<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1997
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 1-12868
JALATE, LTD.
(Exact name of registrant as specified in its charter)
California 95-4121885
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1675 South Alameda Street, Los Angeles, California 90021
(Address of principal executive offices) (Zip code)
(213) 765-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of
the Act:
Common Stock American Stock Exchange
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
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 ___
The number of shares outstanding of the registrant's Common Stock, no par value,
at August 4, 1997 was 3,403,000 shares.
This Form 10-Q contains 19 pages.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
JALATE, LTD.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 2 97
Due from factor 1,227 2,767
Trade accounts receivable, less allowance for
doubtful receivables of $1,186 in 1997 and
$358 in 1996 339 821
Inventories 5,364 3,572
Refundable income taxes 15 120
Prepaid expenses and other current assets 393 170
------- -------
Total current assets 7,340 7,547
Property and equipment, at cost, net 1,019 1,050
Investment in joint venture 623 482
Other assets, at cost 105 94
------- -------
$ 9,087 9,173
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 760 684
Trade accounts payable 4,123 2,871
Accrued expenses 360 254
------- -------
Total current liabilities 5,243 3,809
------- -------
Shareholders' equity:
Preferred stock, no par value. Authorized 3,000,000
shares; none issued and outstanding -- --
Common stock, no par value. Authorized 20,000,000
shares; issued and outstanding 3,403,000 shares 5,311 5,311
Retained earnings (1,467) 53
------- -------
Total shareholders' equity 3,844 5,364
------- -------
$ 9,087 9,173
======= =======
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE> 3
JALATE, LTD.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands except earnings per share and
weighted average shares outstanding)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 14,646 $ 15,567 $ 28,565 $ 30,315
Cost of goods sold 11,774 11,567 21,865 22,407
-------- -------- -------- --------
Gross Profit 2,872 4,000 6,700 7,908
Operating expenses 4,319 3,636 8,207 7,253
-------- -------- -------- --------
Earnings (loss) from operations (1,447) 364 (1,507) 655
Other (Income) expense:
Interest expense 209 161 341 320
Equity in earnings of joint venture (170) (121) (327) (206)
-------- -------- -------- --------
Total other expense 39 40 14 114
-------- -------- -------- --------
Net earnings (loss) $ (1,486) $ 324 $ (1,521) $ 541
======== ======== ======== ========
Net earnings (loss) per common share and
common equivalent shares $ (0.44) $ 0.10 $ (0.45) $ 0.16
======== ======== ======== ========
Weighted average common and common equivalent shares
outstanding 3,403 3,403 3,403 3,397
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE> 4
JALATE, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
June 30,
1997 1996
------- -------
<S> <C> <C>
Cash flow from operating activities:
Net earnings (loss) $(1,521) $ 541
------- -------
Adjustments to reconcile net earnings (loss) to net cash
used in operating activities:
Depreciation and amortization 215 180
Undistributed earnings in joint venture (141) (206)
Changes in assets and liabilities
(Increase) decrease in:
Due from factor, net 1,564 (3,257)
Trade accounts receivable 459 208
Inventories (1,792) 1,510
Prepaid expenses and other current assets (223) 10
Due from officers -- 106
Refundable income taxes 105 550
Other assets (11) 1
Increase (decrease) in:
Trade accounts payable 1,252 569
Accrued expenses 106 56
Due to customers -- 1
------- -------
Total adjustments 1,534 (272)
------- -------
Net cash provided by operating activities 13 269
------- -------
Cash flows from investing activities
Capital expenditures (184) (366)
------- -------
Net cash used in investing activities (184) (366)
------- -------
Cash flows from financing activities:
Net proceeds from note payable to bank 76 135
------- -------
Net cash provided by financing activities 76 135
======= =======
Net increase (decrease) in cash (95) 38
Cash at beginning of period 97 92
------- -------
Cash at end of period $ 2 $ 130
======= =======
Supplemental disclosures of cash flow information
Cash paid during the period for Taxes -- --
Interest $ 341 $ 321
======= =======
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE> 5
LINROZ MANUFACTURING COMPANY L.P.
Notes to Condensed Financial Statements
(Unaudited)
1. General
The unaudited condensed financial statements have been prepared on the
same basis as the audited financial statements and, in the opinion of
management, reflect all adjustments (consisting of normal recurring adjustments)
necessary for a full presentation for each of the periods presented. The results
of operations for interim periods are not necessarily indicative of results to
be achieved for full fiscal years.
As contemplated by the Securities and Exchange Commission under Rule 10-01 of
Regulation 8-X of the accompanying financial statements and notes have been
condensed and do not contain certain information that will be included in the
Company's annual financial statements and notify thereto. For further
information, refer to the financial statements and related notes for the year
ending December 31, 1996, included in Jalate's, Limited Annual Report and Form
10-K.
<PAGE> 6
LINROZ MANUFACTURING COMPANY, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
UNAUDITED
<S> <C> <C>
Current Assets:
$ 679,000 $ 421,000
Cash
Accounts receivable from Jalate, Ltd. 115,000 95,000
Prepaid expenses and other current assets 5,000 37,000
---------- ----------
Total current assets 799,000 553,000
Property and equipment, at cost, net 870,000 915,000
Other assets, at cost 20,000 20,000
---------- ----------
$1,689,000 $1,488,000
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities of long term debt $ 116,000 $ 111,000
Trade accounts payable 18,000 50,000
Accrued expenses and other liabilities 56,000 42,000
---------- ----------
Total current liabilities 190,000 203,000
Long-term debt, less current maturities 262,000 321,000
Partners' capital 1,237,000 964,000
---------- ----------
$1,689,000 $1,488,000
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE> 7
LINROZ MANUFACTURING COMPANY, L.P.
CONDENSED STATEMENTS OF EARNINGS
FOR SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net sales $2,284,000 $1,834,000
Cost of sales 1,432,000 1,223,000
---------- ----------
Gross profit 852,000 611,000
Operating expenses 180,000 176,000
---------- ----------
Earnings from operations 672,000 435,000
Interest expense, net 19,000 24,000
---------- ----------
Net earnings $ 653,000 $ 411,000
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE> 8
LINROZ MANUFACTURING COMPANY, L.P.
STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 653,000 $ 411,000
Adjustments to reconcile net earnings to net cash provided by
operating activities
Depreciation and amortization of property and equipment 117,000 101,000
Changes in assets and liabilities:
(Increases) decreases in:
Accounts receivables from Jalate, Ltd. (20,000) (45,000)
Prepaid expense 25,000 20,000
Other assets 6,000 --
Increases (decreases) in:
Accounts payable 7,000 (14,000)
Accrued expenses (2,000) 13,000
Other current liabilities (18,000) (44,000)
--------- ---------
Net cash provided by operating activities 768,000 441,000
Cash flows from investing activities - capital expenditures (71,000) (38,000)
Cash flows from financing activities:
Principal payments on long-term debt (59,000) (54,000)
Distributions to partners (380,000) --
--------- ---------
Net cash used in financing activities (439,000) (54,000)
--------- ---------
Net increase in cash 258,000 349,000
Cash at beginning of year 421,000 121,000
--------- ---------
Cash at end of period ended June 30,1997 $ 679,000 $ 471,000
========= =========
Supplemental disclosures of cash flow information - cash paid
during the year to date period ended June 30 for interest $ 19,000 $ 24,000
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE> 9
JALATE, LTD.
Notes to Condensed Financial Statements
(Unaudited)
1. General
The unaudited condensed financial statements have been prepared on the
same basis as the audited financial statements and, in the opinion of
management, reflect all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation for each of the periods
presented. The results of operations for interim periods are not
necessarily indicative of results to be achieved for full fiscal years.
As contemplated by the Securities and Exchange Commission under Rule
10-01 of Regulation S-X, the accompanying financial statements and
notes have been condensed and do not contain certain information that
will be included in the Company's annual financial statements and notes
thereto. For further information, refer to the financial statements and
related notes for the year ended December 31, 1996 included in the
Company's Annual Report on Form 10-K.
2. Income Taxes
Income taxes for the interim periods were computed using the effective
tax rate estimated to be applicable for the full fiscal year, which is
subject to ongoing review and evaluation by management. As of June 30,
1997, management's estimate of the 1997 effective tax rate is zero.
3. Earnings per Share
Net earnings (loss) per share is based on the weighted average number
of shares of Common Stock and Common Stock equivalents outstanding.
4. Inventories
A summary of inventories at June 30, 1997 is as follows:
<TABLE>
<S> <C>
Piece Goods and Trim $ 1,798,000
Work in Process 1,579,000
Finished Goods 1,987,000
-----------
$ 5,364,000
===========
</TABLE>
5. Investment in Joint Venture
In November 1994, the Company entered into a manufacturing joint
venture (Joint Venture) with an affiliate of its largest sewing
contractor (the Partner) to improve the efficiency, quality and cost of
its products. The Joint Venture is a California Limited Partnership.
The Company and the Partner each are equal limited partners and each
hold one-half of the outstanding capital stock of the sole general
partner, a California corporation. The Joint Venture commenced
operations in May 1995.
For the six months ended June 30,1997 and 1996, purchases from the
Joint Venture aggregated $2,240,000 and $1,828,000, respectively. The
Company had accounts payable to the Joint Venture for purchases of
$115,000 and $95,000 at June 30, 1997 and 1996, respectively.
<PAGE> 10
The table below contains the summarized financial information of the
Joint Venture:
<TABLE>
<CAPTION>
Six months ended
June 30
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Net Sales $2,284,000 $1,834,000
Gross profit 852,000 611,000
Operating Expenses 180,000 176,000
Net earnings 653,000 411,000
========== ==========
</TABLE>
<TABLE>
<CAPTION>
June 30, 1997 Dec 31, 1996
------------- ------------
(Unaudited)
<S> <C> <C>
Current assets $ 799,000 553,000
Non current assets 890,000 935,000
---------- ----------
Total assets 1,689,000 $1,488,000
========== ==========
Current liabilities $ 190,000 $ 203,000
Long -term debt 262,000 321,000
---------- ----------
Total liabilities 452,000 524,000
Partners' capital 1,237,000 964,000
---------- ----------
$1,689,000 $1,488,000
========== ==========
</TABLE>
6. Adoption of Accounting Standards.
EARNINGS PER SHARE. The Financial Accounting Standards Board issued
Statement No.128 ("FASB 128"), in February 1997. FASB 128 is effective
for both interim and annual periods ending after December 15, 1997. The
Company will adopt FASB 128 in the fourth quarter of 1997. FASB 128
requires the presentation of "Basic" earnings per share which
represents income available to common shareholders divided by the
weighted average number of common shares outstanding for the period. A
dual presentation of "Diluted" earnings per share will also be
required. The Diluted presentation is similar to the current earnings
per share presentation. Management believes the adoption of FASB 128
will not have a material impact on the Company's financial position or
results of operations.
<PAGE> 11
ITEM 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
ADDRESSED IN THIS ITEM 2 CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED,
AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 AS AMENDED. SUCH
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO A VARIETY OF RISKS AND
UNCERTAINTIES, INCLUDING THOSE DISCUSSED BELOW UNDER THE HEADING
"FACTORS THAT MAY AFFECT FUTURE RESULTS" AND ELSEWHERE IN THIS REPORT
ON FORM 10-Q THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE ANTICIPATED BY THE COMPANY'S MANAGEMENT. THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 (THE "ACT") PROVIDES CERTAIN "SAFE
HARBOR" PROVISIONS FOR FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING
STATEMENTS MADE IN THIS QUARTERLY REPORT ON FORM 10-Q ARE MADE PURSUANT
TO THE ACT.
<PAGE> 12
The following table sets forth, for the periods indicated, the
percentage which certain items in the statements of operations data
bear to net sales and the percentage dollar increase (decrease) of such
items from period to period .
JALATE, LTD.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
Percent of Net Sales % Dollar % Dollar
Increase Increase
1997 1996 Decrease 1997 1996 Decrease
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100% 100% -5.9% 100% 100% -5.8%
Cost of goods sold (80.4) (74.3) 1.8 (76.5) (73.9) -2.4
------ ----- ------ ----- ----- ------
Gross profit 19.6 25.7 -28.2% 23.5 26.1 -15.3%
Operating expenses (29.5) (23.3) -18.8% (28.7) (23.9) 13.1%
------ ----- ----- ------ ----- -----
Earnings (loss) from operations (9.9) 2.4 - (5.3) 2.2 --
Interest expense (1.4) (1.0) -31.3% (1.2) (1.1) 6.9%
Equity in earnings of joint venture 1.2 0.8 40.5 1.1 0.7 58.3%
----- ----- ----- ------ ----- ------
Earnings (loss) before income taxes (10.1%) 2.1% - (5.3%) 1.8 --
===== ===== ===== ====== ===== ======
</TABLE>
GROSS SALES. Gross sales decreased to $16,101,000 for the three
months ended June 30, 1997 from $16,742,000 for the comparable period
for fiscal 1996, a decrease of 3.9%, and gross sales decreased to
$31,149,000 for the six months ended June 30, 1997 from $32,760,000 for
the comparable period of fiscal 1996, a decrease of 4.9%. The decrease
in gross sales for the six month period was due to a decrease in the
volume of apparel sold to 3,418 from 3,654 units, a decrease of 6.5%.
The decrease in volume of apparel sold was due in part to a 9.0%
decrease in the number of units sold by the Jalate division and an
11.0% decrease in volume of the Zanoni division. The decrease in units
in volume of apparel sold by the Jalate and Zanoni divisions was
partially offset by the 200 units of apparel sold by the Kids division
which started at the end of the prior fiscal year. The average
wholesale prices for the Zanoni division increased 10.0% and increased
1.0% for the Jalate division. The decrease in gross sales was mainly
attributable to the build up of retail customer inventories and the
reduced volume of re-orders for the late spring and summer season.
RETURNS AND ALLOWANCES AND DISCOUNTS increased to $1,455,000 (9.0% of
gross sales) for the three months period ended June 30, 1997 from
$1,175,000 (7.0% of gross sales) for the three months period ended June
30, 1996, and increased to $2,584,000 (8.3% of gross sales) for the six
months ended June 30, 1997 from $2,445,000 (7.5% of gross sales) for
the comparable period of fiscal 1996, an increase of 5.7% due in part
to returns of one line of apparel because of a defective design and
production problems which has since been remedied.
NET SALES. As a result of the above mentioned factors, net sales
decreased to $14,646,000 for the three months period ended June 30,
1997 from $15,567,000 for the three months period ended June 30, 1996,
a decrease of 5.9%, and net sales decreased to $28,565,000 for the six
months ended June 30, 1997 from $30,315,000 for the comparable period
of fiscal 1996, a decrease of 5.8%.
GROSS PROFIT. Gross Profit decreased to $2,872,000 (19.6% of net sales)
for the three months period ended June 30, 1997 from $4,000,000 (25.7%
of net sales) for the three months period ended June 30, 1996, a
decrease of 28.2%, and Gross Profit decreased to $6,700,000 (23.5% of
net sales) for the six months ended June 30, 1997 from $7,908,000
(26.1% of net sales) for the comparable period of fiscal 1996, a
decrease of 15.3%.
<PAGE> 13
The decrease in gross profits as a percent of net sales for the three
and six months periods for fiscal 1997 compared to fiscal 1996 was due
primarily to lower margins earned on resales of units from customer
returns.
OPERATING EXPENSES. Operating expenses increased to $4,319,000 (29.5%
of net sales) for the three months period ended June 30, 1997 from
$3,636,000 (23.4% of net sales) for the three months period ended June
30, 1996, an increase of 18.8%. Operating expenses increased to
$8,207,000 (28.7% of net sales) for the six months ended June 30, 1997
from $7,253,000 (23.9% of net sales) for the comparable period of
fiscal 1996, an increase of 13.1%, primarily due to expenses related
to the Missy and Kids division start up.
INTEREST EXPENSE. Interest expense primarily reflects interest payable
on advances from the factor and interest payable on loans against
imports. Interest expense increased to $209,000 (1.4% of net sales) for
the three months period ended June 30, 1997 from $161,000 (1.0% of net
sales) for the three months period ended June 30, 1996, an increase of
29.8%, and interest expense increased to $341,000 (1.2% of net sales)
for the six months ended June 30, 1997 from $320,000 (1.1% of net
sales) for the comparable period of fiscal 1996, an increase of 6.6%.
The increase in interest expense is attributable to increases in
imported finish goods financed by demand loans and increases in factor
debt.
EQUITY IN EARNINGS OF JOINT VENTURE. Investment in Joint Venture is
accounted for by the equity method, under which the Company's share of
earnings of the Joint Venture is reflected in income as earned and
distributions are credited against the investment in the Joint Venture
when received. Equity earnings increased to $170,000 for the three
months ended June 30, 1997 from $121,000 for the three months ended
June 30, 1996, an increase of 40.5%, and increased to $327,000 for the
six months ended June 30, 1997 from $206,000 for the comparable period
of fiscal 1996, an increase of 58.7%. The increase in earnings is
attributable to the Joint Venture's increased unit volume and
relatively unchanged operating costs.
INCOME TAXES. Income taxes for the interim periods were computed using
the effective tax rate estimated to be applicable for the full fiscal
year, which is subject to ongoing review and evaluation by management.
As of June 30, 1997, management's estimate of the 1997 effective tax
rate is zero.
LIQUIDITY AND CAPITAL RESOURCES. At June 30, 1997, working capital was
$2,097,000 compared to $3,738,000 at December 31, 1996. Cash provided
by operating activities aggregated $13,000 for the six months ended
June 30, 1997, compared with cash provided by operating activities of
$269,000 for the six months ended June 30, 1996.
Inventory at June 30, 1997 was $5,364,000 as compared to $2,922,000 at
June 30, 1996 and $3,572,000 at December 31, 1996.
At June 30, 1997, cash and cash equivalents was $2,000 as compared to
$97,000 at December 31, 1996. Management of the Company does not
believe that this cash and cash equivalents balance will affect the
liquidity of the Company because of the Company's additional sources of
liquidity.
At June 30, 1997, the amount due from the factor consisted of the
following:
<TABLE>
<S> <C>
Factor receivables $10,177,000
Advances from Factor (8,628,000)
Open Credit Memos (322,000)
-----------
$ 1,227,000
===========
</TABLE>
Effective on June 30, 1997, the Company entered into a new factoring
agreement with Heller Financial, Inc. (Heller) that provides for
advances to the Company of up to 100% of qualified accounts receivables
purchased by Heller and the Company entered into a Revolving Loan
Facility agreement with Heller that the company may draw from time to
time up to $2,000,000 through September 30, 1997 and up to $1,500,000
thereafter.
Effective May 31, 1997, the Company entered into a credit agreement
with the Wells Fargo HSBC Trade Bank, N.A. that provides an aggregate
limit of $4,000,000 for commercial letters of credit and a loan
facility, with a sublimit of $2,000,000, for loans against imports
for the letters of credit facility. The agreement terminates on
December 1, 1997.
The Company believes that its present and currently available sources
of working capital are sufficient to maintain its current level of
operations for the foreseeable future.
<PAGE> 14
FACTORS THAT MAY AFFECT FUTURE RESULTS
All forward-looking statements contained in this Item 2 are subject to,
in addition to the other matters described in the Report on Form 10-Q,
a variety of significant risks and uncertainties. The following
discussion highlights some of these risks and uncertainties. Further,
from time to time, information provided by the Company or statements
made by its employees may contain forward-looking information. The
Company cautions the reader that there can be no assurance that actual
results or business conditions will not differ materially from those
projected or suggested in such forward-looking statements as a result
of various factors, including those discussed below.
SUBSTANTIAL COMPETITION. The apparel industry is highly competitive.
Many of the Company's competitors have substantially greater financial,
distribution, marketing and other resources, including greater brand
awareness, than the Company. The Company competes with numerous apparel
manufacturers, including those with their own retail stores, as well as
department stores, specialty stores, retail chains and mass
merchandisers which sell apparel under their own labels. From time to
time, the Company has lowered prices on certain products to maintain
market share, which has adversely affected the Company's gross profit
margin on such products. There can be no assurance that such price
competition will not recur.
