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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
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/x/ Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for fiscal year ended April 30, 1996.
/ / Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File No. 0-26608
CUTTER & BUCK INC.
(Name of Small Business Issuer in Its Charter)
Washington 91-1474587
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2701 First Avenue, Suite 500
Seattle, WA 98121
(Address of Principal Executive Offices, Including Zip Code)
(206) 622-4191
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, No Par Value
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(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
The issuer's net sales the fiscal year ended April 30, 1996 were $21,645,202.
The aggregate market value as of July 25, 1996 of the voting stock held by
non-affiliates of the Registrant was approximately $17,000,000. As of
such date, there were 3,668,241 shares outstanding of the Registrant's
Common Stock, no par value per share.
Documents incorporated by reference:
(1) Portions of the registrant's 1996 Annual Report to Shareholders are
incorporated by reference into Parts II and IV hereof; and
(2) Portions of the registrant's definitive 1996 Proxy Statement to be filed
with the Securities and Exchange Commission are incorporated by reference
into Part III hereof.
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PART I
ITEM 1. BUSINESS
OVERVIEW
The Company designs, sources and markets its distinctive Cutter & Buck
brand sportswear and outerwear predominantly through golf pro shops and resorts,
upscale men's specialty stores and corporate sales accounts. The Company has
developed a colorful, innovative collection of sportswear apparel targeted to
the affluent 30- to 55-year-old men's market, projecting an updated American
traditional design evocative of a sporting lifestyle. The products'
high-quality fabrics and detailing reinforce the premium image of the brand
while the generous fit provides a feeling of comfort and versatility. Product
marketing connected with sports and leisure activities, particularly golf, helps
the Company create a positive lifestyle image that contributes to the brand's
strong appeal for its target consumers. The Company benefits from the trend
toward greater acceptance of relaxed standards of dress in the workplace that
results in sportswear representing a growing portion of consumer wardrobes.
Since its formation on January 5, 1990, the Company has achieved consistent
annual sales increases, realizing net sales of $21.6 million and net income of
$1.0 million in fiscal 1996.
The Company has intentionally selected golf pro shops as its primary
channel of distribution, believing this to be an effective venue for reaching
its target consumers. Most golf pro shops have welcomed quality apparel that is
not broadly distributed elsewhere as an important offset to declining sales of
golf equipment due to price competition from golf discounters. By providing
training in merchandising Cutter & Buck products, the Company assists golf pro
shops, which have generally not had experience in sophisticated apparel
retailing. More than half of the Company's products sold to golf pro shops are
embroidered with the name or logo of the club with which the pro shop is
affiliated, which enhances the club's image due to the quality and uniqueness of
the Cutter & Buck product and simultaneously builds Cutter & Buck's exclusive
brand identity. The Company sells Cutter & Buck products to approximately 1,800
of the estimated 13,000 U.S. golf pro shops. The golf distribution channel
accounted for approximately 53% of the Company's net sales in fiscal 1996, and
the Company expects continuing growth of sales to this channel. The Company
also distributes its products primarily through four other distribution
channels: upscale men's specialty stores, corporate sales accounts, its European
subsidiaries and other international distributors. The Company believes that
its other distribution channels are synergistic with the golf distribution
channel, since they have compatible merchandising and pricing practices, sell
the same product line and create heightened awareness of the Cutter & Buck brand
among the Company's target consumers, who tend to shop in more than one of these
channels.
The Company currently markets its products each year as two seasonal
collections, spring and fall, presenting each collection in three or four groups
of distinct, coordinated products available for delivery to customers during
sequential time periods.
MARKET
According to industry estimates, sales of men's apparel at retail was $39.6
billion in 1994. Within this market, the Company targets affluent men, age 30
to 55, who are sports-minded and want casual clothing that reflects an active
lifestyle. The Company believes that these consumers also want comfortable,
distinctively styled, high-quality apparel. Cutter & Buck's target consumers
have an annual household income in excess of $60,000. Industry data indicate
that, in 1994, this market segment represented approximately 28% of the annual
expenditures on men's apparel in the United States. The Company believes that,
with an increase in the number of working women, men are purchasing more of
their own clothing. Many of these men are busy professionals who prefer to
spend their limited free time pursuing sports and recreational activities such
as golf, rather than spending time shopping in traditional retail outlets, such
as department stores and shopping malls. The Company believes these
time-constrained consumers are inclined to purchase apparel relating to their
sporting interests if available at a sport location such as a golf course.
According to industry sources, annual sales of men's golf apparel by pro
shops and other retail channels was approximately $600 million in 1994. The
Company believes the market for men's golf apparel is highly fragmented, with no
single brand representing more than 10% of the market.
Sportswear represents a growing portion of consumers' wardrobes as a result
of a trend toward greater acceptance of relaxed standards of dress in the
workplace. A recent independent survey indicated that 44% of the surveyed
consumers who normally wear
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formal business attire now wear casual clothing in the workplace on specified
days and that a significant portion anticipated that the number of casual dress
days would increase.
STRATEGY
The Company's goals are to continue its rapid sales growth and to enhance
its reputation as a leading, premium sportswear brand in the men's sportswear
apparel market. The key elements of its strategy to realize these goals are:
- QUALITY BRAND IDENTITY. Inherent to Cutter & Buck's brand identity
are: (i) its signature design philosophy of creating bold, original garments in
a broad range of fabrications (knits, wovens) and colors (complex prints, dyes)
that project classic themes evocative of a sporting lifestyle, and (ii) the use
of extensive detailing and high-quality product construction. The Company is
committed to creating innovative designs and maintaining quality standards from
season to season.
- GOLF PRO SHOP DISTRIBUTION CHANNEL. The Company's strategy is to link
not only its product but also purchase occasions for its product to a sporting
lifestyle. The Company has selected golf pro shops as its primary distribution
channel since many of its target consumers frequent golf pro shops and resorts
while engaging in golf as a chosen recreational activity. The Company's focused
distribution also includes selling its product line to the upscale men's
specialty retail and corporate sales channels. The Company believes that these
distribution channels are synergistic with the golf distribution channel and
create heightened awareness of the Cutter & Buck brand among the Company's
target consumers, who tend to shop in more than one of these channels.
- COLLECTION MERCHANDISING. The Company works closely with golf pro
shops, resorts and upscale men's specialty stores to merchandise its shirts,
sweaters, sweatshirts, pants, shorts and outerwear as a collection rather than
as isolated categories. Consequently, the consumer is more likely to notice and
respond to the Cutter & Buck sporting lifestyle theme. The Company has
initiated a product fixturing program to create a Cutter & Buck display area
within a store and facilitate merchandising the products as a collection,
thereby separating them from competing products. These fixtures have been
installed in 214 stores since the program's inception in fiscal 1996, and have
contributed to an increase in average order size of 101% and 80% in the golf and
specialty store channels, respectively, to those same stores in the fourth
quarter of fiscal 1996 compared to the fourth quarter of fiscal 1995.
- EXPANSION. The Company plans to grow by increasing both the number of
golf pro shop accounts it services and the average account order size. The
Company's strategy to achieve these goals is to increase the size of its sales
force working exclusively with the Company's product, expand its fixturing and
advertising programs and maintain its product quality and innovative designs,
which the Company believes will result in increased market penetration and
heightened consumer awareness of the Cutter & Buck brand name. Based upon
changed market opportunities and increased design, marketing and financial
capabilities, the Company has made selective extensions of its product
offerings, particularly outerwear, and in fiscal 1996, assumed direct control of
its product distribution in Europe, which the Company anticipates will also
contribute to the achievement of its growth objectives.
PRODUCTS
Cutter & Buck is a lifestyle brand of outdoor-oriented, sports-inspired
men's apparel. The Company's distinctive products use strong, clear colors,
natural fiber textiles, rich detailing, innovative trims and specialized
printing and embroidery to achieve this identity. The Company merchandises its
products as color- and design-coordinated collections comprising knit and woven
sport shirts, pants, shorts, sweaters, sweatshirts, outerwear and caps. The
Company expanded its product offerings to include outerwear by buying back its
outerwear license in December 1995, effective May 1, 1996. The Company
frequently uses golf and fly-fishing as sporting themes that evoke the Cutter &
Buck lifestyle.
Cutter & Buck's high-quality products use fine-gauge combed cotton or
virgin wool yarns, unique trims, special fabric finishes and washes, and extra
needlework. They are manufactured in factories selected for their resources and
their ability to ensure quality in the production process. The products are
generously sized, providing a feeling of comfort and versatility.
The Company offers two collections a year, spring and fall, composed of
FASHION and complementary CLASSIC products. FASHION products incorporate the
latest innovations in color, fabric and styling and tend to remain in the line
for only one season. The Company develops proprietary fabrications, artwork for
its complex prints and distinctive trim components in cooperation with
experienced sources worldwide.
CLASSIC products are predominantly solid-color garments with multi-season
appeal. The Company relies on the styling, detailing, coloration and quality of
its fabrics to distinguish its CLASSIC products from competitive products. The
Company generally
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prices its CLASSIC products at levels lower than its FASHION products, which
permits its customers to offer Cutter & Buck products at a range of price
points. Higher-per-item volumes for CLASSIC products allow the Company to
achieve production efficiencies and lower costs. CLASSIC products are sold
throughout the year to all of the Company's distribution channels. Continuity
of demand allows the Company to maintain consistent stock levels of CLASSIC
products.
The Company presents each season's collections to its customers in three or
four groups of distinct, coordinated merchandise. These groups are available
for delivery to customers during sequential time periods, typically from May to
October for fall collections and from November to April for spring collections.
Customer-initiated product reorders can often extend the delivery period for a
season by up to three months. The product mix changes seasonally, including
more sweater styles in fall collections and more short-sleeve shirts in spring
collections. The Company's ability to offer merchandise collections is a
strategic advantage over many of its competitors since its customers generally
prefer to purchase compatible assortments rather than assembling coordinated
merchandise from various brands that do not share common colors and themes.
The Company delivers a substantial percentage of its products shipped to
the golf sales channel embroidered with golf club names or logos. In May 1996,
the Company established an in-house embroidery operation to reduce costs,
shorten delivery time and enhance quality control of its embroidered products.
The Company's increasing volume of sales to the corporate sales channel also
involves embroidery of the product with corporate logos, either performed by
Cutter & Buck or arranged by its corporate customers. The Company believes its
customers' strong interest in affiliating their identities with Cutter & Buck
brand products affirms the desirability and distinctiveness of its merchandise.
DOMESTIC DISTRIBUTION AND SALES
The Company's products are distributed in the United States predominately
through three channels: golf pro shops and resorts, upscale men's specialty
stores and corporate sales accounts. Each of these channels uses CLASSIC and
FASHION products from the Company's seasonal collections. The Company believes
that these channels are synergistic, since they have compatible merchandising
and pricing practices, sell the same product line and create heightened
awareness of the Cutter & Buck brand among the Company's target consumers, who
tend to shop in more than one of these channels. For example, many of the
Company's corporate sales leads have come through corporate executives who have
purchased the Company's products at golf pro shops and resorts.
The Company sells to golf pro shops and resorts through 27 commissioned
sales representatives, both independent (17) and Company-employed (10). These
representatives present the Company's collections to the Company's customers
with the aid of full sample lines and pictorial line sheets, which offer
critical information needed by the customer. These presentations are made at
the twice-yearly PGA Merchandise Show, at regional trade shows and at the
customer's shop or resort. In the golf distribution channel, the Company
employs three regional sales managers, who collectively cover the entire United
States. These regional sales managers report to the Company's Vice President of
Sales.
The Company employs seven additional sales representatives, who sell to
upscale men's specialty stores. These representatives present the Company's
collections each season at national and regional trade shows and at the
customers' stores. They sell both FASHION and CLASSIC products using the same
line sheets as the golf pro shop and resort representatives. These specialty
store representatives also report to the Company's Vice President of Sales.
The Company also sells its merchandise to major corporations using 10
independent, multi-line sales representatives as well as its seven specialty
store sales representatives. Predominately CLASSIC products are sold to
corporate customers, since these customers typically demand immediate delivery.
The products are used for corporate golf events, stores, catalogs and
recognition programs. Nearly all these products include embroidery with the
corporate logo, which is either performed by the Company or arranged by its
corporate customers. Corporate customers purchase CLASSIC products for female
as well as male employees. The Company manages its corporate sales through a
Corporate Sales Manager, who reports to the Company's Vice President of Sales.
Each sales representative is responsible for serving targeted accounts in a
specific geographical territory through merchandise consultation and training,
and for meeting specific account growth and average-order-size goals set by
management. They are also responsible for implementing the Company's recently
instituted merchandise fixturing program with all suitable golf pro shops,
resorts and specialty stores. Sales representatives employed by the Company
receive a base salary, sales commissions and benefits. Because the Company
believes that its Company-employed sales representatives generate higher
productivity than independent sales representatives, the Company intends to
continue to increase the percentage of its sales representatives who are
Company-employed.
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The Company's customer service department consists of a manager and eight
employees who support the Company's sales representatives by taking order and
reorder information from the sales representatives or directly from the
customer.
At the end of each season (spring and fall), the Company typically first
offers remaining FASHION products to current customers and then to the Company's
retail store or to large discount apparel chains. Historically, the Company has
been able to liquidate its remaining FASHION inventory approximately at cost.
At the end of fiscal 1996, however, the Company elected to retain a portion of
its FASHION merchandise for future sales through its golf distribution channel
in the belief that doing so will generate greater profitability for the Company.
MARKETING
The Company's marketing goal is to build a strong brand name and image with
both its customers and the end consumer, specifically targeting the 30- to
55-year-old affluent male consumer. The Company expects to build strength in
its brand name through the use of sporting theme associations favored by its
target market, lifestyle merchandising and in-store marketing techniques,
endorsements and advertising.
The Company portrays its brand image of an American sporting lifestyle by
creating seasonal merchandise collections that are theme- and color-related.
Themes commonly used by the Company are the sports of golf and fly-fishing,
which reinforce the Company's high-quality, exclusive image. The Company
believes that, by featuring these sports, its products will appeal not only to
participants, but also to those who aspire to this relaxed lifestyle.
These lifestyle merchandise presentations are sold and shipped to customers
in collection groups in order to reinforce the overall conceptual strength of
the product offerings. The Company's distinctive in-store fixturing program
showcases these collections and enhances its brand image at the point of sale.
The fixtures, which are identified with the Cutter & Buck trademark logo, are
designed to display assorted elements of the Company's collections and allow the
consumer to easily assemble and purchase coordinated outfits of shirts, pants,
shorts, sweaters, sweatshirts and outerwear. The Company also offers display
mannequins, logo signage and antique sporting props in order to complement the
fixturing and create an environment that enhances the Cutter & Buck brand image.
The Company's sales representatives are available to assist customers in
merchandising the Company's product line. This is particularly important at
golf pro shops, where the customers or shop owners have generally not had
experience in sophisticated apparel merchandising and selling techniques. The
Company's representatives also organize and participate in sales contests,
special event mailings and fashion shows with their customers.
The Company is committed to responding flexibly to the special needs of pro
shops, tournament organizers and corporate customers who order the Company's
products. The Company has developed an in-house embroidery operation and also
works with independent embroiderers to service the needs of golf pro shops and
resorts, which generally prefer that the products they order be pre-embroidered
with the name or logo of the golf club or resort. This customized embroidery
creates exclusiveness that reinforces the prestige of the Cutter & Buck brand
and simultaneously enhances the customer's image through the quality and
uniqueness of the Cutter & Buck product. Virtually all of the Company's
products sold through the corporate sales channel are sold with a corporate
logo, which similarly enhances both the Cutter & Buck brand and the
corporation's image. The placement of the Cutter & Buck embroidered logo on the
left sleeve or at the top center back of its knit shirts allows the Company to
accommodate more easily the desire of pro shops, tournaments and corporations to
have their name or logo placed on the shirt's left chest.
Cutter & Buck supplies its apparel to a number of promising professional
golfers on the PGA tour, the Nike tour and other tours. It is expected that
these professional athletes will influence the golf apparel preferences of pro
shop customers and consumers. The Cutter & Buck logo is positioned prominently
on the Company's shirts and sweaters worn by these golfers, making it visible to
those watching tournament play, either on site or on television. Beyond the
cost of making its apparel available to professional golfers, the Company has
not spent, and does not expect to spend, significant marketing funds on
professional endorsement contracts due to the high cost and risks of associating
the Cutter & Buck brand with the performance of only a few top-ranked golfers.
The Company believes that it can accelerate brand recognition through
increased expenditures of targeted magazine advertising and point of sale
promotions to create consumer demand for its products. Consistent with its
expansion strategy, the Company advertises in national and regional trade
magazines and produces photographic renditions of its new product lines for
national distribution to its existing customers to expand their awareness of the
Company's product lines. The Company also produces
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a catalog of its CLASSIC products to be shipped to its customers for in-stock
reordering purposes. In addition, the Company has initiated an Internet home
page on the World Wide Web, where it provides product information and pictures
of its products and responds to inquiries about the Company and its products.
LICENSING AND INTERNATIONAL DISTRIBUTION
Cutter & Buck is emerging as a desirable consumer brand for specialty
markets, for products in addition to sportswear and outerwear and in foreign
countries. As a result, the Company has been able to enter into license
agreements that broaden the product line and introduce its fashions
internationally, without making a significant capital commitment. License and
royalty income from such agreements was approximately $457,000 in fiscal 1996
and $497,000 in fiscal 1995. The reduction in royalty income reflects the
Company's shift toward direct international sales and exclusive distribution
relationships and away from licensing relationships. In particular, the decline
in license and royalty income in fiscal 1996 was primarily attributable to the
Company's decision to discontinue its relationship with its licensee for Central
and South America. In fiscal 1994, the Company had $285,000 of license and
royalty income. The Company currently has licensing agreements covering
collections for the big- and tall-size market, luggage and hosiery.
The Company works closely with each licensee on concept and color so that
the licensed products complement the Company's apparel offerings as part of the
overall lifestyle collection. The Company retains final approval over design
and quality of each licensed product. In addition to the product licensees, the
Company also has licensees that have contracted for the right to manufacture and
market Cutter & Buck designs in specified international markets, including
Japan, Hong Kong, China and Canada. Cutter & Buck license agreements generally
provide for three-year terms and provide for royalties as a percentage of sales.
Most agreements contain annual royalty minimums, and all agreements give
Cutter & Buck final control over product design and quality. These licensing
arrangements enable the Company to increase the number and geographic
distribution of products bearing the Cutter & Buck name, thereby expanding the
image and brand awareness of Cutter & Buck.
In addition, Cutter & Buck has agreements with international distributors
in Australia, Greece, Lebanon, Singapore, Malaysia and Indonesia. These
distributors buy the Company's products at reduced cost for resale in their
respective markets. The products offered for distribution in these
territories are identical to the products offered in the United States, and
these distributors often use the Company's marketing technique of offering
the products in collections, as identified on pictorial line sheets. The
Company's relationship with its distributors are managed by an International
Sales Coordinator, who reports to the Company's President.
The Company has a subsidiary in the United Kingdom and is currently in the
process of establishing a Netherlands subsidiary and consolidating its European
operations in its Netherlands subsidiary. In fiscal 1996, the Company
repurchased the rights to distribute its products in the United Kingdom from
Re-Ward Limited. The Company believes that it can better manage its expansion
plans in the European Union through direct control and distribution of its
products rather than through the use of third-party distributors.
PRODUCT DEVELOPMENT AND SOURCING
The Company's concept of updated traditional sportswear and outerwear is an
established category within the apparel field, relying upon historical American
design sensibilities. Changes of color, fabric and body shapes in this category
are not rapid, thereby allowing the Company's product development team to
evolve, rather than re-invent, the product each season. This provides stability
in the design environment and consistency in the Company's conceptual offerings
to its customers. The Company's product development team comprises Mr. Jones,
President and Chief Executive Officer; Jim C. McGehee, Vice President of Sales;
Patricia A. Nugent, Vice President of Merchandise and Design; Mr. Rodolfo,
Principal Designer; and the Company's design staff, all of whom have significant
product development and brand building experience for each seasonal collection
(spring and fall). The team's purpose is to determine product strategy, color
and fabric selection and assortment of styles, which is accomplished through a
series of meetings which occur over a three to four month period. The team's
first meeting for each season includes a review of overall trends in the market,
the Company's sales experience from the same season of the previous year and
other ideas relevant to color, fabric and pattern. Subsequent meetings are
focused on specific color, textile and style choices within the framework of a
desired seasonal assortment. These meetings culminate in orders for sample
production. Because of the length of its production and sales cycles, the
Company generally strives to complete the design process and place orders for
product samples at least 10 to 15 months prior to delivering product to its
customers. Effective management and timely fulfillment of the Company's
anticipated product development and production schedule is important to each
season's success. Deviations from the schedule can result in delays in product
delivery and in the manufacture of products that do not meet the Company's
normal quality standards and may lead to increased levels of closeout and
liquidation sales, which have an adverse effect on the Company's profitability.
These deviations have occurred from time to time in the past, and there can be
no assurance that they will not occur in the future.
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The design staff is responsible for generating an innovative group of
products for the Company's two seasonal collections. The design staff uses a
computer-aided design system to create products and to translate those designs
into sample prototype depictions. The designers also use the Company's growing
product and fabric libraries, especially when designing FASHION products.
During the design process the Company's manufacturing sources develop new
seasonal textiles in association with the design team. This enables the Company
to source a wide variety of textile and printed artwork designs, many of which
the Company acquires for its exclusive use. The Company's working partnerships
with its key suppliers have enhanced its ability to develop distinctive and
innovative apparel.
The Company makes a final determination concerning pricing and the
composition of the seasonal lines upon receipt of samples, which is
approximately four months after sample orders are placed. The Company's
sales representatives use the samples to market the new season's products to
Company customers. The Company then places production orders, which usually
require four months to fill, taking into account market feedback to adjust
order quantities for deliveries toward the end of each season. To enhance
consistency, quality and on-time delivery of its products, the Company works
with a select group of high-quality, reliable domestic and foreign
manufacturers who are knowledgeable and experienced in the intricate design
and manufacturing processes required to produce the Company's products.
Using these independent manufacturers allows the Company to maximize
production flexibility while avoiding significant capital expenditures,
work-in-process inventory buildups and the costs of managing a large
production work force. The Company maintains relationships with
manufacturers in California, and in Hong Kong, Thailand, Indonesia and China.
The Company relies substantially on the services of Bloomtime Industries,
Ltd., formerly known as Price Club, Ltd., a Hong Kong-based agent, which has
been associated with the Company since its inception, for products that are
manufactured in Hong Kong, Indonesia and China. Bloomtime Industries, Ltd.
sources raw materials and oversees manufacture of the Company's products and
is paid a commission of 7% of any product expenditures it commits to on the
Company's behalf. The Company also relies substantially upon a buying agent
in Thailand, PBMS, Ltd., which oversees the manufacture of all Cutter & Buck
products manufactured in Thailand.
In May 1996, the Company established an in-house embroidery operation in
order to reduce costs, shorten delivery time and to enhance quality control of
its embroidered products. The Company believes that this will significantly
reduce the Company's reliance on independent embroiderers to customize its
products. The Company currently contracts with approximately 15 independent
domestic embroiderers during peak embroidery production and shipping periods.
The Company believes its in-house embroidery manufacturing operation will be
capable of handling approximately 50% of the embroidered logo requirements of
its golf pro shop and corporate customers in fiscal 1997. The Company expects
to realize embroidery production cost savings from its in-house embroidery
program in the second half of fiscal 1997.
The Company does not have formal long-term contracts with any of its
suppliers or agents. Although to date the Company has experienced only limited
difficulty in satisfying its production requirements using this outsourcing
strategy, the loss of any of the Company's suppliers or agents could have a
significant adverse effect on the Company's immediate operating results.
Currently, approximately 50% of the Company's knit shirts and 60% of its woven
shirts are manufactured in Thailand under the supervision of PBMS, Ltd., its
Bangkok-based agent, and approximately 40% of its woven shirts, 60% of its pants
and 55% of its sweaters are manufactured under the direction and control of its
Hong Kong-based agent, Bloomtime Industries, Ltd. The Company has on occasion
experienced significant production delays attributable to its suppliers, and
there can be no assurance that such delays will not occur in the future.
