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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1996
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 0-22716
BOLLINGER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2502577
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 W. AIRPORT FREEWAY,
IRVING, TEXAS 75062
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (214) 445-0386
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on June 24, 1996, was $3,231,564.
The number of shares of common stock of the registrant outstanding on June 24,
1996, was 4,000,210.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- - ---- ----
<S> <C>
PART I
1. Business.............................................................. 1
2. Properties............................................................ 2
3. Legal Proceedings..................................................... 3
4. Submission of Matters to a Vote of Security Holders................... 4
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters. 5
6. Selected Financial Data............................................... 6
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 7
8. Financial Statements and Supplementary Data........................... 23
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................. 24
PART III
10. Directors and Executive Officers of the Registrant.................... 26
11. Executive Compensation................................................ 28
12. Security Ownership of Certain Beneficial Owners and Management........ 29
13. Certain Relationships and Related Transactions........................ 30
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...... 32
Signatures................................................................. S-1
Index to Consolidated Financial Statements and Schedules................... F-1
</TABLE>
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PART I
ITEM 1. BUSINESS.
Bollinger is a leading domestic supplier of consumer fitness accessory
products. The Company's fitness accessory products also include certain light
equipment items. The Company markets, primarily to mass retailers, an extensive
consumer fitness line, including handheld barbells and dumbbells, aerobic steps
and other aerobics products, backyard trampolines, weightlifting belts and
gloves, exercise mats, ankle and wrist weights, weightlifting bars, waist
trimmers, compression shorts, and walking accessories.
GENERAL
Bollinger Industries, Inc. is a publicly held corporation which designs,
manufactures, and markets a variety of fitness equipment and fitness accessory
products.
During the fourth quarter of the 1996 fiscal year, the Company's
management undertook a comprehensive review of Bollinger Industries marketing
methods, operating policies and liquidity. The result of this review was a
decision to refocus the Company's marketing efforts on promotion of the
Bollinger brand name in the mass merchandise retail distribution channel. The
Bollinger brand enjoys wide acceptability with retail chains and with the
ultimate consumers. This strategy resulted in two decisions which are reflected
in the March 31, 1996, financial statements. The first was to implement a
Restructuring Plan (the "Plan") to enhance shareholder values through increased
profitability and liquidity. The second decision was to dispose of the
Company's sports medicine and safety products business (Healthcare Division),
which is reported as a discontinued operation.
In concert with this strategy of focusing on the Bollinger brand in the
mass merchandise distribution channel, the Company has entered into an
agreement with the NautilusTM Company to market a Nautilus brand product line
to a more upscale segment of the fitness equipment market.
RESTRUCTURING OF OPERATIONS
The Company has experienced rapid growth over the past five years, through
the expansion of its product line and increased penetration of retail chains.
However, profitability has been inconsistent, and management has not met its
primary objective of enhancing shareholder value. In an effort to remedy this
situation, management reached the decision in the fourth quarter of the 1996
fiscal year to restructure the Company's operations. The primary elements of
The Plan are to: promote the accepted Bollinger brand name and that of
Nautilus, with which the Company recently entered into a license agreement,
dramatically reduce inventory levels which will enhance liquidity, and improve
operating efficiency.
Celebrity Endorsements
Since fiscal 1993, a significant portion of the Company's fitness products
were sold with the use of celebrity endorsements. In the fourth quarter of the
1996 fiscal year, management evaluated the practice of selling celebrity
branded products instead of corporate branded products, the incremental costs
of celebrity endorsements, and the resulting impact on earnings. As a result of
this evaluation, management has decided to revert to emphasizing corporate
branded products.
In connection with this decision, the Company is phasing out its
relationship with one of its endorsers, Denise Austin, under its current terms.
Based on the Company's inventory levels, Ms. Austin
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will continue to endorse certain of the Company's products through January
1997. Management plans to sell significantly all of its current inventory of
Denise Austin branded products during this phase out period.
The Company expects to continue its relationship with Nolan Ryan and Kiana
Tom to sell their branded products on terms that are more beneficial to the
Company.
Inventory Levels
As part of The Plan, management has implemented measures to reduce
inventory levels substantially. Approximately $12 million has been identified
for disposal through a variety of channels. The largest single category of
inventory reduction is the Denise Austin product line ($5 million), with the
remainder consisting of several Fitness product categories. The decision was
made to liquidate such inventory at reduced prices in order to re-deploy the
cash in growth of the Company's business based on corporate branded products
and reduce inventory carrying costs.
Operating Efficiencies
Concurrent with the inventory reduction, the Company will consolidate
warehouse operations. This action will result in the closing of two leased
warehouses, the reduction of the warehouse workforce, and reduction in other
operating costs through enhanced efficiency.
DISCONTINUED OPERATION
Management determined during the fourth quarter of fiscal 1996 that it
would be in the best interest of the Company to dispose of its Sports Medicine
and Safety Products business, known as Bollinger Healthcare (Healthcare). The
Healthcare business has been unprofitable for the past two years during which
time sales have declined by 52%.
PRODUCTS AND MARKETS
FITNESS ACCESSORY PRODUCTS. The Company manufactures and sells a complete
line of more than 250 fitness accessory products, including handheld barbells
and dumbbells, aerobic steps and other aerobics products, backyard trampolines,
weightlifting belts and gloves, exercise mats, ankle and wrist weights,
weightlifting bars, waist trimmers, and compression shorts. Other fitness
accessory products include weight sets, supports and support belts, handgrips
and jump ropes. The majority of the Company's fitness accessory products retail
for less than $20. During fiscal 1996, the Company also introduced a certain
related light equipment item, the TrimRider with a retail price ranging from
$50 to $100. During 1996, sale of this item accounted for approximately 12% of
the Company's total net sales.
In addition to the Bollinger Fitness(TM) trademark, the Company's fitness
accessories are sold under various trademarks to promote consumer
identification and coordinate affiliated products. Weightlifting products
include StarLock(C), SlipLock(TM) and CamLock(C) weightlifting systems, Zoom
Off(C) quick release weightlifting, gloves, and BrightBells(C) dumbbells.
Aerobics items include the Step by Step(TM), FlexStep and SoftStep(TM) low
impact aerobic step, RibMat(TM) exercise mats, TrimRider(TM) aerobic riders,
Nautilus(TM) Ab-Rock'it abdominal exerciser, and NBF(TM) and UltraBounce(TM)
trampolines. Solar(TM) trimming products, PowerShorts(TM) compression shorts,
Softone(C) wrist weights, and Exergrip(TM) strengthening putty are examples of
other fitness accessory products available through Bollinger.
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A significant portion of the Company's fitness products were sold with the
use of celebrity endorsements. In the fourth quarter of the 1996 fiscal year,
management evaluated the practice of selling celebrity branded products, the
incremental costs of those endorsements, and the resulting impact on earnings.
As a result of this process, management has decided to reduce the Company's use
of celebrity endorsements along with the associated royalty expense.
Management determined that celebrity endorsements do not have a significant
impact on mass merchandise retail sales commensurate with their current royalty
payment structure.
In connection with this decision, the Company is phasing out its agreement
with Denise Austin under its current terms. Based on the Company's inventory
levels, Ms. Austin will continue to endorse certain of the Company's products
through January 1997. Management plans to sell substantially all of its
current inventory of Denise Austin branded products during this phase out
period.
The Company expects to continue its relationship with Nolan Ryan and Kiana
Tom to sell their branded products on terms that are more beneficial to the
Company. Additionally, the Company has entered into an agreement with the
Nautilus company to market and sell a Nautilus branded product line to a more
upscale segment of the market.
In May 1994, as the result of an asset acquisition, the Company began
selling NBF(TM) trampolines through its established distribution channels for
other fitness accessory products. In fiscal 1996 and 1995, trampoline sales
accounted for approximately 26% and 13% respectively of the Company's total net
sales.
The Company markets its fitness accessories primarily to mass retailers.
The Company broadly defines mass retailers to include discount chains,
department stores, sporting goods retailers and sports superstores, warehouse
clubs and direct response television. In 1996, 1995, and 1994, the Company
served approximately 500 customers, although the Company's ten largest fitness
accessory products customers accounted for approximately 80%, 77%, and 52% of
the Company's total net sales in fiscal 1996, 1995, and 1994. Discount chain
customers include KMart, Wal-Mart and Target. Sears and Montgomery Ward are
representative department store customers. The mass retailer category also
encompasses catalog customers like J.C. Penney and catalog showroom customers
such as Best Products and Service Merchandise. Sporting goods retailers and
sports superstore customers include chains like Oshman's Sporting Goods, H.
Modell & Company, The Sports Authority, and SportMart. QVC is a shop at home
cable television network that provides a direct response television outlet for
Bollinger. KMart, Wal-Mart, J.C. Penney and Oshman's have been customers of the
Company for approximately 20 years. The loss of one or more of the Company's
major customers could have a material adverse impact on the Company.
Packaging is an important element of the Company's merchandising strategy.
The Company's packaging is uniform with bright, coordinating colors that it
believes has enabled it to increase the in-store merchandising impact of its
products and awareness of the Bollinger brand name.
The Company generally markets its fitness accessory products as an
integrated line, or program, of products and offers program management services
to help customers maximize their results from the product line. Program
management assistance includes merchandising and product mix planning,
distinctive marketing presentations and displays, and responsive inventory
management. Through the use of a computerized Plan-O-Gram system, Bollinger is
able to customize and quickly illustrate an in-store merchandise display for a
customer with a selection of fitness accessory products from the broad
assortment offered by the Company. The Company can use the Plan-O-Gram
presentation to provide program advice to the customer on the kinds of
products, product mix and product arrangement that in its judgment will
generate the best results for its customer. Bollinger's ability to provide
these program management services
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is enhanced by the size and diversity of its extensive product line, its
Electronic Data Interchange (EDI) link with customers and selected in-store
reviews.
MANUFACTURING
Approximately 50%, 55%, and 55% of the Company's net sales for fiscal
1996, 1995 and 1994, respectively, were derived from the sale of U.S.-made
products, the majority of which were manufactured by Bollinger. Management
believes that a domestic manufacturing capability enhances its ability to
supply certain mass retailers, to introduce new products on a timely basis and
to respond to short-term delivery schedules.
Most of the Company's fitness accessory products are manufactured in a
cut-and-sew operation in the Company's Grand Prairie, Texas, facility. These
Company-manufactured items are primarily made from Enlightened Rubber(TM)
materials, a special kind of rubber that allows for greater breathability than
standard neoprene. Enlightened Rubber(TM) is utilized in these products to
enhance the durability of the products. Bollinger obtains its Enlightened
Rubber(TM) materials from a single domestic supplier, although it believes
foreign sources are readily available. Although the loss of this domestic
supplier could have a short-term impact on the Company until it secures
alternative sources, the loss would not have a long-term material adverse
impact on the Company's business or operations. The Company manufactures most
of its NBFTM trampolines at its manufacturing facility in Americus, Georgia.
The remainder of Bollinger's sales of fitness accessory products,
including barbells, dumbbells, weightlifting bars and weightlifting gloves and
trampolines, are attributable to products imported in bulk from China, Taiwan,
and Pakistan. The Company's imported products are packaged in custom packaging
designed by the Company. Depending on the particular product, the packaging
materials may be printed overseas and packaging is part of the foreign
manufacturing process. With some products, including those items imported in
bulk, the Company repackages the products in U.S.-made materials. Bollinger's
custom packaging differentiate its products from its competitors. The Company
believes that the loss of one or more foreign suppliers could have a short term
adverse impact on the Company until it secures alternate sources.
SALES
The Company primarily relies upon networks of independent sales
representatives and distributors who are managed by an in-house sales
management staff. Bollinger's independent sales representatives, who work on a
commission-only basis, specialize in the sale of sporting goods products to
mass retailers. These independent sales representatives market a variety of
sporting goods, and therefore, generally have strong relationships with
customer purchasing personnel. The Company's in-house sales management staff
is supported by Bollinger's marketing department to produce a coordinated
marketing and sales effort.
Bollinger's executive officers manage the accounts of the top 20 fitness
accessory customers and focus on new customer development. A sales manager has
primary responsibility for all other fitness accessory customers and the
management of 10 independent sales representative firms, as well as focusing on
new customer development.
In the last few years, the Company began to focus on the development of
its international presence. During fiscal 1996, the Company signed an agreement
with Tradewinds International to represent Bollinger Industries in all
territories outside the United States. Tradewinds International is an
experienced
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organization and the Company believes that their commitment is needed to expand
its international business.
PRODUCT DEVELOPMENT
The Company's product development effort continuously focuses on creating,
obtaining and developing new and innovative products and product ideas.
Similar effort is given to regular reevaluation of existing products and how
they may be repositioned to enhance the Company's competitive position in the
marketplace. Bollinger also frequently examines many unsolicited product
ideas, but generally does not make any advance commitments to purchase or
license a new product submission. New products and product ideas may come from
individual inventors, small companies that do not have sufficient manufacturing
capability or the relationships with mass retailers needed to market a new
product or consumers who submit new ideas based on personal experience. Once
the Company has identified a product, it will determine appropriate sourcing
for the product to attempt to ensure both quality manufacture and low costs.
The Company's product lines currently include more than 250 fitness accessory
products, including 55 new products introduced in fiscal 1996. Although the
Company has introduced a substantial number of new products in the last three
fiscal years, the Company may not continue to introduce products at the same
rate as it has in the past.
COMPETITION
Bollinger participates in a highly competitive industry, competing with a
number of established manufacturers, importers and distributors of fitness
products. Many competitors have significantly greater financial and other
resources than those available to the Company. The market for fitness products
is, however, large and fragmented. The Company believes that the principal
competitive factors affecting its business include customer service,
manufacturing and distribution capabilities, price, marketing and merchandising
expertise, quality, brand name recognition and the ability to create and
develop a broad variety of innovative products and concepts.
The Company believes its principal competitors are large fitness equipment
manufacturers, which also happen to sell fitness accessory products, and
smaller importers, which offer a more limited assortment of products than
Bollinger or the larger competitors. There are relatively few barriers to
entry in the fitness accessory products market.
The Company believes that one of the largest fitness and exercise
equipment manufacturers is Icon Health & Fitness, Inc. ("Icon"), which markets
products under the brand names of Weslo and ProForm. Icon offers, among many
other items, a line of packaged fitness accessory products similar to
Bollinger's fitness accessory products. Although the Company believes that the
majority of Icon's sales come from treadmills, exercise machines, and weight
benches, Icon competes directly with Bollinger for sales of a large number of
handheld fitness accessories. The Company believes that Icon has larger net
sales than the Company.
The Company's smaller competitors include businesses that are solely or
primarily direct importers. An example of these smaller competitors is Dynamic
Classics, Ltd., which offers a line of fitness accessory products. The Company
believes that the Company's net sales are larger than these competitors
individually.
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PATENTS AND TRADEMARKS
The Company has rights to a number of patented inventions, trademarks and
trade names used in connection with the sale and marketing of its products and
believes that protection of its patents, trademarks and trade names is
important because of customer preferences for and recognition of the patented
products and the trademarks and trade names used with existing products. The
Company does not believe it infringes any patent, trademark or trade name
rights. However, the successful assertion or settlement of a patent, trademark
or trade name infringement claim against Bollinger could have a material
adverse effect on the Company's business depending on the nature of the claim
and the product or products affected. There can be no assurance that the
Company will have adequate funds available to defend or assert a claim for
infringement of any patents, trademarks or trade names, or that, if funds are
available, the defense or assertion of such a claim will not be prohibitively
expensive. In addition, no assurance can be given that Bollinger will be able
to protect against the duplication of its products or the use of its trademarks
or trade names.
The Company currently holds and protects the rights to a number of U.S.
patents and additionally has a number of exclusive and nonexclusive licenses
under various other U.S. patents. It does not hold any foreign patents.
Bollinger does not view any single patent as critical to its business.
Bollinger owns a number of trademarks and has licensed the use of
additional trademarks in the U.S. The Company intends to protect them to the
fullest extent practicable. Bollinger has registered its trademark in a number
of foreign countries.
EMPLOYEES
As of March 31, 1996, the Company employed approximately 548 persons on a
full-time basis, of which approximately 440 employees were engaged in
receiving, manufacturing, warehousing, and shipping activities. Approximately
108 employees were engaged in sales, customer service, accounting, MIS, and
other administration functions. In addition, the Company, from time to time,
uses part-time workers and/or contract labor. None of the Company's employees
are represented by a union. The Company believes relations with its employees
are good.
REGULATIONS
The Company and its products are subject to numerous federal, state, and
local laws, rules and regulations ("Regulations"). Among the more significant
of such Regulations are consumer product safety laws under which a company's
products can be barred from sale or subject to recall if found to be hazardous;
occupational safety and health laws; and environmental laws.
The Company is not a party to any threatened or pending material
regulatory action, other than as discussed below in Item 3. Legal Proceedings.
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ITEM 2. PROPERTIES.
The Company owns a facility in Irving, Texas, which contains approximately
43,000 square feet. Approximately 16,000 square feet is used as office space
and serves as the Company's headquarters. All of the Company's accounting,
sales, and administrative functions operate out of this location. The
additional 27,000 square feet is used for the manufacture, warehousing, and
shipment of certain treadmills and exercise cycles.
The Company leases approximately 402,000 square feet in Grand Prairie,
Texas, which is used as the main manufacturing, warehousing, and shipping
facility for the Company's Fitness Accessory Products. This facility is
subject to two leases. The first lease for approximately 102,000 square feet
expires June 30, 1999, and has a renewal option for an additional four years.
The second lease for approximately 300,000 square feet expires August 31, 1999,
and does not contain a renewal option.
The Company also leases approximately 41,000 square feet in Lubbock,
Texas, which is used to manufacture, warehouse, and ship the Company's
Healthcare Products. This lease expires November 30, 1999, and does not
include a renewal option. Management intends to sublease this location as part
of the disposal of the Healthcare Division.
The Company also manufactures, warehouses, and ships trampolines out of a
facility in Americus, Georgia, which contains approximately 60,000 square feet.
The lease for this location expires on December 20, 2005, at which time the
Company is obligated to purchase the facility at a nominal amount.
In addition, the Company rents space in public warehouses and/or leases
other facilities on a short term basis, from time to time, as the need arises.
The Company believes that the above facilities are adequate to meet its
needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
The Company, Glenn D. Bollinger (Chairman & CEO), Bobby D. Bollinger
(President), Curtis D. Logan (former CFO), Michael J. Beck (former CAO), John
L. Maguire (Director), William Blair & Company, Rauscher Pierce Refnes, Inc.
(former underwriters of initial public offering), and Grant Thornton, L.L.P.
(former independent accountants), are defendants (the "Suntrust Defendants") in
a lawsuit brought in the District Courts, Dallas County, Texas, by shareholder
Suntrust Bank Atlanta, as trustee for Suntrust Retirement Sunbelt Equity Fund,
on behalf of themselves and all persons similarly situated. In addition, the
Company, Glenn D. Bollinger, Bobby D. Bollinger, Curtis D. Logan, and Michael
J. Beck, are defendants (the "STI Defendants"), in a lawsuit brought in the
United States District Court for the Northern District of Texas, Dallas
Division, by shareholders STI Classic Fund and STI Classic Sunbelt, on behalf
of themselves and all persons similarly situated. The lawsuits purport to be
class actions and allege certain misrepresentations and fraudulent actions by
the Suntrust and STI Defendants. Both lawsuits seek damages, exemplary damages,
interest, costs, and expenses. Management of the Company does not believe
either lawsuit has merit. However, if the plaintiffs should prevail in either
lawsuit, it could have a material adverse effect on the Company.
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The Company has been contacted by the Department of Labor (DOL) in regard
to certain questions about its former Employee Stock Ownership Plan (the
"ESOP"). Assets of the ESOP are held in the Company's 401(K) plan which is the
successor to the ESOP. The Company is responding to and cooperating with the
DOL. The DOL has not initiated any proceeding with respect to the ESOP or any
other of the Company's employee benefit plans.
The staff of the Securities and Exchange Commission has indicated to the
Company it is their preliminary determination to recommend a civil injunctive
action be brought against the Company, Glenn Bollinger and Ronald Bollinger,
based upon what the staff believes to be violations of various securities laws,
including Sections 10(b), 13(a), and 13(b) of the Securities Exchange Act of
1934 and various rules promulgated thereunder. The purported violations are
alleged to arise out of certain transactions which occurred during the fiscal
years 1994 and 1995. The staff has stated it will not recommend seeking
monetary penalties against the Company.
From time to time, the Company is a party to various legal proceedings
arising in the ordinary course of business. The Company is not currently a
party to any other material litigation and is not aware of any litigation
threatened against the Company, arising in the ordinary course of business,
that could have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Stockholders on January 18, 1996.
During this meeting, five directors, which constitutes the entire Board of
Directors, were elected to serve until the next Annual Meeting of Stockholders
or until their successors are elected and qualified. The following individuals
were elected:
<TABLE>
<CAPTION>
VOTING SUMMARY
------------------------------------------
NAME FOR WITHHELD NOT VOTING
- - ------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Glenn D. Bollinger 3,121,415 11,300 575,375
Bobby D. Bollinger 3,121,415 11,300 575,375
John L. Maguire 3,027,415 105,300 575,375
Stephen L. Parr 3,026,615 106,100 575,375
Richard J. Tucker 3,026,915 105,800 575,375
</TABLE>
There were no other matters voted on during this meeting.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company completed its initial offering during November 1993 at a price
of $12.50 per share. The Common Stock was quoted on the NASDAQ National Market
under the trading symbol "BOLL." However, due to delinquency in filing
certain reports with the Securities and Exchange Commission, and other matters,
the NASDAQ "delisted" the Company's common stock during August 1995. The
Company is pursuing relisting on NASDAQ or another exchange. The Company's
common stock is currently traded over-the-counter. The following table sets
forth, on a per share basis for the periods indicated, the high and low closing
sale prices for the Common Stock as reported by NASDAQ (for the period April 1,
1994, through August 16, 1995), and a market maker of the Company's common
stock or the over-the-counter Bulletin Board (for the period August 17, 1995,
through March 31, 1996).
<TABLE>
<CAPTION>
PRICE RANGE
----------------------------------
FISCAL 1996 FISCAL 1995
---------------- ----------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
First Quarter ........... $ 9.00 $ 1.87 $12.00 $ 9.50
Second Quarter .......... 4.25 3.00 13.50 8.50
Third Quarter ........... 4.00 2.31 14.50 10.25
Fourth Quarter .......... 4.00 2.00 16.00 7.50
</TABLE>
On June 24, 1996, the closing sale price of the Common Stock as reported
by the over-the-counter Bulletin Board was $2.00 per share. As of June 24,
1996, there were approximately 58 holders of record of the Common Stock.
The Company has not paid cash dividends on its Common Stock since its
inception. The Company's board of directors does not anticipate payment of any
cash dividends in the foreseeable future and intends to continue its present
policy of retaining earnings for reinvestment in the operations of the Company.
ITEM 6. SELECTED FINANCIAL DATA.
The selected historical financial data presented below is derived from the
consolidated financial statements of the Company. The consolidated financial
data of the Company for the year ended March 31, 1992, is derived from the
historical consolidated financial statements of the Company, which have been
audited by Lane Gorman Trubitt, L.L.P., independent certified public
accountants. The consolidated financial data for the years ended March 31,
1993 and 1994, is derived from the historical consolidated financial statements
of the Company, which have been audited by Grant Thornton, L.L.P., independent
certified public accountants. (The Company's historical consolidated financial
statements for the years ended March 31, 1992, and 1993 are not included in
this Report.) The consolidated financial data for the year ended March 31,
1995, and 1996, are derived from the historical consolidated financial
statements of the Company, which have been audited by King Burns & Company,
P.C. The selected financial data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and with the Company's consolidated financial statements and related
notes included elsewhere in this Report.
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<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS (4)
Net Sales ........................................ $ 80,300 $ 67,894 $ 38,746 $ 27,586 $ 15,743
Cost of goods sold ............................... 62,197 50,546 26,982 20,060 10,982
-------- -------- -------- -------- --------
Gross profit ................................ 18,103 17,348 11,764 7,526 4,761
Selling expenses ................................. 7,877 6,862 4,070 2,282 1,423
Distribution, general and administrative
expenses ......................................... 12,115 8,422 4,224 3,331 2,336
Restructuring of operations ...................... 3,960 -- -- -- --
-------- -------- -------- -------- --------
23,952 15,284 8,294 5,613 3,759
-------- -------- -------- -------- --------
Operating profit (loss) ..................... (5,849) 2,064 3,470 1,913 1,002
Other expense (income)
Interest expense ............................... 2,252 1,167 667 320 392
Interest income ................................ (79) (94) (41) -- --
Miscellaneous .................................. (26) 47 (24) (47) 6
-------- -------- -------- -------- --------
2,147 1,120 602 273 398
-------- -------- -------- -------- --------
Earnings (loss) from continuing operations
before income tax expense (benefit) .......... (7,996) 944 2,868 1,640 604
Income tax expense (benefit) ..................... (1,135) 350 1,042 685 --
-------- -------- -------- -------- --------
Earnings (loss) from continuing operations (1) . (6,861) 594 1,826 955 604
Discontinued operations
Earnings (loss) from operations net of income
tax benefit .................................. (592) (525) 550 235 276
(Loss) on disposal, net of income tax benefit
including a $1,199,118 and $325,380 provision
for operating losses during phase out period
in 1996 and 1994 ............................. (770) -- (573) -- --
Earnings (loss) from discontinued operations (2) (1,362) (525) (23) 235 276
-------- -------- -------- -------- --------
Net earnings (loss) before extraordinary items ... (8,223) 69 1,803 1,190 880
Extraordinary items (3) .......................... -- -- -- -- 111
--------
Net earnings (loss) .............................. $ (8,223) $ 69 $ 1,803 $ 1,190 $ 991
======== ======== ======== ======== ========
Per share data:
Earnings (loss) from continuing operations ..... $ (1.85) $ 0.15 $ 0.59 $ 0.36 $ 0.23
======== ======== ======== ======== ========
Net earnings (loss) ............................ $ (2.22) $ 0.02 $ 0.59 $ 0.45 $ 0.37
======== ======== ======== ======== ========
Weighted average common and common equivalent
shares outstanding ............................. 3,710 3,967 3,079 2,650 2,650
======== ======== ======== ======== ========
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital .................................. $ 8,322 $ 15,725 $ 18,038 $ 3,484 $ 2,595
Total assets ..................................... 58,381 55,422 27,632 20,663 12,058
Total long term debt ............................. 577 223 500 690 842
Total debt ....................................... 23,260 26,810 4,977 9,701 5,792
Stockholders' equity ............................. 12,463 20,467 19,398 4,369 3,179
</TABLE>
(1) The Company sold substantially all of the assets of its C. G. Products
subsidiary effective September 13, 1993. The Company determined to
discontinue its Healthcare Division during January 1996. Earnings from
continuing operations does not reflect the results of operations for C. G.
Products and the Healthcare Division. See Management's Discussion and
Analysis of Financial Condition and Results of Operations and Note B of
"Notes to Consolidated Financial Statements."
(2) Represents results of discontinued operations of C. G. Products and the
Healthcare Division. See Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note B of "Notes to
Consolidated Financial Statements."
(3) Extraordinary items represent gains on extinguishment of debt.
(4) The Statements of Operations for fiscal 1995, 1994, 1993, and 1992 have
been reclassified to reflect the discontinuance of the Healthcare
operation.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and related notes thereto appearing elsewhere
in this Report.
GENERAL
Bollinger Industries, Inc. is a publicly owned corporation which designs,
manufactures, and distributes a variety of fitness equipment and accessories
(Fitness Accessory Products).
During the fourth quarter of fiscal 1996, management undertook a
comprehensive review of the Company's marketing strategy, profitability, and
liquidity. As a result of that review, management decided to refocus on
promotion of its Corporate name which has wide acceptability among retail
chains and the ultimate consumer. This strategy necessitated a three point
plan (the "Plan").
The components of the Plan comprise: providing a restructuring charge to
cover disposal of certain inventory and phase out of certain celebrity endorsed
products; disposal of the Company's Sports Medicine and Safety Products
business ("Healthcare Division"); and revision of certain operating policies
and procedures to further enhance profitability.
The primary goal of the Plan is to refocus the Company on its historical
marketing strength which is with high volume mass merchants, discounters, and
chain stores. The Bollinger brand name is the leader with these retailers. In
addition, the Company will utilize the recently licensed Nautilus brand name to
build sales to specialty sporting goods stores, high-end retailers, and other
relatively low volume channels of distribution where gross profit margins
justify a licensing fee.
Adoption of the Plan by the Company has resulted in the inclusion of the
following items in the financial statements for fiscal 1996: a charge for
restructuring of operations; an operating loss from discontinued operations of
the Healthcare Division; and a provision for loss on disposal of the Healthcare
Division. In addition, prior year Statements of Operations have been
reclassified to reflect the results of operations of the healthcare Division as
discontinued operations.
11
<PAGE> 14
PROFITABILITY
In fiscal 1996, the Company had a substantial loss from continuing
operations of $6.9 million after income taxes. In evaluating this loss in terms
of the Company's prospects for the future, it is important to keep the 1996
results in proper perspective. First, the loss includes a $4 million
restructuring charge. The resulting loss before the restructuring charge is
$2.9 million from continuing operations. If the impact of the three elements of
the Plan had been in place for all of 1996, the result would have reduced the
loss by over $2.5 million more. The restructuring plan is expected to reduce
operating costs by $1.5 million and reduce the impact of customer returns and
charge-backs in excess of an additional $1.0 million. Further, negotiations
with vendors will yield additional savings. Strong continued sales and earnings
growth is expected from the Company's trampoline products. If current
projections are met, that growth, combined with the items mentioned above, give
the Company a reasonable prospect of returning to profitability in 1997.
RESTRUCTURING OF OPERATION
The Company has experienced rapid sales growth over the past five years
through expansion of products offered, increased customer base, and
acquisitions. However, profitability has been inconsistent, and management has
not met its primary objective, which is to create shareholder value. In an
effort to remedy this situation, management concluded in the fourth quarter of
fiscal 1996 to restructure its Fitness Accessory Products business. The
significant elements of the Restructuring Plan are to substantially reduce
inventory levels which have been excessive and to de-emphasize celebrity
endorsed products. As a result the Company expects to reduce interest costs;
generate much needed capital; reduce warehousing and related costs; reduce
royalty expense; improve gross profit; and increase net earnings per share.
The Company has identified approximately $12.0 million of inventory which
it plans to liquidate through various channels. The Company does not believe
that the liquidation of this inventory will significantly affect its normal
sales. The largest category of inventory to be liquidated is product endorsed
by Denise Austin (see discussion below). Inventory of Denise Austin product is
approximately $5.0 million. The balance of inventory to be liquidated of
approximately $7.0 million includes various Fitness Accessory Products. Many of
the items to be disposed of can still be sold by the Company at regular prices
over an extended period of time but the Company feels it necessary to
accelerate liquidation of this inventory to generate cash and reduce carrying
costs.
The Company introduced the Denise Austin line of Fitness Accessory
Products in Fiscal 1993. Sales of these products have increased since that
time to approximately $24.0 million in fiscal 1996. The Company pays Ms.
Austin a substantial royalty for the use of her name and her personal
appearances to promote these products. However, most of these products are sold
through mass merchants. The Company's gross profit for mass merchants tends to
be relatively lower than for other customers due to competitive factors. The
combination of low gross profit and a relatively high royalty are not cost
effective. As a result, the Company has decided, as part of its Restructuring
Plan, to phase out the Denise Austin relationship. The Company has negotiated
with Ms. Austin to continue to endorse certain of the Company's products
through January 1997 to help liquidate Denise Austin inventory under the same
contractual terms as are currently in effect. The Company anticipates that
substantially all of the Denise Austin inventory will be sold by that time.
At this time the Company expects to continue its current celebrity
endorsement agreements with Nolan Ryan and Kiana Tom and to evaluate additional
such agreements if beneficial.
12
<PAGE> 15
Concurrent with the inventory reduction discussed above the Company will
consolidate warehouse operations. This will result in the closing of two
leased warehouses, the reduction of warehouse personnel, and cuts in other
operating costs through increased efficiency.
DISCONTINUED OPERATIONS - HEALTHCARE DIVISION
Management of the Company determined in January of fiscal 1996 to dispose
of its Healthcare business. Healthcare has been unprofitable for the past two
years and sales have declined by approximately 52% during that period.
Management does not believe it has the resources to reverse this trend.
However, the Company believes the Healthcare business may be attractive to
another company already in the healthcare or related business.
As a result of the decision to dispose of the Healthcare Division, the
operations of Healthcare have been accounted for as a discontinued operation in
this Report and the accompanying consolidated financial statements for fiscal
1996. In addition, the Consolidated Statements of Operations for fiscal years
1995 and 1994 have been reclassified to reflect the operations of Healthcare as
discontinued operations. An after-tax provision of $770,000 for loss on
disposal of Healthcare assets was made in fiscal 1996. Net sales for the
discontinued Healthcare operations were $3.3, $5.2 and $6.4 million in fiscal
1996, 1995, and 1994, respectively. The net gain (loss) from discontinued
Healthcare operations was ($592,000), ($525,000), and $702,000, in 1996, 1995,
and 1994, respectively.
OTHER
As part of the Plan, the Company has revised certain policies and
procedures involving customer returns and deductions ("Chargebacks").
Chargebacks represent a significant cost to the Company as they do for most
vendors supplying retailers. During fiscal 1996, the company implemented
improved procedures for identifying and recording customer chargebacks and
potential chargebacks. Despite such improved procedures and continuing review
by management, unanticipated chargebacks were particularly high during the
fourth quarter. In spite of a decrease in gross sales from approximately $32.9
million in the third quarter to approximately $18.0 million in the fourth
quarter, there was an unanticipated increase in returns and other customer
deductions of more that $450,000.
The most significant category of Chargebacks is returns of first quality
product. While the Company is not contractually obligated to accept returns of
first quality product , it is not unusual to do so as an accommodation to
maintain good customer relations. The costs associated with returns of first
quality product include receiving, replacing cartons damaged in-transit,
repackaging, relabeling, restocking, storage and reshipping. The Company has
adopted more stringent requirements before it will accept future returns of
first quality product. Among these requirements are: restocking charges;
agreement by the customer to buy additional product in the future; and
rejection of unwarranted returns.
In addition to first quality returns, the Company receives a significant
amount of Chargebacks for returns of allegedly defective product. In order to
reduce this category of Chargebacks, the Company has adopted a Defective
Product Allowance program by which the Company negotiates a flat percentage of
sales which a customer deducts in lieu of returning defective product. This
program saves the Company freight and handling costs; refurbishing and disposal
costs; and eliminates volatility in the financials. In addition, disputes over
manufacturing defects versus customer damaged product are eliminated. The
Company believes that this policy will have a favorable impact on fiscal 1997
operating costs.
Another significant category of Chargebacks involves customer imposed
penalties for non-compliance issues. Many retailers impose specific rules
involving product specifications, shipping instructions, labeling, invoicing,
etc. These retailers unilaterally deduct penalties from payments to their
13
<PAGE> 16
vendors for infractions of their rules. Many of these penalties are onerous or
erroneous and are expensive to research and challenge. As part of the Plan,
the Company has formed a team from various functional areas of the organization
which will work to reduce this category of Chargebacks. In addition, the
Company wrote-off a number of older Chargebacks, in the fourth quarter of 1996,
that were in dispute in order to concentrate on more current Chargebacks and
focus on eliminating their reoccurrence.
Another aspect, of equal importance to reducing chargebacks, incorporated
in the Plan is the more aggressive negotiation for products, materials, and
services purchased by the Company. The Company has already had success with
two of its largest suppliers. The Company seeks to significantly improve its
gross profit through lowered costs negotiated with its primarily overseas
suppliers. Prior to fiscal 1997 such product cost reductions could not be
attained, as the Company did not have the liquidity to negotiate strongly with
vendors.
The Company also anticipates fiscal 1997 savings in operating expenses,
through implementation of the Plan, of approximately $1.5 million. Included in
these savings are an $800,000 reduction of expenses involving celebrity
endorsed products; a $400,000 reduction in warehouse rent and temporary storage
costs, and a $200,000 reduction in warehouse labor and increase in warehouse
efficiency. These savings are to be anticipated even greater in subsequent
fiscal years.
Improved liquidity is crucial to the future success and growth of the
Company. Recognition of this fact is one of the primary reasons that
management initiated the Plan. During 1997, the Plan anticipates generating
approximately $7 million from reduced inventory levels. In addition, the
Company will receive more than $2.0 million in federal income tax refunds
arising from losses in fiscal 1996. These funds will be used to reduce trade
accounts payable and other debt. As a result of anticipated lower debt, the
Company's interest expense should decrease towards the end of fiscal 1997.
DISCONTINUED OPERATIONS - PRIOR
Effective September 13, 1993, the Company sold substantially all of the
assets of its California manufacturing subsidiary, C.G. Products, Inc. ("C.G.
Products") formerly known as California Gym Equipment Company. C.G. Products
was engaged in the manufacture and sale of variable resistance weightlifting
machines and single station exercise machines. The sales price for the assets
was approximately $1.2 million, including $300,000 in cash, two promissory
notes from the purchaser in the aggregate principal amount of approximately
$818,000 (bearing interest at 7% per annum) and a $100,000 wholesale credit for
future purchases of weightlifting machines by the Company. The notes are
secured by a second lien on the purchaser's inventory and a first lien on other
assets, except for accounts receivable. The Company also subleased C.G.
Products' manufacturing facility to the purchaser, but remains the primary
obligor on the lease, which expires in May 1997. The Company has also agreed
to a non-competition agreement for the greater of five years or until payment
in full of the promissory notes. The purchaser did not assume certain
liabilities arising prior to the sale.
As a result of the sale, the operations of C.G. Products have been
accounted for as a discontinued operation in this Report and the accompanying
consolidated financial statements. The principal reasons for the sale were
C.G. products' inability to generate satisfactory profit margins on most of its
exercise machine product lines and management's strategic decision to exit the
market for weight stack equipment in order to stem continuing losses and focus
on the Company's consumer fitness accessories and light equipment products. An
after-tax provision of $573,000 for loss on disposal of these assets was made
in fiscal 1994. Net sales for the discontinued operations of C.G. Products
were $2.4 million for fiscal 1994. The net loss for the same period was
$152,000. See Note B to "Notes to Consolidated Financial Statements."
14
<PAGE> 17
INITIAL PUBLIC OFFERING
On November 17, 1993, the Company completed an initial public offering of
Common Stock, with the issuance of 1,200,000 shares at $12.50 per share. The
Company received net proceeds of approximately $13.1 million after deducting
offering costs. The net proceeds were used (1) to repay approximately $10.9
million outstanding under a revolving credit facility, (2) to repay
approximately $1.5 million of other indebtedness, and (3) to increase funds
available for working capital purposes.
ACQUISITIONS
Effective May 24, 1994, the Company, through a newly formed and wholly
owned subsidiary, NBF, Inc., a Georgia Corporation, acquired substantially all
the assets and liabilities of NBF, Inc., a Florida Corporation, in exchange for
138,000 shares of the Company's restricted Common Stock. The purchase price
was approximately $2.8 million, including the assumption of certain
liabilities. Additionally, the Company acquired from an individual all of the
intellectual property rights to the products manufactured by NBF, Inc., a
Florida Corporation, for $150,000 in cash. NBF, Inc. is a manufacturer of
trampolines and other outdoor playground equipment. The acquisition was
accounted for as a purchase and accordingly, results of operations have been
included in the Consolidated Statement of Earnings since the acquisition date.
SALE OF ASSETS
In September of 1993, the Company sold substantially all of the assets of
its C.G. Products operations. C.G. Products was engaged in the manufacture and
sale of variable resistance weightlifting machines and single station exercise
machines. C.G. Products' net loss from operations for fiscal 1994 was
approximately $152,000. In addition, the Company realized a net loss on
disposal of the assets of C.G. Products of approximately $573,000 in fiscal
1994. The results of operations of C.G. Products are reflected in the Company's
consolidated financial statements as discontinued operations.
RESIGNATIONS
As a result of certain accounting and other issues raised by the Company's
independent accountants ("Accountants") (see Item 9. Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure) two of
the Company's independent directors and the Company's Accountants resigned
during the month of June 1995. The Company subsequently filled these openings.
The Company does not believe that the issues raised by the Company's former
Accountants warranted the ensuing resignations of the Accountants and the
directors.
RESULTS OF OPERATIONS
The following table presents for the periods indicated, certain items
derived from the Company's consolidated statements of operations expressed as a
percentage of net sales. The trends in sales or earnings illustrated in the
following table may not be indicative of future earnings.
15
<PAGE> 18
<TABLE>
<CAPTION>
PERCENTAGE INCREASE
PERCENTAGE OF NET SALES (DECREASE)
-------------------------- -------------------
FISCAL FISCAL
FISCAL YEAR ENDED MARCH 31, 1996 1995
OVER FISCAL
1996 1995 1994 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales ......................... 100.0 100.0 100.0 18 75
Cost of goods sold ................ 77.5 74.4 69.6 23 87
------ ------ ------
Gross profit .................... 22.5 25.6 30.4 4 47
Selling expenses .................. 9.8 10.1 10.5 15 69
Distribution, general and
administrative expenses ......... 15.1 12.4 10.9 44 99
Restructuring of operations ....... 4.9 0.0 0.0 0 0
29.8 22.5 21.4 57 84
Operating profit (loss) ........... (7.3) 3.0 9.0 (383) (40)
Interest expense .................. 2.8 1.7 1.7 93 75
Other expense (income) - net ...... (0.1) (0.1) (0.2) (78) 44
------ ------ ------
2.7 1.6 1.6 92 86
Earnings (loss) from
continuing operations before
income taxes .................. (10.0) 1.4 7.4 (947) (67)
Income tax expense (benefit) ..... (1.4) .5 2.7 (424) (66)
------ ------ ------
Earnings (loss) from
continuing operations ......... (8.5) .9 4.7 (1,255) (67)
====== ====== ======
</TABLE>
(1) The percentages for 1995 and 1994 have been recalculated to reflect the
discontinuance of the Healthcare Division. See Management's Discussion of
Financial Condition and Results of Operations and Note B to "Notes to
Consolidated Financial Statements."
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995
The Company's fitness accessory products (Fitness Accessory Products)
consist of two major product categories - trampoline products (Trampoline
Products) and other fitness accessory products (Other Fitness Accessory
Products).
Net sales of Fitness Accessory Products in fiscal 1996 increased by
approximately $12.4 million from fiscal 1995, an increase of 18.3%
Approximately $11.5 million of this growth is attributable to net sales of
Trampoline Products which increased 127.9%. The balance of approximately
$900,000 is attributable to net sales of Other Fitness Accessory products,
which increased 1.4%. The Company introduced Trampoline Products to its
Fitness Accessory Products line during May 1994. Since that time net sales of
Trampoline Products has increased rapidly due to placement of trampolines at
several of the Company's high volume mass merchant customers. The Company
expects net sales of Trampoline Products will continue to grow at a high rate.
However, it is unlikely that the prior year percentage increase in net sales
can be maintained. The relatively flat net sales of Other Fitness Accessory
Products resulted from weak demand and a high level of product returns. The
high returns were a result of both defective product and accommodations to
certain of the Company's larger customers. Returns and other customer
deductions were particularly high in the fourth quarter of fiscal 1996. As a
result, the Company has adopted a tougher policy in regard to allowing customer
returns. In the first quarter of fiscal 1997, the Company rejected several
requests for sizable returns. The Company plans to reduce returns
significantly during fiscal 1997.
16
<PAGE> 19
Gross profit for Fitness Accessory Products in fiscal 1996 increased by
approximately $800,000 over fiscal 1995, but decreased as a percentage of net
sales from 25.6% in 1995 to 22.5% in fiscal 1996. This is due to the fact that
trampoline products earn a lower gross margin than other Fitness Products and
were a higher proportion of sales in 1996. Gross margins of the other Fitness
Accessory Products were lower in 1996 than 1995 due primarily to a higher level
of customer returns and chargebacks.
During fiscal 1996, the Company implemented improved procedures for
identifying and recording customer chargebacks and potential chargebacks.
Despite such improved procedures and continuing review by management,
unanticipated chargebacks were particularly high during the fourth quarter. In
spite of a decrease in gross sales from approximately $32.9 million in the
third quarter to approximately $18.0 million in the fourth quarter, there was
an unanticipated increase in returns and other customer deductions of more than
$450,000. As a percentage of gross sales, returns and other customer deductions
increased from 9.7% in the third quarter to 19.9% in the fourth quarter. In
addition, certain customer deductions were written-off, in the fourth quarter,
that were previously disputed and expected to be collected prior to the end of
the quarter by the Company. These items had a significant impact on the fourth
quarter and therefore the year to date gross profit. The Company has adopted a
tougher policy beginning in fiscal 1997, in regard to accepting defective and
non-defective returns, and allowing other customer deductions.
Selling expenses for Fitness Accessory Products in fiscal 1996 increased
by approximately $1.0 million compared to fiscal 1995 and decreased as a
percentage of net sales of Fitness Accessory Products from 10.1% in fiscal 1995
to 9.8% in fiscal 1996. The dollar increase in selling expenses is attributed
to the overall increase in net sales of Fitness Accessory Products. The
decrease in selling expenses as a percentage of net sales of Fitness Accessory
Products is attributable to increased sales volume.
Distribution, general and administrative expenses for Fitness Accessory
Products increased by $3.7 million compared to fiscal 1995 and increased as a
percentage of net sales of Fitness Accessory Products from 12.4% in fiscal 1995
to 15.1% in fiscal 1996. The increase in distribution, general and
administrative expenses in dollars is attributed to the increase in net sales;
excessive warehouse rent and labor costs associated with product returns. In
addition, distribution, general and administrative expenses were higher than
anticipated due to increased consulting and temporary employee expenses to
address problems with the Company's computer system; increased legal expenses
and audit fees; expenses associated with taking extra physical inventories; and
certain other expenses.
In particular, the fourth quarter was impacted by significant temporary
storage charges associated with in-transit inventory, legal expenses, and
insurance costs associated with product liability. As a result of the
restructuring plan discussed earlier, the Company expects to significantly
reduce warehouse rent, temporary storage charges, and warehouse labor.
The Company took a charge of $4.0 million to operating profit for
restructuring of continuing operations during the fourth quarter.
Restructuring of operations is discussed elsewhere in Management's Discussion
and Analysis of Financial Condition and Results of Operations.
Operating profit from continuing operations in fiscal 1996 as compared to
fiscal 1995 decreased by $7.9 million including a restructuring charge of $4.0
million. As a percentage of net sales, operating profit decreased from a 3.0%
operating profit to a 7.3% operating loss.
Interest expense for continuing operations in fiscal 1996 increased
approximately $1.0 million from fiscal 1995 primarily due to a higher interest
rate on the Company's borrowings. In addition, the average
17
<PAGE> 20
loan balance was higher in fiscal 1996 due to increased working capital
required to support increased sales volume partially offset by higher accounts
payable.
Due to a loss from continuing operations the Company recorded an income
tax benefit of $1.0 million which is based on an effective tax rate of 14.2%.
The tax benefit was reduced to reflect the amount expected to be realized. The
Company may potentially realize additional tax benefit depending on future
earnings.
FISCAL YEAR ENDED MARCH 31, 1995 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1994
Net sales in fiscal 1995 increased by $29.1 million from fiscal 1994, an
increase of 75.2%. Approximately $20.1 million of this increase in net sales is
attributable to Other Fitness Accessory Products, and the balance of
approximately $ 9.0 million is attributable to the addition of Trampolines
Products to the Company's Fitness Accessory Products line in May 1994. The
increase in net sales of Other Fitness Accessory Products resulted from
increased placement; and increased volume of products sold to the Company's
core customers. The Company generated additional business with these customers
through promotional and "buy back" programs. Buy back programs entail
purchasing a competitor's products from a retailer in order to replace the
competitor's product with the Company's.
Gross profit in fiscal 1995 increased by $5.6 million from fiscal 1994 but
decreased as a percentage of net sales from 30.4% in fiscal 1994 to 25.6% of
net sales in fiscal 1995. Accessory Fitness Products experienced a decline in
gross profit as a percentage of net sales primarily due to additional costs to
generate higher sales volume; costs associated with higher customer buybacks,
returns and deductions; and the addition of Trampoline Products. In order to
increase sales volume during fiscal 1995, the Company, in some cases, was
required to buy competitors' products from retailers before the Company could
ship its products. This resulted in a charge to gross profit for increased
reserve for inventory obsolescence. In addition, the Company experienced
higher than normal customer returns and allowances during fiscal 1995 which
also reduced gross profit. Net sales of the newly acquired Trampoline Products
increased from zero in fiscal 1994 to approximately $9.0 million, 13.3% of net
sales, in fiscal 1995. Trampoline Products have a lower gross profit as a
percentage of net sales as compared to Other Fitness Accessory Products. As a
result, weighted average gross profit as a percentage of net sales decreased.
Finally, the Company experienced certain start up inefficiencies in the
Trampoline Product operation which further reduced gross profit.
Selling expenses in fiscal 1995 increased by $2.8 million compared to
fiscal 1994 but decreased as a percentage of net sales from 10.5% in fiscal
1994 to 10.1% of net sales in fiscal 1995. The dollar increase in selling
expenses is primarily a result of increased volume during fiscal 1995. The
decrease in selling expenses as a percentage of net sales is primarily a result
of certain selling expenses being relatively fixed and Trampoline Products
requiring less selling expense as compared to Other Fitness Accessory Products.
Distribution, general and administrative expenses increased by $4.2
million compared to fiscal 1994 and increased as a percentage of net sales from
10.9% in fiscal 1994 to 12.4% in fiscal 1995. The increase in distribution,
general and administrative expenses in dollars and as a percentage of net sales
is primarily attributable to certain inefficiencies in the warehousing and
distribution of product caused by excessive inventory and inadequate space for
a portion of the year. This resulted in inflated payroll and rent expense.
Other contributing factors include higher costs associated with increased
volume and costs incurred in anticipation of continuing increases in sales.
18
<PAGE> 21
Operating profit in fiscal 1995 decreased $1.4 million from fiscal 1994.
Due to the factors discussed above, operating profit as a percentage of net
sales in fiscal 1995 decreased to 3.0% from 9.0% in fiscal 1994.
Interest expense in fiscal 1995 increased $501,000 as a result of
increased borrowings under the Company's revolving line of credit in order to
finance higher working capital needs to support increased sales and resulting
higher inventory and accounts receivable.
Income tax expense for earnings from continuing operations in fiscal 1995
and fiscal 1994 reflect an effective tax rate of 37.1% and 36.3% respectively.
SEASONALITY; QUARTERLY RESULTS
In the past, the Company's net sales and earnings have been higher in the
last six months of the fiscal year compared to the first six months of the
fiscal year. This trend has continued for net sales. As a percentage of
annual net sales the net sales for the last six months of both fiscal 1996 and
1995 were approximately 57.3%. The higher net sales in the last six months
results from the Christmas selling season and increased consumer demand in
response to New Year's resolutions to "take better care of one's self." Net
earnings for the Company will generally rise and fall with sales volume
although not directly in proportion to the change in net sales due to certain
of the Company's expenses being relatively fixed while others are relatively
variable. The Company's quarterly operating results may also vary depending on
such other factors as the timing of significant customer orders, the mix of
products sold, and the efficiency of operations. However, during the last two
fiscal years, the Company experienced a net loss from continuing operations in
the fourth quarter. The fourth quarter of fiscal 1996 was adversely impacted
by a restructuring charge, high customer returns and deductions, write-off of
customer deductions previously disputed by the Company, increase in product
scrapped resulting from refurbished returns; high temporary storage charges
associated with in-transit inventory; high legal expenses; and certain
insurance costs associated with product liability. During fiscal 1995, the
Company also experienced a net loss in the fourth quarter. The fourth quarter
of fiscal 1995 was adversely impacted by certain inefficiencies in the newly
acquired trampoline subsidiary; higher than normal customer buybacks; certain
inefficiencies in the distribution operation; and a significant drop in sales
from the third quarter of fiscal 1995. Although net sales for fiscal 1995 were
up approximately 75.2% from fiscal 1994 the Company anticipated substantially
higher sales for the fourth quarter of fiscal 1995 than were realized. As a
result, and because of fixed expenses, certain selling, distribution, and
general and administrative expenses in the fourth quarter were not reduced in
proportion to the decrease in net sales.
The following table sets forth selected quarterly unaudited information
for the 1996, 1995, and 1994 fiscal years. In the opinion of the Company, such
information reflects all adjustments, consisting only of normal recurring
adjustments necessary to present fairly the information set forth below. The
operating results for any quarter are not necessarily indicative of the results
for any future period. In addition, sales growth in recent quarters has
resulted from significantly increased product penetration at certain large
retailers and the Company believes that sales growth may be more modest in the
future.
19
<PAGE> 22
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL 1996 FISCAL 1995
---------------------------------------------- ---------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1996 1994 1994 1994 1995
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales ......... $ 12,762 $ 21,489 $ 31,648 $ 14,401 $ 12,760 $ 16,245 $ 23,256 $ 15,633
Operating Profit
(loss) .......... (748) 1,434 1,683 (8,218) 953 898 1,569 (1,355)
Earnings (loss)
from continuing
operations ...... (703) 694 701 (7,553) 572 465 744 (1,187)
Earnings (loss) per
share from
continuing
operations ...... (0.19) 0.18 0.18 (2.03) 0.15 0.12 0.19 (0.32)
<CAPTION>
THREE MONTHS ENDED
FISCAL 1994
---------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1993 1993 1993 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales ......... $ 7,333 $ 8,940 $ 11,585 $ 10,888
Operating Profit
(loss) .......... 664 854 1,064 888
Earnings (loss)
from continuing
operations ...... 347 421 599 459
Earnings (loss) per
share from
continuing
operations ...... 0.12 0.16 0.19 0.12
</TABLE>
The above table for Fiscal 1995 and 1994 has been reclassified to
retroactively recognize the discontinued Healthcare Division.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of financing in the past several years
have been short-term borrowings from banks, asset based lenders and an IPO.
The Company's cash flow from operations was approximately $4.0 million for
fiscal 1996, although there was negative cash flow from operations in fiscal
1995 and 1994. The improvement in cash flow from operations is due primarily
to significantly smaller increases in inventory and trade accounts receivable
in fiscal 1996 compared to fiscal 1995. In addition, there was a significantly
larger increase in accounts payable in fiscal 1996 as compared to fiscal 1995.
The above were partially offset by a large loss in fiscal 1996 as compared to a
profit in fiscal 1995.
The Company currently has a revolving credit facility ("Credit Line") with
a bank that provides for a maximum Credit Line of $22.5 million through May 16,
1996, $23.3 million from May 17, 1996, through July 30, 1996. In accordance
with the Company's plan, the credit line will be reduced to $22.5 million on
July 31, 1996, and to $21.5 million on September 30, 1996. The Credit Line is
subject to borrowing base requirements, certain covenants, and other
provisions. As of March 31, 1996, the Company was in default or out of
compliance with certain of the covenants or other provisions of the Credit
Line. The bank has agreed to forebear exercising any of its rights and
remedies regarding these defaults or non-compliance items through November 8,
1996.
The outstanding balance under the Credit Line, $22.5 million as of March
31, 1996, is collateralized by the Company's trade accounts receivable,
inventory, and headquarters building.
The outstanding balances under the Credit Line from September 8, 1994, to
September 8, 1995, bore interest at the bank's prime interest or, at the
Company's discretion LIBOR plus 2%. From September 9, 1995, to December 28,
1995, the rate increased to prime plus 2% on the first $22.5 million and prime
plus 3% on the balance. From December 29, 1995, until November 8, 1996, the
rate is prime plus 3% on the entire balance.
The original Credit Line expired on September 8, 1995, but the bank has
extended the Credit Line several times, most recently until November 8, 1996,
with the understanding that the Company continue to actively pursue alternative
financing. The Company has been and continues to pursue such alternative and
additional financing to replace and increase the Credit Line.
20
<PAGE> 23
The Company entered into a commitment agreement (the "Agreement") with a
financial institution on July 12, 1996, establishing a revolving credit
facility (the "Credit Line") for up to a maximum of $30 million. Borrowing
under the Credit Line is limited to a percentage of eligible trade accounts
receivable and inventory as defined in the Agreement. The Credit Line has a
three year maturity and is collateralized by the Company's assets including
inventory, trade accounts receivable, and real property. The interest rate
under the Credit Line is prime plus 1.75%. In addition, the Company is
required to pay certain closing, commitment, management, and unused line fees.
Furthermore, the Credit line requires the Company to comply with certain
financial and other covenants as defined in the Agreement. Limited personal
guarantees by Glenn and Bob Bollinger are also required. The Agreement
terminates on July 31, 1996, if final documentation cannot be negotiated and
certain other conditions precedent are not met by that time. The Company
believes that the Agreement will close by July 31, 1996.
In addition, the Company expects to raise funds through the sale of
certain inventory disposed of as part of the restructuring of the Fitness
Accessory Product line and improved earnings as a result of the restructuring
and disposal of the Healthcare business.
However, there is no guarantee that the Company will be successful in
raising adequate funds from any of these sources or obtaining a further
extension from the Company's current bank or closing the financing Agreement.
Improved liquidity is crucial to the future success and growth of the
Company. Recognition of this fact is one of the primary reasons that management
initiated the Plan discussed earlier. During 1997, the Plan anticipates
generating approximately $7 million from disposal of inventory. In addition,
the Company will receive approximately $2.3 million in federal income tax
refunds arising from losses in fiscal 1996. These funds will be used to reduce
trade accounts payable and other debt. As a result of anticipated lower debt,
the Company's interest expense should decreased towards the end of fiscal 1997.
Other operating improvements will also generate cash flow.
Failure to raise adequate alternative and additional funds may have a
materially adverse effect on the Company.
The Company from time to time reviews the possible acquisition of
businesses or products that complement its current business. In May 1994, the
Company acquired substantially all the of the assets and certain liabilities of
NBF for 138,000 shares of the Company's restricted common stock and the
assumption of approximately $1.7 million in liabilities. The Company also
acquired certain intellectual property rights for an additional $150,000. The
business acquired consists of the manufacture and sale of large size
trampoline, trampoline parts, and other outdoor playground equipment. NBF had
net sales of approximately $4.0 million in 1993. The Company currently has no
plans, arrangements or understandings with respect to any other acquisitions of
businesses or products.
Capital expenditures during fiscal 1996 were approximately $425,000. The
Company has budgeted approximately $500,000 for capital expenditures for fiscal
1997.
INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
To date, inflation and foreign currency fluctuations have not had a
material impact on the Company's operations. There can be no assurance,
however, that future inflation or foreign currency fluctuations will not have a
material adverse effect on the Company, or that the Company will be able to
pass on resulting cost increases without experiencing a reduction in demand for
its products. A substantial
21
<PAGE> 24
portion of the Company's existing indebtedness bears, and future indebtedness
may bear, interest that fluctuates with the prime rate.
FACTORS THAT COULD AFFECT FUTURE PERFORMANCE
This report contains certain forward looking statements about the business
and financial condition of the Company, including various statements contained
in "Management's Discussions and Analysis of Financial Condition and Results of
Operations." The actual results of the Company could differ materially from
those forward looking statements. The following information sets forth certain
factors that could cause the actual results to differ materially from those
contained in the forward looking statements.
Disposal of Denise Austin Branded Product
The current Restructuring Plan anticipates disposing of approximately $5.0
million of Denise Austin branded product at a certain realizable value. This
valuation is based on the Company's best estimate of market demand at the time
of this report. The actual realizable value of this inventory may differ
materially from these estimates.
Legal Proceedings
The Company and certain officers and directors are defendants in two
separate lawsuits that purport to be class actions and allege certain
misrepresentations and fraudulent actions by the defendants. While the Company
believes both actions are without merit, a negative outcome would have a
material adverse effect upon the Company's business, operating results and
financial condition. In addition, the staff of the Securities and Exchange
Commission has indicated to the Company it is their preliminary determination
to recommend a civil injunctive action be brought against the Company, Glenn
Bollinger, and Ron Bollinger. A negative outcome in this matter would have a
material adverse effect upon the Company's business, operating results and
financial condition. See Item 3. Legal Proceedings.
Discontinued Operations
Management plans to dispose of the Company's Healthcare Division. A net
provision of approximately $400,000 has been established to cover estimated
operating losses through December 31, 1996, the planned disposal date offset by
an expected gain on sale of assets. While the Company believes that the
provision is adequate, a reduced selling price for the assets, higher operating
loss, or an extended disposal date could results in an additional charge to
earnings.
Products and Markets
A significant part of previous years sales have been generated by
celebrity endorsed product which the Company, as part of the Restructuring
Plan, plans to substantially reduce in the future. The Company believes the
Bollinger brand name and other trademarks and brands are sufficiently strong to
continue the recent sales growth trend. Sales of the Company's products may be
adversely affected by general economic conditions and unexpected consumer
preference for celebrity endorsed product. Additionally, sales of Trampoline
Products are expected to continue to grow based on current customer demand.
This demand may weaken as consumer preferences and other market conditions
change.
22
<PAGE> 25
Financing
The Company signed a financing commitment agreement to replace its current
credit facility. If the commitment is not closed by July 31, 1996, it will
terminate. The Company believes the agreement will be consummated. However,
there is no guarantee that the financing will close or that other financing can
be arranged. Failure to arrange adequate financing could have a material
adverse effect on the Company. See Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources.
CHARGEBACKS
The Company has instituted certain changes in policies and procedures in
regard to customer chargebacks to be implemented in fiscal 1997. As a result,
the Company anticipates a substantial reduction in customer chargebacks during
fiscal 1997, as compared to fiscal 1996. However, there is no guaranty that
the Company will be successful in this endeavor due to customer resistance or
other factors. Failure to successfully reduce chargebacks could have a
significant effect on the Company's future earnings.
VENDOR PRICING
The Company plans to negotiate better prices form its vendors in fiscal
1997. The Company has had initial success with two large vendors. However,
there are no guarantees that it will have additional success in this regard.
Failure to negotiate lower prices can have a material impact on the Company's
future earnings.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
The consolidated financial statements and schedules of the Company as of
March 31, 1996, and 1995, and for each of the years in the three-year period
ended March 31, 1996, are included as part of this Report beginning on page F-1
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
(a) On Thursday, June 22, 1995, Grant Thornton L.L.P., the
Company's independent accountant, advised by letter that it was
resigning in its capacity as auditor and certifying accountant for
the Company, effective immediately.
(b) Reports prepared by Grant Thornton L.L.P. on the financial
statements of the Company for each of the past two (2) fiscal years
do not contain any adverse opinions or disclaimers of opinion, nor
were they qualified or modified with respect to any uncertainty,
audit scope, or accounting principles.
(c) The audit committee of the Board of Directors did not recommend
or approve of the resignation.
(d) During the audit of the Company's fiscal year ended March 31,
1995, as conducted by Grant Thornton L.L.P., questions were raised
concerning certain transactions identified by the auditors and about
certain internal controls perceived as lacking by the auditors, which
subjects resulted in disagreements between the Company and Grant
Thornton L.L.P.
23
<PAGE> 26
Specifically, the concerns as expressed to management centered around:
1. Questions concerning two sales of inventory to customers of the
Company in the fourth quarter ended March 31, 1995;
2. A lack of comfort with certain internal accounting procedures
in the shipping and receiving departments.
3. Questions concerning the validity of certain shipping
documentation; and
4. The conduct of certain warehouse personnel viewed by the
auditors as reflecting an uncooperative posture and a negative
attitude toward the personnel of Grant Thornton L.L.P. performing
audit functions.
On June 6, 1995, Grant Thornton L.L.P. met with two members of the audit
committee of the Board of Directors to discuss these concerns. Thereafter, on
June 7, the members of the audit committee who attended the June 6 meeting
advised management of the scope of the disagreements and proposed a modified
management structure that Grant Thornton L.L.P. had approved and which if
implemented, would hopefully result in a resolution of the disagreements.
Management discussed the subject matter of the disagreements and the modified
management structure with all of the Company's directors and with Grant
Thornton L.L.P., but were unable to reach any agreement. Consequently, on June
20, the two directors who attended the June 6 meeting resigned and thereafter,
on June 22, Grant Thornton L.L.P. resigned as independent accountants, stating
that it could not rely on representations of management.
The Company cannot conclude with any certainty that these disagreements,
if not resolved to the satisfaction of the auditors, would have caused Grant
Thornton L.L.P. to make reference to the subject matter of the disagreements
in connection with its report to be issued on the financial statements of the
Company for its fiscal year ended March 31, 1995. The Company has requested
that Grant Thornton L.L.P. fully respond to any inquiries by a designated
successor accountant concerning the subject matter of each and all of the
disagreements set forth above.
The following is the response submitted to the SEC by Grant Thornton
L.L.P.:
"We have read Item 4 of the Form 8-K of Bollinger Industries, Inc.
(Bollinger) dated June 28, 1995. We do not believe that Item 4 (d) of
Bollinger's Form 8-K accurately or completely describes the events which led
Grant Thornton L.L.P. (Grant) to resign as the Company's auditors. Nor do we
agree with Bollinger's characterization of the questions Grant raised regarding
certain transactions which took place during Bollinger's fiscal year ended
March 31, 1995.
On June 7, 1995, we met with two of the three members of the audit
committee of the Board of Directors. These two members represented all outside
directors who were not employed by or closely associated with Bollinger. At
that meeting, we informed those directors of certain transactions, situations
and issues, as set forth in the following paragraph, that had come to our
attention during the course of the 1995 audit that caused us to conclude that
we could no longer rely on the representations of management. Accordingly, we
had concluded that it was necessary for us to resign as independent auditors.
The two directors proposed an alternative whereby they would initiate an
investigation to determine the depth of the problems and create a modified
management structure that would separate current management from the operations
of Bollinger. We agreed that such a structure would enable us to continue as
auditors. We understand that the two board members then met with management to
inform them of our position and to
24
<PAGE> 27
present their proposal. Management requested a meeting with us which occurred
on June 15, 1995. During that June 15th meeting, we discussed the
circumstances that caused us not to be able to rely on management's
representations, and especially highlighted the transactions, situations and
issues set forth in the next paragraph of this letter. Finally, we informed
management of our intention to resign as independent auditors unless the
Board's alternative management structure was implemented or another acceptable
alternative found. On June 20, 1995, the two outside directors resigned. We
thereafter resigned on June 22, 1995, because management had not agreed to the
Board proposal that would have enabled us to remain as auditors and no other
acceptable solution had been suggested.
The transactions, situations and issues that caused us to conclude that we
could no longer rely on the representations of management are as follows:
1. Questions concerning the substance of sales to two customers
during March 1995.
2. Questions concerning the substance of a previous sale in March
1994 to one of the aforementioned customers.
3. Questions concerning the validity of certain shipping documents
supporting sales recorded during the last week of March 1995.
4. Questions regarding the apparent override of internal controls
in the shipping and receiving departments.
5. Reluctance of employees to answer our questions during the
course of the 1995 audit.
We agree with the statements contained in paragraphs (a), (b), and (c) of
Item 4.0.
On Tuesday, July 25, 1995 the Company engaged the firm of King, Burns &
Company, P.C. as independent accountants to audit the Company's financial
statements for fiscal year ending March 31, 1995. During the Company's two
most recent fiscal years, and any subsequent interim period prior to engaging
that accounting firm, neither the registrant nor anyone acting on its behalf
consulted the newly engaged accounting firm regarding the application of
accounting principles to a specified transaction, the type of audit opinion
that might be rendered on the Company's financial statements, or any matter
that was either the subject of a disagreement with the Company's former
accountants or a reportable event.
25
<PAGE> 28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Glenn D. Bollinger 45 Chairman of the Board and Chief Executive Officer
Bobby D. Bollinger 43 Vice Chairman of the Board and President
John T. Pryor 46 Senior Vice President - Finance, Chief Financial
Officer, Treasurer and Secretary
Ron C. Bollinger 48 Executive Vice President - Fitness and President -
NBF Division
James A. Burgin 54 Executive Vice President - Sales
Jack P. Carrithers 48 Executive Vice President - Marketing
Dell K. Bollinger 69 Senior Vice President - Administration
Robert B. Logan 54 Controller and Chief Accounting Officer
John L. Maguire 65 Director
Stephen L. Parr 42 Director
Richard J. Tucker 48 Director
</TABLE>
Set forth below is a description of the backgrounds of each of the
directors and executive officers of the Company.
Glenn D. Bollinger is a co-founder of the Company and has served as
Chairman of the Board and Chief Executive Officer since 1979. Mr. Bollinger is
primarily responsible for the Company's overall operations, including in
particular inventory, manufacturing and warehousing.
