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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(MARK ONE)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to _______________.
Commission File No. 0-25108
IWI HOLDING LIMITED
(Exact Name of Registrant as Specified in Its Charter)
BRITISH VIRGIN ISLANDS
(Jurisdiction of Incorporation or Organization)
P.O. BOX 3340, DAWSON BUILDING, ROAD TOWN, TORTOLA, BRITISH VIRGIN ISLANDS
(Address of Principal Executive Offices)
Securities Registered Pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None None
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act:
NONE
(Title of Class)
As of December 31, 1995, the Registrant had outstanding 2,643,750 shares
of Common Stock and 3,644,880 shares of Preferred Stock.
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
past twelve (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 ninety (90) days. Yes /X/ No / /
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 Item 18 /X/
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TABLE OF CONTENTS
PAGE
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PART I
ITEM 1. DESCRIPTION OF BUSINESS . . . . . . . . . . . . . . . . . 1
ITEM 2. DESCRIPTION OF PROPERTY . . . . . . . . . . . . . . . . . 8
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . 9
ITEM 4. CONTROL OF REGISTRANT . . . . . . . . . . . . . . . . . . 9
ITEM 5. NATURE OF TRADING MARKET. . . . . . . . . . . . . . . . .
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING
SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . 10
ITEM 7. TAXATION. . . . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 8. SELECTED CONSOLIDATED FINANCIAL DATA. . . . . . . . . . . 11
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . 12
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT. . . . . . . . . . . 17
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS. . . . . . . . . . 20
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR
SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . 21
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN
TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . 21
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED. . . . . . . . 22
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . 22
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR
REGISTERED SECURITIES. . . . . . . . . . . . . . . . . . 22
PART IV
ITEM 17. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . 22
ITEM 18. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . 22
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS . . . . . . . . . . . . 23
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . 25
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Company, through its wholly-owned subsidiaries, IWI Sourcing Limited
(British Virgin Islands)("Sourcing BVI"), IWI Sourcing Limited (Macau)
("Sourcing Macau") (both of which are herein referred to as "Sourcing"),
Imperial World, Inc. ("Imperial") and Daco Manufacturing Ltd. ("Daco"), is
engaged in the design, assembly, merchandising and wholesale distribution of
jewelry. The Company provides a broad range of fashionable jewelry targeted
at consumers who seek fine jewelry at moderate prices and who are likely to
purchase jewelry at frequent intervals as fashions and styles change. The
majority of the Company's sales are under the tradename of "World Pacific
Jewelry". The Company's principal products are rings, pendants, earrings,
bracelets, necklaces, pins and brooches made of diamonds, other precious or
semi-precious stones, pearls, silver and gold. Customers of the Company
include, among others, The Home Shopping Network, Inc., J.C. Penney Company,
Inc. and Wal-Mart Stores, Inc. Some of these customers have purchased jewelry
from the Company since the early 1980's and each has been a customer for at
least five years. The Company believes that the marketing and support
services it provides to its customers and its competitive pricing have
contributed to the continual growth in and stability of its customer base.
Despite the recent downturn in its U.S. sales, the Company believes that it
is competitively positioned for future growth in the jewelry industry.
HISTORY
The Company completed an initial public offering ("IPO") of its Common
Stock in December, 1994. Prior to the IPO, the Company was a wholly-owned
subsidiary of Rhine Investment Holdings Company Limited ("Rhine Investment"),
which is a wholly-owned subsidiary of Rhine Holdings Limited, ("Rhine
Holdings"), whose shares are publicly traded in Hong Kong.
On February, 22, 1993, the Company was incorporated under the laws of
the BVI under the name "Special Treatment Limited" which was changed to IWI
Holding Limited on April 29, 1993. Sourcing BVI was incorporated under the
laws of the BVI in 1993 while Sourcing Macau was incorporated under the laws
of the BVI in 1995. Imperial was incorporated under the laws of the State of
Illinois as Imperial World Imports on February 10, 1975 and changed its name
to Imperial World, Inc. on March 23, 1982. On April 28, 1993, Imperial
became a wholly owned subsidiary of the Company and on August 1, 1993
Sourcing also became a wholly owned subsidiary. Sourcing purchases jewelry
for Imperial and sells jewelry directly to customers making large promotional
purchases. Effective July 1, 1995, Imperial acquired Daco, a Canadian
jewelry manufacturer and distributor. All other operating activities are
conducted by Imperial, headquartered in Westmont, Illinois.
Imperial began business in 1975 through the sale of promotional premium
products such as Taiwanese jade and gold chains to banks, other financial
institutions and supermarkets. In 1978, Imperial expanded its merchandise to
include fine jewelry which it sourced directly from jewelry manufacturers in
Hong Kong.
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In 1983, Imperial secured its initial department store customers, and by
1985 had discontinued its sale of promotional premium products, concentrating
entirely on the sale of fine jewelry products, principally pearls and
pearl-related jewelry. Also in 1985, a small assembly line was established
in Illinois to assemble cultured pearls which were imported directly from
Japan. Later in 1985, the shareholders of Imperial purchased an interest in
Rhine Jewellery Limited ("Rhine Jewellery"), and Imperial began purchasing a
portion of its jewelry products from Rhine Jewellery. In 1989 the remaining
shares of Rhine Jewellery were acquired by the shareholders of Imperial.
In September of 1994, the Company acquired a 50% interest in Haupia
Corporation ("Haupia"), previously a wholly-owned subsidiary of Rhine
Holdings, in exchange for a $2 million promissory note. Pursuant to a joint
venture agreement between the Company and Rhine Holdings, Haupia entered into
written contracts with companies in the People's Republic of China ("PRC")
pursuant to which retail jewelry stores were opened in Beijing and Tianjin in
September, 1994.
Following completion of the Company's IPO and the receipt of
approximately $11.5 million therefrom ($9.9 million of which was received in
December 1994 and $1.6 million of which was received in January 1995), the
Company paid off the $2 million note relating to its acquisition of a 50%
interest in Haupia. Also, during the first quarter of 1995, the Company
acquired the key assets of Ullenberg Corp., a respected manufacturer and
distributor of fine jewelry with a strong market presence in the southern
United States.
Effective July 1, 1995, Imperial acquired the DACO group of companies,
including DACO Manufacturing Ltd. and J.B. Manufacturing, Inc., amalgamated
as DACO Manufacturing Ltd upon acquisition. DACO and J.B. are Canadian
manufacturers and distributors of moderately priced gold, silver and costume
jewerly. DACO and J.B. also distribute perfumes and crystals and, to a
lesser extent, collectibles and watches. DACO and J.B.'s products are sold
primarily in Canada.
In December 1995, the Company sold half of its interest in Haupia to
Rhine Holdings for $1,402,000 payable in four quarterly installments ranging
from $200,000 to $502,000 commencing April 1, 1996.
ORGANIZATION CHART
The following organization chart reflects the ownership by the Company
of the common stock of each of its subsidiaries. In addition, the chart
reflects the ownership of the Company's common stock by Rhine Holdings
Limited, its ultimate parent. In addition to its common stock holdings in
the Company, Rhine Holdings Limited, through Rhine Jewellery Limited, owns
3,644,480 shares of preferred stock of IWI, being all of the outstanding
preferred stock of the Company. The preferred shares are entitled to
one-half vote per share at all meetings of the Company's shareholders.
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[CHART]
(Organizational chart reflecting (1) Rhine Holdings Limited [Bermuda]
ownership of 100% of Rhine Investment Holdings Company Limited
[British Virgin islands] and 75% of Haupia Corporation
[British Virgin Islands]; (2) Rhine Investment Holdings Company Limited
ownership of 100% of Rhine Jewellery Limited [Hong Kong] and 100% of IWI
Holding Limited [British Virgin Islands]; (3) IWI Holding Limited ownership
of 100% of Imperial World, Inc. [Illinois], 100% of IWI Sourcing Limited
[British Virgin Islands] and 25% of Haupia Corporation; and (4) Imperial
World, Inc. ownership of 100% of Daco manufacturing Ltd. [Canada].
BUSINESS STRATEGY
The Company's business strategy is to provide a broad range of
fashionable jewelry to retailers who target consumer s seeking jewelry at
moderate prices and who are willing to purchase jewelry at frequent intervals
as fashions and styles change. To accomplish this strategy, and to stay
abreast of changing styles and market tastes, design and product development
teams work closely with both suppliers and customers and continually
participate in jewelry fairs. Numerous designs have been introduced and
variations have been created to lengthen their market life. In addition, the
Company maintains a sophisticated computerized system to track market trends
in the making, seasonality factors and other critical information. This
system is linked with certain customers' stock systems so that orders can be
placed directly through an Electronic Data Interchange ("EDI"), a
computerized network system, for execution by the Company and delivery of the
jewelry to the customer.
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The Company's objective is to increase its domestic (U.S.) market
penetration and product lines through selected acquisitions and alliances and
may include both jewelry and non-jewelry businesses which can complement and
be integrated into the Company's product lines. In this regard, the Company
acquired the key assets of Ullenberg Corp. in 1995.
In 1995, the Company began exploring expansion into both the Canadian
and Latin American markets. To that end, the Company acquired DACO during
1995. The acquisition brought an established customer base in Canada and
facilitates a natural extension to the Company's markets as some of its
customers already have operations, or are beginning operations, in Canada.
The Company added a nearly 30 year jewelry veteran to bring its products to
Canada through DACO. As a result of such efforts, sales in Canada totaled
$10.7 million in 1995. The Company does not expect to aggressively pursue
sales in Latin America until economic and currency conditions stabalize and
improve in those countries.
In 1994, the Company entered into a joint venture with its principal
shareholder, Rhine Holdings, to establish retail jewelry operations in the
growing PRC market. Pursuant to such joint venture arrangement, the Company
acquired from Rhine Holdings a 50% interest in Haupia for $2 million. Haupia
entered into contracts with companies in the PRC and leased retail space for
the operation of retail jewelry stores in Beijing and Tianjin. Stores in
both cities opened in September of 1994. After strong initial operations of
Haupia in the PRC, operating results were below expectations during 1995 and
the Company decided to reduce its retail operations in the PRC in favor of
concentrating on efforts in the North American market. On December 29, 1995,
the Company excercised a put option for 50% of its interest in Haupia in
accordance with the joint venture agreement. Rhine Holdings issued a
promissory note for $1,402,000 representing one-half of the Company's initial
investment in Haupia plus the Company's allocable share of earnings of Haupia
through December 31, 1995. The note which accrues interest at prime is
payable in four quarterly installments ranging from $200,000 to $502,000
commencing April 1, 1996. The Company retains a put option to divest its
remaining interest in Haupia in 1996 under similar terms.
PRODUCTS AND PRICING
The Company's principal products are rings, pendants, earrings,
bracelets, necklaces, pins and brooches made of diamonds, other precious or
semi-precious stones, pearls, silver and gold in addition to the more
moderately priced gold, silver and costume jewelry of DACO. The Company's
products are currently sold in over 7,000 retail outlets. For the majority
of products, the average wholesale price is approximately $60 with the prices
ranging from approximately $35 to $450. DACO's products start as low as $3
with an average wholesale price of approximately $11. The following table
sets forth the approximate percentage of net sales of the Company's principal
jewelry products for the periods specified.
YEAR ENDED DECEMBER 31,
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1993 1994 1995
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Rings with diamonds and/or
precious or semi-precious stones. . . 58.2% 66.5% 53.4%
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Cultured pearl products. . . . . . . . 13.8 11.9 11.8
Pendants . . . . . . . . . . . . . . . 7.5 5.5 8.4
Bracelets. . . . . . . . . . . . . . . 5.7 5.2 4.3
Earrings . . . . . . . . . . . . . . . 3.7 5.7 9.5
All others . . . . . . . . . . . . . . 11.1 5.2 12.6
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Total. . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
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PURCHASING
The Company imports most of its jewelry from the PRC, Hong Kong and
Thailand. Cultured pearls are imported from Japan and the PRC and freshwater
pearls are imported from the PRC, and are assembled by the Company into
various pearl jewelry products. The Company purchases jewelry from a number
of suppliers based on quality, pricing and available quantities. Rhine
Jewellery supplied approximately $7.5 million of the Company's purchases, or
approximately 23%, for the fiscal year ended December 31, 1995. The Company
believes it has good relationships with its suppliers, most of whom have
supplied the Company for many years. For the most part, from the date an
order is placed by a customer, it can be sourced overseas, manufactured and
shipped to the customer within 30 days.
Although purchases of materials are made from a relatively small number
of suppliers, the Company believes there are numerous alternative sources for
all materials, and that the failure of any principal supplier would not have
a material adverse effect on operations or the Company's financial condition.
The Company has not experienced any difficulty in securing product.
The world's supply of diamonds comes primarily from De Beers
Consolidated Mines, Limited ("De Beers"), a South African company, through
its marketing arm, the Central Selling Organization. The continued
availability of diamonds is dependent, to some degree, on a continued supply
from De Beers. While several other countries are major suppliers of diamonds,
in the event of an interruption of supply from South Africa, the Company as
well as the jewelry industry, as a whole, could be adversely affected.
For purchases denominated in Japanese yen, the Company hedges against
the risk of future currency exchange rate fluctuations by entering into
foreign currency exchange contracts. The Company does not presently engage
in any other hedging activities with respect to possible fluctuations in the
price of precious, semi-precious gemstones or metals. The Company believes
the risk of not engaging in such activities is minimal, since historically
the Company has been able to adjust prices as material fluctuations have
occurred. The Company believes that a downward trend in the prices of stones
or metals would have little, if any, impact on the valuation of the Company's
inventories.
MANUFACTURING AND ASSEMBLY
DACO manufactures most of their costume jewelry and some of their
precious jewelry in a modern 40,000 square foot facility outside of Toronto,
Ontario, Canada. DACO makes its own
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castings and has a state of the art plating facility. The Company
manufactures fashion jewelry with the Sarah Coventry and Napier names under
exclusive licenses for the Canadian market.
Since Imperial imports most of its jewelry in an assembled state from
suppliers in the PRC, Hong Kong, Thailand and Japan, manufacturing and
assembly operations conducted by the Company are primarily limited to
designing jewelry and assembly of pearl products. Upon completing a design,
the Company will provide such design to its suppliers, including Rhine
Jewellery, which will purchase the raw materials, such as diamonds, other
precious stones, gold and silver, and manufacture the product or subcontract
for its manufacture. Although the Company receives priority in the processing
and shipping of its orders, it does not receive any price concessions from
Rhine Jewellery, but rather purchases on the same basis as other third party
purchasers. The use of third party manufacturers enables the Company to
shift the risk and capital cost of manufacturing.
Imperial maintains a light manufacturing and assembly operation in the
United States for the stringing of pearls. This enables the Company to
assemble pearls specifically to customer order and to provide shipment within
two days of the order date.
MANAGEMENT INFORMATION AND CONTROL SYSTEMS
The Company has internally developed and maintains a computerized
management information system to plan, operate and control its business. The
system provides a framework for controlling all the processes involved in the
Company's business cycle from receiving goods from vendors to shipping goods
to customers. The system provides the following benefits, among others:
- EDI
- On-line perpetual inventory
- Accounting
- On-line customer accounts receivable
- Credit limit verification
- Automatic pricing in response to market fluctuations
- On-line transaction processing
- Recording of inventory movement throughout the Company
- Updated evaluation of customers' demand for merchandise
- Daily reports which provide customers' orders, open purchase
orders, work in process, receipt of merchandise and shipments to
multiple locations
The Company's software provides on-line posting of transactions to
accounts receivable, accounts payable and the automatic updating of the
Company's general ledger. The system also provides historical and seasonal
sales data and analysis by both customer and product. The system provides
the marketing and sales staff the ability to determine whether customers are
properly serviced and are maintaining proper product mix and quantity on hand
at their locations, as well as detecting market trends. This enables
department managers to monitor the processes involved in the Company's
business cycle. The Company believes that this system enables it to service
its customers better, detect emerging fashion trends and promptly respond to
market changes, thereby giving it a competitive edge.
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MARKETING
The primary marketing efforts are product design and customer support
services which integrate the benefits offered by the Company's computerized
systems to assure timely response to fashion trends, quality products,
favorable pricing and accurate inventory control for the Company's customers.
The products are sold, for the most part, through third party independent
sales representatives on a commission basis. While such representatives may
also sell other products, they do not sell products which compete with those
of the Company. The Company maintains a minimum sales force but has design
and product development teams and marketing support personnel, who work
closely with both the third party sales force and with the customers. The
Company believes that by using an outside sales force, it is better able to
control its selling expense, while also being able to penetrate additional
markets at a minimum cost.
The Company has an agreement with its affiliates to market in
non-competing geographic areas.
CUSTOMERS
The Company's customers consist of jewelry retail stores, mass
merchandisers, such as Wal-Mart Stores, Inc., department stores, such as J.C.
Penney Company, Inc., catalog showrooms and various specialty markets
including The Home Shopping Network, Inc., The Home Shopping Network, Inc.,
J.C. Penney Company, Inc. and Wal-Mart Stores, Inc. accounted for
approximately 45% of net sales in 1995. The Company has no long-term
contracts with any customers, however, each of the large volume purchasers
have been customers for at least five years. The following table sets forth
the approximate percentage of net sales for the major market segments for the
periods indicated.
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
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Jewelry retail stores. . . . . . . . . 17.4% 17.7% 12.3%
Specialty markets. . . . . . . . . . . 40.1 25.6 37.0
Mass merchandisers . . . . . . . . . . 16.2 24.2 14.4
Department stores. . . . . . . . . . . 19.1 26.4 25.3
Catalog showrooms. . . . . . . . . . . 7.2 6.1 11.0
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Total. . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
----- ----- -----
----- ----- -----
COMPETITION
The jewelry industry in the United States is highly fragmented, with
little significant brand name recognition or consumer loyalty. Selection is
generally a function of design appeal, perceived high value and quality in
relation to price.
Jewelry stores alone account for an estimated $15 billion in annual
sales in the United States. Retail jewelry sales have historically increased
at a rate in excess of the inflation rate.
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This increase is principally attributable to the growth in the number of dual
working households which in turn has increased the amount of disposable
income for women, the largest group of jewelry purchasers. The rise in the
number of women in the workforce has increased the demand for women's
business attire, including jewelry.
While many competitors may have a wider selection of products or greater
financial resources, the Company believes its competitive position is
enhanced by its information system and its close relationship with its
customers and vendors. Therefore, although the competition is intense, the
Company believes it is well positioned in the jewelry industry. See
"Business Strategy" and "Management Information and Control Systems."
EMPLOYEES
As of June 3, 1996, the Company had 180 employees, including 8 executive
officers, 16 persons in sales and merchandising, 118 persons in operations,
and 38 persons in administrative and support functions. None of the
employees is governed by a collective bargaining agreement and the Company
considers its relations with its employees to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains registered offices in the BVI; Sourcing has a
registered office in the BVI and office space in Hong Kong and Macau;
Imperial leases approximately 25,000 square feet of space for operations and
pearl assembly in Westmont, Illinois; and DACO leases approximately 40,000
square feet for manufacturing and distribution near Toronto, Ontario, Canada.
Under the 10 year lease which commenced in November, 1993, future minimum
annual lease payments with respect to the Company's Westmont, Illinois
facilities range from approximately $225,000 to $300,000. At the expiration
of the lease, the Company has the option to renew for an additional five
years. The facility, which provides state of the art security, has, in the
opinion of management, capacity to more than double the current sales volume.
It was designed to maximize the efficiency of the Company's current
operations and to provide for the Company's anticipated growth.
The DACO facilities are leased through July 2002 with an option to renew
for an additional five years. Future minimum annual rentals under the lease
range from $113,000 to $133,000. Management believes such facilities are
adequate to meet the needs of DACO for the foreseeable future.
Haupia, of which the Company owned a 25% interest at December 31, 1995,
has entered into written contracts with PRC companies to lease retail space
and operate jewelry stores in Beijing and Tianjin. Under the lease in
Beijing, which expires in January, 2004, minimum annual lease payments are
$900,000 for approximately 4,000 square feet of space. The lease can be
terminated upon 30 days' notice. Under the lease in Tianjin, which expires
in August, 2009, minimum annual lease payments range from approximately
$250,000 to $500,000 for approximately 2,000 square feet of space. The lease
can be terminated at any time with the payment of six months rent as
liquidated damages.
ITEM 3. LEGAL PROCEEDINGS
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The Company is not presently a party to any litigation or other
proceeding nor, to the knowledge of management, is any litigation or other
proceeding threatened, which if adversely determined, would be materially
adverse to the Company's business or financial condition.
ITEM 4. CONTROL OF REGISTRANT
The following table is furnished as of June 3, 1996, to indicate
beneficial ownership of shares of the Company's Common Stock and Preferred
Stock by (1) each shareholder of the Company who is known by the Company to
be a beneficial owner of more than 10% of the Company's Common Stock or
Preferred Stock and (2) all officers and directors of the Company as a group.
The information in the following table was provided by such persons.
<TABLE>
Name and Address Amount and Nature of Title of Percent of Percent of
of Beneficial Owner Beneficial Ownership (1) Class Class Voting Power
------------------- ------------------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
David Chui (2) . . . . . . . . 523,700 (3) Common 19.8% 11.7%
Lillian Chui (2) . . . . . . . 523,700 (3) Common 19.8% 11.7%
Sherman Chui . . . . . . . . . 523,700 (3) Common 19.8% 11.7%
Rhine Investment Holdings
Company Limited (2) . . . . . 918,750 (3) Common 34.8% 20.6%
Rhine Jewellery Limited (2). . 3,644,880 (3) Preferred 100.0% 40.8%
White Angel Holdings Ltd. (2). 523,700 (3) Common 19.8% 11.7%
All executive officers and
directors as a group
(9 persons) . . . . . . . . . 584,700 Common 22.1% 13.1%
2,077,582 Preferred 57.0% 23.3%
</TABLE>
__________________
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock and Preferred Stock shown as
beneficially owned by them, subject to community property laws, where
applicable, and the information contained in the footnotes to the table.
(2) Address is 2nd Floor, One Harbourfront, 18 Tak Fung Street, Hunghom, Hong
Kong.
(3) All shares of Common Stock and Preferred Stock indicated are held of record
by Rhine Investment Holdings Company Limited and Rhine Jewellery Limited,
respectively. Rhine Jewellery Limited is a wholly owned subsidiary of
Rhine Investment Holdings Company Limited. Rhine Investment Holdings
Company Limited is wholly-owned by Rhine Holdings Limited which is owned in
part by a series of trusts, including a trust for the benefit of David
Chui, Lillian Chui and Sherman Chui which owns approximately 57% of the
outstanding securities of Rhine Holdings Limited. White Angel Holdings
Ltd. has the power to vote and dispose of the shares held by these trusts.
David Chui, Lillian Chui and Sherman Chui may be deemed to hold, but hereby
disclaim, beneficial ownership of all securities of the Company held by
Rhine Investment Holdings Company Limited and Rhine Jewellery Limited.
However, the table above reflects any possible beneficial ownership as well
as the holdings of White Angel Holdings Ltd. because the ownership of 57%
of the stock of Rhine Holdings gives the Chui family absolute control of
the Company.
ITEM 5. NATURE OF TRADING MARKET
There is no non-U.S. trading market for the Common Stock of the Company.
Within the United States, the Company's Common Stock is traded in the
over-the-counter market. The Company's Common Stock commenced quotation on
the Nasdaq National Market System
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("NNM") under the symbol "JEWLF" following completion of the Company's IPO on
December 16, 1994.
The following table sets forth the high and low bid price per share for
the Company's Common Stock for each quarterly period since the completion of
the Company's IPO:
High Low
--------- -------
1995 - First Quarter $ 10.25 $ 6.75
Second Quarter 9.00 4.375
Third Quarter 6.25 4.375
Fourth Quarter 5.125 1.875
The quotations reflect inter-dealer prices without mark-up, mark-down or
commission and may not represent actual transactions.
At June 3, 1996, the bid price at the Common Stock was $2.25.
As of June 3, 1996, there were approximately 1,500 beneficial holders
of the Common Stock of the Company, nearly all of which are believed to be in
the United States.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY-HOLDERS
The Company is not subject to any governmental laws, decrees or
regulations in the BVI which restrict the export or import of capital,
including any foreign exchange controls, or which affect the remittance of
dividends, interest or other payments to non-resident holders of the
Company's Common Stock.
Additionally, neither the laws of the BVI nor the Company's Charter
impose any limitations on the right of non-resident foreign owners to hold or
vote the Common Stock of the Company.
ITEM 7. TAXATION
The BVI imposes no withholding taxes and holders of Common Stock who are
not resident in the BVI will not be subject to BVI tax on any dividends
received from the Company or on gains realized from a sale or other
disposition of the Common Stock. The United States does not have a tax
treaty with the BVI.
ITEM 8. SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except share data)
YEAR ENDED DECEMBER 31,
---------------------------------------------
STATEMENT OF INCOME DATA: 1991 1992 1993 1994 1995
------- ------- ------- ------- ---------
10
<PAGE>
Net sales. . . . . . . . . . . . $28,084 $33,402 $35,616 $41,902 $ 41,710
Cost of sales. . . . . . . . . . 20,031 25,001 27,643 32,725 34,024
------- ------- ------- ------- ---------
Gross profit . . . . . . . . . . 8,053 8,401 7,973 9,177 7,686
Operating expenses . . . . . . . 5,807 6,378 5,120 5,831 8,798
------- ------- ------- ------- ---------
Income (loss) from operations. . 2,246 2,023 2,853 3,346 (1,112)
Other income (expense) - net . . (1,069) (796) (579) (267) (901)
------- ------- ------- ------- ---------
Income (loss) before income
taxes . . . . . . . . . . . . . 1,177 1,227 2,274 3,079 (2,013)
Income data (1991 - 1993 Pro
Forma)(2):
Income taxes (benefit) . . . . 457 476 767 788 (629)
------- ------- ------- ------- ---------
Net income (loss). . . . . . . $ 720 $ 751 $ 1,507 $ 2,291 $ (1,384)
------- ------- ------- ------- ---------
------- ------- ------- ------- ---------
Net income (loss) per common
share (1) . . . . . . . . . . $ .84 $ .87 $ 1.65 $ 2.34 $ (.53)
------- ------- ------- ------- ---------
------- ------- ------- ------- ---------
Cash distributions per common
share (1) . . . . . . . . . . . $ .48 $ 3.95 $ - $ - $ -
------- ------- ------- ------- ---------
------- ------- ------- ------- ---------
Weighted average number of
common shares outstanding (1) . 855,203 863,778 911,400 980,394 2,625,873
------- ------- ------- ------- ---------
------- ------- ------- ------- ---------
DECEMBER 31,
---------------------------------------------
BALANCE SHEET DATA: 1991 1992 1993 1994 1995
------- ------- ------- ------- ---------
Working capital. . . . . . . . . $ 4,797 $ 5,751 $ 7,341 $16,064 $16,682
Total assets . . . . . . . . . . 18,778 22,144 19,652 31,695 44,137
Long-term debt . . . . . . . . . 1,376 4,345 3,645 0 556
Shareholders' equity . . . . . . 3,787 1,631 4,205 20,035 20,288
_________________
(1) Per share amounts reflect retroactively for the periods indicated, the
March 21, 1994 reorganization involving an exchange of 1,225,000 newly
issued Common Shares for the previously issued share of $1 U.S. Common
and the return and retirement of 306,250 of such shares on October 27,
1994.
(2) For the years prior to the year ended December 31, 1993, the Company's
subsidiary, Imperial World, was an S corporation as defined in Sec. 1361
of the Internal Revenue Code of 1986, as amended, and accordingly, was
not subject to federal income taxes. The pro forma information has been
computed as if Imperial World were subject to corporate income taxes for
all periods presented, based on tax laws in effect during the respective
periods. As a result of Imperial World changing to a C corporation, a
nonrecurring tax benefit was recognized on January 1, 1993. Such benefit
has been excluded from the 1993 Pro Forma Income Data shown above, since
it would not have resulted had Imperial World always been subject to
corporate income taxes.
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
information derived from the Consolidated Statements of Income of the
Company. All dollar amounts are set forth in thousands, except share data.
<TABLE>
1993 1994 1995
------------------------- ------------------------ ------------------------
Amount %Sales %Change Amount %Sales %Change Amount %Sales %Change
-------- ------ ------- ------- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales. . . . . . . $ 35,616 100.0 + 6.6 $41,902 100.0 + 17.6 $41,710 100.0 - 0.5
Gross profit . . . . . 7,973 22.4 - 5.1 9,177 21.9 + 15.1 7,686 18.4 - 16.2
Operating
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
expenses. . . . . . . 5,120 14.4 - 19.7 5,831 13.9 + 13.9 8,798 21.1 + 50.9
Income (loss)
from operations . . . 2,853 8.0 + 41.0 3,346 8.0 + 17.3 (1,112) (2.7) -133.2
Income (loss) before
income taxes . . . . 2,274 6.4 + 85.3 3,079 7.4 + 35.4 (2,013) (4.8) -165.4
Income data (1993
Pro Forma)(1):
Income taxes
(benefit). . . . . 767 2.2 + 61.1 788 1.9 + 2.7 (629) (1.5) -179.8
Net income (loss). . 1,507 4.2 +100.7 2,291 5.5 +52.0 (1,384) (3.3) -160.4
Net income (loss)
per common
share. . . . . . . $1.65 $2.34 $ (.53)
Weighted average
number of shares
outstanding. . . . . 911 980 2,626
</TABLE>
_______________
(1) Prior to 1993, the Company was an S corporation and, accordingly, was
not subject to federal income taxes. The pro forma information has been
computed as if the Company were subject to corporate income taxes for all
years presented to provide a more meaningful comparison.
The Company's operating results during 1995 were adversely impacted by a
weak jewelry market, particularly for semi-precious colored stones. The
significant shortfall in anticipated domestic sales in the last six months of
1995 continued into the first half of 1996. In the opinion of management,
under current market conditions, the Company's inventories were considered
excessive by an estimated $3.5 million.
In order to address the weak market conditions and excess inventories,
the Company has significantly reduced its operating expenses in 1996 and
anticipates that the excess inventories will be sold or otherwise liquidated
during 1996, realizing an estimated $2 million. Accordingly, recorded
inventory costs have been reduced at December 31, 1995 by $1.5 million to
their estimated market value, which resulted in a loss of $1.4 million for
1995.
The Company's sales are generated through the wholesaling of jewelry
products to the following distinct groups:
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
Jewelry retail stores. . . . . . 18.8% 19.6% 17.4% 17.7% 12.3%
Specialty markets. . . . . . . . 35.7 31.7 40.1 25.6 37.0
Mass merchandisers . . . . . . . 14.9 25.0 16.2 24.2 14.4
Department stores. . . . . . . . 19.4 16.7 19.1 26.4 25.3
Catalog showrooms. . . . . . . . 11.2 7.0 7.2 6.1 11.0
----- ----- ----- ----- -----
Total. . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0%
The Company raised approximately $11.5 million of net proceeds from its
IPO in December of 1994 and January, 1995. The proceeds were utilized
primarily for acquisitions and internal expansion. Certain assets of
Ullenberg Corp. were acquired in February of 1995 for approximately $300,000.
