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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
April 1, 1998
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Date of report (Date of earliest event reported)
Jalate, Ltd.
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(Exact Name of Registrant as Specified in Its Charter)
California
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(State or Other Jurisdiction of Incorporation)
1-12868 95-4121885
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(Commission File Number) (IRS Employer Identification No.)
1675 South Alameda Street, Los Angeles, CA 90021
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(Address of Principal Executive Offices) (Zip Code)
213-765-5000
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(Registrant's Telephone Number, Including Area Code)
N/A
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(Former Name or Former Address, if Changed Since Last Report)
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Item 5. Other Events
Jalate, Ltd.'s (the "Company") lenders have waived compliance with certain
covenants of their credit agreements to which the Company was in technical
default as of December 31, 1997 as reported on the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997.
The Company's bank lender has agreed to waive the Company's compliance with
such covenants in the Company's term loan agreement through June 30, 1998. In
addition, the Company's factor agreement has been amended with technical
covenants effective January 1, 1998 through December 31, 1998. The Company is
currently in compliance with those amended covenants.
During the period April 1, 1998 through June 30, 1998, the factor has
agreed to extend to the Company a maximum revolving loan of $2,200,000 in excess
of the outstanding advances made against accounts receivable. After June 30,
1998, the factor has agreed to extend to the Company a maximum revolving loan of
$1,500,000 in excess of the outstanding advances against accounts receivable.
The foregoing descriptions of the covenants and waivers are qualified by
reference to the documents providing for such amendments and waivers, copies of
which are included as Exhibits 10.01, 10.02, 10.03 and 10.04 and which are
incorporated herein in their entirety by reference.
On April 7, 1998, the Company issued a press release, a copy of which is
attached hereto as Exhibit 99.01 and is incorporated herein in its entirety by
reference.
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Item 7. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -------------------------------------------------------
<S> <C>
10.01 Letter waiving default rights issued on April 1, 1998
by Wells Fargo HSBC Trade Bank, N.A. regarding Credit
Agreement by and between the Company and Wells Fargo
HSBC Trade Bank, N.A. dated as of January 21, 1998.
10.02 Third Amendment, as of April 1, 1998, to Revolving Loan
Agreement, dated June 30, 1997 by and between the
Company and Heller Financial, Inc.
10.03 Limited Waiver and Amendment, as of April 1, 1998, by
and between the Company and Heller Financial, Inc.
regarding the Collection Date Factoring Agreement dated
June 30, 1997.
10.04 Letter waiving default rights issued on March 24, 1998
by Wells Fargo HSBC Trade Bank, N.A. regarding Credit
Agreement by and between the Company and Wells Fargo
HSBC Trade Bank, N.A. dated as of January 21, 1998.
99.01 Press release issued April 7, 1998.
</TABLE>
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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 hereunto duly authorized.
Jalate, Ltd.
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(Registrant)
April 10, 1998 By: /s/ Frederick A. Findley
- ------------- -----------------------------
(Date) Frederick A. Findley
Vice President - Finance,
Chief Financial Officer
and Secretary
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EXHIBIT 10.01
THE TRADE BANK 333 South Grand Avenue, Suite 940
WELLS FARGO HSBC TRADE BANK, N.A. Los Angeles, CA 90071
April 1, 1998
Mr. Frederick A. Findley
Jalate, Ltd.
6557 Flotilla
City of Commerce, CA 90040
Dear Fred:
Reference is made to that certain Credit Agreement by and between Jalate,
Ltd. (the "Borrower") and Wells Fargo HSBC Trade Bank, N.A. (the "Trade Bank")
dated as of January 21, 1998 (the "Agreement"). Capitalized terms used herein
but not defined shall have the meanings set forth in the Agreement. We have
learned of the following breaches of the terms of the Agreement. Pursuant to
Exhibit A - Addendum to Credit Agreement of the Agreement:
1. Borrower is to maintain a Current Ratio from and after
December 31, 1997 not at any time less than 1.25 to 1.0.
For the periods ended January 31, 1998 and February 28, 1998
the Borrower was not in compliance with this covenant and
has informed the Bank that it will not be in compliance with
this covenant for subsequent reporting periods through and
including June 30, 1998.
2. Borrower is to maintain Working Capital from and after
December 31, 1997 not at any time less than $750,000. For
the periods ended January 31, 1998 and February 28, 1998 the
Borrower was not in compliance with this covenant and has
informed the Bank that it will not be in compliance with
this covenant for subsequent reporting periods through and
including June 30, 1998.