Bobby D. Bollinger is a co-founder of the Company and has served as Vice
Chairman of the Board and President since 1979. Mr. Bollinger is primarily
responsible for sales, marketing and product development. Mr. Bollinger is
Glenn Bollinger's brother.
John T. Pryor became Senior Vice President - Finance, Chief Financial
Officer, Treasurer and Secretary of the Company in May 1996. Mr. Pryor is a
certified public accountant. Mr. Pryor was most recently employed by Insilco
Corporation, a publicly owned company headquartered in Dublin, Ohio. Insilco is
a diversified manufacturing firm with operations throughout the United States.
Mr. Pryor served as Vice President - Administration, Treasurer and a Director
of Taylor Publishing Company, an Insilco subsidiary, for the past seven years.
He was employed by Insilco in a variety of financial management positions for
approximately fifteen years. Insilco filed a petition under Chapter XI of the
Bankruptcy Code in 1991, and a subsidiary of Insilco, Contract Talents, Inc.,
was included in the Bankruptcy proceeding. Eventually Contract Talents was
liquidated. Mr. Pryor was an officer and director of that subsidiary.
26
<PAGE> 29
Ron C. Bollinger has served as a Vice President of the Company since April
1993 and became Executive Vice President - Fitness in September 1993. In July
1995, Mr. Bollinger became Executive Vice President and President - NBF
Division. Mr. Bollinger was previously a principal in a firm providing
consulting, training, contracting, and development services. Mr. Bollinger is
the brother of Glenn and Bobby Bollinger.
James A. Burgin became Vice President - Sales in December 1993. He became
Executive Vice President of Sales in November 1994. Before joining the Company,
Mr. Burgin was Executive Vice President of Dynamic Classics, Ltd., distributor
of fitness products. Mr. Burgin was employed by Dynamic for approximately three
years. Prior to Dynamic, Mr. Burgin was employed by various companies in the
fitness and toy industries for approximately twenty years.
Jack P. Carrithers became acting Vice President - Marketing in December
1993 and was elected Vice President - Marketing in May 1994. He became
Executive Vice President in November 1994. Before joining the Company, Mr.
Carrithers was a Vice President and Creative Director of Penny & Speier
Advertising Agency from July 1991 to November 1993. Prior to that employment,
he was an Executive Vice President and Creative Director of Evans
Communications for six years. In these past positions, Mr. Carrithers had
responsibility for developing marketing and advertising programs and materials
for a broad range of products and services.
Dell K. Bollinger became involved in the Company's business when it was
founded by her sons, Glenn and Bobby Bollinger, in 1974. Mrs. Bollinger has
served as a Vice President of the Company since 1979. Mr. Ron Bollinger is also
Mrs. Bollinger's son.
Robert B. Logan became Controller and Chief Accounting Officer in
September 1995. Mr. Logan is a certified public accountant. Before joining the
Company, Mr. Logan was most recently President, General Manager, Secretary and
Treasurer of Plastics Manufacturing Company, a subsidiary of a publicly owned
company. Plastics, headquartered in Dallas, Texas, is a manufacturer of
compression and injection molded dinnerware. Mr. Logan was employed by Plastics
for approximately twenty-seven years.
John L. Maguire became a director in September 1993 and served as interim
Chief Financial Officer from August 1992 to August 1993. In addition, the
Company employs Mr. Maguire as a salaried consultant on certain financial
matters and acquisitions. Mr. Maguire is a certified public accountant. In
addition to his duties at Bollinger, Mr. Maguire is President of Code Rite,
Inc., and Ampro Medical Services, Inc., two healthcare companies. Since 1982,
he has been self-employed, concentrating on private family investments. He was
previously Chief Financial Officer of Tyson Foods, Inc., for 12 years. Mr.
Maguire was a director of Arkansas Equity Growth Fund, Inc., a publicly held
investment company which was liquidated in July 1993 and subsequently
dissolved.
Stephen L. Parr became a Director of the Company in November 1995. Mr.
Parr is currently President of Navigator Capital Management, LLC. Mr. Parr was
previously a Vice President of Goldman Sachs where he was an international
specialist. Mr. Parr was with Goldman Sachs from 1977 to 1995. Mr. Parr serves
on the Board of Directors of DayStar Digital, a Georgia computer company,
Nextek, Inc., an Alabama electronics company, and Corphealth, Inc., a Texas
behavioral healthcare company.
Richard J. Tucker became a Director in July of 1995. In addition, the
Company is retaining Mr. Tucker as a consultant on certain financial and other
matters. Mr. Tucker is the Chairman and Chief Executive Officer of First
Fidelity Acceptance Corporation, a nationwide automobile finance company
headquartered in Plano, Texas. Mr. Tucker has been employed by First Fidelity
since 1992. Prior to First
27
<PAGE> 30
Fidelity, Mr. Tucker was President of two holding companies, EntreCap
International, Inc. and Asset International Management Group, Inc.
The Company's board of directors is currently composed of five directors,
two of whom are not employees of the Company. However, one of the non-employee
directors is currently retained as a consultant to the Company. All of the
current directors serve until the next annual shareholder's meeting or until
their successors have been duly elected and qualified.
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes the compensation paid to the Company's
chief executive officer and the Company's two other most highly compensated
executive officers for services rendered in all capacities to the Company
during fiscal 1996, 1995 and fiscal 1994.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND SALARY BONUS COMPENSA- ALL OTHER
PRINCIPAL POSITION YEAR ($) ($) TION ($)(1) OPTIONS (#) COMPENSA-TION ($)
------------------ ---- -------- ------ -------------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Glenn D. Bollinger......... 1996 $275,717 -- -- -- --
Chairman of the Board and 1995 275,735
Chief Executive Officer... 1994 277,500 -- -- -- --
Bobby D. Bollinger......... 1996 275,717 -- -- -- --
Vice Chairman of the Board 1995 275,735
and President............. 1994 277,500 -- -- -- --
James A. Burgin (2)......... 1996 118,024 -- -- -- --
Executive Vice President - 1995 78,462 18,748 -- 5,000 --
Sales..................... 1994 21,058 -- -- 10,000 --
</TABLE>
(1) Certain of the Company's executive officers receive personal benefits in
addition to salary and cash bonuses. The aggregate amount of the personal
benefits, however, do not exceed the lesser of $50,000 or 10% of the total
of the annual salary and bonus reported for the named executive.
(2) Mr. Burgin did not become an officer of the Company until December 1993.
The salary shown reflects compensation paid by the Company for
approximately three months of fiscal 1994. Mr. Burgin's annual base
salary was $75,000.
There were no options granted to the above individuals during fiscal 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In January 1994, the Company's board of directors appointed a Compensation
Committee, which was comprised of Messrs. Rundell and Jenkins, both of whom
were independent directors. Decisions concerning compensation before the
Company's initial public offering in November 1993 were made by the Company's
board of directors, which consisted of Messrs. Glenn Bollinger and Bobby
Bollinger prior to the Company's reincorporation during September 1993, as a
Delaware corporation and, additionally, of Mr. Maguire after the
reincorporation. Messrs. Glenn Bollinger and Bobby Bollinger have been
executive officers of the Company since 1979. Mr. Maguire was an officer of the
Company from August 1992 to August 1993 and is currently retained as a
consultant by the Company. Messrs. Rundell and Jenkins were replaced by Messrs.
Tucker and Green after the former independent directors resigned in June 1995.
Mr. Tucker is currently retained as a consultant by the Company. Mr. Green was
replaced by Mr. Parr during November 1995.
28
<PAGE> 31
OPTIONS EXERCISES AND HOLDINGS
The following table sets forth information with respect to the named
executives concerning exercise of options during fiscal 1996 and unexercised
options held as of the end of fiscal 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE MONEY
OPTIONS AT OPTIONS AT FISCAL
FISCAL YEAR-END (#) YEAR-END ($) (1)
--------------------------- ---------------------------
SHARES
ACQUIRED
ON
NAME EXERCISE (#) VALUE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ------------------- ------------- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C>
Glenn D. Bollinger 146,060 292,419(2) -- -- -- --
Bobby D. Bollinger 146,060 292,419(2) -- -- -- --
James A. Burgin -- -- 5,250 9,750 -- --
</TABLE>
(1) Based on the closing sale price of the Common Stock on March 31, 1996, of
$2.75 per share as reported by the over-the-counter Bulletin Board and a
weighted average exercise price per share of $10.33.
(2) Based on the closing sale price of the Common Stock on March 29, 1996 of
$2.75 per share as reported by the over-the-counter Bulletin Board and an
exercise price of $.75 per share.
DIRECTOR COMPENSATION
Each independent director receives a fee of $10,000 annually and is
reimbursed for out-of-pocket expenses incurred in connection with attendance at
board of directors and committee meetings. Each independent director was
granted options to purchase 8,333 shares of Common Stock at the time he became
a director.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information with respect to the
beneficial ownership of the shares of Common Stock of the Company, as of June
24, 1996, by (i) each director, (ii) the Company's chief executive officer and
two other most highly compensated executive officers in fiscal 1996, (iii) all
officers and directors of the Company as a group, and (iv) each person deemed
to beneficially own more than five percent of the outstanding shares of Common
Stock. Except as otherwise indicated, each stockholder identified in the table
has sole voting and investment power with respect to its or his shares.
<TABLE>
<CAPTION>
SHARES OWNED
---------------------
NAME NUMBER PERCENTAGE
- - ---- --------- ----------
<S> <C> <C>
Glenn D. Bollinger (1)(2) 1,950,459 48.8
Bobby D. Bollinger (1)(3) 1,950,459 48.8
James A. Burgin (4) 5,250 *
John L. Maguire (5) 57,333 1.4
Richard J. Tucker -- *
Stephen L. Parr 2,500 *
All directors and executive officers as a
group (11 persons) (6) (7) (8) 2,459,927 60.3
</TABLE>
- - ---------------
29
<PAGE> 32
* Less than 1% of the outstanding shares of Common Stock.
(1) Business mailing address is 222 W. Airport Freeway, Irving, Texas 75062.
(2) Includes (i) 425,069 shares over which Glenn Bollinger has sole voting
and investment control; (ii) 436,000 shares held by Glenn Bollinger Family
Enterprises, Ltd., a Texas limited partnership, over which Glenn Bollinger
has shared voting and investment power because he and his brother Bobby
Bollinger each own 49.5% of the outstanding stock of the sole general
partner; (iii) 436,000 shares held by Bob Bollinger Family Enterprises,
Ltd., a Texas limited partnership, over which Glenn Bollinger has shared
voting and investment power because he and his brother Bobby Bollinger
each own 49.5% of the outstanding stock of the sole general partner; and
(iv) 653,390 shares held by the trustees of the Company's 401(K) Plan
successor to the Company's Employee Stock Ownership Plan (the "401(K)
Plan"), including Glenn Bollinger, and over which he has shared voting and
investment power. Neither the inclusion of shares owned by Bob Bollinger
Family Enterprises, Ltd., nor the inclusion of any 401(K) Plan shares not
allocated to Glenn Bollinger's 401(K) participant account is to be
construed as an admission that he is the beneficial owner of such shares.
(3) Includes (i) 425,069 shares over which Bobby Bollinger has sole voting
and investment control; (ii) 436,000 shares held by Bob Bollinger Family
Enterprises, Ltd., a Texas limited partnership, over which Bobby Bollinger
has shared voting and investment power because he and his brother Glenn
Bollinger each own 49.5% of the outstanding stock of the sole general
partner; (iii) 436,000 shares held by Glenn Bollinger Family Enterprises,
Ltd., a Texas limited partnership, over which Bobby Bollinger has shared
voting and investment power because he and his brother Glenn Bollinger
each own 49.5% of the outstanding stock of the sole general partner; and
(iv) 653,390 shares held by the trustees of the 401(K) Plan, including
Bobby Bollinger over which he has shared voting and investment power.
Neither the inclusion of shares owned by Glenn Bollinger Family
Enterprises, Ltd., nor the inclusion of any 401(K) Plan shares not
allocated to Bobby Bollinger's 401(K) participant account is to be
construed as an admission that he is the beneficial owner of such shares.
(4) Includes options to purchase 5,250 shares of Common Stock that are
currently exercisable or will be exercisable within sixty days.
(5) Includes options to purchase 53,333 shares of Common Stock that are
currently exercisable or will be exercisable within sixty days. Does not
include 1,000 shares of Common Stock held in trust for which the reporting
person is the trustee and is a contingent beneficiary. The reporting
person disclaims beneficial ownership of these shares.
(6) Includes options to purchase 76,499 shares of Common Stock that are
currently exercisable or will be exercisable within sixty days.
(7) Shares which are included beneficially under both Glenn and Bobby
Bollinger are only included once in the group total.
(8) Includes 1,300 and 100 shares of Common Stock, respectively, beneficially
owned by two executive officers of the Company, which are held by brokers
as custodians for the officers' individual retirement accounts.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In April 1993, an independent sales representative of the Company,
advanced $500,000 to the Company for working capital. The loan was evidenced by
the Company's real estate lien note bearing interest at 10% per annum due March
31, 1996, and secured in part by a lien on the Company's Irving facility. In
connection with this loan, the Company issued 34,405 shares of Common Stock. In
December 1993, Messrs. Glenn and Bobby Bollinger and Mrs. Dell Bollinger
purchased the note and received an assignment of the real estate lien in
consideration of payment of the outstanding principal balance of the note. On
March 29, 1996, the Company paid each of Messrs. Glenn and Bobby Bollinger
$110,000 against the note. The proceeds of the note payments were used by
Messrs. Glenn and Bobby Bollinger to exercise certain stock options granted in
1991. The balance of the notes which total $280,000 was extended to March 31,
1998. In May 1996, a priority lien on the real estate was granted to a bank to
secure the Company's credit facility.
The Company believes that the terms of the above transaction were at least
as favorable to the Company as those which could have been obtained in an arm's
length transaction with an unaffiliated party.
30
<PAGE> 33
The Company retains Mr. Richard J. Tucker, a director of the Company, as a
consultant on certain financial and other matters. Mr. Tucker receives $75,000
per year and is guaranteed a total of $150,000 over two years. Mr. Tucker
received $56,250 during fiscal 1996.
All transactions, if any, between the Company and any of its directors,
officers, principal stockholders, employees and other affiliates of the Company
are subject to the approval of a majority of the independent directors of the
Company who are disinterested in the transactions. All such transactions and
loans must be on terms no less favorable to the Company than those generally
available from unaffiliated third parties.
31
<PAGE> 34
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
1. Consolidated financial statements to this Report are listed in the
"Index to Consolidated Financial Statements and Schedules" at page F-1.
2. Consolidated financial statement schedules to this Report are listed in
the "Index to Consolidated Financial Statements and Schedules" at page F-1.
All other schedules are omitted because they are inapplicable or the requested
information is shown in the financial statements or noted therein.
3. Exhibits.
3.1 - Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Form S-1 Registration
Statement No. 33-69708)
3.2 - By-Laws of the Company (incorporated by reference to Exhibit 3.2
to the Company's Form S-1 Registration Statement No. 33-69708)
4.1 - Form of certificate representing shares of the Company's Common
Stock (incorporated by reference to Exhibit 4.1 to the Company's
Form S-1 Registration Statement No. 33-69708)
10.1 - Bollinger Industries 1993 Stock Option Plan (incorporated by
reference to Exhibit 10.1 to the Company's Form S-1 Registration
Statement No. 33-69708)
10.2 - Bollinger Industries Employee Stock Ownership Plan and Trust
(incorporated by reference to Exhibit 10.2 to the Company's Form
S-1 Registration Statement No. 33-69708)
10.3 - Form of Indemnification Agreement with independent director
(incorporated by reference to Exhibit 10.3 to the Company's Form
S-1 Registration Statement No. 33-69708)
10.4 - Bollinger Industries, Inc. 1991 Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.4 to the Company's Form
S-1 Registration Statement No. 33-69708)
10.5 - Lease Agreement dated April 4, 1991, between William A. McCarty,
Jr., and Elinor F. McCarty and Bollinger Sports, Inc., formerly
known as Bollinger Industries, Inc. ("Bollinger-Texas")
(incorporated by reference to Exhibit 10.8 to the Company's Form
S-1 Registration Statement No. 33-69708)
10.6 - Assignment and Assumption Agreement dated as of October 1, 1993,
between Bollinger-Texas as Assignor and Bollinger Industries, L.P.,
as Assignee with respect to such lease (incorporated by reference
to Exhibit 10.8.1 to the Company's Form S-1 Registration Statement
No. 33-69708)
10.7 - Lease Agreement dated August 30, 1992, between Reba McPherson,
individually and as Trustee of the Reba McPherson Trust u/w/o
Harold Lynn McPherson, and Tarbox, Inc., as extended by an
Agreement dated August 9, 1993 (incorporated by reference to
Exhibit 10.9 to the Company's Form S-1 Registration Statement No.
33-69708)
32
<PAGE> 35
10.8 - Assignment and Assumption Agreement dated as of October 1, 1993,
between Tarbox, Inc., as Assignor and Bollinger Industries, L.P.,
as Assignee with respect to such lease (incorporated by reference
to Exhibit 10.9.1 to the Company's Form S-1 Registration Statement
No. 33-69708)
10.9 - Standard Industrial Lease dated March 17, 1993, between National
Life Insurance Company and Bollinger-Texas (incorporated by
reference to Exhibit 10.10 to the Company's Form S-1 Registration
Statement No. 33-69708)
10.10 - Assignment and Assumption Agreement dated as of October 1, 1993,
between Bollinger-Texas as Assignor and Bollinger Industries, L.P.,
as Assignee with respect to such lease (incorporated by reference
to Exhibit 10.10.1 to the Company's Form S-1 Registration Statement
No. 33-69708)
10.11 - $500,000 Real Estate Lien Note dated March 18, 1993, in favor of
Sid Reisman and executed by Bollinger-Texas, as modified by a
Renewal, Extension, and Modification Agreement dated as of April 6,
1993, and subsequently assigned to Glenn, Bobby and Dell Bollinger
(incorporated by reference to Exhibit 10.10 to the Company's Form
S-1 Registration Statement No. 33-69708)
10.12 - Asset Purchase and Sale Agreement dated as of September 13, 1993,
by and between California Gym Equipment Company, S. G. Equipment,
Inc. and, for limited purposes, Bollinger-Texas and Sherman Grider
(incorporated by reference to Exhibit 10.13 to the Company's Form
S-1 Registration Statement No. 33-69708)
10.13 - Standard Sublease dated as of September 13, 1993, between
California Gym Equipment Company and S. G. Equipment, Inc.,
together with the Industrial Real Estate Lease dated June 1, 1992,
between New England Mutual Life Insurance Company and
Bollinger-Texas attached thereto (incorporated by reference to
Exhibit 10.14 to the Company's Form S-1 Registration Statement No.
33-69708)
10.14 - Assignment and Assumption Agreement dated as of September 1, 1993,
between Bollinger-Texas and California Gym Equipment Company with
respect to Industrial Real Estate Lease dated June 1, 1992
(incorporated by reference to Exhibit 10.15 to the Company's Form
S-1 Registration Statement No. 33-69708)
10.15 - Letter agreement dated May 19, 1992, between Bollinger-Texas,
Denise Austin and Jeff Austin (incorporated by reference to Exhibit
10.16 to the Company's Form S-1 Registration Statement No.
33-69708)
10.16 - Letter agreement dated April 13, 1994, between Bollinger
Industries, L.P., Denise Austin and Jeff Austin (incorporated by
reference to Exhibit 10.16 to the Company's form 10-K for the
fiscal year ended March 31, 1994)
10.17 - Endorsement Agreement dated September 1, 1993, between
Bollinger-Texas and Nolan Ryan (incorporated by reference to
Exhibit 10.17 to the Company's form 10-K for the fiscal year ended
March 31, 1994)
10.18 - Loan Agreement dated as of January 4, 1994, between Bollinger
Industries, L.P., the Company, and First Interstate (incorporated
by reference to Exhibit 10.18 to the Company's form 10-K for the
fiscal year ended March 31, 1994)
33
<PAGE> 36
10.19 - Standard Office/Warehouse Lease dated May 11, 1994, between
Fountain Parkway, Ltd., and Bollinger Industries, L.P.
(incorporated by reference to Exhibit 10.19 to the Company's form
10-K for the fiscal year ended March 31, 1994)
10.20 - Lease dated December 21, 1990, between Americus/Sumter Payroll
Development Authority and N.B.F., Inc. and R. Wayne Rich
(incorporated by reference to Exhibit 10.20 to the Company's form
10-K for the fiscal year ended March 31, 1994)
10.21 - Assignment and Assumption of Lease dated May 1, 1994, between
Americus/Sumter Payroll Development Authority, NBF, Inc., a Florida
corporation, and NBF, Inc., a Georgia corporation (incorporated by
reference to Exhibit 10.21 to the Company's form 10-K for the
fiscal year ended March 31, 1994)
10.22 - Amendment to Lease between Americus-Sumter Payroll Development
Authority and NBF, Inc., a Georgia corporation and R. Wayne Rich
amending the lease dated December 21, 1990 reflected at exhibit No.
10.20 above (incorporated by reference to Exhibit 10.2 to the
Company's form 10-Q for the quarter ended June 30, 1994)
10.23 - Asset Purchase Agreement dated May 24, 1994, and effective as of
May 1, 1994, between NBF, Inc., a Florida corporation, and NBF,
Inc., a Georgia corporation (incorporated by reference to Exhibit
10.3 to the Company's form 10-Q for the quarter ended June 30,
1994)
10.24 - First Amendment to Loan Agreement dated as of June 22, 1994,
between Bollinger Industries, L.P., the Registrant, Bollinger
Holding Corp., NBF and First Interstate Bank of Texas, N.A.
(incorporated by reference to Exhibit 10.5 to the Company's form
10-Q for the quarter ended June 30, 1994)
10.25 - Loan and Security Agreement dated September 9, 1994, between
Bollinger Industries, L.P. and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.1 to the Company's form
10-Q for the quarter ended September 30, 1994)
10.26 - First Amendment to Loan and Security Agreement dated September 9,
1994, between Bollinger Industries, L.P. and NationsBank of Texas,
N.A. (incorporated by reference to Exhibit 10.2 to the Company's
form 10-Q for the quarter ended September 30, 1994)
10.27 - Second Amendment to Loan and Security Agreement dated December 8,
1994, between Bollinger Industries, L.P. and NationsBank of Texas,
N.A. (incorporated by reference to Exhibit 10.1 to the Company's
form 10-Q for the quarter ended December 31, 1994)
10.28 - Lease Agreement dated November 16, 1994, between John Wilkerson,
individually and Bollinger Industries (incorporated by reference to
Exhibit 10.2 to the Company's form 10-Q for the quarter ended
December 31, 1994)
10.29 - Modification and Ratification of Lease dated November 1, 1994,
between Fountain Parkway, Ltd. and Bollinger Industries, L.P.
(incorporated by reference to Exhibit 10.3 to the Company's form
10-Q for the quarter ended December 31, 1994)
34
<PAGE> 37
10.30 - Third Amendment to Loan and Security Agreement dated March 3, 1995
between Bollinger Industries, L.P. and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.30 to the Company's Form
10-K for the fiscal year ended March 31, 1995)
10.31 - Fourth Amendment to Loan and Security Agreement dated May 15, 1995
between Bollinger Industries, L.P. and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.31 to the Company's Form
10-K for the fiscal year ended March 31, 1995)
10.32 - Modification and Ratification of Lease dated February 22, 1995,
between Fountain Parkway, Ltd. and Bollinger Industries, L.P.
(incorporated by reference to Exhibit 10.32 to the Company's Form
10-K for the fiscal year ended March 31, 1995)
10.33 - Fifth Amendment to Loan and Security Agreement dated September 9,
1995, between Bollinger Industries, L.P. and NationsBank of Texas,
N.A. (incorporated by reference to Exhibit 10.1 to the Company's
Form 10-Q for the quarter ended December 31, 1995)
10.34 - Sixth Amendment to Loan and Security Agreement dated December 29,
1995, between Bollinger Industries, L.P. and NationsBank of Texas,
N.A. (incorporated by reference to Exhibit 10.2 to the Company's
Form 10-Q for the quarter ended December 31, 1995)
10.35 - Seventh Amendment to Loan and Security Agreement dated March 8,
1996, between Bollinger Industries, L.P. and NationsBank of Texas,
N.A.
10.36 - Eighth Amendment to Loan and Security Agreement dated May 8, 1996,
between Bollinger Industries, L.P. and NationsBank of Texas, N.A.
10.37 - Deed of Trust, Assignment, Security Agreement and Financing
Statement dated May 8, 1996, between Bollinger Industries, L.P. and
NationsBank of Texas, N.A.
10.38 - Ninth Amendment to Loan and Security Agreement dated May 17, 1996,
between Bollinger Industries, L.P. and NationsBank of Texas, N.A.
10.39 - Amended and Restated Promissory Note dated March 29, 1996, between
Bollinger Industries, L.P., and Glenn D. Bollinger.
10.40 - Amended and Restated Promissory Note dated March 29, 1996, between
Bollinger Industries, L.P., and Bobby D. Bollinger.
10.41 - Amended and Restated Promissory Note dated March 29, 1996, between
Bollinger Industries, L.P., and Dell Bollinger.
10.42 - Second Amendment to standard industrial lease dated January 31,
1996, between National Life Insurance Company and Bollinger
Industries, L.P., as assignee.
10.43 - U.S. Trademark License Agreement between International Apparel
Marketing Corp. dba Nautilus Wear International and Bollinger
Industries, Inc. dated May 1, 1995
10.44 - Amendment to U.S. Trademark License Agreement between International
Apparel Marketing Corp. and Bollinger Industries, Inc. dated March
1, 1996.
35
<PAGE> 38
10.45 - Intercreditor and Subordination Agreement dated May 8, 1996,
between NationsBank of Texas, N.A. and Glenn D. Bollinger, Bobby D.
Bollinger, and Dell Bollinger
11.1 - Statement re Computation of Per Share Data
21.1 - List of the Company's subsidiaries (incorporated by reference to
Exhibit 21.1 to the Company's Form 10-K for the fiscal year ended
March 31, 1995)
27.1 - Financial Data Schedule
(b) Reports on Form 8-K.
None.
36
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day
of July, 1996.
BOLLINGER INDUSTRIES, INC.
By: /s/ Glenn D. Bollinger
--------------------------------
Glenn D. Bollinger
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of the 16th day of July, 1996.
<TABLE>
<S> <C>
/s/ Glenn D. Bollinger Chairman of the Board, President, and Chief
- - -------------------------- Executive Officer (principal executive officer)
Glenn D. Bollinger
/s/ Bobby D. Bollinger Vice Chairman of the Board and President
- - --------------------------
Bobby D. Bollinger
/s/ John T. Pryor Senior Vice President - Finance, Chief Financial
- - -------------------------- Officer, Treasurer, and Secretary
John T. Pryor (principal financial officer)
/s/ Robert B. Logan Controller and Chief Accounting Officer (principal
- - -------------------------- accounting officer)
Robert B. Logan
/s/ John L. Maguire Director
- - --------------------------
John L. Maguire
/s/ Stephen L. Parr Director
- - --------------------------
Stephen L. Parr
/s/ Richard J. Tucker Director
- - --------------------------
Richard J. Tucker
</TABLE>
S-1
<PAGE> 40
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-2
Report of Independent Certified Public Accountants F-3
Consolidated Balance Sheets as of March 31, 1996 and 1995 F-4
Consolidated Statements of Operations for each of the three
years ended March 31, 1996 F-6
Consolidated Statements of Changes in Stockholders' Equity for
each of the three years ended March 31, 1996 F-7
Consolidated Statements of Cash Flows for each of the three
years ended March 31, 1996 F-8
Notes to Consolidated Financial Statements F-9
Report of Independent Certified Public Accountants on Schedule F-22
Report of Independent Certified Public Accountants on Schedule F-23
Schedule II F-24
</TABLE>
F-1
<PAGE> 41
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Bollinger Industries, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Bollinger
Industries, Inc. and Subsidiaries as of March 31, 1996, and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bollinger
Industries, Inc. and Subsidiaries as of March 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
King, Burns and Company, P.C.
Dallas, Texas
June 21, 1996 (except for Note P as to which the date is July 15, 1996)
F-2
<PAGE> 42
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Bollinger Industries, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of operations, changes
in stockholders' equity, and cash flows of Bollinger Industries, Inc. and
Subsidiaries for the year ended March 31, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated statements of operations,
changes in stockholders' equity, and cash flows are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated statements of operations,
changes in stockholders' equity, and cash flows. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated
results of operations and the consolidated cash flows. We believe our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated statements of operations, changes in
stockholders' equity, and cash flows referred to above present fairly, in all
material respects, the consolidated results of operations and the consolidated
cash flows of Bollinger Industries, Inc., and Subsidiaries for the year ended
March 31, 1994, in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Dallas, Texas
May 19, 1994 (except for Note B "Discontinued Operations", as to which the
date is July 12, 1996)
F-3
<PAGE> 43
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31,
<TABLE>
<CAPTION>
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 408,871 $ 116,476
Accounts receivable
Trade, net of allowance for doubtful accounts
of $457,829 and $920,215 18,344,827 16,519,849
Other 229,735 311,211
Income tax refund 2,307,235 --
Inventories 30,112,934 31,060,004
Current assets of discontinued operations - net 1,601,954 --
Prepaid expenses 525,272 1,183,620
Deferred income taxes 66,309 1,206,879
------------ ------------
Total current assets 53,597,137 50,398,039
PROPERTY, PLANT AND EQUIPMENT - NET 2,015,282 2,365,006
NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS 161,999 --
OTHER ASSETS
Goodwill, net of accumulated amortization of
$157,884 and $60,822 1,233,482 1,330,545
Notes receivable and other 1,373,003 1,328,841
------------ ------------
Total other assets 2,606,485 2,659,386
------------ ------------
TOTAL ASSETS $ 58,380,903 $ 55,422,431
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 44
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
MARCH 31,
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt (including $500,000 notes
payable to officers and shareholders in 1995) $ 78,026 $ 528,567
Notes payable 22,605,549 26,058,100
Accounts payable - trade 16,913,821 6,639,357
Federal income tax payable 43,847 433,696
Other current liabilities 1,674,046 1,013,232
Provision for restructuring of operations 3,960,000 --
------------ ------------
Total current liabilities 45,275,289 34,672,952
LONG-TERM LIABILITIES
Long-term debt, net of current portion (including $280,000
notes payable to officers and shareholders in 1996) 576,777 223,254
Deferred income taxes 66,309 58,829
------------ ------------
Total long-term liabilities 643,086 282,083
------------ ------------
Total liabilities 45,918,375 34,955,035
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes G, H, and N)
STOCKHOLDERS' EQUITY
Preferred stock - $.01 par value;
1,000,000 shares authorized; none issued -- --
Common stock - $.01 par value; 8,000,000 shares authorized;
4,000,210 and 3,708,090 shares issued and outstanding 40,001 37,080
Capital in excess of par 15,323,059 15,107,488
Retained earnings (accumulated deficit) (2,900,532) 5,322,828
------------ ------------
Total stockholders' equity 12,462,528 20,467,396
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 58,380,903 $ 55,422,431
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 45
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31,
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 80,300,431 $ 67,894,489 $ 38,746,178
Cost of goods sold 62,197,227 50,546,515 26,982,357
------------ ------------ ------------
Gross profit 18,103,204 17,347,974 11,763,821
Selling expenses 7,876,538 6,861,621 4,070,319
Distribution, general and
administrative expenses 12,115,284 8,421,762 4,223,895
Restructuring of operations 3,960,000 -- --
------------ ------------ ------------
23,951,822 15,283,383 8,294,214
------------ ------------ ------------
Operating profit (loss) (5,848,618) 2,064,591 3,469,607
Other expense (income)
Interest expense 2,251,807 1,166,794 665,729
Interest income (78,748) (93,621) (41,291)
Miscellaneous (25,173) 46,826 (22,893)
------------ ------------ ------------
2,147,886 1,119,999 601,545
------------ ------------ ------------
Earnings (loss) from continuing
operations before income tax
expense (benefit) (7,996,504) 944,592 2,868,062
Income tax expense (benefit) (1,135,098) 350,416 1,042,017
------------ ------------ ------------
Earnings (loss) from continuing
operations (6,861,406) 594,176 1,826,045
Discontinued operations
Gain (loss) from operations, net of
income tax benefit (591,886) (524,914) 549,742
(Loss) on disposal, net of income tax
benefit including a $1,199,118 and
$325,380 provision for operating
losses during phase-out periods
in 1996 and 1994 (770,068) -- (573,012)
------------ ------------ ------------
(Loss) from discontinued operations (1,361,954) (524,914) (23,270)
------------ ------------ ------------
Net earnings (loss) $ (8,223,360) $ 69,262 $ 1,802,775
============ ============ ============
Per Share Data:
Earnings (loss) from continuing
operations $ (1.85) $ .15 $ .59
============ ============ ============
Net earnings (loss) $ (2.22) $ .02 $ .59
============ ============ ============
Weighted average common and common
equivalent shares outstanding 3,710,484 3,966,631 3,079,075
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 46
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK CAPITAL IN EARNINGS
---------------------------- EXCESS OF (ACCUMULATED
SHARES AMOUNT PAR DEFICIT) TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1993 2,358,146 $ 23,581 $ 894,870 $ 3,450,791 $ 4,369,242
Shares issued in connection
with debt financing 34,405 344 109,656 -- 110,000
Sale of common stock, net
of expenses of $1,884,383 1,200,000 12,000 13,103,617 -- 13,115,617
Net earnings -- -- -- 1,802,775 1,802,775
------------ ------------ ------------ ------------ ------------
Balance at March 31, 1994 3,592,551 35,925 14,108,143 5,253,566 19,397,634
Shares issued in connection
with acquisition 138,000 1,380 999,120 -- 1,000,500
Shares retired (22,461) (225) 225 -- --
Net earnings -- -- -- 69,262 69,262
------------ ------------ ------------ ------------ ------------
Balance at March 31, 1995 3,708,090 37,080 15,107,488 5,322,828 20,467,396
Shares issued on exercise
of stock options 292,120 2,921 215,571 -- 218,492
Net loss -- -- -- (8,223,360) (8,223,360)
------------ ------------ ------------ ------------ ------------
Balance at March 31, 1996 4,000,210 $ 40,001 $ 15,323,059 $ (2,900,532) $ 12,462,528
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 47
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31,
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ (8,223,360) $ 69,262 $ 1,802,775
Adjustments to reconcile net earnings
(loss) to net cash provided by (used in)
operating activities
(Gain) loss on disposal of assets -- (5,341) 374,872
Deferred income tax benefit 1,148,050 (655,005) (169,147)
Depreciation and amortization 651,500 442,926 289,178
Provision for restructuring of operations 3,960,000 -- --
Other -- 74,000 (21,583)
Provision for doubtful accounts (311,514) 793,931 455,468
Provision for obsolete inventory 365,795 852,204 33,586
Changes in operating assets and liabilities
Trade accounts receivable (1,513,464) (5,175,131) (3,784,260)
Other receivables 81,476 (159,247) (130,457)
Inventories 581,275 (18,906,836) (4,025,566)
Income tax refund (2,307,235) -- --
Prepaid expenses 658,348 (393,078) (392,336)
Notes receivable, deposits and other (44,161) (599,000) 47,157
Current assets of discontinued operations (1,601,954) -- 524,860
Accounts payable 10,274,464 3,944,881 (3,015,086)
Federal income tax payable (389,849) (160,166) (185,124)
Other current liabilities 660,813 284,644 (253,403)
------------ ------------ ------------
Net cash provided by (used in) operating
activities 3,990,184 (19,591,956) (8,449,066)
Cash flows from investing activities
Purchases of property and equipment (425,041) (1,268,970) (475,439)
Proceeds from sale of assets 58,329 36,205 335,059
------------ ------------ ------------
Net cash used in investing activities (366,712) (1,232,765) (140,380)
Cash flows from financing activities
Proceeds from long-term borrowings 348,000 21,298 500,000
Payments on long-term debt (including
$220,000 to officers and shareholders) (445,018) (687,223) (922,898)
Net proceeds from (payments on) note payable (3,452,551) 21,580,607 (3,992,431)
Net advance from (payments to) officers -- -- (84,327)
Proceeds from issuance of common stock 218,492 -- 13,115,617
------------ ------------ ------------
Net cash provided by (used in) financing
activities (3,331,077) 20,914,682 8,615,961
------------ ------------ ------------
Net increase in cash 292,395 89,961 26,515
Cash at beginning of year 116,476 26,515 --
------------ ------------ ------------
Cash at end of year $ 408,871 $ 116,476 $ 26,515
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE> 48
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
BUSINESS ACTIVITY
The Company is a supplier of consumer fitness equipment and accessories.
(See Note B for a discussion of discontinuing operations.)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Bollinger
Industries, Inc. (Bollinger) which was reincorporated in Delaware in
September 1993, its wholly-owned subsidiaries and Bollinger Industries,
L.P., a partnership wholly-owned by Bollinger's subsidiaries (collectively
"the Company"). All significant intercompany accounts and transactions
have been eliminated.
INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed using
straight-line and accelerated methods for financial reporting purposes
over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements 5-20 years
Equipment 3- 7 years
Automobiles 3 years
Furniture and fixtures 3- 5 years
</TABLE>
Maintenance and repairs are expensed as incurred. Major renewals and
improvements are capitalized.
INCOME TAXES
Deferred income taxes are determined using the asset and liability method,
under which deferred tax assets and liabilities are calculated based on
differences between financial accounting and tax basis of assets and
liabilities. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax
expense or benefit is the payable or refund for the period plus or minus
the change during the period in deferred tax assets and liabilities.
EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) per common share is based on the net earnings (loss)
applicable to the weighted average number of common shares and common
stock equivalents outstanding. Common stock equivalents include the
dilutive effect of all stock options outstanding (except in the case of a
net loss, in which case they would be anti-dilutive), as though they had
been outstanding for all periods presented.
F-9
<PAGE> 49
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES - Continued
GOODWILL AND COVENANT NOT TO COMPETE
The excess of the purchase price of acquired companies over the fair value
of net identifiable assets at the date of acquisition has been recorded as
goodwill and is being amortized on a straight line basis over a twenty
year period. The Company periodically evaluates the net balance of
goodwill based on the projected operating income of the respective
businesses on an undiscounted cash flow basis. If necessary, the goodwill
would be written down to fair market value.
A covenant not to compete in the amount of $309,950 net of accumulated
amortization of $43,050 is included in "Notes receivable and other" and is
being amortized on a straight-line basis over its duration of 41 months.
USE OF ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the
estimates that were used.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1996
presentation and to retroactively recognize the discontinued Healthcare
Division.
ACCOUNTING STANDARDS NOT YET ADOPTED
In October 1995, Statement of Financial Accounting Standards No. 123.
"Accounting for Stock-based Compensation" ("SFAS 123"), was issued. This
statement requires the fair value of stock options and other stock-based
compensation issued to employees to either be included as compensation
expense in the income statement, or the pro forma effect on net income and
earnings per share of such compensation expense to be disclosed in the
footnotes to the Company's financial statements commencing with the
Company's 1997 fiscal year. The Company expects to adopt SFAS 123 on a
disclosure basis only. As such, implementation of SFAS 123 is not expected
to impact the Company's balance sheet or statement of operations.
NOTE B - ACQUISITION, DISCONTINUED OPERATIONS, AND RESTRUCTURING OF OPERATIONS
ACQUISITION
On May 24, 1994, in exchange for 138,000 shares of its restricted common
shares, the Company acquired substantially all of the assets and
liabilities of NBF, Inc. (a Florida Corporation) which manufactures
trampolines and other outdoor playground equipment. The total
consideration for the assets and liabilities acquired including
liabilities assumed was approximately $2,762,472. Additionally, for cash
of $150,000, the Company acquired from an individual, all of the
intellectual property rights to the products manufactured. If the
acquisition had occurred as of April 1, 1994,
F-10
<PAGE> 50
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
consolidated results would not have been materially effected. The
acquisition was accounted for as a purchase and accordingly the
consolidated financial statements include the results of operations from
the acquisition date.
DISCONTINUED OPERATIONS
The Company determined in July 1993 to discontinue operations of its C.G.
Products, Inc. subsidiary, (C.G.) formally known as California Gym
Equipment Company, a manufacturer of variable resistance weightlifting
machines and single station exercise machines. In September 1993,
substantially all of the assets of C.G. were sold for $1,218,050, which
included $818,050 of 7% notes, a $100,000 credit against future purchases
of product by the Company and cash of $300,000. Interest on the notes has
been imputed at 12%, which resulted in a discount of approximately
$145,000. The results of operations of C.G. have been presented in the
financial statements as discontinued operations.
The Company determined during January 1996 to sell its Healthcare Division
which manufactures a line of sports medicine and safety products. The
Company expects to sell the Healthcare Division by December 31, 1996, and
estimates that the sales price will exceed the net book value of the
assets sold. The results of operations of the Healthcare Division have
been presented in the financial statements as discontinued operations.
Results of operations in prior years have been restated to reclassify the
Healthcare Division as discontinued operations.
Interest expense has been allocated to discontinued operations based on
the proportion of average net assets of the discontinued Healthcare
operations as compared to consolidated average net asset of the Company.
Following is a summary of the discontinued operations:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES OF DISCONTINUED OPERATIONS:
Healthcare Division $ 3,327,893(1) $ 5,170,521 $ 6,416,565
C.G. Products Subsidiary -- -- 2,429,451
------------ ------------ ------------
Total net sales of discontinued operations $ 3,327,893 $ 5,170,521 $ 8,846,016
============ ============ ============
LOSS (GAIN) FROM DISCONTINUED OPERATIONS:
Healthcare Division $ 689,784(1) $ 795,324 $ (1,063,365)
Less: Tax (expense) benefit 97,898 270,410 (361,544)
------------ ------------ ------------
Net loss (gain) from discontinued operations -
Healthcare Division $ 591,886 $ 524,914 $ (701,821)
C.G. Products Subsidiary $ -- $ -- $ 231,079
Less: Tax benefit -- -- 79,000
------------ ------------ ------------
Net loss (gain) from discontinued operations -
C.G. Products Subsidiary $ -- $ -- $ 152,079
Total loss (gain) from discontinued operations $ 689,784 $ 795,324 $ (832,286)
Less: Tax benefit (expense) 97,898 270,410 (282,544)
------------ ------------ ------------
Total net loss (gain) from discontinued operations $ 591,886 $ 524,914 $ (549,742)
============ ============ ============
</TABLE>
(1) April 1, 1995, to December 31, 1995
F-11
<PAGE> 51
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
LOSSES ON DISPOSAL, INCLUDING PROVISION FOR OPERATING
LOSSES DURING PHASE-OUT PERIOD:
Healthcare Division $ 897,574 $ -- $ --
Less: Tax benefit 127,506 -- --
------------ ------------ ------------
Net loss on disposal - Healthcare Division $ 770,068 $ -- $ --
============ ============ ============
C.G. Products Subsidiary $ -- $ -- $ 868,000
Less: Tax benefit -- -- 294,988
------------ ------------ ------------
Net loss on disposal - C.G. Products Subsidiary $ -- $ -- $ 573,012
============ ============ ============
Total loss on disposal $ 897,574 $ -- $ 868,000
Less: Tax benefit 127,506 -- 294,988
------------ ------------ ------------
Total net loss on disposal $ 770,068 $ -- $ 573,012
============ ============ ============
OPERATING LOSSES DURING PHASE-OUT PERIOD:
Healthcare Division - January 1, 1996 to
December 31, 1996 $ 1,397,574 $ -- $ --
C.G. Products Subsidiary - July 1993 to
September 1993 -- -- 493,000
------------ ------------ ------------
Total operating losses during phase-out period 1,397,574 -- 493,000
Less: Tax benefit 198,456 -- 167,620
------------ ------------ ------------
Total operating losses during phase-out
period included above $ 1,199,118 $ -- $ 325,380
============ ============ ============
NET LOSS FROM DISCONTINUED OPERATIONS JANUARY 1, 1996,
TO MARCH 31, 1996:
Operating loss from discontinued operations -
Healthcare Division $ 497,574
Less: Tax benefit 70,656
------------
Net loss from discontinued operations
January 1, 1996, to March 31, 1996 $ 426,918
============
ESTIMATED NET LOSS ON DISPOSAL OF HEALTHCARE DIVISION:
Estimated operating loss during phase-out period
April 1, 1996, to December 31,1996 $ 900,000
Less: Estimated gain on sale of assets 500,000
------------
400,000
Less: Tax benefit 56,850
------------
Estimated net loss on disposal of Healthcare Division $ 343,150
============
NET LOSS ON DISPOSAL OF C.G. PRODUCTS SUBSIDIARY:
Loss during phase-out period July 1993 to
September 1993 $ 493,000
Add: Loss on sale of assets 375,000
------------
868,000
Less tax benefit 294,988
------------
Net loss on disposal of C.G. Products Subsidiary $ 573,012
============
</TABLE>
F-12
<PAGE> 52
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
RESTRUCTURING OF OPERATIONS
The Company sustained a net loss of $8.2 million during fiscal 1996, including
an after income tax restructuring charge of $3.4 million and a net loss from
discontinued operations of $1.4 million. A significant portion of the loss and
cash flows from operations were funded by increasing amounts due to trade
creditors. The Company's credit facility with a bank proved to be inadequate
in light of the loss and increased working capital needed to sustain increased
sales volume. In addition, the bank notified the Company of its intention not
to renew the credit facility although the bank granted several extensions while
the Company pursued alternate financing.
As a result of declining earnings and liquidity issues, management undertook a
comprehensive review of the Company's liquidity, profitability and marketing
strategy during the fourth quarter of fiscal 1996. As a result of that review,
management decided to implement a plan (the "Plan") to reorganize the Company's
operations. The primary goal of the Plan is to refocus the Company on its
historical marketing strength which is with high volume mass merchants,
discounters and chain stores. This entails a reemphasis on the Bollinger brand
name, which is the leading brand name for fitness accessories with these
retailers. At the same time, the Company will de-emphasize certain celebrity
endorsed products. Additional aspects of the Plan are to discontinue the
Company's Healthcare Division which has sustained losses in the last two years
and to institute certain policies and procedures to reduce operating costs.
The Plan calls for disposal of certain inventory which no longer meets the
Company's marketing strategy. Disposal of inventory should generate
approximately $7.0 million during fiscal 1997. In addition, the Company
expects a Federal income tax refund of approximately $2.3 million during fiscal
1997. The Company plans to use these amounts to reduce accounts payable and
other debt and to fund operations.
The Company signed a commitment agreement for financing to replace the current
credit facility (See Note P Subsequent Event).
Management believes the new credit facility, inventory reduction, projected
increased profitability, sale of the Healthcare Division, and the income tax
refund will provide adequate cash flow to support the operations of the Company.
F-13
<PAGE> 53
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosures are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest paid $2,213,613 $1,400,146 $ 864,521
Income taxes paid $ 200,000 $ 865,507 $1,286,785
Noncash financing transactions:
Purchase of assets financed by debt $ 42,488 $ -- $ --
Purchase of NBF, Inc. $ -- $2,762,472 $ --
</TABLE>
For purposes of the Statements of Cash Flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
NOTE D - CREDIT RISK
The Company's assets which are subject to potential credit risk consist of
trade accounts receivable and cash. The Company sells its products primarily to
retailers, including national chains, geographically dispersed throughout the
United States on an unsecured basis. Risks associated with extension of credit
to customers are affected by the economic condition of the retail industry. The
Company performs ongoing credit evaluations of its customers' financial
condition to reduce credit risk. The Company has provided an allowance for
doubtful accounts which reflects its estimate of uncollectible accounts.
Cash is at risk to the extent that it exceeds Federal Deposit Insurance
Corporation ("FDIC") insured amounts (approximately $945,000 at March 31,
1996). To minimize risk, the Company places its cash with high credit quality
institutions.
NOTE E - INVENTORIES
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Raw materials $ 9,858,597 $ 13,557,009
Work-in-process 305,777 395,498
Finished goods 23,117,280 17,908,469
Reserve for Obsolescence (1,166,766) (800,972)
------------ ------------
32,114,888 $ 31,060,004
Less: Discontinued operations - net 2,001,954 ============
------------
$ 30,112,934
============
</TABLE>
F-14
<PAGE> 54
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Land, buildings and improvements $1,835,658 $1,787,931
Equipment 1,585,146 1,490,680
Automobiles 53,860 61,443
Furniture and fixtures 1,238,752 1,006,650
---------- ----------
4,713,416 4,346,704
Less accumulated depreciation 2,536,135 1,981,698
---------- ----------
2,177,281 $2,365,006
Less: Discontinued Operations - Net 161,999 ==========
----------
$2,015,282
==========
</TABLE>
Depreciation expense for the years ended March 31, 1996, 1995, and 1994 was
approximately $554,000, $407,000, and $231,000, respectively.
NOTE G - NOTES PAYABLE
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Note payable under a line of credit for
$22,500,000 ($28,000,000 in 1995) with a
bank, bearing interest at the prime rate
(8.25% at March 31, 1996) plus 3% in 1996
and the lesser of the prime rate (9% at
March 31, 1995) or, at the Company's
discretion, LIBOR (6.3% at March 31, 1995)
plus 2% for 1995; interest payable
monthly; collateralized by receivables
and inventory $ 22,500,000 $ 26,000,000
Other, all current 105,549 58,100
------------ ------------
$ 22,605,549 $ 26,058,100
============ ============
</TABLE>
The loan agreement with the bank provides that borrowings under the line of
credit are subject to limitations based on the borrowing base, as defined in
the agreement. The terms of the agreement require the Company to maintain
specific levels of debt to net worth, working capital and coverage of fixed
charges as defined in the agreement. At March 31, 1996, and at the date of this
report, June 21, 1996, the Company was not in compliance with all covenants.
The bank has waived such defaults through November 8, 1996. At March 31, 1996,
the Company had no additional borrowing capacity under the loan agreement. The
loan agreement has an extended expiration date of November 8, 1996. See Note P
- - - Subsequent Event.
F-15
<PAGE> 55
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE H - LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Notes to certain officers and shareholders
of the Company bearing interest at 10%,
due in March 1998, as extended:
collateralized by real estate note
(purchased by officers and shareholders
from an individual in December 1993) $ 280,000 $ 500,000
Other 374,803 251,821
------------ ------------
654,803 751,821
Less current portion 78,026 528,567
------------ ------------
$ 576,777 $ 223,254
============ ============
</TABLE>
Future maturities of long-term debt at March 31, 1996, are as follows:
<TABLE>
<CAPTION>
Year ending March 31,
<S> <C>
1997 $ 78,026
1998 352,069
1999 72,478
2000 19,121
2001 19,971
Thereafter 113,138
---------
$ 654,803
=========
</TABLE>
NOTE I - CHANGE IN CAPITAL STRUCTURE
On September 28, 1993, the Company was reincorporated in Delaware with
authority to issue 8,000,000 shares of common stock at $.01 par value and
1,000,000 shares of preferred stock at $.01 par value. Each existing
stockholder of the Company contributed shares of no par value stock to the
new Delaware corporation in exchange for shares of common stock of the new
corporation for each old share. The consolidated financial statements,
including all references to the number of shares of common stock and all
per share information, have been adjusted to reflect the reincorporation,
common stock exchange and other changes in the capital structure on a
retroactive basis.
NOTE J - EMPLOYEE STOCK OWNERSHIP PLAN AND 401(K) PLAN
The Company had an employee stock ownership plan which provided for
discretionary contributions by the Company. During 1995, the Company
amended and restated the plan to qualify as a 401(k) employee deferred
compensation plan under the terms of which employees who have been
employed for one year or more are entitled to contribute up to the lesser
of $9,500 or 15% of their annual compensation. The Company may at its
discretion contribute to the 401(k) plan. No Company contributions were
made under either plan for any of the three years in the period ended
March 31, 1996.
F-16
<PAGE> 56
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE K - STOCK OPTIONS
1991 PLAN
The 1991 Stock Option Plan provides for options covering a total of
542,820 common shares, all of which were issued to the Chief Executive
Officer and the President of the Company. The exercise price of the
options granted must be at least 110% of the fair value of the common
stock at date of grant. During the year ended March 31, 1994, 250,700
options for shares were canceled. The remaining options were exercised on
March 29, 1996. At March 31, 1996, there were no options outstanding or
available for grant.
Following is a summary of option activity under the 1991 Plan:
<TABLE>
<CAPTION>
OPTION PRICE
-------------------------------------
SHARES PER SHARE TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding at March 31, 1993 542,820 $.75-$.88 $ 437,912
Granted -- -- --
Canceled (250,700) .88 (219,420)
---------- ---------- ----------
Outstanding at March 31, 1994 292,120 .74795 218,492
Granted -- -- --
Canceled -- -- --
---------- ---------- ----------
Outstanding at March 31, 1995 292,120 .74795 218,492
Granted -- -- --
Canceled -- -- --
Exercised (292,120) .74795 (218,492)
---------- ---------- ----------
Outstanding at March 31, 1996 -- $ -- $ --
========== ========== ==========
</TABLE>
1993 PLAN
The 1993 Stock Option Plan provides for options covering a total of
500,000 common shares to be issued to key employees and directors other
than the Chief Executive Officer and the President. Under the Plan,
incentive stock options (ISO's) and non-qualified stock options may be
granted at prices no less than 100% and 50%, respectively, of the fair
value of the Company's common stock. Options granted expire in ten years
and will generally vest in annual installments. At March 31, 1996, options
for 232,001 shares were available for grant.
F-17
<PAGE> 57
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
Following is a summary of option activity under the 1993 Plan:
<TABLE>
<CAPTION>
OPTION PRICE
-------------------------------------------
SHARES PER SHARE TOTAL
----------- -------------- -----------
<S> <C> <C> <C>
Outstanding at March 31, 1993 -- $ -- $ --
Granted 272,666 10.00 - 12.50 3,058,537
Canceled (10,000) 10.00 (100,000)
----------- -------------- -----------
Outstanding at March 31, 1994 262,666 10.00 - 12.50 2,958,537
Granted 50,000 9.00 - 13.00 560,000
Canceled (46,000) 10.00 - 12.50 (550,000)
----------- -------------- -----------
Outstanding at March 31, 1995 266,666 9.00 - 13.00 2,968,537
Granted 110,999 3.00 - 7.50 424,621
Canceled (109,666) 3.63 - 12.50 (1,148,079)
----------- -------------- -----------
Outstanding at March 31, 1996 267,999 $3.00-$13.00 $ 2,245,079
=========== ============== ===========
</TABLE>
At March 31, 1996, options covering 96,199 shares were exercisable under
the 1993 Plan.
NOTE L - INCOME TAXES
Income tax expense (benefit) from continuing operations consists of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Federal
Current $ (2,031,628) $ 848,220 $ 1,070,333
Deferred 891,354 (497,804) (130,243)
State 5,176 -- 101,927
------------ ------------ ------------
$ (1,135,098) $ 350,416 $ 1,042,017
============ ============ ============
</TABLE>
The Company's effective income tax rate from continuing operations
differed from the Federal statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
U.S. Federal statutory rate 34.0 % 34.0% 34.0%
Amortization of goodwill (.5)% 1.8% --
Meals and entertainment (.1)% .9% --
State income taxes, net of federal benefit -- -- 2.3%
Change in prior tax estimates (.7)% -- --
Valuation allowance (17.6)% -- --
Other, net (.9)% .4% --
------ ------ ------
14.2% 37.1% 36.3%
====== ====== ======
</TABLE>
F-18
<PAGE> 58
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
Following are the components of deferred tax assets and deferred tax
liabilities:
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net current deferred tax assets
Inventories $ 753,188 $ 683,236
Allowance for doubtful accounts 96,110 447,356
Inventory reserves 3,208 181,545
Accrued expenses 42,500 --
Prepaid expenses -- (105,258)
Provision for discontinued operation 136,000 --
Net operating loss 725,917 --
Less valuation allowance (1,690,614) --
------------ ------------
$ 66,309 $ 1,206,879
============ ============
Noncurrent deferred tax liabilities
Accumulated depreciation $ (66,309) $ (58,829)
============ ============
</TABLE>
NOTE M - MAJOR CUSTOMERS
Customers accounting for 10% or more of total sales from continuing
operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, PERCENTAGE
---------- ----------
<S> <C>
1996
Customer A 31%
Customer B 25%
1995
Customer A 32%
Customer B 13%
1994
Customer A 20%
Customer B 13%
</TABLE>
F-19
<PAGE> 59
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE N - COMMITMENTS AND CONTINGENCIES
The Company leases certain manufacturing and warehouse space;
manufacturing and computer equipment; and other items. These leases are
operating leases and have future minimum lease payments, excluding
sublease income, as follows:
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1997 $1,429,077
1998 1,105,551
1999 871,390
2000 330,887
2001 65,000
Thereafter 737,000
----------
$4,538,905
==========
</TABLE>
Total lease expense for the years ended March 31, 1996, 1995 and 1994 was
approximately $1,552,000, $793,000 and $476,000, respectively.
Included in the future minimum payments above is approximately $263,480
for the lease on the manufacturing facility of C.G. which runs
through May 1997. In connection with the sale of C.G.'s assets (Note B),
the Company subleased the facility to the buyer and remains liable on the
lease.
The Company, certain of its officers and directors, former officers,
former independent auditor, and the underwriters of the Company's initial
IPO are defendants in certain shareholder lawsuits. The Company believes
the lawsuits are without merit. However, if the plaintiffs prevail, the
lawsuits could have a material adverse effect on the Company. The Company
is unable to estimate the range of loss, if any.
The staff of the Securities and Exchange Commission has indicated to the
Company that they will recommend a civil injunctive action against the
Company, Glenn Bollinger (CEO and Director of the Company), and Ronald
Bollinger (Executive Vice President of the Company) for certain alleged
violations of securities laws arising from several sales transactions
during fiscal 1995 and 1994. The staff has indicated it will not recommend
monetary penalties against the Company.
The Company has been contacted by the Department of Labor (DOL) in regard
to certain questions about its former Employee Stock Ownership Plan
(the "ESOP"). Assets of the ESOP are held in the Company's 401(K) plan
which is the successor to the ESOP. The Company is responding to and
cooperating with the DOL. The DOL has not initiated any proceeding with
respect to the ESOP or any other of the Company's employee benefit plans.
In the normal course of business, the Company is involved in various
litigation. Management believes that the aggregate effect of any liability
arising from such items would not be material to the consolidated
statements of operations or financial position at March 31, 1996.
F-20
<PAGE> 60
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE O - SIGNIFICANT FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
<TABLE>
<S> <C>
Significant fourth quarter adjustments
amounting to $5,490,000 (net of income
taxes of $780,000) were recorded as follows:
Increase in provision for returns and allowances $ 1,130,000
Restructuring charge 3,960,000
Provision for discontinued operations 400,000
-----------
5,490,000
Less: Income tax effect (780,000)
-----------
Fourth quarter adjustments $ 4,710,000
===========
</TABLE>
NOTE P - SUBSEQUENT EVENT
The Company entered into a commitment agreement (the "Agreement")
with a financial institution on July 12, 1996, establishing a revolving
credit facility (the "Credit Line") for up to a maximum of $30 million.
Borrowing under the Credit Line is limited to a percentage of eligible
trade accounts receivable and inventory as defined in the Agreement. The
Credit Line has a three year maturity and is collateralized by the
Company's assets including inventory, trade accounts receivable, and real
property. The interest rate under the Credit Line is prime plus 1.75%. In
addition, the Company is required to pay certain closing, commitment,
management and unused line fees. Furthermore, the Credit Line requires the
Company to comply with certain financial and other covenants as defined in
the Agreement. Personal guarantees by Glenn and Bobby Bollinger are also
required. The Agreement terminates on July 31, 1996, if final
documentation cannot be negotiated and certain other conditions precedent
are not met by that time. The Company believes the Agreement will close by
July 31, 1996.
F-21
<PAGE> 61
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE
Board of Directors and Stockholders
Bollinger Industries, Inc. and Subsidiaries
In connection with our audit of the consolidated financial statements of
Bollinger Industries, Inc. and Subsidiaries referred to in our report dated
June 21, 1996 (except for Note P as to which the date is July 15, 1996), we
have also audited Schedule II for the years ended March 31, 1996 and 1995. In
our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
King, Burns & Company, P.C.
Dallas, Texas
June 21, 1996
F-22
<PAGE> 62
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
Board of Directors and Stockholders
Bollinger Industries, Inc. and Subsidiaries
In connection with our audit of the consolidated statements of operations,
stockholders' equity, and cash flows of Bollinger Industries, Inc. and
Subsidiaries referred to in our report dated May 19, 1994, we have also
audited Schedule II for the year ended March 31, 1994. In our opinion this
schedule presents fairly, in all material respects, the information required to
be set forth therein.
GRANT THORNTON LLP
Dallas, Texas
May 19, 1994
F-23
<PAGE> 63
Schedule II
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1994, 1995, AND 1996
<TABLE>
<CAPTION>
ADDITIONS
-------------------------------------------
Balance at Charged to Charged
beginning costs and to other Balance at
Description of year expenses accounts Deductions end of year
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1994
Allowance for doubtful
accounts $ 193,563 $ 455,468 $ -- $ (172,356) $ 476,675
Inventory obsolescence reserve 78,631 33,586 -- -- 112,217
Year ended March 31, 1995
Allowance for doubtful
accounts $ 476,675 $ 793,931 $ -- $ (350,391) $ 920,215
Inventory obsolescence reserve 112,217 852,204 -- (163,449) 800,972
Year ended March 31, 1996
Allowance for doubtful
accounts $ 920,215 $ (311,514) $ -- $ (150,872) $ 457,829
Inventory obsolescence reserve 800,972 365,794 -- -- 1,166,766
</TABLE>
Note - Deductions represent uncollectible accounts or inventories written off.
F-24
<PAGE> 64
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBITS PAGE
<S> <C> <C>
3.1 - Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Form S-1
Registration Statement No. 33-69708)
3.2 - By-Laws of the Company (incorporated by reference to Exhibit
3.2 to the Company's Form S-1 Registration Statement No.
33-69708)
4.1 - Form of certificate representing shares of the Company's
Common Stock (incorporated by reference to Exhibit 4.1 to the
Company's Form S-1 Registration Statement No. 33-69708)
10.1 - Bollinger Industries 1993 Stock Option Plan (incorporated by
reference to Exhibit 10.1 to the Company's Form S-1
Registration Statement No. 33-69708)
10.2 - Bollinger Industries Employee Stock Ownership Plan and Trust
(incorporated by reference to Exhibit 10.2 to the Company's
Form S-1 Registration Statement No. 33-69708)
10.3 - Form of Indemnification Agreement with independent director
(incorporated by reference to Exhibit 10.3 to the Company's
Form S-1 Registration Statement No. 33-69708)
10.4 - Bollinger Industries, Inc. 1991 Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.4 to the Company's
Form S-1 Registration Statement No. 33-69708)
10.5 - Lease Agreement dated April 4, 1991, between William A.
McCarty, Jr., and Elinor F. McCarty and Bollinger Sports,
Inc., formerly known as Bollinger Industries, Inc.
("Bollinger-Texas") (incorporated by reference to Exhibit 10.8
to the Company's Form S-1 Registration Statement No. 33-69708)
10.6 - Assignment and Assumption Agreement dated as of October 1,
1993, between Bollinger-Texas as Assignor and Bollinger
Industries, L.P., as Assignee with respect to such lease
(incorporated by reference to Exhibit 10.8.1 to the Company's
Form S-1 Registration Statement No. 33-69708)
10.7 - Lease Agreement dated August 30, 1992, between Reba
McPherson, individually and as Trustee of the Reba McPherson
Trust u/w/o Harold Lynn McPherson, and Tarbox, Inc., as
extended by an Agreement dated August 9, 1993 (incorporated by
reference to Exhibit 10.9 to the Company's Form S-1
Registration Statement No. 33-69708)
</TABLE>
II-1
<PAGE> 65
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBITS PAGE
<S> <C> <C>
10.8 - Assignment and Assumption Agreement dated as of October 1,
1993, between Tarbox, Inc., as Assignor and Bollinger
Industries, L.P., as Assignee with respect to such lease
(incorporated by reference to Exhibit 10.9.1 to the Company's
Form S-1 Registration Statement No. 33-69708)
10.9 - Standard Industrial Lease dated March 17, 1993, between
National Life Insurance Company and Bollinger-Texas
(incorporated by reference to Exhibit 10.10 to the Company's
Form S-1 Registration Statement No. 33-69708)
10.10 - Assignment and Assumption Agreement dated as of October 1,
1993, between Bollinger-Texas as Assignor and Bollinger
Industries, L.P., as Assignee with respect to such lease
(incorporated by reference to Exhibit 10.10.1 to the Company's
Form S-1 Registration Statement No. 33-69708)
10.11 - $500,000 Real Estate Lien Note dated March 18, 1993, in
favor of Sid Reisman and executed by Bollinger-Texas, as
modified by a Renewal, Extension, and Modification Agreement
dated as of April 6, 1993, and subsequently assigned to Glenn,
Bobby and Dell Bollinger (incorporated by reference to Exhibit
10.10 to the Company's Form S-1 Registration Statement No.
33-69708)
10.12 - Asset Purchase and Sale Agreement dated as of September 13,
1993, by and between California Gym Equipment Company, S. G.
Equipment, Inc. and, for limited purposes, Bollinger-Texas and
Sherman Grider (incorporated by reference to Exhibit 10.13 to
the Company's Form S-1 Registration Statement No. 33-69708)
10.13 - Standard Sublease dated as of September 13, 1993, between
California Gym Equipment Company and S. G. Equipment, Inc.,
together with the Industrial Real Estate Lease dated June 1,
1992, between New England Mutual Life Insurance Company and
Bollinger-Texas attached thereto (incorporated by reference to
Exhibit 10.14 to the Company's Form S-1 Registration Statement
No. 33-69708)
10.14 - Assignment and Assumption Agreement dated as of September 1,
1993, between Bollinger-Texas and California Gym Equipment
Company with respect to Industrial Real Estate Lease dated June
1, 1992 (incorporated by reference to Exhibit 10.15 to the
Company's Form S-1 Registration Statement No. 33-69708)
10.15 - Letter agreement dated May 19, 1992, between Bollinger-Texas,
Denise Austin and Jeff Austin (incorporated by reference to
Exhibit 10.16 to the Company's Form S-1 Registration Statement
No. 33-69708)
</TABLE>
II-2
<PAGE> 66
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBITS PAGE
<S> <C> <C>
10.16 - Letter agreement dated April 13, 1994, between Bollinger
Industries, L.P., Denise Austin and Jeff Austin (incorporated
by reference to Exhibit 10.16 to the Company's form 10-K for
the fiscal year ended March 31, 1994)
10.17 - Endorsement Agreement dated September 1, 1993, between
Bollinger-Texas and Nolan Ryan (incorporated by reference to
Exhibit 10.17 to the Company's form 10-K for the fiscal year
ended March 31, 1994)
10.18 - Loan Agreement dated as of January 4, 1994, between
Bollinger Industries, L.P., the Company, and First Interstate
(incorporated by reference to Exhibit 10.18 to the Company's
form 10-K for the fiscal year ended March 31, 1994)
10.19 - Standard Office/Warehouse Lease dated May 11, 1994, between
Fountain Parkway, Ltd., and Bollinger Industries, L.P.
(incorporated by reference to Exhibit 10.19 to the Company's
form 10-K for the fiscal year ended March 31, 1994)
10.20 - Lease dated December 21, 1990, between Americus/Sumter
Payroll Development Authority and N.B.F., Inc. and R. Wayne
Rich (incorporated by reference to Exhibit 10.20 to the
Company's form 10-K for the fiscal year ended March 31, 1994)
10.21 - Assignment and Assumption of Lease dated May 1, 1994,
between Americus/Sumter Payroll Development Authority, NBF,
Inc., a Florida corporation, and NBF, Inc., a Georgia
corporation (incorporated by reference to Exhibit 10.21 to the
Company's form 10-K for the fiscal year ended March 31, 1994)
10.22 - Amendment to Lease between Americus-Sumter Payroll
Development Authority and NBF, Inc., a Georgia corporation and
R. Wayne Rich amending the lease dated December 21, 1990
reflected at exhibit No. 10.20 above (incorporated by
reference to Exhibit 10.2 to the Company's form 10-Q for the
quarter ended June 30, 1994)
10.23 - Asset Purchase Agreement dated May 24, 1994, and effective
as of May 1, 1994, between NBF, Inc., a Florida corporation,
and NBF, Inc., a Georgia corporation (incorporated by
reference to Exhibit 10.3 to the Company's form 10-Q for the
quarter ended June 30, 1994)
10.24 - First Amendment to Loan Agreement dated as of June 22, 1994,
between Bollinger Industries, L.P., the Registrant, Bollinger
Holding Corp., NBF and First Interstate Bank of Texas, N.A.
