<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 28, 1996
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- ---------
Commission file number: 0-22942
CONSO PRODUCTS COMPANY
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
South Carolina 57-0986680
------------------------------ ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
513 North Duncan Bypass, P.O. Box 326, Union, South Carolina 29379
- ------------------------------------------------------------ -----------
(Address of principal executive offices) (Zip Code)
864/427-9004
-------------------------
(Issuer's telephone number)
Not applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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
--- ---
State the number of shares outstanding of each of the issuer's classes
of common equity, as of February 10, 1997:
Common Stock, no par value.......7,486,447 shares.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
- ------- --------------------- --------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited) as of December 28,
1996 and June 29, 1996 3
Consolidated Statements of Operations (unaudited) for the three
months and six months ended December 28, 1996 and
December 30, 1995 5
Consolidated Statement of Shareholders' Equity (unaudited) for
the three months and six months ended December 28,
1996 6
Consolidated Statements of Cash Flows (unaudited) for the six
months ended December 28, 1996, and December 30,
1995 7
Notes to Consolidated Financial Statements (unaudited) 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 20
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
- ------- ---------------------
ITEM 1. FINANCIAL STATEMENTS
CONSO PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
December 28, 1996 June 29, 1996
----------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,297,643 $ 189,845
Accounts receivable, net of allowances for bad debts
and customer deductions of $263,294 and $327,770
on December 28, 1996 and June 29, 1996, respectively 11,360,687 11,522,528
Inventories 22,311,331 20,064,822
Prepaid expenses and other 566,300 941,702
Deferred income taxes - current portion 443,004 602,936
------------ ------------
Total current assets 35,978,965 33,321,833
------------ ------------
PROPERTY AND EQUIPMENT
Land 1,195,509 1,082,911
Buildings and improvements 7,721,654 6,779,693
Machinery and equipment 12,980,377 11,104,034
------------ ------------
Total 21,897,540 18,966,638
Accumulated depreciation (7,641,634) (6,592,375)
------------ ------------
Total property and equipment, net 14,255,906 12,374,263
------------ ------------
DEFERRED INCOME TAXES (Note 5) 1,269,017 1,282,531
------------ ------------
DEFERRED COSTS (principally loan costs) 251,330 298,885
------------ ------------
TOTAL ASSETS $ 51,755,218 $ 47,277,512
============ ============
</TABLE>
See notes to unaudited consolidated financial statements
3
<PAGE> 4
CONSO PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEET - CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
December 28, 1996 June 29, 1996
----------------- -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 8,104,382 $ 6,990,509
Current maturities of long-term debt and capital leases 254,316 477,933
Trade accounts payable 3,897,304 3,415,876
Accrued liabilities 3,538,703 2,976,595
------------ ------------
Total current liabilities 15,794,705 13,860,913
------------ ------------
NONCURRENT LIABILITIES
Long-term debt 105,906 2,107,910
Deferred income taxes 592,565 530,356
------------ ------------
Total noncurrent liabilities 698,471 2,638,266
------------ ------------
SHAREHOLDERS' EQUITY (Notes 6 and 7):
Preferred stock (no par, 10,000,000 shares authorized;
no shares issued) -- --
Common stock (no par, 50,000,000 shares authorized;
7,485,247 shares issued) 16,920,182 16,896,346
Retained earnings 17,499,250 13,701,279
Cumulative translations gain 842,610 180,708
------------ ------------
Total shareholders' equity 35,262,042 30,778,333
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY
$ 51,755,218 $ 47,277,512
============ ============
</TABLE>
See notes to unaudited consolidated financial statements
4
<PAGE> 5
CONSO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
December 28, December 30, December 28, December 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 18,534,296 $ 17,318,913 $ 35,546,610 $ 34,386,020
COST OF GOODS SOLD 11,197,122 10,968,311 21,436,548 22,111,563
------------ ------------ ------------ ------------
GROSS MARGIN 7,337,174 6,350,602 14,110,062 12,274,457
------------ ------------ ------------ ------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
Distribution expense 776,869 730,362 1,490,129 1,441,274
Selling expense 2,059,205 1,880,167 4,094,607 3,742,573
General and administrative expense 1,190,060 1,204,242 2,344,087 2,440,155
Currency exchange (gain) loss (96,273) (15,381) (118,704) 17,875
------------ ------------ ------------ ------------
Total 3,929,861 3,799,390 7,810,119 7,641,877
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 3,407,313 2,551,212 6,299,943 4,632,580
INTEREST EXPENSE, NET 113,182 211,138 244,378 466,378
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 3,294,131 2,340,074 6,055,565 4,166,202
INCOME TAX PROVISION (Note 5) 1,229,895 757,623 2,257,594 1,226,576
------------ ------------ ------------ ------------
NET INCOME $ 2,064,236 $ 1,582,451 $ 3,797,971 $ 2,939,626
============ ============ ============ ============
Net income per share $ 0.28 $ 0.21 $ 0.51 $ 0.40
============ ============ ============ ============
Weighted average number of shares
outstanding 7,484,983 7,432,445 7,483,480 7,432,445
============ ============ ============ ============
</TABLE>
See notes to unaudited consolidated financial statements
5
<PAGE> 6
CONSO PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 28, 1996
<TABLE>
<CAPTION>
Common Stock
--------------------------
Cumulative
Retained Translation
Shares Issued Amount Earnings Adjustments Total
------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, September 28, 1996 7,484,447 $16,914,846 $15,435,014 $ 244,651 $32,594,511
Stock options exercised 800 5,336 5,336
Net income 2,064,236 2,064,236
Translation gain 597,959 597,959
--------- ----------- ----------- ----------- -----------
Balance, December 28, 1996 7,485,247 $16,920,182 $17,499,250 $ 842,610 $35,262,042
========= =========== =========== =========== ===========
</TABLE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
SIX MONTHS ENDED DECEMBER 28, 1996
<TABLE>
<CAPTION>
Common Stock
------------------------
Cumulative
Retained Translation
Shares Issued Amount Earnings Adjustments Total
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, June 29, 1996 4,987,793 $16,896,346 $13,701,279 $ 180,708 $30,778,333
3-for-2 stock split 2,493,879
Stock options exercised 3,575 23,836 23,836
Net income 3,797,971 3,797,971
Translation gain 661,902 661,902
--------- ----------- ----------- ----------- -----------
Balance, December 28, 1996 7,485,247 $16,920,182 $17,499,250 $ 842,610 $35,262,042
========= =========== =========== =========== ===========
</TABLE>
See notes to unaudited consolidated financial statements
6
<PAGE> 7
CONSO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------------
December 28, 1996 December 30, 1995
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Cash received from customers $ 37,285,470 $ 34,755,943
Cash paid to suppliers and employees (30,459,202) (29,695,530)
Interest paid (419,327) (470,743)
Interest received 115,758 54,120
Income taxes paid (1,677,232) (886,518)
-------------- ------------
Net cash provided by operating activities 4,845,467 3,757,272
-------------- ------------
INVESTING ACTIVITIES:
Purchase of officer's life insurance -- (14,667)
Purchase of property and equipment (1,058,989) (632,025)
Purchase of London production facility -- (796,110)
Construction and equipment costs for new
dyehouse and warehouse (918,312) --
-------------- ------------
Net cash used in investing activities (1,977,301) (1,442,802)
-------------- ------------
FINANCING ACTIVITIES:
Net borrowings (payments) under line of credit arrangement 478,189 (1,976,970)
Principal payments on long-term debt (2,233,320) (206,099)
Principal payments under capital lease obligations (29,073) (77,675)
Exercise of stock options 23,836 215,140
-------------- ------------
Net cash used in financing activities (1,760,368) (2,045,604)
-------------- ------------
INCREASE IN CASH 1,107,798 268,866
CASH AT:
BEGINNING OF PERIOD 189,845 142,555
-------------- ------------
END OF PERIOD $ 1,297,643 $ 411,421
============== ============
</TABLE>
See notes to unaudited consolidated financial statements
7
<PAGE> 8
CONSO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------
December 28, 1996 December 30,1995
----------------- ----------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 3,797,971 $ 2,939,626
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 861,179 804,689
Amortization of deferred expenses 54,086 59,380
Provision for deferred taxes 117,085 (788,234)
Currency translation (gain) loss (118,704) 17,875
Payment of capitalized loan origination costs -- (1,111)
Change in assets and liabilities:
Accounts receivable 461,424 (544,123)
Inventory (1,596,689) 52,056
Prepaid expenses and other 203,263 271,970
Income Taxes Receivable 206,374 --
Trade accounts payable 332,335 (295,383)
Accrued liabilities 270,240 495,580
Income taxes payable 256,903 744,947
--------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 4,845,467 $ 3,757,272
=============== ============
</TABLE>
See notes to unaudited consolidated financial statements
8
<PAGE> 9
CONSO PRODUCTS COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 28, 1996
1. CONSOLIDATION
The financial statements are unaudited and include the accounts of the
Company, its subsidiary, British Trimmings Limited, and its subsidiaries (all
operating within the United Kingdom) (collectively, "British Trimmings"), and
Conso's subsidiary, Val-Mex, S.A. de C.V., which operates Conso's Juarez,
Mexico assembly plant (collectively the "Company").
The British Trimmings balances included in the consolidation are
prepared using United States generally accepted accounting principles and are
translated into US dollars based on exchange rates as reported in the Wall
Street Journal. Assets and liabilities are translated based on the exchange
rates in effect on the balance sheet date. Income statement amounts are
translated using the average of the month-end exchange rates in effect during
the period. The Val-Mex subsidiary's operations are not significant in relation
to the Company's operations. All significant intercompany accounts and
transactions, and profit and loss on intercompany transactions are eliminated in
consolidation.
2. INTERIM PERIOD FINANCIAL STATEMENTS
The unaudited consolidated financial statements for the three months
and six months ended December 28, 1996 and December 30, 1995, reflect all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented. All such adjustments
are of a normal recurring nature, except as discussed in the notes below. These
financial statements have been prepared in accordance with the generally
accepted accounting principles for the interim financial information and the
instruction of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. Operating results for such interim periods
are not necessarily indicative of results to be expected for the year ending
June 29, 1996.
Certain previously reported amounts have been reclassified to conform
with the current year presentation.
The Company prepares annual financial statements on the basis of a 52
or 53 week fiscal year ending on the Saturday nearest June 30th; interim
reporting periods are based on 13 week quarters. The three month and six month
periods ended December 28, 1996 and December 30, 1995, each included 13 weeks
and 26 weeks, respectively.
9
<PAGE> 10
3. INVENTORIES
The composition of inventories at December 28, 1996, and June 29, 1996,
was as follows:
<TABLE>
<CAPTION>
December 28, 1996 June 29, 1996
----------------- -------------
<S> <C> <C>
Raw Materials $ 6,686,241 $ 6,357,327
Work-In-Process 4,335,662 3,325,497
Finished Goods 11,289,428 10,381,998
------------- ------------
Totals $ 22,311,331 $ 20,064,822
------------- ------------
</TABLE>
4. PROPERTY AND EQUIPMENT
In September 1995, the Company made a special provision of $250,000 to
absorb charges relating to the disposal of equipment and inventory of its
embroidery operations, which it had completed substantial disposition by
September 1996, using the full provision.
In December 1995, the Company completed the purchase of a 20,000 square
foot production facility in London at a cost of $796,000. The 9,500 square foot
facility previously used by the Company was sold on January 29, 1997 for
$393,000, resulting in a gain of $75,000.
5. INCOME TAXES
The Company's effective tax rate increased in the current quarter
compared to the prior year's quarter as the Company did not record any
additional Jobs Tax Credits since there were minor increases in employment in
South Carolina in the current year's second quarter.
6. STOCK SPLIT
On September 5, 1996, the Company announced a 3-for-2 split of its
common stock, issued on October 4, 1996 to shareholders of record at the close
of business on September 16, 1996.
On September 7, 1995, the Company announced a 3-for-2 split of its
common stock, issued on October 6, 1995 to shareholders of record at the close
of business on September 18, 1995.
Share and per share amounts have been adjusted for both 3-for-2 stock
splits.
7. STOCK OPTIONS
On September 7, 1995, the Company granted options to certain key
employees to purchase an aggregate of 93,600 shares of the Company's common
stock under its 1993 Stock Option Plan of which 2,775 options were exercised on
September 18, 1996 and an additional 800 options were exercised on October 28,
1996. The options were granted at $6.67 per share and are exercisable with
respect to one-third of the total shares after one year, an additional one-third
of the shares after two years, and the final one-third of the shares after three
years. The options expire after five years and are subject to continued
employment by the employee. (All amounts have been adjusted for the 3-for-2
stock splits.)
On September 5, 1996, the Company granted additional options to certain
key employees to purchase an aggregate of 79,500 shares of the Company's common
stock under its 1993 Stock Option Plan. The options were granted at $11.00 per
share and are exercisable with respect to one-third of the total shares after
one year, an additional one-third of the shares after two years,
10
<PAGE> 11
and the final one-third of the shares after three years. The options expire
after five years and are subject to continued employment by the employee. (All
amounts have been adjusted for the 3-for-2 stock split.)
8. DEBT AGREEMENT
The Company renegotiated with its US bank the terms of its revolving
loan agreement. The new agreement provides for an increase in the total
borrowings from $10 million to $15 million. Advances bear interest at a per
annum interest rate equal to the one-month, US LIBOR rate plus 1% per annum.
On November 25, 1996, the Company paid off its $2.1 million term loan
secured by real estate (without a prepayment penalty) as a result of the new
agreement mentioned above.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
attached unaudited consolidated financial statements and notes thereto, and
with the Company's Annual Report on Form 10-K for the fiscal year ended June
29, 1996, including the financial information and management's discussion
contained or incorporated by reference therein.
RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 28, 1996 COMPARED TO QUARTER ENDED DECEMBER 30, 1995
Net sales for the quarter ended December 28, 1996, of $18.5 million
were $1.2 million or 7.0% higher than for the comparable prior year quarter.
Conso US increased 6.0%, a significant improvement over the first quarter of
fiscal 1997, which reflected an increase of 2.6% over the first quarter of the
prior year, while British Trimmings sales increased 9.6%, an even more
noticeable improvement considering the 7.1% decline in the first quarter of
fiscal 1997 compared to the first quarter of the prior year. Incoming orders
for the first several weeks of the third quarter compared to the same period of
the prior year are coming in at higher rates than sales have increased thus far
in the current year, as well.
Sales by customer type were as follows:
<TABLE>
<S> <C> <C>
Distributors $ 7,850,000 up 16.1%
Manufacturers 7,504,000 down 0.8%
Retailers 3,180,000 up 6.2%
- --------------------------------------------------------------------------------
Totals $18,534,000 up 7.0%
================================================================================
</TABLE>
Sales to manufacturers were up at Conso US, but relatively flat overall
as some orders by British Trimmings customers appear to have been delayed into
the third quarter, while sales to distributors and retailers continued to show
nice improvements.
Sales outside the US and UK (the Company's major sales regions)
increased to $2.2 million, a 31.5% increase over the comparable prior year
quarter. Sales outside the US and UK by geographic region were as follows:
<TABLE>
<S> <C> <C>
Western Hemisphere $ 1,002,000 up 24.1%
Continental Europe, Middle East 771,000 up 26.4%
Pacific Rim 412,000 up 68.8%
- --------------------------------------------------------------------------------
Totals $ 2,185,000 up 31.5%
================================================================================
</TABLE>
The gross margin for the quarter remained strong at $7.3 million or
39.6% of net sales, ahead of the prior year's second quarter of $6.4 million or
36.7% of net sales. The increase coming from both Conso US (from 39.5% to 42.2%)
and British Trimmings (from 29.4% to 33.0%) was primarily due to price
increases, process improvements and greater economies of scale. A portion of the
increase at British Trimmings (1.5% of sales) is due to the reclassification of
certain sampling and other marketing related costs to marketing to conform with
the Conso US presentation.
12
<PAGE> 13
Distribution expenses remained relatively flat at 4.2% of net sales.
Selling expenses increased $179,000, edging up from 10.9% to 11.1% of
net sales. Conso US selling expenses increased $49,000, but declined as a
percent of net sales from 10.5% in the prior year to 10.3% in the current year.
British Trimmings' selling expenses increased $130,000 from the prior year's
second quarter from 11.8% to 13.2% of its net sales. The increases at Conso US
are due primarily to the addition of a new product manager and marketing
program for decorative accessories as a result of the acquisition of the
Claesson Company, (in March 1996), a new product manager for the workroom
supplies product lines, and other increased sales and marketing activities
related to these areas. The increases at British Trimmings are due to increased
sampling, and other marketing efforts, advertising, an extra exhibition in the
Middle East this year, and the support of the Pacific Rim from Stockport
instead of from the US operations. In addition, approximately half of the
dollar increase at British Trimmings is due to the reclassification of certain
marketing related costs to selling expense to conform to the Conso US format.
General and administrative expenses were approximately the same as the
prior year both at Conso US and British Trimmings, but declined as a percent of
net sales from 7.0% in the second quarter of the prior year to 6.4% in the
current quarter. A currency translation gain further reduced total selling,
general and administrative costs by $81,000 over the prior year's second
quarter.
Average outstanding debt (with interest) was lower and overnight
deposits higher in the second quarter of the current year than in the second
quarter of the prior year. Accordingly net interest costs decreased $98,000 in
the current quarter compared to the prior year's quarter.
The Company's effective tax rate increased in the current quarter
compared to the prior year's quarter as the Company did not record any
additional Jobs Tax Credits since there were minor increases in employment in
South Carolina in the current year's second quarter. $167,000 of Jobs Tax
Credits were recorded in the prior year's quarter.
Net income for the quarter ended December 28, 1996 was $2,064,000, an
increase of $482,000 or 30.4% over the net income of the second quarter of the
prior year of $1,582,000, bringing earnings per share to 28 cents from the prior
year's 21 cents. These earnings per share amounts reflect the 3-for-2 stock
splits given in the form of a 50% share dividend paid on October 4, 1996 and
October 6, 1995. Conso US' net income increased $464,000 over the prior year
quarter's net income, and British Trimmings' net income was up by $17,000
after adjustments for intercompany transactions, foreign exchange translation
and purchase accounting adjustments.
SIX MONTHS ENDED DECEMBER 28, 1996
COMPARED TO SIX MONTHS ENDED DECEMBER 30, 1995
Net sales for the six months ended December 28, 1996 grew to $35.5
million, a $1.2 million or 3.4% increase over the prior year's period. Sales by
Conso US were up 4.3% to $25.5 million. Sales by British Trimmings picked up
nicely in the second quarter (9.6%) but ended up with a slight increase (1.0%)
for the six months as a result of the weak first quarter. The Company is
encouraged as incoming orders for the first several weeks of the third quarter
have come in at higher rates over the prior year than in the sales increases
reported thus far for fiscal 1997.
13
<PAGE> 14
Sales by customer type were as follows:
<TABLE>
<S> <C> <C>
Distributors $14,628,000 up 8.3%
Manufacturers 15,029,000 flat 0.0%
Retailers 5,889,000 up 0.9%
- --------------------------------------------------------------------------------
Totals $35,546,000 up 3.4%
================================================================================
</TABLE>
Sales to manufacturers continued to be disappointing at the British
Trimmings operation. Among other things, the Company intends to more
aggressively pursue the manufacturing business. Otherwise, distributor and
retailer sales continued to increase.
Sales outside the US and UK (the Company's major sales regions)
increased to $4.0 million, a 25.3% increase over the comparable prior year
period. Sales outside the US and UK by geographic region were as follows:
<TABLE>
<S> <C> <C>
Western Hemisphere $ 1,870,000 up 28.6%
Continental Europe, Middle East 1,309,000 up 10.1%
Pacific Rim 831,000 up 49.8%
- --------------------------------------------------------------------------------
Totals $ 4,010,000 up 25.3%
================================================================================
</TABLE>
The gross margin improved from $12.3 million or 36.4% of net sales to
$14.1 million or 39.7% of net sales with margins at Conso US (after intercompany
eliminations and purchase price adjustments and before the prior year's $250,000
reserve described below) improving from 40.0% to 41.9% and increasing from 30.2%
to 34.2% at British Trimmings. At Conso US, the improvements in gross margin
were due in part to price increases, process improvements and greater economies
of scale due to increased production relating to increased sales. At Conso US, a
special provision of $250,000 (less than 1% of net sales) was made in the prior
year to absorb charges relating to the disposal of its embroidery operations,
the disposition of which was substantially complete by the end of the first
quarter. The provision reduced the prior year's consolidated gross margin to
35.7% from 36.4% and the Conso US gross margin to 38.0% from 40.0%. At British
Trimmings, improvements in gross margin were primarily from price increases and
product mix. A portion of the improvement at British Trimmings (1% of net sales)
was due to the reclassification of certain marketing related costs to selling
expense to conform to the Conso US presentation.
Distribution expenses remained relatively flat at 4.2% of net sales.
Selling expenses increased $352,000 or 9.4% and increased as a
percentage of net sales from 10.9% to 11.5%. The increase resulted from
additional sales personnel costs, marketing costs, the additional costs of the
international sales offices, and the reclassification of certain items to
selling expense, as previously discussed.
14
<PAGE> 15
General and administrative expenses decreased $96,000 or 3.9% from 7.1%
to 6.6% of net sales. The decreases were a result of reductions in costs in
many areas including paper supplies, telecommunications, corporate travel, and
others. Of the decrease, Conso US contributed $72,000, through decreases in
its general and administrative expenses to 6.1% of its net sales. British
Trimmings contributed the remaining $24,000 of the decrease to 7.7% of its net
sales.
Operating income for the current six month period increased 36.0% from
$4.6 million or 13.5% of net sales to $6.3 million or 17.7% of net sales, even
though selling, general and administrative costs increased overall.
The Company's tax provision for the six month period was not favorably
affected by South Carolina Jobs Tax Credits since there were minimal job
increases at the Union, S.C. plants.
Net income for the six month period ended December 28, 1996 was
$3,798,000, an increase of $858,000, or 29.2%, over the net income of the prior
year's six month period of $2,940,000 bringing earnings per share to 51 cents
from the prior year's 40 cents per share. These earnings per share amounts
reflect the 3-for-2 stock splits effected in the form of 50% share dividends
paid on October 4, 1996 and October 6, 1995. Conso US' net income increased
$843,000 over the prior year's six month period, while British Trimmings' net
income increased $15,000 from the prior year's six month period (after
adjustments for intercompany transactions, foreign exchange translations and
purchase accounting).
LIQUIDITY AND CAPITAL RESOURCES
The Company recently completed a renegotiation of its NationsBank, N.A.
revolving loan facility to facilitate the construction of the new dyehouse and
warehouse facilities and allow for potential future expansions or the
acquisitions of other businesses. Effective November 25, 1996, the new facility
provided for an increase in the total borrowings from $10 million to $15
million and a reduction in interest rates on borrowings in British pounds
sterling from UK LIBOR plus 125 basis points to UK LIBOR plus 100 basis points
(a 25 basis points reduction) and a change in the US borrowing rate from the 90
day CD rate plus 275 basis points to the 30 day US LIBOR rate plus 100 basis
points (a reduction of 102 basis points as of December 28, 1996). In addition,
the Company used available cash of $2 million to repay the Company's term loan
secured by US real estate which bore interest at a fixed interest rate of 9%.
The outstanding aggregate balances of both the Company's and British
Trimmings' lines of credit and the British Trimmings' (line of credit type)
overdraft facility were $8.1 million at December 28, 1996, with approximately
$7.7 million available for future borrowings subject to satisfaction of certain
borrowing base requirements. Working capital declined from $20.7 million at
September 28, 1996, but remained strong at $20.2 million, above the $19.5
million at June 29, 1996, despite increased capital expenditures, particularly
for the building expansions and equipment.
The Company had originally budgeted approximately $1.3 million for
capital expenditures during the 1997 fiscal year (excluding building expansions
or possible acquisitions of other businesses). In the US, Conso had budgeted
$2.3 million for the construction of a new dyehouse facility and related
equipment and $3.7 million for a new warehouse facility and some new equipment.
These expansions will free up much needed additional production and some office
space. At December 28, 1996, approximately $918,000 had been spent on these
projects with the majority of this amount going toward the purchase of dyehouse
equipment. Excluding the dyehouse and warehouse projects, capital expenditures
for the first half of the year were approximately $1,059,000. This amount,
which was greater than originally anticipated for the first six months, was due
to the acceleration of expenditures at British Trimmings to further streamline
their production processes and better facilitate the Conso US inventory
control systems. The Company has increased it budget for 1997 capital
expenditures to $1,750,000.
15
<PAGE> 16
The Company believes that cash generated by operations and available
borrowings under lines of credit will be adequate to fund its working capital
and capital expenditure requirements for the foreseeable future, but excluding
possible additional acquisitions of other businesses. Based on the Company's
financial position, the Company believes that it will also be able to obtain any
additional financing necessary to fund its planned long-term growth and
expansion. Such additional financing may include long-term debt or equity;
however, (except to increase its availability under its line of credit for
near-term requirements, as previously discussed) the Company has not yet made
arrangements for any such additional financing.
CAUTIONARY STATEMENT AS TO FORWARD LOOKING INFORMATION
Statements contained herein as to Company's outlook for sales,
operations, capital expenditures and other amounts, budgeted amounts and other
projections of future financial or economic performance of the Company, and
statements of the Company's plans and objectives for the future operations are
"forward looking" statements, and are being provided in reliance upon the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
Important factors that could cause actual results or events to differ materially
from those projected, estimated, assumed or anticipated in any such forward
looking statements include, without limitation: general economic conditions in
the Company's markets, including inflation, recession, interest rates and other
economic factors, especially in the United States and the United Kingdom but
also including other areas of the world where the Company markets its products;
changes in consumer fashion preferences for finished products in the home
furnishings market, which may affect the demand for the Company's products; any
loss of the services of the Company's key management personnel; increased
competition in the United States and abroad, both from existing competitors and
from any new entrants in the decorative trimmings business; the Company's
ability to successfully continue its international expansion and to successfully
and profitably integrate into its operations any existing businesses it may
acquire; changes in the cost and availability into its operations any existing
businesses it may acquire; changes in the cost and availability of raw
materials; changes in governmental regulations applicable to the Company's
business; fluctuations in exchange rates relative to the US dollar for
currencies of the United Kingdom and other nations where the Company does
16
<PAGE> 17
business; casualty to or disruption of the Company's products and raw materials;
disruption of operations in the shipment of the Company's products and raw
materials; disruption of operations due to strikes or other labor unrest; and
other factors that generally affect the business of manufacturing companies with
international operations.
