FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ________________________
Commission file 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 No.)
306 Main Street, Edgefield, South Carolina 29824
(Address of principal executive offices)
(803) 637-7000
------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of August 10, 1998, there were 6,730,284 shares of the registrant's
common stock issued and outstanding.
<PAGE>
MARTIN COLOR-FI, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
Part I - Financial Information
Item 1 - Financial Statements
<S> <C>
Condensed Consolidated Statements of Operations (unaudited) -
Three and six months ended June 29, 1997 and June 28, 1998 ...................2
Condensed Consolidated Balance Sheets
December 31, 1997 and June 28, 1998 (unaudited) - ...........................3
Condensed Consolidated Statements of Cash Flows (unaudited) -
For the six months ended June 29, 1997 and June 28, 1998......................4
Notes to Condensed Consolidated Financial Statements (unaudited) -
June 28, 1998...............................................................5-6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations ..........................................................7-11
Part II - Other Information
Item 3 - Defaults Upon Senior Securities .....................................................12
Item 4 - Submission of Matters to a Vote of Security Holders .................................12
Item 6 - Exhibits and Reports on Form 8-K .................................................12-13
Signatures..............................................................................................14
Exhibit Index..................................................................................15
</TABLE>
<PAGE>
MARTIN COLOR-FI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 29, June 28, June 29, June 28,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ...................................................... $ 32,349 $ 27,970 $ 59,525 $ 56,096
Cost of sales .................................................. 26,000 31,125 47,375 55,238
-------- -------- -------- --------
Gross profit (deficit) (Note 2) ................................ 6,349 (3,155) 12,150 858
Selling, general and administrative expenses ................... 3,412 3,794 6,680 7,689
-------- -------- -------- --------
Operating income (loss) ........................................ 2,937 (6,949) 5,470 (6,831)
Interest expense ............................................... (1,093) (1,227) (2,003) (2,413)
Other income ................................................... 80 184 226 175
-------- -------- -------- --------
Income (loss) before income taxes .............................. 1,924 (7,992) 3,693 (9,069)
Provision for income taxes (benefit) ........................... 613 (2,551) 1,182 (2,925)
-------- -------- -------- --------
Net income (loss) .............................................. $ 1,311 $ (5,441) $ 2,511 $ (6,144)
======== ======== ======== ========
Net income (loss) per share - basic ............................ $ 0.20 $ (0.81) $ 0.38 $ (0.91)
======== ======== ======== ========
Net income (loss) per share - assuming dilution ................ $ 0.20 $ (0.81) $ 0.38 $ (0.91)
======== ======== ======== ========
Weighted average shares outstanding ............................ 6,701 6,730 6,694 6,730
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
MARTIN COLOR-FI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1997 and June 28, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31, June 28,
1997 1998
---- ----
(unaudited)
Assets
Current assets:
<S> <C> <C>
Cash ............................................................................... $ 259 $ 43
Accounts receivable, net of allowance of $200
and $328, respectively, for doubtful accounts .................................... 15,789 14,146
Inventories (Note 2) ............................................................... 48,430 40,547
Prepaid expenses ................................................................... 1,179 1,307
Income tax receivable .............................................................. 611 1,091
-------- --------
Total current assets ............................................................... 66,268 57,134
Property, plant, and equipment, net ................................................ 42,772 40,983
Goodwill ........................................................................... 5,446 5,576
Other assets ....................................................................... 1,361 1,126
-------- --------
Total assets ....................................................................... $115,847 $104,819
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses .............................................. $ 18,695 $ 16,403
Current portion of long-term debt ($59,532 in default .............................. 9,149 59,559
at June 28, 1998)
-------- --------
Total current liabilities .......................................................... 27,844 75,962
Deferred income taxes ................................................................ 5,506 3,439
Long-term debt ....................................................................... 51,065 130
Shareholders' equity:
Common stock, no par value:
Authorized shares - 50,000,000 in 1998 and 1997
Issued and outstanding shares - 6,730,284
in 1998 and 1997 ................................................................. 832 832
Additional paid-in capital ........................................................... 20,092 20,092
Retained earnings .................................................................... 10,508 4,364
-------- --------
Total shareholders' equity ........................................................... 31,432 25,288
-------- --------
Total liabilities and shareholders' equity ........................................... $115,847 $104,819
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
MARTIN COLOR-FI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 29, 1997 AND JUNE 28, 1998
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
---- ----
Operating activities:
<S> <C> <C>
Net income (loss) .................................................................... $ 2,511 $ (6,144)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization .................................................... 2,192 2,500
Provision for inventory reserves ................................................. 6,275
Deferred income taxes ............................................................. 692 (2,067)
(Gain) on sale of property,plant, and equipment .................................. - (95)
Changes in operating assets and liabilities:
Accounts receivable ............................................................. (4,351) 1,643
Inventories ..................................................................... (3,102) 1,608
Income tax receivable ........................................................... - (480)
Prepaid expenses ................................................................ (591) (128)
Other assets .................................................................... 866 160
Accounts payable and accrued expenses ........................................... (1,818) (2,292)
-------- --------
Net cash (used in) provided by operating activities .................................. (3,601) 980
Investing activities:
Purchases of property, plant and equipment ......................................... (1,859) (1,576)
Net proceeds from sale of equipment ................................................ - 1,252
Other .............................................................................. (644) (322)
-------- --------
Net cash used in investing activities ................................................ (2,503) (646)
Financing activities:
Borrowings under line of credit .................................................... 23,767 12,297
Payments on line of credit ......................................................... (17,050) (9,697)
Additional loan costs .............................................................. (38) (25)
Proceeds from issuance of long-term debt ........................................... 2,452 -
Principal payments on long-term debt ............................................... (2,910) (3,125)
Proceeds from issuance of common stock ............................................. 86 -
-------- --------
Net cash provided by (used in) financing activities ................................ 6,307 (550)
Net increase (decrease) in cash and cash equivalents ................................. 203 (216)
Cash and cash equivalents at beginning of period ..................................... 272 259
-------- --------
Cash and cash equivalents at end of period ........................................... $ 475 $ 43
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) .............................................. $ 1,994 $ 2,426
Income taxes ....................................................................... 517 1
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
MARTIN COLOR-FI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three and six months ended
June 29, 1997 and June 28, 1998 is
unaudited) (In thousands)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals and a provision of $6,275 to reduce the carrying
value of certain inventories to fair value in the quarter ended June 28, 1998)
considered necessary for a fair presentation have been included. The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 3 below, the Company's
ability to continue as a going concern is uncertain. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Operating results for the three and six month periods ended June 28, 1998,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For further information, refer to the financial
statements and footnotes thereto included in the Registrant Company's Form 10-K
for the year ended December 31, 1997, filed with the Securities and Exchange
Commission on March 31, 1998.
2. Inventories
Inventories consist of the following:
December 31, June 28,
1997 1998
Raw materials $28,868 $25,185
Finished goods 19,562 21,637
Inventory reserves - (6,275)
------- -------
$48,430 $40,547
======= =======
During the quarter ended June 28, 1998, the Company changed its strategy for the
use of certain raw materials in the Fibers Division, and decided to accelerate
the discontinuance of certain Carpet Division products and sell the related
inventory at a discount. In addition, as a result of market conditions, the fair
value of certain Fibers Division finished goods declined to a level below
carrying value. As a result, the company established a reserve of $6,275 during
the quarter ended June 28, 1998.
3. Debt in Default
On June 2, 1998, the Company amended its revolving line of credit agreement
to increase its borrowings from a previously increased line of $32,500, to a
$34,000 borrowing base until October 2, 1998. The line of credit and term loans
with the bank mature on June 2, 1999.
