 for the Palmetto Spinning Corporation subsidiary
acquired effective June 1, 1994 ($8.4 million), and net sales of the Buchanan
Industries, Inc. subsidiary acquired effective May 29, 1994 ($22.3 million).
Net sales in the Fibers Division increased slightly to $82.1 million in
1995 from $81.6 million in 1994. Net sales from PET fiber increased $11.9
million due primarily to an increase in the average PET fiber sales price per
pound to $0.826 in 1995 from $0.6941 in 1994 and a slight increase in shipments
to 90.9 million pounds in 1995 from 90.8 million in 1994. Net sales from
shipments of nylon fiber, pellets, trading materials, PET plastics, and chemical
polymer sales decreased to $8.7 million in 1995 from $20.1 million in 1994 which
was directly related to a decrease in shipments for all of the areas except
pellet sales. The decrease in shipments was a result of management's decision to
temporarily exit these markets due to market conditions.
14
<PAGE>
Gross Profit. Gross profit increased 63.6% to $21.7 million in 1995 as
compared to $13.3 million in 1994. As a percentage of net sales, gross profit
increased to 18.6% in 1995 compared to 12.9% in 1994. Special charges of $2.0
million were incurred in 1994. These charges consisted of special adjustments of
$400 thousand to the carrying value of certain inventory, the recording of a
$1.6 million reserve for excess quantities of low-grade raw materials, as well
as the bulk sale of inventory located at the unprofitable warehouse facility in
Decatur, Alabama, which management decided to close. Excluding the $2.0 million
special charges in 1994, the gross profit percentage was 14.9%. The increase in
the normal gross profit percentage to 18.6% from 14.9% relates directly to the
increase in the average PET fiber sales price per pound discussed above which
offset gross profit percentage decreases in the Pigment, Yarn, and Carpet
Divisions.
Selling, General and Administrative. Selling, general and
administrative expenses were $12.6 million, or 10.8% of net sales in 1995
compared to $9.6 million or 9.4% of net sales in 1994. The increase in SG&A is a
result of the acquisitions discussed above and an accrual of $1.2 million which
is the amount estimated to be paid for the settlement of a lawsuit. Excluding
the settlement accrual, the SG&A expenses as a percent of net sales would have
been 9.8%. The increase as a percent of net sales excluding the settlement
accrual was due to the fact that Buchanan Industries, which was included in the
Company's results of operations for a full year for the first time in 1995, is a
distribution company and has higher selling, general and administrative expenses
as a percent of its net sales than the rest of the Company.
Interest Expense. Interest expense increased to $4.7 million in 1995
from $3.4 million in 1994. This increase was due to a significant increase in
the average outstanding debt balance during 1995 compared to 1994, interest rate
increases coinciding with general market interest rate increases, and an
interest rate increase due to amendments to bank loan agreements in the first
quarter of 1995. The additional borrowings were incurred to finance the
acquisitions discussed above and increases in property, plant and equipment.
Income Tax Provision. Income tax expense for 1995 increased to $1.7
million compared to $204 thousand for 1994. The increase was primarily due to
the increase in pretax income.
Net Income and Net Income Per Share. Net income increased to $3.0
million or $0.44 per share in 1995 compared to a net income of $94 thousand or
$0.01 per share in 1994. The increase related directly to the increase in gross
profit and gross profit percentage which was partially offset by increases in
SG&A and interest expense.
15
<PAGE>
Liquidity and Capital Resources
The Company generated cash from operations of $5.7 million in 1996
compared to $11.1 million in 1995. The decrease in cash from operations was
primarily a result of an increase in net operating assets and liabilities. The
increase was primarily a result of increases in receivables, accounts payable
and accrued expenses offset by a decrease in the net change of inventories.
Also, the decrease in cash from operations was partially offset by increases in
net income, depreciation, amortization and deferred taxes.
Net cash used in investing activities amounted to $7.1 million in 1996
compared to $6.2 million in 1995. The Company increased its investing activities
during 1996 by $900 thousand due primarily to increased capital additions in
1996 over 1995. The Company funded the 1996 capital additions under the
revolving line of credit and the term loan agreement.
Net cash provided by financing activities amounted to $1.6 million for
1996 compared to net cash used in financing activities of $5.3 million for 1995.
The significant change occurred due to an increase in the revolving line of
credit as a result of borrowings to fund a portion of the capital additions for
1996 which were not funded by the term loan.
The Company's loan agreements with financial institutions contain a
number of restrictive covenants. See Note 6 of Notes to Financial Statements.
On December 16, 1996, the Company extended the existing revolving line
of credit agreement with a bank to June 2, 1998. The agreement provides for
borrowings not to exceed the lesser of $25 million, or an agreed-upon borrowing
base.
In March of 1997, the Company entered into a $5 million capital
expenditure term loan to fund $2 million of 1996 capital expenditures, which
were previously funded under the revolving line of credit agreement, and $3
million of 1997 capital expenditures.
As previously discussed, the Company has funded the settlement of
litigation with bank debt.
The Company believes that the financial resources available to it under
its revolving line of credit, the 1997 Term Loan and other internally generated
funds will adequately meet its foreseeable working capital and capital
expenditures requirements.
16
<PAGE>
Item 8. Financial Statements and Supplementary Data
Martin Color-Fi, Inc.
Consolidated Financial Statements
List of Financial Statements
Report of Independent Auditors...............................................18
Audited Consolidated Financial Statements
Consolidated Balance Sheets..............................................19
Consolidated Statements of Income........................................21
Consolidated Statements of Shareholders' Equity..........................22
Consolidated Statements of Cash Flows....................................24
Notes to Consolidated Financial Statements...............................27
17
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
Martin Color-Fi, Inc.
We have audited the accompanying consolidated balance sheets of Martin Color-Fi,
Inc. as of December 31, 1996 and 1995, and the related consolidated statements
of income, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Martin
Color-Fi, Inc. at December 31, 1996 and 1995, and the consolidated results of
its operations, and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Greenville, South Carolina
February 13, 1997,
except for Note 13, as to which the date is
March 24, 1997
18
<PAGE>
<TABLE>
<CAPTION>
Martin Color-Fi, Inc.
Consolidated Balance Sheets
(In Thousands, except Share Related Data)
December 31,
1996 1995
---- ----
<S> <C> <C>
Assets
Current assets:
Cash ............................................................... $ 272 $ 12
Accounts receivable, less allowance of $150
in 1996 and 1995 ................................................. 12,622 10,403
Inventories (Note 4) 38,678 36,922
Prepaid expenses ................................................... 881 652
Income tax receivable .............................................. - 51
Other assets ....................................................... 856 -
-------- -------
Total current assets ................................................. 53,309 48,040
Property, plant and equipment, net (Note 5) .......................... 42,873 40,214
Goodwill (net of accumulated amortization of $500
and $291 for 1996 and 1995, respectively) .......................... 5,091 4,852
Other assets ......................................................... 1,343 1,860
-------- -------
Total assets ......................................................... $102,616 $94,966
======== =======
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Martin Color-Fi, Inc.
Consolidated Balance Sheets (continued)
(In Thousands, except Share Related Data)
December 31,
1996 1995
---- ----
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses .............................. $ 16,105 $15,599
Current portion of debt (Note 6) .................................... 6,725 4,472
-------- -------
Total current liabilities ............................................ 22,830 20,071
Deferred income taxes (Note 9) ....................................... 5,184 4,061
Long-term portion of debt (Note 6) ................................... 44,429 45,168
Other non-current liabilities ........................................ - 34
Shareholders' equity:
Common stock, no par value:
Authorized shares - 50,000,000 in 1996 and 1995
Issued and outstanding shares - 6,681,479 and
6,657,483 in 1996 and 1995, respectively ....................... 832 832
Additional paid-in capital ......................................... 19,861 19,754
Retained earnings..................................................... 9,480 5,046
-------- -------
Total shareholders' equity ........................................... 30,173 25,632
-------- -------
Total liabilities and shareholders' equity ........................... $102,616 $94,966
======== =======
</TABLE>
See accompanying notes.
20
<PAGE>
<TABLE>
<CAPTION>
Martin Color-Fi, Inc.
Consolidated Statements of Income
(In Thousands, except Share Related Data)
Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales .................................................. $ 114,416 $ 116,970 $ 102,193
Cost of sales .............................................. 91,453 95,265 89,229
----------- ---------- -----------
Gross profit ............................................... 22,963 21,705 13,264
Selling, general and administrative expenses ............... 12,026 12,611 9,624
----------- ---------- -----------
Operating income ........................................... 10,937 9,094 3,640
Interest expense ........................................... (4,335) (4,658) (3,366)
Other income ............................................... 234 244 141
----------- ---------- -----------
Income before income taxes and extraordinary
item ..................................................... 6,836 4,680 415
Provision for income taxes (Notes 2 and 9) ................. 2,402 1,724 204
----------- ---------- -----------
Income before extraordinary item ........................... 4,434 2,956 211
Extraordinary item - extinguishment of debt
(less applicable income tax benefit of $68) .............. - - (117)
----------- ---------- -----------
Net income ................................................. $ 4,434 $ 2,956 $ 94
=========== ========== ===========
Income before extraordinary item per share ................. $ 0.67 $ 0.44 $ 0.03
=========== ========== ===========
Net income per share ....................................... $ 0.67 $ 0.44 $ 0.01
=========== ========== ===========
Weighted average shares outstanding (Note 2) ............... 6,660,356 6,657,483 6,589,903
========= ========= =========
</TABLE>
See accompanying notes.
21
<PAGE>
<TABLE>
<CAPTION>
Martin Color-Fi, Inc.
Consolidated Statements of Shareholders' Equity
(In Thousands, except Share Related Data)
Notes
Additional Receivable
Common Stock Paid-In Retained from
Shares Amount Capital Earnings Shareholders Total
--------- ---- ------- ------ ---- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 ......................... 6,490,817 $832 $18,254 $1,996 ($74) $21,008
Net reduction in notes receivable from
shareholders ..................................... - - - - 54 54
Common shares issued for business
acquisition ...................................... 166,666 - 1,500 - - 1,500
1994 net income .................................... - - - 94 - 94
--------- ---- ------- ------ --- -------
Balance at December 31, 1994 ......................... 6,657,483 832 19,754 2,090 (20) 22,656
Net reduction in notes receivable from
shareholders ..................................... - - - - 20 20
1995 net income .................................... - - - 2,956 - 2,956
--------- ---- ------- ------ --- -------
Balance at December 31, 1995 ......................... 6,657,483 832 19,754 5,046 0 25,632
Exercise of stock options .......................... 23,996 - 107 - - 107
1996 net income .................................... - - - 4,434 - 4,434
--------- ---- ------- ------ --- -------
Balance at December 31, 1996 ......................... 6,681,479 $832 $19,861 $9,480 $ 0 $30,173
========= ==== ======= ====== === =======
</TABLE>
See accompanying notes.
22
<PAGE>
<TABLE>
<CAPTION>
Martin Color-Fi, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating activities
Net income .................................................... $ 4,434 $ 2,956 $ 94
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary item ........................................ - - 185
Depreciation and amortization ............................. 4,222 3,951 3,097
Inventory write-down ...................................... - - 1,624
Provision for doubtful accounts ........................... 71 38 423
Deferred income taxes ..................................... 1,123 929 53
Loss on sale of equipment ................................. 27 85 150
Changes in operating assets and liabilities:
Accounts receivable ..................................... (2,290) 3,633 (3,541)
Income tax receivable ................................... 51 913 (964)
Inventories ............................................. (1,756) (4,489) 4,096
Other assets ............................................ (417) 461 (294)
Prepaid expenses ........................................ (229) (178) (215)
Accounts payable and accrued expenses ................... 506 2,830 (358)
------- ------- ----
Net cash provided by operating activities ..................... 5,742 11,129 4,350
Investing activities
Purchases of property, plant and equipment .................... (6,653) (4,809) (5,748)
Acquisition of Buchanan Industries, Inc. and
Palmetto Spinning Corporation, net of cash
acquired .................................................... - - (3,018)
Purchase of assets from Dye Pigments and
Custom Colorants, Inc. and Custom Polymer
Additives and Colors, Inc. .................................. (575) (600) -
Deposits on purchase of equipment ............................. (139) (678) (519)
Net proceeds from sale of equipment ........................... 206 210 148
Other ......................................................... 94 (281) (50)
------- -------- ---
Net cash used in investing activities ......................... (7,067) (6,158) (9,187)
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Martin Color Fi, Inc.
Consolidated Statements of Cash Flows (continued)
(In Thousands)
Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Financing activities
Borrowings under line of credit ................................ $ 40,407 $ 42,409 $ 55,485
Payments on line of credit ..................................... (37,734) (46,085) (54,420)
Additional loan costs .......................................... (36) (38) (230)
Proceeds from issuance of long-term debt ....................... 3,000 3,000 35,503
Principal payments on long-term debt ........................... (4,159) (4,576) (29,619)
Proceeds from net shareholder debt ............................. - 20 54
Payments on net shareholder debt ............................... - - (1,637)
Proceeds from issuance of common stock ......................... 107 - -
-------- -------- --------
Net cash provided by (used in) financing activities ............ 1,585 (5,270) 5,136
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ........... 260 (299) 299
Cash and cash equivalents at beginning of year ................. 12 311 12
-------- -------- --------
Cash and cash equivalents at end of year ....................... $ 272 $ 12 $ 311
======== ======== ========
Supplemental disclosures of cash flow
information
Cash paid during the year for interest (net of
amounts capitalized) ......................................... $ 4,347 $ 4,697 $ 3,222
Income taxes paid .............................................. 1,203 874 721
</TABLE>
24
<PAGE>
Martin Color Fi, Inc.
Consolidated Statements of Cash Flows (continued)
(In Thousands)
Supplemental Schedule of Noncash Investing and Financing Activities
During 1994, the Company recorded "other assets" and liabilities related to
three non-compete agreements with employees of the Company. At December 31, 1996
and 1995, other assets and liabilities included approximately $34 and $79 for
the unpaid portion of these agreements, respectively.
Acquisition of Palmetto Spinning Corporation in 1994:
(In thousands)
Fair value of assets acquired and acquisition costs $ 8,991
Liabilities assumed (4,098)
Note issued (3,150)
-------
Total cash paid for net assets acquired and acquisition costs $ 1,743
=======
Acquisition of Buchanan Industries, Inc. in 1994:
(In thousands)
Fair value of assets acquired and acquisition costs $10,686
Liabilities assumed (6,453)
Notes issued (1,420)
Common stock issued (166,666 shares) (1,500)
-------
Total cash paid for net assets acquired and acquisition costs $ 1,313
=======
25
<PAGE>
Martin Color Fi, Inc.
Consolidated Statements of Cash Flows (continued)
(In Thousands)
Supplemental Schedule of Noncash Investing and Financing Activities (continued)
In 1996, 1995, and 1994, the Company recorded additional goodwill, other assets,
and liabilities totaling approximately $575 in 1996 and $600 in 1995 and 1994
related to contingent consideration determined in those years for the
acquisition of the assets of Dye Pigments and Custom Colorants, Inc. and Custom
Polymer Additives and Colors, Inc. which occurred during 1993. (see Note 3).
See accompanying notes.
26
<PAGE>
Martin Color Fi, Inc.
Notes to Consolidated Financial Statements
(In Thousands Except Share Data)
December 31, 1996
1. Nature of Business
Martin Color-Fi, Inc. (the "Company") is a recycler of reclaimed plastics. The
Company uses these waste materials to produce polyester and other synthetic
fibers and pellets for a wide range of markets throughout various geographic
regions, including the automotive and furniture industries. In addition, through
its wholly owned subsidiaries, the Company manufactures synthetic yarn and
tufted carpet. The Company insures part of its accounts receivable, performs
ongoing credit evaluations of its customers and generally does not require
collateral. The Company maintains an allowance for doubtful accounts at a level
which management believes is sufficient to cover probable credit losses.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
all wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
In preparing the consolidated financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reported
period. Actual results could differ from these estimates.
Inventories
Inventories are stated at the lower of cost, determined by the specific
identification method, or market using the aggregate method.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. For financial reporting
purposes, depreciation is computed by the straight-line method over the
estimated useful lives of the assets. For income tax purposes, depreciation is
computed principally by an accelerated method using recovery periods allowed by
the Internal Revenue Code.
Maintenance and repairs are expensed as incurred. Interest expense incurred for
the construction of assets and direct costs of self-constructed assets are
capitalized. Expenditures which significantly increase asset values or extend
useful lives are capitalized. Upon retirement or other disposition, the cost of
the item and the related accumulated depreciation is removed from the accounts
and any gain or loss is included in income.
27
<PAGE>
Martin Color Fi, Inc.
Notes to Consolidated Financial Statements (continued)
(In Thousands Except Share Data)
2. Summary of Significant Accounting Policies (continued)
Income Taxes
The Company accounts for its income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Deferred income
taxes are recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities.
Intangible Assets
Costs in excess of identified net assets acquired in business combinations are
amortized by the straight-line method over 25 years. The carrying value of
goodwill is reviewed at each balance sheet date to determine if it may be
impaired. If this review indicates that goodwill will not be recoverable, as
determined based on the undiscounted cash flows of the entity acquired over the
remaining amortization period, the Company's carrying value of the goodwill is
reduced by the estimated shortfall of cash flows.
Loan costs are amortized over the life of the related loan. Amortization of
these costs, including a write-off of approximately $185 accounted for as an
extraordinary item in 1994, was approximately $60, $46, and $290 for the years
ended December 31, 1996, 1995, and 1994, respectively.
Revenue Recognition
Sales are generally recorded when products are shipped to customers. Provision
for normal sales allowances are made at the time of sale and classified as sales
reductions.
Advertising Costs
The Company expenses all advertising costs as incurred in accordance with the
provisions of SOP 93-7 "Reporting on Advertising Costs". Advertising costs were
$271, $281, and $135 for 1996, 1995, and 1994, respectively.
28
<PAGE>
Martin Color Fi, Inc.
Notes to Consolidated Financial Statements (continued)
(In Thousands Except Share Data)
2. Summary of Significant Accounting Policies (continued)
New Accounting Standards
On January 1, 1996, the Company adopted the provisions of Financial Accounting
Standards Board Statement No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"). This standard applies to all transactions in which an entity
acquires goods and services by issuing equity instruments, such as stock
options, to employees or others. Under SFAS No. 123, the Company has a choice in
the method of accounting used for stock-based compensation. The method chosen
can be either the intrinsic value based method currently used by the Company
within the scope of Accounting Principles Board (APB) Opinion 25, or the fair
value method introduced by SFAS No. 123 that might involve the recognition of
compensation expense. The Company has elected to account for the Company's stock
option plan under APB Opinion 25, and to provide the pro forma disclosure
required by SFAS No. 123. Therefore, the implementation of SFAS No. 123 as of
January 1, 1996 had no effect on the Company's financial condition or results of
operations.
Also during 1996, the Company adopted the provisions of Financial Accounting
Standards Board ("FASB") Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FAS 121"),
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. The
effect of adoption did not have a material impact on the Company's results of
operations as the provisions of the statement were consistent with the Company's
previously implemented policy.
Earnings Per Share
Earnings per common share are computed based on the weighted average number of
shares outstanding during each period. The effect of common stock equivalents on
earnings per share is not material.
3. Business Combinations
Palmetto Spinning Corporation
On June 13, 1994, the Company purchased all of the outstanding common stock of
Palmetto Spinning Corporation ("PSC") for $4,650. PSC manufactures synthetic
yarn used principally for the carpet industry.
The acquisition, which was effective as of the close of business on May 31,
1994, has been recorded using the purchase method of accounting. Accordingly,
the purchase price has been allocated to assets and liabilities based on their
estimated fair values as of the effective date of acquisition. The purchase
price and expenses associated with the acquisition exceeded the fair value of
PSC's net assets by approximately $751, which has been assigned to goodwill and
is being amortized by the straight-line method over 25 years.
29
<PAGE>
Martin Color Fi, Inc.
Notes to Consolidated Financial Statements (continued)
(In Thousands Except Share Data)
3. Business Combinations (continued)
Results of Palmetto Spinning Corporation since the date of acquisition have been
included in the consolidated financial statements of Martin Color-Fi, Inc.
The acquisition was financed by a note to the sellers of $3,150 and bank
borrowings of $1,500. The note to the sellers is subordinated to all bank debt
and is convertible into Company unregistered common stock at a conversion price
of $11.00 per share.
Buchanan Industries, Inc. (Georgia)
On June 1, 1994, Buchanan Industries, Inc. (South Carolina) was formed as a
wholly owned subsidiary of Martin Color-Fi, Inc. On July 14, 1994, the
subsidiary acquired all the assets and assumed certain liabilities of Buchanan
Industries, Inc. (Georgia) ("BI") for $3,980. BI is a manufacturer of tufted
textile products (carpet) and conducts business under the trade names of Condor
Carpets, Forum Carpets, Graphic Concepts, and Lakeview Distributing.
The acquisition, which was effective as of the close of business on May 28,
1994, has been recorded using the purchase method of accounting. Accordingly,
the purchase price has been allocated to assets and liabilities based on their
estimated fair values as of the effective date of acquisition. The purchase
price and expenses associated with the acquisition exceeded the fair value of
BI's net assets by approximately $2,936, which has been assigned to goodwill and
is being amortized by the straight-line method over 25 years.
Results of Buchanan Industries, Inc. (South Carolina) since the date of
acquisition have been included in the consolidated financial statements of
Martin Color-Fi, Inc.
The purchase price consisted of notes to the seller of $1,420, 166,666 shares of
common stock of Martin Color- Fi Inc., valued at $1,500, and bank borrowings of
$1,060.
30
<PAGE>
Martin Color Fi, Inc.
Notes to Consolidated Financial Statements (continued)
(In Thousands Except Share Data)
3. Business Combinations (continued)
Pro Forma Information
The following unaudited pro forma results assume the transactions described
above occurred as of the beginning of the respective year-to-date periods
presented after giving effect to certain adjustments, including amortization of
goodwill, increased interest expense on acquisition debt and increased
depreciation on property, plant and equipment to reflect increased fair market
values. These adjustments were applied to the pro forma net income data
presented on the consolidated statements of operations for the year-to-date
period presented.
Year Ended
December 31,
1994
----
Net sales $114,223
Net income before extraordinary item 67
Net (loss) income after extraordinary item (50)
Net (loss) income per share (.01)
Weighted average shares outstanding (in thousands) 6,659
The pro forma financial information does not purport to be indicative of the
results of operations that would have occurred had the transactions taken place
at the beginning of the periods presented or of future results of operations.
4. Inventories
Inventories consist of the following:
December 31,
1996 1995
---- ----
Raw materials $ 25,963 $ 22,811
Finished goods 12,715 14,111
-------- --------
$ 38,678 $ 36,922
======== ========
31
<PAGE>
Martin Color Fi, Inc.
Notes to Consolidated Financial Statements (continued)
(In Thousands Except Share Data)
5. Property, Plant and Equipment
Property, plant and equipment consist of the following:
December 31,
1996 1995
---- ----
Land and buildings $13,794 $13,690
Machinery and equipment 38,714 37,190
Furniture and fixtures 3,523 3,132
Machinery and equipment under construction 5,359 1,092
------- -------
61,390 55,104
Accumulated depreciation (18,517) (14,890)
------- -------
Net property, plant and equipment $42,873 $40,214
======= =======
Depreciation expense of approximately $3,761, $3,594, and $2,858 was recorded
for the years ended December 31, 1996, 1995, and 1994, respectively.
Interest of approximately $234, $55, and $198 was capitalized on qualifying
assets for the years ended December 31, 1996, 1995, and 1994, respectively.
At December 31, 1996, the Company had commitments to spend approximately $521 to
purchase other machinery and equipment.
32
<PAGE>
Martin Color Fi, Inc.
Notes to Consolidated Financial Statements (continued)
(In Thousands Except Share Data)
6. Debt
At December 31, 1996, the Company had two loan agreements. The Company's
revolving line of credit agreement with a bank provides for borrowings not to
exceed the lesser of $25,000 or an agreed upon borrowing base. The borrowing
base is calculated based on accounts receivable and inventory balances. The line
of credit bears interest at the lower of prime or an adjusted LIBOR rate based
on the Company's "leverage ratio", as defined in the revolving line of credit
agreement, adjusted monthly. At December 31, 1996, the interest rate was LIBOR
plus 240 basis points, or 7.84%. This agreement was amended effective December
16, 1996, which resulted in a long-term classification for this obligation. A
single principal payment is due on June 2, 1998 with interest on the outstanding
principal payable monthly beginning on August 12, 1995 continuing each month
with final payment of all accrued but unpaid interest on June 2, 1998. At
December 31, 1996, the balance outstanding was $19,943 of which $943 is current.
The unused line of credit available is $2,071 under the amended formula
discussed below.
The Company also has a term loan agreement, amended effective December 16, 1996,
with a bank which provides for borrowings up to $36,300. The term loan bears
interest at the lower of prime plus 1/8% or an adjusted LIBOR rate based on the
Company's "leverage ratio", as defined in the term loan credit agreement,
adjusted monthly. At December 31, 1996, the interest rate was LIBOR plus 265
basis points, or 8.09%. The terms of the loan include monthly principal payments
of approximately $300 plus interest with the principal payments being adjusted
upward based on additional drawings for capital expenditures. The loan also
requires a principal payment each year equal to 25% of the previous years' net
income if the debt to tangible net worth is greater than 1.75 to 1. The loan
matures on June 2, 1999.
On February 18, 1997, the debt agreements discussed above were amended effective
December 16, 1996. The amendments provided for changes in the borrowing base
formula until April 30, 1997.
The weighted average interest rate for short-term borrowings at December 31,
1996 was 8.4%, which was the rate on the Company's line of credit as it was the
only short-term borrowing outstanding during 1996.
The agreements with the bank contain several restrictive covenants requiring,
among other matters, a minimum debt service ratio, a maximum ratio of
indebtedness to net worth, and restrictions on the payment of dividends.
The loans are collateralized by all Company assets.
At December 31, 1996, under the revolving line of credit agreement, the Company
has available letters of credit in the aggregate principal amount up to $750.
33
<PAGE>
<TABLE>
<CAPTION>
Martin Color Fi, Inc.
Notes to Consolidated Financial Statements (continued)
(In Thousands Except Share Data)
6. Debt (continued)
The following is a summary of debt:
December 31,
1996 1995
---- ----
<S> <C> <C>
Term loan with a bank .............................................................................. $27,868 $28,991
Revolving line of credit with a bank ............................................................... 19,943 17,270
Subordinated convertible note payable to the former owners of Palmetto Spinning
Corporation. The note provides for quarterly interest payments at 5% and
annual principal payments of $1,050 beginning on June 13, 1997, with the
note maturing on June 13, 1999 (see Note 3) ...................................................... 3,150 3,150
Note payable to former shareholder in monthly installments of $3, which includes
principal plus interest at 8%, due
June 2003 ........................................................................................ 193 229
------- --------
51,154 49,640
Less current portion ............................................................................... 6,725 4,472
------- --------
$44,429 $45,168
======= =======
</TABLE>
34
<PAGE>
Martin Color Fi, Inc.
Notes to Consolidated Financial Statements (continued)
(In Thousands Except Share Data)
6. Debt (continued)
Maturities of debt after December 31, 1996 are as follows:
1997 $ 6,725
1998 23,676
1999 20,637
2000 30
2001 32
Thereafter 54
-------
$51,154
=======
7. Profit Sharing Plan
The Company's defined contribution profit-sharing plan covers all eligible
employees of the Company. The plan provides for voluntary contributions at the
election of the employee. The Company's contribution is one-half or seventy-five
percent of the employees' contribution up to a maximum matching contribution of
two and one-half percent of the employee's salary. The Company's matching
contribution percentage is determined based on the investment vehicle selected
by the employee. Additionally, the Company's Board of Directors can authorize a
discretionary contribution to the plan. This discretionary amount was $25, $75,
and $50 for the years ended December 31, 1996, 1995, and 1994, respectively. For
the years ended December 31, 1996, 1995, and 1994, the Company made total
contributions to the plan of $295, $350, and $233, respectively.
In addition, PSC, which was acquired on June 13, 1994 (see Note 3), had an
employee savings plan which permitted employees to make contributions by salary
reduction pursuant to section 401(k) of the Internal Revenue Code. The
Corporation contributed a 30% match on deferrals up to a maximum of 6% of
compensation and could, at its discretion, make additional contributions to the
plan. In connection with the required match, the Corporation's contribution to
the plan since the acquisition became effective was approximately $22. No
discretionary contribution was made. Effective January 1, 1995, this plan was
consolidated with the defined contribution profit-sharing plan discussed above.
35
<PAGE>
Martin Color Fi, Inc.
Notes to Consolidated Financial Statements (continued)
(In Thousands Except Share Data)
8. Leases
On February 1, 1995, the Company entered into a lease agreement for a new
Corporate Office facility from an entity controlled by the Chairman and Chief
Executive Officer of the Company. The term of the lease is for 12 years and
requires monthly payments of approximately $4. Rent expense in 1996 and 1995 for
the Corporate Office was $50 and $46, respectively.
The majority of the Company's remaining leases for its facilities and equipment
are with unrelated parties under monthly operating leases. Total rent expense
for all operating leases was $1,508, $1,558, and $1,394 for the years ended
December 31, 1996, 1995, and 1994, respectively.
Future minimum rental payments under noncancelable operating leases as of
December 31, 1996 are as follows:
1997 $ 935
1998 527
1999 144
2000 122
2001 85
Thereafter 299
------
$2,112
======
36
<PAGE>
Martin Color Fi, Inc.
Notes to Consolidated Financial Statements (continued)
(In Thousands Except Share Data)
9. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
December 31,
1996 1995
---- ----
Deferred tax liabilities:
Tax over book depreciation ........................... $6,984 $6,357
Other ................................................ 531 434
------ ------
Total deferred tax liabilities ......................... 7,515 6,791
Deferred tax assets:
Tax inventory value over book ........................ 218 187
Allowance for doubtful accounts and accruals ......... 532 579
Alternative minimum tax credits ...................... 941 1,087
Net operating loss carryforwards ..................... 640 877
------ ------
Total deferred tax assets .............................. $2,331 $2,730
------ ------
Net deferred tax liabilities over tax assets ........... $5,184 $4,061
====== ======
At December 31, 1996, the Company has federal net operating loss carryforwards
of $1,487 and state net operating loss carryforwards of $2,693 which expire from
2001 to 2010.
37
<PAGE>
Martin Color Fi, Inc.
Notes to Consolidated Financial Statements (continued)
(In Thousands Except Share Data)
9. Income Taxes (continued)
The Company's effective income tax rate differs from the U.S. statutory rate as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
---- ---- ----
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Tax expense at U.S.
statutory rate ................................. $2,324 34 $1,591 34 $141 34
State income taxes,
net of Federal benefit ......................... 78 1 91 2 10 2
Other ............................................ - - 42 1 53 13
------ -- ------ -- ---- --
$2,402 35 $1,724 37 $204 49
====== == ====== == ==== ==
</TABLE>
The following information reflects the components of the provision for income
taxes in 1996, 1995, and 1994:
Year Ended December 31,
1996 1995 1994
---- ---- ----
Income tax provision:
Current:
Federal $1,201 $ 753 $ 151
State 78 42 -
Deferred 1,123 929 53
------ ------ -----
$2,402 $1,724 $ 204
====== ====== =====
38
<PAGE>
Martin Color Fi, Inc.
Notes to Consolidated Financial Statements (continued)
(In Thousands Except Share Data)
10. Shareholders' Equity
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
In 1993, the Company adopted two stock option plans for the purpose of providing
incentives for retaining qualified and competent employees or for rewarding
employees for past performance.
The 1993 Incentive Stock Option and Stock Appreciation Rights Plan (the
"Qualified Plan"), permits the grant of options to purchase an aggregate of up
to 300,000 shares of common stock of the Company. The Qualified Plan also
provides for the granting of up to 300,000 stock appreciation rights ("SARs") in
tandem with stock options. Under the Qualified Plan, incentive stock options
(Incentive Stock Options qualify for special tax treatment under Section 422 of
the Internal Revenue Code of 1986, as amended), non-qualified options or SARs
may be issued at the discretion of the Stock Option Committee of the Board of
Directors. The Company also adopted the 1993 Non-Qualified Stock Option Plan
(the "Non-Qualified Plan"), which permits the grant of stock options to purchase
an aggregate of up to 16,000 shares of common stock of the Company (Stock
options issued under the Non-Qualified Plan do not qualify for favorable tax
treatment under Section 422 of the Internal Revenue Code of 1986).
Participants under these plans include employees, executive officers, key
employees and former employees of the Company. The per share exercise price of
each stock option issued under the Qualified Plan is not less than the fair
market value of the stock on the date of the grant, or in case of a shareholder
owning more than 10% of the outstanding stock of the Company, the price is not
less than 110% of such fair market value on the date of grant. The exercise
price of each stock option issued under the Non-Qualified Plan is not required
to be at the fair market value of the stock on the date of grant.
The 1994 Incentive Stock Option and Stock Appreciation Rights Plan was adopted
in 1994 and permits the grant of options to purchase an aggregate of up to
300,000 shares of common stock of the Company. All material features of this
plan are identical to the 1993 plan discussed above. No stock appreciation
rights have been granted under either plan as of December 31, 1996. The
following table summarizes stock option transactions during 1996 and 1995.
39
<PAGE>
<TABLE>
<CAPTION>
Martin Color Fi, Inc.
Notes to Consolidated Financial Statements (continued)
(In Thousands Except Share Data)
10. Shareholders' Equity (continued)
As of December 31, 1996 As of December 31, 1995
Option Price Option Price
Shares Range Shares Range
------ ----- ------ -----
<S> <C> <C> <C> <C>
Options outstanding at beginning
of period 244,500 $4.63 - $13.00 235,000 $8.25 - $13.00
Granted 163,500 $4.25 84,000 $4.63
Canceled (88,503) $4.25 - $13.00 (74,500) $9.00 - $13.00
Exercised (23,996) $4.25 - $4.65 - -
Options outstanding at end 295,501 $4.25 - $13.00 244,500 $4.63 - $13.00
of period
Options exercisable at end 184,789 $4.25 - $13.00 159,640 $4.63 - $13.00
of period
Options available for grant
at end of period 296,503 371,500
Weighted average fair value of
options granted during the year $2.72 $2.97
</TABLE>
Pro forma information regarding net income and earnings per share is required by
Statement 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1996
and 1995, respectively; risk-free interest rates of 5.75% for both years; no
dividend yield; volatility factors of the expected market price of the Company's
common stock of 0.43 for both years; and a weighted-average expected life of the
option of 7 years.
40
<PAGE>
Martin Color Fi, Inc.
Notes to Consolidated Financial Statements (continued)
(In Thousands Except Share Data)
10. Shareholders' Equity (continued)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):
1996 1995
---- ----
Pro forma net income $4,280 $2,910
Pro forma earnings per share $ 0.64 $ 0.44
The weighted-average remaining contractual life of those options is 6.1 years.
Shareholders' Agreement
The Company entered into a shareholders' agreement upon the effective date of
its initial public offering. All shares of the Corporation's stock owned by the
shareholders prior to and upon the effective date of the offering are considered
restricted shares. The transfer, pledge or sale of the shares is subject to the
terms of the agreement. The Company has the right of first refusal to purchase
the shares. If the Company does not exercise the option to purchase the offered
shares then the shareholder who desires to sell can sell the shares as permitted
by law.
41
<PAGE>
Martin Color Fi, Inc.
Notes to Consolidated Financial Statements (continued)
(In Thousands Except Share Data)
11. Geographic Sales Information
The Company's net sales by major geographic areas in 1996 and 1995 are as
follows:
1996 1995
---- ----
Domestic $105,876 $103,484
Foreign 8,540 13,486
-------- --------
$114,416 $116,970
======== ========
Net sales to customers outside of the United States in 1994 were not
significant.
12. Fair Values of Financial Instruments
The fair values of the Company's financial instruments at December 31, 1996
approximate the carrying values, except for the subordinated convertible note
payable due to former owners of Palmetto Spinning Corporation at a fixed rate of
interest of 5% (see Note 6). The fair value of this obligation is estimated to
be $3,011 based on a discounted cash flow analysis using the Company's current
borrowing rates for other borrowing arrangements tied to the market. The effect
on the market value of this obligation of the convertible feature of this
obligation was not practicable to determine.
42
<PAGE>
Martin Color Fi, Inc.
Notes to Consolidated Financial Statements (continued)
(In Thousands Except Share Data)
13. Contingent Liability
On March 16, 1995, the Company was served with a lawsuit by a shareholder
alleging violations of Federal securities laws and related state laws and
seeking an unspecified amount of damages. The shareholder requested to have the
case certified as a class action on behalf of other non-insider shareholders.