(incorporated by reference to Exhibit 10.5 to the Company's
form 10-Q for the quarter ended June 30, 1994)
</TABLE>
II-3
<PAGE> 67
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBITS PAGE
<S> <C> <C>
10.25 - Loan and Security Agreement dated September 9, 1994, between
Bollinger Industries, L.P. and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.1 to the Company's
form 10-Q for the quarter ended September 30, 1994)
10.26 - First Amendment to Loan and Security Agreement dated
September 9, 1994, between Bollinger Industries, L.P. and
NationsBank of Texas, N.A. (incorporated by reference to
Exhibit 10.2 to the Company's form 10-Q for the quarter ended
September 30, 1994)
10.27 - Second Amendment to Loan and Security Agreement dated
December 8, 1994, between Bollinger Industries, L.P. and
NationsBank of Texas, N.A. (incorporated by reference to
Exhibit 10.1 to the Company's form 10-Q for the quarter ended
December 31, 1994)
10.28 - Lease Agreement dated November 16, 1994, between John
Wilkerson, individually and Bollinger Industries (incorporated
by reference to Exhibit 10.2 to the Company's form 10-Q for
the quarter ended December 31, 1994)
10.29 - Modification and Ratification of Lease dated November 1,
1994, between Fountain Parkway, Ltd. and Bollinger Industries,
L.P. (incorporated by reference to Exhibit 10.3 to the
Company's form 10-Q for the quarter ended December 31, 1994)
10.30 - Third Amendment to Loan and Security Agreement dated March
3, 1995 between Bollinger Industries, L.P. and NationsBank of
Texas, N.A. (incorporated by reference to Exhibit 10.30 to the
Company's Form 10-K for the fiscal year ended March 31, 1995)
10.31 - Fourth Amendment to Loan and Security Agreement dated May
15, 1995 between Bollinger Industries, L.P. and NationsBank of
Texas, N.A. (incorporated by reference to Exhibit 10.31 to the
Company's Form 10-K for the fiscal year ended March 31, 1995)
10.32 - Modification and Ratification of Lease dated February 22,
1995, between Fountain Parkway, Ltd. and Bollinger Industries,
L.P. (incorporated by reference to Exhibit 10.32 to the
Company's Form 10-K for the fiscal year ended March 31, 1995)
10.33 - Fifth Amendment to Loan and Security Agreement dated
September 9, 1995, between Bollinger Industries, L.P. and
NationsBank of Texas, N.A. (incorporated by reference to
Exhibit 10.1 to the Company's Form 10-Q for the quarter ended
December 31, 1995)
</TABLE>
II-4
<PAGE> 68
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBITS PAGE
<S> <C> <C>
10.34 - Sixth Amendment to Loan and Security Agreement dated
December 29, 1995, between Bollinger Industries, L.P. and
NationsBank of Texas, N.A. (incorporated by reference to
Exhibit 10.2 to the Company's Form 10-Q for the quarter ended
December 31, 1995)
10.35 - Seventh Amendment to Loan and Security Agreement dated March
8, 1996, between Bollinger Industries, L.P. and NationsBank of
Texas, N.A.
10.36 - Eighth Amendment to Loan and Security Agreement dated May 8,
1996, between Bollinger Industries, L.P. and NationsBank of
Texas, N.A.
10.37 - Deed of Trust, Assignment, Security Agreement and Financing
Statement dated May 8, 1996, between Bollinger Industries,
L.P. and NationsBank of Texas, N.A.
10.38 - Ninth Amendment to Loan and Security Agreement dated May 17,
1996, between Bollinger Industries, L.P. and NationsBank of
Texas, N.A.
10.39 - Amended and Restated Promissory Note dated March 29, 1996,
between Bollinger Industries, L.P., and Glenn D. Bollinger.
10.40 - Amended and Restated Promissory Note dated March 29, 1996,
between Bollinger Industries, L.P., and Bobby D. Bollinger.
10.41 - Amended and Restated Promissory Note dated March 29, 1996,
between Bollinger Industries, L.P., and Dell Bollinger.
10.42 - Second Amendment to standard industrial lease dated January
31, 1996, between National Life Insurance Company and
Bollinger Industries, L.P., as assignee.
10.43 - U.S. Trademark License Agreement between International
Apparel Marketing Corp. dba Nautilus Wear International and
Bollinger Industries, Inc. dated May 1, 1995
10.44 - Amendment to U.S. Trademark License Agreement between
International Apparel Marketing Corp. and Bollinger
Industries, Inc. dated March 1, 1996.
10.45 - Intercreditor and Subordination Agreement dated May 8, 1996,
between NationsBank of Texas, N.A. and Glenn D. Bollinger,
Bobby D. Bollinger, and Dell Bollinger
11.1 - Statement re Computation of Per Share Data
</TABLE>
II-5
<PAGE> 69
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBITS PAGE
<S> <C> <C>
21.1 - List of the Company's subsidiaries (incorporated by
reference to Exhibit 21.1 to the Company's Form 10-K for the
fiscal year ended March 31, 1995)
27.1 - Financial Data Schedule
</TABLE>
II-6
<PAGE> 1
NationsBank
NationsBank of Texas, N.A.
SEVENTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
NATIONSBANK OF TEXAS, N.A.
AND
BOLLINGER INDUSTRIES, L.P.
A TEXAS LIMITED PARTNERSHIP
DATED: EFFECTIVE AS OF MARCH 8, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2)
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2)
ARTICLE II - Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2)
Section 2.1 Amendment to Definition of Borrowing Base . . . . . . . . . . . . . . . . . (2)
Section 2.2 Amendment to Definition of Contract Term . . . . . . . . . . . . . . . . . (2)
Section 2.3 Amendment to Definition of Credit Limit . . . . . . . . . . . . . . . . . . (2)
Section 2.4 Amendment to Definition of Loan Documents . . . . . . . . . . . . . . . . . (2)
Section 2.5 Amendment to Section 2.1 of the Agreement . . . . . . . . . . . . . . . . . (3)
Section 2.6 Amendment to Section 2.7 of the Agreement . . . . . . . . . . . . . . . . . (3)
Section 2.7 Amendment to Section 4.2 of the Agreement . . . . . . . . . . . . . . . . . (3)
Section 2.8 Addition of Section 6.32 to the Agreement . . . . . . . . . . . . . . . . . (3)
Section 2.9 Amendment to Section 9.3 of the Agreement . . . . . . . . . . . . . . . . . (4)
ARTICLE III - Ratifications, Representations and Warranties . . . . . . . . . . . . . . . . . . . . . (4)
Section 3.1 Ratifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4)
Section 3.2 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . (4)
ARTICLE IV - Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4)
Section 4.1 Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4)
ARTICLE V - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5)
Section 5.1 Consent to Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5)
Section 5.2 No Waiver, Reservation of Rights . . . . . . . . . . . . . . . . . . . . . (6)
Section 5.3 No Extension of Maturity . . . . . . . . . . . . . . . . . . . . . . . . . (6)
Section 5.4 Survival of Representations and Warranties . . . . . . . . . . . . . . . . (6)
Section 5.5 Reference to Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . (6)
Section 5.6 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . (6)
Section 5.7 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7)
Section 5.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8)
Section 5.9 Parties Bound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8)
Section 5.10 Cumulative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8)
Section 5.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8)
Section 5.12 Multiple Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . (8)
Section 5.13 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8)
</TABLE>
<PAGE> 3
NATIONSBANK
NATIONSBANK OF TEXAS, N.A.
SEVENTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
THIS SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (the
"AMENDMENT") is dated as of March 8, 1996, and entered into by and between
NATIONSBANK OF TEXAS, N.A., a national banking association ("LENDER") with
offices at 901 Main Street, 7th Floor, Dallas, Texas 75201, and BOLLINGER
INDUSTRIES, L.P., a Texas limited partnership ("BORROWER") with offices at 222
Airport Freeway, Irving, Texas 75062.
WHEREAS, Lender and Borrower have entered into a Loan and Security
Agreement (the "AGREEMENT"), dated as of September 9, 1994;
WHEREAS, Lender and Borrower on October 28, 1994 have entered into a
First Amendment to Loan and Security Agreement (the "FIRST AMENDMENT"), which
was dated effective as of September 9, 1994;
WHEREAS, Lender and Borrower on December 8, 1994 have entered into a
Second Amendment to Loan and Security Agreement (the "SECOND AMENDMENT");
WHEREAS, Lender and Borrower on March 3, 1995 have entered into a
Third Amendment to Loan and Security Agreement (the "THIRD AMENDMENT"), which
was dated effective as of December 31, 1994;
WHEREAS, Lender and Borrower on May 15, 1995 have entered into a
Fourth Amendment to Loan and Security Agreement (the "FOURTH AMENDMENT"), which
was dated effective as of January 31, 1995; and
WHEREAS, Lender and Borrower, effective on September 9, 1995, have
entered into a Fifth Amendment to Loan and Security Agreement (the "FIFTH
AMENDMENT"); and
WHEREAS, Lender and Borrower, effective on December 29, 1995, have
entered into a Sixth Amendment to Loan and Security Agreement (the "SIXTH
AMENDMENT") (the Agreement together with the First Amendment, the Second
Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment and
the Sixth Amendment shall hereinafter be referred to as the "AGREEMENT"); and
WHEREAS, Lender and Borrower desire to further amend the Agreement as
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in the Agreement and this Amendment, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 1 of 14
<PAGE> 4
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. Capitalized terms used in this
Amendment, to the extent not otherwise defined herein, shall have the same
meanings as in the Agreement, as amended hereby.
ARTICLE II
AMENDMENTS
Section 2.1 AMENDMENT TO DEFINITION OF BORROWING BASE.
Effective as of the date hereof, the definition of "Borrowing Base" contained in
Article I of the Agreement is hereby amended and restated to read in its
entirety as follows:
"BORROWING BASE" means, until the sale of Borrower's health
care division has been consummated, eighty percent (80%) of
the amount of Eligible Accounts plus the lesser of (i) fifty
percent (50%) of the amount of Eligible Inventory or (ii) the
sum of an amount equal to eighty percent (80%) of the amount
of Eligible Accounts plus One Million Five Hundred Thousand
Dollars ($1,500,000). From and after the earlier of (x) April
30, 1996, or (y) the date the sale of Borrower's health care
division is consummated, "Borrowing Base" means (i) eighty
percent (80.0%) of the amount of Eligible Accounts, plus (ii)
fifty percent (50.0%) of the amount of Eligible Inventory
(provided, however, that the advance rate adjusted amount of
Eligible Inventory constituting part of the Borrowing Base at
any time following the sale of Borrower's health care division
shall not exceed the advance rate adjusted amount of Eligible
Accounts constituting part of the Borrowing Base at any time).
Section 2.2 AMENDMENT TO DEFINITION OF CONTRACT TERM. Effective
as of the date hereof, the definition of "Contract Term" contained in Article I
of the Agreement is hereby amended and restated to read in its entirety as
follows:
"CONTRACT TERM" means the period beginning on the effective
date specified in the preamble of this Agreement and
continuing through May 8, 1996.
Section 2.3 AMENDMENT TO DEFINITION OF CREDIT LIMIT. The
definition of "Credit Limit" contained in Article I of the Agreement is hereby
amended and restated to read in its entirety as follows:
"CREDIT LIMIT" means Twenty-Two Million Five Hundred Thousand
and No/100 Dollars ($22,500,000).
Section 2.4 AMENDMENT TO DEFINITION OF LOAN DOCUMENTS. The
definition of "Loan Documents" contained in Article I of the Agreement is
hereby amended and restated to read in its entirety as follows:
"LOAN DOCUMENTS" means this Agreement, the Revolving Note, the
First Amended and Restated Revolving Note - Overline, the
Demand Note, the First Amendment to Loan and Security
Agreement dated effective as of September 9, 1994, the Second
Amendment to Loan and Security Agreement dated as of December
8, 1994, the Third Amendment to Loan and Security Agreement
dated effective as of December 31, 1994, the Fourth Amendment
to Loan and Security Agreement dated effective as of January
31, 1995, the Fifth Amendment to Loan
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 2 of 14
<PAGE> 5
and Security Agreement dated as of September 9, 1995, the
Sixth Amendment to Loan and Security Agreement dated as of
December 29, 1995, the Seventh Amendment to Loan and Security
Agreement dated as of March 8, 1996, each application and
agreement for letter of credit or other letter of credit
reimbursement agreement, each Guaranty, the NBF Security
Agreement, the Security Agreement dated as of March 8, 1996,
executed by BII to the Lender, and all other documents or
agreements executed in connection therewith, and also includes
any and all renewals, extensions, modifications or amendments
of any of any of the foregoing.
Section 2.5 AMENDMENT TO SECTION 2.1 OF THE AGREEMENT. The last
two sentences of Section 2.1 of the Agreement are hereby amended and restated
to read in their entirety as follows:
Notwithstanding any term, provision or condition contained in
this Agreement to the contrary, the Lender shall never be
obligated to make advances to Borrower under the Revolving
Credit Facility which would cause the aggregate outstanding
balance of all loans and advances under the Revolving Credit
Facility to exceed the lesser of the Borrowing Base or the
Credit Limit.
Section 2.6 AMENDMENT TO SECTION 2.7 OF THE AGREEMENT. Section
2.7 of the Agreement is hereby amended and restated to read in its entirety as
follows:
2.7 INTENTIONALLY DELETED.
Section 2.7 AMENDMENT TO SECTION 4.2 OF THE AGREEMENT. Section
4.2 of the Agreement is hereby amended and restated to read in its entirety as
follows:
4.2 LOANS UNDER REVOLVING FACILITY. As a condition to
each loan under the Revolving Facility, each of the following
requirements must be satisfied: (a) Borrower shall be current
with respect to the delivery of all items as required under
paragraph 4.1, and the Borrowing Base must be confirmed by
Lender, (b) the amount outstanding under the Revolving
Facility, immediately following funding of the amount of the
loan requested will not exceed the lesser of the Borrowing
Base then in effect or the Credit Limit, (c) all
representations and warranties contained in Article III and
Article V hereof shall be true, correct and complete in all
material respects and (d) no Event of Default shall have
occurred and be continuing, or shall result from such loan.
Any request for a loan under the Revolving Facility at a time
when any of the foregoing requirements is not satisfied may be
declined by Lender without prior notice.
Section 2.8 ADDITION OF SECTION 6.32 TO THE AGREEMENT. A new
Section 6.32 is hereby added to the Agreement to read in its entirety as
follows:
6.32 RESTRICTED PAYMENTS. Without the prior written
consent of Lender, Borrower will not declare or pay any
dividends or make any other payment or distribution (in cash,
property, or obligations) (excluding salaries paid to officers
and other employees in the ordinary course of business and
consistent with past practice and excluding nominal director's
fees and expenses) to its partners (general or limited),
officers, directors, or employees, or on account of its
partnership interests (general or limited), or redeem,
purchase, retire, or otherwise acquire any of its partnership
interests (general or limited), or set apart any money for a
sinking or other analogous fund for any dividend or other
distribution on its partnership
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 3 of 14
<PAGE> 6
interests (general or limited) or for any redemption,
purchase, retirement, or other acquisition of any of its
partnership interests (general or limited), or grant or issue
any partnership interests (general or limited) or any warrant,
right, or option pertaining to its partnership interests
(general or limited), or issue any security convertible into
general or limited partnership interests.
Section 2.9 AMENDMENT TO SECTION 9.3 OF THE AGREEMENT. Section
9.3 of the Agreement is hereby amended and restated to read in its entirety as
follows:
9.3 NOTICES. Any consent, approval, notice, request, or
demand from one party to another must be made in writing to be
effective, and shall be deemed to have been given on the third
Business Day after its deposit in the United States mail,
postage prepaid and properly addressed, by certified or
registered mail, return receipt requested, or on the Business
Day on which it is actually delivered by messenger delivery,
telecopy or other electronic transmission, whichever is
earlier. The address of each party for the purposes hereof is
as follows:
Borrower:
--------
Bollinger Industries, L.P.
222 Airport Freeway
Irving, Texas 75062
Attention: Stephen P. Richman
Chief Financial Officer
Telecopy: (214) 438-8471
Lender:
------
NationsBank of Texas, N.A.
901 Main Street, 11th Floor
Dallas, Texas 75202
Attention: Greg Nicholas
Telecopy: (214) 508-2588
or such other address as may hereafter be designated and
delivered in writing.
ARTICLE III
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
Section 3.1 RATIFICATIONS. The terms and provisions set forth in
this Amendment shall modify and supersede all inconsistent terms and provisions
set forth in the Agreement and, except as expressly modified and superseded by
this Amendment, the terms and provisions of the Agreement, including, without
limitation, all financial covenants contained therein, are ratified and
confirmed and shall continue in full force and effect. Lender and Borrower
agree that the Agreement as amended hereby shall continue to be legal, valid,
binding and enforceable in accordance with its terms. In furtherance and not
in limitation of the provisions of this Section 3.1, Borrower hereby waives and
releases any and all claims or offsets against, or
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 4 of 14
<PAGE> 7
defenses to, the payment and performance of the Obligations that Borrower may
have at law, in equity or otherwise, based on any and all actions or alleged
actions, omissions or related omissions of Lender or any of Lender's
affiliates, directors, officers, employees, attorneys, representatives or
agents which have occurred on or prior to March 8, 1996, and Borrower hereby
represents and warrants that no such claims, offsets or defenses exist as of
such date.
Section 3.2 REPRESENTATIONS AND WARRANTIES. Borrower, BII, BOC
and NBF each hereby represent and warrant to Lender that the execution,
delivery and performance of this Amendment and all other Loan Documents to
which Borrower, BII, BOC or NBF is or is to be a party hereunder (hereinafter
referred to collectively as the "LOAN DOCUMENTS") executed and/or delivered in
connection herewith, have been authorized by all requisite corporate or
partnership action, as applicable, on the part of Borrower, BII, BOC and NBF
and will not violate the Articles of Incorporation, Bylaws or Partnership
Agreement of Borrower, BII, BOC or NBF, as applicable. There has been no
material adverse change in the business, operations, financial condition,
profits or prospects, or in the Collateral, of Borrower or NBF, since November
16, 1995, except as previously disclosed to Lender or publicly disclosed, and
there has been no change in the officers of Borrower or any Guarantor since
November 16, 1995. The Articles of Incorporation, Bylaws or Partnership
Agreement, as applicable, of the General Partner of Borrower and each Guarantor
have not been altered, amended, rescinded or revised since November 16, 1995.
Borrower, BII, BOC and NBF hereby jointly and severally represent and warrant
to Lender that (i) Borrower and NBF own all of the Eligible Accounts and
Eligible Inventory described on each Borrowing Base Report previously or
hereafter delivered to Lender, (ii) BII conducts no operations and owns no
material assets other than the stock of BOC and BHC, (iii) BOC and BHC conduct
no operations other than the ownership of partnership interests in Borrower, of
which BOC is the sole general partner and BHC is the sole limited partner, and
(iv) BOC and BHC own no material assets other than their respective partnership
interests in Borrower.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.1 CONDITIONS. The effectiveness of this Amendment is
subject to the satisfaction of the following conditions precedent (unless
specifically waived in writing by the Lender):
(a) Lender shall have received all of the following, each
dated (unless otherwise indicated) as of the date of this Amendment,
in form and substance satisfactory to Lender in its sole discretion:
(i) Secretary's Certificate. A Secretary's
Certificate dated as of even date with the date this Amendment
is executed from the General Partner of Borrower and each
Guarantor certifying as to corporate resolutions authorizing
the execution and delivery of this Amendment.
(ii) Amendment. This Amendment, duly executed.
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 5 of 14
<PAGE> 8
(iii) Opinion of Counsel to Borrower and
Guarantors. An opinion of counsel for Borrower and each
Guarantor, respectively, in form and substance reasonably
satisfactory to Lender dated as of even date with the date
this Amendment is executed.
(iv) BII Security Agreement. A security agreement,
in form and substance acceptable to Lender, executed by BII,
pursuant to which BII grants to Lender a security interest in
its accounts and inventory, together with such financing
statements, in form and substance satisfactory to Lender, as
Lender deems necessary or appropriate to perfect the security
interests granted in such Security Agreement.
(v) Evidence of Transfer. Evidence of the
transfer of the limited partnership interests in Borrower from
BII to BHC.
(vi) Other Documents. Borrower shall have
executed and delivered such other documents and instruments as
Lender may reasonably require.
(vii) Legal and Professional Fees. Borrower shall
have paid all fees and expenses of Lender's accountants and
legal counsel incurred in connection with the Revolving
Facility and the Loan Documents, including this Amendment, and
the interpretation and enforcement thereof.
(b) All partnership or corporate proceedings, as
applicable, taken in connection with the transactions contemplated by
this Amendment and all documents, instruments and other legal matters
incident thereto shall be reasonably satisfactory to Lender.
ARTICLE V
MISCELLANEOUS
Section 5.1 CONSENT TO SALE. Lender consents to the sale by
Borrower of its health care division provided that any Eligible Inventory
owned by Borrower's health care division is removed from the Borrowing Base
concurrently with such sale, and Borrower provides Lender with a Borrowing Base
Report concurrently with such sale showing the recalculated Borrowing Base, and
provided further that all cash proceeds of such sale must be retained by
Borrower as working capital and may not be loaned, advanced, distributed or
paid to any partner (limited or general), officer, director or employee of
Borrower.
Section 5.2 WAIVER OF DEFAULTS. Borrower has notified Lender
that Borrower is in violation of the covenants contained in Section 6.21 of the
Agreement. Lender hereby waives the noncompliance by Borrower with the
provisions of Section 6.21 of the Agreement through and including May 8, 1996,
and not thereafter. The foregoing waiver does not permit Borrower to fail to
comply with any other provision of the Agreement or any other Loan Document.
Section 5.3 NO WAIVER, RESERVATION OF RIGHTS. No failure on the
part of Lender to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power or privilege under the Agreement or any other
Loan Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege under the Agreement or any
other Loan Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The waiver by Lender of
compliance with the provisions of Section 6.21 of the Agreement provided in
this Amendment does not constitute a waiver of such provisions beyond the time
specified in this Amendment, and does not constitute
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 6 of 14
<PAGE> 9
a waiver of any other condition of the Agreement and the other Loan Documents.
Notwithstanding any failure by Lender to insist on strict compliance by
Borrower with the terms of the Agreement or any other Loan Document in the
past, or any forbearance by Lender in exercising its rights and remedies under
the Agreement and the other Loan Documents, including any past waivers by
Lender of Events of Default under the Agreement or any other Loan Document,
Lender will insist on strict compliance with the terms of the Agreement and the
other Loan Documents in the future. Any future failure by Borrower to comply
strictly with the terms of the Agreement and the other Loan Documents may
result in the Lender's pursuit of its rights and remedies existing by virtue of
the Agreement and the other Loan Documents or existing at law or in equity.
Lender expressly reserves the right to exercise any and all rights or remedies
available to Lender under the Loan Documents, at law or in equity, with respect
to any present or future Events of Default unless the same are waived in
writing by Lender. No failure on the part of Lender to exercise, or delay by
Lender in exercising, its rights and remedies under the Loan Documents shall
constitute a waiver of any existing or future Event of Default.
Section 5.4 NO EXTENSION OF MATURITY. Notwithstanding that
Lender has continued to make credit available to Borrower in the past and has
renewed and extended the credit facility evidenced by the Loan Documents in the
past, Borrower acknowledges that Lender has no obligation to continue to make
credit available to Borrower under the Revolving Facility after May 8, 1996.
Lender hereby notifies Borrower that, notwithstanding any previous renewals or
extensions of credit to Borrower, Lender will not continue to make credit
available to Borrower after May 8, 1996, and that the Obligations shall be due
and payable in full on May 8, 1996.
Section 5.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in the Agreement or any other document or
documents relating thereto, including, without limitation, any Loan Document
furnished in connection with this Amendment, shall survive the execution and
delivery of this Amendment and the other Loan Documents, and no investigation
by Lender or any closing shall affect the representations and warranties or the
right of Lender to rely thereon.
Section 5.6 REFERENCE TO AGREEMENT. The Agreement, each of the
Loan Documents, and any and all other agreements, documents or instruments now
or hereafter executed and delivered pursuant to the terms hereof or pursuant to
the terms of the Agreement as amended hereby, are hereby amended so that any
reference therein to the Agreement shall mean a reference to the Agreement as
amended hereby.
Section 5.7 WAIVER OF JURY TRIAL. THE PARTIES HERETO AGREE THAT
NEITHER PARTY SHALL REQUEST A TRIAL BY JURY IN THE EVENT OF LITIGATION BETWEEN
THEM CONCERNING THE LOAN DOCUMENTS OR ANY CLAIMS OR TRANSACTIONS IN CONNECTION
THEREWITH, IN EITHER A STATE OR FEDERAL COURT, THE RIGHT TO TRIAL BY JURY BEING
EXPRESSLY WAIVED BY BOTH LENDER AND BORROWER. LENDER AND BORROWER EACH
ACKNOWLEDGES THAT SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF
THE NATURE OF THE RIGHTS AND BENEFITS WAIVED HEREBY, AND WITH THE BENEFIT OF
ADVICE OF COUNSEL OF ITS CHOOSING.
Section 5.8 ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR
AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR
RELATING TO THIS AMENDMENT 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
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 7 of 14
<PAGE> 10
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 AMENDMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR
EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO
WHICH THIS AMENDMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(a) Special Rules. THE ARBITRATION SHALL BE CONDUCTED IN
THE CITY OF THE BORROWER'S DOMICILE AT THE TIME OF THIS AMENDMENT'S
EXECUTION AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR;
IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE.
ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE
DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A
SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH
HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
(b) Reservation of Rights. NOTHING IN THIS AMENDMENT
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE
APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED
IN THIS AMENDMENT; OR (II) BE A WAIVER BY THE LENDER OF THE PROTECTION
AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT
STATE LAW; OR (III) LIMIT THE RIGHT OF THE LENDER HERETO (A) TO
EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR
(B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR
(C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS
(BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE
APPOINTMENT OF A RECEIVER. THE LENDER MAY EXERCISE SUCH SELF HELP
RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY
ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AMENDMENT. NEITHER
THIS EXERCISE OF 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 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 Loan Documents regarding waiver of trial by jury
or submission to jurisdiction and/or venue in any court is intended or shall be
construed to be in derogation of the provisions in any Loan Document for
arbitration of any controversy or claim.
Section 5.9 GOVERNING LAW. THIS AMENDMENT, AND ALL DOCUMENTS AND
INSTRUMENTS EXECUTED IN CONNECTION HEREWITH, SHALL BE GOVERNED BY AND CONSTRUED
ACCORDING TO THE LAWS OF THE STATE OF TEXAS, PROVIDED, THAT TO THE EXTENT
FEDERAL LAW WOULD ALLOW A HIGHER RATE OF INTEREST THAN WOULD BE ALLOWED BY THE
LAWS OF THE STATE OF TEXAS, THEN WITH RESPECT TO THE PROVISIONS OF ANY LAW
WHICH PURPORT TO LIMIT THE AMOUNT OF INTEREST THAT MAY BE CONTRACTED FOR,
CHARGED OR RECEIVED IN CONNECTION WITH ANY OF THE OBLIGATIONS, SUCH FEDERAL LAW
SHALL APPLY.
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 8 of 14
<PAGE> 11
Section 5.10 PARTIES BOUND. This Amendment shall be binding upon
and inure to the benefit of Borrower and Lender, and their respective
successors in interest and assigns. Borrower may not assign any right, power,
duty, or obligation under this Amendment, or any document or instrument
executed in connection herewith, without the prior written consent of Lender.
Subject to any applicable rules, regulations or laws of governmental
authorities relating to the non-assignability of loans or other assets of
Lender, Lender may not assign any of its rights, powers, duties or obligations
under this Amendment, or any document or instrument executed in connection
herewith, without the prior written consent of Borrower. This Amendment is
intended for the benefit of Borrower and Lender, and their respective
successors in interest and assigns only, and may not be relied upon by any
other Person.
Section 5.11 CUMULATIVE RIGHTS. All rights and remedies of Lender
under the Loan Documents are cumulative, and are in addition to rights and
remedies available to Lender by law. Such rights and remedies may be exercised
concurrently or successively, at such times as Lender may determine in its
discretion. Borrower waives any right to require marshaling.
Section 5.12 SEVERABILITY. If any provision of this Amendment is
held to be illegal, invalid, or unenforceable under any present or future laws
effective during the Contract Term, such provisions shall be fully severable,
and this Amendment shall be construed and enforced as if such illegal, invalid,
or unenforceable provision had never comprised a part of this Amendment. In
such case, the remaining provisions of the Amendment shall remain in full force
and effect and shall not be affected thereby.
Section 5.13 MULTIPLE COUNTERPARTS. This Amendment may be
executed simultaneously in one or more multiple originals, each of which shall
be deemed an original, but all of which together shall constitute one and the
same Amendment.
Section 5.14 SURVIVAL. All covenants, agreements,
representations, and warranties made by Borrower herein shall survive the
execution, delivery, and closing of this Amendment, and all documents executed
in connection herewith, and shall not be affected by any investigation made by
any party.
THIS WRITTEN AMENDMENT REPRESENTS 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.
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 9 of 14
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Amendment under
seal on March 14, 1996 to be effective as of March 8, 1996.
"BORROWER"
BOLLINGER INDUSTRIES, L.P.,
A TEXAS LIMITED PARTNERSHIP
By: Bollinger Operating Corp.,
A Nevada corporation,
General Partner
By: /s/ GLENN D. BOLLINGER
------------------------------
Name: Glenn D. Bollinger
Title: Chairman and Chief
Executive Officer
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared
Glenn D. Bollinger, Chairman and Chief Executive Officer of Bollinger Operating
Corp., the general partner of Bollinger Industries, L.P., known to me to be the
person and officer whose name is subscribed to the foregoing instrument, and
acknowledged to me that the same was the act of the said BOLLINGER INDUSTRIES,
L.P., a Texas limited partnership, and that he executed the same on behalf of
Bollinger Operating Corp. as the general partner of Bollinger Industries, L.P.,
as the act of such limited partnership for the purposes and consideration
therein expressed and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 14th day of March,
1996.
[SEAL] /s/ DONNA M. MALIZIA
-----------------------------------
DONNA M. MALIZIA NOTARY PUBLIC, STATE OF TEXAS
NOTARY PUBLIC
STATE OF TEXAS
My Commission Expires: Donna M. Malizia
-----------------------------------
11-09-98 (Printed Name of Notary)
- - ----------------------
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 10 of 14
<PAGE> 13
AGREED AND ACCEPTED on March 14, 1996 to be effective as of March 8,
1996.
"LENDER"
NATIONSBANK OF TEXAS, N.A.
By: /s/ GREG NICHOLAS
--------------------------------
Name: Greg Nicholas
Title: Vice President
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared
Greg Nicholas, Vice President, known to me to be the person and officer whose
name is subscribed to the foregoing instrument, and acknowledged to me that the
same was the act of the said NATIONSBANK OF TEXAS, N.A., a national banking
association, and that he executed the same as the act of such banking
association for the purposes and consideration therein expressed and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 14th day of March,
1996.
/s/ DONNA M. MALIZIA
-----------------------------------
NOTARY PUBLIC, STATE OF TEXAS
My Commission Expires: Donna M. Malizia
-----------------------------------
11-09-98 (Printed Name of Notary)
- - ----------------------
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 11 of 14
<PAGE> 14
CONSENTS AND REAFFIRMATIONS
BOLLINGER INDUSTRIES, INC., BOLLINGER OPERATING CORP. AND NBF, INC.
("NBF"), each jointly and severally hereby acknowledge the execution of,
and consent to, the terms and conditions of that Seventh Amendment to Loan
and Security Agreement dated effective as of March 8, 1996, between
Bollinger Industries, L.P. and NationsBank of Texas, N.A. ("LENDER") and
(i) reaffirms their respective obligations under those certain Guaranty By
Corporation (the "GUARANTIES") each dated as of September 9, 1994, made by
the undersigned in favor of the Lender, and acknowledge and agree that the
Guaranties remain in full force and effect and the Guaranties are hereby
ratified and confirmed; and (ii) NBF reaffirms its obligations under that
certain Security Agreement (the "SECURITY AGREEMENT") dated as of September
9, 1994, made by NBF in favor of the Lender and acknowledges and agrees
that the Security Agreement remains in full force and effect and the
Security Agreement is hereby ratified and confirmed.
EXECUTED on March 14, 1996 to be effective as of March 8, 1996.
GUARANTOR:
BOLLINGER INDUSTRIES, INC.
By: /s/ Glenn D. Bollinger
------------------------------------
Name: Glenn D. Bollinger
Title: Chairman and Chief
Executive Officer
GUARANTOR:
BOLLINGER OPERATING CORP.
By: /s/ Glenn D. Bollinger
------------------------------------
Name: Glenn D. Bollinger
Title: Chairman and Chief
Executive Officer
GUARANTOR:
NBF, INC.
By: /s/ Glenn D. Bollinger
------------------------------------
Name: Glenn D. Bollinger
Title: Vice Chairman
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 12 of 14
<PAGE> 15
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared
Glenn D. Bollinger, known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that the same
was the act of said Bollinger Industries, Inc., and that he executed the same
for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 14th day of March,
1996.
[SEAL] /s/ Donna M. Malizia
----------------------------------------
NOTARY PUBLIC, STATE OF TEXAS
My Commission Expires: Donna M. Malizia
11-09-98 ----------------------------------------
- - ---------------------- (Printed Name of Notary)
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared
Glenn D. Bollinger, known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that the same
was the act of said Bollinger Operating Corp., and that he executed the same
for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 14th day of March,
1996.
/s/ Donna M. Malizia
[SEAL] ----------------------------------------
NOTARY PUBLIC, STATE OF TEXAS
My Commission Expires: Donna M. Malizia
11-09-98 ----------------------------------------
- - ---------------------- (Printed Name of Notary)
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 13 of 14
<PAGE> 16
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared
Glenn D. Bollinger, known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that the same
was the act of said NBF, Inc., and that he executed the same for the purposes
and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 14th day of March,
1996.
/s/ Donna M. Malizia
[SEAL] ----------------------------------------
NOTARY PUBLIC, STATE OF TEXAS
My Commission Expires: Donna M. Malizia
11-09-98 ----------------------------------------
- - -------------------- (Printed Name of Notary)
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 14 of 14
<PAGE> 17
NationsBank
NationsBank of Texas, N.A.
SECURITY AGREEMENT
This Security Agreement dated effective March 8, 1996 is executed and
delivered by BOLLINGER INDUSTRIES, INC., a Delaware corporation to NATIONSBANK
OF TEXAS, N.A.
Definitions
The following definitions shall apply throughout this Agreement:
"BORROWER" means BOLLINGER INDUSTRIES, L.P., a Texas limited
partnership, with its principal place of business located in Dallas
County, Texas, and its successors and permitted assigns.
"COLLATERAL" means collectively all of the following, now owned and
hereafter acquired by Debtor: Receivables, Inventory, and all computer
programs, applications, discs, software, files and other records
pertaining to any Collateral, as well as any accessions, additions and
attachments thereto and proceeds and products thereof, including
without limitation, all products and proceeds consisting of cash,
accounts, inventory, insurance proceeds payable because of loss or
damage, or other property, benefits or rights arising therefrom and in
and to all returned or repossessed goods arising from or relating to
any of such property or other proceeds of any other sale or other
disposition of such property.
"DEBTOR" means Bollinger Industries, Inc., a Delaware corporation with
its principal place of business located in Dallas County, Texas.
"GUARANTY" means the certain Guaranty agreement dated as of September
9, 1994, executed and delivered by Debtor (pursuant to the Loan and
Security Agreement) to and for the benefit of Secured Party, and any
amendments, modifications, supplements or restatements thereof.
"INVENTORY" means all inventory now or hereafter owned, acquired,
possessed or held on consignment or for sale or return by Debtor,
including all goods, merchandise, raw materials, goods in process,
finished goods and other tangible personal property, wheresoever
located, now owned or hereafter acquired and held for sale or lease or
furnished or to be furnished under contracts for service or used or
consumed in Debtor's businesses and additions and accessions thereto
and contracts with respect thereto and all documents of title
evidencing or representing any part thereof, and all products and
proceeds thereof. "Inventory" also includes returned inventory.
"LOAN AND SECURITY AGREEMENT" means the certain Loan and Security
Agreement dated as of September 9, 1994, between Borrower and Secured
Party, and any renewals, extensions, amendments, modifications,
supplements or restatements thereof.
"OBLIGATIONS" means (i) all "Obligations" as defined in the Loan and
Security Agreement (which definition is incorporated herein by
reference) and (ii) all obligations and indebtedness of Debtor under
the Guaranty, and (iii) any and all renewals, extensions, or
modifications thereof.
<PAGE> 18
"RECEIVABLES" means all of Debtor's now owned or existing accounts as
well as any and all accounts that may hereafter arise or be acquired
by Debtor, and all the proceeds and products thereof, including
without limitation, all notes, drafts, acceptances, instruments and
chattel paper arising therefrom, and all returned or repossessed goods
arising from or relating to any such accounts, or other proceeds of
any sale or other disposition of Inventory.
"SECURED PARTY" means NATIONSBANK OF TEXAS, N.A., a national bank with
its principal place of business located in Dallas County, Texas, and
its successors and assigns, including specifically any party to whom
Secured Party, or its successors or assigns, may assign its rights and
interests under this Agreement.
Terms defined in the Loan and Security Agreement but not otherwise defined
above, wherever used in this Agreement, shall have the same meanings as are
prescribed by the Loan and Security Agreement, which meanings are incorporated
herein by reference.
Recitals
a. Borrower and Secured Party have executed and entered into the
Loan and Security Agreement, which provides for loans to be made and
letters of credit to be issued by Secured Party to or for the account
of Borrower on the terms and conditions prescribed therein.
b. In connection with the Loan and Security Agreement, Secured
Party has determined that extensions of credit to Borrower thereunder
are conditioned upon additional credit and security support from
Debtor, as provided herein. Because of the inter-relationships
between Borrower and Debtor, and their respective operations, Debtor
has determined that providing such additional credit and security
support is within its corporate purpose, will be of direct and
indirect benefit to Debtor and is in its best interest.
NOW THEREFORE, for value received, and in consideration of the mutual
agreements and benefits under the Loan Documents, Debtor hereby agrees as
follows:
ARTICLE I. SECURITY INTEREST
1.1 SECURITY INTEREST. Debtor hereby grants and assigns to
Secured Party, a continuing security interest and lien in and to all Collateral
to secure full payment and performance of the Obligations.
1.2 PERFECTION AND PROTECTION SECURITY INTEREST. Debtor shall
perform, at its expense, all action requested by Secured Party at any time to
perfect, maintain, protect, and enforce Secured Party's security interests in
the Collateral, including without limitation executing and filing financing
statements and amendments thereof, in form and substance satisfactory to
Secured Party; delivering to Secured Party the originals of all Collateral the
possession of which is required for perfection of Secured Party's security
interests, duly endorsed or assigned to Secured Party without restriction;
placing notations on books of account to disclose Secured Party's security
interests; and such other steps as are deemed necessary by Secured Party to
maintain its security interests. In the event any of the Receivables at any
time is evidenced by a promissory note or other instrument, Debtor will
immediately notify Secured Party and deliver such instrument to Secured Party,
duly endorsed payable to the order of Secured Party. So long as this Agreement
is in effect and until all Obligations have been fully satisfied, Secured
Party's security interest and lien hereunder shall continue in full force and
effect in all Collateral, except as otherwise specifically provided in
paragraph 9.1 of the Loan and Security Agreement.
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1.3 PRIORITY. Secured Party's security interests in the
Collateral granted herein at all times shall be and remain first, prior and
senior to any other interests in the Collateral, except as may be expressly
agreed otherwise by Secured Party in writing. Debtor represents to Secured
Party that no other security interests, liens or other encumbrances exist with
respect to any of the Collateral, except: (i) Permitted Liens and (ii) as
disclosed in Exhibit 1.3.
1.4 LOCATION OF COLLATERAL. Debtor represents and warrants to
Secured Party that all of its books and records relating to the Collateral are
located at Debtor's chief executive office located in Dallas County, Texas, and
at such other locations, if any, as are specified in Exhibit 1.4. Exhibit 1.4
correctly identifies the locations where all Inventory of Debtor will be
maintained, and if any such location is a leased location, the name and address
of the owner thereof. Debtor agrees that it will not maintain any Collateral
at any location other than its chief executive office and those listed in
Exhibit 1.4 unless it gives Secured Party at least 30 days prior written notice
and executes such financing statements and other documents as Secured Party may
request in connection therewith.
1.5 FIELD EXAMINATIONS; INSPECTIONS. Secured Party shall have the
right once during a twelve month period or, if an Event of Default has occurred
and is continuing, an unlimited number of times without hindrance or delay to
conduct field examinations to inspect the Collateral and to inspect, audit and
copy Debtor's books, records, journals, correspondence and other records and
data relating to the Collateral or Debtor's business. Secured Party is
authorized to discuss Debtor's affairs with any Person, including without
limitation employees of Debtor, as Secured Party may deem necessary in relation
to the Collateral, Debtor's financial condition or Secured Party's rights under
the Loan Documents. Debtor agrees to pay Secured Party's customary fees and
disbursements relating to such field examinations, provided, however, that
Debtor's responsibility for such fees and disbursements shall, when aggregated
with Borrower's obligation under paragraph 3.5 of the Loan and Security
Agreement, be limited to $5,000.00 per twelve month period if no Event of
Default has occurred. Secured Party shall have full access to all records
available to Debtor from any credit reporting service, bureau or similar
service and shall have the right to examine and make copies of any such
records. Secured Party may exhibit a copy of this Agreement to such service
and such service shall be entitled to rely on the provisions hereof in
providing access to Secured Party as provided herein.
1.6 COLLATERAL REPORTS. At Secured Party's request, on or before
the last day of each calendar month, Debtor shall execute and deliver to
Secured Party, in form satisfactory to Secured Party, a collateral report
prepared as of the last day of the immediately preceding month setting forth a
certification of Eligible Accounts and Eligible Inventory (as those terms are
defined in the Loan and Security Agreement) included within the Collateral.
Each such report shall include a reconciliation of the calculation of the
Eligible Accounts and Eligible Inventory as certified in the most recent of
such reports delivered to Secured Party, and be accompanied by such documents
and supporting information relating to Eligible Accounts and Eligible Inventory
as Secured Party may reasonably request. Debtor shall maintain, and shall
furnish to Secured Party at Secured Party's reasonable request, such supporting
documents or copies as Secured Party may require including, but not limited to:
a schedule of Eligible Accounts created, and Eligible Inventory purchased and
received, since the previous of such reports delivered to Secured Party; copies
of invoices and supporting delivery or service records in connection therewith;
a schedule of collections received; copies of credit memos or other advices of
credit or reductions against amounts previously billed; and such other reports
as Secured Party may reasonably request from time to time. If any of such
records or reports are prepared by an accounting service or other agent, Debtor
hereby authorizes such service or agent to deliver such records, reports and
related documents to Secured Party. Secured Party may exhibit a copy of this
Agreement to any such service or agent and such service or agent shall be
entitled to rely on the provisions hereof in providing such documentation to
Secured Party. Each such report shall bear a signed statement by an authorized
officer of Debtor certifying the accuracy and completeness of all information
included therein and shall incorporate therein by reference, as if fully set
forth therein, all the terms and provisions hereof. The execution and
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delivery of each such report shall in each instance constitute an agreement,
representation and warranty by Debtor to Secured Party that, except for the
first, prior and senior Lien of Secured Party therein: Debtor is the sole
owner of and has full unrestricted power to grant to Secured Party a continuing
Lien in and to all Collateral included therein free from any Lien, other than
Permitted Liens subordinate to the first, prior and senior Lien of Secured
Lender; each account included therein is in existence, unconditional and valid,
and arose from a bona fide outright sale of Inventory by Debtor, in the
ordinary course of business, for liquidated amounts as set forth in such
report, and such Inventory has been delivered or provided to the respective
account debtors; no account included therein arose in connection with a
contract or assignment which purports to make an assignment or security
interest therein void or conditions such assignment or security interest on
consent of the account debtor; no account is subject to any sale, assignment,
claim or security interest of any character and Debtor will not make any sale
or other assignment thereof or create any other security interest therein; no
account is subject to any claim for credit, deduction, allowance, extension or
adjustment, defense, dispute, setoff or counterclaim, except for discounts for
early payment allowed by Debtor in the ordinary course of business as
previously disclosed to Secured Party and as reflected on the face of the
invoice evidencing such account; all Inventory reflected in such report is held
for sale in the ordinary course of Debtor's business, and no such Inventory is
located at any location in breach of the requirements of this Agreement and no
negotiable documents have been issued in respect of any such Inventory; no
Inventory reflected in such report is returned Inventory subject to the
restrictions of paragraph 3.9 of the Loan and Security Agreement unless
otherwise disclosed to Secured Party in writing.
1.7 AGING REPORTS. Contemporaneously with the delivery by
Borrower to Secured Party of each Borrowing Base Report, and in any event on or
before the last day of each calendar month, Debtor shall furnish to Secured
Party a report of amounts owing on all accounts included within the
Receivables, showing an aging analysis in form satisfactory to Secured Party.
At Secured Party's request any such report shall include a listing of the name
and complete address of each account debtor and such other information as
Secured Party may request.
1.8 RECEIVABLES; COLLECTIONS. All collections and proceeds of
Receivables shall be subject to an express trust for the benefit of Lender.
Unless expressly agreed otherwise by Lender in writing, all collections and
proceeds of Receivables shall be directed daily to a lock box established at
Lender for deposit daily to one or more blocked collection accounts approved by
Lender for such purpose. All collected funds from such deposits shall be
applied directly to the Obligations, subject to two Business Days collection
time for clearance, in a manner determined by Lender in its discretion,
provided that for the sole purpose of calculating the amount that may remain
outstanding to Borrower under the Revolving Facility, from time to time, such
checks shall be assumed to be collected and applied in reduction of the
Obligations as of the Business Day of receipt by Lender. Debtor will not use,
dispose, withhold or otherwise exercise dominion over any proceeds of
Receivables except as expressly allowed by this Agreement. In the event Debtor
at any time receives any collections or proceeds of Receivables, Debtor shall
promptly deliver same to Lender in the form received, with any necessary
endorsement to the order of Lender. Debtor agrees that it will not commingle
proceeds of Receivables with any other funds, and that no deposits will be made
to any blocked collection account other than collections and proceeds of
Receivables. Debtor shall have no right of withdrawal, transfer or access to
any blocked collection account, and all amounts from time to time deposited to
any such blocked collection account shall remain subject to Lender's interests
under this Agreement and under the Loan Documents. Debtor shall promptly
report to Lender in writing any instance in which a dispute of Receivables by
an account debtor involves an amount in excess of $100,000.00. Debtor agrees
that it will not settle, adjust, compromise or discharge any such Receivables
or extend the time for payment without Lender's consent.
1.9 INVENTORY. Debtor represents and warrants to Secured Party
that all Inventory shall be held for sale or use in the ordinary course of
Debtor's business, and is and will be fit for such purpose. Debtor will keep
the Inventory (other than obsolete or defective Inventory) in good and
marketable condition, at its own
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expense. All sales of Inventory shall be in accordance with applicable law.
At least once per calendar year, Debtor will conduct a physical count of the
Inventory or a rolling physical inventory on a cycle count basis covering all
lines of business, and at Secured Party's request Debtor shall promptly supply
Secured Party with a copy of such count or a report, in form and substance
satisfactory to Secured Party, of the rolling physical inventory. No
negotiable documents have been issued in respect of any Inventory, and none
shall be issued without prior written notice to Secured Party and, at Secured
Party's request, completion of arrangements satisfactory to Secured Party for
possession of such negotiable documents to be delivered to Secured Party. No
Inventory is held by Debtor on consignment or approval, or on a sale or return,
bill-and-hold, guaranteed sale, repurchase or similar basis and no Inventory
has been sold or delivered to any Person on consignment or approval, or an a
sale or return, bill-and-hold, guaranteed sale, repurchase or similar basis
except as disclosed in Exhibit 1.9 attached hereto. Debtor will not acquire or
accept any Inventory on consignment or approval, or on a sale or return,
bill-and-hold, guaranteed sale, repurchase or similar basis without the prior
written consent of Secured Party and Debtor will not sell any Inventory on
consignment or approval, or on a sale or return, bill-and-hold, guaranteed
sale, repurchase or similar basis without the prior written consent of Secured
Party. All cash receipts, if any, from time to time received by Debtor in
respect of the sale of Inventory, including without limitation cash, checks or
similar items, shall be subject to an express trust for the benefit of Secured
Party and shall be directed daily to a lock box established at Lender for
deposit daily to one or more blocked collection accounts approved by Lender for
such purposes. Debtor shall promptly report to Secured Party in writing any
instance in which Inventory returned by an account debtor involves an amount in
excess of $250,000.00 and, unless Secured Party agrees otherwise, all such
returned Inventory shall be segregated from all other Inventory, and shall not
be reported as Eligible Inventory, unless and until Debtor demonstrates to
Secured Party's satisfaction that such returned Inventory is in saleable
condition and meets all criteria for Eligible Inventory. Unless otherwise
agreed by Secured Party, the amount of Debtor's accounts relating to all
returned Inventory shall be deemed excluded from Eligible Accounts. All
returned Inventory shall be subject to Secured Party's continuing security
interests under this Agreement. Notwithstanding anything herein or elsewhere
to the contrary, Debtor may enter into any consignment sale of Inventory having
a fair market value not to exceed $100,000.00 so long as Debtor gives Secured
Party prior written notice of such consignment; provided that such consigned
Inventory shall not be considered Eligible Inventory for purposes of the Loan
and Security Agreement. The foregoing provisions of this paragraph 1.9 are
subject to the last sentence of paragraph 3.9 of the Loan and Security
Agreement.
1.10 INSURANCE. Debtor shall keep and maintain adequate insurance
with respect to its business and all Collateral, written by insurers acceptable
to Secured Party. Such insurance shall be with respect to loss, damages, and
liability of amounts not less than reasonably requested by Secured Party, and
shall include, at minimum, extended coverage insurance, insurance against
business interruption, insurance for workers compensation, and insurance for
general premises liability, fire, theft, burglary, pilferage, loss in transit,
casualty and all risk. Debtor will make timely payment of all premiums
required to maintain such insurance in force. Debtor shall cause Secured Party
to be an additional insured and loss payee under all policies of insurance
covering any of the Collateral, to the extent of Secured Party's interest, in
form satisfactory to Secured Party. Debtor will cause each policy of insurance
to contain a clause or endorsement requiring the insurer to give not less than
thirty (30) days prior written notice to Secured Party in the event of
cancellation of the policy for any reason whatsoever. Debtor shall deliver
copies of each insurance policy to Secured Party upon request. If Debtor fails
to procure such insurance or to pay the premiums therefor when due, Secured
Party shall have the right (but with no obligation) to make such payment, which
amount Debtor shall pay to Secured Party on demand or, at Secured Party's
option (but with no obligation to do so) Secured Party may add such amount to
the unpaid principal due by Debtor under the Revolving Facility, in which event
such amount will be deemed paid and the aggregate amount thereof shall be
treated as a loan under the Revolving Facility. Debtor shall promptly notify
Secured Party of any loss, damage, or destruction to the Collateral or arising
from its use, whether or not covered by insurance. Secured Party is hereby
authorized to collect all insurance proceeds directly. After deducting from
such proceeds the expenses, if any, incurred by Secured
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Party in the collection or handling thereof, Secured Party may apply such
proceeds to the reduction of the Obligations, in such order as Secured Party
determines, or at Secured Party's option may permit or require Debtor to use
such money, or any part thereof, to replace, repair or restore the Collateral
in a diligent and expeditious manner with materials and workmanship of
substantially the same quality as existed before the loss, damage or
destruction.
1.11 LANDLORDS, BAILEES. Except as disclosed in Exhibit 1.4, and
except for consignment sales complying with subparagraph (ii) of the last
sentence of paragraph 3.9 of the Loan and Security Agreement, Debtor will not
deliver possession or control of any Collateral to any Person without Secured
Party's prior written consent. Debtor shall notify each bailee other than any
consignee, if any, from time to time in possession of any Collateral of Secured
Party's security interests under this Agreement. At Secured Party's request,
Debtor shall obtain such bailee's acknowledgment of such notice and its
agreement to hold all Collateral from time to time in its possession subject to
disposition at Secured Party's direction. At Secured Party's request, Debtor
will cause the landlord to execute and deliver to Secured Party a Landlord's
Waiver with respect to any leased locations where any Collateral will be
located. Debtor shall immediately notify Secured Party upon receipt of any
notice from any Person claiming past due rent, fees or other charges in respect
of any Collateral.
1.12 RIGHT TO CURE. In the event of a failure of Debtor to timely
pay any amount or take any action it is required to take or pay pursuant to the
Loan Documents in order to preserve, protect and maintain the Collateral and
Secured Party's security interest therein, including without limitation,
payment of any insurance premium, any repair, maintenance or storage charge,
any landlord's claim, and any other encumbrance or claim asserted against the
Collateral, Secured Lender may pay such amount or take such action. All such
payments and all out-of-pocket costs and expenses made or incurred by Secured
Party in taking such action shall be payable by Debtor to Secured Party on
demand or, at Secured Party's discretion, deemed as a loan under the Revolving
Facility as of the date or dates of Secured Party's disbursement thereof. Any
payment made or other action taken by Secured Party under this paragraph shall
be without prejudice to any right to assert an Event of Default or exercise any
other remedy hereunder.
1.13 PRESERVATION OF SECURED PARTY'S RIGHTS. To the extent allowed
by law, neither Secured Party nor any of its officers, directors, employees,
and agents shall be liable or responsible in any way for the safekeeping of any
Collateral or for any act or failure to act with respect to the Collateral, or
for any loss or damage thereto or any diminution in the value thereof, or for
any act by any other Person. In the case of any instruments and chattel paper
included within the Collateral, Secured Party shall have no duty or obligation
to preserve rights against prior parties. The Obligations shall not be
affected by any failure of Secured Party to take any steps to perfect its
security interests or to collect or realize upon the Collateral, nor shall loss
of or damage to the Collateral release Debtor from any of the Obligations.
Secured Party may extend the time for payment of the Obligations or modify or
amend the terms of any of the Loan Documents, or compromise or grant other
indulgences, renewals, extensions or releases, and take or omit to take any
other action with respect to the Obligations or the Collateral, or any Person
directly or indirectly obligated in connection therewith, without impairing
Secured Party's security interests in the Collateral or any of Secured Party's
rights under the Loan Documents.
1.14 SPECIAL RIGHTS OF SECURED PARTY; POWER OF ATTORNEY. Debtor
hereby irrevocably appoints Secured Party as Debtor's agent and
attorney-in-fact, during the continuance of an Event of Default, to take any
action necessary to preserve and protect the Collateral and Secured Party's
interests under the Loan Documents. Debtor hereby authorizes and appoints
Secured Party as attorney-in-fact, during the continuance of an Event of
Default, to sign and file any financing statement or other document necessary
to perfect Secured Party's security interest in the Collateral. If an Event of
Default shall occur and be continuing, Secured Party shall have the right at
any time to take any of the following action, in its own name or in the name of
Debtor:
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(i) make written or verbal requests for verification of amounts owing on
Receivables from any or all Persons which Secured Party believes may be account
debtors or obligors on Receivables; (ii) notify any or all Persons which
Secured Party believes may be account debtors or obligors on Receivables to
make payments directly to Secured Party; (iii) take possession and control of
proceeds of Receivables; (iv) redirect the deposit and disposition of
collections and proceeds of Receivables; (v) endorse the name of Debtor on
checks, instruments or other evidences of payment on Receivables; (vi) settle,
adjust, compromise or discharge Receivables or extend time of payment upon such
terms as Secured Party may determine; (vii) take action in Secured Party's name
or Debtor's name to enforce collection of Receivables; (viii) prepare, sign and
file, on behalf of Debtor in Debtor's name or in Secured Party's name as
assignee, any proof of claim or other document in any bankruptcy proceedings of
any account debtor or obligor on Receivables; (ix) prepare, sign and file, in
the name of Debtor, any notice of lien or similar document necessary to create
or perfect any materialman's lien, laborer's lien or similar lien in
enforcement of any Receivables; (x) access, copy or utilize any information
recorded or contained in any computer or data processing equipment or system in
respect of the Receivables maintained by Debtor or any Affiliate, or to which
Debtor has access; (xi) enter onto Debtor's premises and discuss Debtor's
affairs with Debtor's personnel as may be reasonably necessary in connection
with maintaining or enforcing Secured Party's rights under the Loan Documents,
(xii) open mail addressed to Debtor and dispose of checks or other proceeds of
Receivables in accordance with this Agreement; (xiii) and take all other action
allowed by law as may be necessary to carry out the Loan Documents and give
effect to Secured Party's rights thereunder. Should Secured Party at any time
elect to exercise its right of verification or notification with respect to the
Receivables as provided in clause (i) or clause (ii) above, respectively,
Secured Party shall have the right in its sole discretion to direct such
request for verification, or notification, as the case may be, to all Persons
which Secured Party believes may have transacted business with Debtor at any
time, whether or not such Persons are then indebted to Debtor, and Secured
Party is hereby released and discharged from any liability by reason of any
such request for verification or notification. Costs and expenses incurred by
Secured Party in connection with any of such actions by Secured Party,
including attorneys' fees and out-of-pocket expenses, shall be reimbursed to
Secured Party on demand.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
Debtor represents and warrants to Secured Party the following:
2.1 NAME; TRADE NAMES, ETC. Debtor is conducting, transacting,
and carrying on its business under its name shown for Debtor in the definitions
of this Agreement, and such other names as may be specified in Exhibit 2.1 (if
any), and is not engaged in business under any other name. Except as provided
in Exhibit 2.1 (if any), since January 1, 1994, Debtor has not (i) done
business under any other name, (ii) been party to a merger, consolidation or
similar business reorganization or combination or (iii) acquired any of the
property included within the Collateral from any other Person, except for
Inventory purchased in the ordinary course of business.
2.2 CHIEF EXECUTIVE OFFICE. Debtor's chief executive office is
located as specified for Debtor in the Definitions of this Agreement.
2.3 EXISTENCE. Debtor is a Delaware corporation, duly formed,
validly existing, and in good standing under the laws of the State of Delaware,
and is duly qualified or licensed to transact business in all jurisdictions the
laws of which require it to be so qualified or licensed.
2.4 POWER AND AUTHORITY; VALIDITY. Debtor possesses all requisite
power and authority to own, lease and operate its properties and to carry on
its business and to execute, deliver, and comply with the Loan
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Documents. This Agreement, and any and all documents executed by Debtor
incident thereto, have been duly authorized by all necessary corporate action
and has been duly executed and delivered by Debtor, and evidence valid and
binding obligations enforceable in accordance with its respective terms.
2.5 NO CONFLICTING AGREEMENTS. Debtor represents that the
execution, delivery and performance of the Loan Documents will not violate its
articles of incorporation or bylaws, nor constitute a default under, or result
in a breach of, any contract, agreement, or other instrument to which it is a
party or which is applicable to its property.
2.6 OWNERSHIP. There are no subscriptions, options to purchase,
conversion or exchange rights, warrants or other agreements, claims or
commitments of any nature obligating Debtor to issue, transfer, deliver or sell
additional interests in Debtor.
2.7 SUBSIDIARIES. Debtor has no Subsidiaries other than Bollinger
Operating Corp., Bollinger Holding Company and NBF, Inc.
2.8 LITIGATION. Other than as disclosed to Secured Party in
Exhibit 2.8 (if any), Debtor represents that it is not a party to any pending
lawsuits or proceedings before or by any state or federal court or governmental
agency or instrumentality, which are reasonably expected to have a Material
Adverse Effect and is not aware of any threatened or potential lawsuits,
proceedings, claims, or investigations, which are reasonably expected to have a
Material Adverse Effect. The items, if any, disclosed in Exhibit 2.8 (if any),
in the event of any unfavorable or adverse determination, will result in or
cause a Material Adverse Effect.
2.9 COMPLIANCE WITH LAWS. Debtor represents that it is not in
violation of any laws, regulations and orders in any respect which will result
in or cause, or reasonably would be expected to result in or cause, a Material
Adverse Effect.
2.10 JUDGMENTS. There are no outstanding or unpaid judgments
against Debtor.
2.11 TAXES. All tax returns or filings required to be filed by
Debtor have been filed and taxes imposed upon Debtor which are due and payable
have been paid.
2.12 TITLE TO PROPERTY. Debtor has good and indefeasible
marketable title to all Collateral.
2.13 CONSENTS. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution,
delivery and performance of this Agreement except the filing of such financing
statements, security agreements and other documents as are necessary to perfect
first and prior Liens in the Collateral in favor of Secured Party. Debtor has
all required governmental permits and licenses, if any, on account of its
operations and activities and is in full compliance with the terms and
conditions thereof, and all such permits and licenses are in full force and
effect.
2.14 FULL DISCLOSURE. Debtor has disclosed to Secured Party all
material facts known to Debtor concerning the Collateral and its financial
condition and business operations. All information furnished by Debtor to
Secured Party was true and complete at the time of delivery thereof to Secured
Party, and there has been no material change in any such information except as
may have been disclosed by Debtor to Secured Party in writing. There is no
fact known to Debtor which would be reasonably expected to result in or cause a
Material Adverse Effect.
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2.15 SOLVENCY. As of, and immediately following the effective date
of this Agreement: (i) the fair saleable value of all assets of Debtor exceeds
the amount of all of Debtor's existing debts and liabilities (including
contingent liabilities), (ii) the assets of Debtor do not constitute an
unreasonably small capital for the operation of Debtor's business as now
conducted and as intended to be conducted, taking into account all known or
projected capital requirements for such operations, (iii) Debtor does not
intend to incur debts beyond its ability to pay as they mature, and (iv)
Debtor's cash flow is sufficient to pay all existing debts and liabilities as
they become due.
2.16 EMPLOYEE RELATIONS. Debtor is not aware of any contemplated,
threatened or pending strike, work stoppage or other labor dispute involving
its employees.
2.17 ENVIRONMENTAL MATTERS. Debtor represents and warrants to
Secured Party that to the best of Debtor's knowledge: (a) all of Debtor's
activities and conduct of business related to the use and handling of Hazardous
Materials, comply and have at all times complied with all Environmental
Requirements; (b) neither Debtor nor any prior owner of the Collateral has
received notice or other communication concerning any alleged violation of
Environmental Requirements, whether or not corrected to the satisfaction of the
appropriate authority, or notice or other communication concerning alleged
liability for Environmental Damages, and there exists no writ, injunction,
decree, order, judgment or lien, nor any lawsuit, claim, proceeding citation,
directive, summons or investigation, pending or threatened, relating to the
ownership, use, maintenance or operation of Debtor's business or any associated
real property, by any Person, or from alleged violation of Environmental
Requirements; (c) Debtor has all permits and licenses required to be issued to
it by any governmental authority on account of any or all of its activities,
and is in full compliance with the terms and conditions of all such permits and
licenses. No change in the facts or circumstances reported or assumed in the
application for or granting of any such permits or licenses exists, and such
permits and licenses are in full force and effect.
2.18 REPRESENTATIONS AND WARRANTIES CUMULATIVE. The
representations and warranties contained in this Article II are in addition to
all other representations and warranties provided in the Loan Documents.
ARTICLE III. COVENANTS
Throughout the Contract Term and until payment and performance in full
of the Obligations (unless otherwise allowed by prior written consent of
Secured Party):
3.1 AUTHORITY. Immediately following any effective change thereof
(and at such other times, from time to time, at the request of Secured Party)
Debtor shall certify to Secured Party the names and signatures of all Persons
authorized to execute and deliver any documentation required by this Agreement.
3.2 BOOKS AND RECORDS. Debtor shall keep and maintain proper,
complete and consistent books of record and account respecting the Collateral
and Debtor's affairs and financial condition in accordance with GAAP, and
shall, upon reasonable notice from Lender, permit Secured Party from time to
time during normal business hours, by and through its authorized agents, to
visit and inspect any of its properties, inspect and copy its books and
records, and discuss its affairs, finances, accounts, and operations with its
officers.
3.3 EXISTENCE. Debtor shall preserve and maintain its existence,
good standing and authority to transact business in all jurisdictions where
necessary for the proper conduct of its business, and shall maintain all of its
properties, rights, privileges and franchises necessary or desirable in the
normal conduct of its business.
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3.4 INFORMATION. In addition to information and items
specifically required by Agreement, Debtor shall promptly furnish to Secured
Party such other information or documentation respecting the Collateral as
Secured Party may request.
3.5 NOTIFICATION OF CONTINGENT LIABILITIES. Promptly upon
receiving notice or otherwise becoming aware thereof, Debtor shall notify
Secured Party of any pending or threatened lawsuit, claim, action, liability,
investigation or proceeding that would be treated as a contingent liability of
Debtor under GAAP and is in an amount in excess of $100,000.00, or which is
reasonably expected to result in a Material Adverse Effect.
3.6 NOTIFICATION OF MATERIAL CHANGES. Debtor will notify Secured
Party in writing at least thirty (30) days prior to the occurrence of any of
the following: (i) change of Debtor's name, (ii) change of Debtor's address or
principal place of business, (iii) change of the location of Debtor's books and
records, (iv) change of the location of any Collateral, (v) the opening of any
new place of business or the closing of any existing place of business or (vi)
use of any trade name, fictitious name or other assumed name. Debtor shall
promptly notify Secured Party of any change in any other material fact or
circumstance represented or warranted in this Agreement.
3.7 NOTIFICATION REGARDING DEFAULT. Debtor shall immediately
notify Secured Party in writing upon becoming aware of the existence of any
condition or event which constitutes an Event of Default or any condition or
event which, after notice or lapse of time, or both, would constitute an Event
of Default, therein specifying the nature and period of existence thereof and
what action Debtor is taking or proposes to take with respect to such condition
or event. Debtor shall immediately notify Secured Party in writing if it
knows, or reasonably expects, that an Event of Default will occur, therein
specifying the nature of the anticipated Event of Default. Without limiting
the foregoing, Debtor will also immediately notify Secured Party of any of the
following: (i) Debtor's board of directors has authorized the filing by Debtor
of a petition in bankruptcy, (ii) Debtor is aware that any covenant under this
Agreement or any other loan document has been breached, or reasonably expects
that any such covenant will be breached, and (iii) repossession or attempted
repossession by any Person of any Inventory.
3.8 PAYMENT OF TAXES. Debtor shall promptly pay, or cause to be
paid, when due, any and all taxes except such taxes as may be contested in good
faith by appropriate proceedings, provided, that adequate reserves shall be
maintained as are appropriate according to GAAP. Debtor agrees that it shall
immediately notify Secured Party of the initiation of any such contest and
advise Secured Party from time to time of the status thereof. Debtor shall
promptly pay any amounts finally adjudged to be due pursuant to any such
contest, with all costs, penalties, and interest thereon, before any writ or
order is issued under which the Collateral, or any portion thereof, may become
subject to any lien or encumbrance.
3.9 COMPLIANCE WITH LAWS. Debtor shall comply with all applicable
laws, regulations and orders applicable to it or its property, a violation of
which would reasonably be expected to result in a Material Adverse Effect. At
Secured Party's request, Debtor will provide Secured Party with evidence of
Debtor's compliance with Environmental Requirements.
3.10 COMPLIANCE WITH AGREEMENTS. Debtor shall comply in all
material respects with all agreements, indentures, mortgages, or documents
binding upon Debtor or affecting its property or business to the extent a
failure to so comply would have a Material Adverse Effect.
3.11 WAIVERS AND CONSENTS RESPECTING THE COLLATERAL. Debtor shall
furnish to Secured Party such waivers and consents as may reasonably be
requested by Secured Party with respect to Secured Party's security interests
and liens in the Collateral.
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3.12 PROHIBITION AGAINST LIENS ON COLLATERAL. Debtor will not
grant, create or allow to exist any security interest, lien or other
encumbrance on any of the Collateral or any other property (real or personal)
of Debtor, except Permitted Liens.
3.13 DISSOLUTION, LIQUIDATION, MERGER. Debtor will not become a
party to a merger or consolidation, or wind-up, dissolve, or liquidate itself,
except as otherwise provided in paragraph 6.24 of the Loan and Security
Agreement.
3.14 COVENANTS CUMULATIVE. The covenants contained in this Article
III are in addition to all other covenants provided in the Loan Documents.