The Company's production department oversees its sourcing arrangements.
The production department is responsible for on-time delivery of the Company's
products and negotiating costs consistent with the Company's desired profit
margins on each style. Department personnel inspect and critique prototypes of
each item prior to the commencement of actual production in order to maintain
the Company's high-quality standards. Where feasible, the production department
obtains a commitment from the sourcing manufacturer to dedicate a production
line to manufacture the Company's products from season to season. Production
department personnel travel to factories to conduct inspections of the
manufacturer prior to shipment of finished product. They also monitor tariff
and quota-related developments, where appropriate.
INFORMATION SYSTEM, INVENTORY MANAGEMENT AND WAREHOUSING
In addition to the computer-aided design system used by the product
development team, the Company has a fully integrated, real-time management
information system that is specifically designed for the apparel industry. The
system includes important features such as manufacturing resource requirements
planning, production scheduling, detailed product tracking, standard costs
system planning and control, and detailed perpetual inventory systems. As
original purchases are tracked through various factory production phases by the
Company's production personnel, sales are tracked by the Vice President of
Merchandise and Design in order to
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compare purchases against availability, thereby allowing the Company to react
quickly to changes and trends. Available quantities of every style offered are
sent to all salespeople weekly. Customer service personnel receive this
information daily and have access to real-time inventory availability.
This comprehensive information system serves users in every operating area
of the Company, and is also accessed by personal computers to create costing
models, specification sheets and embroidery layout sheets. The manufacturing
module integrates with the general ledger accounting and financial module. The
Company's information system also provides detailed product gross margin
information that assists the Company in managing product profitability. The
system runs on a UNIX platform with IBM's RISC 6000 hardware, which allows for
the fast processing of critical information, and has the capability of serving a
much greater number of users as the Company grows. To fully utilize the system,
the Company employs an MIS manager, who has prior experience with this
management information system at a larger apparel company.
In June 1996, the Company began operating its in-house warehouse facility,
encompassing approximately 45,720 square feet of space in Seattle, Washington.
The Company hired an additional 20 persons to conduct its warehouse operations.
This facility also accommodates the Company's in-house embroidery operation,
which is anticipated to enable the Company to realize embroidery production cost
efficiencies and contribute to improved gross margins beginning with the second
half of the fiscal year.
ORDER BOOKING CYCLE AND BACKLOG
The Company receives its orders for a season over a ten-month period
beginning when samples are first shown to customers and continuing into the
season. The Company must schedule production in advance of order placement.
The Company maintains CLASSIC products in stock to enable it to quickly fill
orders for these products.
The Company begins to take orders for its fall collections in January for
delivery between May and October and for its spring collections in July for
delivery between November and April. Customer-initiated product reorders can
often extend the delivery period for a season by up to three months. The
Company's backlog, which consists of open, unfilled customer orders, was $12.0
million as of April 30, 1996. Because of the Company's history of accepting
order cancellations in certain circumstances, and a lack of contractual
provisions prohibiting such cancellations, the Company typically does not expect
to ship all of its backlog.
COMPETITION
The men's sportswear segment of the apparel industry is highly competitive.
The Company encounters substantial competition in its primary distribution
channel, golf pro shops, from Ashworth (the market leader), Izod Club,
Polo/Ralph Lauren and Tommy Hilfiger. Most of the Company's competitors are
significantly larger and more diversified than the Company and have
substantially greater resources available for developing and marketing their
products. Some of the Company's competitors primarily target either a younger
or older consumer than the Company. To maintain its growth rate, the Company
will need to increase its market share at the expense of existing competitors
and other established apparel manufacturers choosing to enter the market. There
can be no assurance, however, that the Company will be successful in increasing
its market share.
Management believes that the Company's ability to compete effectively is
not based primarily on price, but more on product differentiation, product
quality and production flexibility. The Company's products are also
differentiated from a number of others in the industry by their updated
traditional American appearance and imaginative use of color and trimmings. In
addition, the Company believes that its products are of a higher quality than
those of many of its competitors.
TRADEMARKS
"CUTTER & BUCK" and the Cutter & Buck pennant logo are trademarks of the
Company and are registered for use on apparel and other products in Argentina,
Australia, the Bahamas, Benelux, Canada, Denmark, the Dominican Republic,
France, Germany, Hong Kong, the Netherlands Antilles, Norway, Paraguay, the
United Kingdom, the United States and Uruguay. The Company also has applied for
registration in a number of other countries. The Company's name and logo are
regarded as valuable assets and critical to marketing its products. Leading
brands in the apparel industry have historically been subject to competition
from imitators that infringe the trademarks and trade dress of the brand. While
the Company to date has not been aware of a high level of imitation of the
Cutter & Buck brand, there can be no assurance that its business will not suffer
from such imitation in the future.
8
<PAGE>
EMPLOYEES
As of April 30, 1996, the Company had 65 employees, of which 17 were
primarily engaged in administration, 24 in sales, 5 in production, 13 in design
and 6 in the operation of the Company's retail store. None of the Company's
employees is a member of a union. The Company considers its relations with its
employees to be excellent.
ITEM 2. PROPERTIES
The Company leases its principal executive offices, which are located
in Seattle, Washington, under a lease that covers 11,518 square feet and
expires in October 1999. The Company also leases for its warehousing and
embroidery operation approximately 45,720 square feet of space in Seattle,
Washington, under a lease that expires in April 2001. The Company's lease of
its retail store space in Lake Oswego, Oregon, a suburb of Portland, covers
2,925 square feet and expires in August 1996. The Company has initiated
discussions with its landlord regarding renewal of this lease. The Company
leases additional office space and uses contract warehouse facilities for its
European distribution. The Company also leases a small apartment in New York,
New York that functions as a sales showroom.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by this Item is incorporated herein by
reference to the information contained in the "Shareholders' Information"
section of the Company's 1996 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated herein by
reference to the information contained in the "Selected Financial Data"
section of the Company's 1996 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated herein by
reference to the information contained in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section of the
Company's 1996 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The information required by this Item is incorporated herein by
reference to the information contained in the "Financial Statements" section
of the Company's 1996 Annual Report to Shareholders.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
9
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by
reference to the information contained in the "Executive Officers of the
Company" and "Election of Directors" sections of the Company's Proxy Statement
to be filed with the Securities and Exchange Commission within 120 days after
the close of the Company's fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to the information contained in the "Executive Compensation" section
of the Company's Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after the close of the Company's fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by
reference to the information contained in the "Security Ownership of Certain
Beneficial Owners and Management" section of the Company's Proxy Statement to
be filed with the Securities and Exchange Commission within 120 days after the
close of the Company's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to the information contained in the "Certain Relationships and
Related Transactions" section of the Company's Proxy Statement to be filed
with the Securities and Exchange Commission within 120 days after the close of
the Company's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The Company's Annual Report to Shareholders for the year ended
April 30, 1996 and the 1996 definitive proxy materials, which will be filed
supplementally to this report, are not being filed as part of this report.
A. Financial Statements and Financial Statement Schedules:
1. Financial Statements (the financial statements listed below are
incorporated herein by reference to the Company's 1996 Annual Report
to Shareholders):
Independent Auditors' Report
Balance Sheets as of April 30, 1996 and 1995
Statements of Operations for the years ended April 30, 1996, 1995 and
1994
Statements of Stockholders' Equity for the years ended April 30, 1996,
1995 and 1994
Statements of Cash Flows for the years ended April 30, 1996, 1995 and
1994
Notes to Financial Statements
2. Financial Statement Schedules:
Financial Statement schedules are omitted because they are not
required or because the information is presented in the financial
statements or notes thereto.
B. Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter ended
April 30, 1996.
10
<PAGE>
C. Exhibits:
Exhibits required by Item 601 of Regulation S-K:
EXHIBIT NO.
-----------
3.1 Restated Articles of Incorporation (3.1)(1)
3.2 Bylaws (3.2)(1)
4.1 Specimen Common Stock Certificate (4.1)(1)
10.1 Promissory Note dated May 17, 1990 by Joey Rodolfo to the
Jones/Rodolfo Corporation (10.1)(1)
10.2 Stock Pledge Agreement dated April 1995 by Joey Rodolfo to the
Jones/Rodolfo Corporation(10.2)(1)
10.3 Lease dated May 22, 1994 between First and Cedar Associates and
Jones/Rodolfo Corporation d/b/a Cutter & Buck (10.3)(1)
10.4 Indenture of Lease dated August 10, 1993 between Lakeplace
Associates and Jones/Rodolfo Corporation (10.4)(1)
10.5 Factoring Agreement dated March 1, 1995 between Republic Factors
Corp. and Jones/Rodolfo Corporation (10.5)(1)
10.6 Form of Registration Rights Agreement between Cutter & Buck Inc.
and Roanoke Investors' Limited Partnership, Needham Capital SBIC,
L.P. and Needham Emerging Growth Partners, L.P. (10.6)(1)
10.7 Consulting Agreement dated April 20, 1995 between Joey Rodolfo and
Jones/Rodolfo Corporation (10.7)(1)
10.8 First Amendment to Consulting Agreement dated July 6, 1995 between
Joey Rodolfo and Jones/Rodolfo Corporation (10.8)(1)
10.9 1991 Stock Option Plan (10.9)(1)
10.10 1995 Nonemployee Director Stock Incentive Plan filed herewith
10.11 1995 Employee Stock Option Plan (10.11)(1)
10.12 1995 Employee Stock Purchase Plan incorporated by reference to the
Registrant's Registration Statement on Form S-8 (File No. 33-80783)
10.13 Form of Representatives' Warrant (10.13)(1)
10.14 Distribution Reacquisition Agreement dated February 2, 1996 between
Cutter & Buck Inc. and Re-Ward Limited filed herewith
10.15 Loan Agreement dated June 26, 1996 between Cutter & Buck Inc. as
Borrower, and Bank of America NW, N.A. d/b/a Seafirst Bank, as
Lender filed herewith
11.1 Statement of Computation of Net Income Per Share
23.1 Consent of Ernst & Young LLP, independent auditors, filed herewith
- - --------------------------------------------------------------------------------
(1) Incorporated by reference to the exhibit shown in the preceding parentheses
and filed with the Registrant's Registration Statement on Form SB-2 (File
No. 33-94548-LA)
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CUTTER & BUCK INC.
(Registrant)
July 29, 1996 By
-------------------------------
Harvey N. Jones, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/S/HARVEY N. JONES President, Chief Executive July 29, 1996
- - ---------------------- Officer and Director
Harvey N. Jones (Principal Executive Officer)
/S/MARTIN J. MARKS Senior Vice President, Chief July 29, 1996
- - ---------------------- Operating Officer, Treasurer and
Martin J. Marks Secretary (Principal Financial
and Accounting Officer)
/S/MICHAEL S. BROWNFIELD Director July 29, 1996
- - ------------------------
Michael S. Brownfield
/S/FRANCES M. CONLEY Director July 29, 1996
- - ------------------------
Frances M. Conley
/S/LARRY C. MOUNGER Director July 29, 1996
- - ------------------------
Larry C. Mounger
/S/JOEY RODOLFO Director July 29, 1996
- - ------------------------
Joey Rodolfo
/S/JAMES B. SLAYDEN Director July 29, 1996
- - ------------------------
James B. Slayden
12
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-KSB)
of Cutter & Buck Inc. of our report dated June 17, 1996, except for the third
paragraph of Note 7, as to which the date is July 8, 1996, included in the 1996
Annual Report to Shareholders of Cutter & Buck Inc.
Seattle, Washington
July 25, 1996
13
<PAGE>
DISTRIBUTION REACQUISITION AGREEMENT
This Distribution Reacquisition Agreement ("Agreement") is made and entered
into as of February 2, 1996, between CUTTER & BUCK INC. (formerly Jones/Rodolfo
Corporation), a Washington corporation, and its assigns ("Cutter & Buck"),
RE-WARD LIMITED (formerly Re-Ward Distribution Limited, an English corporation
registered under Company No. 2356067, its subsidiaries, successors and assigns
("Re-Ward"), and the undersigned stockholders of Re-Ward ("Shareholders").
RECITALS
A. Cutter & Buck and Re-Ward are parties to a Distribution Agreement
dated as of June 15, 1994 ("Distribution Agreement"), pursuant to which Cutter &
Buck granted to Re-Ward the exclusive right to use the trademark and trade name
"Cutter & Buck" and Design ("Trademark") in the promotion, distribution and sale
of certain "Products" (defined in the Distribution Agreement) in the United
Kingdom, including England, Scotland, Wales, and North and South Ireland
("Territory").
B. Re-Ward has not performed as required under the Distribution
Agreement, and Cutter & Buck desires to reacquire the distribution and other
rights granted under the Distribution Agreement, and to terminate the
Distribution Agreement. In connection therewith, Cutter & Buck also desires to
acquire certain customer accounts, orders and other assets of Re-Ward.
AGREEMENT
Therefore, in consideration of the premises and the mutual covenants
and conditions contained in this Agreement, the parties agree as follows:
1. REACQUISITION OF DISTRIBUTION RIGHTS. At Closing (defined below),
Re-Ward shall relinquish and reconvey to Cutter & Buck all rights granted to
Re-Ward under the Distribution Agreement, including without limitation all
rights to use the Trademark in the promotion, distribution or sale of any
products within or without the Territory ("Distribution Rights"). Re-Ward
acknowledges and agrees that the Distribution Agreement shall thereafter be
deemed terminated without further action of any kind.
2. TRANSFER OF ACCOUNTS RECEIVABLE, ORDERS AND OTHER ASSETS. At Closing,
Re-Ward shall transfer, assign or use its best endeavors to novate (as
appropriate), to Cutter & Buck all of its accounts receivable, including without
limitation the accounts listed in attached EXHIBIT A ("Accounts"), confirmed
orders for Spring 1996 season Product, including without limitation the orders
listed in attached EXHIBIT B ("Orders"), and all other assets, including without
limitation the office furniture, fixtures and equipment described in attached
EXHIBIT C ("Other Assets").
<PAGE>
3. INVENTORY RETURN. On or before Closing, Re-Ward shall take such
actions and deliver such documents as may be necessary to return to Cutter &
Buck all Products held by or on behalf of Re-Ward, whether held as inventory or
otherwise and whether held in a bonded or other warehouse or otherwise,
including without limitation the following:
a. Fall 1995 season and prior Cutter & Buck merchandise located at
Ingrams Removals and Storage in Bishop Auckland, County Durham, for which
Re-Ward will be given a credit upon return of $23,472;
b. Spring 1996 season Cutter & Buck merchandise located at Ingrams
Removals and Storage in Bishop Auckland, County Durham, for which Re-Ward will
be given a credit upon return of $44,326; and
c. Spring 1996 season Cutter & Buck merchandise held at Leed's
Container Base of Killick Martin per confirmation letter from M.D. Shipping &
Forwarding, for which Re-Ward will be given a credit upon return of $72,373.
4. PURCHASE PRICE/PAYMENT. The purchase price for reacquisition of the
Distribution Rights and transfer of the Accounts, Orders and Other Assets will
be the approximate sum of $367,500 representing the total of the following sums
and payable as follows:
a. $185,000 in the form of a credit against the balance owed to
Cutter & Buck by Re-Ward under the Distribution Agreement (which will represent
the remaining balance owed by Re-Ward to Cutter & Buck for purchases under the
Distribution Agreement);
b. Guaranty by Cutter & Buck of the $127,500 overdraft owed by
Re-Ward to Lloyds Bank plc ("Overdraft Liability"); and
c. Assumption by Cutter & Buck of all of the specific liabilities of
Re-Ward (in the approximate sum of $55,000), that are particularly set forth in
attached EXHIBIT D ("Other Liabilities").
5. UNASSUMED LIABILITIES. Following Closing, Cutter & Buck agrees to
discharge the High Purchase Agreement specified in EXHIBIT C. Except as
expressly provided in this Agreement or otherwise agreed in writing, Cutter &
Buck does not assume any liability or obligation of Re-Ward of any kind or
nature, however or whenever arising, and Re-Ward shall be responsible for all
obligations not assumed by Cutter & Buck, whether or not any such obligations
relate to any assets acquired by Cutter & Buck.
6. ADDITIONAL OBLIGATIONS OF RE-WARD. On or before Closing, the
following shall take place:
<PAGE>
a. Re-Ward shall deliver to Cutter & Buck:
(1) All of Re-Ward's records and other data relating to the
Accounts and Orders, including without limitation;
(a) An itemized list of the Accounts, including all
information relevant to collection of the Accounts; and
(b) An itemized list of Orders for Cutter & Buck Products,
and evidence of such Orders, such as confirmed purchase orders;
(2) All of Re-Ward's records and other data relating to the
orders placed with Re-Ward's suppliers, embroiderers and/or manufacturers
with respect to the Products, including without limitation, the amounts,
description, and expected delivery dates;
(3) All manuals, service manuals and other information related
to the Other Assets; and
(4) Any other documents reasonably necessary to effectuate the
transactions which are the subject of this Agreement.
b. Re-Ward shall work with Cutter & Buck and its assigns in all
reasonable ways to assure a smooth reacquisition of the distribution rights by
Cutter & Buck and a smooth transition of the Accounts, Orders and Other Assets
to Cutter & Buck or its assigns.
c. Re-Ward shall cease any use of "Cutter & Buck" in its name and
shall not otherwise use of the Trademark, or any other trade name or trademark
of Cutter & Buck.
7. CLOSING. "Closing" will take place on February 15, 1996, or as soon
as reasonably possible after execution of this Agreement and satisfaction of the
conditions provided in Section 13 below. This Agreement shall automatically
terminate if the Closing has not occurred by February 29, 1996, but the parties
shall retain their rights and remedies with regard to any breach of this
Agreement.
8. ACKNOWLEDGEMENTS.
a. Following Closing, Re-Ward and the Shareholders hereby
acknowledge and agree as follows:
(1) The credits for return of inventory set forth in Section 3
above are being applied against the amount owed by Re-Ward to Cutter & Buck
under the Distribution Agreement.
<PAGE>
(2) No additional payment or credits shall be payable or made by
Cutter & Buck to Re-Ward hereunder, even if the Overdraft Liability is less
than $127,000 or the sum of the Other Liabilities is less than $55,000.
(3) Re-Ward and its Shareholders whose signatures appear below
hereby release Cutter & Buck, and its shareholders, directors, officers,
employees, agents, subsidiaries, successors and assigns, from any and all
claims and liabilities as of the Closing that arise under or relate to the
Distribution Agreement, any Product delivered to Re-Ward thereunder, or the
termination thereof; provided, however, that this release shall not release
or limit any rights or remedies of Re-Ward and its Shareholders whose
signatures appear below under this Agreement.
b. Following Closing, Cutter & Buck hereby releases Re-Ward and
those Shareholders whose signatures appear below, from any and all claims and
liabilities as of the Closing that arise under or relate to the Distribution
Agreement; provided, however, that this release is subject to fulfillment by
Re-Ward and the Shareholders of their respective obligations hereunder,
including the truth of the representations and warranties herein; and provided,
further that this release shall not release or limit any rights or remedies of
Cutter & Buck under this Agreement
9. REPRESENTATIONS AND WARRANTIES OF RE-WARD AND SHAREHOLDERS. Re-Ward
and its Shareholders represent and warrant to, and agree with, Cutter & Buck
that:
a. TITLE TO ASSETS. Re-Ward has, and as of Closing will have, good
and marketable title to all of the Accounts, Orders and Other Assets to be sold,
transferred, novated or assigned to Cutter & Buck pursuant to this Agreement,
free and clear of any security interests, pledges, mortgages, charges, claims,
liens, encumbrances, or other writs or interests of whatever kind or nature of
any other person (other than those disclosed in this Agreement) and as of
Closing will have the absolute and unrestricted right, power, authority, and
capacity to sell, transfer and assign the Accounts, Orders and Other Assets to
Cutter & Buck, save for those which require novating.
b. CORPORATE STATUS. Re-Ward is a corporation duly organized,
validly existing, and in good standing under the laws of England; Re-Ward has
all requisite power to carry on its business as now conducted; Re-Ward has all
requisite power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated herein; and Re-Ward has by proper
corporate proceedings duly authorized the execution and delivery of this
Agreement and the consummation of all transactions contemplated herein.
c. SHAREHOLDERS. The Shareholders are all of the holders of any
shares of stock or other securities in Re-Ward; and each has all requisite power
and authority to execute and deliver this Agreement, and to consummate the
transactions contemplated herein.
<PAGE>
d. BINDING AGREEMENT. This Agreement will be a legal, valid and
binding obligation of Re-Ward and the Shareholders enforceable in accordance
with the terms hereof once Lloyds Bank plc has executed a release of the assets
to be transferred hereunder. Any and all documents of transfer and conveyance
to be delivered pursuant to the terms hereof by Re-Ward or the Shareholders are
and will be legal, valid and binding obligations of Re-Ward and the
Shareholders, as applicable, enforceable in accordance with the terms thereof.
e. NO DEFAULTS. Subject to the said release by Lloyds Bank plc,
Neither the execution, delivery, nor performance by Re-Ward of this Agreement
will conflict with, or result in, a violation or breach of any terms or
provisions of, nor constitute a default under, the organization or governing
documents of Re-Ward, or under any indenture, mortgage, deed of trust, or other
contract or agreement to which Re-Ward or the Shareholders are parties, by which
Re-Ward, any of the Shareholders, or their respective property is bound, or
violate any order, writ, injunction, or decree of any court, administrative
agency, or governmental body applicable to Re-Ward or the Shareholders.
f. CREDITORS. Attached hereto as EXHIBIT E is a true and complete
list of all creditors of Re-Ward, and to the best knowledge and belief of the
Shareholders, there are no material or contingent liabilities of Re-Ward which
are not reflected in the financial statements and information that Re-Ward has
presented to Cutter & Buck.
10. CONFIDENTIALITY AND NONDISPARAGEMENT.
a. Re-Ward and the Shareholders agree that all product lines,
standards, creations, designs, colors, styles, patterns, samples, trends,
fabrication and manufacturing techniques and details, and advertising policies,
formats and schedules, and material and manufacturing sources and other
intellectual property provided by Cutter & Buck to Re-Ward are confidential
trade secrets ("Trade Secrets") of Cutter & Buck. Re-Ward and the Shareholders
agree to keep all those Trade Secrets strictly confidential. On or before
Closing, Re-Ward agrees to return all designs, patterns, samples and other
intellectual property and embodiments of Trade Secrets to Cutter & Buck.
b. Re-Ward and the Shareholders will not at any time (either prior
to or after Closing), for themselves or for the benefit of third parties:
(i) disclose any Trade Secrets of Cutter & Buck; (ii) use or infringe upon the
Trade Mark or any other trade names or trademarks of Cutter & Buck; or (iii)
market or sell any apparel of a style that replicates the style of any Product,
including without limitation any Product previously manufactured, marketed or
sold by Re-Ward or under Re-Ward's direction or control. As used herein,
"replicates the style" will be determined by a reasonableness standard;
specifically, whether a reasonable person upon viewing the style of the apparel
in question would view such style as an imitation of the style of a Cutter &
Buck Product.
<PAGE>
c. Re-Ward and the Shareholders hereby covenant and agree that they
will not malign or disparage Cutter & Buck or Cutter & Buck's representatives,
agents or employees, including the making of any denigrating remarks relating to
the business or personal reputation, ethics, skills or quality of merchandise of
Cutter & Buck. Cutter & Buck and Re-Ward agree that any reference to the
parties' former relationship should indicate that the parties parted company
amicably.
d. If either party commits a breach or is about to commit a breach,
of any of the provisions of this Section, the other party will have the right to
have the provisions thereof specifically enforced by the Federal District Court
in Seattle, Washington or by the Superior Court of Washington for King County,
without having to prove the inadequacy of the available remedies at law, it
being acknowledged and agreed to that money damages will not provide an adequate
remedy to the non-breaching party. The parties acknowledge that such injunctive
relief serves only to maintain the status quo pending resolution of the dispute,
and in any subsequent proceeding either party may seek such other remedies
available to it.