A definitive written settlement agreement has been reached with the class
plaintiff under which the Company's settlement liability is fixed at $2,000,000.
In exchange for a written release, the Company's insurance carrier has provided
$850,000 of this amount. By order dated March 12, 1997, the United States
District Court certified the class in the matter, appointed the class
plaintiffs' counsel as settlement administrator and gave preliminary approval to
the settlement. The settlement was funded by the Company on March 20, 1997.
Final settlement of the matter remains subject to final court approval.
At December 31, 1995, the Company accrued the estimated settlement amount, which
includes legal fees less insurance proceeds, as a liability. The Company's
portion of the settlement has been funded by bank debt.
43
<PAGE>
Schedule II
MARTIN COLOR-FI, INC.
Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Balance Additions
at Charged to Charged to Balance
Beginning Costs and Other at End
Classification of Period Expenses Accounts Deductions of Period
- -------------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful
accounts ............................ $150 $ 71 - ($ 71)(1) $ 150
==== ==== ======= ===== =====
Year ended December 31, 1995
Allowance for doubtful
accounts ............................ $200 $ 55 - ($ 105)(1) $ 150
==== ==== ======= ====== =====
Year ended December 31, 1994
Allowance for doubtful
accounts ............................ $ 86 $423 - ($ 309)(1) $ 200
==== ==== ======= ====== =====
</TABLE>
- ----------------------------
(1) Uncollectible accounts written off, net of recoveries.
44
<PAGE>
Summary of Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------
March 31 June 30 September 29 December 31 TOTAL
-------- ------- ------------ ----------- -----
(In thousands, except per share data)
1996
<S> <C> <C> <C> <C> <C>
Net sales ....................................... $ 25,623 $29,582 $31,521 $27,690 $114,416
Gross profit .................................... 3,703 5,367 7,589 6,304 22,963
Operating profit ................................ 941 2,536 4,193 3,267 10,937
Net income (loss) ............................... (75) 932 2,005 1,572 4,434
Net income (loss) per share ..................... (0.01) 0.14 0.30 0.24 0.67
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------
April 2 July 2 October 1 December 31 TOTAL
------- ------ --------- ----------- -----
(In thousands, except per share data)
1995
<S> <C> <C> <C> <C> <C>
Net sales ...................................... $34,746 $31,855 $27,230 $ 23,139 $116,970
Gross profit ................................... 6,108 6,653 4,947 3,997 21,705
Operating profit (loss) ........................ 2,970 3,938 2,211 (25) 9,094
Net income (loss) .............................. 1,041 1,791 742 (618) 2,956
Net income (loss) per share .................... 0.16 0.27 0.11 (0.09) 0.44*
</TABLE>
* The sum of quarterly net income (loss) per share-information is different from
annual net income per share-information due to rounding.
45
<PAGE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information contained under the captions "Election of Directors"
and "Executive Officers and other Key Employees" in the Company's Proxy
Statement for the 1997 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 30, 1997 and the
information regarding compliance within Section 16(a) of the Security Exchange
Act of 1934 under "Section 16(a) Beneficial Ownership Reporting Compliance" in
the 1997 Proxy Statement are hereby incorporated by reference herein.
Item 11. Executive Compensation
The information contained under the captions "Executive Compensation
and Other Information" and "Stock Option Plan" (page 8 through 12) in the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders to be
filed with the Securities and Exchange Commission on or before April 30, 1997 is
hereby incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained under the caption "Security Ownership of
Certain Beneficial Owners and Management" in the Company's Proxy Statement for
the 1997 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission on or before April 30, 1997 is hereby incorporated by
reference herein.
Item 13. Certain Relationships and Related Transactions
The information contained under the caption "Compensation and Stock
Option Committee Interlocks and Insider Participation" and "Certain
Relationships and Transactions" in the Company's Proxy Statement for the 1997
Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission on or before April 30, 1997 is hereby incorporated by reference
herein.
46
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
Consolidated statements of income for the years ended December 31,
1996, 1995 and 1994
Consolidated balance sheets at December 31, 1996 and 1995
Consolidated statements of shareholders equity for the years ended
December 31, 1996, 1995 and 1994
Consolidated statements of cash flows for the years ended December 31,
1996, 1995 and 1994
Notes to consolidated financial statements
Consolidated schedules for the years ended December 31, 1996, 1995 and
1994:
II - Valuation and qualifying accounts
2. Financial Statement Schedule
The financial statement schedule listed above to financial
statements is filed as part of this annual report. Supplemental
schedules other than the one listed above are omitted because of
the absence of conditions under which they are required or because
the required information is included in the consolidated financial
statements or in the notes thereto.
3. Exhibits
2.1 Agreement for Purchase and Sale of Assets from Buchanan
Industries, Inc. dated July 14, 1994, effective as of May 28, 1994
(incorporated by reference to Exhibit 2.1 to the Company's Report
on Form 10-Q for the period ended July 3, 1994 (the "1994 second
quarter 10-Q")).
2.2 Stock Purchase Agreement between the Company and Palmetto Spinning
Corporation, et al. dated June 13, 1994, effective as of May 31,
1994 (incorporated by reference to Exhibit 2.2 to the 1994 second
quarter 10-Q).
3.1 Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 of the Company's S-1 Registration
47
<PAGE>
Statement filed March 4, 1993, as amended, Registration No.
33-59124 ("the S-1 Registration Statement"))
3.2 First Amendment to Restated Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.2 of the S-1
Registration Statement).
3.3 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.3 of the S-1 Registration Statement).
3.4 First Amendment to Amended and Restated Bylaws of the Company
(incorporated by reference to Exhibit 4.5 to the 1994 second
quarter 10-Q).
10.1 Loan and Security Agreement dated July 14, 1994 between the
Company and NationsBank of South Carolina, N.A. (incorporated by
reference to Exhibit 10.1 to the Company's Report on Form 10-Q for
the period ended October 2, 1994 (the "1994 third quarter 10-Q")).
10.2 Revolving Loan and Promissory Note dated July 14, 1994 between the
Company and NationsBank of South Carolina, N.A. (incorporated by
reference to Exhibit 10.2 of the 1994 third quarter 10-Q).
10.3 Term Loan and Promissory Note dated July 14, 1994 between the
Company and NationsBank of South Carolina, N.A. (incorporated by
reference to Exhibit 10.3 of the 1994 third quarter 10-Q).
10.4 First Amendment to Loan Documents and Agreement dated as of
February 15, 1995 between the Company and its subsidiaries and
NationsBank, National Association (Carolinas), as successor to
NationsBank of South Carolina, N.A. (incorporated by reference to
Exhibit 10.4 of the 1994 third quarter 10-Q).
10.11 Lease for corporate offices (now the sales offices), Edgefield,
South Carolina, dated November 20, 1992 between the Company and
James F. Martin (incorporated by reference to Exhibit Number 10.13
of the S-1 Registration Statement).
10.14 Amended lease for corporate offices (now the sales offices),
Edgefield, South Carolina dated March 1, 1994 between the Company
and James F. Martin (incorporated by reference to Exhibit 10.21 of
the Company's Annual Report on Form 10-K for the year ended
December 31, 1993 (the "1993 10-K")).
10.15 1993 Incentive Stock Option and Stock Appreciation Rights Plan
(incorporated by reference to Exhibit 10.1 of the S-1 Registration
Statement).
10.16 Noncompetition Agreements between Registrant and U. Benjamin
Tanner, Samuel C. Stevens, Jr., Russell T. Lyon, Heyward C. Addy,
Henry M. Poston and James F. Martin (incorporated by reference to
Exhibit 10.21 of the S-1 Registration Statement).
48
<PAGE>
10.17 Form of Shareholder Tax Indemnity Agreement (incorporated by
reference Exhibit Number 10.22 of the S-1 Registration Statement).
10.18 1993 Non-Qualified Stock Option Plan of the Company (incorporated
by reference to Exhibit "A" of the S-8 Registration Statement
filed November 12, 1993).
10.19 Amended Corporate Buy-Sell Agreement dated January 31, 1994
(incorporated by reference to Exhibit 10.16 of the Company's 1993
10-K).
10.20 Employee 401(k) Profit Sharing Plan dated January 1, 1994
(incorporated by reference to Exhibit 10.17 of the 1993 10-K).
10.21 Employment Agreement dated July 14, 1994, between G. Robert
Buchanan and Buchanan Industries, Inc. (South Carolina)
(incorporated by reference to Exhibit 10.20 to the 1994 second
quarter 10-Q).
10.22 Employment Agreement dated July 13, 1994 between W. Fred Davis,
Jr. and Martin Color-Fi, Inc. (incorporated by reference to
Exhibit 10.19 to the 1994 second quarter 10-Q).
10.24 Lease for corporate office, Edgefield, South Carolina, dated
February 1, 1995, between the Company and Edgefield Properties,
Inc. (incorporated by reference to Exhibit 10.24 to the Company's
Report on Form 10-Q for the period ended April 2, 1995).
10.26 Amended and Restated Loan and Security Agreement dated August 9,
1995 between the Company and NationsBank of South Carolina, N.A.
(incorporated by reference to Exhibit 10.26 to the Company's
Report on Form 10-Q for the period ended July 2, 1995 (the "1995
second quarter 10-Q")).
10.27 Amended and Restated Revolving Credit Promissory Note dated August
9, 1995 between the Company and NationsBank of South Carolina,
N.A. (incorporated by reference to Exhibit 10.27 to the 1995
second quarter 10-Q).
10.28 Amended and Restated Term Loan Promissory Note dated August 9,
1995, between the Company and NationsBank of South Carolina, N.A.
(incorporated by reference to Exhibit 10.28 to the 1995 second
quarter 10-Q).
10.29 1994 Incentive Stock Option and Stock Appreciation Rights Plan
(incorporated by reference to the Proxy Statement filed in
connection with the Company's 1994 Annual Meeting of
Shareholders).
49
<PAGE>
10.30 Amendment to Employment Agreement dated July 14, 1994, between G.
Robert Buchanan and Buchanan Industries, Inc. (South Carolina),
dated December 14, 1995 (incorporated by reference to Exhibit
10.30 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 (the "1995 10-K").
10.31 Letter Agreement, dated October 25, 1996, Modifying Amended and
Restated Loan and Security Agreement, dated August 9, 1995, with
NationsBank, N.A. (incorporated by reference to Exhibit 10 to the
Company's Report on Form 10-Q for the period ended September 29,
1996).
10.32 Second Amended and Restated Loan and Security Agreement dated
December 16, 1996 between the Company and NationsBank, N.A.
10.33 Second Amended and Restated Revolving Credit Promissory Note dated
December 16, 1996 between the Company and NationsBank, N.A.
10.34 Second Amended and Restated Term Loan Promissory Note dated
December 16, 1996 between the Company and NationsBank, N.A.
10.35 Letter Agreement, dated February 18, 1997, Modifying Second
Amended and Restated Loan and Security Agreement, dated December
16, 1996, with NationsBank, N.A.
10.36 Third Amended and Restated Loan and Security Agreement, dated
March 27, 1997 between the Company and NationsBank, N.A.
10.37 1997 Term Loan Promissory Note, dated March 27, 1997 between the
Company and NationsBank, N.A.
21.1 Subsidiaries of Registrant (incorporated by reference to Exhibit
21.1 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
23.1 Consent of Ernst & Young LLP
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
50
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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, on March 24, 1997.
MARTIN COLOR-FI, INC.
\s\ James F. Martin
By: _________________________________________
JAMES F. MARTIN, Chief Executive Officer
\s\ Bret J. Harris
By: _________________________________________
BRET J. HARRIS, Chief Financial 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 in the capacities indicated on March 24, 1997.
Signatures Title
s/James F. Martin Chairman of the Board &
James F. Martin Chief Executive Officer
s/Henry M. Poston President, Chief Operating
Henry M. Poston Officer & Director
s/Gregory W. Anderson Corporate Counsel & Director
Gregory W. Anderson
s/Russell T. Lyon Director
Russell T. Lyon
s/W. Fred Davis, Jr. Director
W. Fred Davis, Jr.
s/James C. Hite Director
James C. Hite
s/Jack J. Jackson Director
Jack J. Jackson
s/George L. Rainsford Director
George L. Rainsford
s/Bettis C. Rainsford Director
Bettis C. Rainsford
* Principal Financial and Accounting Officer
51
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EXHIBIT INDEX
Exhibit Number Description
2.1 Agreement for Purchase and Sale of Assets from Buchanan
Industries, Inc. dated July 14, 1994, effective as of May 28, 1994
(incorporated by reference to Exhibit 2.1 to the Company's
original report on Form 10-Q for the period ended July 3, 1994
(the "1994 second quarter 10-Q")). *
2.2 Stock Purchase Agreement between the Company and Palmetto Spinning
Corporation, et al. dated June 13, 1994, effective as of May 31,
1994 (incorporated by reference to Exhibit 2.2 to the 1994 second
quarter 10-Q). *
3.1 Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 of the Company's S-1 Registration
Statement filed March 4, 1993, as amended, Registration No.
33-59124 ("the S-1 Registration Statement")) *
3.2 First Amendment to Restated Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.2 of the S-1
Registration Statement). *
3.3 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.3 of the S-1 Registration Statement). *
3.4 First Amendment to Amended and Restated Bylaws of the Company
(incorporated by reference to Exhibit 4.5 to the 1994 second
quarter 10-Q). *
10.1 Loan and security Agreement dated July 14, 1994 between the
Company and NationsBank of South Carolina, N.A. (incorporated by
reference to Exhibit 10.1 to the Company's Report on Form 10-Q for
the period ended October 2, 1994 (the "1994 third quarter 10-Q")).
*
10.2 Revolving Loan and Promissory Note dated July 14, 1994 between the
Company and NationsBank of South Carolina, N.A. (incorporated by
reference to Exhibit 10.2 of the 1994 third quarter 10-Q). *
10.3 Term Loan and Promissory Note dated July 14, 1994 between the
Company and NationsBank of South Carolina, N.A. (incorporated by
reference to Exhibit 10.3 of the 1994 third quarter 10-Q). *
10.4 First Amendment to Loan Documents and Agreement dated as of
February 15, 1995 between the Company and its subsidiaries and
NationsBank, National Association (Carolinas), as successor to
NationsBank of South Carolina, N.A. (incorporated by reference
52
<PAGE>
to Exhibit 10.4 of the 1994 third quarter 10-Q). *
10.11 Lease for corporate offices (now the sales offices), Edgefield,
South Carolina, dated November 20, 1992 between the Company and
James F. Martin (incorporated by reference to Exhibit Number 10.13
of the S-1 Registration Statement). *
10.14 Amended lease for corporate offices (now the sales offices),
Edgefield, South Carolina dated March 1, 1994 between the Company
and James F. Martin (incorporated by reference to Exhibit 10.21 of
the Company's Annual Report on Form 10-K for the year ended
December 31, 1993 (the "1993 10-K")). *
10.15 1993 Incentive Stock Option and Stock Appreciation Rights Plan
(incorporated by reference to Exhibit 10.1 of the S-1 Registration
Statement). *
10.16 Noncompetition Agreements between Registrant and U. Benjamin
Tanner, Samuel C. Stevens, Jr., Russell T. Lyon, Heyward C. Addy,
Henry M. Poston and James F. Martin (incorporated by reference to
Exhibit 10.21 of the S-1 Registration Statement). *
10.17 Form of Shareholder Tax Indemnity Agreement (incorporated by
reference Exhibit Number 10.22 of the S-1 Registration Statement).
*
10.18 1993 Non-Qualified Stock Option Plan of the Company (incorporated
by reference to Exhibit "A" of the S-8 Registration Statement
filed November 12, 1993). *
10.19 Amended Corporate Buy-Sell Agreement dated January 31, 1994
(incorporated by reference to Exhibit 10.16 of the Company's 1993
10-K). *
10.20 Employee 401(k) Profit Sharing Plan dated January 1, 1994
(incorporated by reference to Exhibit 10.17 of the 1993 10-K). *
10.21 Employment Agreement dated July 14, 1994, between G. Robert
Buchanan and Buchanan Industries, Inc. (South Carolina)
(incorporated by reference to Exhibit 10.20 to the 1994 second
quarter 10-Q). *
10.22 Employment Agreement dated July 13, 1994 between W. Fred Davis,
Jr. and Martin Color-Fi, Inc. (incorporated by reference to
Exhibit 10.19 to the 1994 second quarter 10-Q). *
10.24 Lease for corporate office, Edgefield, South Carolina, dated
February 1, 1995, between the Company and Edgefield Properties,
Inc. (incorporated by reference to Exhibit 10.24 to the Company's
Report on Form 10-Q for the period ended April 2, 1995). *
10.26 Amended and Restated Loan and Security Agreement dated August 9,
1995 between the Company and NationsBank of South Carolina, N.A.
(incorporated by reference to Exhibit 10.26 to the Company's
Report
53
<PAGE>
on Form 10-Q for the period ended July 2, 1995 (the "1995 second
quarter 10-Q")). *
10.27 Amended and Restated Revolving Credit Promissory Note dated August
9, 1995 between the Company and NationsBank of South Carolina,
N.A. (incorporated by reference to Exhibit 10.27 to the 1995
second quarter 10-Q). *
10.28 Amended and Restated Term Loan Promissory Note dated August 9,
1995, between the Company and NationsBank of South Carolina, N.A.
(incorporated by reference to Exhibit 10.28 to the 1995 second
quarter 10-Q). *
10.29 1994 Incentive Stock Option and Stock Appreciation Rights Plan
(incorporated by reference to the Proxy Statement filed in
connection with the Company's 1994 Annual Meeting of
Shareholders.) *
10.30 Amendment to Employment Agreement dated July 14, 1994, between G.
Robert Buchanan and Buchanan Industries, Inc. (South Carolina),
dated December 14, 1995 (incorporated by reference to Exhibit
10.30 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 (the "1995 10-K"). *
10.31 Letter Agreement, dated October 25, 1996, Modifying Amended and
Restated Loan and Security Agreement, dated August 9, 1995, with
NationsBank, N.A. (incorporated by reference to Exhibit 10 to the
Company's Report on Form 10-Q for the period ended September 29,
1996). *
10.32 Second Amended and Restated Loan and Security Agreement dated
December 16, 1996 between the Company and NationsBank, N.A.
Attached
10.33 Second Amended and Restated Revolving Credit Promissory Note dated
December 16, 1996 between the Company and NationsBank, N.A.
Attached
10.34 Second Amended and Restated Term Loan Promissory Note dated
December 16, 1996 between the Company and NationsBank, N.A.
Attached
10.35 Letter Agreement, dated February 18, 1997, Modifying Second
Amended and Restated Loan and Security Agreement, dated December
16, 1996, with NationsBank, N.A. Attached
10.36 Third Amended and Restated Loan and Security Agreement, dated
March 27, 1997 between the Company and NationsBank, N.A. Attached
10.37 1997 Term Loan Promissory Note, dated March 27, 1997 between the
Company and NationsBank, N.A. Attached
21.1 Subsidiaries of Registrant (incorporated by reference to Exhibit
21.1 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994). *
23.1 Consent of Ernest & Young LLP. Attached
27 Financial Data Schedule. Attached
(b) Reports on Form 8-K
None.
* Incorporated by reference
54
EXHIBIT 10.32
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Executed to be effective as of December 16, 1996
by and between
MARTIN COLOR-FI, INC., STAR FIBERS CORP.,
CUSTOM COLORANTS, INC., BUCHANAN INDUSTRIES, INC.,
PALMETTO SPINNING CORPORATION
AND
NATIONSBANK, N.A.
AS SUCCESSOR TO NATIONSBANK, NATIONAL ASSOCIATION (CAROLINAS)
AND NATIONSBANK OF SOUTH CAROLINA, N.A.
THIS AGREEMENT IS SUBJECT TO THE FEDERAL
ARBITRATION ACT AND THE SOUTH CAROLINA ARBITRATION
ACT SECTION 15-48-10, ET. SEQ. CODE OF LAWS OF
SOUTH CAROLINA 1976 AS AMENDED
55
<PAGE>
TABLE OF CONTENTS
Preliminary Statement..........................................................1
1. DEFINITIONS
1.1. Defined Terms................................................2
1.2. Other Definitional Provisions...............................11
2. THE REVOLVING CREDIT LOAN
2.1. General Terms of the Revolving Credit Loan..................11
2.2. Disbursements of the Revolving Credit Loan..................12
2.3. The Revolving Credit Note...................................12
2.4. Adjustments to Revolving Credit Loan Amount.................12
2.5. Margin Requirements under the Revolving Credit Loan.........12
2.6. Termination of the Revolving Credit Loan....................13
2.7. Fees........................................................13
2.8. Conditional Consent to Inclusion of Assets
of any Approved Subsidiary.................................13
2.9. Account Warranties..........................................13
2.10. Lock Box/Collateral Account.................................14
2.11. Documentation and Security for Revolving Credit Loan........14
2.12. Disbursement to MCF.........................................14
2.13. Verification of Accounts....................................15
3. TERM LOAN
3.1. Term Loan Terms.............................................15
3.2. Repayment of Term Loan......................................15
3.3. Balance.....................................................15
4. CONDITIONS FOR DISBURSEMENTS AND OTHER AGREEMENTS
4.1. Conditions Precedent to Disbursements.......................15
4.1.1. Loan Documents.....................................16
4.1.2. Lessor's Waivers/Mortgage's Waivers................16
4.1.3. Wachovia Participation.............................16
4.1.4. Authority Documents................................16
4.1.5. Attorney's Opinion.................................16
4.1.6. Miscellaneous......................................16
4.1.7. No Defaults........................................16
4.1.8. Draw Request.......................................17
4.2. Payment to Bank.............................................17
4.3. Risk of Loss................................................17
1-1
4.4. Waivers.....................................................17
4.5. Intangible Taxes............................................17
5. ADDITIONAL COLLATERAL SECURITY
5.1. Nature of Collateral........................................17
5.2. Rights in Property Held by Bank.............................17
5.3. Rights in Property Held by Borrowers........................18
5.4. Financing Statements........................................18
56
<PAGE>
6. REPRESENTATIONS AND WARRANTIES.
6.1. Original....................................................18
6.2. Survival....................................................23
7. BORROWERS' COVENANTS
7.1. Affirmative Covenants.......................................23
7.2. Negative Covenants..........................................27
7.3. Agreements, Representations and Covenants
of Any Approved Subsidiary.................................29
7.4. Additional Covenants........................................29
8. BANK'S RIGHTS
8.1 Appraisal...................................................29
8.2. Remedies Cumulative; Nonwaiver..............................29
8.3. No Liability of Bank........................................29
8.4. Environmental Assessments...................................30
8.5. Audits......................................................30
9. DEFAULT.
9.1. Events of Default...........................................30
9.2. Acceleration................................................32
9.3. Remedies after Acceleration.................................32
9.4. Remedies Alternative to Acceleration........................33
10. MISCELLANEOUS
10.1. Construction................................................33
10.2. Further Assurances..........................................33
10.3. Enforcement and Waiver......................................33
10.4. Bank's Expenses.............................................34
10.5. Notices.....................................................34
10.6. Waiver and Release by Borrowers.............................34
10.7. Participation...............................................34
57
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1-2
10.8. Governing Law...............................................35
10.9. Amendment Agreement.........................................35
10.10. Assignment..................................................35
10.11. Benefit; Binding............................................35
10.12. Severability................................................35
10.13. Counterparts................................................35
10.14. Entire Agreement............................................35
10.15. Arbitration.................................................35
10.16. Amendment and Restatement...................................36
LIST OF EXHIBITS AND SCHEDULES
EXHIBIT 2-2 - Form of Collateral Certificate
EXHIBIT 2-3 - Form of Monthly Borrowing Base Certificate
Schedule 6-1(a) - List of Jurisdictions
Schedule 6-1(h) - List of Indebtedness
Schedule 6-1(s) - List of Collateral Locations
Schedule 6-1(t) - List of Trade Names
1-3
58
<PAGE>
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (the
"Agreement") made and entered to be effective as of this 16th day of December,
1996 by and between MARTIN COLOR-FI, INC. ("MCF"), a South Carolina corporation,
STAR FIBERS CORP., a South Carolina special purpose corporation and wholly-owned
subsidiary of MCF ("Star Fibers"), CUSTOM COLORANTS, INC., a South Carolina
corporation and wholly-owned subsidiary of MCF ("CC"), BUCHANAN INDUSTRIES,
INC., a South Carolina corporation and wholly-owned subsidiary of MCF ("BI"),
and PALMETTO SPINNING CORPORATION, a South Carolina corporation and wholly-owned
subsidiary of MCF ("PS"). (MCF, Star Fibers, CC, BI and PS are individually or
collectively, as the context requires, referred to as the "Borrower" or
"Borrowers") and NATIONSBANK, N.A., as successor to NATIONSBANK, NATIONAL
ASSOCIATION (CAROLINAS) and NATIONSBANK OF SOUTH CAROLINA, N.A., a federally
chartered banking association ("Bank").
PRELIMINARY STATEMENT.
A. Borrowers have requested Bank to continue to extend credit to
Borrowers in the principal amount of up to $25,000,000 on a revolving loan basis
(the "Revolving Credit Loan"), the proceeds of which will be used (i) to satisfy
Borrowers' working capital needs; (ii) to issue letters of credit in the
aggregate principal amount outstanding at any one time not to exceed $750,000;
(iii) to pay, on a one-time basis, the cost of settlement by MCF of that certain
lawsuit captioned Georgallos v. Martin Color- Fi, Inc. and James F. Martin in an
amount not to exceed $1,150,000 and (iv) to pay Bank approved soft costs
incurred by Borrowers in connection with the making and the closing of
modifications to the Revolving Credit Loan.
B. Borrowers also have requested Bank to continue to extend to Borrowers
on a cumulative line of credit/term loan basis in the principal amount of
$36,310,000.00, the proceeds of which have been (i) to satisfy existing term
indebtedness of MCF and Star Fibers in the approximate amount of $21,310,000.00;
(ii) to purchase the assets of Palmetto Spinning Corporation and Buchanan
Industries, Inc. in the approximate, aggregate amount of $6,000,000.00; (iii) to
finance fiscal year 1994 capital expenditures of Borrowers in the approximate
amount of $3,000,000.00; (iv) to finance fiscal year 1995 capital expenditures
and equipment purchases in an amount not to exceed $3,000,000.00; (v) to finance
fiscal year 1996 capital expenditure and equipment purchases in an amount not to
exceed $3,000,000.00; and (vi) to pay Bank approved soft costs incurred by
Borrowers in connection with the making and the closing of the modifications
Term Loan.
C. Bank has agreed to continue to extend to Borrowers the Revolving
Credit Loan and the Term Loan pursuant to the terms and conditions of this
Agreement.
D. The Loans (as defined below) were extended to Borrowers pursuant to
(i) that certain Loan and Security Agreement dated July 14, 1994 as previously
amended pursuant to that certain First Amendment to Loan Documents and Agreement
dated February 15, 1995 by and between Borrowers and Bank and that certain
Second Amendment to Loan Documents and Agreement dated April 7, 1995; and (ii)
that certain Amended and Restated Loan and Security Agreement dated August 9,
1995, as subsequently amended by other certain letter modification agreements
dated December 18, 1995, February 12, 1996 and October 25, 1996 and
respectively.
59
<PAGE>
NOW, THEREFORE, Borrowers and Bank agree as follows:
I. DEFINITIONS.
1.1. DEFINED TERMS. As used herein:
"Adjusted LIBOR" means a rate per annum equal to the quotient obtained
(rounded upwards, if necessary, to the next higher 1/100ths of one percent) by
dividing (i) LIBOR by (ii) one minus the LIBOR Reserve Percentage.
"Account Debtor" shall mean any Person who is obligated on or under any
Account.
"Accounts" shall mean any of the Borrowers' presently existing and
hereafter arising or acquired accounts, accounts receivable, margin accounts,
futures positions, book debts, instruments, notes, drafts, acceptances, chattel
paper, and other forms of obligations now or hereafter owned or held by or
payable to any of the Borrowers relating in any way to Inventory or arising from
the sale of Inventory or the rendering of services by any of the Borrowers or
howsoever otherwise arising, including the right to payment of any interest or
finance charges with respect thereto, together with all merchandise represented
by any of the Accounts; all such merchandise that may be reclaimed or
repossessed or returned to any of the Borrowers; all of the Borrowers' rights as
an unpaid vendor, including stoppage in transit, reclamation, replevin, and
sequestration; all pledged assets and all letters of credit, guaranty claims,
liens, and security interests held by or granted to any of the Borrowers to
secure payment of any Accounts; all proceeds and products of all of the
foregoing described properties and interests in properties; and all proceeds of
insurance with respect thereto, including the proceeds of any applicable credit
insurance or fidelity bond, whether payable in cash or in kind; and all ledgers,
books of account, records, computer programs, computer disks or tape files,
computer printouts, computer runs, and other computer prepared information
relating to any of the foregoing.
"Affiliate" shall mean any Person (as hereinafter defined) (i) that
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with any of the Borrowers, including,
without limitation, the officers and directors of any of the Borrowers (ii) that
directly or beneficially owns or holds 5% or more of any equity interest in any
of the Borrowers, or (iii) 5% or more of whose voting stock (or in the case of a
Person which is not a corporation, 5% or more of any equity interest) is owned
directly or beneficially by any of the Borrowers. As used herein, the term
"control" shall mean possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through ownership of securities, by contract or otherwise.
"Approved Subsidiary" or "Approved Subsidiaries" shall mean the
individual or collective reference as the context requires to any wholly-owned
subsidiary of MCF acceptable to Bank in its sole discretion.
"Assignment of Contracts" means the Assignment of Contracts in form and
content acceptable to Bank executed by Borrowers as of July 14, 1994 providing
to Bank a perfected, first priority assignment of all Borrowers' contracts, as
amended or modified.
"Assignment of Lease" means the Assignment of Leases in form and content
acceptable to Bank executed by Star Fibers as of July 14, 1994 providing to Bank
a perfected, first priority security interest and assignment of all leases
related to the Star Fibers Property, as amended or modified.
"Business Day" shall mean any day other than Saturday, Sunday or other
day on which banks in Columbia, South Carolina are authorized or required to be
closed.
60
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"Chattel Paper," "Contracts," "Documents," "General Intangibles,"
"Goods," "Instruments" and "Proceeds" shall have the same respective meanings as
are given to those terms in the Secured Transactions chapter of the Uniform
Commercial Code as adopted by the State of South Carolina.
"Closing Date" shall mean the date as of which this Agreement is executed
by Borrowers and Bank.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Collateral" shall mean, collectively, all real or personal property on
which a lien is placed or in which a security interest is granted to secure the
Loans pursuant to this Agreement or pursuant to any of the other Loan Documents
which includes all assets of Borrowers.
"Collateral Account" shall mean that certain account established and
maintained pursuant to section 2.10 hereof and any substitute accounts therefor
or replacement accounts thereof;
"Collateral Certificate" shall mean the weekly collateral certificate
delivered by Borrower to Bank pursuant to sections 2.2 and 7.1(k) of this
Agreement substantially in the form attached hereto as Exhibit 2-2, as such
certificate may be amended from time to time.
"Commitment Letter" shall mean Bank's commitment letter dated November
25, 1996 the terms of which are incorporated herein by reference, but to the
extent of any conflict between the terms of this Agreement or Loan Documents and
the Commitment Letter, the terms of this Agreement or the Loan Documents shall
control.
"Dalton Property" shall mean that certain real property more particularly
described on Exhibit A-1 to the Security Agreement, and all improvements located
or to be located thereon.
"Debt Service Ratio" shall mean, for the period in question, the ratio of
(net income after taxes plus depreciation plus amortization plus interest
expense plus non-cash expenditures less dividends) TO (prior year's current
maturities of long term debt plus interest expense plus net capital expenditures
that are not financed under financing arrangements acceptable to Bank in its
sole discretion), all computed in accordance with GAAP. The "Income Recapture
Payment" as required in section 3.2 of this Agreement and in the Term Note shall
not be included in the definition of "prior year's current maturities and
long-term debt" for purposes of calculating the Debt Service Ratio
"Default Condition" shall mean the occurrence or existence of an event or
condition which, upon the giving of notice or the passage of time, or both,
would constitute an Event of Default.
"Determination Date" shall mean the first Business Day of each calendar
month.
"Dollars" and "$" shall mean dollars and lawful currency of the United
States of America.
"Edgefield Property" shall mean the real property more particularly
described on Exhibit A-2 to the Security Agreement, and all improvements located
or to be located thereon.
"Elkhart Property" shall mean the real property more particularly
described on Exhibit A-3 to the Security Agreement, and all improvements located
or to be located thereon.
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"Eligible Accounts Receivable" shall mean Accounts, Instruments,
Documents, Chattel Paper, Contracts, and General Intangibles from customers of
Borrowers or any Approved Subsidiary in which Bank has a perfected first
priority security interest subject to Bank's credit approvals thereof other than
the following: (i) Accounts which remain unpaid ninety (90) days after the date
of the applicable invoice; (ii) Accounts with respect to which the Account
Debtor is an Affiliate of any of the Borrowers, or a director, officer or
employee of any of the Borrowers; (iii) Accounts with respect to which the
Account Debtor is the United States of America or any department, agency or
instrumentality thereof, unless filings in accordance with the Assignment of
Claims Act have been completed and filed in a manner satisfactory to the Agent
or, as to any government contract entered into after the date of this Agreement,
concurrently with the execution and delivery of that government contract; (iv)
Accounts with respect to which the Account Debtor is not a resident of the
United States or Canada except if such Accounts (1) are secured by irrevocable
trade letter(s) of credit in form and content acceptable to Bank and confirmed
by a United States financial institution acceptable to Bank, (2) are secured by
standby letters of credit with an expiration of date of at least one hundred
twenty (120) days from the date of shipment confirmed by United States Bank
acceptable to Bank and otherwise in form and content acceptable to Bank, or (3)
are insured by a company acceptable to Bank, which insurance covers business and
political risk; (v) Accounts arising with respect to goods which have not been
shipped and delivered to and accepted as satisfactory by the Account Debtor or
arising with respect to services which have not been fully performed and
accepted as satisfactory by the Account Debtor; (vi) Accounts for which the
prospect of payment in full or performance in a timely manner by the Account
Debtor is or is likely to become impaired as determined by the Bank in its
reasonable discretion; (vii) Accounts which are not invoiced (and dated as of
the date of such invoice) and sent to the Account Debtor within fifteen (15)
days after delivery of the underlying goods to, or performance of the underlying
services for, the Account Debtor; (viii) Accounts with respect to which Bank
does not have a first and valid fully perfected security interest; (ix) Accounts
with respect to which the Account Debtor is the subject of bankruptcy or a
similar insolvency proceeding or has made an assignment for the benefit of
creditors or whose assets have been conveyed to a receiver or trustee, except if
Bank is delivered evidence acceptable to Bank as to the collectability in the
normal course of business of such Accounts; (x) Accounts with respect to which
the Account Debtor's obligation to pay the Account is conditional upon the
Account Debtor's approval or is otherwise subject to any repurchase obligation
or return right, as with sales made on a bill-and-hold, guaranteed sale,
sale-and-return, sale on approval (except with respect to Accounts in connection
with which Account Debtors are entitled to return Inventory solely on the basis
on the quality of such
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Inventory) or consignment basis; (xi) Accounts with respect to which the Account
Debtor is located in Minnesota unless the applicable Borrower has filed a Notice
of Business Activities Report with the Secretary of State of Minnesota for the
then current year; (xiv) all Accounts of any Account Debtor if twenty-five
percent (25.0%) or more of all Accounts of such Account Debtor have ceased to be
Eligible Accounts Receivable; and (xii) Accounts with respect to which the
Account Debtors are residents of Canada to the extent the aggregate sum exceeds
$750,000.00. The approvals of Account Debtors and Accounts shall be for Bank
purposes only and shall not constitute any representation by Bank as to the
credit worthiness of any such Account Debtor or the advisability or
profitability of doing business with such Account Debtor.
"Eligible Inventory" shall mean Inventory (but not including prepaid
Inventory) which the Bank reasonably determines to meet all of the following
requirements: (a) such Inventory (i) is owned by one of the Borrowers; (ii) is
subject to a perfected, first priority security interest in favor of Bank; and
(iii) is subject to no other lien or encumbrance whatsoever other than Permitted
Liens; (b) such Inventory is in good condition and meets all standards imposed
by any governmental agency, or department or division thereof, having regulatory
authority over such goods, their use or sale; (c) such Inventory is currently
either usable or salable in the normal course of the businesses of Borrowers;
(d) such Inventory is located at one of the locations set forth in this
Agreement; (e) such Inventory is located within the continental United States;
and (f) such Inventory is not determined by Bank in good faith to be ineligible
for any other reason.