CHANGING FASHION TRENDS. The Company's success depends in substantial
part on its ability to correctly anticipate, gauge and respond to
rapidly changing consumer preferences in a timely manner. If the
Company materially misjudges the market for a particular product or
product line, the Company may be faced with a substantial reduction in
sales and excess inventory. There can be no assurance that the Company
will be able to correctly anticipate, gauge and respond to changing
consumer preferences in a timely manner in the future.
ECONOMIC CONDITIONS. The apparel industry historically has been subject
to substantial cyclical variation, and a recession in the general
economy or uncertainties regarding future economic prospects that
affect consumer spending habits have in the past had, and may in the
future have, a materially adverse effect on the Company's results of
operations. In addition, certain retailers, including some of the
Company's customers, are experiencing financial difficulties which
increase the risk of extending credit to such retailers. Many retailers
have attempted to improve their own operating efficiencies by
concentrating their purchasing power among an increasingly small group
of vendors. There can be no assurance that the Company will remain a
preferred vendor for its existing customers. A decrease in business
from, or loss of, a major customer could have a material adverse effect
on the Company's results of operations. In addition, there can be no
assurance that the Company's factor will approve the extension of
credit to certain retail customers in the future. If a customer's
credit is not approved by the factor, the Company could either assume
the collection risk on sales to such customer itself, or choose not to
make sales to such customer.
VARIABILITY OF QUARTERLY RESULTS. The Company has experienced, and
expects to continue to experience, variability in its net sales and
operating results on a quarterly basis. The Company believes the
factors which influence this variability include (i) the timing of the
Company's introduction of new apparel collections, (ii) the level of
consumer acceptance of each new collection, (iii) general economic and
industry conditions that affect consumer spending and retailer
purchasing, (v) the timing of the placement or cancellation of customer
orders, (v) the timing of expenditures in anticipation of increased
sales and customer delivery requirements, (vi) the weather and (vii)
actions of competitors. In addition, women's apparel business is highly
seasonal.
RELIANCE ON KEY PERSONNEL. The operations of the Company depend to a
great extent on the efforts of its senior management, including Vinton
W. Bacon, Larry Brahim, Theodore B. Cooper, Jeffrey L. Friedman and
Jan L. Grossman. The extended loss of the services of one or more of
these individuals could have a materially adverse effect on the
Company's operations.
IMPACT OF FOREIGN OPERATIONS. In July 1994, the Company commenced
manufacturing products abroad. As a result, the Company's operations
are subject to the customary risks of doing business abroad, including,
but not limited to, transportation delays, political instability,
expropriation, currency fluctuations and the imposition of tariffs,
import and export controls and other non-tariff barriers (including
changes in the allocation of quotas).
<PAGE> 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 2. Changes in Securities. None
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its 1997 annual meeting of shareholders
(the "Meeting") on May 12, 1997. At the Meeting, the Company's
shareholders considered and voted upon the following matters:
1. Election of Directors. For all nominees listed below
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
For Against Abstain
- -----------------------------------------------------------------
<S> <C> <C> <C>
Vinton W. Bacon 1,870,595 0 0
Larry Brahim 1,870,595 0 0
Theodore B. Cooper 1,870,595 0 0
Allan E. Dalshaug 1,870,595 0 0
Jospeh S. Davis 1,870,595 0 0
I. Jay Goldfarb 1,870,595 0 0
Jan L. Grossman 1,870,595 0 0
Victor Nichols 1,870,595 0 0
William Soady 1,870,595 0 0
- -------------------------------------------------------------------
</TABLE>
2. Ratification of the Appointment of Independent Auditors. To ratify the
appointment of KPMG Peat Marwick LLP as the Company's independent auditors
for the fiscal year ending December 31, 1997.
For Against Abstain
1,869,595 1,000 0
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-k.
a. Exhibits. The following is a list of exhibits filed as a
part of this report.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
3.1 Restated Articles of Incorporation of the Company [3.1*] (1)
3.2 Bylaws of the Company [3.2*] (1)
4.1 Form of stock certificate [4.3*] (2)
4.2 Underwriters' Warrant Agreement dated March 16, 1994, among the
Company, H.J. Meyers & Co., Inc. and Sanders Morris Mundy Inc.
[4.2*] (6)
10.1 Employment Agreement dated as of January 1, 1993, between the
Company and Larry Brahim [10.1*] (1)
10.2 Employment Agreement dated as of January 1, 1993, between the
Company and Theodore B. Cooper [10.2*] (1)
10.3 Employment Agreement dated as of January 1, 1993, between the
Company and Jeffrey L. Friedman [10.3*] (1)
10.4 Employment Agreement dated as of January 1, 1993, between the
Company and Jan L. Grossman [10.4*] (1)
10.5 Employment Agreement dated as of February 17, 1994, between the
Company and Martin Zwiebach [10.5*] (2)
10.6 Indemnification Agreement dated as of October 21, 1993, between the
Company and Larry Brahim [10.6*] (1)
10.7 Indemnification Agreement dated as of October 21, 1993, between the
Company and Theodore B. Cooper [10.7*] (1)
10.8 Indemnification Agreement dated as of October 21, 1993, between the
Company and Jeffrey L. Friedman [10.8*] (1)
10.9 Indemnification Agreement dated as of October 21, 1993, between the
Company and Jan L. Grossman [10.9*] (1)
10.10 Jalate, Ltd. 1993 Stock Incentive Plan, together with forms of
stock option and restricted stock agreements [10.10*] (1)
10.11 Standard Industrial/Commercial Single-Tenant Lease-Gross dated
September 8, 1993, between Swede Sportswear Co., Inc., as lessor, and
the Company, as lessee [10.11*] (1)
10.12 Standard Industrial Lease - Net dated August 15, 1988, between
Flora E. Maclise and Chairman E. Robinson, as lessor, and the
Company, as lessee [10.12*] (1)
10.13 Lease dated November 7, 1989, between California Mart, as lessor,
and the Company, as lessee [10.13*] (1)
10.14 Standard Industrial Lease - Multi-Tenant dated August 21, 1992,
between Eugene J. Mulholland and Leonor Mulholland, D/B/A Contract
Associates, as lessor, and the Company, as lessee [10.14*] (1)
10.15 Discount Factoring Agreement dated August 17, 1987, between Congress
Talcott Corporation and the Company, as amended [10.15*] (1)
10.16 Underwriting Agreement dated March 16, 1994, among the Company,
H.J. Meyers & Co., Inc. and Sanders Morris Mundy
Inc. [10.16*] (6)
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
<S> <C>
10.17 Lease dated March 15, 1994, between the Company and Gettinger
Associates [10.16*] (3)
10.18 Letter agreement dated April 21, 1994, between the Company and
Congress Talcott Corporation [10.17*] (4)
10.19 Letter agreement dated April 21, 1994, between the Company and
Congress Talcott Corporation (10.18*] (4)
10.20 Standard Form Month-to-Month Lease dated June 7, 1994, between the
Company and Jack Litt Trust [10.19*] (4)
10.21 Master Equipment Lease dated July 5, 1994, between the Company
and XL/Datacomp, Inc. [10.20*] (4)
10.22 Articles of Incorporation of Linroz Manufacturing, Inc. [10.21*] (5)
10.23 Bylaws of Linroz Manufacturing, Inc. [10.22*] (5)
10.24 Agreement of Limited Partnership of Linroz Manufacturing Company,
L.P. [10.23*] (5)
10.26 Standard Industrial/Commercial Single Tenant Lease - Gross dated
October 11, 1994, by the Company, as lessee, and George Familian
Testamentary Trust, as lessor as amended [10.25*] (5)
10.27 Letter agreement dated December 16, 1994, between the Company and
Congress Talcott Corporation [10.26*] (6)
10.28 Consulting Agreement dated August 9, 1995, between the Company and
Martin Zwiebach [10.28*] (7)
10.29 Letter agreement dated May 17, 1995, between the Company and Congress
Talcott Corporation (Western) [10.29*] (7)
10.30 Letter Agreement dated May 17, 1995, between the Company and Congress
Talcott Corporation (Western) [10.30*] (7)
10.31 Promissory Note dated May 5, 1995 in the principal amount of
$306,247.99 payable by Linroz Manufacturing Company, L.P.
(the "Joint Venture") to General Electric Capital Corporation
("GECC") [10.31*] (7)
10.32 Master Security Agreement dated March 24, 1995, between GECC, as
secured party, and the Joint Venture, as debtor [10.32*] (7)
10.33 Commercial Credit Agreement dated July 24, 1995, between the Company
and The Hongkong and Shanghai Banking Corporation Limited
[10.26*] (8)
10.34 Continuing Commercial Letter of Credit and Security Agreement,
between the Company and The Hongkong and Shanghai Banking
Corporation Limited [10.27*] (8)
10.35 Optional Advance Time Note (Loans Against Imports) dated July 24,
1995 in the amount of U.S. $3,000,000 by the Company in favor of The
Hongkong and Shanghai Banking Corporation Limited [10.28*] (8)
10.36 General Security Agreement dated July 24, 1995, between the Company
and The Hongkong and Shanghai Banking Corporation Limited
[10.29*] (8)
10.37 Continuing Standby Letter of Credit and Security Agreement dated
July 24, 1995, between the Company and The Hongkong and Shanghai
Banking Corporation Limited [10.30*] (8)
10.38 Continuing Indemnity Agreement dated July 24, 1995, between the
Company and The Hongkong and Shanghai Banking Corporation Limited
[10.38*] (8)
10.39 Promissory Noted dated October 1, 1995 in the amount of $34,000 by
Larry Brahim in favor of the Company [10.32*] (8)
10.40 Promissory Note dated October 1, 1995 in the amount of $68,000,
by Theodore B. Cooper in favor of the Company [10.33*] (8)
10.41 Letter agreement dated January 24, 1996, between the Company and
I.S.K., Inc. (10.41*) (6)
10.42 Engagement Agreement dated July 17, 1995, between the Company
and Sonoma Group, Inc. (10.42*) (6)
10.43 Employment Agreement dated December 1, 1995, between the Company
and Vinton W. Bacon. (10.43*) (6)
10.44 Indemnification Agreement dated January 1, 1996, between the
Company and Vinton W. Bacon. (10.46*) (6)
</TABLE>
<PAGE> 17
<TABLE>
<S> <C>
10.45 Indemnification Agreement dated March 26, 1994, between the
Company and Allan E. Dalshaug. (10.47*) (6)
10.46 Indemnification Agreement dated August 21, 1995, between the
Company and I. Jay Goldfarb. (10.48*) (6)
10.47 Indemnification Agreement dated March 26, 1994, between the
Company and Howard L. Hughes. (10.49*) (6)
10.48 Indemnification Agreement dated January 1, 1996, between the
Company and Phillip C. Levin. (10.50*) (6)
10.49 First Amendment to Commercial Credit Agreement dated as of
February 29, 1996, between the Company and Wells Fargo HSBC Trade
Bank, N.A. (formerly, The Hongkong and Shanghai Banking
Corporation Limited). (10.51*) (6)
10.50 Letter agreement dated February 16, 1996, between the Company
and Congress Talcott Corporation (Western). (10.52*) (6)
10.51 Employment Agreement with Frederick A. Findley dated May 6, 1996.
(10.51*) (10)
10.52 Indemnity Agreement with Frederick A. Findley dated January 1, 1996.
(10.52*) (10)
10.53 Continuing Credit Agreement dated June 1, 1996, between the Company
and the Wells Fargo HSBC Trade Bank, N.A. (Formerly, The Hong Kong
and Shanghai Banking Corporation Limited. (10.53*) (10)
10.54 First Amendment to Agreement dated November 30, 1996 between the
Company and Wells Fargo HSBC Trade Bank, N.A. (10.54*) (10)
10.55 Letter Agreement dated July 25, 1996, between the Company and
Congress Talcott Corporation (Western). (10.55*) (10)
10.56 Letter Agreement dated March 4, 1997, between the Company and
Congress Talcott Corporation (Western). (10.56*) (10)
10.57 Second Amendment to Agreement dated March 17, 1997, between the
Company and Wells Fargo HSBC Trade Bank, N.A. (10.57*) (10)
10.58 Certificate of Amendment dated February 25, 1997, of
Restated Article of Incorporation of Jalate, Ltd. (10.58*) (10)
10.59 Indemnification Agreement dated August 1, 1996, between the
Company and Victor K. Nichols. (10.59*) (11)
10.60 Indemnification Agreement dated August 1, 1996, between the Company
and William Soady. (10.60*) (11)
10.61 Intercreditor Agreement dated as of June 30, 1997, between Wells
Fargo HSBC Trade Bank National Association and Heller Financial, Inc.
10.62 Collection Date Factoring Agreement dated as of June 30, 1997,
between the Company and Heller Financial, Inc.
10.63 Assignment Agreement dated as of June 30, 1997, by and between the
Company and Heller Financial, Inc. and Wells Fargo HSBC Trade Bank
National Association.
10.64 Revolving Loan Agreement dated as of June 30, 1997 between Heller
Financial, Inc. and the Company.
10.65 Credit Agreement dated as of May 31, 1997, by and between the Company
and Wells Fargo HSBC Trade Bank, N.A.
</TABLE>
- ---------------------
* Indicates the exhibit number of the document in the original filing.
1. Filed as an exhibit to the Company's Registration Statement on Form S-1
filed with the Securities and Exchange Commission on February 24, 1994
(File No. 33-75694).
2. Filed as an exhibit to Amendment No. 1 to Registration Statement on Form
S-1 filed with the Securities and Exchange Commission on March 16, 1994.
3. Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994.
4. Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994.
5. Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994.
6. Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
7. Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995.
8. Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995.
9. Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995.
10. Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
11. Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997.
<PAGE> 18
b. Reports on Form 8-k - None
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JALATE, LTD.
Date: August 8, 1997 By /s/ FREDERICK A. FINDLEY
-----------------------------------
Frederick A. Findley
Chief Financial Officer
<PAGE> 1
EXHIBIT 10.61
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT is made and entered into as of June 30,
1997, by and between WELLS FARGO HSBC TRADE BANK, NATIONAL ASSOCIATION ("Bank")
and HELLER FINANCIAL, INC. ("Factor"), with reference to the following facts:
R E C I T A L S
WHEREAS, JALATE, LTD. ("Company") and Factor have entered into that
certain Collection Date Factoring Agreement dated June 30, 1997, as amended,
supplemented and modified from time to time (the "Factoring Agreement"), and
that certain Revolving Loan Agreement dated June 30, 1997, ended, supplemented
and modified from time to time (the "Loan Agreement"), the Factoring Agreement
and the Loan Agreement being hereinafter collectively referred to as the "Factor
Financing Agreements");
WHEREAS, Company and Bank have entered into certain financing
arrangements (the "Bank Financing Arrangements");
WHEREAS, as security for the payment and performance of Company's
respective obligations and indebtedness to Bank and Factor, Company has granted
to each of Bank and Factor security interests in certain assets of Company; and
WHEREAS, Bank and Factor desire to confirm their agreement regarding
their respective security interests in certain assets of Company;
NOW, THEREFORE, in consideration of the mutual covenants set forth
below, and other valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
A G R E E M E N T
1. As used in this Agreement, the term "Heller Collateral" shall mean
all of the following property, whether now owned by Company or hereafter
acquired by or arising in favor of Company:
(a) all accounts, contract rights, documents, notes, drafts,
instruments, and other forms of obligations owed to or owned by Company or
arising or resulting from the sale of goods or the rendering of services by
Company, all general intangibles relating thereto, all proceeds thereof, all
guaranties and security therefor, and all returned, reclaimed and repossessed
goods arising therefrom and all of the rights of an unpaid seller represented
thereby or arising therefrom including, but not limited to, the rights of
stoppage in transit, replevin and reclamation, EXCLUDING, HOWEVER, from coverage
under this subsection "a" all deposit accounts, credit balances, monies and
proceeds of rights to payment due Company under the Factor Financing Agreements
which have been paid to Bank or are in the custody or possession of Bank (such
accounts, balances, monies and rights to payment which have
<PAGE> 2
been paid at Bank's direction into an account of Customer at another financial
institution are for this purpose deemed to be in the custody or possession of
Bank);
(b) all monies, securities and other property now or hereafter held
or received by, or in transit to Factor from or for Company, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all of
Company's deposits and credit balances in Factor's possession;
(c) all books, records and other property at any time evidencing or
relating to any of the foregoing property;
(d) all proceeds of any of the foregoing property including, without
limitation, the proceeds of any insurance policies covering any of the foregoing
property; and
(e) all proceeds (as that term is defined in Section 9306(1) of the
California Uniform Commercial Code) of Company's inventory to the extent such
proceeds arise from Company's sale of inventory in the ordinary course of
business or are otherwise factored by Factor ("Proceeds").
2. As used in this Agreement, the term "Bank Collateral" shall mean all
of the following property, whether now owned by Company or hereafter acquired by
or arising in favor of Company;
(a) all deposit accounts, credit balances, monies and proceeds of
rights to payment due Company under the Factor Financing Agreements which have
been paid to Bank or are in the custody or possession of Bank;
(b) all imported inventory, goods (including goods held for sale or
lease or to be furnished under a contract of service), merchandise, materials,
raw materials, work in process, finished goods, advertising, packing and
shipping materials, supplies, and all other tangible personal property relating
thereto which is held for sale, and all warehouse receipts and other documents
relating thereto, wherever located, with the exception of returned, reclaimed
and repossessed goods from a sale of inventory in the ordinary course of
business; and
(c) all personal property of Company other than the Heller
Collateral.
3. Bank hereby subordinates in favor of Factor all right, title and
interest that Bank may now have or hereafter acquire in any of the Heller
Collateral. Bank agrees that until all obligations and indebtedness now or
hereafter owing by Company to Factor are paid to Factor in full, and the Factor
Financing Agreements have been terminated, the subordination agreed to in this
paragraph shall remain effective, and Bank will not, without Factor's prior
written consent, assert or seek to enforce or apply, by legal proceedings or
otherwise, any security interest or other rights that Bank may now have or
hereafter acquire with respect to the Heller Collateral; notify any of Company's
customers of Bank's security
-2-
<PAGE> 3
interest in the Heller Collateral; attempt to collect any Proceeds or any
payments due on the Heller Collateral or in any manner interfere with Factor's
security interest in the Heller Collateral.
4. Factor hereby subordinates in favor of Bank all right, title and
interest that Factor may now have or hereafter acquire in any of the Bank
Collateral. Factor agrees that until all obligations and indebtedness now or
hereafter owing by Company to Bank are paid to Bank in full, and the Bank
Financing Arrangements have been terminated, the subordination agreed to in this
paragraph shall remain effective, and Factor will not without Bank's prior
written consent, assert or seek to enforce or apply, by legal proceedings or
otherwise, any security interest or other rights that Factor may now have or
hereafter acquire with respect to the Bank Collateral; notify any of Company's
customers of Factor's security interest in the Bank Collateral; attempt to
collect any Proceeds or any payments due on the Bank Collateral or in any manner
interfere with Bank's security interest in the Bank Collateral.
5. Bank agrees that Factor shall have no direct or indirect obligations
of any kind to Bank with respect to, and Bank waives any right it may have to
direct or affect, the manner or time in which Factor exercises or refrains from
exercising any of its rights or remedies with respect to the Heller Collateral.
Bank hereby specifically waives and renounces any rights which Bank may have,
whether at law or in equity, to require Factor to marshal the Heller Collateral,
or any portion thereof, for all or any part of any indebtedness of Company to
Bank or to require Factor to proceed against or exhaust the Heller Collateral.
In this regard, Bank expressly waives its rights, if any, under the provisions
of California Civil Code Section 3433 or under any other similar provisions of
the laws of any other jurisdiction deemed applicable to this Agreement, and
agrees that Bank shall not derive any benefit therefrom. Until all obligations
and indebtedness now or hereafter owing by Company to Factor are paid to Factor
in full and the Factor Financing Agreements have been terminated, Bank agrees
that Factor may at any time, without Bank's consent and without notice to Bank,
settle, release (by operation of law or otherwise), compromise, collect, sell,
surrender, liquidate or otherwise deal with the Heller Collateral in any manner.