11. SHAREHOLDER CLAIMS. The Shareholders, jointly and severally, hereby
subordinate any and all claims the Shareholders may have against Re-Ward to any
claims of Cutter & Buck against Re-Ward. Michael Maddison hereby releases his
claim against Re-Ward for accounting services.
12. FURTHER ASSURANCES. Re-Ward and the Shareholders hereby agree to
execute and deliver from time to time at the request of Cutter & Buck and
without further consideration, such additional documents and to take such other
action as Cutter & Buck may reasonably require to more effectively carry out the
intent of this Agreement.
13. CONDITIONS TO OBLIGATIONS OF CUTTER & BUCK The obligations of
Cutter & Buck under this Agreement, shall, at the option of Cutter & Buck, be
subject to the following conditions, which shall be satisfied or waived on or
before Closing:
a. REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Cutter & Buck
shall not have discovered any material error, misstatement, or omission in the
representations and warranties made by Re-Ward or Shareholders in this Agreement
or in any document to delivered in connection with the transactions contemplated
by this Agreement; the representations and warranties made by Re-Ward herein and
Shareholders shall be deemed (subject to any matters disclosed in writing by
Re-Ward or the Shareholders and accepted in writing by Cutter & Buck) to have
been made again at, and as of Closing, and shall then be true in all material
respects. Re-Ward and Shareholders shall have performed and complied with all
agreements and conditions required by this Agreement to be performed or complied
with by them.
b. APPROVAL BY BOARD OF DIRECTORS. The Board of Directors of
Cutter & Buck shall have approved the transactions contemplated by this
Agreement by February 15, 1996.
<PAGE>
c. OVERDRAFT LIABILITY. Cutter & Buck shall have entered into an
agreement with Lloyds Bank plc for guarantee of the Overdraft Liability on terms
satisfactory to Cutter & Buck in its discretion.
14. CONSULTING. Following Closing, and subject only to Cutter & Buck
achieving at least $450,000 in sales of the Products in the United Kingdom
during the period from Closing through June 30, 1996, Cutter & Buck shall enter
into a consulting agreement with Speed 5224 Limited on the terms provided in the
Consulting Agreement in attached EXHIBIT F.
15. MISCELLANEOUS.
a. ASSIGNMENT. Re-Ward acknowledges that Cutter & Buck may assign
its rights to a wholly owned affiliate of Cutter & Buck without recourse to
Cutter & Buck following such assignment, and Re-Ward hereby consents to such
assignment. Except as provided above, this Agreement may not be assigned by
either party without the prior written consent of the other party.
b. BINDING EFFECT. Subject to the provisions of paragraph a of this
Section, this Agreement shall be binding upon, and inure to the benefit of
Cutter & Buck, Re-Ward and all Shareholders who sign this Agreement (and their
respective successors and assigns) whether or not all Shareholders sign the
Agreement.
c. AMENDMENT. This Agreement may be amended only by an instrument
in writing executed by all the parties hereto.
d. ENTIRE AGREEMENT. This Agreement and the attached Exhibits
constitute the entire agreement of the parties hereto, and supersede all prior
understandings with respect to the subject matter hereof.
e. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which shall constitute the
same instrument.
f. GOVERNING LAW. This Agreement shall be construed and enforced
under, in accordance with, and governed by, the laws of the State of Washington.
The parties hereby irrevocably consent to the jurisdiction and venue of the
Superior Court and Federal District Court located in King County, Washington.
In the event of any dispute arising out of or relating to this Agreement, the
prevailing party shall be entitled to recover its costs and expenses incurred,
including reasonable attorneys' fees.
g. CURRENCY. All amounts expressed in this Agreement are in U.S.
dollars and are based on the approximate current exchange rates for G. B. pounds
sterling.
<PAGE>
[SIGNATURES ON THE FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as a deed as of
the date first above written.
Executed as a Deed by
CUTTER & BUCK INC. ATTEST:
By____________________________ ____________________________
Its_________________________
Executed as a Deed by ATTEST:
RE-WARD LIMITED
By__________________, Director
___________________, Director ____________________________
SHAREHOLDERS:
______________________________ ____________________________
Signed as a Deed and Delivered
by Michael Maddison
______________________________ ____________________________
Signed as a Deed and Delivered
by Simon Oliver
______________________________ ____________________________
Signed as a Deed and Delivered
by Timothy Charles Henderson
______________________________ ____________________________
Signed as a Deed and Delivered
by Peter Francis Ward
______________________________ ____________________________
Signed as a Deed and Delivered
by Daniel Nary
IN THE PRESENCE OF:
<PAGE>
1995 NONEMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
CUTTER & BUCK INC.
(Restated as of September 19, 1995)
1. PURPOSE OF THE PLAN. The purposes of this 1995 Nonemployee Director
Stock Incentive Plan (the "Plan") are to promote the long-term success of
CUTTER & BUCK INC. (the "Corporation") by creating a long-term mutuality of
interests between the Nonemployee directors and shareholders of the Corporation,
to provide an additional inducement for such directors to remain with the
Corporation, and to provide a means through which the Corporation may attract
able persons to serve as directors of the Corporation.
2. ADMINISTRATION.
a. The Plan shall be administered by a Committee (the "Committee")
appointed by the Board of Directors of the Corporation (the "Board") and
consisting of not less than two members of the Board. The Committee shall keep
records of action taken at its meetings. A majority of the Committee shall
constitute a quorum at any meeting, and the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing
by all the members of the Committee, shall be the acts of the Committee.
b. The Committee shall interpret the Plan and prescribe such rules,
regulations and procedures in connection with the operations of the Plan as it
shall deem to be necessary and advisable for the administration of the Plan
consistent with the purposes of the Plan. All questions of interpretation and
application of the Plan, or as to stock options granted under the Plan, shall be
subject to the determination of the Committee, which shall be final and binding.
c. Notwithstanding the above, the selection of the directors to whom
stock options are to be granted, the timing of such grants, the number of shares
subject to any stock option, the exercise price of any stock option, the periods
during which any stock option may be exercised and the term of any stock option
shall be as hereinafter provided, and the Committee shall have no discretion as
to such matter.
3. SHARES AVAILABLE UNDER THE PLAN. The aggregate number of shares which
may be issued and as to which grants of stock options may be made under the Plan
is 46,253 shares of the common stock of the Corporation (without taking into
effect any split of such shares), having no par value (the "Common Stock"),
subject to adjustment and substitution as set forth in Section 6. If any stock
option granted under the Plan is canceled by mutual consent or terminates or
expires for any reason without having been exercised in full, the number of
shares subject to such option shall again be available for purposes of the Plan.
The shares which may be issued under the Plan may be authorized but unissued
shares, treasury shares, or both.
<PAGE>
4. GRANT OF STOCK OPTIONS. On the third business day following the day
of each annual meeting of the shareholders of the Corporation, each person who
is then a member of the Board and who is not then an employee of the Corporation
or any of its subsidiaries and is not then an independent consultant (other than
in his or her capacity as a member of the Board) to the Corporation or any of
its subsidiaries (collectively a "Nonemployee Director") shall be granted,
automatically and without further action by the Board or the Committee, a
"nonstatutory stock option" (i.e., a stock option which does not qualify under
Section 422 or 423 of the Internal Revenue Code of 1986 (the "Code")) to
purchase 2,312 shares of Common Stock, subject to adjustment and substitution as
set forth in Section 6. If the number of shares then remaining available for
the grant of stock options under the Plan at any time is not sufficient for each
Nonemployee Director then eligible to be granted an option for 2,312 shares (or
the number of adjusted or substituted shares pursuant to Section 6), then each
such Nonemployee Director shall be granted an option for a number of whole
shares equal to the number of shares then remaining available divided by the
number of Nonemployee Directors then eligible for grant of an option in
accordance with this Section 4, disregarding any fractions of a share.
5. TERMS AND CONDITIONS OF STOCK OPTIONS. Stock options granted under
the Plan shall be subject to the following terms and conditions:
a. The purchase price at which each stock option may be exercised
(the "Option Price") shall be one hundred percent (100%) of the fair market
value of the shares of Common Stock covered by the stock option on the date of
grant, determined as provided in Section 5.g.
b. The Option Price shall be paid in full upon exercise, in cash in
United States dollars (including check, bank draft or money order); provided,
however, that in lieu of such cash the person exercising the stock option may
pay the Option Price in whole or in part by delivering to the Corporation shares
of the Common Stock having a fair market value on the date of exercise of the
stock option, determined as provided in Section 5.g, equal to the Option Price
for the shares being purchased; except that (i) any portion of the Option Price
representing a fraction of a share shall in any event be paid in cash, and
(ii) no shares of the Common Stock which have been held for less than six months
may be delivered in payment of the Option Price of a stock option. Delivery of
shares may also be accomplished through the effective transfer to the
Corporation of shares held by a broker or other agent. The Corporation will
also cooperate with any person exercising a stock option who participates in a
cashless exercise program of a broker or other agent under which all or part of
the shares received upon exercise of the stock option are sold through the
broker or other agent or under which the broker or other agent make a loan to
such person. Notwithstanding the foregoing, the exercise of the stock option
shall not be deemed to occur and no shares of Common Stock will be issued by the
Corporation upon exercise of the stock option until the Corporation has received
payment of the Option Price in full. The date of exercise of a stock option
shall be determined under procedures established by the Committee, and as of the
date of exercise, the person exercising the stock option shall be considered for
all purposes to be the owner of the shares of Common Stock with respect to which
the stock option has been exercised. Payment of the Option Price with shares
shall
2
<PAGE>
not increase the number of shares of the Common Stock which may be issued under
the Plan as provided in Section 3.
c. No stock option shall be exercisable during the first six months
of its term except in case of death as provided in Section 5.e. Subject to the
preceding sentence and subject to Section 5.e, which provides for earlier
termination of a stock option under certain circumstances, each stock option
shall be exercisable for ten years from the date of grant and not thereafter. A
stock option to the extent exercisable at any time may be exercised in whole or
in part.
d. No stock option shall be transferable by the grantee otherwise
than by will, or if the grantee dies intestate, by the laws of descent and
distribution of the state of domicile of the grantee at the time of death. All
stock options shall be exercisable during the lifetime of the grantee only by
the grantee or the grantee's guardian or legal representative. These
restrictions on transferability shall not apply to the extent such restrictions
are not at the time required for the Plan to continue to meet the requirements
of Rule 16b-3 under the Securities Exchange Act of 1934 (the "1934 Act"), or any
successor rule.
e. If a grantee ceases to be a director of the Corporation for any
reason, any outstanding stock options held by the grantee shall be exercisable
according to the following provisions:
(i) If a grantee ceases to be a director of the Corporation for
any reason other than resignation, removal for cause, or death, any
outstanding stock option held by such grantee shall be exercisable by the
grantee (but only if exercisable by the grantee immediately prior to
ceasing to be director) at any time prior to the expiration date of such
stock option or within three years after the date the grantee ceases to be
a director, whichever is the shorter period;
(ii) If during his term of office as a director a grantee resigns
from the Board or is removed from office for cause, any outstanding stock
option held by the grantee which is not exercisable by the grantee
immediately prior to resignation or removal shall terminate as of the date
of resignation or removal, and any outstanding stock option held by the
grantee which is exercisable by the grantee immediately prior to
resignation or removal shall be exercisable by the grantee at any time
prior to the expiration date of such stock option or within three months
after the date of resignation or removal of the grantee, whichever is the
shorter period;
(iii) Following the death of a grantee during service as a
director of the Corporation, any outstanding stock option held by the
grantee at the time of death (whether or not exercisable by the grantee
immediately prior to death) shall be exercisable by the person entitled to
do so under the will of the grantee, or, if the grantee shall fail to make
testamentary disposition of the stock option or shall die intestate, by the
legal representative
3
<PAGE>
of the grantee at any time prior to the expiration date of such stock option or
within three years after the date of death of the grantee, whichever is the
shorter period;
(iv) Following the death of a grantee after ceasing to be a
director and during a period when a stock option is exercisable under
clause (ii) above, the stock option shall be exercisable by such person
entitled to do so under the will of the grantee or by such legal
representative at any time prior to the expiration date of the stock option
or within one year after the date of death, whichever is the shorter
period; and
(v) Following the death of a grantee after ceasing to be a
director of the Corporation and during a period when a stock option is
exercisable under clause (iii) above, the stock option shall be exercisable
by such person entitled to do so under the will of the grantee or by such
legal representative at any time during the shorter of the following two
periods: (a) until the expiration date of the stock option or (b) until
three years after the grantee ceased being a director of the Corporation or
one year after the date of death of the grantee (whichever is longer).
A stock option held by a grantee who has ceased to be a director of the
Corporation shall terminate upon the expiration of the applicable exercise
period, if any, specified in this Section 5.e.
f. All stock options shall be confirmed by an agreement, or an
amendment thereto, which shall be executed on behalf of the Corporation by the
Chief Executive Officer (if other than the President), the President or any Vice
President and by the grantee.
g. Fair market value of the Common Stock shall be the mean between
the following prices, as applicable, for the date as of which fair market value
is to be determined, as quoted in THE WALL STREET JOURNAL (or in such other
reliable publication as the Committee, in its discretion, may determine to rely
upon): (i) if the Common Stock is listed on the New York Stock Exchange, the
highest and lowest sales prices per share of the Common Stock as quoted in the
NYSE-Composite Transactions listing for such date, (ii) if the Common Stock is
not listed on such exchange, the highest and lowest sales prices per share of
the Common Stock for such date on (or on any composite index including) the
principal United States securities exchange registered under the 1934 Act on
which the Common Stock is listed, or (iii) if the Common Stock is not listed on
any such exchange, the highest and lowest sales prices per share of the Common
Stock for such date on the National Association of Securities Dealers Automated
Quotations System or any successor system then in use ("NASDAQ"). If there are
no such sale price quotations for the date as of which fair market value is to
be determined but there are such sale price quotations within a reasonable
period both before and after such date, then fair market value shall be
determined by taking a weighted average of the means between the highest and
lowest sales prices per share of the Common Stock as so quoted on the nearest
date before and the nearest date after the date as of which fair market value is
to be determined. The average should be weighted inversely by the respective
numbers of trading days between the selling dates and the date as of which fair
market value is to be determined. If there are no such sale price quotations on
or within a reasonable period both before
4
<PAGE>
and after the date as of which fair market value is to be determined, then fair
market value of the Common Stock shall be the mean between the bona fide bid and
asked prices per share of Common Stock as so quoted for such date on NASDAQ, or
if none, the weighted average of the means between such bona fide bid and asked
prices on the nearest trading date before and the nearest trading date after the
date as of which fair market value is to be determined, if both such dates are
within a reasonable period. The average is to be determined in the manner
described above in this Section 5.g. If the fair market value of the Common
Stock cannot be determined on the basis previously set forth in this Section 5.g
for the date as of which fair market value is to be determined, the Committee
shall in good faith determine the fair market value of the Common Stock on such
date. Fair market value shall be determined without regard to any restriction
other than a restriction which, by its terms, will never lapse.
h. The obligation of the Corporation to issue shares of the Common
Stock under the Plan shall be subject to (i) the effectiveness of a registration
statement under the Securities Act of 1933, as amended, with respect to such
shares, if deemed necessary or appropriate by counsel for the Corporation,
(ii) the condition that the shares shall have been listed (or authorized for
listing upon official notice of issuance) upon each stock exchange, if any, on
which the Common Stock may then be listed and (iii) all other applicable laws,
regulations, rules and orders which may then be in effect.
Subject to the foregoing provision of this Section 5 and the other
provisions of the Plan, any stock option granted under the Plan shall be subject
to such restrictions and other terms and conditions, if any, as shall be
determined, in its discretion, by the Committee and set forth in the agreement
referred to in Section 5.f, or an amendment thereto; except that in no event
shall the Committee or the Board have any power or authority which would cause
the Plan to fail to be a plan described in Rule 16b-3(c)(2)(ii), or any
successor rule.
6. ADJUSTMENT AND SUBSTITUTION OF SHARES. If a dividend or other
distribution shall be declared upon the Common Stock payable in shares of the
Common Stock, then (i) the number of shares of the Common Stock set forth in
Section 4, (ii) the number of shares of the Common Stock then subject to any
outstanding stock options, and (iii) the number of shares of the Common Stock
which may be issued under the Plan but are not then subject to outstanding stock
options on the date fixed for determining the shareholders entitled to receive
such stock dividend or distribution, shall be adjusted by adding thereto the
number of shares of the Common Stock which would have been distributable thereon
if such shares had been outstanding on such date.
If the outstanding shares of the Common Stock shall be changed into or
exchangeable for a different number or kind of shares of stock or other
securities of the Corporation or another corporation, whether through
reorganization, reclassification, recapitalization, stock split up, combination
of shares, merger or consolidation, then there shall be substituted for each
share of the Common Stock set forth in Section 4, for each share of the Common
Stock subject to any then outstanding stock option and for each share of the
Common Stock which may be issued under the Plan but which is not then subject to
any outstanding stock option, the number and kind of shares of
5
<PAGE>
stock or other securities into which each outstanding share of the Common Stock
shall be so changed or for which each such share shall be exchangeable.
In case of any adjustment or substitution as provided for in the first two
paragraphs of this Section 6, the aggregate Option Price for all shares subject
to each then outstanding stock option prior to such adjustment or substitution
shall be the aggregate Option Price for all shares of stock or other securities
(including any fraction) to which such shares shall have been adjusted or which
shall have been substituted for such shares. Any new Option Price per share
shall be carried to at least three decimal places with the last decimal place
rounded upwards to the nearest whole number.
If the outstanding of the Common Stock shall be changed in value by reason
of any spinoff, split off or split up, or dividend in partial liquidation,
dividend in property other than cash or extraordinary distribution to holders of
the Common Stock, the Committee shall make any adjustments to any then
outstanding stock option which it determines are equitably required to prevent
dilution or enlargement of the rights of grantees which would otherwise result
from any such transaction.
No adjustment or substitution provided for in this Section 6 shall require
the Corporation to issue or sell a fraction of a share or other security.
Accordingly, all fractional shares or other securities which result from any
such adjustment or substitution shall be eliminated and not carried forward to
any subsequent adjustment or substitution.
Except as provided in this Section 6, a grantee shall have no rights by
reason of any issue by the Corporation of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
7. EFFECT OF THE PLAN ON THE RIGHTS OF CORPORATION AND SHAREHOLDERS.
Nothing in the Plan, in any stock option granted under the Plan, or in any stock
option agreement shall confer any right to any person to continue as a director
of the Corporation or interfere in any way with the rights of the shareholders
of the Corporation or the Board to elect and remove directors.
8. AMENDMENT AND TERMINATION. The right to amend or to terminate the
Plan at any time are hereby specifically reserved to the Board; provided always
that no such termination shall terminate any outstanding stock options granted
under the Plan; and provided further that no amendment of the Plan shall (i) be
made without stockholder approval if stockholder approval of the amendment is at
the time required for stock options under the Plan to qualify for the exemption
from Section 16(b) of the 1934 Act provided by Rule 16b-3, or any successor
rule, or by the rules of any stock exchange on which the Common Stock may then
be listed, (ii) amend more than once every six months the provision of the Plan
relating to the selection of the directors to whom stock options are to be
granted, the timing of such grants, the number of shares subject to any stock
option, the exercise price of any stock option, the periods during which any
stock option may be exercised and the term of any stock option other than to
comport with changes in the Internal Revenue Code of 1986, as amended
6
<PAGE>
(the "Code") or the rules and regulations thereunder or (iii) otherwise amend
the Plan in any manner that would cause stock options under the Plan not to
qualify for the exemption provided by Rule 16b-3, or any successor rule. No
amendment or termination of the Plan shall, without the written consent of the
holder of a stock option theretofore awarded under the Plan, adversely affect
the rights of such holder with respect thereto.
Notwithstanding anything contained in the preceding paragraph or any other
provision of the Plan or any stock option agreement, the Board shall have the
power to amend the Plan in any manner deemed necessary or advisable for stock
options granted under the Plan to qualify for the exemption provided by
Rule 16b-3 (or any successor rule relating to exemption from Section 16(b) of
the 1934 Act), and any such amendment shall, to the extent deemed necessary or
advisable by the Board, be applicable to any outstanding stock options
theretofore granted under the Plan notwithstanding any contrary provisions
contained in any stock option agreement. In the event of any such amendment to
the Plan, the holder of any stock option outstanding under the Plan shall, upon
request of the Committee and as a condition to the exercisability of such
option, execute a conforming amendment in the form prescribed by the Committee
to the stock option agreement referred to in Section 5.f within such reasonable
time as the Committee shall specify in such request.
9. EFFECTIVE DATE AND DURATION OF PLAN. The Plan shall become effective
upon approval by the affirmative vote of the holders of a majority of the Common
Stock and preferred stock present in person or by proxy and entitled to vote at
a duly called and convened meeting of such holders. If such approval is
obtained prior to the annual meeting of shareholders in 1995, the Plan shall be
effective on the date of such meeting, the first stock options shall be granted
on the third business day thereafter and the last stock options granted under
the Plan shall be granted on the third business day after the annual meeting of
shareholders in 2004.
Date Approved by Board of Directors
of Company: June 27, 1995 By
----------------------------
Its Corporate Secretary
Date Approved by Shareholders of
Company: July 20, 1995 By
----------------------------
Its Corporate Secretary
7
<PAGE>
LOAN AGREEMENT
BETWEEN
CUTTER & BUCK INC.
