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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-511
COBRA ELECTRONICS CORPORATION
(Exact name of Registrant as specified in its Charter)
DELAWARE 36-2479991
(State of incorporation) (I.R.S. Employer Identification No.)
6500 WEST CORTLAND STREET
CHICAGO, ILLINOIS 60707
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (773)889-8870
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.33 1/3 Per Share
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by
non-affiliates of the Registrant at March 12, 1998 was
approximately $47,415,422.
The number of shares of Registrant's Common Stock outstanding at
that date was 6,218,416.
Portions of the Registrant's Definitive Proxy Statement relating
to the Annual Meeting of Shareholders to be held May 12, 1998,
are incorporated by reference into Part III of this Report.
PART I
------
ITEM 1. BUSINESS:
GENERAL
Cobra Electronics Corporation (the "company") was incorporated in
Delaware in 1961 and is a designer and wholesale marketer of
consumer electronics products, primarily communications products.
The company markets products under the COBRA brand name.
Management believes that the company's future success will depend
upon its ability to predict and respond in a timely and effective
manner to changes in the markets it serves. Product performance,
reliability, price, availability and service are the main
competitive factors, with sales also being dependent upon timely
introduction of new products which incorporate new features
desired by consumers at competitive prices.
RECENT DEVELOPMENTS
During the second quarter of 1997, Jerry Kalov, President and
Chief Executive Officer of the company, announced his retirement
effective January 1, 1998. Also in the second quarter, Mr. Kalov
assumed the position of Vice Chairman of the Board of Directors,
which he will continue to serve in after his retirement. James
R. Bazet joined the company as Executive Vice President and Chief
Operating Officer in July 1997 and was appointed President and
Chief Executive Officer effective January 1, 1998.
Mr. Bazet, a consumer products veteran, has managed companies in
both the consumer electronics and housewares industries. Before
joining the company, he was President and Chief Executive Officer
of Ryobi Motor Products Floor Care Division, which marketed
products under the Ryobi, Singer and Kenmore brand names. Prior
to Ryobi, Mr. Bazet served as President and Chief Executive
Officer of Code-A-Phone Corporation where he was among the first
to develop and market state-of-the-art 900 MHz cordless phones.
PAGE
PRODUCTS
The company operates only in the consumer electronics industry.
Principal products include:
Mobile Electronics: Citizen Band ("CB") Radios
Accessories, including power
inverters and CB microphones and
antennas
Family Radio Service handheld
radios
Integrated Radar/Laser Detectors
Safety Alert transmitters
Safety Alert receivers
Telecommunication: Intenna 25-channel Cordless
Telephones
Integrated Intenna Cordless
Telephone Answering Systems
The following table shows the company's percentages of net sales
by product category for the three years ended December 31, 1997.
1997 1996 1995
---- ---- ----
Mobile Electronics Products 81% 67% 69%
Telecommunication Products 19% 33% 31%
---- ---- ----
Total Net Sales 100% 100% 100%
==== ==== ====
One of the company's primary strengths is its product sourcing
ability. Substantially all of the company's products are
manufactured to its specifications and engineering designs by a
number of suppliers, primarily in China, Malaysia, Thailand,
Japan and Korea. The company maintains stringent control over
the design and production quality of its products. The company
has a subsidiary in Hong Kong which helps to seek out new
suppliers, monitor technological changes, perform source
inspection of key suppliers, and expedite shipments from vendors.
Over a period of years, the company has developed a network of
suppliers for its products. To maintain flexibility in product
sourcing, the company has not entered into long-term contracts
with any of its suppliers. Despite management's belief that it
maintains strong relationships with its current suppliers, it
also believes that, if necessary, other suppliers could be found.
The extent to which a change in a supplier would have an adverse
effect on the company's business depends upon the timing of the
change, the product or products that the supplier produces for
the company and the volume of that production. The company also
maintains insurance coverage that would, under certain limited
circumstances, reimburse the company for lost profits resulting
from a vendor's inability to fulfill its commitments to the
company. The company negotiates substantially all of its
purchases in U.S. Dollars to protect itself from currency
fluctuations. Assets located outside of the United States,
excluding company-owned tooling at suppliers with a net book
value of $906,000 at December 31, 1997, are not material.
The company competes primarily in the United States with various
manufacturers and distributors of mobile electronics and
telecommunication products. The company competes principally on
the basis of product features and price and expects the market
for its products to remain highly competitive.
Research, engineering and product development expenditures are
expensed as incurred. These expenditures amounted to $.8 million
in 1997 and 1996 and $1.1 million in 1995.
Except for certain patents, such as its Safety Alert and Intenna
technologies, the company does not believe that patents are of
material importance to its products. However, should the company
develop a unique technology (such as SoundTracker noise reduction
technology), patents will be applied for to preserve exclusivity,
wherever possible.
Mobile Electronics Products: These products, which include CB
radios, integrated radar/laser detectors, Family Radio Service
handheld radios and accessories, including power inverters and CB
microphones and antennas, are marketed under the COBRA trademark.
Cobra is the leading brand in the CB radio market, which in
factory sales is approximately $125 million annually. This
market continues to expand, with growth mainly coming from
broader consumer use, especially the growing popularity of
handheld CB radios with campers, hikers and other outdoor
enthusiasts.
The company has been the technology leader in the CB radio
market. The company's patent-pending SoundTracker noise
reduction technology, which dramatically improves the sound
quality of the CB radios, is the first significant product
innovation in this category in several years. This new feature
significantly reduces "white noise", or static, when the CB is in
receiving mode. Additionally, SoundTracker technology allows
the user's voice to break through cluttered airwaves and to be
more easily heard when transmitting.
The company has a history of being the technology leader in the
CB market. The company was the first CB radio marketer to
combine a National Weather Service receiver with a mobile CB
radio, enabling motorists to obtain weather and travel
information broadcasts. As a major enhancement of this feature,
the company also introduced the industry's first mobile CB radio
that incorporates an automatic alert feature to warn of National
Weather Service emergency advisories. The company also markets
CB radios to nonprofessional drivers and handheld CB radios for
sport and recreational use.
In 1997 the company began to ship Family Radio Service handheld
radios. Family Radio Service operates on UHF FM frequencies,
which allows for exceptionally clear sound quality and
penetration through buildings and other obstacles. It also
allows for an extremely small handheld radio, measuring only 3.78
inches in height and weighing less than one-half pound. And
while Family Radio Service models from other competitors must be
held in front of the user's face, Cobra's unique, convenient
design allows the user to hold the radio like a cellular phone
but unlike a cellular phone, FRS radios require no monthly charge
and provide coverage even in the most remote areas. The FRS 200
is ideal for a variety of occasions where a larger hand-held
radio is not practical, including outdoor activities such as
skiing, and bicycling, and for family outings to amusement parks
and shopping malls.
Also in 1997, the company entered a new accessories category,
power inverters. Power inverters convert a vehicle's battery
power to power that can run appliances and accessories normally
powered by household current. The primary users of inverters are
professional truck drivers.
Cobra is also one of the leading brands in the market for
integrated radar/laser detectors, which in factory sales is
approximately $120 million. Currently, there are approximately
190 million cars and light trucks on the road and, of those,
approximately 10 percent have detectors. Cobra commands
significant market share by offering innovative products with the
latest technology.
In addition, the company has been a leader in applying
laser-detection technology, including introducing the industry's
first laser-signal detector and the industry's first integrated
radar/laser detector with 360 degree laser detection capability.
The company was the first to introduce to the retail channel
"intelligent" detection systems capable of alerting drivers with
a differentiated signal for each of the frequencies emitted by
the company's patented, FCC-approved Safety Alert transmitter.
This transmitter is being marketed to organizations that operate
police, fire, emergency medical service, construction and public
utility vehicles. The company's Safety Alert Traffic Warning
System is designed to help drivers avoid potentially serious
accidents with these organizations' vehicles. In 1997 the
company began shipments of its new Safety Alert Traffic Warning
Detector. This detector receives all three Safety Alert signals,
but does not detect radar or laser guns. It is targeted at those
consumers who want to enhance their driving safety but choose not
to own a radar detector.
Currently, there are over one-thousand Safety Alert transmitters
installed and operating throughout the country on police, fire
and emergency medical vehicles. Three cities - Indianapolis,
Dayton and Orlando - have a concentration of approximately 50
transmitters each. Also, scheduled to begin in Spring of 1998 is
the Illinois Department of Transportation's high-visibility study
to enhance railroad crossing safety though a system which
utilizes Safety Alert transmitters and receivers.
In early 1998 the company introduced the industry's first line of
six-band radar detectors for shipment beginning in the Spring.
The company has designed these detectors to alert drivers to each
of the four current speed monitoring systems in use -- X,K,Ka and
Laser -- plus VG-2, the "detector detector" monitoring band, and
the Safety Alert Traffic Warning System band. This makes the
unique Cobra six-band detector the most comprehensive alert
system in the industry and for the first time allows drivers to
be aware of all four speed monitoring systems as well as the
presence of VG-2 and Safety Alert transmissions.
Major competitors in the CB radio market are Radio Shack (Tandy
Corporation) and Uniden while major competitors in the radar
detector market include Beltronics, Whistler, Escort and Uniden.
Telecommunication Products: These products, which include
25-channel cordless phones and integrated cordless telephone
answering systems, are principally marketed under the COBRA
trademark. The company entered the telecommunications market in
1979 with its first integrated cordless telephone and has since
supplemented that entry with other innovative products. For
example, the company introduced the market's first two-line
cordless phone and the first integrated cordless phone answering
system. In 1989, the company introduced its first Intenna
cordless phone, which utilized the company's patented technology
to eliminate the external handset antenna, an industry first.
The company later refined this technology to also make it
possible to eliminate the base antenna, as well. The company also
offered Intenna cordless phones in designer colors, which was an
industry first. Currently, Cobra offers the only cordless phones
in the marketplace with the antenna in the phone, not in the way,
without sacrificing voice quality or range. This makes it easier
to mount the phone under cabinets in the kitchen or on book
shelves in other rooms.
In 1993, the company began offering Intenna models with Private
Call technology, which electronically scrambles voice signals
between the handset and the base to ensure complete security by
eliminating potential eavesdropping over scanning radios, baby
monitoring devices and other cordless phones.
In 1996 the company began supplying Sprint an exclusive model of
the company's proprietary Intenna telephone, which Sprint sells
under its own brand. The phone also carries the Intenna
trademark.
Also in 1996, the company introduced Intenna cordless phones with
the Power Protector feature, which allows the phone to be used
during a power outage.
In 1997, the company introduced two Intenna cordless phones with
caller ID.
In late 1998 the company will be introducing several 900MHz
cordless phones to capitalize on this rapidly growing segment of
the cordless phone market.
In the market for integrated telephone answering systems, the
company markets Intenna all-digital cordless phone answering
systems. Ideal for home or office use, these models offer
electronic voice mail and multiple mailboxes combined with an
Intenna cordless phone.
The cordless phone and integrated telephone answering systems
segment of the telecommunications market amounts to approximately
$2.3 billion and is dominated by large companies, including AT&T,
General Electric, Panasonic, Sony, Southwestern Bell, and Uniden.
Because of this, the company's strategy is to look for profitable
niches and position Cobra as an alternative line of quality
products with innovative features at competitive prices.
SALES AND DISTRIBUTION
Demand for consumer electronics products is seasonal.
Historically, sales in the last half of the year are greater than
in the first half, reflecting increased purchases by retailers
for the holiday selling season.
In 1997 and 1995 there were no sales in excess of 10% of total
net sales to a single customer or a group of entities under
common control. In 1996, sales to Sprint represented 10.7% of
net sales. The company does not believe that the loss of any one
customer would have a material adverse effect on the business of
the company. The company's foreign sales were $19.1 million,
$10.1 million, and $12.2 million in 1997, 1996 and 1995,
respectively.
The company's return policies and payment terms are consistent
with those of other companies serving the consumer electronics
market. Market conditions are such that products generally must
be shipped within a short time after an order is received. As a
result, order backlog is not significant.
Cobra products are distributed through a strong, well-established
network of approximately 460 retailers and distributors located
primarily in the United States. Approximately half of the sales
are made directly to domestic mass marketers, such as catalog
showrooms, consumer electronics specialty stores, large
department store chains, television home-shopping,
direct-response merchandisers, home centers and specialty stores,
which feature telephone products or mobile electronics products.
Because of changes in the retail marketplace, the company has
sought to expand its distribution to retailers that offer
assisted-selling environments to help consumers be better
informed about product features and functions when making
purchase decisions. The company believes that these retailers
are more profitable because they receive higher margins and
experience lower servicing costs. Most of the remaining sales
are through two-step wholesale distributors, that carry Cobra
products to fill orders for truck stops, small department stores,
appliance dealers, and for export, as well as direct sales to a
large truck stop chain. Cobra's primary sales force is comprised
of independent sales representatives who work on a straight
commission basis. They do not sell products of the company's
competitors.
The company's right to sell products under the COBRA trademark is
substantially worldwide. The company believes the COBRA
trademark, which is indefinitely renewable by the company, is a
significant factor in the successful marketing of its products.
EMPLOYEES
As of December 31, 1997, the company employed 117 persons in the
U.S. and 8 in its international operations. None of the
company's employees is a member of a union.
ITEM 2. PROPERTIES:
The company owns one building in Chicago, Illinois
containing a total of approximately 93,000 square feet of office
and warehouse space. The company believes that this facility is
adequate to meet its current needs.