ARTICLE IV. EVENT OF DEFAULT
4.1 EVENT OF DEFAULT. Each of the following shall constitute an
Event of Default under this Agreement:
(a) Any Event of Default under the Loan and Security Agreement or
any of the other Loan Documents;
(b) Any violation, breach or default of any covenant, agreement or
other obligation under this Agreement and the failure of Debtor to
cure such default within fifteen (15) days following notice to Debtor
from Secured Party of such violation, breach or default;
(c) Any representation or warranty made by Debtor in the Loan
Documents was false in any material respect at the time when made;
(d) Except as otherwise permitted in paragraph 6.24 of the Loan
and Security Agreement, the dissolution or liquidation of Debtor or
the taking of any action by the board of directors or shareholders of
Debtor to dissolve or liquidate; or
(e) Repudiation, or attempted termination or revocation, by
Debtor of this Agreement.
ARTICLE V. REMEDIES
5.1 REMEDIES. Should any Event of Default occur at any time,
Secured Party may in its discretion take any or all of the following action:
(i) take such steps as Secured Party may deem appropriate to foreclose and
enforce any and all security interests, liens and assignments now or hereafter
granted to Secured Party to secure payment and performance of the Obligations,
or any part thereof, including without limitation, the security interests and
liens granted under this Agreement; or (ii) exercise and avail itself of any
and all other remedies as may be available under the Loan Documents or as
otherwise may be available according to law. Secured Party at all times shall
have the rights and remedies of a secured party under the Code, including but
not limited to the right to take possession or enforce direct payment of the
Collateral. Secured Party may demand, collect, receipt for, settle, compromise
adjust, sue for, foreclose or otherwise realize upon Collateral as it may
determine. In taking possession of any Collateral, Secured Party is authorized
to enter upon any premises owned or leased by Debtor where any Collateral is
located. At its option, Secured Party may require Debtor to assemble the books
and records relating to the Collateral and
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make the same available to Secured Party at a place to be designated by Secured
Party which is reasonably convenient to both Secured Party and Debtor. Unless
the Collateral is perishable or threatens to decline speedily in value or is of
a type customarily sold on a recognized market, Secured Party will give Debtor
reasonable notice of the time and place of any public sale thereof or of the
time after which any private sale or any other intended disposition thereof is
to be made. For this purpose, it is agreed that at least ten (10) Business
Days notice of the time of sale or other intended disposition of the Collateral
delivered in accordance with paragraph 6.2 shall be deemed to be reasonable
notice in conformity with the Code. Secured Party may adjourn or otherwise
reschedule any public sale by announcement at the time and place specified in
the notice of such public sale, and such sale may be made at the time and place
as so announced without necessity of further notice. Secured Party shall not
be obligated to sell or dispose of any Collateral, notwithstanding any prior
notice of intended disposition. With respect to any instruments or chattel
paper at any time included within any proceeds of the Collateral, Secured Party
shall not have any duty or obligation to take steps to preserve rights against
prior parties.
5.2 ENFORCEMENT COSTS; APPLICATION OF PROCEEDS. Upon demand by
Secured Party, Debtor shall pay any and all reasonable expenses, including
legal expenses, reasonable attorneys' fees, court costs, collection costs, and
traveling expenses, incurred or paid by Secured Party in protecting or
enforcing any of its rights hereunder, including its right to take possession,
hold, store, prepare for sale, sell, or otherwise dispose of the Collateral and
collect the proceeds of any Collateral. Until reimbursed or otherwise paid,
all such expenses shall be deemed to be included within the Obligations. After
deducting all of such expenses, any remaining proceeds of collection or sale of
the Collateral shall be applied in payment of the Obligations in such manner as
Secured Party may determine, and the excess, if any, shall be disbursed by
Secured Party in accordance with applicable law. Debtor expressly agrees that
it shall remain liable for any deficiency.
5.3 WAIVER OF NOTICES. Except as otherwise expressly provided in
this Agreement, Debtor expressly waives presentment, demand, notice of
intention to accelerate, notice of acceleration, protest and any other notices
of any kind with respect to the Obligations.
5.4 SETOFF. Debtor irrevocably authorizes Secured Party to charge
any account of Debtor maintained with Secured Party with such amount as may be
necessary from time to time to pay any Obligations then due. Debtor agrees
that Secured Party shall have a contractual right to setoff any and all
deposits or other sums at any time credited by or due from Secured Party to
Debtor against any part of the Obligations then due. Such right of setoff may
be exercised at any time by Secured Party without prior notice, provided an
Event of Default exists. Upon the occurrence of an Event of Default and for so
long as the same shall remain in existence and not cured or waived, Secured
Party shall be entitled in its discretion to hold any such deposits or other
sums pending acceleration of the Obligations.
5.5 PERFORMANCE BY SECURED PARTY. Should Debtor fail to perform
any covenant, duty, or agreement required by the Loan Documents, Secured Party
may, at its sole option and election, perform or attempt to perform same on
behalf of Debtor at Debtor's cost and expense, provided that Secured Party
shall have no obligation or duty to take any such action. Debtor agrees to
reimburse Secured Party for the reasonable amount of such costs and expenses on
demand.
5.6 NON-WAIVER. Forbearance or indulgence of any Event of Default
or any other event or condition which is or would be the subject of a required
notice under the Loan and Security Agreement, at any time from time to time,
shall not be deemed a waiver of any rights of Secured Party under the Loan
Documents. The acceptance by Secured Party at any time and from time to time
of any partial payment of the Obligations shall not be deemed to be a waiver of
any Event of Default then existing. No delay or omission by Secured Party in
exercising any right or remedy shall impair such right or remedy, or be
construed as a waiver thereof, nor shall any single or partial exercise of any
such rights or remedies preclude other or further
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exercise thereof. Secured Party shall not be required or obligated to file
suit or otherwise pursue any other Person for enforcement or collection of any
of the Obligations or to take any action to realize upon any of the Collateral.
5.7 CASH COLLATERAL; INJUNCTIVE RELIEF. All cash proceeds of
Collateral from time to time existing, including without limitation collections
and payments of Receivables, whether consisting of cash, checks or other
similar items, at all times shall be subject to an express trust for the
benefit of the Lender. All such proceeds shall be subject to the Lender's
continuing security interests under this Agreement and the other the Loan
Documents. Debtor is expressly prohibited from using, spending, retaining or
otherwise exercising any dominion over such proceeds, except to the extent, if
any, as may be expressly allowed by Lender pursuant to written agreement signed
by Lender. Debtor acknowledges and agrees that an action for damages against
Debtor for any breach of such prohibitions shall not be an adequate remedy at
law. In the event of any such breach, Debtor agrees to the fullest extent
allowed by law that Lender shall be entitled to injunctive relief to restrain
such breach and require compliance with the requirements of this Agreement.
ARTICLE VI. MISCELLANEOUS
6.1 EFFECTIVE DATE; DURATION. This Agreement shall be effective
as of the effective date specified in the preamble of this Agreement.
Notwithstanding any termination or notice of termination by Borrower under the
Loan and Security Agreement, the Obligations and all rights and benefits of
Secured Party under this Agreement shall remain in full force and effect until
the Obligations have been paid in full. Debtor shall have no right of
termination or revocation of this Agreement except on or after termination of
the Loan and Security Agreement.
6.2 NOTICES. Any consent, approval, notice, request, or demand
from one party to another must be made in writing to be effective, and shall be
deemed to have been given on the third Business Day after its deposit in the
United States mail, postage prepaid and properly addressed, by certified or
registered mail, return receipt requested, or on the Business Day on which it
is actually delivered by messenger delivery, telecopy or other electronic
transmission, whichever is earlier. The address of each party for the purposes
hereof is as follows:
Debtor:
Bollinger Industries, Inc.
222 W. Airport Freeway
Irving, Texas 75062
Attention: Mr. Stephen P. Richman
Telecopy: 214/438-6242
Secured Party:
NationsBank of Texas, N.A.
NationsBank Plaza, 11th Floor
901 Main Street
Dallas, Texas 75202
Attention: Greg Nicholas
Telecopy: 214/508-2588
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or such other address as may hereafter be designated and delivered in writing.
6.3 SECURED PARTY'S RECORDS; ACCOUNT STATEMENTS. Secured Party's
records in respect of loans advanced, accrued interest, payments received and
applied and other matters in respect of calculation of the amount of the
Obligations shall be deemed conclusive absent demonstration of error. All
statements of account rendered by Secured Party to Borrower relating to
principal, accrued interest or costs owing by Borrower under the Loan and
Security Agreement shall be presumed to be correct and accurate unless, within
thirty (30) days after receipt thereof, Borrower shall notify Secured Party in
writing of any claimed error therein.
6.4 CONTINUING RIGHTS OF SECURED PARTY IN RESPECT OF OBLIGATIONS.
In the event any amount from time to time applied in reduction of the
Obligations is subsequently set aside, avoided, declared invalid or recovered
by Borrower or any trustee or in bankruptcy, or in the event Secured Party is
otherwise required to refund or repay any such amount pursuant to any
applicable law, then the Obligations shall automatically be deemed to be
revived and increased to the extent of such amount and the same shall continue
to be secured by the Collateral as if such amount had not been so applied.
6.5 FEES, COSTS AND EXPENSES. Debtor agrees to pay all reasonable
costs and expenses incurred by Secured Party in connection with enforcing any
provision of the Loan and Security Agreement, collecting the Obligations,
exercising any rights or remedies or pursuing or defending any claim arising
out of, or in any way relating to this Agreement, including without limitation
fees and costs of attorneys, experts or other consultants retained by Secured
Party in connection therewith. All fees, costs and expenses for which Debtor
is obligated under this Agreement shall be payable to Secured Party on demand.
6.6 ACCEPTANCE AND PERFORMANCE. This Agreement shall become
effective only upon acceptance by Secured Party at its offices in Dallas,
Dallas County, Texas. The Obligations are performable at Secured Party's
offices in Dallas, Dallas County, Texas. Debtor agrees that Dallas County,
Texas shall be the exclusive venue for litigation of any dispute or claim
arising under or relating to the Loan Documents, and that such county is a
convenient forum in which to decide any such dispute. Debtor consents to the
personal jurisdiction of the state and federal courts located in Dallas County,
Texas for the litigation of any such dispute or claim.
6.7 OBLIGATIONS. The rights of Secured Party in respect of the
Obligations shall not be impaired by reason that the amount thereof at any time
exceeds any stated maximum or other limitation provided in the Loan and
Security Agreement.
6.8 BENEFITS. Debtor acknowledges that this Agreement is
reasonably expected to benefit Debtor, directly and indirectly, is within its
corporate purpose, and is in its best interest. Debtor hereby acknowledges
that its agreement to this Agreement is in consideration of the availability of
the extension of credit to Borrower under the Loan and Security Agreement and
is not required by Secured Party or any Secured Party as a condition to the
availability of any loans or other credit to Debtor.
6.9 EXPRESS WAIVERS. Debtor agrees as follows:
(a) Debtor hereby waives: (1) notice of acceptance of
this Agreement; (2) notice of any loans or other financial
accommodations made or extended under the Loan Documents or the
creation or existence of any Obligations; (3) notice of the amount of
the Obligations, subject, however, to Debtor's right to make inquiry
of Secured Party to ascertain the amount thereof at any reasonable
time; (4) notice of any adverse change in the financial condition of
Borrower or any other fact that might increase Debtor's risk with
respect to Borrower under any agreement; (5) notice of presentment for
payment, demand, protest, and notice thereof, notice of intent to
accelerate, notice of acceleration,
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notice of dishonor, diligence in enforcement and indulgences of every
kind as to any promissory notes or other instruments among the Loan
Documents; and (6) all other notices (except if such notice is
specifically required to be given to Debtor hereunder or under any of
the Loan Documents to which Debtor is a party) and demands to which
Debtor might otherwise be entitled.
(b) Debtor waives any defense arising by reason of any
disability or other defense of Borrower or any other party liable on
the Obligations (other than the defense that the Obligations shall
have been fully and finally performed and indefeasibly paid) or by
reason of the cessation from any cause whatsoever of the liability of
Borrower or any such other party in respect thereof.
(c) Debtor hereby waives and agrees not to assert against
Secured Party or any Secured Party: (1) any defense, set-off,
counterclaim, or claim of any kind or nature available to Borrower
against Secured Party, arising directly or indirectly from the present
or future lack of perfection, sufficiency, validity, or enforceability
of the Obligations or any security therefor; (2) to the extent allowed
by law, any right or defense arising by reason of any claim or defense
based upon an election of remedies by Secured Party under any
applicable law.
(d) In addition to the foregoing waivers, Debtor hereby
waives outright and absolutely, any right of subrogation Debtor has or
may have against Borrower with respect to the Obligations. In
addition, Debtor hereby waives any right to proceed against Borrower
or any other Person, now or hereafter, for contribution, indemnity,
reimbursement, and any other suretyship rights and claims, whether
direct or indirect, liquidated or contingent, whether arising under
express or implied contract or by operation of law, which Debtor may
now have or hereafter have as against Borrower or any such other
Person with respect to the Obligations. Debtor also hereby waives any
rights to recourse to or with respect to any asset of Borrower or any
such other Person. Debtor agrees that in light of the immediately
foregoing waivers, the execution of this Agreement shall not be deemed
to make Debtor a "creditor" of Borrower or any other Person liable on
the Obligations, and that for purposes of Sections 547 and 550 of the
Bankruptcy Code, Debtor shall not be deemed a "creditor" of Borrower
or any such other Person.
(e) Secured Party shall have the right to seek recourse
against Debtor to the fullest extent provided for herein, and no
election by Secured Party to proceed in one form or action or
proceeding, or against any party, or on any obligation, shall
constitute a waiver of Secured Party's right to proceed in any other
form of action or proceeding or against other parties unless Secured
Party has expressly waived such right in writing. Specifically, but
without limiting the generality of the foregoing, no action or
proceeding by Secured Party under any document or instrument
evidencing the Obligations shall serve to diminish the liability of
Debtor under this Agreement except to the extent that Secured Party
finally and unconditionally shall have realized indefeasible payment
by such action or proceeding.
(f) Debtor represents and warrants to Secured Party that
Debtor is currently informed of the financial condition of Borrower
and all other Persons liable on the Obligations as provided by the
Loan and Security Agreement, and of all other circumstances which a
diligent inquiry would reveal and which bear upon the risk of
nonpayment of the Obligations. Debtor further represents and warrants
to Secured Party that Debtor has read and understands the terms and
conditions of the Loan Documents. Debtor hereby covenants that Debtor
will continue to keep informed of the financial condition of Borrower
and all other Debtors and of all other circumstances which bear upon
the risk of nonpayment or nonperformance of the Obligations. Debtor
is familiar with, and has independently reviewed the books and records
regarding, the financial condition of Borrower and is familiar with
the value of any and all property intended to be security for the
payment of all or any part of the
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Obligations; provided, however, Debtor is not relying on such
financial condition or security as an inducement to enter into this
Agreement. Debtor has adequate means to obtain from Borrower on a
continuing basis information concerning the financial condition of
Borrower and Debtor is not relying on Secured Party to provide such
information to Debtor either now or in the future. Neither Secured
Party, nor any other party has made any representation, warranty or
statement to Debtor in order to induce Debtor to execute this
Agreement.
(g) Debtor waives promptness and diligence, and the
taking of any other action by Secured Party, including without
limitation, giving any notice of default or any other notice to, or
making any demand on, Borrower, any other Person obligated on all or
any part of the Obligations or any other party, except as expressly
provided by the Loan and Security Agreement.
(h) Debtor waives any rights Debtor has under, or any
requirements imposed by, Chapter 34 of the Texas Business and Commerce
Code, as in effect on the date of this Agreement or as it may be
amended from time to time.
(i) Secured Party may at any time, without the consent of
or notice to Debtor, without incurring responsibility to Debtor and
without impairing, releasing, reducing or affecting the obligations of
Debtor hereunder: (i) change the manner, place or terms of payment of
all or any part of the Obligations, or renew, extend, modify,
rearrange or alter all or any part of the Obligations; (ii) sell,
exchange, release, surrender, subordinate, realize upon or otherwise
deal with in any manner and in any order any Collateral or any other
"Collateral" (as defined in the Loan and Security Agreement) or setoff
against all or any part of the Obligations; (iii) neglect, delay,
omit, fail or refuse to take or prosecute any action for the
collection of all or any part of the Obligations or this Agreement or
to take or prosecute any action in connection with any of the Loan
Documents; (iv) exercise or refrain from exercising any rights
against Borrower or others, or otherwise act or refrain from acting;
(v) settle or compromise all or any part of the Obligations and
subordinate the payment of all or any part of the Obligations to the
payment of any obligations, indebtedness or liabilities which may be
due or become due to Secured Party or others; (vi) apply any deposit
balance, fund, payment, collections through process of law or
otherwise or other property of Borrower to the satisfaction and
liquidation of the indebtedness or obligations of Borrower to Secured
Party, if any, not guaranteed under this Agreement; (vii) release all
or any one or more parties to any one or more of the Loan Documents or
grant other indulgences to Borrower or any other Person in respect
thereof; (viii) amend or modify in any manner and at any time (or from
time to time) any of the Loan Documents; or (ix) release or substitute
any Debtor, or enforce, exchange, release, or waive any security for
the Obligations, or any portion thereof and (x) apply any sums paid to
Secured Party by Debtor, Borrower or others to the Obligations as
provided by the Loan Documents.
(j) Should Secured Party seek to enforce the obligations
of Debtor hereunder by action in any court or otherwise, Debtor waives
any requirement, substantive or procedural, that (i) rights or
remedies be enforced first against Borrower, or any other Person
liable for all or any part of the Obligations, including without
limitation that a judgment first be rendered against Borrower or any
such other Person, or that Borrower or any such other Person should be
joined in such cause, or (ii) enforcement shall first be made against
any property which shall ever have been given to secure all or any
part of the Obligations or this Agreement. Such waiver shall be
without prejudice to Secured Party's right, at its option, to proceed
against Borrower or any other person or entity, whether by separate
action or by joinder.
(k) In addition to any other waivers, agreements and
covenants of Debtor set forth herein, Debtor hereby further waives and
releases all claims, causes of action, defenses and offsets for any
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act or omission of Secured Party and its directors, officers,
employees, representatives or agents in connection with administration
of the Obligations, except for willful misconduct and gross
negligence.
6.10 COPIES VALID AS FINANCING STATEMENTS. A carbon, photographic
or other reproduction, including photocopy, telecopy or electronic
transmission, of this Agreement or any financing statement shall be sufficient
as a financing statement.
6.11 ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM
BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR
THE ARBITRATION OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION
SERVICES, INC. (J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE
EVENT 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 AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS
AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
6.11.1 SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN
THE CITY OF THE BORROWER'S DOMICILE AT TIME OF THIS AGREEMENT'S
EXECUTION AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR;
IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE.
ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE
DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A
SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH
HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
6.11.2 RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE
APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED
IN THIS AGREEMENT; 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 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
FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO
OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT
LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. THE BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE
UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES
BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING
BROUGHT PURSUANT TO THIS AGREEMENT. NEITHER THIS EXERCISE OF 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 OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH
ACTION, TO
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ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO
SUCH REMEDIES.
6.12 GOVERNING LAW. THIS AGREEMENT, AND ALL DOCUMENTS AND
INSTRUMENTS EXECUTED IN CONNECTION HEREWITH, SHALL BE GOVERNED BY AND CONSTRUED
ACCORDING TO THE LAWS OF THE STATE OF TEXAS.
6.13 ENTIRETY AND AMENDMENTS. This Agreement embodies the entire
agreement between the parties relating to the subject matter hereof, and may be
modified or amended only by an instrument in writing executed by an authorized
officer of each party hereto.
6.14 PARTIES BOUND. This Agreement shall be binding upon and
inure to the benefit of Debtor, Secured Party, and their respective permitted
successors in interest and assigns. Debtor may not assign any right, power,
duty, or obligation under this Agreement, or any document or instrument
executed in connection herewith, without the prior written consent of Secured
Party. This Agreement is intended for the benefit of Debtor, Secured Party,
and their respective successors in interest and assigns only, and may not be
relied upon by any other Person.
6.15 EXHIBITS. All exhibits referenced herein, and attached
hereto, are incorporated in this Agreement and made a part hereof for all
purposes.
6.16 CUMULATIVE RIGHTS. All rights and remedies of Secured Party
under the Loan Documents are cumulative, and are in addition to rights and
remedies otherwise available by law. Such rights and remedies may be exercised
concurrently or successively, at such times as Secured Party may determine in
its discretion. Debtor waives any right to require marshalling.
6.17 SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable under any present or future laws
effective during the Contract Term, such provisions shall be fully severable,
and this Agreement shall be construed and enforced as if such illegal, invalid,
or unenforceable provision had never comprised a part of this Agreement. In
such case, the remaining provisions of the Agreement shall remain in full force
and effect and shall not be affected thereby.
6.18 MULTIPLE COUNTERPARTS. This Agreement may be executed
simultaneously in one or more multiple originals, each of which shall be deemed
an original, but all of which together shall constitute one and the same
Agreement.
6.19 SURVIVAL. All covenants, agreements, representations, and
warranties made by Debtor herein shall survive the execution, delivery, and
closing of this Agreement, and all documents executed in connection herewith,
and shall not be affected by any investigation made by any party.
18
<PAGE> 35
THIS WRITTEN AGREEMENT REPRESENTS 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.
NATIONSBANK OF TEXAS, N.A. BOLLINGER INDUSTRIES, INC.
By: /s/ Greg Nicholas By /s/ Glenn D. Bollinger
------------------------- ------------------------
Name: Greg Nicholas Name: Glenn D. Bollinger
Title: Vice President Title: Chairman and Chief
Executive Officer
EXECUTED as of the effective date specified in the preamble.
Debtor:
------
BOLLINGER INDUSTRIES, INC.
By: /s/ Glenn D. Bollinger
-------------------------
Name: Glenn D. Bollinger
Title: Chairman and Chief
Executive Officer
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared
Glenn D. Bollinger, known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that the same
was the act of said BOLLINGER INDUSTRIES, INC., and that he executed the same
for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 14th day of March,
1996.
/s/ Donna M. Malizia
-----------------------------
NOTARY PUBLIC, STATE OF TEXAS
My Commission Expires:
11-09-98 Donna M. Malizia
- - ---------------------- -----------------------------
(Printed Name of Notary)
19
<PAGE> 36
EXHIBIT 1.3
to
SECURITY AGREEMENT
between
NATIONSBANK OF TEXAS, N.A.
and
BOLLINGER INDUSTRIES, INC.
Other Security Interest, Liens or Encumbrances
Secured Party Collateral Covered
------------- ------------------
20
<PAGE> 37
EXHIBIT 1.4
to
SECURITY AGREEMENT
between
NATIONSBANK OF TEXAS, N.A.
and
BOLLINGER INDUSTRIES, INC.
Collateral Locations
Location Landlord
-------- --------
21
<PAGE> 38
EXHIBIT 1.9
to
SECURITY AGREEMENT
between
NATIONSBANK OF TEXAS, N.A.
and
BOLLINGER INDUSTRIES, INC.
Consignments
22
<PAGE> 39
EXHIBIT 2.1
to
SECURITY AGREEMENT
between
NATIONSBANK OF TEXAS, N.A.
and
BOLLINGER INDUSTRIES , INC.
Trade Names, Etc.
23
<PAGE> 40
EXHIBIT 2.8
to
SECURITY AGREEMENT
between
NATIONSBANK OF TEXAS, N.A.
and
BOLLINGER INDUSTRIES, INC.
Litigation
No Material Litigation
24
<PAGE> 41
FINANCING STATEMENT
-------------------
THIS FINANCING STATEMENT IS PRESENTED TO A FILING OFFICER FOR FILING PURSUANT
TO THE
TEXAS UNIFORM COMMERCIAL CODE
______________________________________________________________________________
DEBTOR'S NAME Bollinger Industries, Inc.
AND ADDRESS: 222 Airport Freeway
Irving, Texas 75062
- - ------------------------------------------------------------------------------
SECURED PARTY'S NationsBank of Texas, N.A.
NAME AND ADDRESS: P.O. Box 831000
Dallas, Texas 75283-1000
- - -------------------------------------------------------------------------------
FOR FILING OFFICER: Secretary of State of Texas
- - -------------------------------------------------------------------------------
This financing statement covers all "Collateral" defined below,
whether now owned or existing or hereafter arising or acquired and wherever
arising or located:
"Collateral" means collectively all of the following, now owned and
hereafter acquired: Receivables, Inventory, and all computer programs,
applications, discs, software, files and other records pertaining to any
Collateral, as well as any accessions, additions and attachments thereto and
proceeds and products thereof, including without limitation, all products and
proceeds consisting of cash, accounts, inventory, insurance proceeds payable
because of loss or damage, or other property, benefits or rights arising
therefrom and in and to all returned or repossessed goods arising from or
relating to any of such property or other proceeds of any other sale or other
disposition of such property. As used herein:
"Inventory" means all Inventory now or hereafter owned, acquired,
possessed or held on consignment or for sale or return by Debtor,
including (a) all goods, merchandise, raw materials, goods in process,
finished goods and other tangible personal property, wheresoever
located, and (b) Inventory purchased by Debtor and in transit to
Debtor, together with all documents, instruments, bills of lading or
warehouse receipts and all general intangibles related thereto, now
owned or hereafter acquired and held for sale or lease or furnished or
to be furnished under contracts for service or used or consumed in
Debtor's business and additions and accessions thereto and contracts
with respect thereto and all documents of title evidencing or
representing any part thereof, and all products and proceeds thereof.
"Inventory" also includes returned Inventory:
"Receivables" means all of Debtor's now owned or existing accounts as
well as any and all accounts that may hereafter arise or be acquired
by Debtor, and all the proceeds and products thereof, including
without limitation, all notes, drafts, acceptances, instruments and
chattel paper arising therefrom, and all returned or repossessed goods
arising from or relating to any such accounts, or other proceeds of
any sale or other disposition of Inventory.
Products of the Collateral are also covered.
Unless expressly provided otherwise, any term used herein which is
defined by the Texas Uniform Commercial Code shall have the same meaning,
wherever used in this financing statement, as is prescribed in the Texas Uniform
Commercial Code.
Bollinger Industries, Inc.
By:/s/ Glenn D. Bollinger
--------------------------------
Name: Glenn D. Bollinger
Title: Chairman and Chief Executive
Officer
After filing return to:
Jenkens & Gilchrist
Attn: Charles Helm
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
<PAGE> 42
February 21, 1996
Bollinger Industries, L.P.
222 Airport Freeway
Irving, Texas 75062
Attention: Mr. Glenn D. Bollinger
Re: Loan from NationsBank of Texas, N.A. to Bollinger
Industries, L.P.
Gentlemen:
This letter is written pursuant to the Loan and Security Agreement
dated as of September 9, 1994, by and between Bollinger Industries, L.P.
("Bollinger") and NationsBank of Texas, N.A. ("Bank") (as the same has
previously been and may hereafter be amended, the "Loan Agreement").
Initially-capitalized terms defined in the Loan Agreement and not otherwise
defined herein shall have the same meanings when used in this letter as in the
Loan Agreement.
The Loan Agreement provides that the Borrowing Base consist of eighty
percent (80%) of Eligible Accounts plus fifty percent (50%) of Eligible
Inventory, but restricts the total amount of the Borrowing Base attributable to
Eligible Inventory to the amount of the Borrowing Base represented by Eligible
Accounts. The limit on the amount of the Borrowing Base which may be
attributed to Eligible Inventory is referred to hereinafter as the "Inventory
Sublimit." Bollinger has requested the Bank to temporarily increase the
Inventory Sublimit such that the maximum amount of the Borrowing Base that is
attributable to Eligible Inventory may equal, but not exceed, an amount equal
to eighty percent (80%) of Eligible Accounts plus $1,500,000. The increased
Inventory Sublimit is referred to hereinafter as the "Interim Sublimit."
Bollinger has requested the Bank to put the Interim Sublimit in place from and
including February 21, 1996, to but excluding March 8, 1996, such that the
Borrowing Base during that period will consist of eighty percent (80%) of
Eligible Accounts plus the lesser of (i) fifty percent (50%) of Eligible
Inventory or (ii) an amount equal to eighty percent (80%) of Eligible Accounts
plus $1,500,000.
This Bank is willing to implement the Interim Sublimit in the manner
described in the preceding paragraph from and including February 21, 1996, to
but excluding March 8, 1996; provided, however, that the Bank may suspend use
of the Interim Sublimit and reinstate the application of the previous Inventory
Sublimit at any time prior to March 8, 1996, without notice, and provided
further, however, that the agreement of the Bank to temporarily implement the
Interim Sublimit shall in no way impair the ability of the Bank to establish
reserves against Eligible Accounts, Eligible Inventory, or the Borrowing Base
as a whole in its discretion as provided in the Loan Agreement.
<PAGE> 43
Bollinger Industries, L.P.
February 21, 1996
Page 2
No failure on the part of the Bank to exercise and no delay in
exercising, and no course of dealing with respect to, any right, power, or
privilege under the Loan Agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power, or privilege under the Loan
Agreement preclude any other or further exercise thereof or the exercise of any
other right, power, or privilege. The agreement by the Bank to temporarily
implement the Interim Sublimit provided in this letter does not constitute a
waiver of the Inventory Sublimit in connection with any future action by
Bollinger or a waiver of the Inventory Sublimit other than as specified in this
letter, and does not constitute a waiver of any other condition of the Loan
Agreement.
Sincerely,
NATIONSBANK OF TEXAS, N.A.
By: /s/ Greg Nicholas
---------------------
Name: Greg Nicholas
Title: Vice President
<PAGE> 44
Bollinger Industries, L.P.
February 21, 1996
Page 3
The undersigned acknowledges, consents to, and agrees to be bound by
the terms of the foregoing letter.
BOLLINGER INDUSTRIES, L.P.,
a Texas limited partnership
By: Bollinger Operating Corp.,
A Nevada corporation,
General Partner
By: /s/ Stephen P. Richman
--------------------------
Name: Stephen P. Richman
Title: Chief Financial Officer
Bollinger Industries, Inc., Bollinger Operating Corp. and NBF, Inc.
("NBF"), each jointly and severally hereby acknowledge the execution of, and
consent to, the terms and conditions of the preceding letter and reaffirm their
respective obligations under those certain Guaranty By Corporation (the
"Guaranties") each dated as of September 9, 1994, made by the undersigned in
favor of the Bank, and acknowledge and agree that the Guaranties remain in full
force and effect and the Guaranties are hereby ratified and confirmed; and NBF
reaffirms its obligations under that certain Security Agreement (the "Security
Agreement") dated as of September 9, 1994, made by NBF in favor of the Bank and
acknowledges and agrees that the Security Agreement remains in full force and
effect and the Security Agreement is hereby ratified and confirmed.
BOLLINGER INDUSTRIES, INC.
By: /s/ Stephen P. Richman
------------------------------
Name: Stephen P. Richman
Title: Chief Financial Officer
<PAGE> 45
Bollinger Industries, L.P.
February 21, 1996
Page 4
BOLLINGER OPERATING CORP.
By: /s/ Stephen P. Richman
------------------------------
Name: Stephen P. Richman
Title: Chief Financial Officer
NBF, INC.
By: /s/ Stephen P. Richman
------------------------------
Name: Stephen P. Richman
Title: Chief Financial Officer
<PAGE> 1
NATIONSBANK
NATIONSBANK OF TEXAS, N.A.
- - -------------------------------------------------------------------------------
EIGHTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
NATIONSBANK OF TEXAS, N.A.
AND
BOLLINGER INDUSTRIES, L.P.
A TEXAS LIMITED PARTNERSHIP
DATED: EFFECTIVE AS OF MAY 8, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1 Amendment to Definition of Borrowing Base . . . . . . . 2
Section 2.2 Amendment to Definition of Contract Term . . . . . . . 2
Section 2.3 Amendment to Definition of Loan Documents . . . . . . . 2
ARTICLE III
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . 3
Section 3.1 Ratifications . . . . . . . . . . . . . . . . . . . . . 3
Section 3.2 Representations and Warranties . . . . . . . . . . . . 3
ARTICLE IV
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 4.1 Conditions. . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE V
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 5.1 Amendment Fee . . . . . . . . . . . . . . . . . . . . . 4
Section 5.2 Waiver of Defaults . . . . . . . . . . . . . . . . . . 4
Section 5.3 No Waiver, Reservation of Rights. . . . . . . . . . . . 4
Section 5.4 No Extension of Maturity. . . . . . . . . . . . . . . . 5
Section 5.5 Survival of Representations and Warranties . . . . . . 5
Section 5.6 Reference to Agreement. . . . . . . . . . . . . . . . . 5
Section 5.7 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . 5
Section 5.8 Arbitration . . . . . . . . . . . . . . . . . . . . . . 6
Section 5.9 Governing Law . . . . . . . . . . . . . . . . . . . . . 7
Section 5.10 Parties Bound . . . . . . . . . . . . . . . . . . . . . 7
Section 5.11 Cumulative Rights . . . . . . . . . . . . . . . . . . . 7
Section 5.12 Severability. . . . . . . . . . . . . . . . . . . . . . 7
Section 5.13 Multiple Counterparts . . . . . . . . . . . . . . . . . 7
Section 5.14 Survival. . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
<PAGE> 3
NATIONSBANK
NATIONSBANK OF TEXAS, N.A.
- - -------------------------------------------------------------------------------
EIGHTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
THIS EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "AMENDMENT")
is dated as of May 8, 1996, and entered into by and between NATIONSBANK OF
TEXAS, N.A., a national banking association ("LENDER") with offices at 901 Main
Street, 7th Floor, Dallas, Texas 75201, and BOLLINGER INDUSTRIES, L.P., a Texas
limited partnership ("BORROWER") with offices at 222 Airport Freeway, Irving,
Texas 75062.
WHEREAS, Lender and Borrower have entered into a Loan and Security
Agreement (the "AGREEMENT"), dated as of September 9, 1994;
WHEREAS, Lender and Borrower on October 28, 1994 have entered into a
First Amendment to Loan and Security Agreement (the "FIRST AMENDMENT"), which
was dated effective as of September 9, 1994;
WHEREAS, Lender and Borrower on December 8, 1994 have entered into a
Second Amendment to Loan and Security Agreement (the "SECOND AMENDMENT");
WHEREAS, Lender and Borrower on March 3, 1995 have entered into a
Third Amendment to Loan and Security Agreement (the "THIRD AMENDMENT"), which
was dated effective as of December 31, 1994;
WHEREAS, Lender and Borrower on May 15, 1995 have entered into a
Fourth Amendment to Loan and Security Agreement (the "FOURTH AMENDMENT"), which
was dated effective as of January 31, 1995;
WHEREAS, Lender and Borrower, effective on September 9, 1995, have
entered into a Fifth Amendment to Loan and Security Agreement (the "FIFTH
AMENDMENT");
WHEREAS, Lender and Borrower, effective on December 29, 1995, have
entered into a Sixth Amendment to Loan and Security Agreement (the "SIXTH
AMENDMENT");
WHEREAS, Lender and Borrower, effective on March 8, 1996, have entered
into a Seventh Amendment to Loan and Security Agreement (the "SEVENTH
AMENDMENT") (the Agreement together with the First Amendment, the Second
Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, the
Sixth Amendment and the Seventh Amendment shall hereinafter be referred to as
the "AGREEMENT"); and
WHEREAS, Lender and Borrower desire to further amend the Agreement as
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in the Agreement and this Amendment, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 1 of 12
<PAGE> 4
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. Capitalized terms used in this
Amendment, to the extent not otherwise defined herein, shall have the same
meanings as in the Agreement, as amended hereby.
ARTICLE II
AMENDMENTS
Section 2.1 AMENDMENT TO DEFINITION OF BORROWING BASE. Effective
as of the date hereof, the definition of "Borrowing Base" contained in Article
I of the Agreement is hereby amended and restated to read in its entirety as
follows:
"BORROWING BASE" means (I) eighty percent (80.0%) of the
amount of Eligible Accounts, plus (ii) fifty percent (50.0%)
of the amount of Eligible Inventory (provided, however, that
the advance rate adjusted amount of Eligible Inventory
constituting part of the Borrowing Base shall not exceed the
advance rate adjusted amount of Eligible Accounts constituting
part of the Borrowing Base at any time).
Section 2.2 AMENDMENT TO DEFINITION OF CONTRACT TERM. Effective
as of the date hereof, the definition of "Contract Term" contained in Article I
of the Agreement is hereby amended and restated to read in its entirety as
follows:
"CONTRACT TERM" means the period beginning on the effective
date specified in the preamble of this Agreement and
continuing through July 8, 1996.
Section 2.3 AMENDMENT TO DEFINITION OF LOAN DOCUMENTS. The
definition of "Loan Documents" contained in Article I of the Agreement is
hereby amended and restated to read in its entirety as follows:
"LOAN DOCUMENTS" means this Agreement, the Revolving Note, the
First Amended and Restated Revolving Note - Overline, the
Demand Note, the First Amendment to Loan and Security
Agreement dated effective as of September 9, 1994, the Second
Amendment to Loan and Security Agreement dated as of December
8, 1994, the Third Amendment to Loan and Security Agreement
dated effective as of December 31, 1994, the Fourth Amendment
to Loan and Security Agreement dated effective as of January
31, 1995, the Fifth Amendment to Loan and Security Agreement
dated as of September 9, 1995, the Sixth Amendment to Loan and
Security Agreement dated as of December 29, 1995, the Seventh
Amendment to Loan and Security Agreement dated as of March 8,
1996, the Eighth Amendment to Loan and Security Agreement
dated as of May 8, 1996, each Guaranty, the NBF Security
Agreement, the Security Agreement dated as of March 8, 1996,
executed by BII to the Lender, the Deed of Trust, Security
Agreement, Assignment and Financing Statement dated as of May
8, 1996, relating to the Borrower's corporate headquarters,
and all other documents or agreements executed in connection
therewith, and also includes any and all renewals, extensions,
modifications or amendments of any of any of the foregoing.
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 2 of 12
<PAGE> 5
ARTICLE III
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
Section 3.1 RATIFICATIONS. The terms and provisions set forth in
this Amendment shall modify and supersede all inconsistent terms and provisions
set forth in the Agreement and, except as expressly modified and superseded by
this Amendment, the terms and provisions of the Agreement, including, without
limitation, all financial covenants contained therein, are ratified and
confirmed and shall continue in full force and effect. Lender and Borrower
agree that the Agreement as amended hereby shall continue to be legal, valid,
binding and enforceable in accordance with its terms. In furtherance and not
in limitation of the provisions of this Section 3.1, Borrower hereby waives and
releases any and all claims or offsets against, or defenses to, the payment and
performance of the Obligations that Borrower may have at law, in equity or
otherwise, based on any and all actions or alleged actions, omissions or
related omissions of Lender or any of Lender's affiliates, directors, officers,
employees, attorneys, representatives or agents which have occurred on or prior
to May 8, 1996, and Borrower hereby represents and warrants that no such
claims, offsets or defenses exist as of such date.
Section 3.2 REPRESENTATIONS AND WARRANTIES. Borrower, BII, BOC
and NBF each hereby represent and warrant to Lender that the execution,
delivery and performance of this Amendment and all other Loan Documents to
which Borrower, BII, BOC or NBF is or is to be a party hereunder (hereinafter
referred to collectively as the "LOAN DOCUMENTS") executed and/or delivered in
connection herewith, have been authorized by all requisite corporate or
partnership action, as applicable, on the part of Borrower, BII, BOC and NBF
and will not violate the Articles of Incorporation, Bylaws or Partnership
Agreement of Borrower, BII, BOC or NBF, as applicable. There has been no
material adverse change in the business, operations, financial condition,
profits or prospects, or in the Collateral, of Borrower or NBF, since November
16, 1995, except as previously disclosed to Lender or publicly disclosed, and
there has been no change in the officers of Borrower or any Guarantor since
November 16, 1995. The Articles of Incorporation, Bylaws or Partnership
Agreement, as applicable, of the General Partner of Borrower and each Guarantor
have not been altered, amended, rescinded or revised since November 16, 1995.
Borrower, BII, BOC and NBF hereby jointly and severally represent and warrant
to Lender that (I) Borrower and NBF own all of the Eligible Accounts and
Eligible Inventory described on each Borrowing Base Report previously or
hereafter delivered to Lender, (ii) BII conducts no operations and owns no
material assets other than the stock of BOC and BHC, (iii) BOC and BHC conduct
no operations other than the ownership of partnership interests in Borrower, of
which BOC is the sole general partner and BHC is the sole limited partner, and
(iv) BOC and BHC own no material assets other than their respective partnership
interests in Borrower.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.1 CONDITIONS. The effectiveness of this Amendment is
subject to the satisfaction of the following conditions precedent (unless
specifically waived in writing by the Lender):
(a) Lender shall have received all of the following, each
dated (unless otherwise indicated) as of the date of this Amendment,
in form and substance satisfactory to Lender in its sole discretion:
(i) Secretary's Certificate. A Secretary's
Certificate dated as of even date with the date this Amendment
is executed from the General Partner of Borrower and each
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 3 of 12
<PAGE> 6
Guarantor certifying as to corporate resolutions authorizing
the execution and delivery of this Amendment.
(ii) Amendment. This Amendment, duly executed.
(iii) Opinion of Counsel to Borrower and
Guarantors. An opinion of counsel for Borrower and each
Guarantor, respectively, in form and substance reasonably
satisfactory to Lender dated as of even date with the date
this Amendment is executed.
(iv) Other Documents. Borrower shall have
executed and delivered such other documents and instruments as
Lender may reasonably require.
(v) Legal and Professional Fees. Borrower shall
have paid all fees and expenses of Lender's accountants and
legal counsel incurred in connection with the Revolving
Facility and the Loan Documents, including this Amendment, and
the interpretation and enforcement thereof.
(b) All partnership or corporate proceedings, as
applicable, taken in connection with the transactions contemplated by
this Amendment and all documents, instruments and other legal matters
incident thereto shall be reasonably satisfactory to Lender.
ARTICLE V
MISCELLANEOUS
Section 5.1 AMENDMENT FEE. In consideration of the execution and
delivery of this Amendment, Borrower agrees to pay Lender an amendment fee of
$50,000 (the AMENDMENT FEE ) due and payable on June 1, 1996, unless prior to
that time Borrower has obtained a written commitment, in form and substance
acceptable to Lender, to refinance all of the indebtedness outstanding under
the Loan Documents, in which case payment of the Amendment Fee shall be
deferred until July 8, 1996, unless prior to that time all of the indebtedness
outstanding under the Loan Documents has been paid in full, in which case the
payment of the Amendment Fee shall be excused.
Section 5.2 DEED OF TRUST. No later than fifteen days after the
date hereof, the Borrower shall execute and deliver (or cause to be executed
and delivered) to the Lender deed of trust, in form and substance acceptable to
Lender, granting to the Lender a lien upon its corporate headquarters, which
real property is more fully described on Exhibit A attached hereto and
incorporated herein by reference, together with such releases or subordinations
of prior liens, due diligence materials, and other matters as Lender may
require, all in form and substance satisfactory to Lender. Failure to comply
with the provisions of this Section 5.2 shall constitute an Event of Default
under the Loan Agreement.
Section 5.3 WAIVER OF DEFAULTS. Borrower has notified Lender
that Borrower is in violation of the covenants contained in Section 6.21 of the
Agreement. Lender hereby waives the noncompliance by Borrower with the
provisions of Section 6.21 of the Agreement through and including July 8, 1996,
and not thereafter. The foregoing waiver does not permit Borrower to fail to
comply with any other provision of the Agreement or any other Loan Document.
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 4 of 12
<PAGE> 7
Section 5.4 NO WAIVER, RESERVATION OF RIGHTS. No failure on the
part of Lender to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power or privilege under the Agreement or any other
Loan Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege under the Agreement or any
other Loan Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The waiver by Lender of
compliance with the provisions of Section 6.21 of the Agreement provided in
this Amendment does not constitute a waiver of such provisions beyond the time
specified in this Amendment, and does not constitute a waiver of any other
condition of the Agreement and the other Loan Documents. Notwithstanding any
failure by Lender to insist on strict compliance by Borrower with the terms of
the Agreement or any other Loan Document in the past, or any forbearance by
Lender in exercising its rights and remedies under the Agreement and the other
Loan Documents, including any past waivers by Lender of Events of Default under
the Agreement or any other Loan Document, Lender will insist on strict
compliance with the terms of the Agreement and the other Loan Documents in the
future. Any future failure by Borrower to comply strictly with the terms of
the Agreement and the other Loan Documents may result in the Lender's pursuit
of its rights and remedies existing by virtue of the Agreement and the other
Loan Documents or existing at law or in equity. Lender expressly reserves the
right to exercise any and all rights or remedies available to Lender under the
Loan Documents, at law or in equity, with respect to any present or future
Events of Default unless the same are waived in writing by Lender. No failure
on the part of Lender to exercise, or delay by Lender in exercising, its rights
and remedies under the Loan Documents shall constitute a waiver of any existing
or future Event of Default.
Section 5.5 NO EXTENSION OF MATURITY. Notwithstanding that
Lender has continued to make credit available to Borrower in the past and has
renewed and extended the credit facility evidenced by the Loan Documents in the
past, Borrower acknowledges that Lender has no obligation to continue to make
credit available to Borrower under the Revolving Facility after July 8, 1996.
Lender hereby notifies Borrower that, notwithstanding any previous renewals or
extensions of credit to Borrower, Lender will not continue to make credit
available to Borrower after July 8, 1996, and that the Obligations shall be due
and payable in full on July 8, 1996.
Section 5.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in the Agreement or any other document or
documents relating thereto, including, without limitation, any Loan Document
furnished in connection with this Amendment, shall survive the execution and
delivery of this Amendment and the other Loan Documents, and no investigation
by Lender or any closing shall affect the representations and warranties or the
right of Lender to rely thereon.
Section 5.7 REFERENCE TO AGREEMENT. The Agreement, each of the
Loan Documents, and any and all other agreements, documents or instruments now
or hereafter executed and delivered pursuant to the terms hereof or pursuant to
the terms of the Agreement as amended hereby, are hereby amended so that any
reference therein to the Agreement shall mean a reference to the Agreement as
amended hereby.
Section 5.8 WAIVER OF JURY TRIAL. THE PARTIES HERETO AGREE THAT
NEITHER PARTY SHALL REQUEST A TRIAL BY JURY IN THE EVENT OF LITIGATION BETWEEN
THEM CONCERNING THE LOAN DOCUMENTS OR ANY CLAIMS OR TRANSACTIONS IN CONNECTION
THEREWITH, IN EITHER A STATE OR FEDERAL COURT, THE RIGHT TO TRIAL BY JURY BEING
EXPRESSLY WAIVED BY BOTH LENDER AND BORROWER. LENDER AND BORROWER EACH
ACKNOWLEDGES THAT SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF
THE NATURE OF THE RIGHTS AND BENEFITS WAIVED HEREBY, AND WITH THE BENEFIT OF
ADVICE OF COUNSEL OF ITS CHOOSING.
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 5 of 12
<PAGE> 8
Section 5.9 ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR
AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR
RELATING TO THIS AMENDMENT 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 ENDISPUTE, INC. (A/K/A J.A.M.S./
ENDISPUTE), 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
AMENDMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AMENDMENT
APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(a) Special Rules. THE ARBITRATION SHALL BE CONDUCTED IN
THE CITY OF THE BORROWER'S DOMICILE AT THE TIME OF THIS AMENDMENT'S
EXECUTION AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR;
IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE.
ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE
DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A
SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH
HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
(b) Reservation of Rights. NOTHING IN THIS AMENDMENT
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE
APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED
IN THIS AMENDMENT; OR (II) BE A WAIVER BY THE LENDER OF THE PROTECTION
AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT
STATE LAW; OR (III) LIMIT THE RIGHT OF THE LENDER HERETO (A) TO
EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR
(B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR
(C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS
(BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE
APPOINTMENT OF A RECEIVER. THE LENDER MAY EXERCISE SUCH SELF HELP
RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY
ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AMENDMENT. NEITHER
THIS EXERCISE OF 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 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 Loan Documents regarding waiver of trial by jury
or submission to jurisdiction and/or venue in any court is intended or shall be
construed to be in derogation of the provisions in any Loan Document for
arbitration of any controversy or claim.
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 6 of 12
<PAGE> 9
Section 5.10 GOVERNING LAW. THIS AMENDMENT, AND ALL DOCUMENTS AND
INSTRUMENTS EXECUTED IN CONNECTION HEREWITH, SHALL BE GOVERNED BY AND CONSTRUED
ACCORDING TO THE LAWS OF THE STATE OF TEXAS, PROVIDED, THAT TO THE EXTENT
FEDERAL LAW WOULD ALLOW A HIGHER RATE OF INTEREST THAN WOULD BE ALLOWED BY THE
LAWS OF THE STATE OF TEXAS, THEN WITH RESPECT TO THE PROVISIONS OF ANY LAW
WHICH PURPORT TO LIMIT THE AMOUNT OF INTEREST THAT MAY BE CONTRACTED FOR,
CHARGED OR RECEIVED IN CONNECTION WITH ANY OF THE OBLIGATIONS, SUCH FEDERAL LAW
SHALL APPLY.
Section 5.11 PARTIES BOUND. This Amendment shall be binding upon
and inure to the benefit of Borrower and Lender, and their respective
successors in interest and assigns. Borrower may not assign any right, power,
duty, or obligation under this Amendment, or any document or instrument
executed in connection herewith, without the prior written consent of Lender.
Subject to any applicable rules, regulations or laws of governmental
authorities relating to the non-assignability of loans or other assets of
Lender, Lender may not assign any of its rights, powers, duties or obligations
under this Amendment, or any document or instrument executed in connection
herewith, without the prior written consent of Borrower. This Amendment is
intended for the benefit of Borrower and Lender, and their respective
successors in interest and assigns only, and may not be relied upon by any
other Person.
Section 5.12 CUMULATIVE RIGHTS. All rights and remedies of Lender
under the Loan Documents are cumulative, and are in addition to rights and
remedies available to Lender by law. Such rights and remedies may be exercised
concurrently or successively, at such times as Lender may determine in its
discretion. Borrower waives any right to require marshaling.
Section 5.13 SEVERABILITY. If any provision of this Amendment is
held to be illegal, invalid, or unenforceable under any present or future laws
effective during the Contract Term, such provisions shall be fully severable,
and this Amendment shall be construed and enforced as if such illegal, invalid,
or unenforceable provision had never comprised a part of this Amendment. In
such case, the remaining provisions of the Amendment shall remain in full force
and effect and shall not be affected thereby.
Section 5.14 MULTIPLE COUNTERPARTS. This Amendment may be
executed simultaneously in one or more multiple originals, each of which shall
be deemed an original, but all of which together shall constitute one and the
same Amendment.
Section 5.15 SURVIVAL. All covenants, agreements,
representations, and warranties made by Borrower herein shall survive the
execution, delivery, and closing of this Amendment, and all documents executed
in connection herewith, and shall not be affected by any investigation made by
any party.
THIS WRITTEN AMENDMENT REPRESENTS 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.
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 7 of 12
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Amendment under
seal on May 9, 1996 to be effective as of May 8, 1996.
"BORROWER"
BOLLINGER INDUSTRIES, L.P.,
A TEXAS LIMITED PARTNERSHIP
By: Bollinger Operating Corp.,
A Nevada corporation,
General Partner
By: /s/ Glenn D. Bollinger
---------------------------------------
Name: Glenn D. Bollinger
Title: Chairman and Chief Executive Officer
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared
Glenn D. Bollinger, Chairman and Chief Executive Officer of Bollinger Operating
Corp., the general partner of Bollinger Industries, L.P., known to me to be the
person and officer whose name is subscribed to the foregoing instrument, and
acknowledged to me that the same was the act of the said BOLLINGER INDUSTRIES,
L.P., a Texas limited partnership, and that he executed the same on behalf of
Bollinger Operating Corp. as the general partner of Bollinger Industries, L.P.,
as the act of such limited partnership for the purposes and consideration
therein expressed and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 9th day of May, 1996.
/s/ Donna M. Malizia
-------------------------------------------
NOTARY PUBLIC, STATE OF TEXAS
My Commission Expires:
11-09-98 Donna M. Malizia
- - ---------------------- -------------------------------------------
(Printed Name of Notary)
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 8 of 12
<PAGE> 11
AGREED AND ACCEPTED on May 9th, 1996 to be effective as of May 8,
1996.
"LENDER"
NATIONSBANK OF TEXAS, N.A.
By: /s/ Greg Nicholas
---------------------------------------
Name: Greg Nicholas
Title: Vice President
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared
Greg Nicholas, Vice President, known to me to be the person and officer whose
name is subscribed to the foregoing instrument, and acknowledged to me that the
same was the act of the said NATIONSBANK OF TEXAS, N.A., a national banking
association, and that he executed the same as the act of such banking
association for the purposes and consideration therein expressed and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 9th day of May, 1996.
/s/ Donna M. Malizia
-------------------------------------------
NOTARY PUBLIC, STATE OF TEXAS
My Commission Expires:
11-09-98 Donna M. Malizia
- - ---------------------- -------------------------------------------
(Printed Name of Notary)
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 9 of 12
<PAGE> 12
CONSENTS AND REAFFIRMATIONS
BOLLINGER INDUSTRIES, INC. ("BII"), BOLLINGER OPERATING CORP. AND NBF,
INC. ("NBF"), each jointly and severally hereby acknowledge the execution of,
and consent to, the terms and conditions of that Seventh Amendment to Loan and
Security Agreement dated effective as of March 8, 1996, between Bollinger
Industries, L.P. and NationsBank of Texas, N.A. ("LENDER") and reaffirms their
respective obligations under those certain Guaranty By Corporation (the
"GUARANTIES") each dated as of September 9, 1994, made by the undersigned in
favor of the Lender, and acknowledge and agree that the Guaranties remain in
full force and effect and the Guaranties are hereby ratified and confirmed; and
NBF reaffirms its obligations under that certain Security Agreement (the "NBF
SECURITY AGREEMENT") dated as of September 9, 1994, made by NBF in favor of the
Lender and acknowledges and agrees that the NBF Security Agreement remains in
full force and effect and the NBF Security Agreement is hereby ratified and
confirmed; and (iii ) BII reaffirms its obligations under that certain Security
Agreement (the "BII SECURITY AGREEMENT") dated as of March 8, 1996, made by BII
in favor of the Lender and acknowledges and agrees that the BII Security
Agreement remains in full force and effect and the BII Security Agreement is
hereby ratified and confirmed.
EXECUTED on May 9, 1996 to be effective as of May 8, 1996.
GUARANTOR:
BOLLINGER INDUSTRIES, INC.
By: /s/ Glenn D. Bollinger
----------------------------------------
Name: Glenn D. Bollinger
Title: Chairman and Chief Executive Officer
GUARANTOR:
BOLLINGER OPERATING CORP.
By: /s/ Glenn D. Bollinger
---------------------------------------
Name: Glenn D. Bollinger
Title: Chairman and Chief Executive Officer
GUARANTOR:
NBF, INC.
By: /s/ Glenn D. Bollinger
---------------------------------------
Name: Glenn D. Bollinger
Title: Vice Chairman
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 10 of 12
<PAGE> 13
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared
Glenn D. Bollinger, known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that the same
was the act of said Bollinger Industries, Inc., and that he executed the same
for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 9th day of May, 1996.
/s/ Donna M. Malizia
-------------------------------------------
NOTARY PUBLIC, STATE OF TEXAS
My Commission Expires:
11-09-98 Donna M. Malizia
- - ---------------------- -------------------------------------------
(Printed Name of Notary)
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared
Glenn D. Bollinger, known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that the same
was the act of said Bollinger Operating Corp., and that he executed the same
for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 9th day of May, 1996.
/s/ Donna M. Malizia
-------------------------------------------
NOTARY PUBLIC, STATE OF TEXAS
My Commission Expires:
11-09-98 Donna M. Malizia
- - ---------------------- -------------------------------------------
(Printed Name of Notary)
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 11 of 12
<PAGE> 14
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared
Glenn D. Bollinger, known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that the same
was the act of said NBF, Inc., and that he executed the same for the purposes
and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 9th day of May, 1996.
/s/ Donna M. Malizia
-------------------------------------------
NOTARY PUBLIC, STATE OF TEXAS
My Commission Expires:
11-09-98 Donna M. Malizia
- - ---------------------- -------------------------------------------
(Printed Name of Notary)
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT Page 12 of 12
<PAGE> 15
EXHIBIT A
Legal Description
Subject property on Southwest corner of Airport Freeway and Shoaf Drive and is
known as 222 West Airport Freeway, Irving, Texas. Subject property is legally
described as:
BEING a tract of land out of the J.C. Read Survey, Abstract No. 1182, City of
Irving, Dallas County, Texas, described by metes and bounds as follows:
BEGINNING at point of intersection at South line of State Highway 183 with West
line of Shoaf Drive;
THENCE South 0.0 degrees, 34 minutes 47 seconds West along said West line of
Shoaf Drive for a distance of 413.48 feet to a point for corner;
THENCE North 89 degrees, 38 minutes, 02 seconds West for a distance of 174.83
feet to a point for corner;
THENCE North 0.0 degrees, 28 minutes, 38 seconds East for 413.48 feet to a
point on South line of State Highway 183 for corner;
THENCE South 89 degrees, 38 minutes, 0.0 seconds East along South line
of State Highway 183 for a distance of 175.56 feet to place of beginning.
<PAGE> 1
DEED OF TRUST, ASSIGNMENT,
SECURITY AGREEMENT AND FINANCING STATEMENT
THIS DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT AND FINANCING
STATEMENT (this "Mortgage") dated as of May 8, 1996, is executed and delivered
by Grantor for good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged by Grantor.
ARTICLE 1 - CERTAIN DEFINITIONS; GRANTING CLAUSES; SECURED INDEBTEDNESS
Section 1.1. Certain Definitions and Reference Terms. In addition to
other terms defined herein, each of the following terms shall have the meaning
assigned to it:
"Grantor": Bollinger Industries, L.P., a Texas limited partnership.
"Lender": NationsBank of Texas, N.A., a national banking association.
"Loan Agreement" that certain Loan and Security Agreement dated as of
September 9, 1994, by and between Grantor and Lender, as amended by that
certain First Amendment to Loan and Security Agreement dated as of September 9,
1994, by and between Grantor and Lender, as further amended by that certain
Second Amendment to Loan and Security Agreement dated as of December 8, 1994,
by and between Grantor and Lender, as further amended by that certain Third
Amendment to Loan and Security Agreement dated as of December 31, 1994, by and
between Grantor and Lender, as further amended by that certain Fourth Amendment
to Loan and Security Agreement dated as of January 31, 1995, by and between
Grantor and Lender, as further amended by that certain Fifth Amendment to Loan
and Security Agreement dated as of September 9, 1995, by and between Grantor
and Lender, as further amended by that certain Sixth Amendment to Loan and
Security Agreement dated as of December 29, 1995, by and between Grantor and
Lender, as further amended by that certain Seventh Amendment to Loan and
Security Agreement dated as of March 8, 1996, by and between Grantor and
Lender, and as further amended by that certain Eighth Amendment to Loan and
Security Agreement dated as of May 8, 1996, by and between Grantor and Lender,
and as the same may in the future be further amended.
"Promissory Note": The "Demand Note" as that term is defined in the
Loan Agreement.
"Trustee": Michael F. Hord, of Dallas County, Texas, or any successor
or substitute appointed and designated as herein provided from time to time
acting hereunder.
Section 1.2. Mortgaged Property. Grantor does hereby GRANT, BARGAIN,
SELL, CONVEY, TRANSFER, ASSIGN and SET OVER to Trustee the following: (a) the
real estate (herein called the "Land") described in Exhibit A which is attached
hereto and incorporated herein by reference, and (i) all improvements now or
hereafter situated or to be situated on the Land (herein together called the
"Improvements"); and (ii) all right, title and interest of Grantor in and to
(1) all streets, roads, alleys, easements, rights-of-way, licenses, rights of
ingress and egress, vehicle parking rights and public places, existing or
proposed, abutting, adjacent, used in connection with or pertaining to the Land
or the Improvements; (2) any strips or gores between the Land and abutting or
adjacent properties; and (3) all water and water rights, timber, crops and
mineral interests on or pertaining to the Land (the Land, Improvements and
other rights, titles and interests referred to in this clause (a) being herein
sometimes collectively called the "Premises"); (b) all fixtures, equipment,
systems, machinery, furniture, furnishings, appliances, inventory, goods,
building and construction materials, supplies, and articles of personal
property, of every kind and character, now owned or hereafter acquired by
Grantor, which are now or hereafter attached to or situated in, on or about the
Land or the Improvements, or used in or necessary to the complete and proper
planning, development, use, occupancy or operation thereof, or acquired
(whether delivered to the Land or stored elsewhere) for use or installation in
or on the Land or
DEED OF TRUST, ASSIGNMENT
SECURITY AGREEMENT AND FINANCING STATEMENT
Page 1
1
<PAGE> 2
the Improvements, and all renewals and replacements of, substitutions for and
additions to the foregoing (the properties referred to in this clause (b) being
herein sometimes collectively called the "Accessories," all of which are hereby
declared to be permanent accessions to the Land); (c) all (i) plans and
specifications for the Improvements; (ii) Grantor's rights, but not liability
for any breach by Grantor, under all commitments (including any commitment for
financing to pay any of the secured indebtedness, as defined below), insurance
policies and other contracts and general intangibles (including but not limited
to trademarks, trade names and symbols) related to the Premises or the
Accessories or the operation thereof; (iii) deposits (including but not limited
to Grantor's rights in tenants' security deposits, deposits with respect to
utility services to the Premises, and any deposits or reserves hereunder or
under any other Loan Document for taxes, insurance or otherwise), money,
accounts, instruments, documents, notes and chattel paper arising from or by
virtue of any transactions related to the Premises or the Accessories; (iv)
permits, licenses, franchises, certificates, development rights, commitments
and rights for utilities, and other rights and privileges obtained in
connection with the Premises or the Accessories; (v) leases, rents, royalties,
bonuses, issues, profits, revenues and other benefits of the Premises and the
Accessories (without derogation of Article 3 hereof); (vi) oil, gas and other
hydrocarbons and other minerals produced from or allocated to the Land and all
products processed or obtained therefrom, and the proceeds thereof; and (vii)
engineering, accounting, title, legal, and other technical or business data
concerning the Mortgaged Property which are in the possession of Grantor or in
which Grantor can otherwise grant a security interest; and (d) all (i) proceeds
of or arising from the properties, rights, titles and interests referred to
above in this Section 1.2, including but not limited to proceeds of any sale,
lease or other disposition thereof, proceeds of each policy of insurance
relating thereto (including premium refunds), proceeds of the taking thereof or
of any rights appurtenant thereto, including change of grade of streets, curb
cuts or other rights of access, by eminent domain or transfer in lieu thereof
for public or quasi-public use under any law, and proceeds arising out of any
damage thereto; and (ii) other interests of every kind and character which
Grantor now has or hereafter acquires in, to or for the benefit of the
properties, rights, titles and interests referred to above in this Section 1.2
and all property used or useful in connection therewith, including but not
limited to rights of ingress and egress and remainders, reversions and
reversionary rights or interests; and if the estate of Grantor in any of the
property referred to above in this Section 1.2 is a leasehold estate, this
conveyance shall include, and the lien and security interest created hereby
shall encumber and extend to, all other or additional title, estates, interests
or rights which are now owned or may hereafter be acquired by Grantor in or to
the property demised under the lease creating the leasehold estate; TO HAVE AND
TO HOLD the foregoing rights, interests and properties, and all rights,
estates, powers and privileges appurtenant thereto (herein collectively called
the "Mortgaged Property"), unto Trustee, and his successors or substitutes in
this trust, and to his or their successors and assigns, in trust, however, upon
the terms, provisions and conditions herein set forth.
Section 1.3. Security Interest. Grantor hereby grants to Holder (as
hereinafter defined) a security interest in all of the Mortgaged Property which
constitutes personal property or fixtures (herein sometimes collectively called
the "Collateral"). In addition to its rights hereunder or otherwise, Holder
shall have all of the rights of a secured party under the Texas Business and
Commerce Code, or under the Uniform Commercial Code in force in any other state
to the extent the same is applicable law.
Section 1.4. Note, Loan Documents, Other Obligations. This Mortgage
is made to secure and enforce the payment and performance of the following
promissory notes, obligations, indebtedness and liabilities and all renewals,
extensions, supplements, increases, and modifications thereof in whole or in
part from time to time: (a) the Promissory Note and all other notes given in
substitution therefor or in modification, supplement, increase, renewal or
extension thereof, in whole or in part (such note or notes, whether one or
more, as from time to time renewed, extended, supplemented, increased or
modified and all other notes given in substitution therefor, or in
modification, renewal or extension thereof, in whole or in part, being
hereinafter called the "Note", and Lender, or the subsequent holder at the time
in question of the Note or any of the secured indebtedness, as hereinafter
defined, being herein called "Holder"); (b) all indebtedness and other
obligations owed by Grantor to Holder now or hereafter incurred or arising
pursuant to or permitted by the provisions of the Note, this Mortgage, the Loan
Agreement, the other Loan
DEED OF TRUST, ASSIGNMENT
SECURITY AGREEMENT AND FINANCING STATEMENT
Page 2
2
<PAGE> 3
Documents (as such term is defined in the Loan Agreement) or any other document
now or hereafter evidencing, governing, guaranteeing, securing or otherwise
executed in connection with the loan evidenced by the Note, including but not
limited to any loan or credit agreement, tri-party financing agreement or other
agreement between Grantor and Holder, or among Grantor, Holder and any other
party or parties, pertaining to the repayment or use of the proceeds of the
loan evidenced by the Note (the Note, this Mortgage, the Loan Agreement, the
other Loan Documents as defined in the Loan Agreement and such other documents,
as they or any of them may have been or may be from time to time renewed,
extended, supplemented, increased or modified, being herein sometimes
collectively called the "Loan Documents"); and (c) all other loans and future
advances made by Holder to Grantor and all other debts, obligations and
liabilities of Grantor of every kind and character now or hereafter existing in
favor of Holder, whether direct or indirect, primary or secondary, joint or
several, fixed or contingent, secured or unsecured, and whether originally
payable to Holder or to a third party and subsequently acquired by Holder, it
being contemplated that Grantor may hereafter become indebted to Holder for
such further debts, obligations and liabilities; provided, however, and
notwithstanding the foregoing provisions of this clause (c), this Mortgage
shall not secure any such other loan, advance, debt, obligation or liability
with respect to which Holder is by applicable law prohibited from obtaining a
lien on real estate nor shall this clause (c) operate or be effective to
constitute or require any assumption or payment by any person, in any way, of
any debt of any other person to the extent that the same would violate or
exceed the limit provided in any applicable usury or other law. The
indebtedness referred to in this Section 1.4 is hereinafter sometimes referred
to as the "secured indebtedness" or the "indebtedness secured hereby."
ARTICLE 2 - REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.1. Grantor represents, warrants, and covenants as follows:
(a) Payment and Performance. Grantor will make due and punctual
payment of the secured indebtedness. Grantor will timely and properly perform
and comply with all of the covenants, agreements, and conditions imposed upon
it by this Mortgage and the other Loan Documents and will not permit a default
to occur hereunder or thereunder. Time shall be of the essence in this
Mortgage.
(b) Title and Permitted Encumbrances. Grantor has, in Grantor's own
right, and Grantor covenants to maintain, lawful, good and marketable title to
the Mortgaged Property, free and clear of all liens, charges, claims, security
interests, and encumbrances except for (i) the matters, if any, set forth under
the heading "Permitted Encumbrances" in Exhibit A hereto, which are Permitted
Encumbrances only to the extent the same are valid and subsisting and affect
the Mortgaged Property, (ii) the liens and security interests evidenced by this
Mortgage, (iii) statutory liens for ad valorem taxes and standby fees on the
Mortgaged Property which are not yet delinquent, and (iv) other liens and
security interests (if any) in favor of Lender (the matters described in the
foregoing clauses (i), (ii), (iii) and (iv) being herein called the "Permitted
Encumbrances"). Grantor, and Grantor's successors and assigns, will warrant
and forever defend title to the Mortgaged Property, subject as aforesaid, to
Trustee and his successors or substitutes and assigns, against the claims and
demands of all persons claiming or to claim the same or any part thereof.