The acquisition of such assets, including the rights to produce all of
Ullenberg's products, is expected to provide a strong presence in the South
where the Company previously had little sales. Effective July 1, 1995, the
Company completed the acquisition of
12
<PAGE>
DACO which manufactures and distributes moderately priced gold, silver and
costume jewelry in Canada.
Except as noted elsewhere in this discussion, management is not aware of
any events or uncertainties that are likely to have a material impact on
prospective results of operations or financial condition.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
NET SALES. Net sales decreased by $0.2 million, or 0.5% from 1994
record levels to $41.7 million in 1995. The decline in sales to domestic
customers amounted to $10.9 million, including a decrease in sales to mass
merchandisers of $6 million, jewlery retail stores of $2.2 million and
department stores of $1.9 million. This decline was almost entirely offset
by the $10.7 million in sales to the Canadian market during the last six
months of 1995, through the newly acquired DACO.
GROSS PROFIT. Gross profit decreased by $1.5 million in 1995 to $7.7
million. The decrease is principally the result of reducing recorded
inventory costs to their estimated market value.
INCOME (LOSS) FROM OPERATIONS. Income from operations decreased by $4.5
million to a loss of $1.1 million in 1995, or by 133.2% from 1994. In
addition to the decline in gross profit, the balance of this decrease is
almost entirely attributable to the $3.0 million increase in operating
expenses in 1995 over 1994 levels. Included in this increase are DACO's
operating expenses of $1.8 million. Additional operating personnel were
added at a cost of $0.7 million for anticipated volume that did not
materialize. These positions were subsequently eliminated. Also
contributing to the increase in operating expenses was a $0.4 million
increase in professional fees relating to the increased acquisition activity
and the Company's requirements as a public company.
NET LOSS. The Company reported a net loss of $1.4 million during 1995
as compared to net income of $2.3 million in 1994. The adverse change was
attributable to higher interest expense in 1995 of $1.1 million compared to
$0.7 million in 1994 and reduced equity in the income of Haupia totaling $0.2
million in 1995 compared to $0.4 million in 1994 combined with a sharp
reduction in operating income as described above. The increase in interest
expense of $0.4 million during 1995 resulted from higher borrowings under the
Company's line of credit to support higher inventory levels. $0.2 million of
the increase in interest expense was attributable to DACO. The reduction in
earnings attributable to Haupia resulted from lower operating results in its
PRC retail jewelry stores in 1995. The stores were opened just prior to the
peak season in 1994. As noted elsewhere, the Company has exercised its
option to put 50% of its interest in Haupia to Rhine Holdings. Accordingly,
future results are not expected to be materially affected by Haupia's
operations.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
NET SALES. Net sales increased by $6.3 million from 1993 levels to a
record $41.9 million. The increase is primarily due to an increase in sales
to mass merchandisers of $4.4 million,
13
<PAGE>
department stores of $4.2 million and jewelry stores of $1.2 million. This
was offset, in part, by a decline in sales to specialty markets of $3.5
million.
GROSS PROFIT. Gross profit increased by $1.2 million in 1994 to a
record $9.2 million which was attributable to the record sales. However,
gross margins decreased to 21.9% from 22.4% in 1993, largely because 1994 was
the first full year of operations for a low margin direct sales subsidiary
that sells to high volume customers.
INCOME FROM OPERATIONS. Income from operations increased by $0.5
million to $3.3 million in 1994, or by 17.3% over 1993. Income from
operations in 1994 benefitted from increased gross profit but was offset, in
part, by increased operating expenses. The increase is primarily due to
increased occupancy costs associated with the Company's new operating
facility of $0.3 million and an increase in provision for doubtful accounts
of $0.1 million. In 1993 there was recognition of a partial recovery ($0.2
million) of a bad debt previously written off in 1990.
NET INCOME. Net income increased on a pro forma basis 52.0% to a record
$2.3 million from the previous high of $1.5 million in 1993. The increase is
attributable to higher income from operations reduced by $0.2 million of
increased interest expense. The weighted average interest rate was 8.9% in
1994 compared to 6.8% in 1993. During 1994, the Company's net income also
included equity income of $0.4 million from its 50% ownership of Haupia which
began operations in September.
ANALYSIS OF FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity needs are to fund accounts receivable
and inventories and, since the consummation of its IPO, to expand business
operations. The Company has historically financed its working capital
requirements through a combination of internally generated cash, short-term
borrowings under bank lines of credit, and loans from affiliates. The
Company's working capital at December 31, 1995 was $16.7 million as compared
to $16.1 million at December 31, 1994.
The following table summarizes cash provided by (used in) the Company's
business activities for the past three years:
1993 1994 1995
------- ------- -------
(Dollars in thousands)
Operating activities . . . . . . . . . . . . $(1,059) $(2,841) $(6,713)
Investing activities . . . . . . . . . . . . (369) (1,199) (2,883)
Financing activities . . . . . . . . . . . . (1,194) 4,247 9,357
Increase (decrease) in cash. . . . . . . . . (2,622) 207 (239)
OPERATING ACTIVITIES. The net cash used in operations in 1995 was
principally due to an increase in inventories of $5.0 million as well as the
net loss for the year. The shortfall in anticipated domestic sales in late
1995 resulted in the higher inventories. The Company plans to significantly
reduce inventory levels in 1996.
INVESTING ACTIVITIES. Cash used in investing activities was expended in
late 1993 and 1994 in connection with the build-out of the Company's new
leased facilities. Capital expenditures
14
<PAGE>
in 1995 of $0.7 million included dies and molds of $0.3 million from
Ullenberg Corp. The acquisition of DACO utilized $2.2 million.
FINANCING ACTIVITIES. The Company raised $11.5 million from its IPO
($9.9 million in 1994 and $1.6 million in 1995) of which $2 million was paid
to complete its investment in Haupia. $3.6 million of the net proceeds were
used to reduce the amount outstanding under lines of credit. Borrowings
under the Company's line of credit increased $7.7 million in 1995.
CAPITAL STRUCTURE. In 1994, a note payable to an affiliated company was
converted to preferred stock, thereby eliminating all long-term debt. The
Company's only long-term debt at December 31, 1995 consisted of $0.6 million
payable to former shareholders of DACO.
The Company has an agreement with a bank, through various credit
facilities, whereby Imperial can borrow up to $10 million, payable on demand.
The Company had borrowed up to $15.5 million during 1995 under a previous
agreement. The total credit facility is governed by a formula, as defined in
the agreement, based principally on accounts receivable and inventory levels.
The credit facilities are collateralized by substantially all assets of
Imperial. The line of credit bore interest at 9.25% at December 31, 1995
(0.75% over the bank's reference rate). Under the demand facility, interest
is caclulated at 2% over the bank's reference rate. Under current covenants,
the Company may not declare or pay dividends or make loans to Rhine Holdings.
Included in the Company's bank credit facility is a gold consignment
financing agreement, which is common in the jewelry industry. Pursuant to
such agreement, the Company may transfer ownership of gold content in its
inventory at fair market value to the bank. Simultaneously, the bank
consigns the gold back to the Company. The Company is charged a consignment
fee at an annual percentage rate of 5.00% of the market value of the
consigned gold. The term of the consignment is indefinite, as long as the
Company has sufficient gold in its inventory to cover the consignment or the
total credit facility has not been terminated. Upon either event, the
Company has the option to satisfy its obligation by transferring gold to the
bank or paying cash based on the then-quoted market price of the gold.
Market price fluctuations between the borrowing and repurchase dates are
borne by the Company and may result in either a gain or loss. Unless
required to repurchase the gold upon termination of the consignment, as
described previously, the Company's policy is to not repurchase the gold
unless it is favorable to the Company.
At December 31, 1995, total borrowings under the Company's bank credit
facilities were $13.7 million, including 4,450 troy ounces of gold, having a
fair market value of $1,722,600, which were held on consignment by the
Company.
DACO entered into a similar credit agreement to Imperial's with a
Canadian bank. DACO can borrow up to approximately $8.5 million in Canadian
dollars (approximately $6.3 million in United States dollars) through similar
credit facilities. The line of credit bears interest at 7.75% at December
31, 1995 (0.25% over the bank's prime rate) and precious metals bear a
consignment fee of 3.35%. The agreement is secured by substantially all of
DACO's assets and is guaranteed by the Company.
15
<PAGE>
Management believes that available cash, cash generated from operations
and existing credit facilities will be sufficient to satisfy the Company's
working capital needs for at least the next 12 months.
SEASONALITY
The jewelry business is highly seasonal, with the fourth calendar
quarter, which includes the Christmas shopping season, historically
contributing the highest sales of any quarter during the year. In 1993,
however, a major customer requested shipment during the third calendar
quarter for an early promotion, resulting in much higher sales for such
quarter. Net sales in the third and fourth quarter of 1995 include the
results from DACO which was acquired effective July 1, 1995. Accordingly,
seasonality cannot be predicted or counted upon, and the results of any
interim period are not necessarily indicative of the results that might be
expected during a full fiscal year.
The following table sets forth the Company's unaudited net sales for the
periods indicated (dollar amounts are in thousands):
Year Ended December 31,
-------------------------------------------------
1993 1994 1995
-------------- --------------- --------------
Amount % Amount % Amount %
------- ----- -------- ----- ------- -----
First Quarter $ 6,851 19.2 $ 10,221 24.4 $7,877 18.9
Second Quarter 7,293 20.5 8,091 19.3 8,093 19.4
Third Quarter 11,329 31.8 10,270 24.5 12,686 30.4
Fourth Quarter 10,143 28.5 13,320 31.8 13,054 31.3
------- ----- -------- ----- ------- -----
Total $35,616 100.0 $41,902 100.0 $41,710 100.0
------- ----- -------- ----- ------- -----
------- ----- -------- ----- ------- -----
INFLATION
Inflation has historically not had a material effect on the Company's
operations. When the price of gold or precious stones has increased, these
costs historically have been passed on to the customer. Furthermore, because
the Company does not have either long-term supply contracts or long-term
contracts with customers, prices are quoted based on the prevailing prices
for semi-precious gemstones or metals. Accordingly, the Company does not
believe inflation will have a material effect on its future operations.
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of the date hereof
with respect to the directors and executive officers of the Company.
Name Age Position
---- --- --------
David F. Chui 55 Chairman of the Board of Directors
Richard C. Cieslak 46 President, Chief Executive Officer and
Director
Richard J. Mick 55 Vice President - General Manager and Director
16
<PAGE>
Joseph K. Lau 48 Senior Vice President, Chief Operating
Officer, Secretary and Director
Richard W. Sigman 56 Vice President - Finance, Chief Financial
Officer and Director
Lillian S. Chui 50 Director
James W. Pierpont 52 Director
Jack Reiff 69 Director
Bankee Kwan 36 Director
Each director is serving a one-year term that expires after the next
annual meeting of the Company's shareholders, or until their successors are
elected and qualified. Executive officers of the Company are elected by, and
serve at the discretion of, the Board of Directors.
David F. Chui and Lillian S. Chui are husband and wife. Joseph K. Lau
is the brother of Lillian S. Chui.
DAVID F. CHUI co-founded Imperial World in 1975 and has served as
Chairman of the Board of Directors since inception. Mr. Chui has 30 years of
experience in the jewelry industry and is presently the Chairman and
President of Rhine Holdings. He was the associate chairman of the Hong Kong
Jewellery Manufacturers Association for 1992/1993 and was awarded with a
National Entrepreneur of the Year Award in 1990 by the Institute of American
Entrepreneurs.
RICHARD C. CIESLAK joined the Company in June, 1986 as President, Chief
Executive Officer and Director. For the 13 years prior to his joining the
Company, Mr. Cieslak worked with other jewelry related companies in various
executive positions including as President of two such companies.
RICHARD J. MICK joined the Company in February, 1996 as Vice President -
General Manager and Director. For the 6 years prior to joining the Company
he was President of a sales and marketing firm selling jewelry and related
products. Prior thereto, Mr. Mick was employed by J.C. Penney Company, Inc.
for 26 years.
JOSEPH K. LAU joined the Company in November, 1982 and was elected
Senior Vice President, Chief Operating Officer, Secretary and Director in
February, 1986. For the 11 years prior to joining the Company, he held a
management position in the restaurant industry and owned a trading company in
Hong Kong.
RICHARD W. SIGMAN joined the Company in March, 1994 as Vice President -
Finance, Chief Financial Officer and Director. For the 22 years prior to
joining the Company, Mr. Sigman served as the Chief Financial Officer and/or
the Chief Executive Officer of various privately held companies as well as a
self-employed Financial Consultant. Prior thereto, Mr. Sigman was employed
by Arthur Andersen & Co.
LILLIAN S. CHUI co-founded Imperial in 1975 and has served as a Director
of the Company since inception. Ms. Chui was employed full-time by the
Company through 1992. Ms. Chui has 30 years of experience in the jewelry
industry and is presently Vice President of Rhine Holdings where she is
responsible for the Rhine Holding group's personnel and administration.
17
<PAGE>
JAMES W. PIERPONT has served as a Director of the Company since May,
1995. Mr. Pierpont has served as Executive Vice President and Director of
Corporate Finance for Dain Bosworth Incorporated, an investment banking firm,
since 1990.
JACK REIFF has served as a Director of the Company since May, 1995. Mr.
Reiff served as Chief Executive Officer of William Schneider Incorporated
from 1970 to 1991 and as Chairman until 1993 when he retired.
BANKEE KWAN has served as a Director since June, 1995. Mr. Kwan has
served as a Managing Director of Rhine Holding Limited since September 1994.
Previously, Mr. Kwan served as Senior Director of Commercial and Corporate
Banking at American Express Bank, Ltd., Hong Kong branch, for more than five
years. Mr. Kwan also serves as a Director of Mei Ah International Limited.
For a period of three (3) years after the date of the Company's IPO, the
Company has agreed to use its best efforts to cause one (1) individual
selected by Sands Brothers & Co., Ltd., the underwriter of its IPO, to be
elected to the Board, if requested by Sands Brothers, which individual shall
be reasonably acceptable to the Board. Such individual may be a director,
officer, employee or affiliate of Sands Brothers. In the event Sands
Brothers elects not to designate such individual at the time of any meeting
of the Board, the Company has agreed to notify Sands Brothers of each meeting
of the Board, and an individual selected by Sands Brothers shall be permitted
to attend all meetings of the Board and to receive all notices and other
correspondence and communications sent by the Company to members of the Board.
KEY MANAGERS
STEPHEN E. KLOPP joined the Company in March, 1989 as the Product
Development Manager. Prior to joining the Company, Mr. Klopp had nine years
of experience in jewelry buying and merchandising.
CONNIE S. YUI joined the Company in March, 1985 as the Production
Manager. She is responsible for all pearl manufacturing and assembly.
TED WOYSLAW joined the Company effective July, 1995. Mr. Woyslaw was a
prior shareholder and officer of DACO and continues to serve as President of
DACO.
DAVID WONG joined the Company effective July, 1995. Mr. Wong was a
prior shareholder and officer of DACO and continues to serve as a Vice
President of DACO.
EMPLOYMENT CONTRACTS
The Company has employment contracts with three officers of Imperial and
two officers of DACO.
Richard C. Cieslak is employed by Imperial pursuant to a three year
contract expiring December 31, 1996. The contract provides for a base salary
of $200,000 per year, an automobile allowance of $800 per month and bonuses
as determined by the board of directors.
18
<PAGE>
Joseph K. Lau is employed by Imperial pursuant to a three year contract
expiring December 31, 1996. The contract provides for a base salary of
$100,000 per year, an automobile allowance of $400 per month and bonuses as
determined by the board of directors.
Richard W. Sigman is employed by Imperial pursuant to a three year
contract expiring December 31, 1997. The contract provides for a base salary
of $100,000 per year, an automobile allowance of $450 per month and bonuses
as determined by the board of directors.
Ted Woyslaw is employed by DACO pursuant to a three year contract
expiring August 31, 1998. The contract provides for a base salary of
$250,000 (Canadian) (approximately US$183,825), a commission of one and
one-half percent (1.5%) of sales of DACO in excess of $22,000,000 (Canadian),
an automobile allowance of $900 (U.S.) per month and bonuses as determined by
the board of directors.
David Wong is employed by DACO pursuant to a three year contract
expiring August 31, 1998. The contract provides for a base salary of
$130,000 (Canadian) (approximately US$95,600), an automobile allowance of
$900 (U.S.) per month and bonuses as determined by the board of directors.
In addition, to their employment with the Company, Richard Cieslak,
Joseph Lau and Richard Sigman are also employed by Rhine Holdings, the
ultimate controlling shareholder of the Company. Pursuant to such
arrangements, Mr. Cieslak, Mr. Lau, and Mr. Sigman are paid annual salaries
of $150,000, $50,000 and $50,000, respectfully, by Rhine Holdings as of June
3, 1996.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate cash compensation paid by the Company to all directors and
officers as a group during 1995 was approximately $500,000.
Certain officers of the Company will be entitled to bonuses from the
Company based on performance criteria to be established by the Compensation
Committee of the Board of Directors of the Company. Additionally, in
December, 1993, the Company adopted a Stock Option Plan (the "Option Plan")
to assist the Company and its subsidiaries in retaining the service of
current employees, motivating selected key management personnel, and
attracting new management by providing the opportunity for such personnel to
acquire a proprietary interest in the Company and thereby share in its growth
and success. Participation in the Option Plan and the granting of options
under the Option Plan are made by the Compensation Committee of the Board of
Directors, subject to ratification by the Board. Pursuant to the Option
Plan, a total of 150,000 shares of Common Stock are reserved for issuance.
The Option Plan requires that the exercise price of the option be the fair
market value of the Company's stock on the date of the grant of the option
but not less than $8.50 per share. The fair market value for purposes of the
Option Plan is, for so long as Common Stock is quoted on the NNM, the final
closing sales price per share on the date of the grant. The exercise price
with respect to any option must be paid in cash. As of the date hereof,
options to purchase 80,000 shares of Common Stock had been granted under the
Option Plan.
19
<PAGE>
The Company, during 1995, also adopted a Non-Qualified Stock Option Plan
(the "Non-Qualified Plan"). A total of 600,000 shares are reserved for
issuance under the Non-Qualified Plan. The Non-Qualified Plan provides for
the granting of options and stock appreciation rights to non-employee
directors, key management employees and consultants and is administered by
the Compensation Committee. The terms of any options and/or stock
appreciation rights granted under the Non-Qualified Plan shall be determined
by the Compensation Committee provided that options may not be exercisable
for a term longer than ten years and may not be exercisable at a price less
than the stated value of the Common Stock. No options or stock appreciation
rights had been granted under the Non-Qualified Plan as of December 31, 1995.
In addition, the Company maintains a defined contribution plan which has
both a profit sharing feature and a 401(k) savings feature (the "Plan").
Under the profit sharing portion of the Plan, contributions are an amount
determined by the Company's Board of Directors. Subject to certain
limitations required by law, the Company's contribution is allocated to each
participant who is employed by the Company at the end of the Plan year in the
proportion that the total compensation paid by the Company to each
participant bears to the aggregate compensation paid by the Company to all
participants during such Plan year. Under the 401(k) savings feature,
eligible employees may elect, subject to certain limitations required by law,
to defer payment of up to 15% of their compensation. The Plan provides that
if an employee defers payment, the Company will contribute 50% of the first
2% of compensation deferred, by making a cash payment to the Plan on behalf
of such participant. Contributions by the Company to the profit sharing
feature of the plan, and earnings thereon, vest based on the participant's
years of service with the Company, vesting 20% per year after one year of
service and being fully vested after six years of service. Employee
contributions are always 100% vested. Contributions by the Company to the
401(k) savings feature vest on the employees first day of employment. All
contributions vest, regardless of years of service, upon termination of
employment by reason of death or disability, attainment of age 62 or the
termination of the Plan. After termination of employment, an employee is
entitled to receive the distribution of his or her entire vested interest in
the Plan in a lump sum, in installments for a specific period of time, or an
annuity for life. The amounts held under the Plan are invested according to
the instructions of the participant in investment funds designated by the
plan administrator. The Company made contributions to the Plan during 1995
of $16,000.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
Pursuant to the Company's Option Plan, the Company presently has
outstanding incentive stock options to purchase 80,000 shares of the
Company's Common Stock, of which options to purchase 60,000 shares are held
by an officer of the Company, are exercisable at $8.50 per share and expire
in January of 2000.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
The Company purchases products from an affiliate, Rhine Jewellery ($8.3
million in 1994 and $7.5 million in 1995). The Company believes that such
transactions are on terms at least as favorable as those obtainable from
unaffiliated third parties. Additionally, Rhine Jewellery, a corporation
under common control, holds 3,644,880 shares of Preferred Stock of the
Company.
20
<PAGE>
This Preferred Stock was received in exchange for a promissory note of
$3,644,880 which was payable to Rhine Jewellery. Such Preferred Stock is
entitled to one-half vote per share.
All transactions between the Company, its officers, directors, principal
shareholder or affiliates, whether presently existing are, or in the future
will be, in the belief of management, on terms no less favorable to the
Company than may be obtained from unaffiliated third parties.
The Company and certain of its Hong Kong affiliates engage in
overlapping businesses. The Company and the other members of the Rhine
Holdings affiliated group have entered into an agreement to market in
non-competing geographic areas. In addition, through Haupia, the Company and
Rhine Holdings are retailing jewelry in the PRC.
There are several family relationships existing among the management and
key personnel of the Company. David F. Chui is the husband of Lillian S.
Chui. Joseph K. Lau is the brother of Lillian S. Chui. Although these
persons owe a fiduciary duty to the Company and its shareholders, there can
be no assurance that family relationships and considerations will not at
times take precedence over the Company's interests. Any such actions,
however, would likely constitute a breach of fiduciary duty.
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Not applicable.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
None reportable.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
None reportable
PART IV
ITEM 17. FINANCIAL STATEMENTS
21
<PAGE>
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
Reference is made to the index to Consolidated Financial Statements of
the Company, and notes thereto, appearing under Item 19 below, together with
the report of Ernst & Young, LLP thereon.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS PAGE
-------------------- ----
Report of Independent Auditors . . . . . . . . . . . . . . . 26
Consolidated Balance Sheets as of December 31, 1995 and
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Consolidated Statements of Operations for Each of the Years
in the Three-Year Period Ended December 31, 1995 . . . . . 28
Consolidated Statements of Shareholders' Equity for Each of
the Years in the Three-Year Period Ended December 31,
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Consolidated Statements of Cash Flows for Each of the Years
in the Three-Year Period Ended December 31, 1995 . . . . . 30
Notes to Consolidated Financial Statements . . . . . . . . . 32
Financial Statement Schedules
I - Condensed Financial Information of Registrant. . . . . . S-1
II- Valuation and Qualifying Accounts. . . . . . . . . . . . S-5
_______________
+ All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of
the schedule.
(b) EXHIBITS
Exhibit
Number Description
- ------- -----------
2.1 Bill of Sale dated February 4, 1995 re: acquisition of assets of
Ullenberg Corporation (1)
2.2 Stock Purchase Agreement relating to DACO Manufacturing Ltd. (3)
3.1 Amended and Restated Memorandum of Association and Articles of
Association of IWI Holding Limited (2)
4.1 Specimen Form of Common Stock certificate (2)
10.1 Lease Agreement between Imperial World, Inc. and American National
22
<PAGE>
Bank and Trust Company of Chicago dated October 15, 1993 for the site
in Westmont, Illinois (2)
10.2 Stock Option Plan (2)
10.3 Amended and Restated Credit Agreement dated June, 1996 between Rhode
Island Hospital Trust National Bank and Imperial World, Inc. (2)
10.4 Indemnity Agreement (2)
10.5 Profit Sharing Plan (2)
10.6 Employment Contract with Richard C. Cieslak (2)
10.7 Employment Contract with Joseph K. Lau (2)
10.8 Territorial Agreement (2)
10.9 Joint Venture Agreement (2)
10.10 Lock-Up Agreement (2)
10.11 Lease Agreement between Haupia Corporation and Beijing Hua Wei
Center Co., Ltd. (2)
10.12 Lease Agreement between Haupia Corporation and Tianjin Quanyechang
Company, Limited (2)
10.13 Employment Contract with Richard Sigman
10.14 IWI Holding Limited 1995 Non-Qualified Stock Option Plan
10.15 Lease Agreement relating to facilities of DACO Manufacturing
21.1 Description of Subsidiaries (see organizational chart on page 3)
________________
(1) Incorporated by reference to the Company's Report on Form 6-K for the month
of February, 1995.
(2) Incorporated by reference to the Company's Registration Statement on Form
F-1 (File No. 33-78904) declared effective December 13, 1994).
(3) Incorporated by reference to the Company's Report on Form 6-K for the month
of August, 1995.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant certifies that it meets all of the requirements
for filing on Form 20-F and has duly caused this annual report to be signed
on its behalf by the undersigned, thereunto duly authorized.
IWI HOLDING LIMITED
BY: /s/ David Chui
----------------------------------
DAVID CHUI
CHAIRMAN
Dated: July 10, 1996
24
<PAGE>
Report of Independent Auditors
The Board of Directors
IWI Holding Limited
We have audited the accompanying consolidated balance sheets of IWI Holding
Limited as of December 31, 1995 and 1994, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1995. Our audits also
included the financial statement schedules listed in the index at Item 19(a).
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of IWI Holding
Limited at December 31, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG
----------------------
Chicago, Illinois
June 21, 1996
26
<PAGE>
IWI HOLDING LIMITED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
1995 1994
--------------------------
ASSETS
Current assets:
Cash $ 196 $ 435
Accounts receivable, less allowance for doubtful
accounts of $454 in 1995 and $250 in 1994 19,043 15,949
Accounts receivable from affiliated company 1,402 99
Inventories 18,060 10,498
Deferred income taxes 404 341
Prepaid expenses 870 402
--------------------------
Total current assets 39,975 27,724
Equity in joint venture 1,230 2,444
Property and equipment 3,858 2,096
Less: Accumulated depreciation 926 569
--------------------------
Property and equipment - Net 2,932 1,527
--------------------------
$44,137 $31,695
--------------------------
--------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $14,205 $ 4,591
Notes payable 879 -
Straight acceptances payable 216 365
Accounts payable, trade 4,021 3,152
Accounts payable to affiliated company 1,789 1,866
Accrued liabilities 1,960 941
Income taxes payable 223 745
--------------------------
Total current liabilities 23,293 11,660
Notes payable 556 -
Shareholders' equity:
Preferred stock, $1 par value; 5,000,000 shares
authorized; 3,644,880 shares issued and 3,645 3,645
outstanding
Common stock, no par value; 10,000,000 shares
authorized; 2,643,750 shares issued and
outstanding (2,418,750 shares in 1994) - -
Additional paid-in capital 12,540 10,903
Retained earnings 4,103 5,487
--------------------------
Total shareholders' equity 20,288 20,035
--------------------------
$44,137 $31,695
--------------------------
--------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
27
<PAGE>
IWI HOLDING LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED DECEMBER 31
1995 1994 1993
-------------------------------------
Net sales $41,710 $41,902 $35,616
Cost of sales 34,024 32,725 27,643
-------------------------------------
Gross profit 7,686 9,177 7,973
Operating expenses:
Selling, general, and administrative
expenses 8,485 5,647 5,234
Provision for (recovery of) doubtful
accounts - Net 313 184 (114)
-------------------------------------
Total operating expenses 8,798 5,831 5,120
-------------------------------------
Income (loss) from operations (1,112) 3,346 2,853
Other income (expense):
Interest expense (1,089) (711) (529)
Interest expense to shareholders - - (50)
Equity in joint venture income 188 444 -
-------------------------------------
Other expense - Net (901) (267) (579)
-------------------------------------
Income (loss) before income taxes (2,013) 3,079 2,274
Income taxes (benefit) (629) 788 514
-------------------------------------
Net income (loss) $(1,384) $ 2,291 $ 1,760
-------------------------------------
-------------------------------------
Net income (loss) per common share $ (.53) $ 2.34 $ 1.93
-------------------------------------
-------------------------------------
Weighted-average number of common
shares outstanding 2,625,873 980,394 911,400
-------------------------------------
-------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
28
<PAGE>
IWI HOLDING LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------------------------------------------- ADDITIONAL
NUMBER OF NUMBER OF PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 - $ - 875,569 $ - $ 195 $1,436 $1,631
Compensation paid in shares of
common stock - - 13,781 - 60 - 60
Issuance of common stock - - 29,400 - 54 - 54
Conversion of shareholder notes payable
to additional paid-in capital - - - - 700 - 700
Net income - - - - - 1,760 1,760
-------------------------------------------------------------------------------------------
Balance at December 31, 1993 - - 918,750 - 1,009 3,196 4,205
Conversion of note payable to affiliated
company to preferred stock 3,644,880 3,645 - - - - 3,645
Issuance of common stock, net of
issuance costs - - 1,500,000 - 9,894 - 9,894
Net income - - - - - 2,291 2,291
-------------------------------------------------------------------------------------------
Balance at December 31, 1994 3,644,880 3,645 2,418,750 - 10,903 5,487 20,035
Issuance of common stock, net
of issuance costs - - 225,000 - 1,637 - 1,637
Net loss - - - - - (1,384) (1,384)
-------------------------------------------------------------------------------------------
Balance at December 31, 1995 3,644,880 $3,645 2,643,750 $ - $12,540 $ 4,103 $20,288
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
29
<PAGE>
IWI HOLDING LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31
1995 1994 1993
-------------------------------------
OPERATING ACTIVITIES
Net income (loss) $(1,384) $2,291 $1,760
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation 367 181 85
Equity in joint venture income (188) (444) -
Provision for (recovery of) doubtful
accounts 313 184 (114)
Compensation paid in shares of
common stock - - 60
Deferred income taxes (63) (52) (289)
Changes in operating assets and
liabilities:
Accounts receivable (1,049) (7,229) 1,177
Accounts receivable from affiliated
company 842 339 (438)
Inventories (5,001) (1,529) (1,392)
Prepaid expenses (417) (87) (217)
Straight acceptances payable (149) (126) 156
Accounts payable, trade 368 1,766 (751)
Accounts payable to affiliated
company (77) 1,838 (1,411)
Accrued liabilities 247 (64) (324)
Income taxes payable (522) 91 639
-------------------------------------
Net cash used in operating activities (6,713) (2,841) (1,059)
INVESTING ACTIVITIES
Purchases of property and equipment (684) (1,199) (369)
Business acquisition, net of cash acquired (2,199) - -
-------------------------------------
Net cash used in investing activities (2,883) (1,199) (369)
30
<PAGE>
IWI HOLDING LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
YEAR ENDED DECEMBER 31
1995 1994 1993
-------------------------------------
FINANCING ACTIVITIES
Proceeds from bank for consigned gold $ 173 $ - $1,426
Net proceeds from issuance of common
stock 1,637 9,894 54
Proceeds from (payments on) line of
credit, net 7,547 (3,647) (1,918)
Payments on notes payable to
shareholders and payable to affiliate - (2,000) (806)
Proceeds from notes payable to
shareholders - - 50
-------------------------------------
Net cash provided by (used in)
financing activities 9,357 4,247 (1,194)
-------------------------------------
Net increase (decrease) in cash (239) 207 (2,622)
Cash at beginning of year 435 228 2,850
-------------------------------------
Cash at end of year $ 196 $ 435 $ 228
-------------------------------------
-------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
31
<PAGE>
IWI HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1. DESCRIPTION OF BUSINESS AND ACQUISITIONS
IWI Holding Limited (Holding) was incorporated in the British Virgin Islands on
February 22, 1993. Prior to December 16, 1994, the common stock of Holding was
wholly owned by Rhine Investment Holdings Company Limited (RIHC), which is a
wholly owned subsidiary of Rhine Holdings Limited (RHL), a public company on the
Stock Exchange of Hong Kong Limited. Pursuant to a corporate restructuring
effective April 28, 1993, Imperial World, Inc. (Imperial), an Illinois
corporation, became a wholly owned subsidiary of Holding when its shareholders
transferred their shares of common stock in Imperial to Holding ultimately in
exchange for shares of RHL. Holding was inactive prior to this date. Effective
December 16, 1994, Holding completed an initial public offering of its common
stock (Note 5).