ITEM 3. LEGAL PROCEEDINGS:
The company is subject to various unresolved legal actions which
arise in the normal course of its business, the most prevalent of
which relates to federal excise tax. During 1996, the company
received notice from the Internal Revenue Service (IRS) asserting
deficiencies in federal excise taxes for filing periods October
1, 1993 through December 31, 1995. The excise tax relates to the
use of ozone-depleting chemicals ("ODCs"). The company has
protested the deficiencies and has filed an environmental excise
tax protest. Management believes that they have substantial
defenses and intends to defend these actions vigorously.
Although it is not possible to predict with certainty the outcome
of this tax dispute, management believes the ultimate outcome of
this dispute will not result in a material impact on the
company's consolidated results of operations or financial
position. Also in 1996, the company recognized $373,000 of
income related to a lawsuit against a former distributor for
violation of a licensing agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS:
The company's common stock trades on The Nasdaq Stock Market
under the symbol COBR. As of March 12, 1998 the company had
approximately 1,164 shareholders of record and approximately
2,736 shareholders for whom securities firms acted as nominees.
The company's common stock is the only class of equity securities
outstanding. Before April 1, 1993, the common stock of the
company traded under the symbol DYNA.
Under the terms of its credit agreement, the company may not pay
cash dividends.
STOCK PRICE AND TRADING VOLUME DATA
STOCK PRICE RANGE
- -------------------------------------------------------------
TRADING VOLUME
1997 1996
1995 (in thousands)
------------------- -------------------
- ----------------- ------------------------
Quarter High Low High Low High
Low 1997 1996 1995
- ----------- --------- --------- --------- ---------
- -------- -------- ------ ------ -----
First...... $ 3 5/8 $ 2 1/2 $ 4 1/8 $ 2 1/4 $ 2 5/8
$ 1 5/8 704 1,624 1,073
Second..... 3 3/8 2 1/2 3 1/8 1 15/16 2 1/8
1 1/2 583 725 917
Third...... 8 7/8 2 13/16 3 1/8 2 2 5/8
1 11/16 9,402 344 1,189
Fourth..... 10 7/8 5 1/4 3 7/8 2 1/8 3 3/8
2 4,966 1,265 2,114
Note: Data compiled from The Nasdaq Stock Market monthly Summary
of Activity reports.
ITEM 6. SELECTED FINANCIAL DATA:
FIVE YEAR FINANCIAL SUMMARY
Years Ended December 31
(in thousands, except per share amounts) 1997
1996 1995 1994 1993
- ---------------------------------------------------- --------
- ---------- ---------- ---------- ----------
Operating Data:
Net sales......................................... $ 104,098 $
90,324 $ 90,442 $ 82,131 $ 98,844
Gross profit...................................... 21,551
16,370 16,577 14,466 13,903
Selling, general and administrative expense....... 16,655
14,374 16,097 14,602 15,741
Operating income (loss)........................... 4,896
1,996 480 (136) (2,914)
Gain on sale of building.......................... 1,132
- -- -- -- --
Net income (loss)................................. 4,692
601 (1,145) (1,515) (4,392)
Net Income (loss) per share:
Basic earnings (loss)............................. .76
.10 (0.18) (0.24) (0.70)
Diluted earnings (loss)........................... .73
.10 (0.18) (0.24) (0.70)
As of December 31:
Total assets...................................... 48,279
42,596 50,081 40,342 46,389
Short-term debt .................................. 10,995
13,277 19,368 11,461 13,689
Shareholders' equity.............................. 23,673
18,713 18,174 19,429 20,960
Book value per share.............................. 3.81
3.29 3.20 3.38 3.62
Shares outstanding................................ 6,218
6,242 6,227 6,227 6,227
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
CORPORATE OVERVIEW
Higher sales and gross margin and a $1.1 million one-time gain on
the sale of a building resulted in $4.7 million of net income in
1997. An increase in sales of both CB radios, with the company's
exclusive, patent-pending SoundTracker technology, and radar
detector, both domestically and internationally, fueled the sales
growth and improved the gross margin to its highest level in the
1990s.
Also late in 1997, the company announced the industry's first
line of
six-band radar detectors, scheduled for shipment beginning in the
Spring of 1998. The company has designed these detectors to
alert
drivers to each of the four current speed monitoring systems in
use -- X,K,Ka and Laser -- plus VG-2, the "detector detector"
monitoring band, and the Safety Alert Traffic Warning System
band.
This makes the unique Cobra six-band detector the most
comprehensive alert system in the industry and for the first time
allows drivers to be aware of all four speed monitoring systems
as
well as the presence of VG-2 and Safety Alert transmissions.
Because 6 Band technology represents the first really
significant
innovation since the introduction several years ago of the
current
four-band models, retailer demand for these proprietary units has
been very strong and has resulted in new distribution
opportunities for Cobra. For example, the company recently added
Best Buy and Circuit City as radar detector customers for 1998
because of six band detectors.
RESULTS OF OPERATIONS
1997 Compared to 1996
- ---------------------
Net income for 1997 increased to $4.7 million from $601,000 in
1996. Included in net income for 1997 was a $1.1 million gain on
the third quarter sale of a building that the company did not
need
for its operations and was leasing to an outside party. Net
income, excluding the gain on the sale of the building, increased
$3.0 million to $3.6 million in 1997 from $601,000 in 1996. Net
sales increased $13.8 million, or 15.2%, to $104.1 million from
$90.3 million in 1996. Selling, general and administrative
expense increased to $16.7 million from $14.4 million, but, as a
percentage of net sales, remained substantially unchanged at 16%.
Sales of mobile electronics products (mainly CB radios, Family
Radio Service two-way radios and integrated radar/laser
detectors)
increased approximately $23.8 million, or 39.6% in 1997 compared
to 1996. Sales of CB radios increased 28% mainly because of
strong demand for radios with the company's exclusive, patent-
pending SoundTracker technology, introduced early in the year.
Additionally, an all-new radar detector lineup helped drive sales
volume in the U.S., while internationally the company capitalized
on the strong demand in Russia for radar detectors. In total,
international sales of mobile electronics products increased $9.8
million in 1997.
Telecommunication products sales decreased $10 million because of
lower sales of both 25-channel cordless phones and integrated
cordless phone answering systems to several large retail
customers.
Also contributing to the sales decrease was lower sales of
factory
reconditioned products as a result of agreements with some of the
company's vendors that allow product returned from the company's
customers to be returned to the vendor for partial credit towards
future purchases. Prior to these agreements, which were entered
into in 1996, the company repaired and resold this returned
merchandise as factory reconditioned product. The company also
restricted expanding distribution for its 25-channel cordless
phones as it seeks to de-emphasize this product line in favor of
the rapidly growing 900 MHz segment which the company will enter
in the Fall of 1998 with several 900 MHz cordless phone models.
Gross margin for 1997 increased to 20.7% from 18.1% in 1996
primarily due to an improvement in sales mix of higher margin CB
and radar detector products. Sales of mobile electronics
products
increased as a percentage of total sales from 67% in 1996 to 81%
in 1997. In addition, gross margin on radar detectors increased
due to the new radar detector lineup, which included lower cost
models that replaced higher cost models. Also contributing to
the
gross margin improvement was lower repair costs on returned
products, which declined because of return to vendor agreements
discussed above. Partially offsetting the favorable impact of
these items was $555,000 of increased air freight expense mainly
to satisfy the strong demand for CB radios with the SoundTracker
system. Normally the company uses significantly less expensive
ocean freight to import its products.
Selling, general and administrative expense increased $2.3
million
during 1997 and, as a percentage of net sales, remained
relatively
unchanged from 1996. Sales and marketing expenses increased due
to: higher variable expenses resulting from the increase in sales
volume; the addition of a senior vice president of marketing and
sales, a newly created position, in February 1997; and increased
promotional spending mainly to promote the new SoundTracker
technology. In addition, higher bonus and bad debt expense in
1997 also contributed to the increase in selling, general and
administrative expenses. Bad debt expense increased because of
the bankruptcy of a small customer and a potential preference
payment issue for a prior year's bankruptcy. In addition, prior
year's bad debt expense reflected a favorable reserve adjustment
because of improvement in the quality of the receivable portfolio
and favorable collections experience.
Interest expense for 1997 decreased to $1.3 million from $1.7
million. Debt levels declined due to lower average inventory and
receivable levels. In addition, the company sold a building,
which was not needed for operations and was being leased to an
outside party, in the third quarter of 1997 for approximately $2
million. The sale resulted in a $1.1 million gain.
Other expense was $60,000 in 1997 compared to other income of
$275,000 in 1996. In 1996 there was a gain of $373,000 from a
suit against a former distributor for violation of a licensing
agreement and $217,000 of royalty income from Safety Alert
licensing agreements, offset by a $384,000 writedown of a
building
related to a discontinued operation.
1996 Compared to 1995
- ---------------------
Net income for 1996 was $601,000 compared to a net loss of $1.1
million in the year ago period. Selling, general and
administrative expense decreased $1.7 million to 15.9 percent of
net sales from 17.8 percent of net sales in the prior year. 1996
net sales were substantially unchanged from the prior year.
Sales of mobile electronics products (mainly CB radios and
integrated radar/laser detectors) declined approximately $900,000
in 1996 compared to 1995. Higher domestic CB sales were offset by
a large drop in international CB sales, mainly because of a
trademark dispute that limited shipments to a South American
distributor. Also, offsetting some of this drop was increased
sales of integrated radar/laser detectors primarily because of
expanded distribution overseas.
Telecommunications product sales increased $1.6 million in 1996
compared to 1995, primarily due to increased sales to Sprint of
the exclusive Sprint-branded Intenna cordless telephone and
Cobra-branded integrated Intenna cordless phone/answering
systems. 1996
sales to Sprint doubled from their 1995 levels. Partially
offsetting this increase was a decrease in international sales of
telecommunications products due to a lack of cordless phone
availability because of constraints in capacity at the company's
cordless phone supplier as well as compliance issues with local
regulatory requirements.
Gross margin for 1996 and 1995 was 18.1 percent and 18.3 percent,
respectively. Increased cordless phone margins, which reflected
strong demand for 25-channel phones that were not available in
1995, were offset by lower answering system margins due mainly to
increased air freight expenses to import the company's popular
Intenna answering systems in order to take advantage of customer
orders that exceeded original forecasts. As a result, the
company
was not able to use less expensive ocean freight as it normally
does and still satisfy this demand in a timely manner. Also
offsetting the higher cordless phone margins were a decrease in
detector margins, which was due to downward pricing pressures on
several higher-priced models. CB margins were essentially
unchanged from the prior year.
Selling, general and administrative expenses decreased $1.7
million due to lower sales and marketing expenses, which declined
because of lower advertising expenses, a change in sales
commission programs, and the implementation of other cost
reduction programs such as bringing in house some packaging and
print media design activities. In addition, 1995 expenses
included higher than normal marketing and product development
costs incurred to build sales volume. Partially offsetting the
lower selling and marketing expenses was a $1.2 million charge to
reduce advertising credits to their net realizable value, which
was partially offset by a decline in bad debts expense because of
improvement in the quality of the receivable portfolio and
favorable collections experience.
Interest expense for 1996 decreased to $1.7 million from $1.8
million in the prior year due primarily to lower interest rates.
In addition, as a result of consolidation of warehousing
activities the Company sold one of its three Chicago buildings
for
approximately $1 million, which reduced borrowings.
Other income increased to $275,000 in 1996 from $127,000 in 1995
and reflects a gain of $373,000 from a suit against a former
distributor for violation of a licensing agreement and $217,000
of
royalty income from Safety Alert licensing agreements, offset by
a
$384,000 writedown of a building related to a discontinued
operation.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the company had a $30 million secured
credit
facility that included a fixed term loan. Borrowings and letters
of credit issued under this agreement were collateralized by the
company's assets, and usage of the non-term loan portion was
limited to certain percentages of accounts receivable and
inventory. The fixed term loan was secured by the company's
buildings and equipment and required both monthly principal
payments of $43,000 and a balloon payment of $2 million at the
time of expiration.
The credit agreement specified that the company may not pay cash
dividends and contained a material adverse change clause, which,
under certain circumstances, could accelerate the payment of the
debt. Because of this clause the company classified the debt as
short-term for financial reporting purposes. The company does
not
believe a material adverse change is likely. At December 31,
1997, the company had approximately $8.4 million of unused credit
line.
On February 3, 1998, the company entered into a new $35 million
secured credit agreement with two financial institutions for a
three-year revolving credit facility, replacing the existing $30
million credit agreement. Loans outstanding under the new
agreement bear interest, at the company's option, at the prime
rate or, under a LIBOR option, at LIBOR plus 2 percent.
Additionally, the new agreement provides for higher advance rates
on eligible inventory and receivables and eliminates the 2
percent per annum charge that the company was obligated to pay on
its average outstanding balance of letters of credit under the
previously existing agreement.
Cash flows provided by operating activities were $540,000 for the
year ended December 31, 1997. Receivables increased compared to
the prior year because of higher sales volume. Inventories
increased mainly because of higher CB and radar detector
inventories as well as investment in inventories for the new
power
inverter line and for the growing Safety Alert transmitter
business. CB inventory increased in anticipation of continued
strong demand for SoundTracker models in the first quarter of
1998.
Radar detector inventories increased because of lower than
anticipated year end domestic sales. Accrued liabilities
increased due to: higher product warranty costs as a result of
the
higher sales volume in 1997 compared to 1996; and increased
accrued salaries and commissions due to higher bonus and deferred
compensation accruals.