As a condition to the Bank's agreement to renew and extend the line and to
waive an Event of Default which had occurred by virtue of the Company's failure
to make payments required under the Term Loans, the Bank changed the interest
rate formula on all loans with the Bank. Effective June 2, 1998, interest
accrues at a floating rate per annum equal to Bank's prime rate plus .50%. The
Bank also deferred the principal payments due May 12, June 12, and July 12 and
required interest only to be paid. Principal
5
<PAGE>
payments were to resume August 12, 1998 but have not been paid.
As a result of business conditions discussed in management's discussion and
analysis, the Company failed to make payments due in July under its revolving
credit loan, as amended. In response to the Company's failure to make these
payments and to the Company's failure to comply with certain covenants and
representations in the loan documents, the Bank, in a letter dated August 6,
1998, notified the Company that it was in default and issued a demand to cure
defaults which requires a payment in the amount of $4.9 million to be made
immediately. The Company does not have current assets sufficient to repay such
indebtedness or to cure the defaults. Additionally, the Company has not made
payments due August 12, 1998 in the amount of $1.1 million, which includes
principal, interest, and penalties. Also, the Company has not made a
subordinated convertible note payment to the former owners of Palmetto Spinning
Corporation which was due on June 13, 1998 in the amount of $1.05 million.
Because the Company is in default on the senior debt, the former owners are
prohibited from collection of this amount under the terms of the Subordination
Agreement dated June 13, 1994.
The Company has retained the services of outside professionals to assist in
assessing its alternatives and addressing its liquidity issues. The alternatives
potentially available to the Company include refinancing its debt, acquiring
additional capital to repay its debt, selling all or a portion of the Company's
assets, merger of the Company with another entity, or filing a petition in
bankruptcy. With the exception of filing a petition in bankruptcy, however,
management of the Company cannot unilaterally effect any of such matters, and is
not currently able to assess the practical availability of such options.
The Bank, in a letter dated August 11, 1998, agreed to forbear from
exercising its rights and remedies for an indefinite period of time. The Bank
has also expressed support of the Company's efforts to evaluate and implement
financial alternatives. Although many of the problems encountered in the second
quarter have continued into the third quarter and may continue indefinitely, the
Company believes it has the near-term financial ability to continue to operate
as a going concern, though there can be no assurances to that effect. The
Company's long-term prospects are likely to be dependent on its ability to
restructure its indebtedness.
6
<PAGE>
MARTIN COLOR-FI, INC.
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.
Outlook for 1998
The Company experienced extremely difficult business conditions in the
second quarter of 1998. The Fibers Division experienced a 19% decrease in volume
shipped compared to the second quarter of 1997, caused principally by severe
price competition from foreign competitors. In addition, raw material costs
increased 10% over the previous quarter and the second quarter of 1997.
The Carpet Division experienced a decrease in sales revenue of 8% during
the second quarter of 1998 compared to 1997. This was caused by a significant
reduction in sales to the manufactured housing market, offset to some extent by
growth in sales to other markets. The Company had planned for reduced sales to
the manufactured housing market, but competitive pressures caused sales to
decline much more rapidly than planned.
As a result of business conditions discussed in this management's
discussion and analysis, the Company failed to make payments due in July under
its revolving credit loan, as amended. In response to the Company's failure to
make these payments and to the Company's failure to comply with certain
covenants and representations in the loan documents, the Bank, in a letter dated
August 6, 1998, notified the Company that it was in default and issued a demand
to cure defaults which requires a payment in the amount of $4.9 million to be
made immediately. The Company does not have current assets sufficient to repay
such indebtedness or to cure the defaults. Additionally, the Company has not
made payments due August 12, 1998 in the amount of $1.1 million, which includes
principal, interest, and penalties. Also, the Company has not made a
subordinated convertible note payment to the former owners of Palmetto Spinning
Corporation which was due on June 13, 1998 in the amount of $1.05 million.
Because the Company is in default on the senior debt, the former owners are
prohibited from collection of this amount under the terms of the Subordination
Agreement dated June 13, 1994.
The Company has retained the services of outside professionals to assist in
assessing its alternatives and addressing its liquidity issues. The alternatives
potentially available to the Company include refinancing its debt, acquiring
additional capital to repay its debt, selling all or a portion of the Company's
assets, merger of the Company with another entity, or filing a petition in
bankruptcy. With the exception of filing a petition in bankruptcy, however,
management of the Company cannot unilaterally effect any of such matters, and is
not currently able to assess the practical availability of such options.
The Company's senior lenders have agreed to forbear from exercising their
rights and remedies for an indefinite period of time, and have expressed support
of the Company's efforts to evaluate and implement financial alternatives.
Although many of the problems encountered in the second quarter have continued
into the third quarter and may continue indefinitely, the Company believes it
has the near-term financial ability to continue to operate as a going concern,
though there can be no assurances to that effect. The Company's long-term
prospects are likely to be dependent on its ability to restructure its
indebtedness.
7
<PAGE>
Results of Operations:
Three months ended June 28, 1998, compared to the three months ended June 29,
1997.
Net Sales: Net sales decreased 13.5% to $28.0 million in the second quarter of
1998 from $32.3 million in the second quarter of 1997. This net sales decrease
is primarily related to a decrease in net sales in the Fibers Division by $2.9
million, which was primarily related to a decrease in commodity fiber shipments.
Commodity fiber shipments decreased due to continuing severe price competition
from foreign competitors, which has intensified due to the financial problems in
Asia. PET fiber shipments decreased to 21.6 million pounds in the second quarter
of 1998 from 26.6 million pounds in the second quarter of 1997. The decrease
was, however, partially offset by an increase in the average PET fiber sales
price per pound to $0.680 in the second quarter of 1998 from $0.659 in the
second quarter of 1997.
Net sales of the Pigment, Yarn and Carpet Divisions, after intercompany and
interdivision eliminations, decreased to $13.5 million in the second quarter of
1998 from $15.0 million in the second quarter of 1997. The decrease resulted
primarily from a decreased volume of sales in the Carpet and Yarn Divisions
caused by the decrease in sales to the manufactured housing market.
Gross Profit (Deficit): Gross profit (deficit) decreased 150% to ($3.2) million
in the second quarter of 1998 as compared to $6.3 million in the second quarter
of 1997. As a percentage of net sales, gross profit decreased to (11.3)% in the
second quarter of 1998 as compared to 19.6% in the second quarter of 1997. The
decrease in gross profit margin was attributable to the recording of a $6.3
million inventory reserve to reflect a change in strategy for use of certain raw
materials, an establishment of a lower of cost or market reserve for finished
goods inventories in the Fibers Division and a reserve for inventory in the
Carpet Division related to discontinued product lines which management intends
to sell at discounted prices. Also, the decrease in gross profit is directly
related to the decrease in net sales discussed above and a decrease in the gross
profit margin. Excluding the $6.3 million in inventory reserves, gross profit
margin was 11.2%. The decrease in gross profit percentage relates to decreased
margins in all divisions, excluding the Yarn Division, which increased.
Selling, general and administrative: Selling, general and administrative
expenses were $3.8 million or 13.6% of net sales in the second quarter of 1998
as compared to $3.4 million or 10.5% of net sales in the second quarter of 1997.
The increase in selling, general and administrative expenses as a percentage of
net sales is due to the decrease in net sales discussed above without a
corresponding reduction in expenses.
Interest expense: Interest expense increased to $1.2 million in the second
quarter of 1998 compared to $1.1 million in the second quarter of 1997. The
increase relates primarily to an increase in the average outstanding debt
balance and a reduction in the amount of interest capitalization in the second
quarter of 1998 compared to the second quarter of 1997.
Income tax provision: The income tax benefit for the second quarter of 1998 was
$2,551 thousand compared to an income tax expense of $613 thousand for the
second quarter of 1997. The change is directly due to the decrease in pretax
income.
Net income (loss) and net income (loss) per share: A net loss of $5.4 million or
$0.81 per share for the second quarter of 1998 was incurred compared to a net
income of $1.3 million or $0.20 per share for the second quarter of 1997. The
decrease related directly to the decrease in gross profit and gross profit
percentage and an increase in selling, general and administrative expenses.