3. Borrower is maintain a ratio of Total Liabilities divided
by Tangible Net Worth from and after December 31, 1997 not
at any time greater than 2.25 to 1.0. For the periods ended
January 31, 1998 and February 28, 1998 the Borrower was not
in compliance with this covenant and has informed the Bank
that it will not be in compliance with this covenant for
subsequent reporting periods through and including June 30,
1998.
Subject to the terms and conditions that follow, the Bank has decided to
waive its default rights with respect to these breaches for all periods from
January 31, 1998 through and including June 30, 1998. Please note, however, that
this waiver applies only to the specific instances described above. It is not a
waiver of any breach of any other provision of the Agreement.
<PAGE> 2
Jalate, Ltd.
April 1, 1998
Page 2
Except as expressly stated in this letter, the Bank reserves all of the
rights, powers and remedies available to it under the Agreement and any other
contracts or instruments signed by the Borrower, including the right to cease
making advances to the Borrower and the right to accelerate any of the
Borrower's indebtedness, if any subsequent breach of any other provision of the
Agreement should occur.
Sincerely,
WELLS FARGO HSBC
TRADE BANK, N.A.
By: /s/ Greg Richardson
-----------------------------
Greg Richardson
Vice President
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EXHIBIT 10.02
THIRD AMENDMENT TO
REVOLVING LOAN AGREEMENT
This Third Amendment to that certain Revolving Loan Agreement ("Amendment")
is made and entered into effective as of April 1, 1998, by and between Jalate,
Ltd. ("Client") and Heller Financial, Inc. ("Heller").
WHEREAS, Heller and Client are parties to a certain Revolving Loan
Agreement dated June 30, 1997, and all amendments thereto (the "Agreement"); and
WHEREAS, the parties desire to amend the Agreement as hereinafter set
forth;
NOW THEREFORE, in consideration of the mutual conditions and agreements set
forth in the Agreement and this Amendment, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Definitions. Capitalized terms used in this Amendment, unless otherwise
defined herein, shall have the meaning ascribed to such term in the Agreement.
2. Amendments. The second paragraph on page one of the Agreement is amended
by deleting the table in the second paragraph and inserting the following table
in lieu thereof:
<TABLE>
<CAPTION>
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PERIOD MAXIMUM REVOLVING LOAN
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<S> <C>
December 22, 1997 through $2,100,000 in excess of the amount
January 29, 1998 equal to one hundred percent (100%)
of the Purchase Price of outstanding
Accounts purchased by Heller
pursuant to the Factoring Agreement
January 30, 1998 through $2,200,000 in excess of the amount
June 30, 1998 equal to one hundred percent (100%)
of the Purchase Price of outstanding
Accounts purchased by Heller
pursuant to the Factoring Agreement
July 1, 1998 and $1,500,000 in excess of the amount
thereafter equal to one hundred percent (100%)
of the Purchase Price of outstanding
Accounts purchased by Heller
pursuant to the Factoring Agreement
</TABLE>
3. Conditions. The effectiveness of this Amendment is subject to the
following conditions precedent (unless specifically waived in writing by
Heller):
(a) There shall have occurred no material adverse change in the
business, operations, financial condition, profits or prospects of Client, or in
the Collateral;
(b) Client shall have executed and delivered such other documents
and instruments as Heller may require;
(c) All proceedings taken in connection with the transactions
contemplated by this Amendment and all documents, instruments and other legal
matters incident thereto shall be satisfactory to Heller and its legal counsel;
and
(d) No Default or Event of Default under the Agreement as amended
hereby shall have occurred and be continuing.
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4. Corporate Action. The execution, delivery, and performance of this
Amendment has been duly authorized by all requisite corporate action on the part
of Client and this Amendment has been duly executed and delivered by Client.
5. Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6. References. Any references to the Agreement contained in any notice,
request, certificate, or other document executed concurrently with or after the
execution and delivery of this Amendment shall be deemed to include this
Amendment unless the context shall otherwise require.
7. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall constitute an original, but all of which taken
together shall be one and the same instrument.
8. Ratification.. The terms and provisions set forth in this Amendment
shall modify and supersede all inconsistent terms and provisions of the
Agreement and, except as expressly modified and superseded by this Amendment,
the terms and provisions of the Agreement are ratified and confirmed and shall
continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed under seal and delivered by their respective duly authorized
officers on the date first written above.
HELLER FINANCIAL, INC. JALATE, LTD.