6. Factor agrees that Bank shall have no direct or indirect obligations
of any kind to Factor with respect to, and Factor waives any right it may have
to direct or affect, the manner or time in which Bank exercises or refrains from
exercising any of its rights or remedies with respect to the Bank Collateral.
Factor hereby specifically waives and renounces any rights which Factor may
have, whether at law or in equity, to require Bank to marshal the Bank
Collateral, or any portion thereof, for all or any part of any indebtedness of
Company to Factor or to require Bank to proceed against or exhaust the Bank
Collateral. In this regard, Factor expressly waives its rights, if any, under
the provisions of California Civil Code Section 3433 or under any other similar
provisions of the laws of any other jurisdiction deemed applicable to this
Agreement, and agrees that Factor shall not derive any benefit therefrom. Until
all obligations and indebtedness now or hereafter owing by Company to Bank are
paid to Bank in full and the Bank Financing Arrangements have been terminated,
Factor agrees that Bank may at any time, without Factor's consent and without
notice to Factor, settle, release (by operation of law or otherwise),
-3-
<PAGE> 4
compromise, collect, sell, surrender, liquidate or otherwise deal with the Bank
Collateral in any manner.
7. Bank represents and warrants to Factor that Bank has not assigned
its security interest or any other interest that Bank has in the Heller
Collateral. Any assignment of any such interest entered into after the date of
this Agreement shall be made expressly subject to the terms of this Agreement,
and Bank shall deliver to Factor written notice of such an assignment at least
fifteen (15) days prior to any such assignment; provided, however, that Bank
shall have no liability to Factor for negligently or inadvertently failing to
furnish any such notice.
8. Factor represents and warrants to Bank that Factor has not assigned
any security interest or any other interest that Factor has in the Bank
Collateral. Any assignment of any such interest entered into after the date of
this Agreement shall be made expressly subject to the terms of this Agreement,
and Factor shall deliver to Bank written notice of such an assignment at least
fifteen (15) days prior to any such assignment; provided, however, that Factor
shall have no liability to Bank for negligently or inadvertently failing to
furnish any such notice.
9. Bank and Factor will, upon request of the other party, execute and
deliver such further documents, including UCC financing statements, as are
reasonably necessary to evidence the subordination contained in this Agreement.
10. The subordination and relative priorities of Bank and Factor set
forth in this Agreement shall apply regardless of the time, order or manner of
attachment, filing or perfection of their respective security interests.
However, such subordination and relative priorities are expressly conditioned
upon the non-avoidability of any security interest to which another interest is
subordinated, and if any such security interest is avoidable for any reason,
then the subordination granted in this Agreement with respect to the subject
collateral shall not be effective.
11. This Agreement shall be binding upon, and inure to the benefit of,
the respective successors and assigns of Bank and Factor, but no other parties,
including Company, shall be able to assert or be entitled to assert any of the
benefits herein contained.
12. This Agreement shall be governed by and construed in accordance
with the laws of the State of California.
13. This Agreement may not be modified, amended or terminated without
the written consent of Bank and Factor. NOTWITHSTANDING ANYTHING TO THE CONTRARY
IN THIS AGREEMENT, THIS AGREEMENT, AND ALL RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER, SHALL AUTOMATICALLY TERMINATE UPON FINAL TERMINATION OF THE FACTOR
FINANCING AGREEMENTS AND PAYMENT IN FULL OF ALL INDEBTEDNESS THEREUNDER,
PROVIDED, HOWEVER, THAT THE AGREEMENT SHALL CONTINUE TO GOVERN THE RIGHTS AND
OBLIGATIONS OF THE PARTIES WITH RESPECT TO
-4-
<PAGE> 5
INDEBTEDNESS ARISING FROM ANY DISGORGED PAYMENT. AS USED IN THIS SECTION 13, THE
TERM "DISGORGED PAYMENT" REFERS TO ANY PAYMENT OR PORTION THEREOF MADE OR
CREDITED ON ACCOUNT OF INDEBTEDNESS OWING FROM COMPANY WHICH FACTOR DISGORGES
FOR ANY REASON UNDER COMPULSION OF BANKRUPTCY OR OTHER APPLICABLE LAW (AS A
PREFERENCE OR OTHERWISE) FOLLOWING FINAL TERMINATION OF THE FACTOR FINANCING
AGREEMENTS AND PAYMENT IN FULL OF ALL INDEBTEDNESS THEREUNDER.
14. This Agreement may be executed in counterparts which, when read
together, shall constitute a single document.
IN WITNESS WHEREOF, this Intercreditor Agreement has been executed on
behalf of Bank and Factor by their respective duly authorized officers as of the
day and year first above written.
HELLER FINANCIAL, INC. WELLS FARGO HSBC TRADE BANK, N.A.
By:_______________________________ By:________________________________
Title:____________________________ Title:_____________________________
The undersigned hereby consents to the foregoing agreement.
JALATE, LTD.
By:_______________________________
Title:____________________________
-5-
<PAGE> 1
EXHIBIT 10.62
COLLECTION DATE FACTORING AGREEMENT
This Collection Date Factoring Agreement (this "Agreement"), dated and effective
as of the Effective Date, is entered into between HELLER FINANCIAL, INC.
("Heller"), with offices at 505 N. Brand Blvd., Glendale, CA 91203, Telecopy No:
(818) 246-6380, and JALATE, LTD. ("Client"), whose address is 1675 S. Alameda
Street, Los Angeles, CA 90021, Telecopy No. (213) 765-5020, and will constitute
the terms upon which Heller will act as the sole factor of Client. Capitalized
terms used herein will have the meanings assigned to such terms in Section 12 of
this Agreement.
SECTION 1. SALE AND APPROVAL OF ACCOUNTS
1.1 Client does hereby sell, assign and transfer to Heller, and Heller
hereby agrees to purchase, all of Client's Accounts created on or after
the Effective Date, with full power to Heller to collect and otherwise
deal with such Accounts as the sole and exclusive owner thereof.
1.2 (a) Client will submit for Heller's credit approval the credit
requirements of Client's customers, a description of Client's normal
selling terms and such other information as Heller requests concerning
Client's customers. Heller may, in Heller's sole credit judgment,
establish credit lines for sales to Client's customers on Client's
normal selling terms or on other selling terms approved by Heller by
Written Notice. Client may also submit for Heller's credit approval
specific orders from Client's customers and Heller may, in Heller's
sole credit judgment, approve such orders on a single order credit
approval basis. All of Heller's credit approvals will be delivered to
Client by Written Notice and/or Transmission.
(b) Heller may amend or withdraw a credit line or single order credit
approval at any time prior to Delivery by notifying Client verbally
and/or by Written Notice or Transmission. Notwithstanding the
foregoing, during the sixty (60) day period commencing on the date on
which Heller advises Client of such amendment or withdrawal (the
"Advice Date"), Client may continue to ship goods with respect to which
piece goods were ordered prior to the Advice Date or which were in
production prior to the Advice Date and the amendment or withdrawal of
the credit line shall not be effective with respect to Client's sales
of such goods during such sixty 60) day period; provided, however, that
if such goods are shipped under a single order credit approval, the
sales of such goods shall be on the selling terms approved by Heller
when Heller originally gave such single order approval. If a single
order approval is not amended or withdrawn as set
<PAGE> 2
forth above, such single order credit approval will automatically
expire in the event Delivery of the goods ordered is not made on or
prior to the expiration date indicated on the single order credit
confirmation form Heller sends to Client by Written Notice or
Transmission. In addition, a single order approval will automatically
terminate in the event any change is made in any of the terms of a sale
under a single order approval without Heller's prior consent by Written
Notice or Transmission.
(c) Heller will have no liability to Client or to any customer for
Heller's refusal to credit approve an Account or Heller's withdrawal or
amendment of a credit approval.
1.3 Heller will assume the Credit Risk on all Approved Accounts. Heller
will have full recourse to Client for all Non-Approved Accounts.
1.4 In the event that monies are at any time owing by a customer for both
Approved Accounts and Non-Approved Accounts, any amount when paid by or
credited to the customer will be applied as follows:
(a) If Heller issued single order approvals, all amounts paid by or
credited to the customer will be deemed applied first to Approved
Accounts.
(b) If Heller established a credit line for such customer and if the
credit line was in force at the time amounts were received from or
credited to the customer, such amounts will be deemed applied first to
Non-Approved Accounts. If the credit line is canceled, any amount
thereafter received or credited will be deemed applied first to
Approved Accounts.
1.5 If a bankruptcy or insolvency proceeding is instituted by or against a
customer and if Heller agrees by Written Notice to Client to make a
claim in such proceeding for Non-Approved Accounts, all amounts
distributed to Heller in such proceeding will be shared pro rata
between Approved Accounts and Non-Approved Accounts.
SECTION 2. ADVANCES, PAYMENT AND FEES
2.1 As payment for an Account, (a) the Collected Amount of the Purchase
Price of an Account will be credited to Client's account as of the
Collection Date and (b) if an Approved Account which remains partially
or fully unpaid solely as a result of the financial inability of the
customer thereon to pay such Approved Account and if such Account is
not subject to a Dispute, the Purchase Price of such Approved Account
less any Collected Amounts previously credited to Client's account with
respect to
-2-
<PAGE> 3
such Approved Account will be credited to Client's account on the
Approved Payment Date for such Approved Account. The payments, when
credited to Client's account, shall first be applied to all advances,
interest, and other amounts due Heller hereunder.
2.2 Subject to the terms and conditions of this Agreement, Heller may, upon
Client's request, and in Heller's sole discretion, make advances to
Client or for Client's account in amounts, in Heller's sole discretion,
of up to one hundred percent (100%) of the Purchase Price of such
Accounts. Notwithstanding the foregoing, if at any time the aggregate
Net Amount of Accounts arising from sales to a single customer exceeds
an amount equal to fifty percent (50%) of the total Net Amount of all
Accounts from all customers outstanding at such time, Heller does not
intend to make any advances on any such Accounts in excess of said
amount.
2.3 At the time Heller purchases an Account, Heller will charge Client's
account with a factoring commission of forty-five hundredths of one
percent (0.45%) of the Net Amount of the Account; provided, however,
that on such date during a Contract Year that the aggregate Net Amount
of all Accounts purchased by Heller from Client exceeds $50,000,000
(the "$50,000,000 Date"), the factoring commission on each Account
purchased by Heller from Client during such Contract Year in excess of
said $50,000,000 shall be reduced to four tenths of one percent (0.4%)
of the Net Amount of such Account and Heller will credit Client's
account with an amount equal to five hundredths of one percent (0.05%)
of the total Net Amount of all Accounts purchased by Heller during such
Contract Year prior to the $50,000,000 Date. On Accounts bearing
payment terms in excess of ninety (90) days, the factoring commission
will be increased by one tenth of one percent (0.10%) for each thirty
(30) days or part thereof that the stated terms exceed ninety (90)
days.
2.4 Client will pay to Heller or Heller may charge Clients account with (i)
wire transfer fees on all wire transfers; (ii) all data transmission
telephone charges relating to Transmissions; (iii) exchanges on checks,
changes for returned items and all other bank charges; (iv) all Costs;
(v) all other amounts owing by Client to Heller under the Agreement;
and (vi) all other Obligations. Notwithstanding the foregoing, Heller
will not charge Client's account with the amount of any Ledger Debt
with respect to which Client asserts a Dispute unless Heller
determines, through an examination of Client's financial statements and
Client's payment trend with respect to amounts owing by Client to other
Heller Clients or to other suppliers of Client, that Client's
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failure to pay such Ledger Debt is due to Client's financial inability
to pay such Ledger Debt.
2.5 Heller may, in its sole credit judgment, establish credit lines for
sales to Client by Heller Clients or approve specific orders from
Client to Heller Clients on a single order approval basis; provided,
however, that the aggregate amount of all Ledger Debt outstanding at
any time shall not exceed $1,500,000.
SECTION 3. INTEREST AND COLLECTION CLEARANCE CHARGE
3.1 Client will pay Heller interest on the Daily Balance. Interest will be
calculated daily at a rate per annum equal to two and one-half percent
(2.5%) plus the LIBOR Rate (the "Interest Rate") and will be charged to
Client's account monthly at the end of each month. The Interest Rate
will also be charged to Client on all other Obligations, except those
specifying a different rate, from the date incurred through the date
paid. The LIBOR Rate will be adjusted on the last Business day of each
month for the following month and the adjusted Interest Rate will
remain in effect during such month. After the occurrence of an Event of
Default and after any applicable cure period, all the Obligations will,
at Heller's option, bear interest at a rate per annum equal to two and
one-half percent (2.5%) plus the Interest Rate. Interest will be
calculated on the basis of a 360- day year for the actual number of
days elapsed. In no event will the total amount of interest received by
Heller pursuant to the terms of this Agreement exceed the maximum rate
permitted by applicable law and in the event excess interest is
determined by a court of competent jurisdiction to have been paid by
Client to Heller, such excess interest will be applied as a credit
against the outstanding Obligations and Client will not have any action
against Heller for any damages arising out of the payment or collection
of such excess interest.
3.2 If funds remain with Heller past the Payment Date, and there are no
outstanding Obligations ("matured funds"), Heller will credit Client's
account with interest on such matured funds at the rate per annum equal
to the LIBOR Rate.
3.3 If an Account or any payment is charged back to Client after the
Payment Date, Client will pay Heller interest at the Interest Rate on
the Net Amount of such Account or on such payment from the Payment Date
to the charge back date.
3.4 To allow for collection clearance on all checks and other payments
remitted by Client's customers, Client will, pay Heller each month a
collection clearance charge based on
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two (2) calendar days for that month's collections at the Interest
Rate. Heller will charge Client's account at the end of each month for
the collection clearance charge.
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1 Client represents, warrants and covenants as to each Account that, at
the time of its sale and assignment to Heller, the Account is a valid,
bona fide account, representing an undisputed indebtedness incurred by
the named customer for goods actually sold and delivered or for
services completely rendered; the Account is payable in United States
dollars; there are no setoffs, offsets, counterclaims or other
defenses, genuine or otherwise, to the payment or collection of the
Account; the Account does not represent a sale to any of Client's
subsidiaries, affiliates, directors, officers, agents, stockholders, or
employees, or a consignment sale, guaranteed sale, or bill and hold
transaction, or a cash on delivery sale; no agreement exists permitting
any deduction or discount (other than the discount stated on the
invoice); Client is the lawful owner of the Account and has the right
to sell and assign the same to Heller; the Account is free of all
security interests, liens and encumbrances (including tax liens) other
than those in favor of Heller, and the Account is due and payable in
accordance with its terms.
4.2 Client will not grant or suffer to exist in favor of any party other
than Heller or Bank, any lien upon or security interest in Client's
inventory.
4.3 Client is a solvent corporation, duly incorporated and in good standing
under the laws of the State of California and qualified in all States
where such qualification is required; the execution, delivery and
performance of this Agreement have been duly authorized and are not in
contravention of any applicable law, Client's corporate charter or
by-laws or any agreement or order by which Client is bound; Client is
not, to the best of Client's knowledge, in violation of any law,
ordinance, rule, regulation, order or other requirement of any
government or any instrumentality or agency thereof.
4.4 Client will not change Client's corporate name or the location of
Client's office or open any new offices without giving Heller at least
thirty (30) days prior Written Notice. At the present time, Client
carries on business only at the above address and the addresses set
forth below.
6557 Flotilla Street, City of Commerce, CA 90040
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4.5 All books and records pertaining to the Accounts or to any inventory
owned by Client will be maintained solely and exclusively at the above
address or the addresses listed in Section 4.4 hereof and no such books
and records will be moved or transferred without giving Heller thirty
(30) days prior Written Notice.
4.6 After Heller's request, Client will hold all returned, replevined or
reclaimed goods relating to Accounts coming into Client's possession in
trust for Heller and all such goods will be segregated and identified
as held in trust for Heller's benefit and Client will, at Heller's
request, and at Heller's expense, deliver such goods to such place or
places as Heller may designate.
4.7 The trade names or styles set forth below are the only trade names or
styles under which Client transacts business; Accounts sold to Heller
hereunder and represented by invoices bearing such trade names or
styles are wholly owned by Client; the undertakings, representations
and warranties made in connection therewith will be identical to and of
the same force and effect as those made with respect to invoices
bearing Client's corporate name; Client's use of any trade names or
styles is in compliance with all laws regarding the use of such trade
names or styles. Client will give Heller thirty (30) days prior Written
Notice of the change of any trade name or style or Client's use of any
new trade name or style.
JALATE
JALATE KIDS
ZANONI
Client hereby grants to Heller, effective after the occurrence of any
Event of Default hereunder and after any applicable cure period, the
non-exclusive license to use all trade names, marks and styles owned or
used by Client together with any goodwill associated therewith, but
only to the extent necessary to enable Heller to sell returned,
reclaimed and repossessed goods. Such license is granted free of charge
without requirement that any monetary payment whatsoever be made to
Client or any third party by Heller.
4.8 Client may, in the ordinary course of business, issue, grant or allow
discounts, credits and allowances on Accounts to customers and accept
returns until Heller notifies Client to the contrary by Written Notice
or Transmission. Such discounts, credits or allowances once issued may
be claimed only by the customer. Client will promptly issue and assign
to Heller all full invoice credit memos.
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4.9 To the best of Client's knowledge, (a) there are no judgments
outstanding against or affecting Client, its officers, directors or
affiliates or any of Client's property, (b) there are no actions,
charges, claims, demands, suits, proceedings, or governmental
investigations now pending or threatened against Client or any of
Client's property, and (c) none of Client's inventory has been produced
in violation of the Fair Labor Standards Act or any similar law, nor
imported in violation of any United States customs regulation.
4.10 Client agrees that no provision in this Agreement and no course of
dealing between the parties shall be deemed to create any fiduciary
duty by Heller to Client. Client agrees that neither Heller nor any of
Heller's affiliates, officers, directors, shareholders, employees,
attorneys, or agents shall have any liability with respect to, and
Client hereby waives, releases, and agrees not to sue any of them upon,
any claim for any special, indirect, incidental, consequential or
punitive damages suffered or incurred by Client in connection with,
arising out of, or in any way related to this Agreement or any of the
transactions contemplated by this Agreement.
4.11 Client shall at all times maintain Tangible Net Worth of at least the
amounts set forth below during the periods set forth below.
PERIOD TANGIBLE NET WORTH
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June 1, 1997 through $3,200,000
September 29, 1997
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September 30, 1997 $4,000,000
through March 30, 1998
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March 31, 1998 and at $4,200,000
all times thereafter
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4.12 From June 1, 1997 through September 29, 1997, Client shall maintain a
ratio of total Liabilities to Tangible Net Worth no greater than
1.75:1.0. On September 30, 1997 and at all times thereafter, Client
shall maintain a ratio of total Liabilities to Tangible Net Worth no
greater than 1.40:1.0.
4.13 Client shall at all times maintain a Current Ratio of at
least 1.25:1.0.
4.14 Client shall at all times maintain Working Capital of at
least $2,000,000.
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4.15 Client will give Heller Written Notice of: (a) the occurrence of a
default or event of default under any of the Bank Agreements; (b) any
waiver of any such default or event of default; and/or (c) the
suspension by the Securities and Exchange Commission of the public
trading of Client's stock.
SECTION 5. Disputes, Chargebacks and Reserves
5.1 With respect to any Account, upon the occurrence of a breach of any of
the representations or warranties contained in Section 4.1, or upon the
assertion by a customer of a Dispute, such Account may, at Heller's
option, be charged back to Client. In the event Client does not, within
fifteen (15) days of Heller's request, deliver to Heller a copy of the
invoice and such other information as Heller requests relating to an
Account with respect to which information was transmitted to Heller
through Transmission, Heller will have the right to charge back such
Account to Client.
5.2 Client will promptly notify Heller, by Written Notice, in the event
that a customer alleges any Dispute, or returns or desires to return
any goods purchased from Client relating to an Account. After an Event
of Default and after any applicable cure period, Heller may but is not
obligated to settle, compromise, adjust or litigate all such Disputes
or returns upon such terms as Heller deems advisable.