In February 1995, the Company purchased the corporate name, all trade names,
customer lists, other intangibles, and all active dies and molds of Ullenberg
Corp., a distributor of jewelry in the United States for $304,000.
Effective June 30, 1995, the Company acquired all the outstanding common stock
of Daco Manufacturing, Inc., J.B. Manufacturing, and J and B Manufacturing
Company (collectively Daco, a Canadian jewelry manufacturer and distributor).
Each acquisition was accounted for as a purchase, and the purchase price was
allocated to assets acquired and liabilities assumed based on their estimated
fair market value at the date of acquisition. Operating results have been
included since the effective date of the acquisition.
Based on unaudited data, the following table presents selected financial
information for the Company and its subsidiaries on a pro forma basis, assuming
the companies had been combined since January 1, 1994 (dollars in thousands,
except per share amounts):
YEAR ENDED DECEMBER 31
1995 1994
-----------------------------
Net sales $46,040 $55,966
Net income (loss) (1,423) 2,614
Net income (loss) per share (.54) 2.67
32
<PAGE>
IWI HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND ACQUISITIONS
The pro forma results are not necessarily indicative of future operations or the
actual results that would have occurred had the acquisitions been made as of
January 1, 1994.
Holding and its wholly owned subsidiaries (together, the Company) import,
manufacture, and wholesale fine jewelry. The Company also imports pearls for
assembly and resale. Substantially all of the Company's sales are made in the
United States and Canada.
BASIS OF PRESENTATION
The corporate restructuring, as described above, was accounted for at historical
cost, similar to a pooling of interest, as control of the Company did not change
due to the restructuring. Shareholders' equity at December 31, 1992, has been
restated to furnish comparative information.
The accompanying consolidated financial statements are denominated in U.S.
dollars, which is the Company's functional currency.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
All significant intercompany transactions have been eliminated.
INVENTORIES
Inventories, primarily consisting of finished goods, are stated at the lower of
first in, first out (FIFO) cost or market.
At December 31, 1995, management has determined that the Company's inventory is
in excess of its current requirements based on the recent level of sales.
Management has developed a plan to reduce inventory to the desired levels over
the near term, and believes that due to current market conditions, a loss will
be incurred on the inventory disposition which is estimated to be approximately
$1,500,0000. Accordingly, an inventory valuation reserve and charge to cost of
sales of $1,500,000 has been recorded at December 31, 1995. It is possible that
the inventory reduction plan will not be successful or that losses in excess of
those recorded in the financial statements will be incurred.
33
<PAGE>
IWI HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at historical cost. Accelerated methods were
used to compute depreciation over the estimated useful lives of the assets until
December 31, 1993. In 1994, the Company changed its method of depreciation to
straight-line, as it results in a better matching of expense to revenue. The
effect of the change in depreciation method is not material and is included in
depreciation expense for the year ended December 31, 1994.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the FASB issued Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undisclosed cash flows estimated to
be generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Company will adopt Statement 121 in the first
quarter of 1996 and based on current circumstances, does not believe the effect
of adoption will be material.
JOINT VENTURE
The Company uses the equity method of accounting for the investment in the joint
venture (Note 3).
INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference
between the financial reporting and tax bases of assets and liabilities using
the enacted tax rates in effect for the year in which the differences are
expected to reverse.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include accounts receivable, accounts
payable, accrued liabilities, and notes payable. The fair values of all
financial instruments were not materially different than their carrying values.
34
<PAGE>
IWI HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires Company management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ form those estimates.
STOCK-BASED COMPENSATION
The Company has granted stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and, accordingly,
recognizes no compensation expense for the stock option grants.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. Advertising costs were
approximately $809,000; $527,000; and $498,000 in 1995, 1994, and 1993,
respectively
NET INCOME PER COMMON SHARE
Net income per common share is computed by dividing net income by the
weighted-average number of common shares outstanding during the period and
reflects, retroactively, the effects of the corporate restructuring (Note 1) and
the exchange of common stock (Note 5). When dilutive, stock options and
warrants are included as share equivalents using the treasury stock method.
Primary and fully diluted net income per common share are the same for all years
presented.
3. EQUITY IN JOINT VENTURE
On August 31, 1994, the Company entered into a joint venture agreement with RHL,
whereby each participant committed to an initial contribution to the joint
venture of $2 million to fund the operations of retail jewelry stores in the
People's Republic of China (PRC). The term of the joint venture is until
December 31, 2004; however, the joint venture can be dissolved upon the mutual
consent of both parties. For certain
35
<PAGE>
IWI HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. EQUITY IN JOINT VENTURE (CONTINUED)
periods as specified in the Agreement, the Company has the right to cause its
interest in the joint venture to be sold to RHL, and, accordingly, RHL will then
be committed to reimburse the Company an amount equal to its total capital
contributions plus a minimum 18% annual return, through 1995.
In connection with the joint venture agreement, on October 27, 1994, the Company
acquired a 50% interest in Haupia Corporation (Haupia), effective September 1,
1994, for $2 million. Previously, Haupia was a wholly owned subsidiary of RHL.
Haupia has entered into management contracts with companies in the PRC for the
operation of retail jewelry stores.
On December 29, 1995, the Company exercised its put option for 50% of its
investment. In accordance with the joint venture agreement, RHL issued a
promissory note for $1,402,000 representing one-half of the Company's initial
interest in Haupia plus the allocable share of earnings of Haupia, subject to
the 18% minimum annual return through December 31, 1995. The note which accrues
interest at prime is payable in four quarterly installments ranging from
$200,000 to $502,000 commencing April 1, 1996.
The following table summarizes the condensed financial data of Haupia
(IN THOUSANDS):
PERIOD FROM
SEPTEMBER 1,
YEAR ENDED 1994 TO
DECEMBER 31, DECEMBER 31,
1995 1994
---------------------------------
Management fee income $ 419 $ 991
Net income 32 888
DECEMBER 31, DECEMBER 31,
1995 1994
---------------------------------
Current assets $4,997 $7,036
Current liabilities 530 2,538
Shareholders' equity 4,540 4,508
36
<PAGE>
IWI HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. CREDIT ARRANGEMENTS
The Company has an agreement with a bank through various credit facilities,
whereby Imperial can borrow up to $10 million, payable on demand. The Company
had borrowed up to $15.5 million during 1995 under a previous agreement. The
total credit facility is governed by a formula, as defined in the agreement,
based principally on accounts receivable and inventory levels. The agreement
provides, among other things, that the credit facilities are collateralized by
substantially all assets of Imperial. The agreement contains certain reporting
and financial covenants which the Company is required to maintain. Under
current covenants, Imperial may not declare or pay dividends, or make loans or
advances to Holding. At December 31, 1995 and 1994, respectively, the amount of
restricted net assets of Imperial was approximately $16.2 and $17.4 million.
The following summarizes the terms of these facilities:
LINE OF CREDIT
The line of credit bore interest at 9.25% at December 31, 1995 and 1994 (0.75%
over the bank's reference rate) and borrowings at December 31, 1995, were
$11,708,000. Under the demand facility, interest is calculated at 2% over the
bank's reference rate.
STRAIGHT ACCEPTANCES PAYABLE
The Company purchases certain goods for sale by the issuance of straight
acceptances from the bank to foreign vendors. These instruments have maturities
of no longer than 180 days.
LETTERS OF CREDIT
In addition to straight acceptances, the Company also utilizes bank letters of
credit when importing goods for sale. Outstanding balances on letters of credit
at December 31, 1995 and 1994, were not material.
CONSIGNED GOLD
Gold consignment financing agreements are common in the jewelry industry. The
Company has such an agreement with the bank, whereby the Company may transfer
ownership of gold content in its inventory at fair market value to the bank.
Simultaneously, the bank consigns the gold back to the Company. The Company is
charged a consignment fee at an annual percentage rate of 4.75% and 3.5% at
December 31, 1995 and 1994, respectively, of the market value of the consigned
gold.
37
<PAGE>
IWI HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. CREDIT ARRANGEMENTS (CONTINUED)
The term of any consignment is indefinite, as long as the Company has sufficient
gold in its inventory to cover the consignment or the total credit facility has
not been terminated. Upon either event, the Company has the option to satisfy
its obligation by transferring gold to the bank or paying cash based on the
then-quoted market price of the gold. The Company's policy is to exclude the
gold held on consignment from inventory.
Market price fluctuations between the borrowing and repurchase dates of the gold
consignment financing agreements are borne by the Company and may result in
either a gain or a loss. Unless required to repurchase the gold upon
termination of the consignment, as described previously, the Company's policy is
to not repurchase the gold unless it is favorable to the Company. The following
table summarizes the Company's consigned gold transactions:
YEAR ENDED DECEMBER 31
1995 1994 1993
--------------------------------------
(IN THOUSANDS)
Gain on repurchases of consigned gold $ - $ - $ -
Proceeds from bank for consigned gold 173 - 1,426
Repurchases of consigned gold - - -
At December 31, 1995, 4,450 troy ounces of gold, having a fair market value of
$1,722,600, were held on consignment by the Company. Had the Company
repurchased the gold at December 31, 1995, the Company would have incurred a
loss of $123,600.
DACO CREDIT ARRANGEMENTS
In connection with the acquisition (Note 1), Daco entered into a credit
agreement similar to Imperial's with a Canadian bank. Daco can borrow up to
approximately $8.5 million in Canadian dollars (approximately $6.3 million in
United States dollars) through similar credit facilities. Outstanding
borrowings on the line of credit were $2,497,000 at December 31, 1995. The line
of credit bears interest at 7.75% at December 31, 1995 (0.25% over the bank's
prime rate), and precious metals bear a consignment fee of 3.35%.
At December 31, 1995, 4,535 troy ounces of gold, having a fair value of
$1,861,000 were held on consignment by Daco. The agreement is secured by
substantially all of Daco's assets and guaranteed by Holding and Imperial.
38
<PAGE>
IWI HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SHAREHOLDERS' EQUITY
Effective March 21, 1994, the authorized capital stock of the Company was
increased to 10,000,000 shares of no par value common stock and 5,000,000 shares
of $1 par value preferred stock. The 3,644,880 issued preferred shares are
redeemable at the Company's option after March 21, 1997, at an amount not to
exceed 50% of net income in excess of $15 million for the preceding year. If
not redeemed, the preferred shares will begin to accrue a 4% noncumulative
dividend. The preferred shares have voting rights equivalent to one-half vote
per share, and a $1 per share liquidation preference. On March 21, 1994, the
Directors further authorized the exchange of 1,225,000 shares of the new no-par-
value common stock for the initial one share of $1 par value common stock which
was held by RIHC. On October 27, 1994, RIHC returned and the Company retired
306,250 shares of common stock of the Company. All common share and per share
amounts in the consolidated financial statements and notes to the consolidated
financial statements have been restated to reflect these stock transactions and
increase in authorized shares.
On December 16, 1994, the Company issued 1,500,000 shares of its common stock at
$8.50 per share in an initial public offering (IPO). The proceeds received, net
of commissions and other related expenses, were approximately $9.9 million.
Additionally, the Company granted an option to purchase 225,000 shares of common
stock at an exercise price of $8.50 to the underwriters. This option was
exercised on January 30, 1995, with the Company receiving net proceeds of
approximately $1.6 million. In conjunction with the IPO, warrants to purchase
an aggregate of 150,000 shares of common stock at an exercise price of $14.025
were issued to the representative of the underwriters of the IPO. The warrants
are exercisable for a period of four years beginning December 16, 1995.
Compensation paid in shares of common stock in 1993 was based upon the market
value of the stock, as determined by the Company.
Subsequent to December 31, 1995, the Company's Board of Directors authorized the
repurchase of up to 350,000 shares of its common stock.
39
<PAGE>
IWI HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS
The Company has 150,000 shares of common stock reserved for options which may be
granted to directors, officers, and key employees under a stock option plan
adopted in 1994. The exercise price of the option shall not be less than the
greater of $8.50 per share or the fair market value of the stock on the date the
option is granted. The only options outstanding were options for 80,000 shares
at an exercise price of $8.50 per share granted in 1995.
During 1995, the Company adopted a nonqualified stock option plan under which
600,000 shares of common stock have been reserved for options which may be
granted to key employees and third-party consultants at an option price to be
determined by the Compensation Committee of the Board of Directors. No options
have been granted under this plan.
6. RELATED PARTY TRANSACTIONS
Rhine Jewellery Limited (Rhine), located in Hong Kong and the Company's
principal supplier, is also a subsidiary of RIHC (Note 1). For the years ended
December 31, 1995, 1994, and 1993, the Company's purchases from Rhine were
approximately $7.5 million, $8.3 million, and $8.2 million, respectively.
On March 21, 1994, a $3,644,880 noninterest note payable to Rhine was converted
to 3,644,880 shares of preferred stock (Note 5).
7. NOTES PAYABLE
In conjunction with the Daco acquisition, the Company has entered into
promissory notes with the former shareholders (some of whom are officers)
totaling $1,435,000. Certain of these notes (totaling $879,000) are payable
August 31, 1996. The remaining notes are due in eight equal quarterly
installments beginning November 1996. Interest is payable quarterly and is
computed at the prime rate that the Canadian bank charges under the Daco credit
arrangements (Note 4). All outstanding stock of Daco has been pledged to secure
these notes.
40
<PAGE>
IWI HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
The following table summarizes income taxes (benefits):
YEAR ENDED DECEMBER 31
1995 1994 1993
--------------------------------------------
(IN THOUSANDS)
Current:
U.S. federal $ (782) $ 539 $ 668
U.S. state (176) 151 135
Other 392 150 -
--------------------------------------------
(566) 840 803
Deferred:
U.S. federal (51) (41) (223)
U.S. state (12) (11) (66)
--------------------------------------------
(63) (52) (289)
--------------------------------------------
Income taxes $ (629) $ 788 $ 514
--------------------------------------------
--------------------------------------------
Income (loss) before income
taxes:
United States $ (3,848) $ 1,591 $ 1,431
Other 1,835 1,488 843
--------------------------------------------
$ (2,013) $ 3,079 $ 2,274
--------------------------------------------
--------------------------------------------
Undistributed earnings of the Company's U.S. subsidiary, Imperial, amounted to
approximately $.6 million and $3.3 million at December 31, 1995 and 1994,
respectively. These earnings are considered to be indefinitely reinvested, and,
accordingly, no provision for U.S. federal withholding taxes has been provided
thereon. Upon distribution of those earnings in the form of dividends, the
Company would be subject to U.S. federal withholding taxes at a rate of 30%.
The Company's current credit facility (Note 4) prohibits the payment of
dividends.
41
<PAGE>
IWI HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
The differences between the U.S. federal statutory tax rate and the Company's
effective tax rate are as follows:
YEAR ENDED DECEMBER 31
1995 1994 1993
---------------------------------------
U.S. federal statutory tax rate (34.0)% 34.0% 34.0%
Income of companies not subject to
U.S. income tax (31.0) (16.4) (5.1)
Benefit from change in tax status - - (11.1)
Non-U.S. income taxes 17.9 4.9 -
State income taxes (net of U.S.
federal income tax benefit) (5.8) 3.0 4.6
Change in valuation allowance 24.6 - -
Other (2.9) .1 .2
---------------------------------------
Consolidated effective tax rate (31.2)% 25.6% 22.6%
---------------------------------------
---------------------------------------
The components of deferred income taxes are as follows:
DECEMBER 31
1995 1994
------------------------
(IN THOUSANDS)
Deferred tax assets (liabilities):
Accounts receivable $259 $279
Inventories 723 90
Property and equipment (106) (60)
Other 23 32
------------------------
899 341
Less: Valuation allowance (495) -
------------------------
Net deferred tax assets $404 $341
------------------------
------------------------
42
<PAGE>
IWI HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SUPPLEMENTAL CASH FLOW INFORMATION
YEAR ENDED DECEMBER 31
1995 1994 1993
-------------------------------------
(IN THOUSANDS)
Cash paid for income taxes $ 380 $ 756 $ 201
Cash paid for interest 865 678 569
Noncash investing and financing
activities:
Notes payable to shareholders
assumed by an affiliated company - - 3,645
Notes payable to shareholders
converted to additional paid-in - - 700
capital
Note payable to affiliated company
converted to preferred stock - 3,645 -
Payable to affiliate to invest in
joint venture - 2,000 -
Receivable from affiliate for sale
of investment in joint venture 1,402 - -
10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the years ended December 31, 1995 and 1994
are as follows:
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-----------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995:
Net sales $ 7,877 $ 8,093 $12,686 $13,054
Gross profit 1,520 1,947 3,192 1,027
Net income (loss) (33) 31 509 (1,891)
Net income (loss) per
common share (.01) .01 .19 (.72)
1994:
Net sales $10,221 $ 8,091 $10,270 $13,320
Gross profit 2,064 1,505 2,406 3,202
Net income (loss) 387 (51) 658 1,297
Net income (loss) per
common share .42 (.06) .72 1.11
43
<PAGE>
IWI HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
The Company has made all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the selected quarterly financial data.
Included in the fourth quarter 1995 financial data is an inventory valuation
adjustment (Note 2).
11. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined-contribution, profit-sharing plan (Plan) covering
substantially all full-time employees who have completed one year of service.
Company contributions to the Plan are discretionary, determined by the Board of
Directors, and fully vest to employees upon completion of six years of service.
Effective January 1, 1993, the Company implemented a voluntary 401(k) savings
feature to its Plan. Participants may contribute up to 15% of their
compensation to the Plan. The Company matches 50% of the first 2% of
compensation that a participant contributes. Participant and employer-matched
contributions to the Plan are 100% vested. Company contributions were
approximately $16,000, $40,000, and $39,000, respectively, in 1995, 1994, and
1993.
12. SIGNIFICANT CUSTOMERS
Significant customers are those accounting for at least 10% of net sales in a
calendar year. During the year ended December 31, 1995, the Company derived 45%
of its net sales from three customers. During the years ended December 31, 1994
and 1993, the Company derived 64% and 61%, respectively, of its net sales from
four customers.
13. COMMITMENTS
OPERATING LEASE
Imperial is obligated under a lease for its operating facility for minimum
rentals as well as real estate taxes and other operating expenses through
October 2003, with an option for an additional five years. Daco has a lease
obligation with similar provisions through July 2002, with an option for an
additional five years.
44
<PAGE>
IWI HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS (CONTINUED)
The future minimum lease payments required under these leases as of December 31,
1995, approximated the following (in thousands):
1996 $ 358
1997 370
1998 386
1999 394
2000 408
Thereafter 1,037
----------
Total minimum lease payments $2,953
----------
----------
Rent expense included in the accompanying statement of operations amounted to
$384,000, $285,000, and $144,000 for 1995, 1994, and 1993, respectively.
EMPLOYMENT AGREEMENTS
The Company has various employment agreements with certain officers and key
employees expiring at various dates through August 1998. Included are
provisions for severance payments for the longer of one additional year or any
period for which the employee is required not to compete.
The future minimum annual compensation payments as required under the agreements
amount to $829,000, $398,000, and $186,000 for 1996 through 1998, respectively.
45
<PAGE>
IWI HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. GEOGRAPHIC SEGMENT INFORMATION
The Company's operations in 1993 and 1994 were conducted primarily in the United
States. Financial information as of and for the year ended December 31, 1995,
summarized by geographic area, is as follows:
UNITED
STATES CANADA ELIMINATIONS CONSOLIDATED
---------------------------------------------------
TOTAL REVENUES
Unaffiliated customers $31,005 $10,705 $ - $41,710
Interarea transfers 5,065 - (5,065) -
---------------------------------------------------
Total revenues $36,070 $10,705 $(5,065) $41,710
---------------------------------------------------
---------------------------------------------------
Income (loss) from
operations $(1,991) $ 1,005 $ (126) $(1,112)
---------------------------------------------------
---------------------------------------------------
ASSETS
Identifiable assets $37,123 $13,086 $(7,302) $42,907
Corporate assets 1,230 - - 1,230
---------------------------------------------------
Total assets $38,353 $13,086 $(7,302) $44,137
---------------------------------------------------
---------------------------------------------------
Interarea transfers primarily represent shipments of finished goods inventory to
Canada. These interarea shipments are made at transfer prices which approximate
prices charged to unaffiliated customers and have been eliminated from
consolidated net revenues. Corporate assets consist of investment in joint
venture (Note 3).
46
<PAGE>
IWI HOLDING LIMITED
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
December 31,
------------
1995 1994
---- ----
ASSETS:
Cash $ 1,000 $ 1,000
Due from affiliate 500,000 500,000
Investments in wholly owned subsidiaries 19,787,000 19,534,412
------------- -------------
Total Assets $ 20,288,000 $ 20,035,412
------------- -------------
------------- -------------
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value; 5,000,000
shares authorized; 3,644,880 shares
issued and outstanding $ 3,644,880 $ 3,644,880
Common stock, no par value, 10,000,000
shares authorized; 2,643,750 shares
issued and outstanding (2,418,750 shares
in 1994)
Additional paid-in capital 14,419,722 12,783,134
Retained earnings 2,223,398 3,607,398
------------- -------------
$ 20,288,000 $ 20,035,412
------------- -------------
------------- -------------
SEE NOTE TO CONDENSED FINANCIAL STATEMENTS.
S-1
<PAGE>
IWI HOLDING LIMITED
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
For the Year Ended For the Year Ended
December 31, 1995 December 31, 1994
------------------ ------------------
Equity in net income (loss) of
subsidiaries $ (1,384,000) $ 2,291,443
Retained earnings beginning of period 3,607,398 1,315,955
------------- -------------
Retained earnings end of period $ 2,223,398 $ 3,607,398
------------- -------------
------------- -------------
SEE NOTE TO CONDENSED FINANCIAL STATEMENTS.
S-2
<PAGE>
IWI HOLDING LIMITED
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
For the Year Ended For the Year Ended
December 31, 1995 December 31, 1994
------------------ ------------------
INVESTING ACTIVITIES
Investment in Imperial World, Inc. $ (1,636,588) $ (9,393,406)
------------- -------------
(1,636,588) (9,393,406)
------------- -------------
FINANCING ACTIVITIES
Proceeds from sale of common stock 1,636,588 11,255,750
Loan to Rhine Sourcing Limited - (500,000)
Repayment of loan from Imperial
World, Inc. - (1,361,344)
------------- -------------
1,636,588 9,394,406
------------- -------------
Net change in cash - 1,000
Cash at beginning of period 1,000 -
------------- -------------
Cash at end of period $ 1,000 $ 1,000
------------- -------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Note payable to affiliate converted
to preferred stock $ - $ 3,644,880
SEE NOTE TO CONDENSED FINANCIAL STATEMENTS.
S-3
<PAGE>
IWI HOLDING LIMITED
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTE TO CONDENSED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1. BASIS OF PRESENTATION
The Company's share of net income (loss) of its unconsolidated subsidiaries, all
of which are wholly owned, is included in net income (loss) using the equity
method. Parent-company-only financial statements should be read in conjunction
with the Company's consolidated financial statements.
S-4
<PAGE>
IWI HOLDING LIMITED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions Additions
Balance at Charged to Charged to
Beginning of Costs and Other Balance at End
Description Period Expenses Accounts Deductions of Period
- ----------- ------------ ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Year Ended
Decmber 31, 1993
Allowance for
Doubtful Accts $ -- $ (113,695)(2) $ 245,000(3) $ 31,305(1) $ 100,000
Year Ended
Decmber 31, 1994
Allowance for
Doubtful Accts $ 100,000 $ 184,000 $ -- $ 34,000(1) $ 250,000
Year Ended
Decmber 31, 1995
Allowance for
Doubtful Accts $ 250,000 $ 313,000 $ -- $ 109,000(1) $ 454,000
Valuation
Allowance $ -- $ 495,000 $ -- $ -- $ 495,000
</TABLE>
(1) Writeoff of uncollectible accounts
(2) Provision of $131,305 and recovery of $245,000
(3) Recovery of amount written off in prior years
S-5
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT is made and entered into as of
the ___ day of June, 1996, by and between RHODE ISLAND HOSPITAL TRUST NATIONAL
BANK, a national banking association having an address at One Hospital Trust
Plaza, Providence, Rhode Island 02903 (the "Lender"), and IMPERIAL WORLD, INC.,
an Illinois corporation with its principal place of business at Oakmont Center,
1010 Executive Court, Suite 300, Westmont, IL 60559 (the "Borrower").
BACKGROUND
I. On August 10, 1992, the Lender and the Borrower entered into
that certain Credit Agreement (as amended from time to time prior to the date of
this Agreement, the "Original Credit Agreement") pursuant to which the Lender
extended to the Borrower revolving credit, gold consignment, letter of credit,
and foreign exchange facilities (for purposes of this Background section only,
the "Existing Imperial Credit Facilities").
II. An Event of Default (the "December 1995 Default") occurred
under the Original Credit Agreement as a result of the Borrower's failure to
maintain a ratio of Operating Cash Flow to Debt Service of at least 1.25:1.00
as of December 31, 1995.
III. The Borrower has requested the Lender to waive the December
1995 Default and to amend the Original Credit Agreement in certain respects.
The Lender has agreed to this waiver and the requested modifications subject to
the terms of this Agreement, which amends and restates the Original Credit
Agreement in its entirety.
III. THIS AGREEMENT IS ISSUED IN ORDER TO AMEND, RESTATE AND
EVIDENCE AND TO BE A SUBSTITUTE FOR, BUT NOT TO BE A PAYMENT, SATISFACTION,
CANCELLATION OR A NOVATION OF THE ORIGINAL CREDIT AGREEMENT. THE SUBSTITUTION
OF THIS AGREEMENT FOR THE ORIGINAL CREDIT AGREEMENT DOES NOT EXTINGUISH THE
INDEBTEDNESS EVIDENCED BY THE ORIGINAL CREDIT AGREEMENT OR ANY PORTION THEREOF
AND THE LIABILITIES OF THE BORROWER THEREUNDER AND HEREUNDER ARE CONTINUOUS.
THIS AGREEMENT DOES NOT EVIDENCE ANY NEW ADVANCES OF CREDIT NOR DOES IT REFLECT
ANY AGREEMENT BY THE LENDER FOR THE EXTENSION OF ANY ADDITIONAL CREDIT TO THE
BORROWER.
NOW THEREFORE, for good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, and intending to be legally
bound hereby, the Lender and the Borrower agree as follows:
<PAGE>
I. DEFINITIONS
SECTION 1.01. DEFINED TERMS. The following terms used in this Agreement
shall have the following meanings:
"Advance" or "Advances" shall mean the individual or aggregate principal
amount advanced by the Lender to the Borrower pursuant to Section 2.01 hereof.
"Agreement" shall mean this Amended and Restated Loan Agreement, as the
same may be amended, supplemented, extended and modified from time to time in
accordance with the terms hereof.
"Base Rate" shall mean the floating rate of interest designated by the
Lender from time to time as being its "Base Rate" of interest.
"Borrowed Money" shall mean, with respect to any Person, all Indebtedness
of such Person representing borrowed money or the substantial equivalent thereof
including, without limitation, (i) any Indebtedness evidenced by notes, bonds,
debentures or similar obligations, (ii) any Indebtedness representing any
obligation for the deferred purchase price of property or services or an
obligation under a conditional sale or other title retention agreement, and
(iii) any Indebtedness representing Capitalized Lease Obligations or any lease
which is substantially equivalent to financing the property so leased.
"Borrower" shall have the meaning assigned in the first paragraph of this
Agreement and shall include the successors and assigns of the Borrower to the
extent permitted hereunder.
"Borrowing Base Certificate" shall mean a certificate of the Borrower,
signed by the chief financial officer or controller of the Borrower, in the form
attached hereto as SCHEDULE 2.03 having the blanks therein appropriately
completed, setting forth in reasonable detail Eligible Accounts Receivable and
Eligible Inventory calculated as of the last Business Day of the preceding week.
"Business Day" means any day excluding Saturday, Sunday and any other day
on which banks are required or authorized to close in Providence, Rhode Island.
"Capital Expenditures" shall mean, with respect to any Person, all
expenditures of such Person for assets which are capitalized, and the fair value
of any assets leased by such Person under any lease which would be a Capitalized
Lease, determined in accordance with GAAP.
"Capitalized Lease" shall mean any lease which is or should be capitalized
on the balance sheet of the lessee thereunder in accordance with GAAP.
- 2 -
<PAGE>
"Capitalized Lease Obligations" shall mean, with respect to any Person, the
amount of the liability which reflects the amount of future payments of such
Person as a lessee under all Capitalized Leases as at any date, determined in
accordance with GAAP.
"Capital Stock" shall mean any and all shares, interests, rights to
purchase, participation or other equivalents of or interests in (however
designated) corporate stock.
"Cash Flow" shall mean earnings before interest and taxes plus depreciation
plus amortization less cash taxes paid less Capital Expenditures DIVIDED BY
interest expenses plus current maturities of long-term Indebtedness, all
determined in accordance with GAAP.
"Cash Management Master Agreement" shall have the meaning set forth in
Section 6.04.
"CIBC" shall mean Canadian Imperial Bank of Commerce.
"Closing Date" shall mean June __, 1996, the date upon which the Lender
and the Borrower have executed this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder, as the same may from time to time
be amended and remain in effect.
"Revolving Credit Commitment" shall mean the aggregate principal amount of
Advances permitted to be outstanding hereunder from time to time pursuant to
Section 2.03(a) hereof, as adjusted from time to time in accordance with Section
2.03(c) hereof.
"Commonly Controlled Entity" shall mean any Person (including any
Subsidiary), whether or not incorporated, which is under common control with the
Borrower within the meaning of section 414(b) or (c) of the Code.
"Consigned Precious Metal" shall mean Precious Metal which the Lender has
consigned to the Borrower pursuant to the terms of this Agreement for which
payment has not been received or which has not been Redelivered to the Lender.
"Consignment Limit" shall mean Consigned Precious Metal with a Fair Market
Value (or unpaid Purchase Price in the case of Consigned Precious Metal for
which the Purchase Price has been agreed but payment has not been received by
the Lender) equal to the lesser of (i) $3,000,000 or (ii) the amount equal to
(A) sixty-five percent (65%) of Eligible Accounts Receivable of the Borrower, as
calculated from time to time, PLUS (B) forty percent (40%) of Eligible Inventory
of the Borrower, as calculated from time to time LESS (C) the face amount of all
outstanding Letters of Credit and ten percent (10%) of the face amount of
Foreign Exchange Contracts, LESS (D) the principal amount outstanding pursuant
to the Revolving
- 3 -
<PAGE>
Credit Note; PROVIDED, HOWEVER, that the amount computed in accordance with
subsection B hereof may not exceed $6,000,000 at any time.