"Environmental Laws" shall mean any and all foreign, federal, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, requirements of any Governmental Authority or requirements of
law (including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment,
as now or may anytime hereafter be in effect.
"Equipment" shall mean all furniture, fixtures, equipment, apparatus,
motor vehicles, tractors, rolling stock, fittings and other tangible personal
property (other than Inventory) of every kind and description used in any of the
Borrowers' business operations or owned by any of the Borrowers and all proceeds
and products thereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Event of Default" shall mean the occurrence of any event specified in
section 9 hereof or as set forth in any of the other Loan Documents.
"Financing Statements" shall mean the Uniform Commercial Code financing
statements executed and delivered by all of the Borrowers, as debtors, naming
Bank, as secured party, to be filed in the applicable recording offices any
jurisdiction (State and County) that Borrowers conduct business or where
collateral is located.
"Funded Debt" shall mean (i) Indebtedness, including Subordinated
Indebtedness, for borrowed money or Indebtedness for the deferred purchase price
of property or services, (ii) obligations evidenced by bonds, notes, debentures
or other similar instruments, and (iii) obligations as lessee under leases which
have been or should be, in accordance with GAAP, recorded as capital leases.
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"Funded Debt Ratio" shall mean the ratio, for the period in question, of
Funded Debt to (earnings before interest, taxes, depreciation and amortization),
computed in accordance with GAAP.
"GAAP" shall mean generally accepted accounting principals in the United
States of America in effect from time to time, applied on a consistency basis.
"Governmental Authority" shall mean any nation or government, any state
or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Indebtedness" shall mean, as to Borrowers, and any Approved Subsidiary,
all items of indebtedness, obligation, or liability thereof, whether matured or
unmatured, liquidated or unliquidated, direct or contingent, joint or several,
and interest due thereon and costs due in connection therewith.
"Indemnification Agreement" shall mean that certain Indemnification
Agreement executed by and among inter alia Cookson America, Inc., S.F.
Liquidation, Inc. and Federal Pacific Electric Company (whose obligations are
guaranteed by Reliance Electric Company) related to the Star Fibers Property.
"Interest Period" shall mean each period of time commencing on a
Determination Date and ending the day before the next successive Determination
Date.
"Inventory" shall have the same meaning as is given to that term in the
Secured Transactions chapter of the Uniform Commercial Code as adopted by South
Carolina, S.C. Code Ann. 36-9-109 (4) (1976), and shall include customer
returns, manufacturers' trade-ins, and repossessions from customers, except
"inventory" does not include any hazardous or toxic substance, by- product,
waste, or other material.
"Land" or "Lands" shall mean, individual or collective references to
those parcels of real property more particularly described in Exhibits A-1
through A-6 to the Security Agreement and the Whitecrest Land.
"Laurens Property" shall mean that certain real property more
particularly described on Exhibit A-4 to the Security Agreement, and all
improvements located or to be located thereon.
"Laws" shall mean all ordinances, statutes, regulations, orders,
injunctions, writs, or decrees of any governmental or political subdivision or
agency thereof, or any court or similar entity established by any thereof.
"Leverage Ratio" shall mean the ratio of (total liabilities less
Subordinated Indebtedness) TO (Tangible Net Worth plus Subordinated
Indebtedness), as computed in accordance with GAAP.
"LIBOR" shall mean, for each Interest Period, (i) the arithmetic mean
(rounded upwards, if necessary, to the nearest 1/100th of one percent) of the
90-day London Interbank Offered Rates for U. S. Dollar deposits appearing on the
Reuters Screen LIBOR page (or such other display as may replace such page on the
Reuter's Screen) as of 11:00 a.m. London time on the Determination Date included
in such Interest Period, or (ii) if no such rate appears on the Reuters Screen
LIBOR page on such Determination Date, LIBOR will be the arithmetic average
(rounded upward, if necessary, to the next higher 1/100th of one percent) of
rates quoted by not less than two major banks in New York City, selected by the
Bank at approximately 10:00 a.m., Columbia, South Carolina time on such
Determination Date for deposits in U.S. Dollars offered to leading European
Banks, or (iii) if none of the above methods for determining LIBOR shall be
available, a rate determined by a substitute method of determination agreed on
by Borrower and Bank; provided, if such agreement is not reached within a
reasonable period of time (in Bank's judgment), a rate reasonably determined by
Bank as a rate being paid, as of each Determination Date, by first class banking
organizations (as determined by Bank) in the London interbank market for U. S.
Dollar deposits.
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"LIBOR Reserve Percentage" means the maximum aggregate rate at which
reserves (including, without limitation, any marginal, supplemental or emergency
reserves) are required to be maintained under Regulation D by member banks of
the Federal Reserve System with respect to dollar funding in the London
interbank market. Without limiting the effect of the foregoing, the LIBOR
Reserve Percentage shall reflect any other reserves required to be maintained by
such member banks by reason of any applicable regulatory change against (i) any
category of liability which includes deposits by reference to which the Adjusted
LIBOR is to be determined or (ii) any category of extensions or credit or other
assets related to LIBOR.
"Loan" or "Loans" shall mean the individual or collective reference, as
the content requires, to the Revolving Credit and the Term Loan.
"Loan Documents" shall mean the collective reference to this Agreement,
the Notes, the Mortgages, the Security Agreements, the Assignment of Leases,
Assignment of Contracts, the Financing Statements, the Swap Agreement, and any
other documents or instruments executed in connection with the Loans.
"Material Environmental Amount" shall mean an amount payable by any of
the Borrowers in excess of $100,000.00 for remedial costs, compliance costs,
compensatory damages, punitive damages, fines, penalties or any combination of
these.
"Materials of Environmental Concern" shall mean any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or waste, defined or regulated as such
in or under any Environmental Law (including, without limitation, asbestos,
polychlorinated biphenyls and ureaformaldehyde insulation.
"Monthly Borrowing Base Certificate" shall mean the borrowing base
certificate submitted by Borrower to Bank pursuant to sections 2.2 and 7.1(k) of
this Agreement, substantially in the form attached hereto as Exhibit 2-3, as the
same may be amended from time to time.
"Mortgage" or "Mortgages" shall mean the individual or collective
reference as the context requires to those certain mortgages, deeds to secure
debt, deeds of trust or other documents executed by the applicable Borrower
pursuant to which Bank is granted a title- insured, first priority lien on the
Properties, as may be amended or modified.
"Multiemployer Plan" shall mean a Plan which is a Multiemployer Plan as
defined in Section 4001(a)(3) of ERISA.
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"Notes" shall mean and refer to, collectively, the Revolving Credit Note,
the Term Note, the and any other notes as may be outstanding from time to time,
under this Agreement, which are properly executed, completed, and delivered to
Bank, as the same may be amended from time to time, and all other notes
delivered in substitution, addition, or exchange for any thereof.
"Obligations" means the joint and several obligations of Borrowers: (a)
to pay the principal of and interest on the Notes in accordance with the terms
thereof, to reimburse Bank for Bank's expenses pursuant to section 10.4, and to
satisfy all of its other obligations to Bank whether hereunder or otherwise,
whether now existing or hereafter incurred, matured or unmatured, direct or
contingent, joint or several, including any extensions, modifications, or
renewals thereof; (b) to repay Bank all amounts advanced hereunder or otherwise
on behalf of Borrowers, including without limitation advances for principal or
interest to prior secured parties, mortgagees, or lienors, or for taxes, levies,
rent, insurance, repairs to or maintenance or storage of any of the Collateral;
and (c) to reimburse Bank, on demand, for all of Bank's expenses and costs,
including the reasonable fees and expenses of its counsel, in connection with
any proceeding brought to enforce payment of any of the obligations referred to
in the foregoing paragraph (a) or (b) or otherwise in connection with the
enforcement or maintenance of the Loans.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Permitted Encumbrances" shall mean all existing encumbrances against any
of the Collateral, including the Properties, specifically approved by Bank in
writing which include the encumbrances set forth in Exhibit B's to the
Mortgages.
"Person" shall mean an individual, any entity, or government or political
subdivision or agency thereof, as may be appropriate.
"Plan" shall mean at a particular time, any employee benefit plan which
is covered by ERISA and in respect of which Borrower is (or if such Plan were
terminated at such time, would be under Section 4069 of ERISA deemed) an
"Employer" as defined in Section 3(5) of ERISA.
"Properties" shall mean the collective reference to the Dalton Property,
the Edgefield Property, the Elkhart Property, the Laurens Property, the Star
Fibers Property, the Sumter Property and the Whitecrest Property.
"Reportable Event" shall mean any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty (30) day notice
period is waived under Subsection .13, .14, .16, .18, .19 or .20 of PBGC Reg.
ss. 2615.
"Revolving Credit Loan" shall mean the revolving credit loan in the
maximum principal amount of up to $25,000,000.00 pursuant to the terms of and as
more particularly set forth in Article 2 of this Agreement.
"Revolving Credit Loan Documents" shall mean and refer to, collectively,
all those certain documents and instruments executed in connection with the
Revolving Credit Loan including this Agreement, the Revolving Credit Note, the
Mortgages, the Security Agreements, the Assignment of Leases, Assignment of
Contracts, Financing Statements and any other documents executed in connection
with the Revolving Credit Loan as such documents and instruments may be amended,
substituted or renewed from time to time.
"Revolving Credit Note" shall mean and refer to that certain second
amended and restated revolving credit promissory note in the original principal
amount of up to $25,000,000.00 dated as of the Closing Date executed by
Borrowers in favor of Bank evidencing the Revolving Credit Loan which is an
amendment and restatement of that certain Revolving Credit Note in the original
principal amount of $28,000,000 dated as of July 14, 1994 and that certain
Amended and Restated Revolving Credit Promissory Note in the original principal
amount of $25,000,000 dated as of August 9, 1995 as the same may be amended,
renewed or substituted from time to time.
"Security Agreement" or "Security Agreements" shall mean the individual
or collective reference as the context requires to those certain security
agreements executed by the Borrowers pursuant to which Bank is granted a
perfected, first priority security interest in all personal property of
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Borrowers, now owned or hereafter acquired and wherever located, including,
Accounts, Inventory and Equipment, as may be amended, modified, or restated from
time to time.
"Single Employer Plan" shall mean any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.
"Star Fibers Property" shall mean that certain real property more
particularly described on Exhibit A-5 to the Security Agreement, and all
improvements located or to be located thereon.
"Subordinated Debt" shall mean Subordinated Indebtedness of MCF owed to
(a) William Fred Davis, Jr., Mary Brown Davis, Natalie Lynn Davis and William
Fred Davis, Jr., as Custodian for Shelly Leigh Davis, a Minor, and (b) Buchanan
Industries, Inc., a Georgia corporation, its shareholders or their successors
and assigns.
"Subordinated Indebtedness" shall mean all Indebtedness incurred at any
time by any of the Borrowers and owed to Affiliates of Borrowers any other
Indebtedness required to be subordinated by Bank pursuant to subordination
agreements acceptable to Bank.
"Sumter Property" shall mean that certain real property more particularly
described on Exhibit A-6 to the Security Agreement, and all improvements located
or to be located thereon.
"Swap Agreement" shall mean any swap agreement executed by the Borrowers
and a provider of an interest rate swap, the form, terms and provider of such
agreement to be in form and content acceptable to Bank, pursuant to which
Borrowers "swap" all or a portion of the risk associated with the variable
interest rates provided for under the Notes with a fixed rate, as such agreement
may be amended or modified from time to time.
"Tangible Net Worth" shall mean stockholder's equity of Borrowers
prepared on a consolidated basis determined in accordance with GAAP, with no
adjustment due to re-evaluation of assets, except as required by GAAP, minus the
sum of the book value assets which are treated as intangibles under GAAP,
including, but not limited to, leasehold improvements, good will, tradenames,
trademarks, copy rights, patents, franchise agreements and unamortized debt
expenses.
"Term Loan" shall mean the term loan extended by Bank to Borrowers in the
original principal amount of up to $36,310,000.00 pursuant to the terms of and
as more particularly described in Article 3 of this Agreement.
"Term Loan Documents" shall mean and refer to, collectively, all those
certain documents and instruments executed in connection with the Term Loans
including this Agreement, the Term Note, the Mortgages, the Security Agreements,
the Assignment of Leases, the Assignment of Contracts, the Financing Statement
and any other documents executed in connection with the Term Loan as such
documents and instruments may be amended, substituted or renewed from time to
time.
"Term Note" shall mean that certain second amended and restated term loan
promissory note in the original principal amount of $36,310,000.00 dated as of
the Closing Date executed by Borrowers in favor of Bank evidencing the Term Loan
which is an amendment and restatement of that certain Term Loan Promissory Note
in the original principal amount of $36,310,000.00 dated July 14, 1994 and that
certain Amended and Restated Term Loan Promissory Note in the original principal
amount of $36,310,000 dated as of August 9, 1995, as the same may be amended,
substituted, modified or renewed from time to time.
"Value" means with respect to any Inventory, the lesser of (i) the fair
market value of such Inventory; and (ii) the cost of such Inventory calculated
in accordance with the "specific identification" method.
"Wachovia" shall mean Wachovia Bank of South Carolina, N. A. and its
successors and assigns.
"Whitecrest Land" shall mean that certain approximately 4 acre parcel of
real property located on Brookhollow Industrial Boulevard, Dalton, Georgia.
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"Whitecrest Property" shall mean the Whitecrest Land and all improvements
located or to be located thereon.
1.2. OTHER DEFINITIONAL PROVISIONS:
(a) Unless otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in the Notes
or any other of the Loan Documents unless the context would
specifically require otherwise.
(b) As used herein and in the Notes, and in any of the other Loan
Documents, accounting terms relating to any of the Borrowers not
defined in Subsection 1.1 and accounting terms partly defined in
Subsection 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement
as a whole and not to any particular provisions of this Agreement.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
II. THE REVOLVING CREDIT LOAN.
2.1. General Terms of the Revolving Credit Loan. During the continuation
of this Agreement and subject to the terms of this Agreement, Bank will lend, on
a revolving credit basis, to Borrower and Borrowers will borrow from Bank such
sums as Borrowers may from time to time request but which will not exceed an
aggregate principal amount outstanding at any one time, equal to the lesser of
(a) the amount available to be outstanding in accordance with the margin
requirements stated in section 2.5 hereof, or (b) Twenty-Five Million and No/100
Dollars ($25,000,000.00), which amount may be subject to adjustment as provided
in this Agreement. The proceeds of the Revolving Credit Loan shall be used for
the purposes set forth in Paragraph A of the Preliminary Statement section of
this Agreement. The face amount of any letter(s) of credit issued by Bank naming
any of the Borrowers as account party shall be included in the principal amount
outstanding under the Revolving Credit Loan. Borrowers will be required to make
repayments of principal under the Revolving Credit Loan (i) as and when and in
amounts necessary such that the margin requirements contained in Section 2.5 of
this Agreement are satisfied at all times, (ii) immediately upon demand by Bank
in connection with an acceleration of the Revolving Credit Loan pursuant to
Section 9.2 of this Agreement, and (iii) immediately upon the termination of
Article 2 of this Agreement in accordance with Section 2.6 of this Agreement.
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2.2. Disbursements of the Revolving Credit Loan. During the continuance
of Article 2 of this Agreement, disbursements of principal under the Revolving
Credit Loan may be made on any Business Day, provided that, in addition to all
other terms of this Agreement: (A) Borrowers shall have delivered to Bank oral
or written notice in form and content acceptable to Bank no later than 11:00
a.m. (Columbia, South Carolina time) on the proposed funding date, which notice
shall specify the proposed funding day, the amount requested and contain other
information required by Bank. (B) Borrowers and any Approved Subsidiary shall
have delivered to Bank an executed, properly completed then current Monthly
Borrowing Base Certificate and a then current weekly Collateral Certificate,
with the then current Collateral Certificate governing the availability under
the Revolving Credit Loan for the current week; and (C) no Event of Default or
Default Condition has occurred. Each delivery of an executed and properly
completed Monthly Borrowing Base Certificate and Collateral Certificate shall
constitute a representation by the Borrowers and any Approved Subsidiary that,
as of the date of such Monthly Borrowing Base Certificate or Collateral
Certificate, (1) all material representations and warranties made by the
Borrowers or any Approved Subsidiary in this Agreement are true and correct,
unless otherwise disclosed to Bank in writing and approved by Bank, (2)
Borrowers or any Approved Subsidiary have not failed to observe any of its
undertakings hereunder, (3) no Event of Default has occurred, and (4) no fact,
condition, or event has occurred or exists that, with the giving of notice or
the passage of time or both, could become an Event of Default. Bank will credit
the proceeds of all disbursements under the Revolving Credit Loan to the
Collateral Account. Bank shall not incur any liability to any of the Borrowers
(i) for acting upon any telephonic notice or other oral notice for a requested
disbursement that Bank believes in good faith was given by the Controller, the
Chief Financial Officer or another officer deemed acceptable to Bank in its sole
discretion, or (ii) for otherwise acting good faith in disbursing proceeds under
the Revolving Credit Loan.
2.3. The Revolving Credit Note. The Revolving Credit Loan shall be
evidenced by and repaid in accordance with the Revolving Credit Note the terms
of which are incorporated herein by reference, and the Revolving Credit Loan
shall be repaid in accordance with the terms of this Agreement or Revolving
Credit Note.
2.4. Adjustments to Revolving Credit Loan Amount. Bank may, at Borrowers
request and at Bank's sole discretion, consent to an increase in the amount of
the Revolving Credit Loan. If such increase is temporary, all payments received
by Bank shall be applied in Bank's discretion to the reduction of the balance
evidenced by the Revolving Credit Note or any other note in addition to the
Revolving Credit Note evidencing the Revolving Credit Loan.
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2.5. Margin Requirements under the Revolving Credit Loan. In addition to
the limitations set forth in Section 2.01 of this Agreement, the aggregate
principal amount outstanding at any one time under the Revolving Credit Loan may
not exceed, as determined in accordance with the most current Collateral
Certificate, the sum of: (a) ninety percent (90.0%) of the face value of
Borrowers and any Approved Subsidiary's Eligible Accounts Receivable which are
subject to factoring agreements with NationsBanc Commercial Corporation that are
acceptable to Bank; plus (b) 80% of the face value of Borrowers and any Approved
Subsidiary's Eligible Accounts Receivable which are not subject to factoring
agreements with NationsBanc Capital Corporation that are acceptable to Bank;
plus (c) fifty percent (50.0%) of the Value of Borrowers and any Approved
Subsidiary's Eligible Inventory; provided, however, that the aggregate principal
amount outstanding under the Revolving Credit Loan supported by Borrowers' and
any Approved Subsidiaries' Eligible Inventory shall not exceed, at any one time,
(i) fifty percent (50%) of the total principal outstanding under the Revolving
Credit Loan at all times except as provided in (ii) below; and (ii) sixty
percent (60%) of the total principal outstanding under the Revolving Credit Loan
during the period of time commencing on any December 16, 1996 and ending on
January 31, 1997. The availability under the Revolving Credit Loan for each week
shall be determined by the then current Collateral Certificate delivered in
accordance with Section 7.1(k).
2.6. Termination of the Revolving Credit Loan. This Agreement as it
relates to the Revolving Credit Loan shall be terminated: (a) by Bank on notice
to Borrower at any time in connection with any acceleration pursuant to section
9.2; or (b) if not sooner demanded on June 2, 1998. Termination of this
Agreement as it relates to the Revolving Credit Loan shall in no way affect or
impair any right of Bank arising prior thereto or by reason hereof, nor shall
any such termination relieve Borrowers of any Obligations under the Revolving
Credit Loan until all Obligations under the Revolving Credit Loan are fully paid
and performed, nor shall any such termination affect any right or remedy of Bank
arising from any other Obligations. All agreements, warranties, and
representations of Borrowers shall survive termination.
2.7. Fees. In connection with Bank providing the renewal commitment for
the Revolving Credit Loan, Borrowers shall pay a commitment fee equal to
$20,000. Borrowers further shall pay a user fee under the Revolving Credit Loan
on a quarterly basis, to be assessed, and due and payable on the 2nd day of each
January, April, July, and October, during the term of the Revolving Credit Loan,
which fee will equal one-eighth of one percent (0.125%) per annum of the average
unused portion of the Revolving Credit Loan calculated on a daily basis.
2.8. Conditional Consent to Inclusion of Assets of any Approved
Subsidiary. Bank and Borrowers contemplate that Borrowers will include on its
Monthly Borrowing Base Certificate and Collateral Certificate certain assets of
Approved Subsidiaries. Prior to any such inclusion and as a condition to Bank's
obligation to fund proceeds under the Revolving Credit Loan based on the
inclusion of such assets, Borrower shall cause any such Approved Subsidiary to
execute any documents and instruments reasonably required by Bank, including,
without limitation, documents and instruments (a) to perfect Bank's first
priority security interest in any such assets; (b) to confirm that any such
Approved Subsidiary agrees and consents to the terms of this Agreement; and (c)
to provide Bank the Approved Subsidiary's unconditional guaranty of or become a
co-obligor under the Obligations.
2.9. Account Warranties. With respect to Accounts scheduled, listed or
referred to on any Collateral Certificate or Monthly Borrowing Base Certificate,
the Borrowers warrant and represent to the Bank that, except as otherwise
disclosed: (i) the Accounts are genuine, are in all respects what they purport
to be, and are not evidenced by a judgment; (ii) they represent undisputed, bona
fide transactions completed in accordance with the terms and provisions
contained in the documents delivered to the Agent with respect thereto; (iii)
the amounts shown on the applicable Collateral Certificate or Monthly Borrowing
Base Certificate and on the Borrowers' books and records and all invoices and
statements which may be delivered to the Bank with respect thereto are actually
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and absolutely owing to one of the Borrowers and are not in any way contingent;
(iv) there are no setoffs, counterclaims or disputes existing or asserted with
respect thereto and the Borrowers have not made any agreement with any Account
Debtor for any deduction therefrom except a discount or allowance in the
ordinary course of business for prompt payment; (v) to the best of the
Borrowers' knowledge there are no facts, events or occurrences which in any way
impair the validity or enforcement thereof or tend to reduce the amount payable
thereunder as shown on the respective Collateral Certificate or Monthly
Borrowing Base Certificate the Borrowers' books and records and all invoices and
statements delivered to the Agent with respect thereto; (vi) to the best of the
Borrowers' knowledge as of the date any certificate or report delivered to Bank
pursuant to this Agreement, all Account Debtors have the capacity to contract
and are solvent; (vii) the services furnished and/or goods sold giving rise
thereto are not subject to any lien, claim, encumbrance or security interest
except that of the Borrowers', or Bank, and except as expressly contemplated
hereby; and (viii) except as otherwise disclosed to Bank in writing, to the best
of the Borrowers' knowledge as of the date of any certificate or report
delivered to Bank pursuant to this Agreement, there are no proceedings or
actions which are threatened or pending against any Account Debtor which might
result in any material adverse change in such Account Debtor's financial
condition.
2.10. Lock Box/Collateral Account. Borrowers must direct all collections
to a Bank lock box. Additionally, Bank shall continue to maintain a Collateral
Account into which Borrower will deposit all payments and other income received
by Borrowers, except such payments and other income, if any, that Bank may
exclude in writing from time to time. Bank shall have exclusive possession,
custody and control of and over the balances in the Collateral Account, as they
may exist from time to time, except as provided hereinafter with respect to
joint control over certain disbursements therefrom. Such deposits will be made
no later than the first business day following receipt thereof by Borrower or
receipt by Bank from the lock box. All such deposits will be in the original
form received by Borrowers except for such endorsements as may be necessary, and
Borrowers hereby authorize Bank to execute such endorsement on behalf of
Borrowers. Pending such deposit, Borrowers will hold such payment, checks,
drafts, and income separate from other funds and property and upon express trust
for Bank. Funds may be withdrawn from the Collateral Account only by Borrower
with Bank's consent, except that Bank may withdraw funds at any time for
application against any Obligations in the order and method desired by Bank, and
Bank shall give Borrowers notice of any withdrawal within a reasonable period of
time after such withdrawal. Each such deposit and the proceeds thereof shall
continue to be Collateral hereunder and shall not constitute the payment of any
Obligations until specifically applied thereto.
2.11. Documentation and Security for Revolving Credit Loan. The terms and
provisions of the other Revolving Credit Loan Documents are incorporated herein
by reference and are still in full force and effect. All of the other Revolving
Credit Loan Documents which grant liens in favor of or assign rights to Bank
also are in full force and effect. The security interests granted pursuant to
the other Revolving Credit Loan Documents are in addition to the security
interest and assignments granted in favor of Bank elsewhere in this Agreement or
any of the other Loan Documents to secure the Obligations of Borrower under the
Revolving Credit Loan.
2.12. Disbursement to MCF. Borrowers agree that all disbursements made by
Bank under the Revolving Credit Loan shall be made to or for the benefit of MCF
as described in Section 2.2 of this Agreement and any such disbursements made to
MCF shall be made for the benefit of the other Borrowers if so stated in
Borrowers' written request pursuant to section 2.02. Borrowers further (A)
consent to any and all disbursements made by Bank to MCF; (B) agree that Bank
shall incur no liability in connection with the Revolving Credit Loan or any
disbursements made under the Revolving Credit Loan; (C) will not contest any
disbursement made by Bank; (D) acknowledge the direct benefit of the Revolving
Credit Loan and disbursements of proceeds under the Revolving Credit Loan to
MCF; and (E) acknowledge and agree to their liability for and under the
Revolving Credit Loan and all Obligations.
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2.13. Verification of Accounts. The Bank shall have the right, during the
pendency of an Event of Default, in the Bank's name, to verify the validity,
amount or any other matter relating to any Account, by mail, telephone, or in
person.
3. TERM LOAN.
3.1. Term Loan Terms. The Bank has fully disbursed to Borrowers all
proceeds available under the Term Loan. The Term Loan is evidenced by the Term
Note. The proceeds of the Term Loan were used by Borrowers for the purposes set
forth in Paragraph B of the Preliminary Statement section of this Agreement.
3.2. Repayment of Term Loan. The outstanding principal balance of the
Term Loan shall bear interest and principal and interest shall be repayable in
accordance with the terms of the Term Note. In addition to the scheduled and
other repayments of the Term Loan as set forth in the Term Note or elsewhere in
this Agreement, Borrowers must make an additional annual repayment as set forth
in the Term Note (each, an "Income Recapture Payment") which shall be due and
payable on the earlier of (i) thirty (30) days after receipt by Bank of
Borrowers' audited financial statements required to be delivered pursuant to
Section 7.1(i) of this Agreement, or (ii) July 30th of each year during the term
of the Term Loan. The amount of each Income Recapture Payment shall be equal to
twenty-five percent (25%) of Borrowers' consolidated net income as reflected on
such current audited financial statement or as estimated by Bank if Borrowers
have not received such statement. So long as no Event of Default shall have
occurred or is continuing, each Income Recapture Payment shall be applied to
principal outstanding under the Term Loan evidenced by the Term Note in the
inverse order of scheduled maturities. Borrowers, however, shall not be required
to make an Income Recapture Payment in a year when, based on the then current
audited financial statements of Borrowers for the fiscal year ending immediately
preceding such year, the Leverage Ratio is less than or equal to 1.75 to 1.00.
3.3. Balance. The Borrowers and the Bank acknowledge and agree that the
principal balance of the Term Loan as of the date of this Agreement is
$28,150,100.00.
4. CONDITIONS FOR DISBURSEMENTS AND OTHER AGREEMENTS
4.1. Conditions Precedent to Disbursements. Bank shall not be obligated
to consummate the transaction contemplated by this Agreement or to make any
further disbursements under the Revolving Credit Loan until all of the following
conditions have been satisfied by proper evidence, execution and/or delivery to
Bank of the following items, all in form and substance reasonably satisfactory
to Bank and Bank's counsel:
4.1.1. Loan Documents. The Loan Documents.
4.1.2 Lessor's Waivers/Mortgage's Waivers: Fully executed Lessor's
Waivers and Mortgagee's Waivers in form and content acceptable to Bank for all
locations, other than the Properties, where any Collateral is or will be
located.
4.1.3 Wachovia Participation. Bank receives the fully executed Amendment
and Restated Participation Agreement, from Wachovia, in form and content
acceptable to Bank, related to the consummation of the transactions contemplated
by this Agreement and otherwise outlining the rights between Bank and Wachovia.
4.1.4 Authority Documents: (a) Articles of incorporation certified by the
office of the Secretary of State of South Carolina of Borrowers; (b) Bylaws of
Borrowers, certified by an officer of the Borrowers; (c) current Certificate of
Existence of Borrowers issued by the Secretary of State of South Carolina and
Tax Compliance Letters on Borrowers issued by the South Carolina Tax Commission;
(d) Affidavit on behalf of Borrowers; (e) Officer's and Incumbency Certificate
of Borrowers; (f) Corporate Resolutions of Borrowers and (f) Certificates of
Foreign Qualification from the applicable office in any State where any of the
Borrowers conduct business.
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4.1.5 Attorney's Opinion: The written opinion of Sinkler & Boyd, P.A.,
counsel to Borrowers as to the following matters:
(a) Enforceability: The Loan Documents have been properly executed by
the persons authorized to do so and establish legally binding and
enforceable obligations on the part of Borrowers:
(b) Litigation: As of the Closing Date, Borrowers is not, to the best
knowledge of Borrower's counsel, a party to any litigation, which,
if adversely determined, would impair the right of Borrowers to
carry on its business substantially as now conducted or
contemplated or would materially adversely affect the financial
conditions, business or operations of Borrowers:
(c) Usury: The fees and interest charged by Bank in connection with
the Loans do not violate any usury or other similar laws of the
State of South Carolina or the laws of the United States;
(d) Miscellaneous: As to such other matters as Bank may reasonably
request.
4.1.6 Miscellaneous: All Loan Documents or items that are customarily
provided in loan transactions of this type and all other loan documents or items
set forth in the Commitment.
4.1.7 No Defaults: No Default Condition or Event of Default shall exist.
4.1.8 Draw Request: Bank shall have received the Borrowers' request for
disbursement under the Revolving Credit Loan.
4.2. Payment to Bank. All sums payable to Bank under the Loans shall be
paid directly to Bank in immediately available funds prior to 12:00 Noon,
Columbia, South Carolina time, on the due date of any such sums payable. Bank
shall send to Borrowers statements of all amounts due hereunder, which
statements shall be deemed correct and conclusively binding on Borrower unless
Borrower notifies Bank in writing to the contrary within one (1) year of the
date of the statement which Borrower considers incorrect.
Alternatively, at Bank's discretion and with prior notice to Borrower, Bank may
charge against any deposit account of Borrower all or any part of any amount due
hereunder.
4.3. Risk of Loss. As between Borrowers and Bank, Borrowers shall bear
all risk of loss of or fluctuation in value of each item of Collateral.
4.4. Waivers. Borrowers hereby waive and forever release from, and agree
to indemnify and hold the Bank harmless for, any and all claims, causes of
action or any other loss that Bank may incur in connection with the making,
closing or administration of the Loans.
4.5 Intangible Taxes. Borrower has paid intangible taxes (i) related to
the Dalton Property Deed to Secure Debt held by Bank based on the value of the
Dalton Property being equal to $2,000,000.00 and (ii) related to the Whitecrest
Property Deed to Secure Debt held by Bank based on the value of the Whitecrest
Property being equal to $1,310,000.00. From time to time, Borrowers upon the
demand of Bank must pay any additional intangible taxes related to the Dalton
Property Deed to Secure Debt or the Whitecrest Property Deed to Secure Debt (i)
based on an increase in the value of the Dalton Property or the Whitecrest
Property, as applicable, as reflected on any current appraisal, or (ii) as
otherwise required under the laws of the State of Georgia.
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5. ADDITIONAL COLLATERAL SECURITY.
5.1. Nature of Collateral. In addition to all other liens, assignments
and all other rights of Bank granted pursuant to any of the Loan Documents, the
Collateral, together with all of Borrowers' other property of any kind held by
Bank, shall stand as one general, continuing collateral security for all
Obligations and may be retained by Bank until all Obligations have been
satisfied in full.
5.2. Rights in Property Held by Bank. As security for the timely
satisfaction of all Obligations and in addition to all other liens, assignments
and all other rights of Bank granted pursuant to any of the Loan Documents,
Borrowers hereby continue to assign, transfer, and set over to Bank a lien on
and a security interest in all amounts that may be owing from time to time by
Borrowers to Bank in any capacity, including without limitation any balance or
share of Borrower in or of the Collateral Account or any other deposit or other
account with Bank, which lien and security interest shall be independent of and
in addition to any right of set-off which Bank may have.
5.3. Rights in Property Held by Borrowers. As further security for the
prompt satisfaction of all Obligations, Borrowers hereby continues to assign to
Bank all of their right, title, and interest in and to, and grant to Bank a lien
and security interest in, all personal property whether tangible or intangible
including the following, wherever located, whether now owned or hereafter
acquired, together with all replacements and Proceeds (including without
limitation insurance proceeds) thereof including, without contribution to the
following: (a) Accounts; (b) Chattel Paper; (c) Contracts, including the
Indemnification Agreement; (d) Documents; (e) equipment, (f) fixtures, (g)
furniture, (h) General Intangibles, including the Indemnification Agreement; (i)
Instruments; (j) Inventory; (k) Rights as seller or lessor of Goods or services
and rights to returned or repossessed Goods; (l) Proceeds of public liability,
fire, and extended coverage insurance and returned and unearned premiums for
such insurance; (m) all records pertaining to any other item or matter of
Collateral; (n) all securities, guaranties, and deposits received or held by
Borrower in respect to Goods sold or leased or services rendered by Borrower;
(o) all other rights to payment for Goods sold or leased or services rendered,
regardless of whether or not the same has been earned by performance; or (p) if
any of the Inventory consists of items which are subject to a patent, copyright,
trademark, or other intellectual property right, all of Borrower's rights to
exploit such patent, copyright, trademark, or other intellectual property right.
5.4. Financing Statements. Borrowers will: (a) join with Bank in
executing such financing statements (including amendments thereto and
continuation statements thereof) in form satisfactory to Bank as Bank may
specify; (b) pay or reimburse Bank for all costs and taxes of filing or
recording the same in such public offices as Bank may designate; and (c) take
such other steps as Bank may direct, including making notations of Bank's lien,
to perfect Bank's interest in the Collateral. In addition to the foregoing, (d)
the parties hereto agree that a photocopy or other reproduction of this
Agreement shall be sufficient as a financing statement and may be filed in any
appropriate office in lieu thereof; and (e) to the extent lawful, Borrowers
hereby appoint Bank as Borrowers' attorney-in-fact (without requiring Bank so to
act) to execute any financing statement in any of the Borrowers' name and to
perform all other acts and deeds that Bank deems appropriate to perfect and
continue its security interest in, and to preserve and protect, the Collateral.
6. REPRESENTATIONS AND WARRANTIES.
6.1. Original. To induce Bank to enter into this Agreement, Borrowers
represent and warrant to Bank as follows:
(a) Borrowers are corporations duly organized, validly existing, and
in good standing under the Laws of the State of South Carolina and
are duly qualified and in good standing to do business in each
jurisdiction where such qualification is necessary. All
jurisdictions where MCF or any of the Borrowers are qualified or
should be qualified are listed on Schedule 6-1(a) attached to this
Agreement.
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(b) None of the Borrowers is in default with respect to any of its
existing Indebtedness, and the making or performance of this
Agreement will not (immediately, with the passage of time or
giving of notice, or both): (i) violate the provisions of the
charter or bylaws of any of the Borrowers, or violate any Laws, or
result in a default under any contract, agreement, or instrument
to which any of the Borrowers are a party or by which any of the
Borrowers or any of their property are bound, except in connection
with indebtedness satisfied with the proceeds of the Loan; or (ii)
result in the creation or imposition of any security interest in,
or lien or encumbrance upon, any assets of any of the Borrowers,
except as same may be in favor of Bank.
(c) Borrowers have full right, power, and authority to enter into and
perform the Loan Documents, and to incur the Obligations herein
and therein provided for, and have taken all corporate action and
obtained all consents necessary to authorize the execution,
delivery, and performance thereof.
(d) This Agreement and the remainder of the Loan Documents, when
delivered, will be valid, binding, and enforceable against
Borrowers, as applicable, in accordance with their respective
terms.
(e) Except as set forth in a written disclosure statement delivered to
the Bank within ten (10) business days prior to the execution of
this Agreement, no litigation, proceeding, arbitration, or
investigation is in process, pending or threatened against any of
the Borrowers which, if determined adversely to such Borrowers,
would have a material adverse effect on the business, properties,
or financial condition of Borrowers.
(f) Borrowers have good and marketable title to all of their assets,
subject to no security interest, encumbrance or lien, or any other
claim except: (i) such claims specifically disclosed in the
application for the Loans, (ii) such claims created by this
Agreement in favor of Bank, (iii) liens for real property taxes
not yet due and payable and (iv) the Permitted Encumbrances.