8
<PAGE>
Six months ended June 28, 1998, compared to the six months ended June 29, 1997.
Net Sales: Net sales decreased 5.8% to $56.1 million in the six months ended
June 28, 1998, from $59.5 million in the six months ended June 29, 1997. This
net sales decrease is primarily related to a decrease in net sales in the Fibers
Division of $2.5 million, which was primarily related to a decrease in commodity
fiber shipments. PET fiber shipments decreased to 41.3 million pounds in the six
months ended June 28, 1998, from 48.6 million pounds in the six months ended
June 29, 1997. The decrease was, however, partially offset by an increase in the
average PET fiber sales price per pound to $0.691 in the six months ended June
28, 1998, from $0.661 in the six months ended June 29, 1997.
Net sales of the Pigment, Yarn and Carpet Divisions, after intercompany and
interdivision eliminations, decreased to $27.5 million in the six months ended
June 28, 1998, from $28.5 million in the six months ended June 29, 1997. The
decrease resulted primarily from a decreased volume of sales in the Yarn
Division partially offset by an increase in the Carpet Division.
Gross profit: Gross profit decreased 93% to $860 thousand in the six months
ended June 28, 1998, as compared to $12.2 million in the six months ended June
29, 1997. As a percentage of net sales, gross profit decreased to 1.5% in the
six months ended June 28, 1998, as compared to 20.4% in the six months ended
June 29, 1997. The decrease in gross profit margin was attributable to the
recording of a $6.3 million inventory reserve to reflect a change in strategy
for use of certain raw materials, an establishment of a lower of cost or market
reserve for finished goods inventories in the Fibers Division and a reserve for
inventory in the Carpet Division related to discontinued products which
management intends to sell at discounted prices. Also, the decrease in gross
profit is directly related to the decrease in net sales discussed above and a
decrease in the gross profit margin. Excluding the $6.3 million in inventory
reserves, gross profit margin was 12.7%. The decrease in gross profit percentage
relates to decreased margins in all divisions, excluding the Yarn Division,
which increased.
Selling, general and administrative: Selling, general and administrative
expenses were $7.7 million or 13.7% of net sales in the six months ended June
28, 1998, as compared to $6.7 million or 11.2% of net sales in the six months
ended June 29, 1997. The increase in selling, general and administrative
expenses is primarily related to the Carpet Division. The increase in selling,
general and administrative expenses as a percentage of net sales is due to the
decrease in net sales discussed above without a corresponding reduction in
expenses and to the sales growth of the Carpet Division which incurs higher
selling, general and administrative expenses for its revenue than the other
divisions.
Interest expense: Interest expense increased to $2.4 million in the six months
ended June 28, 1998, from $2.0 million in the six months ended June 29, 1997.
The increase relates primarily to an increase in the average outstanding debt
balance and a reduction in the amount of interest capitalization in the six
months ended June 28, 1998, compared to the six months ended June 29, 1997.
Income tax provision: The income tax benefit for the six months ended June 28,
1998, was $2.9 million compared to an income tax expense of $1.2 million for the
six months ended June 29, 1997. This is directly due to the decrease in pretax
income.
Net income (loss) and net income (loss) per share: A net loss of $6.1 million or
$0.91 per share for the six months ended June 28, 1998, was incurred compared to
net income of $2.5 million or $0.38 per share for the six months ended June 29,
1997. The decrease related directly to the decrease in gross profit and gross
profit percentage, an increase in interest expense and selling, general and
administrative expenses.
9
<PAGE>
Financial Condition
Current assets decreased to $57.1 million at June 28, 1998 from $66.3 million at
December 31, 1997. Accounts receivable decreased $1.6 million, and inventories
decreased $7.9 million. The changes in accounts receivable resulted directly
from decreased sales in the latter part of the second quarter of 1998 versus
sales in the latter part of the last quarter of 1997. The decrease in
inventories was primarily related to the recording of a $6.3 million inventory
reserve and a reduction in raw material inventories as a result of an inventory
reduction plan.
The decrease in accounts payable and accrued expenses was primarily related to
the reduction in raw material inventories discussed above and the timing of
purchases and cash disbursements. The reduction in debt relates directly to the
decrease in accounts receivable and inventory discussed above and proceeds
received of $1.3 million for the sale of property, plant and equipment,
partially offset by the need for cash to fund operations.
Liquidity and capital resources:
As a result of business conditions discussed above and the bank's demand
for immediate payment of amounts in default, a total amount of approximately
$7.6 million was due and payable to the bank on August 14, 1998. On such date, a
total amount of $1.05 million was due and payable on the Company's subordinated
debt. Furthermore, as a result of the defaults, the bank has the right at any
time to declare the entire amount of the debt due to the bank, totalling
approximately $60 million including interest and penalties, immediately due and
payable. The foregoing amounts fluctuate daily based on the borrowing base, and
may be significantly more or less on any particular date. The Company does not
have current assets sufficient to repay such indebtedness or to cure the
defaults. Additionally, the Company has not made payments due August 12, 1998 in
the amount of $1.1 million, which includes principal, interest, and penalties.
Also, the Company has not made a subordinated convertible note payment to the
former owners of Palmetto Spinning Corporation which was due on June 13, 1998 in
the amount of $1.05 million. Because the Company is in default on the senior
debt, the former owners are prohibited from collection of this amount under the
terms of the Subordination Agreement dated June 13, 1994.
The Company has retained the services of outside professionals to assist in
assessing its alternatives and addressing its liquidity issues. The alternatives
potentially available to the Company include refinancing its debt, acquiring
additional capital to repay its debt, selling all or a portion of the Company's
assets, merger of the Company with another entity, or filing a petition in
bankruptcy. With the exception of filing a petition in bankruptcy, however,
management of the Company cannot unilaterally effect any of such matters, and is
not currently able to assess the practical availability of such options.
The Bank, in a letter dated August 11, 1998, agreed to forbear from
exercising its rights and remedies for an indefinite period of time. The Bank
has also expressed support of the Company's efforts to evaluate and implement
financial alternatives. Although many of the problems encountered in the second
quarter have continued into the third quarter and may continue indefinitely, the
Company had $25.3 million dollars in stockholders' equity at June 28, 1998 and
believes it has the near-term financial ability to continue to operate as a
going concern, though there can be no assurances to that effect. The Company's
long-term prospects are likely to be dependent on its ability to restructure its
indebtedness.
The Company generated cash from operations of $980 thousand for the second
quarter of 1998 compared to cash used in operations of $3.6 million for the
second quarter of 1997. The decrease in cash used in operations was primarily
the result of decreases in net operating assets and liabilities, primarily a
decrease in inventories and accounts receivable, partially offset by a decrease
in accounts payable and accrued expenses and a decrease in net income.
Net cash used in investing activities amounted to $646 thousand in the second
quarter of 1998 compared to $2.5 million in the second quarter of 1997. The
increase primarily relates to the proceeds received of $1.3 million for the sale
of property, plant, and equipment during the second quarter of 1998. Also, the
investment in property, plant, and equipment during the second quarter of 1998
was $283 thousand less than
10
<PAGE>
the second quarter of 1997.
Net cash used in financing activities amounted to $550 thousand for the second
quarter of 1998 compared to net cash provided by financing activities of $6.3
million for the second quarter of 1997. The change occurred primarily due to the
decrease in borrowings.
The Company's loan agreements with financial institutions contain a number of
restrictive covenants. See Note 3 to Notes to Financial Statements which
discusses these agreements.
11
<PAGE>
Part II - Other Information
Item 3. Defaults Upon Senior Securities:
For a discussion of certain defaults see "Management's Discussion and
Analysis of the Financial Condition and Results of Operations -
Outlook for 1998 and Liquidity and Capital Resources Sections.
Item 4. Submission of Matters to a Vote of Security Holders:
(a) An annual meeting of the shareholders of the Company was held on May
15, 1998.