"DACO" shall mean DACO Manufacturing Ltd., a corporation organized under
the laws of Ontario, Canada.
"Daily Consignment Fee" shall mean, for each day, the sum obtained by
multiplying five percent (5%) (or such other percentage as the Lender shall
determine in its sole discretion on seven (7) days' prior written notice to the
Borrower) BY one-three hundred sixtieth (1/360) BY the Fair Market Value of the
Consigned Precious Metal for that day.
"Debt Service" shall mean, for any relevant accounting period and
determined in accordance with generally accepted accounting principles, all
interest expense (including, but not limited to, interest expense, interest paid
to vendors and Daily Consignment Fees with respect to Indebtedness, Subordinated
Indebtedness and lease obligations, whether accrued or unpaid) plus required
principal payments for the applicable period.
"Deliver" or "Delivery" shall mean either actual shipment, creating the
right in the Borrower to demand actual shipment through a writing, instrument or
a statement of account, or the Lender's crediting Precious Metal to the account
of the Borrower with one or more third parties when no physical movement thereof
is contemplated by the parties.
"DOLLARS" and the sign "$" shall mean, unless otherwise specifically
indicated, lawful money of the United States of America.
"Duly Authorized Officer" shall mean the President of the Borrower or the
Lender, or other officer or employee of either party who is authorized by the
party's Board of Directors or an executive committee of such Board of Directors.
"Eligible Accounts Receivable" shall mean the face amount of trade accounts
receivable for goods sold and/or services rendered in the ordinary course of its
business which, as of last Business Day of the week immediately preceding the
date of any calculation of the Revolving Credit Commitment, satisfy each of the
following requirements (unless waived by the Lender):
(i) the subject goods have been shipped or delivered to an account
debtor (a) on an absolute sale basis and not on consignment, approval or a
guaranteed sale basis or subject to any other repurchase or return
agreement, or (b) on an open account basis, in either case with no part of
the subject goods having been returned, rejected, lost or damaged;
(ii) the account is not evidenced by chattel paper or an instrument
of any kind;
- 4 -
<PAGE>
(iii) the account debtor is not insolvent (to the best of the
Borrower's knowledge) or the subject of any bankruptcy or insolvency
proceeding of any kind;
(iv) if the account debtor is located outside the United States or
Canada, the subject goods shall have been shipped, after receipt by the
Borrower from the account debtor, of an irrevocable letter of credit, which
letter of credit shall have been confirmed by a financial institution
reasonably acceptable to the Lender and shall be in form and substance
acceptable to the Lender, payable in the full amount of the face value of
the account receivable in United States dollars;
(v) it is a valid, legally enforceable obligation of the account
debtor thereunder and is not subject to any offset (other than discount for
prompt payment consistent with past practices of the Borrower) or other
defense on the part of such account debtor or to any claim on the part of
such account debtor denying liability thereunder;
(vi) it is subject to no lien or security interest whatsoever,
except for the security interest of the Lender under the Security Documents
and liens permitted by Section 9.02 hereof;
(vii) it has not remained unpaid for a period exceeding sixty-one
(61) days after the due date (for thirty (30) day accounts and for the
following sixty (60) day accounts: J C Penney, Sears, Walmart, Target and
Army/Navy);
(viii) it does not arise out of a transaction with any Affiliate of
the Borrower or Related Person of any such Affiliate or the Borrower;
(ix) it is not otherwise determined by the Lender to be difficult to
collect, uncollectible or otherwise unacceptable as reasonable collateral
for any reason, irrespective of how many days past due, as determined by
the Lender in its sole discretion, exercised in good faith; and
(x) the account debtor is not located in the State of New Jersey
unless the Borrower shall have filed a Notice of Business Activities Report
with the New Jersey Division of Taxation for the then current year.
"Eligible Inventory" shall mean ninety-four and five-tenths percent (94.5%)
of the value of the Borrower's raw materials, work in process and finished goods
(valued at cost) including inventory-in-transit (under commercial letters of
credit) but excluding customer and salesmen samples.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, and
the rules and regulations promulgated thereunder, as the same may from time to
time be amended and remain in effect.
- 5 -
<PAGE>
"Eurodollar Loan" shall mean the Advances or portion of the Advances
bearing interest at a rate determined with reference to the Eurodollar Offered
Rate.
"Eurodollar Offered Rate" shall mean for any applicable Interest Period the
rate equal to four and three fourths percent (4.75%) in excess of the Lender's
Eurodollar Rate.
"Event of Default" shall have the meaning given to such term in Article XI
hereof.
"Facility" or "Facilities" shall mean the Revolving Credit Facility, the
Consignment Facility, the Letter of Credit Facility, and the Foreign Exchange
Facility, or any one of them.
"Fair Market Value" on any day shall mean the Second London Gold Fixing for
that day. If no such price is available for a particular day, the Fair Market
Value for such day shall be the price for the immediately preceding day for
which such price is available.
"Floating Rate" shall mean the rate of interest per annum equal to two
percent (2%) in excess of the Base Rate as in effect from time to time. Each
change in the Floating Rate based upon changes in the Base Rate shall become
effective on the effective date of such change in the Base Rate.
"Floating Rate Loan" shall mean the Advances or portion of the Advances
bearing interest at a rate determined with reference to the Floating Rate.
"Foreign Exchange Agreement" shall have the meaning assigned to such term
in Section 5.01(a) hereof.
"Foreign Exchange Commitment" shall have the meaning assigned to such term
in Section 5.01(b) hereof.
"Foreign Exchange Facility" shall mean the foreign exchange facility
available to the Borrower pursuant to Article V hereof.
"Foreign Exchange Obligation" shall mean the obligation of the Borrower to
pay the Lender any amount due under any Foreign Exchange Agreement, whether
matured or unmatured.
"GAAP" shall mean, unless the context otherwise requires, generally
accepted accounting principles consistently applied with respect to any
financial terms, ratios or covenants contained herein, and with respect to the
preparation and delivery of any financial statement(s) required hereunder, as
such principles are then in effect.
"Hazardous Material" shall mean, any substance or material defined or
designated as hazardous or toxic waste, hazardous or toxic material, hazardous
or toxic substance, or other similar term, by any federal, state or local
environmental statute, regulation or ordinance.
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"Indebtedness" shall mean, with respect to any Person, all items which in
accordance with GAAP, should be included as liabilities on the balance sheet of
such Person as at the date as of which Indebtedness is to be determined, and, in
any event, shall include the following without limitation or duplication, (a)
all Borrowed Money of such Person, (b) all indebtedness secured by any mortgage,
pledge, lien or conditional sale or other title retention agreement to which any
property or asset owned or held by such Person is subject, whether or not the
indebtedness secured thereby shall have been assumed, (c) all indebtedness of
others which such Person has directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business),
discounted or sold with recourse or agreed (contingently or otherwise) to
purchase or repurchased or otherwise acquire, or in respect of which such Person
has agreed to supply or advance funds (whether by way of loan, stock purchase,
capital contribution or otherwise) or otherwise to become directly or indirectly
liable, (d) obligations with respect to any letters of credit issued on behalf
of such person to any beneficiary, and (e) obligations with respect to any
forward contracts pursuant to which such Person has agreed to purchase currency
or commodities for a specified price and on a specified date.
"Interest Period" shall mean, with respect to each Eurodollar Loan, the
period commencing on the date of the making or continuation of such Eurodollar
Loan and ending one (1), two (2), three (3), six (6), nine (9) or twelve (12)
months thereafter, as Borrower may elect in the applicable notice of borrowing.
"IWI" shall mean IWI Holding Limited.
"Lender" shall have the meaning assigned in the first paragraph of this
Agreement and shall include any financial institution which becomes a party to
this Agreement by amendment hereto.
"Lender's Eurodollar Rate" shall mean, for any Interest Period, the rate
of interest determined by Lender to be the prevailing rate per annum at which
deposits in U.S. dollars are offered to Lender by first-class banks in the
interbank Eurodollar market in which Lender regularly participates on or about
10:00 a.m. (Providence time) two (2) Business Days before the first day of such
Interest Period in an amount approximately equal to the principal amount of the
Eurodollar Loan to which such Interest Period is to apply for a period of time
approximately equal to such Interest Period.
"Letter of Credit" has the meaning assigned to that term in Section
4.01(a).
"Letter of Credit Advance" has the meaning assigned to that term in Section
4.05.
"Letter of Credit Agreement" shall mean that certain Application for
Irrevocable Commercial Letter of Credit and Continuing Agreement and that
Certain Acceptance and Security Agreement in favor of the Lender, setting forth
additional terms and conditions to
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the issuance of Letters of Credit hereunder; as the same may be amended,
supplemented, extended and modified from time to time in accordance with the
terms hereof and thereof.
"Letter of Credit Commitment" has the meaning assigned to that term in
Section 4.01(b).
"Letter of Credit Documents" has the meaning assigned to that term in
Section 4.03.
"Letter of Credit Draw" means all payments made by the Lender pursuant to
either (i) a draft or demand for payment, or (ii) all other specified documents
under a Letter of Credit.
"Letter of Credit Facility" shall mean the letter of credit facility
available to the Borrower pursuant to Article IV hereof.
"Letter of Credit Funding Date" shall mean the date on which payment is to
be made to the beneficiary under a Letter of Credit.
"Loan Documents" shall mean, collectively, this Agreement, the Revolving
Credit Note, the Letter of Credit Agreement, the Letter of Credit Documents, the
Security Documents, and all other instruments and documents referred to herein
or related hereto entered into for the benefit of the Lender including, those
documents entered into in connection with the Original Credit Agreement and
thereafter.
"Lockbox Agreement" shall have the meaning set forth in Section 6.04.
"Maturity Date" shall mean the earlier to occur of (i) the ninetieth (90th)
day following the issuance of a Not-For-Cause Termination Notice by the Borrower
or the Lender; or (ii) a date upon the occurrence and during the continuance of
which an Event of Default, on which the entire unpaid principal amount of the
Revolving Credit Note and all fees and interest accrued thereon and/or under
this Agreement and any and all other Indebtedness of Borrower to Lender and/or
to any holder of all or any portion of the Revolving Credit Note, including all
reimbursement obligations under the Letter of Credit Agreement and in respect of
any then outstanding Letters of Credit and with respect to the Consignment
Facility, whether or not then otherwise matured, shall become forthwith due and
payable.
"Maximum Commitment" shall mean Ten Million Dollars ($10,000,000).
"Maximum Leverage Ratio" shall mean total liabilities determined in
accordance with GAAP (but excluding Subordinated Indebtedness) divided by
Tangible Net Worth plus Subordinated Indebtedness.
"Multiemployer Plan" means a multiemployer plan as defined in Title IV of
ERISA.
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"Not-For-Cause Termination Notice" shall mean a notice given by either the
Lender or the Borrower to the other of its intent to terminate the Facilities
following the lapse of ninety (90) days.
"Permitted Overadvance" shall mean an amount not to exceed $750,000 for the
period from July 1, 1996 through and including August 5, 1996 by which the
Borrower's Indebtedness to the Lender may exceed the Borrowing Base.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" shall mean any individual, corporation, partnership, joint
venture, trust or unincorporated organization or a government or any, agency or
political subdivision thereof.
"Plan" shall mean an employee benefit plan as defined in Section 3 of ERISA
maintained for employees of the Borrower or any Commonly Controlled Entity.
"Precious Metal" shall mean gold having a fineness of not less than .9995
without regard to whether such gold is alloyed or unalloyed, in bullion form or
is contained in or processed into other materials which contain elements other
than gold.
"Purchase Price" shall mean a price to which both parties' Duly Authorized
Officers agree and shall be stated in dollars per troy ounce of Precious Metal
content.
"Redeliver" or "Redelivery" shall mean that the Borrower deliver to the
Lender's principal office, at the Borrower's sole risk and expense, Precious
Metal of a fineness equal to the fineness specified for that Precious Metal and
of a type and quality and in a form acceptable to the Lender.
"Related Person" shall mean, with respect to any Person, any director,
officer, employee or stockholder of such Person, and any spouse, brother,
sister, child or parent of such director, officer, employee or stockholder.
"Renewal Fee" shall mean the fee equal to one percent (1%) of the Maximum
Commitment as of the Closing Date, which shall be due and payable to the Lender
as set forth in Section 9.18 hereof.
"Reportable Event" shall have the meaning assigned to that term in Title IV
of ERISA, but shall include events the reporting of which is waived under
regulations promulgated under Title IV of ERISA.
"Request for Advance" shall mean the Borrower's written request for an
Advance, substantially in the form of SCHEDULE 2.01 attached hereto and made a
part hereof, appropriately completed and signed by a duly authorized officer of
the Borrower (or by the
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Lender on the Borrower's behalf pursuant to Section 4.05 hereof), indicating the
Borrowing Date and the amount of the Advance requested.
"Revolving Credit Facility" shall mean the revolving credit facility
available to the Borrower pursuant to Article II hereof.
"Revolving Credit Note" shall mean the Amended and Restated Revolving
Credit Note of the Borrower, in substantially the form attached hereto as issued
by the Borrower pursuant to Section 2.02 hereof and payable to the order of the
Lender, which Amended and Restated Revolving Credit Note is hereby incorporated
herein by reference and made a part hereof.
"RHL" shall mean Rhine Holding Limited.
"RIHC" shall mean Rhine Investment Holding Company Limited.
"Security Agreement" shall mean that certain Security Agreement dated
August 10, 1992 (as amended from time to time, the "Security Agreement"),
pursuant to which the Borrower has granted to the Lender security interests in
all of its fixtures and tangible and intangible personal-properties now owned or
hereafter acquired.
"Security Documents" shall mean all of the documents and instruments
described in Section 6.03 hereof providing security for the Revolving Credit
Note and for all fees and other sums due under this Agreement, the Security
Documents, the Lockbox Agreement, and the Cash Management Master Agreement.
"Single Employer Plan" shall mean any Plan which is not a Multiemployer
Plan.
"Subordinated Indebtedness" shall mean indebtedness of the Borrower which
is subordinated to the Borrower's obligations to the Lender upon terms
satisfactory to the Lender.
"Subsidiary" shall mean any corporation of which a majority of the
outstanding shares of any class of Capital Stock having voting power to elect a
majority of the board of directors is owned by (i) the Borrower, (ii) the
Borrower and one or more Subsidiaries or (iii) one or more Subsidiaries.
"Tangible Net Worth" shall mean total assets less the total of the total
liabilities and intangible assets, all as defined under GAAP.
"UCC Financing Statements" shall mean the Uniform Commercial Code financing
statements on Form-1 (or other applicable form) executed by the Borrower, in
form for filing and recording in the appropriate state and county jurisdictions
in which the Borrower engages in its business operations.
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SECTION 1.02. USE OF DEFINED TERMS.
All terms defined in this Agreement shall have their defined meanings when
used in the other Loan Documents and all certificates, reports or other
documents made or delivered pursuant to this Agreement, unless otherwise defined
therein or unless the specific context shall otherwise require.
SECTION 1.03. ACCOUNTING TERMS.
All accounting terms not specifically defined herein shall be construed
in accordance with GAAP.
SECTION 1.04. CONSTRUCTION OF CERTAIN TERMS.
The term "Consolidated," when used with reference to any term defined
herein, shall mean that term as applied to the accounts of a Person and all of
its subsidiaries, or such of its subsidiaries as may be specified, which should
be consolidated in accordance with GAAP.
II. GENERAL TERMS OF REVOLVING CREDIT FACILITY
SECTION 2.01. REVOLVING CREDIT ADVANCES.
Subject to the terms and conditions contained in this Agreement, from time
to time from the Closing Date to and including the Business Day preceding the
Maturity Date, the Lender agrees to loan to the Borrower Advances requested by
the Borrower and the Borrower hereby agrees to repay such Advances in accordance
with the terms contained herein and in the Revolving Credit Note; PROVIDED,
HOWEVER, in no event shall the aggregate amount of Advances outstanding at any
time exceed the Revolving Credit Commitment as in effect at such time. Except
for Advances made in conjunction with a cash management system acceptable to the
Lender, each Advance shall be in an amount of at least One Hundred Thousand
Dollars ($100,000), or, if a greater amount, in integral multiples of Fifty
Thousand Dollars ($50,000). From the Closing Date to and including the Business
Day preceding the Maturity Date and within the Revolving Credit Commitment
limits, the Borrower may borrow, prepay (subject to Section 2.06 hereof) and
reborrow under this Section 2.01 upon telephonic notice from the Borrower to the
Lender, confirmed in a writing telecopied within forty-eight (48) hours
following such telephonic notice pursuant to a Request for Advance dated the
date of such request and signed by the Borrower. Borrowing in accordance with
this Agreement shall be effective upon such telephonic notice. The Lender shall
not be obligated to make any Advance if after giving effect to the making of
such Advance the aggregate amount of Advances outstanding would exceed the
Revolving Credit Commitment as then in effect.
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SECTION 2.02. REVOLVING CREDIT NOTE.
The Advances made by the Lender pursuant to Section 2.01 hereof shall be
evidenced by the Revolving Credit Note issued by the Borrower to the Lender in a
principal amount of Ten Million Dollars ($10,000,000).
SECTION 2.03 THE REVOLVING CREDIT COMMITMENT.
(a) The Revolving Credit Commitment shall be equal to the lesser of:
(i) $10,000,000, or
(ii) the amount equal to (A) sixty-five percent (65%) of Eligible
Accounts Receivable of the Borrower, as calculated from time to time, PLUS
(B) forty percent (40%) of Eligible Inventory of the Borrower as calculated
from time to time, LESS (C) the face amount of all outstanding Letters of
Credit and ten percent (10%) of the face amount of Foreign Exchange
Contracts, LESS (D) the amount outstanding pursuant to the Consignment
Facility as computed pursuant to Article III hereof; PROVIDED, HOWEVER,
that the amount computed in accordance with subsection B hereof may not
exceed $6,000,000 at any time.
At no time shall the aggregate amount outstanding under all Facilities
exceed the Maximum Commitment in effect as of such time.
(b) Raw materials, work-in-process and finished goods included for
purposes of determining the Revolving Credit Commitment and Eligible Inventory
shall be valued in accordance with GAAP as of the Friday preceding any
calculation of the Revolving Credit Commitment. The value of such raw
materials, work-in-process and finished goods shall be included in the Revolving
Credit Commitment calculation and in the calculation of Eligible Inventory only
if they are in good Condition, meet all standards imposed by any governmental
agency or department or division thereof having regulatory authority over such
goods, their use, manufacture and/or sale, are currently usable or currently
saleable in the normal course of the Borrower's business, and are not on
consignment to or from any Person.
(c) The Revolving Credit Commitment shall be subject to adjustment from
time to time as provided above upon, the Lender's review and acceptance of each
Borrowing Base certificate submitted by the Borrower.
SECTION 2.04. INTEREST ON THE REVOLVING CREDIT NOTE.
(a) The aggregate principal amount of Advances outstanding under the
Revolving Credit Note shall bear interest, commencing on the borrowing date for
such Advances and continuing until payment in full thereof, at the Floating Rate
or, as permitted in this Section 2.04 in the sole discretion of the Lender, the
Eurodollar Offered Rate. Interest shall be
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payable monthly in arrears on the last day of each month until payment in full,
and on the Maturity Date. Interest shall be calculated on the basis of a year
of three hundred sixty (360) days, counting the actual number of days elapsed.
(b) At the sole discretion of the Lender, Borrower may elect from time to
time to have all or a portion of the unpaid principal amount of any Advance
hereunder bear interest during any particular Interest Period at the Eurodollar
Offered Rate; provided that any such portion of the unpaid principal amount
shall be in an amount not less than $1,000,000 or some greater integral multiple
of $100,000 with respect to any single Interest Period.
(c) If Lender does not authorize or receive a notice of election of
duration of an Interest Period for a Eurodollar Loan pursuant to subsection (b)
above within the applicable time limits specified therein, or if, when such
notice must be given, an Event of Default exists, Borrower shall be deemed to
have elected to convert such Eurodollar Loan in whole into a Floating Rate Loan
on the last day of the then current Interest Period with respect thereto.
(d) Lender shall forthwith upon determining any Eurodollar Offered Rate
provide notice thereof to Borrower. Each such notice shall be conclusive and
binding upon Borrower absent manifest error.
(e) If, with respect to any Interest Period, Lender is unable to determine
the Eurodollar Offered Rate relating thereto, or adverse or unusual conditions
in or changes in applicable law relating to the applicable Eurodollar interbank
market make it illegal or, in the sole judgment of Lender, impracticable, to
fund therein the Eurodollar Loan or make the projected Eurodollar Offered Rate
unreflective of the actual costs of funds therefor to Lender, or if it shall
become unlawful for Lender to charge interest on the Revolving Credit Note on a
Eurodollar Offered Rate basis, then in any of the foregoing events Lender shall
so notify Borrower and interest will be calculated and payable in respect of
such projected Interest Period (and thereafter for so long as the conditions
referred to in this sentence shall continue) by reference to an agreed upon
rate.
(f) If any Interest Period would otherwise end on a day which is not a
Business Day for Eurodollar Offered Rate purposes, that Interest Period shall
end on the Business Day next preceding or next succeeding such day as determined
by Lender in accordance with its usual practices and notified to Borrower at the
beginning of such Interest Period.
SECTION 2.05. MANDATORY REPAYMENT OF PRINCIPAL.
(a) In the event the outstanding aggregate principal amount of Advances as
of any date exceed the Revolving Credit Commitment for such date, the Borrower
shall immediately pay to the Lender, without further notice or demand, the
amount by which the outstanding aggregate principal amount of Advances exceeds
the Revolving Credit Commitment for such date.
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(b) The aggregate principal amount of Advances outstanding under the
Revolving Credit Note, together with all unpaid interest thereon, shall be
payable in full on the Maturity Date.
(c) The outstanding aggregate principal amount of Advances shall otherwise
be payable in accordance with the provisions of the Revolving Credit Note.
SECTION 2.06. VOLUNTARY PREPAYMENT OF ADVANCES.
(a) Subject to the provisions of this Agreement, Borrower may prepay the
Floating Rate Loans outstanding under the Revolving Credit Note, in whole at any
time or in part from time to time, upon telephonic notice to Lender, confirmed
by a telecopied writing within forty-eight (48) hours following such telephonic
notice, without premium or penalty; provided, however, that except for payments
made in conjunction with a cash management system acceptable to Lender, any such
prepayment shall be made only on a Business Day. Each such notice or
confirmation shall specify the prepayment date and the principal amount of the
Advances to be prepaid.
(b) If for any reason any payment or prepayment of principal of a
Eurodollar Loan is made on any day other than the last day of an Interest
Period, then Borrower shall reimburse Lender for the loss, if any, computed
pursuant to the following formula:
L = (R-T) x PxD
------------
360
L= amount of loss to be reimbursed to Lender
R= the Eurodollar Offered Rate at the time of the payment
T= effective interest rate in which United States Treasury bills
maturing on the last day of the then current Interest Period
and in the same amount as the unpaid principal amount of the
Eurodollar Loan can be purchased by Lender on the day of such
payment of principal.
D= the number of days remaining in the Interest Period as of the
date of such payment.
P= the amount of principal paid.
Borrower shall pay to Lender the amount of loss, computed in accordance
with the foregoing formula, upon presentation by Lender of a statement setting
forth Lender's calculation of the amount of such loss, which notice shall be
conclusive and binding upon Borrower in the absence of manifest error.
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SECTION 2.07. USE OF PROCEEDS.
The proceeds of the Advances shall be used for working capital and related
credit support for the operations of the Borrower in the ordinary course of its
business.
SECTION 2.08. ENDORSEMENTS.
The Borrower hereby authorizes the Lender to endorse on the last page of
the Revolving Credit Note or on its internal records an appropriate notation
evidencing the making of each Advance, the interest rate(s) in effect under the
Revolving Credit Note, each change in such rate(s), and each repayment or
prepayment of Advances. The Lender shall have no liability for its failure to
make such notations and any such failure shall not affect the obligations of the
Borrower hereunder or under the Revolving Credit Note. In the absence of
manifest error, such notations and the Lender's records containing such
notations shall constitute prima facie evidence of the facts stated therein.
Any such notation, and the Lender's records containing such notations may be
introduced in evidence in any judicial or administrative proceeding relating to
this Agreement or the Revolving Credit Note.
SECTION 2.09. PAYMENTS UNDER THE REVOLVING CREDIT NOTE.
(a) All payments to be made by the Borrower of principal of and interest
on the Revolving Credit Note and all fees and other sums and charges payable by
the Borrower under this Article II, may be made by the Lender debiting the
demand deposit or checking accounts of the Borrower maintained with the Lender,
if any, for application to such payments, or in such other reasonable manner as
may be designated by the Lender in writing to the Borrower, and in any event all
such payments shall be made to the Lender in U.S. dollars in immediately
available funds prior to 2:00 p.m. (Providence time) on the Business Day that
such payment is due. Any such payment which is not received in such form or
prior to such time shall be deemed received for all purposes of this Agreement
on the next succeeding Business Day on which such funds become immediately
available prior to such time.
(b) The Borrower hereby irrevocably authorizes the Lender to so debit any
demand deposit or checking accounts of the Borrower maintained with the Lender
for the purpose of making any such payment.
SECTION 2.10. CHANGED CIRCUMSTANCES.
In the event that:
(i) on any date on which the Eurodollar Offered Rate would
otherwise be set, Lender shall have determined in good faith (which
determination shall be final and conclusive) that adequate and fair means
do not exist for ascertaining Eurodollar Offered Rate, or
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(ii) at any time Lender shall have determined in good faith (which
determination shall be final and conclusive) that:
(A) the making or continuation of any Eurodollar Loan has
been made impracticable or unlawful by (1) the occurrence of a
contingency that materially and adversely affects the interbank
Eurodollar market or (2) compliance by Lender in good faith with any
applicable law or governmental regulation, guideline, or order or
interpretation or change thereof by any governmental authority charged
with the interpretation or administration thereof or with any request
or directive of any such governmental authority (whether or not having
the force of law); or
(B) the Eurodollar Offered Rate shall no longer represent
the effective cost to Lender for U.S. dollar deposits in the interbank
market for deposits in which it regularly participates;
then, and in any such event, Lender shall forthwith so notify Borrower thereof.
Until Lender notifies Borrower that the circumstances giving rise to such notice
no longer apply, the obligation of Lender to allow selection by Borrower of a
Eurodollar Loan affected by the contingencies described in this Section 2.10
hereof (herein called "Affected Loans") shall be suspended. If at the time
Lender so notifies Borrower, Borrower has previously given Lender a Request for
Advance with respect to one or more Affected Loans but such Eurodollar Loans
have not yet gone into effect, such notification shall be deemed to be void and
Borrower may borrow loans of a non-affected type by giving a substitute Request
for Revolving Credit Advance pursuant to Section 2.01 hereof.
Upon such date as shall be specified in such notice (which shall not be
earlier than the date such notice is given), Borrower shall, with respect to the
outstanding Affected Loans, prepay the same, together with interest thereon, but
without prepayment premium or penalty, and may request a Floating Rate Loan in
accordance with Section 2 hereof by giving a Request for Revolving Credit
Advance pursuant to Section 2.01 hereof.
III. GENERAL TERMS OF CONSIGNMENT FACILITY
SECTION 3.01. AMOUNT OF CONSIGNMENT.
Provided (i) no notice of election to terminate this Agreement has been
given by either Party and (ii) no Event of Default nor any event which with
notice or lapse of time, or both, would constitute an Event of Default has
occurred hereunder, the Lender will Deliver from time to time to the Borrower
upon its request Precious Metal under the terms and conditions of this
Agreement; in no event will the Lender be obligated to Deliver Precious Metal if
the amount or Fair Market Value of Precious Metal requested when added to
Consigned Precious Metal exceeds the Borrower's Consignment Limit. At no time
shall the aggregate amount outstanding under all Facilities exceed the Maximum
Commitment in effect as of such time.
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If for any reason the number of troy ounces or Fair Market Value (or unpaid
Purchase Price in the case of Consigned Precious Metal for which the Purchase
Price has been agreed but payment has not been received by the Lender) of all
Consigned Precious Metal at any time exceeds the Borrower's Consignment Limit,
the Borrower shall immediately Redeliver to the Lender, or purchase and pay for,
Precious Metal of a quantity, or with a Fair Market Value, sufficient to
eliminate such excess.
The Lender shall provide the Borrower with a monthly statement of the
quantity of Consigned Precious Metal (in whatever form) held by the Borrower.
If the Borrower does not agree with the information reported in the statement,
the Borrower shall give Notice of such disagreement to the Lender within fifteen
(15) days of the date of receipt of such statement. If the Borrower fails to
give Notice to the Lender within the fifteen (15) day period, the Borrower shall
be deemed to have affirmed the accuracy of the information reported in the
statement and to have waived any claim the Borrower may have by reason of a
dispute as to such statement. At least once each year, the Borrower shall
provide the Lender with a written confirmation, signed by a Duly Authorized
Officer of the Borrower, of the quantity of Consigned Precious Metal as of the
date of such confirmation. Upon and after the occurrence of an Event of
Default, the Borrower shall provide to the Lender on a daily basis written
confirmation, in form acceptable to the Lender, of the quantity and location of
all Consigned Precious Metal.
The Borrower shall give the Lender at least one full business day's Notice
of its requirements for Precious Metal the Lender shall not be liable to the
Borrower if the Lender fails to Deliver the Precious Metal by reason of an act
of god or other catastrophe, force majeure, lack of supply, delay in
transportation, war or other hostilities, strike, lockout, epidemic, acts of
government or other public authority, requirements of any regulatory board,
agency or authority, unavoidable casualties or any other causes beyond the
Lender's control. THE LENDER MAKES NO WARRANTY OF MERCHANTABILITY IN RESPECT TO
PRECIOUS METAL CONSIGNEE, OR SOLD UNDER THIS AGREEMENT NOR OF FITNESS FOR ANY
PARTICULAR PURPOSE NOR ANY OTHER WARRANTIES, EXPRESS OR IMPLIED, except that the
Lender does warrant to the Borrower that all Precious Metal will be of the
fineness specified herein for that Precious Metal.
SECTION 3.02. DELIVERY OF PRECIOUS METAL.
All Deliveries of Precious Metal by the Lender will be made to the Borrower
at the Borrower's Principal office as specified in the first paragraph of this
Agreement or other locations approved by the Lender, such Deliveries to be on
terms and conditions satisfactory to the Lender. At the time of Delivery, the
Lender shall provide the Borrower with particulars of the total quantity of the
Precious Metal being Delivered to the Borrower. A Duly Authorized Officer of
the Borrower receiving any Delivery shall give a receipt to the Lender for the
same in a form satisfactory to the Lender. All shipping expenses (including
insurance) shall be borne by the Borrower, and any such expenses paid or
incurred by the
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Lender shall be reimbursed by the Borrower immediately in the same manner as
payments under Section 3.04 hereof.
SECTION 3.03. TITLE.
