<PAGE>
---------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------------------------------------------
For the quarterly period ended Commission File
January 31, 1997 No. 0-26608
CUTTER & BUCK INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Washington 91-1474587
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2701 First Avenue, Suite 500
Seattle, WA 98121
(Address of Principal Executive Offices)
(206) 622-4191
(Issuer's Telephone Number, Including Area Code)
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
------- -------
The number of shares of Common Stock of the registrant outstanding as of
March 10, 1997 was 5,129,631.
Transitional Small Business Disclosure Format (Check One)
Yes No X
------- ------
Page 1 of 13
Exhibit index appears on page 14
<PAGE>
CUTTER & BUCK INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended January 31, 1997
INDEX
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements (unaudited):
Condensed Balance Sheets 3
Condensed Statements of Operations 4
Condensed Statements of Cash Flows 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
INDEX TO EXHIBITS 14
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
CUTTER & BUCK INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
April 30, January 31,
1996 1997
--------------- -------------
(unaudited)
<S> <C> <C>
Current Assets:
Cash $2,010,047 $6,738,100
Accounts receivable, net of allowances for doubtful
accounts, and returns and allowances of $472,402
and $772,974 respectively 7,652,613 8,581,195
Inventories 4,693,433 12,585,081
Deferred income taxes 180,000 180,000
Prepaid expenses and other current assets 1,098,972 1,314,173
-------------- -----------
Total current assets 15,635,065 29,398,549
Furniture and equipment 798,922 2,580,751
Other assets 735,931 554,746
-------------- -----------
Total assets $17,169,918 $32,534,046
-------------- -----------
-------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,313,937 $1,677,310
Accrued liabilities 319,362 190,538
Income taxes payable 400,000 0
Loan payable to bank 114,119 0
Current portion of capital lease obligations 0 130,536
-------------- -----------
Total current liabilities 3,147,418 1,998,384
Capital lease obligations 0 536,191
Shareholders' equity:
Common stock, no par value: 25,000,000 shares
authorized; 3,666,715 issued and outstanding at April 30, 1996
and 5,129,631 at January 31, 1997 15,156,702 29,758,119
Note receivable from shareholder (44,520) 0
Retained earnings (accumulated deficit) (1,089,682) 241,352
-------------- -----------
Total shareholders' equity 14,022,500 29,999,471
-------------- -----------
Total liabilities and shareholders' equity $17,169,918 $32,534,046
-------------- -----------
-------------- -----------
</TABLE>
See accompanying notes.
Page 3
<PAGE>
CUTTER & BUCK INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
-------------------------- ----------------------------
January 31, January 31, January 31, January 31,
1996 1997 1996 1997
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales $5,210,331 $8,451,586 $13,646,258 $28,741,404
Cost of sales 3,376,942 4,962,848 8,651,016 17,476,755
----------- ----------- ----------- -----------
Gross profit 1,833,389 3,488,738 4,995,242 11,264,649
Operating expenses:
Design and production 274,737 361,900 719,616 1,063,235
Selling and handling 874,247 1,903,436 2,522,585 5,836,973
General and administrative 509,708 875,596 1,407,225 2,501,746
----------- ----------- ----------- -----------
Total operating expenses 1,658,692 3,140,932 4,649,426 9,401,954
----------- ----------- ----------- -----------
Operating income 174,697 347,806 345,816 1,862,695
Other income (expense):
Factor commissions and
interest expense net
of interest income (12,160) 39,624 (153,328) (190,982)
License and royalty income 101,661 92,562 299,885 249,921
----------- ----------- ----------- -----------
Total other income (expense) 89,501 132,186 146,557 58,939
----------- ----------- ----------- -----------
Income before income taxes 264,198 479,992 492,373 1,921,634
Income taxes (60,000) (155,600) (110,000) (590,600)
----------- ----------- ----------- -----------
Net income $204,198 $324,392 $382,373 $1,331,034
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share $0.05 $0.06 $0.11 $0.30
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Shares used in computation
of net income per share 3,890,664 5,360,062 3,344,279 4,413,862
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
Page 4
<PAGE>
CUTTER & BUCK INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
---------------------------------
January 31, January 31,
1996 1997
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $382,373 $1,331,034
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 120,492 670,003
Changes in assets and liabilities:
Receivables, net (669,999) (1,049,049)
Inventories (2,260,953) (7,891,648)
Prepaid expenses and other current assets (480,667) (215,201)
Accounts payable and accrued liabilities (86,105) (765,451)
Income taxes payable 0 (400,000)
---------- -----------
Net cash provided by (used for) operating activities (2,994,859) (8,320,312)
INVESTING ACTIVITIES
Purchases of furniture and equipment (570,271) (1,460,737)
Increase in trademarks and patents (213,802) (55,481)
---------- -----------
Net cash used in investing activities (784,073) (1,516,218)
FINANCING ACTIVITIES
Payment of loan from bank 0 (114,119)
Payments under capital lease obligations (121,563) (87,702)
Net increase (decrease) in advances from factor (2,320,891) 120,467
Issuance of preferred stock, net of offering costs 1,039,625 0
Issuance of common stock, net of offering costs 8,459,984 14,645,937
---------- -----------
Net cash provided by financing activities 7,057,155 14,564,583
---------- -----------
Net increase in cash 3,278,223 4,728,053
Cash, beginning of period 499,417 2,010,047
---------- -----------
Cash, end of period $3,777,640 $6,738,100
---------- -----------
---------- -----------
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $156,421 $146,515
---------- -----------
---------- -----------
Cash paid during the period for income taxes $0 $1,000,400
---------- -----------
---------- -----------
Noncash financing and investing activities:
Equipment acquired with capital leases $0 $754,429
---------- -----------
---------- -----------
</TABLE>
See accompanying notes.
Page 5
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by
Cutter & Buck Inc. ("Company"), in accordance with generally accepted accounting
principles for interim financial statements and with the instructions to Form
10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and disclosures required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation have been included. The Company's revenues are
seasonal, and therefore the results of operations for the three months ended
January 31, 1997 may not be indicative of the results for the full fiscal year.
For further information, refer to the financial statements and footnotes thereto
for the year ended April 30, 1996, included in the Company's filing on Form
10-KSB.
2. NET INCOME PER SHARE
Net income per share has been computed by dividing net income by the
weighted average number of common shares and equivalents outstanding. Common
share equivalents included in the computation represent shares issuable upon
assumed exercise of stock options and warrants except when the effect of their
inclusion would be antidilutive.
3. ACCOUNTS RECEIVABLE
Pursuant to the terms of factoring agreements, the Company assigns a
portion of its qualifying accounts receivable to factors on a preapproved,
nonrecourse basis. Accounts receivable consisted of the following:
<TABLE>
<CAPTION>
April 30, 1996 January 31, 1997
-------------- ----------------
<S> <C> <C>
Unmatured receivables:
Nonrecourse $5,779,659 $1,504,264
With recourse 55,385 49,452
Matured receivables 160,331 28,186
Advances (120,467)
------------- ------------
Due from factor 5,995,375 1,461,435
Non-factored receivables 2,129,640 7,892,734
Allowance for doubtful accounts and reserve
for sales returns and allowances (472,402) (772,974)
------------- ------------
$7,652,613 $8,581,195
------------- ------------
------------- ------------
</TABLE>
4. LINE OF CREDIT
On July 8, 1996, the Company entered into a loan agreement with Bank of
America NW, N.A. d/b/a Seafirst Bank (Seafirst Bank) for a $7 million line of
credit, replacing the Company's previous line of credit. The line of credit
with Seafirst Bank has been used for international letters of credit, bankers'
acceptances and working capital advances. Interest on borrowings has been
charged and payable monthly at Seafirst Bank's prime rate. The line of credit
has been collateralized by a security interest in the Company's inventory,
accounts receivable, contract rights and general intangibles. The loan
agreement contains certain restrictive covenants covering minimum working
capital, tangible net worth and accounts receivable turnover, as well as a
maximum debt-to-equity ratio. At January 31, 1997, letters of credit
outstanding against this line of credit totaled $3,915,882 and there were no
working capital advances.
Page 6
<PAGE>
4. LINE OF CREDIT (continued)
On February 20, 1997, the Company entered into a loan agreement with
Washington Mutual Bank d/b/a Enterprise Bank (Enterprise Bank) for a $20
million line of credit, replacing the Company's line of credit with Seafirst
Bank. The line of credit with Enterprise Bank will be used for international
letters of credit, working capital advances and other corporate purposes.
Interest on borrowings is charged and payable monthly at Enterprise Bank's
prime rate. The line of credit is collateralized by a security interest in
the Company's inventory, accounts receivable, contract rights and general
intangibles. The loan agreement contains certain restrictive covenants
covering minimum working capital and tangible net worth, as well as a maximum
debt-to-equity ratio. Enterprise Bank and Republic Factors Corp. have
entered into an intercreditor agreement allocating between them priority as
to the Company's assets in which both financial institutions have a security
interest.
5. EUROPEAN OPERATIONS
The Company formed a United Kingdom subsidiary in February, 1996 for direct
marketing, sales and distribution of the Company's sportswear and outerwear in
the United Kingdom and formed a Netherlands subsidiary in May, 1996 for its
operations throughout Europe. Both of these subsidiaries are 100% owned by the
Company.
6. SHAREHOLDERS' EQUITY
The Company has three stock option plans that provide for the granting of
options to employees, officers and directors of the Company to purchase up to
525,313 shares of Common Stock. Options granted under the 1991 plan provide for
50% vesting on the first anniversary from the date of grant and 25% vesting on
each of the second and third anniversaries. Options granted under the 1995
employee plan generally provide for vesting over a five-year period with vesting
at 20% each year. Options granted under the 1995 director plan become
exercisable six months after the date of grant. Options under the plans expire
after 10 years and have been granted at fair market value on the date of grant.
At January 31, 1997, 425,758 options to purchase shares of common stock were
outstanding under these plans, 212,725 of which were exercisable. At January
31, 1997, 93,397 shares under these plans remained available for future grant.
On November 1, 1996 the Company sold 1,329,307 shares of its Common Stock
to the public at $11 per share. Pursuant to the exercise of the Underwriters'
over-allotment option, the Company sold an additional 125,000 shares of Common
Stock at $11 per share on December 3, 1996. Proceeds to the Company, net of
underwriting discounts and commissions and offering expenses totaling
$1,437,758, amounted to $14,559,619. In addition to these shares sold to the
public, the Company sold 8,608 shares under its employee stock purchase plan
and pursuant to the exercise of stock options.
Page 7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
OVERVIEW
The Company designs, sources and markets updated, traditional men's
sportswear and outerwear. It distributes its products predominantly through
golf pro shops and resorts, upscale men's specialty stores and direct corporate
sales accounts. The Company continues to emphasize the golf distribution
channel because it believes this is an effective way to reach its target market
of affluent, sports-minded 30- to 55-year-old men and build brand identity. The
Company has found golf pro shops to be receptive to its distinctive product,
merchandising approach and sales support.
Historically, the Company has experienced its lowest level of net sales and
profitability in its first and third quarters, ending July 31 and January 31,
respectively. Correspondingly, the Company's highest level of sales and
profitability have been achieved in its second and fourth quarters, ending
October 31 and April 30, respectively. This seasonality has resulted primarily
from the timing of shipments to golf pro shops and men's specialty stores due to
seasonal fluctuations in consumer demand, the timing and amount of orders from
key customers, the timing of sales of seasonal remainder merchandise and
availability of product. This pattern of sales affects working capital
requirements and liquidity, as the Company generally must finance higher levels
of inventory during the first and third quarters, when sales are lowest.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1997 COMPARED WITH THREE MONTHS ENDED
JANUARY 31, 1996
NET SALES increased 62.2% in the three months ended
January 31, 1997 to $8,451,586 from $5,210,331 in the three months ended
January 31, 1996. For the third quarter of fiscal 1997 compared to the third
quarter of fiscal 1996, net sales in the United States to the golf
distribution channel increased $2,200,792 to $4,341,150, and the corporate
channel increased $1,079,003 to $1,921,163. In addition to these channels,
for the three months ended January 31, 1997, specialty store and
international distributor sales decreased by $239,761 and net sales of the
Company's direct distribution in the United Kingdom and Europe totaled
$300,011.
GROSS PROFIT increased in the three months ended January 31, 1997 to
$3,488,738 from $1,833,389 in the three months ended January 31, 1996. Gross
profit as a percentage of net sales was 41.3% for the third quarter of fiscal
1997 compared to 35.2% for the third quarter of fiscal 1996. Factors
contributing to this higher gross profit include the pricing leverage resulting
from increased volumes, a realigned sourcing structure, reduced expediting costs
due to the earlier receipt of spring season merchandise and a reduction in the
cost of embroidering golf club and corporate logos.
OPERATING EXPENSES increased to $3,140,932 in the three months ended
January 31, 1997 from $1,658,692 in the three months ended January 31, 1996, and
increased as a percentage of net sales, to 37.2% in the third quarter of fiscal
1997 from 31.8% in the third quarter of fiscal 1996. The increase in operating
expenses was due primarily to increases in management, staffing and facilities
costs to support the Company's expanded operations. The increase in operating
expenses when expressed as a percent of sales reflects the fact that the
Company's cost structure now includes a higher component of fixed costs such as
warehousing and the salary portion of sales compensation to support higher
planned volume sales
Page 8
<PAGE>
quarters. Selling and handling expenses increased by $1,029,189, making up
69.4% of the overall increase in operating expenses. The majority of the
increase in selling and handling expenses was due to increased sales
commissions, staffing costs, travel and samples related to a higher sales
volume and a larger sales force. The Company has also increased its
advertising expenditures and incurred additional handling expenses associated
with establishing its own warehouse facility in Seattle and supporting higher
sales volume.
OTHER INCOME. License and royalty income earned under licensing contracts
totaled $92,562 for the three months ended January 31, 1997 and $101,661 for the
three months ended January 31, 1996. The decline in license and royalty income
was primarily due to the Company's re-purchase of its outerwear license
effective May 1, 1996 which now allows the Company to directly design and
market Cutter & Buck outerwear. Interest income, net of factor commissions,
was $39,624 in the quarter ended January 31, 1997 compared to a net expense of
$12,160 in the quarter ended January 31, 1996. Factor commission expense
decreased by $13,618 due to a lower rate of factored sales and interest income
increased by $38,166. For the three months ended January 31, 1997 and January
31, 1996, the Company earned interest income on short term investments made
possible by the sales of its Common Stock described below.