17
<PAGE> 18
Part II OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following tabulation sets forth the matters voted upon at the Annual
Meeting of Shareholders of the Registrant held October 15, 1996, and the votes
on each such matter:
<TABLE>
<CAPTION>
Against/ Broker
For Withheld Abstain Nonvotes
--- -------- ------- --------
<S> <C> <C> <C> <C>
ELECTION OF DIRECTORS
J. Cary Findlay 6,640,684 0 82,012 N/A
Antony W. Laughton 6,640,684 0 82,012 N/A
John H. Maxheim 6,640,684 0 82,012 N/A
James H. Shaw 6,640,309 0 82,387 N/A
Konstance J.K. Findlay 6,640,309 0 82,387 N/A
Marcus T. Hickman 6,640,009 0 82,687 N/A
S. Duane Southerland 6,640,684 0 82,012 N/A
APPROVAL OF SELECTION OF
DELOITTE & TOUCHE LLP AS
INDEPENDENT PUBLIC
ACCOUNTANTS 6,718,563 1,650 2,483 N/A
</TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Description
-------- -----------
10.51 Loan Agreement dated as of November 25, 1996 by
and between the Company and NationsBank, N.A.
("NationsBank").
10.52 Promissory Note dated November 25, 1996 in the
original principal amount of up to $15,000,000
issued by the Company in favor of NationsBank.
10.53 Promissory Note dated November 25, 1996 in the
original principal amount of up to (L)5,000,000
issued by British Trimmings Limited in favor of
NationsBank.
10.54 Sixth Amendment to Security Agreement dated as of
November 25, 1996 by and between the Company and
NationsBank.
18
<PAGE> 19
10.55 Fourth Amendment to Guaranty Agreement dated as
of November 25, 1996 by and between the Company
and NationsBank.
27.1 Financial Data Schedule for the quarter ended
December 28, 1996 (filed in electronic format
only).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 28, 1996.
19
<PAGE> 20
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONSO PRODUCTS COMPANY
Dated: February 10, 1997 By: /s/ David B. Dechant
---------------------------
Name: David B. Dechant
Title: Chief Accounting Officer and Controller
Dated: February 10, 1997 By: /s/ Gilbert G. Bartell
---------------------
Name: Gilbert G. Bartell
Title: Chief Financial Officer and
Vice President Finance/Treasurer
20
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- -------- -----------
<S> <C>
10.51 Loan Agreement dated as of November 25, 1996 by
and between the Company and NationsBank, N.A.
("NationsBank").
10.52 Promissory Note dated November 25, 1996 in the
original principal amount of up to $15,000,000
issued by the Company in favor of NationsBank.
10.53 Promissory Note dated November 25, 1996 in the
original principal amount of up to (L)5,000,000
issued by British Trimmings Limited in favor of
NationsBank.
10.54 Sixth Amendment to Security Agreement dated as of
November 25, 1996 by and between the Company and
NationsBank.
10.55 Fourth Amendment to Guaranty Agreement dated as
of November 25, 1996 by and between the Company and
NationsBank.
27.1 Financial Data Schedule for the quarter ended
December 28, 1996 (filed in electronic format only).
</TABLE>
<PAGE> 1
EXHIBIT 10.51
LOAN AGREEMENT
THIS LOAN AGREEMENT dated as of November 25, 1996 (the "Loan
Agreement") by and among CONSO PRODUCTS COMPANY, a South Carolina corporation
("Conso" or the "Borrower"); and
NATIONSBANK, N.A., a national banking association existing under the
laws of the United States and having offices in Charlotte, North Carolina (the
"Bank").
RECITALS:
A. The Borrower has requested that the Bank provide revolving loans and
letters of credit of up to $15,000,000 in the aggregate, (pound)5,000,000 of
which would be available for British Trimmings Limited, an English company
("Trimmings"), and the balance of which would be available for the Borrower. The
proceeds of the revolving loans will be used to refinance existing revolving and
term indebtedness of the Borrower and Trimmings to the Bank and to finance the
ongoing working capital needs of the Borrower and Trimmings. In connection with
the refinancing of the existing term indebtedness, the Bank has agreed to waive
any prepayment penalty and release its liens on Conso's real property.
B. The Bank is willing to make the above-described credit
available to the Borrower and Trimmings in accordance with the terms of this
Loan Agreement.
C. This Loan Agreement also amends and restates in their entirety the
terms and conditions of the Loan Agreement, dated as of May 6, 1994 and amended
as of December 1, 1994, February 10, 1995, June 13, 1995, November 1, 1995,
December 1, 1995 and March 1, 1996, by and between the Borrower and the Bank.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, Conso and the Bank hereby agree as follows:
ARTICLE I
Definitions
-----------
1.01 For the purposes hereof:
"Advances" shall have the meaning given to such term in
Section 2.01;
<PAGE> 2
"Business Day" means a day on which banks are open for the
transaction of business of the nature required in this Loan Agreement
in Charlotte, North Carolina;
"Consistent Basis" in reference to the application of
Generally Accepted Accounting Principles, means that the accounting
principles observed in the period referred to are comparable in all
material respects to those applied in the most recent preceding period
except as to any changes required by the American Institute of
Certified Public Accountants or the Financial Accounting Standards
Board;
"Consolidated Current Assets" means all items which, in
accordance with Generally Accepted Accounting Principles, would be
classified as consolidated current assets on a consolidated balance
sheet of Conso and including the current portion of deferred taxes;
"Consolidated Current Liabilities" means all items which, in
accordance with Generally Accepted Accounting Principles, would be
classified as consolidated current liabilities on a consolidated
balance sheet of Conso but excluding deferred taxes;
"Consolidated EBITDA" means, for any 12 month period of
computation, the sum of Consolidated Net Income for such period plus
interest, taxes, depreciation and amortization to the extent deducted
in determining such Consolidated Net Income;
"Consolidated Fixed Charge Coverage Ratio" means for any
fiscal quarter, the ratio of (x) Consolidated EBITDA minus capital
expenditures minus taxes (each computed for the 12 month period then
ended) to (y) current maturities of long term debt plus current
maturities of capitalized leases plus interest plus dividends (each
computed for such 12 month period);
"Consolidated Funded Indebtedness" means as of the date of
determination, all Indebtedness of the Borrower and its Subsidiaries,
determined on a consolidated basis in accordance with Generally
Accepted Accounting Principles, which by its terms matures more than
one year after the date of calculation, and any such Indebtedness
maturing within one year from such date which is renewable or
extendable at the option of the obligor to a date more than one year
from such date including, in any event, all Indebtedness under this
Loan Agreement;
"Consolidated Net Income" means for any period of
computation, the net income of the Borrower and its
- 2 -
<PAGE> 3
Subsidiaries, determined on a consolidated basis in
accordance with Generally Accepted Accounting Principles;
"Consolidated Tangible Net Worth" means at any time,
consolidated net stockholders' equity, determined in accordance with
Generally Accepted Accounting Principles applied on a Consistent Basis
minus the book value of assets which would be treated as intangibles
under Generally Accepted Accounting Principles, including, but not
limited to, goodwill, trade names, trademarks, copyright, patents and
unamortized debt discount and expenses;
"Dollar Advances" shall have the meaning given to such
term in Section 2.01;
"Dollar Note" shall have the meaning given to such term
in Section 2.03;
"Exchange Rate" means, in relation to the purchase of one
currency (for purposes of this definition the "first currency") with
another currency (for purposes of this definition the "second
currency") on a given date, the Bank's spot rate of exchange, for the
amount in question, in the London interbank market at or about 11:00
a.m. Charlotte, North Carolina time on such date for the purchase of
the first currency with the second currency, for delivery two Business
Days later;
"Financing Statements" means the financing statements and all
renewals and amendments thereto, whereby the Bank perfects its security
interest in the collateral described therein;
"Generally Accepted Accounting Principles" means those
principles of accounting set forth in pronouncements of the Financial
Accounting Standards Board, the American Institute of Certified Public
Accountants or which have other substantial authoritative support and
are applicable in the circumstances as of the date of a report, as such
principles are from time to time supplemented and amended;
"Guaranty" means the Guaranty Agreement, dated as of May 6,
1994 and amended as of December 1, 1994, November 1, 1995, March 1,
1996 and the date hereof, whereby Conso guarantees the obligations of
Trimmings to the Bank under the Sterling Note;
"Indebtedness" of any Person at any date means:
(a) all indebtedness of such Person for borrowed
money or for the deferred purchase price of property or
- 3 -
<PAGE> 4
services (other than current trade liabilities incurred in the
ordinary course of business and payable in accordance with
customary practices);
(b) any other indebtedness which is evidenced by
a note, bond, debenture or similar instrument,
(c) all capital lease obligations of such Person,
(d) all obligations of such Person in respect of
outstanding letters of credit, acceptances and similar
obligations created for the account of such Person, and
(e) all liabilities secured by any lien on any
property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof.
"Letter of Credit Applications" shall have the meaning
given to such term in Section 2.07 hereof;
"Letter of Credit Obligations" shall have the meaning
given to such term in Section 2.07 hereof;
"Letters of Credit" shall have the meaning given to
such term in Section 2.07 hereof;
"Loan Documents" means this Loan Agreement, the Notes,
the Security Agreement, the Financing Statements, the
Guaranty and the Letter of Credit Applications;
"Notes" means a collective reference to the Dollar Note
and the Sterling Note;
"Permitted Liens" shall mean when used with respect to Conso's
accounts receivable and inventory (but specifically excluding the
accounts receivable and inventory of any Trimmings Company), any of the
following liens or encumbrances:
(i) liens securing any indebtedness (specifically
including any liens created under any of the Loan Documents or
heretofore existing in favor of the Bank) to the Bank or any
of its successors or assigns;
(ii) liens imposed by mandatory provisions of law
of carriers, warehousemen, mechanics and materialmen
incurred in the ordinary course of business;
- 4 -
<PAGE> 5
(iii) liens incurred in the ordinary course of
business in connection with worker's compensation,
unemployment insurance or other forms of governmental
insurance or benefits;
(iv) liens for taxes, assessments or governmental
charges or levies if the underlying obligations for the same
are not delinquent or are being contested in good faith and
with due diligence by appropriate proceedings; and
(v) liens set forth on Exhibit A hereto.
"Person" means an individual, partnership, corporation, trust,
unincorporated organization, association, joint venture or a government
or agency or political subdivision thereof;
"Revolving Loan Committed Amount" shall have the
meaning given to such term in Section 2.01;
"Security Agreement" means the Security Agreement, dated as of
May 6, 1994 and amended as of December 1, 1994, February 10, 1995, June
13, 1995, November 1, 1995, March 1, 1996 and the date hereof, whereby
Conso grants to the Bank a security interest in all of its accounts
receivable and inventory (but specifically excluding any accounts
receivable or inventory of any Trimmings Company);
"Sterling Advances" shall have the meaning given to
such term in Section 2.01;
"Sterling Note" shall have the meaning given to such
term in Section 2.02;
"Subsidiary" or "Subsidiaries" means any corporation or
corporations of which more than fifty percent (50%) of the voting stock
at the time of computation is owned, directly or indirectly, by Conso
or a Subsidiary;
"Termination Date" means December 1, 1998; provided, however,
the Bank in its sole discretion may elect to extend such date for
additional annual periods upon the request of Conso; provided further,
that in the event the Bank elects not to extend the Termination Date or
any extension thereof for an additional annual period in accordance
with the request of Conso, the Bank shall give Conso notice thereof at
least 30 days prior to the end of the applicable period (regardless of
whether Conso shall have theretofore formally requested an extension);
- 5 -
<PAGE> 6
"Trimmings" shall have the meaning given to such term
in Recital A hereof; and
"Trimmings Company" means a collective reference to
Trimmings and each of its Subsidiaries.
1.02 All accounting terms not specifically defined herein shall be
construed in accordance with Generally Accepted Accounting Principles applied on
a Consistent Basis.
ARTICLE II
Revolving Loans and Letters of Credit
-------------------------------------
2.01 The Bank agrees, on the terms herein set forth, to make revolving
loan advances (the "Advances") from time to time during the period from the date
hereof to the Termination Date in an amount equal to $15,000,000 (or such higher
amount as the parties hereto may from time to time agree) (the "Revolving Loan
Committed Amount"). The Bank agrees that a portion of the Advances shall be
available to Trimmings in U.K. Pounds Sterling (the "Sterling Advances") in an
aggregate amount up to (pound)5,000,000 at any time outstanding. The Bank agrees
that the remaining portion of the Advances shall be available to Conso in U.S.
dollars (the "Dollar Advances"). Within the limits set forth herein and in the
Sterling Note (as hereinafter defined) and the Dollar Note (as hereinafter
defined), the Bank shall make Advances, accept payments and prepayments pursuant
to the terms hereof and readvance any amount so paid or prepaid.
2.02 The Sterling Advances shall be made, shall be repaid and shall
bear interest in accordance with the terms of that certain Promissory Note of
even date herewith executed by Trimmings in favor of the Bank in the original
principal amount of up to (pound)5,000,000 (the "Sterling Note"), the terms of
which are incorporated herein by reference.
2.03 The Dollar Advances shall be made, shall be repaid and shall bear
interest in accordance with the terms of that certain Promissory Note of even
date herewith executed by Conso in favor of the Bank in the original principal
amount of up to $15,000,000 (the "Dollar Note"), the terms of which are
incorporated herein by reference.
2.04 If the U.S. dollar equivalent of the outstanding principal balance
of the Sterling Note (based upon the most recently available Exchange Rate) plus
the outstanding principal balance of the Dollar Note plus the then outstanding
Letter of Credit Obligations shall at any time exceed U.S. $15,000,000, Conso
shall within two Business Days after receiving notice
- 6 -
<PAGE> 7
thereof from the Bank make a repayment to the Bank for purposes of eliminating
such excess, with such repayment to be applied first to the Dollar Note and then
to the Sterling Note to the extent of any surplus payment amount. Conso agrees
to deliver to the Bank within 15 days after the end of each month a certificate
setting forth as of the last day of such month (i) the U.S. dollar equivalent of
the outstanding principal balance of the Sterling Note (based upon the Exchange
Rate as of the last day of such month), (ii) the outstanding principal balance
of the Dollar Note, (iii) the outstanding Letter of Credit Obligations, (iv) the
sum of items (i), (ii) and (iii) above and (v) and the difference between the
Revolving Loan Committed Amount and the sum of items (i), (ii) and (iii) above.