AS BORROWER,
AND
BANK OF AMERICA NW, N.A. D/B/A SEAFIRST BANK
AS LENDER
________________________________________
DATED AS OF JUNE 26, 1996
________________________________________
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINITIONS 1
Section 1.1 Certain Defined Terms 1
Section 1.2 General Principles Applicable to Definitions 7
Section 1.3 Accounting Terms 8
ARTICLE 2
THE LOANS 8
Section 2.1 The Loans 8
Section 2.2 Manner of Borrowing 8
Section 2.3 Repayment of Principal 9
(a) Mandatory Borrowing Base Payments 9
(b) Maturity Date Payment 9
Section 2.4 Interest on Loans 9
(a) General Provisions 9
Section 2.5 Note 9
Section 2.6 Manner of Payments 10
(a) Form and Place of Payment 10
(b) Authorization to Charge Borrower's Bank Account 10
(c) Non-Business Days 10
Section 2.7 Prepayments 10
Section 2.8 Bank Control Account 10
i
<PAGE>
Section 2.9 Application of Payments 10
ARTICLE 3
BANKERS' ACCEPTANCE 11
Section 3.1 Banker's Acceptances. 11
Section 3.2 Manner of Presenting Drafts 11
(a) Acceptance Requests 11
(b) Acceptance and Discounting of Draft 12
(c) Procedure to Facilitate Acceptance and Discounting 12
Section 3.3 Indemnification; Increased Costs 12
Section 3.4 Payment of Drafts by Borrower 13
Section 3.5 Compliance With Governmental Regulations; Insurance 14
Section 3.6 Guaranty of Documents and Instruments 14
Section 3.7 Revocation by Operation of Law 14
ARTICLE 4
LETTERS OF CREDIT 15
Section 4.1 Letters of Credit 15
Section 4.2 Manner of Requesting Letters of Credit 15
(a) Letter of Credit Requests 15
(b) Letter of Credit Fees; Limits on Terms 15
(c) Letter of Credit Application and Reimbursement Agreement 16
(d) Issuance of Letter of Credit 16
ii
<PAGE>
(e) Conflicts in Terms 16
Section 4.3 Indemnification; Increased Costs 16
ARTICLE 5
CONDITIONS TO ADVANCES 17
Section 5.1 Conditions to Initial Advance 17
(a) Loan Documents 17
(b) Authority 17
(c) Legal Opinion 18
(d) Certificate 18
(e) Evidence of Security 18
(f) Commitment Fee 18
(g) Intercreditor Agreement 18
(h) Evidence of Insurance 18
(i) Consents 18
(j) Accounts Receivable Delinquency 19
Section 5.2 Conditions to All Advances 19
(a) Prior Conditions 19
(b) Notice of Borrowing 19
(c) No Default 19
(d) No Material Adverse Change 19
(e) Other Information 19
ARTICLE 6
REPRESENTATIONS AND WARRANTIES 19
iii
<PAGE>
Section 6.1 Existence and Power 20
Section 6.2 Authorization 20
Section 6.3 Government Approvals, Etc. 20
Section 6.4 Binding Obligations, Etc. 20
Section 6.5 Litigation 20
Section 6.6 Financial Condition 21
Section 6.7 Title and Liens 21
Section 6.8 Location of Inventory 21
Section 6.9 Taxes 21
Section 6.10 Other Agreements 22
Section 6.11 Federal Reserve Regulations 22
Section 6.12 ERISA 22
Section 6.13 Subsidiaries 23
Section 6.14 Representations Relating to Drafts 23
Section 6.15 Fees 23
Section 6.16 Patents, Licenses, Franchises 23
Section 6.17 Not Investment Company, Etc 24
Section 6.18 Representations as a Whole 24
ARTICLE 7
AFFIRMATIVE COVENANTS 24
Section 7.1 Use of Proceeds from Advances 24
Section 7.2 Payment 24
Section 7.3 Preservation of Corporate Existence, Etc 24
Section 7.4 Visitation Rights 25
iv
<PAGE>
Section 7.5 Keeping of Books and Records 25
Section 7.6 Maintenance of Property, Etc. 25
Section 7.7 Documents of Title 25
Section 7.8 Compliance With Laws, Etc. 25
Section 7.9 Other Obligations. 25
Section 7.10 Insurance 26
Section 7.11 Financial Information 26
(a) Annual Audited Financial Statements 26
(b) Monthly Unaudited Financial Statements 26
(c) Monthly Reports and Agings 26
(d) Shareholder, SEC and Government Reports 27
(e) Other 27
Section 7.12 Compliance with Borrowing Plan 27
Section 7.13 Notification 27
Section 7.14 Additional Payments; Additional Acts 28
Section 7.15 Tangible Net Worth. 28
Section 7.16 Leverage Ratio. 28
Section 7.17 Working Capital. 28
Section 7.18 Accounts Receivable Turnover. 29
Section 7.19 Location of Inventory 29
ARTICLE 8
NEGATIVE COVENANTS 29
Section 8.1 Liquidation, Merger, Sale of Assets 29
v
<PAGE>
(a) General Provisions 29
(b) Sale of Receivables 30
Section 8.2 Indebtedness 30
Section 8.3 Guaranties, Etc. 30
Section 8.4 Liens 30
Section 8.5 Location of Inventory 30
Section 8.6 Investments 31
Section 8.7 Capital Expenditures 31
Section 8.8 Operations 31
Section 8.9 ERISA Compliance 31
Section 8.10 Accounting Change 31
Section 8.11 Notice To Inventory Bailee(s) 32
Section 8.12 Delinquent Accounts Receivable 32
ARTICLE 9
EVENTS OF DEFAULT 32
Section 9.1 Events of Default 32
(a) Payment Default 32
(b) Breach of Warranty 32
(c) Breach of Certain Covenants 32
(d) Breach of Other Covenant 32
(e) Material Adverse Changes; Extraordinary Situation 32
(f) Cross-default 33
(g) Voluntary Bankruptcy, Etc 33
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<PAGE>
(h) Involuntary Bankruptcy, Etc 33
(i) Insolvency, Etc 34
(j) ERISA 34
(k) Prepayment 34
(l) Condemnation 34
(m) Judgment 34
(n) Governmental Approvals 35
(o) Other Government Action 35
(p) Factoring Agreement Default 35
Section 9.2 Consequences of Default 35
ARTICLE 10
MISCELLANEOUS 36
Section 10.1 No Waiver; Remedies Cumulative 36
Section 10.2 Governing Law 36
Section 10.3 Mandatory Arbitration 36
Section 10.4 Notices 37
Section 10.5 Assignment 37
Section 10.6 Severability 37
Section 10.7 Survival 38
Section 10.8 Executed in Counterparts 38
Section 10.9 Commitment Not Borrowed 38
Section 10.10 Entire Agreement; Amendment, Etc 38
Section 10.11 Oral Agreements Not Enforceable 38
vii
<PAGE>
EXHIBITS
Exhibit A - Promissory Note
Exhibit B - Commercial Security Agreement
Exhibit C - Customer Borrowing Plan
Exhibit D - Notice of Borrowing
Exhibit E - Legal Opinion
Exhibit F - Notice to Inventory Bailee
viii
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is made as of the 26th day of June,
1996, by and between BANK OF AMERICA NW, N.A. d/b/a SEAFIRST BANK, a national
banking association (the "Lender"), and CUTTER & BUCK INC., a Washington
corporation (the "Borrower").
AGREEMENT
ARTICLE 1
DEFINITIONS
SECTION 1.1 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the following meanings:
"ACCEPTANCE ADVANCE" means the disbursement of the proceeds arising
from Lender's acceptance and discounting of a Draft to Borrower.
"ACCEPTANCE DATE" has the meaning given in Section 3.2(b).
"ACCEPTANCE REQUEST" has the meaning given in Section 3.2(a).
"ACCEPTANCE USAGE" means, as of any date of determination, the sum
of (i) the aggregate face amount of all outstanding unmatured Drafts plus
(ii) the aggregate face amount of all matured Drafts for which Borrower has
not yet paid pursuant to Section 3.4.
"ACCOUNTS RECEIVABLE BORROWING BASE" means the Accounts Receivable
Borrowing Base as calculated in the Customer Borrowing Plan.
"ADVANCES" means Loans, Acceptance Advances and Letters of Credit.
"AFFILIATE" means any person who, directly or indirectly, controls
or is controlled by or is under common control with Borrower.
"AGREEMENT" means this Loan Agreement as it may be amended from
time to time.
<PAGE>
"APPROVED WAREHOUSE" means Borrower's warehouse and any public
warehouse approved by Lender in writing.
"AVAILABLE AMOUNT" means, as of any date of determination, the
lesser of the Borrowing Base as of such date or the Commitment Amount as of
such date.
"BASIC LOAN DOCUMENTS" means this Agreement, the Note, the Customer
Borrowing Plan, and the Security Agreement.
"BORROWER" means Cutter & Buck Inc., a Washington corporation, and
any Successor.
"BORROWER'S BANK ACCOUNT" means Account No. 1415603 maintained by
Borrower with Lender.
"BORROWING BASE" means the Borrowing Base as calculated in the
Customer Borrowing Plan.
"BUSINESS DAY" means any day other than Saturday, Sunday or other
day on which banks are authorized or obligated to close in Seattle,
Washington.
"CAPITAL LEASES" means for any person, all obligations of such
person under leases which shall have been, or in accordance with GAAP, should
be recorded as capital leases.
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
"COLLATERAL" means the property in which the Security Agreement
creates or purports to create a security interest or other lien.
"COMMITMENT" means Lender's obligation to extend Loans under this
Agreement, to issue Letters of Credit under this Agreement and to accept and
discount Drafts under this Agreement.
"COMMITMENT AMOUNT" means $7,000,000.
"COMMITMENT PERIOD" has the meaning given in Section 2.1.
"CONTROLLED GROUP" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with Borrower, are treated as a single
employer under Section 414(b) or 414(c) of the Code.
2
<PAGE>
"CURRENT ASSETS" shall be defined in accordance with GAAP but shall
not include (i) any deferred assets other than prepaid items such as
insurance, taxes, or other similar items, or (ii) any amounts due from
persons which are direct or indirect subsidiaries of or otherwise affiliated
with Borrower.
"CURRENT LIABILITIES" shall be defined in accordance with GAAP but
shall not include the current portion of Subordinated Debt which is not
actually to be paid during the current period.
"CUSTOMER BORROWING PLAN" means the Seattle-First National Bank
Customer Borrowing Plan Assigned Accounts Receivable and Inventory attached
hereto as Exhibit C as amended from time to time.
"DEFAULT" means any event which but for the passage of time, the
giving of notice, or both would be an Event of Default.
"DISCOUNT RATE" means that rate quoted by Lender in its sole and
absolute discretion to Borrower on the date any Draft is presented for
acceptance.
"DRAFTS" means drafts accepted and discounted by Lender pursuant to
Section 3.2 hereof.
"ELIGIBLE DRAFT" means a draft that is eligible for discount under
the Federal Reserve Act (12 U.S.C. Section 372) and is eligible for purchase
under the rules and regulations established from time to time by the Federal
Reserve Bank of New York.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"EVENT OF DEFAULT" has the meaning given in Section 9.1.
"FACTORING AGREEMENT" means that certain Factoring Agreement by and
between Borrower (successor by name change to Jones/Rodolfo Corporation) and
Republic Factors Corp., dated as of March 1, 1995.
"FACTORING COMPANY" means Republic Factors Corp., a Maryland
corporation.
"FINANCIAL TRANSACTION LIABILITY" means (i) any overdraft on any
account maintained by Borrower with Lender, (ii) liabilities owing by
Borrower to Lender with respect to bank
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card services and (iii) liabilities incurred by Lender as a result of
Automated Clearing House transactions for the account of Borrower.
"GAAP" shall have the meaning given in Section 1.3.
"GOVERNMENT APPROVAL" means an approval, permit, license,
authorization, certificate, or consent of any Governmental Authority.
"GOVERNMENTAL AUTHORITY" means the government of the United States
or any State or any foreign country or any political subdivision of any
thereof or any branch, department, agency, instrumentality, court, tribunal
or regulatory authority which constitutes a part or exercises any sovereign
power of any of the foregoing.
"INDEBTEDNESS" means for any person (a) all items of indebtedness
or liability which would be included in determining total liabilities as
shown on the liability side of a balance sheet as of the date as of which
indebtedness is determined, (b) indebtedness secured by any Lien, whether or
not such indebtedness shall have been assumed, (c) any other indebtedness or
liability for borrowed money or for the deferred purchase price of property
or services for which such person is directly or contingently liable as
obligor, guarantor, or otherwise, or in respect of which such person
otherwise assures a creditor against loss, and (d) any other obligations of
such person under Capital Leases.
"LENDER" means Bank of America NW, N.A. d/b/a Seafirst Bank and its
Successors.
"LETTER OF CREDIT" means any letter of credit issued by Lender
pursuant to the terms of Article 4 hereof.
"LETTER OF CREDIT REQUEST" has the meaning given in Section 4.2(a).
"LETTER OF CREDIT USAGE" means, as of any date of determination,
the sum of (i) the aggregate undrawn face amount of all outstanding unmatured
Letters of Credit plus (ii) the aggregate amount of all payments made by
Lender under Letters of Credit and not yet reimbursed by Borrower pursuant to
Section 4.2(c).
"LIEN" means, for any person, any security interest, pledge,
mortgage, charge, assignment, hypothecation, encumbrance,
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attachment, garnishment, execution or other voluntary or involuntary lien
upon or affecting the revenues of such person or any real or personal
property in which such person has or hereafter acquires any interest, except
(a) liens for Taxes which are not delinquent or which remain payable without
penalty or the validity or amount of which is being contested in good faith
by appropriate proceedings, which shall have the effect of staying execution
if execution is threatened or possible; (b) liens imposed by law (such as
mechanics' liens) incurred in good faith in the ordinary course of business
which are not delinquent or which remain payable without penalty or the
validity or amount of which is being contested in good faith by appropriate
proceedings, which shall have the effect of staying execution if execution is
threatened or possible; (c) deposits or pledges under worker's compensation,
unemployment insurance, social security or other similar laws or made to
secure the performance of bids, tenders, contracts (except for repayment of
borrowed money), or leases, or to secure statutory obligations or surety or
appeal bonds or to secure indemnity, performance, customs or other similar
bonds given in the ordinary course of business and (d) encumbrances, zoning
regulations, easements, rights-of-way, survey exceptions and other similar
restrictions on the use of real property or minor irregularities in title
thereto which do not materially impair the use of such property or the
operation of Borrower's business.
"LOAN DOCUMENTS" means the Basic Loan Documents, any and all
Drafts, any Reimbursement Agreements and the Letters of Credit.
"LOAN" has the meaning given in Section 2.1.
"MATURITY DATE" means June 1, 1997.
"NOTE has the meaning given in Section 2.5.
"NOTICE OF BORROWING" means a request for a Loan from Borrower
delivered to Lender in the manner, at the time and containing the information
required under Section 2.2.
"OFFICER'S CERTIFICATE" means a certificate executed and delivered
on behalf of Borrower by its President-Chief Executive Officer, Senior Vice
President-Chief Operating Officer or Controller.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
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"PENSION PLAN" means an "employee pension benefit plan" (as such
term is defined in ERISA) from time to time maintained by Borrower or a
member of a Controlled Group.
"PLAN" shall mean, at any time, an employee pension benefit plan
which is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code and is either (a) maintained by
Borrower or any member of a Controlled Group for employees of Borrower or any
member of a Controlled Group or (b) maintained pursuant to a collective
bargaining agreement or any other arrangement under which more than one
employer makes contributions and to which Borrower or any member of a
Controlled Group is then making or accruing an obligation to make
contributions or has within the preceding five (5) plan years made
contributions.
"PRIME RATE" means, on any day, Lender's publicly announced prime
rate of interest at its principal office (which prime rate is a reference
rate and not necessarily the lowest rate of interest charged by Lender to its
prime customers), changing as such prime rate changes.
"REIMBURSEMENT AGREEMENTS" has the meaning given in Section 4.2(c).
"SECURITY AGREEMENT" means the Commercial Security Agreement of
even date herewith executed by Borrower in favor of Lender substantially in
the form of Exhibit B, as such security agreement may be amended from time to
time.
"SUBORDINATED DEBT" means any Indebtedness owing by Borrower with
respect to which Borrower has executed a subordination agreement in favor of
Lender in form and substance reasonably satisfactory to Lender.
"SUBSIDIARY" shall mean any corporation directly or indirectly
controlled by Borrower. For the purposes of this definition, "controlled by"
shall mean the possession, directly or indirectly of the power to direct or
cause the direction of the management or policies of such Subsidiary, whether
through the ownership of voting securities, by contract, or otherwise.
"SUCCESSOR" means, for any corporation, partnership or banking
association, any successor by merger or consolidation, or by acquisition of
substantially all of the assets of the predecessor, or by conversion to
another type of legal entity, or by continuation after and the occurrence of
an event that would
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otherwise result in termination under applicable law but for such
continuation.
"TANGIBLE NET WORTH" means the sum of (a) the excess of total
assets over total liabilities, excluding, however, from the determination of
total assets (i) all assets which should be classified as intangible assets
(such as goodwill, patents, trademarks, copyrights, franchises, and deferred
charges (including unamortized debt discount and research and development
costs)), (ii) cash held in a sinking or other similar fund established for
the purpose of redemption or other retirement of any partnership interest,
and (iii) to the extent not already deducted from total assets, reserves for
depreciation, depletion, obsolescence or amortization of properties and other
reserves or appropriations of retained earnings which have been or should be
established in connection with the business conducted by the relevant
corporation, plus (b) all Subordinated Debt.
"TAX" means, for any person, any tax, assessment, duty, levy,
impost or other charge imposed by any Governmental Authority on such person
or on any property, revenue, income, or franchise of such person and any
interest or penalty with respect to any of the foregoing.
"TRADE ACCOUNTS RECEIVABLE" shall mean all payments which Borrower
is entitled to receive in the ordinary course of business arising from the
bona fide sale of Borrower's inventory, PROVIDED, HOWEVER, such accounts
receivable (a) are not accounts receivable from an Affiliate, (b) are not
COD's or receivables from employees or stockholders, (c) are not bill and
hold accounts receivable, (d) are not accounts receivable from the United
States of America, its subdivisions or agencies, (e) are not accounts
receivable owing by any account debtor outside the United States, and (f) are
not accounts receivable arising from consignments.
"TOTAL ACCOUNTS RECEIVABLE" shall mean all payments which Borrower
is entitled to receive in the ordinary course of business.
"TOTAL LIABILITIES" means, in the case of Borrower the sum of (a)
Indebtedness, minus (b) Subordinated Debt.
"UNFUNDED VESTED LIABILITIES" means, with respect to any Plan at
any time, the amount (if any) by which (a) the present value of all vested
non forfeitable benefits under such Plan exceeds (b) the fair market value of
all Plan assets allocable to such benefits, all determined as of the then
most
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recent valuation date for such Plan, but only to the extent that such excess
represents a potential liability of Borrower or any member of a Controlled
Group to the PBGC or the Plan under Title IV of ERISA.
"UTILIZATION AMOUNT" means, as of any date of determination, the
sum of (i) the aggregate principal amount of all outstanding Loans; plus (ii)
the Acceptance Usage; plus (iii) the Letter of Credit Usage.
SECTION 1.2 GENERAL PRINCIPLES APPLICABLE TO DEFINITIONS. Definitions
given herein shall be equally applicable to both singular and plural forms of
the terms therein defined and references herein to "he" or "it" shall be
applicable to persons whether masculine, feminine or neuter. References
herein to any document including, but without limitation, this Agreement
shall be deemed a reference to such document as it now exists, and as, from
time to time hereafter, the same may be amended. References herein to a
"person" or "persons" shall be deemed to be references to an individual,
corporation, partnership, trust, unincorporated association, joint venture,
joint-stock company, government (including political subdivisions),
Governmental Authority or agency or any other entity. References herein to
any section, subsection, schedule or exhibit shall, unless otherwise
indicated, be deemed a reference to sections and subsections within and
schedules and exhibits to this Agreement.
SECTION 1.3 ACCOUNTING TERMS. Except as otherwise provided herein,
accounting terms not specifically defined shall be construed, and all
accounting procedures shall be performed, in accordance with generally
accepted United States accounting principles consistently applied ("GAAP")
and as in effect on the date of application.
ARTICLE 2
THE LOANS
SECTION 2.1 THE LOANS. Subject to the terms and conditions of this
Agreement, Lender agrees during the period from the date this Agreement is
executed and delivered by all of the parties hereto until the Maturity Date
(the "Commitment Period") to make loans duly requested hereunder (the
"Loans") to Borrower in amounts requested by Borrower provided that, after
giving effect to any requested Loan, (a) the Utilization Amount will not
exceed at any time the Available Amount; and (b) the sum of (i) the aggregate
principal amount of all Loans then outstanding hereunder and (ii) the
aggregate amount of all drafts accepted
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and then outstanding hereunder shall not exceed the Accounts Receivable
Borrowing Base. The Loans described in this Section 2.1 constitute a
revolving credit and up to the Commitment Amount and during the Commitment
Period, Borrower may pay, prepay and reborrow.
SECTION 2.2 MANNER OF BORROWING. For each requested Loan, Borrower
shall give Lender prior notice (a "Notice of Borrowing") specifying the date
of a requested borrowing (which must be a Business Day) and the amount
thereof. Each Notice of Borrowing shall be given in writing or orally and
promptly confirmed in writing and each written Notice or confirmation of an
oral Notice shall be in substantially the form of Exhibit D hereto. Notices
of Borrowing (whether written or oral) may be given only by any one of the
following individuals: Harvey Jones, Martin Marks or Neil Johnson. Lender
may rely on any oral Notice of Borrowing even if Lender does not receive a
written confirmation. Borrower may give a Notice of Borrowing on the same
day it wishes a Loan to be made provided said Notice of Borrowing is received
by Lender no later than 3:30 p.m. (Seattle time) on the date of the requested
borrowing. Each such Notice shall be irrevocable and shall be deemed to
constitute a representation and warranty by Borrower that (a) as of the date
of such Notice the statements set forth in Article 6 hereof are true and
correct in all material respects (subject to any waivers of the terms thereof
then in effect in accordance with the terms of this Agreement); and (b) no
Default or Event of Default shall have occurred and is continuing or will
result from disbursement of the requested Loan. Each Loan requested by
Borrower under this Section 2.2 shall be in an amount that is an integral
multiple of $10,000 and not less than the lesser of $50,000 or the amount by
which the Available Amount exceeds the Utilization Amount. Upon fulfillment
to Lender's satisfaction of the applicable conditions set forth in Article 5,
Lender will promptly make such funds available to Borrower by depositing them
to Borrower's Bank Account.
SECTION 2.3 REPAYMENT OF PRINCIPAL.
(a) MANDATORY BORROWING BASE PAYMENTS. On each day that the
Utilization Amount exceeds the Available Amount, Borrower shall repay the
outstanding Loans, pay the face amount of any outstanding Drafts or prepay
its reimbursement obligation in respect of any outstanding Letters of Credit
in such an amount as is necessary to reduce the Utilization Amount to an
amount equal to or less than the Available Amount.
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(b) MATURITY DATE PAYMENT. Borrower shall repay the principal
amount of the Loans on or before the Maturity Date.
SECTION 2.4 INTEREST ON LOANS.
(a) GENERAL PROVISIONS. Borrower agrees to pay to Lender interest
on the unpaid principal amount of each Loan from the date of such Loan until
such Loan shall be due and payable at a per annum rate equal to the Prime
Rate, changing as the Prime Rate changes. Interest on any past due amount of
any Loans (whether at maturity, upon acceleration or otherwise) shall accrue
after the applicable grace period, if any, at a per annum rate equal to two
percent (2%) above the Prime Rate, changing as the Prime Rate changes.
Accrued but unpaid interest on each Loan shall be paid in arrears on the
first day of each calendar month and at the Maturity Date. Notwithstanding
the foregoing, accrued interest on any Loan shall be payable on demand after
the occurrence of an Event of Default. Computations of interest shall be
made on the basis of a year of 360 days, for the actual number of days
(including the first day but excluding the last day) occurring in the period
for which such interest is payable.
SECTION 2.5 NOTE. The Loans shall be evidenced by a promissory note of
Borrower substantially in the form attached hereto as Exhibit A, payable to
the order of Lender, dated as of the date hereof in the face amount of the
maximum Commitment Amount (the "Note"). Lender is hereby authorized to
record the date and amount of the Loans made and the date and amount of each
payment of principal and interest thereon on a schedule annexed to or kept in
respect of the Note. Any such recordation by Lender shall constitute prima
facie evidence of the accuracy of the information so recorded; PROVIDED,
HOWEVER, that the failure to make any such recordation or any error in any
such recordation shall not affect the obligations of Borrower hereunder or
under the Note.
SECTION 2.6 MANNER OF PAYMENTS.
(a) FORM AND PLACE OF PAYMENT. All payments of principal and
interest on any Loan and all other amounts payable hereunder or under any
other Loan Document by Borrower to Lender shall be made by paying the same in
United States Dollars and in immediately available funds to Lender at its
Commercial Loan Service Center, Seattle, Washington not later than 3:00 p.m.,
Seattle time, on the date on which such payment shall become due.
(b) AUTHORIZATION TO CHARGE BORROWER'S BANK ACCOUNT. Borrower
hereby authorizes Lender, if and to the extent any
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payment is not made when due pursuant to this Agreement or any other Loan
Document or within any applicable grace period, to charge such amount against
Borrower's Bank Account, or such other deposit account at Lender as Borrower
may authorize in the future.
(c) NON-BUSINESS DAYS. Whenever any payment hereunder or under
any other Loan Document shall be stated to be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day
and such extension of time shall in such case be included in the computation
and payment of interest or commitment fees, as the case may be.
SECTION 2.7 PREPAYMENTS. Loans may be repaid at any time without
penalty or premium.
SECTION 2.8 BANK CONTROL ACCOUNT. All payments received by Borrower as
the result of sales of or collections on accounts (as defined in the
Washington State Uniform Commercial Code) or the sale of inventory (as
defined in the Washington State Uniform Commercial Code) shall be deposited
immediately into a bank control account maintained by Borrower with Lender.