(b) The names of the directors elected at the meeting are as follows: Bret
J. Harris, James C. Hite, Jack J. Jackson (for terms expiring in
2001).
(c) The items voted upon at the meeting of shareholders were as follows:
(1) the election of directors;
(2) the ratification of the appointment of Ernst & Young LLP as
independent auditors for the Company's fiscal year ending
December 31, 1998;
(3) the voting of amendments to the Martin Color-Fi 1994 Incentive
Stock Option and Stock Appreciation Rights Plan;
The number of votes cast for, against or withheld and the number of its
abstentions or broker non- votes as to each matter is as follows:
<TABLE>
<CAPTION>
Item No. Votes Against Abstentions or
(see above) Name Votes for or Withheld Broker Non-Votes
- ----------- ---- --------- ----------- ----------------
<S> <C> <C> <C> <C>
(1) Bret J. Harris 5,080,591 3,500
James C. Hite 5,080,591 3,000
Jack J. Jackson 5,080,591 3,500
(2) 5,080,591 3,000 500
(3) 4,204,854 577,091 847
</TABLE>
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit 10.48 - 1998 Second Amendment to the Fourth Amended and
Restated Loan Agreement and Other Documents dated June 2,1998 between the
Company and NationsBank,N.A.
Exhibit 10.49 - Renewal Overline Promissory Note, dated June 2, 1998
between the Company and NationsBank, N.A.
Exhibit 10.50 - Third Amended and Restated Term Loan Promissory Note
dated June 2, 1998 between the Company and NationsBank, N.A.
12
<PAGE>
Exhibit 10.51 - Amended and Restated 1997 Term Loan Promissory Note,
dated June 2, 1998 between the Company and NationsBank, N.A.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - A report on Form 8-K was filed on August 12,
1998 for the purpose of disclosing the defaults on the Company's bank
loans.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARTIN COLOR-FI, INC.
Dated: 8/17/98 By: /s/ Bret J. Harris
Bret J. Harris*
Treasurer, Chief Financial Officer
* Principal Financial and Accounting Officer
14
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.48 1998 Second Amendment to the Fourth Amended and
Restated Loan Agreement and Other Documents dated June
2,1998 between the Company and NationsBank,N.A.
10.49 Renewal Overline Promissory Note, dated June 2, 1998
between the Company and NationsBank, N.A.
10.50 Third Amended and Restated Term Loan Promissory Note
dated June 2, 1998 between the Company and NationsBank, N.A.
10.51 Amended and Restated 1997 Term Loan Promissory Note,
dated June 2, 1998 between the Company and NationsBank, N.A.
27 Financial Data Schedule
15
1998 SECOND AMENDMENT TO THE FOURTH AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT AND OTHER DOCUMENTS
THIS 1998 SECOND AMENDMENT TO THE FOURTH AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT AND OTHER DOCUMENTS (this "1998 Second Amendment") is made as
of this 2nd day of June, 1998 between MARTIN COLOR-FI, INC., a South Carolina
corporation for itself and as successor by merger to Custom Colorants, Inc. and
Palmetto Spinning Corp. ("MCF"), STAR FIBERS CORP., a South Carolina special
purpose corporation ("Star Fibers") and BUCHANAN INDUSTRIES, INC., a South
Carolina corporation ("BI") (MCF, Star Fibers and BI are individually or
collectively, as the context requires, referred to as "Borrower" or "Borrowers")
and NATIONSBANK, N.A. ("Bank").
Factual Background
A. Bank has extended to Borrowers various loans and credit facilities
(collectively, the "Loans") pursuant to the following (collectively, as amended,
restated or modified, the "Loan Agreement"): that certain Loan and Security
Agreement dated as of July 14, 1994 by and among Borrowers and Bank, as
subsequently amended, modified and restated, including pursuant to that certain
Amended and Restated Loan and Security Agreement dated as of August 9, 1995 by
and among Borrowers and Bank, that certain Second Amended and Restated Loan and
Security Agreement dated as of December 16, 1996 by and among Borrowers and
Bank, that certain Third Amended and Restated Loan and Security Agreement dated
as of March 27, 1997 by and among Borrowers and Bank and that certain Fourth
Amended and Restated Loan Agreement dated as of September 30, 1997 by and among
Borrowers and Bank.
B. The Loans and all other Obligations (as such term is defined in the Loan
Agreement) of Borrowers to Bank are secured inter alia by a perfected first
priority lien on all real and personal property of the Borrowers pursuant to
various instruments and documents (collectively,as amended and modified, the
"Security Documents"), including, but not limited to (i) that certain Mortgage
and Security Agreement dated as of July 14, 1994 executed by Borrowers in favor
of Bank recorded with the Register of Mesne Conveyances of Sumter County, South
Carolina in Volume 605 at Page 1329; (ii) that certain Mortgage and Security
Agreement dated July 14, 1994 executed by Borrowers in favor of Bank recorded
with the Clerk of Court of Edgefield County in Record Book 473 at Page 135;
(iii) that certain Mortgage and Security Agreement dated July 14, 1994 executed
by Borrowers in favor of Bank recorded with the Clerk of Court of Edgefield
County in Record Book 473 at Page 136; (iv) that certain Mortgage and Security
Agreement dated July 14, 1994 executed by Borrowers in favor of Bank and
recorded with the Clerk of Court of Laurens County, South Carolina in Book 426
at Page 1; (v) that certain Mortgage and Security Agreement dated July 14, 1994
executed by Borrowers in favor of Bank and recorded with Elkhart County, Indiana
at 94 018451; (vi) that certain Security Deed, Security Agreement and Assignment
of Leases dated July 14, 1994 executed by Borrowers in favor of Bank and
recorded in Whitfield County, Georgia in Book 2530 at Page 062; (vii) that
certain Security Deed, Security Agreement and Assignment of Leases dated August
9, 1995 executed by Borrowers in favor of Bank and recorded in Whitfield County
in Book 2642 at Page 166; (viii) that certain Assignment of Leases dated July
14, 1994 executed by Star Fibers in favor of Bank and recorded with the Clerk of
Court of Edgefield County in Book 395 at Page 149; (ix) that certain Security
Agreement dated July 14, 1994 executed by MCF in favor of Bank; (x) that certain
Security Agreement dated July 14, 1994 executed by Star Fibers in favor of Bank;
(xi) that certain Security Agreement dated July 14, 1994 executed by BI in favor
of Bank; and (xii) that certain Assignment of Contracts executed by Borrowers in
favor of Bank dated July 14, 1994.
C. The Loan Agreement and the Security Documents previously were amended
pursuant to that certain 1998 Amendment to Fourth Amended and Restated Loan
Agreement and Other Documents dated as of March 4, 1998 by and between Borrower
and Bank.
THIS AMENDMENT IS SUBJECT TO ARBITRATION PURSUANT TO THE UNIFORM
ARBITRATION ACT, SECTION 15-48-10, ET. SEQ., CODE OF LAWS OF SOUTH
CAROLINA 1976 AS AMENDED.
<PAGE>
D. Bank, at Borrower's request, previously extended to Borrowers an
overline to the Revolving Credit Loan (as such term is defined in the Loan
Agreement) in the original principal amount of $2,500,000 evidenced by an
Overline Promissory Note dated as of March 4, 1998. Bank, at Borrowers' request,
has agreed to extend to Borrowers a renewal of, and an increase to, an overline
(the "Overline") to the Revolving Credit Loan. The Overline shall be in the
maximum principal amount of $4,000,000 and shall be evidenced by a Renewal
Overline Promissory Note (as amended or modified, the "Overline Note") dated of
even date, executed and delivered by Borrowers to Bank. Borrowers further have
requested, and Bank has agreed under the terms of this 1998 Second Amendment, to
waive the Events of Default which may arise by virtue of Borrowers failure to
timely and fully make the principal installments due under the Term Loan and the
1997 Term Loans (as such terms are defined in the Loan Agreement) for the months
of May 1998, June 1998 and July 1998.