By: /s/ (SIG) By: /s/ Frederick A. Findley
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Title: V.P. Title: VP Finance
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ATTEST:
/s/ Frederick A. Findley
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Secretary
(CORPORATE SEAL)
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EXHIBIT 10.03
LIMITED WAIVER AND AMENDMENT
This Limited Waiver and Amendment (this "Agreement") is made as of April 1,
1998 by and between JALATE, LTD., a California corporation ("Client") and HELLER
FINANCIAL, INC., a Delaware corporation ("Heller"). This Agreement is made with
reference to that certain Collection Date Factoring Agreement dated June 30,
1997 by and between Client and Heller (as amended from time to time, the
"Factoring Agreement"). All capitalized terms used herein and not otherwise
defined shall have the meanings assigned to such terms in the Factoring
Agreement.
Whereas, Client and Heller entered into the Factoring Agreement; and
Whereas, Client and Heller desire to enter into a limited waiver regarding
certain terms of the Factoring Agreement as set forth below; and
Whereas, Client and Heller also desire to enter into an amendment regarding
certain terms of the Factoring Agreement as set forth below;
Now, Therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. LIMITED WAIVER
Subsection 4.11 of the Factoring Agreement provides that for the period
beginning September 30, 1997 through March 30, 1998, Client shall at all times
maintain Tangible Net Worth of at least $4,000,000. Heller has been informed by
Client that as of December 31, 1997, Client's Tangible Net Worth was $621,000.
Client has requested that Heller waive compliance with subsection 4.11 of the
Factoring Agreement with respect to Client's failure to maintain Tangible Net
Worth of at least $4,000,000 as of December 31, 1997.
Subsection 4.12 of the Factoring Agreement provides that as of 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. Heller has been
informed by Client that as of December 31, 1997, Client's ratio of total
Liabilities to Tangible Net Worth was 9.78:1.0. Client has requested that Heller
waive compliance with subsection 4.12 of the Factoring Agreement with respect to
Client's failure to maintain a ratio of total Liabilities to Tangible Net Worth
no greater than 1.40:1.0 as of December 31, 1997.
Subsection 4.13 of the Factoring Agreement provides that Client shall at
all times maintain a Current Ratio of at least 1.25:1.0. Heller has been
informed by Client that as of December 31, 1997, Client's Current Ratio was
0.87:1.0. Client has requested that Heller waive compliance with subsection 4.13
of the Factoring Agreement with respect to Client's failure to maintain a
Current Ratio of at least 1.25:1.0 as of December 31, 1997.
Subsection 4.14 of the Factoring Agreement provides that Client shall at
all times maintain Working Capital of at least $2,000,000. Heller has been
informed by Client that as of December 31, 1997, Client's Working Capital was
($769,000). Client has requested that Heller waive compliance with subsection
4.14 of the Factoring Agreement with respect to Client's failure to maintain
Working Capital of at least $2,000,000 as of December 31, 1997.
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Heller hereby waives compliance with (1) subsection 4.11 of the Factoring
Agreement with respect to Client's failure to maintain Tangible Net Worth of at
least $4,000,000 as of December 31, 1997; (2) subsection 4.12 of the Factoring
Agreement with respect to Client's failure to maintain a ratio of total
Liabilities to Tangible Net Worth no greater than 1.40:1.0 as of December 31,
1997; (3) subsection 4.13 of the Factoring Agreement with respect to Client's
failure to maintain a Current Ratio of at least 1.25:1.0 as of December 31,
1997; and (4) subsection 4.14 of the Factoring Agreement with respect to
Client's failure to maintain Working Capital of at least $2,000,000 as of
December 31, 1997.
In consideration of Heller's agreement to waive Client's compliance with
certain terms of the Factoring Agreement as set forth above, Client agrees to
pay Heller, or Heller may charge Client's account with, a waiver fee of $30,000,
which is due and payable in full on the date of this Agreement but which may be
paid by Client in three (3) equal installments of $10,000 each, payable on April
1, May 1 and June 1, 1998, respectively.
Client understands and agrees that this Agreement shall be effective only
with respect to the specific facts set forth above. This Agreement shall not be
deemed to constitute a waiver of any other term, provision or condition of the
Factoring Agreement or to prejudice any right or remedy that Heller may now have
or may have in the future under or in connection with the Factoring Agreement.
SECTION 2. AMENDMENT
2.1 Section 4 of the Factoring Agreement is hereby amended (a) by deleting
subsections 4.11, 4.12, 4.13 and 4.14 in their entireties and substituting the
following subsections 4.11, 4.12, 4.13 and 4.14 and (b) by adding the following
new subsections 4.16 and 4.17:
4.11 From January 1, 1998 through June 29, 1998, Client shall at all
times maintain Tangible Net Worth of at least $500,000. From June 30, 1998
through September 29, 1998, Client shall at all times maintain Tangible Net
Worth of at least $1,000,000. On September 30, 1998 and at all times thereafter,
Client shall at all times maintain Tangible Net Worth of at least $1,750,000.