SECTION 2.9 APPLICATION OF PAYMENTS. Amounts deposited into the bank
control account referred to in Section 2.8 shall be applied daily: first, to
any fees, expenses or indemnities then due and owing by Borrower under any of
the Loan Documents; second, to any interest payment then due and owing in
respect of any Advance; third, to any principal payment then due and owing in
respect of any Advance; fourth, to the principal amount of any Loan then
outstanding but not yet due. In the absence of a continuing Event of
Default, any other payments made by Borrower in respect of amounts owing by
it under any of the Loan Documents shall be applied in the manner directed by
Borrower and, in the absence of any such direction, in the manner stated in
the immediately preceding sentence. Any payments received by Lender by any
means and from any source after the occurrence and during the continuation of
an Event of Default shall be applied to any Financial Transaction Liability
of Borrower and to Borrower's obligations hereunder and under the other Loan
Documents in such order as Lender may elect in its sole discretion.
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ARTICLE 3
BANKERS' ACCEPTANCE
SECTION 3.1 BANKER'S ACCEPTANCES. Borrower may present drafts drawn by
it on Lender to Lender for acceptance and discount in accordance with the
terms and conditions of this Article 3.
SECTION 3.2 MANNER OF PRESENTING DRAFTS.
(a) ACCEPTANCE REQUESTS. From time to time, Borrower may request
that Lender accept and discount a draft which Borrower proposes to present.
Such request will be made by delivering a written request for acceptance (an
"Acceptance Request") to Lender on a Business Day not later than 10:00 a.m.
(Seattle time) on the date on which Borrower proposes to present its draft
for acceptance and discount. Each Acceptance Request shall be deemed to
constitute a representation and warranty by Borrower that as of the date of
such Acceptance Request the statements set forth in Article 6 hereof are true
and correct in all material respects (subject to any waivers of the terms
thereof then in effect in accordance with the terms of this Agreement) (and
apply to the draft and underlying transactions described in such Acceptance
Request) and that no Default or Event of Default has occurred and is
continuing. Each Acceptance Request shall identify the draft which Borrower
intends to present and shall specify the face amount, the proposed date of
presentment and the maturity of such draft and the nature of the underlying
transaction(s) relating to such draft. Each draft identified in an
Acceptance Request shall (i) be scheduled for presentment on a Business Day
during the Commitment Period; (ii) shall be in a face amount such that after
giving effect to the acceptance of the draft identified in the Acceptance
Request, (A) the Utilization Amount does not exceed the Available Amount, (B)
the aggregate amount of all drafts accepted and then outstanding hereunder
shall not exceed Six Million Dollars ($6,000,000) and (C) the sum of (x) the
aggregate amount of all drafts accepted and then outstanding hereunder and
(y) the aggregate principal amount of all Loans then outstanding hereunder
shall not exceed the Accounts Receivable Borrowing Base; (iii) shall have a
maturity of at least thirty (30) days but less than one hundred eighty (180)
days and, in any event, shall mature not later than ninety (90) days after
the Maturity Date; (iv) shall be in a face amount that is not less than
$50,000 and (v) shall be an Eligible Draft.
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(b) ACCEPTANCE AND DISCOUNTING OF DRAFT. Upon receipt of and
subject to the satisfaction of the conditions precedent set forth in Article
5 and Borrower's compliance with the terms of this Section 3.2, Lender shall
accept and discount such draft on the date noted for presentment in the
corresponding Acceptance Request ("Acceptance Date"). Any draft accepted and
discounted by Lender pursuant to the terms hereof is referred to herein as a
"Draft." Upon accepting and discounting any Draft, Lender shall deposit an
amount equal to the face amount of the Draft less the product of (i) the
applicable Discount Rate, and (ii) the quotient of the number of days such
Draft is outstanding until maturity divided by 360 days in immediately
available funds to Borrower's Bank Account. Lender may retain or rediscount
any Draft, at its sole election, and any amounts received by Lender upon
rediscounting shall be solely for the account of Lender.
(c) PROCEDURE TO FACILITATE ACCEPTANCE AND DISCOUNTING. In order
to facilitate the acceptance and discounting of drafts, Borrower may from
time to time deliver to Lender a supply of drafts executed by Borrower as
drawer and designating Lender as drawee and payee, but with the face amount
and the maturity left blank. Lender agrees to hold such drafts pursuant to
the terms hereof and in so doing give such drafts the same physical care and
provide the same safeguards as are afforded similar property of Lender. On
each occasion on which Borrower elects to present a draft to Lender for
acceptance and discount pursuant to subsection (b) above, Lender shall fill
in the date, the face amount and the maturity of such draft in accordance
with the corresponding Acceptance Request and such draft shall be deemed
presented, accepted and discounted on such date.
SECTION 3.3 INDEMNIFICATION; INCREASED COSTS. In the event that any
Draft for any reason whatsoever is deemed by Lender not to be an Eligible
Draft, Borrower shall indemnify Lender on demand for any and all additional
costs, expenses, or damages incurred by Lender, directly or indirectly,
arising out of such ineligibility, including, without limitation, any costs
of maintaining reserves in respect of such Draft, any premium rates imposed
by the Federal Deposit Insurance Corporation and any costs or expenses
arising in any manner from the lack of liquidity of such Draft.
If at any time after the date hereof the introduction of or any change
in applicable law, rule, or regulation or in the interpretation or the
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by Lender with any
requests directed by
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any such Governmental Authority (whether or not having the force of law)
shall, with respect to any Draft subject Lender to any Tax, duty or other
charge or impose, modify, or deem applicable any reserve, special deposit, or
similar requirements against assets of, deposits with or for the account of,
credit extended by Lender or shall impose on Lender any other conditions
affecting Drafts and the result of any of the foregoing is to increase the
cost to Lender of accepting, discounting, rediscounting or holding Drafts or
to reduce the amount of any sum received or receivable by Lender hereunder
with respect to the Drafts, then, upon demand by Lender, Borrower shall pay
to Lender such additional amount or amounts as will compensate Lender for
such increased cost or reduction. A certificate submitted to Borrower by
Lender setting forth the basis for the determination of such additional
amount or amounts necessary to compensate Lender as aforesaid, shall be prima
facie evidence of the amounts due hereunder.
Borrower shall indemnify and hold Lender harmless from and against any
and all (a) Taxes (other than Taxes imposed on the net income or gross
revenue of Lender) and other fees payable in connection with Drafts or the
provisions of this Agreement relating to the acceptance and discounting of
drafts (but not rediscounting of Drafts) not known to Lender at the time such
Draft was accepted or discounted, and (b) any and all actions, claims,
damages, losses, liabilities, fines, penalties, costs, and expenses of every
nature, including reasonable attorney's fees, (i) suffered or incurred by
Lender by reason of its having accepted, discounted or rediscounted Drafts or
(ii) suffered or incurred by Lender in exercising or preserving any of its
rights against Borrower hereunder, or (iii) otherwise arising out of or
relating to this Article, or any Drafts; PROVIDED, HOWEVER, said
indemnification shall not apply to the extent that any such action, claim,
damage, loss, liability, fine, penalty, cost, or expense arises solely out of
or is based solely upon Lender's willful misconduct or negligence. Borrower
shall pay to Lender, upon demand and from time to time, such additional
amount or amounts as Lender, as the case may be, certifies to Borrower as
subject to this indemnity, which certificate shall be prima facie evidence of
the amounts due hereunder.
SECTION 3.4 PAYMENT OF DRAFTS BY BORROWER. Borrower agrees to pay to
Lender the face amount of each Draft in immediately available funds at Lender's
Commercial Loan Service Center not later than 12:00 noon (Seattle time) on the
date of such Draft's maturity; PROVIDED, that, if Lender so elects pursuant to
the terms of Section 9.2, following the occurrence of an Event of Default, the
face amount of each Draft shall become immediately
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due and payable. If Borrower shall default in its obligation to pay a Draft
at maturity (or upon an earlier acceleration), then interest shall accrue on
the unpaid face amount thereof at a per annum rate equal to two percent (2%)
above the Prime Rate (changing as the Prime Rate changes) from the maturity
date (or such earlier date as the face amount may become due and payable)
until payment in full by Borrower. Interest on such unpaid amounts shall be
calculated on the basis of a year of 360 days and shall be payable on demand.
SECTION 3.5 COMPLIANCE WITH GOVERNMENTAL REGULATIONS; INSURANCE.
Borrower agrees to procure promptly any essential import, export or other
license and in all other respects comply with all laws, statutes, rules,
regulations and orders of any Governmental Authority with respect to the
import, export, shipping, financing or warehousing of goods as part of any
transaction relating to any Draft. Borrower furthermore agrees to pay all
taxes, shipping, warehousing, cartage or other charges or expenses upon or
with regard to such goods involved in any such transaction and should Lender,
or any of its correspondents pay for, or incur any liability in connection
with, any above-mentioned shipping or other license or any insurance, tax,
shipping, warehousing, cartage or other charges, Borrower will satisfy the
same or reimburse Lender, or its correspondents, as the case may be, promptly
therefor upon demand. From time to time, upon request by Lender, Borrower
shall provide Lender with evidence reasonably satisfactory to Lender of its
compliance with the terms of this Section 3.5.
SECTION 3.6 GUARANTY OF DOCUMENTS AND INSTRUMENTS. Borrower agrees to
furnish Lender with such documents and other information as Lender may from
time to time reasonably request relating to drafts presented for acceptance
and discount and the related underlying import, export or distribution
transactions. Borrower guarantees the existence, genuineness, validity,
correctness and sufficiency of all documents and other instruments (including
but not limited to any documents of title and insurance and governmental
certificates) provided or exhibited to Lender and represents that such
documents and the property represented thereby are free from all Liens.
Borrower agrees that it will take all necessary or proper action to meet all
legal and other conditions and will warrant and defend same against the
lawful claims and demands of all persons.
SECTION 3.7 REVOCATION BY OPERATION OF LAW. If this Agreement or any
provisions herein relating to the acceptance and discounting of drafts should
be terminated or revoked by operation of law, Borrower will indemnify and
hold Lender
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harmless from any loss which may be suffered or incurred by Lender in
accepting, discounting or rediscounting any Draft, or otherwise acting
hereunder.
ARTICLE 4
LETTERS OF CREDIT
SECTION 4.1 LETTERS OF CREDIT. Borrower may request that Lender issue
commercial letters of credit for Borrower's account in accordance with the
terms and conditions of this Article 4.
SECTION 4.2 MANNER OF REQUESTING LETTERS OF CREDIT.
(a) LETTER OF CREDIT REQUESTS. From time to time, Borrower may
request that Lender issue commercial letters of credit for Borrower's account
or extend or renew any existing Letters of Credit. Such request will be made
by delivering a written request for the issuance, extension or renewal of
such a letter of credit (a "Letter of Credit Request") to Lender not later
than 10:00 a.m. (Seattle time) on the day prior to the Business Day on which
the letter of credit is to be issued or an existing Letter of Credit is
scheduled to expire. Each Letter of Credit Request shall be deemed to
constitute a representation and warranty by Borrower that as of the date of
such request the statements set forth in Article 6 hereof are true and
correct in all material respects (subject to any waivers of the terms thereof
then in effect in accordance with the terms of this Agreement) and that no
Default or Event of Default has occurred and is continuing. Each Letter of
Credit Request shall specify the face amount of the requested Letter of
Credit, the proposed date of expiration and the name of the intended
beneficiary thereof.
(b) LETTER OF CREDIT FEES; LIMITS ON TERMS. Borrower shall pay
letter of credit fees calculated and payable in accordance with the Lender's,
normal and customary practices for commercial letters of credit. Each letter
of credit requested hereunder shall be in a face amount such that after
issuance of such letter of credit (i) the Utilization Amount will not exceed
the Available Amount; and (ii) the aggregate outstanding principal amount of
all Letters of Credit shall not exceed Six Million Dollars ($6,000,000). In
addition to the foregoing, unless otherwise consented to by Lender in
writing, (i) each commercial letter of credit requested hereunder shall have
a expiration date not later than the earlier of (A) the date that is one
hundred eighty (180) days after the date of issuance, or
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(B) the date that is ninety (90) days after the Maturity Date, and (ii) each
standby letter of credit requested hereunder shall have a expiration date not
later than the earlier of (A) the date that is on year after the date of
issuance, or (B) the Maturity Date.
(c) LETTER OF CREDIT APPLICATION AND REIMBURSEMENT AGREEMENT. At
the request of Lender, Borrower shall execute a letter of credit application
and reimbursement agreement in the standard form used by Lender at the time
any letter of credit is requested hereunder, in respect of each Letter of
Credit requested hereunder; PROVIDED, HOWEVER, that the foregoing requirement
for the execution of a reimbursement agreement may be satisfied by Borrower's
execution and delivery to Lender of a master reimbursement agreement in form
and substance satisfactory to Lender covering one or more letters of credit.
Any such master reimbursement agreement and each individual reimbursement
agreement are collectively referred to herein as the "Reimbursement
Agreements."
(d) ISSUANCE OF LETTER OF CREDIT. Subject to the satisfaction of
the conditions precedent set forth in Article 5 and Borrower's compliance
with the terms of this Section 4.2, Lender shall issue and deliver its letter
of credit to Borrower or to the designated beneficiary at such address as
Borrower may specify. Letters of Credit issued hereunder shall contain terms
and conditions customarily included in Lender's letters of credit and shall
otherwise be in a form acceptable to Lender, if any.
(e) CONFLICTS IN TERMS. In the event of any conflict between the
terms of any Reimbursement Agreement and the terms of this Agreement, the
terms of this Agreement shall control, unless Lender and Borrower shall have
otherwise agreed in writing.
SECTION 4.3 INDEMNIFICATION; INCREASED COSTS. Borrower shall indemnify
Lender on demand for any and all additional costs, expenses, or damages
incurred by Lender, directly or indirectly, arising out of the issuance of
any Letter of Credit, including, without limitation, any costs of maintaining
reserves in respect thereof and any premium rates imposed by the Federal
Deposit Insurance Corporation in connection therewith. A certificate as to
such additional amounts submitted to Borrower by Lender shall be prima facie
evidence of the amounts due hereunder.
If at any time after the date hereof the introduction of or any change in
applicable law, rule, or regulation or in the interpretation or the
administration thereof by any Governmental
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Authority charged with the interpretation or administration thereof, or
compliance by Lender with any requests directed by any such Governmental
Authority (whether or not having the force of law) shall, with respect to any
Letter of Credit subject Lender to any Tax (other a Tax imposed on the net
income or gross revenue of Lender), duty or other charge or impose not known
to Lender at the time such Letter of Credit was issued, modify, or deem
applicable any reserve, special deposit, or similar requirements against
assets of, deposits with or for the account of, credit extended by Lender or
shall impose on Lender any other conditions affecting the Letters of Credit
and the result of any of the foregoing is to increase the cost to Lender of
issuing a Letter of Credit or holding a Letter of Credit or to reduce the
amount of any sum received or receivable by Lender hereunder with respect to
the Letters of Credit, then, upon demand by Lender, Borrower shall pay to
Lender such additional amount or amounts as will compensate Lender for such
increased cost or reduction. A certificate submitted to Borrower by Lender
setting forth the basis for the determination of such additional amount or
amounts necessary to compensate Lender as aforesaid, shall be prima facie
evidence of the amounts due hereunder.
Borrower shall indemnify and hold Lender harmless from and against any
and all (a) Taxes (other than Taxes imposed on the net income or gross
revenue of Lender) and other fees payable in connection with Letters of
Credit or the provisions of this Agreement relating thereto, and (b) any and
all actions, claims, damages, losses, liabilities, fines, penalties, costs,
and expenses of every nature, including reasonable attorney's fees, suffered
or incurred by Lender otherwise arising out of or relating to this Article 4
or any Letter of Credit; PROVIDED, HOWEVER, said indemnification shall not
apply to the extent that any such action, claim, damage, loss, liability,
fine, penalty, cost, or expense arises out of or is based upon Lender's
willful misconduct or negligence.
ARTICLE 5
CONDITIONS TO ADVANCES
SECTION 5.1 CONDITIONS TO INITIAL ADVANCE. In addition to the
conditions set forth in Section 5.2, the obligation of Lender on or after the
date of this Agreement to make any Loan, to accept and discount any Draft or
to issue any Letter of Credit, is subject to fulfillment of the following
conditions precedent prior to the initial Advance:
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(a) LOAN DOCUMENTS. The Basic Loan Documents shall have each been
duly executed and delivered by the respective parties thereto, and shall be
satisfactory to Lender in form and substance.
(b) AUTHORITY. Lender shall have received, in form and substance
satisfactory to it, a certified copy of the Articles of Incorporation and
Bylaws of Borrower and certified copies of resolutions adopted by the Board
of Directors of Borrower authorizing the execution, delivery and performance
of the Loan Documents, together with evidence that Borrower is in good
standing in the jurisdiction of its incorporation and evidence of the
authority and specimen signatures of the persons who have signed this
Agreement and who will sign the other Loan Documents on behalf of Borrower
and such other evidence of corporate authority as Lender shall reasonably
require.
(c) LEGAL OPINION. Lender shall have received the legal opinions
of the law firm of Lane Powell Spears Lubersky, as counsel to Borrower,
addressed to Lender in substantially the form of Exhibit E hereto.
(d) CERTIFICATE. Lender shall have received an Officer's
Certificate from Borrower as to the accuracy of Borrower's representations
and warranties set forth in Article 6 and as to the absence of any Default or
Event of Default.
(e) EVIDENCE OF SECURITY. Lender shall have received evidence
satisfactory to Lender that the security interests created by the Security
Agreement have been duly perfected by all such means as Lender may deem
necessary or advisable to create a valid and perfected lien in the Collateral
enforceable against all third parties in all jurisdictions to secure all
obligations of Borrower to Lender under this Agreement or the other Loan
Documents subject to the rights, if any, of Factoring Company. Lender shall
have also received such evidence as it may require that its security
interests in the Collateral have priority over any and all other security
interests or other liens therein other than the security interests of
Factoring Company arising pursuant to the Factoring Agreement and that the
Collateral is free and clear of all Liens, except as expressly permitted by
this Agreement.
(f) COMMITMENT FEE. Lender shall have received a commitment fee
in the amount of $35,000.
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(g) INTERCREDITOR AGREEMENT. Lender, Factoring Company and
Borrower shall have entered into an intercreditor agreement in form and
substance acceptable to Lender.
(h) EVIDENCE OF INSURANCE. Lender shall have received evidence
satisfactory to it that all insurance required by any of the Loan Documents
is in full force and effect.
(i) CONSENTS. Lender shall have received evidence reasonably
satisfactory to it that Borrower has obtained all consents, permits and
Government Approvals from all persons, entities or Governmental Authorities
which are parties to or the issuer of any material contract, lease, license
or other Government Approval necessary or advisable to permit Lender
following any Event of Default, to enjoy the practical realization of the
rights and remedies provided in the Security Agreement.
(j) ACCOUNTS RECEIVABLE DELINQUENCY. Trade Accounts Receivable
more than sixty (60) days past due shall not exceed twenty five percent (25%)
of Total Accounts Receivable.
SECTION 5.2 CONDITIONS TO ALL ADVANCES. The obligation of Lender on or
after the date of this Agreement to make any Loan, to accept and discount any
Draft or to issue any Letter of Credit, are subject to fulfillment of the
following conditions precedent:
(a) PRIOR CONDITIONS. All of the conditions set forth in Section
5.1 shall have been satisfied.
(b) NOTICE OF BORROWING. If such Advance is a Loan, Lender shall
have received the Notice of Borrowing in respect of such Loan; if such
Advance is an Acceptance Advance, Lender shall have received from Borrower a
request therefor complying with the requirements of Section 3.2; and if such
Advance is a Letter of Credit, Lender shall have received from Borrower a
request therefor complying with the requirements of Section 4.2.
(c) NO DEFAULT. At the date of the Advance, no Default or Event
of Default shall have occurred and be continuing or will have occurred as the
result of the making of the Advance; and the representations and warranties
of Borrower in Article 6 shall be true in all material respects on and as of
such date with the same force and effect as if made on and as of such date
(subject to any waivers of the terms thereof then in effect in accordance
with the terms of this Agreement).
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(d) NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement
there shall have been no material adverse change in the financial condition,
operations or prospects contemplated in the assumptions used by Borrower in
the preparation of the financial statements referred to in Section 6.6.
(e) OTHER INFORMATION. Lender shall have received such other
statements, opinions, certificates, documents and information as it may
reasonably request in order to satisfy itself that the conditions set forth
in this Section 5.2 have been fulfilled.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender as follows:
SECTION 6.1 EXISTENCE AND POWER. Borrower is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Washington. Borrower is duly qualified to do business in each other
jurisdiction where the failure to so qualify would be likely to have a
material adverse effect on the financial condition or operations of Borrower.
Borrower has full corporate power, authority and legal right to carry on its
business as presently conducted, to own and operate its properties and
assets, and to execute, deliver and perform this Agreement and the other Loan
Documents.
SECTION 6.2 AUTHORIZATION. The execution, delivery and performance by
Borrower of this Agreement and the other Loan Documents and any borrowing
hereunder or thereunder have been duly authorized by all necessary corporate
action of Borrower, do not require any shareholder approval or the approval
or consent of any trustee or the holders of any Indebtedness of Borrower,
except such as have been obtained (certified copies thereof having been
delivered to Lender), do not contravene any law, regulation, rule or order
binding on it or its Articles of Incorporation or Bylaws and do not
contravene the provisions of or constitute a default under any indenture,
mortgage, contract or other agreement or instrument to which Borrower is a
party or by which Borrower or any of its properties may be bound or affected.
SECTION 6.3 GOVERNMENT APPROVALS, ETC. No Government Approval or
filing or registration with any Governmental Authority is required for the
making and performance by Borrower of the Loan Documents or in connection
with any of the transactions contemplated hereby or thereby other than the
filing
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of the Financing Statements with the appropriate governmental offices in the
States of California, Idaho, Nevada, Oregon and Washington.
SECTION 6.4 BINDING OBLIGATIONS, ETC. This Agreement has been duly
executed and delivered by Borrower and constitutes, and the other Loan
Documents when duly executed and delivered will constitute, the legal, valid
and binding obligations of Borrower enforceable against Borrower in
accordance with their respective terms.
SECTION 6.5 LITIGATION. There are no actions, proceedings,
investigations, or claims against or affecting Borrower now pending before
any court, arbitrator, or Governmental Authority (nor to the best of
Borrower's knowledge has any thereof been threatened nor does any basis exist
therefor) which if determined adversely to Borrower would be likely to have a
material adverse effect on the financial condition or operations of Borrower,
or to result in a judgment or order against Borrower (in excess of insurance
coverage) or to impair or defeat the lien of Lender on any Collateral or any
rights of Borrower therein, except as reflected in the financial statements
referred to in Sections 6.6, or delivered pursuant to Section 7.11 hereof or
otherwise previously disclosed to Lender in writing.
SECTION 6.6 FINANCIAL CONDITION. The balance sheet of Borrower as at
January 31, 1996, and the related statements of income and retained earnings
for the period then ended, copies of which have been furnished to Lender,
fairly present the financial condition of Borrower as at such date, all
determined in accordance with GAAP. Borrower did not have on such date any
contingent liabilities for Taxes, unusual forward or long-term commitments or
material unrealized or anticipated losses from any unfavorable commitments,
except as referred to or reflected or provided for in the balance sheet and
in the related notes. Since the date of such financial statements there has
been no material adverse change in the financial condition, operations, or
business of Borrower.
SECTION 6.7 TITLE AND LIENS. Borrower has good and marketable title to
each of the properties and assets reflected in the balance sheet referred to
in Section 6.6 (except such as have been since sold or otherwise disposed of
in the ordinary course of business). No assets or revenues of Borrower are
subject to any Lien except as required or permitted by this Agreement. All
properties of Borrower and its use thereof comply in all material respects
with applicable zoning and use restrictions and with applicable laws and
regulations relating to
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health, safety and the environment. Without limiting the foregoing, Borrower
is in material compliance with all laws and regulations relating to pollution
and environmental control in all jurisdictions in which Borrower is doing
business. Lender has a perfected security interest in (a) all inventory of
Borrower located in an Approved Warehouse; (b) all inventory of Borrower with
respect to which Borrower has delivered a bill of lading or other document of
title to Lender; and (c) all accounts, contract rights, general intangibles
and chattel paper of Borrower. None of the Collateral is subject to any Lien
other than the security interests of Factoring Company arising pursuant to
the Factoring Agreement.