INCOME TAXES. The Company recorded $155,600 of income tax expense in the
three months ended January 31, 1997 and $60,000 in the three months ended
January 31, 1996. As of January 31, 1997, all net operating loss carryforwards
from prior years had been used to offset taxable income.
As a result of the foregoing factors, the Company had NET INCOME of
$324,392 for the three months ended January 31, 1997 compared to $204,198 for
the three months ended January 31, 1996.
NINE MONTHS ENDED JANUARY 31, 1997 COMPARED WITH NINE MONTHS ENDED JANUARY
31, 1996
NET SALES increased 110.6% in the nine months ended January 31, 1997 to
$28,741,404 from $13,646,258 in the nine months ended January 31, 1996. For the
first nine months of fiscal 1997 compared to the first nine months of fiscal
1996, net sales in the United States to the golf distribution channel increased
$9,060,588 to $15,136,428, the corporate channel increased $3,922,992 to
$5,901,758 and the specialty store channel increased $784,677 to $4,318,560.
Increases in these three channels accounted for approximately 91.2% of the
overall increase in net sales. In addition to these channels, for the nine
months ended January 31, 1997, international distributor sales also increased.
Net sales of the Company's direct distribution in the United Kingdom and
Europe totaled $1,128,373.
GROSS PROFIT increased in the nine months ended January 31, 1997 to
$11,264,649 from $4,995,242 in the nine months ended January 31, 1996. Gross
profit as a percentage of net sales was 39.2% for the first nine months of
fiscal 1997 compared to 36.6% for the first nine months of fiscal 1996. The
improvement in gross profit due to volume, product sourcing and a reduction in
on-going embroidery costs was partially offset by additional costs incurred in
the first quarter of fiscal 1997 to expedite delivery of goods from Chinese
manufacturers due to threatened trade sanctions, costs to assure timely
deliveries during the Company's transition to its own warehouse facility, and
start-up expenses associated with an in-house embroidery operation and the
Company's new European operations.
Page 9
<PAGE>
OPERATING EXPENSES increased to $9,401,954 in the nine months ended
January 31, 1997 from $4,649,426 in the nine months ended January 31, 1996,
but decreased as a percentage of net sales, to 32.7% in the first nine months
of fiscal 1997 from 34.1% in the first nine months of fiscal 1996. The
increase in operating expenses was due primarily to increases in management,
staffing and facilities costs to support the Company's expanded operations.
Selling and handling costs increased by $3,314,388, making up 69.7% of the
overall increase in operating expenses. The majority of the increase in
selling and handling expenses was due to increased sales commissions,
staffing costs, travel and samples related to a higher sales volume and a
larger sales force. The Company has also increased its advertising
expenditures. The Company has also increased the number of its sales
representatives who are employees versus independent contractors. In addition,
the Company incurred additional handling expenses which increased by $602,719
to $856,964 and are associated with the Company establishing its own warehouse
facility in Seattle and the costs of supporting higher sales volume and
inventory levels.
OTHER INCOME. License and royalty income earned under licensing contracts
totaled $249,921 for the nine months ended January 31, 1997 and $299,885 for the
nine months ended January 31, 1996. The decline in license and royalty income
is primarily due to the Company's re-purchase of its outerwear license effective
May 1, 1996 which now allows the Company to directly design and market Cutter &
Buck outerwear. Factor commissions and interest expense was $190,982 in the
nine months ended January 31, 1997 compared to $153,328 in the nine months ended
January 31, 1996. Factor commission expense increased by $3,003 due to a lower
rate of factored sales on higher overall sales volume and net interest expense
increased by $34,651. For the nine months ended January 31, 1997, the Company
incurred interest expense on its bank borrowing which was partially offset by
interest income on short term investments made after the sale of its Common
Stock in November and December 1996. For the nine months ended January 31,
1996, the Company had the benefit of interest income on short term investments
made possible by the sale of its Common Stock in August 1995.
INCOME TAXES. The Company recorded $590,600 of income tax expense in the
nine months ended January 31, 1997 and $110,000 in the nine months ended October
31, 1995.
As a result of the foregoing factors, the Company had NET INCOME of
$1,331,034 for the nine months ended January 31, 1997 compared to $382,373 for
the nine months ended January 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for funds is to finance working capital
associated with growth in sales volume, specifically accounts receivable and
finished goods inventory which includes the Company's CLASSIC products with
multi-season appeal. Working capital for the nine months ended January 31, 1997
was funded primarily by the collection of accounts receivable, bank borrowing
and the sale of its Common Stock.
Net cash used for operating activities was $8,320,312 for the nine months
ended January 31, 1997 compared to $2,994,859 for the nine months ended January
31, 1996. For the nine months ended January 31, 1997, cash was primarily used
to support an increase in inventory of $7,891,648, a net increase in accounts
receivable of $1,049,049 and a reduction in accounts payable and accrued
liabilities of $945,451. The increase in inventory primarily relates to planned
sales volume in the fourth quarter as well as accelerated inventory receipts to
accommodate factory shut-downs for Chinese New Year. The reduction in accounts
payable and accrued liabilities is due in part to increased reliance on offshore
factories for inventory purchases which are paid using letters of credit payable
at sight. For the nine months ended January 31, 1996, cash was used to support
increases in inventory, accounts receivable and prepaid expenses.
Page 10
<PAGE>
Net cash used in investing activities of $1,516,218 for the nine months
ended January 31, 1997 was attributable primarily to investments in warehouse
equipment and leasehold improvements totaling $311,677, in-store fixtures of
$910,107 and other furniture and equipment totaling $238,953. For the nine
months ended January 31, 1996, the Company purchased in-store fixtures totaling
$281,097, reacquired the Company's outerwear license for $200,000, constructed a
new trade show booth for $116,482 and purchased other furniture and equipment
totaling $186,494.
Net cash provided by financing activities for the nine months ended January
31, 1997 was $14,564,583 compared to $7,057,155 during the nine months ended
January 31, 1996. The nine months ended January 31, 1997 included $14,559,619
generated by the sale of 1,454,307 shares of Common Stock in a public offering
closing on November 1, 1996 and an over-allotment closing on December 3, 1996
net of offering expenses of $1,437,758. During the nine months ended January
31, 1997, the Company sold 8,608 shares under its employee stock purchase plan
and pursuant to the exercise of stock options, generating $41,798, and received
$44,520 in repayment of a note receivable from a shareholder. For the nine
months ended January 31, 1996, cash provided by financing activities included
$1,039,625 generated by the issuance of Series B Preferred Stock and $8,459,984
generated by the issuance of common stock which were used in part to eliminate
advances from the factor totaling $2,320,891.
As of January 31, 1997, the Company had a $7 million line of credit with
Bank of America NW, N.A. d/b/a Seafirst Bank for international letters of
credit, bankers' acceptances and working capital advances. At January 31, 1997,
letters of credit outstanding against this line of credit totaled $3,915,882 and
there were no working capital advances.
On February 20, 1997, the Company entered into a loan agreement with
Washington Mutual Bank d/b/a Enterprise Bank (Enterprise Bank) for a $20
million line of credit, replacing the Company's line of credit with Seafirst
Bank. The line of credit with Enterprise Bank will be used for international
letters of credit, working capital advances and other corporate purposes.
Interest on borrowings is charged and payable monthly at Enterprise Bank's
prime rate. The line of credit is collateralized by a security interest in
the Company's inventory, accounts receivable, contract rights and general
intangibles. The loan agreement contains certain restrictive covenants
covering minimum working capital and tangible net worth, as well as a maximum
debt-to-equity ratio. Enterprise Bank and Republic Factors Corp. have
entered into an intercreditor agreement allocating between them priority as
to the Company's assets in which both financial institutions have a security
interest.
Page 11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On March 13, 1997, the Company announced that it would not be extending
its independent design Consulting Agreement with Joey Rodolfo which terminates
on July 1, 1997. Mr. Rodolfo has recently raised some concerns related to the
Company's revenue recognition policy. The Company asked its independent Audit
Committee to investigate those concerns and, with the assistance of the
Company's counsel and independent outside auditors, the Committee reviewed the
concerns and determined that they were groundless. Mr. Rodolfo has requested
further review.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit
Number Description
------ -----------
3.2 Bylaws (as amended and restated on February 28, 1997)
10.15 Loan Agreement dated February 20, 1997 between
Cutter & Buck Inc. as borrower, and Washington Mutual Bank
d/b/a Enterprise Bank, as Lender, and supporting documents
b) Reports on Form 8-K
There were no reports on Form 8-K filed during the third quarter
ended January 31, 1997
Page 12
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CUTTER & BUCK INC.
------------------------
(Registrant)
Dated: March 17, 1997 By /s/ Martin J. Marks
------------------ -------------------------
Martin J. Marks
Senior Vice-President,
Chief Operating Officer,
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
Page 13
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description Page
------- ----------- ----
3.2 Bylaws (as amended and restated on 15
February 28, 1997)
10.15 Loan Agreement dated February 20, 1997 24
between Cutter & Buck Inc. as borrower, and
Washington Mutual Bank d/b/a Enterprise Bank,
as Lender, and supporting documents
Page 14
<PAGE>
BYLAWS
OF
CUTTER & BUCK INC.
(As amended and restated on February 28, 1997)
ARTICLE I
REGISTERED OFFICE AND REGISTERED AGENT
The registered office of the corporation shall be located in the state
of Washington at such place as may be fixed from time to time by the board of
directors upon filing of such notices as may be required by law, and the
registered agent shall have a business office identical with such registered
office. Any change in the registered agent or registered office shall be
effective upon filing such change with the office of the Secretary of State
of the state of Washington.
ARTICLE II
SHAREHOLDERS' MEETINGS
Section 1. ANNUAL MEETINGS. The annual meeting of the shareholders of
the corporation shall be held at the registered office of the corporation, or
such other place as may be designated by the notice of the meeting, during
the month of September each year, for the purpose of election of directors
and for such other business as may properly come before the meeting.
Section 2. SPECIAL MEETINGS. Special meetings of the shareholders of
the corporation may be called at any time by the president, or by a majority
of the board of directors, or by the holders of at least twenty-five percent
(25%) of all the votes entitled to be cast on any issue proposed to be
considered at a proposed special meeting; provided that upon qualification of
the corporation as a "public company" under the Washington Business
Corporation Act, the percentage of votes required to call a special meeting
shall be thirty percent (30%). No business shall be transacted at any
special meeting of shareholders except as is specified in the notice calling
for said meeting. The board of directors may designate any place as the
place of any special meeting called by the president or the board of
directors, and special meetings called at the request of shareholders shall
be held at such place as may be determined by the board of directors and
placed in the notice of such meetings.
Section 3. NOTICE OF MEETINGS. Written notice of annual or special
meetings of shareholders stating the place, day, and hour of the meeting,
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be given by the secretary or persons authorized to
call the meeting to each shareholder of record entitled to vote at the
meeting. Such notice shall be given not less than ten (10) nor more than
sixty (60) days prior to the date of the meeting, except that notice of a
meeting to act on (i) an amendment to the Articles of Incorporation, (ii) a
plan of merger or share exchange, (iii) a proposed sale, lease, exchange or
other disposition of substantially all of the assets of the corporation other
than in
<PAGE>
the usual or regular course of business, or (iv) the dissolution of
the corporation shall be given no fewer than twenty (20) days nor more than
sixty (60) days before the meeting date. Notice may be transmitted by mail,
private carrier or personal delivery; telegraph or teletype; or telephone,
wire or wireless equipment which transmits a facsimile of the notice. If
mailed, such notice shall be deemed to be delivered when deposited in the
United States mail addressed to the shareholder at the shareholder's address
as it appears on the stock transfer books of the corporation.
Section 4. WAIVER OF NOTICE. Notice of the time, place, and purpose of
any meeting may be waived in writing (either before or after such meeting)
and will be waived by any shareholder by the shareholder's attendance at the
meeting in person or by proxy, unless the shareholder at the beginning of the
meeting objects to holding the meeting or transacting business at the
meeting. Any shareholder so waiving shall be bound by the proceedings of any
such meeting in all respects as if due notice thereof had been given.
Section 5. QUORUM AND ADJOURNED MEETINGS. A majority of the
outstanding shares of the corporation entitled to vote, represented in person
or by proxy, shall constitute a quorum at a meeting of shareholders. A
majority of the shares represented at a meeting, even if less than a quorum,
may adjourn the meeting from time to time without further notice. At such
reconvened meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The shareholders present at a duly organized meeting
may continue to transact business at such meeting and at any adjournment of
such meeting (unless a new record date is or must be set for the adjourned
meeting), notwithstanding the withdrawal of enough shareholders from either
meeting to leave less than a quorum.
Section 6. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by the shareholder's
duly authorized attorney in fact. Such proxy shall be filed with the
secretary of the corporation before or at the time of the meeting. No proxy
shall be valid after eleven (11) months from the date of its execution,
unless otherwise provided in the proxy.
Section 7. VOTING RECORD. After fixing a record date for a
shareholders' meeting, the corporation shall prepare an alphabetical list of
the names of all shareholders on the record date who are entitled to notice
of the shareholders' meeting. The list shall be arranged by voting group,
and within each voting group by class or series of shares, and show the
address of and number of shares held by each shareholder. A shareholder,
shareholder's agent, or a shareholder's attorney may inspect the
shareholder's list, beginning ten days prior to the shareholders' meeting and
continuing through the meeting, at the corporation's principal office or at a
place identified in the meeting notice in the city where the meeting will be
held during regular business hours and at the shareholder's expense. The
shareholders' list shall be kept open for inspection during such meeting or
any adjournment.
Section 8. VOTING OF SHARES. Except as otherwise provided in the
Articles of Incorporation or in these Bylaws, every shareholder of record
shall have the right at every
2
<PAGE>
shareholders' meeting to one vote for every share standing in the
shareholder's name on the books of the corporation. If a quorum exists,
action on a matter, other than election of directors, is approved by a voting
group of shareholders if the votes cast within the voting group favoring the
action exceed the votes cast within the voting group opposing the action,
unless the Articles of Incorporation or the Washington Business Corporation
Act require a greater number of affirmative votes.