5.3 Client will supply customers, in the format required by customers, with
all forms, documents, certificates, etc. that customer requires to
process the Account for payment. If Heller notifies Client verbally
and/or by Written Notice or Transmission that a customer which only
accepts invoices for payment from Client through Transmission is
requesting that Client review its invoice data for correctness and
re-transmit invoices by Transmission and if after thirty (30) days from
the date of such Notice such invoices remain unposted to such
customer's records, Heller will place the Accounts evidenced by such
invoices in Dispute.
5.4 Heller may, at Heller's option, charge back to Client all amounts owing
on Non-Approved Accounts which are not paid when due.
5.5 Client will pay Heller, or Heller may charge Client's account with, the
amount of any payment which Heller receives with respect to a
Non-Approved Account if such payment is subsequently disgorged by
Heller, whether as a result of any proceeding in bankruptcy or
otherwise.
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5.6 Client shall purchase promptly all Accounts charged back by Heller,
provided, however, that until payment by Client to Heller of all monies
due with respect to such charged back Account, title thereto shall
remain with Heller. At such time as Client shall pay to Heller all
monies due with respect to such charged back account, title shall pass
to Client subject, however, to Heller's security interest therein.
Client agrees to indemnify and save Heller harmless from and against
any and all loss, costs and expenses caused by or arising out of
disputed Accounts, including, but not limited to, collection expenses
and attorney's fees incurred with respect thereto.
5.7 Heller may maintain such reserves as Heller, in Heller's sole
discretion, deems advisable as security for the payment and performance
of the Obligations, including, without limitation, reserves for the
amount of any Account which is subject to a Dispute.
SECTION 6. ADMINISTRATION
6.1 Client will, from time to time, (i) execute and deliver to Heller
confirmatory schedules of Accounts assigned to Heller (each an
"Assignment Schedule"), together with one copy of each invoice,
acceptable evidence of shipment and such other documentation and proofs
of delivery as Heller may require or (ii) transmit to Heller by
Transmission information concerning Accounts in a format acceptable to
Heller and, upon Heller's request, deliver to Heller copies of
invoices, acceptable evidence of shipment and such other documentation
and proofs of delivery as Heller may require relating to Accounts so
transmitted. Client will not deliver Assignment Schedules in connection
with Transmissions, but Client acknowledges and agrees that every
invoice transmitted to Heller by Transmission will be deemed to have
been sent pursuant to the terms and conditions of an Assignment
Schedule. Each invoice relating to an Account and all copies and
Transmissions thereof will bear a notice, in form satisfactory to
Heller, that the Account has been sold and assigned to and is payable
only to Heller. Client agrees that Client will not change such notice
on invoices and will not direct its customers to pay Client or any
third party amounts due under invoices. Client agrees to prepare and
mail (or when required, send by Transmission) all invoices relating to
Accounts, but Heller may do so at Heller's option. Client agrees to
execute and deliver to Heller such further instruments of assignment,
financing statements and instruments of further assurance as Heller may
reasonably require. Client authorizes Heller to execute on Client's
behalf and file such UCC financing statements as Heller may deem
necessary in order to perfect and maintain the security interests
granted by
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Client in accordance with this Agreement. Client further agrees that
Heller may file this Agreement or a copy thereof as such UCC financing
statement.
6.2 On any day when Client desires to have advances made in accordance with
subsection 2.2 Client shall give Heller telephone notice of the
requested advance by 12:00 noon Los Angeles time. Heller shall not
incur any liability to Client for acting upon any telephonic notice
that Heller believes in good faith to have been given by a duly
authorized officer or other person authorized to request advances on
Client's behalf or for otherwise acting in good faith under this
subsection.
6.3 If any remittances are made directly to Client or Client's employees or
agents, Client will act as trustee of an express trust for Heller's
benefit, hold the same as Heller's property and deliver the same to
Heller forthwith in kind. Heller and/or such designee as Heller may
from time to time appoint are hereby appointed Client's
attorney-in-fact to endorse Client's name on any and all checks or
other forms of remittances received by Heller where such endorsement is
required to effect collection and to transmit notices to customers, in
Client's or Heller's name, that amounts owing by them have been
assigned and are payable directly to Heller; this power, being coupled
with an interest, is irrevocable.
6.4 Client shall permit Heller and any representatives designated by Heller
to visit and inspect any of the properties of Client, including its
financial and accounting records, and to make copies and take extracts
therefrom, and to discuss its affairs, finances, and business with its
officers at such times during normal business hours and as often as
Heller requests. Heller may, at any time after the occurrence of an
Event of Default, remove from Client's premises copies of all such
records, files and books relating to Accounts.
6.5 If Heller determines that the credit standing of a customer has
deteriorated after Heller has assumed the Credit Risk on an Account,
Client will, at Heller's request, exercise such rights as Client may
have to reclaim or stop the goods in transit, and Client hereby grants
to Heller the right to take such steps in Client's or Heller's name.
6.6 Heller will render a monthly statement of account to Client within
twenty (20) days after the end of each month. Such statement of account
will constitute an account stated unless Client makes objection thereto
by Written Notice within thirty (30) days from the date such statement
is rendered to Client.
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6.7 Client will maintain a system of accounting established and
administered in accordance with sound business practices to permit
preparation of financial statements in conformity with GAAP. Client
will promptly furnish Heller with such statements prepared by or for
Client showing Client's financial condition and the results of Client's
operations as Heller requests verbally or by Written Notice, including
without limitation for each of Client's fiscal years: (i) as soon as
available but not later than ninety (90) days after the end of each
fiscal year, Client's balance sheet, income statement and the related
statement of cash flows for and as at the end of such fiscal year and a
statement of stockholder's equity for such fiscal year, audited by
Client's independent certified public accountants and reported by such
accountants as unqualified with respect to going concern and scope of
audit and certified by Client to be prepared in accordance with GAAP
and to fairly present Client's financial position and results of
operations for such fiscal year; and (ii) as soon as available but not
later than sixty (60) days after the end of the first, second and third
quarters of each fiscal year, Client's balance sheet, income statement
and the related statement of cash flows for and as at the end of, the
portion of Client's fiscal year then elapsed and a statement of
stockholder's equity for such period, reviewed by Client's independent
certified public accountants and certified by Client to fairly present
Client's financial position and results of operations for such period;
and (iii) as soon as available but not later than thirty (30) days
after the end of each month, Client's internally prepared balance sheet
and income statement of Client as at the end of such month for the
period from the beginning of the then current fiscal year to the end of
such month. Upon the request of Heller, in its sole discretion, Client
shall promptly provide to Heller the projected income statement,
balance sheet and statement of cash flows of Client for the forthcoming
ninety (90) day period from the date of such a request. Client
authorizes Heller to communicate, with Client's consent, directly with
Client's independent certified public accountants and authorizes such
accountants to discuss Client's financial condition and financial
statements directly with Heller.
6.8 Client authorizes Heller to disclose such information as Heller deems
appropriate to persons making credit inquiries about Client.
SECTION 7. COLLATERAL SECURITY
As collateral security for all Obligations, Client hereby assigns and grants to
Heller a continuing security interest in all of the following property, whether
now owned by Client or hereafter created or acquired by Client or arising in
Client's
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favor: (i) Accounts; (ii) general intangibles (as defined in the UCC) excluding
Client's trade marks; (iii) monies, securities and other property now or
hereafter held or received by, or in transit to Heller from or for Client,
whether for safekeeping, pledge, custody, transmission, collection or otherwise,
and all of Client's deposits, reserves, and credit balances in Heller's
possession; (iv) books, records and other property at any time evidencing or
relating to any of the foregoing property; and (v) proceeds of any of the
foregoing property including, without limitation, the proceeds of any insurance
policies covering any of the foregoing property. Recourse to the collateral
security herein provided will not be required, and Client will at all times
remain liable for the payment and performance of the Obligations upon demand by
Heller.
SECTION 8. EVENTS OF DEFAULT
The occurrence of any of the following acts or events will constitute an Event
of Default: (a) if Client fails to make payment of any of the Obligations when
due; (b) if Client fails to make any remittance required by this Agreement; (c)
if Client commits any breach of any of the terms, representations, warranties,
covenants, conditions or provisions of this Agreement (including subsections
4.11, 4.12, 4.13 and 6.7), or of any present or future supplement or amendment
hereto or of any other agreement between Heller and Client; (d) if Client
becomes insolvent or unable to meet Client's debts as they mature; (e) if Client
fails to pay when due any material obligations or liabilities owing by Client to
any person or entity (including without limitation, any United States and state
taxes); (f) if Client delivers to Heller a false financial statement or if any
representation, warranty, certification, or other statement made by Client to
Heller is false in any material respect when made; (g) if Client calls or agrees
to the calling by a third party of a meeting of creditors; (h) if any bankruptcy
proceeding, insolvency arrangement or similar proceeding is commenced by or
against Client including, without limitation, an assignment for the benefit of
creditors; (i) if Client suspends or discontinues doing business for any reason;
(j) if a receiver or trustee of any kind is appointed for Client or any of
Client's property; (k) to the extent there are at any time any guarantors of
Client's Obligations, if any such guarantor dies or becomes insolvent or has
commenced by or against such guarantor any bankruptcy proceeding, insolvency
arrangement or similar proceeding including, without limitation, an assignment
for the benefit of creditors; (l) to the extent there are at any time any
guaranties of Client's Obligations, if any such guaranty is terminated or any
guarantor alleges that any such guaranty is unenforceable, or if there is a
default under any such guaranty; (m) if there shall be a change in the
beneficial ownership and control, directly or indirectly, of the majority of the
outstanding voting securities or other
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interests entitled (without regard to the occurrence of any contingency) to
elect or appoint members of the board of directors or other managing body of
Client; (n) if a notice of lien, money judgment, levy, assessment, seizure or
writ, or warrant of attachment is entered or filed against Client or with
respect to the Accounts or any other collateral in which Client has granted
Heller a security interest; (o) if Client sells, leases, transfers or otherwise
disposes of all or substantially all of Client's property or assets, or
consolidates with or merges into or with any corporation or entity; or (p) if
any default or event of default occurs under the Related Agreement or any of the
Bank Agreements.
Client shall have a cure period of thirty (30) days from (i) the commencement of
any arrangement or proceeding under subpart (h) above, to the extent Client did
not commence the proceeding, or under subpart (k) above, to the extent such
guarantor did not commence the proceeding, to have such arrangement or
proceeding dismissed or (ii) the date of the entering or filing of a notice of
lien, money judgment, levy, assessment, seizure or writ or warrant of attachment
under subpart (n) above to have such lien, judgment, levy, assessment, seizure
or writ or warrant of attachment discharged.
Notwithstanding anything contained herein to the contrary, Heller may, in its
discretion, suspend making advances hereunder during any of the cure periods set
forth above.
If Client fails to cure or have cured an Event of Default within any applicable
cure period or upon the occurrence of any other Event of Default, Heller will
have the right to terminate this Agreement and all other arrangements existing
between Client and Heller forthwith and without notice, and the Obligations will
mature and become immediately due and payable and Heller will have the right to
withhold any further payments to Client until all Obligations have been paid in
full. In addition Heller will have all of the rights of a secured party under
the UCC, including, without limitation, the right to take possession of any
collateral in which Heller has a security interest and to dispose of same at
public or private sale and Client will be liable for any deficiency. Heller will
not be required to proceed against any collateral but may proceed against Client
directly.
If either party to this Agreement shall bring any action for any relief against
the other, declaratory or otherwise, arising out of this Agreement, the losing
party shall pay to the prevailing party a reasonable sum for attorney fees
incurred in bringing such suit and/or enforcing any judgment granted therein,
all of which shall be deemed to have accrued upon the commencement of such
action and shall be paid whether or not such action is prosecuted to judgment.
Any judgment or order entered in such action shall contain a specific
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provision providing for the recovery of attorney fees and costs incurred in
enforcing such judgment. For the purposes of this section, attorney fees shall
include, without limitation, fees incurred in the following: (1) postjudgment
motions; (2) contempt proceedings; (3) garnishment, levy, and debtor and third
party examinations; (4) discovery; and (5) bankruptcy litigation.
SECTION 9. TERM AND TERMINATION
This Agreement will continue in effect for an original term of one year from the
Effective Date and shall remain in force thereafter, but it may be terminated at
the end of the original one year term or at any time thereafter by either Heller
or Client giving the other party not less than sixty (60) days prior Written
Notice thereof.
Notwithstanding any such Written Notice of termination, Client's and Heller's
respective rights and obligations arising out of transactions having their
inception prior to the date of termination of this Agreement will not be
affected by the termination of this Agreement and all terms, provisions and
conditions hereof, including but not limited to, the security interests
hereinabove granted to Heller (including Heller's security interest in Accounts
arising, acquired or created after the date of termination of this Agreement),
will continue in full force and effect until all Obligations have been paid in
full. All of the representations, warranties, indemnities and covenants made by
Client herein (including without limitation the undertaking set forth in Section
5.5 hereof) will survive the termination of this Agreement.
SECTION 10. MODIFICATIONS, WAIVERS, NOTICES AND
MISCELLANEOUS PROVISIONS
This Agreement may not be changed or terminated orally; it constitutes the
entire agreement between Client and Heller and will be binding upon Client's and
Heller's respective successors and assigns, but may not be assigned by Client
without Heller's prior written consent. No delay or failure on Heller's part in
exercising any right, privilege, or option hereunder will operate as a waiver
thereof or of any other right, privilege or option. No waiver whatsoever will be
valid unless in a Written Notice, signed by Heller, and then only to the extent
therein set forth. If any term or provision of this Agreement is held invalid
under any statute, rule or regulation of any jurisdiction competent to make such
a decision, the remaining terms and provisions will not be affected, but will
remain in full force and effect.
Any Written Notice to be given under this Agreement will be in writing addressed
to the respective party as set forth in the heading to this Agreement (or such
other address as may have been designated in a Written Notice) and will be
personally
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served, telecopied or sent by overnight courier service or United States mail
and will be deemed to have been given: (a) if delivered in person, when
delivered; (b) if delivered by telecopy, on the date of transmission if
transmitted on a Business Day before 4:00 p.m. Los Angeles time or, if not, on
the next succeeding Business Day; (c) if delivered by overnight courier, two (2)
days after delivery to such courier properly addressed; or (d) if by U.S. Mail,
four (4) Business Days after depositing in the United States mail, with postage
prepaid and properly addressed.
Heller conducts business under California Finance Lender License number
603-2495.
SECTION 11. GOVERNING LAW, VENUE AND WAIVER OF JURY
THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES.
CLIENT HEREBY CONSENTS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT
LOCATED WITHIN THE COUNTY OF LOS ANGELES, THE STATE OF CALIFORNIA. IF CLIENT
PRESENTLY IS, OR IN THE FUTURE BECOMES, A NONRESIDENT OF THE STATE OF
CALIFORNIA, CLIENT HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND
AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED OR REGISTERED
MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO CLIENT, AT CLIENT'S ADDRESS
APPEARING IN HELLER'S RECORDS AND SERVICE SO MADE SHALL BE COMPLETE TEN (10)
DAYS AFTER THE SAME HAS BEEN POSTED AS AFORESAID.
WAIVER OF JURY TRIAL. CLIENT AND HELLER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT, OR ANY OTHER DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT, OR
ANY DEALINGS BETWEEN CLIENT AND HELLER RELATING TO THE SUBJECT MATTER OF THIS
TRANSACTION AND THE BUSINESS RELATIONSHIP THAT IS BEING ESTABLISHED. CLIENT AND
HELLER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT EACH OF CLIENT AND HELLER HAS ALREADY RELIED ON THE
WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH OF CLIENT AND HELLER WILL
CONTINUE TO RELY ON THE WAIVER IN THE RELATED FUTURE DEALINGS BETWEEN CLIENT AND
HELLER. CLIENT AND HELLER FURTHER WARRANT AND REPRESENT THAT THEY KNOWINGLY AND
VOLUNTARILY WAIVE THEIR RESPECTIVE JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH
LEGAL COUNSEL.
SECTION 12. DEFINITIONS
"Accounts" -- All presently existing or outstanding and all hereafter created or
acquired accounts (as that term is defined in the UCC), contract rights,
documents, notes, drafts, instruments and other forms of obligations owed to or
owned by Client arising or resulting from the sale of goods or the rendering of
services by Client, all general intangibles
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<PAGE> 16
relating thereto, all proceeds thereof, all guaranties and security therefor,
and all goods and rights represented thereby or arising therefrom, including,
but not limited to, returned, reclaimed and repossessed goods and the rights of
stoppage in transit, replevin and reclamation.
"Affiliate" -- means any Person in which Client and/or any one or more of
Client's Stockholders has or controls, directly or indirectly, jointly and/or
severally, now or at any time or times hereafter, an equity or other ownership
interest that is either (a) equal to or in excess of twenty percent (20%) of the
total equity of or other ownership interest in such Person, or (b) sufficient to
materially influence or control such Person.
"Approved Account" -- An Account representing a sale to a customer within the
credit line established for such customer on Client's normal selling terms or
within the single order credit approval given by Heller for orders from such
customer provided that Delivery is completed while the credit line or single
order credit approval remains in effect and which has not been charged back to
Client.
"Approved Payment Date" -- The date which is one hundred twenty (120) days after
the due date for payment of an Approved Account.
"Assets" - has the meaning usually ascribed to such term in accordance with
GAAP.
"Bank" - means Wells Fargo HSBC Trade Bank, N.A.
"Bank Agreements" - All instruments, documents, and agreements between Client
and Bank, including, without limitation, that certain Credit Agreement dated as
of June 1, 1996 and that certain Loans Against Imports Note dated March 17,
1997, all as amended from time to time.
"Business Day" -- Any day excluding Saturday, Sunday and any day which is a
legal holiday under the laws of the States of Illinois, Pennsylvania, or
California or is a day on which banking institutions located in any such state
are closed.
"Collected Amount" -- The amount received by Heller from a customer in payment
of an Account up to the Net Amount of such Account.
"Collection Date" -- The date on which Heller receives payment of an Account.
"Contract Year" -- The twelve month period commencing on the Effective Date or
any anniversary thereof.
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<PAGE> 17
"Costs" -- All costs fees and expenses (including attorney's fees) incurred by
Heller in connection with (i) the administration of this Agreement or the
Related Agreement, or any waiver, forbearance, amendment or modification thereof
(ii) the perfection, protection, preservation or enforcement of Heller's rights
in any collateral in which Heller has been granted a security interest and (iii)
all filing fees, filing taxes or search reports.
"Credit Risk" -- The risk that a customer will be financially unable to pay an
Account at maturity, provided that the merchandise has been received or services
rendered and accepted by the customer without Dispute.
"Current Ratio" -- Client's current Assets divided by Client's current
Liabilities, in accordance with GAAP.
"Daily Balance" -- The outstanding balance of all monies remitted, paid or
otherwise advanced to Client or for Client's account plus all commissions, fees,
charges and expenses charged to Client's account in accordance with the terms
hereof less all amounts credited to Client's account in accordance with
subsection 2.1 hereof.
"Delivery" -- The delivery of goods or performance of services in accordance
with the terms agreed to in writing between Client and a customer, provided that
if no such terms are specified in writing, delivery shall mean delivery of goods
or performance of services at the customer's place of business.
"Dispute" -- A dispute or claim, bona fide or otherwise, as to price, terms,
quantity, quality, Delivery, or any claim or defense to collection or payment of
an Account whatsoever other than the financial inability of a customer to pay
the Account.
"Effective Date" -- The date set forth below Heller's signature hereto.
"GAAP" - Generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board that are applicable to the circumstances as of the
date of determination.
"Heller Clients" -- Any Persons (other than Client) which have entered into
factoring, intercredit or financing agreements with Heller.
"Indebtedness" -- shall mean, obligations and liabilities owing by Client to any
Person (including without limitation all debts, claims and indebtedness) whether
primary, secondary, direct, contingent, fixed or otherwise, heretofore
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<PAGE> 18
now and/or from time to time hereafter owing, due or payable, however evidenced,
created, incurred, acquired or owing and however arising, whether under written
or oral agreement, operation of law, or otherwise.
"Ledger Debt" -- Obligations owing to Heller as a result of Heller's purchases
of invoices evidencing sales to Client by Heller Clients.