Grantor will punctually pay, perform, observe and keep all covenants,
obligations and conditions in or pursuant to any Permitted Encumbrance and will
not modify or permit modification of any Permitted Encumbrance without the
prior written consent of Holder. Inclusion of any matter as a Permitted
Encumbrance does not constitute approval or waiver by Holder of any existing or
future violation or other breach thereof by Grantor, by the Mortgaged Property
or otherwise. No part of the Mortgaged Property constitutes all or any part of
the homestead of Grantor. If any right or interest of Holder in the Mortgaged
Property or any part thereof shall be endangered or questioned or shall be
attacked directly or indirectly, Trustee and Holder, or either of them (whether
or not named as parties to legal proceedings with respect thereto), are hereby
authorized and empowered to take such steps as in their discretion may be
proper for the defense of any such legal proceedings or the protection of such
right or interest of Holder, including but not limited to the employment of
independent counsel, the prosecution or defense of litigation, and the
compromise or discharge of adverse claims. All expenditures so
DEED OF TRUST, ASSIGNMENT
SECURITY AGREEMENT AND FINANCING STATEMENT
Page 3
3
<PAGE> 4
made of every kind and character shall be a demand obligation (which obligation
Grantor hereby promises to pay) owing by Grantor to Holder or Trustee (as the
case may be), and the party (Holder or Trustee, as the case may be) making such
expenditures shall be subrogated to all rights of the person receiving such
payment.
(c) Taxes and Other Impositions. Grantor will pay, or cause to be
paid, all taxes, assessments and other charges or levies imposed upon or
against or with respect to the Mortgaged Property or the ownership, use,
occupancy or enjoyment of any portion thereof, or any utility service thereto,
as the same become due and payable, including but not limited to all ad valorem
taxes assessed against the Mortgaged Property or any part thereof, and shall
deliver promptly to Holder such evidence of the payment thereof as Holder may
require.
(d) Insurance. Grantor shall obtain and maintain at Grantor's sole
expense: (1) mortgagee title insurance issued to Holder covering the Premises
as required by Holder; (2) all-risk insurance with respect to all insurable
Mortgaged Property, against loss or damage by fire, lightning, windstorm,
explosion, hail, tornado and such hazards as are presently included in
so-called "all-risk" coverage and against such other insurable hazards as
Holder may require, in an amount not less than 100% of the full replacement
cost, including the cost of debris removal, without deduction for depreciation
and sufficient to prevent Grantor and Holder from becoming a coinsurer, such
insurance to be in Builder's Risk (non-reporting) form during and with respect
to any construction on the Premises; (3) if and to the extent any portion of
the Premises is in a special flood hazard area, a flood insurance policy in an
amount equal to the lesser of the principal face amount of the Note or the
maximum amount available; (4) comprehensive general public liability insurance,
on an "occurrence" basis, for the benefit of Grantor and Holder as named
insureds; (5) statutory workers' compensation insurance with respect to any
work on or about the Premises; and (6) such other insurance on the Mortgaged
Property as may from time to time be required by Holder (including but not
limited to business interruption insurance, boiler and machinery insurance,
earthquake insurance, and war risk insurance) and against other insurable
hazards or casualties which at the time are commonly insured against in the
case of premises similarly situated, due regard being given to the height,
type, construction, location, use and occupancy of buildings and improvements.
All insurance policies shall be issued and maintained by insurers, in amounts,
with deductibles, and in form satisfactory to Holder, and shall require not
less than thirty (30) days' prior written notice to Holder of any cancellation
or change of coverage. All insurance policies maintained, or caused to be
maintained, by Grantor with respect to the Mortgaged Property, except for
public liability insurance, shall provide that each such policy shall be
primary without right of contribution from any other insurance that may be
carried by Grantor or Holder and that all of the provisions thereof, except the
limits of liability, shall operate in the same manner as if there were a
separate policy covering each insured. If any insurer which has issued a
policy of title, hazard, liability or other insurance required pursuant to this
Mortgage or any other Loan Document becomes insolvent or the subject of any
bankruptcy, receivership or similar proceeding or if in Holder's reasonable
opinion the financial responsibility of such insurer is or becomes inadequate,
Grantor shall, in each instance promptly upon the request of Holder and at
Grantor's expense, obtain and deliver to Holder a like policy (or, if and to
the extent permitted by Holder, a certificate of insurance) issued by another
insurer, which insurer and policy meet the requirements of this Mortgage or
such other Loan Document, as the case may be. Without limiting the discretion
of Holder with respect to required endorsements to insurance policies, all such
policies for loss of or damage to the Mortgaged Property shall contain a
standard mortgage clause (without contribution) naming Holder as mortgagee with
loss proceeds payable to Holder notwithstanding (i) any act, failure to act or
negligence of or violation of any warranty, declaration or condition contained
in any such policy by any named insured; (ii) the occupation or use of the
Mortgaged Property for purposes more hazardous than permitted by the terms of
any such policy; (iii) any foreclosure or other action by Holder under the Loan
Documents; or (iv) any change in title to or ownership of the Mortgaged
Property or any portion thereof, such proceeds to be held for application as
provided in the Loan Documents. The originals of each initial insurance policy
(or to the extent permitted by Holder, a copy of the original policy and a
satisfactory certificate of insurance) shall be delivered to Holder at the time
of execution of this Mortgage, with premiums fully paid, and each renewal or
substitute policy (or certificate) shall be delivered to Holder, with premiums
fully paid, at least ten (10) days before
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the termination of the policy it renews or replaces. Grantor shall pay all
premiums on policies required hereunder as they become due and payable and
promptly deliver to Holder evidence satisfactory to Holder of the timely
payment thereof. If any loss occurs at any time when Grantor has failed to
perform Grantor's covenants and agreements in this paragraph, Holder shall
nevertheless be entitled to the benefit of all insurance covering the loss and
held by or for Grantor, to the same extent as if it had been made payable to
Holder. Upon any foreclosure hereof or transfer of title to the Mortgaged
Property in extinguishment of the whole or any part of the secured
indebtedness, all of Grantor's right, title and interest in and to the
insurance policies referred to in this paragraph (including unearned premiums)
and all proceeds payable thereunder shall thereupon vest in the purchaser at
foreclosure or other such transferee, to the extent permissible under such
policies. Holder shall have the right (but not the obligation) to make proof
of loss for, settle and adjust any claim under, and receive the proceeds of,
all insurance for loss of or damage to the Mortgaged Property, and the expenses
incurred by Holder in the adjustment and collection of insurance proceeds shall
be a part of the secured indebtedness and shall be due and payable to Holder on
demand. Holder shall not be, under any circumstances, liable or responsible
for failure to collect or exercise diligence in the collection of any of such
proceeds or for the obtaining, maintaining or adequacy of any insurance or for
failure to see to the proper application of any amount paid over to Grantor.
Any such proceeds received by Holder shall, after deduction therefrom of all
reasonable expenses actually incurred by Holder, including attorneys' fees, at
Holder's option be (1) released to Grantor, or (2) applied (upon compliance
with such terms and conditions as may be required by Holder) to repair or
restoration, either partly or entirely, of the Mortgaged Property so damaged,
or (3) applied to the payment of the secured indebtedness in such order and
manner as Holder, in its sole discretion, may elect, whether or not due. In
any event, the unpaid portion of the secured indebtedness shall remain in full
force and effect and the payment thereof shall not be excused. Grantor shall
at all times comply with the requirements of the insurance policies required
hereunder and of the issuers of such policies and of any board of fire
underwriters or similar body as applicable to or affecting the Mortgaged
Property.
(e) Reserve for Insurance, Taxes and Assessments. Upon request of
Holder, to secure certain of Grantor's obligations in paragraphs (c) and (d)
above, but not in lieu of such obligations, Grantor will deposit with Holder a
sum equal to ad valorem taxes, assessments and charges (which charges for the
purpose of this paragraph shall include without limitation any recurring charge
which could result in a lien against the Mortgaged Property) against the
Mortgaged Property for the current year and the premiums for such policies of
insurance for the current year, all as estimated by Holder and prorated to the
end of the calendar month following the month during which Holder's request is
made, and thereafter will deposit with Holder, on each date when an installment
of principal and/or interest is due on the Note, sufficient funds (as estimated
from time to time by Holder) to permit Holder to pay at least fifteen (15) days
prior to the due date thereof, the next maturing ad valorem taxes, assessments
and charges and premiums for such policies of insurance. Holder shall have the
right to rely upon tax information furnished by applicable taxing authorities
in the payment of such taxes or assessments and shall have no obligation to
make any protest of any such taxes or assessments. Any excess over the amounts
required for such purposes shall be held by Holder for future use, applied to
any secured indebtedness or refunded to Grantor, at Holder's option, and any
deficiency in such funds so deposited shall be made up by Grantor upon demand
of Holder. All such funds so deposited shall bear no interest, may be mingled
with the general funds of Holder and shall be applied by Holder toward the
payment of such taxes, assessments, charges and premiums when statements
therefor are presented to Holder by Grantor (which statements shall be
presented by Grantor to Holder a reasonable time before the applicable amount
is due); provided, however, that, if a default shall have occurred hereunder,
such funds may at Holder's option be applied to the payment of the secured
indebtedness in the order determined by Holder in its sole discretion, and that
Holder may (but shall have no obligation) at any time, in its discretion, apply
all or any part of such funds toward the payment of any such taxes,
assessments, charges or premiums which are past due, together with any
penalties or late charges with respect thereto. The conveyance or transfer of
Grantor's interest in the Mortgaged Property for any reason (including without
limitation the foreclosure of a subordinate lien or security interest or a
transfer by operation of law) shall
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constitute an assignment or transfer of Grantor's interest in and rights to
such funds held by Holder under this paragraph but subject to the rights of
Holder hereunder.
(f) Condemnation. Grantor shall notify Holder immediately of any
threatened or pending proceeding for condemnation affecting the Mortgaged
Property or arising out of damage to the Mortgaged Property, and Grantor shall,
at Grantor's expense, diligently prosecute any such proceedings. Holder shall
have the right (but not the obligation) to participate in any such proceeding
and to be represented by counsel of its own choice. Holder shall be entitled
to receive all sums which may be awarded or become payable to Grantor for the
condemnation of the Mortgaged Property, or any part thereof, for public or
quasi-public use, or by virtue of private sale in lieu thereof, and any sums
which may be awarded or become payable to Grantor for injury or damage to the
Mortgaged Property. Grantor shall, promptly upon request of Holder, execute
such additional assignments and other documents as may be necessary from time
to time to permit such participation and to enable Holder to collect and
receipt for any such sums. All such sums are hereby assigned to Holder, and
shall, after deduction therefrom of all reasonable expenses actually incurred
by Holder, including attorneys' fees, at Holder's option be (1) released to
Grantor, or (2) applied (upon compliance with such terms and conditions as may
be required by Holder) to repair or restoration of the Mortgaged Property so
affected, or (3) applied to the payment of the secured indebtedness in such
order and manner as Holder, in its sole discretion, may elect, whether or not
due. In any event the unpaid portion of the secured indebtedness shall remain
in full force and effect and the payment thereof shall not be excused. Holder
shall not be, under any circumstances, liable or responsible for failure to
collect or to exercise diligence in the collection of any such sum or for
failure to see to the proper application of any amount paid over to Grantor.
Holder is hereby authorized, in the name of Grantor, to execute and deliver
valid acquittances for, and to appeal from, any such award, judgment or decree.
All costs and expenses (including but not limited to attorneys' fees) incurred
by Holder in connection with any condemnation shall be a demand obligation
owing by Grantor (which Grantor hereby promises to pay) to Holder pursuant to
this Mortgage.
(g) Compliance with Legal Requirements. The Mortgaged Property and
the use, operation and maintenance thereof and all activities thereon do and
shall at all times comply with all applicable Legal Requirements (defined
below). The Mortgaged Property is not, and shall not be, dependent on any
other property or premises or any interest therein other than the Mortgaged
Property to fulfill any requirement of any Legal Requirement. Grantor shall
not, by act or omission, permit any building or other improvement not subject
to the lien of this Mortgage to rely on the Mortgaged Property or any interest
therein to fulfill any requirement of any Legal Requirement. No part of the
Mortgaged Property constitutes a nonconforming use under any zoning law or
similar law or ordinance. Grantor has obtained and shall preserve in force all
requisite zoning, utility, building, health and operating permits from the
governmental authorities having jurisdiction over the Mortgaged Property. If
Grantor receives a notice or claim from any person that the Mortgaged Property,
or any use, activity, operation or maintenance thereof or thereon, is not in
compliance with any Legal Requirement, Grantor will promptly furnish a copy of
such notice or claim to Holder. Grantor has received no notice and has no
knowledge of any such noncompliance. As used in this Mortgage: (i) the term
"Legal Requirement" means any Law (defined below), agreement, covenant,
restriction, easement or condition (including, without limitation of the
foregoing, any condition or requirement imposed by any insurance or surety
company), as any of the same now exists or may be changed or amended or come
into effect in the future; and (ii) the term "Law" means any federal, state or
local law, statute, ordinance, code, rule, regulation, license, permit,
authorization, decision, order, injunction or decree, domestic or foreign.
(h) Maintenance, Repair and Restoration. Grantor will keep the
Mortgaged Property in first class order, repair, operating condition and
appearance, causing all necessary repairs, renewals, replacements, additions
and improvements to be promptly made, and will not allow any of the Mortgaged
Property to be misused, abused or wasted or to deteriorate. Notwithstanding
the foregoing, Grantor will not, without the prior written consent of Holder,
(i) remove from the Mortgaged Property any fixtures or personal property
covered by this Mortgage except such as is replaced by Grantor by an article of
equal suitability and value, owned by Grantor, free and
DEED OF TRUST, ASSIGNMENT
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clear of any lien or security interest (except that created by this Mortgage),
or (ii) make any structural alteration to the Mortgaged Property or any other
alteration thereto which impairs the value thereof. If any act or occurrence of
any kind or nature (including any condemnation or any casualty for which
insurance was not obtained or obtainable) shall result in damage to or loss or
destruction of the Mortgaged Property, Grantor shall give prompt notice thereof
to Holder and Grantor shall promptly, at Grantor's sole cost and expense and
regardless of whether insurance or condemnation proceeds (if any) shall be
available or sufficient for the purpose, commence and continue diligently to
completion to restore, repair, replace and rebuild the Mortgaged Property as
nearly as possible to its value, condition and character immediately prior to
the damage, loss or destruction.
(i) No Other Liens. Grantor will not, without the prior written
consent of Holder, create, place or permit to be created or placed, or through
any act or failure to act, acquiesce in the placing of, or allow to remain, any
deed of trust, mortgage, voluntary or involuntary lien, whether statutory,
constitutional or contractual, security interest, encumbrance or charge, or
conditional sale or other title retention document, against or covering the
Mortgaged Property, or any part thereof, other than the Permitted Encumbrances,
regardless of whether the same are expressly or otherwise subordinate to the
lien or security interest created in this Mortgage, and should any of the
foregoing become attached hereafter in any manner to any part of the Mortgaged
Property without the prior written consent of Holder, Grantor will cause the
same to be promptly discharged and released. Grantor will own all parts of the
Mortgaged Property and will not acquire any fixtures, equipment or other
property forming a part of the Mortgaged Property pursuant to a lease, license,
security agreement or similar agreement, whereby any party has or may obtain
the right to repossess or remove same, without the prior written consent of
Holder. If Holder consents to the voluntary grant by Grantor of any lien,
security interest, or other encumbrance (hereinafter called "Subordinate
Mortgage") covering any of the Mortgaged Property or if the foregoing
prohibition is determined by a court of competent jurisdiction to be
unenforceable as to a Subordinate Mortgage, any such Subordinate Mortgage shall
contain express covenants to the effect that: (1) the Subordinate Mortgage is
unconditionally subordinate to this Mortgage and all Leases (hereinafter
defined); (2) if any action (whether judicial or pursuant to a power of sale)
shall be instituted to foreclose or otherwise enforce the Subordinate Mortgage,
no tenant of any of the Leases (hereinafter defined) shall be named as a party
defendant, and no action shall be taken that would terminate any occupancy or
tenancy without the prior written consent of Holder; (3) Rents (hereinafter
defined), if collected by or for the holder of the Subordinate Mortgage, shall
be applied first to the payment of the secured indebtedness then due and
expenses incurred in the ownership, operation and maintenance of the Mortgaged
Property in such order as Holder may determine, prior to being applied to any
indebtedness secured by the Subordinate Mortgage; (4) written notice of default
under the Subordinate Mortgage and written notice of the commencement of any
action (whether judicial or pursuant to a power of sale) to foreclose or
otherwise enforce the Subordinate Mortgage or to seek the appointment of a
receiver for all or any part of the Mortgaged Property shall be given to Holder
with or immediately after the occurrence of any such default or commencement;
and (5) neither the holder of the Subordinate Mortgage, nor any purchaser at
foreclosure thereunder, nor anyone claiming by, through or under any of them
shall succeed to any of Grantor's rights hereunder without the prior written
consent of Holder.
(j) Operation of Mortgaged Property. Grantor will operate the
Mortgaged Property in a good and workmanlike manner and in accordance with all
Legal Requirements and will pay all fees or charges of any kind in connection
therewith. Grantor will keep the Mortgaged Property occupied so as not to
impair the insurance carried thereon. Grantor will not use or occupy or
conduct any activity on, or allow the use or occupancy of or the conduct of any
activity on, the Mortgaged Property in any manner which violates any Legal
Requirement or which constitutes a public or private nuisance or which makes
void, voidable or cancelable, or increases the premium of, any insurance then
in force with respect thereto. Grantor will not initiate or permit any zoning
reclassification of the Mortgaged Property or seek any variance under existing
zoning ordinances applicable to the Mortgaged Property or use or permit the use
of the Mortgaged Property in such a manner which would result in such use
becoming a nonconforming use under applicable zoning ordinances or other Legal
Requirement. Grantor will not impose any easement,
DEED OF TRUST, ASSIGNMENT
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restrictive covenant or encumbrance upon the Mortgaged Property, execute or
file any subdivision plat or condominium declaration affecting the Mortgaged
Property or consent to the annexation of the Mortgaged Property to any
municipality, without the prior written consent of Holder. Grantor will not do
or suffer to be done any act whereby the value of any part of the Mortgaged
Property may be lessened. Grantor will preserve, protect, renew, extend and
retain all material rights and privileges granted for or applicable to the
Mortgaged Property. Without the prior written consent of Holder, there shall
be no drilling or exploration for or extraction, removal or production of any
mineral, hydrocarbon, gas, natural element, compound or substance (including
sand and gravel) from the surface or subsurface of the Land regardless of the
depth thereof or the method of mining or extraction thereof. Grantor will
cause all debts and liabilities of any character (including without limitation
all debts and liabilities for labor, material and equipment and all debts and
charges for utilities servicing the Mortgaged Property) incurred in the
construction, maintenance, operation and development of the Mortgaged Property
to be promptly paid.
(k) Financial Matters. Grantor is solvent after giving effect to all
borrowings contemplated by the Loan Documents and no proceeding under any
Debtor Relief Law (hereinafter defined) is pending (or, to Grantor's knowledge,
threatened) by or against Grantor, or any affiliate of Grantor, as a debtor.
All reports, statements, plans, budgets, applications, agreements and other
data and information heretofore furnished or hereafter to be furnished by or on
behalf of Grantor to Holder in connection with the loan or loans evidenced by
the Loan Documents (including, without limitation, all financial statements and
financial information) are and will be true, correct and complete in all
material respects as of their respective dates and do not and will not omit to
state any fact or circumstance necessary to make the statements contained
therein not misleading. No material adverse change has occurred since the
dates of such reports, statements and other data in the financial condition of
Grantor or, to Grantor's knowledge, of any tenant under any lease described
therein. For the purposes of this paragraph, "Grantor" shall also include any
person liable directly or indirectly for the secured indebtedness or any part
thereof and any joint venturer or general partner of Grantor.
(l) Status of Grantor; Suits and Claims; Loan Documents. If Grantor
is a corporation, partnership, or other legal entity, Grantor is and will
continue to be (i) duly organized, validly existing and in good standing under
the laws of its state of organization, (ii) authorized to do business in, and
in good standing in, each state in which the Mortgaged Property is located, and
(iii) possessed of all requisite power and authority to carry on its business
and to own and operate the Mortgaged Property. Each Loan Document executed by
Grantor has been duly authorized, executed and delivered by Grantor, and the
obligations thereunder and the performance thereof by Grantor in accordance
with their terms are and will continue to be within Grantor's power and
authority (without the necessity of joinder or consent of any other person),
are not and will not be in contravention of any Legal Requirement to which
Grantor or the Mortgaged Property is subject, and do not and will not result in
the creation of any encumbrance against any assets or properties of Grantor, or
any other person liable, directly or indirectly, for any of the secured
indebtedness, except as expressly contemplated by the Loan Documents. There is
no suit, action, claim, investigation, inquiry, proceeding or demand pending
(or, to Grantor's knowledge, threatened) which affects the Mortgaged Property
(including, without limitation, any which challenges or otherwise pertains to
Grantor's title to the Mortgaged Property) or the validity, enforceability or
priority of any of the Loan Documents. There is no judicial or administrative
action, suit or proceeding pending (or, to Grantor's knowledge, threatened)
against Grantor, or against any other person liable directly or indirectly for
the secured indebtedness, except as has been disclosed in writing to Holder in
connection with the loan evidenced by the Note. The Loan Documents to which
either of them is a party constitute legal, valid and binding obligations of
Borrower and Grantor (and of each guarantor, if any) enforceable in accordance
with their terms, except as the enforceability thereof may be limited by Debtor
Relief Laws (hereinafter defined) and except as the availability of certain
remedies may be limited by general principles of equity. Grantor is not a
"foreign person" within the meaning of the Internal Revenue Code of 1986, as
amended, Sections 1445 and 7701 (i.e. Grantor is not a non-resident alien,
foreign corporation, foreign partnership, foreign trust or foreign estate as
those terms are defined therein and in any regulations promulgated thereunder).
The loan evidenced by the Note is solely for business
DEED OF TRUST, ASSIGNMENT
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purposes, and is not for personal, family, household or agricultural purposes.
Grantor will not cause or permit any change to be made in its name, identity,
or corporate or partnership structure, unless Grantor shall have notified
Holder of such change prior to the effective date of such change, and shall
have first taken all action required by Holder for the purpose of further
perfecting or protecting the lien and security interest of Holder in the
Mortgaged Property. Grantor's principal place of business and chief executive
office, and the place where Grantor keeps its books and records concerning the
Mortgaged Property, has for the preceding four months been and will continue to
be (unless Grantor notifies Holder of any change in writing prior to the date
of such change) the address of Grantor set forth at the end of this Mortgage.
(m) Certain Environmental Matters.
(i) Definitions. As used in this Mortgage: (1) "Environmental
Claim" means any investigative, enforcement, cleanup, removal, containment,
remedial or other governmental or regulatory action at any time threatened,
instituted or completed pursuant to any applicable Environmental Requirement
against Grantor or against or with respect to the Mortgaged Property or any use
or activity on the Mortgaged Property, and any claim at any time threatened or
made by any person against Grantor or against or with respect to the Mortgaged
Property or any use or activity on the Mortgaged Property, relating to damage,
contribution, cost recovery, compensation, loss or injury resulting from any
Hazardous Substance; (2) "Environmental Requirement" means any Legal
Requirement which pertains to ground or air or water or noise pollution or
contamination, underground or aboveground tanks, health or the environment,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), the Texas Water
Code and the Texas Solid Waste Disposal Act; and (3) "Hazardous Substance"
means any substance, whether solid, liquid or gaseous: (a) which is listed,
defined or regulated as a "hazardous substance", "hazardous waste" or "solid
waste", or otherwise classified as hazardous or toxic, in or pursuant to any
Environmental Requirement; or (b) which is or contains asbestos, radon, any
polychlorinated biphenyl, urea formaldehyde foam insulation, or explosive or
radioactive material; or (c) which causes or poses a threat to cause a
contamination or nuisance on the Mortgaged Property or on any adjacent property
or a hazard to the environment or to the health or safety of persons on the
Mortgaged Property. As used in this paragraph (m), the word "on" when used
with respect to the Mortgaged Property or adjacent property means "on, in,
under, above or about".
(ii) Representations and Warranties. Grantor represents and warrants
to Holder, without regard to whether Holder has or hereafter obtains any
knowledge or report of the environmental condition of the Mortgaged Property,
as follows: (1) during the period of Grantor's ownership of the Mortgaged
Property, the Mortgaged Property has not been used for industrial or
manufacturing purposes which would give rise to the release of any Hazardous
Substance on the Mortgaged Property, for landfill, dumping or other waste
disposal activity or operation, for generation, storage, use, sale, treatment,
processing, recycling or disposal of any Hazardous Substance, or for any other
use that would give rise to the release of any Hazardous Substance on the
Mortgaged Property; (2) to the best of Grantor's knowledge after inquiry in
accordance with good commercial or customary practices, no use of the Mortgaged
Property described in clause (1) preceding occurred at any time prior to the
period of Grantor's ownership of the Mortgaged Property nor did any such use on
any adjacent property occur during or at any time prior to the period of
Grantor's ownership of the Mortgaged Property, and there is no Hazardous
Substance, storage tank (or similar vessel), sump or well on the Mortgaged
Property; (3) Grantor has received no notice and has no knowledge of any
Environmental Claim or any completed, pending, proposed or threatened
investigation or inquiry concerning the presence or release of any Hazardous
Substance on the Mortgaged Property or on any adjacent property or concerning
whether any condition, use or activity on the Mortgaged Property or on any
adjacent property is in violation of any Environmental Requirement; (4) the
present conditions, uses and activities on the Mortgaged Property do not
violate any Environmental Requirement and the use of the Mortgaged Property
which Grantor (and each tenant and subtenant, if any) makes and intends to make
of the Mortgaged Property complies and will comply with all applicable
Environmental Requirements; (5) the Mortgaged Property is not currently on, and
to the best of Grantor's
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knowledge after inquiry in accordance with good commercial or customary
practices, has never been on, any federal or state "superfund" or "superlien"
list; and (6) neither Grantor, nor to Grantor's knowledge any tenant or
subtenant, has obtained or is required to obtain any permit or other
authorization to construct, occupy, operate, use or conduct any activity on any
of the Mortgaged Property by reason of any Environmental Requirement.
(iii) Violations. Grantor will not cause, commit, permit or allow to
continue any violation of any Environmental Requirement by Grantor or by or
with respect to the Mortgaged Property or any use or activity on the Mortgaged
Property, or the attachment of any environmental lien to the Mortgaged
Property. Grantor will not place, install, dispose of or release, or cause,
permit or allow the placing, installation, disposal or release of, any
Hazardous Substance or storage tank (or similar vessel) on the Mortgaged
Property and will keep the Mortgaged Property free of any Hazardous Substance.
(iv) Notice to Holder. Grantor will promptly advise Holder in
writing of any Environmental Claim or of the discovery of any Hazardous
Substance on the Mortgaged Property, as soon as Grantor first obtains knowledge
thereof, including a full description of the nature and extent of the
Environmental Claim and/or Hazardous Substance and all relevant circumstances.
(v) Site Assessments and Information. If Holder shall ever have
reason to believe that any Hazardous Substance affects the Mortgaged Property,
or if any Environmental Claim is made or threatened, or if a default shall have
occurred, Grantor will at its expense provide to Holder from time to time, in
each case within 30 days of Holder's request, a report (including all drafts
thereof if requested by Holder) of an environmental assessment of the Mortgaged
Property made after the date of Holder's request and of such scope (including
but not limited to the taking of soil borings, air and groundwater samples and
other above and below ground testing) as Holder may request and by a consulting
firm acceptable to Holder. Grantor will cooperate with each consulting firm
making any such assessment and will supply to the consulting firm, from time to
time and promptly on request, all information available to Grantor to
facilitate the completion of the assessment and report.
(vi) Remedial Actions. Without limitation of Holder's rights to
declare a default and to exercise all remedies available by reason thereof, if
any Hazardous Substance is discovered on the Mortgaged Property at any time and
regardless of the cause, Grantor shall: (1) promptly at Grantor's sole risk and
expense remove, treat and dispose of the Hazardous Substance in compliance with
all applicable Environmental Requirements and solely under Grantor's name (or
if removal is prohibited by any Environmental Requirement, take whatever action
is required by applicable Environmental Requirements), in addition to taking
such other action as is necessary to have the full use and benefit of the
Mortgaged Property as contemplated by the Loan Documents, and provide Holder
with satisfactory evidence thereof; and (2) if requested by Holder, provide to
Holder within 30 days of Holder's request a bond, letter of credit or other
financial assurance evidencing to Holder's satisfaction that all necessary
funds are readily available to pay the costs and expenses of the actions
required by clause (1) preceding and to discharge any assessments or liens
established against the Mortgaged Property as a result of the presence of the
Hazardous Substance on the Mortgaged Property.
(n) Further Assurances. Grantor will, promptly on request of Holder,
(i) correct any defect, error or omission which may be discovered in the
contents, execution or acknowledgment of this Mortgage or any other Loan
Document; (ii) execute, acknowledge, deliver, procure and record and/or file
such further documents (including, without limitation, further deeds of trust,
security agreements, financing statements, continuation statements, and
assignments of rents or leases) and do such further acts as may be necessary,
desirable or proper to carry out more effectively the purposes of this Mortgage
and the other Loan Documents, to more fully identify and subject to the liens
and security interests hereof any property intended to be covered hereby
(including specifically, but without limitation, any renewals, additions,
substitutions, replacements, or appurtenances to the Mortgaged Property) or as
deemed advisable by Holder to protect the lien or the security interest
hereunder against the rights or interests of third persons; and (iii) provide
such certificates, documents, reports, information, affidavits and other
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instruments and do such further acts as may be necessary, desirable or proper
in the reasonable determination of Holder to enable Holder to comply with the
requirements or requests of any agency having jurisdiction over Holder or any
examiners of such agencies with respect to the indebtedness secured hereby,
Grantor or the Mortgaged Property. Grantor shall pay all costs connected with
any of the foregoing, which shall be a demand obligation owing by Grantor
(which Grantor hereby promises to pay) to Holder pursuant to this Mortgage.
(o) Fees and Expenses. Without limitation of any other provision of
this Mortgage or of any other Loan Document and to the extent not prohibited by
applicable law, Grantor will pay, and will reimburse to Holder and/or Trustee
on demand to the extent paid by Holder and/or Trustee: (i) all appraisal fees,
filing and recording fees, taxes, brokerage fees and commissions, abstract
fees, title search or examination fees, title policy and endorsement premiums
and fees, uniform commercial code search fees, escrow fees, reasonable
attorneys' fees, architect fees, construction consultant fees, environmental
inspection fees, survey fees, and all other out-of-pocket costs and expenses of
every character incurred by Grantor or Holder and/or Trustee in connection with
the preparation of the Loan Documents, the evaluation, closing and funding of
the loan evidenced by the Loan Documents, and any and all amendments and
supplements to this Mortgage, the Note or any other Loan Documents or any
approval, consent, waiver, release or other matter requested or required
hereunder or thereunder, or otherwise attributable or chargeable to Grantor as
owner of the Mortgaged Property; and (ii) all costs and expenses, including
reasonable attorneys' fees and expenses, incurred or expended in connection
with the exercise of any right or remedy, or the enforcement of any obligation
of Grantor, hereunder or under any other Loan Document.
(p) Indemnification.
(i) Grantor will indemnify and hold harmless Holder and Trustee from
and against, and reimburse them on demand for, any and all Indemnified Matters
(defined below). For purposes of this paragraph (p), the terms "Holder" and
"Trustee" shall include the directors, officers, partners, employees and agents
of Trustee and Holder, respectively, and any persons owned or controlled by,
owning or controlling, or under common control or affiliated with Holder or
Trustee, respectively. WITHOUT LIMITATION, THE FOREGOING INDEMNITIES SHALL
APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO MATTERS WHICH IN WHOLE OR IN
PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER)
INDEMNIFIED PERSON. HOWEVER, SUCH INDEMNITIES SHALL NOT APPLY TO A PARTICULAR
INDEMNIFIED PERSON TO THE EXTENT THAT THE SUBJECT OF THE INDEMNIFICATION IS
CAUSED BY OR ARISES OUT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THAT
INDEMNIFIED PERSON. Any amount to be paid under this paragraph (p) by Grantor
to Holder and/or Trustee shall be a demand obligation owing by Grantor (which
Grantor hereby promises to pay) to Holder and/or Trustee pursuant to this
Mortgage. Nothing in this paragraph, elsewhere in this Mortgage or in any
other Loan Document shall limit or impair any rights or remedies of Holder
and/or Trustee (including without limitation any rights of contribution or
indemnification) against Grantor or any other person under any other provision
of this Mortgage, any other Loan Document, any other agreement or any
applicable Legal Requirement.
(ii) As used herein, the term "Indemnified Matters" means any and all
claims, demands, liabilities (including strict liability), losses, damages
(including consequential damages), causes of action, judgments, penalties,
costs and expenses (including without limitation, reasonable fees and expenses
of attorneys and other professional consultants and experts, and of the
investigation and defense of any claim, whether or not such claim is ultimately
defeated, and the settlement of any claim or judgment including all value paid
or given in settlement) of every kind, known or unknown, foreseeable or
unforeseeable, which may be imposed upon, asserted against or incurred or paid
by Holder and/or Trustee at any time and from time to time, whenever imposed,
asserted or incurred, because of, resulting from, in connection with, or
arising out of any transaction, act, omission, event or circumstance in any way
connected with the Mortgaged Property or with this Mortgage or any other Loan
Document, including but not limited to any bodily injury or death
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or property damage occurring in or upon or in the vicinity of the Mortgaged
Property through any cause whatsoever at any time on or before the Release
Date, any act performed or omitted to be performed hereunder or under any other
Loan Document, any breach by Grantor of any representation, warranty, covenant,
agreement or condition contained in this Mortgage or in any other Loan
Document, any default as defined herein, any claim under or with respect to any
Lease (hereinafter defined) and any Environmental Matter (defined below). As
used herein, the term "Environmental Matter" means: (a) the presence of any
Hazardous Substance on, in, under, above or about the Mortgaged Property, or
the migration or release or threatened migration or release of any Hazardous
Substance on, to, from or through the Mortgaged Property, on or at any time
before the Release Date; or (b) any act, omission, event or circumstance
existing or occurring in connection with the handling, treatment, containment,
removal, storage, decontamination, clean-up, transport or disposal of any
Hazardous Substance which is at any time on or before the Release Date present
on, in, under, above or about the Mortgaged Property; or (c) any violation on
or before the Release Date, of any Environmental Requirement in effect on or
before the Release Date, regardless of whether any act, omission, event or
circumstance giving rise to the violation constituted a violation at the time
of the occurrence or inception of such act, omission, event or circumstance; or
(d) any Environmental Claim, or the filing or imposition of any environmental
lien against the Mortgaged Property, because of, resulting from, in connection
with, or arising out of any of the matters referred to in clauses (a) through
(c) preceding; and regardless of whether any of the matters referred to in the
foregoing clauses (a) through (d) was caused by Grantor or Grantor's tenant or
any subtenant, or a prior owner of the Mortgaged Property or its tenant or any
subtenant, or any third party. Without limitation of the definition of
Indemnified Matters herein, Grantor's indemnification obligations regarding any
Environmental Matter shall include injury or damage to any person, property or
natural resource occurring upon or off of the Mortgaged Property (including but
not limited to the cost of demolition and rebuilding of any improvements on
real property), the preparation of any feasibility studies or reports and the
performance of any cleanup, remediation, removal, response, abatement,
containment, closure, restoration, monitoring or similar work required by any
Environmental Requirement or necessary to have the full use and benefit of the
Mortgaged Property as contemplated by the Loan Documents (including, without
limitation, any of the same in connection with any foreclosure or transfer in
lieu thereof), and all liability to pay or indemnify any person for costs in
connection with any of the foregoing. The term "Release Date" as used herein
means the earlier of the following two dates: (i) the date on which the
indebtedness and obligations secured hereby have been paid and performed in
full and this Mortgage has been released, or (ii) the date on which the lien of
this Mortgage is fully and finally foreclosed or a conveyance by deed in lieu
of such foreclosure is fully and finally effective, and possession of the
Mortgaged Property has been given to the purchaser or grantee free of occupancy
and claims to occupancy by Grantor and Grantor's heirs, devisees,
representatives, successors and assigns; provided, that if such payment,
performance, release, foreclosure or conveyance is challenged, in bankruptcy
proceedings or otherwise, the Release Date shall be deemed not to have occurred
until such challenge is rejected, dismissed or withdrawn with prejudice. The
indemnities in this paragraph (p) shall not terminate upon the Release Date or
upon the release, foreclosure or other termination of this Mortgage but will
survive the Release Date, foreclosure of this Mortgage or conveyance in lieu of
foreclosure, the repayment of the secured indebtedness, the discharge and
release of this Mortgage and the other Loan Documents, any bankruptcy or other
debtor relief proceeding, and any other event whatsoever.
(q) Records and Financial Reports. Grantor will keep accurate books
and records in accordance with sound accounting principles in which full, true
and correct entries shall be promptly made with respect to the Mortgaged
Property and the operation thereof, and will permit all such books and records
to be inspected and copied, and the Mortgaged Property to be inspected and
photographed, by Holder and its representatives during normal business hours
and at any other reasonable times. Grantor will furnish to Holder at Grantor's
expense all evidence which Holder may from time to time reasonably request as
to compliance with all provisions of the Loan Documents. Any inspection or
audit of the Mortgaged Property or the books and records of Grantor, or the
procuring of documents and financial and other information, by or on behalf of
Holder shall be for Holder's protection only, and shall not constitute any
assumption of responsibility to Grantor or anyone else with regard to the
condition, construction, maintenance
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or operation of the Mortgaged Property nor Holder's approval of any
certification given to Holder nor relieve Grantor of any of Grantor's
obligations. Holder may from time to time assign or grant participations in
the secured indebtedness and Grantor consents to the delivery by Holder to any
acquirer or prospective acquirer of any interest or participation in or with
respect to all or part of the secured indebtedness such information as Holder
now or hereafter has relating to the Mortgaged Property, Grantor, any party
obligated for payment of any part of the secured indebtedness, any tenant or
guarantor under any lease affecting any part of the Mortgaged Property and any
agent or guarantor under any management agreement affecting any part of the
Mortgaged Property.
(r) Taxes on Note or Mortgage. Grantor will promptly pay all income,
franchise and other taxes owing by Grantor and any stamp taxes or other taxes
(unless such payment by Grantor is prohibited by law) which may be required to
be paid with respect to the Note, this Mortgage or any other instrument
evidencing or securing any of the secured indebtedness. In the event of the
enactment after this date of any law of any governmental entity applicable to
Holder, the Note, the Mortgaged Property or this Mortgage deducting from the
value of property for the purpose of taxation any lien or security interest
thereon, or imposing upon Holder the payment of the whole or any part of the
taxes or assessments or charges or liens herein required to be paid by Grantor,
or changing in any way the laws relating to the taxation of deeds of trust or
mortgages or security agreements or debts secured by deeds of trust or
mortgages or security agreements or the interest of the mortgagee or secured
party in the property covered thereby, or the manner of collection of such
taxes, so as to affect this Mortgage or the indebtedness secured hereby or
Holder, then, and in any such event, Grantor, upon demand by Holder, shall pay
such taxes, assessments, charges or liens, or reimburse Holder therefor;
provided, however, that if in the opinion of counsel for Holder (i) it might be
unlawful to require Grantor to make such payment or (ii) the making of such
payment might result in the imposition of interest beyond the maximum amount
permitted by law, then and in such event, Holder may elect, by notice in
writing given to Grantor, to declare all of the indebtedness secured hereby to
be and become due and payable sixty (60) days from the giving of such notice.
(s) Statement Concerning Note or Mortgage. Grantor shall at any time
and from time to time furnish within seven (7) days of request by Holder a
written statement in such form as may be required by Holder stating that (i)
the Note, this Mortgage and the other Loan Documents are valid and binding
obligations of Grantor, enforceable against Grantor in accordance with their
terms; (ii) the unpaid principal balance of the Note; (iii) the date to which
interest on the Note is paid; (iv) the Note, this Mortgage and the other Loan
Documents have not been released, subordinated or modified; and (v) there are
no offsets or defenses against the enforcement of the Note, this Mortgage or
any other Loan Document. If any of the foregoing statements are untrue,
Grantor shall, alternatively, specify the reasons therefor.
(t) Annual Appraisal. Holder may at its option obtain at Grantor's
expense, once in each year (or as otherwise requested by Holder) an appraisal
of the Mortgaged Property or any part thereof prepared in accordance with
written instructions from Holder by a third-party appraiser engaged directly by
Holder. Each such appraiser and appraisal shall be satisfactory to Holder.
The costs of each such appraisal shall be a part of the secured indebtedness
and shall be payable by Grantor to Holder on demand (which obligation Grantor
hereby promises to pay).
Section 2.2. Performance by Holder on Grantor's Behalf. Grantor
agrees that, if Grantor fails to perform any act or to take any action which
under any Loan Document Grantor is required to perform or take, or to pay any
money which under any Loan Document Grantor is required to pay, and whether or
not the failure then constitutes a default hereunder or thereunder, and whether
or not there has occurred any default or defaults hereunder or the secured
indebtedness has been accelerated, Holder, in Grantor's name or its own name,
may, but shall not be obligated to, perform or cause to be performed such act
or take such action or pay such money, and any expenses so incurred by Holder
and any money so paid by Holder shall be a demand obligation owing by Grantor
to Holder (which obligation Grantor hereby promises to pay), shall be a part of
the indebtedness secured hereby, and Holder, upon making such payment, shall be
subrogated to all of the rights of the person, entity or body politic receiving
such payment. Holder and its
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designees shall have the right to enter upon the Mortgaged Property at any time
and from time to time for any such purposes. No such payment or performance by
Holder shall waive or cure any default or waive any right, remedy or recourse
of Holder. Any such payment may be made by Holder in reliance on any
statement, invoice or claim without inquiry into the validity or accuracy
thereof. Each amount due and owing by Grantor to Holder pursuant to this
Mortgage shall bear interest, from the date such amount becomes due until paid,
at the rate per annum provided in the Note for interest on past due principal
owed on the Note but never in excess of the maximum nonusurious amount
permitted by applicable law, which interest shall be payable to Holder on
demand; and all such amounts, together with such interest thereon, shall
automatically and without notice be a part of the indebtedness secured hereby.
The amount and nature of any expense by Holder hereunder and the time when paid
shall be fully established by the certificate of Holder or any of Holder's
officers or agents.
Section 2.3. Absence of Obligations of Holder with Respect to
Mortgaged Property. Notwithstanding anything in this Mortgage to the contrary,
including, without limitation, the definition of "Mortgaged Property" and/or
the provisions of Article 3 hereof, (i) to the extent permitted by applicable
law, the Mortgaged Property is composed of Grantor's rights, title and
interests therein but not Grantor's obligations, duties or liabilities
pertaining thereto, (ii) Holder neither assumes nor shall have any obligations,
duties or liabilities in connection with any portion of the items described in
the definition of "Mortgaged Property" herein, either prior to or after
obtaining title to such Mortgaged Property, whether by foreclosure sale, the
granting of a deed in lieu of foreclosure or otherwise, and (iii) Holder may,
at any time prior to or after the acquisition of title to any portion of the
Mortgaged Property as above described, advise any party in writing as to the
extent of Holder's interest therein and/or expressly disaffirm in writing any
rights, interests, obligations, duties and/or liabilities with respect to such
Mortgaged Property or matters related thereto. Without limiting the generality
of the foregoing, it is understood and agreed that Holder shall have no
obligations, duties or liabilities prior to or after acquisition of title to
any portion of the Mortgaged Property, as lessee under any lease or purchaser
or seller under any contract or option unless Holder elects otherwise by
written notification.
ARTICLE 3 - COLLATERAL ASSIGNMENT OF LEASES AND RENTS AND LEASES
Section 3.1. Assignment. As additional security for the indebtedness
secured hereby, Grantor hereby assigns to Holder all Rents (hereinafter
defined) and all of Grantor's rights in and under all Leases (hereinafter
defined). Upon the occurrence of a default hereunder, Holder shall have the
right, power and privilege (but shall be under no duty) to demand possession of
the Rents, which demand shall to the fullest extent permitted by applicable law
be sufficient action by Holder to entitle Holder to immediate and direct
payment of the Rents (including delivery to Holder of Rents collected for the
period in which the demand occurs and for any subsequent period), for
application as provided in this Mortgage, all without the necessity of any
further action by Holder, including, without limitation, any action to obtain
possession of the Land, Improvements or any other portion of the Mortgaged
Property. Grantor hereby authorizes and directs the tenants under the Leases
to pay Rents to Holder upon written demand by Holder, without further consent
of Grantor, without any obligation to determine whether a default has in fact
occurred and regardless of whether Holder has taken possession of any portion
of the Mortgaged Property, and the tenants may rely upon any written statement
delivered by Holder to the tenants. Any such payment to Holder shall
constitute payment to Grantor under the Leases, and Grantor hereby appoints
Holder as Grantor's lawful attorney-in-fact for giving, and Holder is hereby
empowered to give, acquittances to any tenants for such payments to Holder
after a default. The assignment contained in this Section shall become null
and void upon the release of this Mortgage. As used herein: (i) "Lease" means
each existing or future lease, sublease (to the extent of Grantor's rights
thereunder) or other agreement under the terms of which any person has or
acquires any right to occupy or use the Mortgaged Property, or any part
thereof, or interest therein, and each existing or future guaranty of payment
or performance thereunder, and all extensions, renewals, modifications and
replacements of each such lease, sublease, agreement or guaranty; and (ii)
"Rents" means all of the rents, revenue, income, profits and proceeds derived
and to be derived from the Mortgaged Property or arising from the use or
enjoyment of any portion thereof or from any Lease, including but not limited
to liquidated damages following
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default under any such Lease, all proceeds payable under any policy of
insurance covering loss of rents resulting from untenantability caused by
damage to any part of the Mortgaged Property, all of Grantor's rights to
recover monetary amounts from any tenant in bankruptcy including, without
limitation, rights of recovery for use and occupancy and damage claims arising
out of Lease defaults, including rejections, under any applicable Debtor Relief
Law (as hereinafter defined), together with any sums of money that may now or
at any time hereafter be or become due and payable to Grantor by virtue of any
and all royalties, overriding royalties, bonuses, delay rentals and any other
amount of any kind or character arising under any and all present and all
future oil, gas, mineral and mining leases covering the Mortgaged Property or
any part thereof, and all proceeds and other amounts paid or owing to Grantor
under or pursuant to any and all contracts and bonds relating to the
construction or renovation of the Mortgaged Property.
Section 3.2. Covenants, Representations and Warranties Concerning
Leases and Rents. Grantor covenants, represents and warrants that: (i) Grantor
has good title to, and is the owner of the entire landlord's interest in, the
Leases and Rents hereby assigned and authority to assign them; (ii) all Leases
are valid and enforceable, and in full force and effect, and are unmodified
except as stated therein; (iii) unless otherwise stated in a Permitted
Encumbrance, no Rents or Leases have been or will be assigned, mortgaged,
pledged or otherwise encumbered and no other person has or will acquire any
right, title or interest in such Rents or Leases; (iv) no Rents have been
waived, released, discounted, set off or compromised; (v) except as stated in
the Leases, Grantor has not received any funds or deposits from any tenant for
which credit has not already been made on account of accrued Rents; (vi)
Grantor shall perform all of its obligations under the Leases and enforce the
tenants' obligations under the Leases to the extent enforcement is prudent
under the circumstances; (vii) Grantor will not without the prior written
consent of Holder, enter into any Lease after the date hereof, or waive,
release, discount, set off, compromise, reduce or defer any Rent, receive or
collect Rents more than one (1) month in advance, grant any rent-free period to
any tenant, reduce any Lease term or waive, release or otherwise modify any
other material obligation under any Lease, renew or extend any Lease except in
accordance with a right of the tenant thereto in such Lease, approve or consent
to an assignment of a Lease or a subletting of any part of the premises covered
by a Lease, or settle or compromise any claim against a tenant under a Lease in
bankruptcy or otherwise; (viii) Grantor will not, except in good faith where
the tenant is in material default thereunder, terminate or consent to the
cancellation or surrender of any Lease having an unexpired term of one year or
more unless promptly after the cancellation or surrender a new Lease of such
premises is made with a new tenant having a credit standing, in Holder's
judgment, at least equivalent to that of the tenant whose Lease was cancelled,
on substantially the same terms as the terminated or cancelled Lease; (ix)
Grantor will not execute any Lease except in accordance with the Loan Documents
and for actual occupancy by the tenant thereunder; (x) Grantor shall give
prompt notice to Holder, as soon as Grantor first obtains notice, of any claim,
or the commencement of any action, by any tenant or subtenant under or with
respect to a Lease regarding any claimed damage, default, diminution of or
offset against Rent, cancellation of the Lease, or constructive eviction,
excluding, however, notices of default under residential Leases, and Grantor
shall defend, at Grantor's expense, any proceeding pertaining to any Lease,
including, if Holder so requests, any such proceeding to which Holder is a
party; (xi) Grantor shall as often as requested by Holder, within ten (10) days
of each request, deliver to Holder a complete rent roll of the Mortgaged
Property in such detail as Holder may require and financial statements of the
tenants, subtenants and guarantors under the Leases to the extent available to
Grantor, and deliver to such of the tenants and others obligated under the
Leases specified by Holder written notice of the assignment in Section 3.1
hereof in form and content satisfactory to Holder; (xii) promptly upon request
by Holder, Grantor shall deliver to Holder executed originals of all Leases and
copies of all records relating thereto; (xiii) there shall be no merger of the
leasehold estates, created by the Leases, with the fee estate of the Land
without the prior written consent of Holder; and (xiv) Holder may at any time
and from time to time by specific written instrument intended for the purpose,
unilaterally subordinate the lien of this Mortgage to any Lease, without
joinder or consent of, or notice to, Grantor, any tenant or any other person,
and notice is hereby given to each tenant under a Lease of such right to
subordinate. No such subordination shall constitute a subordination to any
lien or other encumbrance, whenever arising, or improve the right of any junior
lienholder; and nothing herein shall be construed as subordinating this
Mortgage to any Lease.
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Section 3.3. No Liability of Holder. Holder's acceptance of this
assignment shall not be deemed to constitute Holder a "mortgagee in
possession," nor obligate Holder to appear in or defend any proceeding relating
to any Lease or to the Mortgaged Property, or to take any action hereunder,
expend any money, incur any expenses, or perform any obligation or liability
under any Lease, or assume any obligation for any deposit delivered to Grantor
by any tenant and not as such delivered to and accepted by Holder. Holder
shall not be liable for any injury or damage to person or property in or about
the Mortgaged Property, or for Holder's failure to collect or to exercise
diligence in collecting Rents, but shall be accountable only for Rents that it
shall actually receive. Neither the assignment of Leases and Rents nor
enforcement of Holder's rights regarding Leases and Rents (including collection
of Rents) nor possession of the Mortgaged Property by Holder nor Holder's
consent to or approval of any Lease (nor all of the same), shall render Holder
liable on any obligation under or with respect to any Lease or constitute
affirmation of, or any subordination to, any Lease, occupancy, use or option.
If Holder seeks or obtains any judicial relief regarding Rents or Leases, the
same shall in no way prevent the concurrent or subsequent employment of any
other appropriate rights or remedies nor shall same constitute an election of
judicial relief for any foreclosure or any other purpose. Holder neither has
nor assumes any obligations as lessor or landlord with respect to any Lease.
The rights of Holder under this Article 3 shall be cumulative of all other
rights of Holder under the Loan Documents or otherwise.
ARTICLE 4 - DEFAULT
Section 4.1. Events of Default. The occurrence of any one of the
following shall be a default under this Mortgage ("default"):
(a) Failure to Pay Indebtedness. Any of the secured indebtedness is
not paid when due, regardless of how such amount may have become due.
(b) Nonperformance of Covenants. Any covenant, agreement or
condition herein or in any other Loan Document (other than covenants otherwise
addressed in another paragraph of this Section, such as covenants to pay the
secured indebtedness) is not fully and timely performed, observed or kept, and
such failure is not cured within the applicable grace period (if any) provided
for herein or in such other Loan Document.
(c) Representations. Any statement, representation or warranty in
any of the Loan Documents, or in any financial statement or any other writing
heretofore or hereafter delivered to Holder in connection with the secured
indebtedness is false, misleading or erroneous in any material respect on the
date hereof or on the date as of which such statement, representation or
warranty is made, and such statement, representation or warranty is not made
true and correct (as of the time such corrective action is taken) within the
applicable grace period (if any) provided for in such Loan Document.
(d) Bankruptcy or Insolvency. The owner of the Mortgaged Property or
any person liable, directly or indirectly, for any of the secured indebtedness
(or any general partner or joint venturer of such owner or other person):
(1) (i) Executes an assignment for the benefit of creditors, or
takes any action in furtherance thereof; or (ii) admits in writing its
inability to pay, or fails to pay, its debts generally as they become due; or
(iii) as a debtor, files a petition, case, proceeding or other action pursuant
to, or voluntarily seeks the benefit or benefits of, Title 11 of the United
States Code as now or hereafter in effect or any other law, domestic or
foreign, as now or hereafter in effect relating to bankruptcy, insolvency,
liquidation, receivership, reorganization, arrangement, composition, extension
or adjustment of debts, or similar laws affecting the rights of creditors
(Title 11 of the United States Code and such other laws being herein called
"Debtor Relief Laws"), or takes any action in furtherance thereof; or (iv)
seeks the appointment of a receiver, trustee, custodian or liquidator of the
Mortgaged Property or any part thereof or of any significant portion of its
other property; or
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(2) Suffers the filing of a petition, case, proceeding or other
action against it as a debtor under any Debtor Relief Law or seeking
appointment of a receiver, trustee, custodian or liquidator of the Mortgaged
Property or any part thereof or of any significant portion of its other
property, and (i) admits, acquiesces in or fails to contest diligently the
material allegations thereof, or (ii) the petition, case, proceeding or other
action results in entry of any order for relief or order granting relief sought
against it, or (iii) in a proceeding under the Federal Bankruptcy Code, the
case is converted from one chapter to another, or (iv) fails to have the
petition, case, proceeding or other action permanently dismissed or discharged
on or before the earlier of trial thereon or sixty (60) days next following the
date of its filing; or
(3) Conceals, removes, or permits to be concealed or removed,
any part of its property, with intent to hinder, delay or defraud its creditors
or any of them, or makes or suffers a transfer of any of its property which may
be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or
makes any transfer of its property to or for the benefit of a creditor at a
time when other creditors similarly situated have not been paid; or suffers or
permits, while insolvent, any creditor to obtain a lien (other than as
described in subparagraph (4) below) upon any of its property through legal
proceedings which are not vacated and such lien discharged prior to enforcement
thereof and in any event within sixty (60) days from the date thereof; or
(4) Fails to have discharged within a period of ten (10) days
any attachment, sequestration, or similar writ levied upon any of its property;
or
(5) Fails to pay immediately any final money judgment against it.
(e) Transfer of the Mortgaged Property. Any sale, lease, conveyance,
assignment, pledge, encumbrance, or transfer of all or any part of the
Mortgaged Property or any interest therein, voluntarily or involuntarily,
whether by operation of law or otherwise, except: (i) sales or transfers of
items of the Accessories which have become obsolete or worn beyond practical
use and which have been replaced by adequate substitutes, owned by Grantor,
having a value equal to or greater than the replaced items when new; and (ii)
the grant, in the ordinary course of business, of a leasehold interest in a
part of the Improvements to a tenant for occupancy, not containing a right or
option to purchase and not in contravention of any provision of this Mortgage
or of any other Loan Document. Holder may, in its sole discretion, waive a
default under this paragraph, but it shall have no obligation to do so, and any
waiver may be conditioned upon such one or more of the following (if any) which
Holder may require: the grantee's integrity, reputation, character,
creditworthiness and management ability being satisfactory to Holder in its
sole judgment and grantee executing, prior to such sale or transfer, a written
assumption agreement containing such terms as Holder may require, a principal
paydown on the Note, an increase in the rate of interest payable under the
Note, a transfer fee, a modification of the term of the Note, and any other
modification of the Loan Documents which Holder may require.
(f) Transfer of Ownership of Grantor. The sale, pledge, encumbrance,
assignment or transfer, voluntarily or involuntarily, whether by operation of
law or otherwise, of any interest in Grantor (if Grantor is not a natural
person but is a corporation, partnership, trust or other legal entity), without
the prior written consent of Holder (including, without limitation, if Grantor
is a partnership or joint venture, the withdrawal from or admission into it of
any general partner or joint venturer), except: sales or transfers of stock in
Grantor if Grantor is a corporation or sales or transfers of limited
partnership interests in Grantor if Grantor is a limited partnership provided
that such sales or transfers, together with any prior sales or transfers of
interests in Grantor, do not result in more than 49% of the total beneficial
interests in Grantor having been sold or transferred since the date of this
Mortgage.
(g) Grant of Easement, Etc. Without the prior written consent of
Holder, Grantor grants any easement or dedication, files any plat, condominium
declaration, or restriction, or otherwise encumbers the Mortgaged Property, or
seeks or permits any zoning reclassification or variance, unless such action is
expressly permitted by the Loan Documents or does not affect the Mortgaged
Property.
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(h) Abandonment. The owner of the Mortgaged Property abandons any of
the Mortgaged Property.
(i) Default Under Other Lien. A default or event of default occurs
under any lien, security interest or assignment covering the Mortgaged Property
or any part thereof (whether or not Holder has consented, and without hereby
implying Holder's consent, to any such lien, security interest or assignment
not created hereunder), or the holder of any such lien, security interest or
assignment declares a default or institutes foreclosure or other proceedings
for the enforcement of its remedies thereunder.
(j) Destruction. The Mortgaged Property is so demolished, destroyed
or damaged that, in the reasonable opinion of Holder, it cannot be restored or
rebuilt with available funds to a profitable condition within a reasonable
period of time and in any event prior to the final maturity date of the Note.
(k) Condemnation. (i) Any governmental authority shall require, or
commence any proceeding for, the demolition of any building or structure
comprising a part of the Premises, or (ii) there is commenced any proceeding to
condemn or otherwise take pursuant to the power of eminent domain, or a
contract for sale or a conveyance in lieu of such a taking is executed which
provides for the transfer of, a material portion of the Premises, including but
not limited to the taking (or transfer in lieu thereof) of any portion which
would result in the blockage or substantial impairment of access or utility
service to the Improvements or which would cause the Premises to fail to comply
with any Legal Requirement.
(l) Liquidation, Etc. The liquidation, termination, dissolution,
merger, consolidation or failure to maintain good standing in the State of
Texas (or in the case of an individual, the death or legal incapacity) of the
owner of the Mortgaged Property or any person obligated to pay any part of the
secured indebtedness.
(m) Material, Adverse Change. In Holder's reasonable opinion, the
prospect of payment of all or any part of the secured indebtedness has been
impaired because of a material, adverse change in the financial condition,
results of operations, business or properties of the owner of the Mortgaged
Property or any person liable, directly or indirectly, for any of the secured
indebtedness, or of any general partner or joint venturer thereof (if such
owner or other person is a partnership or joint venture).
(n) Enforceability; Priority. Any Loan Document shall for any reason
without Holder's specific written consent cease to be in full force and effect,
or shall be declared null and void or unenforceable in whole or in part, or the
validity or enforceability thereof, in whole or in part, shall be challenged or
denied by any party thereto other than Holder; or the liens, mortgages or
security interests of Holder in any of the Mortgaged Property become
unenforceable in whole or in part, or cease to be of the priority herein
required, or the validity or enforceability thereof, in whole or in part, shall
be challenged or denied by Grantor or any person obligated to pay any part of
the secured indebtedness.
(o) Other Loan Documents. A default or event of default occurs under
any Loan Document, other than this Mortgage, and the same is not remedied
within the applicable period of grace (if any) provided in such Loan Document.
Section 4.2 Notice and Cure. If any provision of this Mortgage or
any other Loan Document provides for Holder to give to Grantor any notice
regarding a default or incipient default, then if Holder shall fail to give
such notice to Grantor as provided, the sole and exclusive remedy of Grantor
for such failure shall be to seek appropriate equitable relief to enforce the
agreement to give such notice and to have any acceleration of the maturity of
the Note and the secured indebtedness postponed or revoked and foreclosure
proceedings in connection therewith delayed or terminated pending or upon the
curing of such default in the manner and during the period of time permitted by
such agreement, if any, and Grantor shall have no right to damages or any other
type of relief not herein specifically set out against Holder, all of which
damages or
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other relief are hereby waived by Grantor. Nothing herein or in any other Loan
Document shall operate or be construed to add on or make cumulative any cure or
grace periods specified in any of the Loan Documents.
ARTICLE 5 - REMEDIES
Section 5.1. Certain Remedies. If a default shall occur, Holder may
(but shall have no obligation to) exercise any one or more of the following
remedies, without notice (unless notice is required by applicable statute):
(a) Acceleration. Holder may at any time and from time to time
declare any or all of the secured indebtedness immediately due and payable and
such secured indebtedness shall thereupon be immediately due and payable,
without presentment, demand, protest, notice of protest, notice of acceleration
or of intention to accelerate or any other notice or declaration of any kind,
all of which are hereby expressly waived by Grantor. Without limitation of the
foregoing, upon the occurrence of a default described in clauses (i), (iii) or
(iv) of subparagraph (1) of paragraph (d) of Section 4.1, hereof, all of the
secured indebtedness shall thereupon be immediately due and payable, without
presentment, demand, protest, notice of protest, declaration or notice of
acceleration or intention to accelerate, or any other notice, declaration or
act of any kind, all of which are hereby expressly waived by Grantor.
(b) Enforcement of Assignment of Rents. Prior or subsequent to
taking possession of any portion of the Mortgaged Property or taking any action
with respect to such possession, Holder may: (1) collect and/or sue for the
Rents in Holder's own name, give receipts and releases therefor, and after
deducting all expenses of collection, including attorneys' fees and expenses,
apply the net proceeds thereof to the secured indebtedness in such manner and
order as Holder may elect and/or to the operation and management of the
Mortgaged Property, including the payment of management, brokerage and
attorney's fees and expenses; and (2) require Grantor to transfer all security
deposits and records thereof to Holder together with original counterparts of
the Leases.
(c) Foreclosure. Upon the occurrence of a default, Trustee, or his
successor or substitute, is authorized and empowered and it shall be his
special duty at the request of Holder to sell the Mortgaged Property or any
part thereof situated in the State of Texas, at the courthouse of any county
(whether or not the counties in which the Mortgaged Property is located are
contiguous, if the Mortgaged Property is located in more than one county) in
the State of Texas in which any part of the Mortgaged Property is situated, at
public vendue to the highest bidder for cash between the hours of ten o'clock
a.m. and four o'clock p.m. on the first Tuesday in any month or at such other
place, time and date as provided by the statutes of the State of Texas then in
force governing sales of real estate under powers of sale conferred by deed of
trust, after having given notice of such sale in accordance with such statutes.
Any sale made by Trustee hereunder may be as an entirety or in such parcels as
Holder may request. To the extent permitted by applicable law, any sale may be
adjourned by announcement at the time and place appointed for such sale without
further notice except as may be required by law. The sale by Trustee of less
than the whole of the Mortgaged Property shall not exhaust the power of sale
herein granted, and Trustee is specifically empowered to make successive sale
or sales under such power until the whole of the Mortgaged Property shall be
sold; and, if the proceeds of such sale of less than the whole of the Mortgaged
Property shall be less than the aggregate of the indebtedness secured hereby
and the expense of executing this trust as provided herein, this Mortgage and
the lien hereof shall remain in full force and effect as to the unsold portion
of the Mortgaged Property just as though no sale had been made; provided,
however, that Grantor shall never have any right to require the sale of less
than the whole of the Mortgaged Property but Holder shall have the right, at
its sole election, to request Trustee to sell less than the whole of the
Mortgaged Property. Trustee may, after any request or direction by Holder,
sell not only the real property but also the Collateral and other interests
which are a part of the Mortgaged Property, or any part thereof, as a unit and
as a part of a single sale, or may sell any part of the Mortgaged Property
separately from the remainder of the Mortgaged Property. It shall not be
necessary for Trustee to have taken possession of any part of the Mortgaged
Property or to have present or to exhibit at any sale any of the Collateral.
After
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each sale, Trustee shall make to the purchaser or purchasers at such sale good
and sufficient conveyances in the name of Grantor, conveying the property so
sold to the purchaser or purchasers with general warranty of title by Grantor,
subject to the Permitted Encumbrances (and to such leases and other matters, if
any, as Trustee may elect upon request of Holder), and shall receive the
proceeds of said sale or sales and apply the same as herein provided. Payment
of the purchase price to the Trustee shall satisfy the obligation of purchaser
at such sale therefor, and such purchaser shall not be responsible for the
application thereof. The power of sale granted herein shall not be exhausted
by any sale held hereunder by Trustee or his substitute or successor, and such
power of sale may be exercised from time to time and as many times as Holder
may deem necessary until all of the Mortgaged Property has been duly sold and
all secured indebtedness has been fully paid. In the event any sale hereunder
is not completed or is defective in the opinion of Holder, such sale shall not
exhaust the power of sale hereunder and Holder shall have the right to cause a
subsequent sale or sales to be made hereunder. Any and all statements of fact
or other recitals made in any deed or deeds or other conveyances given by
Trustee or any successor or substitute appointed hereunder as to nonpayment of
the secured indebtedness or as to the occurrence of any default, or as to
Holder's having declared all of said indebtedness to be due and payable, or as
to the request to sell, or as to notice of time, place and terms of sale and
the properties to be sold having been duly given, or as to the refusal, failure
or inability to act of Trustee or any substitute or successor trustee, or as to
the appointment of any substitute or successor trustee, or as to any other act
or thing having been duly done by Holder or by such Trustee, substitute or
successor, shall be taken as prima facie evidence of the truth of the facts so
stated and recited. The Trustee or his successor or substitute may appoint or
delegate any one or more persons as agent to perform any act or acts necessary
or incident to any sale held by Trustee, including the posting of notices and
the conduct of sale, but in the name and on behalf of Trustee, his successor or
substitute. If Trustee or his successor or substitute shall have given notice
of sale hereunder, any successor or substitute Trustee thereafter appointed may
complete the sale and the conveyance of the property pursuant thereto as if
such notice had been given by the successor or substitute Trustee conducting
the sale.
(d) Uniform Commercial Code. Without limitation of Holder's rights
of enforcement with respect to the Collateral or any part thereof in accordance
with the procedures for foreclosure of real estate, Holder may exercise its
rights of enforcement with respect to the Collateral or any part thereof under
the Texas Business and Commerce Code as amended (or under the Uniform
Commercial Code in force in any other state to the extent the same is
applicable law) and in conjunction with, in addition to or in substitution for
those rights and remedies: (1) Holder may enter upon Grantor's premises to
take possession of, assemble and collect the Collateral or, to the extent and
for those items of the Collateral permitted under applicable law, to render it
unusable; (2) Holder may require Grantor to assemble the Collateral and make it
available at a place Holder designates which is mutually convenient to allow
Holder to take possession or dispose of the Collateral; (3) written notice
mailed to Grantor as provided herein at least five (5) days prior to the date
of public sale of the Collateral or prior to the date after which private sale
of the Collateral will be made shall constitute reasonable notice; (4) any sale
made pursuant to the provisions of this paragraph shall be deemed to have been
a public sale conducted in a commercially reasonable manner if held
contemporaneously with and upon the same notice as required for the sale of the
Mortgaged Property under power of sale as provided in paragraph (c) above in
this Section 5.1; (5) in the event of a foreclosure sale, whether made by
Trustee under the terms hereof, or under judgment of a court, the Collateral
and the other Mortgaged Property may, at the option of Holder, be sold as a
whole; (6) it shall not be necessary that Holder take possession of the
Collateral or any part thereof prior to the time that any sale pursuant to the
provisions of this Section is conducted and it shall not be necessary that the
Collateral or any part thereof be present at the location of such sale; (7)
with respect to application of proceeds of disposition of the Collateral under
Section 5.3 hereof, the costs and expenses incident to disposition shall
include the reasonable expenses of retaking, holding, preparing for sale or
lease, selling, leasing and the like and the reasonable attorneys' fees and
legal expenses incurred by Holder; (8) any and all statements of fact or other
recitals made in any bill of sale or assignment or other instrument evidencing
any foreclosure sale hereunder as to nonpayment of the secured indebtedness or
as to the occurrence of any default, or as to Holder having declared all of
such indebtedness to be due and payable, or as to notice of time, place and
terms of sale and of the
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properties to be sold having been duly given, or as to any other act or thing
having been duly done by Holder, shall be taken as prima facie evidence of the
truth of the facts so stated and recited; and (9) Holder may appoint or
delegate any one or more persons as agent to perform any act or acts necessary
or incident to any sale held by Holder, including the sending of notices and
the conduct of the sale, but in the name and on behalf of Holder.
(e) Lawsuits. Holder may proceed by a suit or suits in equity or at
law, whether for collection of the indebtedness secured hereby, the specific
performance of any covenant or agreement herein contained or in aid of the
execution of any power herein granted, or for any foreclosure hereunder or for
the sale of the Mortgaged Property under the judgment or decree of any court or
courts of competent jurisdiction.