Cash flows provided by operating activities were $8.2 million for
the year ended December 31, 1996. Receivables decreased compared
to the prior year because the 1995 balance included amounts from
several large customers which were due prior to year end but were
received shortly thereafter. Inventories decreased because soft
demand at retail during the fourth quarter of 1995 resulted in
lower than anticipated sales and higher than expected inventory
levels at the end of 1995. Other assets decreased due to a
charge
to reduce advertising credits to their net realizable value.
Accounts payable declined because of reduced purchases of product
on open account from a domestic supplier and lower unpaid letters
of credit due to timing of payments.
Cash flows used in operating activities were $4.8 million for the
year ended December 31, 1995; losses from operations of $1.1
million together with an increase in working capital requirements
provided for the cash outflow. The increase in receivables is
due
mainly to higher fourth quarter sales compared to the prior year
as well as payments from several large customers which were due
prior to year end but were received shortly thereafter.
Inventories increased mainly as a result of lower than
anticipated
sales during the year-end holiday selling season because of soft
demand at the retail level. Accounts payable increased because
of
additional purchases of product on open account from a domestic
supplier. The majority of the company's purchases are from
foreign suppliers and are financed with letters of credit, which
require payment at the time of shipment.
Investing activities provided cash of $683,000 in 1997 and
required cash of $703,000 and $1.9 million in 1996 and 1995,
respectively. Most of the cash outflows during these years
related to the purchase of tooling and equipment. In 1997 the
company sold a building that the company did not need for
operations and was leasing to an outside party for approximately
$2 million. In 1996 due to consolidation of the warehousing
activities, the company sold a building for approximately $1
million.
Cash flows provided by and used for financing activities for the
three years ending December 31, 1997, primarily reflect changes
in
the company's borrowing requirements under its line-of-credit
agreement.
At December 31, 1997, the company had no material commitments,
other than approximately $21.1 million in outstanding purchase
orders for products compared with $23.8 million at the end of the
prior year.
The company believes that cash generated from operations and from
borrowings under its credit agreement will be sufficient
in 1997 to fund its working capital needs. In addition, the
majority of any taxable income in 1997 will be offset by net
operating loss carryforwards that totaled $40.0 million at
December 31, 1996.
YEAR 2000
The company initiated the process of preparing its computer
systems and applications for the Year 2000 in 1997. This process
involves modifying or replacing certain hardware and software
maintained by the company. Management expects to have
substantially all of the system and application changes completed
by the end of 1998 and believes its level of preparedness is
appropriate.
The total cost to the company of these Year 2000 Compliance
activities has not been and is not anticipated to be material to
its financial position or results of operations in any given
year.
The costs and the date on which the company plans to complete the
Year 2000 modification are based on management's best estimates,
which were derived utilizing numerous assumptions of future
events
including the continued availability of certain resources, third
party modification plans and other factors. However, there can
be
no guarantee that these estimates will be achieved and actual
results could differ from those plans.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
Financial Statements and quarterly financial data are included in
this Annual Report on Form 10-K, as indicated in the index on
page 39.
CONSOLIDATED STATEMENTS OF OPERATIONS
Cobra Electronics Corporation
Years Ended December 31 (in
thousands, except per share amounts) 1997 1996 1995
- ----------------------------------- -------- --------
- -------
Net sales.......................... $104,098 $ 90,324
$90,442
Cost of sales...................... 82,547 73,954
73,865
-------- --------
- --------
Gross profit....................... 21,551 16,370
16,577
Selling, general and administrative
expense.......................... 16,655 14,374
16,097
-------- -------
- --------
Operating income .................. 4,896 1,996
480
Other income (expense):
Interest expense................. (1,276) (1,670)
(1,752)
Gain on sale of building......... 1,132 -- --
Other income (expense), net ..... (60) 275
127
-------- -------
- --------
Income (loss) before income taxes.. 4,692 601
(1,145)
Income taxes....................... --- ---
- ---
-------- -------
- --------
Net income(loss)................... $ 4,692 $ 601
$(1,145)
======= =======
========
Net income (loss) per common share:
Basic $ .76 $ .10 $
(0.18)
Diluted $ .73 $ .10 $
(0.18)
Weighted average shares outstanding:
Basic 6,207 6,231 6,227
Diluted 6,459 6,285 6,227
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Cobra Electronics Corporation
At December 31 (in thousands) 1997 1996
- --------------------------------------- -----------
- -----------
ASSETS:
Current assets:
Cash.................................. $ 1,815 $ 2,606
Receivables, less allowance for doubtful
accounts of $958 in 1997 and $792
in 1996........................... 15,685 12,314
Inventories, primarily finished goods. 19,830 15,418
Other current assets.................. 1,337 733
------- --------
Total current assets.................. 38,667 31,071
------- --------
Property, plant and equipment, at cost:
Land.................................. 330 482
Buildings and improvements............. 3,553 5,804
Tooling and equipment................. 11,264 10,091
------- --------
15,147 16,377
Accumulated depreciation and
amortization.......................... (10,436) (10,244)
-------- --------
Net property, plant and equipment..... 4,711 6,133
-------- --------
Other assets............................ 4,901 5,392
-------- --------
Total assets............................ $48,279 $42,596
======== ========
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Cobra Electronics Corporation
At December 31 (in thousands, except
share data) 1997 1996
- ----------------------------------------- -----------
- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable...................... $ 3,637 $ 3,335
Accrued salaries and commissions...... 1,307 340
Accrued advertising and sales promotion
costs.............................. 1,093 654
Accrued product warranty costs........ 4,173 2,838
Other accrued liabilities............. 1,170 1,446
Short-term debt....................... 10,995 13,277
------- -------
Total current liabilities............. 22,375 24,890
------- -------
Long-term liability:
Deferred compensation................. 2,231 1,993
Shareholders' equity:
Preferred stock, $1 par value, shares
authorized-1,000,000; none issued.... --- ---
Common stock, $.33 1/3 par value,
12,000,000 shares authorized,
7,039,100 issued and 6,217,791
outstanding for 1997 and 6,241,648
outstanding for 1996................. 2,345 2,345
Paid-in capital........................ 20,681 22,062
Retained earnings...................... 6,272 1,580
------- -------
29,298 25,987
Treasury stock, at cost
(821,309 shares for 1997 and 797,452
shares for 1996)................... (5,625)
(5,450)
Note receivable from officer's
exercise of stock options.......... ---
(1,824)
--------
- --------
Total shareholders' equity............. 23,673 18,713
--------
- --------
Total liabilities and shareholders'
equity................................. $48,279 $42,596
======== ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cobra Electronics Corporation
Years Ended December 31(in thousands) 1997 1996 1995
- ------------------------------------- -------- --------
- --------
Cash flows from operating activities:
Net income (loss)................... $ 4,692 $ 601
$(1,145)
Adjustments to reconcile net income
(loss) to net cash flows from
operating activities:
Depreciation and amortization..... 3,198 3,080
1,826
Gain on sale of fixed assets...... (1,132) (123) ---
Changes in assets and liabilities:
Receivables..................... (3,371) 3,447
(4,948)
Inventories..................... (4,412) 2,287
(2,611)
Other current assets............ (686) 138
466
Other assets.................... (754) 666
(1,429)
Accounts payable................ 302 (2,735)
2,648
Accrued liabilities............. 2,703 802
439
Deferred compensation........... 2,238 231
162
-------- --------
- --------
Net cash flows from
operating activities.............. 540 8,163
(4,754)
-------- -------
- --------
Cash flows from investing activities:
Proceeds from sale of fixed assets.. 1,999 1,086 ---
Capital expenditures................ (1,316) (1,789)
(1,678)
Net cash used for discontinued
operation......................... --- ----
(263)
-------- -------
- --------
Net cash flows from
investing activities.............. 683 (703)
(1,941)
-------- -------
- --------
Cash flows from financing activities:
Net borrowings (repayments) under the
line-of-credit agreement.......... (2,282) (6,091)
7,907
Transactions related to exercise of
stock options, net................ 268 (62)
(110)
-------- -------
- --------
Net cash flows from
financing activities.............. (2,014) (6,153)
7,797
-------- -------
- --------
Net increase (decrease)in cash........ (791) 1,307
1,102
Cash at beginning of year............. 2,606 1,299
197
-------- -------
- --------
Cash at end of year................... $ 1,815 $2,606 $
1,299
======== =======
========
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 1,274 $ 1,716 $
1,654
Taxes 338 83 ---
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Cobra Electronics Corporation
Note
Three Years Ended
Rec.
December 31, 1997 Common Paid-In Retained
Treasury from
(dollars in thousands) Stock Capital Earnings Stock
Officer
- ---------------------------- ------- ------- --------
- ------- -------
Balance-January 1, 1995..... $ 2,345 $ 22,118 $ 2,124 $
5,545 $ 1,613
Net loss.................. --- --- (1,145)
- --- ---
Note receivable interest.. --- --- ---
- --- 110
------- -------- ---------
- ------- --------
Balance-December 31, 1995... 2,345 22,118 979
5,545 1,723
Net income................ --- --- 601 ---
---
Note receivable interest.. --- --- --- ---
101
Transactions related to
exercise of options, net.. --- (56) ---
(95) ---
------- --------- --------
- -------- --------
Balance-December 31, 1996... 2,345 22,062 1,580
5,450 1,824
Net income................ --- --- 4,692 ---
---
Note receivable interest.. --- --- --- ---
81
Exchange of note receivable
for common stock (Note 9)
1,905 (1,905) Transactions related to
exercise of options, net.. --- (1,381) ---
(1,730) ---
------- --------- --------
- -------- --------
Balance-December 31, 1997 .. $ 2,345 $ 20,681 $ 6,272 $
5,625 $ ---
======= ======== ========
======== ========
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cobra Electronics Corporation
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS -- The company designs and markets consumer
electronics products, a majority of which are purchased from
overseas suppliers, primarily in China, Malaysia, Thailand,
Korea, and Japan. The consumer electronics market is
characterized by rapidly changing technology and certain
products may have limited life cycles. Management believes
that it maintains strong relationships with its current
suppliers and, if necessary, other suppliers could be found.
Production delays or a change in suppliers, however, could
cause a delay in obtaining inventories and a possible loss of
sales, which could adversely affect operating results.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial
statements include the accounts of the company and its
subsidiaries.
USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
INVENTORIES -- Inventories are recorded at the lower of cost,
on a first-in, first-out basis, or market.
DEPRECIATION -- Depreciation of buildings, improvements,
tooling and equipment is computed using the straight-line
method and the following estimated useful lives:
Classification Life
- ------------------------- ----------
Buildings................ 30 years
Building improvements.... 20 years
Motor vehicles........... 3-5 years
Equipment................ 5-10 years
Tools, dies and molds.... 2 years
LONG-LIVED ASSETS -- Long-lived assets are reviewed for
possible impairment whenever events indicate that the carrying
amount of such assets may not be recoverable. If such a review
indicates an impairment, the carrying amount of such assets is
reduced to estimated recoverable value.
RESEARCH, ENGINEERING AND PRODUCT DEVELOPMENT EXPENDITURES --
Research, engineering and product development expenditures are
expensed as incurred and amounted to $.8 million in 1997 and
1996 and $1.1 million in 1995.
INCOME TAXES -- The company provides for income taxes under the
asset and liability method of accounting for deferred income
taxes. Deferred tax assets and liabilities are recorded based on
the expected tax effects of future taxable income or deductions
resulting from differences in the financial statement and tax
bases of assets and liabilities. A valuation allowance is
recorded when necessary to reduce net deferred tax assets to the
amount considered more likely than not to be realized.
REVENUE RECOGNITION -- Revenue from the sale of goods is
recognized at the time of shipment. Obligations for sales
returns and allowances and product warranties are recognized at
the time of sale on an accrual basis.
NEW ACCOUNTING PRONOUNCEMENTS -- In 1997, the Financial
Accounting Standards Board issued SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" and, in 1998
they issued SFAS No. 132, " Employers' Disclosures about
Pensions and Other Postretirement Benefits." SFAS No. 130
establishes standards for reporting and display of
comprehensive income and its components. SFAS No. 131
establishes standards for reporting information about operating
segments and related disclosures about products and services,
geographic areas and major customers. SFAS No. 132 revises
current disclosure requirements for employers' pensions and
other retiree benefits. These standards are effective for
years beginning after December 15, 1997. These standards
expand or modify current disclosures and accordingly, are not
expected to have a significant impact on the company's reported
financial position, results of operations and cash flows.
In 1997, the company adopted Statement of Financial Standard
No. 128, "Earnings Per Share". This statement establishes
standards for computing and presenting earnings per share
("EPS") and applies to all entities with publicly held common
stock or potential common stock and requires restatement of
earnings per share for all periods reported. This statement
replaces the presentation of primary EPS and fully diluted EPS
with a presentation of basic EPS and diluted EPS, respectively.
Basic EPS excludes dilution and is computed by dividing
earnings available to common stockholders by the weighted-average
number of common shares outstanding for the period.
Similar to fully diluted EPS, diluted EPS reflects the
potential dilution of securities that could share in the
earnings.
RECLASSIFICATION -- Certain amounts for prior years have been
reclassified to conform with 1997 financial statement
presentation.
(2) TAXES ON INCOME
Deferred tax assets (liabilities) by component at December 31,
1997 and 1996 were:
(in thousands) 1997 1996
- ------------------------------------------ --------- ---------
Net operating loss carryforwards.......... $ 12,006 $ 15,768
Investment tax credit carryforwards....... 1,938 1,938
Alternative minimum tax credit carryforwards 1,298 1,097
Tax lease income.......................... (7,354) (7,785)
Receivable reserves....................... 202 128
Warranty reserves......................... 1,444 1,100
Inventory reserves........................ 901 590
Accrued promotion expenses................ 1,824 1,036
Sales related reserves.................... 634 575
Compensation reserves..................... 1,153 793
Other, net................................ 116 558
--------- ---------
Net deferred tax assets................... 14,162 15,798
Valuation allowance....................... (13,756) (15,596)
--------- ---------
Net deferred tax assets................... $ 406 $ 202
========= =========
Net deferred tax assets are classified with other noncurrent
assets in the consolidated balance sheets.