"Liabilities" - has the meaning usually ascribed to such term in accordance with
GAAP; provided, however, that both current Liabilities and total Liabilities
shall include Indebtedness which is subordinated to the Obligations (as defined
herein) owing to Heller and/or the Obligations (as defined in the Bank
Agreements) owing to Bank, in subordination agreements, in form and substance
acceptable to Heller and/or Bank, as applicable.
"LIBOR Rate" -- The one month London Interbank Offered Rate (LIBOR) announced
from time to time in the Wall Street Journal as the average of Interbank offered
rates for dollar deposits in the London Market based on quotations at five major
banks.
"Net Amount" -- The gross amount of an Account less the discount offered by
Client and taken by Heller at the time Heller purchases such Account.
"Non-Approved Account" -- (a) An Account with respect to which Heller has not
issued a credit approval or has subsequently withdrawn a credit approval or (b)
an Approved Account that has been charged back to Client.
"Obligations" -- All loans, advances, debts, indebtedness, liabilities,
obligations, covenants and duties owing by Client to Heller, direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
whether under this Agreement, the Related Agreement, any other agreement between
Heller and Client or otherwise, including, without limitation, Ledger Debt and
indebtedness arising under any guaranty made by Client for Heller's benefit or
issued by Heller on Client's behalf.
"Payment Date" -- The Collection Date or the Approved Payment Date as
applicable.
"Person" -- Any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, company,
institution, entity, party or government (whether national, federal, state,
county, city, municipal or otherwise, including without limitation, any
instrumentality, division, agency, body or department of any such government).
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<PAGE> 19
"Purchase Price" -- An amount equal to the Net Amount of an Account, less
factoring commissions, credits (including, without limitation, merchandise
returns and credit memos), charge backs, allowances, and all other fees and
charges provided hereunder.
"Related Agreement" - That certain Revolving Loan Agreement dated as of the
Effective Date, as amended from time to time.
"Stockholder" -- Any owner (beneficial or of record) of Client's stock.
"Tangible Net Worth" -- means an amount equal to the excess of total Assets over
total Liabilities determined in accordance with GAAP, excluding, however, in
determining total Assets (i) all Assets which would be classified as intangible
assets under GAAP, including, but not limited to, goodwill, licenses, patents,
trademarks, trade names, copyrights, capitalized software and organizational
costs, licenses and franchises, and (ii) Assets which Heller determines, in its
business judgment, would not be available or would be of relatively small value
in a liquidation of Client's business, including, but not limited to, prepaid
expenses, loans to officers, Stockholders, employees or Affiliates and other
items.
"Transmission" -- Transmission through Heller's proprietary system or through
Electronic Data Interchange.
"UCC" -- The Uniform Commercial Code as in effect on the date hereof in the
State of California, as amended from time to time, and any successor statute.
"Working Capital" - means an amount equal to: (a) Client's current Assets; less
(b) Client's current Liabilities; and less (c) the amount of any obligations
owing by Affiliates or Stockholders to Client.
"Written Notice" - Notice given in writing in accordance with Section 10 of this
Agreement.
In Witness Whereof, the undersigned have caused this agreement to be executed
and delivered by their thereunto duly authorized officers as of the Effective
Date.
HELLER FINANCIAL, INC. JALATE, LTD.
By:__________________________________ By:____________________________________
Title:_______________________________ Title:_________________________________
Effective Date: _____________________
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<PAGE> 1
EXHIBIT 10.63
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT is made and entered into as of June 30, 1997,
by and among JALATE, LTD. ("Company"), HELLER FINANCIAL, INC. ("Factor"), and
WELLS FARGO HSBC TRADE BANK, NATIONAL ASSOCIATION ("Bank"), with reference to
the following facts:
R E C I T A L S
WHEREAS, Company and Factor have entered into that certain Collection
Date Factoring Agreement dated June 30, 1997, as amended, supplemented and
modified from time to time (the "Factoring Agreement"), and that certain
Revolving Loan Agreement dated June 30, 1997, as amended, supplemented and
modified from time to time (the "Loan Agreement"), the Factoring Agreement and
the Loan Agreement being hereinafter collectively referred to as the "Factor
Financing Agreements";
WHEREAS, Company and Bank have entered into certain financing
arrangements (the "Bank Financing Arrangements"); and
WHEREAS, Company desires to assign all monies due under
the Factor Financing Agreements to Bank;
NOW, THEREFORE, in consideration of the mutual covenants set forth
below and other valuable consideration, receipt of which is hereby acknowledged,
the parties agree as follows:
A G R E E M E N T
1. Company hereby sells, assigns and transfers to Bank all right, title
and interest in and to all accounts, general intangibles, monies, credit
balances, and rights to payment now due or which may hereafter become due to
Company under the Factor Financing Agreements, including any' and all advance
payments of the purchase price of accounts receivable, together with all
proceeds thereof, as security for the payment of all debts, obligations and
liabilities, whether now existing or hereafter incurred, absolute or contingent,
of Company to Bank.
2. During the continuation of the Factor Financing Agreements, or any
portion thereof, Company hereby authorizes and directs Factor to remit all
monies payable to Company under the Factor Financing Agreements to Bank for
deposit in Company's Account No. 001-995685 with City National Bank at 400 North
Roxbury Drive, Beverly Hills, California 90210, Attention: Manny Dagan. Payment
when so made and credited by Factor shall constitute full payment of said monies
to Company and Factor shall be without further obligation to Company or Bank
therefor.
<PAGE> 2
3. Notwithstanding this assignment and until Factor receives written
notice from Bank to the contrary, Factor is authorized to make advances to
Company in accordance with the terms of the Factor Financing Agreements and to
debit same against monies due Company under the Factor Financing Agreements.
Factor shall remit all such advances to the account of Company at City National
Bank or Wells Fargo pursuant to Paragraph 2 above.
4. Factor shall, as soon as practicable after the end of each month,
send Bank a copy of its monthly statement rendered to Company for such month,
provided that Factor shall have no liability to Bank for negligently or
inadvertently failing to furnish such copy.
5. Except as specifically provided herein, nothing contained in this
Agreement shall operate to vary any rights that Factor has under the Factor
Financing Agreements, nor shall this Agreement be construed to require Factor to
disburse any funds beyond the' amount payable to Company under the Factor
Financing Agreements.
6. Company hereby irrevocably authorizes and empowers Bank to ask,
demand, receive, receipt and give acquittance for any and all monies hereby
assigned, to endorse any checks or other orders for the payment of money payable
to Company in payment thereof. Company agrees that it will at all times
hereafter at the request of Bank, make, do and execute all such further acts,
agreements, assurances and other documents and instruments as shall be
reasonably required to enable Bank to collect all sums due or to become due
under or in connection with said Factor Financing Agreements, according to the
intent and purpose of this Agreements.
7. Company hereby irrevocably authorizes Factor to recognize Bank's
claims to rights hereunder without investigating the reason for any action taken
by Bank or the validity or the amount of the obligations or the existence of any
default or the application to be made by Bank of any of the amounts paid to
Bank. Company shall indemnify and hold Factor harmless from and against any and
all claims, demands, causes of action, obligations, damages, liabilities, costs
and expenses, including reasonable attorneys, fees, that may be asserted against
or incurred by Factor with respect to or in any way arising from Factor's
compliance with any demand or direction of Bank relating to payment of monies
due under the Factor Financing Agreements.
8. Company represents and warrants that it has not, as of the date
hereof, made, executed or delivered any assignment of the monies covered by this
Agreement, other than assignment(s) in favor of Bank. Factor warrants and
represents that, as of the date hereof, Factor is not party to
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<PAGE> 3
any assignment of the monies covered by this Agreement other than assignment(s)
in favor of Bank.
9. Factor shall not be obligated to make any payment to Bank hereunder,
if any such payment is enjoined, restrained, or stayed by any court or by any
statute or governmental rule or regulation. In the event any conflicting demands
are made upon Factor with respect to monies to be paid hereunder, Factor shall
not be required to determine the same and shall have the right to file suit in
interpleader or for declaratory relief. In the event Factor shall bring any such
action, Company agrees to reimburse Factor for its attorneys' fees, costs and
expenses in connection therewith. In the event Bank shall bring any action to
enforce any provision of this Agreement, Company agrees to reimburse ]Bank for
its reasonable attorneys' fees, costs and expenses in connection therewith.
10. Bank hereby acknowledges that Factor has made no representations or
warranties as to Company's financial condition, business or affairs, nor has
Factor in any way induced Bank to make loans or extend credit to Company.
Furthermore, in so requesting, authorizing and directing Factor to pay to Bank
monies due Company under the Factor Financing Agreements, Company and Bank
acknowledge and agree that Factor has no liability whatsoever to Company or Bank
with respect to Company's obligations and indebtedness to Bank, whether now
existing or hereafter arising, and Company and Bank hereby exonerate and agree,
jointly and severally, to indemnify and hold Factor harmless from and against
any liability for same. Nothing contained herein shall be deemed as effecting a
joint venture, partnership or participation between Factor and Bank.
11. This Agreement is to continue in effect until Factor receives
written notice of termination from Bank, subject, however, to Factor's rights
under the Factor Financing Agreements, which rights include, but are not limited
to, the right to terminate the Factor Financing Agreements in accordance with
the terms thereof.
12. Factor agrees to provide Bank with a copy of any notice of
termination of either of the Factor Financing Agreements which Factor sends to
Company; provided, however, that Factor shall have no liability to Bank for
negligently or inadvertently failing to furnish any such copy. Bank agrees to
provide Factor with a copy of any notice of default or termination under the
Bank Financing Arrangements which Bank sends to Company; provided, however, that
Bank shall have no liability to Factor for negligently or inadvertently failing
to furnish any such copy. Company expressly authorizes the exchange of notices
described in this paragraph.
13. In the event of litigation based upon or arising out
of this Agreement, the prevailing party shall be entitled to
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<PAGE> 4
recover from the non-prevailing party all costs, fees and expenses incurred in
connection with such litigation, including without limitation, attorney's fees.
14. This Agreement may not be modified or amended
without the written consent of Bank and Factor.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA. THIS AGREEMENT REPRESENTS THE COMPLETE
UNDERSTANDING OF THE PARTIES AND IT CANNOT BE MODIFIED, IN WHOLE OR IN PART/
EXCEPT BY A WRITING EXECUTED BY ALL PARTIES. THE PARTIES HERETO WAIVE THE RIGHT
TO TRIAL BY JURY IN ANY ACTION BROUGHT HEREUNDER.
IN WITNESS WHEREOF, the parties hereto, through their duly authorized
officers, have executed this Agreement as of the date and year first above
written.
JALATE, LTD. HELLER FINANCIAL, INC.
By:___________________________________ By:____________________________________
Title:________________________________ Title:_________________________________
WELLS FARGO HSBC TRADE BANK,
NATIONAL ASSOCIATION
By:___________________________________
Title:________________________________
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<PAGE> 1
EXHIBIT 10.64
Current Asset Management Group
Heller Financial, Inc.
505 North Brand Boulevard
Glendale, California 91203-1903
818 409 8600
- --------------------------------------------------------------------------------
HELLER FINANCIAL
June 30, 1997
Jalate, Ltd.
1675 S. Alameda Street
Los Angeles, CA 90021
RE: Revolving Loan Agreement
Gentlemen:
We refer to each of the following agreements between JALATE, LTD. ("Client") and
HELLER FINANCIAL, INC. ("Heller"), each as amended from time to time (the
"Factoring Documents"): that certain Collection Date Factoring Agreement of even
date herewith (the "Factoring Agreement") and any other documents and agreements
between Client and Heller. Capitalized terms not defined in this Agreement shall
have the meaning ascribed to such terms in the Factoring Agreement.
This Revolving Loan Agreement (this "Agreement") shall confirm the agreement
between Heller and Client that, subject to the terms of this Agreement and in
reliance upon the representations and warranties set forth herein, Heller may,
upon Client's request and in Heller's sole discretion, make loans to Client on a
revolving credit basis ("Revolving Loans") in an outstanding aggregate amount of
up to the amounts set forth below during the periods set forth below (the
"Maximum Revolving Loan").
PERIOD MAXIMUM REVOLVING LOAN
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Effective Date through The lesser of:
September 30, 1997
(i) $2,500,000 in excess of the
amount equal to ninety percent
(90%) of the Purchase Price of
outstanding Accounts purchased by
Heller pursuant to the Factoring
Agreement or
(ii) $2,000,000 in excess of the
amount equal to one hundred percent
(100%) of the Purchase Price of
outstanding Accounts purchased by
Heller pursuant to the Factoring
Agreement
<PAGE> 2
Jalate, Ltd.
Page 2
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HELLER FINANCIAL
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October 1, 1997 and thereafter The lesser of:
(i) $2,000,000 in excess of the
amount equal to ninety percent
(90%) of the Purchase Price of
outstanding Accounts purchased by
Heller pursuant to the Factoring
Agreement or
(ii) $1,500,000 in excess of the
amount equal to one hundred percent
(100%) of the Purchase Price of
outstanding Accounts purchased by
Heller pursuant to the Factoring
Agreement
- --------------------------------------------------------------------------------
Amounts borrowed under this Agreement may be repaid and reborrowed at any time,
as set forth in the above table, provided that this Agreement has not been
terminated as provided herein or in the Factoring Agreement.
If at any time during the term of this Agreement the aggregate outstanding
amount of Revolving Loans exceeds the Maximum Revolving Loan, then Client shall
immediately pay to Heller, or Heller may charge Client's account with, such
amount as may be necessary to eliminate such excess.
During the term of this Agreement, upon the request of Heller, in its sole
discretion, Client shall promptly provide to Heller the projected income
statement, balance sheet and statement of cash flows of Client for the
forthcoming ninety (90) day period from the date of such a request.
In order to induce Heller to make Revolving Loans, Client represents and
warrants to Heller that the following statements are and will be true, correct,
and complete:
(a) There are no judgments outstanding or affecting any of
Client's property nor is there any action, charge, claim,
demand, suit, proceeding, petition, governmental investigation
or arbitration now pending or, to the best of Client's
knowledge after due inquiry, threatened against or affecting
Client or any of its property which could reasonably be
expected to result in any material adverse effect. Client has
not received any opinion or memorandum or legal advice from
legal counsel to the effect that it is exposed to any
liability or disadvantage which could reasonably be expected
to result in any material adverse effect.
(b) All of Client's material tax returns and reports required to
be filed have been timely filed, and all taxes, assessments,
fees and other governmental charges upon Client and upon its
properties, assets, income and franchises which are shown on
such returns as due and payable have been paid when due and
payable. None of Client's United States income tax returns are
under audit and no tax liens have been filed and no claims are
being asserted with respect to any such taxes. The charges,
accruals and reserves on Client's
<PAGE> 3
Jalate, Ltd.
Page 3
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HELLER FINANCIAL
books in respect of any taxes or other governmental charges
are in accordance with GAAP.
(c) Client is not in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions
contained in any contractual obligation between Client and any
person or entity, and no condition exists that, with the
giving of notice or the lapse of time or both, would
constitute such a default.
(d) Client has been and is currently in compliance with all
applicable environmental laws, including obtaining and
maintaining in effect all permits, licenses or other
authorizations required by applicable environmental laws.
There are no claims, liabilities, investigations, litigation,
administrative proceedings, whether pending or threatened, or
judgments or orders relating to any hazardous materials
asserted or threatened against Client or relating to any real
property currently or formerly owned, leased or operated by
Client.
This Agreement shall terminate (a) one year from the Effective Date or any time
thereafter upon either party giving the other at least sixty (60) days prior
written notice of its election to terminate or (b) on the date the Factoring
Agreement is terminated (the date which is the earlier to occur of (a) and (b)
shall hereinafter be referred to as the "Termination Date"). All obligations
owing by Client to Heller under this Agreement including, without limitation,
the obligation to repay Revolving Loans and to pay interest as provided herein
shall be due and payable by Client on the Termination Date. All obligations
owing by Client to Heller under this Agreement may, at Heller's option, be
charged to Client's account.
All obligations owing by Client to Heller hereunder are Obligations under the
Factoring Agreement and shall be secured by all collateral of Client in which
Heller has been granted a security interest under the Factoring Documents and
any other agreement between Client and Heller (the "Collateral").
Interest shall be charged on the daily balance of all Revolving Loans and shall
be calculated daily at the rate per annum (meaning 360 days) equal to the
Interest Rate defined in the Factoring Agreement. Interest will be payable by
Client or, at Heller's option, charged to Client's account monthly at the end of
each month. After the occurrence of a default or event of default under this
Agreement and after any applicable cure period, the Revolving Loans and all
other obligations under this Agreement shall, at the option of Heller, bear
interest at a rate per annum equal to two and one half percent (2.5%) plus the
Interest Rate.
Failure by Client to repay Revolving Loans or to pay interest thereon pursuant
to the terms of this Agreement or to comply with any other term or provision of
this Agreement shall constitute an event of default under the Factoring
Agreement and the Factoring Documents. Any event of default under the Factoring
Agreement or the Factoring Documents shall constitute a default under this
Agreement. After the occurrence of any default or event of default and after any
applicable cure period, Heller shall have the right to terminate this Agreement,
the Factoring Agreement and the Factoring Documents and to demand payment in
full from Client of all of Client's liabilities, indebtedness and obligations to
Heller.
If at any time or times on or after a default hereunder Heller employs counsel
(a) to advise or represent Heller with respect to the Collateral, this
Agreement, or any other agreement between Heller and Client, (b) to represent
Heller in any litigation, contest, dispute, suit or proceeding, including any
proceeding
<PAGE> 4
Jalate, Ltd.
Page 4
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HELLER FINANCIAL
under federal bankruptcy laws or any other insolvency or receivership laws, or
to commence, defend or intervene or to take any other action in or with respect
to any litigation, contest, dispute, suit or proceeding (whether instituted by
Heller, Client or any other person) in any way or respect relating to the
Collateral, this Agreement, or any other agreement between Heller and Client,
(c) to enforce any rights of Heller against Client or any other person which may
be obligated to Heller by virtue of this Agreement or any other agreement
between Heller and Client, (d) to protect, collect, sell, liquidate or otherwise
dispose of the Collateral, and/or (e) to attempt to or to enforce Heller's
security interest in the Collateral, then Client shall pay to Heller on demand
all reasonable attorneys' fees of outside counsel retained by Heller and, in
addition, in the event of a fraud by Client, all allocated costs of Heller's
internal counsel, together with all expenses, costs, charges and other fees in
excess of $5,000 incurred by such counsel or by Heller in any way or respect
arising in connection with or relating to any of the events described in this
paragraph.
This Agreement cannot be changed or terminated orally; it constitutes the entire
agreement between Client and Heller and shall be binding upon their respective
successors and assigns, but may not be assigned by Client without Heller's prior
written consent. No delay or failure on Heller's part in exercising any right,
privilege, or option hereunder shall operate as a waiver thereof or of any other
right, privilege or option. No waiver whatsoever shall be valid unless in
writing, signed by Heller, and then only to the extent therein set forth. If any
term or provision of this Agreement is held invalid under any statute, rule or
regulation of any jurisdiction competent to make such a decision, the remaining
terms and provisions shall not be affected, but shall remain in full force and
effect.
THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF CALIFORNIA. CLIENT HEREBY CONSENTS TO THE JURISDICTION OF ANY
LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN THE STATE OF CALIFORNIA. IF CLIENT
PRESENTLY IS, OR IN THE FUTURE BECOMES, A NONRESIDENT OF THE STATE OF
CALIFORNIA, CLIENT HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND
AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED OR REGISTERED
MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO CLIENT, AT ITS ADDRESS APPEARING IN
HELLER'S RECORDS AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE
SAME HAS BEEN POSTED AS AFORESAID.
CLIENT AND HELLER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, OR ANY
OTHER DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT, OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION AND THE BUSINESS
RELATIONSHIP THAT IS BEING ESTABLISHED. CLIENT AND HELLER ACKNOWLEDGE THAT THIS
WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH
HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH
WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. CLIENT AND
HELLER FURTHER WARRANT AND REPRESENT THAT THEY
<PAGE> 5
Jalate, Ltd.