(f) Entry on Mortgaged Property. Holder is authorized, prior or
subsequent to the institution of any foreclosure proceedings, to the fullest
extent permitted by applicable law, to enter upon the Mortgaged Property, or
any part thereof, and to take possession of the Mortgaged Property and all
books and records relating thereto, and to exercise without interference from
Grantor any and all rights which Grantor has with respect to the management,
possession, operation, protection or preservation of the Mortgaged Property.
Holder shall not be deemed to have taken possession of the Mortgaged Property
or any part thereof except upon the exercise of its right to do so, and then
only to the extent evidenced by its demand and overt act specifically for such
purpose. All costs, expenses and liabilities of every character incurred by
Holder in managing, operating, maintaining, protecting or preserving the
Mortgaged Property shall constitute a demand obligation of Grantor (which
obligation Grantor hereby promises to pay) to Holder pursuant to this Mortgage.
If necessary to obtain the possession provided for above, Holder may invoke any
and all legal remedies to dispossess Grantor. In connection with any action
taken by Holder pursuant to this Section, Holder shall not be liable for any
loss sustained by Grantor resulting from any failure to let the Mortgaged
Property or any part thereof, or from any act or omission of Holder in managing
the Mortgaged Property unless such loss is caused by the willful misconduct and
bad faith of Holder, nor shall Holder be obligated to perform or discharge any
obligation, duty or liability of Grantor arising under any lease or other
agreement relating to the Mortgaged Property or arising under any Permitted
Encumbrance or otherwise arising. Grantor hereby assents to, ratifies and
confirms any and all actions of Holder with respect to the Mortgaged Property
taken under this Section.
(g) Receiver. Holder shall as a matter of right be entitled to the
appointment of a receiver or receivers for all or any part of the Mortgaged
Property, whether such receivership be incident to a proposed sale (or sales)
of such property or otherwise, and without regard to the value of the Mortgaged
Property or the solvency of any person or persons liable for the payment of the
indebtedness secured hereby, and Grantor does hereby irrevocably consent to the
appointment of such receiver or receivers, waives any and all defenses to such
appointment, agrees not to oppose any application therefor by Holder, and
agrees that such appointment shall in no manner impair, prejudice or otherwise
affect the rights of Holder to application of Rents as provided in this
Mortgage. Nothing herein is to be construed to deprive Holder of any other
right, remedy or privilege it may have under the law to have a receiver
appointed. Any money advanced by Holder in connection with any such
receivership shall be a demand obligation (which obligation Grantor hereby
promises to pay) owing by Grantor to Holder pursuant to this Mortgage.
(h) Termination of Commitment to Lend. Holder may terminate any
commitment or obligation to lend or disburse funds under any Loan Document.
(i) Other Rights and Remedies. Holder may exercise any and all other
rights and remedies which Holder may have under the Loan Documents, or at law
or in equity or otherwise.
Section 5.2. Effective as Mortgage. This instrument shall be
effective as a mortgage as well as a deed of trust and upon the occurrence of a
default may be foreclosed as to any of the Mortgaged Property in any manner
permitted by applicable law, and any foreclosure suit may be brought by Trustee
or by Holder; and to the extent, if any, required to cause this instrument to
be so effective as a mortgage as well as a deed of trust, Grantor hereby
mortgages the Mortgaged
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Property to Holder. In the event a foreclosure hereunder shall be commenced by
Trustee, or his substitute or successor, Holder may at any time before the sale
of the Mortgaged Property direct Trustee to abandon the sale, and may then
institute suit for the collection of the Note and/or any other secured
indebtedness, and for the foreclosure of this Mortgage. It is agreed that if
Holder should institute a suit for the collection of the Note or any other
secured indebtedness and for the foreclosure of this Mortgage, Holder may at
any time before the entry of a final judgment in said suit dismiss the same,
and require Trustee, his substitute or successor to sell the Mortgaged Property
in accordance with the provisions of this Mortgage.
Section 5.3. Proceeds of Foreclosure. The proceeds of any sale held
by Trustee or Holder or any receiver or public officer in foreclosure of the
liens and security interests evidenced hereby shall be applied: FIRST, to the
payment of all necessary costs and expenses incident to such foreclosure sale,
including but not limited to all reasonable attorneys' fees and legal expenses,
all court costs and charges of every character, and a reasonable fee (not
exceeding five percent (5%) of the gross proceeds of such sale) to Trustee
acting under the provisions of paragraph (c) of Section 5.1 hereof if
foreclosed by power of sale as provided in said paragraph, and to the payment
of the other secured indebtedness, including specifically without limitation
the principal, accrued interest and attorneys' fees due and unpaid on the Note
and the amounts due and unpaid and owed to Holder under this Mortgage, the
order and manner of application to the items in this clause FIRST to be in
Holder's sole discretion; and SECOND, the remainder, if any there shall be,
shall be paid to Grantor, or to Grantor's heirs, devisees, representatives,
successors or assigns, or such other persons (including the holder or
beneficiary of any inferior lien) as may be entitled thereto by law; provided,
however, that if Holder is uncertain which person or persons are so entitled,
Holder may interplead such remainder in any court of competent jurisdiction,
and the amount of any attorneys' fees, court costs and expenses incurred in
such action shall be a part of the secured indebtedness and shall be
reimbursable (without limitation) from such remainder.
Section 5.4. Holder as Purchaser. Holder shall have the right to
become the purchaser at any sale held by Trustee or substitute or successor or
by any receiver or public officer or at any public sale, and Holder shall have
the right to credit upon the amount of Holder's successful bid, to the extent
necessary to satisfy such bid, all or any part of the secured indebtedness in
such manner and order as Holder may elect.
Section 5.5. Foreclosure as to Matured Debt. Upon the occurrence of
a default, Holder shall have the right to proceed with foreclosure (judicial or
nonjudicial) of the liens and security interests hereunder without declaring
the entire secured indebtedness due, and in such event any such foreclosure
sale may be made subject to the unmatured part of the secured indebtedness; and
any such sale shall not in any manner affect the unmatured part of the secured
indebtedness, but as to such unmatured part this Mortgage shall remain in full
force and effect just as though no sale had been made. The proceeds of such
sale shall be applied as provided in Section 5.3 hereof except that the amount
paid under clause FIRST thereof shall be only the matured portion of the
secured indebtedness and any proceeds of such sale in excess of those provided
for in clause FIRST (modified as provided above) shall be applied to the
prepayment (without penalty) of any other secured indebtedness in such manner
and order and to such extent as Holder deems advisable, and the remainder, if
any, shall be applied as provided in clause SECOND of Section 5.3 hereof.
Several sales may be made hereunder without exhausting the right of sale for
any unmatured part of the secured indebtedness.
Section 5.6. Remedies Cumulative. All rights and remedies provided
for herein and in any other Loan Document are cumulative of each other and of
any and all other rights and remedies existing at law or in equity, and Trustee
and Holder shall, in addition to the rights and remedies provided herein or in
any other Loan Document, be entitled to avail themselves of all such other
rights and remedies as may now or hereafter exist at law or in equity for the
collection of the secured indebtedness and the enforcement of the covenants
herein and the foreclosure of the liens and security interests evidenced
hereby, and the resort to any right or remedy provided for hereunder or under
any such other Loan Document or provided for by law or in equity shall not
prevent the concurrent or subsequent employment of any other appropriate right
or rights or remedy or remedies.
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Section 5.7. Holder's Discretion as to Security. Holder may resort
to any security given by this Mortgage or to any other security now existing or
hereafter given to secure the payment of the secured indebtedness, in whole or
in part, and in such portions and in such order as may seem best to Holder in
its sole and uncontrolled discretion, and any such action shall not in anywise
be considered as a waiver of any of the rights, benefits, liens or security
interests evidenced by this Mortgage.
Section 5.8. Grantor's Waiver of Certain Rights. To the full extent
Grantor may do so, Grantor agrees that Grantor will not at any time insist
upon, plead, claim or take the benefit or advantage of any law now or hereafter
in force providing for any appraisement, valuation, stay, extension or
redemption, and Grantor, for Grantor, Grantor's heirs, devisees,
representatives, successors and assigns, and for any and all persons ever
claiming any interest in the Mortgaged Property, to the extent permitted by
applicable law, hereby waives and releases all rights of redemption, valuation,
appraisement, stay of execution, notice of intention to mature or declare due
the whole of the secured indebtedness, notice of election to mature or declare
due the whole of the secured indebtedness and all rights to a marshaling of
assets of Grantor, including the Mortgaged Property, or to a sale in inverse
order of alienation in the event of foreclosure of the liens and/or security
interests hereby created. Grantor shall not have or assert any right under any
statute or rule of law pertaining to the marshaling of assets, sale in inverse
order of alienation, the exemption of homestead, the administration of estates
of decedents, or other matters whatever to defeat, reduce or affect the right
of Holder under the terms of this Mortgage to a sale of the Mortgaged Property
for the collection of the secured indebtedness without any prior or different
resort for collection, or the right of Holder under the terms of this Mortgage
to the payment of the secured indebtedness out of the proceeds of sale of the
Mortgaged Property in preference to every other claimant whatever. Grantor
waives any right or remedy which Grantor may have or be able to assert pursuant
to Chapter 34 of the Texas Business and Commerce Code, or any other provision
of Texas law, pertaining to the rights and remedies of sureties. If any law
referred to in this Section and now in force, of which Grantor or Grantor's
heirs, devisees, representatives, successors or assigns or any other persons
claiming any interest in the Mortgaged Property might take advantage despite
this Section, shall hereafter be repealed or cease to be in force, such law
shall not thereafter be deemed to preclude the application of this Section.
Section 5.9. Delivery of Possession After Foreclosure. In the event
there is a foreclosure sale hereunder and at the time of such sale, Grantor or
Grantor's heirs, devisees, representatives, successors or assigns are occupying
or using the Mortgaged Property, or any part thereof, each and all shall
immediately become the tenant of the purchaser at such sale, which tenancy
shall be a tenancy from day to day, terminable at the will of either landlord
or tenant, at a reasonable rental per day based upon the value of the property
occupied, such rental to be due daily to the purchaser; and to the extent
permitted by applicable law, the purchaser at such sale shall, notwithstanding
any language herein apparently to the contrary, have the sole option to demand
immediate possession following the sale or to permit the occupants to remain as
tenants at will. In the event the tenant fails to surrender possession of said
property upon demand, the purchaser shall be entitled to institute and maintain
a summary action for possession of the property (such as an action for forcible
detainer) in any court having jurisdiction.
ARTICLE 6 - MISCELLANEOUS
Section 6.1. Scope of Mortgage. This Mortgage is a deed of trust and
mortgage of both real and personal property, a security agreement, a financing
statement and a collateral assignment, and also covers proceeds and fixtures.
Section 6.2. Effective as a Financing Statement. This Mortgage shall
be effective as a financing statement filed as a fixture filing with respect to
all fixtures included within the Mortgaged Property and is to be filed for
record in the real estate records of each county where any part of the
Mortgaged Property (including said fixtures) is situated. This Mortgage shall
also be effective as a financing statement covering minerals or the like
(including oil and gas) and accounts subject to Subsection (e) of Section 9.103
of the Texas Business and Commerce Code, as amended, and similar provisions (if
any) of the Uniform Commercial Code as enacted in any
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other state where the Mortgaged Property is situated which will be financed at
the wellhead or minehead of the wells or mines located on the Mortgaged
Property and is to be filed for record in the real estate records of each
county where any part of the Mortgaged Property is situated. This Mortgage
shall also be effective as a financing statement covering any other Mortgaged
Property and may be filed in any other appropriate filing or recording office.
The mailing address of Grantor is the address of Grantor set forth at the end
of this Mortgage and the address of Holder from which information concerning
the security interests hereunder may be obtained is the address of Holder set
forth at the end of this Mortgage. A carbon, photographic or other
reproduction of this Mortgage or of any financing statement relating to this
Mortgage shall be sufficient as a financing statement for any of the purposes
referred to in this Section.
Section 6.3. Notice to Account Debtors. In addition to the rights
granted elsewhere in this Mortgage, Holder may at any time notify the account
debtors or obligors of any accounts, chattel paper, negotiable instruments or
other evidences of indebtedness included in the Collateral to pay Holder
directly.
Section 6.4. Waiver by Holder. Holder may at any time and from time
to time by a specific writing intended for the purpose: (a) waive compliance by
Grantor with any covenant herein made by Grantor to the extent and in the
manner specified in such writing; (b) consent to Grantor's doing any act which
hereunder Grantor is prohibited from doing, or to Grantor's failing to do any
act which hereunder Grantor is required to do, to the extent and in the manner
specified in such writing; (c) release any part of the Mortgaged Property or
any interest therein from the lien and security interest of this Mortgage,
without the joinder of Trustee; or (d) release any party liable, either
directly or indirectly, for the secured indebtedness or for any covenant herein
or in any other Loan Document, without impairing or releasing the liability of
any other party. No such act shall in any way affect the rights or powers of
Holder or Trustee hereunder except to the extent specifically agreed to by
Holder in such writing.
Section 6.5. No Impairment of Security. The lien, security interest
and other security rights of Holder hereunder or under any other Loan Document
shall not be impaired by any indulgence, moratorium or release granted by
Holder including, but not limited to, any renewal, extension or modification
which Holder may grant with respect to any secured indebtedness, or any
surrender, compromise, release, renewal, extension, exchange or substitution
which Holder may grant in respect of the Mortgaged Property, or any part
thereof or any interest therein, or any release or indulgence granted to any
endorser, guarantor or surety of any secured indebtedness. The taking of
additional security by Holder shall not release or impair the lien, security
interest or other security rights of Holder hereunder or affect the liability
of Grantor or of any endorser, guarantor or surety, or improve the right of any
junior lienholder in the Mortgaged Property (without implying hereby Holder's
consent to any junior lien).
Section 6.6. Acts Not Constituting Waiver by Holder. Holder may
waive any default without waiving any other prior or subsequent default.
Holder may remedy any default without waiving the default remedied. Neither
failure by Holder to exercise, nor delay by Holder in exercising, nor
discontinuance of the exercise of any right, power or remedy (including but not
limited to the right to accelerate the maturity of the secured indebtedness or
any part thereof) upon or after any default shall be construed as a waiver of
such default or as a waiver of the right to exercise any such right, power or
remedy at a later date. No single or partial exercise by Holder of any right,
power or remedy hereunder shall exhaust the same or shall preclude any other or
further exercise thereof, and every such right, power or remedy hereunder may
be exercised at any time and from time to time. No modification or waiver of
any provision hereof nor consent to any departure by Grantor therefrom shall in
any event be effective unless the same shall be in writing and signed by Holder
and then such waiver or consent shall be effective only in the specific
instance, for the purpose for which given and to the extent therein specified.
No notice to nor demand on Grantor in any case shall of itself entitle Grantor
to any other or further notice or demand in similar or other circumstances.
Remittances in payment of any part of the secured indebtedness other than in
the required amount in immediately available U.S. funds shall not, regardless
of any receipt or credit issued therefor, constitute payment until the required
amount is actually received by Holder in immediately available U.S. funds and
shall be made and accepted
DEED OF TRUST, ASSIGNMENT
SECURITY AGREEMENT AND FINANCING STATEMENT
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<PAGE> 25
subject to the condition that any check or draft may be handled for collection
in accordance with the practice of the collecting bank or banks. Acceptance by
Holder of any payment in an amount less than the amount then due on any secured
indebtedness shall be deemed an acceptance on account only and shall not in any
way excuse the existence of a default hereunder.
Section 6.7. Grantor's Successors. If the ownership of the Mortgaged
Property or any part thereof becomes vested in a person other than Grantor,
Holder may, without notice to Grantor, deal with such successor or successors
in interest with reference to this Mortgage and to the indebtedness secured
hereby in the same manner as with Grantor, without in any way vitiating or
discharging Grantor's liability hereunder or for the payment of the
indebtedness or performance of the obligations secured hereby. No transfer of
the Mortgaged Property, no forbearance on the part of Holder, and no extension
of the time for the payment of the indebtedness secured hereby given by Holder
shall operate to release, discharge, modify, change or affect, in whole or in
part, the liability of Grantor hereunder for the payment of the indebtedness or
performance of the obligations secured hereby or the liability of any other
person hereunder for the payment of the indebtedness secured hereby. Each
Grantor agrees that it shall be bound by any modification of this Mortgage or
any of the other Loan Documents made by Holder and any subsequent owner of the
Mortgaged Property, with or without notice to such Grantor, and no such
modifications shall impair the obligations of such Grantor under this Mortgage
or any other Loan Document. Nothing in this Section or elsewhere in this
Mortgage shall be construed to imply Holder's consent to any transfer of the
Mortgaged Property.
Section 6.8. Place of Payment; Forum. All secured indebtedness which
may be owing hereunder at any time by Grantor shall be payable at the place
designated in the Note (or if no such designation is made, at the address of
Holder indicated at the end of this Mortgage). Grantor hereby irrevocably
submits generally and unconditionally for itself and in respect of its property
to the non-exclusive jurisdiction of any Texas state court, or any United
States federal court, sitting in the county in which the secured indebtedness
is payable, and to the non-exclusive jurisdiction of any state or United States
federal court sitting in the state in which any of the Mortgaged Property is
located, over any suit, action or proceeding arising out of or relating to this
Mortgage or the secured indebtedness. Grantor hereby agrees and consents that,
in addition to any methods of service of process provided for under applicable
law, all service of process in any such suit, action or proceeding in any Texas
state court, or any United States federal court, sitting in the county in which
the secured indebtedness is payable may be made by certified or registered
mail, return receipt requested, directed to Grantor at its address stated in
this Mortgage, or at a subsequent address of Grantor of which Holder received
actual notice from Grantor in accordance with this Mortgage, and service so
made shall be complete five (5) days after the same shall have been so mailed.
Section 6.9. Subrogation to Existing Liens; Vendor's Lien. To the
extent that proceeds of the Note are used to pay indebtedness secured by any
outstanding lien, security interest, charge or prior encumbrance against the
Mortgaged Property, such proceeds have been advanced by Holder at Grantor's
request, and Holder shall be subrogated to any and all rights, security
interests and liens owned by any owner or holder of such outstanding liens,
security interests, charges or encumbrances, however remote, irrespective of
whether said liens, security interests, charges or encumbrances are released,
and all of the same are recognized as valid and subsisting and are renewed and
continued and merged herein to secure the secured indebtedness, but the terms
and provisions of this Mortgage shall govern and control the manner and terms
of enforcement of the liens, security interests, charges and encumbrances to
which Holder is subrogated hereunder. It is expressly understood that, in
consideration of the payment of such indebtedness by Holder, Grantor hereby
waives and releases all demands and causes of action for offsets and payments
in connection with the said indebtedness. If all or any portion of the
proceeds of the loan evidenced by the Note or of any other secured indebtedness
has been advanced for the purpose of paying the purchase price for all or a
part of the Mortgaged Property, no vendor's lien is waived; and Holder shall
have, and is hereby granted, a vendor's lien on the Mortgaged Property as
cumulative additional security for the secured indebtedness. Holder may
foreclose under this Mortgage or under the vendor's lien without waiving the
other or may foreclose under both.
DEED OF TRUST, ASSIGNMENT
SECURITY AGREEMENT AND FINANCING STATEMENT
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Section 6.10. Application of Payments to Certain Indebtedness. If
any part of the secured indebtedness cannot be lawfully secured by this
Mortgage or if any part of the Mortgaged Property cannot be lawfully subject to
the lien and security interest hereof to the full extent of such indebtedness,
then all payments made shall be applied on said indebtedness first in discharge
of that portion thereof which is not secured by this Mortgage.
Section 6.11. Compliance with Usury Laws. It is the intent of
Grantor and Holder and all other parties to the Loan Documents to conform to
and contract in strict compliance with applicable usury law from time to time
in effect. All agreements between Holder and Grantor (or any other party
liable with respect to any indebtedness under the Loan Documents) are hereby
limited by the provisions of this Section which shall override and control all
such agreements, whether now existing or hereafter arising. In no way, nor in
any event or contingency (including but not limited to prepayment, default,
demand for payment, or acceleration of the maturity of any obligation), shall
the interest taken, reserved, contracted for, charged, chargeable, or received
under this Mortgage, the Note or any other Loan Document or otherwise, exceed
the maximum nonusurious amount permitted by applicable law (the "Maximum
Amount"). If, from any possible construction of any document, interest would
otherwise be payable in excess of the Maximum Amount, any such construction
shall be subject to the provisions of this Section and such document shall ipso
facto be automatically reformed and the interest payable shall be automatically
reduced to the Maximum Amount, without the necessity of execution of any
amendment or new document. If Holder shall ever receive anything of value
which is characterized as interest under applicable law and which would apart
from this provision be in excess of the Maximum Amount, an amount equal to the
amount which would have been excessive interest shall, without penalty, be
applied to the reduction of the principal amount owing on the secured
indebtedness in the inverse order of its maturity and not to the payment of
interest, or refunded to Grantor or the other payor thereof if and to the
extent such amount which would have been excessive exceeds such unpaid
principal. The right to accelerate maturity of the Note or any other secured
indebtedness does not include the right to accelerate any interest which has
not otherwise accrued on the date of such acceleration, and Holder does not
intend to charge or receive any unearned interest in the event of acceleration.
All interest paid or agreed to be paid to Holder shall, to the extent permitted
by applicable law, be amortized, prorated, allocated and spread throughout the
full stated term (including any renewal or extension) of such indebtedness so
that the amount of interest on account of such indebtedness does not exceed the
Maximum Amount. As used in this Section, the term "applicable law" shall mean
the laws of the State of Texas or the federal laws of the United States
applicable to this transaction, whichever laws allow the greater interest, as
such laws now exist or may be changed or amended or come into effect in the
future.
Section 6.12. Substitute Trustee. The Trustee may resign by an
instrument in writing addressed to Holder, or Trustee may be removed at any
time with or without cause by an instrument in writing executed by Holder. In
case of the death, resignation, removal, or disqualification of Trustee, or if
for any reason Holder shall deem it desirable to appoint a substitute or
successor trustee to act instead of the herein named trustee or any substitute
or successor trustee, then Holder shall have the right and is hereby authorized
and empowered to appoint a successor trustee, or a substitute trustee, without
other formality than appointment and designation in writing executed by Holder
and the authority hereby conferred shall extend to the appointment of other
successor and substitute trustees successively until the indebtedness secured
hereby has been paid in full, or until the Mortgaged Property is fully and
finally sold hereunder. If Holder is a corporation or association and such
appointment is executed on its behalf by an officer of such corporation or
association, such appointment shall be conclusively presumed to be executed
with authority and shall be valid and sufficient without proof of any action by
the board of directors or any superior officer of the corporation or
association. Upon the making of any such appointment and designation, all of
the estate and title of Trustee in the Mortgaged Property shall vest in the
named successor or substitute Trustee and he shall thereupon succeed to, and
shall hold, possess and execute, all the rights, powers, privileges, immunities
and duties herein conferred upon Trustee. All references herein to "Trustee"
shall be deemed to refer to Trustee (including any successor or substitute
appointed and designated as herein provided) from time to time acting
hereunder.
DEED OF TRUST, ASSIGNMENT
SECURITY AGREEMENT AND FINANCING STATEMENT
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Section 6.13. No Liability of Trustee. The Trustee shall not be
liable for any error of judgment or act done by Trustee in good faith, or be
otherwise responsible or accountable under any circumstances whatsoever
(including Trustee's negligence), except for Trustee's gross negligence or
willful misconduct. The Trustee shall have the right to rely on any
instrument, document or signature authorizing or supporting any action taken or
proposed to be taken by him hereunder, believed by him in good faith to be
genuine. All moneys received by Trustee shall, until used or applied as herein
provided, be held in trust for the purposes for which they were received, but
need not be segregated in any manner from any other moneys (except to the
extent required by law), and Trustee shall be under no liability for interest
on any moneys received by him hereunder. Grantor hereby ratifies and confirms
any and all acts which the herein named Trustee or his successor or successors,
substitute or substitutes, in this trust, shall do lawfully by virtue hereof.
Grantor will reimburse Trustee for, and save him harmless against, any and all
liability and expenses which may be incurred by him in the performance of his
duties. The foregoing indemnity shall not terminate upon discharge of the
secured indebtedness or foreclosure, or release or other termination, of this
Mortgage.
Section 6.14. Release of Mortgage. If all of the secured
indebtedness be paid as the same becomes due and payable and all of the
covenants, warranties, undertakings and agreements made in this Mortgage are
kept and performed, and all obligations, if any, of Holder for further advances
have been terminated, then, and in that event only, all rights under this
Mortgage shall terminate (except to the extent expressly provided herein with
respect to indemnifications, representations and warranties and other rights
which are to continue following the release hereof) and the Mortgaged Property
shall become wholly clear of the liens, security interests, conveyances and
assignments evidenced hereby, and such liens and security interests shall be
released by Holder in due form at Grantor's cost. Without limitation, all
provisions herein for indemnity of Holder or Trustee shall survive discharge of
the secured indebtedness and any foreclosure, release or termination of this
Mortgage.
Section 6.15. Notices. All notices, requests, consents, demands and
other communications required or which any party desires to give hereunder or
under any other Loan Document shall be in writing and, unless otherwise
specifically provided in such other Loan Document, shall be deemed sufficiently
given or furnished if delivered by personal delivery, by courier, or by
registered or certified United States mail, postage prepaid, addressed to the
party to whom directed at the addresses specified at the end of this Mortgage
(unless changed by similar notice in writing given by the particular party
whose address is to be changed) or by telegram, telex, or facsimile. Any such
notice or communication shall be deemed to have been given either at the time
of personal delivery or, in the case of courier or mail, as of the date of
first attempted delivery at the address and in the manner provided herein, or,
in the case of telegram, telex or facsimile, upon receipt; provided that,
service of a notice required by Texas Property Code Section 51.002, as amended,
shall be considered complete when the requirements of that statute are met.
Notwithstanding the foregoing, no notice of change of address shall be
effective except upon receipt. This Section shall not be construed in any way
to affect or impair any waiver of notice or demand provided in any Loan
Document or to require giving of notice or demand to or upon any person in any
situation or for any reason.
Section 6.16. Invalidity of Certain Provisions. A determination that
any provision of this Mortgage is unenforceable or invalid shall not affect the
enforceability or validity of any other provision and the determination that
the application of any provision of this Mortgage to any person or circumstance
is illegal or unenforceable shall not affect the enforceability or validity of
such provision as it may apply to other persons or circumstances.
Section 6.17. Gender; Titles; Construction. Within this Mortgage,
words of any gender shall be held and construed to include any other gender,
and words in the singular number shall be held and construed to include the
plural, unless the context otherwise requires. Titles appearing at the
beginning of any subdivisions hereof are for convenience only, do not
constitute any part of such subdivisions, and shall be disregarded in
construing the language contained in such subdivisions. The use of the words
"herein," "hereof," "hereunder" and other similar compounds of the word "here"
shall refer to this entire Mortgage and not to any particular Article, Section,
DEED OF TRUST, ASSIGNMENT
SECURITY AGREEMENT AND FINANCING STATEMENT
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paragraph or provision. The term "person" and words importing persons as used
in this Mortgage shall include firms, associations, partnerships (including
limited partnerships), joint ventures, trusts, corporations and other legal
entities, including public or governmental bodies, agencies or
instrumentalities, as well as natural persons.
Section 6.18. Reporting Compliance. Grantor agrees to comply with
any and all reporting requirements applicable to the transaction evidenced by
the Note and secured by this Mortgage which are set forth in any law, statute,
ordinance, rule, regulation, order or determination of any governmental
authority, including but not limited to The International Investment Survey Act
of 1976, The Agricultural Foreign Investment Disclosure Act of 1978, The
Foreign Investment in Real Property Tax Act of 1980 and the Tax Reform Act of
1984 and further agrees upon request of Holder to furnish Holder with evidence
of such compliance.
Section 6.19. Holder's Consent. Except where otherwise expressly
provided herein, in any instance hereunder where the approval, consent or the
exercise of judgment of Holder is required or requested, (i) the granting or
denial of such approval or consent and the exercise of such judgment shall be
within the sole discretion of Holder, and Holder shall not, for any reason or
to any extent, be required to grant such approval or consent or exercise such
judgment in any particular manner, regardless of the reasonableness of either
the request or Holder's judgment, and (ii) no approval or consent of Holder
shall be deemed to have been given except by a specific writing intended for
the purpose and executed by an authorized representative of Holder.
Section 6.20. Grantor. Unless the context clearly indicates
otherwise, as used in this Mortgage, "Grantor" means the grantors named in
Section 1.1 hereof or any of them. The obligations of Grantor hereunder shall
be joint and several. If any Grantor, or any signatory who signs on behalf of
any Grantor, is a corporation, partnership or other legal entity, Grantor and
any such signatory, and the person or persons signing for it, represent and
warrant to Holder that this instrument is executed, acknowledged and delivered
by Grantor's duly authorized representatives. If Grantor is an individual, no
power of attorney granted by Grantor herein shall terminate on Grantor's
disability.
Section 6.21. Execution; Recording. This Mortgage has been executed
in several counterparts, all of which are identical, and all of which
counterparts together shall constitute one and the same instrument. The date
or dates reflected in the acknowledgments hereto indicate the date or dates of
actual execution of this Mortgage, but such execution is as of the date shown
on the first page hereof, and for purposes of identification and reference the
date of this Mortgage shall be deemed to be the date reflected on the first
page hereof. Grantor will cause this Mortgage and all amendments and
supplements thereto and substitutions therefor and all financing statements and
continuation statements relating thereto to be recorded, filed, re-recorded and
refiled in such manner and in such places as Trustee or Holder shall reasonably
request and will pay all such recording, filing, re-recording and refiling
taxes, fees and other charges.
Section 6.22. Successors and Assigns. The terms, provisions,
covenants and conditions hereof shall be binding upon Grantor, and the heirs,
devisees, representatives, successors and assigns of Grantor, and shall inure
to the benefit of Trustee and Holder and shall constitute covenants running
with the Land. All references in this Mortgage to Grantor shall be deemed to
include all such heirs, devisees, representatives, successors and assigns of
Grantor.
Section 6.23. Modification or Termination. The Loan Documents may
only be modified or terminated by a written instrument or instruments intended
for that purpose and executed by the party against which enforcement of the
modification or termination is asserted. Any alleged modification or
termination which is not so documented shall not be effective as to any party.
Section 6.24. No Partnership, Etc.. The relationship between Holder
and Grantor is solely that of lender and borrower/pledgor. Holder has no
fiduciary or other special relationship with Grantor. Nothing contained in the
Loan Documents is intended to create any partnership, joint venture,
association or special relationship between Grantor and Holder, or in any way
make Holder a co-principal with Grantor with reference to the Mortgaged
Property. All agreed
DEED OF TRUST, ASSIGNMENT
SECURITY AGREEMENT AND FINANCING STATEMENT
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contractual duties between or among Holder, Grantor and Trustee are set forth
herein and in the other Loan Documents and any additional implied covenants or
duties are hereby disclaimed. Any inferences to the contrary of any of the
foregoing are hereby expressly negated.
Section 6.25. Construction Mortgage. This Mortgage constitutes a
"construction mortgage" as defined in Section 9.313 of the Texas Business and
Commerce Code to the extent that it secures an obligation incurred for the
construction of the Improvements, including the acquisition cost of the Land.
Section 6.26. Applicable Law. THIS MORTGAGE, AND ITS VALIDITY,
ENFORCEMENT AND INTERPRETATION, SHALL BE GOVERNED BY TEXAS LAW (WITHOUT REGARD
TO ANY CONFLICT OF LAWS PRINCIPLES) AND APPLICABLE UNITED STATES FEDERAL LAW.
Section 6.27. Additional Provisions. Intentionally omitted.
Section 6.28. Entire Agreement. The Loan Documents constitute the
entire understanding and agreement between Grantor and Holder with respect to
the transactions arising in connection with the indebtedness secured hereby and
supersede all prior written or oral understandings and agreements between
Grantor and Holder with respect to the matters addressed in the Loan Documents.
Grantor hereby acknowledges that, except as incorporated in writing in the Loan
Documents, there are not, and were not, and no persons are or were authorized
by Holder to make, any representations, understandings, stipulations,
agreements or promises, oral or written, with respect to the matters addressed
in the Loan Documents.
THE WRITTEN LOAN DOCUMENTS 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.
Section 6.29. Arbitration. ANY CONTROVERSY OR CLAIM BETWEEN OR
AMONG GRANTOR OR HOLDER INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR
RELATING TO THIS MORTGAGE 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 ENDISPUTE, INC. (A/K/A
J.A.M.S./ENDISPUTE), 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. GRANTOR OR
HOLDER MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS MORTGAGE APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
DEED OF TRUST, ASSIGNMENT
SECURITY AGREEMENT AND FINANCING STATEMENT
Page 29
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<PAGE> 30
IN WITNESS WHEREOF, this instrument is executed by Grantor as of the
date first written on page 1 hereof.
The address and federal tax GRANTOR:
identification number of
Grantor are: BOLLINGER INDUSTRIES, L.P.
By: Bollinger Operating Corp., its
general partner
Bollinger Industries, L.P.
222 West Airport Freeway
Irving, Texas 75012 By: /s/ Glenn D. Bollinger
--------------------------
Attention: Glenn D. Bollinger Name: Glenn D. Bollinger
Title: Chairman and Chief
Executive Officer
Federal Tax No. 75-2502573
------------
The address of Holder is (including county):
NationsBank of Texas, N.A.
901 Main Street, 11th Floor
Dallas, Dallas County, Texas 75202
Attention: Greg Nicholas
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on May 20, 1996, by Glenn
D. Bollinger, the Chairman and Chief Executive Officer of Bollinger Operating
Corp., a Nevada corporation, on behalf of such corporation as general partner
of Bollinger Industries, L.P., a Texas limited partnership. .
(S E A L) /s/ Donna M. Melizia
-----------------------------
Notary Public, State of Texas
11-09-98
- - ---------------
DEED OF TRUST, ASSIGNMENT
SECURITY AGREEMENT AND FINANCING STATEMENT
Page 30
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<PAGE> 1
NationsBank
NationsBank of Texas, N.A.
- - ----------------------------------------------------------------------------
NINTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
THIS NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "AMENDMENT") is
dated as of May 17, 1996, and entered into by and between NATIONSBANK OF TEXAS,
N.A., a national banking association ("LENDER") with offices at 901 Main
Street, 11th Floor, Dallas, Texas 75201, and BOLLINGER INDUSTRIES, L.P., a
Texas limited partnership ("BORROWER") with offices at 222 Airport Freeway,
Irving, Texas 75062.
WHEREAS, Lender and Borrower have entered into a Loan and Security
Agreement (the "LOAN AGREEMENT"), dated as of September 9, 1994;
WHEREAS, Lender and Borrower on October 28, 1994 have entered into a First
Amendment to Loan and Security Agreement (the "FIRST AMENDMENT"), which was
dated effective as of September 9, 1994;
WHEREAS, Lender and Borrower on December 8, 1994 have entered into a
Second Amendment to Loan and Security Agreement (the "SECOND AMENDMENT");
WHEREAS, Lender and Borrower on March 3, 1995 have entered into a Third
Amendment to Loan and Security Agreement (the "THIRD AMENDMENT"), which was
dated effective as of December 31, 1994;
WHEREAS, Lender and Borrower on May 15, 1995 have entered into a Fourth
Amendment to Loan and Security Agreement (the "FOURTH AMENDMENT"), which was
dated effective as of January 31, 1995;
WHEREAS, Lender and Borrower, effective on September 9, 1995, have entered
into a Fifth Amendment to Loan and Security Agreement (the "FIFTH AMENDMENT");
WHEREAS, Lender and Borrower, effective on December 29, 1995, have entered
into a Sixth Amendment to Loan and Security Agreement (the "SIXTH AMENDMENT");
WHEREAS, Lender and Borrower, effective on March 8, 1996, have entered
into a Seventh Amendment to Loan and Security Agreement (the "SEVENTH
AMENDMENT");
WHEREAS, Lender and Borrower, effective on May 8, 1996, have entered into
an Eighth Amendment to Loan and Security Agreement (the "EIGHTH AMENDMENT")
(the Loan Agreement together with the First Amendment, the Second Amendment,
the Third Amendment, the Fourth Amendment, the Fifth Amendment, the Sixth
Amendment, the Seventh Amendment and the Eighth Amendment shall hereinafter be
referred to as the "AGREEMENT"); and
WHEREAS, Lender and Borrower desire to further amend the Agreement as
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth in the Agreement and this Amendment, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties, intending to be legally bound, hereby agree as follows:
<PAGE> 2
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. Capitalized terms used in this Amendment, to the
extent not otherwise defined herein, shall have the same meanings as in the
Agreement, as amended hereby.
ARTICLE II
AMENDMENTS
Section 2.1 AMENDMENT TO DEFINITION OF CREDIT LIMIT. Effective as of the
date hereof, the definition of "Credit Limit" contained in Article I of the
Agreement is hereby amended and restated to read in its entirety as follows:
"CREDIT LIMIT" means Twenty-Three Million Three Hundred Thousand and
No/100 Dollars ($23,300,000).
Section 2.2 AMENDMENT TO DEFINITION OF LOAN DOCUMENTS. The definition of
"Loan Documents" contained in Article I of the Agreement is hereby amended and
restated to read in its entirety as follows:
"LOAN DOCUMENTS" means this Agreement, the Revolving Note, the First
Amended and Restated Revolving Note - Overline, the Demand Note, the
First Amendment to Loan and Security Agreement dated effective as of
September 9, 1994, the Second Amendment to Loan and Security
Agreement dated as of December 8, 1994, the Third Amendment to Loan
and Security Agreement dated effective as of December 31, 1994, the
Fourth Amendment to Loan and Security Agreement dated effective as
of January 31, 1995, the Fifth Amendment to Loan and Security
Agreement dated as of September 9, 1995, the Sixth Amendment to Loan
and Security Agreement dated as of December 29, 1995, the Seventh
Amendment to Loan and Security Agreement dated as of March 8, 1996,
the Eighth Amendment to Loan and Security Agreement dated as of May
8, 1996, the Ninth Amendment to Loan and Security Agreement dated as
of May 17, 1996, each Guaranty, the NBF Security Agreement, the
Security Agreement dated as of March 8, 1996, executed by BII to the
Lender, the Deed of Trust, Security Agreement, Assignment and
Financing Statement dated as of May 8, 1996, relating to the
Borrower's corporate headquarters, and all other documents or
agreements executed in connection therewith, and also includes any
and all renewals, extensions, modifications or amendments of any of
any of the foregoing.
ARTICLE III
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
Section 3.1 RATIFICATIONS. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Agreement and, except as expressly modified and superseded by this
Amendment, the terms and provisions of the Agreement, including, without
limitation, all financial covenants contained therein, are ratified and
confirmed and shall continue in full force and effect. Lender and Borrower
agree that the Agreement as amended hereby shall continue to be legal,
2
<PAGE> 3
valid, binding and enforceable in accordance with its terms. In furtherance
and not in limitation of the provisions of this Section 3.1, Borrower hereby
waives and releases any and all claims or offsets against, or defenses to, the
payment and performance of the Obligations that Borrower may have at law, in
equity or otherwise, based on any and all actions or alleged actions, omissions
or related omissions of Lender or any of Lender's affiliates, directors,
officers, employees, attorneys, representatives or agents which have occurred
on or prior to May 17, 1996, and Borrower hereby represents and warrants that
no such claims, offsets or defenses exist as of such date.
Section 3.2 REPRESENTATIONS AND WARRANTIES. Borrower, BII, BOC and NBF
each hereby represent and warrant to Lender that the execution, delivery and
performance of this Amendment and all other Loan Documents to which Borrower,
BII, BOC or NBF is or is to be a party hereunder (hereinafter referred to
collectively as the "LOAN DOCUMENTS") executed and/or delivered in connection
herewith, have been authorized by all requisite corporate or partnership
action, as applicable, on the part of Borrower, BII, BOC and NBF and will not
violate the Articles of Incorporation, Bylaws or Partnership Agreement of
Borrower, BII, BOC or NBF, as applicable. There has been no material adverse
change in the business, operations, financial condition, profits or prospects,
or in the Collateral, of Borrower or NBF, since November 16, 1995, except as
previously disclosed to Lender or publicly disclosed, and there has been no
change in the officers of Borrower or any Guarantor since November 16, 1995.
The Articles of Incorporation, Bylaws or Partnership Agreement, as applicable,
of the General Partner of Borrower and each Guarantor have not been altered,
amended, rescinded or revised since November 16, 1995. Borrower, BII, BOC and
NBF hereby jointly and severally represent and warrant to Lender that (i)
Borrower and NBF own all of the Eligible Accounts and Eligible Inventory
described on each Borrowing Base Report previously or hereafter delivered to
Lender, (ii) BII conducts no operations and owns no material assets other than
the stock of BOC and BHC, (iii) BOC and BHC conduct no operations other than
the ownership of partnership interests in Borrower, of which BOC is the sole
general partner and BHC is the sole limited partner, and (iv) BOC and BHC own
no material assets other than their respective partnership interests in
Borrower.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.1 CONDITIONS. The effectiveness of this Amendment is subject to
the satisfaction of the following conditions precedent (unless specifically
waived in writing by the Lender):
(a) Lender shall have received all of the following, each dated
(unless otherwise indicated) as of the date of this Amendment, in form
and substance satisfactory to Lender in its sole discretion:
(i) Secretary's Certificate. A Secretary's Certificate dated
as of even date with the date this Amendment is executed from the
General Partner of Borrower and each Guarantor certifying as to
corporate resolutions authorizing the execution and delivery of
this Amendment.
(ii) Amendment. This Amendment, duly executed.
3
<PAGE> 4
(iii) Opinion of Counsel to Borrower and Guarantors. An
opinion of counsel for Borrower and each Guarantor, respectively,
in form and substance reasonably satisfactory to Lender dated as of
even date with the date this Amendment is executed.
(iv) Other Documents. Borrower shall have executed and
delivered such other documents and instruments as Lender may
reasonably require.
(v) Legal and Professional Fees. Borrower shall have paid all
fees and expenses of Lender's accountants and legal counsel incurred
in connection with the Revolving Facility and the Loan Documents,
including this Amendment, and the interpretation and enforcement
thereof.
(b) All partnership or corporate proceedings, as applicable,
taken in connection with the transactions contemplated by this Amendment
and all documents, instruments and other legal matters incident thereto
shall be reasonably satisfactory to Lender.
ARTICLE V
MISCELLANEOUS
Section 5.1 NO WAIVER, RESERVATION OF RIGHTS. No failure on the part of
Lender to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege under the Agreement or any other Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege under the Agreement or any other Loan
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. Notwithstanding any failure by Lender to
insist on strict compliance by Borrower with the terms of the Agreement or any
other Loan Document in the past, or any forbearance by Lender in exercising its
rights and remedies under the Agreement and the other Loan Documents, including
any past waivers by Lender of Events of Default under the Agreement or any
other Loan Document, Lender will insist on strict compliance with the terms of
the Agreement and the other Loan Documents in the future. Any future failure
by Borrower to comply strictly with the terms of the Agreement and the other
Loan Documents may result in the Lender's pursuit of its rights and remedies
existing by virtue of the Agreement and the other Loan Documents or existing at
law or in equity. Lender expressly reserves the right to exercise any and all
rights or remedies available to Lender under the Loan Documents, at law or in
equity, with respect to any present or future Events of Default unless the same
are waived in writing by Lender. No failure on the part of Lender to exercise,
or delay by Lender in exercising, its rights and remedies under the Loan
Documents shall constitute a waiver of any existing or future Event of Default.
Section 5.2 NO EXTENSION OF MATURITY. Notwithstanding that Lender has
continued to make credit available to Borrower in the past and has renewed and
extended the credit facility evidenced by the Loan Documents in the past,
Borrower acknowledges that Lender has no obligation to continue to make credit
available to Borrower under the Revolving Facility after July 8, 1996. Lender
hereby notifies Borrower that, notwithstanding any previous renewals or
extensions of credit to Borrower, Lender will not continue to make credit
available to Borrower after July 8, 1996, and that the Obligations shall be due
and payable in full on July 8, 1996.
Section 5.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in the Agreement or any other document or
documents relating thereto, including, without limitation, any Loan Document
furnished in connection with this Amendment, shall survive the execution and
delivery
4
<PAGE> 5
of this Amendment and the other Loan Documents, and no investigation by Lender
or any closing shall affect the representations and warranties or the right of
Lender to rely thereon.
Section 5.4 REFERENCE TO AGREEMENT. The Agreement, each of the Loan
Documents, and any and all other agreements, documents or instruments now or
hereafter executed and delivered pursuant to the terms hereof or pursuant to
the terms of the Agreement as amended hereby, are hereby amended so that any
reference therein to the Agreement shall mean a reference to the Agreement as
amended hereby.
Section 5.5 WAIVER OF JURY TRIAL. THE PARTIES HERETO AGREE THAT NEITHER
PARTY SHALL REQUEST A TRIAL BY JURY IN THE EVENT OF LITIGATION BETWEEN THEM
CONCERNING THE LOAN DOCUMENTS OR ANY CLAIMS OR TRANSACTIONS IN CONNECTION
THEREWITH, IN EITHER A STATE OR FEDERAL COURT, THE RIGHT TO TRIAL BY JURY BEING
EXPRESSLY WAIVED BY BOTH LENDER AND BORROWER. LENDER AND BORROWER EACH
ACKNOWLEDGES THAT SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF
THE NATURE OF THE RIGHTS AND BENEFITS WAIVED HEREBY, AND WITH THE BENEFIT OF
ADVICE OF COUNSEL OF ITS CHOOSING.
Section 5.6 ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THIS AMENDMENT 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 ENDISPUTE, INC. (A/K/A
J.A.M.S./ENDISPUTE) ("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 AMENDMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS
AMENDMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(a) Special Rules. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
THE BORROWER'S DOMICILE AT THE TIME OF THIS AMENDMENT'S EXECUTION AND
ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS
UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE
AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS
WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER,
THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND
THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
(b) Reservation of Rights. NOTHING IN THIS AMENDMENT SHALL BE DEEMED
TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AMENDMENT; OR (II)
BE A WAIVER BY THE LENDER OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C.
SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF THE LENDER HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT
NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT
5
<PAGE> 6
PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE
RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE LENDER
MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR
OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE
PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AMENDMENT.
NEITHER THIS EXERCISE OF 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 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 Loan Documents regarding waiver of trial by jury or
submission to jurisdiction and/or venue in any court is intended or shall be
construed to be in derogation of the provisions in any Loan Document for
arbitration of any controversy or claim.
Section 5.7 GOVERNING LAW. THIS AMENDMENT, AND ALL DOCUMENTS AND
INSTRUMENTS EXECUTED IN CONNECTION HEREWITH, SHALL BE GOVERNED BY AND CONSTRUED
ACCORDING TO THE LAWS OF THE STATE OF TEXAS, PROVIDED, THAT TO THE EXTENT
FEDERAL LAW WOULD ALLOW A HIGHER RATE OF INTEREST THAN WOULD BE ALLOWED BY THE
LAWS OF THE STATE OF TEXAS, THEN WITH RESPECT TO THE PROVISIONS OF ANY LAW
WHICH PURPORT TO LIMIT THE AMOUNT OF INTEREST THAT MAY BE CONTRACTED FOR,
CHARGED OR RECEIVED IN CONNECTION WITH ANY OF THE OBLIGATIONS, SUCH FEDERAL LAW
SHALL APPLY.
Section 5.8 PARTIES BOUND. This Amendment shall be binding upon and inure
to the benefit of Borrower and Lender, and their respective successors in
interest and assigns. Borrower may not assign any right, power, duty, or
obligation under this Amendment, or any document or instrument executed in
connection herewith, without the prior written consent of Lender. Subject to
any applicable rules, regulations or laws of governmental authorities relating
to the non-assignability of loans or other assets of Lender, Lender may not
assign any of its rights, powers, duties or obligations under this Amendment,
or any document or instrument executed in connection herewith, without the
prior written consent of Borrower. This Amendment is intended for the benefit
of Borrower and Lender, and their respective successors in interest and assigns
only, and may not be relied upon by any other Person.
Section 5.9 CUMULATIVE RIGHTS. All rights and remedies of Lender under
the Loan Documents are cumulative, and are in addition to rights and remedies
available to Lender by law. Such rights and remedies may be exercised
concurrently or successively, at such times as Lender may determine in its
discretion. Borrower waives any right to require marshaling.
Section 5.10 SEVERABILITY. If any provision of this Amendment is held to
be illegal, invalid, or unenforceable under any present or future laws
effective during the Contract Term, such provisions shall be fully severable,
and this Amendment shall be construed and enforced as if such illegal, invalid,
or unenforceable provision had never comprised a part of this Amendment. In
such case, the remaining provisions of the Amendment shall remain in full force
and effect and shall not be affected thereby.
Section 5.11 MULTIPLE COUNTERPARTS. This Amendment may be executed
simultaneously in one or more multiple originals, each of which shall be deemed
an original, but all of which together shall constitute one and the same
Amendment.
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<PAGE> 7
Section 5.12 SURVIVAL. All covenants, agreements, representations, and
warranties made by Borrower herein shall survive the execution, delivery, and
closing of this Amendment, and all documents executed in connection herewith,
and shall not be affected by any investigation made by any party.
THIS WRITTEN AMENDMENT REPRESENTS 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.
IN WITNESS WHEREOF, the parties have executed this Amendment under seal on
May 20, 1996 to be effective as of May 17, 1996.
"BORROWER"
BOLLINGER INDUSTRIES, L.P.,
A TEXAS LIMITED PARTNERSHIP
By: Bollinger Operating Corp.,
A Nevada corporation,
General Partner
By: /s/ Glenn D. Bollinger
-------------------------------------------
Name: Glenn D. Bollinger
Title: Chairman and Chief Executive Officer
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared
Glenn D. Bollinger, Chairman and Chief Executive Officer of Bollinger Operating
Corp., the general partner of Bollinger Industries, L.P., known to me to be the
person and officer whose name is subscribed to the foregoing instrument, and
acknowledged to me that the same was the act of the said BOLLINGER INDUSTRIES,
L.P., a Texas limited partnership, and that he executed the same on behalf of
Bollinger Operating Corp. as the general partner of Bollinger Industries, L.P.,
as the act of such limited partnership for the purposes and consideration
therein expressed and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 20th day of May, 1996.
/s/ Donna M. Malizia
[SEAL] -----------------------------
My Commission Expires: NOTARY PUBLIC, STATE OF TEXAS
11-09-98
---------------------- Donna M. Malizia
-----------------------------
(Printed Name of Notary)
7
<PAGE> 8
AGREED AND ACCEPTED on May 20th, 1996 to be effective as of May 17, 1996.
"LENDER"
NATIONSBANK OF TEXAS, N.A.
By: /s/ Greg Nicholas
--------------------------
Name: Greg Nicholas
Title: Vice President
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared Greg
Nicholas, Vice President, known to me to be the person and officer whose name
is subscribed to the foregoing instrument, and acknowledged to me that the same
was the act of the said NATIONSBANK OF TEXAS, N.A., a national banking
association, and that he executed the same as the act of such banking
association for the purposes and consideration therein expressed and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 20th day of May, 1996.
/s/ Donna M. Malizia
[SEAL] -----------------------------
My Commission Expires: NOTARY PUBLIC, STATE OF TEXAS
11-09-98
---------------------- Donna M. Malizia
-----------------------------
(Printed Name of Notary)
8
<PAGE> 9
CONSENTS AND REAFFIRMATIONS
BOLLINGER INDUSTRIES, INC. ("BII"), BOLLINGER OPERATING CORP. AND NBF,
INC. ("NBF"), each jointly and severally hereby acknowledge the execution of,
and consent to, the terms and conditions of that certain Eighth Amendment to
Loan and Security Agreement dated effective as of May 8, 1996, and that
certain Ninth Amendment to Loan and Security Agreement dated effective as of
May 17, 1996, between Bollinger Industries, L.P. and NationsBank of Texas,
N.A. ("LENDER") and (i) reaffirms their respective obligations under those
certain Guaranty By Corporation (the "GUARANTIES") each dated as of September
9, 1994, made by the undersigned in favor of the Lender, and acknowledge and
agree that the Guaranties remain in full force and effect and the Guaranties
are hereby ratified and confirmed; and (ii) NBF reaffirms its obligations
under that certain Security Agreement (the "NBF SECURITY AGREEMENT") dated as
of September 9, 1994, made by NBF in favor of the Lender and acknowledges and
agrees that the NBF Security Agreement remains in full force and effect and
the NBF Security Agreement is hereby ratified and confirmed; and (iii ) BII
reaffirms its obligations under that certain Security Agreement (the "BII
SECURITY AGREEMENT") dated as of March 8, 1996, made by BII in favor of the
Lender and acknowledges and agrees that the BII Security Agreement remains in
full force and effect and the BII Security Agreement is hereby ratified and
confirmed.
EXECUTED on May 20th, 1996 to be effective as of May 17, 1996.
GUARANTOR:
BOLLINGER INDUSTRIES, INC.
By: /s/ Glenn D. Bollinger
----------------------------------------
Name: Glenn D. Bollinger
Title: Chairman and Chief Executive Officer
GUARANTOR:
BOLLINGER OPERATING CORP.
By: /s/ Glenn D. Bollinger
----------------------------------------
Name: Glenn D. Bollinger
Title: Chairman and Chief Executive Officer
GUARANTOR:
NBF, INC.
By: /s/ Glenn D. Bollinger
----------------------------------------
Name: Glenn D. Bollinger
Title: Chairman and Chief Executive Officer
9
<PAGE> 10
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared
Glenn D. Bollinger, known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that the same
was the act of said Bollinger Industries, Inc., and that he executed the same
for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 20th day of May, 1996.
/s/ Donna M. Malizia
-----------------------------
My Commission Expires: NOTARY PUBLIC, STATE OF TEXAS
11-09-98
---------------------- Donna M. Malizia
-----------------------------
(Printed Name of Notary)
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared
Glenn D. Bollinger, known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that the same
was the act of said Bollinger Operating Corp., and that he executed the same
for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 20th day of May, 1996.
/s/ Donna M. Malizia
-----------------------------
My Commission Expires: NOTARY PUBLIC, STATE OF TEXAS
11-09-98
---------------------- Donna M. Malizia
-----------------------------
(Printed Name of Notary)
10
<PAGE> 11
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared
Glenn D. Bollinger, known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that the same
was the act of said NBF, Inc., and that he executed the same for the purposes
and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 20th day of May, 1996.
/s/ Donna M. Malizia
-----------------------------
My Commission Expires: NOTARY PUBLIC, STATE OF TEXAS
11-09-98
---------------------- Donna M. Malizia
-----------------------------
(Printed Name of Notary)
11
<PAGE> 1
AMENDED AND RESTATED PROMISSORY NOTE
March 29, 1996 $90,000
BOLLINGER INDUSTRIES, L.P. (the "Maker"), for value received, hereby
promises to pay to the order of Glen D. Bollinger (together with his assigns
the "Holder"), the principal balance of $90,000, together with interest as
provided for herein, at the times specified herein. The outstanding principal
amount of this Note shall bear interest from the date hereof until the due date
at a rate equal to 10% per annum. This Note, together with notes payable to
Bobby D. Bollinger and Dell Bollinger, is a continuation of that certain Real
Estate Lien Note, dated March 18, 1993, which was subsequently amended and
modified and assigned to the Holder, Bobby Bollinger and Dell Bollinger. The
outstanding principal balance of this Note reflects a partial payment to the
Holder of the outstanding balance of this Note on March 29, 1996.
1. Payment of Principal and Interest.
(a) Principal and Interest Payments. The principal
balance of this Note will be paid to the Holder in full on March 31,
1998. Interest payments shall be made monthly on the first day of
each month commencing May 1, 1996 and continuing until March 31, 1998
when the entire principal amount of this Note and all interest accrued
thereon shall be paid in full.
(b) Method of Payment. This Note shall be payable at c/o
Bollinger Industries, Inc., 222 West Airport Freeway, Irving, Texas
75062 or to such other address as the Holder may notify the Maker in
writing, in such coin or currency of the United States of America as
at the time of payment is legal tender for payment of public and
private debts. Except as otherwise provided herein, all sums of
past-due principal and accrued interest shall bear interest at the
maximum rate of interest permitted by applicable law.
2. Security. This Note is secured in part by a Deed of Trust (as
amended and modified, the "Deed of Trust"), dated May 13, 1993, and recorded in
the Real Property Records of Dallas, County, Texas, to which instrument
reference is made for a description of the collateral for this Note and for all
other purposes. The liens and security interests of the Deed of Trust and all
other documents and instruments now or hereafter governing, evidencing,
guaranteeing or securing or otherwise relating to payment of all or any part of
the indebtedness evidenced by this Note are hereinafter collectively called the
"Liens."
3. Prepayment. The Maker may at any time prepay all or any part
of the outstanding principal amount of this Note. Prepayments shall be deemed
to apply first against unpaid interest and then to unpaid principal.
<PAGE> 2
4. Events of Default. Should any of the following events occur
(such event being referred to herein as an "Event of Default"), the Maker shall
be in default hereunder:
(a) If a payment of principal of, or interest accrued on,
this Note is not paid when the same becomes due;
(b) the commencement by the Maker of an involuntary case
under the federal bankruptcy laws, as now or hereafter constituted, or
any other applicable federal, foreign or state bankruptcy, insolvency
or other similar law, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Maker or
for any substantial part of its property, or ordering the winding up
or liquidation of its affairs and the continuance of any such decree
or order unstayed and in effect for a period of 30 consecutive days;
(c) the commencement by the Maker of a voluntary case
under the federal bankruptcy laws, as now constituted or hereafter
amended, or any other applicable federal, foreign or state bankruptcy,
insolvency or other similar law, or the consent by it to the
appointment to or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar official)
of the Maker or for any substantial part of its property, or the
making by it of any assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally
as they become due;
(d) the failure of Maker to perform any obligation,
covenant or agreement contained in the Deed of Trust or any other
mortgage, security agreement, pledge agreement, assignment or other
contract of any kind executed as security in connection with or
pertaining to this Note; or
(e) the transfer, whether voluntarily or by operation of
law, of all or any portion of the Mortgaged Premises (as defined in
the Deed of Trust), except in the ordinary course of business.
It is understood and agreed by Maker that the foregoing "Events of
Default" are cumulative and in addition to any "Events of Default" contained in
the Deed of Trust and other documents modifying, renewing, extending,
evidencing, securing or pertaining to this Note or the loan evidenced hereby.
All rights and remedies of Holder shall be cumulative and concurrent and may be
pursued singularly, successively, or together, at the sole discretion of
Holder, and may be exercised as often as the occasion therefore shall arise.
Failure by Holder to exercise any right or remedy upon the occurrence of an
Event of Default shall not constitute a waiver of the right to exercise such
right or remedy upon the occurrence of any subsequent Event of Default.
2
<PAGE> 3
5. Acceleration of Indebtedness.
(a) Upon the occurrence of an Event of Default, the
entire unpaid principal amount, together with any interest accrued
thereon, of this Note shall be due and payable in full at the option
of the Holder.
(b) The Maker and each surety, guarantor, endorser and
other party ever liable for payment of any sums of money payable on
this Note, jointly and severally expressly waive all notices, demands
for payment, presentations for payment, notices of intention to
accelerate maturity, protest and notice of protest, and any other
notices of any kind as to this Note and as to each, every and all
installments or part payments thereof, and consents that the payee or
other holder of this Note may at any time and from time to time, upon
request of or by agreement with the Maker, extend the date of maturity
hereof or change the time or method of payments hereof without notice
to any of the other makers, sureties or endorsers, who shall remain
bound for the payment hereof. The Holder shall have the right to deal
in any way, at any time, with one or more of the foregoing parties
without notice to any other party, and to grant any party any
extensions of time for payment of any said indebtedness, or to grant
any other indulgences or forebearances whatsoever, without notice to
any other party and without in any way affecting the personal
liability of any party hereunder.
6. Usury. All agreements between the Maker and Holder hereof,
whether now existing or hereafter arising and whether written or oral, are
hereby expressly limited so that in no contingency or event whatsoever, whether
by reason of acceleration of the maturity hereof, or otherwise, shall the
amount paid, or agreed to be paid to the Holder hereof for the use, forbearance
or detention of the funds advanced pursuant to this Note, or otherwise, or for
payment or performance of any covenant or obligation contained herein or in any
other document or instrument evidencing, securing or pertaining to this Note
exceed the maximum amount permissible under applicable law. If from any
circumstances whatsoever fulfillment of any provision hereof or any other
document or instrument described herein, at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law, then ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity, and if from any such circumstances the
Holder hereof shall ever receive anything of value deemed interest by
applicable law, which would exceed interest at the highest lawful rate, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid principal balance of this Note or on account of any other principal
indebtedness of the Maker to the Holder hereof, and not to the payment of
interest, or if such excessive interest exceeds the unpaid principal balance of
this Note and such other indebtedness, such excess shall be refunded to the
Maker. All sums paid, or agreed to be paid, by the Maker for the use,
forbearance or detention of the indebtedness of the Maker to the Holder of this
3
<PAGE> 4
Note shall to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of such indebtedness until
payment in full so that the actual rate of interest on account of such
indebtedness is uniform throughout the term hereof. The terms and provisions
of this paragraph shall control and supersede every other provision of all
agreements between the Maker and Holder hereof.
7. Collection Fees. If an Event of Default occurs and this Note
is placed in the hands of an attorney for collection (whether or not suit is
filed), or if this Note is collected by suit or legal proceedings or through
bankruptcy proceedings, the Maker agrees to pay in addition to all sums then
due hereon, including principal and interest, all reasonable expenses of
collection including reasonable attorneys' fees.
8. Amendments and Waivers. This Note may be amended by written
agreement of the Maker and the Holder. No waiver of the provisions hereof
shall be effective unless agreed to in writing by the party against whom such
waiver is asserted.
9. Notice. All notices to the Maker required or permitted by
this Note shall be sufficient if given in writing and executed by the Holder of
this Note. All such notices shall be delivered by registered or certified
mail, return receipt requested, or personally delivered, to the Maker at its
principal place of business on the date of the execution of this Note, or such
other address as the Maker may designate by written notice to the Holder of
this Note.
10. Governing Law. This Note shall be deemed to be a contract
made under the laws of the State of Texas, and for all purposes shall be
governed by and construed in accordance with the laws of the State of Texas,
exclusive of any such law under which the law of any other jurisdiction would
apply.
11. Binding Effect. This Note and all the covenants, promises and
agreements contained herein shall be binding upon and inure to the benefit of
the respective legal and personal representatives, devisees, heirs, successors
and assigns of Maker and Holder hereof.
12. No Impairment of Liens. It is the intention of the parties
that this Note not impair the Liens and such Liens shall continue in full force
and effect. The Liens are hereby ratified and confirmed as continuing to secure
the payment of this Note, as amended and restated hereby. Nothing herein shall
in any manner diminish, impair or extinguish the indebtedness evidenced hereby
or the Liens. The Liens are not waived.
13. Severability. If any one or more of the provisions contained
herein for any reason is held to be illegal, invalid or unenforceable, the
illegality, invalidity or enforceability will not affect, impair or invalidate
any other provision of this Note or
4
<PAGE> 5
the Deed of Trust, which will be construed as if the illegal, invalid or
unenforceable provision had not been contained herein and, in lieu of each
illegal, invalid or unenforceable provision, there will be added automatically
as a part hereof a provision as similar in terms to the illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed
as of the 29 day of March, 1996.
BOLLINGER INDUSTRIES, L.P.
By: /s/ BOBBY D. BOLLINGER
----------------------------------
Its: President
----------------------------------
5
<PAGE> 1
AMENDED AND RESTATED PROMISSORY NOTE
March 29, 1996 $90,000
BOLLINGER INDUSTRIES, L.P. (the "Maker"), for value received, hereby
promises to pay to the order of Bobby D. Bollinger (together with his assigns
the "Holder"), the principal balance of $90,000, together with interest as
provided for herein, at the times specified herein. The outstanding principal
amount of this Note shall bear interest from the date hereof until the due date
at a rate equal to 10% per annum. This Note, together with notes payable to
Glen D. Bollinger and Dell Bollinger, is a continuation of that certain Real
Estate Lien Note, dated March 18, 1993, which was subsequently amended and
modified and assigned to the Holder, Glen Bollinger and Dell Bollinger. The
outstanding principal balance of this Note reflects a partial payment to the
Holder of the outstanding balance of this Note on March 29, 1996.
1. Payment of Principal and Interest.
(a) Principal and Interest Payments. The principal
balance of this Note will be paid to the Holder in full on March 31,
1998. Interest payments shall be made monthly on the first day of
each month commencing May 1, 1996 and continuing until March 31, 1998
when the entire principal amount of this Note and all interest accrued
thereon shall be paid in full.
(b) Method of Payment. This Note shall be payable at c/o
Bollinger Industries, Inc., 222 West Airport Freeway, Irving, Texas
75062 or to such other address as the Holder may notify the Maker in
writing, in such coin or currency of the United States of America as
at the time of payment is legal tender for payment of public and
private debts. Except as otherwise provided herein, all sums of
past-due principal and accrued interest shall bear interest at the
maximum rate of interest permitted by applicable law.
2. Security. This Note is secured in part by a Deed of Trust (as
amended and modified, the "Deed of Trust"), dated May 13, 1993, and recorded in
the Real Property Records of Dallas, County, Texas, to which instrument
reference is made for a description of the collateral for this Note and for all
other purposes. The liens and security interests of the Deed of Trust and all
other documents and instruments now or hereafter governing, evidencing,
guaranteeing or securing or otherwise relating to payment of all or any part of
the indebtedness evidenced by this Note are hereinafter collectively called the
"Liens."
3. Prepayment. The Maker may at any time prepay all or any part
of the outstanding principal amount of this Note. Prepayments shall be deemed
to apply first against unpaid interest and then to unpaid principal.
<PAGE> 2
4. Events of Default. Should any of the following events occur
(such event being referred to herein as an "Event of Default"), the Maker shall
be in default hereunder:
(a) If a payment of principal of, or interest accrued on,
this Note is not paid when the same becomes due;
(b) the commencement by the Maker of an involuntary case
under the federal bankruptcy laws, as now or hereafter constituted, or
any other applicable federal, foreign or state bankruptcy, insolvency
or other similar law, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Maker or
for any substantial part of its property, or ordering the winding up
or liquidation of its affairs and the continuance of any such decree
or order unstayed and in effect for a period of 30 consecutive days;
(c) the commencement by the Maker of a voluntary case
under the federal bankruptcy laws, as now constituted or hereafter
amended, or any other applicable federal, foreign or state bankruptcy,
insolvency or other similar law, or the consent by it to the
appointment to or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar official)
of the Maker or for any substantial part of its property, or the
making by it of any assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally
as they become due;
(d) the failure of Maker to perform any obligation,
covenant or agreement contained in the Deed of Trust or any other
mortgage, security agreement, pledge agreement, assignment or other
contract of any kind executed as security in connection with or
pertaining to this Note; or
(e) the transfer, whether voluntarily or by operation of
law, of all or any portion of the Mortgaged Premises (as defined in
the Deed of Trust), except in the ordinary course of business.
It is understood and agreed by Maker that the foregoing "Events of
Default" are cumulative and in addition to any "Events of Default" contained in
the Deed of Trust and other documents modifying, renewing, extending,
evidencing, securing or pertaining to this Note or the loan evidenced hereby.
All rights and remedies of Holder shall be cumulative and concurrent and may be
pursued singularly, successively, or together, at the sole discretion of
Holder, and may be exercised as often as the occasion therefore shall arise.
Failure by Holder to exercise any right or remedy upon the occurrence of an
Event of Default shall not constitute a waiver of the right to exercise such
right or remedy upon the occurrence of any subsequent Event of Default.
2
<PAGE> 3
5. Acceleration of Indebtedness.
(a) Upon the occurrence of an Event of Default, the
entire unpaid principal amount, together with any interest accrued
thereon, of this Note shall be due and payable in full at the option
of the Holder.
(b) The Maker and each surety, guarantor, endorser and
other party ever liable for payment of any sums of money payable on
this Note, jointly and severally expressly waive all notices, demands
for payment, presentations for payment, notices of intention to
accelerate maturity, protest and notice of protest, and any other
notices of any kind as to this Note and as to each, every and all
installments or part payments thereof, and consents that the payee or
other holder of this Note may at any time and from time to time, upon
request of or by agreement with the Maker, extend the date of maturity
hereof or change the time or method of payments hereof without notice
to any of the other makers, sureties or endorsers, who shall remain
bound for the payment hereof. The Holder shall have the right to deal
in any way, at any time, with one or more of the foregoing parties
without notice to any other party, and to grant any party any
extensions of time for payment of any said indebtedness, or to grant
any other indulgences or forebearances whatsoever, without notice to
any other party and without in any way affecting the personal
liability of any party hereunder.