4.12 From January 1, 1998 through June 29, 1998, Client shall at all
times maintain a ratio of total Liabilities to Tangible Net Worth no greater
than 9.50:1.0. From June 30, 1998 through September 29, 1998, Client shall at
all times maintain a ratio of total Liabilities to Tangible Net Worth no greater
than 6.00:1.0. On September 30, 1998 and at all times thereafter, Client shall
at all times maintain a ratio of total Liabilities to Tangible Net Worth no
greater than 5.00:1.0.
4.13 From January 1, 1998 through September 29, 1998, Client shall
at all times maintain a Current Ratio of at least 0.75:1.0. On September 30,
1998 and at all times thereafter, Client shall at all times maintain a Current
Ratio of at least 0.85:1.0.
4.14 From January 1, 1998 through June 29, 1998, Client shall at all
times maintain Working Capital of at least ($700,000). From June 30, 1998
through September 29, 1998, Client shall at all times maintain Working Capital
of at least ($550,000). On September 30, 1998 and at all time thereafter, Client
shall at all times maintain Working Capital of at least $0.
4.16 From January 1, 1998 through June 29, 1998, Client shall at all
times maintain Tangible Net Worth (excluding the equity in net loss from
Airshop) of at least $750,000. From June 30, 1998 through September 29, 1998,
Client shall at all
2
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times maintain Tangible Net Worth (excluding the equity in net loss from
Airshop) of at least $1,250,000.
4.17 From January 1, 1998 through June 29, 1998, Client shall at all
times maintain a ratio of total Liabilities to Tangible Net Worth (excluding the
equity in net loss from Airshop) no greater than 7.00:1.0. From June 30, 1998
through September 29, 1998, Client shall at all times maintain a ratio of total
Liabilities to Tangible Net Worth (excluding the equity in net loss from
Airshop) no greater than 4.50:1.0.
2.2 Section 8 of the Factoring Agreement is hereby amended by deleting
subpart (c) of the first paragraph thereof and by substituting the following
subpart:
(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, 4.14, 4.16, 4.17 and 6.7), or
of any present or future supplement or amendment hereto or of any other
agreement between Heller and Client;
2.3 Section 12 of the Factoring Agreement is hereby amended by adding the
following new definition of "Airshop":
"Airshop"-Airshop Ltd., a corporation which is duly organized and
existing in good standing under the laws of the state of New York and which is a
subsidiary of Client.
SECTION 3. RATIFICATION OF FACTORING AGREEMENT
3.1 To induce Heller to enter into this Agreement, Client represents and
warrants that after giving effect to this Agreement no violation of the terms of
the Factoring Agreement exist and all representations and warranties contained
in the Factoring Agreement are true, correct and complete in all material
respects on and as of the date hereof except to the extent such representations
and warranties specifically relate to an earlier date in which case they were
true, correct and complete in all material respects on and as of such earlier
date.
3.2 Except as expressly set forth in this Agreement, the terms, provisions
and conditions of the Factoring Agreement are unchanged, and said agreement
shall remain in full force and effect and is hereby confirmed and ratified.
SECTION 4. COUNTERPARTS; EFFECTIVENESS
This Agreement may be executed in any number of counterparts, and all such
counterparts taken together shall be deemed to constitute one and the same
instrument. Signature pages may be detached from counterpart documents and
reassembled to form duplicate executed originals. This Agreement shall become
effective as of the date hereof upon the execution of the counterparts hereof by
Client, Guarantor and Heller.
3
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SECTION 5. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.
Witness the execution hereof by the respective duly authorized officers or
individuals undersigned as of the date first written above.
HELLER FINANCIAL, INC. JALATE, LTD.
By: /s/ (SIG) By: /s/ Frederick A. Findley
------------------------ -------------------------
Title: V.P. Title: V.P. Finance
--------------------- ----------------------
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EXHIBIT 10.04
THE TRADE BANK 333 South Grand Avenue, Suite 940
WELLS FARGO HSBC TRADE BANK, N.A. Los Angeles, CA 90071
March 24, 1998
Mr. Frederick A. Findley
Jalate, Ltd.