The tax lease income resulted from the purchase of several 1983
tax lease agreements to acquire tax benefits under the provisions
of the Economic Recovery Tax Act of 1981. The total cash price
paid by the company was $12.4 million. The economic value of
these leases was not impaired by the Tax Reform Act of 1986. The
company realized temporary tax savings from accelerated
depreciation and permanent tax savings from credits associated
with the leases, subject to statutory limitations. These savings
offset current taxes payable which would otherwise have been due
on income from normal operations. In 1996 approximately
$6,917,000 of net operating loss carryforwards were scheduled to
expire. Effective December 31, 1996, the company terminated one
of its tax lease agreements which resulted in the recognition of
approximately $5.8 million in taxable income.
Prior to 1996, the company had a history of net losses resulting
in a significant net deferred tax asset and valuation allowance.
Under SFAS No. 109, a history of operating losses in recent years
generally requires recognition of such an allowance. Accordingly,
the company recorded a valuation allowance for substantially all
of the net deferred tax asset as of December 31, 1997. If the
company continues its growth in net income, SFAS No. 109 will
require management to assess the need for a valuation allowance.
If it is determined that the valuation allowance is not needed,
it will be credited to income. In 1997, the valuation allowance
for net deferred tax assets was reduced by approximately
$1,840,000 to recognize the utilization of net operating loss
carryforwards and net changes in temporary differences.
At December 31, 1997, the company has net operating loss
carryforwards("NOL") available to offset future taxable income,
and both investment tax credit ("ITC")and alternative minimum tax
credit carryforwards to offset future income tax payments. The
alternative minimum tax credit carryforwards, amounting to
$1,298,000, do not expire.
In 1997, the company utilized approximately $9.6 million of net
operating loss carryforwards to offset taxable income. The
company's taxable income for 1997 exceeded its book income mainly
because of charges to reserves which are not expensed for tax
purposes until actually incurred in future periods.
The net operating loss and investment tax credit carryforwards
expire as follows (in thousands):
Year of Expiration NOL ITC
- ----------------------- --------- ---------
1998................... $ -- $ 1,804
1999................... -- 112
2000................... -- 22
2002................... -- ---
2006................... 5,509 ---
2007................... 11,575 ---
2008................... 9,920 ---
2009................... 3,355 ---
--------- ---------
Total.................. $ 30,359 $ 1,938
========= =========
The statutory Federal income tax rates are reconciled to the
effective income tax rates as follows:
Description 1997 1996 1995
- -------------------------------------- ------ ------ ------
Statutory Federal income tax rate. ... 34.0% 34.0% 34.0%
State taxes, net of Federal income tax
benefits........................... 4.7 4.7 4.7
Utilization of net operating loss
carryforwards...................... (38.7) (38.7) (38.7)
------ ------ ------
Effective tax rate.................... ---% ---% ---%
====== ====== ======
(3) FINANCING ARRANGEMENTS
The company had a $30 million secured credit facility that
included a fixed term loan. In October, 1996 the agreement for
this credit facility was extended to March 31, 1998.
Borrowings and letters of credit issued under this agreement were
collateralized by the company's assets, and usage of the non-term
loan portion was limited to certain percentages of accounts
receivable and inventory. The fixed term loan was secured by the
company's buildings and equipment and required both monthly
principal payments of $43,000 and a balloon payment of $2
million at the time of expiration. Interest was payable monthly
at prime (8.50% at December 31, 1997) plus one and one-half
percent.
The credit agreement specified that the company may not pay cash
dividends and contained a material adverse change clause, which,
under certain circumstances, could accelerate the payment of the
debt. Because of this clause, the company classified the debt as
short-term for financial reporting purposes. Management does not
believe a material adverse change is likely and does not believe
that repayment of the debt will be accelerated. Maximum
borrowings outstanding at any month-end were $15.7 million and
$19.8 million in 1997 and 1996, respectively. Aggregate average
borrowings outstanding were $12 million during 1997 and $17
million during 1996 with weighted average interest rates thereon
of 10.3% and 9.5% during 1997 and 1996, respectively.
The maximum value of letters of credit outstanding at any month
end were $11.0 million and $8.4 million in 1997 and 1996,
respectively. At December 31, 1997, the company had
approximately $8.4 million of unused credit line.
During 1997, 1996 and 1995, the company made interest payments of
$1.3 million, $1.7 million and $1.7 million, respectively.
On February 3, 1998, the company entered into a new $35 million
secured credit agreement with two financial institutions for a
three-year revolving credit facility, replacing the existing $30
million credit agreement with another lender. Loans outstanding
under the new agreement bear interest, at the company's option,
at the prime rate or, under a LIBOR option, at LIBOR plus 2
percent. Additionally, the new agreement provides for higher
advance rates on eligible inventory and receivables and
eliminates the 2 percent per annum charge that the company was
obligated to pay on its average outstanding balance of letters of
credit under the previously existing agreement.
4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The company's financial instruments include cash, accounts
receivable, accounts payable, short term debt and letters of
credit. The fair values of cash, accounts receivable and
accounts payable approximate fair value because of the short
maturity of these instruments. The carrying amounts of the
Company's bank borrowings under its credit facility approximate
fair value because the interest rates are reset periodically to
reflect current market rates. The letters of credit reflect fair
value as a condition of their underlying purpose and are subject
to fees competitively determined in the marketplace. The
contract value/fair value of the letters of credit at December
31, 1997 and 1996 was $8.0 million and $5.6 million,
respectively. These letters of credit are only executed with
major financial institutions, and full performance is
anticipated.
5) LEASE TRANSACTIONS
The company leases facilities and equipment under noncancellable
leases with remaining terms of one year or more. The terms of
these agreements provide that the company pay certain operating
expenses. Some of these lease agreements also provide the
company with the option to purchase the related assets at the end
of the respective initial lease terms.
Rental amounts committed in future years are summarized at
December 31, 1997 as follows:
Operating Capital
(in thousands) Leases Leases Total
-------------- --------- ------- -----
1998 $ 7 $ 111 $ 118
1999 7 72 79
2000 7 59 66
2001 1 -- 1
2002 0 -- 0
----- ----- -----
Total $ 22 $ 242 $ 264
Total rental expense amounted $6,000 in 1997, $16,000 in 1996 and
$225,000 in 1995. Future capital lease rental payments include
executory costs of $82,000, interest expense of $9,000 and
principal payments of $151,000.
6) SHAREHOLDERS' EQUITY
PREFERRED STOCK -- Preferred stock is issuable from time to time
in one or more series, which series may have such voting powers,
and such designations, preferences, and relative participating,
optional or other special rights, and qualifications, limitations
or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions providing for the issue of such stock
adopted by the Board of Directors. No preferred stock has been
issued.
EARNINGS PER SHARE -- Weighted average common shares outstanding
used in the basic earnings per share calculation were 6,206,812
in 1997 and 6,231,075 in 1996 and 6,226,648 in 1995. Diluted
earnings per share are calculated using the treasury stock method
and giving effect to common share equivalents. Weighted average
common shares outstanding used in the diluted earnings per share
calculation includes the effect of stock options of 252,012 in
1997, 54,193 in 1996 and none in 1995.
(7) STOCK OPTION PLANS
The company has six Stock Option Plans-- 1997, 1995, 1988, 1987,
1986 and 1985 ("the Plans"). Under the terms of the Plans, the
consideration received by the company upon exercise of the
options may be paid in cash or by the surrender and delivery to
the company of shares of its common stock, or by a combination
thereof. The optionee is credited with the fair market value of
any stock surrendered and delivered as of the exercise date.
Options granted under the 1985 nonqualified plan may include
provisions that are similar to stock appreciation rights in that
they entitle the holder to additional compensation at the date of
exercise or, if later, at the date when the exercise transaction
becomes taxable. The anticipated cost is recognized over the
vesting period of the options, which ranges from one to five
years. Currently there are no options outstanding that include
these provisions.
The company applies Accounting Principles Board Opinion No. 25
and related Interpretations in accounting for the Plans.
Accordingly, no compensation cost has been recognized. Had
compensation cost been determined consistent with Statement of
Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", the company's net income (loss) and
earnings (loss) per share would have been adjusted to the pro
forma amounts indicated below (in thousands, except per share
amounts):
1997 1996 1995
Net income As Reported $ 4,692 $ 601 $(1,145)
Pro forma 4,366 467 (1,178)
Earnings (Loss) Per Share:
Basic As Reported $ .76 $ .10 $ (.18)
Pro forma .70 .07 (.19)
Diluted As Reported $ .73 $ .10 $ (.18)
Pro forma .68 .07 (.19)
A summary of certain provisions and amounts related to the Plans
follows:
1997
1995
1988 1987 1986 1985
Plan Plan Plan Plan
Plan
Plan -------------------------------------------------
- --------
- ------- -------- -------- -------- ------
Authorized, unissued shares available for grant.. 300,000
300,000
500,000 150,000 225,000 525,000
Nonqualified options granted at not less than
80% of fair value at date of grant............ -0-
- -0-
-0- -0- -0- -0-
Incentive stock options granted at 100% of
fair value at date of grant................... -0-
- -0-
-0- -0- -0- -0-
Shares exercisable at December 31, 1997.......... -0-
4,875
322,250 -0- 42,500 18,750
The fair value of each option is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted average assumptions used: no dividends; expected
volatility of 49 percent; risk-free interest rate of 5.4 percent;
and expected lives of 5 years.
A summary of the status of the Plans as of December 31, 1997,
1996
and 1995, and changes during the years ended on those dates is
presented below:
1997
1996 1995
-----------------
- ---------------- ----------------
Weighted
Weighted Weighted
Average
Average Average
Shares Exercise
Shares Exercise Shares Exercise
Fixed Options (000) Price
(000) Price (000) Price
- --------------------------------------- ------- ---------
- ------- -------- ------- --------
Outstanding at beginning of year 935 $3.06
855 $3.06 1,039 $3.24
Granted 374 4.46
114 2.88 178 2.44
Exercised (328) 2.63
(16) 2.56 --- ---
Cancellations and Expirations (67) 2.65
(18) 2.68 (362) 3.24
-------
- ------- -------
Outstanding at end of year 914
935 855
Options exercisable at year end 388
584 476
Weighted-average fair value of options
granted during the year $ 2.20
$1.29 $.97
The following table summarizes information about stock options
outstanding at December 31, 1997:
Options Outstanding
Options Exercisable
- -------------------------------------
-------------------------
Weighted
Weighted Average
Weighted
Number Average
Remaining
Number Average
Range of Outstanding Exercise
Contractual
Exercisable Exercise
Exercise Prices (000) Price Life
(000) Price
- ---------------- --------- ----------- -----------
- -----------
-------- ---------
Less than $2 39 $1.88 2.1
2 $1.90
$2.01 to $3.00 257 2.79 3.1
48 2.62
$3.01 to $4.00 443 3.71 1.7
338 3.84
$4.01 to $5.00 -- -- --
-- --
$5.01 to $6.00 150 5.63 4.6
$6.01 to $7.00 -- -- --
-- --
$7.01 to $8.00 -- -- --
-- --
$8.01 to $9.00 25 8.50 4.6
-- --
---
---
914 3.82 2.7
388 3.68
===
===
(8) RETIREMENT BENEFITS
The only qualified retirement plan for employees is the Cobra
Electronics Corporation Profit Sharing and 401(k) Incentive
Savings Plan (the "Plan"). The company may make a discretionary
annual profit sharing contribution that is allocated among
accounts of persons employed by the company for more than one
year, prorated based on the compensation paid to such persons
during the year. Profit sharing expense for 1997 and 1996 was
$169,000 and $55,000, respectively. There were no profit sharing
contributions in 1995.
As of December 31, 1997 and 1996, deferred compensation of $2.2
million and $2.0 million, respectively, was recorded as a
long-term liability. The current portion of the deferred
compensation
liability was included in accrued salaries and commissions, and
amounted to $253,000 at December 31, 1997. There was no current
portion at December 31, 1996. Deferred compensation obligations
arise pursuant to outstanding key executive employment
agreements, the majority of which relates to the former president
and chief executive officer.
(9) RELATED PARTY TRANSACTIONS
In August 1997, the company exchanged its note receivable from
the
company's president and chief executive officer, of approximately
$1.9 million, for 300,000 common shares owned by the executive.
In 1990, pursuant to an employment agreement, the executive
exercised options on 375,000 common shares by executing a note
with the company in the amount of $1.25 million. The face amount
of the note plus accrued interest amounted to $1.9 million at the
date of exchange.
(10) COMMITMENTS
At December 31, 1997 and 1996, the company had outstanding
inventory purchase orders with suppliers totaling approximately
$21.1 million and $23.8 million, respectively.
(11) INDUSTRY SEGMENT INFORMATION
The company operates in only one business segment--consumer
electronics. Excluding company-owned tooling at suppliers with a
net book value of $906,000 at December 31, 1997, assets located
outside the United States are not material. Foreign sales were
$19.1 million, $10.1 million and $12.2 million in 1997, 1996 and
1995, respectively. For 1996, sales to one customer totaled
10.7%
of consolidated net sales. There were no sales in excess of 10%
of consolidated net sales to a single customer or a group of
entities under common control in 1997 and 1995. The company does
not believe that the loss of any one customer would have a
material adverse effect on its business.