6. Usury. All agreements between the Maker and Holder hereof,
whether now existing or hereafter arising and whether written or oral, are
hereby expressly limited so that in no contingency or event whatsoever, whether
by reason of acceleration of the maturity hereof, or otherwise, shall the
amount paid, or agreed to be paid to the Holder hereof for the use, forbearance
or detention of the funds advanced pursuant to this Note, or otherwise, or for
payment or performance of any covenant or obligation contained herein or in any
other document or instrument evidencing, securing or pertaining to this Note
exceed the maximum amount permissible under applicable law. If from any
circumstances whatsoever fulfillment of any provision hereof or any other
document or instrument described herein, at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law, then ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity, and if from any such circumstances the
Holder hereof shall ever receive anything of value deemed interest by
applicable law, which would exceed interest at the highest lawful rate, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid principal balance of this Note or on account of any other principal
indebtedness of the Maker to the Holder hereof, and not to the payment of
interest, or if such excessive interest exceeds the unpaid principal balance of
this Note and such other indebtedness, such excess shall be refunded to the
Maker. All sums paid, or agreed to be paid, by the Maker for the use,
forbearance or detention of the indebtedness of the Maker to the Holder of this
3
<PAGE> 4
Note shall to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of such indebtedness until
payment in full so that the actual rate of interest on account of such
indebtedness is uniform throughout the term hereof. The terms and provisions
of this paragraph shall control and supersede every other provision of all
agreements between the Maker and Holder hereof.
7. Collection Fees. If an Event of Default occurs and this Note
is placed in the hands of an attorney for collection (whether or not suit is
filed), or if this Note is collected by suit or legal proceedings or through
bankruptcy proceedings, the Maker agrees to pay in addition to all sums then
due hereon, including principal and interest, all reasonable expenses of
collection including reasonable attorneys' fees.
8. Amendments and Waivers. This Note may be amended by written
agreement of the Maker and the Holder. No waiver of the provisions hereof
shall be effective unless agreed to in writing by the party against whom such
waiver is asserted.
9. Notice. All notices to the Maker required or permitted by
this Note shall be sufficient if given in writing and executed by the Holder of
this Note. All such notices shall be delivered by registered or certified
mail, return receipt requested, or personally delivered, to the Maker at its
principal place of business on the date of the execution of this Note, or such
other address as the Maker may designate by written notice to the Holder of
this Note.
10. Governing Law. This Note shall be deemed to be a contract
made under the laws of the State of Texas, and for all purposes shall be
governed by and construed in accordance with the laws of the State of Texas,
exclusive of any such law under which the law of any other jurisdiction would
apply.
11. Binding Effect. This Note and all the covenants, promises and
agreements contained herein shall be binding upon and inure to the benefit of
the respective legal and personal representatives, devisees, heirs, successors
and assigns of Maker and Holder hereof.
12. No Impairment of Liens. It is the intention of the parties
that this Note not impair the Liens and such Liens shall continue in full force
and effect. The Liens are hereby ratified and confirmed as continuing to secure
the payment of this Note, as amended and restated hereby. Nothing herein shall
in any manner diminish, impair or extinguish the indebtedness evidenced hereby
or the Liens. The Liens are not waived.
13. Severability. If any one or more of the provisions contained
herein for any reason is held to be illegal, invalid or unenforceable, the
illegality, invalidity or enforceability will not affect, impair or invalidate
any other provision of this Note or
4
<PAGE> 5
the Deed of Trust, which will be construed as if the illegal, invalid or
unenforceable provision had not been contained herein and, in lieu of each
illegal, invalid or unenforceable provision, there will be added automatically
as a part hereof a provision as similar in terms to the illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed
as of the 29th day of March, 1996.
BOLLINGER INDUSTRIES, L.P.
By: /s/ Glenn D. Bollinger
------------------------------
Its: CEO
-----------------------------
5
<PAGE> 1
AMENDED AND RESTATED PROMISSORY NOTE
March 29, 1996 $100,000
BOLLINGER INDUSTRIES, L.P. (the "Maker"), for value received, hereby
promises to pay to the order of Dell Bollinger (together with her assigns the
"Holder"), the principal balance of $100,000, together with interest as
provided for herein, at the times specified herein. The outstanding principal
amount of this Note shall bear interest from the date hereof until the due date
at a rate equal to 10% per annum. This Note, together with notes dated as of
the date hereof payable to Glen D. Bollinger and Bobby D. Bollinger, is an
amendment and restatement of that certain Real Estate Lien Note, dated March
18, 1993, which was subsequently amended and modified and assigned to the
Holder, Glen Bollinger and Bobby Bollinger.
1. Payment of Principal and Interest.
(a) Principal and Interest Payments. The principal
balance of this Note will be paid to the Holder in full on March 31,
1998. Interest payments shall be made monthly on the first day of
each month commencing May 1, 1996 and continuing until March 31, 1998
when the entire principal amount of this Note and all interest accrued
thereon shall be paid in full.
(b) Method of Payment. This Note shall be payable at c/o
Bollinger Industries, Inc., 222 West Airport Freeway, Irving, Texas
75062 or to such other address as the Holder may notify the Maker in
writing, in such coin or currency of the United States of America as
at the time of payment is legal tender for payment of public and
private debts. Except as otherwise provided herein, all sums of
past-due principal and accrued interest shall bear interest at the
maximum rate of interest permitted by applicable law.
2. Security. This Note is secured in part by a Deed of Trust (as
amended and modified, the "Deed of Trust"), dated May 13, 1993, and recorded in
the Real Property Records of Dallas, County, Texas, to which instrument
reference is made for a description of the collateral for this Note and for all
other purposes. The liens and security interests of the Deed of Trust and all
other documents and instruments now or hereafter governing, evidencing,
guaranteeing or securing or otherwise relating to payment of all or any part of
the indebtedness evidenced by this Note are hereinafter collectively called the
"Liens."
3. Prepayment. The Maker may at any time prepay all or any part
of the outstanding principal amount of this Note. Prepayments shall be deemed
to apply first against unpaid interest and then to unpaid principal.
<PAGE> 2
4. Events of Default. Should any of the following events occur
(such event being referred to herein as an "Event of Default"), the Maker shall
be in default hereunder:
(a) If a payment of principal of, or interest accrued on,
this Note is not paid when the same becomes due;
(b) the commencement by the Maker of an involuntary case
under the federal bankruptcy laws, as now or hereafter constituted, or
any other applicable federal, foreign or state bankruptcy, insolvency
or other similar law, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Maker or
for any substantial part of its property, or ordering the winding up
or liquidation of its affairs and the continuance of any such decree
or order unstayed and in effect for a period of 30 consecutive days;
(c) the commencement by the Maker of a voluntary case
under the federal bankruptcy laws, as now constituted or hereafter
amended, or any other applicable federal, foreign or state bankruptcy,
insolvency or other similar law, or the consent by it to the
appointment to or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar official)
of the Maker or for any substantial part of its property, or the
making by it of any assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally
as they become due;
(d) the failure of Maker to perform any obligation,
covenant or agreement contained in the Deed of Trust or any other
mortgage, security agreement, pledge agreement, assignment or other
contract of any kind executed as security in connection with or
pertaining to this Note; or
(e) the transfer, whether voluntarily or by operation of
law, of all or any portion of the Mortgaged Premises (as defined in
the Deed of Trust), except in the ordinary course of business.
It is understood and agreed by Maker that the foregoing "Events of
Default" are cumulative and in addition to any "Events of Default" contained in
the Deed of Trust and other documents modifying, renewing, extending,
evidencing, securing or pertaining to this Note or the loan evidenced hereby.
All rights and remedies of Holder shall be cumulative and concurrent and may be
pursued singularly, successively, or together, at the sole discretion of
Holder, and may be exercised as often as the occasion therefore shall arise.
Failure by Holder to exercise any right or remedy upon the occurrence of an
Event of Default shall not constitute a waiver of the right to exercise such
right or remedy upon the occurrence of any subsequent Event of Default.
2
<PAGE> 3
5. Acceleration of Indebtedness.
(a) Upon the occurrence of an Event of Default, the
entire unpaid principal amount, together with any interest accrued
thereon, of this Note shall be due and payable in full at the option
of the Holder.
(b) The Maker and each surety, guarantor, endorser and
other party ever liable for payment of any sums of money payable on
this Note, jointly and severally expressly waive all notices, demands
for payment, presentations for payment, notices of intention to
accelerate maturity, protest and notice of protest, and any other
notices of any kind as to this Note and as to each, every and all
installments or part payments thereof, and consents that the payee or
other holder of this Note may at any time and from time to time, upon
request of or by agreement with the Maker, extend the date of maturity
hereof or change the time or method of payments hereof without notice
to any of the other makers, sureties or endorsers, who shall remain
bound for the payment hereof. The Holder shall have the right to deal
in any way, at any time, with one or more of the foregoing parties
without notice to any other party, and to grant any party any
extensions of time for payment of any said indebtedness, or to grant
any other indulgences or forebearances whatsoever, without notice to
any other party and without in any way affecting the personal
liability of any party hereunder.
6. Usury. All agreements between the Maker and Holder hereof,
whether now existing or hereafter arising and whether written or oral, are
hereby expressly limited so that in no contingency or event whatsoever, whether
by reason of acceleration of the maturity hereof, or otherwise, shall the
amount paid, or agreed to be paid to the Holder hereof for the use, forbearance
or detention of the funds advanced pursuant to this Note, or otherwise, or for
payment or performance of any covenant or obligation contained herein or in any
other document or instrument evidencing, securing or pertaining to this Note
exceed the maximum amount permissible under applicable law. If from any
circumstances whatsoever fulfillment of any provision hereof or any other
document or instrument described herein, at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law, then ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity, and if from any such circumstances the
Holder hereof shall ever receive anything of value deemed interest by
applicable law, which would exceed interest at the highest lawful rate, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid principal balance of this Note or on account of any other principal
indebtedness of the Maker to the Holder hereof, and not to the payment of
interest, or if such excessive interest exceeds the unpaid principal balance of
this Note and such other indebtedness, such excess shall be refunded to the
Maker. All sums paid, or agreed to be paid, by the Maker for the use,
forbearance or detention of the indebtedness of the Maker to the Holder of this
3
<PAGE> 4
Note shall to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of such indebtedness until
payment in full so that the actual rate of interest on account of such
indebtedness is uniform throughout the term hereof. The terms and provisions
of this paragraph shall control and supersede every other provision of all
agreements between the Maker and Holder hereof.
7. Collection Fees. If an Event of Default occurs and this Note
is placed in the hands of an attorney for collection (whether or not suit is
filed), or if this Note is collected by suit or legal proceedings or through
bankruptcy proceedings, the Maker agrees to pay in addition to all sums then
due hereon, including principal and interest, all reasonable expenses of
collection including reasonable attorneys' fees.
8. Amendments and Waivers. This Note may be amended by written
agreement of the Maker and the Holder. No waiver of the provisions hereof
shall be effective unless agreed to in writing by the party against whom such
waiver is asserted.
9. Notice. All notices to the Maker required or permitted by
this Note shall be sufficient if given in writing and executed by the Holder of
this Note. All such notices shall be delivered by registered or certified
mail, return receipt requested, or personally delivered, to the Maker at its
principal place of business on the date of the execution of this Note, or such
other address as the Maker may designate by written notice to the Holder of
this Note.
10. Governing Law. This Note shall be deemed to be a contract
made under the laws of the State of Texas, and for all purposes shall be
governed by and construed in accordance with the laws of the State of Texas,
exclusive of any such law under which the law of any other jurisdiction would
apply.
11. Binding Effect. This Note and all the covenants, promises and
agreements contained herein shall be binding upon and inure to the benefit of
the respective legal and personal representatives, devisees, heirs, successors
and assigns of Maker and Holder hereof.
12. No Impairment of Liens. It is the intention of the parties
that this Note not impair the Liens and such Liens shall continue in full force
and effect. The Liens are hereby ratified and confirmed as continuing to secure
the payment of this Note, as amended and restated hereby. Nothing herein shall
in any manner diminish, impair or extinguish the indebtedness evidenced hereby
or the Liens. The Liens are not waived.
13. Severability. If any one or more of the provisions contained
herein for any reason is held to be illegal, invalid or unenforceable, the
illegality, invalidity or enforceability will not affect, impair or invalidate
any other provision of this Note or
4
<PAGE> 5
the Deed of Trust, which will be construed as if the illegal, invalid or
unenforceable provision had not been contained herein and, in lieu of each
illegal, invalid or unenforceable provision, there will be added automatically
as a part hereof a provision as similar in terms to the illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed
as of the 29th day of March, 1996.
BOLLINGER INDUSTRIES, L.P.
By: /s/ GLENN D. BOLLINGER
-------------------------------
Its: CEO
------------------------------
5
<PAGE> 1
EXHIBIT 10.42
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO STANDARD INDUSTRIAL LEASE is entered into as of
this 31st day of January, 1996 by and between National Life Insurance Company
("Landlord") and Bollinger Industries, Inc.
WITNESSETH:
WHEREAS, Landlord and Tenant entered into a Lease Agreement dated March
17, 1993 (the "Lease") with respect to certain premises commonly referred to as
1905 110th Street, Grand Prairie, Texas and;
WHEREAS, Landlord and Tenant desire to modify, renew and extend said
Lease pursuant to the first of two (2) successive options for extensions:
NOW THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree to modify the Lease as
follow:
1. Parties: Landlord: National Life Insurance Company
c/o Koll Investment Management, Inc.
2. Extension of Lease Term: The term of said Lease is hereby
extended for a period of thirty-six months from July 1, 1996, to
and including June 30, 1999.
3. Fixed Minimum Rent: The new fixed minimum base monthly
rental shall be as follows:
July 1, 1996 through June 30, 1997: $19,944.00 per month
July 1, 1997 through June 30, 1998: $20,792.00 per month
July 1, 1998 through June 30, 1999: $21,216.50 per month
EXCEPT as herein specifically amended, all other terms, covenant and
conditions of the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment to Lease dated as of the ___ day of _____, 1996.
LANDLORD: TENANT:
NATIONAL LIFE INSURANCE COMPANY BOLLINGER INDUSTRIES, INC.
BY: KOLL INVESTMENT MANAGEMENT, INC.
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
--------------------------------- ---------------------------------
Date: 2/28/96 Date: 2/15/96
------------------------------- -------------------------------
<PAGE> 1
U.S. TRADEMARK LICENSE AGREEMENT
"HAND HELD - HARD GOODS"
INTERNATIONAL APPAREL MARKETING CORP.
D/B/A NAUTILUS WEAR INTERNATIONAL
AND
BOLLINGER INDUSTRIES, INC.
(5/95)
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
SUMMARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
AGREEMENT
---------
ARTICLE I - LICENSE TO USE . . . . . . . . . . . . . . . . . . . . . 3
1. Grant of License . . . . . . . . . . . . . . . . . . . . . . 3
2. Licensed Territory Defined . . . . . . . . . . . . . . . . . 5
3. Licensee's Best Efforts. . . . . . . . . . . . . . . . . . . 6
4. Licensor's Further Right to License. . . . . . . . . . . . . 6
5. Approvals Regarding Products Other than
Licensed Products. . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE II - TERM OF AGREEMENT. . . . . . . . . . . . . . . . . . . . 10
1. Initial Term and Option Term Defined . . . . . . . . . . . . 10
2. Licensed Term and Year Defined . . . . . . . . . . . . . . . 11
ARTICLE III - MINIMUM SALES . . . . . . . . . . . . . . . . . . . . . 11
1. Minimum Sales. . . . . . . . . . . . . . . . . . . . . . . . 11
2. Shipment Minimums. . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV - TRADEMARK ROYALTY. . . . . . . . . . . . . . . . . . . . 12
1. Royalty Payment. . . . . . . . . . . . . . . . . . . . . . . 12
A. Net Sales . . . . . . . . . . . . . . . . . . . . . . . 13
B. Discounted Goods . . . . . . . . . . . . . . . . . . . 13
2. Guaranteed Minimum Trademark Royalty . . . . . . . . . . . . 14
3. Advance Trademark Royalty Payment. . . . . . . . . . . . . . 15
ARTICLE V - ADVERTISING PAYMENT . . . . . . . . . . . . . . . . . . . 16
1. Advertising Payment Defined. . . . . . . . . . . . . . . . . 16
2. Guaranteed Minimum Advertising Payment Defined . . . . . . . 17
3. Advertising Approval . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VI. PAYMENT REPORTS AND LATE PAYMENTS . . . . . . . . . . . . 18
1. Payment Report Required. . . . . . . . . . . . . . . . . . . 18
2. Calculation of Minimum Sales . . . . . . . . . . . . . . . . 18
3. Late Reports and Payments. . . . . . . . . . . . . . . . . . 18
4. Multiple License . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VII. QUALITY CONTROL. . . . . . . . . . . . . . . . . . . . . 20
1. Quality Control Standards Defined. . . . . . . . . . . . . . 20
2. Product Approval Procedure . . . . . . . . . . . . . . . . . 21
3. Quality Control. . . . . . . . . . . . . . . . . . . . . . . 23
4. Inspection of Operation . . . . . . . . . . . . . . . . . . 24
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
5. Compliance With Laws . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VIII. USE OF LICENSED MARKS . . . . . . . . . . . . . . . . . 25
1. Use Defined . . . . . . . . . . . . . . . . . . . . . . . . 25
2. Licensed Mark Use Approval Procedure . . . . . . . . . . . . 28
ARTICLE IX - TRADEMARK, COPYRIGHT AND OTHER RIGHTS
AND USES. . . . . . . . . . . . . . . . . . . . . 29
1. Ownership Rights Defined . . . . . . . . . . . . . . . . . . 29
2. Copyright Notices. . . . . . . . . . . . . . . . . . . . . . 30
3. Confirmation of Ownership. . . . . . . . . . . . . . . . . . 31
4. Trademark Registration . . . . . . . . . . . . . . . . . . . 31
5. Agreement Not to Contest . . . . . . . . . . . . . . . . . . 31
6. Cessation of Rights. . . . . . . . . . . . . . . . . . . . . 32
ARTICLE X. MARKETING AND DISTRIBUTION OF THE
LICENSED PRODUCTS. . . . . . . . . . . . . . . . . . . . . . 32
1. Participation Pledged. . . . . . . . . . . . . . . . . . . . 32
2. Policy of Wholesale Sale . . . . . . . . . . . . . . . . . . 33
3. Merchandiser / Designer. . . . . . . . . . . . . . . . . . . 35
4. Appearance of One Product Line . . . . . . . . . . . . . . . 35
ARTICLE XI. LABELLING . . . . . . . . . . . . . . . . . . . . . . . . 36
1. Labelling. . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE XII. LICENSEE'S BOOKS AND RECORDS . . . . . . . . . . . . . . 37
1. Proper Books and Records . . . . . . . . . . . . . . . . . . 37
2. Annual Financial Statement . . . . . . . . . . . . . . . . . 38
3. Right to Audit . . . . . . . . . . . . . . . . . . . . . . . 39
4. Confidentiality of Financial Records . . . . . . . . . . . . 40
ARTICLE XIII. INSURANCE AND INDEMNIFICATION . . . . . . . . . . . . 41
1. Product, General and Public Liability Insurance . . . . . . 41
2. Indemnification . . . . . . . . . . . . . . . . . . . . . . 42
3. Effect of Approval . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE XIV. EXPIRATION, TERMINATION
AND WINDING UP . . . . . . . . . . . . . . . . . . . . . . . 44
1. Cessation of Agreement . . . . . . . . . . . . . . . . . . . 44
2. Termination Procedure. . . . . . . . . . . . . . . . . . . . 44
3. Other Grounds For Termination. . . . . . . . . . . . . . . . 45
4. Winding-Up . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE XV - INFRINGEMENTS. . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
1. Third Party Infringements. . . . . . . . . . . . . . . . . . 51
ARTICLE XVI - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 51
1. Limitation of Relationship . . . . . . . . . . . . . . . . . 51
2. Specific Performance to Obtain Cooperation . . . . . . . . . 52
3. Uniqueness of Licensed Marks, Equitable and
Legal Relief . . . . . . . . . . . . . . . . . . . . . . . . 52
4. License Limited to Licensee. . . . . . . . . . . . . . . . . 53
5. Limitation on Use of Other Trademarks. . . . . . . . . . . . 54
6. Notices and Communications . . . . . . . . . . . . . . . . . 54
7. Waiver of Rights . . . . . . . . . . . . . . . . . . . . . . 55
8. Confidentiality of Information . . . . . . . . . . . . . . . 55
9. Licensor's Right to Appoint Representatives. . . . . . . . . 57
10. Complete Agreement; No Oral Modification;
Severability; Surviving Provisions . . . . . . . . . . . . . 58
11. Governing Law and Jurisdiction . . . . . . . . . . . . . . . 58
12. Warranties of Corporate Fitness. . . . . . . . . . . . . . . 59
Signatures of Parties . . . . . . . . . . . . . . . . . . . . . . . . 60
EXHIBITS
--------
EXHIBIT A - LICENSED MARKS. . . . . . . . . . . . . . . . . . . . . . 61
EXHIBIT B - QUARTERLY REPORT FORM . . . . . . . . . . . . . . . . . . 62
EXHIBIT C - LICENSED PRODUCT APPROVAL FORM. . . . . . . . . . . . . . 64
EXHIBIT D - LICENSED MARKS USE APPROVAL FORM. . . . . . . . . . . . . 65
EXHIBIT E - MINIMUM REQUIREMENTS. . . . . . . . . . . . . . . . . . . 66
EXHIBIT F - LICENSED PRODUCT DEFINED. . . . . . . . . . . . . . . . . 67
SCHEDULES
---------
SCHEDULE 1 - List of All trademarks, tradenames or other . . . . . . 68
identifying words or symbols used by Licensee
and exempted from Article XVI, Paragraph 5.
DEFINITIONS
-----------
Advertising Payment - . . . . . . . . . . . . . . . . . . . . . . . . 16
Agreement - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Discounted Goods -. . . . . . . . . . . . . . . . . . . . . . . . . . 13
GMAP -. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
GMTR -. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Initial Term -. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Inventory - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
License - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Licensed Marks -. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Licensed Term - . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Licensed Products - . . . . . . . . . . . . . . . . . . . . . . . . . 4
Licensed Territory -. . . . . . . . . . . . . . . . . . . . . . . . . 5
LICENSEE -. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
LICENSOR -. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Master License -. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Net Sales - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Notice Address -. . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Option Term - . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Related Facility -. . . . . . . . . . . . . . . . . . . . . . . . . . 24
Trademark Royalty - . . . . . . . . . . . . . . . . . . . . . . . . . 13
Use - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Year -. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
iv
<PAGE> 6
SUMMARY OF TERMS
THE LICENSED MERCHANDISE:
CATEGORY A = weight benches (on a non-exclusive basis), exercise mats,
weightlifting bars, non-cast iron dumbbell sets, jumpropes, handgrips, ankle
weights, aerobic steps, neoprene trimming products.
CATEGORY B = cast iron weight sets, trampolines.
TERM: May 1, 1995 to August 31, 1997, with a three (3) year option, if
exercised.
THE TERRITORY:
The United States of America, its Commonwealths and Territories.
NET SALES MINIMUMS:
$1,500,000 for the first year;
$2,000,000 for the second year.
ROYALTY RATE:
Five percent (5%) of Net Sales for Category A Licensed Products;
Three and One/half percent (3.5%) of Net Sales for Category B
Products.
GUARANTEED MINIMUM TRADEMARK ROYALTY:
$ 75,000 for the first year;
$100,000 for the second year.
ADVERTISING ROYALTY:
One and one/half percent (1.5%) of Net Sales for both Category A and B
Licensed Products.
GUARANTEED MINIMUM ADVERTISING PAYMENT:
$22,500 for the first year;
$30,000 for the second year.
THE SUMMARY OF TERMS ARE SUBJECT TO AND MODIFIED BY THE PROVISIONS OF
THE AGREEMENT. TO THE EXTENT THAT THERE IS ANY CONFLICT BETWEEN THE SUMMARY OF
TERMS AND THE BODY OF THE AGREEMENT, THE BODY SHALL CONTROL.
<PAGE> 7
TRADEMARK LICENSE AGREEMENT
This TRADEMARK LICENSE AGREEMENT (the "Agreement") is made and entered into
this 1st day of May, 1995 by and between the following parties:
1. The LICENSOR: INTERNATIONAL APPAREL MARKETING CORPORATION
d/b/a Nautilus Wear International, a New York corporation, having its principal
office at 80 West 40th Street, Suite 80, New York, New York, 10018.
2. The LICENSEE: BOLLINGER INDUSTRIES INC, a Delaware
corporation, having its principal office at 222 West Airport Freeway, Irving,
TX 75062.
W I T N E S S E T H:
(A) WHEREAS, LICENSOR warrants and represents that it has been
granted the exclusive right to enter into and administer sublicenses under a
Master License with Nautilus International Inc. ("NII") and Alchem Capital
Corp. ("ACC"), the trademark owners, (hereinafter the "Master License"), with
respect to the marks and logos listed and shown on Exhibit "A" which is
attached hereto and incorporated herein by reference. The marks and logo
depictions listed and shown on Exhibit "A", together with any variations
thereof or additional marks which may hereafter be approved in writing by
LICENSOR for use by LICENSEE in connection with the sale of the Licensed
Products (as hereinafter defined), subject to any conditions set forth in any
written approval, shall hereinafter be referred to as the "Licensed Marks"; and
(B) WHEREAS, LICENSEE desires to obtain an exclusive right to
2
<PAGE> 8
use the Licensed Marks in connection with the manufacture and sale of the
Licensed Products (the "License") in the Licensed Territory (as hereinafter
defined) and LICENSOR is willing to grant to LICENSEE such License under the
terms and conditions hereinafter specifically set forth; and
(C) WHEREAS, LICENSEE acknowledges that the Licensed Marks and
associated goodwill are of a great significance and value to LICENSOR and that
strict adherence to the quality control standards provided in this Agreement is
essential to the maintenance of the significance and value of the Licensed
Marks and associated goodwill; and
(D) WHEREAS, LICENSEE pledges its reasonable and active
cooperation in and support of LICENSOR'S programs, the spirit and intent of
which are to maintain and enhance the value and significance of the Licensed
Marks throughout the world.
NOW, THEREFORE, in consideration of their mutual covenants,
undertakings and promises contained herein, and other good and valuable
consideration, the receipt and adequacy of which the parties hereby
acknowledge, LICENSOR and LICENSEE agree as follows:
ARTICLE I
LICENSE TO USE
1. Grant of License
(A) LICENSOR grants to LICENSEE the sole and exclusive
right during the Licensed Term (as hereinafter defined) in the Licensed
Territory to manufacture and sell to retailers the
3
<PAGE> 9
products bearing the Licensed Marks as set forth on Exhibit "F" attached hereto
(hereinafter referred to individually or collectively, as the case may be, as
the "Licensed Products") in accordance with the provisions of this Agreement,
provided that LICENSEE is in full compliance with all of the terms and
conditions of this Agreement including obtaining prior quality control approval
pursuant to Article VII. LICENSEE may engage in the retail sale of the
Licensed Products only if retail selling is done in strict compliance with all
the terms and conditions set forth in this Agreement, and if LICENSEE obtains
LICENSOR'S prior written approval which shall be at LICENSOR'S sole discretion.
(B) LICENSEE shall have the right of first refusal with
respect to the granting by LICENSOR after the date of this Agreement of an
exclusive right to use the Licensed Marks on or in connection with the
manufacture and sale to retailers of glove and/or weightlifting/fitness belts
(i) if an existing license for either of these categories in the Territory
expires or terminates and/or LICENSOR desires to license either of these
categories in any of the territories included in Paragraph (2)(B) of this
Article; (ii) if LICENSOR desires to continue to license said category to a
third party; and (iii) if LICENSEE is in full compliance with all the terms and
conditions of this Agreement at the time LICENSEE exercises said rights of
first refusal, if at all.
LICENSOR shall notify LICENSEE in writing of the
availability of the exclusive right to use the Licensed Marks as
4
<PAGE> 10
set forth in this Agreement, and such notice shall include the specific
terms and conditions of such grant. LICENSEE shall have thirty (30) days after
delivery of such notice in which to determine whether it will exercise the
right to accept such exclusive license on the terms so offered. If LICENSEE
fails to notify LICENSOR in writing of its intention to accept such exclusive
license on the terms and conditions so offered within such thirty (30) day
period, LICENSEE shall be deemed to have elected not to exercise such right.
2. Licensed Territory Defined:
(A) This License shall be specifically limited to the use
of the Licensed Marks on or in connection with the Licensed Products sold and
distributed solely in the United States of America, its Commonwealths and
Territories, (the "Licensed Territory"). LICENSEE shall not sell the Licensed
Products to any person or entity LICENSEE knows, should have known, or had
reason to believe would sell them outside the Licensed Territory.
(B) LICENSEE shall have the right of first refusal with
respect to the granting by LICENSOR after the date of this Agreement to an
exclusive right to use the Licensed Marks on or in connection with the
manufacture and sale to retailers of the Licensed Products in any of the
following territories - Canada, Mexico, Australia and New Zealand, provided
LICENSEE is in full compliance with all the terms and conditions of this
Agreement at the time LICENSEE exercises said rights of first refusal, if at
all. LICENSEE'S right of first refusal to the additional
5
<PAGE> 11
territories shall be subject to the procedure set forth in Paragraph (1) (B)
above.
3. LICENSEE'S Best Efforts:
During the Licensed Term, LICENSEE shall use its best efforts to
exploit the License granted herein throughout the Licensed Territory,
including, but not limited to, selling a representative quantity of each of the
Licensed Products in the Licensed Territory; offering for sale Licensed
Products so that they may be sold to the consumer on a timely basis;
maintaining an inventory of Licensed Products adequate to meet Licensee's
obligations under this Agreement; coordinating the characteristics and
marketing of its Licensed Products with the products of LICENSOR'S other
licensees; cooperating with LICENSOR and any of its licensees' marketing and
sales programs; aiding LICENSOR in its timely giving of technical assistance
and know-how to its other licensees; sharing of information regarding fabric
and other resources, design merchandising and marketing ideas, concepts and
materials with LICENSOR'S other licensees; the joint purchasing of fabric and
other materials where price discounts, fabric color consistency or other
advantages are available from joint purchasing; and offering a collection (as
referred to in Article VII) of the Licensed Products under the Licensed Marks
for sale in the Licensed Territory at all times, but no less than twice each
calendar year.
4. LICENSOR'S Further Right to License
(A) Except as set forth herein, during the Licensed Term
(excluding the Winding-up Period set forth in Article XIV,
6
<PAGE> 12
Paragraph 4), LICENSOR shall not sell products identical to the Licensed
Products under the Licensed Marks in the Licensed Territory, nor grant a
license to another person or entity, effective during the Licensed Term, to
sell, under the Licensed Marks, products identical to the Licensed Products in
the Licensed Territory.
(B) Notwithstanding the foregoing, LICENSOR or its
designee shall have the right to use, license and sublicense to others the
right:
(i) to manufacture and sell the Licensed Products
under the Licensed Marks in any area of the world other than the Licensed
Territory;
(ii) to manufacture or sell products of any and
all types and descriptions, other than the Licensed Products, in any area of
the world including the Licensed Territory; and
(iii) to manufacture and sell a limited amount of
Licensed Products under the Licensed Marks as premium items. Such premiums
shall only be produced in limited quantities to promote the Licensed Marks and
shall in no event be re-sold at retail. LICENSEE shall be given a right of
first refusal to manufacture the premium items, provided that LICENSEE agrees
to do so at a competitive wholesale price, that the quality of the premium
items is in keeping with the quality of LICENSEE'S Licensed Products, and that
LICENSEE is not in default of any of the terms or conditions of this Agreement
at the time said right of first refusal is exercised. All premium items
manufactured by LICENSEE,
7
<PAGE> 13
if any, shall be treated as Licensed Products and subject to the terms and
conditions of this Agreement during the limited time period in which they are
manufactured and sold.
(C) LICENSOR, or its designee, shall have the right to
manufacture and sell, in the Licensed Territory under the Licensed Marks, any
unique and/or novel product that falls within the definition of Licensed
Products; provided, however, that LICENSOR shall give LICENSEE reasonable
written notice of its intent to so manufacture and sell, and LICENSEE shall
have declined to manufacture and sell such product in its next collection by
either giving written notice of its rejection or by failing to respond in
writing to LICENSOR within fourteen (14) days of receipt of the aforesaid
notice.
5. Approvals Regarding Products Other Than Licensed Products:
(A) LICENSEE acknowledges that LICENSOR has previously
licensed the use of the Licensed Marks in connection with products other than
the Licensed Products to other manufacturers and that LICENSOR shall grant
additional licenses in the future for territories or products that are not
presently licensed and that are not within the scope of this License.
(B) Approval (which shall in all cases be in writing) of
LICENSOR for LICENSEE to manufacture a particular style, design or product, or
to distribute within the scope of the License, shall not constitute a
continuing approval or waiver of the right of LICENSOR to later disapprove any
style, design, product or
8
<PAGE> 14
distribution area.
(C) For the purpose of this Paragraph 5(C), when the term
"LICENSEE" or "Licensees" is used, it is intended that said terms mean the
whole or part of the whole group of all of LICENSOR'S licensees, which includes
LICENSEE. LICENSEE hereby acknowledges that, due to the nature of the
industry, precise definition of products is sometimes not possible. LICENSEE
therefore agrees to accept at all times the sole reasonable judgement of
LICENSOR with respect to whether a particular style, design or product is a
Licensed Product within the scope of the License. LICENSEE agrees that it will
not market, either directly or indirectly, any style, design or product which
LICENSOR, in its sole reasonable discretion, determines is not a Licensed
Product within the scope of the License. LICENSEE further agrees that in the
event of a dispute between any of the "Licensees" arising out of or based upon
a claim that a product being manufactured or sold as a Licensed Product by one
"Licensee" infringes upon the license granted by LICENSOR to another
"Licensee", regardless of the legal grounds upon which the cause of action or
claim is based, LICENSOR shall investigate the claim and LICENSEE shall
cooperate in all respects with said investigation. LICENSOR shall then submit
to any affected party a written determination, which may include a procedure
for mitigating any losses that might occur. Said determination and procedure
shall be conclusive on all parties including LICENSEE, and all shall be bound
thereby without legal recourse.
9
<PAGE> 15
ARTICLE II
TERM OF AGREEMENT
1. The Initial Term and Option Term Defined
The Initial Term of this Agreement shall be for a period of
twenty-eight (28) months commencing on May 1, 1995 and expiring on August 31,
1997 (hereinafter referred to as the "Initial Term") unless sooner terminated
as provided herein. Upon the mutual agreement of the parties, LICENSEE shall
have the option to extend the term of this Agreement for an additional period
of thirty-six (36) months provided (i) LICENSEE is in full compliance with all
of the terms and conditions of this Agreement at the time of exercise, (ii)
LICENSEE gives notice in writing to LICENSOR of LICENSEE'S intent to exercise
its option to extend no less than six (6) months prior to the end of the
Initial Term, and (iii) LICENSEE and LICENSOR negotiate in good faith and agree
in writing on Minimum Sales volumes (which shall at no time exceed Five Million
Dollars [$5,000,000] during the Option Term) for each of the extended years
(the "Option Term"). Unless otherwise agreed to by written amendment to this
Agreement, the Option Term shall be upon the same terms and conditions as
provided for in this Agreement, excepting there shall be no further extension
of the Initial Term without mutual agreement of the parties. Should LICENSOR
at any time exercise its right under this Agreement to terminate the rights of
LICENSEE, all options to extend the term shall likewise be terminated.
10
<PAGE> 16
2. Licensed Term and Year Defined
The Initial Term, the Option Term and the Winding-Up Period (as herein
after defined) shall hereinafter collectively be referred to as the "Licensed
Term." The First Year of the Licensed Term, which shall be a sixteen (16)
month year, and each twelve (12) month period of time thereafter, shall
hereinafter be referred to as a "Year," such as Second Year, Third Year, etc.
ARTICLE III
MINIMUM SALES
1. Minimum Sales:
A. If LICENSEE'S Net Sales (as defined in Article
IV(1)(A)) in the Licensed Territory do not reach the levels set forth on
Exhibit "E" attached hereto for each Year of the Licensed Term, then LICENSOR
shall have the right to terminate this Agreement, by giving LICENSEE written
notice thereof within sixty (60) days of receipt of the last report for the
relevant period. There shall be no Minimum Sales requirement for the first
four (4) months of this Agreement.
B. Notwithstanding the Minimum Sales Requirements set
forth on Exhibit E, LICENSEE may avoid termination of this Agreement by paying
the minimum royalties set forth in Articles IV and V of this Agreement.
However, if within the two quarters immediately after a Year during which
LICENSEE fails to meet its Minimum Sales requirements as set forth in this
Paragraph (1) above, LICENSEE's Net Sales are not equal to or greater than one-
11
<PAGE> 17
half (1/2) of the Minimum Sales requirements for that current Year, LICENSOR
shall have the right, but not the duty, to terminate this Agreement for cause,
immediately.
2. Shipment Minimums
LICENSEE shall timely ship on a season by season basis at least
eighty-five percent (85%) of all confirmed booked or ordered goods for any
season during the Licensed Term of this Agreement.
If LICENSEE fails to ship the required eighty-five percent
(85%) as set forth above, for any season during the Licensed Term hereof, then
LICENSOR shall be entitled to forthwith terminate LICENSEE'S rights under this
Agreement; provided, however, that if the sole and exclusive reason for
LICENSEES'S failure to ship the required eighty-five percent (85%) in a season
is an act totally and completely beyond the control of LICENSEE, LICENSEE'S
failure to achieve the eighty-five percent (85%) shall be excused to the extent
caused thereby; provided, further, that in such case LICENSEE shall ship
eighty-five percent (85%) of all orders not precluded by said act, and LICENSOR
may, at its option, terminate the rights of LICENSEE under this Agreement if
LICENSEE fails to ship eighty-five percent (85%) of the orders not so
precluded.
ARTICLE IV
TRADEMARK ROYALTY
1. Royalty Payment:
As a royalty, LICENSEE shall pay to LICENSOR a sum equal to
12
<PAGE> 18
five percent (5%) of Net Sales for Category A Licensed Products and three and
one/half percent (3.5%) of Net Sales for Category B Licensed Products as set
forth on Exhibit "F" attached hereto (hereinafter referred to as "Trademark
Royalty") on a quarterly basis on the thirtieth (30th) day of the month
immediately following the last day of the quarter in which said Net Sales are
made.
(A) Net Sales:
As used herein, "Net Sales" means the gross dollar amount of
all sales by LICENSEE of the Licensed Products, less actual returns, trade
discounts and trade allowances. No costs incurred in the manufacture, sale,
distribution, advertisement or promotion of the Licensed Products or in the
payment by LICENSEE of any local, State or Federal taxes of any nature
whatsoever shall be deducted from the gross sales amounts or from any royalty
payable to LICENSOR. As set forth below, Net Sales includes sales of
Discounted Goods. Any sales or transfers of Licensed Products made by LICENSEE
to any person or entity that does not deal at arm's length with LICENSEE shall
be computed, for the purpose of determining Net Sales, at an amount equal to
the price at which LICENSEE would have invoiced or charged purchasers who deal
at arm's length with LICENSEE. Gross Sales does not include the sale of
samples to the sales force.
(B) Discounted Goods:
As used herein, Discounted Goods shall mean all close out
merchandise sold for prices twenty percent (20%) or more below the
13
<PAGE> 19
normal selling price. Subject to the limitation set forth below, the Trademark
Royalty payable on Category A "Discounted Goods" is four percent (4%) of Net
Sales and on Category B Discounted Goods is two and one/half percent (2.5%) of
Net Sales, and the Advertising Payment, as defined below, payable on both
Category A and B Discounted Goods is two percent (2%). LICENSEE is only
entitled to the reduced Trademark Royalty and Advertising Payment on a maximum
of twenty percent (20%) of gross sales per Year of the Licensed Term. On sales
of Discounted Goods in excess of this twenty percent (20%) limit, LICENSEE
shall pay the full Trademark Royalty and Advertising Payment rates as set forth
in Articles IV and V. LICENSEE shall provide LICENSOR with an accounting of
the sales of Discounted Goods at the end of each quarter of each Licensed Term
Year. If any such accounting reveals that LICENSEE has paid said reduced
royalty on more than twenty percent (20%) of gross sales from the beginning of
that Year through the end of the relevant quarter, LICENSEE shall immediately
pay to LICENSOR the amount of the calculated underpayment of royalty. Should
any such payment result (as of the end of any Year of the Licensed Term) in an
overpayment of royalty by LICENSEE, LICENSOR shall credit the overpayment to
LICENSEE against the next royalty payment due.
2. Guaranteed Minimum Trademark Royalty:
Regardless of whether or not LICENSEE achieves the required
Minimum Sales, LICENSEE shall pay to LICENSOR the greater of either the
Trademark Royalty or the Guaranteed Minimum Trademark Royalty (hereinafter
referred to as "GMTR") as set forth on Exhibit
14
<PAGE> 20
"E" attached hereto. The GMTR for each Year shall be calculated on a quarterly
basis. If at the end of each three (3) month period of each Year LICENSEE's
Trademark Royalty payments are not greater or equal to the quarterly
percentages of the total GMTR for that Year as set forth below, LICENSEE shall
pay to LICENSOR the balance of the GMTR percentage due for that quarter. Said
balance, if any, shall automatically be paid by separate check concurrently
with the last monthly payment of said quarter, respectively the third, sixth,
ninth and twelfth month of each Year.
The GMTR percentages payable for each three month period of
each Year are as follows:
(i) The balance of twenty percent (20%) of the
GMTR for that Year, if any, shall be paid to LICENSOR the first (1st) quarter
of said Year;
(ii) the balance of forty percent (40%) of the
GMTR for that Year, if any, shall be paid to LICENSOR the second (2nd) quarter
of said Year;
(iii) the balance of sixty percent (60%) of the GMTR
for that Year, if any, shall be paid to LICENSOR the third (3rd) quarter of
said Year;
(iv) the balance of one hundred percent (100%) of the
GMTR for that Year, if any, shall be paid to LICENSOR the fourth (4th) quarter
of said Year;
3. Advance Trademark Royalty Payment:
In addition to all other payments required hereunder, LICENSEE shall
pay to LICENSOR, upon signing this Agreement, an Advance
15
<PAGE> 21
Trademark Royalty of Thirty Seven Thousand Five Hundred Dollars ($37,500);
which shall be reimbursed over the Initial Term and the first year of the
Option Term, if any, in equal quarterly credits of Four Thousand Six Hundred
Eighty Seven Dollars ($4,687).
ARTICLE V
ADVERTISING PAYMENT
1. Advertising Payment Defined:
During the Licensed Term, LICENSEE shall pay LICENSOR an additional
payment toward Advertising expenses equal to one and one/half percent (1.5%) of
its Net Sales of both Category A and B Licensed Products on a quarterly basis
on the thirtieth (30th) day of the month immediately following the last day of
the quarter said Net Sales are made and concurrently with the payment of its
Trademark Royalty (hereinafter referred to as "Advertising Payment"). The
Advertising Payment shall be remitted by separate check. LICENSOR shall use
the entire Advertising Payment to promote the Licensed Marks in any manner
LICENSOR, in its sole discretion, deems appropriate. LICENSOR shall consult
with LICENSEE on a periodic basis regarding the use of the Advertising Payment,
however, the decision as to how to use the Advertising Payment shall be solely
that of LICENSOR.
In addition to the one and one/half (1.5%) percent Advertising
Payment, LICENSEE must spend, as a minimum, one and one/half (1.5%) percent of
Net Sales of both Category A and B Licensed Products on, and only on,
advertising and/or public relations related to the
16
<PAGE> 22
Licensed Products ("Advertising Funds"). All Advertising Fund expenditures
shall be reported quarterly to LICENSOR (see Exhibit B). All Advertising Funds
not spent on advertising and promoting the Licensed Products within a
reasonable period of time from receipt thereof (not to exceed six (6) months)
shall be immediately transferred to LICENSOR.
2. Guaranteed Minimum Advertising Payment Defined:
LICENSEE shall pay to LICENSOR the greater of either the Advertising
Payment or the Guaranteed Minimum Advertising Payment set forth on Exhibit E
attached hereto (hereinafter referred to as "GMAP").
All GMAP's shall be paid in precisely the same manner and under the
same conditions as the GMTR pursuant to Paragraph 2 of Article IV.
3. Advertising Approval:
Any and all advertising and public relations material, including, but
not limited to, concepts, copy, layouts, photographs, videos and all placements
thereof, and all displays and point of purchase advertising, in promotion of
the Licensed Products and/or the Licensed Marks, shall be in accordance with
LICENSOR'S advertising guidelines, and shall be approved in writing by LICENSOR
prior to publication or use thereof as per the procedure set forth in Article
VIII, Paragraph 2. Failure on the part of LICENSEE to obtain LICENSOR'S prior
written approval shall be deemed a material breach of this Agreement, and
LICENSOR shall have the absolute right to terminate this Agreement immediately.
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ARTICLE VI
PAYMENT REPORTS AND LATE PAYMENTS
1. Payment Report Required
(A) On the thirtieth (30th) day of the month immediately
following the last day of each quarter of the Licensed Term, LICENSEE shall
submit to LICENSOR a written report on a form provided by LICENSOR (attached
hereto as Exhibit "B") relating to the calculation of the Trademark Royalty and
Advertising Payments, regardless of whether either is due.
(B) LICENSOR may change the report form referred to in
subsection (A) above at its discretion from time to time. The report shall be
certified as correct by the Chief Executive Officer and/or the Chief Financial
Officer of LICENSEE or such other officers or employees of LICENSEE as shall be
designated by LICENSOR.
All reports and payments required pursuant to this Agreement
shall be sent to LICENSOR at the address set forth at the beginning of this
Agreement.
In the event of any inquiry by LICENSOR regarding any such
report, LICENSEE shall promptly comply with LICENSOR'S reasonable request for
information in the manner requested.
2. Calculation of Minimum Sales:
[INTENTIONALLY OMITTED]
3. Late Reports and Payments:
(A) In the event that any payment due pursuant to the
terms of Articles IV and V is late more than twice during the
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Licensed Term, any late payment thereafter shall bear interest from the due
date of payment at the prime rate of interest established by EAB - European
American Bank of New York, New York, from time to time during said period, plus
three percent (3%). The operation of this clause is without prejudice to any
other right or remedy LICENSOR may have pursuant to the terms of this Agreement
or the law.
(B) Neither the acceptance of late payments hereunder
nor any restrictive endorsement shall constitute a waiver of timely payments,
nor shall acceptance of payments hereunder cure any default which might exist.
In the event that a default is declared and the rights of LICENSEE under this
Agreement are terminated, all payments required hereunder, including, but not
limited to, Trademark Royalty and Advertising Payments on past sales, and all
GMTRs and GMAPs for the Licensed Term, etc., shall be due LICENSOR immediately,
in full, plus interest, at the rate prescribed in Paragraph (2)(A) above from
the date due or the date of declaration of default, whichever shall first
occur.
(C) If any payment due pursuant to this Agreement is
received without a report, or with an incorrect or incomplete report, such
payment may be accepted without prejudice to any of the rights and privileges
hereunder.
4. Multiple License:
In the event LICENSEE is or becomes a party to more than one license
with LICENSOR, separate reports and records shall be maintained and generated
as required by this Article VI for each
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license agreement. Failure to comply with the provisions hereof is a default
of this Agreement.
5. All payments and calculations required by this Agreement shall
be in United States Dollars.
ARTICLE VII
QUALITY CONTROL
1. Quality Control Standards Defined
(A) LICENSEE acknowledges that the continued maintenance
of the great significance and value of the Licensed Marks and their associated
goodwill, the continued maintenance of the high quality standards, and the
merchandising and coordination of the products associated with the Licensed
Marks are all essential elements of the License granted herein. LICENSEE
agrees that all Licensed Products shall be of high and merchantable quality.
Therefore, the quality, style, fabrication, color, sizes, specification, and
all other aspects of the Licensed Products shall at all times be subject to the
complete control and approval of LICENSOR.
(B) To further insure the coordination and the
merchandising of all Licensed Products:
(i) the first submission for each season shall be
a sufficient representation, as determined by LICENSOR, of LICENSEE'S entire
collection fort season; and
(ii) without prejudice to LICENSEE'S
responsibility to use its best efforts hereunder, LICENSEE shall manufacture a
reasonable number of Licensed Products exactly in accordance with
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the standards, directions, specifications, colors, fabrications, processes,
styles, and instructions which LICENSOR may give to LICENSEE.
2. Product Approval Procedure:
(A) Before offering for sale any product LICENSEE intends
to offer as a Licensed Product, LICENSEE shall obtain LICENSOR'S prior written
approval of such product according to the policy set forth in this Paragraph 2,
which policy may, from time to time, be changed by LICENSOR at its discretion
on written notice to LICENSEE.
(B) (i) To obtain LICENSOR'S prior written approval
of each proposed Licensed Product, LICENSEE shall present to LICENSOR, no less
than one (1) final product representing each proposed Licensed Product intended
to be part of that collection, two (2) swatches of material of no less than six
(6) square inches each which indicate the material and color intended to be
used for each Licensed Product, accurate, detailed sketches including each
Licensed Product's specifications, sources of all raw materials and said source
code numbers and/or code numbers, relating thereto, and completed Licensed
Product Approval Forms provided by LICENSOR (attached hereto as Exhibit "C").
All submission of designs, samples and swatches, etc. necessary for approval
shall be at the expense of LICENSEE.
(ii) LICENSOR shall indicate its approvals,
tentative approvals or disapprovals on the Licensed Product Approval Forms -
copies of which shall be delivered or mailed
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within ten (10) business days thereafter (or within a reasonable extension
period, written notice of which shall be mailed or personally delivered to
LICENSEE during said (10) business day period). Tentative approval shall mean
that LICENSOR'S approval will be given if LICENSEE cures the unsatisfactory
element(s) of the Licensed Product(s) as specified in the Licensed Product
Approval Form to the satisfaction of LICENSOR within ten (10) business days of
LICENSEE'S receipt of said Approval Form indicating Tentative Approval.
LICENSEE must re-submit the cured Licensed Product(s) for LICENSOR'S approval
as if it were an original submission as specified in this Paragraph (2)(B)(ii)
within said ten (10) working day cure period. All approvals shall not survive
the time period of the collection for which they are granted. Performance by
LICENSEE shall be in strict accordance with that which is indicated on the
Licensed Product Approval Forms. No product may be manufactured and sold as a
Licensed Product unless approved by LICENSOR in accordance with the procedures
set forth in this Agreement. All approvals shall be at LICENSOR'S sole
reasonable discretion.
(iii) Any proposed Licensed Product or aspect of its
physical characteristics not disapproved by LICENSOR in writing and mailed or
personally delivered to LICENSEE within the ten (10) business days after
receipt of the proposed Licensed Product (subject to a reasonable extension
under the terms set forth in Paragraph 2(B)(ii) of this Article VII) shall be
deemed approved for use in that collection.
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(iv) Any disapproved product or aspect relating to
the physical characteristics thereof shall not be used by LICENSEE, but may be
resubmitted in altered form for LICENSOR'S approval within the ten (10) working
day cure period. Such resubmission must follow the procedures set forth in
this Paragraph 2 as if it were an original submission.
(C) In order for LICENSOR to determine and assure itself
that LICENSEE is maintaining the quality control standards set forth herein,
within (10) business days after the commencement of each Licensed Product's
first production run, LICENSEE shall deliver to LICENSOR no less than one (1)
of each first production run Licensed Product without charge. LICENSEE shall
also, from time to time, within five (5) business days of each request from
LICENSOR, deliver to LICENSOR, Licensed Products in accordance with LICENSOR'S
specific order (e.g.: color, size, fabrication and the like) in the then
present collection not to exceed ten (10) items per Licensed Product style -
the first five (5) of which shall be without charge to LICENSOR and the balance
at a price equal to LICENSEE'S cost.
3. Quality Control:
If, at any time, LICENSOR determines in its sole reasonable
discretion, that a Licensed Product is of lesser quality than the sample
approved pursuant to Paragraph 2 of Article VII, LICENSOR shall give LICENSEE
notice thereof. LICENSEE shall immediately cease production and distribution
of that product until its quality is improved to the reasonable satisfaction of
LICENSOR.
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4. Inspection of Operation:
(A) LICENSOR, or its duly authorized representatives,
shall have the right at any and all times during regular business hours on no
less than twenty-four (24) hours prior notice to inspect all facilities or
premises maintained by or utilized for LICENSEE, including without limitation,
the showrooms, plants, factories, or other manufacturing facilities of LICENSEE
and third parties (such third party facility shall hereinafter be referred to
as "Related Facility").
(B) LICENSEE shall provide LICENSOR with the name,
address, telephone number, and name of principals of any Related Facility; any
symbol or number it or any permitted Related Facility may use, or may be
required to use, to identify itself as a source of goods, and a notice of any
change thereof; and, any other information LICENSOR deems relevant. LICENSOR
shall have the right to inspect and test any of such Licensed Products at
LICENSEE'S facility or at any Related Facility, and to take any other action
which in the opinion of LICENSOR is necessary and/or proper to assure LICENSOR
that the Licensed Products are made and/or sold in accordance with the
requirements of this Agreement. In the event that the Licensed Products or
components thereof are manufactured or displayed other than by LICENSEE,
LICENSEE shall at all times obtain compliance with such agreement and the
quality control provisions of this Agreement. Any breach of such agreement
shall be considered a breach of this Agreement and LICENSOR shall have the
right and option, but not the duty, to terminate this
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Agreement.
5. Compliance With Laws:
All the Licensed Products shall be manufactured, sold, marketed and
advertised in compliance with all applicable laws, rules and regulations.
LICENSEE shall pretest all proposed and approved Licensed Products and shall
cause truthful labeling regarding the care, maintenance, and use to be affixed
to the Licensed Products. LICENSEE shall immediately inform LICENSOR in
writing of any material complaint by any consumer or governmental body relevant
to the Licensed Products, and the status and resolution thereof. LICENSEE
shall move expeditiously to resolve any such complaint.
ARTICLE VIII
USE OF LICENSED MARKS
1. Use Defined:
(A) The Licensed Marks shall at all times be used by
LICENSEE only on or in connection with the Licensed Products. LICENSEE shall
not use the Licensed Marks nor sell or permit the sale of any products or offer
or permit others to offer any services under the Licensed Marks except in the
Licensed Territory and except as expressly and specifically permitted by this
Agreement. The word "use" is meant in the broadest sense of publication and
for the purpose of this Agreement is defined as any visual and aural form which
to the average person would indicate that the Licensed Products are associated
with the Licensed Marks
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including, without limitation, print media, labels, tags, point of sale and
showroom displays, signage, packaging, stationery, business cards and forms,
and electronic media (including, without limitation, television, film, video
tape, radio and the like) now known or hereafter devised, and the form and
content of the subject matter associated with all of the aforementioned
(hereinafter referred to as "use"). Use of the Licensed Marks shall at all
times be in conformity with the terms of this Agreement and consistent with the
high quality and fine reputation associated with the Licensed Marks.
(B) The Licensed Marks shall be used only in the form
set forth in Exhibit A and approved in writing by LICENSOR using the procedure
set forth in Article VIII, Paragraph 2. Upon written notice, LICENSOR may
change, at its sole discretion, such approved form of the Licensed Marks.
LICENSEE shall comply with said change as soon as all remaining Inventory
(defined below) and any Inventory contracted for prior to such notice are used
in connection with the Licensed Products, but in no event shall they be used
beyond six (6) months from the date of notice. "Inventory" shall be any and all
remaining (i.e. on hand or in stock) Licensed Products and tangible items
bearing the Licensed Marks, including, but not limited to, raw material, work
in process, labels, tags, etc. LICENSEE shall provide a detailed accounting of
such Inventory and proof of commitment within ten (10) days of receipt of such
written notice. Failure to do so shall be a material breach of this Agreement.
This Agreement shall automatically apply
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to all later developed trademarks which, at the sole option of LICENSOR, are
specifically instructed for a use by LICENSEE. The term "Licensed Mark" as
used in this Agreement is intended to include all such later developed
trademarks which LICENSEE has been instructed to use under the terms of this
paragraph.
(C) Non-Conflict:
LICENSEE shall not use the Licensed Marks in any manner that
conflicts with the rights of any third party. If, in LICENSOR'S sole
determination, the use of the Licensed Marks by LICENSEE shall infringe upon
the rights of any third party or weakens or impairs LICENSOR'S rights in the
Licensed Marks, then LICENSEE agrees to immediately terminate or modify such
use in accordance with LICENSOR'S instructions, and, subject to the
indemnification provided LICENSEE under Article XIII, Paragraph (2)(B),
LICENSEE shall have no right of damages, offset or right to terminate this
Agreement in connection with such termination or modification of use. In the
event LICENSEE fails to terminate or modify such use as directed by LICENSOR,
LICENSOR may, in its sole discretion, terminate the rights of LICENSEE under
this Agreement.
(D) During the Licensed Term or at any time thereafter,
(i) LICENSEE shall not use or permit the use of
any of the Licensed Marks in any corporate, trade, or partnership name, either
alone or in conjunction with any other words in any style or manner without
LICENSOR'S prior written consent; and
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(ii) LICENSEE shall not use or permit the use of
the Licensed Marks in connection with, or juxtaposed to LICENSEE'S name or the
name of any affiliated company without LICENSOR'S prior written consent; and
(iii) LICENSEE shall not use any of the Licensed
Marks in connection with or juxtaposed to any other trademark, trade name, or
business name without LICENSOR'S prior written consent; and
(iv) Notwithstanding the foregoing and subject to
the provisions of Paragraph 2(A) of this Article VIII, LICENSEE shall identify
itself when using the Licensed Marks on stationery and business forms intended
to be submitted to trade purchasers for the Licensed Products only; and
(v) The provisions of Paragraphs 1(D)(i), (ii)
and (iii) of this Article VIII shall survive the expiration or termination, for
whatever reason, of this Agreement.
2. Licensed Mark Use Approval Procedure:
(A) All uses of the Licensed Marks shall at all times be
subject to the complete control and approval of LICENSOR. Such approval shall
be in writing on a Licensed Marks Use Approval Form provided by LICENSOR (see
Exhibit "D"). Said forms shall be completed in detail. LICENSOR may, from
time to time, change said Forms upon written notice to LICENSEE. Each approval
shall not survive the specific use set forth therein. In all instances,
LICENSEE shall inform LICENSOR in writing of the name, address, and telephone
number of each and every person and/or entity that uses
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the Licensed Marks on LICENSEE'S behalf as well as all details regarding the
use related thereto.
(B) If any proposed use has been disapproved or
"tentatively approved" by LICENSOR, LICENSEE may resubmit such proposed use in
an altered form only if submitted in accordance with the procedures set forth
herein. If tentatively approved, LICENSEE has ten (10) business days from
LICENSEE'S receipt of the Use Approval Form indicating tentative approval to
cure the unsatisfactory elements inhibiting approval as specified in said
Approval Form to the satisfaction of the LICENSOR. LICENSEE shall under no
circumstances use any disapproved proposed use.
(C) LICENSEE shall cause to appear such legends,
markings, and notices on all uses as LICENSOR may reasonably require;
including, without limitation, copyright and trademark ownership notices, and
the legend "Made Under License From Trademark Owner Nautilus" which discloses
the relationship established by this Agreement.
ARTICLE IX
TRADEMARK, COPYRIGHT AND OTHER RIGHTS AND USES
1. Ownership Rights Defined:
All rights in and arising from the Licensed Marks (including without
limitation trademarks and copyrights), other than a privilege to use as
specifically granted herein, are reserved to LICENSOR. Any right which may
arise in connection with LICENSEE'S use of the Licensed Marks shall be for the
benefit of LICENSOR.
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All business goodwill arising from the use of the Licensed Marks by LICENSEE
and rights that may arise therefrom shall inure to the sole and exclusive
benefit of LICENSOR. LICENSOR'S reservation of all rights to the Licensed
Marks shall include, but not be limited to, the exclusive right to own,
operate, and license the Licensed Marks as trademarks and trade names for
products and businesses of all kinds in the Licensed Territory and throughout
the rest of the world. LICENSOR has the right to use any Licensed Product
designed by LICENSEE and/or LICENSOR as part of LICENSEE'S obligation under
this Agreement in any manner LICENSOR may deem beneficial to the exploitation
of the Licensed Marks anywhere in the world. LICENSEE shall be entitled to
reimbursement by LICENSOR or other licensees for actual out-of-pocket expenses
associated with the duplication of art work developed by LICENSEE for use by
LICENSOR or other licensees subject to LICENSOR'S prior written approval
related thereto.
2. Copyright Notices:
LICENSOR shall be deemed the author, with the right, in its sole
discretion, to register a claim to any copyright within an art work or a
writing that is developed by LICENSEE as part of the obligations of LICENSEE
towards the Licensed Products. LICENSEE agrees that all such copyrighted art
work and writings are a work for hire, and shall be protected as the sole and
exclusive property of LICENSOR. LICENSEE shall place a legally sufficient
copyright notice which protects the rights of LICENSOR on each and every
design, style, garment, creation or writing which is capable of
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protection pursuant to the copyright laws of the United States of America. Any
public distribution of goods bearing copyrightable works of LICENSOR by
LICENSEE without a copyright notice as required above, if not authorized, is a
violation of this Agreement.
3. Confirmation Of Ownership:
Whenever requested by LICENSOR, whether during the Licensed Term or
thereafter, LICENSEE shall execute such documents or applications LICENSOR may
reasonably deem necessary to confirm LICENSOR'S ownership of all such rights,
to maintain the validity of the Licensed Marks and the copyright referred to in
Paragraph 2 above, and to obtain or maintain registration thereof.
4. Trademark Registration:
In the event the Licensed Territory includes countries in which one or
more of the Licensed Marks have not yet been registered, LICENSOR has the right
but not the obligation to obtain any trademark registration of any Licensed
Marks in such countries. LICENSOR makes no representation or warranty that the
Licensed Marks will be registered or are registerable in the Licensed
Territory, and the failure to obtain or maintain registrations thereof shall
not be deemed a breach hereof by LICENSOR.
5. Agreement Not to Contest:
LICENSEE acknowledges LICENSOR'S exclusive ownership of, and the
validity of, the Licensed Marks and any rights that may arise from this
Agreement in all countries of the world and agrees that it will not, during the
Licensed Term or thereafter, contest or
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question LICENSOR'S ownership of, or validity of, the Licensed Marks or any
rights that may have arisen from this Agreement or any applications and/or
registrations relating thereto in any country of the world.
6. Cessation Of Rights:
Subject to Paragraph 4 of Article XIV, upon expiration or termination
of this Agreement for any reason whatsoever, LICENSEE shall immediately
discontinue any and all uses of the Licensed Marks and all privileges and
approvals herein granted to LICENSEE shall cease and automatically revert to
LICENSOR. Thereafter, LICENSEE shall not use any of the Licensed Marks or any
confusingly similar marks, names or dress.
7. For the purposes of this Article IX, all rights assigned or
reverting to LICENSOR from LICENSEE shall inure to the benefit of NII and ACC.
ARTICLE X
MARKETING AND DISTRIBUTION OF THE LICENSED PRODUCTS
1. Participation Pledged:
LICENSEE acknowledges that the Marketing Programs that may be
developed by or for LICENSOR are for the benefit of all licensees of the
Licensed Marks and that LICENSEE'S cooperation and support thereof are an
integral part of such program and this Agreement. LICENSEE therefore pledges
its direct and active support of any marketing program LICENSOR may reasonably
develop, including, without limitation, participation in sales presentations
and
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fashion shows, presentations and distributions to the various media, special
events and special promotions by the timely giving of Licensed Products, direct
assistance, sales and other relevant information; and payment of its share of
costs related thereto as determined by LICENSOR and subject to LICENSEE'S
reasonable approval. At LICENSOR'S request, LICENSEE further agrees to provide
each person who directly appears in any advertisement, Special Event, and/or
Special Promotion, with up to three (3) Licensed Products chosen at the
discretion of such person without charge. LICENSOR shall specifically set
forth whether and to what extent any costs relative to these Marketing expenses
will be covered by Advertising Payments.
2. Policy of Wholesale Sale
(A) LICENSEE acknowledges that the availability and
selection of styles, fabrication, colors and sizes are an integral part of the
high reputation and value which the trade and consumers have come to associate
with the Licensed Marks. Therefore, to protect that reputation and value,
LICENSEE agrees that its policy of sale, distribution, and exploitation shall
be of a high standard and to the best advantage, and that the sale shall in no
way adversely reflect upon the good name, trademarks and trade names of the
LICENSOR or any of its programs. LICENSEE further agrees that it will use due
diligence to make certain that all Licensed Products ordered and approved for
shipment to a customer are shipped timely in compliance with the shipping
schedule recited in each order.
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(B) LICENSEE agrees that LICENSOR shall, at its sole
discretion, structure, guide and direct the distribution channels of all sales
of the Licensed Products. In this pursuit, LICENSOR shall act in a commercially
reasonable manner. LICENSEE shall not sell either directly or indirectly, any
Licensed Products, whether first line or Discounted Goods without LICENSOR'S
prior written approval; which approval may be given or withheld by LICENSOR in
its sole discretion.
All sales shall be handled by a mutually approved sales force whose
base salary, if any, and commission shall be paid by LICENSEE. Said sales
force shall devote its best efforts to the Licensed Products.
LICENSEE acknowledges that projections for sales of the Licensed
Products will be made jointly by LICENSEE, LICENSOR and the sales force.
LICENSEE further acknowledges that actual sales are affected by many factors
including economic conditions, market conditions, product acceptance, timely
deliveries, product quality, fashion vagaries, etc. LICENSEE acknowledges that
LICENSOR does not represent, warrant or guarantee that any specific or minimum
level of sales will be achieved.
(C) Sale of Licensed Products at Manufacturer's location:
LICENSEE, at his option, may sell the Licensed Products
at LICENSEE'S manufacturing location and/or showroom if, and only if,:
(i) prior written approval is given by LICENSOR;
(ii) a separate and independent showroom is used
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exclusively for the sale of the Licensed Products; and
(iii) all sales are made in strict compliance with
the terms and conditions of this Agreement.
(D) Samples For Sales Force:
Prior to the showing of a new line, and subsequent to
approvals outlined in Article VII, LICENSEE shall furnish to the sales force
sufficient samples for their use and for display of the Licensed Products at
trade shows and showrooms. Royalties are not payable on samples for the sales
force.
3. Merchandiser/Designer:
LICENSEE shall provide, at its own expense, a full time or part time
employee qualified to act as a designer, merchandiser and production/sample
coordinator with respect to the Licensed Products. This person shall devote
the necessary amount of his/her working time on the development and
coordination of the line in conjunction with the merchandising staff of
LICENSOR.
4. Appearance of One Product Line:
LICENSEE acknowledges that to the extent reasonably possible and
prudent LICENSOR and its merchandiser and designers will attempt to make the
product lines of all Licensees of the Licensed Marks coherent and consistent
and appear to be the product of one company. LICENSEE agrees to reasonably
cooperate with LICENSOR in this endeavor.
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ARTICLE XI
LABELLING
1. Labelling:
All Licensed Products shall contain a label and/or hangtag designated
by LICENSOR. The labels and hangtags shall be acquired only from sources
approved by LICENSOR in writing. On all labels, hangtags and Licensed
Products, the circled "R" ((R)) or "TM" (TM) as appropriate shall appear
denoting United States Trademark registration or pending registration, and
where applicable, all items subject to copyright protection shall bear a proper
and complete circled "C" copyright notice ((C) Nautilus International Inc.
[year]) as specified by law. LICENSOR shall have the right from time to time
to designate the exact symbols or language to be used by LICENSEE to denote
ownership by LICENSOR, NII or ACC of any intellectual property, be it
Trademarks, copyrights or other property. No additional labels, hangtags or
identification shall appear on the Licensed Products unless prior written
approval of LICENSOR is obtained, provided, however, that LICENSEE shall
include a separate label for care, content, size and country of origin and
shall be clearly marked as required under the Magnusson-Moss Warranty Act.
LICENSEE may not allege to anyone that LICENSOR, NII or ACC is
responsible for any claim arising out of the manufacture, sale or use of the
Licensed Products. If the phrase "Manufactured under Contract/Agreement from
Nautilus International Inc." is permitted or required, an identification of
LICENSEE must also
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appear on or in connection with the Licensed Products.