Title to Consigned Precious Metal shall remain in the Lender and shall not
vest in the Borrower until the Lender has received payment for the Consigned
Precious Metal as required by Section 3.04 of this Agreement. Upon each
Precious Metal Delivery, the Borrower shall bear the entire risk of loss, theft,
damage or destruction of the Consigned Precious Metal from any cause whatsoever,
whether or not insured, and the Borrower agrees to hold the Consigned Precious
Metal IN TRUST for the Lender and to indemnify and hold harmless the Lender
against any and all liabilities, damages, losses, costs, expenses, suits,
claims, demands or judgments of any nature (including, without limitation,
attorneys' fees and expenses) arising from or connected with any loss, theft,
damage or destruction of the Consigned Precious Metal.
SECTION 3.04. PURCHASE PRICE; PAYMENTS.
During the term of this Agreement, the Borrower shall have the right to
purchase any Consigned Precious Metal. To exercise the right, a Duly Authorized
Officer of the Borrower shall give Notice to a Duly Authorized Officer of the
Lender that the Borrower is purchasing specified quantities of Consigned
Precious Metal. The parties' Duly Authorized Officers shall mutually agree on a
Purchase Price for the Consigned Precious Metal. A Duly Authorized Officer of
the Lender shall confirm the Borrower's Notice in writing.
The Borrower shall pay the full Purchase Price, plus any applicable sales
or use tax, to the Lender within two (2) Business Days of the date of the fixing
of such Purchase Price. The Daily Consignment Fee shall continue in effect
until such Purchase Price is paid in full. Payment of the Purchase Price and
all other amounts due by the Borrower to the Lender under this Agreement shall
be made in the following manner: (i) by bank wire to the Federal Reserve Bank of
Boston for the account of the Lender, (ii) by the Borrower authorizing the
Lender to charge its account with the Lender, or (iii) by other means which the
Lender approves in writing. If the Lender in its discretion grants payment
terms different from the foregoing for particular purchases, then the Purchase
Price shall not be deemed to be paid in full for the purposes of this Agreement
until all payments under such terms have been made.
In addition to all other payments required hereunder, the Borrower agrees
to pay to the Lender a Daily Consignment Fee for the Lender's consignment
services under this Agreement, such Daily Consignment Fee to be accrued on a
daily basis and paid to the Lender within ten (10) days of the date of the
Lender's monthly invoice therefor, and the Borrower expressly authorizes the
Lender to charge the Borrower's account with the Lender for the amount thereof.
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Any amount not paid when due with respect to the Consignment Facility shall
bear interest at four percent (4%) in excess of the Base Rate until paid in full
(whether or not this Agreement has been terminated), such interest to be paid in
the manner provided above.
SECTION 3.05. COMMINGLING; REDELIVERY OF PRECIOUS METAL.
The Borrower may use the Consigned Precious Metal only in the ordinary
course of its business as now conducted; provided that no Consigned Precious
Metal shall be removed from the Borrower's principal office as specified in the
first paragraph of this Agreement prior to the fixing of the Purchase Price for
such Consigned Precious Metal. Notwithstanding a contrary provision in this
Section, the Borrower shall have the right, on terms and conditions approved in
writing by the Lender, to remove scrap from its principal office for refining in
the ordinary course of its business, it being agreed that all such scrap
Consigned Precious Metal shall be and remain the property of the Lender until
purchased and paid for pursuant to Section 3.04 hereof.
At any time prior to termination of this Agreement, any or all of the
amount of the Consigned Precious Metal may be Redelivered by the Borrower to the
Lender.
SECTION 3.06. INSURANCE.
The Borrower, at its sole cost and expense, shall procure and maintain
property insurance to cover all locations where Consigned Precious Metal will be
located on an all risk form, including flood and earthquake and such other
insurance (including but not limited to, fidelity insurance for all employees,
including officers) with respect to the Consigned Precious Metal as may from
time to time be reasonably required by the Lender. All insurance provided for
in this Section shall be effected under valid and enforceable policies, in such
forms and in such amounts (but in no event shall the amount of property
insurance be less than the Fair Market Value of Precious Metal inventory
(including, without limitation, Consigned Precious Metal) wherever located) as
may from time to time be reasonably required by the Lender, issued by
financially sound and responsible insurance companies which are rated in the
current edition of BEST'S KEY RATING GUIDE, PROPERTY - CASUALTY as A - or better
and which are admitted in the jurisdiction in which the Consigned Precious Metal
is located, or are approved under the applicable states' surplus lines insurance
laws and all premiums with respect to such insurance shall be paid as and when
due. At least ten (10) days prior to the Lender's first Delivery of Precious
Metal to the Borrower and thereafter not less than fifteen (15) days prior to
the expiration dates of insurance policies theretofore furnished pursuant to
this Agreement, the Borrower shall deliver to the Lender copies of all insurance
policies (together with Acord Form 27 (2/84) or other similar forms satisfactory
to the Lender) evidencing the insurance coverage required by the Lender. All
policies of insurance shall provide for thirty (30) days notification in advance
of any cancellation, non-renewal or material change in policy conditions,
including cancellation for non-payment of premium.
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SECTION 3.07. TAXES, ETC.; CERTAIN RIGHTS OF THE LENDER.
The Borrower will promptly pay any and all taxes, assessments and
governmental charges upon the Consigned Precious Metal prior to the date of any
penalties and prior to the date any liens would attach thereto. The Borrower
will not use the Consigned Precious Metal in violation of any statute or
ordinance. The Lender may examine and inspect the Consigned Precious Metal at
any time, wherever located, and the Borrower agrees to keep all records relating
to the Consigned Precious Metal at its principal office.
At its option, the Lender may discharge taxes, liens, security interests or
other encumbrances at any time levied or placed on the Consigned Precious Metal
(which are not being contested in good faith), may pay for insurance on the
Consigned Precious Metal and may pay for the maintenance and preservation of the
Consigned Precious Metal. The Borrower agrees to reimburse the Lender on demand
for any payment made, or any expense incurred, by the Lender in connection with
the foregoing, together with interest thereon at the Base Rate plus four percent
(4%), computed from the date of such payment or expense until paid.
SECTION 3.08. CONDITIONS OF CONSIGNMENT.
Delivery by the Lender of any Precious Metal under this Agreement is
subject to the conditions precedent that (a) the representations and warranties
set forth in Article VII of this Agreement shall be true and correct on and as
of the date of this Agreement and the date the Delivery is made, and (b) no
Event of Default nor any event which with notice or the lapse of time, or both,
would constitute in Event of Default shall have occurred.
SECTION 3.09. TERMINATION OF CONSIGNMENT FACILITY.
No delivery of Precious Metal shall be made to the Borrower on or after the
Maturity Date. At the Lender's option, no Delivery of Precious Metal to the
Borrower will be made following the occurrence and during the continuation of
any Event of Default under this Agreement. Neither the occurrence of an Event
of Default, the occurrence of the Maturity Date, nor any other termination of
this Agreement shall affect the Borrower's duty to pay and perform in full its
obligations to the Lender hereunder. On the earlier to occur of the Maturity
Date or the effective date of any termination of this Agreement, the Borrower
(i) shall either Redeliver or purchase and pay for all Consigned Precious Metal
which the Lender has previously Delivered and which has not been paid for or
Redelivered, the price to be based on the Lender's spot market price on the date
of such purchase, and (ii) shall reimburse the Lender for any and all
outstanding fees, costs, expenses and other obligations of the Borrower to the
Lender.
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IV. AMOUNTS AND TERMS OF LETTERS OF CREDIT
SECTION 4.01. LETTER OF CREDIT COMMITMENT.
(a) Subject to and upon the terms and conditions set forth herein, the
Lender agrees, at any time and from time to time prior to the Maturity Date, to
issue letters of credit and bankers acceptances (each a "Letter of Credit" and
collectively the "Letters of Credit"), in form and substance satisfactory to the
Lender in accordance with its usual and customary practice, for the account of
the Borrower, as provided in this Article IV and in the Letter of Credit
Agreement, for use by the Borrower in the ordinary course of its business.
(b) The aggregate outstanding amount of all Letters of Credit issued
pursuant to this Article IV shall at no time exceed the lesser of:
(i) Two Million Dollars ($2,000,000), or
(ii) the amount equal to (A) sixty five percent (65%) of Eligible
Accounts Receivable of the Borrower, as calculated from time to time, PLUS
(B) forty percent (40%) of Eligible Inventory of the Borrower, as
calculated from time to time LESS (C) the outstanding principal amount
pursuant to the Revolving Credit Note and ten percent (10%) of the face
amount of the Foreign Exchange Contracts, LESS (D) the amount outstanding
pursuant to the Consignment Facility as computed pursuant to Article III
hereof; PROVIDED, HOWEVER, that the amount computed in accordance with
subsection B hereof may not exceed $6,000,000 at any time.
(the "Letter of Credit Commitment"). At no time shall the aggregate amount
outstanding under all Facilities exceed the Maximum Commitment in effect as of
such time.
SECTION 4.02. MATURITIES.
Unless the Lender otherwise agrees, no Letter of Credit shall be issued
unless its expiration date shall be no later than 180 days after the date of
issuance, extension or renewal thereof. The Letter of Credit commitment shall
terminate on the Maturity Date and any and all Letters of Credit outstanding on
such date shall be refinanced by the Borrower on the Maturity Date through
standby letters of credit acceptable to the Lender. In the event that the
Borrower refinances the Revolving Credit facility with another lender, then the
Letters of Credit outstanding on such date also shall be refinanced through
standby letters of credit acceptable to the Lender.
SECTION 4.03. TERMS.
The Letters of Credit issued pursuant to this Article IV shall be governed
by the terms of this Agreement, the Letter of Credit Agreement and any other
applications or agreements in the form which the Lender customarily uses for or
in connection with letters of credit of
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the type issued pursuant hereto (collectively, the "Letter of Credit
Documents"), signed or guaranteed or otherwise verified by the Borrower in a
manner satisfactory to the Lender at the time of the issuance, extension or
renewal thereof. In the event of any inconsistency between this Agreement and
the Letter of Credit Agreement, the Letter of Credit Agreement shall prevail and
govern.
SECTION 4.04. LETTER OF CREDIT FEES AND CHARGES.
(a) The Borrower hereby agrees to pay to the Lender a letter of credit fee
equal to the standard fee charged by the Lender as in effect from time to time.
(b) The Borrower hereby agrees, to pay to the Lender, on demand, all
drawing fees, transfer fees, other administrative fees and all other usual and
customary fees and transaction charges of the Lender in connection with letters
of credit as described in the Letter of Credit Agreement as in effect from time
to time.
(c) All payments to be made by the Borrower of its reimbursement
obligations, interest, fees and other sums and charges payable by the Borrower
under this Article IV or under Letter of Credit Agreement, may be made by the
Lender by debit of the demand deposit or checking accounts of the Borrower
maintained with the Lender, if any, for application to such payments or by a
Letter of Credit Advance pursuant to Section 4.05 hereof, or in such other
reasonable manner as may be designated by the Lender in writing to the Borrower,
and in any event all such payments shall be made to the Lender in U.S. dollars
in immediately available funds prior to 2:00 p.m. (Providence time) on the
Business Day that such payment is due. Any such payment which is not received
in such form or prior to such time shall be deemed received for all purposes of
this Agreement on the next succeeding Business Day on which such funds become
immediately available prior to such time. The Borrower hereby irrevocably
authorizes the Lender to so debit any demand deposit or checking accounts of the
Borrower maintained with the Lender for the purpose of making any such payment.
SECTION 4.05. PAYMENT UNDER LETTERS OF CREDIT.
Subject to the Borrower refinancing its letter of credit obligation with a
banker's acceptance in accordance with the terms of this Agreement, the Borrower
agrees to reimburse the Lender for any Letter of Credit Draw on the Letter of
Credit Funding Date by hereby irrevocably authorizing the Lender to first debit
any existing balance under any demand deposit or checking account maintained by
the Borrower with the Lender on such date, and then to request on behalf of the
Borrower that the Lender make an Advance on such date pursuant to Section 2.01
hereof, without notice to or demand upon the Borrower, in an amount not
exceeding the greater of (i) the unpaid portion of such Letter of Credit Draw or
(ii) the minimum amount for an Advance as required in Section 2.01 hereof (the
"Letter of Credit Advance"), with any such Letter of Credit Advance
automatically deemed to be an Advance pursuant to said Section 2.01. The
Borrower hereby irrevocably authorizes the
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Lender to submit, in its sole discretion, a Request for Advance on the
Borrower's behalf in the amount of such Letter of Credit Advance; PROVIDED, that
the Lender shall have no liability for its failure to submit such a Request for
Advance and any such failure shall not affect the obligations of the Borrower
hereunder or under the Revolving Credit Note (including in respect of any such
Letter of Credit Advance). The proceeds of any such Letter of Credit Advance
shall be applied by the Lender first to satisfy the unpaid portion of the Letter
of Credit Draw, with the balance, if any, then deposited to an account of the
Borrower at the Lender. In the event that the proceeds of any such debit of the
demand deposit or checking accounts (if any) of the Borrower and of any such
Letter of Credit Advance are not sufficient to satisfy the full amount of the
Letter of Credit Draw, the Borrower agrees to pay immediately to the Lender the
amount of any unpaid Letter of Credit Draw in accordance with the Letter of
Credit Agreement.
SECTION 4.06. CHANGE IN CIRCUMSTANCES.
If any restriction is imposed upon the Lender or the Borrower by any
Federal, state or other regulatory authority or any applicable law which, in the
sole judgment of the Lender, prevents the issuance of any further Letter of
Credit, then the Lender shall so notify the Borrower, or the Borrower shall
notify the Lender, as the case may be, and the Lender shall not thereafter be
obligated to issue any further Letter of Credit in violation of any such
restricted so long as such restriction shall remain in effect.
V. AMOUNTS AND TERMS OF FOREIGN EXCHANGE FACILITY
SECTION 5.01. FOREIGN EXCHANGE COMMITMENT.
(a) Subject to and upon the terms and conditions set forth herein, the
Lender agrees, at any time and from time to time prior to the Maturity Date,
upon telephonic notice from the Borrower to the Lender confirmed by a telecopied
writing within forty-eight (48) hours of such telephonic notice, to enter into
agreements at the request of the Borrower (each a "Foreign Exchange Agreement"
and collectively the "Foreign Exchange Agreements"), pursuant to which the
Borrower shall purchase from the Lender, and the Lender shall sell to the
Borrower, foreign currency on a forward contract basis. Any such forward
purchase and sale shall be made on the terms and conditions contained in each
such Foreign Exchange Agreement. Each such Foreign Exchange Agreement shall be
in form and substance satisfactory to the Lender in accordance with its usual
and customary practice, and shall contain such terms and conditions, and shall
specify such prices, as may be offered to the Borrower from time to time by the
Lender in its sole discretion.
(b) Notwithstanding the foregoing, the aggregate unpaid face amount of all
Foreign Exchange Obligations incurred by the Borrower pursuant to Foreign
Exchange Agreements shall not at any time exceed the lesser of (i) $3,000,000,
or (ii) the amount equal to (A) sixty five percent (65%) of Eligible Accounts
Receivable of the Borrower, as calculated from time to time, PLUS (B) forty
percent (40%) of Eligible Inventory of the Borrower, as calculated
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from time to time, LESS (C) the face amount of all outstanding Letters of
Credit, LESS (D) the amount outstanding pursuant to the Consignment Facility as
computed pursuant to Article III hereof LESS (E) the principal amount
outstanding pursuant to the Revolving Credit Note; PROVIDED, HOWEVER, that the
amount computed in accordance with subsection B hereof may not exceed $6,000,000
at any time. At no time shall the aggregate amount outstanding under all
Facilities exceed the Maximum Commitment in effect as of such time.
SECTION 5.02. MATURITIES.
Unless the Lender otherwise agrees, no Foreign Exchange Agreement shall be
entered into with a maturity date later than 180 days after the date of
issuance. On the Maturity Date, the Borrower agrees at its option either to pay
in immediately available funds all unpaid Foreign Exchange Obligations, whether
matured or unmatured or to provide the Lender with collateral with a value of
twenty-five percent (25%) of the face amount of all unpaid Foreign Exchange
Obligations and otherwise in all respects satisfactory to the Lender in order
that the then existing Foreign Exchange Obligations may remain in effect until
maturity.
SECTION 5.03. TERMS.
In the event of any inconsistency between this Agreement and the Foreign
Exchange Agreement, the Foreign Exchange Agreement shall prevail and govern.
SECTION 5.04. FOREIGN EXCHANGE FEES AND CHARGES.
The Borrower hereby agrees to pay to the Lender all sums due and payable
under, and to pay on demand all interest, fees and other usual and customary
fees and transaction charges of the Lender as set forth in, each Foreign
Exchange Agreement as in effect from time to time.
SECTION 5.05. PAYMENTS UNDER THE FOREIGN EXCHANGE FACILITY.
All payments to be made by the Borrower of all sums, interest, fees and
other charges payable by the Borrower under this Article V, may be made by the
Lender by debit of the demand deposit or checking accounts of the Borrower
maintained with the Lender for application to such payments, or in such other
reasonable manner as may be designated by the Lender in writing to the Borrower,
and in any event all such payments shall be made to the Lender in U.S dollars in
immediately available funds prior to 2:00 p.m. (Providence time) on the Business
Day that such payment is due. Any such payment which is not received in such
form or prior to such time shall be deemed received for all purposes of this
Agreement on the next succeeding Business Day on which such funds become
immediately available prior to such time. The Borrower hereby irrevocable
authorizes the Lender to, and the Lender is hereby irrevocably authorized to, so
debit any demand maintained with the Lender for the purpose of making any such
payment.
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SECTION 5.06. CHANGE IN CIRCUMSTANCES.
If any restriction is imposed upon the Lender or the Borrower by any
Federal, state or other regulatory authority or any applicable law which, in the
sole judgment of the Lender, prevents the Lender from entering into any further
Foreign Exchange Agreements, then the Lender shall so notify the Borrower or the
Borrower shall notify the Lender, as the case may be, and the Lender shall not
thereafter be obligated to enter into any further Foreign Exchange Agreements in
violation of any such restriction so long as such restriction shall remain in
effect.
VI. GENERAL TERMS OF REVOLVING CREDIT, LETTER OF CREDIT, CONSIGNMENT AND
FOREIGN EXCHANGE FACILITIES.
SECTION 6.01. MAXIMUM COMMITMENT.
At no time shall the aggregate amount outstanding under the Facilities
exceed the Maximum Commitment in effect as of such time. In the event the
outstanding aggregate outstanding amount under the Facilities exceeds the
Maximum Commitment for such date, the Borrower shall immediately pay to the
Lender, without further notice or demand, the amount by which the outstanding
aggregate amount exceeds the Maximum Commitment for such date.
SECTION 6.02. INCREASED COSTS - CAPITAL.
In the event that after the date hereof the implementation of or any change
in any law or regulation, or any guideline or directive (whether or not having
the force of law) or the interpretation or administration thereof by any central
bank, court or administrative or governmental authority or other authority
charged with the administration thereof, imposes, modifies or deems applicable
or effective any FDIC assessment, premiums, tax, reserve, special deposit,
capital adequacy or similar requirement (including without limitation a request
or requirement which affects the manner in which the Lender allocates capital
resources to its commitments, including its obligations hereunder but excluding
any such assessment, premium, tax, reserve, special deposit, capital adequacy or
similar requirement which is already reflected in increases in the Base Rate)
against or with respect to or measured by reference to, Advances, Letters of
Credit or other extensions of credit of the type provided for in this Agreement,
and as a result thereof, in the good faith judgment of the Lender, the rate of
return on the Lender's capital as a consequence of its obligations hereunder is
reduced to a level below that which the Lender could have achieved but for such
circumstances, then and in each such case, upon notice to the Borrower and a
request for payment by the Lender, from time to time the Borrower shall pay to
the Lender such additional amount or amounts as shall compensate the Lender for
any such reduction in rate of return suffered from and after the date upon which
such notice is given to the Borrower; PROVIDED, HOWEVER, that the Borrower shall
not be obligated to make any such payment unless the Lender represents in
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writing that requests for similar payments are generally being made of other
similarly situated borrowers to the extent such other borrowers are bound by a
contractual provision similar to this Section 6.02. In any such event, the
Lender shall promptly notify the Borrower thereof in writing, stating the
reasons therefor and the additional amounts required to fully compensate the
Lender for such reduction in rate of return; PROVIDED, THAT, no such amount
shall be due and payable by the Borrower with respect to any period prior to the
date of such notice to the Borrower. Such additional amounts shall be payable
on each date on which interest is to be paid under the Revolving Credit Note or,
if there is no outstanding principal amount under the Revolving Credit Note or
if the cost is related to the Letter of Credit Facility or otherwise, on the
last Business Day of the month in which the Borrower received the notice in
question. Such Lender's certificate as to any such reduction in return
(including calculations, in reasonable detail, showing how the Lender computed
such reduction) shall be submitted to the Borrower before any additional amount
shall become payable and shall, in the absence of manifest error be conclusive
and binding. In determining any such amount, the Lender may use any reasonable
averaging and attribution methods.
SECTION 6.03. SECURITY FOR THE REVOLVING CREDIT NOTE AND ALL OTHER
INDEBTEDNESS OF THE BORROWER.
(a) The Revolving Credit Note and all other Indebtedness of the Borrower
to the Lender hereunder are secured by the collateral described in the Security
Agreement, the UCC Financing Statements, agreements to assign, landlord waivers
and consents and other instruments (collectively, the "Security Documents"), in
each case in form and substance satisfactory to the Lender and its counsel, as
the Lender may request or may have received in connection with any or all of the
foregoing.
(b) The Borrower agrees that in the event it acquires from time to time
any real or personal property, or any leasehold interest therein, which is not
subject to the liens and security interests contemplated by this Section 6.03,
the Borrower will forthwith take all such action as the Lender in its discretion
shall deem necessary or advisable to cause such properties to be encumbered with
such liens and security interests, including the execution and delivery by the
Borrower of mortgages, leasehold mortgages, collateral assignments of leases,
and any other instruments or agreements necessary to create or perfect such
liens and security interests.
SECTION 6.04. LOCKBOX/COLLECTION OF RECEIVABLES.
The Lender and the Borrower have entered into a Schedule to Cash Management
Master Agreement for Lockbox Service (the "Lockbox Agreement") which is a
schedule to the Cash Management Master Agreement also entered into by the Lender
and the Borrower (the "Cash Management Master Agreement"). The Lender has
established and shall maintain a Post Office Box (hereinafter called the
"Lockbox") in Providence, Rhode Island, in the name of the Borrower. The
Borrower has designated one of its accounts with the Lender as the lockbox
account (the "Lockbox Account"). The Borrower shall cause to be deposited, as
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received, into the Lockbox Account all now existing or hereafter arising cash,
checks, instruments and remittances constituting "Customer Receivables" (as
defined in the Security Agreement) and all proceeds of Customer Receivables (all
such sums and proceeds of whatsoever kind hereinafter called the "Receivables").
The Borrower shall promptly notify all of its customers now or hereafter owing
payments with respect to the Receivables to mail such payments to the Borrower
at the Lockbox in Providence, Rhode Island. Per request of the Lender, the
Borrower shall provide the Lender with evidence of such notification, and such
notification shall be satisfactory in form and substance to the Lender.
Invoices or periodic statements issued by the Borrower to each customer shall
also bear a stamp satisfactory to the Lender notifying each customer of its
obligation to remit all payments to the Lockbox. The Borrower will immediately
in the event of and upon receipt of all checks, drafts, cash and other
remittances in payment of any inventory sold or in payment or on account of the
Borrower's Receivables and other forms of obligations, deliver the same to the
Lender accompanied by a remittance report in form specified by the Lender. Said
proceeds shall be delivered to the Lender in the same form received except for
the endorsement of the Borrower which the Borrower agrees to make or cause to be
made. For purposes of calculating the unused Revolving Credit Commitment and
computing interest on the unpaid principal balance of the Revolving Credit Note,
all payments will be applied to principal, interest and other charges in the
manner set forth in Section 5.3 of the Lockbox Agreement. The order and method
of such application shall be in the sole discretion of the Lender and any
portion of such funds which the Lender elects not so to apply hereunder shall be
paid over from time to time by the Lender to the Borrower or deposited into
Borrower's general accounts maintained with the Lender. The Lender shall
collect mail from the Lockbox in accordance with Section 5.2 of the Lockbox
Agreement, and shall provide the Borrower with information pertaining to the
payments received by the Lender as set forth in Sections 5.6 and 5.7 of the
Lockbox Agreement. The Lender shall not be liable for any good faith errors or
omissions in performing the aforesaid services. No deposit shall be made in the
Lockbox Account, and no withdrawals or remittances shall be made therefrom
except as provided herein and in the Lockbox Agreement. The Borrower shall pay
the costs and expenses related to the Lockbox as set forth in the Lockbox
Agreement and any Lockbox Service Order attached thereto. If any of the terms
and provisions of this Section 6.04 contradict or are inconsistent with the
terms and provisions of the Lockbox Agreement or the Cash Management Master
Agreement, the terms and provisions of the Lockbox Agreement and the Cash
Management Master Agreement will control, provided, however, that
notwithstanding the provisions of Section 6 of the Lockbox Agreement, the
Borrower will not terminate the Lockbox Agreement so long as there is
indebtedness outstanding to the Lender in connection with this Agreement.
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VII. REPRESENTATIONS AND WARRANTIES OF THE BORROWER.
The Borrower hereby represents and warrants to the Lender (which
representations and warranties shall survive the delivery of the Revolving
Credit Note, the making of each Advance, the issuance of each Letter of Credit,
the consignment of Precious Metal and the execution and delivery of any Foreign
Exchange Agreement) as follows:
SECTION 7.01. [INTENTIONALLY LEFT BLANK]
SECTION 7.02. The Borrower is duly organized, validly existing and in good
standing as a corporation under the laws of the state of its incorporation, has
all requisite power and authority to own its properties ant to carry on its
business as now being conducted or presently contemplated, and is qualified to
do business in every jurisdiction where it is required to be so qualified,
except such jurisdictions, if any, in which the failure to be so qualified will
not have a material adverse effect on the financial condition, business, assets,
operations, prospects or properties of the Borrower. The Borrower has all
requisite power and authority to execute and deliver, and perform its
obligations under, this Agreement, the Revolving Credit Note and the Security
Documents and any other Loan Documents executed by it.
SECTION 7.03. The execution and delivery of, and performance by the
Borrower of its obligations under, this Agreement, the Revolving Credit Note,
the Security Documents and any other Loan Documents executed by it, have been
duly authorized by all requisite action, will not violate any provision of law,
any order of any court or other agency of government, the corporate charter or
by-laws of the Borrower, or any indenture, agreement or other instrument to
which the Borrower is a party, or by which it is bound, or be in conflict with,
result in a breach of, or constitute (with due notice or lapse of time or both)
a default under, or except as may be provided by the Security Documents executed
by it, result in the creation or imposition of any lien, charge or encumbrance
of any nature whatsoever upon any of the property or assets of the Borrower
pursuant to, any such indenture, agreement or instrument. The Loan Documents to
which the Borrower is a party have been duly executed and delivered by, and,
constitute the valid and binding obligations of, the Borrower, enforceable in
accordance with their respective terms subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the rights of
creditors generally. The Borrower is not required to obtain any consent,
approval or authorization from, or to file any declaration or statement with,
any court, governmental instrumentality or other agency in connection with or as
a condition to the execution, delivery or performance of the Loan Documents.
SECTION 7.04. There is no action, suit or proceeding at law or in equity
or by or before any court, governmental instrumentality or other agency now
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower which, if adversely determined, would have a material adverse
effect on the business, operations, properties, prospects, assets or condition,
financial or otherwise, of the Borrower.
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SECTION 7.05. The Borrower is not a party to any agreement or instrument
or subject to any charter or other corporate restriction adversely affecting its
business, properties or assets, operations or condition, financial or otherwise.
SECTION 7.06. The Borrower has good title to all of its properties and
assets free and clear of all mortgages, security interests, restrictions, liens
and encumbrances of any kind, except mortgages, security interests,
restrictions, liens and encumbrances permitted under Section 10.02 hereof, and
restrictions, easements and minor irregularities in title which do not and will
not interfere with the occupation, use and enjoyment by the Borrower of such
properties and assets in the normal course of its business as presently
conducted, or materially impair the value of such properties and assets for the
purpose of such business. No financing statement or agreement is on file in any
public office pertaining to or affecting the assets of the Borrower, now owned
or hereafter acquired, other than those filed contemporaneously with the
financing statements filed by the Lender pursuant hereto, and other than those
which are described on SCHEDULE 7.06 attached hereto and made a part hereof.
SECTION 7.07. SCHEDULE 7.07 sets forth the number of authorized shares
(including the par value thereof) and the number of issued and outstanding
shares, of each class of Capital Stock of the Borrower as of the date hereof.
Except as set forth on SCHEDULE 7.07, the Borrower does not own any issued and
outstanding shares of Capital Stock of any other Person or any warrant, option
or other right to purchase any such shares of Capital Stock, or any security
convertible into or exchangeable for any such share of Capital Stock.
SECTION 7.08. Entering into this Agreement, making and delivering the
Revolving Credit Note and any borrowings or obligations made or incurred by the
Borrower under this Agreement, do not and will not render the Borrower
insolvent; the Borrower is not contemplating either the filing of a petition by
it under any state or federal bankruptcy or insolvency laws or the liquidating
of all or a major portion of its property, and the Borrower has no knowledge of
any person contemplating the filing of any such petition against the Borrower or
any of its assets; and after giving effect to the transactions contemplated by
this Agreement (including all borrowings and obligations to be made or incurred
hereunder), the Borrower is and will be able to pay its debts as such debts
become due, has and will continue to have funds and capital sufficient to carry
on its business as presently conducted or contemplated, and own property having
a value both at fair market valuation and at fair saleable value in the ordinary
course of its business greater than the amount required to pay its liabilities,
including for this purpose unliquidated and disputed claims.
SECTION 7.09. No statement of fact made by or on behalf of the Borrower in
this Agreement or in any certificate or schedule furnished to the Lender
pursuant hereto, contains any untrue statement of a material fact or, to the
Borrower's knowledge, omits to state any material fact necessary to make
statements contained therein or herein not misleading. There is no fact
presently known to the Borrower which has not been disclosed to the Lender which
materially adversely affects, nor as far as the Borrower can reasonably foresee,
will materially
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adversely affect the property, business, prospects, operations or condition
(financial or otherwise) of the Borrower.
SECTION 7.10. The Borrower is not an "investment company", or a company
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended.
SECTION 7.11. The Borrower does not own or have a present intention of
acquiring, any "margin security" or "margin stock" within the meaning of
Regulation G (12 CFR Part 207), or any "margin stock" within the meaning of
Regulation U (12 CFR Part 221), of the Board of Governors of the Federal Reserve
System (herein called "margin security" and "margin stock"). None of the
proceeds of the Advances will be used, directly or indirectly, by the Borrower
for the purpose of purchasing or carrying, or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry,
any margin security or margin stock or for any other purpose which might
constitute the transactions contemplated hereby a "purpose credit" within the
meaning of said Regulation G or Regulation U, or cause this Agreement to violate
any other regulation of the Board of Governors of the Federal Reserve System or
the Securities Exchange Act of 1934, as amended, or any rules or regulations
promulgated under such statutes.