Section 9. RECORD DATE. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or any
adjournment thereof, or entitled to receive payment of any dividend, the
board of directors may fix in advance a record date for any such
determination of shareholders, such date to be not more than seventy (70)
days prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If no record date is fixed for
the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the day before the date on which notice of the meeting is mailed or
the date on which the resolution of the board of directors declaring such
dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled
to vote at any meeting of shareholders has been made as provided in this
section, such determination shall apply to any adjournment thereof, unless
the board of directors fixes a new record date, which it must do if the
meeting is adjourned more than one hundred twenty (120) days after the date
fixed for the original meeting.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the corporation
shall be managed under the direction of, the board of directors except as
otherwise provided by the laws of the state of Washington or in the Articles
of Incorporation.
Section 2. NUMBER. The number of directors of the corporation shall be
seven. The number of directors can be increased or decreased from time to
time by the vote of the directors or shareholders to amend this Section 2,
provided that the number of directors shall be not less than one, and
provided further that no decrease shall shorten the term of any incumbent
director.
Section 3. TENURE AND QUALIFICATIONS. At the first annual meeting of
shareholders and at each annual meeting thereafter, the shareholders of the
corporation shall elect directors. Each director shall hold office until the
next succeeding annual meeting and until his or her successor shall have been
elected and qualified. Directors need not be residents of the state of
Washington or shareholders of the corporation.
Section 4. ELECTION. The directors shall be elected by the
shareholders at their annual meeting each year; and if, for any cause, the
directors shall not have been elected at an annual
3
<PAGE>
meeting, they may be elected at a special meeting of shareholders called for
that purpose in the manner provided by these Bylaws.
Section 5. VACANCIES. Vacancies in the board of directors, including
vacancies resulting from an increase in the number of directors, may be
filled by the shareholders, the board of directors, or a majority of the
remaining directors if they do not constitute a quorum.
Section 6. RESIGNATION. Any director may resign at any time by
delivering written notice to the board of directors, its chairperson, the
president or the secretary of the corporation. A resignation shall be
effective when the notice is delivered unless the notice specifies a later
effective date.
Section 7. REMOVAL OF DIRECTORS. At a meeting of shareholders called
expressly for that purpose, the entire board of directors, or any member
thereof, may be removed, with or without cause, by a vote of the holders of a
majority of shares then entitled to vote at an election of such directors.
Section 8. MEETINGS.
(a) The annual meeting of the board of directors shall be held
immediately after the annual shareholders' meeting at the same place as the
annual shareholders' meeting or at such other place and at such time as may
be determined by the directors. No notice of the annual meeting of the board
of directors shall be necessary.
(b) Special meetings may be called at any time and place upon the
call of the president, secretary, or any director. Notice of the time and
place of each special meeting shall be given by the secretary or the persons
calling the meeting, by mail, private carrier, radio, telegraph, telegram,
facsimile transmission, personal communication by telephone or otherwise at
least two (2) days in advance of the time of the meeting. The purpose of the
meeting need not be given in the notice. Notice of any special meeting may
be waived in writing or by telegram (either before or after such meeting) and
will be waived by any director by attendance thereat.
(c) Regular meetings of the board of directors shall be held at
such place and on such day and hour as shall from time to time be fixed by
resolution of the board of directors. No notice of regular meetings of the
board of directors shall be necessary.
(d) At any meeting of the board of directors, any business may be
transacted, and the board may exercise all of its powers.
Section 9. QUORUM AND VOTING.
(a) A majority of the directors shall constitute a quorum, but a
lesser number may adjourn any meeting from time to time until a quorum is
obtained, and no further notice thereof need be given.
4
<PAGE>
(b) If a quorum is present when a vote is taken, the affirmative
vote of a majority of the directors present at the meeting is the act of the
board of directors.
Section 10. COMPENSATION. By resolution of the board of directors, the
directors may be paid their expenses, if any, of attendance at each meeting
of the board of directors and may be paid a fixed sum for attendance at each
meeting of the board of directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 11. PRESUMPTION OF ASSENT. A director of the corporation who
is present at a meeting of the board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless:
(a) The director objects at the beginning of the meeting, or
promptly upon the director's arrival, to holding it or transacting business
at the meeting;
(b) The director's dissent or abstention from the action taken is
entered in the minutes of the meeting; or
(c) The director delivers written notice of the director's dissent
or abstention to the presiding officer of the meeting before its adjournment
or to the corporation within a reasonable time after adjournment of the
meeting.
The right of dissent or abstention is not available to a director who votes
in favor of the action taken.
Section 12. COMMITTEES. The board of directors, by resolution adopted
by a majority of the full board of directors, may designate one or more
committees from among its members, each of which must have two or more
members and, to the extent provided in such resolution, shall have and may
exercise all the authority of the board of directors, except that no such
committee shall have the authority to: authorize or approve a distribution
except according to a general formula or method prescribed by the board of
directors; approve or propose to shareholders action that the Washington
Business Corporation Act requires to be approved by shareholders; fill
vacancies on the board of directors or on any of its committees; amend any
Articles of Incorporation requiring shareholder approval; adopt, amend or
repeal Bylaws; approve a plan of merger requiring shareholder approval; or
authorize or approve the issuance or sale or contract for sale of shares, or
determine the designation and relative rights, preferences and limitations of
a class or series of shares, except that the board of directors may authorize
a committee, or a senior executive officer of the corporation, to do so
within limits specifically prescribed by the board of directors.
5
<PAGE>
ARTICLE IV
SPECIAL MEASURES FOR CORPORATE ACTION
Section 1. ACTIONS BY WRITTEN CONSENT. Any corporate action required
or permitted by the Articles of Incorporation, Bylaws, or the laws under
which the corporation is formed, to be voted upon or approved at a duly
called meeting of the directors, committee of directors, or shareholders may
be accomplished without a meeting if one or more unanimous written consents
of the respective directors or shareholders, setting forth the actions so
taken, shall be signed, either before or after the action taken, by all the
directors, committee members, or shareholders, as the case may be. Action
taken by unanimous written consent is effective when the last director or
committee member signs the consent, unless the consent specifies a later
effective date. Action taken by unanimous written consent of the
shareholders is effective when all consents are in possession of the
corporation, unless the consent specifies a later effective date.
Section 2. MEETINGS BY CONFERENCE TELEPHONE. Members of the board of
directors, members of a committee of directors, or shareholders may
participate in their respective meetings by means of a conference telephone
or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time;
participation in a meeting by such means shall constitute presence in person
at such meeting.
ARTICLE V
OFFICERS
Section 1. OFFICERS DESIGNATED. The officers of the corporation shall
be a president, a secretary and a treasurer, each of whom shall be elected by
the board of directors. Such other officers and assistant officers as may be
deemed necessary may be elected or appointed by the board of directors. Any
two or more offices may be held by the same person.
The board of directors may, in its discretion, elect a chairperson and
one or more vice-chairpersons of the board of directors; and, if a
chairperson has been elected, the chairperson shall, when present, preside at
all meetings of the board of directors and the shareholders and shall have
such other powers as the board may prescribe.
Section 2. ELECTION, QUALIFICATION AND TERM OF OFFICE. Each of the
officers shall be elected by the board of directors. None of said officers
need be a director. The officers shall be elected by the board of directors
at each annual meeting of the board of directors. Except as hereinafter
provided, each of said officers shall hold office from the date of his or her
election until the next annual meeting of the board of directors and until
his or her successor shall have been duly elected and qualified.
6
<PAGE>
Section 3. POWERS AND DUTIES.
(a) PRESIDENT. The president shall be the chief executive officer
of the corporation and, subject to the direction and control of the board of
directors, shall have general charge and supervision over its property,
business, and affairs.
(b) SECRETARY. The secretary shall: (1) keep the minutes of the
shareholders' and of the board of directors' meetings in one or more books
provided for that purpose; (2) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law; (3) be
custodian of the corporate records and of the seal of the corporation and
affix the seal of the corporation to all documents as may be required; (4)
keep a register of the post office address of each shareholder which shall be
furnished to the secretary by such shareholder; (5) sign with the president,
or a vice president, certificates for shares of the corporation, the issuance
of which shall have been authorized by resolution of the board of directors;
(6) have general charge of the stock transfer books of the corporation; and
(7) in general perform all duties incident to the office of secretary and
such other duties as from time to time may be assigned to him or her by the
president or by the board of directors.
(c) TREASURER. Subject to the direction and control of the board
of directors, the treasurer shall have the custody, control, and disposition
of the funds and securities of the corporation and shall account for the
same; and, at the expiration of his or her term of office, he or she shall
turn over to his or her successor all property of the corporation in his or
her possession.
Section 4. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
assistant secretaries, when authorized by the board of directors, may sign
with the president, or a vice president, certificates for shares of the
corporation, the issuance of which shall have been authorized by resolution
of the board of directors. The assistant treasurers shall, respectively, if
required by the board of directors, give bonds for the faithful discharge of
their duties in such sums and with such sureties as the board of directors
shall determine. The assistant secretaries and assistant treasurers, in
general, shall perform such duties as shall be assigned to them by the
secretary or the treasurer, respectively, or by the president or the board of
directors.
Section 5. REMOVAL. The board of directors shall have the right to
remove any officer whenever in its judgment the best interests of the
corporation will be served thereby.
Section 6. VACANCIES. The board of directors shall fill any office
which becomes vacant with a successor who shall hold office for the unexpired
term and until his or her successor shall have been duly elected and
qualified.
Section 7. SALARIES. The salaries of all officers of the corporation
shall be fixed by the board of directors.
7
<PAGE>
ARTICLE VI
SHARE CERTIFICATES
Section 1. ISSUANCE, FORM AND EXECUTION OF CERTIFICATES. No shares of
the corporation shall be issued unless authorized by the board. Such
authorization shall include the maximum number of shares to be issued, the
consideration to be received for each share, the value of noncash
consideration, and a statement that the board has determined that such
consideration is adequate. Certificates for shares of the corporation shall
be in such form as is consistent with the provisions of the Washington
Business Corporation Act and shall state:
(a) The name of the corporation and that the corporation is
organized under the laws of this state;
(b) The name of the person to whom issued; and
(c) The number and class of shares and the designation of the
series, if any, which such certificate represents. They shall be signed by
two officers of the corporation, and the seal of the corporation may be
affixed thereto. Certificates may be issued for fractional shares. No
certificate shall be issued for any share until the consideration established
for its issuance has been paid.
Section 2. TRANSFERS. Shares may be transferred by delivery of the
certificate therefor, accompanied either by an assignment in writing on the
back of the certificate, written assignment separate from certificate, or
written power of attorney to assign and transfer the same, signed by the
record holder of the certificate. The board of directors may, by resolution,
provide that beneficial owners of shares shall be deemed holders of record
for certain specified purposes. Except as otherwise specifically provided in
these Bylaws, no shares shall be transferred on the books of the corporation
until the outstanding certificate therefor has been surrendered to the
corporation.
Section 3. LOSS OR DESTRUCTION OF CERTIFICATES. In case of loss or
destruction of any certificate of shares, another may be issued in its place
upon proof of such loss or destruction and upon the giving of a satisfactory
indemnity bond to the corporation. A new certificate may be issued without
requiring any bond when in the judgment of the board of directors it is
proper to do so.
ARTICLE VII
BOOKS AND RECORDS
Section 1. BOOKS OF ACCOUNT, MINUTES AND SHARE REGISTER. The
corporation shall keep as permanent records minutes of all meetings of its
shareholders and board of directors, a record of all actions taken by the
shareholders or board of directors without a meeting, and a record of all
actions taken by a committee of the board of directors exercising the
authority of the board
8
<PAGE>
of directors on behalf of the corporation. The corporation shall maintain
appropriate accounting records. The corporation or its agent shall maintain
a record of its shareholders, in a form that permits preparation of a list of
the names and addresses of all shareholders, in alphabetical order by class
of shares showing the number and class of shares held by each. The
corporation shall keep a copy of the following records at its principal
office: the Articles or Restated Articles of Incorporation and all
amendments to them currently in effect; the Bylaws or Restated Bylaws and all
amendments to them currently in effect; the minutes of all shareholders'
meetings, and records of all actions taken by shareholders without a meeting,
for the past three years; its financial statements for the past three years,
including balance sheets showing in reasonable detail the financial condition
of the corporation as of the close of each fiscal year, and an income
statement showing the results of its operations during each fiscal year
prepared on the basis of generally accepted accounting principles or, if not,
prepared on a basis explained therein; all written communications to
shareholders generally within the past three years; a list of the names and
business addresses of its current directors and officers; and its most recent
annual report delivered to the Secretary of State of the state of Washington.
Section 2. COPIES OF RESOLUTIONS. Any person dealing with the
corporation may rely upon a copy of any of the records of the proceedings,
resolutions, or votes of the board of directors or shareholders, when
certified by the president or secretary.
ARTICLE VIII
AMENDMENT OF BYLAWS
The board of directors shall have the power to adopt, amend or repeal
the bylaws or adopt new bylaws. Nothing herein shall deny the concurrent
power of the shareholders to adopt, alter, amend or repeal the bylaws.
9
<PAGE>
<TABLE>
LOAN AGREEMENT
<S> <C>
- ------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
$20,000,000.00 01-28-1997 08-01-1998 56705 4A0 75 206030 175
- ------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF
THIS DOCUMENT TO ANY PARTICULAR LOAN OR ITEM.
- ------------------------------------------------------------------------------------------------------
BORROWER: CUTTER & BUCK INC. LENDER: WASHINGTON MUTUAL BANK DOING
2701 FIRST AVENUE, SUITE 600 BUSINESS AS ENTERPRISE BANK
SEATTLE, WA 98121 11225 S.E. SIXTH STREET
BELLEVUE, WA 98004
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
THIS LOAN AGREEMENT between CUTTER & BUCK INC. ("Borrower") and Washington
Mutual Bank doing business as Enterprise Bank ("Lender") is made and executed
on the following terms and conditions. Borrower has received prior commercial
loans from Lender or has applied to Lender for a commercial loan or loans and
other financial accommodations, including those which may be described on any
exhibit or schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations
from Lender to Borrower, are referred to in this Agreement individually as
the "Loan" and collectively as the "Loans." Borrower understands and agrees
that: (a) in granting, renewing, or extending any Loan, Lender is relying
upon Borrower's representations, warranties, and agreements, as set forth in
this Agreement; (b) the granting, renewing, or extending of any Loan by
Lender at all times shall be subject to Lender's sole judgment and
discretion; and (c) all such Loans shall be and shall remain subject to the
following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of January 28, 1997, and shall
continue thereafter until all indebtedness of Borrower to Lender has been
performed in full or until August 1, 1998, whichever is later.