(g) Borrowers' financial statements provided to Bank for the fiscal
year ended December 31, 1995, and the interim financial statements
for the ten (10) months ended October 31, 1996, have been prepared
in accordance with GAAP and fairly reflect the financial condition
of Borrowers and the results of its operations as of the dates and
for the periods stated therein. No material adverse changes have
since occurred or are threatened.
(h) As of the date hereof, Borrowers, in the aggregate, have no
material Indebtedness in excess of $100,000.00 of any nature,
including without limitation liabilities for taxes and interest or
penalties relating thereto, except: (i) to the extent reflected
and reserved against in the most recent financial statements prior
to the date hereof; (ii) as created in this Agreement, or (iii) as
listed on Schedule 6-1(h) attached hereto and incorporated herein
by reference.
(i) Borrowers have filed all federal, state, and local tax returns and
reports it is required by all Laws (including the Fair Labor
Standards Act) to file prior to the date of this Agreement and
have paid or caused to be paid all taxes, interest and penalties
due and payable therein. Borrowers have not agreed to an
extension, of the period within which the Internal Revenue Service
may audit Borrowers tax returns.
(j) All information and representations made and any information or
documents submitted in connection with the application for the
Loans were true, complete and correct as of the date of such
submission and (except for financial statement information
provided with reference to a specific date) are true, complete and
correct as of the date hereof unless otherwise modified or altered
by subsequent written information and representations made to
Bank.
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(k) No representation or warranty by any of the Borrowers contained
herein or in any certificate or other document furnished by or on
behalf of Borrowers pursuant hereto contains any untrue statement
of material fact or omits to state a material fact necessary to
make such representation or warranty not misleading in light of
the circumstances under which it was made.
(l) No Reportable Event has occurred during the 5-year period prior to
the Closing Date with respect to any Plan, any of the Borrower and
each Plan has complied and all material specifications with
applicable provisions of ERISA and the Code. The present value of
all accrued benefits under each Single Employer Plan maintained by
any of the Borrowers (based on those assumptions used to fund the
Plans) did not, as of the last annual evaluation date prior to the
date of this Agreement, exceed the value of the assets of such
Plan allocable to such accrued benefits. The present value
(determined using actuarial and other assumptions which are
reasonable in respect of the benefits provided and the employees
participating) of the liability of any of the Borrowers for post
retirement benefits to be provided to their current and former
employees under Plans which are welfare benefits (as defined in
Section 3(1) of ERISA) equals or exceeds the assets under such
Plans allocable to such benefits.
(m) The proceeds of the Loans shall be used by Borrowers in the
ordinary course of Borrowers' and for the particular purposes set
forth elsewhere in this Loan Agreement.
(n) Except as to the Star Fibers Property and to the extent disclosed
to Bank in writing, the Properties do not contain, and have not
previously contained, any Materials of Environmental Concern in
amounts or concentrations which (i) constitute a violation of, or
(ii) could be reasonably given rise to liability under
Environmental Laws. Except as to the Star Fibers Property and to
the extent disclosed to Bank in writing, the Properties and all
operations of the Properties are in compliance, and have in the
past two years been in material compliance and specifications with
all applicable Environmental Laws, there is no contamination at,
under or about the Properties (except as disclosed to Bank in
writing), or violation of any Environmental Law with respect to
the Properties which could interfere with the continued operation
of the Properties or materially impair the fair salable value
thereof. None of the Borrowers have not received any notice of
violation, alleged violation, non-compliance, liability or
potential liability regarding environmental matters or compliance
with Environmental Laws with regard to any of the Properties, nor
do any of the Borrowers have knowledge or reason to believe that
any such notice will be received or is being threatened except so
far as such notice or threat notice or any aggregation thereof,
does not involve a matter or matters that is or are reasonably
likely to result in the payment by any of the Borrowers of a
Material Environmental Amount. To the best knowledge of Borrowers,
after reasonable investigation, Materials of Environmental Concern
have not been transported or disposed of from the Properties in
violation of, or in a manner or to a location which could
reasonably give rise to liability under Environmental Laws, nor
have any Materials of Environmental Concern have generated,
treated, stored or disposed of at, on or under any of the
Properties in violation of, or in a manner that could give rise to
liability under, any applicable Environmental Laws except insofar
as any such violation or liability is referred to above, or any
aggregation thereof, is not reasonably likely to result in the
payment by Borrowers of a Material Environmental Amount. No
judicial proceeding or governmental or administrative action is
pending, or, to the knowledge of Borrowers, threatened, under any
Environmental Law to which Borrowers are or will be named as a
party which respect to the Properties, nor are there any consent
decrees or other decrees, consent orders, administrative orders or
other orders, or other administrative or judicial requirements
outstanding under any Environmental Laws with respect to the
Properties except insofar as such proceeding, action, decree,
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order or other requirement or any aggregation thereof is not
reasonably likely to result in the payment of Material
Environmental Amounts. There has been no release or threat of
release of Materials of Environmental Concern at or from the
Properties, or arising from or related to the operation of any of
the Borrowers in connection with the Properties in violation of or
in amounts or in a manner that could give rise to liability under
Environmental Laws except insofar as such violation or liability
referred to above, or any aggregation thereof, is not reasonably
likely to result in the payment of Material Environmental Amounts.
The representations contained in this Subsection 6.1(n) are
subject to Materials of Environmental Concern or other matters
related to Environmental Laws specifically disclosed in writing to
Bank, including the environmental condition of the Star Fibers
Property.
(o) Borrowers maintain with one or more financially sound and
reputable insurance companies, with premiums at all times
currently paid, insurance upon fixed assets and inventory,
including public liability insurance, fire and all other risks
insured against by extended coverage, fidelity bond coverage,
business interruption insurance and all other insurance required
by law, all in a form and amount required by law and customary to
the respective nature of the businesses of Borrowers and
Borrowers' properties, except in a case where failure to maintain
such insurance will not have or potentially have an adverse effect
on the Borrowers or any of Borrowers' properties or assets.
(p) All of the Properties and the use of the Properties shall comply
and shall continue to comply in all material respects with all
applicable Laws, including zoning resolutions, building codes,
Environmental Laws (except as disclosed in writing to Bank),
subdivision and other applicable laws, rules and regulations and
are covered by existing valid certificates of occupancy and all
those certificates and permits required by applicable laws, rules,
regulations and ordinances or in connection with the use,
occupancy and operation of the Properties. No material portion of
any of the Properties has been damaged in any respect as a result
of fire, explosion, accident, flood or other casualty. No
condemnation or eminent domain proceeding has been commenced or to
the knowledge of Borrowers are about to be commenced against any
portion of the Properties. No notice of violation of any federal,
state or local law or ordinance or order or requirement has been
issued with respect to any Properties.
(q) Each of the Borrowers is solvent as defined or used in the
Bankruptcy Act of the United States, as amended, and will continue
to be solvent as defined or used in the Bankruptcy Act of the
United States following the consummation of the transactions
contemplated by this Agreement.
(r) Borrowers are in compliance with all applicable Laws, rules,
regulations, and orders of all governmental authorities (federal,
state, local or foreign, and including, without limitation,
Environmental Laws, rules, regulations, and orders) a breach of
which would materially and adversely affect any of the Borrowers'
business, credit, operations, financial condition, or prospects.
(s) As of the date of this Agreement, the principal place of business
and chief executive office of all of the Borrowers is 306 Main
Street, Edgefield, South Carolina. Borrowers' additional place of
business or places where assets of Borrowers are located are set
forth on Schedule 6-1(s). The location of the principal places of
business and chief executive offices of the Borrowers and the
locations of any Collateral shall not be changed nor shall there
be established additional places of business or additional
locations where Collateral is stored, kept or processed without
Bank's prior written consent, and prior to making any such change
or establishing such new location, Borrowers agree to execute any
additional financing statements or other documents or notices
required by Bank. As of the date of this Agreement, the books and
records of Borrowers and all records and accounts are located and
hereafter shall continue to be located at the principal place of
business and chief executive office of Borrower.
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(t) Business conducted by Borrowers has not been conducted by or under
any corporate, trade or fictitious name other than those listed on
Schedule 6-1(t) attached to this Agreement, and following the date
of this Agreement, Borrower will not conduct their business under
any trade or fictitious name other than the duly registered names
listed on Schedule 6-1 (t) attached to this Agreement, except with
the prior consent of Bank.
(u) As of the date of this Agreement, Borrowers have no investments in
any Person, and is not engaged in any joint venture or partnership
with any other Person.
(v) All representations and warranties contained in the Loan Documents
are incorporated herein by reference and constitute a part hereof
as fully as if the same were set forth herein.
6.2. Survival. All of the representations and warranties in section 6.1
shall survive until all Obligations are satisfied.
7. BORROWERS' COVENANTS.
Borrowers do hereby covenant and agree with Bank that, unless Bank
specifically consents in writing to the contrary and for as long as any
Obligations have not been satisfied in full, Borrowers will comply with the
following covenants:
7.1. Affirmative Covenants.
(a) Borrowers, as applicable, will use the proceeds of the Loans only
for valid business purposes and for the purposes set forth in this
Agreement and will furnish to Bank such evidence as Bank may
reasonably request with respect to such use;
(b) Borrowers will maintain, or cause to be maintained (1) public
liability, fire, and extended coverage insurance on all assets
owned by it or used by it in its business, all in such form and
amounts as are reasonably satisfactory to Bank, (2) all workmen's
compensation or similar insurance as may be required under Laws
applicable to Borrower, and (3) business interruption insurance as
may be required by Bank. Borrower will furnish Bank such evidence
of insurance as Bank may reasonably require;
(c) Borrowers will cause to be paid when due all taxes, assessments,
charges, and levies imposed upon them or any of their properties
which they are required to pay over, except when contested in good
faith by appropriate proceeding with adequate reserves therefor
having been set aside on its books and segregated where required
by GAAP; provided, that Borrowers shall either pay or cause to be
paid forthwith all taxes, assessments, levies, and charges
whenever foreclosure of any lien that attaches (or other security
therefor) appears threatened or have such encumbrances "bonded
off";
(d) Borrowers will take all necessary steps to preserve its corporate
existence, rights, contracts, franchises, and tradenames necessary
or desirable in the conduct of Borrowers' business, and comply
with all present and future Laws, including Environmental Laws,
applicable to Borrowers and with all material agreements to which
or by which any of Borrowers' property is bound;
(e) Borrowers will give immediate notice to Bank of (1) any litigation
or proceedings in which either one of them is a party if an
adverse decision therein would require it to pay money or deliver
assets in an aggregate amount or value in excess of One Hundred
Thousand and No/100 Dollars ($100,000.00) (regardless of whether
or not the claim is considered to be covered by insurance); (2)
the institution of any other suit or proceeding involving
Borrowers that might materially and adversely affect their
operations, financial condition, property, or business; or (3) the
occurrence of any casualty which might have a material adverse
effect on the businesses of Borrowers;
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(f) Borrowers will pay when due, or within the applicable grace
period, all Indebtedness due third parties, except when the
amount, applicability, or validity thereof is being contested in
good faith by appropriate proceedings and with adequate reserves
therefor being set aside on its books;
(g) Borrowers will (1) maintain its Inventory, supplies, Equipment,
real property, and other properties, including the Properties, in
good condition and repair (normal wear and tear excepted), (2) pay
and discharge or cause to be paid and discharged when due the cost
of repairs to or maintenance of the same, (3) pay or cause to be
paid all rental, lease, or mortgage payments due with respect to
same, (4) maintain and keep any of their tangible personal
property at their principal places of business or at one of the
locations set forth on Schedule 6-1(h), and (5) not change their
principal places of business or the location of any Collateral in
such a manner as to cause Bank's first priority perfected lien on
such Collateral to be lost or jeopardized;
(h) Borrowers, as applicable, shall endorse without limitation, or
otherwise properly assign to Bank, all negotiable Instruments and
other Chattel Paper received by it in connection with any payment
on account of any item of Collateral;
(i) Borrowers will furnish to Bank, and deliver to Bank within one
hundred twenty (120) days from the closing date thereof, Borrowers
consolidated fiscal year-end audited financial statements
(including without limitation, its balance sheet, income
statement, statement of cash flows, and accountant's comments),
fiscal year end audit management letter and Borrowers
consolidating year-end company prepared financial statements
(including, without limitation, its balance sheet and income
statement) and otherwise in form and content acceptable to Bank
(all such statements to be prepared in accordance with GAAP) and,
with respect to the audited financial statements, certified by a
certified public accountant acceptable to Bank simultaneously with
the delivery to Bank of each fiscal-year end audited financial
statement;
(j) Borrowers will furnish to Bank, within forty-five (45) days of the
end of each fiscal quarter, its then current internally prepared
consolidated and consolidating financial statements for each
fiscal quarter and year-to- date, signed by an officer of
Borrowers as applicable certifying the accuracy of such statement,
all in such form as is reasonably satisfactory to Bank. In
connection with the financial statements delivered pursuant to
subsection 7.1(i) and this subsection 7.1(j), Borrowers must
furnish to Bank, a Compliance Certificate in form and content
acceptable to Bank executed by an officer of the Borrowers, which
Certificate includes Borrower's computation of all restrictive and
other covenants contained in this Agreement and list of all
contingent liabilities; provided, Borrowers shall be required to
disclose only the contingent or threatened liabilities arising
from claims, causes of action or litigation against any of the
Borrowers' under which such of the Borrowers' exposure may exceed
$500,000.00, with such disclosure to be made in connection with
delivery of the financial statement which is due immediately after
the first to occur of the following: (i) Borrowers, in good faith,
believe such claim, action or litigation will be prosecuted; or
(ii) the filing of such claim, cause of action or litigation
against any of the Borrowers by the claimant with the court,
tribunal or agency having jurisdiction over such matter;
(k) Borrowers will furnish to Bank within fifteen (15) days of the end
of each month a then current Monthly Borrowing Base Certificate
executed by an officer of Borrower, along with an aged Accounts
Receivable Report and summary reports on Inventory. Borrowers
further must furnish to Bank on a weekly basis then current
Collateral Certificates executed by an officer or corporate
controller of Borrowers. Borrowers shall submit to Bank accounts
payable reports upon the request of Bank. All such information
must be in form and content acceptable to Bank;
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(l) As and when requested by Bank which will not be more often than
twice in any one year, Borrowers will provide to Bank (1) a
certificate signed by an officer of the Borrowers that summarizes
the property, casualty and liability insurance policies carried by
the Borrowers and that certifies that Bank is loss payee of all
property and casualty insurance policies (such certificate to be
in form and content acceptable to Bank), and (2) written
notification of any cancellation or any material change of such
insurance by Borrowers within five (5) Business Days after receipt
of any such notice (whether formal or informal) of such
cancellation or change by any of their insurers;
(m) Borrowers will operate their businesses in full compliance with
all applicable federal, state, and local Laws, including
specifically without limitation the Fair Labor Standards Act;
(n) Borrowers will notify Bank immediately upon receipt by any of the
Borrowers of oral or written notice that any of Borrowers'
customers contests the amount, validity, or due date of any of
Borrowers' Accounts, Contracts, Chattel Paper, or Contract Rights,
which disputed amount exceeds Two Hundred Thousand and No/100
Dollars ($200,000.00);
(o) Borrowers, on a consolidated basis, must maintain a Leverage Ratio
of less than or equal to 3.00 to 1.00, with such Leverage Ratio to
be computed and tested as of the end of each fiscal quarter;
(p) Borrowers will maintain executive personnel and management
reasonably satisfactory to Bank;
(q) Borrowers will notify Bank immediately if it becomes aware of the
occurrence of any Event of Default or Default Condition, or the
failure of Borrowers to observe any of its undertakings hereunder;
(r) Borrowers, on a consolidated basis, must achieve a Debt Service
Ratio greater than or equal to 1.00 to 1.00 (i) for each period of
time commencing on January 1 and ending on the next successive
June 30; and (ii) for each fiscal year during the term of this
Agreement including any renewal terms.
(s) Subject to the limitation on costs to Borrowers as set forth in
Section 8.5 below, Borrower will permit any representative or
agent of Bank to examine and audit any of the Borrowers' books and
records when reasonably requested by Bank;
(t) The operation of the Properties do not and will not violate any
Environmental Laws and Borrowers will not use or permit any other
party to use any Materials of Environmental Concern on the
Properties except such materials as are incidental to Borrowers'
normal course of business, maintenance and repairs and do not
violate any Environmental Laws. Borrowers agrees to permit Bank,
its agents, contractors and employees, to enter and inspect the
Properties at any reasonable time for the purpose of conducting
Environmental Investigation Audit (including physical samples) to
insure that Borrowers are complying with this covenant. Borrowers
shall provide Bank, its agents, contractors, employees and
representatives, with access to and copies of all data and
documents relating to or dealing with any Materials of
Environmental Concern used, generated, manufactured or stored or
disposed of on, under or about the Properties within five (5)
business days of request for such information by Bank;
(u) Borrowers shall immediately advise Bank in writing of (i) any and
all enforcement, cleanup, remedial, removal or other government or
regulatory actions instituted, completed or threatened pursuant to
any Environmental Laws relating to Materials of Environmental
Concern affecting the Properties; and (ii) all claims made or
threatened by and any third parties against any of the Borrowers
relating to damages, contribution, cost, recovery compensation,
loss or injury resulting from Materials of Environmental Concern.
Borrowers shall immediately notify Bank of any remedial action
taken by Borrowers with respect to the Properties;
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(v) Borrowers shall jointly and severally indemnify, defend and hold
Bank and its successors and assigns harmless from and against any
and all claims, demands, suits, losses, damages, assessments,
fines, penalties, costs or other expenses (including attorney's
fees and court costs) arising from or in any way related to actual
or threatened damage to the environmental, agency cost or
investigation, personal injury or death or property damage due to
the release or alleged release of Materials of Environmental
Concern on or about the Properties or in the surface or ground
water located on or under the Properties or gaseous emissions from
the Properties or any other condition existing on the Properties
resulting from the use or existence of Materials of Environmental
Concern, whether such claim proves to be true or false or further
agrees that its indemnity obligation shall include, but not be
limited to, liability for damages resulting from personal injury
or death of an employee of any of the Borrowers regardless of
whether Borrowers have paid the employee under Workers'
Compensation Laws or any other state or other similar federal or
state legislation for the protection of employees. Borrowers'
obligation under this Section 7.1(v) shall survive the repayment
of the Loans and any deed in lieu of foreclosure of any of the
mortgages securing the Loans;
(w) Borrowers will continue to engage in business of the same general
type as now conducted by Borrowers and preserve, renew and keep in
full force and effect its corporate existence and take all
reasonable action to maintain all rights, privileges and
franchises necessary or desirable in the normal course of
Borrowers business;
(x) Borrowers acknowledge that the Loans shall be cross-collateralized
and cross-defaulted, and Borrowers agree to execute any documents
required by Bank, before, on or after the Closing Date, to
effectuate this cross- collateralization and cross-default;
(y) Star Fibers is and will remain a special purpose wholly owned
subsidiary of MCF and its only business shall consist of owning,
and leasing to MCF, the Star Fibers Property; and
(z) Borrowers, on a consolidated basis, must achieve and maintain a
consolidated Tangible Net Worth equal to a minimum of $24,240,000
at fiscal year 1996 which Tangible Net Worth must increase by a
minimum of $3,000,000 for each fiscal year thereafter.
(aa) Borrowers, on a consolidated basis, must maintain a Funded Debt
Ratio of less than or equal to 3.00 to 1.00 (i) for fiscal year
1997; and (ii) for each twelve (12) month period ending on the
closing date of each of Borrowers' fiscal quarters commencing with
the first fiscal quarter of fiscal year 1998.
7.2. Negative Covenants. Without Bank's written consent, Borrowers, as
applicable, will not:
(a) Enter into any merger, consolidation, reorganization,
recapitalization, reclassification of its capital stock;
(b) Change its primary ownership such that James F. Martin and Henry
M. Poston in the aggregate own less than 52.0% of the full and
legal interest of the outstanding common (or any other type, class
or series of) stock of MCF, or change control or key management of
Borrowers;
(c) Sell, transfer, lease or otherwise dispose of, directly, or
indirectly, in one or more transactions, all or (except in the
ordinary course of business) any material part of its assets,
including the Collateral;
(d) Become liable, directly or indirectly, as guarantor or endorser or
otherwise, for any obligation of any other Person, except for the
endorsement of commercial paper for deposit or collection in the
ordinary course of business;
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(e) Except for current Indebtedness listed on Schedule 6-1(h) attached
hereto and incorporated herein by reference, incur, create,
assume, or permit to exist any Indebtedness, including purchase
money obligations, in excess of the aggregate of $100,000.00 of
unsecured debt of Borrowers in any fiscal year, except: (i) the
Loans; (ii) trade indebtedness incurred in the ordinary course of
business; and (iii) indebtedness permitted under this Agreement;
(f) Enter into any stock repurchase, retirement, or redemption
programs except for the repurchase program pursuant to that
certain Corporate Buy-Sell Agreement dated May 3, 1993, or in
connection with (i) MCF's qualified 401K plan approved by Bank or
(ii) other Bank approved repurchases of MCF stock in connection
with similar stock repurchase plans approved by MCF's executive
committee;
(g) Make any loans or advances to any officer, stockholder, director,
employee, subsidiaries or Affiliates of Borrowers except for
temporary advances in the ordinary course of business;
(h) Make capital expenditures, in the aggregate, in excess of (i)
6,7000,000 in fiscal year 1996; and (ii) $7,000,000 in any fiscal
year after fiscal year 1996.
(i) Directly or indirectly apply any part of the proceeds of the Loans
for the immediate, incidental, or ultimate purpose of carrying any
"margin stocks" within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System, or any regulation,
interpretations, or rulings thereunder;
(j) Except in connection with the permitted liens set forth in section
7.2(m) below, execute or file in any jurisdiction a financing
statement (including amendments and extensions thereof) under the
Uniform Commercial Code which names any of the Borrowers as
debtor, or execute any security agreement or other document
authorizing any secured party thereunder to file any such
financing statement, except such financing statement as may be
necessary for the perfection of a security interest in favor of
Bank;
(k) Pay bonuses to officers, directors or shareholders of Borrowers,
except for bonuses in the aggregate amount of up to 20% of income
before income taxes and any such bonuses in any fiscal year so
long as the payment of such bonuses would not cause a violation of
any covenants of this Agreement.
(l) Change (i) the name under which any of the Borrowers conduct
business; (ii) the nature of any of Borrowers business; or (iii)
the locations where tangible Collateral will be stored or located;
(m) Grant liens, pledge or grant security interests in any assets of
Borrowers or incur purchase money obligations, except for
subordinate liens granted to NationsBanc Commercial Corporation
related to Borrowers' delinquent Accounts, and
(n) Pay cash dividends or distributions in an amount such that the
Tangible Net Worth requirements of Section 7.1(z) would be
violated.
7.3 Agreements, Representations and Covenants of Any Approved Subsidiary.
Borrowers acknowledge and agree that any Approved Subsidiary will be bound by
the terms and conditions of this Agreement, including all representations and
covenants, to the same extent that Borrowers are bound by this Agreement.
Borrowers further will cause any such Approved Subsidiary to execute
documentation necessary to effectuate this provision; provided, however, this
Section is deemed to be self-operative and enforceable without further writing
or agreement signed by any Approved Subsidiary.
7.4. Additional Covenants. All covenants, whether affirmative or
negative, contained in the Loan Documents are incorporated herein by reference
and constitute a part hereof as fully as if the same were set forth herein.
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8. BANK'S RIGHTS.
In addition to all other rights and remedies contained herein in favor of Bank,
Bank shall have the following rights and be governed by the following
provisions:
8.1. Appraisal. From time to time during the terms of the Loans, Bank, as
required under any applicable federal law or regulation, shall order and pay for
then current appraisals, in form and content acceptable to Bank, on any of the
Collateral, including the Properties. Borrowers agree to reimburse Bank upon the
demand of Bank for all costs and expenses incurred by Bank in connection with
any such appraisals. Within a reasonable period of time after receipt by Bank of
the reimbursement by Borrowers of the costs and expenses of any Appraisal, Bank
shall deliver to Borrowers a copy of such Appraisal.
8.2. Remedies Cumulative; Nonwaiver. All remedies of Bank provided for in
the Loan Documents are cumulative and shall be in addition to any and all rights
and remedies provided for or available under any Loan Documents or at law or in
equity. The exercise of any right or remedy by Bank hereunder shall not in any
way constitute a cure or waiver of a default condition or an event of default
hereunder or under any of the Loan Documents or validate any act done pursuant
to any notice of the occurrence of default condition or an event of default or
prejudice the Bank in the exercise of any of its rights under any of the Loan
Documents unless, in the exercise of said rights, Bank realizes all amounts owed
to Bank under the Loan Documents.
8.3. No Liability of Bank. Whether or not Bank elects to employ any and
all remedies available to it in the event of an occurrence of a Default
Condition or an Event of Default, Bank shall not be liable for the payment of
any expense incurred in connection with the exercise of any remedy available to
Bank or the performance or nonperformance of any obligation of Borrowers.
8.4. Environmental Assessments. Updated Environmental Assessments of the
Properties shall be prepared at Borrowers' expense and submitted to Bank upon
Bank's reasonable request at any time or times during the terms of the Loans,
including upon the occurrence of an Event of Default or as may be required by
any Environmental Laws or if Materials of Environmental Concern are discovered
or potentially exist on any of the Properties.
8.5. Audits. Audits of Inventory and Accounts, Chattel Paper, Contracts,
Documents, General Intangibles and other right to receive money for goods
received of Borrowers or any Approved Subsidiary will be conducted by Bank or
Bank's agents or representatives no less frequently than two (2) times per
fiscal year. Borrowers will bear the expenses of all normally scheduled audits
in the amount of up to $5,000.00 per audit.
9. DEFAULT.
9.1. Events of Default. An "Event of Default" shall be the occurrence or
existence of any one of the following conditions described in subsequent
subsections of this Section 9.1 and the continuance thereof for either (i) the
specific period of time, if any, specified with respect to such event or
condition, (ii) a period of five (5) days after delivery of written notice to
Borrowers from Bank if no period is specified and the event or condition is a
failure to pay money to Bank as and when due; provided that Bank shall not be
required to give notice more than twice in any twelve (12) month period or at
maturity of any of the Loans; or (iii) a period of thirty (30) days after (x)
delivery of written notice to Borrowers from Bank or (y) the date Bank should
have been notified by Borrowers of such condition pursuant to Section 7.1(q)
(which date, for defaults that the Borrower are made aware by the annual audit,
shall be deemed to be the date that MCF receives the final, completed audit), if
no period is specified and if the event or condition is not a failure to pay
money; provided, however, notwithstanding anything contained herein to the
contrary, there shall be no obligation of Bank to give notice and no right of
Borrowers to cure if the event or condition is either the institution of a
voluntary bankruptcy, insolvency or receivership action, the giving of any
material false or fraudulent representation to Bank, the failure to keep any of
the Collateral free and clear of any liens, except for the Permitted
Encumbrances and for disputed liens that are "bonded off" within thirty (30)
days after Borrower has notice of such lien, not approved in writing in advance
by Bank;
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(a) Borrowers' failure to pay when due any payment of principal,
interest, fee, or other charge payable under this Agreement, the
Notes or any of the other Loan Documents except for Borrowers'
failure to pay principal as required in accordance with Section
2.1(i) of this Agreement;
(b) The failure of Borrowers', as applicable, to observe or perform
any other obligation required, directly or indirectly, to be
observed or performed by it hereunder or under the Notes or under
the other Loan Documents, or the failure of any party to any
subordinate agreement with respect to any Subordinated
Indebtedness to breach any condition of or to comply with terms of
such subordination agreement;
(c) Any of the Borrowers shall (i) fail to pay when due including
applicable grace period any Indebtedness due to Bank or any third
Person, or (ii) suffer to exist any other event of default under
any material agreement binding upon the applicable Borrowers or
any of their properties;
(d) Any financial statement, representation, warranty, or certificate
made or furnished to Bank by or on behalf of any of the Borrowers
in connection with this Agreement or the Loans, or any separate
statement or document delivered or to be delivered to Bank
hereunder, shall be discovered by Bank to have been materially
false, incorrect, incomplete or otherwise misleading when made;
(e) Any of the Borrowers shall admit its inability to pay its debts as
they mature or shall make any assignment for the benefit of any of
its creditors;
(f) Proceedings in bankruptcy, or for reorganization of any of the
Borrowers, or for the adjustment or readjustment of the debts of
any one or more of them, under the Bankruptcy Act, as amended, or
under any other Laws for the relief of debtors, or any part of any
thereof, whether now existing or hereafter effective, shall be
commenced by or against any of the Borrowers;
(g) Proceedings shall be instituted for the appointment of a receiver
or trustee for any of the Borrowers or for any substantial part of
their respective assets, or any proceedings shall be instituted
for the dissolution or full or partial liquidation of any one or
more of them, or any one or more of them shall discontinue or
materially change the nature of its business or sell all or
substantially all of its assets;
(h) Any of the Borrowers shall suffer one or more final judgments for
the payment of money or the delivery of property or both with the
sum of such money and the value of such property aggregating at
least Fifty Thousand and No/100 Dollars ($50,000.00), unless
execution has been effectively stayed;
(i) Any Person other than Borrowers or any person acting on behalf of
Bank shall obtain possession of any of the Collateral by any
means, including without limitation, levy, distraint, replevin, or
self-help;
(j) Any obligee of Subordinated Debt shall fail to comply with the
subordination provisions of the instrument evidencing such
Subordinated Debt or contained in any subordination agreement;
(k) Any loss, theft, substantial damage, or destruction of all or any
part of the Collateral in excess of $100,000.00 which is not
adequately covered by insurance; (l) A default under any
obligation, whether now owed or hereafter owing, by any of the
Borrowers to Bank or any of its affiliates or related entities; or
(m) Borrowers' failure to pay principal as required under Section
2.1(i) of this Agreement or otherwise to comply with the
requirements of Section 2.5 of this Agreement and such failure
together with any subsequent failures under Section 2.1(i) or
Section 2.5 occurring within fourteen (14) days thereafter
(collectively, a "Margin Failure") continues for a period of time
more than fourteen (14) days after the effective date of the
Collateral Certificate which first reflects Borrowers' initial
failure to comply with the provisions of Section 2.5 of this
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Agreement; provided and notwithstanding anything to the contrary
contained in this Section 9.1 or elsewhere in this Agreement,
Borrowers must cure immediately, and without notice, any such
failures to comply with the provisions of Section 2.1(i) or
Section 2.5 which occur after the second (2nd) Margin Failure in
any twelve (12) month period.
The Events of Default set forth in this section 9.1 are in addition to those
Events of Default set forth and defined elsewhere in the Loan Documents. In the
event of any direct conflict in provisions related to Events of Default,
including the requirements or applicability of any grace periods, contained in
this Agreement and in the other Loan Documents, the terms and provisions of this
Agreement shall govern and control.
9.2. Acceleration. Immediately and without notice upon the occurrence of
an Event of Default, at Bank's option, all of Bank's duties and obligations
hereunder shall terminate and all Obligations or any part thereof as determined
by Bank shall immediately become due and payable without further action of any
kind.
9.3. Remedies after Acceleration. After any acceleration as provided in
section 9.2, Bank shall have, in addition to the rights and remedies given, all
of those remedies allowed by all applicable Laws, including without limitation
the Uniform Commercial Code, enacted in any jurisdiction in which any Collateral
may be located or otherwise applicable to the Loans or Borrowers. Without
limiting the generality of the foregoing, Bank may, at any time after
acceleration, without any demand or notice (except as may be required by this
Agreement or applicable Laws) to any of the Borrowers, all of which are hereby
expressly waived, and with or without advertisement, sell at public or private
sale or otherwise realize upon the whole or, from time to time, any part of the
Collateral or any interest of any of the Borrowers. After deducting from the
proceeds of such sale or disposition of the Collateral all expenses (including
reasonable expenses for professional services), Bank shall apply such proceeds
toward satisfying so much of the Obligations as were so accelerated. Any
remainder of such proceeds after satisfaction in full of such Obligations shall
be distributed as required by applicable Laws. Notice of any such sale or other
disposition shall be given where practicable to Borrower at least five (5) days
prior to the date of any intended public sale or of the time after which any
intended private sale or other disposition is to be made, and Borrowers agree
that such notice is and shall be deemed to be reasonable. Borrowers agree to
assemble, or cause to be assembled, at its own expense the Collateral at such
place or places as Bank may designate. At any such sale or other disposition,
Bank may, to the extent permissible under applicable Laws, purchase the whole or
any part of the Collateral, free of any right of redemption on the part of any
of the Borrowers, which right is hereby waived and released by Borrowers.
Without limiting the generality of any rights and remedies available to Bank
under this section, Bank may at its option and discretion, to the full extent
permitted by applicable Laws:
(a) Enter upon any of the Properties, exclude therefrom
Borrowers, or any Affiliate, employee, or other
representative thereof, and take immediate possession of
the Collateral, either personally or by use of a receiver
appointed by a court, using all necessary force to do so;
(b) Use, operate, manage, sell, lease, and control the
Collateral in any lawful manner;
(c) Collect and receive all rents, income, revenue, earnings,
issues, and profits from the Collateral; and
(d) Maintain, repair, renovate, alter, or remove the
Collateral.
9.4. Remedies Alternative to Acceleration. In each instance in which the
Event of Default involves the failure to pay when due a sum of money or to
perform when required one or more particular Obligations, Bank may, at its
option and in lieu of accelerating as permitted in section 9.2, pay such sum or
sums or cause to be performed such obligation or obligations on behalf of
Borrowers and collect the amount of Bank's costs in so doing (including
reasonable professional expenses) (a) as principal hereunder upon which interest
accrues at the then-applicable rate set forth in the Term Note, or (b) by direct
charge to any deposit accounts of any of the Borrowers maintained with Bank.
Bank's exercise of such option at any time shall not obligate Bank to exercise
such option upon the subsequent occurrence of the same or any other Event of
Default.
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10. MISCELLANEOUS.
10.1. Construction.
(a) The provision(s) of this Agreement shall be in addition to those
of the other Loan Documents, the terms of such Loan Documents are
incorporated herein by reference, held by or in favor of Bank, all
of which shall be construed as complementary to each other.
Nothing contained herein shall prevent Bank from enforcing any or
all other notes or guaranty, pledge or security agreements, or
other such evidences of liability in accordance with their
respective terms.
(b) Where appropriate, the reference herein to any gender, whether
masculine, feminine, or neuter, shall include the other genders,
and the reference herein to the singular number shall include the
plural and vice versa.
10.2. Further Assurances. From time to time, Borrowers will execute and
deliver or have executed and delivered to Bank such additional documents and
will provide such additional information as Bank may reasonably require to carry
out the terms of this Agreement and be informed of the respective status and
affairs of Borrowers.
10.3. Enforcement and Waiver. Bank shall have the right at all times to
enforce the provisions of this Agreement and the other Loan Documents in strict
accordance with the terms hereof and thereof, notwithstanding any conduct of
Bank in refraining from so doing at any time or times. Bank's failure to enforce
any such provision or to exercise any right available to Bank upon the
occurrence of an Event of Default shall not constitute a waiver of, or bar Bank
from enforcing or exercising, any such provision or right upon the subsequent
occurrence of the same or any other Event of Default. All rights and remedies of
Bank are cumulative and concurrent, and the exercise of any right or remedy
shall not be deemed a waiver or release of any other right or remedy.
10.4. Bank's Expenses. Borrowers will, on demand, reimburse Bank for all
costs and expenses, including reasonable fees and expenses of Bank caused,
incurred or paid by Bank in connection with the preparation, administration,
amendment, modification, enforcement, or attempted enforcement of this Agreement
other than the collection or attempted collection of the Notes.
10.5. Notices. Any notices or consents required or permitted under this
Agreement shall be in writing, sent prepaid, by person, by telegram, or by any
form of U. S. Mail which provides a receipt therefore, to the parties at the
following addresses except as any such address is changed by written notice:
(a) To Borrowers: 306 Main Street
Post Office Box 469
Edgefield, South Carolina 29824
(b) To Bank: NationsBank, N.A.
1901 Main Street
Columbia, South Carolina 29222
Location Code: SC 3 240-03-07
Attention: Mary H. "Mze" Wilkins
The same shall be deemed to be delivered as of the time of personal delivery,
the time stated on the telegram, or the third (3rd) business day after the day
of deposit thereof in the U.S. Mail Depository.