2.05 The obligation of the Bank to make any Advance or to issue any
Letter of Credit shall be subject to the satisfaction of the following
conditions:
(a) the representations and warranties set forth in Article IV
hereof shall be true and correct in all material respects as of the day
of the making of such Advance or the issuance of such Letter of Credit,
except to the extent any such representation or warranty relates to a
prior date;
(b) at the time of the making of and immediately after the
making of such Advance or the issuance of such Letter of Credit there
shall have occurred or be continuing no Event of Default, or event
which upon notice or lapse of time or both would constitute an Event of
Default; and
(c) immediately after the making of such Advance or the
issuance of such Letter of Credit, the sum of the U.S. dollar
equivalent of the outstanding principal balance of the Sterling Note
(based upon the most recently available Exchange Rate) plus the
outstanding principal balance of the Dollar Note plus the then
outstanding Letter of Credit Obligations shall not exceed U.S.
$15,000,000.
Each Advance made at the request of Conso or Trimmings, as the case may be,
hereunder shall be deemed to be a reaffirmation on the date of such Advance as
to the matters specified in subsections (a) and (b) hereof.
2.06 The Borrower shall have the right from time to time to voluntarily
reduce the Revolving Loan Committed Amount; provided, however, if upon such
reduction the U.S. dollar equivalent of the outstanding principal balance of the
Sterling Note (based upon the most recently available Exchange Rate) plus the
outstanding
- 7 -
<PAGE> 8
principal balance of the Dollar Note plus the then outstanding Letter of Credit
Obligations shall exceed such reduced Revolving Loan Committed Amount, Conso
shall make a repayment to the Bank for purposes of eliminating such excess, with
such repayment to be applied first to the Dollar Note and then to the Sterling
Note to the extent of any surplus payment amount.
2.07 The Bank also agrees to issue standby and documentary letters of
credit (the "Letters of Credit") on Conso's application from time to time at
Conso's request from time to time in accordance with the following terms and
conditions:
(a) Conso will execute a letter of credit application on the
Bank's standard form in connection with the issuance of each Letter of
Credit (hereinafter the "Letter of Credit Applications");
(b) The form of each Letter of Credit must be
satisfactory to the Bank in its sole discretion;
(c) No Letter of Credit shall have a term in excess of
one year;
(d) No Letter of Credit shall have an expiration date
more than six months beyond the Termination Date;
(e) The aggregate undrawn amounts of the Letters of Credit at
any time outstanding plus the outstanding principal amount of amounts
drawn under the Letters of Credit and not reimbursed by Conso (the
"Letter of Credit Obligations") plus the outstanding principal balance
of the Dollar Advances plus the U.S. dollar equivalent of the Sterling
Advances (based upon the most recently available Exchange Rate) shall
not exceed U.S. $15,000,000;
(f) The Bank is authorized to reimburse itself for amounts
drawn under the Letters of Credit by disbursing directly to itself
proceeds of the Dollar Advances;
(g) Amounts drawn under the Letters of Credit shall be
payable in accordance with the terms of the Letter of Credit
Applications; and
(h) Conso shall pay the Bank such fees with respect to the
Letters of Credit as are agreed to by Conso and the Bank from time to
time.
(i) If at any time after the date hereof, and from time to
time, the Bank reasonably determines that the adoption or modification
of any applicable law, rule or regulation regarding taxation, the
Bank's required levels of
- 8 -
<PAGE> 9
reserves, deposits, insurance or capital (including any allocation of
capital requirements or conditions), or similar requirements, or any
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation,
administration or compliance of the Bank with any of such requirements,
has or would have the effect of (i) increasing the Bank's costs
relating to the Letters of Credit hereunder, or (ii) reducing the yield
or rate of return of the Bank on the Letters of Credit hereunder, to a
level below that which the Bank could have achieved but for the
adoption or modification of any such requirements, Conso shall, within
15 days of any written request (which request shall state in reasonable
detail the basis therefor) by the Bank, pay to the Bank such additional
amounts as will compensate the Bank for such increase in costs or
reduction in yield or rate of return of the Bank. Upon determining in
good faith that any additional amounts will be payable pursuant to this
Section, the Bank will give prompt written notice thereof to the
Borrower, which notice shall set forth in reasonable detail the basis
of the calculation of such additional amounts. Nothing herein contained
shall be construed or so operate as to require Conso to pay any
interest, fees, costs or charges greater than is permitted by
applicable law.
ARTICLE III
Security
--------
3.01 Conso has heretofore delivered the following documents:
(a) the Security Agreement;
(b) the Financing Statements; and
(c) the Guaranty.
The collateral granted to the Bank by Conso under the Security
Agreement secures the obligations of Conso to the Bank under this Loan
Agreement, the Dollar Note and the Guaranty. Conso has guaranteed the
obligations of Trimmings to the Bank under the Sterling Note pursuant to the
Guaranty.
3.02 At the request of the Bank, Conso will execute by its duly
authorized officers, alone or with the Bank, any certificate, instrument,
statement or document and will procure any such certificate, instrument,
statement or document (and pay
- 9 -
<PAGE> 10
all connected costs) which the Bank reasonably deems necessary to preserve the
security interest of the Bank contemplated hereby.
ARTICLE IV
Representations and Warranties
------------------------------
4.0l Conso represents and warrants that:
(a) (i) Conso and each of its Subsidiaries is a corporation,
duly organized, validly existing and in good standing under
the laws of the jurisdictions in which they are incorporated;
(ii) Conso and each of its Subsidiaries has the corporate
power and authority to own its properties and assets and to
carry on its business as now being conducted and is qualified
to do business in every jurisdiction in which, by reason of
the character of its business, it is required to qualify as a
foreign corporation (other than those jurisdictions where the
failure to so qualify would not subject any such Person to any
material liability or disability);
(iii) Conso has the corporate power and authority to
execute and perform this Loan Agreement, to borrow hereunder
and to execute and deliver each of the Loan Documents to which
it is a party, and all other certificates, instruments and
documents with respect to the indebtedness of Conso hereunder;
(iv) Trimmings has the corporate power and authority to
execute and perform the Sterling Note, to borrow thereunder
and to execute and deliver the Sterling Note, and all other
certificates, instruments and documents with respect to the
indebtedness of Trimmings thereunder;
(v) when executed and delivered, the Loan Documents will
be valid and binding obligations of Conso and Trimmings
enforceable in accordance with their respective terms;
(vi) the material Subsidiaries of Conso are set forth on
Exhibit B attached hereto and except as set forth on Exhibit
B, Conso has no material Subsidiaries;
- 10 -
<PAGE> 11
(b) the execution, delivery and performance of the Loan
Documents
(i) have been duly authorized by all requisite
corporate action of Conso and Trimmings required for the
lawful execution and delivery thereof;
(ii) do not violate any provisions of law, any order of
any court or other agency of government or the charter
documents or by-laws (or any other applicable organic
document) of Conso or Trimmings;
(iii) will not be in conflict with, result in a breach of
or constitute an event of default nor an event which, upon
notice or lapse of time, or both, would constitute such an
event of default under any indenture, agreement or other
instrument to which Conso or Trimmings is a party, except for
any such conflict, breach or default that could not be
reasonably expected to have a material adverse effect on Conso
or Trimmings, as the case may be;
(iv) will not result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of Conso or Trimmings except to
the extent any liens are created by such Loan Documents;
(c) (i) Conso has heretofore furnished the Bank with an
audited consolidated balance sheet of Conso and its
Subsidiaries as of June 29, 1996 and the related audited
consolidated statements of operations for the 12 months then
ended and the notes thereto. Such financial statements have
been prepared in accordance with Generally Accepted Accounting
Principles applied on a Consistent Basis throughout the period
involved; the consolidated balance sheet and the notes thereto
present fairly in all material respects the financial position
of Conso and its Subsidiaries as of the date thereof, and the
consolidated statements of operations and the notes thereto
present fairly in all material respects the results of the
operation of Conso and its Subsidiaries for the period
indicated;
- 11 -
<PAGE> 12
(ii) since the date of the financial statements described
in Section 4.01(c)(i) hereinabove, there has been no material
adverse change in the condition, financial or otherwise, of
Conso and its Subsidiaries nor have their businesses or
properties been adversely affected as a result of any fire,
explosion, earthquake, accident, strike, lockout, combination
of workers, flood, embargo, acts of God or by cancellation or
loss of any major contract;
(d) there is no action, suit or proceeding at law or in equity
or by or before any governmental instrumentality or agency or arbitral
body now pending or, to the knowledge of Conso, threatened by or
against or affecting Conso or any of its Subsidiaries or any properties
or rights of Conso or any of its Subsidiaries which, if adversely
determined, would impair the right of Conso or any of its Subsidiaries
to carry on business substantially as now conducted or would materially
adversely affect the financial condition, business or operations of
Conso or any of its Subsidiaries;
(e) (i) Conso has filed or caused to be filed all federal and
all material state and local tax returns which are required to be filed
and has paid or caused to be paid all taxes as shown on said returns or
on any assessment received by it, to the extent that such taxes have
become due and (ii) each of its Subsidiaries has filed or caused to be
filed all material tax returns which are required to be filed and have
paid or caused to be paid all taxes as shown on said returns or on any
assessment received by them, to the extent that such taxes have become
due;
(f) neither Conso nor any of its Subsidiaries is
(i) a party to any judgment, order, decree or any
agreement or instrument or subject to corporate restrictions
materially adversely affecting its business, properties or
assets, operations or condition (financial or otherwise);
(ii) in default in the performance, observance or
fulfillment of any material obligations, covenants or
conditions contained in any agreement or instrument to which
it is a party;
- 12 -
<PAGE> 13
(g) no part of the proceeds of any loan hereunder will be used
to purchase or carry or to reduce or retire any loan incurred to
purchase or carry, any "margin stock" (within the meaning of Regulation
U of the Board of Governors of the Federal Reserve System) or to extend
credit to others for the purpose of purchasing or carrying any such
margin stocks; provided, however, nothing contained herein shall
prohibit Conso from instituting a loan program pursuant to which it
makes loans to employees and other participants in its employee stock
option plan to fund their payment of the exercise price for stock
options granted pursuant to such plan. Neither Conso nor any of its
Subsidiaries is engaged, as one of their important activities, in
extending credit for the purpose of purchasing or carrying such margin
stock. If requested by the Bank and to the extent applicable, Conso and
Trimmings will furnish to the Bank in connection with any loan
hereunder, a statement in conformance with the requirements of Federal
Reserve Form U-1 referred to in said Regulation. In addition, no part
of the proceeds of any loan hereunder will be used for the purchase of
commodity future contracts (or margins therefor for short sales) for
any commodity not required for the normal raw material inventory of
Conso or any of its Subsidiaries;
(h) Conso and each of its Subsidiaries possess all necessary
material patents, licenses, trademarks, trademark rights, tradenames,
tradename rights and copyrights (or their equivalents in the United
Kingdom) to conduct their respective businesses without known conflict
with any patent, license, trademark, tradename or copyrights (or their
equivalents in the United Kingdom) of any other Person except for any
such conflict which could not be reasonably expected to have a material
adverse effect on Conso and its Subsidiaries;
(i) none of the Loan Documents contains any material
misrepresentation or untrue statement of a material fact or omits to
state a material fact necessary in order to make any such
representation or statement contained therein not misleading;
(j) neither the nature of Conso or any of its Subsidiaries nor
of their respective businesses or properties, nor any relationship
between Conso or any of its Subsidiaries and any other Person, nor any
circumstance in connection with the offer, issue, sale or delivery of
the Notes is such as to require a
- 13 -
<PAGE> 14
consent, approval or authorization of, or filing, registration or
qualification with, any governmental authority on the part of Conso or
Trimmings as a condition to the execution and delivery of this Loan
Agreement or any other Loan Document;
(k) neither Conso nor any of its Subsidiaries has incurred or
assumed any liability for any accumulated unfunded deficiency within
the meaning of the Employee Retirement Income Security Act of 1974 as
amended ("ERISA") or has incurred any material liability to the Pension
Benefit Guaranty Corporation ("PBGC") established under ERISA (or any
successor thereto under ERISA) in connection with any employee benefit
plan established or maintained by Conso and any of its Subsidiaries;
(l) except as set forth on Exhibit A and for other Permitted
Liens, Conso has good and marketable fee simple title to its
receivables and inventory (with no representation or warranty being
made as to the receivables or inventory of any Trimmings Company); and
(m) the business of Conso and its Subsidiaries has been
operated in compliance in all respects with all applicable federal,
state, local and foreign laws, regulations, orders, ordinances,
judgments and decrees (including, for example, matters relating to the
environment, discrimination, employment and health and safety), except
for such matters, if any, as may have been previously disclosed by
Conso to the Bank in writing and for violations which do not and will
not have a material adverse effect on the financial conditions,
business or results of operations of Conso and its Subsidiaries. All
material permits, certificates, licenses, approvals, and other
authorizations that are required in connection with the operation of
the respective businesses of Conso and its Subsidiaries have been
issued, and, as of the date hereof and immediately thereafter Conso and
its Subsidiaries will have all material permits, certificates,
licenses, approvals and other authorizations required in connection
with the operation of their respective businesses.