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 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 Loan Agreement, as this
Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Loan
Agreement from time to time.
ADVANCE. The word "Advance" means a disbursement of Loan funds
under this Agreement.
BORROWER. The word "Borrower" means CUTTER & BUCK INC.
Borrowing Base. The words "Borrowing Base" mean an amount not to
exceed $20,000,000.00.
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without
limitation all property and assets granted as collateral security
for a loan, whether real or personal property, whether granted
directly or indirectly, whether granted now or in the future, and
whether granted in the form of a security interest, mortgage, deed
of trust, assignment, pledge, chattel mortgage, chattel trust,
factor's lien, equipment trust, conditional sale, trust receipt,
lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or
lien interest whatsoever, whether created by law, contract, or
otherwise. The word "Collateral" includes without limitation all
collateral described below in the section titled "COLLATERAL."
ERISA. The word "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean any of the
Events of Default set forth below in the section titled "EVENTS OF
DEFAULT."
EXPIRATION DATE. The words "Expiration Date" mean the earlier of
August 1, 1998 or the date of termination of Lender's commitment to
lend under this Agreement.
FACTORING AGREEMENT. Factor Agreement means the Factoring
Agreement between Borrower and Republic Factors Corporation dated
as of March 1, 1995, and any renewal, extensions or modifications
thereof.
GRANTOR. The word "Grantor" means and includes without limitation
each and all of the persons or entities granting a Security
Interest in any Collateral for the Indebtedness, including without
limitation all Borrowers granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without
limitation each and all of the guarantors, sureties, and
accommodation parties in connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts
and liabilities of Borrower to Lender, or any one or more of them,
as well as all claims by Lender against Borrower, or any one or
more of them; whether now or hereafter existing, voluntary or
involuntary, due or not due, absolute or contingent, liquidated or
unliquidated; whether Borrower may be liable individually or
jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise.
LENDER. The word "Lender" means Washington Mutual Bank doing
business as Enterprise Bank, its successors and assigns.
LETTER OF CREDIT. The words "Letter of Credit" mean a letter of
credit issued by Lender on behalf of Borrower as described below in
the section titled "Letter of Credit Facility."
LINE OF CREDIT. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.
LOAN. The word "Loan" or "Loans" means and includes without
limitation any and all commercial loans and financial
accommodations from Lender to Borrower, whether now or hereafter
existing, and however evidenced, including without limitation those
loans and financial accommodations described herein or described on
any exhibit or schedule attached to this Agreement from time to
time.
NOTE. The word "Note" means and includes without limitation
Borrower's promissory note or notes, if any, evidencing Borrower's
Loan obligations in favor of Lender, as well as any substitute,
replacement or refinancing note or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and
security interests securing indebtedness owed by Borrower to
Lender; (b) liens for taxes, assessments, or similar charges either
not yet due or being contested in good faith; (c) liens of
materialmen, mechanics, warehousemen, or carriers, or other like
liens arising in the ordinary course of business and securing
obligations which are not yet delinquent; (d) purchase money liens
or purchase money security interests upon or in any property
acquired or held by Borrower in the ordinary course of business to
secure indebtedness outstanding on the date of this Agreement or
permitted to be incurred under the paragraph of this Agreement
titled "Indebtedness and Liens"; (e) liens and security interests
which, as of the date of this Agreement, have been disclosed to and
approved by the Lender in writing; (f) those liens and security
interests which in the aggregate constitute an immaterial and
insignificant monetary amount with respect to the net value of
Borrower's assets; (g) liens and security interests granted
pursuant to the Factoring Agreement; and (h) liens and security
interests granted pursuant to capital leases.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, and all other instruments,
agreements and documents, whether now or hereafter existing,
executed in connection with the indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and
include without limitation any agreements, promises, covenants,
arrangements, understandings or other agreements, whether created by
law, contract, or otherwise, evidencing, governing representing, or
creating a Security Interest.
SECUITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a
lien, charge, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional
sale, trust receipt, lien or title retention contract, lease or
consignment intended as a security device, or any other security or
lien interest whatsoever, whether created by law, contract, or
otherwise.
SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the
aggregate amount of such Advances outstanding at any time does not exceed the
Borrowing Base. Within the foregoing limits, Borrower may borrow, partially
or wholly prepay, and reborrow under this Agreement as follows.
<PAGE>
LOAN AGREEMENT
(CONTINUED) PAGE 2
LOAN NO 56705
- -------------------------------------------------------------------------------
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is subject
to the following conditions precedent, with all documents, instruments,
opinions, reports, and other items required under this Agreement to be in
form and substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all
Related Documents have been duly authorized, executed, and delivered by
Borrower to Lender.
(b) Lender shall have received such opinions of counsel, supplemental
opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority (Except for
Permitted Liens) and shall be in full force and effect.
(d) All guaranties required by Lender for the Line of Credit shall have
been executed by each Guarantor, delivered to Lender, an be in full
force and effect.
(e) Lender, all its option and for its sole benefit, shall have
conducted an audit of Borrower's books records, and operations, and
Lender shall be satisfied as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and expenses
specified in this Agreement and the Related Documents as are then due
and payable.
(g) There shall not exist at the time of any Advance a condition which
would constitute an Event of Default under this Agreement, and Borrower
shall have delivered to Lender the compliance certificate called for in
the paragraph below titled "Compliance Certificate."
MAKING LOAN ADVANCES. Advances under the Line of Credit may be requested
orally by authorized persons. Lender may, but need not, require that all
oral requests be confirmed in writing. Each Advance shall be conclusively
deemed to have been made at the request of and for the benefit of Borrower
(a) when credited to any deposit account of Borrower maintained with
Lender or (b) when advanced in accordance with the instructions of an
authorized person. Lender, at its option, may set a cutoff time, after
which all requests for Advances will be treated as having been requested
on the next succeeding Business Day.
MANDATORY LOAN REPAYMENTS. If at any time the aggregate principal amount
of the outstanding Advances shall exceed the applicable Borrowing Base,
Borrower, immediately upon written or oral notice from Lender, shall pay
to Lender an amount equal to the difference between the outstanding
principal balance of the Advances and the Borrowing Base. On the
Expiration Date, Borrower shall pay to Lender in full the aggregate
unpaid principal amount of all Advances then outstanding and all accrued
unpaid interest, together with all other applicable fees, costs and
charges, if any, not yet paid.
LOAN ACCOUNT. Lender shall maintain on its books a record of account in
which Lender shall make entries for each Advance and such other debits
and credits as shall be appropriate in connection with the credit
facility. Lender shall provide Borrower with periodic statements of
Borrower's account, which statements shall be considered to be correct
and conclusively binding on Borrower unless Borrower notifies Lender to
the contrary within thirty (30) days after Borrower's receipt of any such
statement which Borrower deems to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all
other Loans, obligations and duties owned by Borrower to Lender, Borrower
(and others, if required) shall grant to Lender Security Interests in such
property and assets as Lender may require (the "Collateral"). Lender's
Security interests in the Collateral shall be continuing liens and shall
include the proceeds and products of the Collateral, including without
limitation the proceeds of any insurance. With respect to the Collateral,
Borrower agrees and represents and warrants to Lender:
PERFECTION OF SECURITY INTERESTS. Borrower agrees to execute such
financing statements and to take whatever other actions are requested by
Lender to perfect and continue Lender's Security interests in the
Collateral. Upon request of Lender, Borrower will deliver to Lender any
and all of the documents evidencing or consulting the Collateral, and
Borrower will note Lender's interest upon any and all chattel paper if
not delivered to Lender for possession by Lender. Contemporaneous with
the execution of this Agreement, Borrower will execute one or more UCC
financing statements and any similar statements as may be required by
applicable law, and will file such financing statements and all such
similar statements in the appropriate location or locations. Borrower
hereby appoints Lender as its irrevocable attorney-in-fact for the
purpose of executing any documents necessary to perfect or to continue
any Security interest. Lender may at any time, and without further
authorization from Borrower, file a carbon, photograph, facsimile, or
other reproduction of any financing statement for use as a financing
statement. Borrower will reimburse Lender for all expenses for the
perfection, termination, and the continuation of the perfection of
Lender's security interest in the Collateral. Borrower promptly will
notify Lender of any change in Borrower's name including any change to
the assumed business names of Borrower. Borrower also promptly will
notify Lender of any change in Borrower's Social Security Number or
Employer Identification Number. Borrower further agrees to notify Lender
in writing prior to any change in address or location of Borrower's
principal governance office or should Borrower merge or consolidate with
any other entity.
COLLATERAL RECORDS. Borrower does now, and at all times hereafter shall,
keep correct and accurate records of the Collateral, all of which records
shall be available to Lender or Lender's representative upon demand for
inspection and copying at any reasonable time.
COLLATERAL SCHEDULES. Concurrently with the execution and delivery of
this Agreement, Borrower shall execute and deliver to Lender a schedule
of Collateral, in form and substance satisfactory to the Lender.
Thereafter and at such frequency as Lender shall require.
ADDITIONAL CREDIT FACILITIES. In addition to the Line of Credit facility, the
following credit accommodations are either in place or will be made available
to Borrower:
LETTER OF CREDIT FACILITY. Subject to the terms of this Agreement, Lender
will issue standby letters of credit and commercial letters of credit
(each a "Letter of Credit") on behalf of Borrower. At no time, however,
shall the total face amount of all standby letters of credit outstanding,
less any partial draws paid under the standby letters of credit exceed the
sum of $1,000,000.00.
(a) Upon Lender's request, Borrower promptly shall pay to Lender
issuance fees and such other fees, commissions, costs, and any
out-of-pocket expenses charged or incurred by Lender with respect to
any Letter of Credit.
(b) The commitment by Lender to issue Letters of Credit shall, unless
earlier terminated in accordance with the terms of this Agreement,
automatically terminate on the Expiration Date and no Letter of Credit
shall expire on a date which is after the Expiration Date.
(c) Each Letter of Credit shall be in form and substance satisfactory
to Lender and in favor of beneficiaries satisfactory to Lender, provided
that Lender may refuse to issue a Letter of Credit due to the nature of
the transaction or its terms or in connection with any transaction
where Lender, due to the beneficiary or the nationally or residence of
the beneficiary, would be prohibited by any applicable law, regulation,
or order from issuing such Letter of Credit. Under no circumstances,
however, will a Letter of Credit exceed three hundred sixty five (365)
days from the issue date.
(d) Prior to the issuance of each Letter of Credit, and in all events
prior to any daily cutoff time Lender may have established for purposes
thereof, Borrower shall deliver to Lender a duly executed form of
Lender's standard form of application for issuance of letter of credit
with proper insertions.
LENDER'S RIGHTS UPON DEFAULT. Upon the occurrence of any Event of
Default, Lender may, at its sole and absolute discretion and in addition
to any other remedies available to it under this Agreement or otherwise,
require Borrower to pay immediately to Lender, for application against
drawings under any outstanding Letters of Credit, the outstanding
principal amount of any such Letters of Credit which have not expired. Any
portion of this amount so paid to Lender which is not applied to satisfy
draws under any such Letters of Credit or any other obligations of
Borrower to the Lender shall be repaid to Borrower without interest.
LENDER'S COSTS AND EXPENSES. Borrower shall, upon Lender's request,
promptly pay to and reimburse Lender for all costs incurred and payments
made by Lender by reason of any future assessment, reserve, deposit, or
similar requirement or any surcharge, tax, or fee imposed upon Lender or
as a result of Lender's compliance with any defective or requirement of
any regulatory authority pertaining or relating to any Letter of Credit.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender,
as of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any
Loan, and at all times any indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Washington.
Borrower has the full power and authority to own its properties and to
transact the businesses in which it is presently engaged or presently
proposes to engage. Borrower also is duly qualified as a foreign
corporation and is in good standing in all states in which the failure
to so qualify would have a material adverse effect on its businesses or
financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower: do not require the consent or approval of
any other person, regulatory authority or governmental body; 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 Borrower or (b)
any law, governmental regulation, court decree, or order applicable to
Borrower.
<PAGE>
01-28-1997 LOAN AGREEMENT
LOAN NO 56705 (CONTINUED) PAGE 3
- -------------------------------------------------------------------------------
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as
of the date of the statement, and there has been no material adverse
change in Borrower's financial condition subsequent to the date of the
most recent financial statement supplied to Lender. Borrower has no
material contingent obligations except as disclosed in such financial
statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered will
constitute, legal, valid and binding obligations of Borrower enforceable
against Borrower in accordance with their respective terms.
PROPERTIES. Except for Permitted Liens and capital leases and real
property leases, Borrower owns and has good title to all of Borrower's
properties free and clear of all Security Interests, and has not
executed any security documents for financing statements relating to
such properties. All of Borrower's properties are titled in Borrower's
legal name, and Borrower has not used, or filed a financing statement
under, any other name for at least the last five (5) years.
Borrower's legal name, and Borrower has not used, or filed a financing
statement under, any other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. Borrower's use of its properties comply in all material
respects with all applicable laws and regulations relating to the
environment, including without limitation, all laws and regulations relating
to pollution and environmental control.