6557 Flotilla
City of Commerce, CA 90040
Dear Fred:
Reference is made to that certain Credit Agreement by and between Jalate,
Ltd. (the "Borrower") and Wells Fargo HSBC Trade Bank, N.A. (the "Trade Bank")
dated as of January 21, 1998 (the "Agreement"). Capitalized terms used herein
but not defined shall have the meanings set forth in the Agreement. We have
learned of the following breaches of the terms of the Agreement. Pursuant to
Exhibit A - Addendum to Credit Agreement of the Agreement:
1. Borrower will not make any loans or advances to, or investments
in, any person or entity except for accounts receivable created in the ordinary
course of Borrower's business. Pursuant to that certain letter agreement (the
"Letter Agreement") among the Borrower, Dominique Camacho and Air Shop Ltd.
("Air Shop") dated October 17, 1997 the Borrower has acquired forty (40) shares
of the Common Stock and three thousand (3,000) shares of the Preferred Stock of
Air Shop.
2. Borrower will not guarantee or otherwise become liable for
borrowed money, except to Trade Bank and except for indebtedness subordinated to
the Obligations by an instrument or agreement in form acceptable to Trade Bank.
Borrower is a guarantor under two separate notes issued by Linroz Manufacturing
Company in favor of General Electric Credit Corporation with current outstanding
balances of $313,000, maturing June and November, 2000.
3. Borrower will maintain a Current Ratio from and after December
31, 1997 not at any time less than 1.25 to 1.0. For the period ended December
31, 1997 the Borrower has indicated that the Borrower's Current Ratio will be
approximately 0.80 to 1.0.
4. Borrower will maintain Working Capital from and after December
31, 1997 not at any time less than $750,000. For the period ended December 31,
1997 the Borrower has indicated that the Borrower's Working Capital will be
approximately $(770,000).
5. Borrower will maintain Tangible Net Worth from and after December
31, 1997 not at any time less than $750,000. For the period ended December 31,
1997 the Borrower has indicated that the Borrower's Tangible Net Worth will be
approximately $619,000.
<PAGE> 2
Jalate, Ltd.
March 24, 1998
Page 2
6. Borrower will maintain a ratio of Total Liabilities divided by
Tangible Net Worth from and after December 31, 1997 not at any time greater than
2.25 to 1.0. For the period ended December 31, 1997 the Borrower has indicated
that the Borrower's ratio of Total Liabilities to Tangible Net Worth will be
approximately 7.70 to 1.0.
Subject to the terms and conditions that follow, the Bank has decided to
waive its default rights with respect to these breaches for the period ended
December 31, 1997. Please note, however, that this waiver applies only to the
specific instances described above. It is not a waiver of any subsequent breach
of the same provisions of the Agreement, nor is it a waiver of any breach of any
other provision of the Agreement.
Except as expressly stated in this letter, the Bank reserves all of the
rights, powers and remedies available to it under the Agreement and any other
contracts or instruments signed by the Borrower, including the right to cease
making advances to the Borrower and the right to accelerate any of the
Borrower's indebtedness, if any subsequent breach of the same provisions or any
other provision of the Agreement should occur.
Sincerely,
WELLS FARGO HSBC
TRADE BANK, N.A.
By: /s/ Greg Richardson
-----------------------
Greg Richardson
Vice President
<PAGE> 1
EXHIBIT 99.01
JALATE LTD. SAYS IT HAS RECEIVED WAIVERS FOR CREDIT AGREEMENTS
Los Angeles, CA - April 7, 1998 - Jalate, Ltd. (AMEX: JLT) today announced that
its lenders have waived compliance with certain covenants of their credit
agreements to which the company was in technical default as of December 31,
1997.
The company's bank lender has agreed to waive the company's compliance with
such covenants in the company's term loan agreement through June 30, 1998. In
addition, the company's factor agreement has been amended with technical
covenants effective January 1, 1998 through December 31, 1998. The company said
it is in compliance with those amended covenants.
During the period April 1, 1998 through June 30, 1998, the factor has
agreed to extend to Jalate a maximum revolving loan of $2,200,000 in excess of
the outstanding advances made against accounts receivable. After June 30, 1998,
the factor has agreed to extend to the company a maximum revolving loan of
$1,500,000 in excess of the outstanding advances against accounts receivable.
Jalate, Ltd. designs, develops and markets children's, misses and junior
knit sportswear and dresses at moderate prices for the fashion-conscious young
woman who desires to continually update her wardrobe. The Company develops basic
styles that are fashionable and easy to produce, enabling the company to respond
more quickly to fashion trends, reduce delivery time to the retailer and
facilitate a consistently high-quality product. Jalate's products are found in
major department stores, retail chain stores and specialty stores, including JC
Penney, Sears, Wet Seal, Dillard's, The Federated Department Stores and The May
Companies.