SECTION 6.8 LOCATION OF INVENTORY. All of Borrower's inventory (other
than inventory-in-transit) is located in an Approved Warehouse or location
otherwise approved by Lender in writing.
SECTION 6.9 TAXES. Borrower has filed all tax returns and reports
required of it, has paid all Taxes which are due and payable, and has
provided adequate reserves for payment of any Tax whose payment is being
contested. The charges, accruals and reserves on the books of Borrower in
respect of Taxes for all fiscal periods to date are accurate. There are no
questions or disputes between Borrower and any Governmental Authority with
respect to any Taxes except as disclosed in the balance sheet referred to in
Section 6.6 or otherwise disclosed to Lender in writing prior to the date of
this Agreement.
SECTION 6.10 OTHER AGREEMENTS. Borrower is not in breach of or default
under any material agreement to which it is a party or which is binding on it
or any of its assets.
SECTION 6.11 FEDERAL RESERVE REGULATIONS. Borrower is not engaged
principally or as one of its important activities in the business of
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Federal Reserve Regulation U), and no part of the
proceeds of any Loan or the proceeds received from the acceptance of any
Draft will be used to purchase or carry any such margin stock or to extend
credit to others for the purpose of purchasing or carrying any such margin
stock or for any other purpose that violates the applicable provisions of any
Federal Reserve Regulation. Borrower will furnish to Lender on request a
statement conforming with the requirements of Regulation U.
SECTION 6.12 ERISA.
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(a) The present value of all benefits vested under all Pension
Plans did not, as of the most recent valuation date of such Pension Plans,
exceed the value of the assets of the Pension Plans allocable to such vested
benefits by an amount which would represent a potential material liability of
Borrower or affect materially the ability of Borrower to perform the Loan
Documents.
(b) No Plan or trust created thereunder, or any trustee or
administrator thereof, has engaged in a "prohibited transaction" (as such
term is defined in Section 406 of ERISA or Section 4975 of the Code) which
could subject such Plan or any other Plan, any trust created thereunder, or
any trustee or administrator thereof, or any party dealing with any Plan or
any such trust to the tax or penalty on prohibited transactions imposed by
Section 502 of ERISA or Section 4975 of the Code.
(c) No Pension Plan or trust has been terminated, except in
accordance with the Code, ERISA, and the regulations of the Internal Revenue
Service and the PBGC as applicable to solvent plans in which benefits of
participants are fully protected. No "reportable event" as defined in
Section 4043 of ERISA has occurred for which notice has not been waived or
for which alternative notice procedures are permitted.
(d) No Pension Plan or trust created thereunder has incurred any
"accumulated funding deficiency" (as such term is defined in Section 302 of
ERISA) whether or not waived, since the effective date of ERISA.
(e) The required allocations and contributions to Pension Plans
will not violate Section 415 of the Code.
(f) Borrower has no withdrawal liability to any trust created
pursuant to a multi-employer pension or benefit plan nor would it be subject
to any such withdrawal liability in excess of One Hundred Thousand Dollars
($100,000) if it withdrew from any such plan or if its participation therein
were otherwise terminated.
SECTION 6.13 SUBSIDIARIES. Borrower has no Subsidiaries other than
Cutter & Buck (U.K.) Ltd., a United Kingdom corporation and Cutter & Buck
B.V., a Netherlands corporation.
SECTION 6.14 REPRESENTATIONS RELATING TO DRAFTS. Each draft which
Borrower has identified in an Acceptance Request (a) will grow out of one or
more transactions involving the importation or exportation of goods; or (b)
will grow out of one or more transactions involving the domestic shipment of
goods. In
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respect of each draft which Borrower has identified in an Acceptance Request
(a) completion of each transaction related to such draft is anticipated to
occur on or before the maturity date of such draft, (b) the maturity of such
draft will be consistent with the period usually and reasonably necessary to
finance transactions of such kind, (c) any amounts received by Borrower from
Lender in connection with the acceptance and discount of such draft will be
used by Borrower to finance the related import, export or distribution
transaction, (d) the proceeds of the related import, export or distribution
transaction will be used by Borrower to liquidate its obligations to repay
the face amount of the draft on its maturity date, and (e) such draft is an
Eligible Draft.
SECTION 6.15 FEES. Neither Borrower nor anyone acting on its behalf
has paid or agreed to pay any commission or brokerage or finder's fee in
connection with the Commitment except fees provided for in this Agreement.
SECTION 6.16 PATENTS, LICENSES, FRANCHISES. Borrower owns or possesses
all the patents, trademarks, service marks, trade names, copyrights,
licenses, franchises, permits and rights with respect to the foregoing
necessary to own and operate its properties and to carry on its business as
presently conducted and presently planned to be conducted without conflict
with the rights of others except as disclosed in writing to Lender prior to
the date of this Agreement.
SECTION 6.17 NOT INVESTMENT COMPANY, ETC. Borrower is not now, and
after the application by Borrower of the proceeds of any Loan will not be,
subject to regulation under the Investment Company Act of 1940, the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Interstate
Commerce Act, any state public utilities code or any federal or state statute
or regulation limiting its ability to incur Indebtedness.
SECTION 6.18 REPRESENTATIONS AS A WHOLE. This Agreement, the other
Loan Documents, the financial statements referred to in Section 6.6, and all
other instruments, documents, certificates and statements furnished to Lender
by or on behalf of Borrower, taken as a whole, do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. Borrower has
disclosed to Lender in writing any and all facts which have a material
adverse effect on the business, operations or financial condition of Borrower
or the ability of Borrower to perform its obligations under the Loan
Documents.
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Without limiting the foregoing, each of the representations and warranties
made by Borrower in the other Loan Documents is true and correct on and as of
the date when made, on and as of the date hereof, and on and as of each date
this representation is deemed made hereunder with the same force and effect
as if made on and as of such dates.
ARTICLE 7
AFFIRMATIVE COVENANTS
So long as Lender shall have any Commitment hereunder or there shall be
any outstanding Acceptance Advances or Letters of Credit and until payment in
full of each Loan and performance of all other obligations of Borrower under
this Agreement and the other Loan Documents, Borrower agrees to do all of the
following unless Lender shall otherwise consent in writing.
SECTION 7.1 USE OF PROCEEDS FROM ADVANCES. The proceeds of the
Advances and the Letters of Credit will be used solely for Borrower's working
capital purposes.
SECTION 7.2 PAYMENT. Borrower will pay the principal of and interest
on the Loans in accordance with the terms of this Agreement and the Note and
will pay when due all other amounts payable by Borrower hereunder and under
any other Loan Document.
SECTION 7.3 PRESERVATION OF CORPORATE EXISTENCE, ETC. Borrower will
preserve and maintain its corporate existence, rights, franchises and
privileges in the jurisdiction of its formation and will qualify and remain
qualified as a foreign corporation in each jurisdiction where the failure to
so qualify would be likely to have a material adverse effect on the financial
condition or operations of Borrower.
SECTION 7.4 VISITATION RIGHTS. At any reasonable time, and from time
to time during usual business hours on usual business days, upon reasonable
prior notice, Borrower will permit Lender to examine and make copies of and
abstracts from the records and books of account of and to visit the
properties of Borrower and to discuss the affairs, finances and accounts of
Borrower with any of its officers or employees approved by its officers,
which approval shall not be unreasonably withheld or delayed.
SECTION 7.5 KEEPING OF BOOKS AND RECORDS. Borrower will keep adequate
records and books of account in which complete entries will be made, in
accordance with GAAP, reflecting all financial transactions of Borrower.
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SECTION 7.6 MAINTENANCE OF PROPERTY, ETC. Borrower will maintain and
preserve all of its properties in good working order and condition, ordinary
wear and tear excepted, and will from time to time make all needed repairs,
renewals, or replacements so that the efficiency of such properties shall be
fully maintained and preserved.
SECTION 7.7 DOCUMENTS OF TITLE. Borrower will cause all warehouse
receipts and other documents of title (other than bills of lading) relating
to any of Borrower's inventory to be issued to Borrower solely in
non-negotiable form.
SECTION 7.8 COMPLIANCE WITH LAWS, ETC. Borrower will comply in all
material respects with all laws, regulations, rules, and orders of
Governmental Authorities applicable to Borrower or to its operations or
property, except any thereof whose validity or applicability is being
contested in good faith by appropriate proceedings upon stay of execution of
the enforcement thereof and with provision having been made to the
satisfaction of Lender for the payment of any fines, charges, penalties or
other costs in respect thereof in the event the contest is determined
adversely to Borrower.
SECTION 7.9 OTHER OBLIGATIONS. Borrower will pay and discharge before
the same shall become delinquent all Indebtedness, Taxes, and other
obligations for which Borrower is liable or to which its income or property
is subject and all claims for labor and materials or supplies which, if
unpaid, might become by law a lien upon assets of Borrower, except any
thereof whose validity, applicability or amount is being contested in good
faith by Borrower in appropriate proceedings with provision having been made
to the satisfaction of Lender for the payment thereof in the event the
contest is determined adversely to Borrower.
SECTION 7.10 INSURANCE. Borrower will keep in force upon all of its
properties and operations policies of insurance carried with responsible
companies in such amounts and covering all such risks as shall be customary
in the industry and as shall be reasonably satisfactory to Lender. From time
to time, on request, Borrower will furnish to Lender certificates of
insurance or duplicate policies evidencing such coverage.
SECTION 7.11 FINANCIAL INFORMATION. Borrower will deliver to Lender:
(a) ANNUAL AUDITED FINANCIAL STATEMENTS. As soon as available and
in any event within ninety (90) days after the
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end of each fiscal year of Borrower the financial statements of Borrower as
of the end of such fiscal year, accompanied by an audit report thereon by
independent certified public accountants selected by Borrower and reasonably
satisfactory to Lender (which report shall be prepared in accordance with
generally accepted accounting principles and shall not be qualified by reason
of restricted or limited examination of any material portion of the records
of Borrower and shall contain no disclaimer of opinion or adverse opinion).
(b) MONTHLY UNAUDITED FINANCIAL STATEMENTS. As soon as available
and in any event within thirty (30) days after the end of each month, company
prepared financial statements of Borrower as of the end of such month
(including the fiscal year to the end of such month), accompanied by an
Officer's Certificate of Borrower certifying that such unaudited financial
statements have been prepared in conformity with generally accepted
accounting principles (subject to year-end audit adjustments) and, in all
material respects, present fairly the financial position and the results of
operations of Borrower as at the end of and for such month (subject to
year-end audit adjustments) and identifying any material adverse changes that
have occurred since the fiscal year-end report referred to in clause (a) in
the financial condition or operations of Borrower as shown on the financial
statements as of said date.
(c) MONTHLY REPORTS AND AGINGS. As soon as available and in any
event within twenty (15) days after the end of each month (i) an aging of
accounts receivable and accounts payable for Borrower as of the end of the
preceding month and (ii) a detailed listing of Borrower's inventory as of the
end of the preceding month; each such aging or report shall be accompanied by
an Officer's Certificate from Borrower certifying that such aging or report
is true and complete in all material respects as of the date thereof.
(d) SHAREHOLDER, SEC AND GOVERNMENT REPORTS. As soon as
available, all reports sent by Borrower to its shareholders and all quarterly
and annual reports filed by Borrower with the Securities and Exchange
Commission and each other Governmental Authority having jurisdiction over
Borrower.
(e) OTHER. All other statements, reports and other information as
Lender may reasonably request concerning the financial condition and business
affairs of Borrower.
SECTION 7.12 COMPLIANCE WITH BORROWING PLAN. Borrower shall fully and
timely perform all terms of the Customer
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Borrowing Plan, the terms of which are hereby incorporated into this
Agreement.
SECTION 7.13 NOTIFICATION. Promptly after learning thereof, Borrower
shall notify Lender of (a) any action, proceeding, investigation or claim
against or affecting Borrower instituted before any court, arbitrator or
Governmental Authority or, to Borrower's knowledge, overtly threatened to be
instituted, which might reasonably be determined adversely to Borrower and
which, if determined adversely, would be likely to have a material adverse
effect on the financial condition or operations of Borrower, or to result in
a judgment or order against Borrower for more than $100,000 or, when combined
with all other pending or threatened claims against Borrower, more than
$500,000 (in either case in excess of the amount covered by insurance as to
which the insurance company has acknowledged coverage); (b) any substantial
dispute between Borrower and any Governmental Authority; (c) any labor
controversy which has resulted in or, to Borrower's knowledge, threatens to
result in a strike which would materially and adversely affect the business
operations of Borrower; (d) if Borrower or any member of a Controlled Group
gives or is required to give notice to the PBGC of any "reportable event" (as
defined in subsections (b)(1), (2), (5) or (6) of Section 4043 of ERISA) with
respect to any Plan (or the Internal Revenue Service gives notice to the PBGC
of any "reportable event" as defined in subsection (c)(2) of Section 4043 of
ERISA and Borrower obtains knowledge thereof) which might constitute grounds
for a termination of such Plan under Title IV of ERISA, or knows that the
plan administrator of any Plan has given or is required to give notice of any
such reportable event, a copy of the notice of such reportable event given or
required to be given to the PBGC; (e) the occurrence of any Event of Default
or Default; and (f) the occurrence of an event which results in a material
adverse change in Borrower's financial condition or operations. In the case
of the occurrence of an Event of Default or Default or the occurrence of an
event which results in a material adverse change in Borrower's financial
condition or operations, Borrower will deliver to Lender an Officer's
Certificate specifying the nature thereof, the period of existence thereof,
if applicable, and what action Borrower proposes to take with respect thereto.
SECTION 7.14 ADDITIONAL PAYMENTS; ADDITIONAL ACTS. From time to time,
Borrower will (a) pay or reimburse Lender on request for all Taxes (other
than Taxes imposed on the net income or gross revenues of Lender) imposed on
any Loan Document or payment and for all reasonable expenses, including legal
fees (including allocated costs of in-house counsel), incurred by
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Lender in connection with the preparation of the Loan Documents or the making
or administering of the Loans, the making or discounting of any Draft, or the
issuance of any Letter of Credit; PROVIDED, HOWEVER, Borrower's obligations
under this subsection shall not include unallocated administrative costs of
Lender; (b) pay or reimburse Lender for all reasonable expenses, including
legal fees, incurred by Lender in connection with the enforcement by judicial
proceedings or arbitration or other alternative dispute resolution proceeding
or otherwise of any of the rights of Lender under the Loan Documents
(including, without limitation, any reasonable legal fees or expenses
incurred by Lender in connection with enforcing or protecting the rights of
Lender in any bankruptcy or insolvency proceeding); (c) if requested by
Lender, obtain and promptly furnish to Lender evidence of all such Government
Approvals as may be required to enable Borrower to comply with its
obligations under the Loan Documents and to continue in business as conducted
on the date hereof without material interruption or interference; (d) execute
and deliver all such instruments and perform all such other acts as Lender
may reasonably request to carry out the transactions contemplated by the Loan
Documents; and (e) pay and discharge promptly all taxes, shipping,
warehousing, cartage, or other charges or expenses with respect to the goods
covered by the Drafts.
SECTION 7.15 TANGIBLE NET WORTH. Borrower maintain, as of the end of
each month, Tangible Net Worth in an amount at least equal to Twelve Million
Seven Hundred Fifty Thousand Dollars ($12,750,000) through and including
April 29, 1997, and in an amount at least equal to Fifteen Million Dollars
($15,000,000) thereafter.
SECTION 7.16 LEVERAGE RATIO. Borrower shall maintain, as of the end of
each month, a Leverage Ratio which is equal to or less than 0.5 to 1. As
used herein, "Leverage Ratio" shall mean, at any time, Borrower's Total
Liabilities divided by Borrower's Tangible Net Worth.
SECTION 7.17 WORKING CAPITAL. Borrower shall maintain, as of the end
of each month, Working Capital in an amount at least equal to Ten Million
Dollars ($10,000,000). As used herein "Working Capital" shall mean, at any
time, Borrower's total Current Assets less its total Current Liabilities.
SECTION 7.18 ACCOUNTS RECEIVABLE TURNOVER. Borrower shall maintain, as
of the end of each month, an Accounts Receivable Turnover of not more than
seventy (70) days. As used herein, "Accounts Receivable Turnover" means, as
of the end of any month,
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a number expressed in days, calculated by dividing the Trade Accounts
Receivable as of such date by Borrower's Average Days Sales for the preceding
three (3) consecutive months. As used herein, "Average Days Sales" means,
for any period, the net sales of Borrower arising in ordinary course of
business from bona fide sales of inventory divided by the number of days
contained in such period.
SECTION 7.19 LOCATION OF INVENTORY. Borrower shall maintain all of its
total inventory (as defined in the Washington Uniform Commercial Code), other
than inventory-in-transit and inventory in the possession of contractors for
embroidery work in an amount not to exceed Five Hundred Thousand Dollars
($500,000) in the aggregate at any one time, in an Approved Warehouse or
location otherwise approved by Lender in writing.
ARTICLE 8
NEGATIVE COVENANTS
So long as Lender shall have any Commitment hereunder or there shall be
any outstanding Acceptance Advances or Letters of Credit and until payment in
full of each Loan and performance of all other obligations of Borrower under
this Agreement and the other Loan Documents, Borrower agrees that it will not
do any of the following unless Lender shall otherwise consent in writing.
SECTION 8.1 LIQUIDATION, MERGER, SALE OF ASSETS.
(a) GENERAL PROVISIONS. Borrower shall not liquidate, dissolve or
enter into any merger, consolidation, joint venture, partnership or other
combination nor (excepting sales of goods in the ordinary course of business
and excepting sales of accounts receivable pursuant to the Factoring
Agreement as provided below) sell, lease or dispose of any Collateral or of
any of its other assets except, as to such other assets, (a) dispositions of
obsolete or worn out property disposed of in the ordinary course of business,
and (b) other dispositions of such assets, PROVIDED that (i) such
dispositions are for fair value, (ii) the aggregate consideration is paid in
full in cash at the time of disposition and is either reinvested in the
business of Borrower (subject to the limitations of Section 8.7) or used to
repay the Loans, and (iii) the aggregate amount of all such dispositions does
not exceed One Hundred Thousand Dollars ($100,000) in the aggregate for any
fiscal year.
(b) SALE OF RECEIVABLES. Borrower shall not, when selling an
account receivable to Factoring Company:
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(1) Sell any account receivable that does not arise out of
Borrower's sale of goods to a retail mens specialty store located in the
United States; and
(2) Sell any account receivable for an amount less than fifty
percent (50%) of the fair market value of the goods or inventories, the sale
of which has given rise to such account receivable.
SECTION 8.2 INDEBTEDNESS. Borrower shall not create, incur or become
liable for any Indebtedness EXCEPT (a) the Advances and other Indebtedness
arising under the Loan Documents, (b) existing Indebtedness reflected on the
financial statement referred to in Section 6.6, (c) current accounts payable
or accrued incurred by Borrower in the ordinary course of business, (d)
additional Capital Leases not to exceed One Million Dollars ($1,000,000) in
the aggregate at any one time, and (e) Subordinated Debt.
SECTION 8.3 GUARANTIES, ETC. Borrower shall not assume, guaranty,
endorse or otherwise become directly or contingently liable for, nor
obligated to purchase, pay or provide funds for payment of, any obligation or
Indebtedness of any other person, except by endorsement of negotiable
instruments for deposit or collection or by similar transactions in the
ordinary course of business.
SECTION 8.4 LIENS. Borrower shall not create, assume or suffer to
exist any Lien on any of its assets except (a) existing Liens reflected in
the balance sheets referred to in Section 6.6, or otherwise previously
disclosed to Lender in writing, (b) Liens in favor of Factoring Company
arising pursuant to the Factoring Agreement, (c) Liens in favor of Lender
arising pursuant to the Security Agreement; (d) Liens securing Indebtedness
under Capital Leases, and (e) additional Liens which do not at any one time
secure Indebtedness exceeding One Hundred Thousand Dollars ($100,000).
SECTION 8.5 LOCATION OF INVENTORY. Borrower will not move the location
of its inventory (other than pursuant to sales of inventory giving rise to
accounts receivable, inventory delivered to contractors for embroidery work,
or to another Approved Warehouse or otherwise consented to by Lender in
writing hereto) without prior written notice delivered to Lender and without
executing and delivering all such instruments (such as Uniform Commercial
Code financing or continuation statements) and performing all such other acts
as are necessary (or as Lender may reasonably request) to maintain the
continuous perfection and priority of Lender's Lien on all Collateral.
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SECTION 8.6 INVESTMENTS. Borrower shall not make any loan or advance
to any person, establish any subsidiaries, or purchase or otherwise acquire
the capital stock, assets or obligations of, or any interest in, any person,
EXCEPT (i) commercial bank demand deposits and time deposits maturing within
one year, (ii) marketable general obligations of the United States or a State
or marketable obligations fully guarantied by the United States, (iii)
short-term commercial paper with the highest rating of a generally recognized
rating service, (iv) loans and advances to employees in the ordinary course
of business related to expenses incurred in the ordinary course of employment
not to exceed $150,000 outstanding at any time, (v) bankers acceptances,
repurchase agreements, or other investments reasonably acceptable to Lender,
(vi) a loan to Joey Rodolfo through September 30, 1997 in an amount not to
exceed $60,000, and (vii) loans or advances to or investments in Affiliates
during the fiscal year ending April 30, 1997 in an amount not to exceed
$750,000.
SECTION 8.7 CAPITAL EXPENDITURES. Borrower shall not make any
expenditure during any fiscal year for fixed assets or other capital
expenditure (other than expenditures funded with additional equity
contributions to Borrower) if such expenditure when taken together with all
prior expenditures made during such fiscal year would exceed the sum of Two
Million Dollars ($2,000,000) during the fiscal year ending April 30, 1997 or
One Million Dollars ($1,000,000) during any subsequent fiscal year.
SECTION 8.8 OPERATIONS. Borrower shall not engage in any activity or
introduce any major product which is substantially different from or
unrelated to the business activities or products of Borrower as conducted or
produced immediately prior to the consummation of the transactions
contemplated hereby.
SECTION 8.9 ERISA COMPLIANCE. Neither Borrower nor any member of the
Controlled Group nor any Plan of any of them will (a) engage in any
"prohibited transaction" (as such term is defined in Section 406 of ERISA or
Section 4975 of the Code; (b) incur any "accumulated funding deficiency" (as
such term is defined in Section 302 of ERISA) whether or not waived; (c)
terminate any Pension Plan in a manner which could result in the imposition
of a Lien on any property of Borrower or any member of the Controlled Group
pursuant to Section 4068 of ERISA; or (d) violate state or federal securities
laws applicable to any Plan.
SECTION 8.10 ACCOUNTING CHANGE. Borrower shall maintain a fiscal year
ending on April 30 and shall not make any significant change in accounting
policies or reporting practices other than
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changes required by generally accepted accounting principles or otherwise
required by law.
SECTION 8.11 NOTICE TO INVENTORY BAILEE(S). The amount of Borrower's
inventory not located in an Approved Warehouse from which, in the case of a
public warehouse Lender has received a duly executed Notice to Inventory
Bailee substantially the form of Exhibit F hereto, shall not exceed Five
Hundred Thousand Dollars ($500,000) in the aggregate.
SECTION 8.12 DELINQUENT ACCOUNTS RECEIVABLE. Borrower shall not
permit, as of July 31, 1996 and as of the end of any month thereafter, Trade
Accounts Receivable more than sixty (60) days past due to exceed ten percent
(10%) of Trade Accounts Receivable.
ARTICLE 9
EVENTS OF DEFAULT
SECTION 9.1 EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an "Event of Default" hereunder.