E. As a condition to Bank's agreement to renew and extend the Overline and
to waive the Event of Default which has occurred by virtue of Borrower's failure
to make the payments required under the Term Loan and the 1997 Term Loan, Bank
is requiring the following: (i) interest on each of the Loans shall accrue at a
floating rate per annum equal to Bank's prime rate plus 0.50%; (ii) Borrowers
shall not present, and Bank shall not honor, "overdrafts" presented against any
of Borrowers' accounts from and after June 30, 1998; (iii) Borrowers shall not
make any payments due to William Fred Davis, Jr., Mary Brown Davis, Natalie Lynn
Davis, William Fred Davis, Jr., as custodian for Shelly Leigh Davis, a minor
(collectively, the "Davis'") under any obligations owed by MCF or any of the
other Borrowers to the Davis'; (iv) Borrowers shall submit to Bank a detailed
cash budget for each week during the term of the Overline, in form and content
acceptable to Bank; (v) the chief financial officer of each of the Borrowers'
must certify to Bank that all federal, state and local taxes have been paid and
are current; (vi) Bank shall conduct lien searches and an asset based field
exam, the results of such searches and exams to be acceptable to Bank; and (vii)
Borrowers must provide notification to Bank prior to a "bulk sale" of Borrowers'
inventory.
F. Borrowers and Bank now desire to execute this 1998 Second Amendment to
modify and amend the provisions of the Loan Agreement and the Security Documents
in the manner hereinafter set forth, with the specific understanding and
agreement that, except as herein modified and amended, the terms and provisions
of the Loan Agreement, the Security Documents and all documents related thereto
shall remain unchanged and continue in full force and effect as therein written.
G. All capitalized terms used, but not defined, in this 1998 Second
Amendment shall have the meaning ascribed to such term in the Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing, to induce the Bank to
extend the maturity date of the Overline and to increase the availability for
borrowing thereunder and to waive the Events of Default with respect to the Term
Loan and the 1997 Term Loan for the failure to make the May, 1998, June, 1998
and July, 1998 payments, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
A. All terms, conditions and provisions of the Factual Background are
incorporated in, and shall be a part of, the agreement between Borrowers and
Bank.
B. The Borrowers specifically agree that the Overline shall be subject to
and governed by the Loan Agreement.
C. Simultaneously with the execution of this 1998 Second Amendment and as a
condition precedent to Bank's obligations hereunder, Borrowers must execute and
deliver to Bank the following promissory notes, each dated as of June 2, 1998
which are renewals to and/or amendments and restatements of the existing Notes
and shall be included in the definition of the term "Notes" as it appears in the
Loan Agreement and the Security Documents: (i) a Fourth Amended and Restated
Revolving Credit Promissory Note in the principal amount of $30,000,000; (ii) a
Third Amended and Restated Term Loan Promissory Note in the principal amount of
$20,471,030.25; (iii) an Amended and Restated 1997 Term Loan Promissory Note in
the principal amount of $4,461,111.12; and (iv) a Renewal Overline Promissory
Note in the principal amount of $4,000,000.
2
<PAGE>
D. The Loan Agreement is hereby amended as follows:
(i) By including the following provision at the end of the definition of
the term "Collateral Certificate" appearing in Section 1.1:
; provided, during the period of time in which the Overline is
available to Borrowers, the term "Collateral Certificate" shall also
include the Overline Collateral Certificate, in the form established
by Bank, as may be amended from time to time;
(ii) By deleting the definition of the term "Loan" or "Loans" appearing in
Section 1.1 and substituting in lieu thereof the following:
"Loan" or "Loans" shall mean the individual or collective reference,
as the context requires, to the Revolving Credit, the Overline, the
Term Loan and the 1997 Term Loan.
(iii)By including the following provision at the end of the definition of
the term "Monthly Borrowing Base Certificate" appearing in Section
1.1:
; provided, during the period of time in which the Overline is
available to Borrowers, the term "Monthly Borrowing Base Certificate"
shall also include the Overline Monthly Borrowing Base Certificate, in
the form established by Bank, as may be amended from time to time;
(iv) By deleting the definition of the term "Notes" appearing in Section
1.1 and substituting in lieu thereof the following:
"Note" or "Notes" shall mean the individual or collective reference,
as the context requires, to the Revolving Credit Note, the Overline
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.
(v) By inserting the following definitions in Section 1.1 after the term
"Obligations":
"Overline" shall mean the Overline to the Revolving Credit Loan in the
original maximum principal amount of $2,500,000 as renewed and
increased to a maximum principal amount of $4,000,000 pursuant to the
terms of and as more particularly set forth in Article 2A of this
Agreement.
"Overline Documents" shall mean and refer to, collectively, all those
certain documents and instruments executed in connection with the
Overline, including this Agreement, the Overline 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 Overline as such documents and instruments may
be amended, substituted or renewed from time to time.
"Overline Note" shall mean and refer to that certain Overline
Promissory Note in the original principal amount of $2,500,000 as
renewed and increased pursuant to that certain Renewal Overline
Promissory Note in the original principal amount of up to $4,000,000
dated as of June 2, 1998 executed and delivered by Borrowers to Bank,
as the same may be amended, renewed or substituted from time to time.
3
<PAGE>
(vi) By deleting in its entirety the remainder of the portion of Section
2.5 commencing with the words "provided, however" and substituting in
lieu thereof the following:
provided, however, that the aggregate principal amount outstanding
under the Revolving Credit Loan and the Overline supported by
Borrowers' and any Approved Subsidiaries' Eligible Inventory shall not
exceed, at any one time (i) except as provided in (ii) below, 55% of
the total principal amount outstanding under the Revolving Credit
Loan; and (ii) during the period of time commencing on December 31,
1997 and ending on October 2, 1998, sixty-five percent (65%) of the
total principal outstanding under the Revolving Credit Loan and the
Overline. The availability under the Revolving Credit Loan and the
Overline for each week shall be determined by the then-current
Collateral Certificate delivered in accordance with Section 7.1(k) of
this Agreement.
(vii)By deleting the existing Section 2A. and substituting in lieu
thereof:
2A. OVERLINE.
2.1.A. General Terms. During the period of time commencing on June 2,
1998 and ending on October 2, 1998 and subject to the terms of this
Agreement, Bank will lend, on a revolving credit basis, to Borrowers
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 2.4.A. hereof, or (b) Four Million and
No/100 Dollars ($4,000,000). The proceeds of the Overline shall be
used for the same purposes as the proceeds of the Revolving Credit
Loan, and the proceeds of the Overline will be made available to
Borrowers only during such time that no availability exists under the
Revolving Credit Loan. Borrower will be required to make repayments of
principal outstanding under the Overline immediately and as and when
necessary to comply with the margin requirements stated in Section
2.4.A., or upon demand by Bank in connection with an acceleration of
the Overline, or immediately upon the termination of Article 2A of
this Agreement in accordance with Section 2.6.A. of this Agreement.
2.2.A. Disbursements of the Overline. Disbursements of principal under
the Overline 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
Collateral Certificate with respect to the Overline, with the then
current Collateral Certificate with respect to the Overline governing
the availability under the Overline for the period of time until
receipt by Bank of the next Collateral Certificate with respect to the
Overline; (C) no Event of Default or Default Condition has occurred;
and (D) no availability under the Revolving Credit Loan exists. Each
delivery of an executed and properly completed Monthly Borrowing Base
Certificate and Collateral Certificate with respect to the Overline
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 with respect to the Overline (1)
all material representations and warranties made by the Borrowers and
any Approved Subsidiary in this Agreement are true and
4
<PAGE>
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, and (3) no Event of Default
or Default Condition has occurred. Bank will credit the proceeds of
all disbursements under the Overline to the Collateral Account. Bank
shall not incur any liability to the Borrowers (x) 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 (y) for otherwise acting good faith in
disbursing proceeds under the Overline.