(12) ADVERTISING BARTER CREDITS
During 1992, the company received $3.8 million of advertising
credits in exchange for certain discontinued products. These
credits can be used to reduce the cash cost of a variety of media
services (by 30 to 50 percent) prior to their expiration in
December 1998. The company is exploring opportunities to
exchange
a portion of the credits for various goods and services used by
the company as well as the outright sale of the credits to third
parties. During 1997, 1996, and 1995, the company utilized
credits of approximately $10,000, $20,000, and $329,000,
respectively. In 1997, 1996 and 1995 the company recorded charges
of $1.1 million, $1.2 million and $.1 million, respectively to
reduce the credits to their estimated net realizable value. The
net carrying value of the credits at December 31, 1997 and 1996
was $0 and $1.2 million, respectively.
(13) OTHER ASSETS
In addition to the advertising barter credits, other assets at
December 31, 1997 and 1996 included the cash value on officer
life
insurance policies of $3.9 million and $3.4 million,
respectively.
The cash value of officer life insurance policies is pledged as
collateral for the company's secured lending agreement and is
maintained to fund deferred compensation obligations (see Notes 3
and 8).
(14) CONTINGENCIES
The company is subject to various unresolved legal actions which
arise in the normal course of its business, the most prevalent of
which relates to federal excise tax. During 1996, the company
received notice from the Internal Revenue Service (IRS) asserting
deficiencies in federal excise taxes for filing periods October
1,
1993 through December 31, 1995. The excise tax relates to the
use of
ozone-depleting chemicals ("ODCs"). The company has protested
the
deficiencies and has filed an environmental excise tax protest.
Management believes that they have substantial defenses and
intends to defend these actions vigorously. Although it is not
possible to predict with certainty the outcome of this tax
dispute, management believes the ultimate outcome of this dispute
will not result in a material impact on the company's
consolidated
results of operations or financial position. Also in 1996, the
company recognized $373,000 of income related to a lawsuit
against a
former distributor for violation of a licensing agreement.
Quarterly Financial Data (Unaudited)
(In thousands, except per share amounts)
Quarter
Ended
- ------------------------------------------------------------------------------------------
March 31 June 30
September 30 December 31
--------------------- ---------------------
- --------------------- ---------------------
1997 1996 1997 1996
1997 1996 1997 1996
---------- ---------- ---------- ----------
- ---------- ---------- ---------- ----------
Net sales.........$ 17,915 $ 19,272 $29,472 $ 21,395
$31,353 $ 25,388 $ 25,358 $ 24,269
Cost of sales..... 14,403 16,139 23,776 17,260
24,585 20,657 19,783 19,898
Gross profit...... 3,512 3,133 5,696 4,135
6,768 4,731 5,575 4,371
Selling, general
and administra-
tive expense.... 3,134 3,417 4,147 3,622
5,022 3,873 4,352 3,462
Operating income
(loss).......... 378 (284) 1,549 513
1,746 858 1,223 909
Gain on sale of
building........ -- -- -- --
1,132 -- -- --
Net income (loss). 93 (583) 1,249 284
2,625 410 725 490
Net income (loss)
per share (a):
Basic............. 0.01 (0.09) 0.20 0.05
0.43 0.07 0.12 0.08
Diluted........... 0.01 (0.09) 0.20 0.05
0.39 0.07 0.11 0.08
Weighted average
shares outstanding
Basic............. 6,242 6,230 6,242 6,230
6,170 6,230 6,173 6,231
Diluted........... 6,332 6,230 6,308 6,263
6,652 6,272 6,643 6,306
(a) The total quarterly income per share may not equal the annual
amount because net income per share is calculated independently
for
each quarter.
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Board of Directors and Shareholders of
Cobra Electronics Corporation
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of
Cobra Electronics Corporation and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. Our audits
also
included the financial statement schedule for the three years
ended December 31, 1997, listed in the Index at Item 14.
These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsi-
bility is to express an opinion on the financial statements and
financial statement schedule based on our audits. We conducted
our
audits in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements
are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing
the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Cobra
Electronics Corporation and subsidiaries at December 31, 1997 and
1996, and the results of their operations and their cash flows
for
each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles. Also,
in our opinion, such financial statement schedule, when
considered
in relation to the consolidated financial statements taken as a
whole, presents fairly in all material respects the information
set forth therein.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 27, 1998
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in response to this item is set forth in the
company's
definitive proxy statement filed pursuant to Regulation 14A under
"Directors and Nominees," which information is hereby
incorporated
by reference. The information under "Section 16(a) Reports"
included in the definitive proxy statement is hereby incorporated
by reference.
The executive officers of the Registrant are as follows:
Name, Age and Has Held Present Prior Business Experience
Present Position Position Since in Past Five Years
- -------------------- ---------------- -------------------------
James Bazet, 49, January 1998 President and Chief
President
and Executive Officer, Ryobi
Chief Executive Officer* Motor Products Floor Care
Division, 1995 - 1997,
President and Chief
Executive Officer,
Code-A-
Phone Corporation, 1991-
1994.
Carl Korn, 76, Nov. 1961
Chairman*
Jerry Kalov, 62, July 1997 President and Chief
Vice Chairman* Executive Officer, 1986-
January 1, 1998; retired
January 1, 1998
Gerald M. Laures, 50, Mar. 1994 Corporate Secretary,
Vice President-Finance July 1989 to present;
and Corporate Secretary* Corporate Controller
June 1988 to March 1994.
Anthony Mirabelli, 56, Feb. 1997 Vice President of
Senior Vice President, Marketing, Uniden
America
Marketing and Sales Corporation, 1992 -
1997.
* Is also a director.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this item will be set forth in a
definitive proxy statement to be filed by the company pursuant to
Regulation 14A within 120 days after the close of the company's
1997 fiscal year, and such information, other than the
information
required by Item 402(k) ("Board Compensation Committee Report on
Executive Compensation") and Item 402(l) ("Performance Graph")
under Regulation S-K adopted by the Securities and Exchange
Commission, is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information in response to this item will be set forth in a
definitive proxy statement to be filed by the company pursuant to
Regulation 14A within 120 days after the close of the company's
1997 fiscal year, and such information is hereby incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this item will be set forth in a
definitive proxy statement to be filed by the company pursuant to
Regulation 14A within 120 days after the close of the company's
1997 fiscal year, and such information is hereby incorporated by
reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Index to Consolidated Financial Statements and Schedules
--------------------------------------------------------
Page or
Schedule
Description Number
------------------------------------------------ --------
[a] 1. Consolidated Statements of Operations for the
three years ended December 31,997............ 18
Consolidated Balance Sheets as of December 31,
1997 and 1996................................ 19-20
Consolidated Statements of Cash Flows for the
three years ended December 31, 1997.......... 21
Consolidated Statements of Shareholders' Equity
for the three years ended December 31, 1997.. 22
Notes to Consolidated Financial Statements...... 23-34
Quarterly Financial Data........................ 35
Independent Auditors' Report.................... 36
[a] 2. Schedule:
Valuation and Qualifying Accounts - 1997, 1996
and 1995.....................................
All other financial schedules have been omitted
because the required information is contained in
the consolidated financial statements and notes
thereto, or such information is not applicable.
[a] 3. Exhibits:
See Index to Exhibits on pages 41 through 44
[b] During the three months ended December 31, 1997 the
Company
filed no Current Reports on Form 8-K.
Schedule II
COBRA ELECTRONICS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
(in thousands)
-------------------------------------------
Balance at Additions
Deductions Balance at
beginning charged to
from end of
of period expense
reserves Other,net period
---------- ----------
- ---------- ---------- -----------
1997
- ----------------------------------
Allowance for doubtful account.... $ 792 $ 127
$
(7)[a] $ 46 [c] $ 958
Reserve for disposal of
discontinued operation.......... $ 658 $
$
(658)[e] $ --- $ 0
Advertising barter credit
valuation allowance.............. $ 2,041 $ 1,144
$
- --- $ --- $ 3,185
Tax valuation allowance........... $ 15,596 $ ---
$
- --- $ (1,840)[d] $ 13,756
1996
- ----------------------------------
Allowance for doubtful account.... $ 1,451 $ (400)
$
(349)[a] $ 90 [c] $ 792
Reserve for disposal of
discontinued operation.......... $ 274 $ 384
$
- --- $ --- $ 658
Advertising barter credit
valuation allowance.............. $ 841 $ 1,200
$
- --- $ --- $ 2,041
Tax valuation allowance........... $ 15,675 $ ---
$
- --- $ (79) [d] $ 15,596
1995
- ----------------------------------
Allowance for doubtful account.... $ 638 $ 440
$
(42) [a] $ 415 [c] $ 1,451
Reserve for disposal of
discontinued operation.......... $ 501 $ ---
$
(227) $ --- $ 274
Advertising barter credit
valuation allowance.............. $ 715 $ 126
$
- --- $ --- $ 841
Tax valuation allowance........... $ 15,671 $ ---
$
- --- $ 4 [b] $ 15,675
[a] Uncollectible accounts written off.
[b] Increase in allowance to offset additional net operating loss
carryforwards generated during the year, net of carryforwards
expiring, and the inability of the company to realize certain tax
assets because of its operating loss.
[c] Net adjustments to the reserve with an offsetting entry to
receivables.
[d] Decrease in allowance reflects the change in net deferred tax
assets excluding alternative minimum income tax paid in 1997 and
1996.
[e] All assets related to discontinued operations were sold in
1997.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COBRA ELECTRONICS CORPORATION
/S/ Gerald M. Laures
--------------------------
Gerald M. Laures
Vice President - Finance
and Corporate Secretary
Dated: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities
and on the date indicated above.
/S/ James Bazet Director, President
and Chief Executive --------------------- Officer
James Bazet
/S/ Carl Korn Director and Chairman of the
Board
- ---------------------
Carl Korn
/S/ Jerry Kalov Director and Vice Chairman of
the Board ---------------------
Jerry Kalov
/S/ William P. Carmichael Director
- ---------------------
William P. Carmichael
/S/ Samuel B. Horberg Director
- ----------------------
Samuel B. Horberg
/S/ Gerald M. Laures Director, Vice President -
Finance and
- ---------------------- Secretary (Principal Financial and
Gerald M. Laures Accounting Officer)
/S/ Harold D. Schwartz Director
- -----------------------
Harold D. Schwartz
INDEX TO EXHIBITS
-----------------
Exhibit
Number Description of Document
- -------
- --------------------------------------------------------
3(i)(a) Articles of Incorporation, as amended February 23,
1990-
-Filed as exhibit No. 3-1 to the Registrant's Form
10-K
for the year ended December 31, 1990 (File No.
0-511),
hereby incorporated by reference.
3(i)(b) Certificate of Ownership and Merger, filed with the
Secretary of State of Delaware on March 29,
1993--Filed
as exhibit No. 3-2 to the Registrant's Form 10-K
for the
year ended December 31, 1992 (File No. 0-511),
hereby
incorporated by reference.
3(ii) Bylaws, as amended December 6, 1983--Filed as
exhibit
No. 3-2 to the Registrant's Form 10-K for the year
ended
December 31, 1990 (File No. 0-511), hereby
incorporated
by reference.
10-1 # 1981 Nonqualified and Incentive Stock Option
Plan--Filed
as exhibit No. 10-1 to the Registrant's Form 10-K
for
the year ended December 31, 1992 (File No. 0-511),
hereby incorporated by reference.
10-2 # Amendment No. 1 to 1981 Nonqualified and Incentive
Stock
Option Plan--Filed as exhibit No. 10-2 to the
Registrant's Form 10-K for the year ended December
31,
1992 (File No. 0-511), hereby incorporated by
reference.
10-3 # 1985 Key Employees Nonqualified Stock Option
Plan--Filed
as exhibit No. 10-6 to the Registrant's Form 10-K
for
the year ended December 31, 1985 (File No. 0-511),
hereby incorporated by reference.
10-4 # Key Executive Employment Agreement dated as of
January
1, 1988--Filed as exhibit No. 10-15 to the
Registrant's
Form 10-K for the year ended December 31, 1987
(File No.
0-511), hereby incorporated by reference.
10-5 # 1986 Key Employees Nonqualified and Incentive Stock
Option Plan--Filed as exhibit No. 10-6 to the
registrant's Form 10-K for the year ended December
31,
1990 (File No. 0-511), hereby incorporated by
reference.
10-6 # 1987 Key Employees Nonqualified and Incentive Stock
Option Plan--Filed as exhibit No. 10-7 to the
Registrant's Form 10-K for the year ended December
31,
1990 (File No. 0-511), hereby incorporated by
reference.
10-7 # 1988 Key Employees Nonqualified and Incentive Stock
Option Plan--Filed as exhibit No. 10-8 to the
Registrant's Form 10-K for the year ended December
31,
1990 (File No. 0-511), hereby incorporated by
reference.
10-8 Lease Agreement dated August 16, 1989 between
Registrant
and CMD Midwest Eight Limited Partnership for
Aurora,
Illinois facility--Filed as exhibit No. 10-9 to the
Registrant's Form 10-K for the year ended December
31,
1990 (File No. 0-511), hereby incorporated by
reference.
10-9 # Key Executive Pledge Agreement and Term Loan
Promissory
Note dated December 31, 1990--Filed as exhibit No.
10-12
to the Registrant's Form 10-K for the year ended
December 31, 1990 (File No. 0-511), hereby
incorporated
by reference.
10-10 Sublease Agreement dated December 1, 1992 between
Registrant and Petcare Plus, Inc. for Aurora,
Illinois
facility--Filed as exhibit No. 10-16 to the
Registrant's
Form 10-K for the year ended December 31, 1992
(File No.