ARTICLE V
Affirmative Covenants
---------------------
5.01 Conso covenants and agrees that from the date hereof and until
payment in full of all principal and interest on the Notes and until the
commitment of the Bank to make loans and
- 14 -
<PAGE> 15
issue Letters of Credit hereunder has been terminated (unless the Bank shall
otherwise consent in writing), Conso will:
(a) as soon as practical and in any event not later than
within one hundred twenty (120) days of the end of each fiscal year
ending after the date hereof, deliver to the Bank a financial report in
U.S. Dollars including a consolidated balance sheet of Conso and its
Subsidiaries as at the end of such fiscal year, and the related
consolidated statements of operations, shareholders' equity and cash
flows for such fiscal year and the notes thereto, setting forth in each
case comparative financial statements for the preceding year, all
prepared in accordance with Generally Accepted Accounting Principles
applied on a Consistent Basis and containing an unqualified opinion of
independent certified public accountants selected by Conso and
reasonably acceptable to the Bank (it being understood and agreed that
delivery by Conso to the Bank of its Annual Report on Form 10-K as
filed with the Securities and Exchange Commission shall be deemed to
satisfy this Section 5.01(a));
(b) as soon as practical and in any event not later than
within fifty (50) days after the end of each fiscal quarter (except the
fourth and final fiscal quarter) of each fiscal year of Conso, deliver
to the Bank a financial report in U.S. Dollars including a consolidated
balance sheet of Conso and its Subsidiaries as at the end of such
quarterly period and the related consolidated statements of operations,
shareholders' equity and cash flows for the period from the beginning
of the current fiscal year to the end of such quarterly period (it
being understood and agreed that delivery by Conso to the Bank of its
Quarterly Report on Form 10-Q as filed with the Securities and Exchange
Commission shall be deemed to satisfy this Section 5.01(b)), together
with a financial covenant compliance report setting forth the actual
results of the covenants set forth in Sections 5.01(g), (h), (i) and
(j) below as of the last day of such quarter then ending, all prepared
in accordance with Generally Accepted Accounting Principles applied on
a Consistent Basis (subject to normal year-end adjustments which would
not have a material adverse affect on Conso's consolidated financial
condition, and the absence of certain footnotes) and certified by the
chief financial officer of Conso as presenting fairly in all material
respects the consolidated financial condition of Conso and its
Subsidiaries;
- 15 -
<PAGE> 16
(c) together with each delivery of financial reports required
by Sections 5.01(a) and (b) hereof, deliver to the Bank a statement
signed by the chief financial officer of Conso setting forth that, to
the best of his knowledge, Conso and Trimmings have kept, observed,
performed and fulfilled in all material respects each and every
agreement binding on them contained in the Loan Documents and that no
Event of Default specified in Article VII hereof, nor any event, which,
upon notice or lapse of time or both, would constitute such an Event of
Default, has occurred, or if such Event of Default exists or would
occur as the case may be, stating the nature thereof, the period of
existence thereof and what action Conso proposes to take with respect
thereto;
(d) promptly upon becoming available, deliver to the Bank a
copy of all documents filed by Conso with the Securities and Exchange
Commission;
(e) promptly, from time to time, deliver to the Bank such
other information regarding the operations, business, affairs and
financial condition of Conso and its Subsidiaries as the Bank may
reasonably request. The Bank is hereby authorized to deliver a copy of
any such financial information delivered hereunder to the Bank to any
regulatory authority having jurisdiction over the Bank that requests
such information;
(f) together with each delivery of the financial statement
required by Section 5.01(a) hereof, deliver to the Bank a letter of
Conso's certified public accountants stating that in performing the
examination necessary to render an opinion on the financial statements
delivered therewith, they obtained no knowledge of any event of default
by Conso in the fulfillment of the terms and provisions of the
financial covenants contained in Sections 5.01(g)-(j) of this Loan
Agreement; and if the accountants have obtained knowledge of such an
event of default a statement specifying, to the best of their
knowledge, the nature and period of existence thereof;
(g) maintain for Conso and its Subsidiaries on a consolidated
basis at the end of each fiscal quarter Consolidated Tangible Net Worth
of at least $28,000,000.00; provided, however, such amount shall be
increased on the last day of each fiscal year (commencing with the
fiscal year ending June 28, 1997) by an amount equal to 75% of
Consolidated Net Income of
- 16 -
<PAGE> 17
Conso and its Subsidiaries for such fiscal year (but not decreased by
losses in any such fiscal year);
(h) maintain for Conso and its Subsidiaries on a consolidated
basis at the end of each fiscal quarter a ratio of Consolidated Funded
Indebtedness (computed on the last day of such quarter) to Consolidated
EBITDA (computed for the 12 months then ended) of no greater than 2.0
to 1.0;
(i) maintain for Conso and its Subsidiaries on a consolidated
basis at the end of each fiscal quarter a Consolidated Fixed Charge
Coverage Ratio of at least 1.5 to 1.0 (computed for the fiscal 12
months then ending);
(j) maintain for Conso and its Subsidiaries on a consolidated
basis at the end of each fiscal quarter a ratio of Consolidated Current
Assets to Consolidated Current Liabilities at all times of at least 2.0
to 1.0;
(k) maintain, and cause each of its Subsidiaries to maintain,
all personal property in good working order and condition and make all
needed repairs, replacements and renewals as is necessary to conduct
the business in accordance with prudent business practices;
(l) do or cause to be done all things necessary to preserve
and keep in full force and effect the corporate existence, rights and
franchises of Conso and Trimmings;
(m) pay all taxes, assessments, governmental charges, material
claims for labor, significant amounts of supplies, rent and any other
material obligation which, if unpaid, might become a lien against any
of the property of Conso and its Subsidiaries except (i) liabilities
being contested in good faith and against which, if requested by the
Bank reserves reasonably satisfactory to the Bank will be established,
or (ii) liabilities the payment of which would not have a material
adverse effect on the condition of Conso and its Subsidiaries, taken as
a whole;
(n) maintain insurance covering Conso's inventory that shall
provide that, in case of each separate loss with respect to casualty
insurance, the full amount of insurance proceeds with respect thereto
shall be payable to the Bank as secured party, or otherwise as
- 17 -
<PAGE> 18
its interest may appear. All such insurance proceeds received by the
Bank shall at its option be applied to reduce the outstanding balance
under the Notes and the Loan Agreement with the excess proceeds, if
any, remitted in full to Conso;
(o) continue to conduct and operate the business
of Conso and its Subsidiaries substantially as
conducted and operated during the present and preceding
fiscal year;
(p) preserve, protect, retain and maintain free from material
encumbrances the material patents, licenses, trademarks, trademark
rights, tradenames, tradename rights and copyrights of Conso and its
Subsidiaries and maintain all of the other material properties and
assets used or useful in the conduct of the business of Conso and its
Subsidiaries in good repair, working order and condition and from time
to time cause to be made all proper replacements, betterments and
improvements thereto;
(q) keep accurate books of records and accounts in accordance
with Generally Accepted Accounting Principles applied on a Consistent
Basis, and in which full, accurate and correct entries will be made of
all of the dealings and transactions of Conso and its
Subsidiaries;
(r) permit any officer of the Bank designated in writing by
the Bank to visit and inspect any of the properties, corporate books
and financial records of Conso and its Subsidiaries at such times as
the Bank may reasonably request upon reasonable notice and during
ordinary business hours;
(s) upon the written request of the Bank, authorize any
officer of the Bank to discuss the financial statements and financial
affairs of Conso or Trimmings at any time from time to time with
Conso's independent certified public accountants upon reasonable notice
and during ordinary business hours;
(t) deliver to the Bank forthwith, upon any officer of Conso
obtaining knowledge of an Event of Default or an event which would
constitute such an Event of Default but for the requirement that notice
be given or time elapse or both, a certificate of the chief executive
officer or treasurer of Conso specifying the nature and period of
existence thereof
- 18 -
<PAGE> 19
and what action Conso proposes to take with respect thereto;
(u) notify the Bank in writing within five (5) Business Days
of the earlier of the occurrence or the obtaining of any knowledge by
any officer of Conso of any of the following with respect to Conso or
any of its Subsidiaries:
(i) the pendency or commencement of any material
action, suit or proceeding at law or in equity wherein the
opposing party seeks damages of more than $100,000.00 which is
not dismissed within 30 days of the filing thereof;
(ii) any levy of an attachment, execution or other
process against the assets of Conso or any of its Subsidiaries
worth in excess of $100,000 in the aggregate which is not
released, dismissed or discharged within 30 days of such levy;
(iii) any change in any existing agreement or
contract which could be reasonably expected to materially
adversely affect the business or affairs, financial or
otherwise, of Conso and its Subsidiaries;
(iv) if the consummation thereof would have a
material effect on the condition of Conso and its Subsidiaries
taken as a whole, the intent of Conso or any of its
Subsidiaries to enter into any agreement or plan of merger or
acquisition, and the effect of any such merger or acquisition
on the financial condition of Conso and its Subsidiaries;
(v) make prompt payment of all contributions required under
all employee benefit plans ("Plans") and required to meet the minimum
funding standard set forth in ERISA with respect to the Plans of Conso;
(b) upon the request of the Bank furnish to the Bank copies of each
annual report/return (Form 5500 Series), as well as all schedules and
attachments required to be filed with the Department of Labor and/or
the Internal Revenue Service pursuant to ERISA, and the regulations
promulgated thereunder, in connection with each of the Plans of Conso
for each plan year; (c) notify the Bank immediately of any fact,
including, but not limited to, any Reportable Event (as defined in
ERISA) arising in connection with any of the Plans of Conso, which
would reasonably be expected to constitute grounds for
- 19 -
<PAGE> 20
termination thereof by the PBGC or for the appointment by the
appropriate United States District Court of a trustee to administer
such United States District Court of a trustee to administer such Plan,
(d) provide the Bank with a statement, if requested by the Bank, as to
the reason therefor and the action, if any, proposed to be taken with
respect thereto, together with a copy of the notice of such Reportable
Event given to the PBGC or a statement that said notice will be filed
with the annual report to the United States Department of Labor with
respect to such Plan if such filing has been authorized, (e) promptly
after receipt thereof, provide the Bank with a copy of any material
notice Conso may receive from the United States Department of Labor,
the Internal Revenue Service or the PBGC with respect to such Plan; and
(f) furnish to the Bank, upon its request, such additional information
concerning any of the Plans of Conso as may be reasonably requested;
(w) comply with or contest in good faith, and cause each of
its Subsidiaries to comply with or contest in good faith, all material
statutes and governmental regulations (including all federal, state and
local requirements relating to protection of health or the environment)
in connection with the operation of Conso's or any of such
Subsidiaries' business; and
(x) offer the Bank the first opportunity to negotiate with
Conso with respect to the financing needs of any Trimmings Company.
ARTICLE VI
Negative Covenants
------------------
6.01 Until payment in full of the principal and interest of the Notes
and until the commitment of the Bank to make loans and issue Letters of Credit
hereunder has been terminated, Conso covenants that (without the prior written
consent of the Bank) it will not, nor will it permit any of its Subsidiaries to
(a) incur, create or permit to exist any pledge, security
interest, lien, charge or other encumbrance of any nature whatsoever on
any of Conso's accounts receivable or inventory (but specifically
excluding the accounts receivable and inventory of any Trimmings
Company), whether now owned or hereafter acquired, other than the
Permitted Liens; or
- 20 -
<PAGE> 21
(b) make or permit (i) all directors and executive officers of
Conso as a group to own less than 35% of the issued and outstanding
shares of common stock, no par value, of Conso, or (ii) any change in
ownership of Trimmings or any other Trimmings Company if any such
change in ownership would have a material adverse effect on Conso and
its Subsidiaries, taken as a whole.
ARTICLE VII
Events of Default and Acceleration
----------------------------------
7.01 Any of the following shall constitute an event of default
hereunder (hereinafter an "Event of Default"):
(a) the failure of Conso or Trimmings to make
payment when due of any installment of principal or
payment of interest required by any of the Notes;
(b) the failure of Conso or Trimmings to comply with any other
covenants or terms in this Loan Agreement or any other Loan Document
and the continuation of such failure for a period of thirty (30) days
after Conso receives written notice thereof from the Bank;
(c) if any representation or warranty made by Conso in this
Loan Agreement or in any other Loan Document or by Conso or Trimmings
in any certificate, statement or report heretofore or hereafter
furnished by Conso or Trimmings to the Bank shall be untrue in any
material respect;
(d) in the event that Conso
(i) shall make an assignment for the benefit of
creditors; or
(ii) has a petition initiating a proceeding under any
section or chapter of the Bankruptcy Code or its amendments,
filed by or against it and, if against it, such petition is
not set aside within sixty (60) days after such filing; or
(iii) shall file any proceedings for dissolution or
liquidation; or
(iv) has a receiver, trustee or custodian appointed
for all or part of its assets; or
- 21 -
<PAGE> 22
(v) seeks to make an adjustment, settlement or
extension of its debts with its creditors generally; or
(vi) has a notice of an action for enforcement of a
lien filed or recorded or a judgment lien or execution
obtained against it in excess of an aggregate of $100,000.00
which notice of lien or judgment lien or execution is not
removed, or satisfied or contested in good faith within sixty
(60) days after any of its officers becomes aware thereof; or
(e) in the event that:
(i) any petition is presented by any Person (other
than a petition which, in the reasonable opinion of the Bank,
is frivolous or vexatious and which is withdrawn or stayed
within 60 days) or any order is made by any competent court or
any resolution is passed by any Trimmings Company for its
winding up or dissolution or for the appointment of a
liquidator of any Trimmings Company (except for the purpose of
a solvent amalgamation or reconstruction on terms and
conditions which shall have first been approved by the Bank);
(ii) any Trimmings Company has a receiver or
administrative receiver or manager or sequestrator appointed
over the whole or any part of the undertakings, assets, rights
or revenues of such Trimmings Company and such action is not
lifted or discharged within sixty (60) days after any of its
officers becomes aware thereof;
(iii) any Trimmings Company proposes or enters into
any composition or other arrangement for the benefit of its
creditors generally; or
(iv) any Trimmings Company has notice of any proposed
distress or other process to be levied or enforced on any of
the assets, rights or remedies of such Trimmings Company in
respect of any indebtedness in excess of $100,000 and any such
action is not lifted, discharged, satisfied or contested in
good faith within 60 days after any of is officers becomes
aware thereof;
(f) if Conso or any of its Subsidiaries defaults in the
performance of any agreement between it and the
- 22 -
<PAGE> 23
Bank or any other lender with respect to indebtedness for borrowed
money in excess of $100,000.00 of Conso or any of such Subsidiaries
(including capitalized lease indebtedness) and such default results in
the acceleration of such indebtedness or would permit the Bank or such
other lender to accelerate such indebtedness.