2.3.A. Overline Note. The obligation to repay the Overline is
evidenced by the Overline Note.
2.4.A. Margin Requirement Under Overline. In addition to the
limitations set forth in Section 2.1.A. of this Agreement, the
aggregate principal amount outstanding at any one time under the
Overline as determined by the most recent Collateral Certificate may
not exceed the difference of:
(X) the sum of (i) ninety percent (90%) of the face amount of
Borrowers' and any Approved Subsidiary's Eligible Accounts Receivable
which are subject to factoring agreements with NationsBanc Commercial
Corporation and are acceptable to Bank; plus (ii) eighty percent (80%)
of the face value of Borrowers' and any Approved Subsidiary's Eligible
Accounts Receivable which are not subject to factoring agreements with
NationsBanc Commercial Corporation that are acceptable to Bank; plus
(iii) fifty percent (50%) 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 and the
Overline supported by Borrowers' and any Approved Subsidiary's
Eligible Inventory shall not exceed, at any one time sixty percent
(60%) of the total principal outstanding under the Revolving Credit
Loan and the Overline, minus
(Y) principal outstanding under the Revolving Credit Loan.
2.5.A. Fees. In consideration of NationsBank extending the Overline,
Borrowers shall pay a commitment fee equal to $20,000, which fee shall
be due and payable upon the delivery of the Overline Note.
Additionally, Borrower further shall pay an "user fee" under the
Overline to be assessed and due and payable on October 2, 1998, which
fee will equal one-eighth of one percent (0.125%) per annum of the
average unused portion of the Overline calculated on a daily basis.
2.6.A. Termination. This Agreement as it relates to the Overline shall
be terminated (a) by Bank or notice to Borrowers at any time in
connection with the acceleration pursuant to Section 9.2 hereof; or
(b) if not sooner demanded, on October 2, 1998. The termination of
this Agreement as it relates to the Overline shall in no way effect or
impair any right of Bank arising prior thereto or by reason thereof,
nor shall any such termination relieve Borrowers of any Obligations
under the Overline until all Obligations under the Overline are fully
paid and performed, nor shall any such termination effect any right or
remedy of Bank arising from any other Obligation. All agreements,
warranties and representations of Borrowers shall survive termination.
2.7.A. Additional Provisions. All other terms, conditions,
representations, warranties and covenants contained in Article 2 and
elsewhere in the Loan
5
<PAGE>
Agreement, to the extent not in consistent to the express provisions
of this Article 2A., shall apply to the Overline.
(viii) By inserting the following provision at the end of Section 7.1:
E. Borrowers acknowledge that, immediately preceding the execution of this
1998 Second Amendment and the satisfaction of the conditions contained herein,
Events of Default (the "Existing Monetary Defaults") existed under the Loan
Documents by virtue of Borrowers failure to make in full the May, 1998 and June,
1998 payments due under the Term Loan and the 1997 Term Loan. Bank hereby waives
the Existing Monetary Defaults and the Event of Default (the "July Monetary
Default") which would have arisen by virtue of Borrowers' failure to pay in full
the July, 1998 payments due under the Term Loan and the 1997 Term Loan. This
waiver is expressly limited to the Existing Monetary Defaults and the July
Monetary Default, and Bank shall not be obligated to grant any additional
waivers related to any other Events of Default or Default Conditions now
existing or hereafter arising. Borrowers and Bank acknowledge and agree that in
accordance with the terms of the Term Note and the 1997 Term Note, all accrued
but unpaid interest is and was due and payable on each of May 12, 1998, June 12,
1998 and July 12, 1998. The principal portion of these scheduled payments have
been deferred to the maturity date of the Term Note and the 1997 Term Note,
respectively.
F. Borrowers acknowledge that Bank, without any obligation to do so,
previously has honored, from time to time, "overdrafts" presented against the
operating accounts of Borrowers. Each of the Borrowers specifically acknowledge
and agree that, in consideration of the extension and increase of, the Overline,
the waiver of the Existing Monetary Defaults and the July Monetary Default and
the other consideration and accommodations provided by Bank, Borrowers' shall
not present, and Bank shall be under no obligation to honor, any "overdrafts"
presented against any of Borrowers deposit accounts from and after the date
hereof. Borrowers specifically release Bank from, and waive any claims Borrowers
have or may have, against Bank related to any "overdrafts" and waive any claim
Borrowers may have against Bank to honor any "overdrafts" which may arise from
and after June 30, 1998.
G. Borrowers acknowledge that a "Material Default" has occurred as such
term is defined in that certain Subordination Agreement (the "Subordination
Agreement") dated June 13, 1994 executed by the Davis' and consented to by MCF.
As a condition precedent to Bank's obligations hereunder and to provide to
Borrowers the financial accommodations set forth herein, the Davis' must execute
an Acknowledgement and Agreement Subordination in the form attached hereto as
Exhibit A.
H. Borrowers must notify Bank prior to Borrowers selling or transferring
any of Borrowers Inventory having a Value in excess of $1,000,000 in the
aggregate (i) at a price below the normal scheduled pricing established by the
Borrowers for such Inventory and/or (ii) to any one purchaser or under a common
scheme or plan to liquidate such Inventory.
I. Borrowers acknowledge that a portion of the Inventory included on
Borrowers' current Collateral Certificates as Eligible Inventory is stored on
real property not owned by any of the Borrowers. Borrowers agree, upon the
demand of Bank, to undertake such actions and deliver such documents, including
financing statements, insurance certificates and landlord's lien waivers, to
Bank to confirm and evidence that such Inventory is properly insured and that
Bank has a perfected, first priority security interest in such Inventory.
J. Borrowers acknowledge and agree that the results of any lien searches
and field examinations related to the Borrowers and their assets must be
acceptable to Bank in its sole discretion. Borrowers must immediately cause the
termination of any financing statements not acceptable to Bank and/or comply
with any suggestions or requirements of any field audit.
K. Borrowers, must deliver to Bank simultaneously with the execution of
this 1998 Second Amendment a cash budget for each week commencing on June 30,
1998 through and including October 2, 1998, in form and content acceptable to
Bank, outlining Borrowers' projected cash needs and expenses for each such week.
Borrowers, from time to time, must update and supplement such budget upon the
request of Bank.
6
<PAGE>
L. Borrowers' failure to satisfy any of the requirements set forth in this
1998 Second Amendment upon the demand of Bank or to comply with any terms,
conditions and agreements contained in this 1998 Second Amendment or the Loan
Documents shall result in an immediate Event of Default under the Loan
Agreement, without further notice or cure period.
M. The Obligations of Borrowers under the Overline shall be secured by a
perfected security interest in or lien on any and all of Borrowers' real and
personal property pursuant to the Security Documents; the Borrowers hereby grant
to Bank such security interests and liens; and the Security Documents are
amended as necessary to grant such security interests in favor of Bank.
N. Except as otherwise modified herein, the Security Documents shall
continue to secure the Obligations of the Borrowers, including all payment and
performance obligations under the Loans and the Loan Documents and the
indemnification obligations set forth in the Loan Documents and this 1998 Second
Amendment, or other parties as described therein with the same force and effect
as when originally executed. It is intended that this 1998 Second Amendment will
not disturb the existing grant and priority of the liens granted pursuant to the
Security Documents. To the extent required, the Security Documents are amended
as necessary to provide that the Borrowers have and shall continue to grant a
security interest in all the real and personal property described in the
Security Documents to secure all Obligations and liabilities of Borrowers to
Bank under the Loans and the Loan Documents.
O. Borrower shall 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 any of
the transactions contemplated by this 1998 Second Amendment, any of the Loan
Documents, including, but not limited to, any actual or threatened damage or
loss arising out of the Subordination Agreement or any claims of the Davis'.
P. Except as provided herein, the Loan Agreement, the Security Documents
and the other Loan Documents shall remain unchanged and in full force and
effect.