LITIGATION AND CLAIMS. No litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid
taxes) against Borrower is pending or threatened, and no other event has
occurred which may materially adversely affect Borrower's financial
condition or properties, other than litigation, claims, or other events,
if any, that have been disclosed to and acknowledged by Lender in
writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports
of Borrower that are or were required to be filed, have been filed, and
all taxes, assessments and other governmental charges have been paid in
full, except those presently being or to be contested by Borrower in
good faith in the ordinary course of business and for which adequate
reserves have been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in
writing, and except for permitted liens Borrower, has not entered into or
granted any Security Agreements, or permitted the filing or attachment
of any Security Interests on or affecting any of the Collateral directly
or indirectly securing repayment of Borrower's Loan and Note, that would
be prior or that may in any way be superior to Lender's Security
Interests and rights in any to such Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note
and all of the Related Documents are binding upon Borrower as well as
upon Borrower's successors, representatives and assigns, and are legally
enforceable in accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred with
respect to any such plan, (ii) Borrower has not withdrawn from any such
plan or initiated steps to do so, (iii) no steps have been taken to
terminate any such plan, and (iv) there are no unfunded liabilities other
than those previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of
business, or Borrower's Chief executive office, if Borrower has more
than one place of business, is located at 2701 FIRST AVENUE, SUITE 500,
SEATTLE, WA 98121. Unless Borrower has designated otherwise in writing
this location is also the office or offices where Borrower keeps its
records concerning the Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender
will be, true and accurate in every material respect on the date as of
which such information is dated or certified; and none of such
information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon
the above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force
and effect until such time as Borrower's Indebtedness shall be paid in
full, or until this Agreement shall be terminated in the manner provided
above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all existing
and all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor which
could materially affect the financial condition of Borrower or the
financial condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at
all reasonable times upon reasonable prior notice from Lender to Borrower.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in
no event later than one hundred twenty (120) days after the end of each
fiscal year, Borrower's balance sheet and income statement for the year
ended, audited by a certified public accountant satisfactory to Lender,
and, as soon as available, but in no event later than forty five (45)
days after the end of each fiscal quarter, Borrower's balance sheet and
profit and loss statement for the period ended, prepared and certified
as correct to the best knowledge and belief by Borrower's chief
financial officer of other officer or person acceptable to Lender. All
financial reports required to be provided under this Agreement shall be
prepared in accordance with generally accepted accounting principles,
applied on a consistent basis, and certified by Borrower as being true
and correct.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and
other reports with respect to Borrower's financial condition and
business operations as Lender may reasonably request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect
to Borrower's properties and operations, in form, amounts, coverages and
with insurance companies reasonably acceptable to Lender. Borrower, 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 ten (10) days' prior written notice to Lender. Each Insurance
policy also shall include an endorsement providing that coverage in
favor of Lender will not be impaired in any way by any act, omission or
default of Borrower or any other person. In connection with all policies
covering assets in which Lender holds or is offered a security interest
for the Loans, Borrower will provide Lender with such loss payable or
other endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing Insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the Insurer; (b) the risks insured; (c) the amount of the
policy; (d) the properties insured; (e) the then current property values
on the basis of which insurance has been obtained, and the manner of
determining those values; and (f) the expiration date of the policy. In
addition, upon request of Lender (however not more often than annually),
Borrower will have an independent appraiser satisfactory to Lender
determine, as applicable, the actual cash value or replacement cost of
any Collateral. The cost of such appraisal shall be paid by Borrower.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements that would likely have a
materially adverse effect on Borrower's business or financial condition.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every
kind and nature, imposed upon Borrower or its properties, income, or
profits, prior to the date on which penalties would attach, and all
lawful claims that, if unpaid, might become a lien or charge upon any of
Borrower's properties, income, or profits. Provided however, Borrower
will not be required to pay and discharge any such assessment, tax,
charge, levy, lien or claim so long as (a) the legality of the same
shall be contested in good faith by appropriate proceedings, and (b)
Borrower shall have established on its books adequate reserves with
respect to such contested assessment, tax, charge, levy, lien, or claim
in accordance with generally accepted accounting practices. Borrower,
upon demand of Lender, will furnish to Lender evidence of payment of the
assessments, taxes, charges, levies,
<PAGE>
01-28-1997 LOAN AGREEMENT Page 4
Loan No 567045 (Continued)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
liens and claims and will authorize the appropriate governmental
official to deliver to Lender at any time a written statement of any
assessment, taxes, charges, levies, liens and claims against
Borrower's properties, income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents in
a timely manner, and promptly notify Lender if Borrower learns of the
occurrence of any event which constitutes an Event of Default under
this Agreement or under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with
substantially the same qualifications and experience as the present
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations,
including without limitation, compliance with the Americans With
Disabilities Act and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's employee
benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable
time to inspect any and all Collateral for the Loan or Loans and
Borrower's other properties and to examine or audit Borrower's books,
accounts, and records and to make copies and memoranda of Borrower's
books, accounts, and records. If Borrower now or at any time hereafter
maintains any records (including without limitation computer generated
records and computer software programs for the generation of such
records) in the possession of a third party, Borrower, upon request of
Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of
any records it may request, all at Borrower's expense.
COMPLIANCE CERTIFICATE. Upon request of Lender, provide Lender at least
annually and at the time of each disbursement of Loan proceeds with a
certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the
representations and warranties set forth in this Agreement are true
and correct as of the date of the certificate and further certifying
that, as of the date of the certificate, no Event of Default exists
under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local
laws, statutes, regulations and ordinances.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements as
Lender or its attorney's may reasonably request to evidence and secure
the Loans and to perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent
of Lender;
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the
normal course of business and indebtedness to Lender contemplated by
this Agreement, create, incur or assume indebtedness for borrowed
money, other than capital leases, (b) except as allowed as a Permitted
Lien, sell, transfer, mortgage, assign, pledge, lease, grant a
security interest in, or encounter any of the Borrower's assets, or
(c) sell with recourse any of Borrower's accounts, except to Lender,
or pursuant to the Factor Agreement.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, liquidate, merge, transfer, acquire or
consolidate with any other entity other than mergers, transfers,
acquisitions, or consolidations in which the consideration is less
than $2,000,000.00 change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business excepting sales of
accounts receivable pursuant to the Factoring Agreement, and excepting
transfers, sales or dispositions of Collateral that is obsolete or worn
out property disposed of in the ordinary course of business excepting
other asset dispositions provided that such other asset dispositions do
not exceed $100,000.00 in the aggregate for any fiscal year.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance
money or assets or purchase create or acquire any interest in any
other enterprise or entity 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 guaranteed 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 do not exceed $150,000 outstanding at any time; (v)
bankers' acceptances, repurchase agreements, or other investments
reasonably acceptable to Lender; and (vi) loans or advances to, or
investments in wholly owned subsidiaries in an amount not to exceed
$3,000,000.00, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds
if; (a) Borrower is in default under the terms of this Agreement or any of
the Related Documents or any other agreement that Borrower or any Guarantor
has with Lender; (b) Borrower becomes insolvent, files a petition in
bankruptcy or similar proceedings, or is adjudged a bankrupt; (c) there
occurs a material adverse change in Borrower's financial condition, or in the
value of any Collateral securing any Loan; even though no Event of Default
shall have occurred.
NOTICE. 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.
MEDIATION/ARBITRATION CLAUSE A. POLICY-MEDIATION. The parties hope there
will be no disputes arising out of their relationship. To that and, each
commits to cooperate in good faith and to deal fairly in performing its
duties under this agreement in order to accomplish their mutual objectives
and avoid disputes. But if a dispute arises, the parties agree to resolve all
disputes by the following alternate dispute resolution process; (a) the
parties will seek a fair and prompt negotiated resolution, but if this is not
successful, (b) all disputes shall be resolved by binding arbitration,
provided that during this process, (c) at the request of either party made
not later than seventy-five (75) days after the initial arbitration demand,
the parties will attempt to resolve any dispute by nonbinding mediation (but
without delaying the arbitration hearing date.) The parties recognize that
negotiation or mediation may not be appropriate to resolve some disputes and
agree that either party may proceed with arbitration without negotiating or
mediating. The parties confirm that by agreeing to this alternate dispute
resolution process, they intend to give up their right to have any dispute
decided in court by a judge or jury.
MEDIATION/ARBITRATION CLAUSE B. BINDING ARBITRATION. Any claim between the
parties arising out of or relating to this agreement, shall be determined by
arbitration in Seattle commenced in accordance with RCW 7.04.080; provided
that the total award by a single arbitrator (as opposed to a majority of
three arbitrators) shall not exceed $250,000, including interest, attorney's
fees and costs. If either party demands a total award greater than $250,000,
there shall be three (3) neutral arbitrators. If the parties cannot agree on
the identity of the arbitrators(s) within ten (10) days of the arbitration
demand, the arbitrator(s) shall be selected by the administrator of the
American Arbitration Association (AAA) office in Seattle FROM ITS LARGE,
COMPLEX CASE PANEL (OR HAVE SIMILAR PROFESSIONAL CREDENTIALS). Each
arbitrator shall be an attorney with at least 15 years experience in banking
or commercial law and shall reside in the Seattle metropolitan area. Whether
a claim is covered by this agreement shall be determined by the
arbitrator(s). All statutes of limitation which could otherwise be applicable
shall apply to any arbitration hereunder.
MEDIATION/ARBITRATION CLAUSE C. PROCEDURES. The arbitration shall be
conducted in accordance with the AAA Commercial Arbitration Rules, in effect
on the date hereof, as modified by this agreement. Submission of dispositive
motions shall be at the discretion of Arbitrator(s). As may be shown to be
necessary to ensure a fair hearing; the arbitrator(s) may authorize
appropriate discovery; and may enter pre-hearing orders regarding (without
limitation) scheduling, interrogatories, document exchange, depositions,
witness and exhibit disclosure and issues to be heard. The arbitrator(s) shall
not be bound by the rules of evidence or of civil procedure, but may
consider such writing and oral presentations as reasonable business people
would use in the conduct of their day-to-day affairs, and may require the
parties to submit some or all of their case by written declaration or such
other manner of presentation as the arbitrator(s) may determine to be
appropriate.
MEDIATION/ARBITRATION CLAUSE D. HEARING-LAW-APPEAL LIMITED. The arbitrator(s)
shall take such steps as may be necessary to hold a private hearing. The
parties have included these time limits in order to expedite the proceeding,
but they are NOT jurisdictional, and the arbitrator(s) may for good cause
afford or permit reasonable extensions or delays, which shall not affect the
validity of the award. The written decision shall contain a brief statement
of the claim(s) determined and the award made on each claim. In making the
decision and award, the arbitrator(s) shall apply applicable substantive
law. Absent fraud, collusion or willful misconduct by an arbitrator, the
award shall be final, and judgment may be entered in any court having
jurisdiction thereof. The arbitrator(s) may award injunctive relief or any
other remedy available from a judge, including the joinder of parties or
consolidation of this arbitration with any other involving common issues of
law or fact or which may promote judicial economy, and may award attorney's
fees and costs to the prevailing party but shall not have the power to award
punitive or exemplary damages. The decision and award of the arbitrators need
not be unanimous; rather, the decision and award of two arbitrators shall be
final.
<PAGE>
01-28-1997 LOAN AGREEMENT PAGE 5
LOAN NO. 56705 (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MEDIATION/ARBITRATION CLAUSE E. PROVISIONAL REMEDIES, SELF-HELP AND
FORECLOSURE. In addition to any actions taken under the preceding
subparagraphs: (i) Lender may exercise all rights and remedies available
under law with respect to any collateral, deposits and accounts, including
but not limited to: offset, self-help, sale or other disposition of
collateral, attachment, injunction, appointment of a receiver, judicial
foreclosure and deficiency judgment or foreclosure by power of sale; (ii) by
exercising any such rights and remedies under (1) Lender shall not waive the
provisions of subparagraphs A through D above; (iii) any issues of law or
fact which arise in connection with the exercise by Lender of its rights and
remedies may at Lender's election be determined by arbitration in accordance
with subparagraphs A through D above; and (iv) notwithstanding any other
provision of this agreement, so long as an arbitration demand has not been
filed or served with respect to a claim, either party may elect to assert
such claim in the small claims department of the appropriate district court
under RCW ch. 12.40.
LOAN FEES. So long as Lender shall have any obligation to extend or continue
credit to Borrower in any form, Borrower shall pay to Lender (i) a
nonrefundable loan fee in the amount of $20,000.00 prior to the making of any
advances of any letters of credit pursuant to this agreement, and (ii)
beginning July 31, 1997, 1/4% per annum on the unused portion of the line of
credit paid quarterly in arrears. The unused portion of the line of credit
for any given borrower fiscal quarter shall be calculated by subtracting from
the $20,000,000.00 line limit the sum of: (i) the average daily principle
balance outstanding on the line of credit, and (ii) the average month end
outstanding balance of commercial and standby letters of credit.
ADDITIONAL AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender
that, while this Agreement is in effect, Borrower will comply with the
following covenants and ratios, on an unconsolidated basis:
TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not less than
$24,000,000.00 increasing to $27,000,000.00 on and after April 30, 1997 and
$30,000,000.00 on and after April 30, 1998. Tangible Net Worth is hereby
defined as the sum of common stock, additional paid in capital, and retained
earnings measured quarterly.
WORKING CAPITAL. Maintain Working Capital in excess of $21,000,000.00
increasing to $24,000,000.00 on and after April 30, 1997 and $27,000,000.00
on and after April 30, 1998. Working Capital is hereby defined as current
assets minus current liabilities, as defined according to generally accepted
accounting principles.
NET WORTH RATIO. The ratio of GAAP Liabilities plus outstanding letters of
credit to Tangible Net Worth shall not exceed .85 to 1.00. This covenant
shall be measured at the end of each quarter.
AGING AND LISTING OF ACCOUNTS RECEIVABLE. Borrower covenants and agrees with
Lender that, while this Agreement is in effect, Borrower shall deliver within
thirty (30) days after the end of each month, a detailed aging of Borrower's
accounts and contracts receivable as of the last day of the month, which
shall be net of any adjustments made at the end of that month, all in a form
acceptable to Lender.
INVENTORY REPORT. Borrower covenants and agrees with Lender that, while this
Agreement is in effect, Borrower shall deliver to Lender within thirty (30)
days after the end of each quarter, inventory reports detailing location,
amounts of raw materials and finished goods on a quarterly basis, prepared in
form acceptable to Lender.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's
accounts with Lender (whether checking, savings, or some other account),
including without limitation all accounts held jointly with someone else and
all accounts Borrower may open in the future, excluding however all IRA and
Keogh accounts, and all trust accounts for which the grant of a security
interest would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
indebtedness against any and all such accounts.
EVENTS OF DEFAULTS. Each of the following shall constitute an Event of
Default under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment
when due on the Loans.
OTHER DEFAULTS. Failure of Borrower to comply with or to perform
when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower default under
any loan, extension of credit, security agreement, purchase or
sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the Loans
or perform their respective obligations under this Agreement or any
of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made
or furnished to Lender by or on behalf of Borrower under this
Agreement or the Related Documents is false or misleading in any
material respect at the time made or furnished, or becomes false or
misleading at any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure
of any Security Agreement to create a valid and perfected Security
Interest) at any time and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence
as a going business, the insolvency of Borrower, the appointment of
a receiver for any part of Borrower's property, any assignment for
the benefit of creditors, any type of creditor workout, or the
commencement of any proceeding under any bankruptcy or insolvency
laws by or against Borrower.