7.02 Upon the occurrence of any Event of Default:
(a) the Bank's commitment to make Advances shall terminate and
all of the indebtedness of any and every kind owing by Conso or
Trimmings to the Bank shall become due and payable upon written notice
to Conso (other than an Event of Default described in Section 7.01(d)
or (e) in which case the Bank's commitment to make Advances shall
automatically terminate and such indebtedness shall become due and
payable immediately without necessity of written demand) without the
necessity of any other demand, presentment, protest or notice upon
Conso and/or Trimmings, all of which are hereby expressly waived by
Conso and Trimmings;
(b) all of the obligations of Conso and Trimmings under the
Loan Documents shall upon delivery of such written notice be
immediately due and payable without the necessity of any other demand,
presentment, protest or notice upon Conso and/or Trimmings, all of
which are hereby expressly waived by Conso and Trimmings;
(c) regardless of the adequacy of the collateral, the Bank
shall have the right, immediately and without further action by it, to
set-off against the Notes all money owed by the Bank in any capacity to
Conso or Trimmings, whether or not due, and the Bank shall be deemed to
have exercised such right of set-off and to have made a charge against
any such money immediately upon the occurrence of such Event of Default
even though such charge is made or entered on the books of the Bank
subsequent thereto; and
(d) the Bank may demand, and Conso shall immediately pay to
the Bank upon such demand, cash in an amount equal to the then
outstanding Letter of Credit Obligations which will be held in a cash
collateral account in the name of the Bank and under the dominion and
control of the Bank as additional security for the reimbursement
obligations which may thereafter arise on account of subsequent
drawings or payments under the Letters of Credit.
- 23 -
<PAGE> 24
ARTICLE VIII
Miscellaneous
-------------
8.01 Any notice shall be conclusively deemed to have been received by
any party hereto and be effective on the day on which delivered to such party at
the address set forth below or such other address as such party shall specify to
the other party in writing, or if sent prepaid by certified or registered mail
or by telegram or telex (where the receipt of such message is verified by
return) on the third Business Day after the day on which mailed (or sent),
addressed to such party at said address:
(a) if to Conso or Trimmings at the following address:
c/o Conso Products Company
P.O. Box 326
513 North Duncan Bypass
Union, South Carolina 29379
Attention: S. Duane Southerland, Jr.
Telephone: 864-427-9004
Telecopy: 864-427-8820
with a copy to:
Kennedy Covington Lobdell & Hickman, L.L.P.
NationsBank Corporate Center
Suite 4200
100 N. Tryon Street
Charlotte, North Carolina 28202-4006
Attention: Sean M. Jones
Telephone: 704-331-7400
Telecopy: 704-331-7598
(b) if to the Bank:
NationsBank, N.A.
NationsBank Plaza, NC1-002-03-10
Charlotte, North Carolina 28255
Attention: William A. Serenius
Telephone: 704-386-8577
Telecopy: 704-386-1023
8.02 No failure or delay on the part of the Bank in the exercise of any
right, power or privilege hereunder or under any other Loan Document shall
operate as a waiver of any such right, power or privilege nor shall any such
failure or delay preclude any other or further exercise of any such right, power
or privilege. The rights and remedies herein provided are
- 24 -
<PAGE> 25
cumulative and not exclusive or any rights or remedies provided
by law.
8.03 All covenants, agreements, representations and warranties made
herein and in the other Loan Documents shall survive the making by the Bank of
the loans and the issuance of the Letters of Credit herein contemplated and the
execution and delivery to the Bank of the Loan Documents and shall continue in
full force and effect so long as any of the indebtedness of Conso or Trimmings
to the Bank or any obligations of Conso or Trimmings to the Bank remain
outstanding and unpaid. Whenever in this Loan Agreement, any of the parties
hereto is referred to, such reference shall be deemed to include the successors
and assigns of such party and all covenants, provisions and agreements by or on
behalf of Conso or Trimmings which are contained in the Loan Documents or this
Loan Agreement shall inure to the benefit of the successors and assigns of the
Bank. Notwithstanding the foregoing, prior to the occurrence of an Event of
Default, the Bank may not sell, assign, transfer or otherwise dispose of or
create participations in this Loan Agreement or any of the other Loan Documents
or any portions thereof, including without limitation, any of the Bank's rights,
title, interests, remedies, powers and duties hereunder or thereunder, without
the prior written consent of Conso.
8.04 Conso agrees to pay all costs and expenses in connection with the
preparation, execution and delivery of the Loan Documents, including, without
limitation, the reasonable fees and out-of-pocket expenses of special counsel to
the Bank, and costs and expenses of the Bank in connection with the
implementation and/or enforcement of the Loan Documents and this Loan Agreement,
as well as any filing and recording fees and stamp and other taxes with respect
thereto and to hold the Bank harmless from any and all such costs, expenses and
liabilities.
8.05 No approval, decision, opinion or action required of the Bank
("Approval") hereunder nor any modification, amendment or waiver ("Waiver") of
any provision of this Agreement or any other Loan Document, nor any consent to
any departure by Conso or Trimmings therefrom ("Consent") shall in any event be
effective unless the same shall be delivered in accordance with the provisions
of Section 8.01 hereof, and then such Approval, Waiver or Consent shall be
effective only in the specific instance and for the purpose for which given, but
any such Approval, Waiver or Consent when so signed shall be effective and
binding upon the Bank. Notice to or demand on Conso or Trimmings in any case
shall not entitle Conso or Trimmings, as the case may be, to any other or
further notice or demand in the same, similar or other circumstances.
- 25 -
<PAGE> 26
8.06 Except as set forth in the Sterling Note, interest, fees and
premiums hereunder shall be computed on the basis of a three hundred sixty (360)
day year for the actual number of days in the interest period.
8.07 Should any installment or other payment of the principal of or
interest on any Note become due and payable on other than a Business Day, the
maturity thereof shall be extended to the next succeeding Business Day
thereafter and in the case of an installment of principal, interest shall be
payable thereon at the rate per annum herein specified during such extension.
8.08 This Loan Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original, and it
shall not be necessary in making proof of this Loan Agreement to produce or
account for more than one such counterpart.
8.09 The terms hereof shall extend to any subsequent holder of the
Notes to the extent such holder has acquired the Notes in accordance with the
terms hereof.
8.10 The term of this Loan Agreement shall be until (a) payment in full
of all sums payable by Conso and Trimmings hereunder, under the Notes, or
otherwise payable to the Bank, howsoever evidenced, whichever is later and (b)
termination of the obligation of the Bank to make Advances and issue Letters of
Credit.
8.11 All documents executed pursuant to the transactions contemplated
herein, including without limitation this Loan Agreement and the Dollar Note
(but not the Sterling Note), shall be deemed to be contracts made under, and for
all purposes shall be construed in accordance with, the internal laws and
judicial decisions of the State of North Carolina. Conso hereby submits to the
jurisdiction and venue of the state and federal courts of North Carolina for the
purposes of resolving disputes hereunder or for the purposes of collection.
- 26 -
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed under seal by their duly authorized officers as of the day and year
first above written.
CONSO PRODUCTS COMPANY
ATTEST:
By /s/ Konstance Findlay By /s/ J. Cary Findlay
--------------------------- -----------------------------
Title Secretary Title Chairman
------------------------ --------------------------
(Corporate Seal)
NATIONSBANK, N.A.
By: /s/ William A. Serenius
---------------------------
William A. Serenius
Senior Vice President
- 27 -
<PAGE> 28
EXHIBIT A
Permitted Liens
None.
<PAGE> 29
EXHIBIT B
Material Subsidiaries
British Trimmings Limited
Itatrim Limited
MacCulloch & Wallis (London) Limited
Pattern Masters Limited
Val-Mex, S.A. de C.V.
<PAGE> 1
EXHIBIT 10.52
PROMISSORY NOTE
U.S. $15,000,000 November 25, 1996
FOR VALUE RECEIVED, the undersigned, CONSO PRODUCTS COMPANY, a South
Carolina corporation (the "Borrower"), promises to pay to the order of
NATIONSBANK, N.A., a national banking association (the "Bank") at its
office in Charlotte, North Carolina (or at such other place or places as the
Bank may designate) the principal sum of up to
FIFTEEN MILLION DOLLARS (U.S. $15,000,000), or such lesser amount as
may constitute the unpaid principal amount of the Dollar Advances (as
hereinafter defined), pursuant to the terms and conditions hereinafter set forth
and the terms and conditions set forth in that certain Loan Agreement, dated
November 25, 1996, executed by and between the Borrower and the Bank (the "Loan
Agreement").
Advances. The Borrower, in accordance with the terms hereof, may from
time to time until December 1, 1998 (the "Termination Date") request advances
from the Bank in U.S. dollars (hereinafter the "Dollar Advances") in an
aggregate amount up to $15,000,000 less the outstanding principal amount of all
loans made pursuant to that certain Promissory Note dated November 25, 1996
executed by British Trimmings Limited ("Trimmings") in favor of the Bank in the
original face amount of (pound)5,000,000 (the "Sterling Note"). Upon receipt of
such a request for a Dollar Advance hereunder, the Bank shall make any such
Dollar Advance hereunder available to the Borrower on the date requested for
such Advance on the terms and conditions set forth herein and in the Loan
Agreement; provided, however, the Bank shall not be obligated to make such
advance unless the Borrower has satisfied the conditions set forth in Section
2.06 of the Loan Agreement.
Principal. The outstanding principal balance of the Dollar
Advances shall be due and payable on the Termination Date.
Interest. Dollar Advances hereunder shall bear interest on the
outstanding balance hereunder at a per annum interest rate equal to the Floating
LIBOR Rate plus 1.00% per annum. For purposes hereof, "Floating LIBOR Rate"
means the fluctuating interest rate per annum for the London InterBank Offered
Rates (LIBOR) one month rate quoted in the "Money Rates" section of The Wall
Street Journal. Changes in the Floating LIBOR Rate shall be
<PAGE> 2
effective for purposes of this Note on the dates of such changes. Unless
otherwise agreed, accrued interest with respect to each Dollar Advance shall be
payable in arrears on the first day of each month. Whenever a payment on this
Note is stated to be due on a day which is not a business day, such payment
shall be made on the next succeeding business day with interest accruing to the
date of payment. Interest hereunder shall be computed on the basis of actual
number of days elapsed over a year of 360 days.
Supersession. It is understood and agreed by the Bank and the Borrower
that this Note amends, restates, supplements and supersedes in all respects the
promissory note dated March 1, 1996 in the original principal amount of up to
$10,000,000 heretofore issued by the Borrower to the Bank.
Payments. All payments made on this Note shall be in U.S. dollars.
Subject to the conditions set forth herein and in the Loan Agreement, amounts
repaid may be reborrowed.
Prepayments. The Borrower may repay this Note in whole or in part at
any time without any penalty whatsoever.
Capital Adequacy. If the Bank shall have determined that the adoption
or effectiveness of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change after the date hereof in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has the effect of materially reducing the
rate of return on the Bank's capital or assets as a consequence of its
commitments or obligations hereunder to a level below that which the Bank could
have achieved but for such adoption, effectiveness, change or compliance (taking
into consideration the Bank's policies with respect to capital adequacy), then
from time to time, within 15 days after written demand by the Bank the Borrower
shall pay to the Bank such additional amount or amounts as will compensate the
Bank for such reduction. Upon determining in good faith that any additional
amounts will be payable pursuant to this Section, the Bank will give prompt
written notice thereof to the Borrower, which notice shall set forth in
reasonable detail the basis of the calculation of such additional amounts.
Determination by the Bank of amounts owing under this paragraph shall, absent
evidence of error, be binding on the parties hereto. Failure on the part of the
Bank to demand compensation for any period hereunder shall not constitute a
waiver of the Bank's rights to demand any such compensation in such period or in
any other period.
- 2 -
<PAGE> 3
Taxes. All payments made by the Borrower hereunder will be made without
(but without waiving any rights with respect to) setoff or counterclaim.