Q. All agreements of Borrower contained herein shall survive the execution
and delivery of this 1998 Second Amendment, and all representations, warranties
and covenants contain in the Loan Agreement and the Loan Documents are true,
accurate, satisfied and/or not breached as of the date of this 1998 Second
Amendment.
R. This 1998 Second Amendment shall be governed by and construed in
accordance with the laws of the State of South Carolina.
S. As a condition precedent to Bank's obligations under this 1998 Second
Amendment, Borrowers shall pay to Bank a fee with respect to the Overline in the
amount of $20,000 and pay all costs and expenses incurred by Bank in connection
with the making and closing of this 1998 Second Amendment, including the Bank's
legal fees.
T. Borrowers represent and warrant that they are represented by legal
counsel of their choice, are fully aware of the terms contained in this 1998
Second Amendment, the Overline Note and the other Notes and have voluntarily and
without coercion or duress of any kind entered into this 1998 Second Amendment,
the Overline Note, the other Notes and any documents executed in connection with
this 1998 Second Amendment.
U. Borrowers acknowledge and agree that (A) they have (i) independently
reviewed and approved each and every provision of this 1998 Second Amendment,
the Overline Note, the other Notes and any and all other documents and items as
it or its counsel have deemed appropriate, (ii) entered into this 1998 Second
Amendment and executed this 1998 Second Amendment and the other closing
documents, including the Overline Note and the other Notes with the advice of
its legal counsel, and (iii) not relied in any way on any representation,
warranty, statement of fact or opinion, understanding, disclosure or
nondisclosure of the Bank, and have not been induced by the Bank in any way,
except for the consideration recited herein, in entering into this 1998 Second
Amendment and executing this 1998 Second Amendment
7
<PAGE>
and the other closing documents contemplated hereby, including the Overline Note
and the Other Notes and (B) the Bank has not made any warranties or
representations of any kind in connection with this transaction except as
specifically set forth herein or in the documents executed in conjunction with
this 1998 Second Amendment.
V. Borrower expressly acknowledges and agrees that the accommodations
provided to the Borrowers by the Bank in this 1998 Second Amendment are to allow
the Borrowers time to resolve its business affairs and in lieu of Bank enforcing
its collection remedies or other rights available to Bank, and Borrowers further
acknowledge and agree that Borrowers will not file a petition in bankruptcy
during the remainder of the term of the Loans or in response to a collection
action brought by Bank or any other creditor of Borrowers; and if any of the
Borrowers does file such a petition in bankruptcy, such Borrower agrees to
consent to, and to not contest, the lifting of the stay imposed in bankruptcy
pursuant to Section 362 of the Bankruptcy Code.
W. The execution of this 1998 Second Amendment and the Notes shall
constitute a renewal and/or amendment and restatement of the Loans evidenced by
the Notes and it is the intent of Borrowers and Bank to construe this 1998
Second Amendment and the Notes as such and not as a novation of the Loans or the
Notes.
X. MANDATORY ARBITRATION. ANY CLAIM OR DISPUTE BETWEEN THE BORROWER AND THE
BANK ARISING OUT OF OR RELATING TO THIS 1998 SECOND AMENDMENT OR ANY OF THE
OTHER LOAN DOCUMENTS 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
OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO
THIS 1998 SECOND AMENDMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BRING AN
ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF
ANY CONTROVERSY OR CLAIM TO WHICH THIS 1998 SECOND AMENDMENT OR ANY OF THE OTHER
LOAN DOCUMENTS APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(A) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN COLUMBIA, SOUTH
CAROLINA AND ADMINISTERED BY ENDISPUTE, INC., DOING BUSINESS AS
J.A.M.S./ENDISPUTE ("ENDISPUTE"), WHO WILL APPOINT AN ARBITRATOR; IF ENDISPUTE
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) RESERVATIONS OF RIGHTS. NOTHING IN THIS 1998 SECOND AMENDMENT SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS 1998 SECOND AMENDMENT; OR
(II) BE A WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC.
91 OR ANY SUBSTANTIALLY EQUIVALENT STATE OR LOCAL LAW; OR (III) LIMIT THE RIGHT
OF THE BANK FOLLOWING THE OCCURRENCE AND CONTINUANCE OF AN EVENT OF DEFAULT (A)
TO EXERCISE SELF-HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO
FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, (C) TO OBTAIN FROM A
COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE
RELIEF, THE APPOINTMENT OF A RECEIVER, OR THE ATTACHMENT OF ASSETS, OR (D) TO
INSTITUTE PROCEEDINGS AGAINST THE BORROWER AFTER THE OCCURRENCE OF AN EVENT OF
DEFAULT IN ANY COURT HAVING JURISDICTION. THE BANK MAY EXERCISE SUCH SELF-
8
<PAGE>
HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OBTAIN SUCH PROVISIONAL OR ANCILLARY
REMEDIES OR BRING SUIT BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS 1998 SECOND AMENDMENT OR THE LOAN DOCUMENTS.
AT THE OPTION OF THE BANK, FORECLOSURE UNDER A DEED OF TRUST OR MORTGAGE MAY BE
ACCOMPLISHED BY ANY OF THE FOLLOWING: THE EXERCISE OF A POWER OF SALE UNDER THE
DEED OF TRUST OR MORTGAGE, OR BY JUDICIAL SALE UNDER THE DEED OF TRUST OR
MORTGAGE, OR BY JUDICIAL FORECLOSURE. NEITHER THE EXERCISE OF SELF-HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES NOR THE INSTITUTION OF OTHER PROCEEDINGS SHALL CONSTITUTE
A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION,
TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES. NO PROVISION IN THE DOCUMENTS REGARDING SUBMISSION TO JURISDICTION
AND/OR VENUE IN ANY COURT AND/OR WAIVER OF JURY TRIAL IS INTENDED OR SHALL BE
CONSTRUED TO BE IN DEROGATION OF THE PROVISIONS IN ANY DOCUMENT FOR ARBITRATION
OF ANY CONTROVERSY OR CLAIM.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
1998 Second Amendment as of the date first above written.
[SIGNATURES OMITTED]
9
<PAGE>
MCF's Taxpayer
Identification No.
57-0879569
FOURTH AMENDED AND RESTATED
REVOLVING CREDIT
PROMISSORY NOTE
$30,000,000.00
June 2, 1998
Columbia, South Carolina
FOR VALUE RECEIVED, MARTIN COLOR-FI, INC., a South Carolina corporation
("MCF") for itself and as successor by merger to Custom Colorants, Inc. and
Palmetto Spinning Corporation, STAR FIBERS CORP., a special purpose South
Carolina corporation ("Star Fibers") and BUCHANAN INDUSTRIES, INC., a South
Carolina corporation ("BI") (MCF, Star Fibers and BI 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 MILLION AND NO/100 DOLLARS
($30,000,000.00) under the terms and conditions of this Fourth Amended and
Restated Revolving Credit Promissory Note (the "Note") and in accordance with
that certain Fourth Amended and Restated Loan and Security Agreement by and
between Borrowers and Bank dated as of September 30, 1997 (as further amended or
modified, the "Loan Agreement"). This Note is secured by liens on all of
Borrowers' assets pursuant inter alia to various documents and instruments,
including, but not limited to, (i) Security Agreements dated as of June 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:
"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
<PAGE>
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 at a fluctuating rate per annum equal to the Prime Rate plus
one-half of one-percent (0.50%), with changes in the Prime Rate to be effective
as of the date of any such change. Interest shall be calculated on the basis of
a 360 day year and actual number of days elapsed.
Repayment of Principal and Payment of Interest. Principal shall be paid in
a single payment on June 2, 1999 and interest on the outstanding principal shall
be paid monthly commencing on June 12, 1998 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
without penalty or premium.
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 or any other 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
2
<PAGE>
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 Borrowers 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
3
<PAGE>
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.