0-511), hereby incorporated by reference.
10-11 Lease Agreement dated October 15, 1987, including
Amendment Numbers 1, 2 and 3, between Registrant
and
Maxtec International Corp. for approximately 85% of
the
Registrant's building located at 6460 West Cortland
Street, Chicago, IL--Filed as exhibit No. 10-17 to
the
Registrant's Form 10-K for the year ended December
31, 1992 (File No. 0-511), hereby incorporated by
reference.
10-12 Loan and Security Agreement dated November 12,
1992,
including Amendment No. 1, by and between the
Registrant
and Congress Financial Corporation (Central)--Filed
as
exhibit No. 10-18 to the Registrant's Form 10-K for
the
year ended December 31, 1992 (File No. 0-511),
hereby
incorporated by reference.
10-13 # Deferred Compensation Plan dated as of December 23,
1992--Filed as exhibit No. 10-19 to the
Registrant's
Form 10-K for the year ended December 31, 1992
(File No.
0-511), hereby incorporated by reference.
10-14 Asset Purchase Agreement between Registrant and
Superscope Technologies, Inc. dated as of September
30,
1993--Filed as exhibit No. 10-18 to the
Registrant's
Form 10-K for the year ended December 31, 1993
(File No.
0-511), hereby incorporated by reference.
10-15 Omnibus Amendment To All Loan Documents between
Registrant and Congress Financial Corporation
(Central)
dated as of March 29, 1993--Filed as exhibit No.
10-16 Amendment No. 3 to the Loan and Security Agreement
between Registrant and Congress Financial
Corporation
(Central) dated as of August 17, 1993--Filed as
exhibit
No. 10-20 to the Registrant's Form 10-K for the
year
ended December 31, 1993 (File No. 0-511), hereby
incorporated by reference.
10-17 Amendment No. 4 to the Loan and Security Agreement
between Registrant and Congress Financial
Corporation
(Central) dated as of December 29, 1993--Filed as
exhibit No. 10-21 to the Registrant's Form 10-K for
the
year ended December 31, 1993 (File No. 0-511),
hereby
incorporated by reference.
10-18 Amendment No. 5 to the Loan and Security Agreement
between Registrant and Congress Financial
Corporation
(Central) dated as of February 25, 1994--Filed as
exhibit
No. 10-22 to the Registrant's Form 10-K for the
year
ended December 31, 1993 (File No. 0-511), hereby
incorporated by reference.
10-19 Amendment No. 6 to the Loan and Security Agreement
between Registrant and Congress Financial
Corporation (Central) dated as of November 12,
1994--Filed as exhibit No. 10-17 to the
Registrant's Form 10-K for the year ended December
31, 1994 (File No. 0-511), hereby incorporated by
reference.
10-20 Amendment No. 7 to the Loan and Security Agreement
between Registrant and Congress Financial
Corporation (Central) dated as of December 14,
1994--Filed as exhibit No. 10-18 to the
Registrant's Form 10-K for the year ended December
31, 1994 (File No. 0-511), hereby incorporated by
reference.
10-21 Amendment No. 8 to the Loan and Security Agreement
between Registrant and Congress Financial
Corporation (Central) dated as of January 20,
1995--Filed as exhibit No. 10-19 to the
Registrant's Form 10-K for the year
ended December 31, 1994 (File No. 0-511), hereby
incorporated by reference.
10-22 # Executive Employment Agreement dated as of
September 23, 1994--Filed as exhibit No. 10-20 to
the Registrant's Form 10-K for the year ended
December 31, 1994 (File No. 0-511), hereby
incorporated by reference.
10-23 # Amendment to the Key Executive Employment Agreement
dated as of December 15, 1994--Filed as exhibit No.
10-21 to the Registrant's Form 10-K for the year
ended
December 31, 1994 (File No. 0-511), hereby
incorporated
by reference.
10-24 # Amended and Restated Term Loan Promissory Note
dated as
of December 15, 1994--Filed as exhibit No. 10-22 to
the
Registrant's Form 10-K for the year ended December
31,
1994 (File No. 0-511), hereby incorporated by
reference.
10-25 1995 Key Employees Nonqualified and Incentive Stock
Option Plan.
10-26 Letter of Intent with Code 3.
10-27 Trademark License Agreement with General Motors
Corporation Service Parts Operations.
10-28 Amendment No. 9 to the Loan and Security Agreement
between Registrant and Congress Financial
Corporate (Central) dated as of October 31, 1996.
10-29 Non-Exclusive License Agreement between Cobra
Electronics Corporation and Yupiteru Industries
Co., Ltd. dated as of May 21, 1996.
10-30 Non-Exclusive License Agreement between Cobra
Electronics Corporation and Sunkyong America, Inc.
Dated as of May 1, 1996.
10-31 Employment Agreement between Cobra Electronics
Corporation and Anthony Mirabelli dated January
31, 1997.
10-32 Termination of Safe Harbor Lease between Cobra
Electronics Corporation and the Department of
Transportation of Maryland dated as of
November 15, 1996.
10-33 Employment Agreement between Cobra Electronics
Corporation and James R.Bazet dated April 21, 1997--
filed as Exhibit No. 10-31 to the Registrant's Form
10-Q for the quarter ended June 30, 1997.
10-34 Amendment to Employment Agreement between Cobra
Electronics Corporation and Jerry Kalov dated December
15, 1994, as amended thereafter--filed as Exhibit No.
10-32 to the Registrant's Form 10-Q for the quarter
ended June 30, 1997.
10-35* Loan and Security Agreement between Cobra
Electronics Corporation, LaSalle Business Credit,
Inc., and LaSalle National Bank dated as of
February 3, 1998.
21 * Subsidiaries of the Registrant.
23 * Consent of Deloitte & Touche LLP
27 * Financial data schedule required under Article 5 of
Regulation S-X.
- ------------------------------------------------------------
* Filed herewith.
# Executive compensation plan or arrangement.
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement Nos. 33-25973, 33-24459 and 33-32609 of Cobra
Electronics Corporation on Forms S-8 of our report dated February
27, 1998, appearing in this Annual Report on Form 10-K of Cobra
Electronics Corporation for the year ended December 31, 1997.
Deloitte & Touche LLP
Chicago, Illinois
February 27, 1998
EXHIBIT NO. 35
LOAN AND SECURITY AGREEMENT
Dated as of February 3, 1998
among COBRA ELECTRONICS CORPORATION, as Borrower
and LASALLE BUSINESS CREDIT, INC., as Collateral Agent and
Lender
and LASALLE NATIONAL BANK, as Administrative Agent and
Lender
$35,000,000
TABLE OF CONTENTS
Page
1. DEFINITIONS 1
2. REVOLVING LOANS
3. LETTERS OF CREDIT 14
4. INTEREST, FEES AND CHARGES 15
5. LOAN ADMINISTRATION 18
6. SETTLEMENTS, DISTRIBUTIONS AND
APPORTIONMENT OF PAYMENTS 21
7. GRANT OF SECURITY INTEREST 22
8. PRESERVATION OF COLLATERAL AND PERFECTION
OF SECURITY INTERESTS THEREIN 23
9. POSSESSION OF COLLATERAL AND RELATED MATTERS 23
10. COLLECTIONS 23
11. SCHEDULES AND REPORTS 23
12. TERMINATION 27
13. REPRESENTATIONS AND WARRANTIES 28
14. COVENANTS 32
15. CONDITIONS PRECEDENT 37
16. DEFAULT 38
17. REMEDIES UPON AN EVENT OF DEFAULT 40
18. AGENT 41
19. INDEMNIFICATION 46
20. NOTICES 47
21. CHOICE OF GOVERNING LAW AND CONSTRUCTION 47
22. FORUM SELECTION AND SERVICE OF PROCESS 47
23. ASSIGNABILITY 48
24. AMENDMENTS, ETC. 50
25. NONLIABILITY OF AGENT AND LENDERS 51
26. HEADINGS OF SUBDIVISIONS 51
27. POWER OF ATTORNEY 51
28. WAIVER OF JURY TRIAL; OTHER WAIVERS; CONFIDENTIALITY 51
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is made as of
this 3rd day of February, 1998 by and among LASALLE BUSINESS
CREDIT, INC., a Delaware corporation ("LBCI"), as a lender
and as collateral agent ("Collateral Agent") for all
"Lenders" (as hereinafter defined) with its principal office
at 135 South LaSalle Street, Chicago, Illinois 60603,
LASALLE NATIONAL BANK, a national banking association
("LaSalle") as a lender and as administrative agent
("Administrative Agent") for all Lenders with an address at
135 South LaSalle Street, Chicago, Illinois 60603, all other
Lenders from time to time a party to the Agreement and COBRA
ELECTRONICS CORPORATION, a Delaware corporation
("Borrower"), with its principal office at 6500 West
Cortland Street, Chicago, Illinois 60707.
W I T N E S S E T H
WHEREAS, from time to time Borrower may request Agents and
Lenders to make loans and advances to and extend certain
credit accommodations to Borrower, and the parties wish to
provide for the terms and conditions upon which such loans,
advances and credit accommodations shall be made;
NOW, THEREFORE, in consideration of any loans, advances and
credit accommodations (including any loans by renewal or
extension) hereafter made to Borrower by Agents and Lenders,
and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged by
Borrower, the parties agree as follows:
DEFINITIONS
General Definitions
"Account," "Account Debtor," "Chattel Paper," "Documents,"
"Equipment," "General Intangibles," "Goods," "Instruments,"
"Inventory," and "Investment Property" shall have the
respective meanings assigned to such terms, as of the
date of this Agreement, in the Illinois Uniform Commercial
Code.
"Administrative Agent" shall mean LaSalle or its successor
appointed pursuant to paragraph 18 hereof, acting in its
capacity as administrative agent on behalf of all Lenders.
"Affiliate" shall mean, with respect to any Person, any
other Person (i) directly or indirectly controlling or
controlled by or under direct or indirect common control
with such Person or (ii) directly or indirectly owning
or holding five percent (5%) or more of the equity interest
in such Person. For purposes of this definition, "control"
when used with respect to any Person means the power to
direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to
the foregoing.
"Agents" shall mean Collateral Agent and Administrative
Agent, collectively.
"Aggregate Revolving Loan Commitment" shall mean the sum of
the Revolving Loan Commitments of each Lender.
"Benefit Plan" shall mean an employee pension benefit plan
of any Borrower or an ERISA Affiliate, as defined in Section
3(2) of ERISA, which is subject to Title IV of ERISA.
"Borrowing Base" shall have the meaning specified in
paragraph 2(b)(i) hereof.
"Breakage Costs" shall have the meaning specified in
paragraph 5(c)(iv) hereof.
"Business Day" shall mean (i) any day other than a Saturday,
Sunday, or such other day as banks in Chicago, Illinois are
authorized or required to be closed for business, and (ii)
with respect to notices and determinations in connection
with LIBOR Loans, any day included in (i) above and which is
also a day for trading by and between banks in U.S. dollar
deposits in London, England.
"Capital Expenditures" shall mean, with respect to any
period, the aggregate of all expenditures (whether paid in
cash or accrued as liabilities and including expenditures
for capitalized lease obligations) by Borrower during
such period that are required by GAAP to be included in or
reflected by the property, plant or equipment or similar
fixed asset accounts (or in intangible accounts subject to
amortization) in the balance sheet of Borrower.
"Change of Control" shall mean the acquisition by any
Person, or two or more Persons acting in concert (other than
any member of existing management as of the date hereof), of
beneficial ownership (within the meaning of Rule 13-d-3
of the Securities and Exchange Commission under the federal
Securities Exchange Act of 1934, as amended) of more than
fifty percent (50%) of the outstanding shares of voting
stock of Borrower.
"Closing Date" shall mean the date upon which the initial
Loan is made.
"Closing Document List" shall have the meaning specified in
paragraph 15(a)(i) hereof.
"Collateral" shall mean all of the personal property of
Borrower described in paragraph 8 hereof, all of the real
property of Borrower described in the Mortgages and all
other real or personal property of any Obligor or any other
Person now or hereafter pledged to Collateral Agent, for the
benefit of Agents and Lenders, to secure, either directly or
indirectly, repayment of any of the Liabilities.
"Continuation" shall have the meaning specified in paragraph
5 hereof.
"Conversion" shall have the meaning specified in paragraph 5
hereof.
"Default" shall mean any event, condition or default which
with the giving of notice, the lapse of time or both would
be an Event of Default.