LICENSEE understands the importance of maintaining the security and
integrity of all trademarked labelling used on the Licensed Products, and
LICENSEE agrees to use its best efforts to maintain, and to require any
subcontractors to maintain, a strict and accurate current inventory of all
labels throughout the manufacturing process of the Licensed Products so as to
preclude any diversion of the labels, and, if any such diversion occurs,
LICENSEE agrees to notify LICENSOR in writing immediately upon discovery
thereof.
Any breach of the provisions of this Article XI shall entitle
LICENSOR, at its option, to terminate the rights of LICENSEE under this
Agreement.
ARTICLE XII
LICENSEE'S BOOKS AND RECORDS
1. Proper Books And Records:
(A) LICENSEE shall maintain separate and appropriate
books of account and records, in accordance with generally accepted accounting
principles (including, without limitation, a sales journal, sales return
journal, cash receipt book, general ledger, and to the extent reasonably
available, purchase orders, cutting tickets, and Inventory records) and shall
make accurate entries concerning all transactions relevant to this Agreement.
(B) The Licensed Products shall be assigned style numbers
unique from any products other than the Licensed Products
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LICENSEE may manufacture and/or sell. The style number assigned to each
Licensed Product shall be identical to the style number utilized to identify
that Licensed Product in all LICENSEE'S books and records.
(C) All sales of the Licensed Products shall be made on
sequentially numbered invoices which shall:
(i) contain sales related only to the Licensed
Products;
(ii) contain a statement that it shall only be
paid to an account credited by LICENSEE or its assignee; and
(iii) be recorded in separate ledger accounts or
such other listings so as to easily trace the source of the reported sales.
(D) LICENSEE'S books and records shall at all times be
kept at LICENSEE'S notice address. LICENSEE shall not be permitted to change
the address at which the books and records are kept without prior written
notice to LICENSOR. LICENSEE'S fiscal year ends on March 31.
2. Annual Financial Statement:
No later than ninety (90) days after LICENSEE'S fiscal year-end,
LICENSEE shall furnish LICENSOR with its audited annual financial statements
which shall include an income statement, balance sheet and statement of cash
flow of the LICENSEE prepared in accordance with generally accepted accounting
principles consistently applied.
Notwithstanding the foregoing, an audited annual
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statement shall not be required unless otherwise prepared by LICENSEE in the
ordinary course of its business. In the event an audited statement is not
prepared by LICENSEE, LICENSEE shall furnish LICENSOR within ninety (90) days
after LICENSEE'S fiscal year end with its unaudited financial statements,
reviewed by an independent certified public accountant and certified to be
correct by the Chief Executive Officer and Chief Financial Officer of LICENSEE
or by such other officers or employees of LICENSEE as LICENSOR shall designate.
3. Right to Audit:
(A) During the Licensed Term and for three (3) years
thereafter, LICENSOR shall have the right from time to time, at its own
expense, on reasonable notice to LICENSEE (but in no event need such notice be
more than ten (10) business days) and during regular business hours, to
examine, photocopy and make extracts from such books of account and other
records, documents, tax returns, financial statements, and material (including,
but not limited to, invoices, purchase orders, sales records, and reorders)
which shall be maintained and kept by LICENSEE during the period specified
herein. Provided however, that such activity shall be conducted without undue
disruption of normal business operations, and the person conducting such audit
shall not discuss the audit or any other substantive matter, with any person,
except the President and Chief Financial Officer of LICENSEE, without
permission from either of such officers, which permission shall not be
unreasonably withheld. The President and Chief Financial Officer shall fully
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cooperate with the auditors to make available such personnel and relevant
information as may be reasonably required to conduct the audit. LICENSEE shall
have ready and make available to LICENSOR its books, records, documents, and
materials pursuant to this clause when LICENSOR witnesses LICENSEE'S
compilation of the Winding-Up statement pursuant to Article XIV, Paragraph
4(B).
(B) All such books of account and records shall be made
available by LICENSEE to LICENSOR at LICENSEE'S address as given at the
beginning of this Agreement during the Licensed Term and for no less than three
(3) years after the termination, expiration, or mutual release from this
Agreement, or, in the event of a dispute between the parties hereto, until
three (3) years after that dispute is resolved, whichever is later.
(C) If any examination or audit discloses that the
royalties due LICENSOR exceed those reported by more than three percent (3%),
LICENSEE shall pay the cost of such examination or audit in addition to any
amount that such examination or audit discloses is owed to LICENSOR together
with interest on the unreported amount at a rate equivalent to the prime
lending rate established by EAB - European American Bank, plus three percent
(3%). All payments due pursuant to this article shall be made within fifteen
(15) days after LICENSEE receives notice thereof.
4. Confidentiality of Financial Records: LICENSOR shall regard
and preserve as confidential all financial information provided by LICENSEE or
obtained by LICENSOR pursuant to this Article.
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<PAGE> 46
ARTICLE XIII
INSURANCE AND INDEMNIFICATION
1. Product, General and Public Liability Insurance
(A) LICENSEE shall promptly procure and maintain in full
force and effect at all times during the Licensed Term, with a responsible
insurance carrier or carriers reasonably acceptable to LICENSOR, at least One
Million Dollars ($1,000,000) of product liability insurance coverage for bodily
injury to one (1) person with respect to the Licensed Products. LICENSEE shall
also maintain One Million Dollars ($1,000,000) general and public liability
insurance coverage.
(B) All of said insurance shall:
(i) provide for coverage resulting from claims
reported during and/or after the policy period;
(ii) name LICENSOR, NII and ACC as additional
assureds;
(iii) provide for at least ten (10) days prior
written notice to LICENSOR at LICENSOR'S "Notice Address" (as given in Article
XVI, Paragraph 7) and NII at 9800 W. Kincey Ave., Calhoun Bldg., Ste. 150,
Huntersville, NC 28078, or such other address as they direct of any
cancellation, modification, surrender, or any other action that would effect
LICENSOR'S status or benefits thereunder; and
(iv) include coverage against the destruction of
Licensed Products and shall provide that in the event of such destruction
LICENSEE shall be reimbursed in an amount equivalent to
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<PAGE> 47
the manufacturer's selling price for the products. Upon receipt of any
insurance monies based on any claim arising from such destruction, LICENSEE
shall immediately remit to LICENSOR the appropriate payments for the destroyed
products as if they had not been destroyed but sold.
2. Indemnification:
(A) LICENSEE hereby indemnifies and holds LICENSOR, NII,
and ACC, their successors and assigns harmless from and against any and all
claims, including without limitation all liabilities, causes of actions, suits,
damages, reasonable costs, expenses, attorneys' fees and disbursements of any
kind, nature or description arising out of any sale or use of the Licensed
Products, including, but not limited to, claims based upon allegations of
negligence or strict liability which are attributable to an act of LICENSEE
(i.e. the design or manufacturer of the Licensed Products), improper labeling,
the unauthorized use of the Licensed Marks, etc., and specifically excluding
claims set forth in Paragraph (B) below for which LICENSOR shall indemnify
LICENSEE. Should LICENSOR be sued by a third party and reasonably claim an
indemnity from LICENSEE then LICENSOR shall tender the defense of said suit to
LICENSEE or its insurance carrier. However, if said claim could directly
impact the validity or existence of the Licensed Marks or any registration
thereof, or LICENSOR'S, Alchem's or NII's ownership of or rights to the
Licensed Marks, then LICENSOR shall have at its discretion (i) the right but
not the obligation to participate jointly with LICENSEE
42
<PAGE> 48
in the defense of said suit (in which case the fees and expenses of LICENSOR'S
counsel in connection with such joint participation shall be at LICENSOR'S
expense and shall not be subject to indemnification or reimbursement), and/or
(ii) the right to approve in its reasonable discretion any settlement of said
suit. This provision shall survive expiration or termination of the Licensed
Term.
(B) LICENSOR hereby indemnifies and holds LICENSEE, its
successors and assigns harmless from and against any and all claims, including
without limitation all liabilities, causes of actions, suits, damages,
reasonable costs, expenses, attorneys' fees and disbursements of any kind,
nature or description for which LICENSEE may become liable or may incur or be
compelled to pay in any claim against LICENSEE for infringement of any other
party's trademark in the Licensed Territory resulting from LICENSEE'S use of
the Licensed Marks for the Licensed Products in the Licensed Territory during
the Licensed Term in accordance with the terms and conditions of this
Agreement. Should LICENSEE be sued by a third party and reasonably claim
indemnity from LICENSOR, then LICENSEE shall tender the defense of said suit to
LICENSOR or its insurance carrier. This paragraph shall survive expiration or
termination of the Licensed Term.
3. Effect of Approval:
The approval by LICENSOR of any Licensed product shall not be
construed as a consent by LICENSOR to any infringement or violation of the
rights of third parties occasioned by the approved Licensed
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<PAGE> 49
Product or use, nor as an indemnification by LICENSOR or assumption of any
responsibility for any such claim beyond the indemnification set forth in
Article XIII, Paragraph (2)(B).
ARTICLE XIV
EXPIRATION, TERMINATION AND WINDING UP
1. Cessation of Agreement:
Subject to the continuing obligations arising from a breach hereof and
those terms that survive cessation of this Agreement, this Agreement and all
rights relevant thereto shall cease upon the earlier of termination, for
whatever reason, or expiration.
2. Termination Procedure:
If LICENSEE should breach any of the terms and/or conditions hereof,
LICENSOR shall have the right and option, but not the duty, to terminate this
Agreement by giving notice of termination to LICENSEE. Provided, however, that
LICENSEE shall have thirty (30) days from receipt of such notice to remedy the
same but only if such breach is capable of being cured. Termination shall
become effective as of the date of such notice, or if the breach is capable of
being cured within thirty (30) days of receipt of such notice, upon the
expiration of said thirty (30) day period should LICENSEE fail to cure such
breach. In the event that a default occurs with respect to any payment and/or
the submission of any report due under the terms of this Agreement, LICENSEE
shall have seven (7) days from receipt of notice of such default within which
to remedy the same. Notwithstanding any provision to the contrary,
44
<PAGE> 50
if LICENSEE receives two (2) notices of default concerning payments and/or
submission of reports within any twenty-four (24) month period of the Licensed
Term, then any future default shall be incurable and the termination of the
License shall be effective immediately upon the giving of notice. It is
understood and agreed that the rights and remedies of LICENSOR hereunder shall
be cumulative and that the termination of this Agreement shall be without
prejudice to any other rights and remedies which LICENSOR may have against
LICENSEE. LICENSEE acknowledges that any use of the Licensed Marks after the
date that termination is effective shall constitute an infringement of
LICENSOR'S Licensed Marks.
3. Other Grounds For Termination:
(A) Upon written notice of any of the following, which is
hereby required to be given to LICENSOR by LICENSEE, LICENSOR shall have the
right and option, but not the duty, to terminate this Agreement on written
notice to LICENSEE as of the earliest date on which any of the following events
occur:
(i) The filing of a petition by or against LICENSEE
under the United States Bankruptcy Act, as amended, or under the insolvency
laws of any state; or LICENSEE or a third party commences a proceeding or files
a petition of similar import under another applicable bankruptcy or insolvency
law in which LICENSEE is the subject of such action; or
(ii) if LICENSEE makes an assignment for the
benefit of creditors, or if LICENSEE becomes insolvent or is, or becomes,
unable to discharge its duties and financial responsibilities as
45
<PAGE> 51
provided for in this Agreement; or
(iii) if LICENSEE defaults on any obligation which is
secured by a security interest in whole or in part in the Licensed Products or
equipment relating to the manufacture thereof; or
(iv) if a receiver is appointed for LICENSEE for a
substantial part of its business or assets; or
(v) LICENSEE defaults on a common law or
statutory lien; or
(vi) if, at any time, the total stockholders'
equity of LICENSEE is less than $0.
(B) This Agreement shall also terminate if the Master
License, to which this Agreement is subject and subordinate, is terminated for
any reason.
(C) If LICENSEE fails to pay for patterns, samples,
fabrics, freight, and other goods and services for which the LICENSEE shall
from time to time be indebted to LICENSOR, then LICENSOR shall have the option,
but not the duty, to terminate this Agreement pursuant to the terms and
conditions contained in Article XIV provided said failure to pay continues for
seven (7) days following written notice thereof. LICENSEE shall in no event
set off any amounts due LICENSOR, and any attempt to do so shall constitute a
default under the Agreement.
(D) If a court of first impression having competent
jurisdiction temporarily or permanently enjoins LICENSEE'S unlawful use of the
Licensed Marks, or adjudges such use to be violative of
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<PAGE> 52
the trademark or other rights of any third party, then this Agreement shall
automatically terminate, without any prior notice, as of the date of the entry
of such order of injunction or judgement, whichever occurs first. LICENSEE
shall inform LICENSOR in writing of the commencement, status, and resolution of
any such action or proceeding initiated by any third party. Nothing in this
paragraph shall be construed to absolve LICENSEE from making payments and
submitting the relevant reports as provided by this Agreement prior to the date
of such termination, nor to prevent LICENSOR from pursuing any and all other
remedies it may have as a result of LICENSEE'S breach hereof. The provisions
of this paragraph shall take precedence over any conflicting provisions in this
Agreement.
(E) Any breach by LICENSEE of any of its obligations to
be performed under any Agreement between the parties shall also be considered a
breach of this Agreement and LICENSOR shall have the right and option, but not
the duty, to terminate this License pursuant to the terms of this Article XIV.
Any breach by LICENSEE of any of its obligations to be performed under this
Agreement shall also be considered a breach of all other agreements between the
parties and LICENSOR shall have the right and option, but not the duty, to
terminate all agreements between the parties.
(F) Acts Detrimental to Brand:
LICENSEE acknowledges:
(i) that it is only one of the current and
future licensees of the Licensed Marks;
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<PAGE> 53
(ii) that its actions and omissions can greatly
impact the business of LICENSOR, the business of the other licensees of
LICENSOR and the value of the Licensed Marks; and
(iii) that its quality of production, timely delivery
of booked or ordered goods, its cooperation with LICENSOR and/or other
licensees of LICENSOR and the conduct of its business can greatly impact the
business of LICENSOR, the business of the other licensees of LICENSOR and the
value of the Licensed Marks.
Therefore, if LICENSEE takes any action, or fails to
take any action, which action or omission is, in the reasonable opinion of
LICENSOR, materially harmful to the Licensed Marks or the business of LICENSOR,
LICENSOR'S other licensees, or the brand, then at LICENSOR'S option, all rights
of LICENSEE under this Agreement shall terminate subject to the termination
procedure as set forth in Article XIV, Paragraph 2.
4. Winding-Up:
(A) Subject to the conditions set forth herein, upon the
expiration or termination of this Agreement, LICENSEE, shall have a reasonable
time on a non-exclusive basis, not to exceed four (4) months from the
commencement of the Winding-Up Period (as set forth in Paragraph (B)(ii)
below), in which to dispose of its Inventory according to all the terms and
conditions of this Agreement (hereinafter referred to as the "Winding-Up
Period"). LICENSEE shall have no right to dispose of or otherwise deal in any
Licensed Products or such other tangible items bearing the Licensed Marks.
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<PAGE> 54
(B) During the Winding-Up Period:
(i) LICENSEE shall deliver to LICENSOR a complete
and detailed statement setting forth the number and description of the then
remaining Inventory, advertising, copies of orders LICENSEE intends to fill,
and the like, no later than sixty (60) days prior to the expiration date of
this Agreement or within fifteen (15) business days after termination as
aforesaid, as the case may be. LICENSEE shall give LICENSOR at least ten (10)
days' prior written notice of the time and date it intends to compile the data
for preparation of the statement, and shall permit LICENSOR to be present at
that time and at all reasonable times thereafter during the Winding-Up Period
to have sufficient access to verify the accuracy of the statement. At any time
when LICENSOR is present to verify such information, LICENSEE shall make
available to LICENSOR that which is required under Paragraph 3 of Article XII
for inspection by LICENSOR. Unless LICENSOR makes a written objection to any
part of said statement within fourteen (14) days of receipt thereof, said
statement shall be deemed accurate and LICENSEE may dispose of the remaining
completed Licensed Products within the said four (4) month period. LICENSEE
shall have no right to dispose of or otherwise deal in any Licensed Products or
use tangible items bearing the Licensed Marks if it refuses to allow LICENSOR
to exercise its rights hereunder or if it fails to allow LICENSOR to resolve
any objections to the satisfaction of LICENSOR.
(ii) LICENSEE shall simultaneously pay LICENSOR the
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<PAGE> 55
Trademark Royalties and Advertising Payments and submit reports relevant
thereto no later than the fifteenth (15th) day following each thirty (30) day
period of the Winding-Up Period, which shall commence upon the earliest of (a)
receipt of LICENSEE'S statement (as required in Subparagraph (i) above), or (b)
sixty (60) days prior to the expiration date of this Agreement, or (c) fifteen
(15) days after termination of the Agreement for whatever reason; provided,
however, there shall be no Winding-Up Period should LICENSOR exercise its
rights under Paragraph (C) below. Within ten (10) business days after
expiration of the last thirty (30) day period of the Winding-Up Period or after
the actual liquidation of all remaining Licensed Products, whichever is
earlier, LICENSEE shall remit the requisite Trademark Royalty and submit the
requisite reports, and shall, at the same time, remove and send to LICENSOR, at
no cost to LICENSOR, any and all tangible items bearing the Licensed Marks from
the then remaining goods and all items in stock, and shall cease to act in any
way which may lead another to believe the LICENSEE still has the right to use
the Licensed Marks.
(iii) Immediately upon termination or expiration of
this Agreement, LICENSEE shall deliver to LICENSOR, at no cost to LICENSOR, all
computer equipment, PROMS, gross tapes, heat stamp dyes and other equipment
which are used by LICENSEE solely for the reproduction of the Licensed Marks.
LICENSEE shall be further responsible for identifying, collecting and
delivering to LICENSOR, at no cost to LICENSOR, any and all such devices which
may be in
50
<PAGE> 56
the possession of LICENSEE'S subcontractors, if any.
(C) Notwithstanding the foregoing, upon expiration of
this Agreement, or termination of this Agreement for any reason, LICENSOR shall
have the prior right and option, to be exercised in writing and mailed or
delivered no later than fifteen (15) business days after such event, to
purchase any or all remaining Licensed Products and tangible items bearing the
Licensed Marks at LICENSEE'S cost on terms mutually acceptable to LICENSOR.
ARTICLE XV
INFRINGEMENTS
1. Third Party Infringements
In the event LICENSEE learns of any use of the Licensed Marks or
confusingly similar Marks by any third party on or in connection with the
Licensed Products or other products that LICENSEE has reason to believe
constitutes an infringement of the Licensed Marks, LICENSEE shall promptly
notify LICENSOR in writing of such use and all the known details thereof.
LICENSOR may take whatever action it deems appropriate to stop said
infringement. In no event shall LICENSOR be responsible to LICENSEE for any
damages that may result from said infringement(s).
ARTICLE XVI
MISCELLANEOUS
1. Limitation of Relationship
Nothing contained herein shall be construed to place either
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<PAGE> 57
party in the relationship of legal representative, partner, joint venturer,
principal, or agent of the other, and LICENSEE shall have no authority to
obligate or bind the LICENSOR.
2. Specific Performance to Obtain Cooperation
Without prejudice to any other right and/or remedy LICENSOR may have
under this Agreement or the law, if, after notice to LICENSEE, LICENSEE fails
to take any action which LICENSEE is obligated to take hereunder, then LICENSOR
shall have the right and option, but not the duty, to bring an action for
specific performance to compel such action, and LICENSEE shall pay any and all
costs and expenses and reasonable attorneys' fees and disbursements incurred by
LICENSOR with respect thereto.
3. Uniqueness of Licensed Marks, Equitable and Legal Relief
LICENSEE recognizes that the Licensed Marks possess a special, unique
and extraordinary character which makes difficult the assessment of monetary
damages which LICENSOR might sustain by an unauthorized use. LICENSEE agrees
that irreparable injury would be caused by LICENSEE by such unauthorized use,
and that injunctive and other relief, in law and equity, would be appropriate
in the event of a breach of this Agreement by LICENSEE. In the event that any
action or proceeding is brought by LICENSOR against LICENSEE arising out of, or
by reason of, the breach of this Agreement, including third party claims and
cross-claims, LICENSEE shall pay any and all costs, expenses, and reasonable
attorneys' fees and disbursements incurred by LICENSOR, including, but not
limited to, appeals.
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4. License Limited to LICENSEE
(A) The License and other rights granted in this
Agreement are personal to LICENSEE and, without the prior written consent of
LICENSOR, which may be withheld by LICENSOR in LICENSOR'S sole discretion, may
not be assigned, sublicensed, pledged, or otherwise affected, nor may any of
LICENSEE'S duties be delegated. Any such action taken without the prior
written consent of LICENSOR shall entitle LICENSOR to have the right and
option, but not the duty, to terminate this Agreement.
(B) LICENSEE shall not contract for the manufacture
and/or sale of the Licensed Products by a third party without the prior written
consent of LICENSOR which shall not be unreasonably withheld. Any such action
taken without the prior written consent of LICENSOR shall entitle LICENSOR to
have the right and option, but not the duty, to terminate this Agreement.
(C) The sale, transfer, or assignment of fifty percent
(50%) or more of the shares of LICENSEE, including by way of transfer, or
assignment of any amount of authorized but unissued shares, a merger or
consolidation; (or, if a partnership, then any change in at least fifty percent
(50%) of the partners' interests); or, a sale of a substantial part of its
assets shall be deemed an assignment within the meaning of this Agreement.
(D) Subject to the provisions of this Clause 4, this
Agreement shall in all respects be binding upon and inure to the benefit of the
parties and their respective legal representatives, successors, and assigns.
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<PAGE> 59
5. Limitation on Use of Other Trademarks
LICENSEE does hereby acknowledge that any attempt by it, or by any
other corporation, partnership, or business organization in which any officers,
directors, stockholders, partners are owners thereof, to manufacture, sell or
distribute the products Listed on Exhibit "F" under any trademark, trade name,
or other identifying word or symbol of any "Competitor" (defined below) of the
Licensed Marks (except under such trademarks, trade names, or identifying words
or symbols LICENSEE is using as of the date of this Agreement) constitutes a
violation of its obligation to use its best efforts to exploit the License
granted herein. LICENSEE does hereby assume the liability for its officers,
directors, and shareholders (or partners) for such conduct and agrees that any
such conduct shall constitute a breach of this Agreement. "Competitor" of
LICENSOR shall be a company selling/distributing a product(s) with quality,
distribution channels, price points and image similar to that of Nautilus such
that the sale of Competitor's products would materially affect the overall
volume growth of Nautilus (e.g. Weider, Cybex, Universal, Gold's Gym etc.).
Attached hereto is Schedule 1 listing all trademarks, trade names, or other
identifying words or symbols used by LICENSEE as of the date of this Agreement,
which shall be exempt from the operation of this provision. Schedule 1 is a
representation that has materially induced LICENSOR to execute this Agreement.
6. Notices and Communications
All reports, notices, submissions for approval, and/or other
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<PAGE> 60
communication required under this Agreement shall be in writing. Unless
otherwise provided in this Agreement, all of the aforesaid and all payments
required to be made in accordance with this Agreement shall be effective when
delivered either personally when mailed by certified mail, return receipt
requested, or by nationally recognized overnight carrier to the parties at the
addresses given at the beginning of this Agreement, or at such other address as
either party may specify by written notice to the other in accordance with the
terms of this clause (such address being referred to in this Agreement as
"Notice Address"). At no time, however, shall LICENSEE be permitted to have a
notice address outside the continental United States of America.
7. Waiver of Rights
The failure of a party to insist upon strict adherence to any
provision of this Agreement on any occasion shall not be considered or deemed
to be a waiver nor considered or deemed to deprive that party of the right
thereafter to insist upon strict adherence to that provision or any other
provision of this Agreement. Any waiver must be in writing.
8. Confidentiality of Information
(A) LICENSEE shall regard and preserve as confidential
all information related to the business of the LICENSOR, except that
information which is public knowledge, which may be obtained by it from any
source as a result of this Agreement, or otherwise, including information
regarding designs, advertising, promotions, marketing plans and other
information which LICENSOR may provide to
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<PAGE> 61
LICENSEE to assist it in the development and sale of the Licensed Products.
LICENSEE shall confine and limit the use of all information and ideas
exclusively to the development and sale of the Licensed Products, and shall not
use or adopt such information and ideas in connection with any product which is
not a Licensed Product. Upon expiration or termination for any reason,
LICENSEE shall forthwith deliver to LICENSOR any such information and
thereafter cease using same.
(B) LICENSOR shall regard and preserve as confidential
all information related to the business of the LICENSEE, except for that
information which is public knowledge, which may be obtained by it from any
source as a result of this Agreement, or otherwise, including information
regarding designs, advertising, promotions, marketing plans and other
information which LICENSEE may provide to LICENSOR to assist it in the
development and sale of the Licensed Products. LICENSOR shall confine and
limit the use of all information and ideas to the development and sale of the
Licensed Marks.
(C) Without limiting the generality of Paragraph 8(A) of
Article XVI above:
(i) LICENSEE shall not, without first obtaining
LICENSOR'S written consent, at any time, whether during the Licensed Term or
thereafter, disclose to any person, firm, agency, authority or other
enterprise, or in any way use for its benefit any information relating to the
customer lists, pricing, methods, processes, apparatus, programs, practices,
employees, or other
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materials conceived, designed, created, developed, or assembled for or by
LICENSOR, its designees, its Licensees or its agents; and
(ii) LICENSEE shall insure that its employees
having access to such information do not copy, duplicate, or otherwise use, or
disclose such information to third parties, except as otherwise contemplated by
this Agreement. LICENSEE shall effect reasonable security precautions to
safeguard such information from theft or from access by persons other than its
employees using it in accordance with this Agreement, and shall promptly notify
LICENSOR in writing of the nature of any unauthorized possession or use that
may take place.
(iii) This subsection (C) shall survive the
expiration or termination of this Agreement.
(D) Any and all products, patterns, sketches, designs,
swatches, technical assistance, know-how, and other such material and
information given to LICENSOR may be used by LICENSOR or its designees in
furtherance of any of its licensing and marketing programs. In no case,
however, shall such items and services be disclosed to parties other than NII,
ACC or LICENSOR'S Licensees.
9. LICENSOR'S Right to Appoint Representatives
LICENSOR shall have the right at any time to appoint in writing an
authorized representative or representatives who shall be empowered to act on
behalf of the LICENSOR with regard to any matter pertaining to this Agreement.
It is understood that such appointment shall be strictly limited to the
provisions of the written appointment, that the representative shall have no
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authority beyond the scope of such appointment, and that LICENSEE shall act
only in accordance with such written appointment.
10. Complete Agreement; No Oral Modification; Severability;
Surviving Provisions
(A) This Agreement is a complete statement of all
agreements among the parties with respect to its subject matter. Any amendment,
modification, alteration, change or waiver must be in writing. LICENSEE
acknowledges that LICENSOR has made no warranties or representations except
those expressly stated herein, if any.
(B) If any provision of this Agreement is for any reason
declared to be invalid or unenforceable, the validity of the remaining
provisions shall not be affected thereby.
(C) The recitals are hereby incorporated in this
Agreement. Paragraph headings are used solely for convenience and should not
be given any weight in the interpretation of this Agreement.
(D) Any provision of this Agreement which by its plain
import is intended to extend beyond expiration or termination, as the case may
be, shall survive expiration or termination of the Licensed Term.
11. Governing Law and Jurisdiction
All questions concerning this Agreement, but excluding those questions
falling under Article I, Paragraph 5(C), the rights and obligations of the
parties, the enforcement thereof, and the validity, effect, interpretation, and
construction thereof, shall
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be governed by and determined under the internal laws of the State of New York
except that any questions governed by the trademark statutes of the United
States of America shall be governed by and determined under such statutes.
LICENSEE hereby submits to the jurisdiction of the state and federal courts of
the State of New York for the resolution of any dispute or controversy which
may arise hereunder and agrees that it will not resort to the courts or other
governmental agencies of any other jurisdiction for the resolution of any such
dispute or controversy.
12. Warranties of Corporate Fitness
LICENSEE and LICENSOR each warrant the following: (i) that the
delivery of this Agreement has been duly authorized by all requisite corporate
action of its company; (ii) that the execution and delivery of this Agreement
does not violate its Articles of Incorporation or By-laws, or any contract or
commitment to which it is a party or by which it is bound; and (iii) that it is
not a party to any suit, action, administrative proceeding, or investigation
which, if successful, would have a material, adverse effect on its properties,
financial conditions, or business.
[INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have first caused this Agreement to be
executed as of the day and year first above written.
APPAREL MARKETING CORPORATION, a
Kentucky Corporation,
d/b/a Nautilus Wear International
By: /s/ Nicholas J. DeMarco
--------------------------------------
Nicholas J. DeMarco, President
"LICENSOR"
BOLLINGER INDUSTRIES, INC., a
Delaware Corporation
By: /s/ Glenn Bollinger
--------------------------------------
Glenn Bollinger, Chairman and CEO
"LICENSEE"
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EXHIBIT A
This EXHIBIT A depicts the authorized form in which the Licensed Mark must be
used in connection with the Licensed Products.
(Nautilus logo inserted into Original Copy.)
<PAGE> 67
EXHIBIT B
QUARTERLY TRADEMARK ROYALTY AND ADVERTISING PAYMENT REPORT
INTERNATIONAL APPAREL MARKETING CORPORATION
D/B/A Nautilus Wear International
<TABLE>
<S> <C>
LICENSEE: PRODUCT CATEGORY:
----------------------------------------------- --------------------------------------------
PERIOD: , 19 to , 19 , Quarter of the Year of the Licensed Term ("QTR")
----------------- ---- ----------------- ---- ---- ------
- - -----------------------------------------------------------------------------------------------------------------------------------
Total Due Licensor for QTR: TRP/GMTR: $
----------------
APG/GMAP: $
----------------
- - -----------------------------------------------------------------------------------------------------------------------------------
Please remit the Trademark Royal and Advertising Payment by separate checks made out to International Apparel Marketing
Corporation and mail to 80 West 40th Street, Suite 80, New York, NY 10018.
- - -----------------------------------------------------------------------------------------------------------------------------------
TRADEMARK ROYALTY PAYMENT ("TRP") & TRP-TO-DATE for LICENSED TERM YEAR ("LTY"):
Net Sales for QTR: $
----------------
Less: Discounted Goods ("DC") for QTR: $
----------------
$ @ 6% = $
---------------- ----------------
DC for QTR: $ @ 4% = $
---------------- ----------------
TRP for QTR: $
----------------
TRP for previous quarters: $
----------------
TRP-TO-DATE (for LTY): $
----------------
GUARANTEED MINIMUM TRADEMARK ROYALTY ("GMTR")
GMTR for LTY (A): $
----------------
TRP-TO-DATE (for LTY): %
----------------
(A) X (B) = GMTR PAYMENT: $
----------------
GMTR payments previous quarters $ (Include credits against Advance TM
---------------- Royalty)
GMTR-TO-DATE: $
----------------
TOTAL PREVIOUS PAYMENTS (WHETHER GMTR OR TRP) TO DATE ("PP"):
$
----------------
TRADEMARK ROYALTY DUE LICENSOR FOR QTR:
The greater of the GMTR-to-DATE or TRP-to-DATE: $
----------------
Less: PP: $
----------------
Less: TM Royalty Credit for QTR: $
----------------
AMOUNT DUE LICENSOR FOR QTR: $
----------------
</TABLE>
<PAGE> 68
<TABLE>
<S> <C>
ADVERTISING PAYMENT ("AP") & AP-TO-DATE (for LTY):
Net Sales for QTR: $
----------------
Less: DC for QTR: $
----------------
$ @ 3% = $
---------------- ----------------
DC for QTR: $ @ 2% = $
---------------- ----------------
AP for QTR: $
----------------
Previous AP for LTY: $
----------------
AP-TO-DATE for LTY: $
----------------
GUARANTEED MINIMUM ADVERTISING PAYMENT ("GMAP"):
GMAP for LTY (A): $
----------------
% of GMAP for QTR (B): $
----------------
(A) X (B) = GMAP PAYMENT: $
----------------
GMAP payments previous quarters: $
----------------
GMAP-TO-DATE: $
----------------
TOTAL PREVIOUS ADVERTISING PAYMENTS (WHETHER GMAP OR AP) TO DATE ("APP"):
$
----------------
ADVERTISING PAYMENT DUE LICENSOR FOR QTR:
The greater of the GMAP-to-DATE or AP-to-DATE $
----------------
Less: the APP: $
----------------
$
----------------
Less: Pre-Approved Adv. Deduction $
----------------
AMOUNT DUE LICENSOR FOR QTR: $
----------------
ADVERTISING EXPENSE REPORT
(Accounting of advertising done by licensee on its own behalf and AP deductions pre-approved by Licensor)
Publication/Use Date Description/Purpose Date Approved Cost
- - --------------------- --------------------------------------------------------- ------------- ----
Note: You must attach copies of all receipts/bills for the Advertising Expenditures or they will not be allowed.
CEO: Date: CFO: Date:
---------------------------------- --------------- ----------------------------- ------------------
</TABLE>
<PAGE> 69
EXHIBIT C
APPAREL MARKETING CORPORATION
d/b/a NAUTILUS WEAR INTERNATIONAL
LICENSED PRODUCT APPROVAL FORM
Page ____ of ____
<TABLE>
<S> <C>
LICENSEE: DATE:
------------------------------------------------------- ------------------------------
SUBMITTED BY: SEASON:
--------------------------------------------------- ----------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
DATE OF PRIOR LICENSOR'S
STYLE # DESCRIPTION SUBMISSION COMMENTS
- - ------- ----------- ---------- --------
</TABLE>
Note: Description should include the following: fabric, color, sizes, specs,
source code #, and color code #. Please attach swatches on separate page.
A = Approved as Submitted
T = Approved with modification; must resubmit making requested changes
D = Disapproved
Sizing of the styles must be in accordance with Figure Types and Size Ranges
(Fairchild Publications). Any approval herein granted shall not be construed
as a consent to infringe a third party's copyright, trademark, patent, or other
right and shall not survive the above season.
64
<PAGE> 70
EXHIBIT D
APPAREL MARKETING CORPORATION
d/b/a NAUTILUS WEAR INTERNATIONAL
LICENSED MARKS USE APPROVAL FORM
Page ____ of ____
LICENSEE:
------------------------------------------------------------
Submitted by:
-----------------------------------------------
Season: Date:
------------------------------ -----------------
If previously submitted (date):
-----------------------------
STYLE/IDENTIFICATION NUMBER:
-----------------------------------------
INTENDED USE AND INTENDED DURATION OF USE:
DESCRIPTION OF SUBMISSION: (submission to be attached)
SUBMISSION CREATED BY: (Name, Address & Phone Number)
- - -------------------------------------------------------------------------------
*** TO BE COMPLETED BY LICENSOR ***
Date Comments
------------- --------------------------------------------
LICENSOR:
------------- --------------------------------------------
NAUTILUS:
------------- --------------------------------------------
A = Approved
T = Approved with modification; must re-submit making requested changes
D = Disapproved
ADDITIONAL COMMENTS:
65
<PAGE> 71
EXHIBIT E
MINIMUM SALES REQUIREMENTS, GUARANTEED MINIMUM
TRADEMARK ROYALTIES AND GUARANTEED
MINIMUM ADVERTISING PAYMENTS SCHEDULE
The "First Year" = May 1, 1995 to August 31, 1996.
Minimum Sales Requirement = One Million Five Hundred Thousand Dollars
($1,500,000) in Net Sales;
Guaranteed Minimum Trademark Royalty = Seventy Five Thousand Dollars
($75,000);
Guaranteed Minimum Advertising Payment = Twenty Two Thousand Five
Hundred Dollars ($22,500);
The "Second Year" = September 1, 1996 to August 31, 1997.
Minimum Sales Requirement = Two Million Dollars ($2,000,000) in Net
Sales;
Guaranteed Minimum Trademark Royalty = One Hundred Thousand Dollars
($100,000);
Guaranteed Minimum Advertising Payment = Thirty Thousand Dollars
($30,000);
66
<PAGE> 72
EXHIBIT F
LICENSED PRODUCTS DEFINED
The products listed below under Category A and B, when bearing the Licensed
Marks, shall be considered "Licensed Products" for purposes of this Agreement.
Products may be added to the list from time to time upon the mutual agreement
of the parties set forth in writing and signed by both parties.
CATEGORY A
Weight Benches on a non-exclusive basis (Nautilus International Inc. shall have
the right to sell weight benches in the Territory during the Licensed
Term to the wholesale, retail, medical and institutional trade)
Exercise Mats
Weightlifting Bars
Dumbbell Sets (non-cast iron)
Jumpropes
Handgrips
Ankle Weights
Aerobic Steps
Neoprene Trimming Products
CATEGORY B
Cast Iron Weight Sets (e.g. 110 lbs., 175 lbs. and 310 lbs. sets, Cast Iron
plates - 3 lbs., 5 lbs., 10 lbs., 20 lbs. and Cast Iron Hex
Dumbbells);
Trampolines
67
<PAGE> 73
SCHEDULE 1
ABWEIGHT
BOLLINGER
BOLLINGER INDUSTRIES
BOLLINGER FITNESS PRODUCTS FOR EVERYBODY and Design
BOLLINGER HEALTHCARE (Stylized)
BRIGHTBELLS (Stylized)
BUNFIRMER
CAMLOCK (Stylized)
DENISE AUSTIN SUPER TUMMY TRIMMER
MISCELLANEOUS DESIGN (Fitness Man)
PROTEC (Stylized)
SATURN and Design
SOFTONE
SOLAR (Stylized)
STARLOCK (Stylized)
SOFTSTEP
TONE-UP 1-2-3
ULTRAARM
EXCELASTIC (Stylized)
PACER (Stylized)
SOFT-WEIGHTS
BODYMAT
DENISE AUSTIN
EASY GLIDER
HANNIBAL
KANG-A-RU
NOLAN RYAN
PORTA-GYM
PRO MAT
RIBCOR
ULTRAMAT
ZOOM OFF
68
<PAGE> 1
AMENDMENT TO LICENSE AGREEMENT
This Amendment to License Agreement ("Amendment") is made as of March
1, 1996, by and between (i) INTERNATIONAL APPAREL MARKETING CORPORATION, D/B/A
NAUTILUS WEAR INTERNATIONAL, a New York Corporation, having its principal
office at 80 West 40th Street, Suite 42, New York, NY 10018 ("LICENSOR"), and
(ii) BOLLINGER INDUSTRIES INC. a Delaware Corporation, having its principal
office at 222 West Airport Freeway, Irving, TX 75062 ("LICENSEE").
WHEREAS, LICENSOR and LICENSEE have entered into a License Agreement
executed on the 1st day of May, 1995 (hereinafter "License Agreement"); and
WHEREAS, LICENSOR and LICENSEE have agreed to amend the License
Agreement pursuant to this Amendment.
NOW, THEREFORE, in consideration of the promises and mutual covenants
and obligations hereinafter set forth, and notwithstanding anything in the
License Agreement to the contrary, the parties agree as follows:
1. Additions to Licensed Products:
The definition of Licensed Product as set forth in the License
Agreement shall be amended to include workout gloves and fitness belts (e.g.
gloves and belts designed for particular sports, for workout on specialized
exercise machinery, and for weightlifting, cross-training and aerobics).
2. Increase in Minimum Sales Volumes and Corresponding Guaranteed
Minimum Trademark and Advertising Payment:
1
<PAGE> 2
A. The Minimum Sales requirements set forth in Article III,
Paragraph 1 shall be amended to the following amounts:
First Year = One Million Nine Hundred Thousand Dollars
($1,900,000) in Net Sales; and
Second Year = Two Million Six Hundred and Twenty Five
Thousand Dollars ($2,625,000) in Net Sales.
B. The Guaranteed Minimum Trademark Royalties ("GMTR")
shall be amended as set forth below:
First Year = One Hundred and Three Thousand Dollars
($103,000);
Second Year = One Hundred and Forty-Three Thousand
Seven Hundred and Fifty Dollars ($143,750); and
C. The Guaranteed Minimum Advertising Payment ("GMAP")
shall be amended as set forth below:
First Year = Twenty Eight Thousand Five Hundred Dollars
($28,500); and
Second Year = Thirty Nine Thousand Three Hundred and
Seventy Five Dollars ($39,375).
D. LICENSEE chose and LICENSOR agreed to add the Minimum
Volume requirements for the glove and belt categories to the existing Minimum
Volumes for all other Licensed Products (the above numbers reflect the combined
totals); therefore, the royalty payments due thereon must be paid concurrently
with the royalty payments as scheduled for all Licensed Products, and the Term
of the License Agreement shall not extend beyond the
2
<PAGE> 3
existing Term. Because the date of this Amendment is after the payment date of
the First Year, first quarter royalties, the First Year, first quarter GMTR and
GMAP payments due on the glove and belt Licensed Products shall be added in
equal thirds to the second, third and fourth quarter royalty payments of the
First Year ($1,867 for the GMTR and $400 for the GMAP shall be added to each of
the three remaining quarterly payments of the First Year).
3. Trademark Royalty:
The Trademark Royalty due on the sale of any workout gloves
and fitness belts shall be (A) during the First Year of the Licensed Term,
seven (7%) for the first Four Hundred Thousand Dollars ($400,000) in Net Sales
thereof and five percent (5%) thereafter; and (B) during the Second Year of the
Licensed Term, seven (7%) for the first Six Hundred and Twenty Five Thousand
Dollars ($625,000) in Net Sales thereof and five percent (5%) thereafter.
4. Notice Requirement:
Notice, as set forth in Article XVI, Paragraph 6, shall be
deemed effective, in addition to all other forms of effective notice set forth
in said Paragraph, when forwarded by a nationally recognized overnight carrier.
5. Payment Due Date:
The due date for the all Trademark Royalty, Advertising
Payments, GMTR and GMAP shall be changed from the thirtieth (30th) day to the
twentieth (20th) day of the month immediately following the last day of the
quarter in which the Net Sales (on which the payment is being paid) are made.
This change is necessary to accommodate LICENSOR'S accounting schedule.
3
<PAGE> 4
6. Affirmation of License Agreement:
Except as specifically provided herein, all other terms and
conditions of the License Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above written.
INTERNATIONAL APPAREL MARKETING CORP.
By:
----------------------------------
Date:
---------------------
Nick DeMarco, President
BOLLINGER INDUSTRIES INC.
By: /s/ GLENN BOLLINGER
----------------------------------
Date: 2/18/96
---------------------
Glenn Bollinger, CEO
4
<PAGE> 1
INTERCREDITOR AND SUBORDINATION AGREEMENT
This Intercreditor and Subordination Agreement (this "Agreement"), is
entered into to be effective as of the 8th day of May, 1996, between
NATIONSBANK OF TEXAS, N.A., a national banking association, with its principal
place of business at 901 Main Street, 11th Floor, Dallas, Texas 75202 ("Senior
Lender"), and Glenn D. Bollinger ("Glenn"), Bobby D. Bollinger ("Bobby"), and
Dell Bollinger ("Dell") (collectively, the "Junior Lender").
1. The term "Senior Indebtedness" shall mean all loans,
obligations, indebtedness, or other liabilities, now existing or hereafter
arising, owing to Senior Lender by Bollinger Industries, L.P., a Texas limited
partnership ("Borrower"), including, but not limited to, all Obligations as
such term is defined in that certain Loan and Security Agreement dated
September 9, 1994, by and between Borrower and Senior Lender (as the same has
previously been amended and may hereafter be further amended, the "Loan
Agreement"). The Senior Indebtedness is secured in part by that certain Deed
of Trust, Assignment, Security Agreement and Financing Statement dated as of
May 8, 1996, executed by the Borrower in favor of Michael F. Hord, as trustee
for the benefit of the Senior Lender and recorded in the Real Property Records
of Dallas County, Texas (the "Senior Deed of Trust"), covering the real
property in Dallas County, Texas described on Exhibit A attached hereto and
incorporated herein by reference (the "Property").
2. The term "Junior Indebtedness" shall mean any and all loans,
obligations, indebtedness, or other liabilities, now existing or hereafter
arising, owing Junior Lender by Borrower, including, but not limited to,
amounts owing to Junior Lender pursuant to that certain promissory note dated
March, 1993, in the original principal amount of $500,000.00, as modified by
that certain Renewal, Extension and Modification Agreement dated as of April 6,
1993, between Bollinger Industries, Inc., a Texas corporation, and Sid Reisman
(the "Modification"), and as modified by that certain Assignment, Consent and
Amendment of Note and Deed of Trust dated as of October 1, 1993, by and among
Sid Reisman, Bollinger Industries, Inc., a Texas corporation, Bollinger
Industries, Inc., a Delaware corporation, and Borrower (the "Consent") (the
"Junior Lender Promissory Note"), originally made by Bollinger Industries,
Inc., a Texas corporation, and payable to the order of Sid Reisman and assigned
to Junior Lender pursuant to that certain Assignment of Note and Deed of Trust
dated as of December 15, 1993, recorded in Volume 94112, Page 05990 of the Real
Property Records of Dallas County, Texas (the "Assignment"), (ii) that certain
Deed of Trust dated May 13, 1993, executed by Bollinger Industries, Inc., a
Texas corporation for the benefit of Sid Reisman, recorded in Volume 93115,
Page 5605, of the Real Property Records of Dallas County, Texas (as amended by
the Modification and the Consent, the "Junior Deed of Trust") covering the
Property and assigned to Junior Lender pursuant to the Assignment, and (iii)
all other documents or instruments executed in connection therewith.
3. (a) The Junior Indebtedness and all liens, security
interests, pledges or other collateral securing repayment of the same,
including, without limitation, the liens evidenced by the Junior Deed of Trust,
shall be and hereby are subordinate and the payment and enforcement thereof is
deferred to any and all rights, claims, demands, indebtedness, actions, and
causes of
<PAGE> 2
action of any nature whatsoever that Senior Lender may now have or hereafter
incur against Borrower in any way arising out of or related to the Senior
Indebtedness; and
(b) Until the Senior Indebtedness is indefeasibly repaid
in full, Junior Lender will not assert, collect, or enforce the Junior
Indebtedness, exercise any remedies with respect to the Junior Indebtedness,
commence any proceedings to foreclose the Junior Deed of Trust, or in any way,
directly or indirectly, receive any payment from the Borrower (whether in cash,
property or otherwise) with respect to the Junior Indebtedness except as
provided in paragraph 6(f) below; and
(c) Junior Lender will pay Senior Lender forthwith, for
application upon the amount now or hereafter owing to Senior Lender by
Borrower, any amount (whether in cash, property or otherwise) Borrower pays to
Junior Lender with respect to the Junior Indebtedness, or which Junior Lender
receives from Borrower directly or indirectly in any way arising out of or
related to the Junior Indebtedness except as to payments Junior Lender is
entitled to receive as provided in paragraph 6(f) below.
4. If Junior Lender, contrary to this Agreement, should commence
or participate in any action or proceeding against Borrower in any way arising
out of or related to the Junior Indebtedness, Borrower may interpose as a
defense or dilatory plea the making of this Agreement, and Senior Lender may
intervene and interpose such defense or plea in Senior Lender's name or in the
name of Borrower. Should Junior Lender in any way attempt to enforce payment
of the Junior Indebtedness, or any part thereof, Senior Lender, in the name of
Borrower, or in Senior Lender's own name, may restrain Junior Lender from so
doing.
5. (a) Junior Lender irrevocably authorizes Senior Lender or
any person Senior Lender may designate to collect and receive all amounts
payable on the Junior Indebtedness (except payments Junior Lender is entitled
to receive under paragraph 6(f) below) and to file and prove claims therefor in
the name of Junior Lender or in Senior Lender's own name in bankruptcies,
receiverships and other similar proceedings. All such amounts, less Senior
Lender's reasonable expenses in connection therewith, shall be applied to the
payment of the amounts which Borrower owes Senior Lender, and any excess shall
be paid over to Junior Lender.
(b) Upon payment in full of all Senior Indebtedness and
until the Junior Indebtedness has been paid in full, the Junior Lender shall be
subrogated to the rights of the Senior Lender to receive payments and
distributions with respect to the Senior Indebtedness to the extent that
payments and distributions with respect to the Junior Indebtedness otherwise
payable to the Junior Lender have been applied to payment of the Senior
Indebtedness in accordance with the provisions of this Agreement. The
subordination provisions of this Agreement define the relative rights of the
Junior Lender and the Senior Lender and do not and shall not impair the
obligation of the Borrower to pay the Junior Indebtedness to the Junior Lender,
as and when due and payable, except as provided herein.
2
<PAGE> 3
6. Junior Lender hereby represents and warrants that:
(a) The Junior Indebtedness is not and will not be
subordinated or assigned (other than to third parties who have agreed
to become bound by the terms of this Agreement) except to Senior
Lender;
(b) Any instruments which at any time evidence the Junior
Indebtedness or any part thereof shall state that their payment is
subject to the provisions of this Agreement;
(c) The Junior Lender and Borrower shall not materially
or in any way adverse to Senior Lender modify or amend the Junior
Indebtedness Documents without the prior written consent of the Senior
Lender; and
(d) Borrower shall not, without Senior Lender's prior
written consent, give Junior Lender any additional collateral as
security for the payment thereof, deliver to Junior Lender any
negotiable instruments as evidence of the Junior Indebtedness, or any
part thereof, or lend any sums to Junior Lender, or in any way,
directly or indirectly, transfer or pay any money to Junior Lender or
pay to Junior Lender any sum on account of the Junior Indebtedness,
except as otherwise permitted herein.
(e) Regardless of the time or order of attachment, or the
time, order, or manner of perfection, or the time or order of filing
of deeds of trust, financing statements or other documents or
instruments, the only lien Junior Lender possesses or shall possess on
the assets of Borrower is the lien, pursuant to the Junior Deed of
Trust, on the Property, and any buildings or permanent improvements
thereon, and such lien is subject, junior, and subordinate to Senior
Lender's lien on Borrower's assets including the Property. Junior
Lender shall not attempt to avoid any lien securing the Senior
Indebtedness of Senior Lender in connection with any bankruptcy
proceeding against Borrower. This Agreement will be filed of record
in the official real property records of Dallas County, Texas, and if
Senior Lender so chooses, a copy may also be filed in the applicable
UCC records.
(f) The Junior Indebtedness, the Junior Indebtedness
Documents, and the liens securing same, will not be enforced against
the Property, and, except as hereafter provided in this paragraph, may
not be placed in default or foreclosed until the Senior Indebtedness
is repaid in full. Unless and until the Senior Indebtedness is repaid
in full, Junior Lender shall not, except as hereafter provided in this
paragraph, pursue or exercise any right or remedy against Borrower
available to it in the event of a default by Borrower on the Junior
Indebtedness, including, without limitation, the institution of any
legal action or proceeding against Borrower, the foreclosure or
attempted foreclosure (judicially or non-judicially) of its junior
lien on the Property, or the obtaining of any judgment or order
against Borrower to enforce the collection of any Junior Indebtedness.
Contrary provisions of this Agreement notwithstanding, and so long as
no default (or event which, with the giving of notice or the passage
of time, or both, would constitute a default) has occurred and is
continuing under the Senior Indebtedness Documents, Junior Lender may
receive from Borrower (to the extent permitted under the Loan
Agreement) regularly scheduled
3
<PAGE> 4
monthly payments of accrued interest on the Junior Indebtedness Note,
unless the making of any such payment would result in the occurrence
of a default (or an event which, with the giving of notice or the
passage of time, or both, would constitute a default) under the Senior
Indebtedness Documents.
7. In the event that any direct or indirect payment or
distribution by Borrower (in cash, property or otherwise) shall be received by
Junior Lender in contravention of the provisions of this Subordination
Agreement or the Loan Agreement, then such payment or distribution shall be
held in trust for the benefit of, and shall promptly be paid over and delivered
to Senior Lender. Similarly, if payment to Junior Lender by Borrower would
result in an event which in itself or, with notice or passage of time or both
would, constitute an Event of Default under the Senior Lender Documents, then
Junior Lender may not receive, or retain, any such payment of principal,
interest, or otherwise from Borrower.
8. For the purposes of this Agreement, the Senior Indebtedness
shall not be deemed to have been paid in full and no provisions shall be deemed
to have been made for such payment, unless Senior Lender shall have received
cash equal to the amount of all Senior Indebtedness at the time outstanding and
the Senior Lender shall have no further obligation to advance funds to or for
the benefit of Borrower. This Agreement shall remain in full force and effect
until the Junior Deed of Trust has been terminated and 91 days shall have
passed after the payment in full of all Senior Indebtedness or Junior
Indebtedness without the filing of any petition in bankruptcy by or against
Borrower or the occurrence of any other insolvency, receivership or similar
proceeding; or, if any bankruptcy or other such proceeding has been filed by or
against Borrower, then this Agreement shall not terminate, and shall remain in
full force and effect, until the Junior Deed of Trust has been terminated and
any such proceeding shall have been dismissed or a determination shall have
been made by the court in such proceeding that Senior Lender is not required to
repay any amounts received in payment of the Senior Indebtedness and such
dismissal or determination shall have become final and non-reviewable by appeal
or otherwise. If Borrower shall become subject to a proceeding under the
Bankruptcy Code and Senior Lender shall desire to permit the use of cash
collateral or to provide financing to Borrower, under either Section 363 or 364
of the Bankruptcy Code, with or without obtaining a priority lien under Section
364(d), Junior Lender agrees as follows: (i) adequate notice to Junior Lender
shall have been received for such financing if Junior Lender receives notice at
least five (5) business days prior to the entry of the order approving such
financing; and (ii) no objection will be raised by Junior Lender to any such
financing on the grounds of failure to provide "adequate protection" of Junior
Lender's junior lien position, if any, subject to Senior Lender's senior lien
interest, in the Property. For purposes of this paragraph, notice of a
proposed financing or use of cash collateral shall be deemed received upon the
sending of notice to that effect by overnight delivery service, or hand
delivery to Junior Lender at the address indicated in this Agreement.
9. Senior Lender may grant extensions of the time of payment or
performance to, and make compromises and settlements with, Borrower and all
other persons, without giving notice to or obtaining the consent of Junior
Lender or Borrower, and without affecting the agreements of Junior Lender or
Borrower hereunder; and no extension, acceptance, modification, forbearance or
release in respect of any Senior Indebtedness, no release, modification, or
substitution of any
4
<PAGE> 5
security therefor, and no waiver or release of any right of Senior Lender under
the terms of this Agreement shall be or be held to be a release of Junior
Lender from any obligations hereunder, notice of any and all of which are
hereby waived by Junior Lender. Junior Lender waives notice of acceptance of
this Agreement, notice of any default by Borrower, and all other notices to
which Junior Lender otherwise might be entitled, except as provided in this
Agreement.
10. Nothing herein contained shall obligate Senior Lender to grant
credit to or continue Senior Lender's financing arrangements with Borrower.
This Agreement may not be terminated as long as any obligations of Borrower to
Senior Lender are outstanding and unpaid or Senior Lender has any obligation to
advance funds to or for the benefit of Borrower. This Agreement shall bind and
inure to the benefit of the respective heirs, legal representatives, successors
and permitted assigns of Junior Lender and Borrower, and to Senior Lender's
successors and assigns, as well as any third-party lending institution which
refinances Borrower's obligations to Senior Lender.
11. The priorities between Senior Lender and Junior Lender set
forth herein shall govern the ultimate disposition of casualty insurance and
condemnation proceeds. Senior Lender shall, subject to Borrower's rights under
its agreement with Senior Lender, have the sole and exclusive right, as against
Junior Lender, to adjust settlement of insurance claims in the event of any
covered loss, theft or destruction of Borrower's assets or to negotiate with
condemning authorities the settlement of any condemnation proceedings. All
proceeds of such insurance shall inure to Senior Lender as named in any
applicable loss payable endorsement, and Junior Lender shall cooperate (if
necessary) in a reasonable manner in effecting the payment of insurance
proceeds to Senior Lender. All condemnation proceeds shall inure to Senior
Lender. After the Senior Indebtedness is paid in full, Junior Lender shall be
entitled to and may enforce its rights (if any) relating to the insurance
proceeds and condemnation proceeds and Senior Lender will pay over to Junior
Lender any sums it had received in excess of the Senior Indebtedness.
12. The Senior Lender and Junior Lender each agree to execute and
deliver to the other such other documents, instruments, agreements, or writings
as the Senior Lender or Junior Lender may reasonably request at any time or
from time to time in order to effectuate the terms and conditions of this
Agreement.
13. All notices and other communications hereunder shall be given
in writing and shall be deemed to have been given (i) if personally delivered
or delivered by overnight mail, charges prepaid; or (ii) if sent by certified
mail, postage prepaid, 48 hours after depositing same with the U. S. Postal
Service; and addressed as follows:
If to Senior Lender:
NationsBank of Texas, N.A.
901 Main Street, 11th Floor
Dallas, Texas 75202
Attn: Greg Nicholas
5
<PAGE> 6
If to Junior Lender:
c/o Glenn D. Bollinger
222 West Airport Freeway
Irving, Texas 75062
Attn: Glenn D. Bollinger
Either party hereto may change its address for notice hereunder by providing
ten (10) days' prior written notice to the other party in accordance with the
terms hereof.
14. The above provisions relating to subordination are solely for
the purpose of defining the relative rights of Senior Lender as the holder of
Senior Indebtedness, on the one hand, and Junior Lender as the holder of Junior
Indebtedness, on the other hand, and nothing contained herein shall impair, as
between Borrower and Junior Lender, the obligation of Borrower to pay the
principal amount of and interest on the Junior Indebtedness.
15. Junior Lender covenants and agrees for the benefit of Senior
Lender and any future holder of the Senior Indebtedness, that the aforesaid
subordination provisions constitute a present, continuing, and irrevocable
offer and an inducement and consideration to Senior Lender as holder of the
Senior Indebtedness. Senior Lender shall be deemed conclusively to have relied
upon said subordination provisions in continuing to hold such Senior
Indebtedness. This Agreement by Junior Lender is offered to Senior Lender as
consideration for the acknowledgment by Senior Lender of the subordinate lien
Junior Lender has been granted on the Property and improvements thereon and
personally associated therewith (but on no other property of Borrower), which
junior lien would otherwise be prohibited by Senior Lender under the terms of
its Senior Indebtedness documentation (including the Senior Lender Mortgage)
with Borrower.
16. The provisions of this Agreement are independent of and
separable from each other, and no such provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other
such provision may be invalid or unenforceable in whole or in part. If any
provision of this Agreement is prohibited or unenforceable in any jurisdiction,
such provision shall be ineffective in such jurisdiction only to the extent of
such prohibition or unenforceability, and such prohibition or unenforceability
shall not invalidate the balance of such provision to the extent it is not
prohibited or unenforceable nor render prohibited or unenforceable such
provision in any other jurisdiction.
17. Neither Senior Lender nor Junior Lender, nor any of their
respective directors, officers, agents or employees, shall be responsible to
the other or to any other person for (i) Borrower's solvency, financial
condition or ability to repay its indebtedness, (ii) any oral or written
statement of Borrower, or (iii) the validity or enforceability of such
indebtedness, any promissory note, mortgage, security agreement or the security
interests and liens granted by Borrower to Senior Lender or Junior Lender.
Both Senior Lender and Junior Lender have entered into their respective
financing arrangements with Borrower based upon independent investigation, and
neither Senior Lender nor Junior Lender makes any warranty or representation to
the other, nor relies upon any warranty or representation of the other.
6
<PAGE> 7
18. This Agreement constitutes the entire agreement and
understanding between the parties hereto with respect to the relationship
between Junior Lender and Senior Lender.
19. The Senior Lender and the Junior Lender agree that any action
or proceeding to enforce or arising out of this Agreement may be commenced in
the courts of Dallas County, State of Texas, and in the Northern District of
Texas, and the Junior Lender waives personal service of process and agrees that
a summons and complaint commencing an action or proceeding in any such court
shall be properly served and shall confer personal jurisdiction if served by
registered or certified mail to the Junior Lender, or as otherwise provided by
the laws of such state or the United States.
20. THE PARTIES TO THIS AGREEMENT ACKNOWLEDGE AND AGREE THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE RELATIONSHIP
ESTABLISHED HEREBY WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES, AND
THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT GROWING OUT OF ANY SUCH
CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE
SITTING WITHOUT JURY. TRIAL BY A JUDGE SITTING WITHOUT A JURY WILL FURTHER
RESULT IN THE AVOIDANCE OF DELAYS, A STREAMLINING OF THE PROCEEDINGS INVOLVED
AND, AS A RESULT, WILL MINIMIZE THE EXPENSE OF ANY SUCH LAWSUIT FOR THE BENEFIT
OF EACH PARTY TO THIS AGREEMENT. JUNIOR LENDER AND SENIOR LENDER EACH HEREBY
WAIVES TRIAL BY JURY, RIGHTS OF SETOFF, AND THE RIGHT TO IMPOSE COUNTERCLAIMS
(EXCEPT FOR COMPULSORY COUNTERCLAIMS) IN ANY LITIGATION IN ANY COURT WITH
RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE SENIOR
INDEBTEDNESS, THE JUNIOR INDEBTEDNESS, OR ANY INSTRUMENT OR DOCUMENT DELIVERED
PURSUANT HERETO OR THERETO, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING,
BETWEEN THE PARTIES HERETO. SENIOR LENDER AND JUNIOR LENDER HEREBY CONFIRM
THAT THE FOREGOING WAIVERS ARE INFORMED AND FREELY MADE.
21. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON OR
ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW). THE RULES OF PRACTICE AND PROCEDURE FOR THE
ARBITRATION OF COMMERCIAL DISPUTES OF ENDISPUTE, INC., A/K/A J.A.M.S./ENDISPUTE
("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
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
i. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN
THE CITY OF THE BORROWER'S DOMICILE AT TIME OF THIS AGREEMENT'S
7
<PAGE> 8
EXECUTION AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR;
IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE.
ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE
DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A
SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH
HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
ii. RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE
APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED
IN THIS AGREEMENT; OR (II) BE A WAIVER BY THE LENDER OF THE PROTECTION
AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT
STATE LAW; OR (III) LIMIT THE RIGHT OF THE LENDER HERETO (A) TO
EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR
(B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR
(C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS
(BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE
APPOINTMENT OF A RECEIVER. THE LENDER MAY EXERCISE SUCH SELF HELP
RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY
ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT. NEITHER
THIS EXERCISE OF 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 OF ANY PARTY, INCLUDING THE
CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
22. This Agreement may be executed in any number of counterparts
and by the parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same Agreement.
23. The prevailing party in any litigation brought with respect to
the subject matter of this Agreement shall be entitled to the recovery of its
legal fees and expenses with respect to such litigation.
24. Junior Lender shall endeavor to promptly notify Senior Lender
in writing in the event of any non- payment or non-performance by Borrower
under the Junior Indebtedness Documents.
25. The terms and conditions of this Agreement may be specifically
enforced.
[Next following page is the signature page]
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement on the
dates specified in the acknowledgments below to be effective as of the date
first written above.
NATIONSBANK OF TEXAS, N.A.
By: /s/ Greg Nicholas
-------------------------------
Name: Greg Nicholas
Title: Vice President
/s/ Glenn D. Bollinger
-------------------------------
GLENN D. BOLLINGER
/s/ Bobby D. Bollinger
-------------------------------
BOBBY D. BOLLINGER
/s/ Dell Bollinger
-------------------------------
DELL BOLLINGER
9
<PAGE> 10
The undersigned acknowledges and agrees to the foregoing terms and
conditions of this Agreement and agrees that: (A) the undersigned will not
make any payment or distribution or otherwise take any action which would
result in a breach or violation hereof or a default hereunder and (B) a breach
or violation hereof or default hereunder shall, at the option of the Senior
Lender, constitute an Event of Default under the Senior Deed of Trust and shall
entitle the Senior Lender to declare all or any part of the Senior Indebtedness
immediately due and payable and to otherwise exercise all of the rights and
remedies available to the Senior Lender with respect thereto.
BOLLINGER INDUSTRIES, L.P.
By: Bollinger Operating Corp.,
a Nevada corporation, its
general partner
By: /s/ Glenn D. Bollinger
-----------------------------------------
Name: Glenn D. Bollinger
Title: Chairman and Chief Executive Officer
10
<PAGE> 11
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on June 19, 1996, by Greg
Nicholas, Vice President of NationsBank of Texas, N.A., a national banking
association, on behalf of such national banking association.
[S E A L]
My Commission Expires: /s/ Donna M. Malizia
-------------------------------
Notary Public in and for
the State of Texas
-------------------------------
11/9/98 Printed Name: Donna M. Malizia
- - ------- -------------------------------
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on June 18, 1996, by Glenn
D. Bollinger.
[S E A L]
My Commission Expires: /s/ Valerie A. Romberg
--------------------------------
Notary Public in and for
the State of Texas
2-26-99 Printed Name: Valerie A. Romberg
- - ------- --------------------------------
11
<PAGE> 12
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on June 18, 1996, by Bobby
D. Bollinger.
[S E A L]
My Commission Expires: /s/ Valerie A. Romberg
--------------------------------
Notary Public in and for
the State of Texas
2-26-99 Printed Name: Valerie A. Romberg
- - ------- -------------------
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on June 18, 1996, by Dell Bollinger.
[S E A L]
My Commission Expires: /s/ Valerie A. Romberg
--------------------------------
Notary Public in and for
the State of Texas
2-26-99 Printed Name: Valerie A. Romberg
- - ------- ------------------
12
<PAGE> 13
EXHIBIT A
The Real Property
Subject property on Southwest corner of Airport Freeway and Shoaf Drive and is
known as 222 West Airport Freeway, Irving, Texas. Subject property is legally
described as:
BEING a tract of land out of the J.C. Read Survey, Abstract No. 1182, in the
City of Irving, Dallas County, Texas, being more particularly described by
metes and bounds as follows:
BEGINNING at a point at the intersection at South line of State Highway 183
with the West line of Shoaf Drive (a 50 foot wide street);
THENCE South 00degrees, 34 minutes 42 seconds West along said West line of
Shoaf Drive for a distance of 413.48 feet to a point for corner;
THENCE North 89degrees, 38 minutes, 02 seconds West for a distance of 174.83
feet to a point for corner;
THENCE North 00degrees, 28 minutes, 38 seconds East for 413.48 feet to a point
in the South line of State Highway 183 for corner;
THENCE South 89degrees, 38 minutes, 00 seconds East along said South line of
State Highway 183 for a distance of 175.56 feet to place of beginning.
<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE DATA
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Earnings (loss) from continuing operations $ (6,861,406) $ 594,176 $ 1,826,045
Loss from discontinued operations (1,361,954) (524,914) (23,270)
------------ ------------ ------------
Net earnings (loss) $ (8,223,360) $ 69,262 $ 1,802,775
============ ============ ============
Weighted average number of common shares 3,710,484 3,669,577 2,800,160
Net effect of dilutive stock options
based on the treasury stock method
(using the initial public offering
price of $12.50 per share and assuming
that all options had been outstanding
for all periods prior to the IPO on
November 17, 1993) (1) -- 297,054 278,915
Shares used for computation 3,710,484 3,966,631 3,079,075
============ ============ ============
Per Share Data:
Earnings (loss) from continuing operations $ (1.85) $ .15 $ .59
Net earnings (loss) $ (2.22) $ .02 $ .59
============ ============ ============
</TABLE>
Note - fully diluted and primary calculations are the same.
(1) Dilutive stock options for the fiscal year ended March 31, 1996, were not
included because of the net loss.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted fro the Company's
Consolidated Balance Sheets, Consolidated Statements of Earnings, and Schedule
II Valuation and Qualifying Accounts as of and for the fiscal year ended March
31, 1996 shown elsewhere in this report and is qualified in it's entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 408,871
<SECURITIES> 0
<RECEIVABLES> 18,344,827
<ALLOWANCES> 457,829
<INVENTORY> 30,112,934
<CURRENT-ASSETS> 53,597,137
<PP&E> 3,965,996
<DEPRECIATION> 1,950,714
<TOTAL-ASSETS> 58,380,903
<CURRENT-LIABILITIES> 45,275,289
<BONDS> 0
<COMMON> 40,001
0
0
<OTHER-SE> 12,422,527
<TOTAL-LIABILITY-AND-EQUITY> 58,380,903
<SALES> 80,300,431
<TOTAL-REVENUES> 80,300,431
<CGS> 62,197,227
<TOTAL-COSTS> 23,951,822
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (311,514)
<INTEREST-EXPENSE> 2,251,807
<INCOME-PRETAX> (7,996,504)
<INCOME-TAX> (1,135,098)
<INCOME-CONTINUING> (6,861,406)
<DISCONTINUED> (1,361,954)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,223,360)
<EPS-PRIMARY> (2.22)
<EPS-DILUTED> (2.22)
</TABLE>