Promptly upon notice from the Bank to the Borrower, the Borrower will pay, prior
to the date on which penalties attach thereto, but without duplication, all
present and future, stamp and other taxes, levies, or costs and charges
whatsoever imposed, assessed, levied or collected on or in respect of advances
hereunder (all such taxes, levies, costs and charges being herein collectively
called "Taxes"), provided that Taxes shall not include taxes imposed on or
measured by the income of the Bank by the United States of America or any
political subdivision or taxing authority thereof or therein, or taxes on or
measured by the overall net income of any foreign office, branch or subsidiary
of the Bank by any foreign country of subdivision thereof in which that office,
branch or subsidiary is doing business. Promptly after the date on which payment
of any such Tax is due pursuant to applicable law, the Borrower will at the
request of the Bank, furnish to the Bank evidence, in form and substance
satisfactory to the Bank, that the Borrower has met its obligations under this
paragraph. The Borrower will indemnify the Bank against, and reimburse the Bank
on demand for, any Taxes, as determined by the Bank in its good faith
discretion. The Bank shall provide the Borrower with appropriate receipts for
any payments or reimbursements made by the Borrower pursuant to this Section.
Events of Default. Upon the occurrence of an Event of Default under the
Loan Agreement, (a) this Note and all other debts due the Bank by the Borrower
shall immediately become due and payable upon written notice to the Borrower
(except that in the case of any Event of Default relating to a bankruptcy
petition filed by the Borrower, this Note and all other debts due the Bank shall
become immediately due and payable without the necessity of demand or other
action by the Bank) without the necessity of any other demand, presentment,
protest or notice of any kind, all of which are hereby waived by the Borrower,
(b) the then remaining unpaid principal amount and accrued but unpaid interest
shall bear interest at a per annum rate equal to the prime rate of NationsBank
(as it changes from time to time) plus two percent (2%) until such principal and
interest has been paid in full and (c) regardless of the adequacy of the
collateral, the Bank shall have the right, immediately and without further
action by it, to set-off against this Note all money owed by the Bank in any
capacity to the Borrower, whether or not due, and the Bank shall be deemed to
have exercised such right of set-off and to have made a charge against any such
money immediately upon the occurrence of such Event of Default even though such
charge is made or entered on the books of the Bank subsequent thereto.
No Waiver. No failure or delay on the part of the Bank in the exercise
of any right, power or privilege hereunder or under
- 3 -
<PAGE> 4
any other Loan Document shall operate as a waiver of any such right, power or
privilege nor shall it preclude any other or further exercise thereof. The
Borrower assents to any one or more extensions or postponements of the time of
payment or other indulgences, to any substitutions, exchanges or releases of
collateral if at any time there is collateral available to the holder of this
Note, and to the additions or releases of any other parties or persons primarily
or secondarily liable.
Late Charge. Should any payment due hereunder be in default for more
than fifteen (15) days, there may be imposed, to the extent permitted by law, a
delinquency charge not to exceed four percent (4%) of such payment in default.
In addition, at the option of the Bank, any accrued and unpaid interest, fees or
charges may, for purposes of computing accruing interest on a daily basis after
the due date for such interest fees or charges, be deemed to be a part of the
principal balance thereof, and interest shall accrue on a daily compounded basis
after such date at the rate provided for hereunder until the entire balance of
principal and interest is paid in full.
Notices. All notices and other communications hereunder shall be
sufficiently given and shall be deemed given when delivered or when mailed by
registered or certified mail, postage prepaid, addressed as follows:
(a) If to the Borrower:
Conso Products Company
513 North Duncan Bypass
P.O. Box 326
Union, South Carolina 29379
Attn: Mr. S. Duane Southerland, Jr.
Telephone: 864-427-9004
Telecopy: 864-427-8820
- 4 -
<PAGE> 5
with a copy to:
Kennedy Covington Lobdell & Hickman, L.L.P.
NationsBank Corporate Center
Suite 4200
100 N. Tryon Street
Charlotte, North Carolina 28202-4006
Attn: Sean M. Jones
Telephone: (704) 331-7400
Telecopy: (704) 331-7598
(b) If to the Bank:
NationsBank, N.A.
NationsBank Plaza, NC1-002-03-10
Charlotte, North Carolina 28255
Attention: William A. Serenius
Telephone: (704) 386-8577
Telecopy: (704) 386-1023
Attorneys' Fees. In the event this Note is not paid when due at any
stated or accelerated maturity, the Borrower will pay, in addition to principal
and interest, all costs of collection, including reasonable attorneys' fees.
Choice of Law. This Note shall be governed by and construed in
accordance with, the laws of the State of North Carolina. In addition, the
Borrower hereby consents and submits to the jurisdiction and venue of the
federal and state courts located in Mecklenburg County, North Carolina.
- 5 -
<PAGE> 6
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by its duly authorized officers as of the day and year first above
written.
CONSO PRODUCTS COMPANY
ATTEST:
By /s/ Konstance Findlay By /s/ J. Cary Findlay
--------------------------- -----------------------------
Title Secretary Title Chairman
------------------------ --------------------------
(Corporate Seal)
- 6 -
<PAGE> 7
SCHEDULE A TO THE
$15,000,000 PROMISSORY NOTE
DATED NOVEMBER 25, 1996
<TABLE>
<CAPTION>
Name of
Principal Person
Amount of Applicable Payment Making
Date Advance Interest Rate Principal Interest Notation
---- --------- ------------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>
- 7 -
<PAGE> 1
EXHIBIT 10.53
PROMISSORY NOTE
U.K. (pound)5,000,000 November 25, 1996
FOR VALUE RECEIVED, the undersigned, BRITISH TRIMMINGS LIMITED, an
English company (the "Borrower"), promises to pay to the order of
NATIONSBANK, N.A., a national banking association (the "Bank") at its
London Branch (or at such other place or places as the Bank may designate with
the Borrower's written consent, such consent not to be unreasonably withheld)
the principal sum of up to
FIVE MILLION POUNDS STERLING (U.K. (pound)5,000,000), or such lesser
amount as may constitute the unpaid principal amount of the Sterling Advances
(as hereinafter defined), pursuant to the terms and conditions hereinafter set
forth and the terms and conditions set forth in that certain Loan Agreement,
dated November 25, 1996, as amended (if amended), executed by and between Conso
Products Company ("Conso") and the Bank (the "Loan Agreement").
Advances. The Borrower, in accordance with the terms hereof, may from
time to time until December 1, 1998 (the "Termination Date") request offers from
the Bank for advances in U.K. Pounds Sterling (hereinafter the "Sterling
Advances") in an aggregate amount up to (pound)5,000,000 at any time outstanding
based on an interest rate equal to the Adjusted LIBOR Rate plus 1.00% per annum;
provided, however, no more than three Sterling Advances may be outstanding at
any one time. Upon receipt of such a request for a Sterling Advance hereunder,
the Bank shall make any such Sterling Advance hereunder on the terms and
conditions set forth herein and in the Loan Agreement; provided, however, the
Bank shall not be obligated to make such advance unless Conso has satisfied the
conditions set forth in Section 2.06 of the Loan Agreement. To request an offer
for a Sterling Advance hereunder, the Borrower shall make a written request of
the Bank for an offer for a Sterling Advance under this Note (hereinafter, a
"Request for Sterling Advance") not later than 11:00 a.m. (London time) on the
business day of the proposed Sterling Advance which notice shall specify (i)
that the requested Sterling Advance would be made under this Note, (ii) the date
of the requested Sterling Advance (which shall be a business day), (iii) the
amount of the requested Sterling Advance which shall be in a minimum principal
amount of (pound)250,000 and
<PAGE> 2
integral multiples of (pound)250,000 in excess thereof, and (iv) the requested
Interest Period with respect thereto. In response to any such Request for a
Sterling Advance, the Bank shall respond to the Borrower by 11:30 a.m. (London
time) on the business day of the proposed Sterling Advance specifying the
applicable Adjusted LIBOR Rate for such Sterling Advance (the "Offer for
Sterling Advance"). The Borrower may then by telephone or telecopy (and if by
telephone, promptly confirmed by telecopy) by 11:30 a.m. (London time) on the
business day of the proposed Sterling Advance, in its sole discretion, accept or
reject the Offer for Sterling Advance. Failure by the Borrower to accept an
Offer for Sterling Advance by the appropriate time shall be deemed to be
rejection of such Offer for Sterling Advance. The terms of each Sterling Advance
shall be noted on the schedule attached hereto, the terms of which shall be
presumed correct absent evidence of error; provided, however that any failure to
make such notation (or any inaccuracy in such notation) shall not limit or
otherwise affect the obligations of the Borrower hereunder. As used herein,
"Interest Period" means a period of seven days, fourteen days, one month or
three months duration as may be selected by the Borrower; provided, however,
that (A) each Interest Period which would otherwise end on a day which is not a
business day shall end on the next succeeding business day unless such
succeeding business day falls in the next calendar month and then in such case
on the next preceding business day and (B) no Interest Period shall extend
beyond the Termination Date; "Adjusted LIBOR Rate" means for the respective
Interest Period, a per annum interest rate offered by the Bank to the Borrower
in accordance with the foregoing terms equal to the per annum rate obtained by
dividing (a) the rate of interest determined by the Bank to be the average
(rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such
average is not such a multiple) of the per annum rates at which deposits in U.K.
Pounds Sterling are offered to the Bank in the London interbank market at 11:30
a.m. (London time) (or as soon thereafter as is practicable), in each case on
the date of the Offer for Sterling Advance in an amount substantially equal to
the requested Sterling Advance and for a period equal to such Interest Period by
(b) a percentage (expressed as a decimal fraction) equal to 100% minus maximum
reserve requirements which may be applicable with respect to such Sterling
Advance.
Principal. The outstanding principal balance of the Sterling Advances
shall be due and payable on the earlier of the last day of its respective
Interest Period as noted on the schedule attached or the Termination Date.
Interest. Sterling Advances hereunder shall bear interest on the
outstanding balance hereunder at a per annum interest rate equal to the Adjusted
LIBOR Rate plus 1.00% per annum. Unless otherwise agreed, accrued interest with
respect to each Sterling
- 2 -
<PAGE> 3
Advance shall be payable in arrears on the last day of an Interest Period for
such Sterling Advance. Whenever a payment on this Note is stated to be due on a
day which is not a business day, such payment shall be made on the next
succeeding business day with interest accruing to the date of payment. Interest
hereunder shall be computed on the basis of actual number of days elapsed over a
year of 365 days.
Supersession. It is understood and agreed by the Bank and the Borrower
that this Note amends, restates, supplements and supersedes in all respects the
promissory note dated February 29, 1996 in the original principal amount of
(pound)5,000,000 heretofore issued by the Borrower to the Bank.
Payments. All payments made on this Note shall be in U.K. Pounds
Sterling. Subject to the conditions set forth herein and in the Loan Agreement,
amounts repaid may be reborrowed.
Prepayments. Prepayments are not permitted prior to maturity of
Interest Periods.
Indemnification. The Borrower agrees to indemnify the Bank against all
reasonable losses, expenses and liabilities sustained by the Bank on account of
the Borrower (i) failing to accept a Sterling Advance after notice to the Bank
of its acceptance of any such Sterling Advance and (ii) making a prepayment on a
Sterling Advance prior to the last day of an Interest period.
Yield Indemnification. In the event the Bank shall determine (which
determination shall be presumed correct absent evidence of error) that:
(i) Unavailability. On any date for determining the
appropriate Adjusted LIBOR Rate for any Interest Period, that by reason
of any changes arising on or after the date of this Note affecting the
London interbank Pounds Sterling market, U.K. Pounds Sterling deposits
in the principal amount requested are not generally available in the
London interbank market or adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in
the definition of Adjusted LIBOR Rate then Sterling Advances hereunder
will not be available until such time as the Bank shall notify the
Borrower that the circumstances giving rise thereto no longer exist.
(ii) Increased Costs. At any time that the Bank shall incur
increased costs or reductions in the amounts received or receivable
hereunder with respect to any Sterling Advances because of any change
since the date of this Note in any applicable law, governmental rule,
regulation, guideline or order (or in the interpretation or
- 3 -
<PAGE> 4
administration thereof and including the introduction of any new law or
governmental rule, regulation, guideline or order) including without
limitation the imposition, modification or deemed applicability of any
reserves, deposits or similar requirements as related to such Sterling
Advances (such as, for example, but not limited to, a change in
official reserve requirements, but, in all events, excluding reserves
to the extent included in the computation of the Adjusted LIBOR Rate),
then the Borrower shall pay to the Bank promptly upon written demand
therefor (which demand shall state the basis therefor), such additional
amounts (in the form of an increased rate of, or a different method of
calculating, interest or otherwise as the Bank may determine in its
reasonable discretion) as may be required to compensate the Bank for
such increased costs or reductions in amounts receivable hereunder.
Upon determining in good faith that any additional amounts will be
payable pursuant to this subsection, the Bank will give prompt written
notice thereof to the Borrower, which notice shall set forth in
reasonable detail the basis of the calculation of such additional
amounts.
(iii) Illegality. At any time that the making or continuance
of any Sterling Advance has become unlawful by compliance by the Bank
in good faith with any law, governmental rule, regulation, guideline or
order (or would conflict with any such governmental rule, regulation,
guideline or order not having the force of law even though the failure
to comply therewith would not be unlawful), or has become impractical
as a result of a contingency occurring after the date of this Note
which materially and adversely affects the London interbank Sterling
market, then Sterling Advances will no longer be available.