(a) PAYMENT DEFAULT. Borrower shall fail when due to pay any
amount of principal of or interest on any Loan or any other amount payable by
it hereunder or under any other Loan Document including, without limitation,
amounts due in respect of Drafts or Letters of Credit and such failure shall
continue for more than three (3) days after the due date thereof; or
(b) BREACH OF WARRANTY. Any representation or warranty made or
deemed made by Borrower under or in connection with any Loan Document shall
prove to have been incorrect in any material respect when made; or
(c) BREACH OF CERTAIN COVENANTS. Borrower shall have failed to
comply with Sections 7.3, 7.4, 7.7, 7.8, 7.10, 7.12, 7.13, 7.19, 8.1, 8.5,
8.9, 8.13 or with any term or provision of any of the other Loan Documents; or
(d) BREACH OF OTHER COVENANT. Borrower shall fail to perform or
observe any other covenant, obligation or term of this Agreement or any other
Loan Document and such failure shall remain unremedied for thirty (30) days
after written notice thereof shall have been given to Borrower by Lender; or
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(e) MATERIAL ADVERSE CHANGES; EXTRAORDINARY SITUATION. An event
shall occur which results in a material adverse change in Borrower's
financial condition or operations or an extraordinary situation shall occur
which gives Lender reasonable grounds to believe that Borrower may not, or
will be unable to, perform or observe in the normal course its obligations
under the Loan Documents; or
(f) CROSS-DEFAULT. Borrower shall fail (i) to pay when due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) any Indebtedness (other than Subordinated Debt) or any interest or
premium thereon in excess of One Hundred Thousand Dollars ($100,000) and such
failure shall continue without waiver after the applicable grace period, if
any, specified in the agreement or instrument relating to such Indebtedness,
or (ii) to perform any term or covenant on its part to be performed under any
agreement or instrument relating to any such Indebtedness and required to be
performed and such failure shall continue without waiver after the applicable
grace period, if any, specified in such agreement or instrument, if the
effect of such failure to perform is to accelerate or to permit the
acceleration of the maturity of such Indebtedness, or (iii) any such
Indebtedness shall be declared to be due and payable or required to be
prepaid (other than by regularly scheduled required prepayment) prior to the
stated maturity thereof; or
(g) VOLUNTARY BANKRUPTCY, ETC. Borrower shall: (i) file a
petition seeking relief for itself under Title 11 of the United States Code,
as now constituted or hereafter amended, or file an answer consenting to,
admitting the material allegations of or otherwise not controverting, or fail
timely to controvert a petition filed against it seeking relief under Title
11 of the United State Code, as now constituted or hereafter amended; or (ii)
file such petition or answer with respect to relief under the provisions of
any other now existing or future applicable bankruptcy, insolvency, or other
similar law of the United States of America or any State thereof or of any
other country or jurisdiction providing for the reorganization, winding-up or
liquidation of corporations or an arrangement, composition, extension or
adjustment with creditors; or
(h) INVOLUNTARY BANKRUPTCY, ETC. An order for relief shall be
entered against Borrower under Title 11 of the United States Code, as now
constituted or hereafter amended, which order is not stayed; or upon the
entry of an order, judgment or decree by operation of law or by a court
having jurisdiction in the premises which is not stayed adjudging it a
bankrupt or insolvent under, or ordering relief against it under, or
approving as
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properly filed a petition seeking relief against it under the provisions of
any other now existing or future applicable bankruptcy, insolvency or other
similar law of the United States of America or any State thereof or of any
other country or jurisdiction providing for the reorganization, winding-up or
liquidation of corporations or any arrangement, composition, extension or
adjustment with creditors; or appointing a receiver, liquidator, assignee,
sequestrator, trustee or custodian of Borrower or of any substantial part of
any of their property, or ordering the reorganization, winding-up or
liquidation of any of their affairs; or upon the expiration of sixty (60)
days after the filing of any involuntary petition against Borrower seeking
any of the relief specified in Section 9.1(g) or this Section 9.1(h) without
the petition being dismissed prior to that time; or
(i) INSOLVENCY, ETC. Borrower shall (i) make a general assignment
for the benefit of its creditors or (ii) consent to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, or custodian
of all or a substantial part of the property of such person or entity, as the
case may be, or (iii) admit its insolvency or inability to pay its debts
generally as they become due, or (iv) fail generally to pay its debts as they
become due, or (v) take any action (or suffer any action to be taken by its
directors or shareholders) looking to the dissolution or liquidation of
Borrower; or
(j) ERISA. Borrower or any member of the Controlled Group shall
fail to pay when due an amount or amounts aggregating in excess of One
Hundred Thousand Dollars ($100,000) which it shall have become liable to pay
to the PBGC or to a Plan under Section 515 of ERISA or Title IV of ERISA; or
notice of intent to terminate a Plan or Plans (other than a multi-employer
plan, as defined in Section 4001(3) of ERISA), having aggregate Unfunded
Vested Liabilities in excess of One Hundred Thousand Dollars ($100,000) shall
be filed under Title IV of ERISA by Borrower, any member of the Controlled
Group, any plan administrator or any combination of the foregoing; or the
PBGC shall institute proceedings under Title IV of ERISA to terminate any
such Plan or Plans; or
(k) PREPAYMENT. Borrower shall make any payment of principal of
any Indebtedness (except in respect of any Advance or current accounts
payable incurred by Borrower in the ordinary course of business or of any
other Indebtedness having an outstanding principal amount at the time of such
payment of less than $250,000) which is not required to be made at the time
of such payment by the terms of such Indebtedness; or
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(l) CONDEMNATION. Such portion of the properties of Borrower as
in the opinion of Lender constitutes a substantial portion thereof shall be
condemned, seized or appropriated and such action will, in Lender's opinion,
have a material adverse effect on Borrower's business; or
(m) JUDGMENT. A final judgment or order for the payment of money
in excess of One Hundred Thousand Dollars ($100,000) or its equivalent in
another currency shall be rendered against Borrower and such judgment or
order shall continue unsatisfied and in effect for a period of thirty (30)
consecutive days; or
(n) GOVERNMENTAL APPROVALS. Any Government Approval or
registration or filing with any Governmental Authority now or hereafter
required in connection with the performance by Borrower of its obligations
set forth in the Loan Documents shall be revoked, withdrawn or withheld or
shall fail to remain in full force and effect unless in the reasonable
opinion of Lender, such revocation, withdrawal or withholding would not be
likely to have a material adverse affect on the ability of Borrower to
perform its obligations under the Loan Documents; or
(o) OTHER GOVERNMENT ACTION. Any act of any Governmental
Authority shall, in the reasonable opinion of Lender, deprive Borrower of any
substantial right, privilege, or franchise or substantially restrict the
exercise thereof which deprivation would, in the reasonable opinion of
Lender, be likely to have a material adverse effect on the financial
condition or operations of Borrower and such act is not revoked or rescinded
within sixty (60) days after it becomes effective or within thirty (30) days
after notice from Lender, whichever first occurs; or
(p) FACTORING AGREEMENT DEFAULT. A default or an event of default
by Borrower shall occur and continue without waiver under the Factoring
Agreement; or
(q) INTERCREDITOR AGREEMENT ENFORCEABILITY. Any intercreditor
agreement executed by Lender and Factoring Company with respect to collateral
pledged (pursuant to the Factoring Agreement) does not constitute the valid
and enforceable obligation of Factoring Company; or
(r) BAILEE NOTICE ENFORCEABILITY. Any notice delivered to any
bailee of inventory located in any public warehouse and valued in excess of
One Hundred Thousand Dollars ($100,000) does not constitute the valid
enforceable obligation
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of such bailee, or any warehouse receipt or other such document of title
outstanding with respect to such inventory shall be determined to be
negotiable.
SECTION 9.2 CONSEQUENCES OF DEFAULT. If an Event of Default described
in Section 9.1(g) or 9.1(h) shall occur and be continuing, then in any such
case, the Commitment shall be immediately terminated and, if any Advances
shall have been made or issued, the principal of and interest on the Loans,
the face amount of the Drafts, the face amounts of all issued and outstanding
Letters of Credit, and all other sums payable by Borrower under the Loan
Documents shall become immediately due and payable all without notice or
demand of any kind. If any other Event of Default shall occur and be
continuing, then in any such case and at any time thereafter so long as any
such Event of Default shall be continuing, Lender may immediately terminate
the Commitment, and, if any Advances shall have been made or issued, Lender,
may declare the principal of and the interest on the Loans, the face amount
of the Drafts, the face amounts of all issued and outstanding Letters of
Credit, and all other sums payable by Borrower under the Loan Documents
immediately due, whereupon the same shall become immediately due and payable
without protest, presentment, notice or demand, all of which Borrower
expressly waives. Amounts paid or received hereunder in respect of issued
and outstanding Letters of Credit which exceed amounts paid by Lender under
such Letters of Credit shall be held (and applied) as cash collateral to
secure the performance of all obligations of Borrower owing to Lender
hereunder and under the other Loan Documents. The rights and remedies set
forth in this Section 9.2 shall be in addition to any and all rights and
remedies set forth in the other Loan Documents.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1 NO WAIVER; REMEDIES CUMULATIVE. No failure by Lender to
exercise, and no delay in exercising, any right, power or remedy under any
Loan Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or remedy under any Loan Document
preclude any other or further exercise thereof or the exercise of any other
right, power, or remedy. The exercise of any right, power, or remedy shall
in no event constitute a cure or waiver of any Event of Default or prejudice
the rights of Lender in the exercise of any right hereunder or thereunder.
The rights and remedies provided herein and therein are cumulative and not
exclusive of any right or remedy provided by law.
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SECTION 10.2 GOVERNING LAW. This Agreement and the other Loan
Documents shall be governed by and construed in accordance with the laws of
the State of Washington.
SECTION 10.3 MANDATORY ARBITRATION. Any controversy or claim between
the parties, arising out of or relating to this Agreement, the other Loan
Documents or any intercreditor agreement executed by Lender, Factoring
Company and Borrower and any claim based on or arising from an alleged tort
related thereto, shall at the request of either party be determined by
arbitration in Seattle, Washington. The arbitration shall be conducted in
accordance with the United States Arbitration Act (Title 9, U.S. Code),
notwithstanding any choice of law provision in this Agreement, and under the
Commercial Rules of the AAA. The arbitrator(s) shall give effect to statutes
of limitation in determining any claim. Any controversy concerning whether
an issue is arbitrable shall be determined by the arbitrator(s). Judgment
upon the arbitration award may be entered in any court having jurisdiction.
No provision of this Section 10.3 shall limit the right of either party to
this Agreement to exercise self-help remedies such as setoff, foreclosure
against or sale of any collateral or security, or to obtain provisional or
ancillary remedies from a court of competent jurisdiction before, after, or
during the pendency of any arbitration or other proceeding. The exercise of
any such remedy does not waive the right of either party to resort to
arbitration.
SECTION 10.4 NOTICES. All notices and other communications provided
for in any Loan Document shall be in writing (unless otherwise specified) and
shall be mailed (with first class postage prepaid) or sent or delivered to
each party by facsimile or courier service at the address or facsimile number
set forth under its name on the signature page hereof, or at such other
address as shall be designated by such party in a written notice to the other
parties. Except as otherwise specified all notices sent by mail, if duly
given, shall be effective three Business Days after deposit into the mails,
all notices sent by a nationally recognized courier service, if duly given,
shall be effective one Business Day after delivery to such courier service,
and all other notices and communications if duly given or made shall be
effective upon receipt. Lender shall not incur any liability to Borrower for
actions taken in reliance on any telephonic notice referred to in this
Agreement which Lender believes in good faith to have been given by a duly
authorized officer or other person authorized to borrow or give such
telephonic notice hereunder on behalf of Borrower.
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SECTION 10.5 ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective Successors and
assigns, except that Borrower may not assign or otherwise transfer all or any
part of its rights or obligations hereunder without the prior written consent
of Lender, and any such assignment or transfer purported to be made without
such consent shall be ineffective. Lender may at any time assign or
otherwise transfer part of its interest under this Agreement and other Loan
Documents to commercial banks (including assignments for security and sales
of participations), and to the extent of any such assignment, the assignee
shall have the same rights and benefits against Borrower and otherwise under
this Agreement (including the right of setoff) as if such assignee were
Lender.
SECTION 10.6 SEVERABILITY. Any provision of this Agreement or any
other Loan Document 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. To the extent permitted by applicable law, the parties
waive any provision of law which renders any provision hereof prohibited or
unenforceable in any respect.
SECTION 10.7 SURVIVAL. The representations, warranties and indemnities
of Borrower in favor of Lender shall survive indefinitely and, without
limiting the foregoing, shall survive the execution and delivery of the Loan
Documents, the making of any Loans, the acceptance and discounting of any
Drafts, the issuance of any Letters of Credit, the expiration of the
Commitment and the repayment of all amounts due under the Loan Documents.
SECTION 10.8 EXECUTED IN COUNTERPARTS. This Agreement and the other
Loan Documents may be executed in any number of counterparts and by different
parties in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
SECTION 10.9 COMMITMENT NOT BORROWED. If the Commitment is not
borrowed owing to nonfulfillment of any condition precedent specified in
Article 5, neither party hereto shall be responsible to any other party for
any damage or loss by reason thereof, except that Borrower shall be in any
event liable to pay the fees, Taxes, and expenses for which it is obligated
hereunder.
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SECTION 10.10 ENTIRE AGREEMENT; AMENDMENT, ETC. This Agreement and the
other Loan Documents to which Borrower is a party comprise the entire
agreement of the parties hereto and may not be amended or modified except by
written agreement of Borrower and Lender. No provision of this Agreement may
be waived except in writing and then only in the specific instance and for
the specific purpose for which given.
SECTION 10.11 ORAL AGREEMENTS NOT ENFORCEABLE.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers or agents thereunto
duly authorized as of the date first above written.
LENDER: BANK OF AMERICA NW, N.A. D/B/A SEAFIRST BANK,
a national banking association
By __________________________________________
Its Vice President
Address: Metropolitan Commercial Banking
1001 Fourth Avenue, 4th Floor
Seattle, Washington 98124
Attn: Mr. Don McGinnis
Facsimile Number: (206) 358-0019
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BORROWER: CUTTER & BUCK INC., a Washington corporation
By __________________________________________
Its ____________________________________
Address: 2701 First Avenue, Suite 500
Seattle, Washington 98121
Attn: Mr. Martin Marks
Facsimile Number: (206) 448-0589
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EXHIBIT A
PROMISSORY NOTE
Borrower: Cutter & Buck Inc. Lender: Bank of America NW, N.A.
2701 First Avenue, Suite 500 d/b/a Seafirst Bank
Seattle, WA 98121 Metropolitan Commercial Team 4
1001 Fourth Avenue (HOB-4)
Seattle, WA 98124
PRINCIPAL AMOUNT: $7,000,000 DATE OF NOTE: JUNE 26, 1996
PROMISE TO PAY. CUTTER & BUCK INC., a Washington corporation ("Borrower")
unconditionally promises to pay to the order of BANK OF AMERICA NW, N.A.
d/b/a SEAFIRST BANK, a national banking association ("Lender"), on or before
June 1, 1997, in immediately available funds, the principal sum of Seven
Million and 00/100 Dollars ($7,000,000) or so much as may be outstanding,
together with interest at a per annum rate equal to the Prime Rate on the
unpaid principal balance until paid in full. As used herein, "Prime Rate"
shall mean, on any day, Lender's publicly announced prime rate of interest at
its principal office, changing as such prime rate changes.
LOAN AGREEMENT. This Note is issued in connection with and is subject to the
terms and conditions of that certain Loan Agreement executed by and between
Borrower, as borrower, and Lender, as lender, dated as of the date hereof,
as same may be amended from time to time ("Loan Agreement"), which Loan
Agreement is incorporated herein.
LINE OF CREDIT. This note evidences a revolving line of credit. Advances
under this Note shall be made in accordance with the Loan Agreement. Any
such advance shall be conclusively presumed to have been made to or for the
benefit of Borrower when made in accordance with such requests and
directions, or when said advances are deposited to the credit of an account
of Borrower with Lender, regardless of the fact that persons other than those
authorized to borrow under the Loan Agreement may have authority to draw
against such account. The unpaid principal balance owing on this Note at any
time may be evidenced by endorsements on this Note or by Lender's internal
records, including daily computer print-outs, which shall become a part
hereof.
AUTOMATIC PAYMENTS. Borrower hereby authorizes lender to automatically
deduct from Borrower's checking account number 1415603, or such other
Seafirst Bank account as may be authorized in the future, interest payments
according to the amount and terms of the Loan Agreement. Moneys received
from or for the account of Borrower or from any collateral shall be applied
in accordance with the terms of the Loan Agreement.
LENDER'S RIGHTS. Upon default in the payment when due of all or any portion
the principal amount or any installment of interest and such default shall
continue for more than three (3) days after the due date thereof or upon the
occurence of any other Event of Default (as such term is defined in the Loan
Agreement), Lender may declare the entire unpaid principal balance on this
Note, together with all accrued unpaid interest and all other sums due
pursuant to the Loan Agreement, immediately due, without notice, and then
Borrower will pay that amount. Upon default, including failure to pay upon
final maturity, Lender, at its option, may increase the interest rate on this
Note to 2.000 percentage points over the Prime Rate. The interest rate will
not exceed the maximum rate permitted by applicable law.
GENERAL PROVISIONS. Except as expressly set forth in the Loan Agreement,
Borrower hereby waives presentment, demand for payment, protest and notice of
dishonor hereof. Each party signing or endorsing this Note signs as maker
and principal, and not as guarantor, surety, or accommodation party; and is
estopped from asserting any defense based on any capacity other than maker or
principal. This Note shall be governed by and construed in accordance with
the laws of the State of Washington.
<PAGE>
PROMISSORY NOTE
PAGE 2
(CONTINUED)
STATUTE OF FRAUDS PROVISION. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
BORROWER:
CUTTER & BUCK INC.
BY: __________________________________
ITS: _____________________________
<PAGE>
EXHIBIT B
COMMERCIAL SECURITY AGREEMENT
Borrower: Cutter & Buck Inc. Lender: Bank of America NW, N.A.
2701 First Avenue, Suite 500 d/b/a Seafirst Bank
Seattle, WA 98121 Metropolitan Commercial Team 4
Facsimile (206) 448-0589 1001 Fourth Avenue (HOB-4)
Seattle, WA 98124
Facsimile (206) 358-0019
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN CUTTER & BUCK
INC., A WASHINGTON CORPORATION (REFERRED TO BELOW AS "GRANTOR"); AND BANK OF
AMERICA NW, N.A. D/B/A SEAFIRST BANK, A NATIONAL BANKING ASSOCIATION
(REFERRED TO BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS
TO LENDER A SECURITY INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS
AND THE FINANCIAL TRANSACTION LIABILITY AND AGREES THAT LENDER SHALL HAVE THE
RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE COLLATERAL, IN ADDITION
TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Washington State Uniform
Commercial Code (the "Uniform Commercial Code"). All references to dollar
amounts shall mean amounts in lawful money of the United States of America.
AGREEMENT. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
BORROWING CERTIFICATE. The words "Borrowing Certificate" mean any
certificate submitted by Grantor to Lender pursuant to the terms of the
Seafirst Bank Customer Borrowing Plan/Assigned Accounts Receivable and
Inventory of even date herewith by Grantor and Lender, as amended from
time to time.
COLLATERAL. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired, whether
now existing or hereafter arising, and wherever located:
ALL INVENTORY, ACCOUNTS, CHATTEL PAPER, CONTRACT RIGHTS, BILLS OF
LADING, WAREHOUSE RECEIPTS AND OTHER NEGOTIABLE AND NON-NEGOTIABLE
DOCUMENTS, LETTERS OF CREDIT, INSTRUMENTS, DEPOSIT ACCOUNTS AND
GENERAL INTANGIBLES, INCLUDING WITHOUT LIMITATION, TRADE NAMES AND
TRADEMARKS AND THE GOODWILL OF THE BUSINESS SYMBOLIZED THEREBY AND
ALL RIGHTS OF GRANTOR AS A LICENSOR OR LICENSEE OF ANY KIND.
In addition, the word "Collateral" includes all the following, whether
now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located:
(a) All attachments, accessions, accessories, tools, parts,
supplies, increases, and additions to and all replacements of and
substitutions for any property described above.
(b) All products and produce of any of the property described in
this Collateral section.
(c) All accounts, contract rights, general intangibles,
instruments, rents, monies, payments, and all other rights, arising
out of a sale, lease, or other disposition of any of the property
described in this Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described
in this Collateral section, whether in the form of a writing,
photograph, microfilm, microfiche, or electronic media, together
with all of Grantor's right, title, and
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COMMERCIAL SECURITY AGREEMENT
PAGE 2
(CONTINUED)
interest in and to all computer software required to utilize,
create, maintain, and process any such records or data on
electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include any of the
Events of Default set forth below in the section titled "Events of
Default."
FACTORING AGREEMENT. The words "Factoring Agreement" have the meaning set
forth in the Loan Agreement.
FINANCIAL TRANSACTION LIABILITY. The words "Financial Transaction
Liability" mean (a) any overdraft on any account maintained by Borrower
with Lender, (b) liabilities owing by Borrower to Lender with respect to
bank card services and (c) liabilities incurred by Lender as a result of
Automated Clearing House transactions for the account of Borrower.
GRANTOR. The word "Grantor" means CUTTER & BUCK INC., a Washington
corporation, its successors and assigns.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced
by the Note, including all principal and interest, together with all
other indebtedness and costs and expenses for which Grantor is now or
hereafter responsible under this Agreement or under any of the Related
Documents.
INTERCREDITOR AGREEMENT. The words "Intercreditor Agreement" mean the
Assignment of Monies Due Under Factoring Agreement and Intercreditor
Agreement of even date herewith by and among Grantor, Lender and
Republic Factors Corp., as amended from time to time.
LENDER. The word "Lender" means BANK OF AMERICA NW, N.A. d/b/a SEAFIRST
BANK, a national banking association, its successors and assigns.
LOAN AGREEMENT. The words "Loan Agreement" mean the Loan Agreement of
even date herewith by and between Grantor and Lender providing for a
revolving credit in an aggregate amount of up to Seven Million and
00/100 Dollars ($7,000,000), as amended from time to time.
NOTE. The word "Note" means the Promissory Note of even date herewith
executed by Grantor in favor of Lender in the amount of Seven Million
and 00/100 Dollars ($7,000,000), together with all renewals, extensions,
modifications, refinancings or consolidations of and all substitutions
for such Promissory Note.
RELATED DOCUMENTS. The words "Related Documents" mean and includes the
Loan Agreement, the other Loan Documents (as that term is defined in the
Loan Agreement), and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection therewith or
the transactions contemplated thereby.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
ORGANIZATION. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the state of
Washington. Grantor has its chief executive office at 2701 First Avenue,
Seattle, WA 98121. Grantor will notify Lender of any change in the
location of Grantor's chief executive office.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement by Grantor has been duly authorized by all necessary action by
Grantor and do not conflict with, result in a violation of, or
constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other
instrument binding upon Grantor or (b) any law, governmental regulation,
court decree, or order applicable to Grantor.
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such
financing statements and notices and to take whatever other actions are
requested by Lender to perfect and continue Lender's security interest
in the Collateral. Upon request of Lender, Grantor will deliver to
Lender any and all of the documents evidencing or constituting the
Collateral, and Grantor will note Lender's interest upon any and all
chattel paper if not delivered to Lender for possession by Lender.