"Eligible Account" shall mean an Account owing to Borrower
which is acceptable to Collateral Agent, in its reasonable
credit judgment for lending purposes. Collateral Agent
shall, in general, consider an Account to be an Eligible
Account if it meets, and so long as it continues to meet,
the following requirements:
it is genuine and in all respects is what it purports to be;
it is owned by Borrower and Borrower has the right to
subject it to a security interest in favor of Collateral
Agent;
it arises from (A) the performance of services by Borrower
and such services have been fully performed and acknowledged
and accepted by the Account Debtor thereunder; or (B) the
sale of Goods by Borrower, and such Goods have been
completed in accordance with the Account Debtor's
specifications (if any) and delivered to and accepted by the
Account Debtor, such Account Debtor has not refused to
accept and has not returned or offered to return any of the
Goods, or has not refused to accept any of the services,
which are the subject of such Account, and Borrower has
possession of, or has delivered to Collateral Agent, at
Collateral Agent's request, shipping and delivery receipts
evidencing delivery of such Goods;
it is evidenced by an invoice rendered to the Account Debtor
thereunder, is due and payable within one hundred eighty
(180) days after the stated invoice date thereof and does
not remain unpaid more than sixty (60) days past the due
date thereof; provided, however, that if more than fifty
percent (50%) of the aggregate dollar amount of invoices
owing by a particular Account Debtor are due and payable
more than one hundred eighty (180) days past the stated
invoice dates thereof or remain unpaid for more than sixty
(60) days past the due dates thereof, then all Accounts
owing to Borrower by that Account Debtor shall be deemed
ineligible;
it is not subject to any prior assignment, claim, lien,
security interest or encumbrance whatsoever, other than
Permitted Liens;
it is a valid, legally enforceable and unconditional
obligation of the Account Debtor thereunder, and is not
subject to setoff, counterclaim, credit, allowance or
adjustment by such Account Debtor, or to any claim by such
Account Debtor denying liability thereunder in whole or in
part;
it does not arise out of a contract or order which fails in
any material respect to comply with the requirements of
applicable law;
the Account Debtor thereunder is not a director, officer,
employee or agent of Borrower, or a Subsidiary, Parent or
Affiliate of Borrower;
it is not an Account with respect to which the Account
Debtor is the United States of America or any department,
agency or instrumentality thereof, unless Borrower assigns
its right to payment of such Account to Collateral Agent
pursuant to, and in full compliance with, the Assignment of
Claims Act of 1940, as amended;
it is not an Account with respect to which the Account
Debtor is located in a state which requires Borrower, as a
precondition to commencing or maintaining an action in the
courts of that state, either to (A) receive a certificate of
authority to do business and be in good standing in such
state, or (B) file a notice of business activities report or
similar report with such state's taxing authority, unless
(x) Borrower has taken one of the actions described in
clauses (A) or (B), (y) the failure to take one of the
actions described in either clause (A) or (B) may be cured
retroactively by Borrower at its election, or (z) Borrower
has proven, to Collateral Agent's satisfaction, that it is
exempt from any such requirements under any such state's
laws;
it is an Account which arises out of a sale made in the
ordinary course of Borrower's business;
the Account Debtor is a resident or citizen of, and is
located within, the United States of America or Canada;
it is not an Account with respect to which the Account
Debtor's obligation to pay is conditional upon the Account
Debtor's approval of the Goods or services or is otherwise
subject to any repurchase obligation or return right, as
with sales made on a bill-and-hold, guaranteed sale, sale on
approval, sale or return or consignment basis;
it is not an Account (A) with respect to which any
representation or warranty contained in this Agreement is
untrue or (B) which violates any of the covenants of
Borrower contained in this Agreement;
it is not an Account which, when added to a particular
Account Debtor's other indebtedness to Borrower, exceeds the
lesser of ten percent (10%) (or, with respect to the Account
Debtors listed on Exhibit C hereto, the corresponding
percentages listed on such Exhibit C) of the aggregate of
Borrower's Accounts or a credit limit determined by
Collateral Agent in its reasonable credit judgment for that
Account Debtor, provided, however, that Accounts excluded
from Eligible Accounts solely by reason of this paragraph
1(a)(xv) shall be Eligible Accounts to the extent of such
credit limit;
it is not an Account with respect to which the prospect of
payment or performance by the Account Debtor is or will be
impaired, as determined by Collateral Agent in its
reasonable credit judgment.
"Eligible Inventory" shall mean First Quality Finished Goods
and Refurbished and Repair Inventory of Borrower which is
acceptable to Collateral Agent, in its reasonable credit
judgment, for lending purposes. Without limiting Collateral
Agent's discretion, Collateral Agent shall, in general,
consider Inventory to be Eligible Inventory if it meets, and
so long as it continues to meet, the following requirements:
it is owned by Borrower and Borrower has the right to
subject it to a security interest in favor of Collateral
Agent;
it is located on the premises listed on Exhibit A and is not
in transit except for Inventory of Borrower which is in
transit to locations listed on Exhibit A hereto which
Inventory was the subject of documentary Letters of Credit
drawn upon prior to receipt by Borrower of the Inventory
subject thereto or was purchased by Borrower on open account
and as to which title to such Inventory has passed including
receipt of all documents of title, provided, that Collateral
Agent and Lenders shall not have outstanding advances with
respect to Inventory which is in transit and purchased on
open account, as described above, in excess of Two Million
Dollars ($2,000,000) at any time;
it is not subject to any prior assignment, claim, lien,
security interest or encumbrance whatsoever, other than
Permitted Liens;
it is not work in process and is held for sale or furnishing
under contracts of service, it is (except for Refurbished
and Repair Inventory which is in saleable condition (with
respect to refurbished Inventory held for resale), or with
respect to Inventory returned for repair, which is capable
of being repaired within thirty (30) days, and as Collateral
Agent may otherwise consent in writing) new and unused and
free from defects which would, in Collateral Agent's
reasonable credit judgment, affect its market value;
it is not stored with a bailee, consignee, warehouseman,
processor or similar party unless Collateral Agent has given
its prior written approval and Borrower has caused any such
bailee, consignee, warehouseman, processor or similar party
to issue and deliver to Collateral Agent, in form and
substance acceptable to Collateral Agent in its reasonable
determination, such UCC financing statements, warehouse
receipts, waivers and other documents as Collateral Agent
shall require;
Collateral Agent has determined in accordance with
Collateral Agent's customary business practices that it is
not unacceptable due to age, type, category or quantity;
provided, that for purposes hereof, Inventory of each
product line (other than new products introduced during the
immediately preceding twelve (12) months) consisting of
First Quality Finished Goods Inventory in excess of the
immediately preceding twelve (12) months of sales of such
Inventory, shall be ineligible to the extent of such excess;
and
it is not Inventory (A) with respect to which any of the
representations and warranties contained in this Agreement
are untrue or (B) which violates any of the covenants of
Borrower contained in this Agreement.
"Event of Default" shall have the meaning specified in
paragraph 17 hereof.
"Excess Availability" shall mean, as of any date of
determination by Collateral Agent, the excess, if any, of
(i) the amount of Revolving Loans available to Borrower
pursuant to paragraph 2(b) over (ii) the outstanding
Revolving Loans, in each case as of the close of business on
such date. For purposes of calculating Borrower's Excess
Availability and the amount of the Revolving Loans available
to Borrower pursuant to paragraph 2(b) relating thereto, all
of Borrower's trade payables and payments on outstanding
debt, other than the Liabilities hereunder, which remain
unpaid more than thirty (30) days after the due dates
thereof shall, on the date of the determination of Excess
Availability, be deemed to have been paid by Borrower by
borrowing Revolving Loans.
"Exhibit A" shall mean the exhibit entitled Exhibit A -
Business and Collateral Locations which is attached hereto
and made a part hereof.
"Exhibit B" shall mean the exhibit entitled Exhibit B -
Officer's Certificate which is attached hereto and made a
part hereof.
"Exhibit C" shall mean the exhibit entitled Exhibit C -
Account Debtor Concentration Limits which is attached hereto
and made a part hereof.
"Exhibit D" shall mean the exhibit entitled Exhibit D -
Assignment and Acceptance Agreement which is attached hereto
and made a part hereof.
"Finished Goods Availability" shall mean, (i) during the
Seasonal Increase Period, up to sixty-five percent (65%) of
Borrower's Eligible Inventory consisting of First Quality
Finished Goods, and (ii) at all other times, up to
fifty-five percent (55%) of Borrower's Eligible Inventory
consisting of First Quality Finished Goods, in each case,
valued at cost on a first-in, first-out basis.
"First Quality Finished Goods" shall mean finished goods
inventory other than Refurbished and Repair Inventory, which
are not remanufactured products, defective goods, seconds or
returned goods (except unopened, first quality goods
returned in respect of stock adjustments).
"Fiscal Year" shall mean with respect to Borrower the twelve
(12) month accounting period of Borrower commencing January
1st of each calendar year and ending December 31st of such
calendar year.
"GAAP" shall mean generally accepted accounting principles
and policies in the United States as in effect from time to
time.
"Indemnified Party" shall have the meaning specified in
paragraph 19 hereof.
"Interest Period" shall mean for any LIBOR Rate Loan the
period commencing on the date of the borrowing thereof and
ending one, two, three or six months thereafter, provided,
however, that Borrower may not select any Interest Period
that ends after the Original Term, or if applicable, the
Renewal Term. Whenever the last day of an Interest Period
would otherwise occur on a day other than a Business Day,
the last day of such Interest Period shall be extended to
occur on the next succeeding Business Day; provided, that if
such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the
last day of such Interest Period shall occur on the next
preceding Business Day.
"Inventory Sublimit" shall mean, (i) during the Seasonal
Increase Period, one hundred ten percent (110%) of
Borrower's Eligible Accounts, and (ii) at all other
times, one hundred percent (100%) of Borrower's Eligible
Accounts.
"Issuing Bank" shall mean LaSalle or any other financial
institution acceptable to Agents.
"Letters of Credit" shall mean those documentary or stand-by
letters of credit issued by Issuing Bank for Borrower's
account in accordance with the terms of paragraph 3 hereof.
"Letter of Credit Availability" shall mean, (i) during the
Seasonal Increase Period, up to sixty-five percent (65%) of
the face amount of documentary Letters of Credit issued by
Issuing Bank and acceptable to Collateral Agent, and (ii) at
all other times, fifty-five percent (55%) of the face amount
of documentary Letters of Credit issued by Issuing Bank and
acceptable to Collateral Agent, provided that in no event
shall the aggregate amount of such documentary Letters of
Credit exceed Fifteen Million Dollars ($15,000,000).
"Letter of Credit Obligations" shall mean, as of any date of
determination, the sum of (i) the aggregate undrawn face
amount of all Letters of Credit and (ii) the aggregate
unreimbursed amount of all drawn Letters of Credit not
already converted to a Loan hereunder.
"Liabilities" shall mean any and all obligations,liabilities
and indebtedness of Borrower to Agents and/or Lenders or to
any parent, affiliate or subsidiary of any Agent and/or any
Lender of any and every kind and nature, howsoever created,
arising or evidenced and howsoever owned, held or acquired,
whether now or hereafter existing, whether now due or to
become due, whether primary, secondary, direct, indirect,
absolute, contingent or otherwise (including, without
limitation, obligations of performance), whether several,
joint or joint and several, and whether arising or existing
under written or oral agreement or by operation of law.
"LIBOR Rate" shall mean, with respect to the Interest Period
applicable to the borrowing of a LIBOR Rate Loan, the rate
obtained (rounded upwards to the nearest 1/100 of 1%) by
dividing (i) the rate of interest per annum offered to
Collateral Agent in the London interbank foreign currency
deposits market as of approximately 9:00 A.M. (Chicago time)
two (2) Business Days prior to the commencement of such
Interest Period for U.S. dollar deposits of amounts in
immediately available funds comparable to the principal
amount of the LIBOR Rate Loan for which the LIBOR Rate is
being determined with maturities comparable to the Interest
Period for which such LIBOR Rate will apply, by (ii) a
percentage equal to 1 minus the stated reserve (expressed as
a decimal), if any, required to be maintained against
"Eurocurrency liabilities" as specified in Regulation D of
the Board of Governors of the Federal Reserve System as from
time to time shall be in effect (or against any other
category of liabilities, which includes deposits, by
reference to which the interest rate on LIBOR Rate Loans is
determined or any category of extensions of credit on other
assets, which includes loans by a non-U.S. office of
Collateral Agent to U.S. Residents). In the absence of
manifest error, each determination by Collateral Agent of
the applicable LIBOR Rate shall be deemed conclusive.
"LIBOR Rate Loan" shall mean a Revolving Loan that bears
interest based on the LIBOR Rate.
"Loan" or "Loans" shall mean any and all Revolving Loans
made by Agents and Lenders to Borrower pursuant to paragraph
2 hereof and all other loans, advances and financial
accommodations made by Agents and Lenders to or on behalf of
Borrower hereunder.
"Lock Box" and "Blocked Account" shall have the meanings
specified in paragraph 10 hereof.
"Material Adverse Effect" shall mean with respect to any
event, act, condition or occurrence of whatever nature
(including any adverse determination in any litigation,
arbitration or governmental investigation or proceeding),
whether singly or in conjunction with any other event or
events, act or acts, condition or conditions, occurrence or
occurrences, whether or not related, a material adverse
change in, or a material adverse effect upon, any of the
business, property, assets, operations, condition (financial
or otherwise) of Borrower.
"Maximum Loan Amount" shall mean with respect to any Lender,
the maximum amount of Loans which such Lender has agreed to
make to Borrower as set forth on the signature page hereto
or in an Assignment and Acceptance Agreement executed by
such Lender.
"Mortgage" shall mean each mortgage or deed of trust
executed by Borrower in favor of Collateral Agent to secure
the Liabilities.
"Note" shall mean any note now or hereafter executed by
Borrower to the order of a Lender in connection with the
Loans.
"Obligor" shall mean Borrower and each Person who is or
shall become primarily or secondarily liable for any of the
Liabilities; provided, however, that such term shall not
include any Account Debtor.
"Original Term" shall have the meaning specified in
paragraph 12 hereof.
"Other Agreements" shall mean all agreements, instruments
and documents including, without limitation, guaranties,
mortgages, trust deeds, pledges, powers of attorney,
consents, assignments, contracts, notices, security
agreements, leases, financing statements and all other
writings heretofore, now or from time to time hereafter
executed by or on behalf of Borrower or any other Person and
delivered to any Agent or Lender or to any parent, affiliate
or subsidiary of any Agent or Lender in connection with the
Liabilities or the transactions contemplated hereby.