(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
4
<PAGE>
restatement of that certain Revolving Credit Promissory Note dated July 14,
1994, that certain Amended and Restated Revolving Credit Promissory Note dated
August 9, 1995, that certain Second Amended and Restated Revolving Credit
Promissory Note dated December 16, 1996 and that certain Third Amended and
Restated Revolving Credit Promissory Note dated as of September 30, 1997, as
amended, 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.
[SIGNATURES OMITTED]
5
MCF's Taxpayer
Identification No.
57-0879569
RENEWAL
OVERLINE PROMISSORY NOTE
$4,000,000.00
June 2, 1998
Columbia, South Carolina
FOR VALUE RECEIVED, MARTIN COLOR-FI, INC., a South Carolina corporation
("MCF"), STAR FIBERS CORP., a South Carolina special purpose corporation ("Star
Fibers") and BUCHANAN INDUSTRIES, INC., a South Carolina corporation ("BI")
(MCF, Star Fibers and BI 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 FOUR MILLION AND
NO/100 DOLLARS ($4,000,000.00) under the terms and conditions of this Renewal
Overline Promissory Note (the "Note") and in accordance with that certain Fourth
Amended and Restated Loan and Security Agreement by and between Borrowers and
Bank dated as of September 30, 1997 (as further amended or modified, the "Loan
Agreement"). This Note is secured by perfected, first priority liens on all of
Borrowers' assets pursuant inter alia to various documents and instruments,
including but not limited to, (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
Overline 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:
"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.
<PAGE>
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 at a fluctuating rate per annum equal to the Prime Rate plus
one-half of one percent (0.50%), with changes in the Prime Rate to be effective
as of the date of any such change. Interest shall be calculated on the basis of
a 360 day year and actual number of days elapsed.
Repayment of Principal and Payment of Interest. Principal shall be paid in
a single payment on October 2, 1998 and interest on the outstanding principal
shall be paid monthly commencing on June 12, 1998 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 Overline in whole or part at any time
without penalty or premium.
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 Overline may be applied by the Bank to late charges, expenses, costs,
interest, principal and other amounts owing to the Bank in connection with any
of the Loans 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.
2
<PAGE>
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 Borrowers 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.
(A) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
COLUMBIA, SOUTH CAROLINA AT THE TIME OF THIS
3
<PAGE>
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.
Renewal; Amendment and Modification. This Note is intended to be a renewal
of, an increase to and an amendment to and a restatement of that certain
Overline Promissory Note dated as of March 4, 1998 in the original principal
amount of $2,500,000 and it is the intent of the Borrowers and Bank 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.
[SIGNATURES OMITTED]
4
MCF's Taxpayer
Identification No.
THIRD AMENDED AND RESTATED 57-0879569
TERM LOAN
PROMISSORY NOTE
$20,471,030.25
June 2, 1998
Columbia, South Carolina
FOR VALUE RECEIVED, MARTIN COLOR-FI, INC., a South Carolina corporation
("MCF") for itself and as successor by merger to Custom Colorants, Inc. and
Palmetto Spinning Corporation, STAR FIBERS CORP., a special purpose South
Carolina corporation ("Star Fibers") and BUCHANAN INDUSTRIES, INC., a South
Carolina corporation ("BI") (MCF, Star Fibers and BI 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 Twenty Million Four Hundred Seventy-One Thousand
Thirty and 25/100 Dollars($20,471,030.25) under the terms and conditions of this
Third Amended and Restated Promissory Note (the "Note") and in accordance with
that certain Fourth Amended and Restated Loan and Security Agreement 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 documents and instruments, including, but not
limited to, (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.
- --------------------------------------------------------------------------------
THIS DOCUMENT 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
- --------------------------------------------------------------------------------
<PAGE>
"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 at a fluctuating rate per annum equal to the Prime Rate plus
one-half of one percent (0.50%), with changes in the Prime Rate to be effective
as of the date of any such change. Interest shall be calculated on the basis of
a 360 day year and actual number of days elapsed.
Repayment of Principal and Payment of Interest. On each of June 12, 1998
and July 12, 1998, all accrued but unpaid interest shall be due and payable.
Commencing on August 12, 1998 and continuing thereafter on the twelfth day
(12th) day of each month 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 without
penalty or premium; provided, any such prepayment shall be applied to principal
in the
2
<PAGE>
inverse order of scheduled maturities.
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 Borrowers 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
3
<PAGE>
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.
(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
4
<PAGE>
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 in the
original principal amount of $36,310,000, that certain Amended and Restated Term
Loan Promissory Note dated August 9, 1995 and that certain Second Amended and
Restated Term Loan Promissory Note dated December 16, 1996, 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.
[SIGNATURES OMITTED]
5
MCF's Taxpayer
Identification No.
AMENDED AND RESTATED
1997 TERM LOAN 57-0879569
PROMISSORY NOTE
$4,461,111.12
June 2, 1998
Columbia, South Carolina
FOR VALUE RECEIVED, MARTIN COLOR-FI, INC., a South Carolina corporation
("MCF") for itself and as successor by merger to Custom Colorants, Inc. and
Palmetto Spinning Corporation, STAR FIBERS CORP., a special purpose South
Carolina corporation ("Star Fibers") and BUCHANAN INDUSTRIES, INC., a South
Carolina corporation ("BI") (MCF, Star Fibers and BI 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 Four Million Four Hundred Sixty One Thousand One Hundred Eleven and
12/100 DOLLARS ($4,461,111.12) under the terms and conditions of this Amended
and Restated 1997 Term Loan Promissory Note (the "1997 Term Note") and in
accordance with that certain Fourth Amended and Restated Revolving Credit Loan
and Security Agreement by and between Borrowers and Bank dated as of September
30, 1997 (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 documents and instruments, including but not limited to, (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:
"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
<PAGE>
loan.
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 at a fluctuating rate per annum equal to the Prime Rate plus one-half of
one percent (0.50%), with changes to be effective as of the date of any such
change. Interest shall be calculated on the basis of a 360 day year and actual
number of days elapsed.
Repayment of Principal and Payment of Interest. On each of June 12, 1998
and July 12, 1998, all accrued but unpaid interest shall be due and payable.
Commencing on August 12, 1998 and continuing thereafter on the twelfth (12th)
day of each month thereafter, equal installments of principal in the amount of
$101,388.89 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.
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
without penalty or premium; provided, any such prepayment shall be applied to
principal in the inverse order of scheduled maturities.
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
2
<PAGE>
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 or the other Loans 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 Borrowers 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.
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
3
<PAGE>
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
4
<PAGE>
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 1997 Term Note is intended to be an
amendment to and a restatement of that certain 1997 Term Loan Promissory Note
dated as of March 27, 1997 in the original principal amount of $5,000,000, and
it is the intent of the Borrowers and Bank that this 1997 Term Note be construed
as such and not as a novation.
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.
[SIGNATURES OMITTED]
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at June 28, 1998 (unaudited), and the
Condensed Consolidated Statement of Operations for the Six Months Ended June 28,
1998 (unaudited), and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 43
<SECURITIES> 0
<RECEIVABLES> 14,146
<ALLOWANCES> 328
<INVENTORY> 40,547
<CURRENT-ASSETS> 57,134
<PP&E> 40,983
<DEPRECIATION> 24,368
<TOTAL-ASSETS> 104,819
<CURRENT-LIABILITIES> 75,962
<BONDS> 130
0
0
<COMMON> 832
<OTHER-SE> 24,456
<TOTAL-LIABILITY-AND-EQUITY> 104,819
<SALES> 56,096
<TOTAL-REVENUES> 56,096
<CGS> 55,236
<TOTAL-COSTS> 62,927
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,413
<INCOME-PRETAX> (9,069)
<INCOME-TAX> (2,925)
<INCOME-CONTINUING> (6,144)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,144)
<EPS-PRIMARY> (0.91)
<EPS-DILUTED> (0.91)
</TABLE>