Grantor hereby appoints Lender as its irrevocable attorney-in-fact for
the purpose of executing any documents necessary to perfect or to
continue the security interest granted in this Agreement. Lender may at
any time, and without further authorization from Grantor, file a carbon,
photographic or other reproduction of any financing statement or of
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COMMERCIAL SECURITY AGREEMENT
PAGE 3
(CONTINUED)
this Agreement for use as a financing statement. Grantor will reimburse
Lender for all expenses for the perfection and the continuation of the
perfection of Lender's security interest in the Collateral. Grantor
promptly will notify Lender before any change in Grantor's name
including any change to the assumed business names of Grantor. THIS IS A
CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN EFFECT EVEN THOUGH
ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND LENDER HAS NO
COMMITMENT TO EXTEND CREDIT UNDER THE LOAN AGREEMENT AND EVEN THOUGH FOR
A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do
not prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, contract rights, chattel paper bills of lading, warehouse
receipts or other documents or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral
have authority and capacity to contract and are in fact obligated as
they appear to be on Collateral. At the time any account becomes
subject to a security interest in favor of Lender the account shall be a
good and valid account representing an undisputed, bona fide
indebtedness incurred by the account debtor, for merchandise held
subject to delivery instructions or theretofore shipped or delivered
pursuant to a contract of sale, or for services theretofore performed by
Grantor with or for the account debtor; there shall be no setoffs or
counterclaims against any such account; and no agreement under which any
deductions or discounts may be claimed shall have been made with the
account debtor except those disclosed to Lender in writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will
deliver to Lender in form satisfactory to Lender a schedule of real
properties and Collateral locations relating to Grantor's operations,
including without limitation the following: (a) all real property owned
or being purchased by Grantor; (b) all property being rented or leased
by Grantor; (c) all storage facilities owned, rented, leased, or being
used by Grantor; and (d) all other properties where Collateral is or may
be located. Except in the ordinary course of its business, Grantor
shall not remove the Collateral from its existing locations without the
prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as accounts,
the records concerning the Collateral) at Grantor's address shown above,
or at such other locations as are acceptable to Lender. Except in the
ordinary course of its business, including the sales of inventory,
Grantor shall not remove the Collateral from its existing locations
without the prior written consent of Lender. To the extent that the
Collateral consists of vehicles, or other titled property, Grantor shall
not take or permit any action which would require application for
certificates of title for the vehicles outside the State of Washington,
without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or
accounts collected in the ordinary course of Grantor's business and
excepting sales of accounts receivable pursuant to the terms of the
Factoring Agreement and otherwise permitted under the terms of the Loan
Agreement, Grantor shall not sell, offer to sell, or otherwise transfer
or dispose of the Collateral. Grantor shall not pledge, mortgage,
encumber or otherwise permit the Collateral to be subject to any lien,
security interest, encumbrance or charge, other than the security
interest provided for in this Agreement without the prior written
consent of Lender. Except as permitted under the terms of the Loan
Agreement, this includes security interests even if junior in right to
the security interests granted under this Agreement. Unless permitted
under the terms of the Intercreditor Agreement or waived by Lender, all
proceeds from any disposition of the Collateral (for whatever reason)
shall be held in trust for Lender and shall not be commingled with any
other funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt,
Grantor shall immediately deliver any such proceeds to Lender.
BANK CONTROL COLLATERAL ACCOUNT AND COLLECTIONS. (a) Grantor agrees not to
sell or collect any part of the Collateral except (i) as provided in this
Agreement and/or the Loan Agreement or (ii) sales of accounts receivable
pursuant to the terms of the Factoring Agreement and otherwise permitted
under the terms of the Loan Agreement or (iii) on prior consent of Lender;
(b) until contrary notice is given by Lender, Grantor is specifically
authorized to enforce and collect the Collateral, at Grantor's expense, and
as shall be commercially reasonable, to accept the return of goods and to
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COMMERCIAL SECURITY AGREEMENT
PAGE 4
(CONTINUED)
reclaim, withhold or repossess goods as an unpaid seller. In
collecting, holding or remitting the proceeds of such collections,
Grantor shall not have the right to utilize the collections in any way
other than pursuant to the terms and conditions of this Agreement or the
Loan Agreement; (c) Grantor agrees to collect the payments upon or from
the Collateral, at Grantor's expense, with due diligence until such time
as Grantor's authority to collect is terminated pursuant to this
Agreement and to account to Lender, at such intervals as Lender may
direct, for the proceeds of these collections by depositing such
proceeds, other than the proceeds of accounts receivable sold pursuant
to the terms of the Factoring Agreement (for so long as Grantor is
indebted thereunder) and otherwise permitted under the terms of the Loan
Agreement, in kind in a Bank Control Collateral Account with Lender
(over which account Grantor shall have no control) all in accordance
with the Loan Agreement; (d) upon notification by Lender to Grantor to
cease collecting on the Collateral, Lender will proceed to collect said
obligations in a commercially reasonable manner and may deduct from the
proceeds Lender's reasonable expenses of collection. Lender is
authorized to receive in full satisfaction of the obligor's obligation a
sum less than the face amount thereof; (e) any payment made by Grantor
or any sum received by Lender through the realization and collection of
the obligations shall be applied in accordance with the terms of the
Loan Agreement; (f) Grantor agrees to hold Lender harmless from all
claims for loss or damage caused by any failure to collect any
obligation or enforce any contract or by any act or omission on the part
of Lender, as agents and employees, except wilful misconduct or gross
negligence; (g) Lender may assign or transfer the whole or any part of
the Indebtedness, obligation or liability of Grantor, and may transfer
therewith as collateral security the whole or any part of the Collateral
herein mentioned, and all obligations, rights, powers and privileges
herein provided shall inure to the benefit of the assignee and shall
bind the heirs, executors, administrators, successors or assigns of the
parties hereto, as the case may be.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement and other liens in
favor of Lender. No financing statement covering any of the Collateral
is on file in any public office other than those which reflect the
security interest created by this Agreement or to which Lender has
specifically consented in or pursuant to the Loan Agreement. Grantor
shall defend Lender's rights in the Collateral against the claims and
demands of all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require,
and insofar as the Collateral consists of accounts and general
intangibles, Grantor shall deliver to Lender schedules of such
Collateral, including such information as Lender may require, including
without limitation names and addresses of account debtors and agings of
accounts and general intangibles. Insofar as the Collateral consists of
inventory, Grantor shall deliver to Lender, as often as Lender shall
require, such lists, descriptions, and designations of such Collateral
as Lender may require to identify the nature, extent, and location of
such Collateral. Such information shall be submitted for Grantor and
each of its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not
commit or permit damage to or destruction of the Collateral or any part
of the Collateral. Lender and its designated representatives and agents
shall have the right at all reasonable times to examine, inspect, and
audit the Collateral wherever located. Grantor shall immediately notify
Lender of (a) all cases involving the return, rejection, repossession,
loss or damage of or to any Collateral and of any request for credit or
adjustment or of any other dispute arising with respect to the
Collateral, other than cases, requests and disputes occurring in the
ordinary course of business that would not be likely to have a material
adverse effect on the value or amount of the Collateral, and (b) all
happenings and events generally affecting the Collateral that would be
likely to have a material adverse effect on the value or amount of the
Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon
this Agreement. Grantor may withhold any such payment or may elect to
contest any lien if Grantor is in good faith conducting an appropriate
proceeding to contest the obligation to pay and so long as Lender's
interest in the Collateral is not jeopardized in Lender's sole opinion.
If the Collateral is subjected to a lien which is not discharged within
fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient
corporate surety bond or other security satisfactory to Lender in an
amount adequate to provide for the discharge of the lien plus any
interest, costs, attorneys' fees or other charges that could accrue as a
result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse
judgment before enforcement against the
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COMMERCIAL SECURITY AGREEMENT
PAGE 5
(CONTINUED)
Collateral. Grantor shall name Lender as an additional obligee under
any surety bond furnished in the contest proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply
promptly with all laws, ordinances and regulations of all governmental
authorities applicable to the production, disposition, or use of the
Collateral. Grantor may contest in good faith any such law, ordinance or
regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Lender's interest in the Collateral, in
Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this Agreement
remains a lien on the Collateral, used for the generation, manufacture,
storage, transportation, treatment, disposal, release or threatened
release of any hazardous waste or substance, as those terms are defined
in the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499
("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., the Resource Conservation and Recovery Act, 49 U.S.C.
Section 6901, et seq., or other applicable state or Federal laws, rules,
or regulations adopted pursuant to any of the foregoing. The terms
"hazardous waste" and "hazardous substance" shall also include, without
limitation, petroleum and petroleum by-products or any fraction thereof
and asbestos. The representations and warranties contained herein are
based on Grantor's due diligence in investigating the Collateral for
hazardous wastes and substances. Grantor hereby (a) releases and waives
any future claims against Lender for indemnity or contribution in the
event Grantor becomes liable for cleanup or other costs under any such
laws, and (b) agrees to indemnify and hold harmless Lender against any
and all claims and losses resulting from a breach of this provision of
this Agreement. This obligation to indemnify shall survive the payment
of the Indebtedness and the satisfaction of this Agreement.
MAINTENANCE OF CREDIT INSURANCE. In the event that Grantor wishes to
designate any account as an insured eligible account under the Customer
Borrowing Plan (as defined in the Loan Agreement) Grantor shall procure
and maintain such credit insurance as Lender may require with respect to
such accounts, in form, amounts coverages and basis reasonably
acceptable to Lender and issued by the Approved Credit Insurance
Provider (as defined in the Loan Agreement). Grantor, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without
at least forty five (45) days' prior written notice to Lender and not
including any disclaimer of the insurer's liability for failure to give
such a notice.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage together with such other insurance as Lender may
require with respect to the Collateral, in form, amounts, coverages and
basis reasonably acceptable to Lender and issued by a company or
companies reasonably acceptable to Lender. Grantor, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without
at least forty five (45) days' prior written notice to Lender and not
including any disclaimer of the insurer's liability for failure to give
such a notice. In connection with all policies covering assets in which
Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may
require. If Grantor at any time fails to obtain or maintain any
insurance as required under this Agreement, Lender may (but shall not be
obligated to) obtain such insurance as Lender deems appropriate,
including if it so chooses "single interest insurance," which will cover
only Lender's interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender
of any loss or damage to the Collateral. Lender may make proof of loss
if Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed
Collateral, Lender shall, upon satisfactory proof of expenditure, pay or
reimburse Grantor from the proceeds for the reasonable cost of repair or
restoration. If Lender does not consent to repair or replacement of the
Collateral, Lender shall retain a sufficient amount of the proceeds to
pay all of the Indebtedness, and shall pay the balance to Grantor. Any
proceeds which have not been disbursed within six (6) months after their
receipt and which Grantor has not committed to the repair or restoration
of the Collateral shall be used to prepay the Indebtedness.
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COMMERCIAL SECURITY AGREEMENT
PAGE 6
(CONTINUED)
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be
created by monthly payments from Grantor of a sum estimated by Lender to
be sufficient to produce, at least fifteen (15) days before the premium
due date, amounts at least equal to the insurance premiums to be paid.
If fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender.
The reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for
Grantor, and Lender is not the agent of Grantor for payment of the
insurance premiums required to be paid by Grantor.. The responsibility
for the payment of the premiums shall remain Grantor's sole
responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the property insured; (e) the then current value on the
basis of which insurance has been obtained and the manner of determining
that value; and (f) the expiration date of the policy.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and
except as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to
possession and beneficial use shall not apply to any Collateral where
possession of the Collateral by Lender is required by law to perfect Lender's
security interest in such Collateral. In the absence of a continuing Event
of Default, Grantor may collect any of the Collateral consisting of accounts.
After the occurrence and during the continuation of an Event of Default,
Lender may exercise its rights to collect the accounts and to notify account
debtors to make payments directly to Lender for application to the
Indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral
if Lender takes such action for that purpose as Grantor shall request or as
Lender, in Lender's sole discretion, shall deem appropriate under the
circumstances, but failure to honor any request by Grantor shall not of
itself be deemed to be a failure to exercise reasonable care. Lender shall
not be required to take any steps necessary to preserve any rights in the
Collateral against prior parties, nor to protect, preserve or maintain any
security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may (but
shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged under the Note
from the date incurred or paid by Lender to the date of repayment by Grantor.
All such expenses shall become a part of the Indebtedness and, at Lender's
option, will (a) be payable on demand, (b) be added to the balance of the
Note and be apportioned among and be payable with any installment payments to
become due during either (i) the term of any applicable insurance policy or
(ii) the remaining term of the Note, or (c) be treated as a balloon payment
which will be due and payable at the Note's maturity. This Agreement also
will secure payment of these amounts. Such right shall be in addition to all
other rights and remedies to which Lender may be entitled upon the occurrence
of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default under this Agreement:
LOAN AGREEMENT DEFAULT. The occurrence of any Default or Event of
Default under the Loan Agreement.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any collateral documents to create a valid and perfected security
interest or lien) at any time and for any reason.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral
securing the Indebtedness. This includes a garnishment of any of
Grantor's deposit accounts with Lender.
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COMMERCIAL SECURITY AGREEMENT
PAGE 7
(CONTINUED)
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement and during the continuation of such Event of Default, Lender shall
have all the rights of a secured party under the Uniform Commercial Code and
any and all other applicable law. In addition and without limitation, Lender
may exercise any one or more of the following rights and remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender
all or any portion of the Collateral and any and all certificates of
title and other documents relating to the Collateral. Lender may
require Grantor to assemble the Collateral and make it available to
Lender at a place to be designated by Lender. Lender also shall have
full power to enter upon the property of Grantor to take possession of
and remove the Collateral. If the Collateral contains other goods not
covered by this Agreement at the time of repossession, Grantor agrees
Lender may take such other goods provided that Lender makes reasonable
efforts to return them to Grantor after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in
its own name or that of Grantor. Lender may sell the Collateral for
cash or deferred payment at public auction or private sale. Unless the
Collateral threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Lender will give Grantor
reasonable notice of the time after which any private sale or any other
intended disposition of the Collateral is to be made. The requirements
of reasonable notice shall be met if such notice is given at least ten
(10) days before the time of the sale or disposition. All expenses
relating to the disposition of the Collateral, including without
limitation the expenses of retaking, holding, insuring, preparing for
sale and selling the Collateral, shall become a part of the Indebtedness
secured by this Agreement and shall be payable on demand, with interest
at the Note rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment
of a receiver: (a) Lender may have a receiver appointed as a matter of
right, (b) the receiver may be an employee of Lender and may serve
without bond, and (c) all fees of the receiver and his or her attorney
shall become part of the Indebtedness secured by this Agreement and
shall be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness
in such order of preference as Lender may determine. Insofar as the
Collateral consists of accounts, general intangibles, insurance
policies, instruments, chattel paper, choses in action, or similar
property, Lender may demand, collect, receipt for, settle, compromise,
adjust, sue for, foreclose, or realize on the Collateral as Lender may
determine, whether or not Indebtedness or Collateral is then due. For
these purposes, Lender may, on behalf of and in the name of Grantor,
receive, open and dispose of mail addressed to Grantor; change any
address to which mail and payments are to be sent; and endorse notes,
checks, drafts, money orders, documents of title, instruments and items
pertaining to payment, shipment, or storage of any Collateral. To
facilitate collection, Lender may notify account debtors and obligors on
any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grantor for any
deficiency remaining on the Indebtedness due to Lender after application
of all amounts received from the exercise of the rights provided in this
Agreement. Grantor shall be liable for a deficiency even if the
transaction described in this subsection is a sale of accounts or
chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and
remedies of a secured creditor under the provisions of the Uniform
Commercial Code and any and all other applicable law. In addition,
Lender shall have and may exercise any or all other rights and remedies
it may have available at law, in equity, or otherwise.
<PAGE>
COMMERCIAL SECURITY AGREEMENT
PAGE 8
(CONTINUED)
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement,
after Grantor's failure to perform, shall not affect Lender's right to
declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and
accepted by Lender in the State of Washington. If there is a lawsuit,
Grantor agrees upon Lender's request to submit to the jurisdiction of
the courts situated in King County, State of Washington, or such other
jurisdictions where the Collateral may be located. This Agreement shall
be governed by and construed in accordance with the laws of the State
of Washington.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and
expenses include Lender's attorneys' fees and legal expenses whether or
not there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (and including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipate post-judgment
collection services. Grantor also shall pay all court costs and such
additional fees as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the persons
signing below is responsible for ALL obligations in this Agreement.
NOTICES. All notices and other communications provided for in this
Agreement shall be in writing (unless otherwise specified) and shall be
mailed (with first class postage prepaid) or sent or delivered to each
party by facsimile or courier service at the address or facsimile number
shown above, or at such other address as shall be designated by such
party in a written notice to the other parties. Except as otherwise
specified all notices sent by mail, if duly given, shall be effective
three Business Days after deposit into the mails, all notices sent by a
nationally recognized courier service, if duly given, shall be effective
one Business Day after delivery to such courier service, and all other
notices and communications if duly given or made shall be effective upon
receipt. For notice purposes, Grantor agrees to keep Lender informed at
all times of Grantor's current address. Grantor will give Lender prior
written notice of any change of either Grantor's legal structure or of
any change of Grantor's chief executive office, and change of records
locations.
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and
lawful attorney-in-fact, irrevocably, with full power of substitution to
do the following after the occurrence and during the continuation of an
Event of Default: (a) to demand, collect, receive, receipt for, sue and
recover all sums of money or other property which may now or hereafter
become due, owing or payable from the Collateral; (b) to execute, sign
and endorse any and all claims, instruments, receipts, checks, drafts or
warrants issued in payment for the Collateral; (c) to settle or
compromise any and all claims arising under the Collateral, and, in the
place and stead of Grantor, to execute and deliver its release and
settlement for the claim; and (d) to file any claim or claims or to take
any action or institute or take part in any proceedings, either in its
own name or in the name of Grantor, or otherwise, which in the
discretion of Lender may seem to be necessary or advisable. This power
is given as security for the Indebtedness, and the authority hereby
conferred is and shall be irrevocable and shall remain in full force and
effect until renounced by Lender.
<PAGE>
COMMERCIAL SECURITY AGREEMENT
PAGE 9
(CONTINUED)
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Grantor's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Grantor as
provided above in the "EXPENDITURES BY LENDER" paragraph.
SEVERABILITY. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible,
any such offending provision shall be deemed to be modified to be
within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this Agreement.
No prior waiver by Lender, nor any course of dealing between Lender and
Grantor, shall constitute a waiver of any of Lender's rights or of any
of Grantor's obligations as to any future transactions. Whenever the
consent of Lender is required under this Agreement, the granting of such
consent by Lender in any instance shall not constitute continuing
consent to subsequent instances where such consent is required and in
all cases such consent may be granted or withheld in the sole discretion
of Lender.
WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for
the Indebtedness, Grantor irrevocably waives, disclaims and relinquishes
all claims against such other person which such Grantor has or would
otherwise have by virtue of payment of the Indebtedness of any part
thereof, specifically including but not limited to all rights of
indemnity, contribution or exoneration.
TERMS OF LOAN AGREEMENT CONTROL. This Agreement is executed in
connection with and is subject to the terms of the Loan Agreement. In
the event of any conflict between the terms of this Agreement and the
terms of the Loan Agreement, the terms of the Loan Agreement shall
control, unless Lender shall have otherwise agreed in writing.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL
SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED
JUNE 26, 1996.
GRANTOR:
CUTTER & BUCK INC.
BY: __________________________________
ITS: _______________________________
<PAGE>
EXHIBIT C
[Customer Borrowing Plan]
1
<PAGE>
EXHIBIT D
NOTICE OF BORROWING
Reference is hereby made to that certain Loan Agreement by and between
Bank of America NW, N.A. d/b/a Seafirst Bank (the "Lender") and Cutter & Buck
Inc., dated as of June 26, 1996 (as the same may be amended from time to
time, the "Loan Agreement"). This notice is being given pursuant to Section
2.2 of the Loan Agreement. The undersigned hereby advises Lender that it
intends to borrow a Loan in the amount of [Amount of Borrowing](1) on
[Proposed Date of Borrowing].(2)
This notice is irrevocable, constitutes a representation and warranty by
the undersigned that as of the date hereof, the statements set forth in
Article 6 of the Loan Agreement are true and correct and that no Default or
Event of Default (as such words are defined in the Loan Agreement) has
occurred and is continuing.
CUTTER & BUCK INC.
By
Its (3)
_____________________
(1) The amount specified shall be in an amount that is an integral
multiple of $10,000 and not less than $50,000.
(2) The date of the proposed borrowing may be the same date as the date
of this notice provided this notice is delivered to Lender prior to 3:30 p.m.
(3) This notice is to be executed by the Borrower's President-Chief
Executive Officer, Senior Vice President-Chief Operating Officer or
Controller.
1
<PAGE>
EXHIBIT E
[Legal Opinion]
1
<PAGE>
EXHIBIT F
NOTICE TO INVENTORY BAILEES
[--Date--]
[--Warehouse Company Name--]
[--Address of Company--]
[--City, State Zip--]
RE: SECURITY INTEREST IN THE INVENTORY OF CUTTER & BUCK INC.
Attn: [--Contact Name--]
Bank of America NW, N.A. d/b/a Seafirst Bank (the "Lender")
[is in the process of establishing/ has established] a credit facility with
Cutter & Buck Inc. (the "Debtor"). As part of the new credit facility, the
Debtor has or will grant to the Lender a security interest in all the
property of the Debtor that is now or hereafter located in the warehouse
located at [--address of warehouse--] (the "Warehouse") (collectively
referred to in this letter as the "Property"). The Debtor has made
assurances to the Lender that all of the Property is free and clear of any
lien, claim or encumbrance and that the Lender's security interest in that
property will be a perfected first priority security interest.
This letter constitutes formal notice to [--Warehouse Company Name--]
(the "Bailee") of the Lender's security interest referred to above, and the
Bailee's signature below constitutes its representation and warranty to the
Lender that, as of the date set forth below such signature:
1. The Bailee has received no notice from any person of a
security interest in any of the Property other than the
security interest of the Lender, any statutory lien in favor
of Bailee and any security interest in favor of any of the
secured parties listed on Schedule 1 attached hereto.
2. Other than those warehouse receipts listed on Schedule 2
attached hereto, any and all warehouse receipts or similar
documents of title issued by the Bailee with respect to any of
the Property have been issued solely in non-negotiable form
and solely in the name of the Debtor.
1
<PAGE>
3. From and after the date set forth below the signature of the
Bailee below, any warehouse receipts or similar documents of
title issued by the Bailee with respect to any of the Property
shall be issued solely in non-negotiable form and solely in
the name of the Debtor.
4. The Bailee is the sole bailee of all the Property.
In addition to the representations and warranties set forth above, the
Bailee's signature below constitutes the Bailee's acknowledgement that it has
received this notice of the Lender's security interest and that the Lender is
relying on the foregoing representations and warranties in extending credit
to the Debtor.
Upon execution, please return this letter by telefax to the following
telefax number and return the signed hard copy by mail to the following
address:
Bank of America NW, N.A.
d/b/a Seafirst Bank
Metropolitan Commercial Banking
1001 Fourth Avenue, 4th Floor
Seattle, Washington 98124
Attn: Mr. Don McGinnis
Telefax Number: (206) 358-0019
Thank you for your cooperation in this matter.
Sincerely,
Bank of America NW, N.A. d/b/a Seafirst Bank
Don McGinnis
Vice President
Acknowledged and Confirmed:
[--Warehouse Company Name--]
By ________________________________
Its _______________________________
Date _______________________
<PAGE>
SCHEDULE 1
LIST OF OTHER SECURED PARTIES (IF ANY)
3
<PAGE>
SCHEDULE 2
LIST OF NEGOTIABLE WAREHOUSE RECEIPTS (IF ANY)
4
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11.1
STATEMENT OF COMPUTATION OF NET INCOME PER SHARE
YEAR ENDED APRIL 30
-----------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . 327,479 327,820 2,686,777
Weighted average common shares giving effect to the conversion of Preferred Stock
into Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,356,147 1,451,862 545,356
Net effect of stock options granted and Preferred Stock issued during the 12-month
period prior to the Company's filing of its initial public offering at less than
the offering price, calculated using the treasury stock method at the offering
price of $7 per share, and treated as outstanding for all periods presented . . . . . .220,904 220,904 44,780
Net effect of outstanding stock options [excluding stock options granted during
the 12 months prior to the Company's filing of its initial public offering] and
warrants calculated using the treasury stock method at the average price for each
quarter during the year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,908 33,624 198,668
--------- --------- ---------
Shares used in computation of net income per share . . . . . . . . . . . . . . . . . . 1,933,438 2,034,210 3,475,581
--------- --------- ---------
--------- --------- ---------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100,819 $ 239,232 $ 996,350
--------- --------- ---------
--------- --------- ---------
Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .05 $ .12 $ .29
--------- --------- ---------
--------- --------- ---------
</TABLE>