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 Borrower, any
creditor of any Grantor against any collateral securing the
indebtedness, or by any governmental agency. This includes a
garnishment, attachment, or levy on or of any of Borrower's deposit
accounts with Lender. However, this Event of Default shall not
apply if there is a good faith dispute by Borrower as to the
validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding, and if Borrower gives Lender
written notice of the creditor or forfeiture proceeding and
establishes reserves or a surety bond for the creditor or
forfeiture proceeding reasonably satisfactory to Lender.
ADVERSE CHANGE. A material adverse change occurs in Borrower's
financial condition.
RIGHT TO CURE. If any default, other than a Default on
indebtedness, is curable and if Borrower or Grantor, as the case
may be, has not been given a notice of a similar default within the
preceding twelve (12) months, it may be cured (and no Event of
Default will have occurred) if Borrower or Grantor, as the case may
be, after receiving written notice from Lender demanding cure of
such default: (a) cures the default within fifteen (15) days; or (b)
if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to
be sufficient to cure the default and thereafter continues and
completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option,
all indebtedness immediately will become due and payable, except that in
the case of an Event of Default of the type described in the "insolvency"
subsection above, such acceleration shall be automatic and not optional. In
addition, Lender shall have all the rights and remedies provided in the
Related Documents or available at law, in equity, or otherwise. Except as may
be prohibited by applicable law, all of Lender's rights and remedies 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
Borrower shall not affect Lender's right to declare a default and to exercise
its rights and 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, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of King County, the State of Washington.
This Agreement shall be governed by and construed in accordance
with the laws of the State of Washington.
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.
<PAGE>
LOAN AGREEMENT
(CONTINUED) PAGE 6
LOAN NO 56705
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONSENT TO LOAN PARTICIPATION. Lender may sell or transfer, whether now
or later, one or more participation interests in the Loans to one or more
purchasers, whether related or unrelated to Lender with the consent of
Borrower which shall not be unreasonably withheld. Lender may provide,
without any limitation whatsoever, to any one or more purchasers, or
potential purchasers, an information or knowledge Lender may have about
Borrower or about any other matter relating to the Loan, and Borrower hereby
waives any rights to privacy it may have with respect to such matters.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
reasonable expenses, including without limitation attorneys' fees,
incurred in connection with the preparation, execution, enforcement,
modification and collection of this Agreement or in connection with the
Loans made pursuant to this Agreement. Lender may pay someone else to
help collect the Loans and to enforce this Agreement, and Borrower will
pay that amount. This includes, subject to any limits under applicable
law, Lender's attorneys' fees and Lender's legal expenses, whether or
not there is a lawsuit, including attorneys' fees for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all
other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be
given at the address shown above. Any party may change its address for
notices under this Agreement by giving formal written notice to the
other parties, specifying that the purpose of the notice is to change
the party's address. To the extent permitted by applicable law, if
there is more than one Borrower, notice to any Borrower will constitute
notice to all Borrowers. For notice purposes, Borrower will keep Lender
informed at all times of Borrower's current address(es).
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.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall
inure to the benefit of Lender, its successors and assigns. Borrower
shall not, however, have the right to assign its rights under this
Agreement or any interest therein, without the prior written consent of
Lender.
SURVIVAL. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument
delivered by Borrower to Lender under this Agreement shall be
considered to have been relied upon by Lender and will survive the
making of the Loan and delivery to Lender of the Related Documents,
regardless of any investigation made by Lender or on Lender's behalf.
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 Borrower, or between Lender and any Grantor, shall
constitute a waiver of any of Lender's rights or of any obligations of
Borrower or of any Grantor 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 in subsequent instances where such consent is required and in
all cases such consent may be granted or withheld in the sole
discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT,
AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JANUARY 28,
1997.
BORROWER:
CUTTER & BUCK INC.
By: /s/ MARTIN J. MARKS
-------------------------------------
MARTIN J. MARKS, Senior Vice President
LENDER:
Washington Mutual Bank doing business as Enterprise Bank
By: ILLEGIBLE
-------------------------------------
Authorized Officer
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
COMMERCIAL SECURITY AGREEMENT
<S> <C>
- ------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
$20,000,000.00 01-28-1997 08-01-1998 56705 4A0 75 206030 175
- ------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY
OF THIS DOCUMENT TO ANY PARTICULAR LOAN OR ITEM.
- ------------------------------------------------------------------------------------------------------
BORROWER: CUTTER & BUCK INC. LENDER: WASHINGTON MUTUAL BANK DOING
2701 FIRST AVENUE, SUITE 600 BUSINESS AS ENTERPRISE BANK
SEATTLE, WA 98121 11225 S.E. SIXTH STREET
BELLEVUE, WA 98004
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
THIS COMMERCIAL SECURITY AGREEMENT is entered into between CUTTER & BUCK INC.
(referred to below as "Grantor"); and Washington Mutual Bank doing business
as Enterprise Bank (referred to below as "Lender"). For valuable
consideration, Grantor grants to Lender a security interest in the Collateral
to secure the indebtedness 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 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.
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 ACCOUNTS AND INVENTORY
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 product of any of the property described
in this Collateral section.
(c) All accounts, 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 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" means and include
without limitation any of the Events of Default set forth below in
the section titled "Events of Default," in the Loan Agreement of
even date herewith between Lender and Grantor ("Loan Agreement").
GRANTOR. The word "Grantor" means CUTTER & BUCK INC., its
successors and assigns
GUARANTOR. The word "Guarantor" means and includes without
limitation each and all of the guarantors, sureties, and
accommodation parties in connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness as
defined in the Loan Agreement.
LENDER. The word "Lender" means Washington Mutual Bank doing
business as Enterprise Bank, its successors and assigns.
NOTE. The word "Note" means the note dated January 28, 1997, in
the principal amount of $20,000,000.00 from CUTTER & BUCK INC. to
Lender, together with all renewals of, extensions of, modifications
of, refinancings of, consolidations of and substitutions for the
note.
RELATED DOCUMENTS. The words "Related Documents" mean promissory
notes, credit agreements, loan agreements, environmental
agreements, guaranties, security agreements, mortgages, deeds of
trust, and all other instruments, agreements and documents, whether
now or hereafter existing, executed in connection with the
Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory
security interest in and hereby assigns, conveys, delivers, pledges, and
transfers all of Grantor's right, title and interest in and to Grantor's
accounts with Lender (whether checking, savings, or some other account),
including all accounts held jointly with someone else and all accounts
Grantor may open in the future, excluding, however, all IRA and Keogh
accounts, and all trust accounts for which the grant of a security interest
would be prohibited by law. Grantor authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all indebtedness against any
and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such
financing statements 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
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 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, chattel paper, 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 the
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.
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 real
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 other
than inventory-in-transit and inventory in the possession of
contractors for embroidery work (or to the extent the Collateral
consists of intangible property such as accounts, the records
concerning the Collateral) at Grantor's address shown above, at
Grantor's warehouse, at Inner City warehouse, 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,
Grantor shall not sell, offer to sell, or otherwise transfer or
dispose of the Collateral, excepting sales of accounts receivable
pursuant to the Factoring Agreement, and excepting transfers, sales
or dispositions of Collateral that is obsolete or worn out property
disposed of in the ordinary course of business and excepting other
asset dispositions provided that such other asset dispositions do
not exceed $100,000.00 in the aggregate for any fiscal year. While
Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only
to buyers who qualify as a buyer in the ordinary course of
business. A sale in the ordinary course of Grantor's business does
not include a transfer in partial or total satisfaction of a debt or
any bulk sale. Grantor shall not
<PAGE>
01-28-1997 COMMERCIAL SECURITY AGREEMENT PAGE 2
LOAN NO 56705 (CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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, and
permitted liens as defined in the Loan Agreement dated of even date
herewith between Grantor and Lender, ("permitted liens") without the
prior written consent of Lender. This includes security interests even
if junior in right to the security interests granted under this
Agreement. Unless 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.
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 permitted liens.
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 with respect to a permitted lien or to which Lender
has specifically consented. 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.
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 whenever located. Grantor shall immediately notify
Lender of all cases involving the return, rejection, repossession, loss
or damage of or to any Collateral outside the ordinary course of
business; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
material happenings and events affecting the Collateral or the value or
the amount of the Collateral; and generally of all material happenings and
events affecting the Collateral or the value or the amount of the
Collateral outside the normal course of business.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon
this Agreement, upon any promissory note or notes evidencing the
indebtedness, or upon any of the other Related Documents. 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 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, rules and regulations of all
governmental authorities, now or hereafter in effect, applicable to the
ownership, 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, 42 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 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 ten (10) days' prior written notice to Lender and not
including any disclaimer of the Insurer's liability for failure to give
such a notice. Each Insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Grantor or any other person. 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.
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 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. In
addition, Grantor shall upon request by Lender (however not more often
than annually) have an independent appraiser satisfactory to Lender
determine, as applicable, the cash value or replacement cost of the
Collateral.
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. Until default and until otherwise
notified by Lender, Grantor may collect any of the Collateral consisting of
accounts. At any time while an Event of Default exists, 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.
<PAGE>
1-28-1997 COMMERCIAL SECURITY AGREEMENT
LOAN NO 56705 (CONTINUED) PAGE 3
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a
secured party under the Washington Uniform Commercial Code. 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 the power to enter upon the property and 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 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 be come 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 an 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. To the extent permitted by applicable law, 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, as may be amended from time to time. 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.
CUMULATIVE REMEDIES. All of the 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 of the State of Washington. 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 reasonable 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 reasonable 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 anticipated 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
<PAGE>
01-28-1997 COMMERCIAL SECURITY AGREEMENT PAGE 4
LOAN NO 56705 (CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other
parties, specifying that the purpose of the notice is to change the
party's address. To the extent permitted by applicable law, if there is
more than one Grantor, notice to any Grantor will constitute notice to
all Grantors. For notice purposes, Grantor will keep Lender informed at
all times of Grantor's current address(es).
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 upon the occurrence 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.
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will be come a part of the
indebtedness and, at Lender's option, shall be payable by Borrower 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.
NOTICE. 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.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL
SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED
JANUARY 28, 1997.
GRANTOR:
CUTTER & BUCK INC.
By: /s/ MARTIN J. MARKS
--------------------------------------
MARTIN J. MARKS, Senior Vice President
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
PROMISSORY NOTE
<S> <C>
- ------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
$20,000,000.00 01-28-1997 08-01-1998 66705 4A0 75 206030 175
- ------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY
OF THIS DOCUMENT TO ANY PARTICULAR LOAN OR ITEM.
- ------------------------------------------------------------------------------------------------------
BORROWER: CUTTER & BUCK INC. LENDER: WASHINGTON MUTUAL BANK DOING
2701 FIRST AVENUE, SUITE 600 BUSINESS AS ENTERPRISE BANK
SEATTLE, WA 98121 11225 S.E. SIXTH STREET
BELLEVUE, WA 98004
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Principal Amount: $20,000,000.00 Initial Rate: 8.250% Date of Note: January 28, 1997
</TABLE>
PROMISE TO PAY. CUTTER & BUCK INC. ("Borrower") promises to pay to
Washington Mutual Bank doing business as Enterprise Bank ("Lender"), or
order, in lawful money of the United States of America, the principal amount
of Twenty Million & 00/100 Dollars ($20,000,000.00) or so much as may be
outstanding, together with interest on the unpaid outstanding principal
balance of each advance. Interest shall be calculated from the date of each
advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on August 1, 1998. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest
beginning March 1, 1997, and all subsequent interest payments are due on the
same day of each month after that. Interest on this Note is computed on a
365/360 simple interest basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal
balance is outstanding. Borrower will pay Lender at Lender's address shown
above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied
first to accrued unpaid interest, then to principal, and any remaining amount
to any unpaid collection costs and late charges.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
2.00% of the regularly scheduled payment or $25.00, whichever is greater.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the Washington Mutual
Bank doing business as Enterprise Bank prime rate (the "Index"). This rate
may or may not be the lowest rate available from Lender at any given time.
Lender will tell Borrower the current Index rate upon Borrower's request.
Borrower understands that Lender may make loans based on other rates as well.
The interest rate change will not occur more often than each day. The Index
currently is 8.250% per annum. The interest rate to be applied to the unpaid
principal balance of this Note will be at a rate equal to the Index,
resulting in an initial rate of 8.250 per annum. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum
rate allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject
to refund upon early payment (whether voluntary or as a result of default),
except as otherwise required by law. Except for the foregoing, Borrower may
pay without penalty all or a portion of the amount owed earlier than it is
due. Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments of accrued
unpaid interest. Rather, they will reduce the principal balance due.
DEFAULT. Borrower will be in default, if any of the "Events of Default" as
defined in the Loan Agreement happens.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid
principal balance on this Note and all accrued unpaid interest immediately
due, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted
under applicable law, increase the variable interest rate on this Note to
3.000 percentage points over the Index. The interest rate will not exceed the
maximum rate permitted by applicable law. Lender may hire or pay someone else
to help collect this Note if Borrower does not pay. Borrower also will pay
Lender that amount. This includes, subject to any limits under applicable
law, Lender's attorney's fees and Lender's legal expenses whether or not
there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. If not prohibited by applicable law, Borrower also will pay any
court costs, in addition to all other sums provided by law. This Note has
been delivered to Lender and accepted by Lender in the State of Washington.
If there is a lawsuit, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of King County, the State of Washington. This Note
shall be governed by and construed in accordance with the laws of the State
of Washington.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's
accounts with Lender (whether checking, savings, or some other account),
including without limitation all accounts held jointly with someone else and
all accounts Borrower may open in the future, excluding however all IRA and
Keogh accounts, and all trust accounts for which the grant of a security
interest would be prohibited by law, Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on this Note
against any and all such accounts.