Capital Adequacy. If the Bank shall have determined that the adoption
or effectiveness of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change after the date hereof in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has the effect of materially reducing the
rate of return on the Bank's capital or assets as a consequence of its
commitments or obligations hereunder to a level below that which the Bank could
have achieved but for such adoption, effectiveness, change or compliance (taking
into consideration the Bank's policies with respect to capital adequacy), then
from time to time, within 15 days after written demand by the Bank the Borrower
shall pay to the Bank such additional amount or amounts
- 4 -
<PAGE> 5
as will compensate the Bank for such reduction. Upon determining in good faith
that any additional amounts will be payable pursuant to this Section, the Bank
will give prompt written notice thereof to the Borrower, which notice shall set
forth in reasonable detail the basis of the calculation of such additional
amounts, although the failure to give any such notice shall not release or
diminish any of the Borrower's obligations to pay additional amounts pursuant to
this paragraph. Upon determining in good faith that any additional amounts will
be payable pursuant to this paragraph, the Bank will give prompt written notice
thereof to the Borrower, which notice shall set forth in reasonable detail the
basis of the calculation of such additional amounts. Determination by the Bank
of amounts owing under this paragraph shall, absent evidence of error, be
binding on the parties hereto. Failure on the part of the Bank to demand
compensation for any period hereunder shall not constitute a waiver of the
Bank's rights to demand any such compensation in such period or in any other
period.
Taxes. All payments made by the Borrower hereunder will be made without
(but without waiving any rights with respect to) setoff or counterclaim.
Promptly upon notice from the Bank to the Borrower, the Borrower will pay, prior
to the date on which penalties attach thereto, but without duplication, all
present and future, stamp and other taxes, levies, or costs and charges
whatsoever imposed, assessed, levied or collected on or in respect of advances
hereunder solely as a result of the interest rate being determined by reference
to the Adjusted LIBOR Rate and/or the provisions of this Note relating to the
Adjusted LIBOR Rate and/or the recording, registration, notarization or other
formalization of any thereof and/or any payments of principal, interest or other
amounts made on or in respect of advances hereunder when the interest rate is
determined by reference to the Adjusted LIBOR Rate and any increases thereof
(all such taxes, levies, costs and charges being herein collectively called
"Taxes"), provided that Taxes shall not include taxes imposed on or measured by
the income of the Bank by the United States of America or any political
subdivision or taxing authority thereof or therein, or taxes on or measured by
the overall net income of any foreign office, branch or subsidiary of the Bank
by any foreign country of subdivision thereof in which that office, branch or
subsidiary is doing business. Promptly after the date on which payment of any
such Tax is due pursuant to applicable law, the Borrower will at the request of
the Bank, furnish to the Bank evidence, in form and substance satisfactory to
the Bank, that the Borrower has met its obligations under this paragraph. The
Borrower will indemnify the Bank against, and reimburse the Bank on demand for,
any Taxes, as determined by the Bank in its good faith discretion. The Bank
shall provide the Borrower with appropriate receipts for any payments or
reimbursements made by the Borrowers pursuant to this Section.
- 5 -
<PAGE> 6
Events of Default. Upon the occurrence of an Event of Default under the
Loan Agreement, (a) this Note and all other debts due the Bank by the Borrower
shall immediately become due and payable upon written notice to the Borrower
(except that in the case of any Event of Default relating to a bankruptcy
petition filed by the Borrower, this Note and all other debts due the Bank shall
become immediately due and payable without the necessity of demand or other
action by the Bank) without the necessity of any other demand, presentment,
protest or notice of any kind, all of which are hereby waived by the Borrower,
(b) the then remaining unpaid principal amount and accrued but unpaid interest
shall bear interest at a per annum rate equal to the Prime Rate plus two percent
(2%) until such principal and interest has been paid in full and (c) regardless
of the adequacy of the collateral, the Bank shall have the right, immediately
and without further action by it, to set-off against this Note all money owed by
the Bank in any capacity to the Borrower, whether or not due, and the Bank shall
be deemed to have exercised such right of set-off and to have made a charge
against any such money immediately upon the occurrence of such Event of Default
even though such charge is made or entered on the books of the Bank subsequent
thereto. For purposes hereof, the term "Prime Rate" means the floating rate of
interest publicly announced by the Bank in Charlotte, North Carolina from time
to time as its prime rate.
No Waiver. No failure or delay on the part of the Bank in the exercise
of any right, power or privilege hereunder or under any other Loan Document
shall operate as a waiver of any such right, power or privilege nor shall it
preclude any other or further exercise thereof. The Borrower assents to any one
or more extensions or postponements of the time of payment or other indulgences,
to any substitutions, exchanges or releases of collateral if at any time there
is collateral available to the holder of this Note, and to the additions or
releases of any other parties or persons primarily or secondarily liable.
Late Charge. Should any payment due hereunder be in default for more
than fifteen (15) days, there may be imposed, to the extent permitted by law, a
delinquency charge not to exceed four percent (4%) of such payment in default.
In addition, at the option of the Bank, any accrued and unpaid interest, fees or
charges may, for purposes of computing accruing interest on a daily basis after
the due date for such interest fees or charges, be deemed to be a part of the
principal balance thereof, and interest shall accrue on a daily compounded basis
after such date at the rate provided for hereunder until the entire balance of
principal and interest is paid in full.
Notices. All notices and other communications hereunder shall be
sufficiently given and shall be deemed given when
- 6 -
<PAGE> 7
delivered or when mailed by registered or certified mail, postage prepaid,
addressed as follows:
(a) If to the Borrower:
British Trimmings Limited
P.O. Box 46
Coronation Street
Stockport, Cheshire SK5 7TJ
England
Attn: Antony W. Laughton
Telephone: 44 161 480 6122
Telecopy: 44 161 487 3378
with a copy to:
Conso Products Company
513 North Duncan Bypass
P.O. Box 326
Union, South Carolina 29379
Attention: Mr. S. Duane Southerland, Jr.
Telephone: (864) 427-9004
Telecopy: (864) 427-8820
with a copy to:
Kennedy Covington Lobdell & Hickman, L.L.P.
NationsBank Corporate Center
Suite 4200
100 N. Tryon Street
Charlotte, North Carolina 28202-4006
Attention: Sean M. Jones
Telephone: (704) 331-7400
Telecopy: (704) 331-7598
(b) If to the Bank:
NationsBank, N.A.
London Branch
26 Austin Friars
London
EC2N 2EH, England
Telephone: 071-860-3850
Telecopy: 071-588-9150
with a copy to:
NationsBank, N.A.
NationsBank Plaza, NC1-002-03-10
Charlotte, North Carolina 28255
- 7 -
<PAGE> 8
Attention: William A. Serenius
Telephone: (704) 386-8577
Telecopy: (704) 386-1023
Attorneys' Fees. In the event this Note is not paid when due at any
stated or accelerated maturity, the Borrower will pay, in addition to principal
and interest, all costs of collection, including reasonable attorneys' fees.
Choice of Law. This Note shall be governed by and construed
in accordance with, the laws of England.
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by their duly authorized officers as of the day and year first above
written.
FOR BRITISH TRIMMINGS LIMITED
ATTEST:
By /s/ Antony W. Laughton By /s/ C.W. Balakrishnan
---------------------------- -----------------------------------
Title Managing Director Title Director/Chief Operating Officer
------------------------- --------------------------------
(Corporate Seal)
- 9 -
<PAGE> 10
SCHEDULE A TO THE
(pound)5,000,000 PROMISSORY NOTE
DATED NOVEMBER 25, 1996
<TABLE>
<CAPTION>
Name of
Principal Person
Amount of Applicable Payment Making
Date Advance Interest Rate Principal Interest Notation
---- --------- ------------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>
- 10 -
<PAGE> 1
EXHIBIT 10.54
SIXTH AMENDMENT TO SECURITY AGREEMENT
THIS SIXTH AMENDMENT TO SECURITY AGREEMENT (the "Sixth Amendment"),
dated as of November 25, 1996, is made by and between
CONSO PRODUCTS COMPANY, a corporation organized and existing under the
laws of the State of South Carolina (the "Borrower"); and
NATIONSBANK, N.A., a national banking association organized and
existing under the laws of the United States (the "Bank").
RECITALS:
- ---------
A. The Borrower and the Bank entered into that certain
Security Agreement, dated May 6, 1994, as amended (the "Security
Agreement").
B. The Borrower and the Bank have agreed to modify and
amend the Security Agreement as set forth herein.
NOW THEREFORE, the parties hereto agree as follows:
1. Recital A of the Security Agreement is hereby amended
in its entirety so that such Recital now reads as follows:
A. The Bank has agreed to extend a revolving credit
facility to the Borrower and British Trimmings Limited
pursuant to the terms and conditions of a Loan Agreement,
dated November 25, 1996, by and between the Borrower and the
Bank (the "Loan Agreement") and other documents executed now
or hereafter in connection therewith including, without
limitation, promissory notes, guaranty agreements and letter
of credit applications (hereinafter the Loan Agreement and all
other documents executed now or hereafter in connection
therewith shall be collectively referred to as the "Loan
Documents").
2. Except as hereby modified, all the terms and provisions
of the Security Agreement remain in full force and effect.
3. The Borrower will execute such additional documents as are
reasonably requested by the Bank to reflect the terms and conditions of this
Sixth Amendment and will cause to be delivered such certificates, legal opinions
and other documents as are reasonably required by the Bank.
<PAGE> 2
4. This Sixth Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original, and it
shall not be necessary in making proof of this Sixth Amendment to produce or
account for more than one counterpart.
5. This Sixth Amendment and all other documents executed pursuant to
the transactions contemplated herein shall be deemed to be contracts made under,
and for all purposes shall be construed in accordance with, the internal laws
and judicial decisions of the State of North Carolina.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment
to be executed by their fully authorized officers as of the day and year first
above written.
CONSO PRODUCTS COMPANY
ATTEST:
By /s/ Konstance Findlay By /s/ J. Cary Findlay
--------------------------- -----------------------------
Title Secretary Title Chairman
------------------------ --------------------------
(Corporate Seal)
NATIONSBANK, N.A.
By: /s/ William A. Serenius
---------------------------
William A. Serenius
Senior Vice President
3
<PAGE> 1
EXHIBIT 10.55
FOURTH AMENDMENT TO GUARANTY AGREEMENT
THIS FOURTH AMENDMENT TO GUARANTY AGREEMENT (the "Fourth Amendment"),
dated as of November 25, 1996, is made by and between
CONSO PRODUCTS COMPANY, a corporation organized and existing under the
laws of the State of South Carolina (the "Guarantor"); and
NATIONSBANK, N.A., a national banking association organized and
existing under the laws of the United States (the "Bank").
RECITALS:
- ---------
A. The Guarantor entered into that certain Guaranty
Agreement, dated May 6, 1994 (the "Guaranty Agreement").
B. The Guarantor and the Bank have agreed to modify and
amend the Guaranty Agreement as set forth herein.
NOW THEREFORE, the parties hereto agree as follows:
1. The Guaranty Agreement is hereby amended as follows:
(a) The introductory paragraph of the Guaranty Agreement is
amended in its entirety so that such paragraph now reads as follows:
THIS GUARANTY AGREEMENT, dated as of May 6, 1994,
as amended (the "Guaranty"), is given by
CONSO PRODUCTS COMPANY, a South Carolina
corporation (the "Guarantor"); and extended to
NATIONSBANK, N.A., a national banking association
with its principal offices located in Charlotte, North
Carolina (the "Bank") for the benefit of
BRITISH TRIMMINGS LIMITED, an English company (the
"Borrower").
(b) Recital 1 is amended in its entirety so that such
Recital now reads as follows:
1. The Bank has agreed to make loans (the
"Loans") to the Borrower pursuant to the terms and
conditions of that certain Promissory Note, dated
November 25, 1996, executed by the Borrower in favor of
<PAGE> 2
the Bank in the original principal amount of up to
(pound)5,000,000 (the "Note").
2. Except as hereby modified, all the terms and
provisions of the Guaranty Agreement remain in full force and
effect.
3. The Guarantor will execute such additional
documents as are reasonably requested by the Bank to reflect
the terms and conditions of this Fourth Amendment and will
cause to be delivered such certificates, legal opinions and
other documents as are reasonably required by the Bank.
4. This Fourth Amendment may be executed in any
number of counterparts, each of which when so executed and
delivered shall be deemed an original, and it shall not be
necessary in making proof of this Fourth Amendment to produce
or account for more than one counterpart.
5. This Fourth Amendment and all other documents
executed pursuant to the transactions contemplated herein
shall be deemed to be contracts made under, and for all
purposes shall be construed in accordance with, the internal
laws and judicial decisions of the State of North Carolina.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be executed by their fully authorized officers as of the day and
year first above written.
CONSO PRODUCTS COMPANY
ATTEST:
By /s/ Konstance Findlay By /s/ J. Cary Findlay
--------------------------- -----------------------------
Title Secretary Title Chairman
------------------------ --------------------------
(Corporate Seal)
NATIONSBANK, N.A.
By: /s/ William A. Serenius
---------------------------
William A. Serenius
Senior Vice President
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATUS OF CONSO PRODUCTS COMPANY FOR THE SIX MONTHS ENDED
DECEMBER 28, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATUS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> DEC-28-1996
<CASH> 1,297,643
<SECURITIES> 0
<RECEIVABLES> 11,623,981
<ALLOWANCES> 263,294
<INVENTORY> 22,311,331
<CURRENT-ASSETS> 35,978,965
<PP&E> 21,897,540
<DEPRECIATION> (7,641,634)
<TOTAL-ASSETS> 51,755,218
<CURRENT-LIABILITIES> 15,794,705
<BONDS> 0
0
0
<COMMON> 16,920,182
<OTHER-SE> 18,341,860
<TOTAL-LIABILITY-AND-EQUITY> 51,755,218
<SALES> 35,546,610
<TOTAL-REVENUES> 35,546,610
<CGS> 21,436,548
<TOTAL-COSTS> 21,436,548
<OTHER-EXPENSES> 7,810,119
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 244,378
<INCOME-PRETAX> 6,055,565
<INCOME-TAX> 2,257,594
<INCOME-CONTINUING> 3,797,971
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,797,971
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
</TABLE>