Page 5
- --------------------------------------------------------------------------------
HELLER FINANCIAL
KNOWINGLY AND VOLUNTARILY WAIVE THEIR RESPECTIVE JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
Sincerely, Accepted and Agreed:
HELLER FINANCIAL, INC. JALATE, LTD.
By:__________________________________ By:_____________________________________
Title:_______________________________ Title:__________________________________
<PAGE> 1
EXHIBIT 10.65
================================================================================
CREDIT AGREEMENT
by and between
JALATE LIMITED, INC., a California corporation
and
WELLS FARGO HSBC TRADE BANK, N.A.
Dated as of
May 31, 1997
================================================================================
Exhibit A - Addendum to Agreement
Exhibit B - Facility Supplement(s)
Exhibit C - Collateral/Credit Support Document
<PAGE> 2
COLLATERAL DOCUMENTS:
Security Agreement: Rights to Payment and Inventory
UCC-1 Financing Statement
UCC-3 Search
INTERCREDITOR AGREEMENT: The creditor or creditors named below under
the heading "Collateral Documents" will enter into an intercreditor
arrangement with Trade Bank with respect to the Obligations under this
Facility.
COLLATERAL DOCUMENTS:
Intercreditor Agreement with Heller Financial,
Inc.
BY INITIALING HERE BORROWER AGREES TO ALL THE TERMS OF THIS
EXHIBIT:______________
2
<PAGE> 3
WELLS FARGO HSBC TRADE BANK CREDIT AGREEMENT
- --------------------------------------------------------------------------------
JALATE LIMITED, INC., a California corporation ("Borrower"), organized under the
laws of the State of California whose chief executive office is located at the
address specified after its signature to this Agreement ("Borrower's Address")
and WELLS FARGO HSBC TRADE BANK, N.A. ("Trade Bank"), whose address is specified
after its signature to this Agreement, have entered into this CREDIT AGREEMENT
as of May 31, 1997 ("Effective Date"). All references to this "Agreement"
include those covenants included in the Addendum to Agreement ("Addendum")
attached as Exhibit A hereto.
I. CREDIT FACILITIES
1.1 THE FACILITIES. Subject to the terms and conditions of this
Agreement, Trade Bank will make available to Borrower each of those credit
facilities ("Facilities") for which a Facility Supplement ("Supplement") is
attached as Exhibit B hereto. Additional terms for each individual Facility (and
each subfacility thereof ("Subfacility")) are set forth in the Supplement for
that Facility. Each Facility will be available from the Closing Date until the
Facility Termination Date for that Facility. Collateral and credit support
required for each Facility are also set forth in the Supplement for each
Facility. Definitions for those capitalized terms not otherwise defined are
contained in Article 8 below.
1.2 CREDIT EXTENSION LIMIT. The aggregate outstanding amount of all
Credit Extensions may at no time exceed Four Million Dollars (4,000,000)
("Overall Credit Limit"). The aggregate outstanding amount of all Credit
Extensions outstanding at any time under any Facility may not exceed that amount
specified as the "Credit Limit" in the Supplement for that Facility, and the
aggregate outstanding amount of all Credit Extensions outstanding at any time
under each Subfacility (or any subcategory thereof) may not exceed that amount
specified as the "Credit Sublimit" in the Supplement for the relevant Facility.
An amount equal to 100% of each unfunded Credit Extension shall be used in
calculating the outstanding amount of Credit Extensions under this Agreement.
1.3 REPAYMENT; INTEREST AND FEES. Each funded Credit Extension shall be
repaid by Borrower, and shall bear interest from the date of disbursement at
those per annum rates and such interest shall be paid, at the times specified in
the applicable Supplement, Note or Facility Document. With respect to each
Facility, Borrower agrees to pay to Trade Bank the fees specified in the related
Supplement as well as those fees specified in the relevant Facility Document(s).
Interest and fees will be calculated on the basis of a 360 day year, actual days
elapsed. Any overdue payments of principal (and interest
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to the extent permitted by law) shall bear interest at a per annum floating rate
equal to the Prime Rate plus 5.0%.
1.4 PREPAYMENTS. Credit Extensions under any Facility may only be
prepaid in accordance with the terms of the related Supplement. At the time of
any prepayment (including, but not limited to, any prepayment which is a result
of the occurrence of an Event of Default and an acceleration of the Obligations)
Borrower will pay to Trade Bank all interest accrued on the amount so prepaid to
the date of such prepayment and all costs, expenses and fees specified in the
Loan Documents.
II. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Trade Bank that the following
representations and warranties are true and correct:
2.1 LEGAL STATUS. Borrower is duly organized and existing and in good
standing under the laws of the jurisdiction indicated in this Agreement, and is
qualified or licensed to do business in all jurisdictions in which such
qualification or licensing is required and in which the failure to so qualify or
to be so licensed could have a material adverse affect on Borrower.
2.2 AUTHORIZATION AND VALIDITY. The execution, delivery and
performance of this Agreement, and all other Loan Documents to which Borrower is
a party, have been duly and validly authorized, executed and delivered by
Borrower and constitute legal, valid and binding agreements of Borrower, and are
enforceable against Borrower in accordance with their respective terms.
2.3 BORROWER'S NAME. The name of Borrower set forth at the end of
this Agreement is its correct name. If Borrower is conducting business under a
fictitious business name, Borrower is in compliance with all laws relating to
the conduct of such business under such name.
2.4 FINANCIAL CONDITION AND STATEMENTS. All financial statements of
Borrower delivered to Trade Bank have been prepared in conformity with GAAP, and
completely and accurately reflect the financial condition of Borrower (and any
consolidated Subsidiaries) at the times and for the periods stated in such
financial statements. Neither Borrower nor any Subsidiary has any material
contingent liability not reflected in the aforesaid financial statement. Since
the date of the financial statements delivered to Trade Bank for the last fiscal
period of Borrower to end before the Effective Date, there has been no material
adverse change in the financial condition, business or prospects of Borrower.
Borrower is solvent.
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2.5 LITIGATION. Except as disclosed in writing to Trade Bank prior to
the Effective Date, there is no action, claim, suit, litigation, proceeding or
investigation pending or (to best of Borrower's knowledge) threatened by or
against or affecting Borrower or any Subsidiary in any court or before any
governmental authority, administrator or agency which may result in (a) any
material adverse change in the financial condition or business of Borrower, or
(b) any material impairment of the ability of Borrower to carry on its business
in substantially the same manner as it is now being conducted.
2.6 OTHER OBLIGATIONS. Except as disclosed in writing to Trade Bank
prior to the Effective Date, neither Borrower nor any Subsidiary are in default
of any obligation for borrowed money, any purchase money obligation or any
material lease, commitment, contract, instrument or obligation.
2.7 NO DEFAULTS. No Event of Default, and event which with the
giving of notice or the passage of time or both would constitute an Event of
Default, has occurred and is continuing.
2.8 INFORMATION PROVIDED TO TRADE BANK. The information provided to
the Trade Bank concerning Borrower's business is true and correct.
2.9 ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in
writing prior to the Effective Date, Borrower (as well as any Subsidiary) is
each in compliance in all material respects with all applicable Federal or state
environmental, hazardous waste, health and safety statutes, and any rules or
regulations adopted pursuant thereto, which govern or affect any of Borrower's
or any Subsidiary's operations and/or properties, including without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal
Resource Conservation and Recovery Act of 1976, the Federal Toxic Substances
Control Act and the California Health and Safety Code, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower or of any Subsidiary is the subject of any Federal or state
investigation evaluating whether any remedial action involving a material
expenditure is needed to respond to a release of any toxic or hazardous waste or
substance into the environment.
III. CONDITIONS TO EXTENDING FACILITIES
3.1 Conditions to Initial Credit Extension. The obligation of Trade
Bank to make the first Credit Extension is subject to the fulfillment to Trade
Bank's satisfaction of the following conditions:
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(a) APPROVAL OF TRADE BANK COUNSEL. All legal matters relating
to making the Facilities available to Borrower must be
satisfactory to counsel for Trade Bank.
(b) DOCUMENTATION. Trade Bank must have received, in form and
substance satisfactory to Trade Bank, the following
documents and instruments duly executed and in full force
and effect:
(1) a corporate borrowing resolution and incumbency
certificate if Borrower is a corporation, a partnership
or joint venture borrowing certificate if Borrower is a
partnership or joint venture, and a limited liability
company borrowing certificate if Borrower is a limited
liability company;
(2) the Facility Documents for each Facility, including,
but not limited to, note(s) ("Notes") for any Revolving
Credit or Term Loan Facility, Trade Bank's standard
Continuing Commercial Letter of Credit Agreement or
Continuing Standby Letter of Credit Agreement for any
letter of credit Facility;
(3) those guarantees, security agreements, deeds of trust,
subordination agreements, intercreditor agreements,
factoring agreements, tax service contracts, and other
Collateral Documents required by Trade Bank to evidence
the collateral/credit support specified in the
Supplement;
(4) if an audit or inspection of any books, records or
property is specified in the Supplement for any
Facility, an audit or inspection report from Wells
Fargo or another auditor or inspector acceptable to
Trade Bank reflecting values and property conditions
satisfactory to Trade Bank;
(5) if an appraisal of any real property is specified in
any Facility Supplement, an appraisal from an appraiser
acceptable to Trade Bank reflecting values satisfactory
to Trade Bank;
(6) if a policy of title insurance is specified in any
Facility Supplement, an ALTA policy containing the
endorsements, and issued by a company, acceptable to
Trade Bank; and
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(7) if insurance is required in the Addendum, the insurance
policies specified in the Addendum (or other
satisfactory proof thereof) from insurers acceptable to
Trade Bank.
3.2 CONDITIONS TO MAKING EACH CREDIT EXTENSION. The obligation of
Trade Bank to make each Credit Extension is subject to the fulfillment to Trade
Bank's satisfaction of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in this Agreement, the Facility
Documents and the Collateral Documents will be true and
correct on as of the date of the Credit Extension with the
same effect as though such representations and warranties
had been made on and as of such date;
(b) DOCUMENTATION. Trade Bank must have received, in form and
substance satisfactory to Trade Bank, the following
documents and instruments duly executed and in full force
and effect:
(1) if the Credit Extension is the issuance of a Commercial
Letter of Credit, Trade Bank's standard Application For
Commercial Letter of Credit or standard Application and
Agreement For Commercial Letter of Credit;
(2) if the Credit Extension is the issuance of a Standby
Letter of Credit, Trade Bank's standard Application For
Standby Letter of Credit or standard Application and
Agreement For Standby Letter of Credit;
(3) if a Borrowing Base Certificate is required for the
Credit Extension, a Borrowing Base Certificate
demonstrating compliance with the requirements for such
Credit Extension.
(c) FEES. Trade Bank must have received any fees required by
the Loan Documents to be paid at the time such Credit
Extension is made.
IV. AFFIRMATIVE COVENANTS
Borrower covenants that so long as Trade Bank remains committed to make
Credit Extensions to Borrower, and until payment of all Obligations and Credit
Extensions, Borrower will comply with each of the following covenants: (For
purposes of this Article IV, and Article V below, reference to "Borrower"
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may also extend to Borrower's subsidiaries, if so specified in
the Addendum.)
4.1 PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees
and other Obligations due under this Agreement or under any Loan Document at the
time and place and in the manner specified herein or therein.
4.2 NOTIFICATION TO TRADE BANK. Promptly, but in no event more than
5 calendar days after the occurrence of each such event, provide written notice
in reasonable detail of each of the following:
(a) OCCURRENCE OF A DEFAULT. The occurrence of any Event of
Default or any event which with the giving of notice or the
passage of time or both would constitute an Event of
Default;
(b) BORROWER'S TRADE NAMES; PLACE OF BUSINESS. Any change of
Borrower's (or any Subsidiary's) name, trade name or place
of business, or chief executive officer;
(c) LITIGATION. Any action, claim, proceeding, litigation or
investigation threatened or instituted by or against or
affecting Borrower (or any Subsidiary) in any court or
before any government authority, administrator or agency
which may materially and adversely affect Borrower's (or any
Subsidiary's) financial condition or business or Borrower's
ability to carry on its business in substantially the same
manner as it is now being conducted;
(d) UNINSURED OR PARTIALLY UNINSURED LOSS. Any uninsured or
partially uninsured loss through liability or property
damage or through fire, theft or any other cause affecting
Borrower's (or any Subsidiary's) property in excess of the
aggregate amount required hereunder;
(e) REPORTS MADE TO INSURANCE COMPANIES. Copies of all material
reports made to insurance companies; and
(f) ERISA. The occurrence and nature of any Reportable Event or
Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan.
4.3 BOOKS AND RECORDS. Maintain at Borrower's address books and
records in accordance with GAAP, and permit any representative of Trade Bank, at
any reasonable time, to
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inspect, audit and examine such books and records, to make copies of them, and
to inspect the properties of Borrower.
4.4 TAX RETURNS AND PAYMENTS. Timely file all tax returns and reports
required by foreign, federal, state and local law, and timely pay all foreign,
federal, state and local taxes, assessments, deposits and contributions owed by
Borrower. Borrower may, however, defer payment of any contested taxes, provided
that Borrower (i) good faith contests Borrower's obligation to pay the taxes by
appropriate proceedings promptly instituted and diligently conducted, (ii)
notifies Trade Bank in writing of the commencement of, and any material
development in, the proceedings, (iii) posts bonds or takes any other steps
required to keep the contested taxes from becoming a lien upon any of the
Collateral, and (iv) makes provision, to Trade Bank's satisfaction, for eventual
payment of such taxes in the event Borrower is obligated to make such payment.
4.5 COMPLIANCE WITH LAWS. Comply in all material respects with the
provisions of all foreign, federal, state and local laws and regulations
relating to Borrower, including, but not limited to, those relating to
Borrower's ownership of real or personal property, the conduct and licensing of
Borrower's business, and health and environmental matters.
4.6 INSURANCE. Maintain and keep in force insurance of the types and
in amounts customarily carried in lines of business similar to that of Borrower,
including, but not limited to, fire, extended coverage, public liability, flood,
property damage and workers' compensation, with all such insurance to be in
amounts satisfactory to Trade Bank and to be carried with companies approved by
Trade Bank before such companies are retained, and deliver to Trade Bank from
time to time at Trade Bank's request schedules setting forth all insurance then
in effect. All insurance policies shall name Trade Bank as an additional loss
payee, and shall contain a lenders loss payee endorsement in form reasonably
acceptable to Trade Bank. (Upon receipt of the proceeds of any such insurance,
Trade Bank shall apply such proceeds in reduction of the outstanding funded
Credit Extensions and shall hold any remaining proceeds as collateral for the
outstanding unfunded Credit Extensions, as Trade Bank shalt determine in its
sole discretion, except that, provided no Event of Default has occurred, Trade
Bank shall release to Borrower insurance proceeds with respect to equipment
totaling less than $100,000, which shall be utilized by Borrower for the
replacement of the equipment with respect to which the insurance proceeds were
paid, if Trade Bank receives reasonable assurance that the insurance proceeds so
released will be so used.) If Borrower fails to provide or pay for any
insurance, Trade Bank may, but is not obligated to, obtain the insurance at
Borrower's expense.
4.7 FURTHER ASSURANCES. At Trade Bank's request and in form and
substance satisfactory to Trade Bank, execute all
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documents and take all such actions at Borrower's expense as Trade Bank may deem
reasonably necessary or useful to perfect and maintain Trade Bank's perfected
security interest in the Collateral and in order to fully consummate all of the
transactions contemplated by the Loan Documents.
V. NEGATIVE COVENANTS
Borrower covenants that so long as Trade Bank remains committed to make
any Credit Extensions to Borrower and all Obligations and Credit Extensions have
been paid, Borrower will not:
5.1 MERGE OR CONSOLIDATION, Transfer of Assets. Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business.
5.2 LIENS. Except for Permitted Liens, mortgage, pledge, grant or
permit to exist a security interest in, or lien upon, all or any portion of
Borrower's assets now owned or hereafter acquired.
5.3 USE OF PROCEEDS. Borrower will not use the proceeds of any Credit
Extension except for the purposes, if any, specified for such Credit Extension
in the Supplement covering the Facility under which such Credit Extension is
made.
VI. EVENTS OF DEFAULT AND REMEDIES
6.1 EVENTS OF DEFAULT. The occurrence of any of the
following shall constitute an "Event of Default":
(a) FAILURE TO MAKE PAYMENTS WHEN DUE. Borrower's failure to
pay principal, interest, fees or other amounts when due
under any Loan Document.
(b) FAILURE TO PERFORM OBLIGATIONS. Any failure by Borrower to
comply with any covenant or obligation in this Agreement or
in any Loan Document (other than those referred to in
subsection (a) above), and such default shall continue for
a period of twenty calendar days from the earlier of (i)
Borrower's failure to notify Trade Bank of such Event of
Default pursuant to Section 4.2(a) above, or (ii) Trade
Bank's notice to Borrower of such Event of Default.
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(c) UNTRUE OR MISLEADING WARRANTY OR STATEMENT. Any warranty,
representation, financial statement, report or certificate
made or delivered by Borrower under any Loan Document is
untrue or misleading in any material respect when made or
delivered.
(d) DEFAULTS UNDER OTHER LOAN DOCUMENTS. Any "Event of Default"
occurs under any other Loan Document; any Guaranty is no
longer in full force and effect (or any claim thereof made
by Guarantor) or any failure of a Guarantor to comply with
the provisions thereof; or any breach of the provisions of
any Subordination Agreement or Intercreditor Agreement by
any party other than the Trade Bank.
(e) DEFAULTS UNDER OTHER AGREEMENTS OR INSTRUMENTS. Any default
in the payment or performance of any obligation, or the
occurrence of any event of default, under the terms of any
other agreement or instrument pursuant to which Borrower,
any Subsidiary or any Guarantor or general partner of
Borrower has incurred any debt or other material liability
to any person or entity.
(f) CONCEALING OR TRANSFERRING PROPERTY. Borrower conceals,
removes or transfers any part of its property with intent to
hinder, delay or defraud its creditors, or makes or suffers
any transfer of any of its property which may be fraudulent
under any bankruptcy, fraudulent conveyance or similar law.
(g) JUDGMENTS AND LEVIES AGAINST BORROWER. The filing of a
notice of judgment lien against Borrower, or the recording
of any abstract of judgment against Borrower, in any county
in which Borrower has an interest in real property, or the
service of a notice of levy and/or of a writ of attachment
or execution, or other like process, against the assets of
Borrower, or the entry of a judgment against Borrower.
(h) EVENT OR CONDITION IMPAIRING PAYMENT OR PERFORMANCE. Any
event occurs or condition arises which Trade Bank in good
faith believes impairs or is substantially likely to impair
the prospect of payment or performance by Borrower of the
Obligations, including, but not limited to any material
adverse change in Borrower's financial condition, business
or prospects.
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(i) VOLUNTARY INSOLVENCY. Borrower, any Subsidiary or any
Guarantor (i) becomes insolvent, (ii) suffers or consents to
or applies for the appointment of a receiver, trustee,
custodian or liquidator of itself or any of its property,
(iii) generally fails to pay its debts as they become due,
(iv) makes a general assignment for the benefit of
creditors, or (v) files a voluntary petition in bankruptcy,
or seeks reorganization, in order to effect a plan or other
arrangement with creditors or any other relief under the
Bankruptcy Reform Act, Title 11 of the United States Code,
as amended or recodified from time to time ("Bankruptcy
Code"), or under any state or Federal law granting relief to
debtors, whether now or hereafter in effect.
(j) INVOLUNTARY INSOLVENCY. Any involuntary petition or
proceeding pursuant to the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors is filed or
commenced against Borrower, any Subsidiary or Guarantor, or
(b) have an order for relief entered against it by any court
of competent jurisdiction under the Bankruptcy Code or any
other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors.
(k) CHANGE IN OWNERSHIP. Any change in the ownership of
Borrower, any general partner of Borrower or any Guarantor
which the Trade Bank determines, in its sole discretion, may
adversely affect the creditworthiness of Borrower or credit
support for the Obligations.