COLLATERAL. This Note is secured by a Commercial Security Agreement from
Borrower to Lender dated January 28, 1997.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note may be requested orally by Borrower or by an authorized
person. Lender may, but need not, require that all oral requests be confirmed
in writing. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized to request advances under the line
of credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: MARTIN J. MARKS, SENIOR VICE
PRESIDENT; HARVEY N. JONES, PRESIDENT; and NEIL D. JOHNSON, CONTROLLER.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender. 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. Lender will have no
obligation to advance funds under this Note if: (a) Borrower is in default
under the terms of this Note or any agreement that Borrower has with Lender,
including any agreement made in connection with the signing of this Note; (b)
Borrower ceases doing business or is insolvent; or (c) Borrower has applied
funds provided pursuant to this Note for purposes other than those authorized
by Lender.
NOTICE. 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.
MEDIATION/ARBITRATION CLAUSE A. POLICY-MEDIATION. The parties hope there
will be no disputes arising out of their relationship. To that end, each
commits to cooperate in good faith and to deal fairly in performing its
duties under this agreement in order to accomplish their mutual objectives and
avoid disputes. But if a dispute arises, the parties agree to resolve all
disputes by the following alternate dispute resolution process: (a) the
parties will seek a fair and prompt negotiated resolution, but if this is not
successful, (b) all disputes shall be resolved by binding arbitration,
provided that during this process, (c) at the request of either party made
not later than seventy-five (75) days after the initial arbitration demand,
the parties will attempt to resolve any dispute by nonbinding mediation (but
without delaying the arbitration hearing date.) The parties recognize that
negotiation or mediation may not be appropriate to resolve some disputes and
agree that either party many proceed with arbitration without negotiating or
mediating. The parties confirm that by agreeing to this alternate dispute
resolution process, they intend to give up their right to have any dispute
decided in court by a judge or jury.
MEDIATION/ARBITRATION CLAUSE B. BINDING ARBITRATION. Any claim between the
parties arising out of or relating to this agreement, shall be determined by
arbitration in Seattle commenced in accordance with RCW 7.04.080; provided
that the total award by a single arbitrator (as opposed to a
<PAGE>
01-28-1997 PROMISSORY NOTE PAGE 2
LOAN NO 56705 (CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
majority of three arbitrators) shall not exceed $250,000, including interest,
attorneys' fees and costs. If either party demands a total award greater than
$250,000, there shall be three (3) neutral arbitrators. If the parties
cannot agree on the identity of the arbitrator(s) within ten (10) days of the
arbitration demand, the arbitrator(s) shall be selected by the administrator
of the American Arbitration Association (AAA) office in Seattle FROM ITS
LARGE, COMPLEX CASE PANEL (OR HAVE SIMILAR PROFESSIONAL CREDENTIALS). Each
arbitrator shall be an attorney with at least 15 years experience in banking
or commercial law and shall reside in the Seattle metropolitan area. Whether
a claim is covered by this agreement shall be determined by the
arbitrator(s). All statutes of limitation which would otherwise be applicable
shall apply to any arbitration hereunder.
MEDIATION/ARBITRATION CLAUSE C. PROCEDURES. The arbitration shall be
conducted in accordance with the AAA Commercial Arbitration Rules, in effect
on the date hereof, as modified by this agreement. Submission of dispositive
motions shall be at the discretion of Arbitrator(s). As may be shown to be
necessary to ensure a fair hearing; the arbitrator(s) may authorize
appropriate discovery; and may enter pre-hearing orders regarding (without
limitation) scheduling, interrogatories, document exchange, depositions,
witness and exhibit disclosure and issues to be heard. The arbitrator(s)
shall not be bound by the rules of evidence or of civil procedure, but may
consider such writings and oral presentations as reasonable business people
would use in the conduct of their day-to-day affairs, and may require the
parties to submit some or all of their case by written declaration or such
other manner of presentation as the arbitrator(s) may determine to be
appropriate.
MEDIATION/ARBITRATION CLAUSE D. HEARING-LAW-APPEAL LIMITED. The
arbitrator(s) shall take such steps as may be necessary to hold a private
hearing. The parties have included these time limits in order to expedite
the proceeding, but they are not jurisdictional, and the arbitrator(s) may
for good cause afford or permit reasonable extensions or delays, which shall
not affect the validity of the award. The written decision shall contain a
brief statement of the claim(s) determined and the award made on each claim.
In making the decision and award, the arbitrator(s) shall apply applicable
substantive law. Absent fraud, collusion or willful misconduct by an
arbitrator, the award shall be final, and judgment may be entered in any
court having jurisdiction thereof. The arbitrator(s) may award injunctive
relief or any other remedy available from a judge, including the joinder of
parties or consolidation of this arbitration with any other involving common
issues of law or fact or which may promote judicial economy, and may award
attorney's fees and costs to the prevailing party but shall not have the
power to award punitive or exemplary damages. The decision and award of the
arbitrators need not be unanimous; rather, the decision and award of two
arbitrators shall be final.
MEDIATION/ARBITRATION CLAUSE E. PROVISIONAL REMEDIES, SELF-HELP AND
FORECLOSURE. In addition to any actions taken under the preceding
subparagraphs: (i) Lender may exercise all rights and remedies available
under law with respect to any collateral, deposits and accounts, including
but not limited to: offset, self-help, sale or other disposition of
collateral, attachment, injunction, appointment of a receiver, judicial
foreclosure and deficiency judgment or foreclosure by power of sale; (ii) by
exercising any such rights and remedies under (1) Lender shall not waive the
provisions of subparagraphs A through D above; (iii) any issues of law or fact
which arise in connection with the exercise by Lender of its rights and
remedies may at Lender's election be determined by arbitration in accordance
with subparagraphs A through D above; and (iv) notwithstanding any other
provision of this agreement, so long as an arbitration demand has not been
filed or served with respect to a claim, either party may elect to assert
such claim in the small claims department of the appropriate district court
under RCW ch. 12.40.
LIBOR RATE OPTION. Notwithstanding the foregoing, Borrower may elect to have
one or more advances of the principal amount of this Note ("LIBOR Advances")
bear interest at a LIBOR Rate, as defined in the LIBOR Rate Addendum to the
Business Loan Agreement between Borrower and Lender (the "Addendum").
Advances as to which Borrower effectively makes such an election, shall bear
interest at a LIBOR rate (as defined in the Addendum) and shall be governed
by the terms of the Addendum and by the terms of this Note. In the event of
an inconsistency between the Addendum and this Note with respect to such
LIBOR Advances, the Addendum shall control.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive presentment, demand for payment, protest and notice of dishonor. Upon
any change in the terms of this Note, and unless otherwise expressly stated
in writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length
of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the
party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY
OF THE NOTE.
BORROWER:
CUTTER & BUCK INC.
By: /s/ MARTIN J. MARKS
--------------------------------------
MARTIN J. MARKS, Senior Vice President
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ASSIGNMENT OF MONIES DUE UNDER FACTORING AGREEMENT
AND INTERCREDITOR AGREEMENT
THIS ASSIGNMENT AND INTERCREDITOR AGREEMENT ("Agreement") is entered
into as of the 20th day of February, 1997, by and among REPUBLIC FACTORS
CORP., a Maryland corporation ("Republic"), CUTTER & BUCK INC., a Washington
corporation ("Cutter & Buck") and WASHINGTON MUTUAL BANK, doing business as
ENTERPRISE BANK ("Bank").
R E C I T A L S
A. Cutter & Buck (successor by name change to Jones/Rodolfo
Corporation) entered into a Factoring Agreement with Republic dated as of
March 1, 1995 (as amended from time to time, the "Factoring Agreement"),
pursuant to which Republic has agreed to purchase certain accounts
receivables from Cutter & Buck who, in turn, granted a security interest in
certain of its assets to Republic. In connection therewith, Republic filed
financing statements under the Uniform Commercial Code.
B. Cutter & Buck has also, as of the date hereof, entered into a Loan
Agreement with Bank (as amended from time to time, the "Loan Agreement"),
pursuant to which Bank has agreed to make loans, create and discount banker's
acceptances and to issue commercial and standby letters of credit. In
connection therewith, Cutter & Buck executed and delivered a Commercial
Security Agreement as of the date hereof (the "Security Agreement") granting
to Bank a security interest in certain of its assets. The Security Agreement
secures obligations of Cutter & Buck to Bank arising under the Loan
Agreement. Bank has filed and may hereafter file financing statements under
the Uniform Commercial Code or other applicable law, and other title
documents or assignments.
C. The parties hereto desire to agree amongst themselves as to the
relative priority of their respective security interests in and liens on the
collateral of Cutter & Buck and certain other rights, priorities and
interests.
NOW, THEREFORE, the parties hereto agree as follows:
AGREEMENT
1. DEFINITIONS.
1.1 CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms have the following meanings:
"BANK COLLATERAL" has the meaning given in Section 3.2 hereof.
1
<PAGE>
"BANK DEBT" means any and all indebtedness, liabilities and obligations
of Cutter & Buck owing to Bank and secured by Bank's Security Agreement.
"COLLATERAL" means, in the case of Republic, the Republic Collateral,
and in the case of Bank, the Bank Collateral.
"COLLATERAL ASSETS" means the personal property described by item or
type in the granting clauses of the Factoring Agreement, and the Security
Agreement, now existing or hereafter arising.
"DEBT" means, in the case of Republic, the Republic Debt, and in the
case of Bank, the Bank Debt.
"FACTORING AGREEMENT" has the meaning given in the Recitals.
"LOAN AGREEMENT" has the meaning given in the Recitals.
"LOAN DOCUMENTS" means Bank's Loan Agreement and the Related Documents,
as defined in such Loan Agreement.
"PURCHASED ACCOUNTS" means those certain accounts receivable purchased
now or hereafter by Republic from Cutter & Buck pursuant to the terms of the
Factoring Agreement.
"REPUBLIC COLLATERAL" has the meaning given in Section 3.1 hereof.
"REPUBLIC DEBT" means any and all indebtedness, liabilities and
obligations of Cutter & Buck owing to Republic arising under the Factoring
Agreement.
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. 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.
2. ASSIGNMENT OF MONIES DUE UNDER FACTORING AGREEMENT.
2.1 ASSIGNMENT. Cutter & Buck hereby assigns to Bank all of its right,
title and interest in and to all monies now due or which may hereafter become
due to Cutter & Buck under the Factoring Agreement, including any and all
advance payments of the purchase price of Receivables (as that term is
defined in the Factoring Agreement), as security for the full and timely
performance by Cutter & Buck of any and all indebtedness, liabilities and
obligations owing to Bank arising under the Loan Documents, as that term is
defined in the Loan Agreement.
2
<PAGE>
2.2 PAYMENT. Republic shall remit all monies which would otherwise be
payable to Cutter & Buck under the Factoring Agreement, subject to all of
Republic's rights under the Factoring Agreement, directly to Bank by wire
transfer of federal funds to:
Washington Mutual Bank, doing
business as Enterprise Bank
1201 Third Avenue, Suite 1000
Attention: Todd Leber - (206) 461-4344
ABA #125108078
Account #01023860
2.3 MONTHLY STATEMENTS. Republic shall send Bank a copy of all monthly
statements rendered to Cutter & Buck, including without limitation, a Summary
of Monthly Activity report and a Monthly Summary fo Client Activity report as
soon as available, but in any event within fifteen (15) days after the end of
each month, PROVIDED, HOWEVER, that Republic shall have no liability to Bank
for negligently or inadvertently failing to furnish such monthly statements.
2.4 REPRESENTATIONS OF PARTIES. Cutter & Buck represents that it has not
made, executed or delivered any other assignment of the monies now due or
which may hereafter become due to it under the Factoring Agreement. Republic
represents that, to the best of its knowledge, Republic has not received any
notice of the assignment of the monies now due or which may hereafter become
due to Cutter & Buck under the Factoring Agreement. Bank represents that, to
the best of its knowledge, no other person is entitled to receive all amounts
otherwise payable to Cutter & Buck pursuant to the Factoring Agreement.
Notwithstanding the foregoing, the parties acknowledge that Bank of America
NW, N.A. d/b/a Seafirst Bank holds a security interest in certain assets of
Cutter & Buck, including but not limited to its accounts receivable, which
security interst must be released as a condition to Bank's advancing funds to
Cutter & Buck.
2.5 AUTHORITY; FURTHER ASSURANCE. Cutter & Buck hereby irrevocably
authorizes and empowers Bank to ask, demand, receive, receipt and give
acquittance for any and all monies hereby assigned, and to endorse any checks
or other orders for the payment of money payable to Cutter & Buck in payment
thereof. Cutter & Buck agrees that it will at all times hereafter at the
request of Bank, make, do and execute all such further acts, agreements,
assurances and other documents and instruments as shall be reasonably
required to enable Bank to collect all sums due or to become due under or in
connection with the Factoring Agreement, according to the intent and purpose
of this Agreement. Republic is hereby authorized to recognize Bank's claims
to rights hereunder without investigating the reason for any action taken by
Bank or the validity or the amount of the obligations owing from Cutter &
Buck to Bank or the existence of any default or the application to be made by
Bank of any of the amounts paid to Bank.
3
<PAGE>
2.6 AGREEMENT SUBJECT TO FACTORING AGREEMENT. This Agreement is subject
to the terms and conditions of the Factoring Agreement, and applicable law,
with respect to any matter, including but not limited to, Republic's right to
"charge back" to Cutter & Buck's account any disputed invoices and other
items and sums, Republic's right to retain reserves from time to time as set
forth in the Factoring Agreement, Republic's right to offset any amounts owing
by Cutter & Buck to Republic from time to time, Republic's right to accept as
binding all instruments and documents of every kind (including without
limitation credit memoranda issued by Cutter & Buck), and Republic's right to
terminate the Factoring Agreement in accordance with the terms thereof all
without prior notice to Bank (except as herein specifically provided),
PROVIDED, HOWEVER, Republic's rights to retain reserves and to offset amounts
as hereinbefore described shall be limited to the Republic Collateral
(including, without limitation, any and all monies due Cutter & Buck under
the Factoring Agreement and assigned to Bank under the terms of this
Agreement). Bank and Cutter & Buck hereby acknowledge that any credit
balance shown on any statement of account provided by Republic is provisional
and, except as limited by this Agreement, is subject to all rights of
Republic under the Factoring Agreement and otherwise. Nothing contained in
this Agreement shall be construed to require Republic to remit any funds
beyond any amount provided in the Factoring Agreement.