10.6. Waiver and Release by Borrowers. To the maximum extent permitted by
applicable Laws, Borrowers (a) waive in addition to any other items or matters
waived herein: (i) all notices of any kind connected with any commercial paper
at any time held by Bank on which any of the Borrowers are in any way liable;
and (ii) notice or opportunity to be heard, after acceleration pursuant to
section 9.2 hereof, before Bank's exercise of any remedies of self-help, set-off
or any other summary procedures permitted by any applicable Laws or by any
agreement with any of the Borrowers, and, except where required hereby or by any
applicable Laws, notice of any other action taken by Bank; and (b) release Bank
and its officers, directors, agents, attorneys, servants, and employees from all
claims of loss or damage caused by any act or omission on the part of any of
them except willful misconduct.
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10.7. Participation. Notwithstanding any other provision hereof, Bank may
at any time enter into one or more agreements with one or more participants
whereby Bank agrees to allocate a certain percentage or Dollar amount of the
Loans to them. Borrowers acknowledge that, for the convenience of all parties,
this Agreement is being entered into with Bank only and that Borrowers'
obligations hereunder are undertaken for the benefit of, and as an inducement
to, any such participant as well as Bank. Borrowers, hereby grant to each such
participant, to the extent of its participation in the Loans, the right to
set-off in accordance with applicable Laws deposit accounts maintained by them
with such participant. Borrowers hereby consent to the delivery by Bank, to any
such participant or prospective participant, of any information and document
submitted by or on behalf of either or both of them to Bank under this Agreement
or otherwise in connection with the Loans. For all purposes where applicable,
any reference to Bank in this Agreement shall include any such participant, to
the extent of its participation in the Loan.
10.8. Governing Law. This Agreement, and all other documents in
connection therewith shall be governed by and construed in accordance with the
Laws of the State of South Carolina.
10.9. Amendment Agreement. This Agreement may be amended only in writing
signed by, at least, the party against whom such amendment is sought to be
enforced. This Agreement, and the documents executed and delivered pursuant
hereto, constitute the entire agreement between the parties.
10.10. Assignment. Borrowers may not assign any of their rights, duties,
or obligations hereunder without Bank's prior written consent.
10.11. Benefit; Binding. This Agreement shall be binding upon and inure
to the benefit of the parties hereto, their respective successors, authorized
assigns, and legal representatives.
10.12. Severability. If any provision of this Agreement shall be held to
be invalid under any applicable Laws, such invalidity shall not affect any other
provision hereof that can be given effect without the invalid provision and, to
this end, the provisions hereof are severable.
10.13. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall constitute an original and all of which shall
constitute a single instrument.
10.14 Entire Agreement. This Agreement, including all exhibits, schedules
and other documents attached to this Agreement or incorporated by reference,
constitute the entire agreement of the parties with respect to the subject
matter of this Agreement and supersede all other understandings, oral or
written, with respect to the subject matter of this Agreement.
10.15 Arbitration. ANY CONTROVERSY OR CLAIM BETWEEN THE BANK OR THE
BORROWERS INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON
OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC.
(J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OR ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
AGREEMENT MAY BRING ANY ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
COLUMBIA, SOUTH CAROLINA AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
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B. RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO
(I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION
OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; (II) BE A WAIVER BY THE
BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SECTION 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO
(A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF; (B) TO
FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL; OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE RELIEF OR THE APPOINTMENT OF A RECEIVER. THE BANK MAY EXERCISE SUCH
SELF HELP RIGHTS, FORECLOSURE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OR ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT.
10.16 Amendment and Restatement. It is the intent of the parties that
this Agreement constitutes a modification and restatement of a prior loan
agreement and under no circumstances shall constitute a novation of the Loans.
All Loan Documents, including all Mortgages and Security Agreements, are
modified as necessary such that the Collateral securing the Obligations shall
continue to secure the Obligations and the liens in favor of Bank on such
Collateral will maintain the priority originally granted.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered to be effective as of the day and year first written
above.
BORROWERS:
MARTIN COLOR-FI, INC.(SEAL)
STAR FIBERS CORP. (SEAL)
CUSTOM COLORANTS, INC. (SEAL)
BUCHANAN INDUSTRIES, INC. (SEAL)
PALMETTO SPINNING CORPORATION
BANK:
NATIONSBANK, N. A. (SEAL)
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LIST OF EXHIBITS AND SCHEDULES
EXHIBIT 2-2 - Form of Collateral Certificate
EXHIBIT 2-3 - Form of Monthly Borrowing Base Certificate
Schedule 6-1(a) - List of Jurisdictions
Schedule 6-1(h) - List of Indebtedness
Schedule 6-1(s) - List of Collateral Locations
Schedule 6-1(t) - List of Trade Names
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EXHIBIT 10.33
MCF's Taxpayer
Identification No.
57-0879569
SECOND AMENDED AND RESTATED
REVOLVING CREDIT
PROMISSORY NOTE
$25,000,000.00
December 16, 1996
Columbia, South Carolina
FOR VALUE RECEIVED, MARTIN COLOR-FI, INC., a South Carolina corporation
("MCF"), STAR FIBERS CORP., a special purpose South Carolina corporation ("Star
Fibers"), CUSTOM COLORANTS, INC., a South Carolina corporation ("CC"), BUCHANAN
INDUSTRIES, INC., a South Carolina corporation ("BI"), and PALMETTO SPINNING
CORPORATION, a South Carolina corporation ("PS") (MCF, Star Fibers, CC, BI and
PS are individually or collectively as the context requires, referred to as
"Borrower" or "Borrowers"), jointly and severally promise to pay to the order of
NATIONSBANK, N.A. as successor to NATIONSBANK, NATIONAL ASSOCIATION (CAROLINAS)
and to NATIONSBANK OF SOUTH CAROLINA, N.A. a national banking association
("Bank") at its offices in Columbia, South Carolina (or at such other place or
places as the Bank may designate) the principal sum of up to TWENTY-FIVE MILLION
AND NO/100 DOLLARS ($25,000,000.00) under the terms and conditions of this
second amended and restated revolving credit promissory note (the "Note") and in
accordance with that certain Second Amended and Restated Revolving Credit
Promissory Note by and between Borrowers and Bank dated of even date (as further
amended or modified, the "Loan Agreement"). This Note is secured by liens on all
of Borrowers' assets pursuant inter alia to various (i) Security Agreements
dated as of July 14, 1994 and August 9, 1995 (collectively as amended or
modified, the "Security Agreements") (ii) Mortgages, Deeds to Secure Debts,
Security Deeds and other instruments dated as of July 14, 1994 and August 9,
1995 (collectively, as amended or modified, the "Mortgage Instruments"); and
(iii) other agreements by and between Borrowers and Bank. All of the terms,
conditions and covenants of the Loan Agreement, the Security Agreements and the
Mortgage Instruments are expressly made a part of this Note by reference in the
same manner and with the same effect as if set forth herein at length and any
holder of this Note is entitled to the benefits of and remedies provided in the
Loan Agreement, the Security Agreements, the Mortgage Instruments and other
agreements by and between the Borrowers and the Bank. The Bank shall advance
funds under the Revolving Credit Loan evidenced by this Note to the Borrowers
pursuant to the terms of the Loan Agreement. Any Event of Default under the Loan
Agreement is an Event of Default under the terms of this Note.
Definitions. As used herein:
"Leverage Ratio" shall mean the ratio that (total liabilities minus
Subordinated Indebtedness) BEARS TO (Tangible Net Worth plus Subordinated
Indebtedness), as such are computed in accordance with GAAP.
"Prime Rate" shall mean the fluctuating rate of interest established by
Bank from time to time, at its discretion, whether or not such rate shall
be otherwise published. The Prime Rate is established by Bank as an index
or base rate and may or may not at any time be the best or lowest rate
charged by Bank on any loan.
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All other capitalized terms not otherwise defined in this Note shall have the
meaning ascribed to such term in the Loan Agreement.
Interest. Interest on the principal outstanding evidenced by this Note
shall accrue, during each Interest Period, at the lesser of the Prime Rate minus
one-eighth of one-percent (0.125%) or the following, as calculated and
established on each Determination Date:
(i) During such time that the Leverage Ratio is greater than 2.50 to
1.00 but less than 3.00 to 1.00, at a rate per annum equal to
Adjusted LIBOR plus two hundred twenty-five (225) basis points;
and
(ii) During the period of time that the Leverage Ratio is less than or
equal to 2.50 to 1.00, at a rate per annum equal to Adjusted LIBOR
plus two hundred (200) basis points.
Provided, however, during the period of time (x) prior to Borrowers
entering a Swap Agreement; or (y) after Borrowers terminate or modify the
Swap Agreement, interest on the outstanding principal of the Revolving
Credit Loan shall accrue, during each Interest Period, at the lesser of
the Prime Rate or the following, as calculated on each Determination
Date:
(i) During such time that the Leverage Ratio is greater than 2.50 to
1.0 but less than 3.00 to 1.00, at a rate per annum equal to
Adjusted LIBOR plus two hundred forty (240) basis points; and
(ii) During the period of time that the Leverage Ratio is less than or
equal to 2.50 to 1.00, at a rate per annum equal to Adjusted LIBOR
plus two hundred fifteen (215) basis points.
Interest shall be calculated on the basis of a 360 day year and actual number of
days elapsed during each Interest Period. The most recent financial information
delivered to, and reviewed by, Bank in accordance with subsection 7.1(i) or
7.1(j) of the Loan Agreement will govern the calculation of the Leverage Ratio
on each Determination Date for purposes of establishing the interest rate for
each Interest Period. The interest rate shall be fixed during each Interest
Period and shall be adjusted on each successive Determination Date.
Repayment of Principal and Payment of Interest. Principal shall be paid
in a single payment on June 2, 1998 and interest on the outstanding principal
shall be paid monthly commencing on January 12, 1997 and continuing thereafter
on the twelfth (12th) day of each successive month, with a final payment of all
accrued but unpaid interest due and payable at the time of payment of principal.
Additionally, Borrowers must repay outstanding principal in amounts and under
the terms and conditions as set forth in the Loan Agreement.
Acceleration. If payment of all sums due hereunder is accelerated under
the terms of the Loan Agreement or if payment is not made in full at maturity of
this Note, the then outstanding principal and all accrued but unpaid interest
shall bear interest at the rate provided for hereunder plus four percent (4%)
per annum until such principal and interest have been paid in full; provided,
however, that in no event shall this or any other provision herein permit the
collection of any interest which would be usurious under the law governing this
transaction, and if any such interest is collected, the amount above the maximum
rate permitted by law shall be deemed to be a principal payment hereunder.
Prepayment. Borrowers may prepay the Revolving Credit Loan in whole or
part; provided, any such partial prepayment shall be applied to principal and in
the inverse order of scheduled maturities, and, provided further, any
prepayments of the Revolving Credit Loan with the proceeds of a loan or private
placement from a banking institution other than Bank (with the term "banking
institution" to exclude The Robinson-Humphrey Company and other similar
brokerage firms not connected or affiliated with banking institutions) must be
accompanied by a prepayment premium calculated as follows: (1) three percent
(3.0%) of the principal amount prepaid if prepayment occurs during the first
year from the date of this Note; and (2) two percent (2.0%) of the principal
amount prepaid if prepayment occurs at any time thereafter. Notwithstanding
anything to the contrary contained above, Borrowers shall not be obligated to
pay any prepayment premiums in connection with prepayments of the Revolving
Credit Loan made after a merger or other business combination involving the
Borrowers the result of which is that none of the Borrowers is a surviving
entity.
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Late Charges. In the event any payment of interest or principal is
delinquent more than fifteen (15) days, Borrowers will pay to Bank a late charge
of four percent (4%) of the amount of the overdue payment. This provision for
late charges shall not be deemed to extend the time for payment or be a "grace
period" or "cure period" that gives the Borrowers a right to cure a Default
Condition, except as provided in the Loan Agreement. Imposition of late charges
is not contingent upon the giving of any notice or lapse of any cure period
provided for in the Loan Agreement.
Application of Payments. All sums received by the Bank for application to
the Revolving Credit Loan may be applied by the Bank to late charges, expenses,
costs, interest, principal and other amounts owing to the Bank in connection
with the Revolving Credit Loan in the order selected by the Bank in its sole
discretion.
Expenses. In the event this Note is not paid when due at any stated or
accelerated maturity, Borrowers jointly and severally will pay, in addition to
principal and interest, all costs of collection, including reasonable attorneys'
fees.
Governing Law. This Note shall be governed by, and construed in
accordance with, the laws of the State of South Carolina.
Non-waiver. The failure at any time of Bank to exercise any of its
options or any other rights hereunder shall not constitute a wavier thereof, nor
shall it be a bar to the exercise of any of its options or rights at a later
date. All rights and remedies of Bank shall be cumulative and may be pursued
singly, successively or together, at the option of Bank. The acceptance by Bank
of
any partial payment shall not constitute a waiver of any Event of Default or of
any of Bank's rights under this Note or the other Loan Documents. No waiver of
any of its rights hereunder, and no modification or amendment of this Note,
shall be deemed to be made by Bank unless the same shall be in writing, duly
signed on behalf of Bank; and each such waiver, if any, shall apply only with
respect to the specific instance involved, and shall in no way impair the rights
of Bank or the obligations of the Borrower to Bank in any other respect at any
other time.
Partial Invalidity. The unenforceability or invalidity of any provision
of this Note shall not affect the enforceability or the validity of any other
provision herein and the invalidity or unenforceability of any provision of this
Note or of the Loan Documents to any person or circumstance shall not affect the
enforceability or validity of such provision as it may apply to other persons or
circumstances.
Jurisdiction and Venue. In any litigation in connection with or to
enforce this Note or any endorsement or guaranty of this Note or any Loan
Documents, Borrowers, irrevocably consent to and confer personal jurisdiction on
the courts of Richland County, State of South Carolina or the United States
courts located within the State of South Carolina, and expressly waive any
objections as to venue in any such courts, and agree that service of process may
be made on Borrowers by mailing a copy of the summons and complaint by
registered or certified mail, return receipt requested, to their respective
addresses. Nothing contained herein shall, however, prevent Bank from bringing
any action or exercising any rights within any other state or jurisdiction or
from obtaining personal jurisdiction by any other means available by applicable
law.
ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS NOTE OR
ANY RELATED NOTES OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM
AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH
THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW),
THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OR COMMERCIAL DISPUTES
OR JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC. (J.A.M.S.) AND THE "SPECIAL
RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCE, THE SPECIAL RULES
SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT
HAVING JURISDICTION. ANY PARTY TO THE NOTE MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS NOTE APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
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(A) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
BORROWER'S DOMICILE AT THE TIME OF THIS NOTE'S EXECUTION AND ADMINISTERED BY
J.A.M.S. WHO WILL APPOINT AN ARBITRATION; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90
DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A
SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR AN
ADDITIONAL 60 DAYS.
(B) RESERVATION OF RIGHTS. NOTHING IN THIS NOTE SHALL BE DEEMED TO (I)
LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR
REPOSE AND ANY WAIVERS CONTAINED IN THIS NOTE; OR (II) BE A WAIVER BY THE BANK
OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. ss.91 OR ANY SUBSTANTIALLY
EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO
EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO
FORECLOSURE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE
PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS NOTE. NEITHER
THE EXERCISE OR SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN
ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A
WAIVER OF THE RIGHT TO ANY PARTY, INCLUDING THE CLAIMANT IN SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
Bind Effect. This note shall be binding upon and inure to the benefit of
Borrowers and Bank and their respective successor, assigns, heirs and personal
representatives, provided, however, that no obligations of the Borrowers
hereunder can be assigned without prior written consent of Bank.
NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY NOTE AND ANY OTHER
DOCUMENTS EXECUTED IN CONNECTION HEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
Amendment and Modification. This Note is intended to be amendment to and
restatement of that certain Revolving Credit Promissory Note dated July 14, 1994
and that certain Amended and Restated Revolving Credit Promissory Note dated
August 9, 1995 and it is the intent of the parties that this Note be construed
as such and not as a novation.
IN WITNESS WHEREOF, Borrowers have caused this Note to be duly executed
under seal as of the day and year first above written.
WITNESSES: MARTIN COLOR-FI, INC. (SEAL)
STAR FIBERS CORP. (SEAL)
CUSTOM COLORANTS, INC. (SEAL)
BUCHANAN INDUSTRIES, INC. (SEAL)
PALMETTO SPINNING CORPORATION
93
EXHIBIT 10.34
MCF's Taxpayer
Identification No. 57-0879569
SECOND AMENDED AND RESTATED
TERM LOAN
PROMISSORY NOTE
$36,310,000.00
December 16, 1996
Columbia, South Carolina
FOR VALUE RECEIVED, MARTIN COLOR-FI, INC., a South Carolina corporation
("MCF"), STAR FIBERS CORP., a special purpose South Carolina corporation ("Star
Fibers"), CUSTOM COLORANTS, INC., a South Carolina corporation ("CC"), BUCHANAN
INDUSTRIES, INC., a South Carolina corporation ("BI"), and PALMETTO SPINNING
CORPORATION, a South Carolina corporation ("PS") (MCF, Star Fibers, CC, BI and
PS are individually or collectively as the context requires, referred to as
"Borrower" or "Borrowers"), jointly and severally promise to pay to the order of
NATIONSBANK, N.A. as successor to NATIONSBANK, NATIONAL ASSOCIATION (CAROLINAS)
and to NATIONSBANK OF SOUTH CAROLINA, N.A. a national banking association
("Bank") at its offices in Columbia, South Carolina (or at such other place or
places as the Bank may designate) the principal sum of up to THIRTY-SIX MILLION
THREE HUNDRED TEN THOUSAND AND NO/100 DOLLARS ($36,310,000.00) under the terms
and conditions of this second amended and restated revolving credit promissory
note (the "Note") and in accordance with that certain Second Amended and
Restated Revolving Credit Promissory Note by and between Borrowers and Bank
dated of even date (as further amended or modified, the "Loan Agreement"). This
Note is secured by liens on all of Borrowers' assets pursuant inter alia to
various (i) Security Agreements dated as of July 14, 1994 and August 9, 1995
(collectively as amended or modified, the "Security Agreements") (ii) Mortgages,
Deeds to Secure Debts, Security Deeds and other instruments dated as of July 14,
1994 and August 9, 1995 (collectively, as amended or modified, the "Mortgage
Instruments"); and (iii) other agreements by and between Borrowers and Bank. All
of the terms, conditions and covenants of the Loan Agreement, the Security
Agreements and the Mortgage Instruments are expressly made a part of this Note
by reference in the same manner and with the same effect as if set forth herein
at length and any holder of this Note is entitled to the benefits of and
remedies provided in the Loan Agreement, the Security Agreements, the Mortgage
Instruments and other agreements by and between the Borrowers and the Bank. Any
Event of Default under the Loan Agreement is an Event of Default under the terms
of this Note.
Definitions. As used herein:
"Leverage Ratio" shall mean the ratio that (total liabilities minus
Subordinated Indebtedness) BEARS TO (Tangible Net Worth plus Subordinated
Indebtedness), as such are computed in accordance with GAAP.
"Prime Rate" shall mean the fluctuating rate of interest established by
Bank from time to time, at its discretion, whether or not such rate shall
be otherwise published. The Prime Rate is established by Bank as an index
or base rate and may or may not at any time be the best or lowest rate
charged by Bank on any loan.
All other capitalized terms not otherwise defined in this Note shall have the
meaning ascribed to such term in the Loan Agreement.
Interest. Interest on the principal outstanding evidenced by this Note
shall accrue, during each Interest Period, at the lesser of the Prime Rate or
the following, as calculated and established on each Determination Date:
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(i) During such time that the Leverage Ratio is greater than 2.50 to
1.00 but less than 3.00 to 1.00, at a rate per annum equal to
Adjusted LIBOR plus two hundred fifty (250) basis points; and
(ii) During the period of time that the Leverage Ratio is less than or
equal to 2.50 to 1.00, at a rate per annum equal to Adjusted LIBOR
plus two hundred twenty-five (225) basis points.
Provided, however, during the period of time (y) prior to
Borrowers entering into a Swap Agreement; or (y) after Borrowers
terminate or modify the Swap Agreement, interest on the
outstanding principal of the Revolving Credit Loan shall accrue,
during each Interest Period, at the lesser of the Prime Rate plus
one- eight of one percent (0.125%) or the following, as calculated
on each Determination Date:
(i) During such time that the Leverage Ratio is greater than 2.50 to
1.0 but less than 3.00 to 1.00, at a rate per annum equal to
Adjusted LIBOR plus two hundred sixty-five (265) basis points; and
(ii) During the period of time that the Leverage Ratio is less than or
equal to 2.50 to 1.00, at a rate per annum equal to Adjusted LIBOR
plus two hundred forty (240) basis points.
Interest shall be calculated on the basis of a 360 day year and actual number of
days elapsed during each Interest Period. The most recent financial information
delivered to, and reviewed by, Bank in accordance with subsection 7.1(i) or
7.1(j) of the Loan Agreement will govern the calculation of the Leverage Ratio
on each Determination Date for purposes of establishing the interest rate for
each Interest Period. The interest rate shall be fixed during each Interest
Period and shall be adjusted on each successive Determination Date.
Repayment of Principal and Payment of Interest. On the twelfth (12th) day
of each month, commencing on January 12, 1996, during the term of the Term Loan
as evidenced by this Note, equal installments in principal in the amount of
$300,000 plus all accrued but unpaid interest shall be due and payable, with a
final payment of all outstanding principal plus all accrued but unpaid interest
due and payable June 2, 1999. Additionally, on or before the earlier of (i)
thirty (30) days after receipt by Bank of Borrowers' annual audited financial
statements required to be delivered pursuant to section 7.1(i) of the Loan
Agreement, or (ii) July 30th of each year during the term of the Term Loan,
Borrowers shall make an additional payment (each, an "Income Recapture Payment")
equal to twenty-five percent (25%) of Borrowers consolidated net income as
reflected on such audited financial statement or as estimated by Bank if
Borrowers have not received such statement. So long as no Event of Default shall
have occurred or is continuing, each Income Recapture Payment shall be applied
to principal outstanding under the Term Loan evidenced by this Note in the
inverse order of schedule maturities. Borrowers, however, shall not be required
to make an Income Recapture Payment in a year when, based on the then current
audited financial statements of Borrowers for the fiscal year ending immediately
preceding such year, the Leverage Ratio is less than or equal to 1.75 to 1.00.
Acceleration. If payment of all sums due hereunder is accelerated under
the terms of the Loan Agreement or if payment is not made in full at maturity of
this Note, the then outstanding principal and all accrued but unpaid interest
shall bear interest at the rate provided for hereunder plus four percent (4%)
per annum until such principal and interest have been paid in full; provided,
however, that in no event shall this or any other provision herein permit the
collection of any interest which would be usurious under the law governing this
transaction, and if any such interest is collected, the amount above the maximum
rate permitted by law shall be deemed to be a principal payment hereunder.
Prepayment. Borrowers may prepay the Term Loan in whole or in part;
provided, any such prepayment shall be applied to principal in the inverse order
of scheduled maturities, and, provided, further, any prepayments of the Term
Loan with proceeds of a loan or private placement from a banking institution
other than Bank, with the term "banking institutions" to exclude The
Robinson-Humphrey Company and similar brokerage firms not connected or
affiliated with the banking institutions) must be accompanied by a prepayment
premium calculated as follows: (1) Two percent (2.0%) of the principal amount
prepaid if the prepayment occurs on or before July 19, 1995; and (2) One percent
(1.0%) of the principal amount prepaid if the prepayment occurs after July 14,
1996 but before July 14, 1997. Notwithstanding anything to the contrary
contained above, Borrowers shall not be obligated to pay any prepayment premiums
in connection with prepayments of the Term Loan made after a merger or other
business combination involving the Borrowers the result of which is that none of
the Borrowers is the surviving entity.
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Late Charges. In the event any payment of interest or principal is
delinquent more than fifteen (15) days, Borrowers will pay to Bank a late charge
of four percent (4%) of the amount of the overdue payment. This provision for
late charges shall not be deemed to extend the time for payment or be a "grace
period" or "cure period" that gives the Borrowers a right to cure a Default
Condition, except as provided in the Loan Agreement. Imposition of late charges
is not contingent upon the giving of any notice or lapse of any cure period
provided for in the Loan Agreement.
Application of Payments. All sums received by the Bank for application to
the Term Loan may be applied by the Bank to late charges, expenses, costs,
interest, principal and other amounts owing to the Bank in connection with the
Term Loan in the order selected by the Bank in its sole discretion.
Expenses. In the event this Note is not paid when due at any stated or
accelerated maturity, Borrowers jointly and severally will pay, in addition to
principal and interest, all costs of collection, including reasonable attorneys'
fees.
Governing Law. This Note shall be governed by, and construed in
accordance with, the laws of the State of South Carolina.
Non-waiver. The failure at any time of Bank to exercise any of its
options or any other rights hereunder shall not constitute a wavier thereof, nor
shall it be a bar to the exercise of any of its options or rights at a later
date. All rights and remedies of Bank shall be cumulative and may be pursued
singly, successively or together, at the option of Bank. The acceptance by Bank
of any partial payment shall not constitute a waiver of any Event of Default or
of any of Bank's rights under this Note or the other Loan Documents. No waiver
of any of its rights hereunder, and no modification or amendment of this Note,
shall be deemed to be made by Bank unless the same shall be in writing, duly
signed on behalf of Bank; and each such waiver, if any, shall apply only with
respect to the specific instance involved, and shall in no way impair the rights
of Bank or the obligations of the Borrower to Bank in any other respect at any
other time.
Partial Invalidity. The unenforceability or invalidity of any provision
of this Note shall not affect the enforceability or the validity of any other
provision herein and the invalidity or unenforceability of any provision of this
Note or of the Loan Documents to any person or circumstance shall not affect the
enforceability or validity of such provision as it may apply to other persons or
circumstances.
Jurisdiction and Venue. In any litigation in connection with or to
enforce this Note or any endorsement or guaranty of this Note or any Loan
Documents, Borrowers, irrevocably consent to and confer personal jurisdiction on
the courts of Richland County, State of South Carolina or the United States
courts located within the State of South Carolina, and expressly waive any
objections as to venue in any such courts, and agree that service of process may
be made on Borrowers by mailing a copy of the summons and complaint by
registered or certified mail, return receipt requested, to their respective
addresses. Nothing contained herein shall, however, prevent Bank from bringing
any action or exercising any rights within any other state or jurisdiction or
from obtaining personal jurisdiction by any other means available by applicable
law.
ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS NOTE OR
ANY RELATED NOTES OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM
AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH
THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW),
THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OR COMMERCIAL DISPUTES
OR JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC. (J.A.M.S.) AND THE "SPECIAL
RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCE, THE SPECIAL RULES
SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT
HAVING JURISDICTION. ANY PARTY TO THE NOTE MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS NOTE APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
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(A) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
BORROWER'S DOMICILE AT THE TIME OF THIS NOTE'S EXECUTION AND ADMINISTERED BY
J.A.M.S. WHO WILL APPOINT AN ARBITRATION; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90
DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A
SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR AN
ADDITIONAL 60 DAYS.
(B) RESERVATION OF RIGHTS. NOTHING IN THIS NOTE SHALL BE DEEMED TO (I)
LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR
REPOSE AND ANY WAIVERS CONTAINED IN THIS NOTE; OR (II) BE A WAIVER BY THE BANK
OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. ss.91 OR ANY SUBSTANTIALLY
EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO
EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO
FORECLOSURE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE
PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS NOTE. NEITHER
THE EXERCISE OR SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN
ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A
WAIVER OF THE RIGHT TO ANY PARTY, INCLUDING THE CLAIMANT IN SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
Bind Effect. This note shall be binding upon and inure to the benefit of
Borrowers and Bank and their respective successor, assigns, heirs and personal
representatives, provided, however, that no obligations of the Borrowers
hereunder can be assigned without prior written consent of Bank.
NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY NOTE AND ANY OTHER
DOCUMENTS EXECUTED IN CONNECTION HEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
Amendment and Modification. This Note is intended to be amendment to and
restatement of that certain Term Loan Promissory Note dated July 14, 1994 and
that certain Amended and Restated Term Loan Promissory Note dated August 9,
1995, and it is the intent of the parties that this Note be construed as such
and not as a novation.
IN WITNESS WHEREOF, Borrowers have caused this Note to be duly executed
under seal as of the day and year first above written.
WITNESSES: MARTIN COLOR-FI, INC. (SEAL)
STAR FIBERS CORP. (SEAL)
CUSTOM COLORANTS, INC. (SEAL)
BUCHANAN INDUSTRIES, INC. (SEAL)
PALMETTO SPINNING CORPORATION
97
EXHIBIT 10.35
February 18, 1997
Mr. Bret J. Harris
Chief Financial Officer
Martin Color-Fi, Inc.
Star Fibers Corp.
Custom Colorants, Inc.
Buchanan Industries, Inc.
Palmetto Spinning Corporation
P.O. Box 469
Edgefield, SC 29824
Re: Modification of Revolving Credit Loan having a current maximum
principal availability of up to $25,000,000 extended by
NationsBank, N.A.
Dear Bret:
This letter shall serve as a written modification to that certain Second
Amended and Restated Loan and Security Agreement dated to be effective as of
December 16, 1996 (as amended or modified the "Loan Agreement") by and between
Martin Color-Fi, Inc., Star Fibers Corp., Custom Colorants, Inc., Buchanan
Industries, Inc. and Palmetto Spinning Corporation (collectively, the
"Borrowers") and NationsBank, N.A. ("NationsBank").
The Loan Agreement is amended by deleting the provision that reads "(ii)
sixty percent (60%) of the total principal outstanding under the Revolving
Credit Loan during the period of time commencing on any December 16, 1996 and
ending on January 31, 1997" at the end of the next to the last sentence of
Section 2.5 which appears on lines 4,5 and 6 of page 14 and substituting in lieu
thereof the following:
(ii) sixty percent (60%) of the total principal outstanding under
Revolving Credit Loan during the period of time commencing on
December 16, 1996 and ending on April 30, 1997.
The intent of the modification described in this letter is to provide Borrowers
a period of time commencing on December 16, 1996 and ending on April 30, 1997
during which the inventory "cap" will be raised from 50% of the total principal
outstanding under the Revolving Credit Loan to 60% of the total principal
outstanding under the Revolving Credit Loan. From and after May 1, 1997, the
maximum principal advanced and outstanding under the Revolving Credit Loan
against Eligible Inventory shall not exceed, at any time, fifty percent (50%) of
the total principal outstanding under the Revolving Credit Loan.
All capitalized terms not otherwise defined in this letter shall have the
meaning ascribed to such term in the Loan Agreement. All other terms and
conditions of the Loan Agreement and any other document executed in connection
with the Revolving Credit Loan (collectively, the "Loan Documents") shall remain
in full force and effect. Borrowers represent and warrant that, as of the date
of this letter; (i) all representations contained in the Loan Agreement or the
Loan Documents are true and accurate; (ii) all covenants contained in the Loan
Agreement and the Loan Documents have been and remain satisfied; and (iii) no
Event of Default exists or no condition exists which with the giving of notice
for the passage of time, or both, would constitute an Event of Default under
Loan Agreement or the Loan Documents.
As a condition to NationsBank providing the modification to the inventory
"cap" as described herein, Borrowers shall pay to NationsBank a fee equal to
$15,000.00 which is due and payable upon acceptance of this letter by the
Borrowers and must be received by NationsBank prior to NationsBank being bound
by the terms and conditions of this letter agreement.
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Mr. Bret J. Harris
February 18, 1997
Please have all parties execute the original of this letter to indicate
each of the Borrower's agreement to be bound by the terms and conditions of this
letter and return the original fully-executed letter to me as soon as possible.
This letter agreement will be binding on all parties upon our receipt of the
original fully-executed and dated letter and our fee.
Kindest regards,
NationsBank, N.A.
Mary H. "Mze" Wilkins
Senior Vice President
Mr. Bret J. Harris
February 18, 1997
Page 96
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Agreed to on this day of February, 1997.
BORROWERS:
MARTIN COLOR-FI, INC.
STAR FIBERS CORP.
CUSTOM COLORANTS, INC.
BUCHANAN INDUSTRIES, INC.
PALMETTO SPINNING CORPORATION
100
EXHIBIT 10.36
THIRD AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Executed to be effective as of March 27, 1997
by and between
MARTIN COLOR-FI, INC., STAR FIBERS CORP.,
CUSTOM COLORANTS, INC., BUCHANAN INDUSTRIES, INC.,
PALMETTO SPINNING CORPORATION
AND
NATIONSBANK, N.A.
AS SUCCESSOR TO NATIONSBANK, NATIONAL ASSOCIATION (CAROLINAS)
AND NATIONSBANK OF SOUTH CAROLINA, N.A.
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THIS AGREEMENT IS SUBJECT TO THE FEDERAL
ARBITRATION ACT AND THE SOUTH CAROLINA ARBITRATION
ACT SECTION 15-48-10, ET. SEQ. CODE OF LAWS OF
SOUTH CAROLINA 1976 AS AMENDED
TABLE OF CONTENTS
Preliminary Statement..........................................................1
1. DEFINITIONS
1.1. Defined Terms................................................2
1.2. Other Definitional Provisions...............................11
2. THE REVOLVING CREDIT LOAN
2.1. General Terms of the Revolving Credit Loan..................12
2.2. Disbursements of the Revolving Credit Loan..................12
2.3. The Revolving Credit Note...................................13
2.4. Adjustments to Revolving Credit Loan Amount.................13
2.5. Margin Requirements under the Revolving Credit Loan.........13
2.6. Termination of the Revolving Credit Loan....................13
2.7. Fees........................................................13
2.8. Conditional Consent to Inclusion of Assets of
any Approved Subsidiary....................................14
2.9. Account Warranties..........................................14
2.10. Lock Box/Collateral Account.................................14
2.11. Documentation and Security for Revolving Credit Loan........15
2.12. Disbursement to MCF.........................................15
2.13. Verification of Accounts....................................15
3. TERM LOAN
3.1. Term Loan Terms.............................................15
3.2. Repayment of Term Loan......................................15
3.3. Balance.....................................................16
3.1.A. 1997 TERM LOAN.........................................................16
3.1.A. 1997 Term Loan Terms..........................................16
3.2.A. Repayment of 1997 Term Loan...................................16
3.3.A. Disbursements Under 1997 Term Loan............................16
3.4.A. Draw Requests for 1997 Term Loan..............................17
3.5.A. Amount of Each Disbursement...................................17
3.6.A. Fee...........................................................17
4. CONDITIONS FOR DISBURSEMENTS AND OTHER AGREEMENTS
4.1. Conditions Precedent to Disbursements.......................17
4.1.1. Loan Documents.....................................17
4.1.2. Lessor's Waivers/Mortgage's Waivers................17
4.1.3. Wachovia Participation.............................17
4.1.4. Authority Documents................................17
4.1.5. Attorney's Opinion.................................18
4.1.6. Miscellaneous......................................18
4.1.7. No Defaults........................................18
4.1.8. Draw Request.......................................18
4.2. Payment to Bank.............................................18
4.3. Risk of Loss................................................18
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4.4. Waivers.....................................................19
4.5. Intangible Taxes............................................19
5. ADDITIONAL COLLATERAL SECURITY
5.1. Nature of Collateral........................................19
5.2. Rights in Property Held by Bank.............................19
5.3. Rights in Property Held by Borrowers........................19
5.4. Financing Statements........................................20
6. REPRESENTATIONS AND WARRANTIES.
6.1. Original....................................................20
6.2. Survival....................................................24
7. BORROWERS' COVENANTS
7.1. Affirmative Covenants.......................................24
7.2. Negative Covenants..........................................29
7.3. Agreements, Representations and Covenants
of Any Approved Subsidiary.................................30
7.4. Additional Covenants........................................31
8. BANK'S RIGHTS
8.1 Appraisal...................................................31
8.2. Remedies Cumulative; Nonwaiver..............................31
8.3. No Liability of Bank........................................31
8.4. Environmental Assessments...................................31
8.5. Audits......................................................31
9. DEFAULT.
9.1. Events of Default...........................................32
9.2. Acceleration................................................34
9.3. Remedies after Acceleration.................................34
9.4. Remedies Alternative to Acceleration........................35
10. MISCELLANEOUS
10.1. Construction................................................35
10.2. Further Assurances..........................................35
10.3. Enforcement and Waiver......................................35
10.4. Bank's Expenses.............................................35
10.5. Notices.....................................................36
10.6. Waiver and Release by Borrowers.............................36
10.7. Participation...............................................36
10.8. Governing Law...............................................36
10.9. Amendment Agreement.........................................37
10.10. Assignment..................................................37
10.11. Benefit; Binding............................................37
10.12. Severability................................................37
10.13. Counterparts................................................37
10.14. Entire Agreement............................................37
10.15. Arbitration.................................................37
10.16. Amendment and Restatement...................................38
LIST OF EXHIBITS AND SCHEDULES
EXHIBIT 2-2 - Form of Collateral Certificate
EXHIBIT 2-3 - Form of Monthly Borrowing Base Certificate
Schedule 6-1(a) - List of Jurisdictions
Schedule 6-1(h) - List of Indebtedness
Schedule 6-1(s) - List of Collateral Locations
Schedule 6-1(t) - List of Trade Names
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<PAGE>
THIRD AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (the
"Agreement") made and entered to be effective as of this day of March, 1997 by
and between MARTIN COLOR-FI, INC. ("MCF"), a South Carolina corporation, STAR
FIBERS CORP., a South Carolina special purpose corporation and wholly-owned
subsidiary of MCF ("Star Fibers"), CUSTOM COLORANTS, INC., a South Carolina
corporation and wholly-owned subsidiary of MCF ("CC"), BUCHANAN INDUSTRIES,
INC., a South Carolina corporation and wholly-owned subsidiary of MCF ("BI"),
and PALMETTO SPINNING CORPORATION, a South Carolina corporation and wholly-owned
subsidiary of MCF ("PS"). (MCF, Star Fibers, CC, BI and PS are individually or
collectively, as the context requires, referred to as the "Borrower" or
"Borrowers") and NATIONSBANK, N.A., as successor to NATIONSBANK, NATIONAL
ASSOCIATION (CAROLINAS) and NATIONSBANK OF SOUTH CAROLINA, N.A., a federally
chartered banking association ("Bank").