6.2 REMEDIES. Upon the occurrence of any Event of Default, or at any
time thereafter, Trade Bank, at its option, and without notice or demand of any
kind (all of which are hereby expressly waived by Borrower), may do any one or
more of the following: (a) terminate Trade Bank's obligation to make Credit
Extensions or to make available to Borrower the Facilities or other financial
accommodations; (b) accelerate and declare all or any part of the Obligations to
be immediately due, payable, and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Credit Extension; and/or (c) exercise all its rights, powers and remedies
available under the Loan Documents, or accorded by law, including, but not
limited to, the right to resort to any or all Collateral or other security for
any of the Obligations and to exercise any or all of the rights of a beneficiary
or secured party pursuant to applicable law.
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Notwithstanding the provisions in the foregoing sentence, if any Event of
Default set out in subsections (i) and (j) of Section 6.1 above shall occur,
then all the remedies specified in the preceding sentence shall automatically
take effect without notice or demand of any kind (all of which are hereby
expressly waived by Borrower) with respect to any and all Obligations. All
rights, powers and remedies of Trade Bank may be exercised at any time by Trade
Bank and from time to time after the occurrence of an Event of Default, are
cumulative and not exclusive, and shall be in addition to any other rights,
powers or remedies provided by law or equity.
VII. GENERAL PROVISIONS
7.1 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given personally or by regular first-class mail, by
certified mail return receipt requested, by a private delivery service which
obtains a signed receipt, or by facsimile transmission addressed to Trade Bank
or Borrower at the address indicated after their signature to this Agreement, or
at any other address designated in writing by one party to the other party.
Trade Bank is hereby authorized by Borrower to act on such instructions or
notices sent by facsimile transmission or telecommunications device which Trade
Bank believes come from Borrower. All notices shall be deemed to have been given
upon delivery, in the case of notices personally delivered or delivered by
private delivery service, upon the expiration of 3 calendar days following the
deposit of the notices in the United States mail, in the case of notices
deposited in the United States mail with postage prepaid, or upon receipt, in
the case of notices sent by facsimile transmission.
7.2 WAIVERS. No delay or failure of Trade Bank in exercising any
right, power or remedy under any of the Loan Documents shall affect or operate
as a waiver of such right, power or remedy; nor shall any single or partial
exercise of any such right, power or remedy preclude, waive or otherwise affect
any other or further exercise thereof or the exercise of any other right, power
or remedy. Any waiver, consent or approval by Trade Bank under any of the Loan
Documents must be in writing and shall be effective only to the extent set out
in such writing.
7.3 BENEFIT OF AGREEMENT. The provisions of the Loan Documents shall
be binding upon and inure to the benefit of the respective successors, assigns,
heirs, executors, administrators, beneficiaries and legal representatives of
Borrower and Trade Bank; provided, however, that Borrower may not assign or
transfer any of its rights under any Loan Document without the prior written
consent of Trade Bank, and any prohibited assignment shall be void. No consent
by Trade Bank to any assignment shall release Borrower from its liability for
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the Obligations unless such release is specifically given by Trade Bank to
Borrower in writing. Trade Bank reserves the right to sell, assign, transfer,
negotiate or grant participations in all or any part of, or any interest in,
Trade Bank's rights and benefits under each of the Loan Documents. In connection
therewith, Trade Bank may disclose any information relating to the Facilities,
Borrower or its business, or any Guarantor or its business.
7.4 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than
one person or entity, the liability of each of them shall be joint and several,
and the compromise of any claim with, or the release of, any one such Borrower
shall not constitute a compromise with, or a release of, any other such
Borrower.
7.5 NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered
into for the sole protection and benefit of Borrower and Trade Bank and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, any of the Loan Documents to which it is not a
party.
7.6 GOVERNING LAW AND JURISDICTION. This Agreement shall, unless
provided differently in any Loan Document, be governed by, and be construed in
accordance with, the internal laws of the State of California, except to the
extent Trade Bank has greater rights or remedies under federal law whether as a
national bank or otherwise. Borrower and Trade Bank (a) agree that all actions
and proceedings relating directly or indirectly to this Agreement shall be
litigated in courts located within California; (b) consent to the jurisdiction
of any such court and consent to service of process in any such action or
proceeding by personal delivery or any other method permitted by law; and (c)
waive any and all rights Borrower may have to object to the jurisdiction of any
such court or to transfer or change the venue of any such action or proceeding.
7.7 SEVERABILITY. Should any provision of any Loan Document be
prohibited by, or invalid under applicable law, or held by any court of
competent jurisdiction to be void or unenforceable, such defect shall not
affect, the validity of the other provisions of the Loan Documents.
7.8 ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other Loan
Documents are the final, entire and complete agreement between Borrower and
Trade Bank concerning the Credit Extensions and the Facilities; supersede all
prior and contemporaneous negotiations and oral representations and agreements.
There are no oral understandings, representations or agreements between the
parties concerning the Credit Extensions or the Facilities which are not set
forth in the Loan Documents. This Agreement and the Supplements may not be
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waived, amended or superseded except in a writing executed by Borrower and Trade
Bank.
7.9 COLLECTION OF PAYMENTS. Unless otherwise specified in any Loan
Document, other than this Agreement or any Note, all principal, interest and any
fees due to Trade Bank by Borrower under this Agreement, the Addendum, any
Supplement, any Facility Document, any Collateral Document or any Note, will be
paid by Trade Bank having Wells Fargo debit any of Borrower's accounts with
Wells Fargo and forwarding such amount debited to Trade Bank, without
presentment, protest, demand for reimbursement or payment, notice of dishonor or
any other notice whatsoever, all of which are hereby expressly waived by
Borrower. Such debit will be made at the time principal, interest or any fee is
due to Trade Bank pursuant to this Agreement, the Addendum, any Supplement, any
Facility Document, any Collateral Document or any Note.
7.11 COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower will reimburse
Trade Bank for all costs and expenses, including, but not limited to, reasonable
attorneys' fees and expenses (which counsel may be Trade Bank or Wells Fargo
employees), expended or incurred by Trade Bank in the preparation and
negotiation of this Agreement, the Notes, the Collateral Documents, the Addenda,
and the Facility Documents, in amending this Agreement, the Collateral
Documents, the Notes, the Addenda, or the Facility Documents, in collecting any
sum which becomes due Trade Bank on the Notes, under this Agreement, the
Collateral Documents, the Addenda, the Supplements, or any of the Facility
Documents, in the protection, perfection, preservation and enforcement of any
and all rights of Trade Bank in connection with this Agreement, the Notes, any
of the Collateral Documents, any of the Supplements, any of the Addenda, or any
of the Facility Documents, including, without limitation, the fees and costs
incurred in any out-of-court work out or a bankruptcy or reorganization
proceeding.
VIII. DEFINITIONS
8.1 "AGREEMENT" means this Agreement and the Addendum attached
hereto, as corrected or modified from time to time by Trade Bank and Borrower.
8.2 "BANKING DAY" means each day except Saturday, Sunday and a day
specified as a holiday by federal or California statute.
8.3 "CLOSING DATE" means the date on which the first Credit Extension
is made.
8.4 "COLLATERAL" means all property securing the Obligations.
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8.5 "COLLATERAL DOCUMENTS" means those security agreement(s), deed(s)
of trust, guarantee(s), subordination agreement(s), intercreditor agreement(s),
and other credit support documents and instruments required by the Trade Bank to
effect the collateral and credit support requirements set forth in the
Supplement with respect to the Facilities.
8.6 "CREDIT EXTENSION" means each extension of credit under the
Facilities (whether funded or unfunded), including, but not limited to, (a) the
issuance of sight or usance commercial letters of credit or commercial letters
of credit supported by backup letters of credit, (b) the issuance of standby
letters of credit, (c) the issuance of shipping guarantees, (d) the making of
loans against imports for letters of credit, (e) the making of clean import
loans outside letters of credit, (f) the making of advances against export
orders, (g) the making of advances against outgoing collections, (h) the making
of revolving credit working capital loans, (i) the making of term loans, (j) the
discounting of drafts or foreign receivables with recourse, (k) the discounting
or purchasing of promissory notes with recourse to Borrower, and (l) the entry
into foreign exchange contracts.
8.7 "CREDIT LIMIT" means, with respect to any Facility, the amount
specified under the column labeled "Credit Limit" in the Supplement for that
Facility.
8.8 "CREDIT SUBLIMIT" means, with respect to any Subfacility, the
amount specified after the name of that Subfacility under the column labeled
"Credit Sublimit" in the Supplement for the related Facility.
8.9 "DOLLARS" and "$" means United States dollars.
8.10 "FACILITY DOCUMENTS" means, with respect to any Facility, those
documents specified in the Supplement for that Facility, and any other documents
customarily required by Trade Bank for such Facility.
8.11 "FACILITY TERMINATION DATE" means, with respect to any Facility,
the date specified in the Supplement for that Facility after which no further
Credit Extensions will be made under that Facility.
8.12 "GAAP" means generally accepted accounting principles, which are
applicable to the circumstances, as of the date of determination, set out in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and in the statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession.
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8.13 "LOAN DOCUMENTS" means this Agreement, the Addendum, the
Supplements, the Facility Documents and the Collateral Documents.
8.14 "NOTE" has the meaning specified in Section 3.1 (b)(2) above.
8.15 "OBLIGATIONS" means (a) the obligation of Borrower to pay
principal, interest and fees on all funded Credit Extensions and fees on all
unfunded Credit Extensions, and (b) the obligation of Borrower to pay and
perform when due all other indebtedness, liabilities, obligations and covenants
required under the Loan Documents.
8.16 "PERMITTED LIENS" shall have the meaning provided in the
Addendum.
8.17 "PERSON" means and includes natural persons, corporations,
limited partnerships, general partnerships, joint stock companies, joint
ventures, associations, companies, trusts, banks, trust companies, land trusts,
business trusts or other organizations, whether or not legal entities, and
governments and agencies and political subdivisions thereof.
8.18 "PRIME RATE" means the rate most recently announced by Wells
Fargo at its principal office in San Francisco, California as its "Prime Rate",
with the understanding that the Prime Rate is one of Wells Fargo's base rates
and serves as the basis upon which effective rates of interest are calculated
for those loans making reference thereto, and is evidenced by the recording
thereof after its announcement in such internal publication or publications as
Wells Fargo may designate. Any change in an interest rate resulting from a
change in the Prime Rate shall become effective as of 12:01 a.m. of the Banking
Day on which each change in the Prime Rate is announced by Wells Fargo.
8.19 "SUBSIDIARY" means (i) any corporation at least the majority of
whose securities having ordinary voting power for the election of directors
(other than securities having such power only by reason of the happening of a
contingency) are at the time owned by Borrower and/or one or more Subsidiaries,
and (ii) any joint venture or partnership in which Borrower and/or one or more
Subsidiaries has a majority interest.
8.20 "WELLS FARGO" means Wells Fargo Bank, N.A.
IX. ARBITRATION
9.01 ARBITRATION. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in 9.05 below) in
accordance with the terms of this
17
<PAGE> 18
Agreement. A "Dispute" shall mean any action, dispute, claim or controversy of
any kind, whether in contract or tort, statutory or common law, legal or
equitable, now existing or hereafter arising under or in connection with, or in
any way pertaining to, any of the Loan Documents or the Notes, or any past,
present or future extensions of credit and other activities, transactions or
obligations of any kind related directly or indirectly to any of the Loan
Documents or the Notes, including without limitation, any of the foregoing
arising in connection with the exercise of any self-help, ancillary or other
remedies pursuant to any of the Loan Documents or the Notes. Any party may by
summary proceedings bring an action in court to compel arbitration of a Dispute.
Any party who fails or refuses to submit to arbitration following a lawful
demand by any other party shall bear all costs and expenses incurred by such
other party in compelling arbitration of any Dispute.
9.02 GOVERNING RULES. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any Dispute shall
apply to any arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being arbitrated. Judgment
upon any award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. Section91 or any similar applicable state law.
9.03 NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
9.04 ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must
be active members of the California State Bar
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or retired judges of the state or federal judiciary of California, with
expertise in the substantive laws applicable to the subject matter of the
Dispute. Arbitrators are empowered to resolve Disputes by summary rulings in
response to motions filed prior to the final arbitration hearing. Arbitrators
(i) shall resolve all Disputes in accordance with the substantive law of the
state of California, (ii) may grant any remedy or relief that a court of the
state of California could order or grant within the scope hereof and such
ancillary relief as is necessary to make effective any award, and (iii) shall
have the power to award recovery of all costs and fees, to impose sanctions and
to take such other actions as they deem necessary to the same extent a judge
could pursuant to the Federal Rules of Civil Procedure, the California Rules of
Civil Procedure or other applicable law. Any Dispute in which the amount in
controversy is $5,000,000 or less shall be decided by a single arbitrator who
shall not render an award of greater than $5,000,000 (including damages, costs,
fees and expenses). By submission to a single arbitrator, each party expressly
waives any right or claim to recover more than $5,000,000. Any Dispute in which
the amount in controversy exceeds $5,000,000 shall be decided by majority vote
of a panel of three arbitrators; provided however, that all three arbitrators
must actively participate in all hearings and deliberations.
9.05 JUDICIAL REVIEW. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
California, and (iii) the parties shall have in addition to the grounds referred
to in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be entered
only if a court determines the award is supported by substantial evidence and
not based on legal error under the substantive law of the state of California.
9.06 REAL PROPERTY COLLATERAL; JUDICIAL REFERENCE. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to arbitration if
the Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the
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<PAGE> 20
mortgage, lien or security interest specifically elects in writing to proceed
with the arbitration, or (ii) all parties to the arbitration waive any rights or
benefits that might accrue to them by virtue of the single action rule statute
of California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
9.07 MISCELLANEOUS. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents, the Notes or any relationship
between the parties.
Borrower and Trade Bank have caused this Agreement to be executed by
their duly authorized officers or representatives on the date specified below.
"BORROWER"
JALATE LIMITED, INC.
By:
------------------------------------
Title:
---------------------------------
Borrower's Address:
------------------
6557 Flotilla
City of Commerce, CA. 90040
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<PAGE> 21
"LENDER"
WELLS FARGO HSBC TRADE BANK,
NATIONAL ASSOCIATION
By:
-----------------------------------
Jan Macy-Buescher
Title: Vice President
Lender's Address:
----------------
333 South Grand Avenue, 8th
Floor
Los Angeles, CA 90071
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<PAGE> 22
EXHIBIT A
WELLS FARGO HSBC TRADE BANK ADDENDUM TO CREDIT AGREEMENT
- --------------------------------------------------------------------------------
THIS ADDENDUM IS ATTACHED TO THE CREDIT AGREEMENT ("CREDIT AGREEMENT") BETWEEN
WELLS FARGO HSBC TRADE BANK AND THE FOLLOWING BORROWER:
NAME OF BORROWER: JALATE LIMITED, INC.
ADDITIONAL AFFIRMATIVE COVENANTS
--------------------------------
The following covenants are part of Article IV of the Credit Agreement:
REPORTS. Borrower will furnish the following information or
deliver the following reports to Trade Bank at the times
indicated below:
o ANNUAL FINANCIAL STATEMENTS. Not later than ninety (90) calendar days
after and as of the end of each of Borrower's fiscal years, an annual
audited financial statement of Borrower prepared by a certified public
accountant acceptable to Trade Bank and prepared in accordance with
GAAP, to include balance sheet, income statement, statement of cash
flow, and source and application of funds statement.
o ANNUAL FORM 10-K STATEMENT. Not later than ninety (90) calendar days
after and as of the end of each of Borrower's fiscal years, a 10-K
Statement.
o QUARTERLY FORM 10-Q STATEMENT. Not later than sixty (60) calendar
days after and as of the end of each of Borrower's fiscal quarters, a
1O-Q Statement.
o MONTHLY FINANCIAL STATEMENTS. Not later than thirty (30) calendar
days after and as of the end of each calendar month, a financial
statement of Borrower prepared by Borrower, to include balance sheet
and income statement.
CERTIFICATE OF ACCURACY AND NO EVENT OF DEFAULT. At the time
each financial statement of Borrower required above is
delivered to Trade Bank, a certificate of the president or
chief financial officer of Borrower that said financial
statements are accurate and that there exists no Event of
Default under the Agreement nor any condition, act or event
which with the giving of notice or the passage of time or both
would constitute an Event of Default.
o ACCOUNT DEBTORS AGED LISTING: A list of the names, addresses and
phone numbers of all Borrower's account debtors and an aged listing of
their balances shall be due:
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Not later than thirty (30) calendar days after and as of each
month-end, and aged listing of accounts receivable, including
both factored and unfactored accounts.
o INVENTORY LIST: Not later than thirty (30) calendar days after and as
of the end of each quarter, an inventory report showing the types,
locations and unit or dollar values of all the inventory collateral.
o COLLATERAL AUDIT: Collateral audit to be performed annually, by
auditors acceptable to Trade Bank.
o INSURANCE: Borrower will maintain in full force and effect insurance
coverage on all Borrower's property, including, but not limited to,
the following types of insurance coverage:
policies of fire insurance
marine cargo insurance
business personal property insurance
All the insurance referred to in the preceding sentence must be in
form, substance and amounts, and issued by companies, satisfactory to
Trade Bank, and cover risks required by Trade Bank and contain loss
payable endorsements in favor of Trade Bank.
FINANCIAL COVENANTS. Borrower will maintain the following (if Borrower has any
Subsidiaries which must be consolidated under GAAP, the following applies to
borrower and the consolidated Subsidiaries):
o CURRENT RATIO. Not at any time less than 1.25 to 1.0 ("CURRENT RATIO"
means total current assets divided by total current liabilities, and
"CURRENT ASSETS" and "CURRENT LIABILITIES" have the meanings given to
them in accordance with GAAP; provided, however, that "current
liabilities" will include indebtedness which is subordinated to the
Obligations to Trade Bank under a subordination agreement in form and
substance acceptable to Trade Bank or by subordination language
acceptable to Trade Bank in the instrument evidencing such
indebtedness.)
o WORKING CAPITAL. Not at any time less than $2,000,000. ("WORKING
CAPITAL" means total current assets minus total current liabilities;
provided, however, that "current liabilities" will include
indebtedness which is subordinated to the Obligations to Trade Bank
under a subordination agreement in form and substance acceptable to
Trade Bank or by subordination language acceptable to Trade Bank in
the instrument evidencing such indebtedness.)
o DIVIDENDS AND DISTRIBUTIONS OF CAPITAL OF CORPORATION. If Borrower is
a corporation, Borrower will not pay or declare
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<PAGE> 24
any dividends or make any distribution of capital on Borrower's stock
(except for dividends payable solely in stock of Borrower).
o STOCK REDEMPTIONS. Borrower will not redeem, retire, purchase or
otherwise acquire, directly or indirectly, any of Borrower's stock.
o INVESTMENTS IN, OR ACQUISITIONS OF, SUBSIDIARIES. Borrower will not
make any investments in, or form or acquire, any subsidiaries.
o CAPITAL EXPENDITURES. Borrower shall not, without the prior written
consent of Trade Bank, make any capital expenditures in any fiscal
year in an aggregate amount in excess of $750,000.
o COMPENSATION. Borrower will not, without the prior written consent
of Trade Bank, pay, accrue or obligate itself to pay, directly or
indirectly, any salaries, bonuses or other compensation or fees to its
officers, directors, shareholders or partners, or any members of their
immediate families, in any fiscal year in an aggregate amount in
excess of $2,500,000.