2.7 CONFLICTING DEMANDS. Republic shall not be obligated to make any
payment to Bank hereunder, if any such payment is enjoined, restrained or
stayed by any court or by any statute or governmental rule or regulation. In
the event any conflicting demands are made on Republic with respect to monies
to be paid hereunder, Republic shall not be required to determine the same
and shall have the right to file suit in interpleader or for declaratory
relief. In the event Republic shall bring any such action, Cutter & Buck
agrees to reimburse Republic for its attorneys' fees, costs and expenses in
connection therewith, and without limiting its other rights and remedies
Republic shall be entitled to deduct such attorneys' fees, costs and
expenses from the funds which are the subject of such interpleader or
declaratory relief action.
2.8 BORROWING BY CUTTER & BUCK. Cutter & Buck hereby agrees that it will
not borrow or take advances from Republic under the Factoring Agreement, and
Republic hereby agrees not to make loans or advances requested by Cutter & Buck
pursuant to Section 4.C of the Factoring Agreement, PROVIDED, HOWEVER, that
nothing herein shall restrict Cutter & Buck from (i) purchasing goods or
services or otherwise becoming obligated to persons who are factoring clients
of Republic and who factor with Republic the accounts owing to such persons
from Cutter & Buck, or (ii) taking payments under the Factoring Agreement
from Republic at maturity, or (iii) becoming obligated to Republic under the
Factoring Agreement other than as a result of loans by Republic to Cutter &
Buck.
3. LIEN PRIORITY. Notwithstanding the date, manner or order of
perfection of the security interest and liens granted Republic or Bank, and
notwithstanding any provisions of the Uniform Commercial Code, or any
applicable law or decision, or whether either Republic or Bank holds
possession of all or any part of the Collateral Assets or has given any
notice or taken any other action to perfect its interest therein, the
following, as between Republic and Bank,
4
<PAGE>
shall be the relative priority of security interests and liens of Republic
and Bank in the Collateral Assets:
3.1 REPUBLIC COLLATERAL. Republic shall have a first and prior security
interest in (i) the Purchased Accounts, (ii) all right title and interest of
Cutter & Buck in, to and in respect of all goods relating to, or which by sale
have resulted in, the Purchased Accounts, including, without limitation, all
returned, reclaimed or repossessed goods, and all goods described in invoices
or other documents or instruments with respect to, or otherwise representing
or evidencing any Purchase Account, (iii) all moneys, securities, and other
property, now or hereafter held or received by, or in transit to, Republic
from or for Cutter & Buck, whether for safekeeping, pledge, custody,
transmission or collection and otherwise related to or incident to the
Purchased Accounts (iv) all of Cutter & Buck's deposits (general or special),
balances, sums and credits with, and all claims of Cutter & Buck against,
Republic, at any time existing and the otherwise related to or incident to
the Purchased Accounts, (v) all right title and interest of Cutter & Buck and
all of Cutter & Buck's rights, remedies, security and liens, in, to and in
respect of the Purchased Accounts, including, without limitation, rights of
stoppage in transit, replevin, repossession and reclamation and other rights
and remedies of an unpaid vendor, lienor or secured party, guaranties or
other contracts of suretyship with respect to the Purchased Accounts, (vi)
all deposits or other security for the obligation of any "Purchased Account
Debtor" (meaning herein each debtor or obligor in any way obligated on or in
connection with any Purchased Account), (vii) all books, records, ledger
cards, computer programs and other property and general intangibles of Cutter
& Buck at any time evidencing or relating to any or all of the foregoing,
(viii) all products and proceeds of any or all of the foregoing; in any form
including, without limitation, any insurance proceeds or claims by Cutter &
Buck against third parties, for loss or damage to or destruction of any or
all of the foregoing (collectively, the "Republic Collateral"). Bank shall
have a second and subordinate security interest in the Republic Collateral.
3.2 BANK COLLATERAL. Bank shall have a first and prior security interest
in all of the Collateral Assets, other than the Republic Collateral (the
"Bank Collateral"). Republic shall have a second and subordinate security
interest in the Bank Collateral.
3.3 PROCEEDS OF COLLATERAL. All proceeds of Collateral shall be
distributed in accordance with the following procedures to the extent
permitted by applicable law:
(a) Until the Republic Debt has been fully and finally paid, all
proceeds of Republic Collateral shall be paid to Republic for application in
accordance with the Factoring Agreement.
(b) Until the Bank Debt has been fully and finally paid, all
proceeds of Bank Collateral shall be paid to Bank for application in
accordance with the Loan Agreement.
<PAGE>
3.4 REPUBLIC AND BANK ONLY. The priority established under this Section
3 is only as between Republic and Bank and to the extent that the operation
of the foregoing provision would otherwise entitle any other person
(including a trustee in bankruptcy) to either a priority over both parties
or a right to avoid the lien of either party, then (and only to such extent)
this section shall not be effective.
3.5 PERFECTION BY POSSESSION. Republic and Bank each hereby acknowledge
the other's security interest in and liens on the Collateral Assets. Republic
and Bank each hereby agree, that to the extent that either holds physical
possession of any Collateral Assets, it does so both in its own capacity and
for the benefit of the other for the purpose of perfecting (to the extent
necessary) the other's security interest in and liens on the Collateral
Assets pursuant to RCW 62A.9-305. To the extent that Republic obtains
possession of Bank Collateral, or Bank obtains possession of Republic
Collateral, Republic and Bank hereby agree to promptly notify the other party
of such fact and, as the case may be, Republic shall promptly deliver such
Bank Collateral to Bank or Bank shall promptly deliver such Republic
Collateral to Republic.
4. MODIFICATIONS TO DEBT. Subject to the restrictions contained herein,
and subject to any restrictions on Cutter & Buck contained in the Loan
Agreement, each of Republic and Bank may at any time, and from time to time,
without the other's consent and without notice to the other, renew, extend or
increase its Debt. Without limiting the foregoing, Republic and Bank may
accept partial payments of its Debt, settle, release (by operation of law
or otherwise), compound, compromise, collect or liquidate any of its Debt,
change, alter or vary the interest charge on, or any other terms or
provisions of its Debt or any present or future instrumental, document or
agreement between Republic or Bank, as the case may be, and Cutter & Buck,
release, exchange, fail to perfect, delay the perfection of, fail to resort
to, or realize upon any of its Collateral, as the case may be, and take any
other action or omit to take any other action with respect to its Debt or its
Collateral as Republic or Bank, as the case may be, deems necessary or
advisable in its sole discretion. Bank, but not Republic, may make loans or
advances to Cutter & Buck secured in whole or in part by its Collateral or
refrain from making any loans or advances to Cutter & Buck.
5. WAIVERS OF REPUBLIC AND BANK. To the extent allowed by law, Republic
and Bank each hereby waive any and all rights to have the Collateral Assets,
or any part thereof marshaled upon any foreclosure of any of the liens
securing its respective Debt.
6. ADDITIONAL DOCUMENTATION. Republic and Bank each agree, upon the
other's request, to execute all such documents and instruments and take all
such actions as the other shall deem reasonably necessary or advisable in
order to carry out the purposes of this Agreement, including, without
limitation appropriate amendments to financing statements executed by Cutter
& Buck in favor of Republic or Bank in order to refer to the subordinations
of each other's security interests in the Collateral Assets contained herein
(but this Agreement shall remain fully effective notwithstanding any failure
to execute any additional documents or instruments).
6
<PAGE>
7. ACTIONS CONCERNING COLLATERAL. Until the Republic Debt has been
paid and performed in full, Bank shall not collect, take possession of,
foreclose upon, or exercise any other rights or remedies with respect to, the
Republic Collateral, judicially or nonjudicially, or attempt to do any of the
foregoing. Until the Bank Debt has been paid and performed in full, Republic
shall not collect, take possession of, foreclose upon, or exercise any other
rights or remedies with respect to, the Bank Collateral, judicially or
nonjudicially, or attempt to do any of the foregoing. In the event that
Republic or Bank shall be required by the Uniform Commercial Code or any
other applicable law to give notice to the other of intended disposition of
Collateral Assets, such notice shall be given in accordance with Section 9.1
hereof and ten (10) days' notice shall be deemed to be commercially
reasonable.
8. FINANCIAL CONDITION OF CUTTER & BUCK. Republic and Bank each
represent that it is presently informed of the financial condition of Cutter
& Buck and of all other circumstances which a diligent inquiry would reveal
and which bear upon the risk of non-payment of the indebtedness of Cutter &
Buck to them. Except as provided in Section 2.3 hereof Republic and Bank each
waive any right to require the other to disclose any information which the
other may now or hereafter acquire concerning Cutter & Buck.
9. MISCELLANEOUS.
9.1 NOTICE OF DEFAULT. Republic and Bank shall each promptly give
written notice to the other, contemporaneously with the giving of such notice
to Cutter & Buck, of any default by Cutter & Buck under any agreement such
party has with Cutter & Buck including, but not limited to, the Factoring
Agreement and the Loan Agreement, as the case may be. All such notices and
any 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 transmission or
courier service at the address or facsimile transmission 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 such notices and communications if duly given or
made shall be effective upon receipt.
9.2 NO CONTEST. Niether Republic nor Bank shall contest the
validity, perfection, priority or enforceability of any lien or security
interest granted to the other.
9.3 SUCCESSORS AND ASSIGNS. This Agreement is solely for the
benefit of Republic and Bank and their respective successors and assigns, and
neither Cutter & Buck nor any other person shall have any right, benefit,
priority or interest under, or because of the existence of, this Agreement.
Neither Republic nor Bank shall sell or assign any of its interests in the
Debt unless the purchaser or assignee thereof agrees to be bound by the terms
thereof.
9.4 TERMINATION. The assignment in Section 1 above shall continue
in effect until written notice of the termination is served by any one of the
parties hereto on the others,
7
<PAGE>
but such termination shall not affect the assignment to Bank of or Bank's
rights to receive, any balances due to Cutter & Buck from Republic, until all
loans and/or extensions of credit made by Bank to Cutter & Buck prior to the
receipt of such written notice of termination are paid in full, subject to
all of Republic's rights under the Factoring Agreement, which rights include,
but are not limited to, the right to terminate the Factoring Agreement in
accordance with the terms thereof. The subordination of Bank's security
interest in the Republic Collateral and the other provisions of this
Agreement shall continue in effect until the Factoring Agreement is
terminated and all present and future indebtedness, liabilities and
obligations of Cutter & Buck to Republic have been paid and performed in full.
9.5 REMEDIES. All of Republic's and Bank's rights and remedies
hereunder and under applicable law are cumulative and not exclusive.
9.6 ENTIRE AGREEMENT; AMENDMENT. This Agreement sets forth in full the
terms of agreement among the parties with respect to the subject matter
hereof and may not be modified or amended, nor may any rights hereunder be
waived, except in a writing signed by the parties hereto.
9.7 CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES. Republic, Bank and
Cutter & Buck each (i) agree that all actions and proceedings based upon,
arising out of or relating in any way directly or indirectly to, this
Agreement shall be litigated exclusively in courts located within King
County, Washington, (ii) consent to the jurisdiction of any such court and
consent to the service of process in any such action or proceeding by
personal delivery, first-class mail, or any other method permitted by law,
and (iii) waive any and all rights to transfer or change the venue of any
such action or proceeding to any court located outside King County,
Washington. Nothing in this Section 9.8 shall be construed to modify or
otherwise limit the agreement between Bank and Cutter & Buck regarding
mandatory arbitration contained in the Loan Agreement.
9.8 GOVERNING LAW; ATTORNEY'S FEES. This Agreement shall be construed
in accordance with, and governed by, the laws of the State of Washington. In
the event of any litigation between or among Republic, Bank and Cutter & Buck
based upon, or arising out of or relating to this Agreement, the prevailing
party shall be entitled to recover all of its costs and expenses (including
without limitation attorneys' fees) from the non-prevailing party.
9.9 MUTUAL WAIVER OF JURY TRIAL. Republic, Bank and Cutter & Buck each
hereby waive the right to trial by jury in any action or proceeding (i) based
upon, arising out of or in any way relating to this Agreement or (ii) any
conduct, acts or omissions of Republic, Bank or Cutter & Buck or any of their
directors, officers, employees, agents, attorneys or any other persons
affiliated with Republic, Bank or Cutter & Buck based upon, arising out of or
in any way relating to this Agreement; in each of the foregoing case, whether
sounding in contract or tort or otherwise.
8
<PAGE>
9.10 EXECUTED IN COUNTERPARTS. This Agreement 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.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Agreement as of the date first above
written.
REPUBLIC FACTORS CORP.
By /s/ DAVID LANDY
-----------------------------------
Its Senior Vice President
----------------------------------
Address: 1000 Wilshire Boulevard, Suite 400
Los Angeles, California 90017
Attn: David H. Landy
Facsimile: (213) 312-3630
WASHINGTON MUTUAL BANK, doing business
as ENTERPRISE BANK
By /s/ TODD LEBER
-----------------------------------
Its Vice President
----------------------------------
Address: 1201 Third Avenue, Suite 1000
Seattle, Washington 98101
Attn: Todd Leber
Facsimile: (206) 554-2696
9
<PAGE>
CUTTER & BUCK, INC.
By /s/ MARTIN MARKS
-----------------------------------
Its Senior Vice President/Chief
Operating Officer
----------------------------------
Address: 2701 First Avenue, Suite 500
Seattle, Washington 98121
Attn: Martin Marks
Facsimile: (206) 448-0589
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 6,738,100
<SECURITIES> 0
<RECEIVABLES> 8,581,195
<ALLOWANCES> (772,974)
<INVENTORY> 12,585,081
<CURRENT-ASSETS> 29,398,549
<PP&E> 2,580,751
<DEPRECIATION> (946,600)
<TOTAL-ASSETS> 32,534,046
<CURRENT-LIABILITIES> 1,998,384
<BONDS> 0
0
0
<COMMON> 29,758,119
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 32,534,046
<SALES> 28,741,404
<TOTAL-REVENUES> 28,741,404
<CGS> 17,476,755
<TOTAL-COSTS> 17,476,755
<OTHER-EXPENSES> 9,401,954
<LOSS-PROVISION> 76,645
<INTEREST-EXPENSE> (190,982)
<INCOME-PRETAX> 1,921,634
<INCOME-TAX> (590,600)
<INCOME-CONTINUING> 1,331,034
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,331,034
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>