SECTION 7.12. The Borrower has filed or caused to be filed all federal,
state and local tax returns required to be filed, and has paid or made adequate
provision for the payment of all federal, state and local taxes, charges and
assessments imposed upon the Borrower or upon its income and profits or upon any
of its property or upon any part thereof.
SECTION 7.13. None of the Borrower or any Commonly Controlled Entity
maintains or contributes to any Plan which is not in material compliance with
ERISA, the Code and Title X of the Consolidated Omnibus Budget Reconciliation
Act of 1985 (P.L. 99-272), as amended, or which has incurred any material
accumulated funding deficiency within the meaning of section 412 or 418B of the
Code, or which has applied for or obtained a waiver from the Internal Revenue
Service of any minimum funding requirement under section 412 of the Code.
SCHEDULE 7.13 attached hereto and made a part hereof correctly identifies each
Plan. None of the Borrower or any Commonly Controlled Entity has incurred any
liability to the PBGC in connection with any Plan covering any employees of any
Borrower or any Commonly Controlled Entity or ceased operations at any facility
or withdrawn from any Plan in a manner which could subject any of them to
liability under Section 4062(e), 4063 or 4064 of ERISA or liability to any Plan
participant or beneficiary, and knows of no facts or circumstance which might
give rise to any liability of the Borrower or any Commonly Controlled Entity to
the PBGC under Title IV of ERISA or liability to any Plan participant or
beneficiary. None of the Borrower or any Commonly Controlled Entity has
incurred any withdrawal liability (including but not limited to any contingent
or secondary withdrawal liability) within the meaning of Sections 4201 and 4202
of ERISA, to any Multiemployer Plan, and no event has occurred, and there exists
no condition or set of circumstances, which presents a risk of the occurrence of
any withdrawal from or the partition, termination,
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reorganization or insolvency of any Multiemployer Plan which could result in any
liability to a Multiemployer Plan.
Full payment has been made of all amounts which the Borrower and each
Commonly Controlled Entity were required to have paid prior to the Closing Date
as premiums to the PBGC under Sections 4006 and 4007 of ERISA, or as
contributions to any Plan under applicable law or under any Plan or any
agreement relating to any Plan to which the Borrower or any Commonly Controlled
Entity is a party.
None of the Borrower or any Commonly Controlled Entity has any knowledge
of, nor does the Borrower have any reason to believe that, any Reportable Event
has occurred with respect to any Plan subject to Title IV of ERISA.
All Plans which are employee pension benefit plans (as defined in Section
3(2) of ERISA) are qualified plans under section 401(a) of the Code, and the
Borrower or a Commonly Controlled Entity (as appropriate) has received favorable
determination letters from the Internal Revenue Service to such effect, which
letters remain in effect.
No civil or criminal action brought pursuant to Part 5 of Title I of ERISA
or under any state law and no claim (other than routine course) is pending with
respect to any Plan, and none of the Borrower or any Commonly Controlled Entity
has any knowledge of, nor does the Borrower have any reason to believe that, any
such action or claim is threatened against any Borrower, any Commonly Controlled
Entity or any fiduciary of any Plan.
None of the Borrower or any Commonly Controlled Entity has had any tax
assessed against it by the Internal Revenue Service for any alleged violation
under section 4975 of the Code, nor has any Borrower or any Commonly Controlled
Entity incurred any material liability under Section 407 of ERISA.
SECTION 7.14. The Borrower is not a party to any contract with any labor
organization, nor has the Borrower agreed to recognize any union or other
collective bargaining unit, nor has any union or other collective bargaining
unit been certified as representing any of its employees. There is no strike or
work stoppage pending or to the best knowledge of the Borrower, threatened, or
any organizational effort currently being made or, to the best knowledge of the
Borrower, threatened, by or on behalf of any labor union with respect to
employees of the Borrower. During the five-year period preceding the date of
this Agreement, the Borrower has not experienced any strike, work stoppages,
grievance proceedings, claims of unfair labor practices filed or threatened to
be filed, or other significant labor difficulties of any nature, nor are there
any material controversies pending or, to the Borrower's knowledge, threatened
between the Borrower and any of the employees of the Borrower.
SECTION 7.15. SCHEDULE 7.15 attached hereto and made a part hereof sets
forth (i) every location where any tangible assets, either real or personal, of
the Borrower is located,
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(ii) every location where the Borrower has an office or place of business and
the chief executive office of the Borrower, (iii) the address of all real estate
owned by the Borrower, (iv) the address of all real estate leased by the
Borrower (including the record owner of such real estate) and (v) each
jurisdiction in which the Borrower is qualified to do business as a foreign
corporation.
SECTION 7.16. SCHEDULE 7.16 attached hereto and made a part hereof sets
forth a list of (i) all material non-governmental licenses held by the Borrower
relating to the operation of its business (including, as to each such license,
the name of the licensee and licensor, a description of the subject matter of
the license, the termination date or notice requirement with respect to
termination and renewal options) and (ii) all material trademarks, trade names,
service marks, copyrights, know-how, patents and applications for any of the
foregoing owned by or registered in the name of the Borrower, relating to or
used in connection with its business. Except as set forth in SCHEDULE 7.16, all
of such licenses are in full force and effect and constitute legal, valid and
binding obligations of the Borrower; there have not been and there currently are
not any defaults thereunder by the Borrower or, to the best of knowledge of the
Borrower, by any other party which could cause such license to be cancelled,
revoked or terminated; and no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute such a default by the Borrower or, to the best of knowledge of the
Borrower, by any other party thereunder. The Borrower owns all the trademarks,
trade names, service marks, copyrights, know-how, patents and applications for
any of the foregoing listed on SCHEDULE 7.16 and, except as set forth thereon,
pays no royalty under any of them and has the exclusive right to bring actions
for the infringement thereof. Except as set forth on SCHEDULE 7.16, to the best
of the Borrower's knowledge, no product made or sold by the Borrower violates
any license or infringes any trademark, trade name, service mark, copyright,
know-how, patent or application for any of the foregoing of any other Person.
Except as listed on SCHEDULE 7.16, there is no pending or, to the best of the
Borrower's knowledge, threatened claim or litigation against the Borrower
contesting the right of the Borrower to use any of the trademarks, trade names,
service marks and know-how or the validity of any of the licenses, copyrights
and patents listed on such Schedule or asserting the misuse thereof.
SECTION 7.17. SCHEDULE 7.17 attached hereto and made a part hereof sets
forth a list of all material contracts, agreements and other instruments
relating to the operation by the Borrower of its business and not listed on
another Schedule hereto, including any (i) material distribution, sales, agency,
manufacturer's representative or other contract relating to the payment of a
commission, (ii) indenture, mortgage, promissory note, loan agreement, guarantee
or other agreement or commitment for the borrowing of money or for a line of
credit, or for a leasing transaction required to be capitalized in accordance
with GAAP requiring aggregate payments of more than $25,000, (iii) guaranty of
the obligations of a third party, (iv) lease, sublease, tenancy or other
agreement with respect to use of real or personal property by the Borrower not
required to be listed under clause (ii) above involving payment of more than
$25,000 annually, (v) agreement or arrangement for the sale of any of the
assets, property or rights of any Borrower outside the ordinary course of
business or requiring
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the consent of any party to the transfer and assignment of such assets, property
and rights, or (vi) any other contract deemed by the Borrower to be material to
the operation of its business. Except as described in SCHEDULE 7.17, the
Borrower has in all material respects performed all the obligations required to
be performed by it to date and is not in default or, to the Borrower's
knowledge, alleged to be in default under any agreement, lease, contract,
commitment, instrument or obligation required to be listed on any Schedule to
this Agreement, and there exists no event, condition or occurrence which, after
notice or lapse of time, or both, would constitute such a default by it of any
of the foregoing.
SECTION 7.18. The Borrower is in compliance with all Federal, state and
local laws, ordinances, rules, regulations and orders applicable to the business
or properties of such Borrower, including those relating to the environment,
anti-competitive practices, discrimination, employment, health and safety,
except such laws, ordinances, rules, regulations and orders, if any, with which
the failure to comply will not have a material adverse effect on the financial
condition, business, assets, operations, prospects or properties of the
Borrower. The Borrower has all federal, state, local and foreign governmental
licenses and permits necessary in the conduct of the business of the Borrower
and all such licenses and permits are in full force and effect, and no
violations are or have been recorded in respect to any thereof, and no
proceeding is pending or, to the best knowledge of the Borrower, threatened, to
revoke or limit any thereof. SCHEDULE 7.18 contains a list of: (i) all such
governmental licenses and permits (all of which are transferable without consent
of any third party unless otherwise indicated by an asterisk) and (ii) all
judicial or governmental consents, orders, decrees and other compliance
agreements under which the Borrower is operating or by which it is bound, copies
of all of which have been furnished to the Lender. To the best knowledge of the
Borrower, no Federal, state or local statute, rule, regulation, ordinance or
order has been adopted or promulgated which materially adversely affects the
business or assets of the Borrower or its ability to carry on its business as
now being conducted or as presently contemplated to be conducted.
The Borrower is not nor, to the best knowledge of the Borrower after due
inquiry, any other Person:
(a) has ever caused, permitted, or suffered to exist any Hazardous
Material to be spilled, placed, held, located or disposed of on, under, or
about, nor are any now existing on, under or about, the Borrower's
facilities at the premises identified in the Mortgages (the "Premises") or
into the atmosphere, any body of water, any wetlands, or on any other real
property legally or beneficially owned by the Borrower, other than as
disclosed on SCHEDULE 7.18, or in respect to Hazardous Material used or
disposed of in compliance with law,
(b) has any knowledge after due inquiry that either the Premises or
any other real property legally or beneficially owned by the Borrower has
ever been used (whether by the Borrower or, to the best knowledge of the
Borrower after due inquiry,
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by any other Person) as a treatment, storage or disposal (whether permanent
or temporary) site for any Hazardous Material, and
(c) has any knowledge after due inquiry of any notice of violation,
lien or other notice issued by any governmental agency with respect to the
environmental condition of the Premises, any other property owned by the
Borrower, or any other property which was included in the property
description of the Premises or such other real property within the
preceding three years.
SECTION 7.19. In determining which accounts receivable listed on any
schedule of accounts heretofore or hereafter provided by the Borrower to the
Lender are Eligible Accounts Receivable, the Lender may rely on all statements
or representations made by the Borrower on or with respect to any such schedule;
further, the Borrower represents and warrants that:
(a) they are genuine, are in all respects what they purport to be,
are not evidenced by a judgment and are only evidenced by one, if any,
executed original invoice, contract or document;
(b) they represent bona fide transactions completed in accordance
with the terms and provisions contained in any documents related thereto;
(c) the amounts of the face value shown on any schedule of accounts
provided to the Lender and/or all invoices and statements delivered to the
Lender with respect to any account, are actually and absolutely owing to
the Borrower and are not contingent for any reason;
(d) to the best of the Borrower's knowledge, there are no setoffs,
counterclaims or disputes existing or asserted with respect thereto and the
Borrower has made no agreement with any account debtor thereunder for any
deduction therefrom;
(e) to the best of the Borrower's knowledge, there are no facts,
events or occurrences which in any way impair the validity or enforcement
thereof or tend to reduce the amount payable or collectible thereunder from
the amounts of the invoice, face value shown on any schedule of accounts,
and on all contracts, invoices and statements delivered to the Lender with
respect thereto;
(f) to the best of the Borrower's knowledge, all account debtors
thereunder (i) had the capacity, power and authority to contract at the
time any contract or other document giving rise to the account was executed
and (ii) are solvent;
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(g) the goods giving rise thereto are not, and were not at the time
of the sale thereof, subject to any adverse lien, claim, encumbrances or
security interest, except the security interest of the Lenders pursuant to
the Security Documents;
(h) to the best of the Borrower's knowledge, there are no
proceedings or actions which are threatened or pending against any account
debtor thereunder which might result in any material adverse change in the
financial condition of such account debtor; and
(i) they have not been pledged to any other Person.
SECTION 7.20. In determining which items of inventory listed on any
schedule of inventory heretofore or hereafter provided by the Borrower to the
Lender are eligible to be included for purposes of determining the commitment
for each Facility described herein, may rely on all statements or
representations made by the Borrower on or with respect to any such schedule;
further, the Borrower represents and warrants that:
(a) all inventory is located on premises described in SCHEDULE 7.15
as being premises owned or leased by the Borrower, or is inventory in
transit to or from such premises;
(b) no inventory is subject to any lien or security interest
whatsoever, except for the security interest of the Lender pursuant to the
Security Documents; and
(c) except as specified on such schedules of inventory submitted to
the Lender, no inventory (except to the extent such inventory has, in the
aggregate, a fair market value less than $250,000) is now, or shall at any
time or times hereafter be, stored with a bailee, warehouseman or similar
party without the Lender's prior written consent and, if the Lender's gives
such consent, the Borrower will concurrently therewith cause any such
bailee, warehouseman or similar party to issue and deliver to the Lender,
in form and substance acceptable to the Lender, warehouse receipts therefor
in the Lender's name.
VIII. CONDITIONS PRECEDENT
SECTION 8.01. The respective obligations of the Lender to make any
Advance, to consign Precious Metal, to issue any Letter of Credit and to enter
into any Foreign Exchange Agreement, shall be subject to the following
conditions precedent:
(a) The representations and warranties set forth in Article VII
hereof shall be true and correct on and as of the date hereof;
(b) The Borrower shall have executed (as appropriate) and delivered
to the Lender the following, as appropriate:
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(i) This Agreement;
(ii) the Revolving Credit Note;
(iii) a letter of credit issued for the benefit of Lender in
the face amount of $500,000 from a financial institution and in a form
acceptable to the Lender in its sole discretion, which letter of
credit may be drawn upon by the Lender in the event that the Permitted
Inventory Overadvance is not: (i) reduced to $750,000 on or before
July 1, 1996; or (ii) repaid in full on or before August 5, 1996.
(iv) Certificates of the Secretary or Assistant Secretary of
the Borrower certifying as to (a) the due authorization, execution and
delivery by such party of this Agreement and the Revolving Credit
Note, and (b) the names of the officers of such party authorized to
sign this Agreement, the Revolving Credit Note, and any other Loan
Documents or certificates to be delivered pursuant to this Agreement,
together with the true signatures of such officers. The Lender may
conclusively rely on such certificates until the Lender shall receive
a further certificate of the Secretary or an Assistant Secretary of
the Borrower cancelling or amending the prior certificate and
submitting the signatures of the officers named in such further
certificate;
(v) Certificates of the Secretary of State and of the
Division of Taxation (if applicable) of the state of incorporation of
the Borrower, dated reasonably near the Closing Date, stating that
such entity is duly organized and in good standing in such State and
has paid all taxes, fees and other charges due such State as of the
date of such certificate;
(vi) Evidence in form satisfactory to the Lender and its
counsel that the Borrower is duly qualified to transact business in
each jurisdiction where the nature of its business require it to be so
qualified;
(vii) Certificates of insurance evidencing the insurance
coverage required by the Security Documents, naming the Lender as loss
payee in accordance with the requirement, of the Security Documents;
(viii) Copies of all documents, instruments and agreements
described on any Schedule hereto, certified as true and correct copies
by the Secretary of the Borrower;
(ix) A certificate of the Chairman or chief executive
officer of the Borrower stating that:
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(a) The representations and warranties set forth in Article
VII hereof are true and correct as to the Borrower on and as of
the Closing Date as though made on and as of such date;
(b) No Event of Default, nor any event which, upon notice
or lapse of time or both, would constitute such an Event of
Default, has occurred or will have occurred after giving effect
to the borrowings and obligations made or incurred by the
Borrower hereunder; and
(c) Except as previously disclosed to the Lender in
writing, there has occurred no material adverse change in the
financial condition, business, assets, operations, prospects or
properties of the Borrower since December 31, 1995; and
(x) Such other supporting documents and certificates as the
Lender may request.
(c) The Lender shall have received the favorable written opinion of
Bell, Boyd & Lloyd, counsel for the Borrower, dated the Closing Date in
the form attached to this Agreement as Schedule 8.01(c);
(d) All legal matters incident to the transactions contemplated hereby
shall be satisfactory to counsel for the Lender;
(e) The consent of any Person required as a result of the transactions
contemplated by this Agreement shall have been obtained; and
(f) The Lender shall have received at closing the First Installment of the
Renewal Fee;
(g) No Event of Default, nor any event which, upon notice or lapse of time
or both, would constitute such an Event of Default, shall have occurred.
SECTION 8.02.
The respective obligations of the Lender to make any Advance, consign
Precious Metal, to issue any Letter of Credit or to enter into any Foreign
Exchange Agreement, subsequent to the Closing Date, is subject to the following
conditions precedent:
(i) All representations and warranties set forth in Sections 7.02
through 7.20 hereof shall be true and accurate in all material respects as
of the Borrowing Date for such Advance, the date of issuance of a Letter of
Credit, the date of Delivery of Precious Metal or the date of entering into
any Foreign Exchange Agreement except to the extent altered by actions
permitted pursuant to the terms hereof or to the extent the
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Lender shall have been advised in writing of any inaccuracy with respect to
such representations and warranties and shall have waived the same in
writing;
(ii) There shall have occurred no material adverse change in the
financial condition, business, assets, operations, prospects or properties
of the Borrower since the date of the most recent financial statements
required to be delivered to the Lender under Section 9.04(a) of this
Agreement;
(iii) No Event of Default, nor any event which, upon notice or lapse
of time or both, would constitute such an Event of Default, shall have
occurred and be continuing or would have occurred after giving effect to
the transaction then contemplated;
(iv) Each obligation hereunder shall continue to be secured by a
perfected first prior lien (except as otherwise permitted by this Agreement
and the Security Documents) covering the assets of the Borrower and arising
under the Security Documents in favor of the Lender; and
(v) No change shall have occurred under any applicable law which
would make any Advance, Delivery of Precious Metal or issuance of any
Letter of Credit or Foreign Exchange Agreement pursuant to the terms hereof
illegal, or make the obligation of the Borrower to repay or reimburse the
same voidable.
IX. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, from the date hereof and until
payment in full of the principal of and interest on the Revolving Credit Note
and any other indebtedness, liabilities and obligations of the Borrower to the
Lender, whether now existing or arising hereafter, the Borrower will:
SECTION 9.01. (a) Do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its corporate existence and
its rights, licenses, permits and franchises applicable to it; at all times
maintain, preserve and protect all franchises, leases, licenses, trademarks,
trade names, service marks, copyrights, know-how and patents, and preserve all
the remainder of its property used or useful in the conduct of its business and
keep the same in a state of good repair, working order and condition (reasonable
wear and tear excepted), and from time to time, make, or cause to be made, all
needful and proper repairs, renewals, replacements, betterments and improvements
thereto, so that the business carried on in connection therewith may be properly
and advantageously conducted at all times; and keep its insurable properties
adequately insured at all times; by financially sound and reputable insurers, to
such extent and against such risks, including fire and other risks insured
against by extended coverage, and maintain liability and such other insurance,
as is required by the Security Documents or, if greater, as is customarily
maintained by companies engaged in similar businesses,
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(b) Comply with all applicable laws and regulations applicable to it
whether now in effect or hereafter enacted.
(c) To the extent not prohibited hereunder, pay, perform and fulfill all
of its obligations and covenants under each material document, instrument or
agreement to which it is a party or by which it is bound, all in accordance with
their respective terms; PROVIDED, HOWEVER, that with respect to any such
documents, instruments and agreements (other than the Loan Documents and any
other documents, instruments or agreements with or in favor of the Lender), so
long as the Borrower is contesting in good faith any alleged failure by it to
pay, perform and fulfill such obligations and covenants by proper proceedings
and has made any proper reserve or other provision in accordance with GAAP on
account thereof, the Borrower shall not be deemed in violation of this Section
9.01(c); PROVIDED FURTHER that payment, performance or fulfillment of such
obligations and covenants shall be made or completed before any of its property
shall be seized or foreclosure proceedings commenced in satisfaction thereof.
SECTION 9.02. Pay and discharge or cause to be paid and discharged all
taxes, assessments and governmental charges or levies imposed upon it or upon
its respective income and profits or upon any of its property, real, personal or
mixed, or upon any part thereof, before the same shall become in default, as
well as all lawful claims for labor, materials and supplies or otherwise, which,
if unpaid, might become a lien charge upon such properties or any part thereof;
PROVIDED THAT it shall not be required to pay and discharge or cause to be paid
and discharged any such tax, assessment, charge, levy or claim so long as the
validity thereof shall be contested in good faith by appropriate proceedings and
it shall have set aside on its books adequate reserved with respect to any such
tax, assessment, charge, levy or claim, so contested; and PROVIDED, FURTHER,
that payment with respect to any such tax, assessment, charge, levy or claim
shall be made before any of its property shall be seized or sold in satisfaction
thereof.
SECTION 9.03. Give prompt written notice to the Lender of any proceedings
instituted against any Borrower by or in any Federal or state court or before
any commission or other regulatory body, whether Federal, state, local or
foreign.
SECTION 9.04. Furnish to Lender:
(a) Within one hundred twenty (120) days of the end of each fiscal year,
a consolidated balance sheet and statement of earnings, of changes in
stockholders equity and of cash flow for IWI, together with notes to financial
statements, certified by Ernst & Young or other independent certified public
accountants selected by IWI and acceptable to Lender, showing the consolidated
financial condition of IWI and its subsidiaries, at the close of such fiscal
year, and the consolidated results of operations during such year; and to be on
a comparative basis with the corresponding statements for the preceding fiscal
year; such statements with respect to the Borrower shall be accompanied by a
statement by such accountants to the effect that such accountants have examined
such financial statements and
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the provisions of this Agreement and the Revolving Credit Note and that nothing
has come to their attention that would lead them to believe that an Event of
Default, or any event which upon notice or lapse of time or both, would
constitute an Event of Default, has occurred.
(b) Within one hundred twenty (120) days of the end of each fiscal year,
a Borrower-prepared consolidating balance sheet and statement of earnings, of
changes in stockholders equity and of cash flow for the Borrower, showing the
financial condition of the Borrower at the close of such fiscal year and the
consolidating results of operations during such year; and to be on a comparative
basis with the corresponding statements for the preceding fiscal year; each such
statement shall be accompanied by a statement certified by the chief financial
officer or controller of the Borrower to the effect that he has examined such
financial statements and the provisions of this Agreement and the Revolving
Credit Note and that nothing has come to the attention of the Borrower that
would lead him to believe that an Event of Default, or any event which upon
notice or lapse of time or both, would constitute an Event of Default, has
occurred. At such time the Borrower also shall deliver to the Lender a business
plan for the then current fiscal year showing projected performance on a monthly
basis, including a balance sheet, profit and loss statement;
(c) Within forty-five (45) days after the end of each quarter in each such
fiscal year of the Borrower and within one hundred twenty (120) days after the
end of each quarter in each such fiscal year of IWI, a consolidating
(consolidated in the case of IWI) balance sheet and statements of earnings, of
changes in stockholders' equity and of cash flow of each of the Borrower and IWI
(and its subsidiaries) prepared by the Borrower or IWI, as applicable, and
certified, as applicable, by their respective chief executive or chief financial
officers, such balance sheets to be as of the close of such month and such
statements of earnings, of changes in stockholders' equity and of cash flow to
be for the period from the beginning of the then current fiscal year to the end
of such month, and to set forth in comparative form the corresponding figures
for the corresponding month(s) of the preceding fiscal year, in each case
subject to normal audit and year-end adjustments;
(d) Within fifteen (15) days after the end of each month in each such
fiscal year, a schedule setting forth in reasonable detail the agings of the
Borrower's accounts receivable and accounts payable, certified by the Borrower's
chief financial officer or controller as of the preceding Business Day;
(e) On each Monday for the immediately preceding week ending Friday, and
on each day on which Borrower makes product shipments having a value of Three
Million Dollars ($3,000,000) or more on such day to DACO, a Borrowing Base
Certificate;
(f) Within forty-five (45) days after the end of each quarter in each
fiscal year, a certificate of the Borrower as to the status of the Borrower's
compliance with its agreements with the Lender (such certificate to be in the
form of SCHEDULE 9.04 attached hereto and certified by the Borrower's chief
financial officer or controller);
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(g) Written notice of the following events, as soon as possible and in any
event within 10 days after the Borrower knows or has reason to know thereof: (i)
the occurrence or expected occurrence of any Reportable Event with respect to
any Plan, or (ii) the institution of proceedings or the taking or expected
taking of any other action by PBGC or the Borrower or any Commonly Controlled
Entity to terminate, withdraw or Partially withdraw from any Plan and, with
respect to any Multiemployer Plan, the Reorganization (as defined in Section
4241 of ERISA) or Insolvency (as defined in Section 4245 of ERISA) of such Plan
and in addition to such notice, deliver to the Agent whichever of the following
may be applicable (x) a certificate of the chief financial officer of the
Borrower setting forth details as to such Reportable Event and the action that
the Borrower or Commonly Controlled Entity proposes to take with respect
thereto, together with a copy of any notice of such Reportable Event that may be
required to be filed with PBGC, or (y) any notice delivered by PBGC evidencing
its intent to institute such proceedings or any notice to PBGC that such Plan is
to be terminated, as the case may be;
(h) Promptly, from time to time, copies of all annual reports, 20F, 10Q,
10K and other securities reports and filings made by the Borrower and IWI, RHL
or RIHC with the Securities and Exchange Commission on any comparable body of a
foreign securities exchange; and
(i) Promptly, from time to time, such other information regarding the
operations, assets, business, affairs and financial condition of the Borrower,
as the Lender may reasonably request.
SECTION 9.05. Permit agents or representatives of the Lender, at the
Borrower's expense (including, without limitation, the reasonable fees and
expenses of such agents or representatives), (i) to inspect, at any time during
normal business hours and without notice, the Consigned Precious Metal and the
Borrower's books and records and to make abstracts or reproductions of such
books and records, (ii) to conduct two field examinations during each fiscal
year of the Borrower (PROVIDED, HOWEVER, that when an Event of Default has
occurred and is continuing, there shall exist no limit on the number of field
examinations), (iii) to observe the annual taking of physical inventory observed
by Ernst & Young (Borrower shall give Lender not less than ten (10) days' prior
notice of the taking of such inventory), and (iv) at reasonable times, and at
any time in case of emergency, to take a physical inventory of the Consigned
Precious Metal in the Borrower's possession. The Lender also shall have the
right to verify the authenticity of pearls in connection with the examinations
described herein. Notwithstanding anything to the contrary contained herein,
the Lender has agreed to bear all costs and expenses associated with the regular
commercial finance exam to be completed by the Lender in the second quarter of
1996.
SECTION 9.06. Promptly advise the Lender of any material adverse change in
the condition, financial or otherwise, of the Borrower or any guarantor or of
the occurrence of
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any Event of Default, or of the occurrence of any event which upon notice or
lapse of time or both, would constitute such an Event of Default.
SECTION 9.07. Maintain a standard system of accounting in accordance with
GAAP, with only such exceptions as are acceptable to the Lender.
SECTION 9.08. (a) Comply strictly and in all respects with the
requirements of all federal, state, and local environmental laws; notify the
Lender promptly in the event of any spill, hazardous waste pollution or
contamination affecting the Premises; forward to the Lender promptly any notices
relating to such matters received from any governmental agency; and pay promptly
when due any fine or assessment against the Premises.
(b) Not become involved, and not permit any tenant of the Premises to
become involved, in any operations at the Premises generating, storing,
disposing, or handling Hazardous Material or any other activity in such a manner
that could lead to the imposition on the Borrower or the Lender or the Premises
of any material liability or lien under any environmental laws.
(c) Immediately contain and remove any Hazardous Material found on the
Premises as required by and in compliance with applicable laws and at the
Borrower's expense, subject however, to the right of the Lender, at its option
but at the Borrower's expense, to have an environmental engineer or other
representative review the work being done.
(d) Promptly upon the request of the Lender, based upon the Lender's
reasonable belief that a hazardous waste or other environmental problem exists
with respect to the Premises, provide the Lender with all environmental site
assessment report or an update of any existing report, all in scope, form and
content and performed by such company as may be reasonably satisfactory to the
Lender.
(e) Indemnify, defend, and hold the Lender harmless from and against any
claim, cost, damage (including without limitation consequential damages),
expense (including without limitation attorneys' fees and expenses), loss,
liability, or judgment now or hereafter arising as a result of any claim for
environmental cleanup costs, any resulting damage to the environment and any
other environmental claims against the Borrower, the Lender, or the Premises.
The provisions of this subparagraph (e) shall continue in effect and shall
survive (among other events) any termination of this Agreement, foreclosure, a
deed in lieu transaction, payment and satisfaction of the Revolving Credit Note
and other obligations of the Borrower hereunder, and release of any collateral.
SECTION 9.10. Maintain a Maximum Leverage Ratio, determined at the end of
each fiscal quarter of not more than 2.50:1.00.
SECTION 9.11. [INTENTIONALLY LEFT BLANK].
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SECTION 9.12. [INTENTIONALLY LEFT BLANK].
SECTION 9.13. If applicable, maintain written agreements and file (and
keep in effect at all times) appropriate Uniform Commercial Code financing
statements covering Previous Metal inventory in the possession of third parties
(including, without limitation, inventory on memo or consignment or in the
possession of sales representatives or agents).
SECTION 9.14. Deliver to the Lender copies of all agreements and all filed
Uniform Commercial Code financing statements with respect to the Borrower's memo
and/or consignment programs and sales representatives or agents to the extent
the amount of any such memo or consignment arrangement with any such third party
individually equals or exceeds Precious Metal having a Fair Market Value in
excess of $250,000 .
SECTION 9.15. Give immediate written notice to the Lender of the
occurrence of any loss, theft of destruction of or damage to any of the
Borrower's inventory of Precious Metal (including, for such purpose, any
Consigned Precious Metal) which loss, theft, or destruction presents a dollar
loss to the Borrower in excess of $100,000.
SECTION 9.16. Maintain written agreements and file (and keep in effect at
all times) appropriate Ontario Personal Property Act financing statements in
order to have at all times perfected security interests (subject only to prior
perfected security interests, if any, of CIBC) in all Inventory (and products
and proceeds thereof) of DACO.
SECTION 9.17. Cause DACO to furnish to Lender copies of all financial
statements and all other information regarding its operations, assets, business
and financial condition at the same time such statements and information are
provided by DACO to Canadian Imperial Bank of Commerce or any other successor
financial institution.
SECTION 9.18. In addition to all other amounts due to the Lender under
this Agreement, pay to the Lender the Renewal Fee of $100,000 on the Closing
Date.
SECTION 9.19. Within two (2) weeks of the Closing Date but in no event
later than July 9, 1996, the Borrower shall retain a consultant acceptable to
the Lender, at the Borrower's expense, for the purpose of completing a report on
or before _________________, 1996: (i) affirming the Borrower's compliance with
respect to Borrowing Base reporting; (ii) reviewing the Borrower's plan for the
disposition of inventory; and (iii) analyzing the ongoing profitability of the
Borrower and its business and making recommendations with respect thereto.