BY SIGNING HERE BORROWER AGREES TO THE DESIGNATED PROVISIONS IN
THIS ADDENDUM:
-------------------------------
(SIGNATURE)
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<PAGE> 25
CREDIT LIMIT FOR THIS SIGHT COMMERCIAL LETTERS OF CREDIT
FACILITY AND SUBLIMITS:
Credit Limit: $4,000,000
CREDIT SUBLIMITS
----------------------------------
o GOODS CONSIGNED TO, OR
CONTROLLED BY, TRADE BANK $4,000,000
THE AGGREGATE AMOUNT OF CREDIT EXTENSIONS OUTSTANDING UNDER THIS
FACILITY AND THE FOLLOWING OTHER FACILITIES MAY NOT AT ANY ONE
TIME EXCEED $4,000,000:
1. LOANS UNDER THE LOANS AGAINST IMPORTS FOR LETTER OF CREDIT
REIMBURSEMENT SUPPLEMENT
1. GUARANTEES UNDER THE SHIPPING GUARANTEES SUPPLEMENT
FACILITY DESCRIPTION:
Trade Bank will issue sight commercial letters of credit (each a "Sight
Commercial Credit") for the account of Borrower as indicated under the heading
"Facility Purpose" below. Subject to the credit sublimits specified above, these
Sight Commercial Credits will be transferable or not transferable and have the
goods related to them consigned to or not consigned to, or controlled by or not
controlled by, Trade Bank. The Facility Credit Limit specified above refers to
the aggregate undrawn amount of all Sight Commercial Credits which may be at any
one time outstanding under this Facility together with the aggregate amount of
all drafts drawn under such Sight Commercial Credits which have not been
reimbursed as provided below at such time. The Facility Credit Sublimits
specified above refer to the aggregate undrawn amount of all Sight Commercial
Credits which may be at any one time outstanding under each subcategory under
this Facility together with the aggregate amount of all drafts drawn under such
Sight Commercial Credits which have not been reimbursed as provided below at
such time.
FACILITY PURPOSE: The Facility may only be used for the following purpose(s):
Assist Borrower in its business of importing, manufacturing and wholesaling of
women's and children's apparel.
FACILITY DOCUMENTS:
Before the first Sight Commercial Credit is issued:
Trade Bank's standard form Continuing Commercial Letter of
Credit Agreement (Form TB 020)
Before each Sight Commercial Credit is issued:
Trade Bank's standard form Application For Commercial
Letter of Credit (Form TB 002)
Before each Sight Commercial Credit is amended:
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<PAGE> 26
Trade Bank's standard form Application For Amendment To
Letter of Credit (Form TB 010)
SUBFACILITY DOCUMENTS:
o GOODS CONSIGNED TO, OR CONTROLLED BY, TRADE BANK: See
Exhibit C - Collateral/Credit Support Document.
TERM: No Sight Commercial Credit may expire more than one
hundred twenty (120) calendar days after the date it
is issued.
REIMBURSEMENTS FOR DRAWINGS:
The amount of each drawing paid by Trade Bank under a Sight Commercial Credit
will be reimbursed to Trade Bank as follows:
o By Trade Bank having Wells Fargo Bank, N.A. debit any of Borrower's
accounts with Wells Fargo Bank, N.A. and forwarding such amount
debited to Trade Bank.
o Immediately on demand of Trade Bank.
o By treating such amount drawn as an advance to Borrower to be repaid
at the end of any term specified by Trade Bank to Borrower in writing.
FEES: The following fees will apply to the Sight Commercial
Credits:
o FACILITY FEE: Borrower will pay the following Facility Fee to Trade
Bank before any Facility, including this Facility, is made available
to Borrower: $5,000.
o ISSUANCE FEES/FEES FOR INCREASING CREDIT AMOUNTS OR
EXTENDING EXPIRATION DATES: (Minimum $50) 1/8 of 1% for every 120-day
period or fraction thereof of the term of each Sight Commercial Credit
on the amount of each Sight commercial Credit and of any increase in
such amount.
PAYABLE: At the time each Sight Commercial Credit is issued or
increased and at the time the expiration date of any Sight Commercial
Credit is extended.
o AMENDMENT FEES: (Minimum $50)
$50 for each amendment, unless the amendment is an increase in the
Sight Commercial Credit amount or an extension of the expiration date,
in which case the Issuance Fee above will substitute for any Amendment
Fee. Payable: At the time each amendment is issued.
o NEGOTIATION/PAYMENT/EXAMINATION FEES: (Minimum $75)
1/8 of 1% of the face amount of each drawing under each
Sight Commercial Credit.
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<PAGE> 27
PAYABLE: At the time any draft or other documents are negotiated,
paid or examined.
INTEREST RATE:
All drawings under Sight Commercial Credits not reimbursed on the day they are
paid by Trade Bank will bear interest at the following rate from the date they
are paid by Trade Bank to the date such payment is fully reimbursed:
o PRIME RATE: The Prime Rate plus 5% per annum.
o INTEREST PAYMENT DATES: Interest on unreimbursed drawings under Sight
Commercial Credits will be paid on the date the unreimbursed drawing
is fully reimbursed.
COLLATERAL/CREDIT SUPPORT DOCUMENTS: See Exhibit C -
Collateral/Credit Support Document.
BY INITIALING HERE BORROWER AGREES TO ALL THE TERMS OF THIS
SUPPLEMENT. __________
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EXHIBIT B
LOANS AGAINST IMPORTS
FOR LETTER OF CREDIT
WELLS FARGO HSBC TRADE BANK REIMBURSEMENT SUPPLEMENT
- --------------------------------------------------------------------------------
THIS SUPPLEMENT IS AN INTEGRAL PART OF THE CREDIT AGREEMENT BETWEEN WELLS FARGO
HSBC TRADE BANK AND THE FOLLOWING BORROWER:
NAME OF BORROWER: JALATE LIMITED, INC.
FACILITY TERMINATION DATE: DECEMBER 1, 1997
CREDIT LIMIT FOR THIS LOANS AGAINST IMPORTS FOR LETTER OF CREDIT
FACILITY AND SUBLIMITS: CREDIT LIMIT: $2,000,000
Credit Sublimits
--------------------------------
o SUPPORTED BY GUARANTEE OR
INSURANCE OR OTHER COLLATERAL $2,000,000
Floating Interest Rate
No Borrowing Base
THE AGGREGATE AMOUNT OF CREDIT EXTENSIONS OUTSTANDING UNDER THIS FACILITY
AND THE FOLLOWING OTHER FACILITIES MAY NOT AT ANY ONE TIME EXCEED
$2,000,000:
1. GUARANTEES UNDER THE SHIPPING GUARANTEES SUPPLEMENT
FACILITY DESCRIPTION:
Trade Bank will make loans to Borrower solely for the purpose of financing
Borrower's obligations to reimburse Trade Bank for amounts paid by Trade Bank
under sight and usance Commercial Credits issued by Trade bank for the account
of Borrower in connection with Borrower's imports. At the time of request for a
loan under this Facility, Borrower will provide to Trade Bank evidence of any
related supplier financing available to Borrower for goods or other property
shipped to Borrower under sight and usance Commercial Credits. Loans made by
Trade Bank under this Facility cannot be used by Borrower to repay outstanding
clean import loans that have matured. Subject to the credit sublimits specified
above, these loans may be supported by (i) a standby letter of credit in favor
of Trade Bank or (ii) a guarantee or other collateral.
FACILITY DOCUMENTS: Promissory Note
SUBFACILITY DOCUMENTS:
o SUPPORTED BY ACCOUNTS RECEIVABLE, INVENTORY OR OTHER
COLLATERAL: See Exhibit C - Collateral/Credit Support
Document.
TERM: Each loan made under this Facility must be repaid within
sixty (60) calendar days after it is made.
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<PAGE> 29
Trade Bank, in its sole discretion, may deduct from the term of a loan made
under this Facility the number of days of financing period extended to Borrower
by the relevant supplier.
FEES: The following fees will apply to this Facility:
o FACILITY FEE: Borrower will pay the following Facility Fee to Trade
Bank before any Facility, including this Facility, is made available
to Borrower: $5,000.
INTEREST RATE: All advances under this Facility will bear
interest at the following rate:
o PRIME RATE: The Prime Rate plus .25% per annum.
INTEREST PAYMENT DATES: Interest on the outstanding advances under this
Facility will be paid at the maturity of each advance.
PREPAYMENTS: Prepayments of the outstanding loans under this Facility are
permitted in any amounts.
BORROWING BASE TERMS:
COLLATERAL/CREDIT SUPPORT DOCUMENTS: See Exhibit C -
Collateral/Credit Support Document.
BY INITIALING HERE BORROWER AGREES TO ALL THE TERMS OF THIS
SUPPLEMENT:
-----------------
29
<PAGE> 30
WELLS FARGO HSBC TRADE BANK LOANS AGAINST IMPORTS NOTE
- --------------------------------------------------------------------------------
$2,000,000 May 31, 1997
FOR VALUE RECEIVED, the undersigned JALATE LIMITED, INC., A CALIFORNIA
CORPORATION (jointly and severally, if the undersigned be more than one)
("Borrower") hereby promises to pay to the order of WELLS FARGO HSBC TRADE BANK,
N.A. ("Bank"), when due as provided herein, at its 333 South Grand Avenue, 8th
Floor, Los Angeles, CA 90071 office, in lawful money of the United States and in
immediately available funds, the principal sum of Two Million Dollars
($2,000,000) or, if less, the aggregate unpaid principal amount of all advances
made by Bank to Borrower from time to time, as evidenced on the records of Bank,
together with interest thereon as hereinafter provided.
Borrower may from time to time from the date of this Note up to and including
December 1, 1997, borrow and partially or wholly repay its outstanding advances,
and reborrow, subject to all of the limitations, terms and conditions of this
Note and of that certain Credit Agreement between Borrower and Trade Bank dated
as of May 31, 1997, as amended from time to time ("Credit Agreement") executed
in connection with or governing this Note; provided that the total advances made
under this Note shall not exceed the principal amount stated above. The unpaid
principal balance of this obligation at any time shall be the total amounts
advanced hereunder by the holder hereof less the amount of principal payments
made hereon by or for any Borrower, which balance may be endorsed hereon from
time to time by the holder.
The principal amount and maturity of each advance shall be agreed upon by
Borrower and Bank prior to the making of each advance, and such terms, together
with the applicable interest rate of each advance and all payments of principal
and interest made on this Note shall be inscribed by Bank on its records. Each
advance shall be payable on the earlier of (i) the due date thereof, as
inscribed by Bank on its records, or (ii) 60 days after the date such advance is
made. All payments shall be made free of any setoff, counterclaims or
withholdings. Each entry set forth on Bank's records shall be the prima facie
evidence of the facts so set forth. No failure by Bank to make, or no error by
Bank in making, any inscription on its records shall affect Borrower's
obligation to repay the full principal amount advanced by Bank to or for the
account of Borrower, or Borrower's obligation to pay interest thereon at the
agreed upon rate.
Each advance shall bear interest at the Prime Rate (defined herein) plus
one-quarter of one percent (.25%). Interest will be calculated for each day at
1/360th of the applicable per annum rate, which will result in a higher
effective annual rate. Accrued interest shall be payable at such times and dates
as shall be agreed upon by Borrower and Bank prior to the making of
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<PAGE> 31
each advance and evidenced on the records of Bank, provided that, all accrued
interest on an advance shall be due and payable at the maturity (by acceleration
or otherwise) of such advance. After maturity, whether by acceleration or
otherwise, accrued interest shall be payable on demand. "Prime Rate" means the
rate of interest most recently announced by Wells Fargo Bank, N.A. at its
principal office in San Francisco, California as its "Prime Rate", with the
understanding that the Prime Rate is one of Wells Fargo Bank's base rates and
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto, and is evidenced by the recording thereof
after its announcement in such internal publication or publications as Wells
Fargo Bank may designate. Any change in an interest rate resulting from a change
in the Prime Rate shall become effective as of 12:01 a.m. of the Banking Day on
which each change in the Prime Rate is announced by Wells Fargo Bank.
Advances hereunder, to the total amount of the principal sum stated above and up
to and including the date set forth in the preceding paragraph, may be made by
the holder at the oral or written request of Frederick R. Findley or Vinton
Bacon any one acting alone, who are authorized to request advances and direct
the disposition of any advances until written notice of the revocation of such
authority is received by the holder at the office designated above, or (b) any
person, with respect to advances deposited to the credit of any account of any
Borrower with the holder, which advances, when so deposited, shall be
conclusively presumed to have been made to or for the benefit of each Borrower
regardless of the fact that persons other than those authorized to request
advances may have authority to draw against such account. The holder shall have
no obligation to determine whether any person requesting an advance is or has
been authorized by any Borrower,
Upon the occurrence of any Event of Default as defined in the Credit Agreement,
the holder of this Note, at the holder's option, may declare all sums of
principal and interest outstanding hereunder to be immediately due and payable
without presentment, demand, protest or notice of dishonor, all of which are
expressly waived by each Borrower, and the obligation, if any, of the holder to
extend any further credit hereunder shall immediately cease and terminate. Each
Borrower shall pay to the holder immediately upon demand the full amount of all
payments, advances, charges, costs and expenses, including reasonable attorneys'
fees (to include outside counsel fees and all allocated costs of the holder's
in-house counsel), incurred by the holder in connection with the enforcement of
the holder's rights and/or the collection of any amounts which become due to the
holder under this Note, and the prosecution or defense of any action in any way
related to this Note, including without limitation, any action for declaratory
relief, and including any of the foregoing incurred in connection with any
bankruptcy proceeding relating to any Borrower.
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<PAGE> 32
ADDENDUM TO PROMISSORY NOTE
THIS ADDENDUM is attached to and made a part of that certain promissory note
executed by JALATE LIMITED, INC., A CALIFORNIA CORPORATION ("Borrower") and
payable to WELLS FARGO HSBC TRADE BANK, NATIONAL ASSOCIATION, or order, dated as
of May 31, 1997, in the principal amount of Two Million Dollars ($2,000,000)(the
"Note").
The following arbitration provision is hereby incorporated into the
Note:
ARBITRATION:
(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Note. A "Dispute" shall mean any action, dispute, claim
or controversy of any kind, whether in contract or tort, statutory or common
law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, this Note and each other document,
contract and instrument required hereby or now or hereafter delivered to Bank in
connection herewith (collectively, the "Documents"), or any past, present or
future extensions of credit and other activities, transactions or obligations of
any kind related directly or indirectly to any of the Documents, including
without limitation, any of the foregoing arising in connection with the exercise
of any self-help, ancillary or other remedies pursuant to any of the Documents.
Any party may by summary proceedings bring an action in court to compel
arbitration of a Dispute. Any party who fails or refuses to submit to
arbitration following a lawful demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Documents.
The arbitration shall be conducted at a location in California selected by the
AAA or other administrator. If there is any inconsistency between the terms
hereof and any such rules, the terms and procedures set forth herein shall
control. All statutes of limitation applicable to any Dispute shall apply to any
arbitration proceeding. All discovery activities shall be expressly limited to
matters directly relevant to the Dispute being arbitrated. Judgment upon any
award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that
32
<PAGE> 33
nothing contained herein shall be deemed to be a waiver by any party that is a
bank of the protections afforded to it under 12 U.S.C. Section91 or any similar
applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive law
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (A) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (B) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
California, and (C) the parties shall have
33
<PAGE> 34
in addition to the grounds referred to in the Federal Arbitration Act for
vacating, modifying or correcting an award the right to judicial review of (1)
whether the findings of fact rendered by the arbitrators are supported by
substantial evidence, and (2) whether the conclusions of law are erroneous under
the substantive law of the state of California. Judgment confirming an award in
such a proceeding may be entered only if a court determines the award is
supported by substantial evidence and not based on legal error under the
substantive law of the state of California.
(f) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Documents or the subject matter of the Dispute shall
control. This Note may be amended or modified only in writing signed by
Borrower. If any provision of this Note shall be held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or any remaining provisions of this Note. This arbitration
provision shall survive termination, amendment or expiration of any of the
Documents or any relationship between the parties.
IN WITNESS WHEREOF, this Addendum has been executed as of the same date
as the Note.
"BORROWER"
JALATE LIMITED, INC.
By:
--------------------------------
Title:
-----------------------------
34
<PAGE> 35
EXHIBIT B
WELLS FARGO HSBC TRADE BANK SHIPPING GUARANTEES SUPPLEMENT
- --------------------------------------------------------------------------------
THIS SUPPLEMENT IS AN INTEGRAL PART OF THE CREDIT AGREEMENT BETWEEN WELLS FARGO
HSBC TRADE BANK AND THE FOLLOWING BORROWER:
NAME OF BORROWER: JALATE LIMITED, INC.
FACILITY TERMINATION DATE: DECEMBER 1, 1997
CREDIT LIMIT FOR THIS SHIPPING GUARANTEE FACILITY AND SUBLIMITS:
Credit Limit: $500,000
CREDIT SUBLIMITS
------------------------------
o SHIPPING GUARANTEE FACILITY $500,000
THE AGGREGATE AMOUNT OF CREDIT EXTENSIONS OUTSTANDING UNDER THIS FACILITY AND
THE FOLLOWING OTHER FACILITIES MAY NOT AT ANY ONE TIME EXCEED $2,000,000: 1.
LOANS UNDER THE LOANS AGAINST IMPORTS FOR LETTER OF CREDIT REIMBURSEMENT
SUPPLEMENT
FACILITY DESCRIPTION AND PURPOSE:
Trade Bank will issue shipping guarantees for the account of Borrower. These
shipping guarantees will be undertakings for delivery of cargo without surrender
of bills of lading, or any other undertakings, agreements, guarantees,
indemnities, releases, bonds, letters, documents or authorizations to or in
favor of a carrier or other person or entity in order to permit delivery to
Borrower of property. The Credit Limit specified above for this Facility refers
to the aggregate amount of all shipping guarantees which may be outstanding at
any one time.
FACILITY DOCUMENTS:
Indemnity For Undertakings In Connection With Deliveries of Goods or Issuance of
Duplicate Bills of Lading.
TERM:
No shipping guarantee issued by Trade Bank for Borrower will expire more than
ninety (90) calendar days after the date it is issued.
REIMBURSEMENTS FOR PAYMENTS UNDER GUARANTEES:
The amount of each payment made by Trade Bank under shipping guarantees issued
by Trade Bank for Borrower will be reimbursed to Trade Bank as follows:
35
<PAGE> 36
o By Trade Bank having Wells Fargo Bank, N.A. debit any of Borrower's
accounts with Wells Fargo Bank, N.A. and forwarding such amount
debited to Trade Bank.
o Immediately on demand of Trade Bank.
o By treating such amount drawn as an advance to Borrower to be repaid
at the end of any term specified by Trade Bank to Borrower in writing.
FEES: The following fees will apply to this Facility and the
issuance of each shipping guarantee:
o FACILITY FEE: Borrower will pay the following Facility Fee to Trade
Bank before this Facility is made available to Borrower: $5,000.
o ISSUANCE FEE: Flat $75 for each issuance.
PAYABLE: At the time each shipping guarantee is issued.
INTEREST RATE:
All payments made by Trade Bank under shipping guarantees issued for Borrower
which are not reimbursed on the day they are made by Trade Bank will bear
interest at the following rate from the date they are made to the date such
payment is fully reimbursed:
o PRIME RATE: The Prime Rate plus 5% per annum.
o INTEREST PAYMENT DATES: Interest on payments made by Trade Bank under
this Facility which are not reimbursed on the day they are made will
be paid on the date the payment is full reimbursed.
PREPAYMENTS: Permitted in any amounts.
COLLATERAL/CREDIT SUPPORT DOCUMENTS: See Exhibit C -
Collateral/Credit Support Document.
BY INITIALING HERE BORROWER AGREES TO ALL THE TERMS OF THIS
SUPPLEMENT:
-----------------
36
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2
<SECURITIES> 0
<RECEIVABLES> 1,566
<ALLOWANCES> 1,186
<INVENTORY> 5,364
<CURRENT-ASSETS> 7,340
<PP&E> 2,151
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<TOTAL-ASSETS> 9,087
<CURRENT-LIABILITIES> 5,243
<BONDS> 0
0
0
<COMMON> 5,311
<OTHER-SE> (1,333)
<TOTAL-LIABILITY-AND-EQUITY> 9,087
<SALES> 28,565
<TOTAL-REVENUES> 28,565
<CGS> 21,865
<TOTAL-COSTS> 8,207
<OTHER-EXPENSES> 1
<LOSS-PROVISION> 105
<INTEREST-EXPENSE> 341
<INCOME-PRETAX> (1,521)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,521)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,521)
<EPS-PRIMARY> ($0.45)
<EPS-DILUTED> ($0.45)
</TABLE>