PRELIMINARY STATEMENT.
A. Borrowers have requested Bank to continue to extend credit to Borrowers
in the principal amount of up to $25,000,000 on a revolving loan basis (the
"Revolving Credit Loan"), the proceeds of which will be used (i) to satisfy
Borrowers' working capital needs; (ii) to issue letters of credit in the
aggregate principal amount outstanding at any one time not to exceed $750,000;
(iii) to pay, on a one-time basis, the cost of settlement by MCF of that certain
lawsuit captioned Georgallos v. Martin Color-Fi, Inc. and James F. Martin in an
amount not to exceed $1,150,000 and (iv) to pay Bank approved soft costs
incurred by Borrowers in connection with the making and the closing of
modifications to the Revolving Credit Loan.
B. Borrowers also have requested Bank to continue to extend credit to
Borrowers on a cumulative line of credit/term loan basis in the principal amount
of $36,310,000.00 (the "Term Loan"), the proceeds of which have been (i) to
satisfy existing term indebtedness of MCF and Star Fibers in the approximate
amount of $21,310,000.00; (ii) to purchase the assets of Palmetto Spinning
Corporation and Buchanan Industries, Inc. in the approximate, aggregate amount
of $6,000,000.00; (iii) to finance fiscal year 1994 capital expenditures of
Borrowers in the approximate amount of $3,000,000.00; (iv) to finance fiscal
year 1995 capital expenditures and equipment purchases in an amount not to
exceed $3,000,000.00; (v) to finance fiscal year 1996 capital expenditure and
equipment purchases in an amount not to exceed $3,000,000.00; and (vi) to pay
Bank approved soft costs incurred by Borrowers in connection with the making and
the closing of the modifications Term Loan.
C. Borrowers further have requested Bank to extend a loan to Borrowers on a
cumulative line of credit/term loan basis in the principal amount of up to
$5,000,000 (the "1997 Term Loan"), the proceeds of which will be used (i) to
finance fiscal year 1996 capital expenditures and equipment purchases and up to
$3,000,000 of fiscal year 1997 capital expenditures and equipment purchases; and
(ii) to pay Bank approved soft costs incurred by Borrowers in connection with
the closing of the 1997 Term Loan.
D. Bank has agreed to continue to extend to Borrowers the Revolving Credit
Loan and the Term Loan and to extend to the 1997 Term Loan pursuant to the terms
and conditions of this Agreement.
E. The Revolving Credit Loan and the Term Loan were extended to Borrowers
pursuant to (i) that certain Loan and Security Agreement dated July 14, 1994 as
previously amended pursuant to that
certain First Amendment to Loan Documents and Agreement dated February 15, 1995
by and between Borrowers and Bank and that certain Second Amendment to Loan
Documents and Agreement dated April 7, 1995; and (ii) that certain Amended and
Restated Loan and Security Agreement dated August 9, 1995, as subsequently
amended by other certain letter modification agreements dated December 18, 1995,
February 12, 1996 and October 25, 1996 and respectively; and (iii) that certain
Second Amended and Restated Loan and Security Agreement dated as of December 16,
1996 as amended by that certain letter modification agreement dated February 18,
1997.
NOW, THEREFORE, Borrowers and Bank agree as follows:
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1. DEFINITIONS.
1.1. DEFINED TERMS. As used herein:
"1997 Term Loan" shall mean the cumulative line of credit/term loan
extended by Bank to Borrowers in the original principal amount of up to
$5,000,000.00 pursuant to the terms of, and as more particularly described in,
Article 3A. of this Agreement.
"1997 Term Loan Documents" shall mean and refer to, collectively, all
those certain documents and instruments executed in connection with the 1997
Term Loan, including this Agreement, the 1997 Term Note, the Mortgages, the
Security Agreements, the Assignment of Leases, the Assignment of Contracts, the
Financing Statements and any other documents executed in connection with the
1997 Term Loan as such documents and instruments may be amended, substituted or
renewed from time to time.
"1997 Term Note" shall mean that certain 1997 Term Loan Promissory Note
in the original principal amount of up to $5,000,000.00 dated as of the Closing
Date executed by Borrowers in favor of Bank evidencing the 1997 Term Loan, as
the same may be amended, substituted, modified or renewed from time to time.
"Adjusted LIBOR" means a rate per annum equal to the quotient obtained
(rounded upwards, if necessary, to the next higher 1/100ths of one percent) by
dividing (i) LIBOR by (ii) one minus the LIBOR Reserve Percentage.
"Account Debtor" shall mean any Person who is obligated on or under any
Account.
"Accounts" shall mean any of the Borrowers' presently existing and
hereafter arising or acquired accounts, accounts receivable, margin accounts,
futures positions, book debts, instruments, notes, drafts, acceptances, chattel
paper, and other forms of obligations now or hereafter owned or held by or
payable to any of the Borrowers relating in any way to Inventory or arising from
the sale of Inventory or the rendering of services by any of the Borrowers or
howsoever otherwise arising, including the right to payment of any interest or
finance charges with respect thereto, together with all merchandise represented
by any of the Accounts; all such merchandise that may be reclaimed or
repossessed or returned to any of the Borrowers; all of the Borrowers' rights as
an unpaid vendor, including stoppage in transit, reclamation, replevin, and
sequestration; all pledged assets and all letters of credit, guaranty claims,
liens, and security interests held by or granted to any of the Borrowers to
secure payment of any Accounts; all proceeds and products of all of the
foregoing described properties and interests in properties; and all proceeds of
insurance with respect thereto, including the proceeds of any applicable credit
insurance or fidelity bond, whether payable in cash or in kind; and all ledgers,
books of account, records, computer programs, computer disks or tape files,
computer printouts, computer runs, and other computer prepared information
relating to any of the foregoing.
"Affiliate" shall mean any Person (as hereinafter defined) (i) that
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with any of the Borrowers, including,
without limitation, the officers and directors of any of the Borrowers (ii) that
directly or beneficially owns or holds 5% or more of any equity interest in any
of the Borrowers, or (iii) 5% or more of whose voting stock (or in the case of a
Person which is not a corporation, 5% or more of any equity interest) is owned
directly or beneficially by any of the Borrowers. As used herein, the term
"control" shall mean possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through ownership of securities, by contract or otherwise.
"Approved Subsidiary" or "Approved Subsidiaries" shall mean the
individual or collective reference as the context requires to any wholly-owned
subsidiary of MCF acceptable to Bank in its sole discretion.
"Assignment of Contracts" means the Assignment of Contracts in form and
content acceptable to Bank executed by Borrowers as of July 14, 1994 providing
to Bank a perfected, first priority assignment of all Borrowers' contracts, as
amended or modified.
"Assignment of Lease" means the Assignment of Leases in form and
content acceptable to Bank executed by Star Fibers as of July 14, 1994 providing
to Bank a perfected, first priority security interest and assignment of all
leases related to the Star Fibers Property, as amended or modified.
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"Business Day" shall mean any day other than Saturday, Sunday or other
day on which banks in Columbia, South Carolina are authorized or required to be
closed.
"Chattel Paper," "Contracts," "Documents," "General Intangibles,"
"Goods," "Instruments" and "Proceeds" shall have the same respective meanings as
are given to those terms in the Secured Transactions chapter of the Uniform
Commercial Code as adopted by the State of South Carolina.
"Closing Date" shall mean the date as of which this Agreement is
executed by Borrowers and Bank.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral" shall mean, collectively, all real or personal property on
which a lien is placed or in which a security interest is granted to secure the
Loans pursuant to this Agreement or pursuant to any of the other Loan Documents
which includes all assets of Borrowers.
"Collateral Account" shall mean that certain account established and
maintained pursuant to section 2.10 hereof and any substitute accounts therefor
or replacement accounts thereof;
"Collateral Certificate" shall mean the weekly collateral certificate
delivered by Borrower to Bank pursuant to sections 2.2 and 7.1(k) of this
Agreement substantially in the form attached hereto as Exhibit 2-2, as such
certificate may be amended from time to time.
"Commitment Letter" shall mean Bank's commitment letter dated November
25, 1996 the terms of which are incorporated herein by reference, but to the
extent of any conflict between the terms of this Agreement or Loan Documents and
the Commitment Letter, the terms of this Agreement or the Loan Documents shall
control.
"Dalton Property" shall mean that certain real property more
particularly described on Exhibit A-1 to the Security Agreement, and all
improvements located or to be located thereon.
"Debt Service Ratio" shall mean, for the period in question, the ratio
of (net income after taxes plus depreciation plus amortization plus interest
expense plus non-cash expenditures less dividends) TO (prior year's current
maturities of long term debt plus interest expense plus net capital expenditures
that are not financed under financing arrangements acceptable to Bank in its
sole discretion), all computed in accordance with GAAP. The "Income Recapture
Payment" as required in section 3.2 of this Agreement and in the Term Note shall
not be included in the definition of "prior year's current maturities and
long-term debt" for purposes of calculating the Debt Service Ratio.
"Default Condition" shall mean the occurrence or existence of an event
or condition which, upon the giving of notice or the passage of time, or both,
would constitute an Event of Default.
"Determination Date" shall mean the first Business Day of each calendar
month.
"Dollars" and "$" shall mean dollars and lawful currency of the United
States of America.
"Edgefield Property" shall mean the real property more particularly
described on Exhibit A-2 to the Security Agreement, and all improvements located
or to be located thereon.
"Elkhart Property" shall mean the real property more particularly
described on Exhibit A-3 to the Security Agreement, and all improvements located
or to be located thereon.
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"Eligible Accounts Receivable" shall mean Accounts, Instruments,
Documents, Chattel Paper, Contracts, and General Intangibles from customers of
Borrowers or any Approved Subsidiary in which Bank has a perfected first
priority security interest subject to Bank's credit approvals thereof other than
the following: (i) Accounts which remain unpaid ninety (90) days after the date
of the applicable invoice; (ii) Accounts with respect to which the Account
Debtor is an Affiliate of any of the Borrowers, or a director, officer or
employee of any of the Borrowers; (iii) Accounts with respect to which the
Account Debtor is the United States of America or any department, agency or
instrumentality thereof, unless filings in accordance with the Assignment of
Claims Act have been completed and filed in a manner satisfactory to the Agent
or, as to any government contract entered into after the date of this Agreement,
concurrently with the execution and delivery of that government contract; (iv)
Accounts with respect to which the Account Debtor is not a resident of the
United States or Canada except if such Accounts (1) are secured by irrevocable
trade letter(s) of credit in form and content acceptable to Bank and confirmed
by a United States financial institution acceptable to Bank, (2) are secured by
standby letters of credit with an expiration of date of at least one hundred
twenty (120) days from the date of shipment confirmed by United States Bank
acceptable to Bank and otherwise in form and content acceptable to Bank, or (3)
are insured by a company acceptable to Bank, which insurance covers business and
political risk; (v) Accounts arising with respect to goods which have not been
shipped and delivered to and accepted as satisfactory by the Account Debtor or
arising with respect to services which have not been fully performed and
accepted as satisfactory by the Account Debtor; (vi) Accounts for which the
prospect of payment in full or performance in a timely manner by the Account
Debtor is or is likely to become impaired as determined by the Bank in its
reasonable discretion; (vii) Accounts which are not invoiced (and dated as of
the date of such invoice) and sent to the Account Debtor within fifteen (15)
days after delivery of the underlying goods to, or performance of the underlying
services for, the Account Debtor; (viii) Accounts with respect to which Bank
does not have a first and valid fully perfected security interest; (ix) Accounts
with respect to which the Account Debtor is the subject of bankruptcy or a
similar insolvency proceeding or has made an assignment for the benefit of
creditors or whose assets have been conveyed to a receiver or trustee, except if
Bank is delivered evidence acceptable to Bank as to the collectability in the
normal course of business of such Accounts; (x) Accounts with respect to which
the Account Debtor's obligation to pay the Account is conditional upon the
Account Debtor's approval or is otherwise subject to any repurchase obligation
or return right, as with sales made on a bill-and-hold, guaranteed sale,
sale-and- return, sale on approval (except with respect to Accounts in
connection with which Account Debtors are entitled to return Inventory solely on
the basis on the quality of such Inventory) or consignment basis; (xi) Accounts
with respect to which the Account Debtor is located in Minnesota unless the
applicable Borrower has filed a Notice of Business Activities Report with the
Secretary of State of Minnesota for the then current year; (xiv) all Accounts of
any Account Debtor if twenty-five percent (25.0%) or more of all Accounts of
such Account Debtor have ceased to be Eligible Accounts Receivable; and (xii)
Accounts with respect to which the Account Debtors are residents of Canada to
the extent the aggregate sum exceeds $750,000.00. The approvals of Account
Debtors and Accounts shall be for Bank purposes only and shall not constitute
any representation by Bank as to the credit worthiness of any such Account
Debtor or the advisability or profitability of doing business with such Account
Debtor.
"Eligible Inventory" shall mean Inventory (but not including prepaid
Inventory) which the Bank reasonably determines to meet all of the following
requirements: (a) such Inventory (i) is owned by one of the Borrowers; (ii) is
subject to a perfected, first priority security interest in favor of Bank; and
(iii) is subject to no other lien or encumbrance whatsoever other than Permitted
Liens; (b) such Inventory is in good condition and meets all standards imposed
by any governmental agency, or department or division thereof, having regulatory
authority over such goods, their use or sale; (c) such Inventory is currently
either usable or salable in the normal course of the businesses of Borrowers;
(d) such Inventory is located at one of the locations set forth in this
Agreement; (e) such Inventory is located within the continental United States;
and (f) such Inventory is not determined by Bank in good faith to be ineligible
for any other reason.
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"Environmental Laws" shall mean any and all foreign, federal, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, requirements of any Governmental Authority or requirements of
law (including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment,
as now or may anytime hereafter be in effect.
"Equipment" shall mean all furniture, fixtures, equipment, apparatus,
motor vehicles, tractors, rolling stock, fittings and other tangible personal
property (other than Inventory) of every kind and description used in any of the
Borrowers' business operations or owned by any of the Borrowers and all proceeds
and products thereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Event of Default" shall mean the occurrence of any event specified in
section 9 hereof or as set forth in any of the other Loan Documents.
"Financing Statements" shall mean the Uniform Commercial Code financing
statements executed and delivered by all of the Borrowers, as debtors, naming
Bank, as secured party, to be filed in the applicable recording offices any
jurisdiction (State and County) that Borrowers conduct business or where
collateral is located.
"Funded Debt" shall mean (i) Indebtedness, including Subordinated
Indebtedness, for borrowed money or Indebtedness for the deferred purchase price
of property or services, (ii) obligations evidenced by bonds, notes, debentures
or other similar instruments, and (iii) obligations as lessee under leases which
have been or should be, in accordance with GAAP, recorded as capital leases.
"Funded Debt Ratio" shall mean the ratio, for the period in question,
of Funded Debt to (earnings before interest, taxes, depreciation and
amortization), computed in accordance with GAAP.
"GAAP" shall mean generally accepted accounting principals in the
United States of America in effect from time to time, applied on a consistency
basis.
"Governmental Authority" shall mean any nation or government, any state
or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Indebtedness" shall mean, as to Borrowers, and any Approved
Subsidiary, all items of indebtedness, obligation, or liability thereof, whether
matured or unmatured, liquidated or unliquidated, direct or contingent, joint or
several, and interest due thereon and costs due in connection therewith.
"Indemnification Agreement" shall mean that certain Indemnification
Agreement executed by and among inter alia Cookson America, Inc., S.F.
Liquidation, Inc. and Federal Pacific Electric Company (whose obligations are
guaranteed by Reliance Electric Company) related to the Star Fibers Property.
"Interest Period" shall mean each period of time commencing on a
Determination Date and ending the day before the next successive Determination
Date.
"Inventory" shall have the same meaning as is given to that term in the
Secured Transactions chapter of the Uniform Commercial Code as adopted by South
Carolina, S.C. Code Ann. 36-9-109 (4) (1976), and shall include customer
returns, manufacturers' trade-ins, and repossessions from customers, except
"inventory" does not include any hazardous or toxic substance, by-product,
waste, or other material.
"Land" or "Lands" shall mean, individual or collective references to
those parcels of real property more particularly described in Exhibits A-1
through A-6 to the Security Agreement and the Whitecrest Land.
"Laurens Property" shall mean that certain real property more
particularly described on Exhibit A-4 to the Security Agreement, and all
improvements located or to be located thereon.
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"Laws" shall mean all ordinances, statutes, regulations, orders,
injunctions, writs, or decrees of any governmental or political subdivision or
agency thereof, or any court or similar entity established by any thereof.
"Leverage Ratio" shall mean the ratio of (total liabilities less
Subordinated Indebtedness) TO (Tangible Net Worth plus Subordinated
Indebtedness), as computed in accordance with GAAP.
"LIBOR" shall mean, for each Interest Period, (i) the arithmetic mean
(rounded upwards, if necessary, to the nearest 1/100th of one percent) of the
90-day London Interbank Offered Rates for U. S. Dollar deposits appearing on the
Reuters Screen LIBOR page (or such other display as may replace such page on the
Reuter's Screen) as of 11:00 a.m. London time on the Determination Date included
in such Interest Period, or (ii) if no such rate appears on the Reuters Screen
LIBOR page on such Determination Date, LIBOR will be the arithmetic average
(rounded upward, if necessary, to the next higher 1/100th of one percent) of
rates quoted by not less than two major banks in New York City, selected by the
Bank at approximately 10:00 a.m., Columbia, South Carolina time on such
Determination Date for deposits in U.S. Dollars offered to leading European
Banks, or (iii) if none of the above methods for determining LIBOR shall be
available, a rate determined by a substitute method of determination agreed on
by Borrower and Bank; provided, if such agreement is not reached within a
reasonable period of time (in Bank's judgment), a rate reasonably determined by
Bank as a rate being paid, as of each Determination Date, by first class banking
organizations (as determined by Bank) in the London interbank market for U. S.
Dollar deposits.
"LIBOR Reserve Percentage" means the maximum aggregate rate at which
reserves (including, without limitation, any marginal, supplemental or emergency
reserves) are required to be maintained under Regulation D by member banks of
the Federal Reserve System with respect to dollar funding in the London
interbank market. Without limiting the effect of the foregoing, the LIBOR
Reserve Percentage shall reflect any other reserves required to be maintained by
such member banks by reason of any applicable regulatory change against (i) any
category of liability which includes deposits by reference to which the Adjusted
LIBOR is to be determined or (ii) any category of extensions or credit or other
assets related to LIBOR.
"Loan" or "Loans" shall mean the individual or collective reference, as
the context requires, to the Revolving Credit, the Term Loan and the 1997 Term
Loan.
"Loan Documents" shall mean the collective reference to this Agreement,
the Notes, the Mortgages, the Security Agreements, the Assignment of Leases,
Assignment of Contracts, the Financing Statements, the Swap Agreement, and any
other documents or instruments executed in connection with the Loans.
"Material Environmental Amount" shall mean an amount payable by any of
the Borrowers in excess of $100,000.00 for remedial costs, compliance costs,
compensatory damages, punitive damages, fines, penalties or any combination of
these.
"Materials of Environmental Concern" shall mean any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum products or
any hazardous or toxic substances, materials or waste, defined or regulated as
such in or under any Environmental Law (including, without limitation, asbestos,
polychlorinated biphenyls and ureaformaldehyde insulation.
"Monthly Borrowing Base Certificate" shall mean the borrowing base
certificate submitted by Borrower to Bank pursuant to sections 2.2 and 7.1(k) of
this Agreement, substantially in the form attached hereto as Exhibit 2-3, as the
same may be amended from time to time.
"Mortgage" or "Mortgages" shall mean the individual or collective
reference as the context requires to those certain mortgages, deeds to secure
debt, deeds of trust or other documents executed by the applicable Borrower
pursuant to which Bank is granted a title-insured, first priority lien on the
Properties, as may be amended or modified.
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"Multiemployer Plan" shall mean a Plan which is a Multiemployer Plan as
defined in Section 4001(a)(3) of ERISA.
"Notes" shall mean and refer to, collectively, the Revolving Credit
Note, the Term Note, the 1997 Term Note and any other notes as may be
outstanding from time to time, under this Agreement, which are properly
executed, completed, and delivered to Bank, as the same may be amended from time
to time, and all other notes delivered in substitution, addition, or exchange
for any thereof.
"Obligations" means the joint and several obligations of Borrowers: (a)
to pay the principal of and interest on the Notes in accordance with the terms
thereof, to reimburse Bank for Bank's expenses pursuant to section 10.4, and to
pay or satisfy all of its other obligations of Borrowers to Bank whether
hereunder or otherwise including obligations under any Swap Agreement with the
Bank, whether now existing or hereafter incurred, matured or unmatured, direct
or contingent, joint or several, including any extensions, modifications, or
renewals thereof; (b) to repay Bank all amounts advanced hereunder or otherwise
on behalf of Borrowers, including without limitation advances for principal or
interest to prior secured parties, mortgagees, or lienors, or for taxes, levies,
rent, insurance, repairs to or maintenance or storage of any of the Collateral;
and (c) to reimburse Bank, on demand, for all of Bank's expenses and costs,
including the reasonable fees and expenses of its counsel, in connection with
any proceeding brought to enforce payment of any of the obligations referred to
in the foregoing paragraph (a) or (b) or otherwise in connection with the
enforcement or maintenance of the Loans.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Permitted Encumbrances" shall mean all existing encumbrances against
any of the Collateral, including the Properties, specifically approved by Bank
in writing which include the encumbrances set forth in Exhibit B's to the
Mortgages.
"Person" shall mean an individual, any entity, or government or
political subdivision or agency thereof, as may be appropriate.
"Plan" shall mean at a particular time, any employee benefit plan which
is covered by ERISA and in respect of which Borrower is (or if such Plan were
terminated at such time, would be under Section 4069 of ERISA deemed) an
"Employer" as defined in Section 3(5) of ERISA.
"Properties" shall mean the collective reference to the Dalton
Property, the Edgefield Property, the Elkhart Property, the Laurens Property,
the Star Fibers Property, the Sumter Property and the Whitecrest Property.
"Reportable Event" shall mean any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty (30) day notice
period is waived under Subsection .13, .14, .16, .18, .19 or .20 of PBGC Reg.
ss. 2615.
"Revolving Credit Loan" shall mean the revolving credit loan in the
maximum principal amount of up to $25,000,000.00 pursuant to the terms of and as
more particularly set forth in Article 2 of this Agreement.
"Revolving Credit Loan Documents" shall mean and refer to,
collectively, all those certain documents and instruments executed in connection
with the Revolving Credit Loan including this Agreement, the Revolving Credit
Note, the Mortgages, the Security Agreements, the Assignment of Leases,
Assignment of Contracts, Financing Statements and any other documents executed
in connection with the Revolving Credit Loan as such documents and instruments
may be amended, substituted or renewed from time to time.
"Revolving Credit Note" shall mean and refer to that certain second
amended and restated revolving credit promissory note in the original principal
amount of up to $25,000,000.00 dated December 16, 1996 executed by Borrowers in
favor of Bank evidencing the Revolving Credit Loan which is an amendment and
restatement of that certain Revolving Credit Note in the original principal
amount of $28,000,000 dated as of July 14, 1994 and that certain Amended and
Restated Revolving Credit Promissory Note in the original principal amount of
$25,000,000 dated as of August 9, 1995 as the same may be amended, renewed or
substituted from time to time.
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"Security Agreement" or "Security Agreements" shall mean the individual
or collective reference as the context requires to those certain security
agreements executed by the Borrowers pursuant to which Bank is granted a
perfected, first priority security interest in all personal property of
Borrowers, now owned or hereafter acquired and wherever located, including,
Accounts, Inventory and Equipment, as may be amended, modified, or restated from
time to time.
"Single Employer Plan" shall mean any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.
"Star Fibers Property" shall mean that certain real property more
particularly described on Exhibit A-5 to the Security Agreement, and all
improvements located or to be located thereon.
"Subordinated Debt" shall mean Subordinated Indebtedness of MCF owed to
(a) William Fred Davis, Jr., Mary Brown Davis, Natalie Lynn Davis and William
Fred Davis, Jr., as Custodian for Shelly Leigh Davis, a Minor, and (b) Buchanan
Industries, Inc., a Georgia corporation, its shareholders or their successors
and assigns.
"Subordinated Indebtedness" shall mean all Indebtedness incurred at any
time by any of the Borrowers and owed to Affiliates of Borrowers any other
Indebtedness required to be subordinated by Bank pursuant to subordination
agreements acceptable to Bank.
"Sumter Property" shall mean that certain real property more
particularly described on Exhibit A-6 to the Security Agreement, and all
improvements located or to be located thereon.
"Swap Agreement" shall mean any swap agreement executed by the
Borrowers and a provider of an interest rate swap, the form, terms and provider
of such agreement to be in form and content acceptable to Bank, pursuant to
which Borrowers "swap" all or a portion of the risk associated with the variable
interest rates provided for under the Notes with a fixed rate, as such agreement
may be amended or modified from time to time.
"Tangible Net Worth" shall mean stockholder's equity of Borrowers
prepared on a consolidated basis determined in accordance with GAAP, with no
adjustment due to re-evaluation of assets, except as required by GAAP, minus the
sum of the book value assets which are treated as intangibles under GAAP,
including, but not limited to, leasehold improvements, good will, tradenames,
trademarks, copy rights, patents, franchise agreements and unamortized debt
expenses.
"Term Loan" shall mean the term loan extended by Bank to Borrowers in
the original principal amount of up to $36,310,000.00 pursuant to the terms of
and as more particularly described in Article 3 of this Agreement.
"Term Loan Documents" shall mean and refer to, collectively, all those
certain documents and instruments executed in connection with the Term Loan
including this Agreement, the Term Note, the Mortgages, the Security Agreements,
the Assignment of Leases, the Assignment of Contracts, the Financing Statement
and any other documents executed in connection with the Term Loan as such
documents and instruments may be amended, substituted or renewed from time to
time.
"Term Note" shall mean that certain second amended and restated term
loan promissory note in the original principal amount of $36,310,000.00 dated as
of December 16, 1996 executed by Borrowers in favor of Bank evidencing the Term
Loan which is an amendment and restatement of that certain Term Loan Promissory
Note in the original principal amount of $36,310,000.00 dated July 14, 1994 and
that certain Amended and Restated Term Loan Promissory Note in the original
principal amount of $36,310,000 dated as of August 9, 1995, as the same may be
amended, substituted, modified or renewed from time to time.
"Value" means with respect to any Inventory, the lesser of (i) the fair
market value of such Inventory; and (ii) the cost of such Inventory calculated
in accordance with the "specific identification" method.
"Wachovia" shall mean Wachovia Bank of South Carolina, N. A. and its
successors and assigns.
"Whitecrest Land" shall mean that certain approximately 4 acre parcel
of real property located on Brookhollow Industrial Boulevard, Dalton, Georgia.
"Whitecrest Property" shall mean the Whitecrest Land and all
improvements located or to be located thereon.
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1.2. OTHER DEFINITIONAL PROVISIONS:
(a) Unless otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in the
Notes or any other of the Loan Documents unless the context
would specifically require otherwise.
(b) As used herein and in the Notes, and in any of the other Loan
Documents, accounting terms relating to any of the Borrowers
not defined in Subsection 1.1 and accounting terms partly
defined in Subsection 1.1, to the extent not defined, shall
have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provisions of
this Agreement.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such
terms.
2. THE REVOLVING CREDIT LOAN.
2.1. General Terms of the Revolving Credit Loan. During the
continuation of this Agreement and subject to the terms of this Agreement, Bank
will lend, on a revolving credit basis, to Borrower and Borrowers will borrow
from Bank such sums as Borrowers may from time to time request but which will
not exceed an aggregate principal amount outstanding at any one time, equal to
the lesser of (a) the amount available to be outstanding in accordance with the
margin requirements stated in section 2.5 hereof, or (b) Twenty-Five Million and
No/100 Dollars ($25,000,000.00), which amount may be subject to adjustment as
provided in this Agreement. The proceeds of the Revolving Credit Loan shall be
used for the purposes set forth in Paragraph A of the Preliminary Statement
section of this Agreement. The face amount of any letter(s) of credit issued by
Bank naming any of the Borrowers as account party shall be included in the
principal amount outstanding under the Revolving Credit Loan. Borrowers will be
required to make repayments of principal under the Revolving Credit Loan (i) as
and when and in amounts necessary such that the margin requirements contained in
Section 2.5 of this Agreement are satisfied at all times, (ii) immediately upon
demand by Bank in connection with an acceleration of the Revolving Credit Loan
pursuant to Section 9.2 of this Agreement, and (iii) immediately upon the
termination of Article 2 of this Agreement in accordance with Section 2.6 of
this Agreement.
2.2. Disbursements of the Revolving Credit Loan. During the continuance
of Article 2 of this Agreement, disbursements of principal under the Revolving
Credit Loan may be made on any Business Day, provided that, in addition to all
other terms of this Agreement: (A) Borrowers shall have delivered to Bank oral
or written notice in form and content acceptable to Bank no later than 11:00
a.m. (Columbia, South Carolina time) on the proposed funding date, which notice
shall specify the proposed funding day, the amount requested and contain other
information required by Bank. (B) Borrowers and any Approved Subsidiary shall
have delivered to Bank an executed, properly completed then current Monthly
Borrowing Base Certificate and a then current weekly Collateral Certificate,
with the then current Collateral Certificate governing the availability under
the Revolving Credit Loan for the current week; and (C) no Event of Default or
Default Condition has occurred. Each delivery of an executed and properly
completed Monthly Borrowing Base Certificate and Collateral Certificate shall
constitute a representation by the Borrowers and any Approved Subsidiary that,
as of the date of such Monthly Borrowing Base Certificate or Collateral
Certificate, (1) all material representations and warranties made by the
Borrowers or any Approved Subsidiary in this Agreement are true and correct,
unless otherwise disclosed to Bank in writing and approved by Bank, (2)
Borrowers or any Approved Subsidiary have not failed to observe any of its
undertakings hereunder, (3) no Event of Default has occurred, and (4) no fact,
condition, or event has occurred or exists that, with the giving of notice or
the passage of time or both, could become an Event of Default. Bank will credit
the proceeds of all disbursements under the Revolving Credit Loan to the
Collateral Account. Bank shall not incur any liability to any of the Borrowers
(i) for acting upon any telephonic notice or other oral notice for a requested
disbursement that Bank believes in good faith was given by the Controller, the
Chief Financial Officer or another officer deemed acceptable to Bank in its sole
discretion, or (ii) for otherwise acting good faith in disbursing proceeds under
the Revolving Credit Loan.
2.3. The Revolving Credit Note. The Revolving Credit Loan shall be
evidenced by and repaid in accordance with the Revolving Credit Note the terms
of which are incorporated herein by reference, and the Revolving Credit Loan
shall be repaid in accordance with the terms of this Agreement or Revolving
Credit Note.
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2.4. Adjustments to Revolving Credit Loan Amount. Bank may, at
Borrowers request and at Bank's sole discretion, consent to an increase in the
amount of the Revolving Credit Loan. If such increase is temporary, all payments
received by Bank shall be applied in Bank's discretion to the reduction of the
balance evidenced by the Revolving Credit Note or any other note in addition to
the Revolving Credit Note evidencing the Revolving Credit Loan.
2.5. Margin Requirements under the Revolving Credit Loan. In addition
to the limitations set forth in Section 2.01 of this Agreement, the aggregate
principal amount outstanding at any one time under the Revolving Credit Loan may
not exceed, as determined in accordance with the most current Collateral
Certificate, the sum of: (a) ninety percent (90.0%) of the face value of
Borrowers and any Approved Subsidiary's Eligible Accounts Receivable which are
subject to factoring agreements with NationsBanc Commercial Corporation that are
acceptable to Bank; plus (b) 80% of the face value of Borrowers and any Approved
Subsidiary's Eligible Accounts Receivable which are not subject to factoring
agreements with NationsBanc Capital Corporation that are acceptable to Bank;
plus (c) fifty percent (50.0%) of the Value of Borrowers and any Approved
Subsidiary's Eligible Inventory; provided, however, that the aggregate principal
amount outstanding under the Revolving Credit Loan supported by Borrowers' and
any Approved Subsidiaries' Eligible Inventory shall not exceed, at any one time,
(i) fifty percent (50%) of the total principal outstanding under the Revolving
Credit Loan at all times except as provided in (ii) below; and (ii) sixty
percent (60%) of the total principal outstanding under the Revolving Credit Loan
during the period of time commencing on December 16, 1996 and ending on April
30, 1997. The availability under the Revolving Credit Loan for each week shall
be determined by the then current Collateral Certificate delivered in accordance
with Section 7.1(k).
2.6. Termination of the Revolving Credit Loan. This Agreement as it
relates to the Revolving Credit Loan shall be terminated: (a) by Bank on notice
to Borrower at any time in connection with any acceleration pursuant to section
9.2; or (b) if not sooner demanded on June 2, 1998. Termination of this
Agreement as it relates to the Revolving Credit Loan shall in no way affect or
impair any right of Bank arising prior thereto or by reason hereof, nor shall
any such termination relieve Borrowers of any Obligations under the Revolving
Credit Loan until all Obligations under the Revolving Credit Loan are fully paid
and performed, nor shall any such termination affect any right or remedy of Bank
arising from any other Obligations. All agreements, warranties, and
representations of Borrowers shall survive termination.
2.7. Fees. In connection with Bank providing the renewal commitment for
the Revolving Credit Loan, Borrowers shall pay a commitment fee equal to
$20,000. Bank acknowledges receipt of this fee. Borrowers further shall pay a
user fee under the Revolving Credit Loan on a quarterly basis, to be assessed,
and due and payable on the 2nd day of each January, April, July, and October,
during the term of the Revolving Credit Loan, which fee will equal one-eighth of
one percent (0.125%) per annum of the average unused portion of the Revolving
Credit Loan calculated on a daily basis.
2.8. Conditional Consent to Inclusion of Assets of any Approved
Subsidiary. Bank and Borrowers contemplate that Borrowers will include on its
Monthly Borrowing Base Certificate and Collateral Certificate certain assets of
Approved Subsidiaries. Prior to any such inclusion and as a condition to Bank's
obligation to fund proceeds under the Revolving Credit Loan based on the
inclusion of such assets, Borrower shall cause any such Approved Subsidiary to
execute any documents and instruments reasonably required by Bank, including,
without limitation, documents and instruments (a) to perfect Bank's first
priority security interest in any such assets; (b) to confirm that any such
Approved Subsidiary agrees and consents to the terms of this Agreement; and (c)
to provide Bank the Approved Subsidiary's unconditional guaranty of or become a
co-obligor under the Obligations.