X. NEGATIVE COVENANTS
The Borrower covenants and agrees that, until payment in full of the
principal of and interest on the Revolving Credit Note and any other
indebtedness, liabilities or obligations of the Borrower to the Lender, whether
now existing or arising hereafter, unless the prior written
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consent of the Lender shall have been obtained (which consent shall not be
unreasonably withheld or delayed), the Borrower will not, directly or
indirectly:
SECTION 10.01. Incur, create, assume, become or be liable in any manner
with respect to, or permit to exist, any Indebtedness, except:
(a) Indebtedness to the Lender;
(b) Indebtedness with respect to trade obligations and other normal
accruals in the ordinary course of business not yet due and payable, or
with respect to which it is contesting in good faith the amount or validity
thereof by appropriate proceedings, and then only to the extent it as set
aside on its books adequate reserves therefor;
(c) Endorsements of negotiable instruments for collection in the
ordinary course of business;
(d) Indebtedness representing Capitalized Lease Obligations of the
Borrower not to exceed $350,000 in the aggregate;
(e) Deferred taxes for which such Borrower has set aside on its
books adequate reserves in accordance with GAAP; and
(f) Indebtedness listed in SCHEDULE 7.17 hereto.
SECTION 10.02. Create, incur, assume or suffer to exist any mortgage,
pledge, lien, charge or other encumbrance of any nature whatsoever on any of its
assets, now or hereafter owned, other than:
(a) liens securing the payment of taxes, either not yet delinquent or
the validity of which is being contested in good faith by appropriate
proceedings, and as to which it shall have set aside on its books adequate
reserves in accordance with GAAP;
(b) deposits under workers' compensation, unemployment insurance and
social security laws, or to secure the performance of bids, tenders,
contracts (other than for the repayment of Borrowed Money) or leases, or to
secure statutory obligations or surety or appeal bonds, or to secure
indemnity, performance or other similar bonds in the ordinary course of
business;
(c) carriers', warehousemen's and mechanics' liens, incurred by it in
good faith in the ordinary course of business, and liens arising out of a
judgment or award against it with respect to which it shall currently be
prosecuting an appeal, a stay of execution pending such appeal having been
secured;
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(d) liens in favor of the, Lender;
(e) liens securing Indebtedness permitted by Section 10.01(d) hereof,
PROVIDED that the liens securing such Indebtedness shall be confined solely
to the assets purchased from the proceeds of such Indebtedness or assets
require to be capitalized in connection with such Indebtedness;
(f) liens and other encumbrances permitted pursuant to the Security
Documents; and
(g) liens identified in SCHEDULE 7.06 hereto.
SECTION 10.03. Guarantee, endorse or otherwise in any way become or be
responsible for, obligations of any Person, whether by agreement to purchase
Indebtedness of any other Person, or agreement for the furnishing of funds to
any other Person through purchase of goods, supplies or services, or by way of
stock purchase, capital contribution, advance or loan, for the purpose of paying
or discharging any Indebtedness or obligation of such other Person, or otherwise
(except (i) endorsements on negotiable instruments for collection in the
ordinary course of business and (ii) that certain Guaranty of Borrower in favor
of CIBC dated August 31, 1995 and limited to a principal amount not to exceed
two million Canadian dollars (Cdn. $2,000,000)).
SECTION 10.04. Enter into any arrangements, directly or indirectly, with
any Person whereby it shall sell or transfer any property or asset, real,
personal or mixed, used or useful in its business, whether now owned or
hereafter acquired, and thereafter rent or lease such property or asset.
SECTION 10.05. Except as otherwise approved in advance by the Lender, sell,
lease, transfer or otherwise dispose of all or any portion of its properties or
assets to any Person, except (a) sales of inventory in the ordinary course of
its business and (b) sales of equipment in the ordinary course involving no more
than $200,000 in the aggregate in any fiscal year excluding relocation costs.
SECTION 10.06. Purchase, invest in or otherwise acquire or hold securities,
including, without limitation, capital stock or other securities and evidences
of Indebtedness of, or make loans or advances to, or enter into any arrangement
for the purpose of providing funds or credit to, any Person, except:
(a) advances to employees for business expenses or for personal needs
not to exceed $25,000 in the aggregate to all such employees of Borrower
outstanding at any one time; and
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(b) investments in short-term obligations of the United States, the
Lender or any of its affiliates, or any other bank or financial institution
having capital and surplus in excess of $250,000,000.
SECTION 10.07. Dissolve or liquidate, or merge or consolidate with or into
any Person other than Affiliates so long as the Borrower is the surviving
corporation.
SECTION 10.08. Acquire all or Substantially all of the assets of any
Person, except (i) in the ordinary course of business, and (ii) stock of DACO.
SECTION 10.09. Declare or pay any dividends or make any other distribution
of cash or property to any of its stockholders, any Affiliate of the Borrower or
any Affiliates of Stockholders of the Borrower, or directly or indirectly
redeem, purchase or otherwise acquire for consideration, any shares of its
capital stock; provided, however, that if no Event of Default exists and is
continuing, the Borrower may purchase its own capital stock having a market
value of up to $50,000 for each fiscal quarter beginning as of January 1, 1996,
and continuing for each fiscal quarter thereafter until the Maturity Date.
SECTION 10.10. Enter into any new operating or real estate lease during any
fiscal year if the aggregate payments under all new operating or real estate
leases for such fiscal year would exceed $100,000.
SECTION 10.11. Conduct or enter into any business or any transaction or
series of related transactions (including the purchase, sale, lease or exchange
of any property or the rendering of any service) with any Affiliate except (i)
on terms and conditions determined in good faith by the Board of Directors of
Borrower to be no less favorable to Borrower than could be obtained in arms-
length transactions with any unaffiliated Person, and (ii) product shipments to
DACO of up to Three Million Dollars ($3,000,000) in aggregate value in each
calendar month; provided, however, that aggregate accounts payable by DACO to
Borrower shall not exceed Five Million Dollars ($5,000,000) in the aggregate at
any one time without the prior written consent of Lender which consent shall not
be unreasonably withheld.
SECTION 10.12. Sell, assign, discount or dispose in any way of any accounts
receivable, promissory notes or trade acceptances, with or without recourse,
except for collection (including endorsements) in the ordinary course of
business.
SECTION 10.13. (a) Terminate any Plan so as to result in any material
liability to PBGC, including without limitation, any contingent or secondary
withdrawal liability within the meaning of Sections 4201 and 4202 of ERISA to
any Multiemployer Plan, (b) engage in any "prohibited transaction" (as defined
in section 4975 of the Code) involving any Plan which would result in a material
liability for an excise tax or civil penalty in connection therewith, (c) incur
or suffer to exist any material "accumulated funding deficiency" (as defined in
Section 302 of ERISA or section 412 and/or 418B of the Code), whether or not
waived, involving any Plan, (d) allow or suffer to exist any event or condition,
which presents
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a material risk of incurring a material liability to PBGC by reason of
termination of any such Plan or, (e) cause or permit any Plan maintained by any
Borrower and/or any Commonly Controlled Entity to be administered in a manner
which is not in material compliance with ERISA, the Code and/or Title X of the
Consolidated Omnibus Budget Reconciliation Act of 1985 (P.L. 99-272), as
amended.
SECTION 10.14. Engage, directly or indirectly, in a business substantially
different from the business now being conducted.
SECTION 10.15. Change the fiscal year of the Borrower.
SECTION 10.16. Incur obligations with respect to Capital Expenditures in
any fiscal year in excess of the prior year's depreciation plus $100,000 plus
Capitalized Leases.
SECTION 10.17. Create, incur, assume or suffer to exist any mortgage,
pledge, lien, charge or other encumbrance of any nature whatsoever on any of the
Consigned Precious Metal.
SECTION 10.18. Grant any security interest or ownership rights to any
customer of the Borrower with respect to any of the Consigned Precious Metal
while at the Borrower's premises whether or not such customers have prepaid
orders for the Consigned Precious Metal or any products or property which does
or will include the Consigned Precious Metal.
SECTION 10.19. Without the prior written consent of RIHT, purchase, invest
in or otherwise acquire or hold securities, including, without limitation,
capital stock or other securities and evidences of Indebtedness of, or make
loans or advances to, or enter into any arrangement for the purpose of providing
funds or credit to RIHC or RHL except in the ordinary course of business.
XI. DEFAULTS; REMEDIES; NOT FOR CAUSE TERMINATION
SECTION 11.1. In case of the occurrence of any one or more of the
following events (each of which event is herein and in the Revolving Credit Note
and the Security Documents sometimes called an "Event of Default"):
(a) any representation or warranty made herein or in any Security
Document, or in any report, certificate, financial statement or other instrument
furnished to the Lender in connection with this Agreement, or any borrowing or
obligation incurred hereunder, shall prove to be false or misleading in any
material respect when made or deemed to have been made;
(b) default in the payment of any installment of the principal of or
interest on the Revolving Credit Note or any other Indebtedness of the Borrower
to the Lender, or in the payment of any other amount or fee due to the Lender
hereunder or under any of the Loan
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Documents, whether at the due date thereof or at a date fixed for prepayment, by
acceleration, demand or otherwise, and such default shall continue unremedied
for five (5) days, including, without limitation the failure to reimburse the
Lender for any amount due under Section 4.05 hereof or otherwise due under the
Letter of Credit Facility, the Foreign Exchange Facility or failure to make
punctual payment or perform any obligation required by the provisions of
Sections 3.01, 3.04, 3.05, 3.09, 9.09, 9.10, 9.17 or 9.18 of this Agreement;
(c) default in the due observance or performance of any covenant,
condition or agreement contained in Article IX hereof, and such default shall
continue unremedied for ten (10) days after written notice thereof by the Lender
to the Borrower, or default in the due observance or performance of any
covenant, condition or agreement contained in Article X hereof;
(d) default in the due observance or performance of any other covenant,
condition or agreement on the part of the Borrower to be observed or performed
pursuant to the terms hereof or pursuant to the terms of any of the other Loan
Documents (other than as set forth in subparagraphs (b) and (c) above), and such
default shall continue unremedied for twenty (20) days after written notice
thereof by the Lender to the Borrower;
(e) (i) default under any other Indebtedness of the Borrower (other than
to the Lender) in an amount outstanding which exceeds One Hundred Thousand
Dollars ($100,000) at the time of such default (including, without limitation,
under any Subordinated Indebtedness), if the effect of such default is to
accelerate the maturity of such Indebtedness or to permit the holder thereof to
cause such Indebtedness to become due prior to the stated maturity thereof, or
(ii) if any Indebtedness described in clause (i) above is not paid when due and
payable, whether at the due date thereof or a date fixed for prepayment, by
demand or otherwise;
(f) dissolution, liquidation or termination of existence of the Borrower;
(g) the Borrower or IWI shall (i) apply for or consent to the appointment
of a receiver, trustee, custodian or liquidator of it or any of its property,
(ii) admit in writing its inability to pay its debts as they mature, (iii) make
a general assignment for the benefit of creditors, (iv) be adjudicated a
bankrupt or insolvent or be the subject of an order for relief under Title 11 of
the United States Code, or (v) file a voluntary petition in bankruptcy, or a
petition or an answer seeking reorganization or an arrangement with creditors or
to take advantage of any bankruptcy, reorganization, insolvency, readjustment of
debt, dissolution or liquidation law or statute, or an answer admitting the
material allegations of a petition filed against it in any proceeding under any
such law or if corporate action shall be taken for the purpose of effecting any
of the foregoing;
(h) an order, judgment or decree shall be entered, without the
application, approval or consent of the Borrower or IWI, by any court of
competent jurisdiction, approving a petition seeking reorganization of the
Borrower or IWI or appointing a receiver, trustee,
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custodian or liquidator of the Borrower or IWI or of all or a substantial part
of any of their respective assets, and such order, judgment or decree shall
continue unstayed and in effect for any period of thirty (30) days;
(i) final judgment for the payment of money in excess of an aggregate of
One Hundred Thousand Dollars ($100,000) shall be rendered against the Borrower
and the same shall remain undischarged for a period of thirty consecutive days,
during which period execution shall not be effectively stayed or bonded;
(j) the occurrence of any attachment of any deposits or other property of
the Borrower in the hands or possession of the Lender;
(k) the occurrence of any attachment of any other property of the Borrower
in an amount exceeding One Hundred Thousand Dollars ($100,000), which shall not
be discharged, bonded or stayed pending appeal within thirty (30) days of the
date of such attachment;
(l) the occurrence of any material loss, theft, or destruction of or
damage to the Precious Metal inventory of the Borrower (including, for such
purpose, Consigned Precious Metal and any products or property which include
Precious Metal) which loss, theft or destruction presents a dollar loss to the
Borrower in excess of $250,000;
(m) for any reason the present President ceases to be employed by the
Borrower as President and chief executive officer of the Borrower and a
replacement does not succeed him within sixty (60) days after such vacancy is
created;
(n) the present majority shareholders of the Borrower shall cease to own
directly, or have the power to vote as trustee, at least fifty-one percent (51%)
of the outstanding voting stock of the Borrower;
(o) discontinuance of the operation of the Borrower's business for any
reason;
(p) an Event of Default under any of the other Loan Documents shall have
occurred;
(q) Occurrence of any attachment on any Precious Metal owned by the
Borrower or on any Consigned Precious Metal;
(r) Determination by the Lender in good faith that the Borrower has
suffered a material adverse change in its business or financial condition;
(s) Occurrence of any Event of Default as defined in the Security
Agreement; or
(t) The occurrence of a default or event of default with respect to any
indebtedness, liabilities or obligations of Borrower or DACO to CIBC;
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(u) Without the prior written consent of RIHT, IWI purchases, invests in
or otherwise acquires, or hold securities, including, without limitation,
capital stock or other securities and evidences of Indebtedness of, or makes
loans or advances to, or enters into any arrangement for the purpose of
providing funds or credit to RIHC or RHL;
(v) IWI fails to obtain any installment of the cash consideration for the
sale of its interest in the Haupia joint venture in the following amounts, on or
before the date specified: $200,000 (April 1, 1996); $200,000 (July 1, 1996);
$500,000 (September 1, 1996); and $500,000 (January 1, 1997);
(w) the Borrower fails to reduce the Permitted Inventory Overadvance to:
(i) $750,000 or less as of July 1, 1996; and (ii) zero on or before August 5,
1996;
then and in respect of every such Event of Default which shall be continuing,
(A) the Lender may, by notice to the Borrower, declare any obligation of the
Lender with respect to each of the Facilities to be terminated, whereupon the
same shall forthwith terminate, and (B) the Lender may, by notice to the
Borrower, declare the entire unpaid principal amount of the Revolving Credit
Note and all fees and interest accrued and unpaid thereon and/or under this
Agreement and any and all other Indebtedness of the Borrower to the Lender
and/or to any holder of all or any portion of the Revolving Credit Note to be
forthwith due and payable, including all reimbursement obligations under the
Letter of Credit Agreement and in respect of any then outstanding Letters of
Credit and with respect to the Consignment Facility, whether or not then
otherwise matured, whereupon the Revolving Credit Note and all such accrued fees
and interest and other Indebtedness shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower; PROVIDED, HOWEVER, that
upon the occurrence of an Event of Default under Article XI (g) or (h) hereof,
all of the unpaid principal amount of the Revolving Credit Note, all fees and
interest accrued and unpaid thereon and/or under this Agreement and any and all
other Indebtedness of the Borrower to any of the Lender and/or to any such
holder shall thereupon become and be forthwith due and payable in full without
any need for the Lender to make any such declaration or take any action, and any
obligations of the Lender to make Advances, to consign Precious Metal, to issue
Letters of Credit or to otherwise extend credit hereunder shall simultaneously
terminate.
The Lender may enforce payment of the same and exercise any or all of the
rights, powers and remedies possessed by the Lender, whether under this
Agreement or afforded by the Uniform Commercial Code or otherwise afforded by
law or in equity. The remedies provided for herein are cumulative and are not
exclusive of any other remedies provided by law. The Borrower agrees to pay the
Lender's reasonable attorney's fees and legal expenses incurred in enforcing the
Lender's rights, powers and remedies under this Agreement and any agreement
securing the liabilities, indebtedness or obligations of the Borrower to the
Lender.
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Without limiting the foregoing, upon the occurrence of any Event of Default
and at any time thereafter during the continuance thereof, (A) Borrower
immediately shall cease any and all payments to any Affiliate (including,
without limitation, DACO), whether or not such payments relate to inter-company
accounts payable or would otherwise be made in the ordinary course of business
and (B) Lender shall have the right to enter and/or remain upon the premises of
Borrower or any other place or places where any Consigned Precious Metal is
located and kept (without any obligation to pay rent to Borrower or others) and:
(i) remove Consigned Precious Metal or inventory containing the same therefrom
to the premises of Lender or any agent of Lender, for such time as Lender may
desire, in order to maintain, collect, sell and/or liquidate said Consigned
Precious Metal or (ii) use such premises, together with equipment, materials,
supplies, books and records of Borrower, to maintain possession, refine and
prepare said Consigned Precious Metal for sale, liquidation or collection. The
Lender may require the Borrower to assemble the Consigned Precious Metal and
make it available to the Lender at a place or places to be designated by the
Lender which is reasonably convenient for the parties. The Lender may at any
time and from time to time employ and maintain in any premises of the Borrower
or any place where any of the Consigned Precious Metal is located a custodian
selected by the Lender who shall have full authority to do all acts necessary to
protect the Lender's interests and to report to bank thereon. The Borrower
agrees to cooperate with any such custodian and to do whatever the Lender may
reasonably request to preserve the Consigned Precious Metal. All reasonable
expenses incurred by reason of the employment of the custodian shall be paid by
the Borrower pursuing to Section 12.02 hereof.
SECTION 11.2. Unless otherwise terminated in accordance with the terms of
this Agreement upon the occurrence of an Event of Default, this Agreement shall
continue until either Lender or Borrower elects to terminate this Agreement by
not less than ninety (90) days' prior issuance of a Not For Cause Termination
Notice. Unless otherwise mutually agreed in writing by Lender and Borrower,
following the issuance of a Not-For-Cause Termination Notice, no Delivery of
Precious Metal to Borrower will be made by Lender and the Maximum Commitment
shall be immediately reduced to the dollar amount outstanding as of the date
such Not-For-Cause-Termination Notice is issued. Termination of this Agreement
shall not affect Borrower's duty to pay and perform in full its obligations to
Lender hereunder. On the effective date of the termination of this Agreement,
Buyer shall satisfy in full its Indebtedness to Lender under the Agreement and
the other Loan Documents.
XII. MISCELLANEOUS
SECTION 12.01. This Agreement and all covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto, shall survive the making of the Advances and the issuance of
any Letters of Credit and shall continue in full force and effect so long as the
Revolving Credit Note and any other Indebtedness of the Borrower to the Lender
is outstanding and unpaid.
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SECTION 12.02. The Borrower agrees to reimburse the Lender upon demand for
all costs, charges and expenses (including reasonable attorneys fees) of the
Lender in connection with (i) the preparation, execution and delivery of this
Agreement, the Revolving Credit Note, the Security Documents and the other Loan
Documents executed in connection herewith, (ii) the issuance of any Letter of
Credit, (iii) any amendments, modifications, consents or waivers in respect
thereof, and (iv) any enforcement and interpretation thereof with respect to
existing or potential Events of Default. In addition, the Borrower shall pay on
demand any and all stamp and other taxes and fees payable or determined to be
payable in connection with the execution and delivery of this Agreement, the
Revolving Credit Note, the Security Documents and any other Loan Documents or
other instruments and documents to be delivered hereunder or thereunder,
including any Letter of Credit and agrees to save the Lender harmless from and
against any and all liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes or fees.
SECTION 12.03. The Borrower irrevocably agrees to, and does hereby
indemnify and hold harmless the Lender, its agents or employees and each Person,
if any, who controls the Lender within the meaning of Section 15 of the
Securities Act of 1933, as amended, and each and all and any of them (the
"Indemnified Parties"), against any and all losses, claims, actions, causes of
action, damages or liabilities (including any amount paid in settlement of any
action, commenced or threatened), joint or several, to which they, or any of
them, may become subject under statutory law or at common law, and to reimburse
the Indemnified Parties for any legal or other expenses reasonably incurred by
it or them in connection with investigating, preparing for or defending against
any actions, commenced or threatened, insofar as such losses, claims, damages,
liabilities or actions arise out of or are related to any act or omission of the
Borrower as relating directly or indirectly to the Loan Documents and which do
not result from the gross negligence or the willful misconduct of the
Indemnified Parties.
Promptly upon receipt of notice of the commencement of any action, or
information as to any threatened action, against any of the Indemnified Parties
in respect of which indemnity or reimbursement may be sought from the Borrower
on account of the agreement contained in this Section 12.03, notice shall be
given to the Borrower in writing of the commencement or threat thereof, together
with a copy of all papers served, but the omission so to notify the Borrower of
any such action or threat shall not release the Borrower from any liability
which it may have to such Indemnified Parties, except to the extent prejudiced
thereby, nor release the Borrower from any such liability otherwise than on
account of the indemnity agreement contained in this Section 12.03.
In case any such action shall be brought against any of the Indemnified
Parties, the Borrower shall be entitled to participate in (and, to the extent
that they shall wish, including the selection of counsel reasonably acceptable
to the Indemnified Parties, to direct) the defense thereof at its own expense.
Any of the Indemnified Parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party unless the employment of such counsel
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<PAGE>
shall have been authorized in writing by the Borrower in connection with the
defense of such action or the Borrower shall not have employed counsel
reasonably acceptable to the Indemnified Parties to have charge of the defense
of such action or such Indemnified Party shall have been advised by legal
counsel that there may be defenses available to it which are different from or
additional to those available to the Borrower (in which case the Borrower shall
not have the right to direct the defense of such action on behalf of such
Indemnified Party), in any of which events the fees and expenses of such counsel
shall be borne by the Borrower. If and so long as the Borrower has effectively
waived any right to question or challenge the Borrower's liability to indemnify
fully an Indemnified Party for a claim such Indemnified Party shall not be
entitled to compromise or settle such claim without the Borrower's consent.
The provisions of Section 12.03 shall be effective only to the fullest
extent permitted by law.
SECTION 12.04. This Agreement find the Revolving Credit Note shall be
construed in accordance with, and governed by, the laws of the State of Rhode
Island applicable to contracts made and to be performed entirely within the
State of Rhode Island. The Borrower and the Lender each acknowledge that this
Agreement and the Revolving Credit Note are deemed to have been executed and
were delivered in the State of Rhode Island.
SECTION 12.05. No amendment or waiver of any provision of this Agreement,
the Revolving Credit Note or any of the other Loan Documents, nor consent to any
departure by the Borrower therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Lender, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No notice to, or demand, on the Borrower in one case,
shall entitle the Borrower to any other or future notice or demand in the same,
similar or other circumstances.
SECTION 12.06. Neither any failure nor any delay on the part of the Lender
in exercising any right, power or privilege hereunder, or under the Revolving
Credit Note, or under any of the other Loan Documents, shall operate as a waiver
thereof, nor shall a single or partial exercise thereof preclude any other or
future exercise, or the exercise of any other right, power or privilege.
SECTION 12.07. All notices, requests, demands and other communications
provided for hereunder shall be in writing (including telegraphic communication)
and mailed, telecopied (with a copy mailed within 24 hours) or telegraphed or
delivered to the applicable party at the addresses indicated below,
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<PAGE>
If to the Lender, to it at:
Rhode Island Hospital Trust National Bank
One Hospital Trust Tower
Providence, Rhode Island 02903
Attention: Precious Metals Department
Telephone: (401) 278-8070
Telecopy: (401) 278-7329
and if to the Borrower, to it at:
Imperial World, Inc.
Oakmont Center
1010 Executive Court, Suite 300
Westmont, IL 60559
Attention: Richard W. Sigman
Chief Financial Officer
Telephone: (708) 887-8288
Telecopy: (708) 887-8282
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other parties complying as to delivery within the
terms of this Section. All such notices, requests, demands and other
communications shall, when mailed, telecopied or telegraphed, respectively, be
deemed to be effective when deposited in the mails by registered or certified
mail, return receipt requested, transmitted by telecopier or delivered to the
telegraph company, respectively, addressed or sent as aforesaid.
SECTION 12.08. Upon the occurrence and during the continuance of any Event
of Default, the Lender is hereby authorized, at any time and from time to time,
without notice to the Borrower (any such notice being expressly waived by the
Borrower), to set off and apply any and all deposits (general or special, time
or demand, provisional or final) at any time held by it and any and all other
indebtedness at any time owing by the Lender to or for the credit or the account
of the Borrower against any and all of the obligations of the Borrower now or
hereafter existing under this Agreement, the Revolving Credit Note, or any other
Loan Documents, irrespective of whether or not any Lender shall have made any
demand under this Agreement, the Revolving Credit Note, or any other Loan
Documents, and although such obligations may be unmatured. The Lender agrees to
notify promptly the Borrower after any such setoff and application; provided
that the failure to give such notice shall not affect the validity of such
setoff and application. The rights of the Lender under this Section 12.08 are
in addition to all other rights and remedies (including, without limitation,
other rights of setoff) which the Lender may have.
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<PAGE>
SECTION 12.09. Each such payment shall be made without deduction for any
claim, defense or offset of any type, including without limitation, any
withholdings and other deductions on account of income or other taxes and
regardless of whether any claims, defenses or offsets of any type exist.
However, this Section 12.09 shall not constitute a waiver of any claims the
Borrower may hereafter have at law against the Lender.
SECTION 12.10. This Agreement shall be binding upon and inure to the
benefit of the Borrower and the Lender and their respective successors and
assigns, except that subject to participation pursuant to Section 12.16 hereof
or assignments by the Lender to an affiliate (which shall require no consent),
neither the Lender nor the Borrower shall have any right to assign its rights
hereunder or any Interest herein without the prior written consent of the other
party hereto.
SECTION 12.11. The Borrower, to the extent that it may lawfully do so,
hereby consents to the jurisdiction of the courts of the State of Rhode Island
and the United States District Court for the District of Rhode Island, as well
as to the jurisdiction of all courts from which an appeal may be taken from such
courts, for the purpose of any suit, action or other proceeding arising out of
any of its obligations arising hereunder or with respect to the transactions
contemplated hereby, and expressly waives any and all objections which it may
have as to venue in any of such courts. TO THE EXTENT PERMITTED BY LAW, THE
BORROWER ALSO WAIVES TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO
THIS AGREEMENT, THE REVOLVING CREDIT NOTE, THE SECURITY DOCUMENTS AND ANY OTHER
LOAN DOCUMENTS EXECUTED IN CONNECTION HEREWITH.
SECTION 12.12. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
SECTION 12.13. The Articles and Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
SECTION 12.14. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original of this Agreement, and all such
counterparts shall constitute a part of this Agreement.
SECTION 12.15. This Agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof.
SECTION 12.16. The Lender may sell or convey all or any portion of the
Facilities or any interest therein, including, without limitation any
participation therein, to one or more
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<PAGE>
financial institutions; PROVIDED, HOWEVER, that the Lender shall give the
Borrower prior written notice of any such participation. Without limiting the
foregoing, any Person purchasing a participation as aforesaid shall be entitled
to the benefits of Sections 6.02 and 12.02 hereof and shall be entitled to
exercise rights of set-off against the Borrower in respect of its participation
to the same extent as if such participation constituted a direct loan of such
participant to the Borrowers. The Lender may make available to any participant
any information furnished by the Borrower to the Lender in connection with this
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Lender and the Borrower have each caused this
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
LENDER:
RHODE ISLAND HOSPITAL TRUST NATIONAL
BANK
By:
-----------------------------------
Name:
-----------------------------------
Title:
---------------------------------
BORROWER:
IMPERIAL WORLD, INC.
By:
---------------------------------------
Name:
------------------------------------
Title:
-------------------------------------
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<PAGE>
TABLE OF CONTENTS
- 58 -
<PAGE>
SCHEDULES
- ---------
2.01 Request for Revolving Credit Advance
2.03 Borrowing Base Certificate
7.06 Financing Statements
7.07 Stock Ownership
7.13 Benefit Plans
7.15 Property Locations
7.16 Licenses
7.17 Material Contracts
7.18 Governmental Permits
8.01(c) Form of Opinion for Borrower's Counsel
EXHIBITS
- --------
A Revolving Credit Note
- 59 -
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY
BE ENFORCED BY THE PARTIES.
AGREEMENT, dated this 1st day of April, 1995, but effective as of January
1, 1995, by and between IMPERIAL WORLD, INC., an Illinois corporation
("Company"), and RICHARD W. SIGMAN ("Employee").
RECITALS
WHEREAS, the Company and its affiliates are engaged in the design,
assembly, merchandising and wholesale distribution of jewelry.
WHEREAS, the Company desires to retain the ongoing services of the
Employee, and the Employee desires to serve, as Vice President and Chief
Financial Officer of the Company and in such other capacities as the Company's
Board of Directors shall from time to time determine.
WHEREAS, the Employee is, and will be, employed by the Company in a
confidential relationship wherein Employee, in the course of his employment with
the Company, has, and will, become familiar with and aware of information as to
the specific manner of doing business and the customers of the Company and its
affiliates and future plans with respect thereto, all of which has been
established and maintained, and will be established and maintained, at great
expense to the Company.
WHEREAS, Employee recognizes that the Company's business is dependent upon
a number of trade secrets, the protection of which is of critical importance to
the Company.
WHEREAS, the Company will sustain great loss and economic damage if during
the term of this Agreement or Employee's employment with the Company, whichever
period is later, and for a period of one (1) year immediately following the
termination of the Agreement or Employee's employment, whichever is longer, for
any reason, Employee should violate the provisions of Articles III or IV of this
Agreement.
WHEREAS, monetary damages for such losses would be extremely difficult to
measure.
WHEREAS, the Company and Employee desire to formally evidence their
relationship and the terms of employment.
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants
and conditions set forth herein and the performance of each, it is hereby agreed
as follows:
<PAGE>
ARTICLE I
EMPLOYMENT AND DUTIES
1.01 EMPLOYMENT. The Company hereby employs Employee as Vice President
and Chief Financial Officer. Additional or different duties, titles or
positions, however, may be assigned to Employee or may be taken from Employee
from time to time at the discretion of the Board of Directors ("Board") of the
Company. However, if the duties and title of the Employee do not include Chief
Financial Officer this agreement is immediately terminable at the discretion of
Employee and Employee is entitled to one year severance payable in a lump sum
within 10 days from the date Employee notifies the Company of his termination.
Employee hereby accepts this employment upon the terms and conditions herein
contained and agrees to devote his time, attention and efforts to promote and
further the business and services of the Company. Employee shall faithfully
adhere to, execute and fulfill all policies established by the Company.
1.02 DUTIES. Employee shall perform such duties, assume such
responsibilities and devote such time, attention and energy to the business of
the Company as the Board shall from time to time require and shall not, during
the term of his employment hereunder, be engaged in any other business activity
pursued for gain, profit or other pecuniary advantage if such activity
interferes with Employee's duties and responsibilities hereunder. However, the
foregoing limitations shall not be construed as prohibiting Employee from making
personal investments in such form or manner as will neither require his services
in the operation or affairs of the companies or enterprises in which such
investments are made nor violate the terms of Articles III or IV hereof.
Employee is further expressly authorized to provide services to, be employed by,
and receive compensation from the Company's ultimate parent corporation, Rhine
Holdings Limited, and/or any of its affiliates; provided, however, that such
services do not interfere with, or take away from, Employee's performance of his
services hereunder, and provided further that any such services do not violate
the provisions Articles III or IV hereof. For purposes hereof, affiliates of
Rhine Holdings Limited shall mean any companies the voting securities of which
are held at least 50% by Rhine Holdings Limited.
1.03 CUSTODY OF COMPANY FUNDS. All funds received by Employee on behalf
of the Company, if any, shall be held in trust for the Company and shall be
delivered to the Company as soon as practicable.
ARTICLE II
COMPENSATION
2.01 BASE SALARY. From and after the execution of this Agreement, the
Company shall pay a base salary to Employee in the amount of $100,000 per year,
payable in equal installments on a bi-weekly basis. The base salary shall be
adjusted on each
2
<PAGE>
anniversary during the term of this Agreement to reflect the change in the
Consumer Price Index since the previous anniversary or by such greater amount as
the Board of Directors may determine.
2.02 EXPENSE REIMBURSEMENT. The Company shall reimburse Employee for all
reasonable travel, entertainment and other expenses related to his employment
by, or promotion of, the Company. Employee shall provide a written accounting
and explanation of all expenses for which reimbursement is sought on a monthly
basis and the Company shall reimburse all such expenses within ten (10) days
following receipt of each written accounting.
2.03 BONUSES. The Employee shall be entitled to receive such bonuses as
the Board shall determine from time to time in accordance with Company policy
and at the sole discretion of the Board.
2.04 PLAN PARTICIPATION. The Employee shall be entitled to participate in
any and all stock option, stock bonus, pension, profit sharing, retirement or
other similar plans adopted by the Company.
2.05 AUTO ALLOWANCE. The Company shall pay to the Employee an automobile
allowance in the amount of $450 per month.
2.06 OTHER. The Employee shall be entitled to such fringe benefits as the
Company shall establish for its employees generally which shall include with
respect to the Employee at least three weeks paid vacation annually, life
insurance, health insurance profit sharing, disability pay and such other
benefits as the Company shall adopt, subject to the discretion of the Company to
add or delete such standard benefits as the Board deems appropriate, from time
to time.
ARTICLE III
NON-COMPETITION AGREEMENT
3.01 NON-COMPETITION AGREEMENT. Employee will not, during either the
period of this Agreement or of his employment by or with the Company, whichever
period is later, and for a period of one (1) year immediately following the
termination of this Agreement, or his employment, whichever is longer, for any
reason whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature (i) call upon any customer of the Company
(including, but not limited to, any customer obtained for the Company by
Employee) for the purpose of soliciting or selling any products or services in
competition with those of the Company or its affiliates; (ii) call upon any
employee of the Company or any of its affiliates for the purpose or with the
intent of enticing them away from or out of the employ of the Company or any
reason whatever; (iii) establish, enter into, be employed by or, advise, consult
with or become a part of, any company, partnership, corporation or other
business entity or venture, or in any way engage in business for himself or for
others, within the city limits of Chicago, Illinois or within 30
3
<PAGE>
miles of such city limits, in competition with the Company or its affiliates; or
(iv) during or after the term of his employment with the Company, disclose the
Company's customers or any other trade secrets of the Company whether in
existence or proposed, to any person, firm, partnership, corporation or business
for any reason or purpose whatsoever.
3.02 EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses to the Company and its affiliates as a result of the Employee's breach of
the foregoing covenant, and because of the immediate and irreparable damage that
would be caused to the Company and its affiliates for which it would have no
other adequate remedy, Employee agrees that the covenant specified in Paragraph
3.01 may be enforced by the Company and its affiliates in the event of breach by
him by injunctions and restraining orders or similar equitable relief.
3.03 REASONABLENESS OF THE COVENANT NOT TO COMPETE. It is agreed by the
parties that the covenants in Paragraph 3.01 are necessary to protect the
goodwill and business interests of the Company and its affiliates and impose a
reasonable restraint on Employee in light of the activities and business of the
Company and its affiliates on the date of the execution of this Agreement and
the future plans of the Company. It is also the intent of the Company and
Employee that such covenants be construed and enforced in accordance with the
activities and business of the Company and its affiliates on the date of the
termination of the employment of Employee.
3.04 SEVERABILITY OF THE COVENANT NOT TO COMPETE. The covenants in
this Article III are severable and separate and the unenforceability of any
specific covenant shall not affect the provisions of any other covenant.
Moreover, in the event any court of competent jurisdiction shall determine that
the scope, time or territorial restrictions set forth herein are unreasonable,
then it is the intention of the parties that such restrictions be enforced to
the fullest extent which the court deems reasonable and the Agreement shall
thereby be reformed.
3.05 INDEPENDENCE OF COVENANT NOT TO COMPETE. All of the covenants in
this Paragraph 3 shall be construed as an agreement independent of any other
provision in this Agreement and the existence of any claim or cause of action of
Employee against the Company or its affiliates, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by the
Company of such covenants. It is specifically agreed that the period of one (1)
year stated at the beginning of this Article III, during which the agreements
and covenants of Employee made in Paragraph 3.01 shall be effective, shall be
computed by excluding from such computation any time during which Employee is in
violation of any provision of this Article III and any time during which there
is pending in any court of competent jurisdiction any action (including any
appeal from any final judgment) brought by any person, whether or not a party to
this Agreement, in which action the Company or its affiliates seeks to enforce
the agreements and covenants of Employee or in which any person
4
<PAGE>
contests the validity of such agreements and covenants or their enforceability
or seeks to avoid their performance or enforcement.
ARTICLE IV
NON-DISCLOSURE AGREEMENT AND PROPRIETARY INFORMATION.
4.01 PROPRIETARY INFORMATION. The Employee recognizes and acknowledges that
the information, techniques, processes, developments, work in process, business,
list of the Company's customers and any other trade secret or other secret or
confidential information relating to Company's business as they may exist from
time to time are valuable, special and unique assets of Company's business. In
addition, Employee recognizes that Company is continually engaged in research,
design and development of new products and inventions and improvements to the
information, techniques, processes, developments, trade secrets, and other
secrets and confidential matters relating to Company's business. Therefore,
Employee agrees as follows:
A. That Employee will hold in strictest confidence and not disclose,
reproduce, publish or use in any manner, whether during or
subsequent to his employment, without the express authorization
of the Board of Directors of the Company, any information,
design, manufacturing technique, process, business customer
lists, trade secrets or any other secrets or confidential matter
relating to any aspect of the Company's business as designated
from time to time by the Board of Directors of Company, except as
such disclosure or use may be required in connection with
Employee's work for the Company.
B. That upon request or at the time of leaving the employ of the
Company the Employee will deliver to the Company, and not keep or
deliver to anyone else, any and all notes, memoranda, documents
and, in general, any and all material relating to the Company's
business.
C. That the Board of Directors of the Company may from time to time
designate other subject matters requiring confidentiality and
secrecy which shall be deemed to be covered by the terms of this
Agreement. However, any such matters must be mutually agreed
upon by both the Board and Employee.
4.02 BREACH. In the event of a breach or threatened breach by the
Employee of the provisions of this Article IV, the Company shall be entitled to
apply to a court of competent jurisdiction for an injunction:
A. Restraining the Employee from disclosing, in whole or in part,
any information described in Paragraph 4.01 or from rendering any
services to any person,
5
<PAGE>
firm, corporation association or other entity to whom such
information, in whole or in part, has been disclosed or is
threatened to be disclosed; and/or
B. Requiring that Employee deliver to Company all information,
documents, notes, memoranda and any and all discoveries or other
material as described above upon Employee's leave of the employ
of the Company. Nothing herein shall be construed as prohibiting
the Company from pursuing other remedies available to the Company
for such breach or threatened breach, including the recovery of
damages from the Employee.
ARTICLE V
TERM; TERMINATIONS
5.01 TERM. The term of this Agreement shall begin on the effective date
of this Agreement and continue for a term of three (3) years, and shall
automatically be renewed on the same terms and conditions for consecutive one
(1) year periods unless six (6) months prior to the expiration date of this
agreement, or any extension thereof, either party gives written notice to the
other party that it desires to modify or terminate this Agreement.
5.02 TERMINATION. This Agreement and Employee's employment may be
terminated in any one of the following ways:
A. The death of Employee shall terminate the Agreement.
B. The Company may terminate the Agreement after thirty (30) days
written notice to Employee for good cause, including, but not limited to (i)
Employee's material breach of this Agreement; (ii) the material default of the
Company or its affiliates in performing their obligations under contracts with
other persons or business entities if directly caused by Employee; (iii) if,
because of illness or physical or mental disability or other incapacity which
continues for a period in excess of six (6) months, Employee is unable to
perform his duties under this agreement; (iv) Employee's fraud with respect to
the business or affairs of the Company or its affiliates or if Employee is
convicted of a crime; or (v) alcohol or drug abuse by Employee.
C. This Agreement will terminate upon (i) the sale by the Company of
all or substantially all of its assets to a bona fide third party purchaser(s);
(ii) the sale, exchange or disposition in one transaction of fifty percent (50%)
or more of the outstanding voting securities of the Company to a bona fide third
party purchaser; (iii) a bona fide decision by the Company to terminate its
business and liquidate its assets; or (iv) the merger or consolidation of the
Company in a transaction wherein the shareholders of the Company hold less than
fifty percent (50%) of the post-transaction shares of the surviving entity.
D. By mutual agreement.
6
<PAGE>
E. By the resignation of the Employee.
5.03 RIGHTS OF TERMINATION; SEVERANCE PAYMENTS. Upon termination of
this Agreement and Employee's employment, Employee shall be entitled to receive
all compensation earned and all reimbursable expenses due including return
travel to Chicago, Illinois if requested under this Agreement. In the event of
termination pursuant to Paragraph 5.02C, the Employee shall be entitled to, and
the Company shall pay to the Employee, severance pay in an amount equal to one
years' salary payable within ten (10) days of termination.
In the event of termination of this Agreement for any reason provided in
this Article V, other than Paragraph 5.02C or if Employee resigns prior to the
expiration of the term of this Agreement, except as provided in this Paragraph
5.03, all rights and obligations of the Company and Employee under this
Agreement shall cease immediately, except that Employee's obligations under
Paragraphs 3.01, 4.01 and 5.01 herein shall survive such termination and
thereafter Employee shall have no right to receive any compensation hereunder
except as set forth in this Paragraph 5.03, or to the extent employee is
prohibited from competing under Paragraph 3.01, compensation shall continue for
the non-competition period.
ARTICLE VI
REPRESENTATIONS OF EMPLOYEE
Employee has represented and hereby represents and warrants to the Company
that he is not subject to any restriction or non-competition covenant in favor
of a former employer or any other person or entity and that the execution of
this Agreement by Employee and his employment by the Company or its affiliates
and the performance of his duties hereunder will not violate or be a breach of
any agreement with a former employer or any other person or entity. Further,
Employee agrees to indemnify the Company and its affiliates for any claim,
including, but not limited to, attorney's fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company or its affiliates based upon or arising out of any non-
competition agreement or invention and secrecy agreement between Employee and
such third party.
ARTICLE VII
MISCELLANEOUS
7.01 COMPLETE AGREEMENT. This Agreement is not a promise of future
employment. There are no oral representations, understandings or agreements
between the Employee and the Company or any of its officers, directors or
representatives covering the same subject matter as this Agreement. This
written Agreement is the final, complete and exclusive statement and expression
of the agreement between the Company and Employee and of all the terms of this
Agreement and it cannot be varied, contradicted or
7
<PAGE>
supplemented by evidence of any prior or contemporaneous oral or written
agreements. Furthermore, this agreement supersedes any and all prior agreements
between the Company and the Employee. This written agreement may not be later
modified except by a further writing signed by the Company and Employee, and no
term of this Agreement may be waived except by writing signed by the party
waiving the benefit of such terms.
7.02 NO WAIVER. No waiver by the parties hereto of any default or
breach of any term, condition or covenant of this Agreement shall be deemed to
be a waiver of any subsequent default or breach of the same or any other term,
condition or covenant contained herein.
7.03 ASSIGNMENT; BINDING EFFECT. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Employee agrees, therefore, that this
Agreement and the rights to his services may be assigned by the Company to
another member of the Company's affiliated group at any time without notice to
him, but that he cannot assign all or any portion of this Agreement. Subject to
the preceding two sentences, this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors and
assigns. It is further understood and agreed that the Company may be merged or
consolidated with another entity and that any such entity shall automatically
succeed to the rights, powers and duties of the Company hereunder.
7.04 NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
TO THE COMPANY: IMPERIAL WORLD, INC.
Oakmont Centre
1010 Executive Court
Suite 300
Westmont, Illinois 60559
TO EMPLOYEE: RICHARD W. SIGMAN
424 Uvedale Road
Riverside, Illinois 60546
Notice shall be deemed given and effective three (3) days after the deposit
in the United States mail of a writing addressed as above and sent first class
mail, certified, return receipt requested, or when actually received. Either
party may change the address for notice by notifying the other party of such
change in accordance with this Paragraph 7.04.
7.05 SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are
8
<PAGE>
not intended in any way to describe, interpret, define or limit the extent or
intent of this Agreement or of any part hereof.
7.06 ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement or the breach thereof shall be settled by arbitration in the City
of Chicago, Illinois in accordance with the rules then existing of the American
Arbitration Association and judgment upon the award may be entered in any Court
having jurisdiction thereof.
7.07 GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and date herein first set forth.
IMPERIAL WORLD, INC.
ATTEST:
/s/ Bankee Kwan By: /s/ illegible
- ---------------- ---------------------------------
Bankee Kwan Title:
------------------------------
EMPLOYEE:
/s/ Richard W. Sigman
------------------------------------
Richard W. Sigman
9
<PAGE>
IWI HOLDING LIMITED
NON-QUALIFIED STOCK OPTION PLAN
A. Purpose and Scope
The purposes of this Plan are to encourage stock ownership by non-employee
directors, key management employees and third party consultants of IWI Holding
Limited (herein called the "Company") and its Subsidiaries, to provide an
incentive for such non-employee directors, key management employees and
consultants to expand and improve the profits and prosperity of the Company and
its Subsidiaries, and to assist the Company and its Subsidiaries in attracting
and retaining key personnel through the grant of (1) Options to purchase shares
of the Company's common stock and (2) Stock Appreciation Rights related to those
Options.
B. Definitions
Unless otherwise required by the context:
1. "Board" shall mean the Board of Directors of the Company.
2. "Committee" shall mean the Compensation Committee, which is appointed
by the Board, and which shall be composed of three member of the Board, two of
whom are outside directors.
3. "Company" shall mean IWI Holding Limited, a British Virgin Islands
corporation.
4. "Code" shall mean the Internal Revenue Code of 1986, as amended.
5. "Option" shall mean a right to purchase Stock, granted pursuant to the
Plan.
6. "Option Price" shall mean the purchase price for Stock under an
Option, as determined in Section F below.
7. "Participant" shall mean each non-employee director, key management
employee or designated consultant of the Company, or of any Subsidiary of the
Company, to whom an Option is granted under the Plan.
8. "Plan" shall mean this IWI Holding Limited Stock Option Plan.
9. "Stock" shall mean the common stock of the Company, no par value.
10. "Stock Appreciation Right" shall mean a right to receive cash or
Stock, granted pursuant to Section H of the Plan.
<PAGE>
11. "Subsidiary" shall mean a subsidiary corporation of the Company, as
defined in Sections 425(f) and 425(g) of the Code.
C. Stock to Optioned
Subject to the provisions of Section M of the Plan, the maximum number of
shares of Stock that may be optioned or sold under the Plan is 300,000 shares.
Such shares may be treasury, or authorized, but unissued, shares of Stock of the
Company.
D. Administration
The Plan shall be administered by the Committee. Two members of the
Committee shall constitute a quorum for the transaction of business. The
Committee shall be responsible to the Board for the operation of the Plan, and
shall make recommendations to the Board with respect to participation in the
Plan, and with respect to the extent of that participation. The interpretation
and construction of any provision of the Plan by the Committee shall be final,
unless otherwise determined by the Board. No member of the Board or the
Committee shall be liable for any action or determination made by him in good
faith.
E. Eligibility
The Board, upon recommendation of the Committee, may grant Options to any
non-employee directors, key management employee or third party consultant of the
Company or its Subsidiaries. Options may be awarded by the Board at any time
and from time to time to new Participants, or to then Participants, or to a
greater or lesser number of Participants, and may include or exclude previous
Participants, as the Board, upon recommendation by the Committee shall
determine. Options granted at different times need not contain similar
provisions.
F. Option Price
The purchase price for Stock under each Option shall be determined by the
Committee, but in no event less than the stated value of the Stock. Nothing
contained herein shall prevent the granting of a inversely variable option.
G. Terms and Conditions of Options
Options granted pursuant to the Plan shall be authorized by the Board and
shall be evidenced by agreements in such form as the Board, upon recommendation
of the Committee, shall from time to time approve. Such agreements shall comply
with and be subject to the following terms and conditions:
2
<PAGE>
1. EMPLOYMENT AGREEMENT. The Board may, in its discretion, include in
any Option granted under the Plan a condition that the Participant shall agree
to remain a director or employee of or as a consultant to, and to render
services to, the Company or any of its Subsidiaries for a period of time
(specified in the agreement) following the date the Option is granted. No such
agreement shall impose upon the Company or any of it Subsidiaries, however, any
obligation to retain as a director, employ or hire on an independent contracting
basis, the Participant for any period of time.
2. TIME AND METHOD OF PAYMENT. The Option Price shall be paid in full in
cash at the time an Option is exercised under the Plan. Otherwise, an exercise
of any Option granted under the Plan shall be invalid and of no effect.
Promptly after the exercise of an Option and the payment of the full Option
Price, the Participant shall be entitled to the issuance of a stock certificate
evidencing his ownership of such of Stock. A Participant shall have none of the
rights of a shareholder until shares are issued to him, and no adjustment will
be made for dividends or other rights for which the record date is prior to the
date such stock certificate is issued.
3. NUMBER OF SHARES. Each Option shall state the total number of shares
of Stock to which it pertains. The number of shares to which a Participant is
entitled under an Option shall be reduced by the number of Stock Appreciation
Rights (described in Section H below) related to the Option that have been
previously exercised by the Participant.
4. OPTION PERIOD AND LIMITATIONS ON EXERCISE OF OPTIONS. The Board may,
in its discretion, provide that an Option may not be exercised in whole or in
part for any period or periods of time specified in the Option agreement.
Except as provided in the Option agreement, an Option may be exercised in whole
in part at any time during its term. No Option may be exercised after the
expiration of ten years from the date it is granted. No Option may be exercised
for a fractional share of Stock.
H. Stock Appreciation Rights
The Board may, upon recommendation of the Committee, grant Stock
Appreciation Rights to Participants at the same time as such Participants are
awarded Options under the Plan. Such Stock Appreciation Rights shall be
evidenced by agreements in such form as the Board shall from time to time
approve. Such agreements shall comply with, and be subject to, the following
terms and conditions:
1. EMPLOYMENT AGREEMENT. The Board may, in its discretion, include in
any Stock Appreciation Rights granted under the Plan a condition that the
Participant shall agree to remain a director of, in the employ of or as a
consultant to, and to render services to,
3
<PAGE>
the Company or any of its Subsidiaries for a period of time (specified in the
agreement) from the date the Stock Appreciation Rights are granted. No such
agreement shall impose upon the Company or any of its Subsidiaries, however, any
obligation to retain as a director, employ or hire on an independent contracting
basis, the Participant for any period of time.
2. GRANT. Each Stock Appreciation Right shall relate to a specific
Option under the Plan, and may be awarded to a Participant concurrently with the
grant of such Option. The number of Stock Appreciation Rights granted to a
Participant shall not exceed the number of shares that the Participant is
entitled to receive pursuant to the related Option. The number of Stock
Appreciation Rights held by a Participant shall be reduced by:
(a) the number of Stock Appreciation Rights exercised for Stock or
cash under the Stock Appreciation Rights agreement, and
(b) the number of shares of Stock purchased by such Participant
pursuant to the related Option.
3. MANNER OF EXERCISE. A Participant shall exercise Stock Appreciation
Rights by giving written notice of such exercise to the Company. The date upon
which such written notice is received by the Company shall be the exercise date
for the Stock Appreciation Rights.
4. APPRECIATION AVAILABLE. Each Stock Appreciation Right shall entitle a
Participant to the following amount of appreciation -- the excess of the fair
market value of a share of Stock on the exercise date over the option price of
the related Option. The total appreciation available to a Participant from any
exercise of Stock Appreciation Rights being exercised, multiplied by the amount
of appreciation per Right determined under the preceding sentence.
5. PAYMENT OF APPRECIATION. In the discretion of the Committee, the total
appreciation available to a Participant from an exercise of Stock Appreciation
Rights may be paid to the Participant either in Stock or in cash. If paid in
cash, the amount thereof shall be the amount of appreciation determined under
Paragraph 4 above. If paid in Stock, the number of shares of Stock that shall
be issued pursuant to the exercise of Stock Appreciation Rights shall be
determined by dividing the amount of appreciation determined under Paragraph 4
above by the fair market value of a share of Stock on the exercise date of the
Stock Appreciation Rights; provided, however, that no fractional shares shall be
issued upon the exercise of Stock Appreciation Rights.
6. LIMITATIONS UPON EXERCISE OF STOCK APPRECIATION RIGHTS. A Participant
may exercise a Stock Appreciation Right for cash only in conjunction with the
exercise of the Option to which the Stock
4
<PAGE>
Appreciation Right relates. Stock Appreciation Rights may be exercised only at
such times and by such persons as may exercise Options under the Plan.
Adjustment to the number of shares in the Plan and the price per share pursuant
to Section M below shall also be made to any Stock Appreciation Rights held by
each Participant. Any termination, amendment, or revision of the Plan pursuant
to Section N below shall be deemed a termination, amendment, or revision of
Stock Appreciation Rights to the same extent.
I. Termination of Employment
Except as provided in Section J below, if a Participant ceases to be a
director of or employed by the Company or work as a independent contractor to
the Company or any of its Subsidiaries, his Options and Stock Appreciation
Rights shall terminate immediately; provided, however, that if a Participant's
cessation as a director, employee or consultant of the Company and its
Subsidiaries is due to his retirement with the consent of the Company or any of
its Subsidiaries, the Participant may, at any time within three months after
such cessation, exercise his Options and Stock Appreciation Rights to the extent
that he was entitled to exercise them on the date of such cessation, but in no
event shall any Option or Stock Appreciation Right be exercisable more than ten
years from the date it was granted. The Committee may cancel an Option or Stock
Appreciation Right during the three month period referred to in this paragraph,
if the Participant engages in employment or activities contrary, in the opinion
of the Committee, to the best interests of the Company or any of its
Subsidiaries. The Committee shall determine in each case whether a termination
as a director or of employment or consultancy shall be considered a retirement
with the consent of the Company or a Subsidiary, and, subject to applicable law,
whether a leave of absence shall constitute a termination as a director or of
employment or consultancy. Any such determination of the Committee shall be
final and conclusive, unless overruled by the Board.
J. Rights in Event of Death
If a Participant dies while a director of the Company, employed by the
Company or as an independent contractor to the Company or any of its
Subsidiaries, or within three months after having retired with the consent of
the Company or any of its Subsidiaries, and without having fully exercised his
Options and Stock Appreciation Rights, the executors or administrators, or
legatees or heirs, of his estate shall have the right to exercise such Options
and Stock Appreciation Rights to the extent that such deceased Participant was
entitled to exercise the Options and Stock Appreciation Rights on the date of
his death; provided, however, that in no event shall the Options or Stock
Appreciation Rights be exercisable more than ten years from the date they were
granted.
5
<PAGE>
K. No Obligations to Exercise Option or Stock Appreciation Rights
The granting of an Option or Stock Appreciation Rights shall impose no
obligation upon the Participant to exercise such Option or Stock Appreciation
Rights.
L. Nonassignability
Options and Stock Appreciation Rights shall not be transferable other than
by will or by the laws of descent and distribution, and during a Participant's
lifetime shall be exercisable only by such Participant.
M. Effect of Change in Stock Subject to the Plan
The aggregate number of shares of Stock available for Options under the
Plan, the shares subject to any Option, the price per share, and the number of
related Stock Appreciation Rights shall all be proportionately adjusted for any
increase or decrease in the number of issued shares of Stock subsequent to the
effective date of the Plan resulting from (1) a subdivision or consolidation of
shares or any other capital adjustment, (2) the payment of a stock dividend, or
(3) other increase or decrease in such shares effected without receipt of
consideration by the Company. If the Company shall be the surviving corporation
in any merger or consolidation, any Option or Stock Appreciation Rights shall
pertain, apply, and relate to the securities to which a holder of the number of
shares of Stock subject to the Option would have been entitled after the merger
or consolidation. Upon dissolution or liquidation of the Company, or upon a
merger or consolidation in which the Company is not the surviving corporation,
all Options and Stock Appreciation Rights outstanding under the Plan shall
terminate; provided, however, that each Participant (and each other person
entitled under Section J to exercise an Option or Stock Appreciation Rights)
shall have the right, immediately prior to such dissolution or liquidation, or
such merger or consolidation, to exercise such Participant's Options and Stock
Appreciation Rights in whole or in part, but only to the extent that such
Options and Stock Appreciation Rights are otherwise exercisable under the terms
of the Plan.
N. Amendment and Termination
The Board, by resolution, may terminate, amend, or revise the Plan with
respect to any shares as to which Options have not been granted. Neither the
Board nor the Committee may, without the consent of the holder of an Option,
alter or impair any Option or Stock Appreciation Rights previously granted under
the Plan, except as authorized herein. Unless sooner terminated, the Plan shall
remain in effect for a period of ten years from the date of the Plan's adoption
by the Board. Termination of the Plan shall not affect any Option previously
granted.
6
<PAGE>
O. Agreement and Representation of Employees and Consultants
As a condition to the exercise of any portion of an Option, or of any Stock
Appreciation Rights, the Company may require the person exercising such Option
or Stock Appreciation Rights to represent and warrant at the time of such
exercise that any shares of Stock acquired at exercise are being acquired only
for investment and without any present intention to sell or distribute such
shares, if, in the opinion of counsel for the Company, such a representation is
required under the Securities Act of 1933 or any other applicable law,
regulation, or rule of any governmental agency.
P. Reservation of Shares of Stock
The Company, during the term of this Plan, will at all times reserve and
keep available, and will seek or obtain from any regulatory body having
jurisdiction any requisite authority necessary to issue and to sell, the number
of shares of Stock that shall be sufficient to satisfy the requirements of this
Plan. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority deemed necessary by counsel for the Company for the
lawful issuance and sale of its Stock hereunder shall relieve the Company of any
liability in respect of the failure to issue or sell Stock as to which the
requisite authority has not been obtained.
Q. Effective Date of Plan
The Plan shall be effective from the date the Plan is approved by the
Board.
7
<PAGE>
INDUSTRIAL LEASE
SUMMARY
Landlord: MINUK Construction Engineering, Ltd. and Samuel Minuk
Enterprises Limited.
Tenant: DACO Manufacturing Limited and J.B. Manufacturing, Inc.
Date: February 7, 1992.
Term: Ten (10) years, August 1, 1992 to July 31, 2002.
Rent: Net to Landlord (Canadian Dollars)
Period PSF Annual Monthly
8/1/92 TO 1/31/95 4.00 144,644 12,053.67
2/1/95 TO 7/31/97 4.25 153,684.25 12,807.02
8/1/97 TO 1/31/2000 4.75 171,764.75 14,313.73
2/1/2000 TO 7/31/2002 5.00 180,805 15,067.08
*All amounts are expressed in Canadian Dollars.
Leased space: 36,161 square feet
*Security Deposit: Upon a sale of Business by the Tenant, a $15,067.08
security deposit will be required and held for the
remainder of the term.
Article V: HVAC
- Tenant to maintain service contracts
- If equipment requires replacement in the first 8
lease years, Landlord and Tenant split cost 50/50.
Landlord pays thereafter unless due to tenant
negligence.
Article VI: Tenant is required to remove Leasehold Improvements at
end of Term.
<PAGE>
Article VII: Assignment
Virtually any assignment requires Landlord's consent,
which shall not be unreasonably withheld. Tenant must
provide "required information" reasonably requested by
Landlord, including a copy of the proposed offer or
agreement, identification of and financial information
concerning the Assignee. Assignment does not release
Tenant of its obligations. THE LEASE DOES NOT SPECIFY
TIME PERIODS FOR ADVANCE NOTICE OR A MAXIMUM RESPONSE
PERIOD FOR LANDLORD.
Key Preconditions to Landlord's Consent:
1. Assignee to assume Tenants obligations in a form
acceptable to Landlord.
2. Tenant pays Landlord's legal fees.
5. Landlord may, at its options, cancel renewal or
expansion rights.
6. Assignment must take place with 60 days of
consent.
7. Original Tenant remains liable if Lease is
disaffirmed, disclaimed or terminated by Assignee's
bankruptcy Trustee.
CHANGE IN CONTROL OF CORPORATE TENANT CONSTITUTES AN
ASSIGNMENT. TENANT IS REQUIRED TO MAKE AVAILABLE TO
LANDLORD BOOKS AND RECORDS OF TENANT AND ITS
SHAREHOLDERS TO SHOW THE APPLICABILITY OR
INAPPLICABILITY.
7.06: Tenant shall be entitled to receive notice of
Landlord's intent to sell the Building. This should
not be construed as a right of first refusal to
purchase the Premises.
This may be cancellable by Landlord.
Tenant would have 30 days to negotiate terms of
purchase.
Article XI: Events of Default - Notable Items
11.01 (a) Provides for a 15 day grace period.
(b) A BULK SALE OF TENANT'S ASSETS IS AN
EVENT OF DEFAULT.
Upon Event of Default, the present and next 3 month's
rent is due and landlord may distrain for same.
<PAGE>
Article XII: Limited Non Disturbance Provisions
Tenant must attorn, but Landlord is required only to
request, not obtain, a Non Disturbance Agreement.
Article XIV: Tenant has a one-time, 5 year renewal option at fair
market rent, not to exceed $8.00 per square foot.
6 months notice is required.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 196
<SECURITIES> 0
<RECEIVABLES> 19,043
<ALLOWANCES> 0
<INVENTORY> 18,060
<CURRENT-ASSETS> 39,975
<PP&E> 3,858
<DEPRECIATION> 926
<TOTAL-ASSETS> 44,137
<CURRENT-LIABILITIES> 23,293
<BONDS> 536
0
3,645
<COMMON> 0
<OTHER-SE> 16,643
<TOTAL-LIABILITY-AND-EQUITY> 44,137
<SALES> 41,710
<TOTAL-REVENUES> 41,710
<CGS> 34,024
<TOTAL-COSTS> 34,024
<OTHER-EXPENSES> 8,798
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (901)
<INCOME-PRETAX> (2,013)
<INCOME-TAX> (629)
<INCOME-CONTINUING> (1,384)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,384)
<EPS-PRIMARY> (.53)
<EPS-DILUTED> (.53)
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