2.9. Account Warranties. With respect to Accounts scheduled, listed or
referred to on any Collateral Certificate or Monthly Borrowing Base Certificate,
the Borrowers warrant and represent to the Bank that, except as otherwise
disclosed: (i) the Accounts are genuine, are in all respects what they purport
to be, and are not evidenced by a judgment; (ii) they represent undisputed, bona
fide transactions completed in accordance with the terms and provisions
contained in the documents delivered to the Agent with respect thereto; (iii)
the amounts shown on the applicable Collateral Certificate or Monthly Borrowing
Base Certificate and on the Borrowers' books and records and all invoices and
statements which may be delivered to the Bank with respect thereto are actually
and absolutely owing to one of the Borrowers and are not in any way contingent;
(iv) there are no setoffs, counterclaims or disputes existing or asserted with
respect thereto and the Borrowers have not made any agreement with any Account
Debtor for any deduction therefrom except a discount or allowance in the
ordinary course of business for prompt payment; (v) to the best of the
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Borrowers' knowledge there are no facts, events or occurrences which in any way
impair the validity or enforcement thereof or tend to reduce the amount payable
thereunder as shown on the respective Collateral Certificate or Monthly
Borrowing Base Certificate the Borrowers' books and records and all invoices and
statements delivered to the Agent with respect thereto; (vi) to the best of the
Borrowers' knowledge as of the date any certificate or report delivered to Bank
pursuant to this Agreement, all Account Debtors have the capacity to contract
and are solvent; (vii) the services furnished and/or goods sold giving rise
thereto are not subject to any lien, claim, encumbrance or security interest
except that of the Borrowers', or Bank, and except as expressly contemplated
hereby; and (viii) except as otherwise disclosed to Bank in writing, to the best
of the Borrowers' knowledge as of the date of any certificate or report
delivered to Bank pursuant to this Agreement, there are no proceedings or
actions which are threatened or pending against any Account Debtor which might
result in any material adverse change in such Account Debtor's financial
condition.
2.10. Lock Box/Collateral Account. Borrowers must direct all
collections to a Bank lock box. Additionally, Bank shall continue to maintain a
Collateral Account into which Borrower will deposit all payments and other
income received by Borrowers, except such payments and other income, if any,
that Bank may exclude in writing from time to time. Bank shall have exclusive
possession, custody and control of and over the balances in the Collateral
Account, as they may exist from time to time, except as provided hereinafter
with respect to joint control over certain disbursements therefrom. Such
deposits will be made no later than the first business day following receipt
thereof by Borrower or receipt by Bank from the lock box. All such deposits will
be in the original form received by Borrowers except for such endorsements as
may be necessary, and Borrowers hereby authorize Bank to execute such
endorsement on behalf of Borrowers. Pending such deposit, Borrowers will hold
such payment, checks, drafts, and income separate from other funds and property
and upon express trust for Bank. Funds may be withdrawn from the Collateral
Account only by Borrower with Bank's consent, except that Bank may withdraw
funds at any time for application against any Obligations in the order and
method desired by Bank, and Bank shall give Borrowers notice of any withdrawal
within a reasonable period of time after such withdrawal. Each such deposit and
the proceeds thereof shall continue to be Collateral hereunder and shall not
constitute the payment of any Obligations until specifically applied thereto.
2.11. Documentation and Security for Revolving Credit Loan. The terms
and provisions of the other Revolving Credit Loan Documents are incorporated
herein by reference and are still in full force and effect. All of the other
Revolving Credit Loan Documents which grant liens in favor of or assign rights
to Bank also are in full force and effect. The security interests granted
pursuant to the other Revolving Credit Loan Documents are in addition to the
security interest and assignments granted in favor of Bank elsewhere in this
Agreement or any of the other Loan Documents to secure the Obligations of
Borrower under the Revolving Credit Loan.
2.12. Disbursement to MCF. Borrowers agree that all disbursements made
by Bank under the Revolving Credit Loan shall be made to or for the benefit of
MCF as described in Section 2.2 of this Agreement and any such disbursements
made to MCF shall be made for the benefit of the other Borrowers if so stated in
Borrowers' written request pursuant to section 2.02. Borrowers further (A)
consent to any and all disbursements made by Bank to MCF; (B) agree that Bank
shall incur no liability in connection with the Revolving Credit Loan or any
disbursements made under the Revolving Credit Loan; (C) will not contest any
disbursement made by Bank; (D) acknowledge the direct benefit of the Revolving
Credit Loan and disbursements of proceeds under the Revolving Credit Loan to
MCF; and (E) acknowledge and agree to their liability for and under the
Revolving Credit Loan and all Obligations.
2.13. Verification of Accounts. The Bank shall have the right, during
the pendency of an Event of Default, in the Bank's name, to verify the validity,
amount or any other matter relating to any Account, by mail, telephone, or in
person.
3. TERM LOAN.
3.1. Term Loan Terms. The Bank has fully disbursed to Borrowers all
proceeds available under the Term Loan. The Term Loan is evidenced by the Term
Note. The proceeds of the Term Loan were used by Borrowers for the purposes set
forth in Paragraph B of the Preliminary Statement section of this Agreement.
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3.2. Repayment of Term Loan. The outstanding principal balance of the
Term Loan shall bear interest and principal and interest shall be repayable in
accordance with the terms of the Term Note. In addition to the scheduled and
other repayments of the Term Loan as set forth in the Term Note or elsewhere in
this Agreement, Borrowers must make an additional annual repayment as set forth
in the Term Note (each, an "Income Recapture Payment") which shall be due and
payable on the earlier of (i) thirty (30) days after receipt by Bank of
Borrowers' audited financial statements required to be delivered pursuant to
Section 7.1(i) of this Agreement, or (ii) July 30th of each year during the term
of the Term Loan. The amount of each Income Recapture Payment shall be equal to
twenty-five percent (25%) of Borrowers' consolidated net income as reflected on
such current audited financial statement or as estimated by Bank if Borrowers
have not received such statement. So long as no Event of Default shall have
occurred or is continuing, each Income Recapture Payment shall be applied to
principal outstanding under the Term Loan evidenced by the Term Note in the
inverse order of scheduled maturities. Borrowers, however, shall not be required
to make an Income Recapture Payment in a year when, based on the then current
audited financial statements of Borrowers for the fiscal year ending immediately
preceding such year, the Leverage Ratio is less than or equal to 1.75 to 1.00.
3.3. Balance. The Borrowers and the Bank acknowledge and agree that the
principal balance of the Term Loan as of the date of this Agreement is
$27,283,100.
3.A. 1997 TERM LOAN.
3.1.A. 1997 Term Loan Terms. Subject to the terms and conditions of
this Agreement, Bank will lend and Borrowers will borrow up to a principal sum
of the lesser of: (A) $5,000,000.00; or (B) the difference of (i) seventy-five
percent (75.0%) of the value determined by Bank of Collateral (other than
Accounts and Inventory) owned by Borrowers and otherwise acceptable to Bank at
any one time; and (ii) the principal outstanding under the 1997 Term Loan.
Borrowings under the 1997 Term Loan shall be on a cumulative line of credit/term
basis and will be evidenced by the 1997 Term Note. The proceeds of the 1997 Term
Loan will be used by Borrowers for the purposes set forth in Paragraph C of the
Preliminary Statement section of this Agreement.
3.2.A. Repayment of 1997 Term Loan. The outstanding principal balance
of the 1997 Term Loan shall bear interest and principal and interest shall be
repayable in accordance with the terms of the 1997 Term Note.
3.3.A. Disbursements Under 1997 Term Loan. Subject to the terms of this
Agreement, Bank shall disburse, upon the request of Borrower, to or for the
benefit of Borrowers proceeds available under the 1997 Term Loan. Bank agrees
that it will, from time to time, but no more frequently than once a month,
disburse proceeds of the 1997 Term Loan under the following conditions and so
long as all of the following items have been satisfied in a manner acceptable to
Bank: (i) no Default Condition or Event of Default exists; (ii) Borrowers are in
compliance with all covenants of this Agreement and the Loan Documents; (iii)
Bank approves Borrowers' capital expenditure budget for fiscal year 1997 and
other information deemed necessary by Bank, including the business plan of
Borrowers, which justifies the need for such expenditures and outlines projected
increases in revenues based on such expenditures; and (iv)
principal outstanding under the 1997 Term Loan does not and will not exceed the
amounts set forth in Section 3.1.A above. Proceeds of the 1997 Term Loan will be
available to Borrowers only for the period of time commencing on the Closing
Date and ending on December 31, 1997, and Bank will not be obligated to advance
to Borrowers any unfunded portion of the 1997 Term Loan after December 31, 1997.
3.4.A. Draw Requests for 1997 Term Loan. At least one (1) day prior to
each 1997 Term Loan disbursement by the Bank, Borrowers must submit to the Bank
a draw request in the form acceptable to Bank, which shall include a completed
request for disbursement in a format acceptable to the Bank setting forth the
amount of 1997 Term Loan proceeds desired, together with such certifications and
additional information as the Bank may require, including invoices for that
portion of the Equipment to be purchased (or other approved expenditures made
(or for which Borrowers shall request to be reimbursed)) with such 1997 Term
Loan proceeds, signed by an appropriate representative for the Borrowers, for
the purpose of submitting any such draw requests.
3.5.A. Amount of Each Disbursement. Subject to the provisions of this
Agreement, Bank shall disburse proceeds under the 1997 Term Loan in the amount
of 75% at an aggregate value of invoices submitted with each draw request for
Equipment or other approved expenditures made by the Borrowers which
expenditures previously have not been funded with proceeds under the 1997 Term
Loan.
3.6.A. Fee. Borrower shall pay a fee equal to $12,500.00 in connection
with the 1997 Term Loan, which fee shall be due on the day the initial
disbursement of such proceeds is made.
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4. CONDITIONS FOR DISBURSEMENTS AND OTHER AGREEMENTS
4.1. Conditions Precedent to Disbursements. Bank shall not be obligated
to consummate the transaction contemplated by this Agreement or to make any
further disbursements under the Revolving Credit Loan until all of the following
conditions have been satisfied by proper evidence, execution and/or delivery to
Bank of the following items, all in form and substance reasonably satisfactory
to Bank and Bank's counsel:
4.1.1. Loan Documents. The Loan Documents.
4.1.2 Lessor's Waivers/Mortgage's Waivers: Fully executed Lessor's
Waivers and Mortgagee's Waivers in form and content acceptable to Bank for all
locations, other than the Properties, where any Collateral is or will be
located.
4.1.3 Wachovia Participation. Bank receives the fully executed
Amendment and Restated Participation Agreement, from Wachovia, in form and
content acceptable to Bank, related to the consummation of the transactions
contemplated by this Agreement and otherwise outlining the rights between Bank
and Wachovia.
4.1.4 Authority Documents: (a) Articles of incorporation certified by
the office of the Secretary of State of South Carolina of Borrowers; (b) Bylaws
of Borrowers, certified by an officer of the Borrowers; (c) current Certificate
of Existence of Borrowers issued by the Secretary of State of South Carolina and
Tax Compliance Letters on Borrowers issued by the South Carolina Tax Commission;
(d) Affidavit on behalf of Borrowers; (e) Officer's and Incumbency Certificate
of Borrowers; (f) Corporate Resolutions of Borrowers and (f) Certificates of
Foreign Qualification from the applicable office in any State where any of the
Borrowers conduct business.
4.1.5 Attorney's Opinion: The written opinion of Sinkler & Boyd, P.A.,
counsel to Borrowers as to the following matters:
(a) Enforceability: The Loan Documents have been properly executed
by the persons authorized to do so and establish legally
binding and enforceable obligations on the part of Borrowers:
(b) Litigation: As of the Closing Date, Borrowers is not, to the
best knowledge of Borrower's counsel, a party to any
litigation, which, if adversely determined, would impair the
right of Borrowers to carry on its business substantially as
now conducted or contemplated or would materially adversely
affect the financial conditions, business or operations of
Borrowers:
(c) Usury: The fees and interest charged by Bank in connection
with the Loans do not violate any usury or other similar laws
of the State of South Carolina or the laws of the United
States;
(d) Miscellaneous: As to such other matters as Bank may reasonably
request.
4.1.6 Miscellaneous: All Loan Documents or items that are customarily
provided in loan transactions of this type and all other loan documents or items
set forth in the Commitment.
4.1.7 No Defaults: No Default Condition or Event of Default shall
exist.
4.1.8 Draw Request: Bank shall have received the Borrowers' request for
disbursement under the Revolving Credit Loan.
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4.2. Payment to Bank. All sums payable to Bank under the Loans shall be
paid directly to Bank in immediately available funds prior to 12:00 Noon,
Columbia, South Carolina time, on the due date of any such sums payable. Bank
shall send to Borrowers statements of all amounts due hereunder, which
statements shall be deemed correct and conclusively binding on Borrower unless
Borrower notifies Bank in writing to the contrary within one (1) year of the
date of the statement which Borrower considers incorrect. Alternatively, at
Bank's discretion and with prior notice to Borrower, Bank may charge against any
deposit account of Borrower all or any part of any amount due hereunder.
4.3. Risk of Loss. As between Borrowers and Bank, Borrowers shall bear
all risk of loss of or fluctuation in value of each item of Collateral.
4.4. Waivers. Borrowers hereby waive and forever release from, and
agree to indemnify and hold the Bank harmless for, any and all claims, causes of
action or any other loss that Bank may incur in connection with the making,
closing or administration of the Loans.
4.5 Intangible Taxes. Borrower has paid intangible taxes (i) related to
the Dalton Property Deed to Secure Debt held by Bank based on the value of the
Dalton Property being equal to $2,000,000.00 and (ii) related to the Whitecrest
Property Deed to Secure Debt held by Bank based on the value of the Whitecrest
Property being equal to $1,310,000.00. From time to time, Borrowers upon the
demand of Bank must pay any additional intangible taxes related to the Dalton
Property Deed to Secure Debt or the Whitecrest Property Deed to Secure Debt (i)
based on an increase in the value of the Dalton Property or the Whitecrest
Property, as applicable, as reflected on any current appraisal, or (ii) as
otherwise required under the laws of the State of Georgia.
5. ADDITIONAL COLLATERAL SECURITY.
5.1. Nature of Collateral. In addition to all other liens, assignments
and all other rights of Bank granted pursuant to any of the Loan Documents, the
Collateral, together with all of Borrowers' other property of any kind held by
Bank, shall stand as one general, continuing collateral security for all
Obligations and may be retained by Bank until all Obligations have been
satisfied in full.
5.2. Rights in Property Held by Bank. As security for the timely
satisfaction of all Obligations and in addition to all other liens, assignments
and all other rights of Bank granted pursuant to any of the Loan Documents,
Borrowers hereby continue to assign, transfer, and set over to Bank a lien on
and a security interest in all amounts that may be owing from time to time by
Borrowers to Bank in any capacity, including without limitation any balance or
share of Borrower in or of the Collateral Account or any other deposit or other
account with Bank, which lien and security interest shall be independent of and
in addition to any right of set-off which Bank may have.
5.3. Rights in Property Held by Borrowers. As further security for the
prompt satisfaction of all Obligations, Borrowers hereby continues to assign to
Bank all of their right, title, and interest in and to, and grant to Bank a lien
and security interest in, all personal property whether tangible or intangible
including the following, wherever located, whether now owned or hereafter
acquired, together with all replacements and Proceeds (including without
limitation insurance proceeds) thereof including, without contribution to the
following: (a) Accounts; (b) Chattel Paper; (c) Contracts, including the
Indemnification Agreement; (d) Documents; (e) equipment, (f) fixtures, (g)
furniture, (h) General Intangibles, including the Indemnification Agreement; (i)
Instruments; (j) Inventory; (k) Rights as seller or lessor of Goods or services
and rights to returned or repossessed Goods; (l) Proceeds of public liability,
fire, and extended coverage insurance and returned and unearned premiums for
such insurance; (m) all records pertaining to any other item or matter of
Collateral; (n) all securities, guaranties, and deposits received or held by
Borrower in respect to Goods sold or leased or services rendered by Borrower;
(o) all other rights to payment for Goods sold or leased or services rendered,
regardless of whether or not the same has been earned by performance; or (p) if
any of the Inventory consists of items which are subject to a patent, copyright,
trademark, or other intellectual property right, all of Borrower's rights to
exploit such patent, copyright, trademark, or other intellectual property right.
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5.4. Financing Statements. Borrowers will: (a) join with Bank in
executing such financing statements (including amendments thereto and
continuation statements thereof) in form satisfactory to Bank as Bank may
specify; (b) pay or reimburse Bank for all costs and taxes of filing or
recording the same in such public offices as Bank may designate; and (c) take
such other steps as Bank may direct, including making notations of Bank's lien,
to perfect Bank's interest in the Collateral. In addition to the foregoing, (d)
the parties hereto agree that a photocopy or other reproduction of this
Agreement shall be sufficient as a financing statement and may be filed in any
appropriate office in lieu thereof; and (e) to the extent lawful, Borrowers
hereby appoint Bank as Borrowers' attorney-in-fact (without requiring Bank so to
act) to execute any financing statement in any of the Borrowers' name and to
perform all other acts and deeds that Bank deems appropriate to perfect and
continue its security interest in, and to preserve and protect, the Collateral.
6. REPRESENTATIONS AND WARRANTIES.
6.1. Original. To induce Bank to enter into this Agreement, Borrowers
represent and warrant to Bank as follows:
(a) Borrowers are corporations duly organized, validly existing,
and in good standing under the Laws of the State of South
Carolina and are duly qualified and in good standing to do
business in each jurisdiction where such qualification is
necessary. All jurisdictions where MCF or any of the Borrowers
are qualified or should be qualified are listed on Schedule
6-1(a) attached to this Agreement.
(b) None of the Borrowers is in default with respect to any of its
existing Indebtedness, and the making or performance of this
Agreement will not (immediately, with the passage of time or
giving of notice, or both): (i) violate the provisions of the
charter or bylaws of any of the Borrowers, or violate any
Laws, or result in a default under any contract, agreement, or
instrument to which any of the Borrowers are a party or by
which any of the Borrowers or any of their property are bound,
except in connection with indebtedness satisfied with the
proceeds of the Loan; or (ii) result in the creation or
imposition of any security interest in, or lien or encumbrance
upon, any assets of any of the Borrowers, except as same may
be in favor of Bank.
(c) Borrowers have full right, power, and authority to enter into
and perform the Loan Documents, and to incur the Obligations
herein and therein provided for, and have taken all corporate
action and obtained all consents necessary to authorize the
execution, delivery, and performance thereof.
(d) This Agreement and the remainder of the Loan Documents, when
delivered, will be valid, binding, and enforceable against
Borrowers, as applicable, in accordance with their respective
terms.
(e) Except as set forth in a written disclosure statement
delivered to the Bank within ten (10) business days prior to
the execution of this Agreement, no litigation, proceeding,
arbitration, or investigation is in process, pending or
threatened against any of the Borrowers which, if determined
adversely to such Borrowers, would have a material adverse
effect on the business, properties, or financial condition of
Borrowers.
(f) Borrowers have good and marketable title to all of their
assets, subject to no security interest, encumbrance or lien,
or any other claim except: (i) such claims specifically
disclosed in the application for the Loans, (ii) such claims
created by this Agreement in favor of Bank, (iii) liens for
real property taxes not yet due and payable and (iv) the
Permitted Encumbrances.
(g) Borrowers' financial statements provided to Bank for the
fiscal year ended December 31, 1995, and the interim financial
statements for the ten (10) months ended October 31, 1996,
have been prepared in accordance with GAAP and fairly reflect
the financial condition of Borrowers and the results of its
operations as of the dates and for the periods stated therein.
No material adverse changes have since occurred or are
threatened.
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(h) As of the date hereof, Borrowers, in the aggregate, have no
material Indebtedness in excess of $100,000.00 of any nature,
including without limitation liabilities for taxes and
interest or penalties relating thereto, except: (i) to the
extent reflected and reserved against in the most recent
financial statements prior to the date hereof; (ii) as created
in this Agreement, or (iii) as listed on Schedule 6-1(h)
attached hereto and incorporated herein by reference.
(i) Borrowers have filed all federal, state, and local tax returns
and reports it is required by all Laws (including the Fair
Labor Standards Act) to file prior to the date of this
Agreement and have paid or caused to be paid all taxes,
interest and penalties due and payable therein. Borrowers have
not agreed to an extension, of the period within which the
Internal Revenue Service may audit Borrowers tax returns.
(j) All information and representations made and any information
or documents submitted in connection with the application for
the Loans were true, complete and correct as of the date of
such submission and (except for financial statement
information provided with reference to a specific date) are
true, complete and correct as of the date hereof unless
otherwise modified or altered by subsequent written
information and representations made to Bank.
(k) No representation or warranty by any of the Borrowers
contained herein or in any certificate or other document
furnished by or on behalf of Borrowers pursuant hereto
contains any untrue statement of material fact or omits to
state a material fact necessary to make such representation or
warranty not misleading in light of the circumstances under
which it was made.
(l) No Reportable Event has occurred during the 5-year period
prior to the Closing Date with respect to any Plan, any of the
Borrower and each Plan has complied and all material
specifications with applicable provisions of ERISA and the
Code. The present value of all accrued benefits under each
Single Employer Plan maintained by any of the Borrowers (based
on those assumptions used to fund the Plans) did not, as of
the last annual evaluation date prior to the date of this
Agreement, exceed the value of the assets of such Plan
allocable to such accrued benefits. The present value
(determined using actuarial and other assumptions which are
reasonable in respect of the benefits provided and the
employees participating) of the liability of any of the
Borrowers for post retirement benefits to be provided to their
current and former employees under Plans which are welfare
benefits (as defined in Section 3(1) of ERISA) equals or
exceeds the assets under such Plans allocable to such
benefits.
(m) The proceeds of the Loans shall be used by Borrowers in the
ordinary course of Borrowers' and for the particular purposes
set forth elsewhere in this Loan Agreement.
(n) Except as to the Star Fibers Property and to the extent
disclosed to Bank in writing, the Properties do not contain,
and have not previously contained, any Materials of
Environmental Concern in amounts or concentrations which (i)
constitute a violation of, or (ii) could be reasonably given
rise to liability under Environmental Laws. Except as to the
Star Fibers Property and to the extent disclosed to Bank in
writing, the Properties and all operations of the Properties
are in compliance, and have in the past two years been in
material compliance and specifications with all applicable
Environmental Laws, there is no contamination at, under or
about the Properties (except as disclosed to Bank in writing),
or violation of any Environmental Law with respect to the
Properties which could interfere with the continued operation
of the Properties or materially impair the fair salable value
thereof. None of the Borrowers have not received any notice of
violation, alleged violation, non-compliance, liability or
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potential liability regarding environmental matters or
compliance with Environmental Laws with regard to any of the
Properties, nor do any of the Borrowers have knowledge or
reason to believe that any such notice will be received or is
being threatened except so far as such notice or threat notice
or any aggregation thereof, does not involve a matter or
matters that is or are reasonably likely to result in the
payment by any of the Borrowers of a Material Environmental
Amount. To the best knowledge of Borrowers, after reasonable
investigation, Materials of Environmental Concern have not
been transported or disposed of from the Properties in
violation of, or in a manner or to a location which could
reasonably give rise to liability under Environmental Laws,
nor have any Materials of Environmental Concern have
generated, treated, stored or disposed of at, on or under any
of the Properties in violation of, or in a manner that could
give rise to liability under, any applicable Environmental
Laws except insofar as any such violation or liability is
referred to above, or any aggregation thereof, is not
reasonably likely to result in the payment by Borrowers of a
Material Environmental Amount. No judicial proceeding or
governmental or administrative action is pending, or, to the
knowledge of Borrowers, threatened, under any Environmental
Law to which Borrowers are or will be named as a party which
respect to the Properties, nor are there any consent decrees
or other decrees, consent orders, administrative orders or
other orders, or other administrative or judicial requirements
outstanding under any Environmental Laws with respect to the
Properties except insofar as such proceeding, action, decree,
order or other requirement or any aggregation thereof is not
reasonably likely to result in the payment of Material
Environmental Amounts. There has been no release or threat of
release of Materials of Environmental Concern at or from the
Properties, or arising from or related to the operation of any
of the Borrowers in connection with the Properties in
violation of or in amounts or in a manner that could give rise
to liability under Environmental Laws except insofar as such
violation or liability referred to above, or any aggregation
thereof, is not reasonably likely to result in the payment of
Material Environmental Amounts. The representations contained
in this Subsection 6.1(n) are subject to Materials of
Environmental Concern or other matters related to
Environmental Laws specifically disclosed in writing to Bank,
including the environmental condition of the Star Fibers
Property.
(o) Borrowers maintain with one or more financially sound and
reputable insurance companies, with premiums at all times
currently paid, insurance upon fixed assets and inventory,
including public liability insurance, fire and all other risks
insured against by extended coverage, fidelity bond coverage,
business interruption insurance and all other insurance
required by law, all in a form and amount required by law and
customary to the respective nature of the businesses of
Borrowers and Borrowers' properties, except in a case where
failure to maintain such insurance will not have or
potentially have an adverse effect on the Borrowers or any of
Borrowers' properties or assets.
(p) All of the Properties and the use of the Properties shall
comply and shall continue to comply in all material respects
with all applicable Laws, including zoning resolutions,
building codes, Environmental Laws (except as disclosed in
writing to Bank), subdivision and other applicable laws, rules
and regulations and are covered by existing valid certificates
of occupancy and all those certificates and permits required
by applicable laws, rules, regulations and ordinances or in
connection with the use, occupancy and operation of the
Properties. No material portion of any of the Properties has
been damaged in any respect as a result of fire, explosion,
accident, flood or other casualty. No condemnation or eminent
domain proceeding has been commenced or to the knowledge of
Borrowers are about to be commenced against any portion of the
Properties. No notice of violation of any federal, state or
local law or ordinance or order or requirement has been issued
with respect to any Properties.
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(q) Each of the Borrowers is solvent as defined or used in the
Bankruptcy Act of the United States, as amended, and will
continue to be solvent as defined or used in the Bankruptcy
Act of the United States following the consummation of the
transactions contemplated by this Agreement.
(r) Borrowers are in compliance with all applicable Laws, rules,
regulations, and orders of all governmental authorities
(federal, state, local or foreign, and including, without
limitation, Environmental Laws, rules, regulations, and
orders) a breach of which would materially and adversely
affect any of the Borrowers' business, credit, operations,
financial condition, or prospects.
(s) As of the date of this Agreement, the principal place of
business and chief executive office of all of the Borrowers is
306 Main Street, Edgefield, South Carolina. Borrowers'
additional place of business or places where assets of
Borrowers are located are set forth on Schedule 6-1(s). The
location of the principal places of business and chief
executive offices of the Borrowers and the locations of any
Collateral shall not be changed nor shall there be established
additional places of business or additional locations where
Collateral is stored, kept or processed without Bank's prior
written consent, and prior to making any such change or
establishing such new location, Borrowers agree to execute any
additional financing statements or other documents or notices
required by Bank. As of the date of this Agreement, the books
and records of Borrowers and all records and accounts are
located and hereafter shall continue to be located at the
principal place of business and chief executive office of
Borrower.
(t) Business conducted by Borrowers has not been conducted by or
under any corporate, trade or fictitious name other than those
listed on Schedule 6-1(t) attached to this Agreement, and
following the date of this Agreement, Borrower will not
conduct their business under any trade or fictitious name
other than the duly registered names listed on Schedule 6-1
(t) attached to this Agreement, except with the prior consent
of Bank.
(u) As of the date of this Agreement, Borrowers have no
investments in any Person, and is not engaged in any joint
venture or partnership with any other Person.
(v) All representations and warranties contained in the Loan
Documents are incorporated herein by reference and constitute
a part hereof as fully as if the same were set forth herein.
6.2. Survival. All of the representations and warranties in section 6.1
shall survive until all Obligations are satisfied.
7. BORROWERS' COVENANTS.
Borrowers do hereby covenant and agree with Bank that, unless Bank
specifically consents in writing to the contrary and for as long as any
Obligations have not been satisfied in full, Borrowers will comply with the
following covenants:
7.1. Affirmative Covenants.
(a) Borrowers, as applicable, will use the proceeds of the Loans
only for valid business purposes and for the purposes set
forth in this Agreement and will furnish to Bank such evidence
as Bank may reasonably request with respect to such use;
(b) Borrowers will maintain, or cause to be maintained (1) public
liability, fire, and extended coverage insurance on all assets
owned by it or used by it in its business, all in such form
and amounts as are reasonably satisfactory to Bank, (2) all
workmen's compensation or similar insurance as may be required
under Laws applicable to Borrower, and (3) business
interruption insurance as may be required by Bank. Borrower
will furnish Bank such evidence of insurance as Bank may
reasonably require;
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(c) Borrowers will cause to be paid when due all taxes,
assessments, charges, and levies imposed upon them or any of
their properties which they are required to pay over, except
when contested in good faith by appropriate proceeding with
adequate reserves therefor having been set aside on its books
and segregated where required by GAAP; provided, that
Borrowers shall either pay or cause to be paid forthwith all
taxes, assessments, levies, and charges whenever foreclosure
of any lien that attaches (or other security therefor) appears
threatened or have such encumbrances "bonded off";
(d) Borrowers will take all necessary steps to preserve its
corporate existence, rights, contracts, franchises, and
tradenames necessary or desirable in the conduct of Borrowers'
business, and comply with all present and future Laws,
including Environmental Laws, applicable to Borrowers and with
all material agreements to which or by which any of Borrowers'
property is bound;
(e) Borrowers will give immediate notice to Bank of (1) any
litigation or proceedings in which either one of them is a
party if an adverse decision therein would require it to pay
money or deliver assets in an aggregate amount or value in
excess of One Hundred Thousand and No/100 Dollars
($100,000.00) (regardless of whether or not the claim is
considered to be covered by insurance); (2) the institution of
any other suit or proceeding involving Borrowers that might
materially and adversely affect their operations, financial
condition, property, or business; or (3) the occurrence of any
casualty which might have a material adverse effect on the
businesses of Borrowers;
(f) Borrowers will pay when due, or within the applicable grace
period, all Indebtedness due third parties, except when the
amount, applicability, or validity thereof is being contested
in good faith by appropriate proceedings and with adequate
reserves therefor being set aside on its books;
(g) Borrowers will (1) maintain its Inventory, supplies,
Equipment, real property, and other properties, including the
Properties, in good condition and repair (normal wear and tear
excepted), (2) pay and discharge or cause to be paid and
discharged when due the cost of repairs to or maintenance of
the same, (3) pay or cause to be paid all rental, lease, or
mortgage payments due with respect to same, (4) maintain and
keep any of their tangible personal property at their
principal places of business or at one of the locations set
forth on Schedule 6-1(h), and (5) not change their principal
places of business or the location of any Collateral in such a
manner as to cause Bank's first priority perfected lien on
such Collateral to be lost or jeopardized;
(h) Borrowers, as applicable, shall endorse without limitation, or
otherwise properly assign to Bank, all negotiable Instruments
and other Chattel Paper received by it in connection with any
payment on account of any item of Collateral;
(i) Borrowers will furnish to Bank, and deliver to Bank within one
hundred twenty (120) days from the closing date thereof,
Borrowers consolidated fiscal year-end audited financial
statements (including without limitation, its balance sheet,
income statement, statement of cash flows, and accountant's
comments), fiscal year end audit management letter and
Borrowers consolidating year-end company prepared financial
statements (including, without limitation, its balance sheet
and income statement) and otherwise in form and content
acceptable to Bank (all such statements to be prepared in
accordance with GAAP) and, with respect to the audited
financial statements, certified by a certified public
accountant acceptable to Bank simultaneously with the delivery
to Bank of each fiscal-year end audited financial statement;
(j) Borrowers will furnish to Bank, within forty-five (45) days of
the end of each fiscal quarter, its then current internally
prepared consolidated and consolidating financial statements
for each fiscal quarter and year-to-date, signed by an officer
of Borrowers as applicable certifying the accuracy of such
statement, all in such form as is reasonably satisfactory to
Bank. In connection with the financial statements delivered
pursuant to subsection 7.1(i) and this subsection 7.1(j),
Borrowers must furnish to Bank, a Compliance Certificate in
form and content acceptable to Bank executed by an officer of
the Borrowers, which Certificate includes Borrower's
computation of all restrictive and other covenants contained
in this Agreement and list of all contingent liabilities;
provided, Borrowers shall be required to disclose only the
contingent or threatened liabilities arising from claims,
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causes of action or litigation against any of the Borrowers'
under which such of the Borrowers' exposure may exceed
$500,000.00, with such disclosure to be made in connection
with delivery of the financial statement which is due
immediately after the first to occur of the following: (i)
Borrowers, in good faith, believe such claim, action or
litigation will be prosecuted; or (ii) the filing of such
claim, cause of action or litigation against any of the
Borrowers by the claimant with the court, tribunal or agency
having jurisdiction over such matter;
(k) Borrowers will furnish to Bank within fifteen (15) days of the
end of each month a then current Monthly Borrowing Base
Certificate executed by an officer of Borrower, along with an
aged Accounts Receivable Report and summary reports on
Inventory. Borrowers further must furnish to Bank on a weekly
basis then current Collateral Certificates executed by an
officer or corporate controller of Borrowers. Borrowers shall
submit to Bank accounts payable reports upon the request of
Bank. All such information must be in form and content
acceptable to Bank;
(l) As and when requested by Bank which will not be more often
than twice in any one year, Borrowers will provide to Bank (1)
a certificate signed by an officer of the Borrowers that
summarizes the property, casualty and liability insurance
policies carried by the Borrowers and that certifies that Bank
is loss payee of all property and casualty insurance policies
(such certificate to be in form and content acceptable to
Bank), and (2) written notification of any cancellation or any
material change of such insurance by Borrowers within five (5)
Business Days after receipt of any such notice (whether formal
or informal) of such cancellation or change by any of their
insurers;
(m) Borrowers will operate their businesses in full compliance
with all applicable federal, state, and local Laws, including
specifically without limitation the Fair Labor Standards Act;
(n) Borrowers will notify Bank immediately upon receipt by any of
the Borrowers of oral or written notice that any of Borrowers'
customers contests the amount, validity, or due date of any of
Borrowers' Accounts, Contracts, Chattel Paper, or Contract
Rights, which disputed amount exceeds Two Hundred Thousand and
No/100 Dollars ($200,000.00);
(o) Borrowers, on a consolidated basis, must maintain a Leverage
Ratio of less than or equal to 3.00 to 1.00, with such
Leverage Ratio to be computed and tested as of the end of each
fiscal quarter;
(p) Borrowers will maintain executive personnel and management
reasonably satisfactory to Bank;
(q) Borrowers will notify Bank immediately if it becomes aware of
the occurrence of any Event of Default or Default Condition,
or the failure of Borrowers to observe any of its undertakings
hereunder;
(r) Borrowers, on a consolidated basis, must achieve a Debt
Service Ratio greater than or equal to 1.00 to 1.00 (i) for
each period of time commencing on January 1 and ending on the
next successive June 30; and (ii) for each fiscal year during
the term of this Agreement including any renewal terms.
(s) Subject to the limitation on costs to Borrowers as set forth
in Section 8.5 below, Borrower will permit any representative
or agent of Bank to examine and audit any of the Borrowers'
books and records when reasonably requested by Bank;
(t) The operation of the Properties do not and will not violate
any Environmental Laws and Borrowers will not use or permit
any other party to use any Materials of Environmental Concern
on the Properties except such materials as are incidental to
Borrowers' normal course of business, maintenance and repairs
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and do not violate any Environmental Laws. Borrowers agrees to
permit Bank, its agents, contractors and employees, to enter
and inspect the Properties at any reasonable time for the
purpose of conducting Environmental Investigation Audit
(including physical samples) to insure that Borrowers are
complying with this covenant. Borrowers shall provide Bank,
its agents, contractors, employees and representatives, with
access to and copies of all data and documents relating to or
dealing with any Materials of Environmental Concern used,
generated, manufactured or stored or disposed of on, under or
about the Properties within five (5) business days of request
for such information by Bank;
(u) Borrowers shall immediately advise Bank in writing of (i) any
and all enforcement, cleanup, remedial, removal or other
government or regulatory actions instituted, completed or
threatened pursuant to any Environmental Laws relating to
Materials of Environmental Concern affecting the Properties;
and (ii) all claims made or threatened by and any third
parties against any of the Borrowers relating to damages,
contribution, cost, recovery compensation, loss or injury
resulting from Materials of Environmental Concern. Borrowers
shall immediately notify Bank of any remedial action taken by
Borrowers with respect to the Properties;
(v) Borrowers shall jointly and severally indemnify, defend and
hold Bank and its successors and assigns harmless from and
against any and all claims, demands, suits, losses, damages,
assessments, fines, penalties, costs or other expenses
(including attorney's fees and court costs) arising from or in
any way related to actual or threatened damage to the
environmental, agency cost or investigation, personal injury
or death or property damage due to the release or alleged
release of Materials of Environmental Concern on or about the
Properties or in the surface or ground water located on or
under the Properties or gaseous emissions from the Properties
or any other condition existing on the Properties resulting
from the use or existence of Materials of Environmental
Concern, whether such claim proves to be true or false or
further agrees that its indemnity obligation shall include,
but not be limited to, liability for damages resulting from
personal injury or death of an employee of any of the
Borrowers regardless of whether Borrowers have paid the
employee under Workers' Compensation Laws or any other state
or other similar federal or state legislation for the
protection of employees. Borrowers' obligation under this
Section 7.1(v) shall survive the repayment of the Loans and
any deed in lieu of foreclosure of any of the mortgages
securing the Loans;
(w) Borrowers will continue to engage in business of the same
general type as now conducted by Borrowers and preserve, renew
and keep in full force and effect its corporate existence and
take all reasonable action to maintain all rights, privileges
and franchises necessary or desirable in the normal course of
Borrowers business;
(x) Borrowers acknowledge that the Loans shall be
cross-collateralized and cross-defaulted, and Borrowers agree
to execute any documents required by Bank, before, on or after
the Closing Date, to effectuate this cross-collateralization
and cross-default;
(y) Star Fibers is and will remain a special purpose wholly owned
subsidiary of MCF and its only business shall consist of
owning, and leasing to MCF, the Star Fibers Property; and
(z) Borrowers, on a consolidated basis, must achieve and maintain
a consolidated Tangible Net Worth equal to a minimum of
$24,240,000 at fiscal year 1996 which Tangible Net Worth must
increase by a minimum of $3,000,000 for each fiscal year
thereafter.
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(aa) Borrowers, on a consolidated basis, must maintain a Funded
Debt Ratio of less than or equal to 3.00 to 1.00 (i) for
fiscal year 1997; and (ii) for each twelve (12) month period
ending on the closing date of each of Borrowers' fiscal
quarters commencing with the first fiscal quarter of fiscal
year 1998.
7.2. Negative Covenants. Without Bank's written consent, Borrowers, as
applicable, will not:
(a) Enter into any merger, consolidation, reorganization,
recapitalization, reclassification of its capital stock;
(b) Change its primary ownership such that James F. Martin and
Henry M. Poston in the aggregate own less than 52.0% of the
full and legal interest of the outstanding common (or any
other type, class or series of) stock of MCF, or change
control or key management of Borrowers;
(c) Sell, transfer, lease or otherwise dispose of, directly, or
indirectly, in one or more transactions, all or (except in the
ordinary course of business) any material part of its assets,
including the Collateral;
(d) Become liable, directly or indirectly, as guarantor or
endorser or otherwise, for any obligation of any other Person,
except for the endorsement of commercial paper for deposit or
collection in the ordinary course of business;
(e) Except for current Indebtedness listed on Schedule 6-1(h)
attached hereto and incorporated herein by reference, incur,
create, assume, or permit to exist any Indebtedness, including
purchase money obligations, in excess of the aggregate of
$100,000.00 of unsecured debt of Borrowers in any fiscal year,
except: (i) the Loans; (ii) trade indebtedness incurred in the
ordinary course of business; and (iii) indebtedness permitted
under this Agreement;
(f) Enter into any stock repurchase, retirement, or redemption
programs except for the repurchase program pursuant to that
certain Corporate Buy-Sell Agreement dated May 3, 1993, or in
connection with (i) MCF's qualified 401K plan approved by Bank
or (ii) other Bank approved repurchases of MCF stock in
connection with similar stock repurchase plans approved by
MCF's executive committee;
(g) Make any loans or advances to any officer, stockholder,
director, employee, subsidiaries or Affiliates of Borrowers
except for temporary advances in the ordinary course of
business;
(h) Make capital expenditures, in the aggregate, in excess of (i)
6,700,000 in fiscal year 1996; and (ii) $7,000,000 in any
fiscal year after fiscal year 1996.
(i) Directly or indirectly apply any part of the proceeds of the
Loans for the immediate, incidental, or ultimate purpose of
carrying any "margin stocks" within the meaning of Regulation
U of the Board of Governors of the Federal Reserve System, or
any regulation, interpretations, or rulings thereunder;
(j) Except in connection with the permitted liens set forth in
section 7.2(m) below, execute or file in any jurisdiction a
financing statement (including amendments and extensions
thereof) under the Uniform Commercial Code which names any of
the Borrowers as debtor, or execute any security agreement or
other document authorizing any secured party thereunder to
file any such financing statement, except such financing
statement as may be necessary for the perfection of a security
interest in favor of Bank;
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(k) Pay bonuses to officers, directors or shareholders of
Borrowers, except for bonuses in the aggregate amount of up to
20% of income before income taxes and any such bonuses in any
fiscal year so long as the payment of such bonuses would not
cause a violation of any covenants of this Agreement.
(l) Change (i) the name under which any of the Borrowers conduct
business; (ii) the nature of any of Borrowers business; or
(iii) the locations where tangible Collateral will be stored
or located;
(m) Grant liens, pledge or grant security interests in any assets
of Borrowers or incur purchase money obligations, except for
subordinate liens granted to NationsBanc Commercial
Corporation related to Borrowers' delinquent Accounts, and
(n) Pay cash dividends or distributions in an amount such that the
Tangible Net Worth requirements of Section 7.1(z) would be
violated.
7.3 Agreements, Representations and Covenants of Any Approved
Subsidiary. Borrowers acknowledge and agree that any Approved Subsidiary will be
bound by the terms and conditions of this Agreement, including all
representations and covenants, to the same extent that Borrowers are bound by
this Agreement. Borrowers further will cause any such Approved Subsidiary to
execute documentation necessary to effectuate this provision; provided, however,
this Section is deemed to be self-operative and enforceable without further
writing or agreement signed by any Approved Subsidiary.
7.4. Additional Covenants. All covenants, whether affirmative or
negative, contained in the Loan Documents are incorporated herein by reference
and constitute a part hereof as fully as if the same were set forth herein.
8. BANK'S RIGHTS.
In addition to all other rights and remedies contained herein in favor of Bank,
Bank shall have the following rights and be governed by the following
provisions:
8.1. Appraisal. From time to time during the terms of the Loans, Bank,
as required under any applicable federal law or regulation, shall order and pay
for then current appraisals, in form and content acceptable to Bank, on any of
the Collateral, including the Properties. Borrowers agree to reimburse Bank upon
the demand of Bank for all costs and expenses incurred by Bank in connection
with any such appraisals. Within a reasonable period of time after receipt by
Bank of the reimbursement by Borrowers of the costs and expenses of any
Appraisal, Bank shall deliver to Borrowers a copy of such Appraisal.
8.2. Remedies Cumulative; Nonwaiver. All remedies of Bank provided for
in the Loan Documents are cumulative and shall be in addition to any and all
rights and remedies provided for or available under any Loan Documents or at law
or in equity. The exercise of any right or remedy by Bank hereunder shall not in
any way constitute a cure or waiver of a default condition or an event of
default hereunder or under any of the Loan Documents or validate any act done
pursuant to any notice of the occurrence of default condition or an event of
default or prejudice the Bank in the exercise of any of its rights under any of
the Loan Documents unless, in the exercise of said rights, Bank realizes all
amounts owed to Bank under the Loan Documents.
8.3. No Liability of Bank. Whether or not Bank elects to employ any and
all remedies available to it in the event of an occurrence of a Default
Condition or an Event of Default, Bank shall not be liable for the payment of
any expense incurred in connection with the exercise of any remedy available to
Bank or the performance or nonperformance of any obligation of Borrowers.
8.4. Environmental Assessments. Updated Environmental Assessments of
the Properties shall be prepared at Borrowers' expense and submitted to Bank
upon Bank's reasonable request at any time or times during the terms of the
Loans, including upon the occurrence of an Event of Default or as may be
required by any Environmental Laws or if Materials of Environmental Concern are
discovered or potentially exist on any of the Properties.
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8.5. Audits. Audits of Inventory and Accounts, Chattel Paper,
Contracts, Documents, General Intangibles and other right to receive money for
goods received of Borrowers or any Approved Subsidiary will be conducted by Bank
or Bank's agents or representatives no less frequently than two (2) times per
fiscal year. Borrowers will bear the expenses of all normally scheduled audits
in the amount of up to $5,000.00 per audit.
9. DEFAULT.
9.1. Events of Default. An "Event of Default" shall be the occurrence
or existence of any one of the following conditions described in subsequent
subsections of this Section 9.1 and the continuance thereof for either (i) the
specific period of time, if any, specified with respect to such event or
condition, (ii) a period of five (5) days after delivery of written notice to
Borrowers from Bank if no period is specified and the event or condition is a
failure to pay money to Bank as and when due; provided that Bank shall not be
required to give notice more than twice in any twelve (12) month period or at
maturity of any of the Loans; or (iii) a period of thirty (30) days after (x)
delivery of written notice to Borrowers from Bank or (y) the date Bank should
have been notified by Borrowers of such condition pursuant to Section 7.1(q)
(which date, for defaults that the Borrower are made aware by the annual audit,
shall be deemed to be the date that MCF receives the final, completed audit), if
no period is specified and if the event or condition is not a failure to pay
money; provided, however, notwithstanding anything contained herein to the
contrary, there shall be no obligation of Bank to give notice and no right of
Borrowers to cure if the event or condition is either the institution of a
voluntary bankruptcy, insolvency or receivership action, the giving of any
material false or fraudulent representation to Bank, the failure to keep any of
the Collateral free and clear of any liens, except for the Permitted
Encumbrances and for disputed liens that are "bonded off" within thirty (30)
days after Borrower has notice of such lien, not approved in writing in advance
by Bank;
(a) Borrowers' failure to pay when due any payment of principal,
interest, fee, or other charge payable under this Agreement,
the Notes or any of the other Loan Documents except for
Borrowers' failure to pay principal as required in accordance
with Section 2.1(i) of this Agreement;
(b) The failure of Borrowers', as applicable, to observe or
perform any other obligation required, directly or indirectly,
to be observed or performed by it hereunder or under the Notes
or under the other Loan Documents, or the failure of any party
to any subordinate agreement with respect to any Subordinated
Indebtedness to breach any condition of or to comply with
terms of such subordination agreement;
(c) Any of the Borrowers shall (i) fail to pay when due including
applicable grace period any Indebtedness due to Bank or any
third Person, or (ii) suffer to exist any other event of
default under any material agreement binding upon the
applicable Borrowers or any of their properties;
(d) Any financial statement, representation, warranty, or
certificate made or furnished to Bank by or on behalf of any
of the Borrowers in connection with this Agreement or the
Loans, or any separate statement or document delivered or to
be delivered to Bank hereunder, shall be discovered by Bank to
have been materially false, incorrect, incomplete or otherwise
misleading when made;
(e) Any of the Borrowers shall admit its inability to pay its
debts as they mature or shall make any assignment for the
benefit of any of its creditors;
(f) Proceedings in bankruptcy, or for reorganization of any of the
Borrowers, or for the adjustment or readjustment of the debts
of any one or more of them, under the Bankruptcy Act, as
amended, or under any other Laws for the relief of debtors, or
any part of any thereof, whether now existing or hereafter
effective, shall be commenced by or against any of the
Borrowers;
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(g) Proceedings shall be instituted for the appointment of a
receiver or trustee for any of the Borrowers or for any
substantial part of their respective assets, or any
proceedings shall be instituted for the dissolution or full or
partial liquidation of any one or more of them, or any one or
more of them shall discontinue or materially change the nature
of its business or sell all or substantially all of its
assets;
(h) Any of the Borrowers shall suffer one or more final judgments
for the payment of money or the delivery of property or both
with the sum of such money and the value of such property
aggregating at least Fifty Thousand and No/100 Dollars
($50,000.00), unless execution has been effectively stayed;
(i) Any Person other than Borrowers or any person acting on behalf
of Bank shall obtain possession of any of the Collateral by
any means, including without limitation, levy, distraint,
replevin, or self-help;
(j) Any obligee of Subordinated Debt shall fail to comply with the
subordination provisions of the instrument evidencing such
Subordinated Debt or contained in any subordination agreement;
(k) Any loss, theft, substantial damage, or destruction of all or
any part of the Collateral in excess of $100,000.00 which is
not adequately covered by insurance;
(l) A default under any obligation, whether now owed or hereafter
owing, by any of the Borrowers to Bank or any of its
affiliates or related entities; or
(m) Borrowers' failure to pay principal as required under Section
2.1(i) of this Agreement or otherwise to comply with the
requirements of Section 2.5 of this Agreement and such failure
together with any subsequent failures under Section 2.1(i) or
Section 2.5 occurring within fourteen (14) days thereafter
(collectively, a "Margin Failure") continues for a period of
time more than fourteen (14) days after the effective date of
the Collateral Certificate which first reflects Borrowers'
initial failure to comply with the provisions of Section 2.5
of this Agreement; provided and notwithstanding anything to
the contrary contained in this Section 9.1 or elsewhere in
this Agreement, Borrowers must cure immediately, and without
notice, any such failures to comply with the provisions of
Section 2.1(i) or Section 2.5 which occur after the second
(2nd) Margin Failure in any twelve (12) month period.
The Events of Default set forth in this section 9.1 are in addition to those
Events of Default set forth and defined elsewhere in the Loan Documents. In the
event of any direct conflict in provisions related to Events of Default,
including the requirements or applicability of any grace periods, contained in
this Agreement and in the other Loan Documents, the terms and provisions of this
Agreement shall govern and control.
9.2. Acceleration. Immediately and without notice upon the occurrence
of an Event of Default, at Bank's option, all of Bank's duties and obligations
hereunder shall terminate and all Obligations or any part thereof as determined
by Bank shall immediately become due and payable without further action of any
kind.
9.3. Remedies after Acceleration. After any acceleration as provided in
section 9.2, Bank shall have, in addition to the rights and remedies given, all
of those remedies allowed by all applicable Laws, including without limitation
the Uniform Commercial Code, enacted in any jurisdiction in which any Collateral
may be located or otherwise applicable to the Loans or Borrowers. Without
limiting the generality of the foregoing, Bank may, at any time after
acceleration, without any demand or notice (except as may be required by this
Agreement or applicable Laws) to any of the Borrowers, all of which are hereby
expressly waived, and with or without advertisement, sell at public or private
sale or otherwise realize upon the whole or, from time to time, any part of the
Collateral or any interest of any of the Borrowers. After deducting from the
proceeds of such sale or disposition of the Collateral all expenses (including
reasonable expenses for professional services), Bank shall apply such proceeds
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toward satisfying so much of the Obligations as were so accelerated. Any
remainder of such proceeds after satisfaction in full of such Obligations shall
be distributed as required by applicable Laws. Notice of any such sale or other
disposition shall be given where practicable to Borrower at least five (5) days
prior to the date of any intended public sale or of the time after which any
intended private sale or other disposition is to be made, and Borrowers agree
that such notice is and shall be deemed to be reasonable. Borrowers agree to
assemble, or cause to be assembled, at its own expense the Collateral at such
place or places as Bank may designate. At any such sale or other disposition,
Bank may, to the extent permissible under applicable Laws, purchase the whole or
any part of the Collateral, free of any right of redemption on the part of any
of the Borrowers, which right is hereby waived and released by Borrowers.
Without limiting the generality of any rights and remedies available to Bank
under this section, Bank may at its option and discretion, to the full extent
permitted by applicable Laws:
(a) Enter upon any of the Properties, exclude therefrom Borrowers,
or any Affiliate, employee, or other representative thereof,
and take immediate possession of the Collateral, either
personally or by use of a receiver appointed by a court, using
all necessary force to do so;
(b) Use, operate, manage, sell, lease, and control the Collateral
in any lawful manner;
(c) Collect and receive all rents, income, revenue, earnings,
issues, and profits from the Collateral; and
(d) Maintain, repair, renovate, alter, or remove the Collateral.
9.4. Remedies Alternative to Acceleration. In each instance in which
the Event of Default involves the failure to pay when due a sum of money or to
perform when required one or more particular Obligations, Bank may, at its
option and in lieu of accelerating as permitted in section 9.2, pay such sum or
sums or cause to be performed such obligation or obligations on behalf of
Borrowers and collect the amount of Bank's costs in so doing (including
reasonable professional expenses) (a) as principal hereunder upon which interest
accrues at the then-applicable rate set forth in the Term Note, or (b) by direct
charge to any deposit accounts of any of the Borrowers maintained with Bank.
Bank's exercise of such option at any time shall not obligate Bank to exercise
such option upon the subsequent occurrence of the same or any other Event of
Default.
10. MISCELLANEOUS.
10.1. Construction.
(a) The provision(s) of this Agreement shall be in addition to
those of the other Loan Documents, the terms of such Loan
Documents are incorporated herein by reference, held by or in
favor of Bank, all of which shall be construed as
complementary to each other. Nothing contained herein shall
prevent Bank from enforcing any or all other notes or
guaranty, pledge or security agreements, or other such
evidences of liability in accordance with their respective
terms.
(b) Where appropriate, the reference herein to any gender, whether
masculine, feminine, or neuter, shall include the other
genders, and the reference herein to the singular number shall
include the plural and vice versa.
10.2. Further Assurances. From time to time, Borrowers will execute and
deliver or have executed and delivered to Bank such additional documents and
will provide such additional information as Bank may reasonably require to carry
out the terms of this Agreement and be informed of the respective status and
affairs of Borrowers.
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10.3. Enforcement and Waiver. Bank shall have the right at all times to
enforce the provisions of this Agreement and the other Loan Documents in strict
accordance with the terms hereof and thereof, notwithstanding any conduct of
Bank in refraining from so doing at any time or times. Bank's failure to enforce
any such provision or to exercise any right available to Bank upon the
occurrence of an Event of Default shall not constitute a waiver of, or bar Bank
from enforcing or exercising, any such provision or right upon the subsequent
occurrence of the same or any other Event of Default. All rights and remedies of
Bank are cumulative and concurrent, and the exercise of any right or remedy
shall not be deemed a waiver or release of any other right or remedy.
10.4. Bank's Expenses. Borrowers will, on demand, reimburse Bank for
all costs and expenses, including reasonable fees and expenses of Bank caused,
incurred or paid by Bank in connection with the preparation, administration,
amendment, modification, enforcement, or attempted enforcement of this Agreement
other than the collection or attempted collection of the Notes.
10.5. Notices. Any notices or consents required or permitted under this
Agreement shall be in writing, sent prepaid, by person, by telegram, or by any
form of U. S. Mail which provides a receipt therefore, to the parties at the
following addresses except as any such address is changed by written notice:
(a) To Borrowers: 306 Main Street
Post Office Box 469
Edgefield, South Carolina 29824
(b) To Bank: NationsBank, N.A.
1901 Main Street
Columbia, South Carolina 29222
Location Code: SC 3 240-03-07
Attention: Mary H. "Mze" Wilkins
The same shall be deemed to be delivered as of the time of personal delivery,
the time stated on the telegram, or the third (3rd) business day after the day
of deposit thereof in the U.S. Mail Depository.
10.6. Waiver and Release by Borrowers. To the maximum extent permitted
by applicable Laws, Borrowers (a) waive in addition to any other items or
matters waived herein: (i) all notices of any kind connected with any commercial
paper at any time held by Bank on which any of the Borrowers are in any way
liable; and (ii) notice or opportunity to be heard, after acceleration pursuant
to section 9.2 hereof, before Bank's exercise of any remedies of self-help,
set-off or any other summary procedures permitted by any applicable Laws or by
any agreement with any of the Borrowers, and, except where required hereby or by
any applicable Laws, notice of any other action taken by Bank; and (b) release
Bank and its officers, directors, agents, attorneys, servants, and employees
from all claims of loss or damage caused by any act or omission on the part of
any of them except willful misconduct.
10.7. Participation. Notwithstanding any other provision hereof, Bank
may at any time enter into one or more agreements with one or more participants
whereby Bank agrees to allocate a certain percentage or Dollar amount of the
Loans to them. Borrowers acknowledge that, for the convenience of all parties,
this Agreement is being entered into with Bank only and that Borrowers'
obligations hereunder are undertaken for the benefit of, and as an inducement
to, any such participant as well as Bank. Borrowers, hereby grant to each such
participant, to the extent of its participation in the Loans, the right to
set-off in accordance with applicable Laws deposit accounts maintained by them
with such participant. Borrowers hereby consent to the delivery by Bank, to any
such participant or prospective participant, of any information and document
submitted by or on behalf of either or both of them to Bank under this Agreement
or otherwise in connection with the Loans. For all purposes where applicable,
any reference to Bank in this Agreement shall include any such participant, to
the extent of its participation in the Loan.
10.8. Governing Law. This Agreement, and all other documents in
connection therewith shall be governed by and construed in accordance with the
Laws of the State of South Carolina.
10.9. Amendment Agreement. This Agreement may be amended only in
writing signed by, at least, the party against whom such amendment is sought to
be enforced. This Agreement, and the documents executed and delivered pursuant
hereto, constitute the entire agreement between the parties.
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10.10. Assignment. Borrowers may not assign any of their rights,
duties, or obligations hereunder without Bank's prior written consent.
10.11. Benefit; Binding. This Agreement shall be binding upon and inure
to the benefit of the parties hereto, their respective successors, authorized
assigns, and legal representatives.
10.12. Severability. If any provision of this Agreement shall be held
to be invalid under any applicable Laws, such invalidity shall not affect any
other provision hereof that can be given effect without the invalid provision
and, to this end, the provisions hereof are severable.
10.13. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall constitute an original and all of which shall
constitute a single instrument.
10.14 Entire Agreement. This Agreement, including all exhibits,
schedules and other documents attached to this Agreement or incorporated by
reference, constitute the entire agreement of the parties with respect to the
subject matter of this Agreement and supersede all other understandings, oral or
written, with respect to the subject matter of this Agreement.
10.15 Arbitration. ANY CONTROVERSY OR CLAIM BETWEEN THE BANK OR THE
BORROWERS INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON
OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC.
(J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OR ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
AGREEMENT MAY BRING ANY ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
COLUMBIA, SOUTH CAROLINA AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO
(I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION
OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; (II) BE A WAIVER BY THE
BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SECTION 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO
(A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF; (B) TO
FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL; OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE RELIEF OR THE APPOINTMENT OF A RECEIVER. THE BANK MAY EXERCISE SUCH
SELF HELP RIGHTS, FORECLOSURE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OR ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT.
10.16 Amendment and Restatement. It is the intent of the parties that
this Agreement constitutes a modification and restatement of a prior loan
agreement and under no circumstances shall constitute a novation of the
Revolving Credit Loan or the Term Loan. All Loan Documents, including all
Mortgages and Security Agreements, are modified as necessary such that the
Collateral securing the Obligations shall secure and continue to secure the
Obligations (including all obligations under the 1997 Term Loan) and the liens
in favor of Bank on such Collateral will maintain the priority originally
granted.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered to be effective as of the day and year first written
above.
BORROWERS:
MARTIN COLOR-FI, INC. (SEAL)
STAR FIBERS CORP. (SEAL)
CUSTOM COLORANTS, INC. (SEAL)
BUCHANAN INDUSTRIES, INC. (SEAL)
PALMETTO SPINNING CORPORATION (SEAL)
BANK:
NATIONSBANK, N. A. (SEAL)
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LIST OF EXHIBITS AND SCHEDULES
EXHIBIT 2-2 - Form of Collateral Certificate
EXHIBIT 2-3 - Form of Monthly Borrowing Base Certificate
Schedule 6-1(a) - List of Jurisdictions
Schedule 6-1(h) - List of Indebtedness
Schedule 6-1(s) - List of Collateral Locations
Schedule 6-1(t) - List of Trade Names
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EXHIBIT 10.37
MCF's Taxpayer
Identification No.
1997 TERM LOAN 57-0879569
PROMISSORY NOTE
$5,000,000.00
March 27, 1997
Columbia, South Carolina
FOR VALUE RECEIVED, MARTIN COLOR-FI, INC., a South Carolina corporation
("MCF"), STAR FIBERS CORP., a special purpose South Carolina corporation ("Star
Fibers"), CUSTOM COLORANTS, INC., a South Carolina corporation ("CC"), BUCHANAN
INDUSTRIES, INC., a South Carolina corporation ("BI"), and PALMETTO SPINNING
CORPORATION, a South Carolina corporation ("PS") (MCF, Star Fibers, CC, BI and
PS are individually or collectively as the context requires, referred to as
"Borrower" or "Borrowers"), jointly and severally promise to pay to the order of
NATIONSBANK, N.A., a national banking association ("Bank") at its offices in
Columbia, South Carolina (or at such other place or places as the Bank may
designate) the principal sum of up to FIVE MILLION AND NO/100 DOLLARS
($5,000,000.00) under the terms and conditions of this 1997 Term Loan Promissory
Note (the "1997 Term Note") and in accordance with that certain Third Amended
and Restated Revolving Credit Loan and Security Agreement by and between
Borrowers and Bank dated of even date (as further amended or modified, the "Loan
Agreement"). This 1997 Term Note is secured by liens on all of Borrowers' assets
pursuant inter alia to various (i) Security Agreements dated as of July 14, 1994
and August 9, 1995 (collectively, as amended or modified, the "Security
Agreements") (ii) Mortgages, Deeds to Secure Debts, Security Deeds and other
instruments dated as of July 14, 1994 and August 9, 1995 (collectively, as
amended or modified, the "Mortgage Instruments"); and (iii) other agreements by
and between Borrowers and Bank. All of the terms, conditions and covenants of
the Loan Agreement, the Security Agreements and the Mortgage Instruments are
expressly made a part of this 1997 Term Note by reference in the same manner and
with the same effect as if set forth herein at length and any holder of this
1997 Term Note is entitled to the benefits of and remedies provided in the Loan
Agreement, the Security Agreements, the Mortgage Instruments and other
agreements by and between the Borrowers and the Bank. Any Event of Default under
the Loan Agreement is an Event of Default under the terms of this 1997 Term
Note.
Definitions. As used herein:
"Leverage Ratio" shall mean the ratio that (total liabilities minus
Subordinated Indebtedness) BEARS TO (Tangible Net Worth plus
Subordinated Indebtedness), as such are computed in accordance with
GAAP.
"Prime Rate" shall mean the fluctuating rate of interest established by
Bank from time to time, at its discretion, whether or not such rate
shall be otherwise published. The Prime Rate is established by Bank as
an index or base rate and may or may not at any time be the best or
lowest rate charged by Bank on any loan.
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All other capitalized terms not otherwise defined in this 1997 Term Note shall
have the meaning ascribed to such term in the Loan Agreement.
Interest. Interest on the principal outstanding of the 1997 Term Loan
shall accrue, during each Interest Period, at the lesser of the Prime Rate or
the following, as calculated and established on each Determination Date:
(i) During such time that the Leverage Ratio is greater
than 2.50 to 1.00 but less than 3.00 to 1.00, at a
rate per annum equal to Adjusted LIBOR plus two
hundred fifty (250) basis points; and
(ii) During the period of time that the Leverage Ratio is
less than or equal to 2.50 to 1.00, at a rate per
annum equal to Adjusted LIBOR plus two hundred
twenty-five (225) basis points.
Provided, however, during the period of time (x) prior to
Borrowers entering into a Swap Agreement; or (y) after
Borrowers terminate or modify the Swap Agreement, interest on
the outstanding principal of the 1997 Term Loan shall accrue,
during each Interest Period, at the lesser of the Prime Rate
plus one-eight of one percent (0.125%) or the following, as
calculated on each Determination Date:
(i) During such time that the Leverage Ratio is greater
than 2.50 to 1.0 but less than 3.00 to 1.00, at a
rate per annum equal to Adjusted LIBOR plus two
hundred sixty-five (265) basis points; and
(ii) During the period of time that the Leverage Ratio is
less than or equal to 2.50 to 1.00, at a rate per
annum equal to Adjusted LIBOR plus two hundred forty
(240) basis points.
Interest shall be calculated on the basis of a 360 day year and actual number of
days elapsed during each Interest Period. The most recent financial information
delivered to, and reviewed by, Bank in accordance with subsection 7.1(i) or
7.1(j) of the Loan Agreement will govern the calculation of the Leverage Ratio
on each Determination Date for purposes of establishing the interest rate for
each Interest Period. The interest rate shall be fixed during each Interest
Period and shall be adjusted on each successive Determination Date.
Repayment of Principal and Payment of Interest. On the twelfth (12th)
day of each month commencing on May 12, 1997 and ending on December 12, 1997,
inclusive, equal installments of principal in the amount of $33,333.33 plus all
accrued but unpaid interest shall be due and payable. Commencing on January 12,
1998 and on the twelfth (12th) day of each month thereafter, equal installments
of principal in the amount equal to the outstanding principal balance of the
1997 Term Loan as of January 1, 1998 divided by 48 plus all accrued but unpaid
interest shall be due and payable, with a final payment of all outstanding
principal plus all accrued but unpaid interest due and payable June 2, 1999.
Additionally, if the Term Loan has been satisfied in full, Borrowers shall make
additional payments to Bank to satisfy Borrowers' obligations under the 1997
Term Loan (each, a "1997 Income Recapture Payment") in the amount equal to the
amount, if any, otherwise required to be used to satisfy the Term Loan in
accordance with Section 3.2 of the Loan Agreement and the Term Note designated
as "Income Recapture Payments". Any such 1997 Income Recapture Payment must be
made when the Income Recapture Payments would have been due if the Term Loan has
not been satisfied. So long as no Event of Default shall have occurred or is
continuing, each 1997 Income Recapture Payment shall be applied to principal
outstanding under the 1997 Term Loan in the inverse order of scheduled
maturities.
135
<PAGE>
Acceleration. If payment of all sums due hereunder is accelerated under
the terms of the Loan Agreement or if payment is not made in full at maturity of
this 1997 Term Note, the then outstanding principal and all accrued but unpaid
interest shall bear interest at the rate provided for hereunder plus four
percent (4%) per annum until such principal and interest have been paid in full;
provided, however, that in no event shall this or any other provision herein
permit the collection of any interest which would be usurious under the law
governing this transaction, and if any such interest is collected, the amount
above the maximum rate permitted by law shall be deemed to be a principal
payment hereunder.
Prepayment. Borrowers may prepay the 1997 Term Loan in whole or in
part; provided, any such prepayment shall be applied to principal in the inverse
order of scheduled maturities, and, provided, further, any prepayments of the
1997 Term Loan with proceeds of a loan or private placement from a banking
institution other than Bank (with the term "banking institutions" to exclude The
Robinson- Humphrey Company and similar brokerage firms not connected or
affiliated with the banking institutions) must be accompanied by a prepayment
premium calculated as follows: (1) Two percent (2.0%) of the principal amount
prepaid if the prepayment occurs on or before March 26, 1998; and (2) One
percent (1.0%) of the principal amount prepaid if the prepayment occurs after
March 26, 1998 but on or before March 26, 1999. Notwithstanding anything to the
contrary contained above, Borrowers shall not be obligated to pay any prepayment
premiums in connection with prepayments of the 1997 Term Loan made after a
merger or other business combination involving the Borrowers the result of which
is that none of the Borrowers is the surviving entity.
Late Charges. In the event any payment of interest or principal is
delinquent more than fifteen (15) days, Borrowers will pay to Bank a late charge
of four percent (4%) of the amount of the overdue payment. This provision for
late charges shall not be deemed to extend the time for payment or be a "grace
period" or "cure period" that gives the Borrowers a right to cure a Default
Condition, except as provided in the Loan Agreement. Imposition of late charges
is not contingent upon the giving of any notice or lapse of any cure period
provided for in the Loan Agreement.
Application of Payments. All sums received by the Bank for application
to the 1997 Term Loan may be applied by the Bank to late charges, expenses,
costs, interest, principal and other amounts owing to the Bank in connection
with the 1997 Term Loan in the order selected by the Bank in its sole
discretion.
Expenses. In the event this 1997 Term Note is not paid when due at any
stated or accelerated maturity, Borrowers jointly and severally will pay, in
addition to principal and interest, all costs of collection, including
reasonable attorneys' fees.
Governing Law. This 1997 Term Note shall be governed by, and construed
in accordance with, the laws of the State of South Carolina.
Non-waiver. The failure at any time of Bank to exercise any of its
options or any other rights hereunder shall not constitute a wavier thereof, nor
shall it be a bar to the exercise of any of its options or rights at a later
date. All rights and remedies of Bank shall be cumulative and may be pursued
singly, successively or together, at the option of Bank. The acceptance by Bank
of any partial payment shall not constitute a waiver of any Event of Default or
of any of Bank's rights under this 1997 Term Note or the other Loan Documents.
No waiver of any of its rights hereunder, and no modification or amendment of
this 1997 Term Note, shall be deemed to be made by Bank unless the same shall be
in writing, duly signed on behalf of Bank; and each such waiver, if any, shall
apply only with respect to the specific instance involved, and shall in no way
impair the rights of Bank or the obligations of the Borrower to Bank in any
other respect at any other time.
Partial Invalidity. The unenforceability or invalidity of any provision
of this 1997 Term Note shall not affect the enforceability or the validity of
any other provision herein and the invalidity or unenforceability of any
provision of this 1997 Term Note or of the Loan Documents to any person or
circumstance shall not affect the enforceability or validity of such provision
as it may apply to other persons or circumstances.
136
<PAGE>
Jurisdiction and Venue. In any litigation in connection with or to
enforce this 1997 Term Note or any endorsement or guaranty of this 1997 Term
Note or any Loan Documents, Borrowers, irrevocably consent to and confer
personal jurisdiction on the courts of Richland County, State of South Carolina
or the United States courts located within the State of South Carolina, and
expressly waive any objections as to venue in any such courts, and agree that
service of process may be made on Borrowers by mailing a copy of the summons and
complaint by registered or certified mail, return receipt requested, to their
respective addresses. Nothing contained herein shall, however, prevent Bank from
bringing any action or exercising any rights within any other state or
jurisdiction or from obtaining personal jurisdiction by any other means
available by applicable law.
ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
1997 TERM NOTE OR ANY RELATED NOTES OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON
OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OR COMMERCIAL DISPUTES OR JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC.
(J.A.M.S.) AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCE, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THE 1997
TERM NOTE MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS 1997 TERM NOTE
APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(A) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
BORROWER'S DOMICILE AT THE TIME OF THIS 1997 TERM NOTE'S EXECUTION AND
ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATION; IF J.A.M.S. IS UNABLE
OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN
ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED
WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL
ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH
HEARING FOR AN ADDITIONAL 60 DAYS.
(B) RESERVATION OF RIGHTS. NOTHING IN THIS 1997 TERM NOTE SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS 1997 TERM NOTE; OR (II)
BE A WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. ss.91 OR
ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK
HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF,
OR (B) TO FORECLOSURE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C)
TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER
THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS 1997 TERM
NOTE. NEITHER THE EXERCISE OR SELF HELP REMEDIES NOR THE INSTITUTION OR
MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES
SHALL CONSTITUTE A WAIVER OF THE RIGHT TO ANY PARTY, INCLUDING THE CLAIMANT IN
SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
Bind Effect. This note shall be binding upon and inure to the benefit
of Borrowers and Bank and their respective successor, assigns, heirs and
personal representatives, provided, however, that no obligations of the
Borrowers hereunder can be assigned without prior written consent of Bank.
NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY NOTE AND ANY OTHER
DOCUMENTS EXECUTED IN CONNECTION HEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
137
<PAGE>
IN WITNESS WHEREOF, Borrowers have caused this 1997 Term Note to be
duly executed under seal as of the day and year first above written.
WITNESSES: MARTIN COLOR-FI, INC. (SEAL)
STAR FIBERS CORP. (SEAL)
CUSTOM COLORANTS, INC. (SEAL)
BUCHANAN INDUSTRIES, INC. (SEAL)
PALMETTO SPINNING CORPORATION (SEAL)
138
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-15019) pertaining to the 1993 Incentive Stock Option and Stock
Appreciation Rights Plan, (Form S-8 No. 33- 15029) pertaining to the 1994
Incentive Stock Option Plan and Stock Appreciation Rights Plan, (Form S-8 No.
33-15017) pertaining to the 1993 Non-qualified Stock Option Plan and (Form S-8
No. 33-92808) pertaining to the 401(k) Profit Sharing Plan and Trust of Martin
Color-Fi, Inc. of our report dated February 13, 1997, with respect to the
consolidated financial statements and schedule of Martin Color-Fi, Inc. included
in this Annual Report (Form 10-K) for the year ended December 31, 1996.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at December 31, 1996, and the Condensed
Consolidated Statement of Operations for the Year Ended December 31, 1996, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 272
<SECURITIES> 0
<RECEIVABLES> 12,622
<ALLOWANCES> 150
<INVENTORY> 38,678
<CURRENT-ASSETS> 53,309
<PP&E> 42,873
<DEPRECIATION> 18,517
<TOTAL-ASSETS> 102,616
<CURRENT-LIABILITIES> 22,830
<BONDS> 44,429
0
0
<COMMON> 832
<OTHER-SE> 29,341
<TOTAL-LIABILITY-AND-EQUITY> 102,616
<SALES> 114,416
<TOTAL-REVENUES> 114,416
<CGS> 91,454
<TOTAL-COSTS> 103,479
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,335
<INCOME-PRETAX> 6,836
<INCOME-TAX> 2,402
<INCOME-CONTINUING> 4,434
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,434
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.67
</TABLE>