"Parent" shall mean any Person now or at any time or times
hereafter owning or controlling (alone or with any other
Person) at least a majority of the issued and outstanding
stock or other similar ownership interest of Borrower or any
Subsidiary.
"Permitted Liens" shall mean (i) statutory liens of
landlords, carriers, warehousemen, mechanics, materialmen or
suppliers incurred in the ordinary course of business and
securing amounts not yet due or declared to be due by the
claimant thereunder, (ii) liens or security interests in
favor of Collateral Agent, (iii) zoning restrictions and
easements, rights of way, licenses, covenants and other
restrictions affecting the use of real property that do not
individually or in the aggregate have a Material Adverse
Effect on Borrower's ability to use such real property for
its intended purpose in connection with Borrower's business,
(iv) liens securing the payment of taxes or other
governmental charges not yet delinquent or being contested
in good faith and by appropriate proceedings, (v) liens
incurred or deposits made in the ordinary course of
Borrower's business in connection with capitalized leases or
purchase money security interests for purchase of, and
applying only to, Equipment included in the permitted
borrowings under paragraph 13(q) or permitted as Capital
Expenditures under paragraph 14(m)(ii), the documents
relating to such liens to be in form and substance
acceptable to Collateral Agent, (vi) liens securing
indebtedness owing by any Subsidiary to Borrower to the
extent such indebtedness is permitted under paragraph 14(k),
or to any other Subsidiary of Borrower, (vii) deposits to
secure performance of bids, trade contracts, leases and
statutory obligations (to the extent not excepted elsewhere
herein); (viii) liens specifically permitted by Collateral
Agent in writing as set forth on Schedule 1(a) attached
hereto; (ix) any lien arising out of the refinancing,
extension, renewal or refunding of any indebtedness secured
by an lien permitted by any of the foregoing subparagraphs
(i) through (viii) inclusive; provided, that (a) such
indebtedness is not secured by any additional assets, and
(b) the amount of such indebtedness is not increased, (x)
pledges or deposits in connection with worker's
compensation, unemployment insurance and other social
security legislation, (xi) grants of security and rights of
setoff in deposit accounts, securities and other properties
held at banks or financial institutions to secure the
payment or reimbursement under overdraft, acceptance and
other facilities, and (xii) rights of setoff, banker's lien
and other similar rights arising solely by operation of law.
"Person" shall mean any individual, sole proprietorship,
partnership, limited liability company venture, trust,
unincorporated organization, association, corporation,
institution, entity, party or foreign or United States
government (whether federal, state, county, city, municipal
or otherwise), including, without limitation, any
instrumentality, division, agency, body or department
thereof.
"Prime Rate" shall mean the publicly announced prime rate of
LaSalle in Chicago, Illinois, in effect from time to time.
The Prime Rate is not intended to be the lowest or most
favorable rate of LaSalle in effect at any time.
"Prime Rate Loan" shall mean a Loan that bears interest
based on the Prime Rate.
"Pro Rata Share" shall mean at any time, with respect to any
Lender, a fraction (expressed as a percentage in no more
than four (4) decimal places), the numerator of which shall
be the Maximum Loan Amount of such Lender at such time
and the denominator of which shall be the Total Credit
Facility at such time.
"Real Estate Advance Rate" shall mean (i) seventy-five
percent (75%) from the Closing Date through the day prior to
the first anniversary of the Closing Date, (ii) sixty-seven
and one-half percent (67.5%) from the first anniversary of
the Closing Date through the day prior to the second
anniversary of the Closing Date, (iii) sixty percent (60%)
for the period from the second anniversary of the Closing
Date through the day prior to the third anniversary of the
Closing Date, and (iv) thereafter for each period from the
anniversary of the Closing Date through the day prior to the
next anniversary of the Closing Date, the Real Estate
Advance Rate during the immediately preceding corresponding
period, less seven and one-half percent (7.5%).
"Real Estate Availability" shall mean at any time the Real
Estate Advance Rate at such time multiplied by the lesser of
(i) One Million Six Hundred Thousand Dollars ($1,600,000)
and (ii) the appraised fair market value of Borrower's real
property located at 6500 West Cortland, Chicago, Illinois,
which appraisal shall be completed no later than February
28, 1998 and which appraisal may be updated or such real
property reappraised at the request of Collateral Agent;
provided, that prior to the occurrence of an Event of
Default, such updates or reappraisals shall be conducted no
more than once each year.
"Refurbished and Repair Inventory" shall mean Inventory
which has been returned for repair and/or has been
repackaged for immediate resale as a "factory refurbished"
product.
"Refurbished Inventory Availability" shall mean up to the
lesser of (i) Seven Hundred Fifty Thousand Dollars
($750,000) and (ii) twenty percent (20%) of Borrower's
Eligible Inventory consisting of Refurbished and Repair
Inventory.
"Renewal Term" shall have the meaning specified in paragraph
12 hereof.
"Requisite Lenders" shall mean at any time Lenders having,
in the aggregate, Pro Rata Shares of more than fifty percent
(50%) at such time.
"Revolving Loans" shall have the meaning specified in
paragraph 2 hereof.
"Revolving Loan Commitment" shall mean, with respect to any
Lender, the maximum amount of Revolving Loans which such
Lender has agreed to make to Borrower, subject to the terms
and conditions of this Agreement, as set forth on the
signature page hereto or an Assignment and Acceptance
Agreement executed by such Lender.
"Seasonal Increase Period" shall mean a period of one
hundred eighty (180) consecutive days each year, selected by
Borrower, occurring during the period from March 1 of each
year through November 30 of such year.
"Subsidiary" shall mean any corporation of which more than
fifty percent (50%) of the outstanding capital stock having
ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether at
the time stock of any other class of such corporation shall
have or might have voting power by reason of the happening
of any contingency) is at the time, directly or indirectly,
owned by Borrower or by any partnership or joint venture of
which more than fifty percent (50%) of the outstanding
equity interests are at the time, directly or indirectly,
owned by Borrower.
"Tangible Net Worth" shall mean shareholders' equity as
determined in accordance with GAAP consistently applied
(including retained earnings) less the book value of all
intangible assets including, without limitation, goodwill,
intellectual property, advertising barter credits, prepaid
expenses, net deferred tax assets and equity in foreign
subsidiaries, determined by Collateral Agent on a consistent
basis, plus the amount of any debt subordinated to Agents
and Lenders on terms and conditions acceptable to Collateral
Agent in its sole judgment.
"Total Credit Facility" shall mean the sum of Thirty-Five
Million Dollars ($35,000,000).
"Type" shall mean, with respect to any Loan, whether such
Loan is a LIBOR Rate Loan or a Prime Rate Loan.
Accounting Terms and Definitions. Unless otherwise defined
or specified herein, all accounting terms used in this
Agreement shall be construed in accordance with GAAP,
applied on a basis consistent in all material respects with
the financial statements delivered by Borrower to Agents and
Lenders on or before the Closing Date. All accounting
determinations for purposes of determining compliance with
the financial covenants contained in paragraph 14(m)shall be
made in accordance with GAAP as in effect on the Closing
Date and applied on a basis consistent in all material
respects with the audited financial statements delivered to
Agents and Lenders by Borrower on or before the Closing
Date. The financial statements required to be delivered
hereunder from and after the Closing Date, and all financial
records, shall be maintained in accordance with GAAP. If
GAAP shall change from the basis used in preparing the
audited financial statements delivered to Agents and Lenders
by Borrower on or before the Closing Date, the certificates
required to be delivered pursuant to paragraph 11(j)
demonstrating compliance with the covenants contained herein
shall include, at the election of Borrower or upon the
request of Collateral Agent, calculations setting forth the
adjustments necessary to demonstrate how Borrower is in
compliance with the financial covenants based upon GAAP as
in effect on the Closing Date.
REVOLVING LOANS
Subject to the terms and conditions of this Agreement and
the Other Agreements, during the Original Term and any
Renewal Term, absent the existence of an Event of Default:
Each Lender, severally and not jointly agrees to make its
Pro Rata Share of such revolving loans and advances (the
"Revolving Loans") to Borrower as Borrower shall from time
to time request up to such Lender's Revolving Loan
Commitment, in accordance with the terms of paragraph 2(b)
hereof provided, that Collateral Agent may, but shall not be
obligated to make such Revolving Loans as a
"Disproportionate Advance" (as defined below). The
aggregate unpaid principal amount of all Revolving Loans
outstanding at any one time made to Borrower shall not
exceed the lesser of (i) the Borrowing Base and (ii) the
Aggregate Revolving Loan Commitment minus the outstanding
Letter of Credit Obligations. All Revolving Loans shall be
repaid in full upon the earlier to occur of (A) the end of
the Original Term or any Renewal Term, if any Lender or
Borrower elects to terminate this Agreement as of the end of
any such term and (B) the acceleration of the Liabilities
pursuant to paragraph 18 of this Agreement. If at any time
the outstanding principal balance of the Revolving Loans
made to Borrower exceeds (i) the Borrowing Base or (ii) the
Aggregate Revolving Loan Commitment minus the outstanding
Letter of Credit Obligations, Borrower shall immediately,
and without the necessity of a demand by Collateral Agent,
pay to Collateral Agent such amount as may be necessary to
eliminate such excess, and Collateral Agent shall apply such
payment against the outstanding principal balance of the
Revolving Loans provided, that if the outstanding principal
balance of the Revolving Loans exceeds the Borrowing Base or
any portion of the Revolving Loans exceeds any applicable
sublimit set forth in paragraph 2(b) hereof (such excess
being an "Interim Advance"), the Collateral Agent may, in
its sole discretion, permit such Interim Advance to remain
outstanding and continue to advance Revolving Loans to
Borrower on behalf of Lenders without the consent of any
Lender for a period of up to ten (10) calendar days, so long
as (i) the amount of the Interim Advance does not at any
time exceed One Million Dollars ($1,000,000), (ii) the
aggregate outstanding principal balance of the Revolving
Loans does not exceed the Aggregate Revolving Loan
Commitment and (iii) Collateral Agent has not been
notified by Requisite Lenders to cease making such advances.
If the Interim Advance is not repaid in full within ten (10)
days of the initial occurrence of the Interim Advance, no
future advances may be made to Borrower without the consent
of all Lenders until the Interim Advance is repaid in full.
In addition, if at any time the sum of (A) the outstanding
principal balance of the Loans and (B) the outstanding
Letter of Credit Obligations exceeds the Total Credit
Facility, Borrower shall immediately and without the
necessity of a demand by Collateral Agent pay to Collateral
Agent such amount as may be necessary to eliminate such
excess, and Collateral Agent shall apply such payment
against the outstanding principal balance of the Loans in
such order as Collateral Agent shall determine in its sole
discretion. Borrower hereby authorizes Collateral Agent to
charge any of Borrower's accounts to make any payments of
principal or interest required by this Agreement. All
Revolving Loans shall, in Collateral Agent 's sole
discretion, be evidenced by one or more promissory notes
delivered to each Lender in form and substance satisfactory
to Collateral Agent. However, if such Revolving Loans are
not so evidenced, such Revolving Loans may be evidenced
solely by entries upon the books and records maintained by
Collateral Agent. Neither Agent nor any Lender shall be
responsible for any failure by any other Lender to perform
its obligations to make advances hereunder, and the failure
of any Lender to make its Pro Rata Share of any advance
hereunder shall not relieve any other Lender of its
obligation, if any, to make its Pro Rata Share of any Loans
hereunder.
Lenders shall make Revolving Loans to Borrower in the
aggregate up to the lesser of the following amounts, the
amount calculated pursuant to subparagraph (i) below being
the "Borrowing Base":
an amount equal to the sum of: (A) up to seventy-five
percent (75%) of the face amount of Eligible Accounts plus,
(B) the lesser of (x) the sum of (1) the Finished Goods
Availability, plus (2) the Refurbished Inventory
Availability plus (3) the Letter of Credit Availability, and
(y) the Inventory Sublimit, plus (C) the Real Estate
Availability, in each case, less such reserves as Collateral
Agent elects to establish from time to time in the exercise
of its reasonable credit judgment minus the outstanding
amount of all Letter of Credit Obligations; and
the Aggregate Revolving Loan Commitment, minus the
outstanding amount of all Letter of Credit Obligations.
If Borrower makes a request for a Loan as provided herein
Collateral Agent, at its option and in its sole discretion,
shall do either of the following:
Advance the amount of the proposed Loan to Borrower
disproportionately (a "Disproportionate Advance") out of
Collateral Agent's own funds on behalf of Lenders, which
advance shall be on the same day as Borrower's request
therefor if Borrower notifies Collateral Agent of such
request by 3:00 p.m., Chicago time on such day, and request
settlement in accordance with paragraph 6 hereof such that
upon such settlement each Lender's share of the outstanding
Loans (including, without limitation, the amount of any
Disproportionate Advance) equals its Pro Rata Share; or
Notify each Lender by telecopy or other similar form of
teletransmission of the proposed advance on the same day
Collateral Agent is notified or deemed notified by Borrower
of Borrower's request for an advance pursuant to paragraph 2
of this Agreement. Each Lender shall remit, to the demand
deposit account designated by Borrower (i) with respect to
Prime Rate Loans, at or prior to 3:00 p.m., Chicago time, on
the date of notification, if such notification is made
before 11:30 a.m., Chicago time, or 10:00 a.m., Chicago
time, on the business day immediately succeeding the date of
such notification, if such notification is made after 11:30
a.m., Chicago time, and (ii) with respect to LIBOR Rate
Loans, at or prior to 11:30 a.m., Chicago time, on the date
such LIBOR Rate Loans are to be advanced, immediately
available funds in an amount equal to such Lender's Pro Rata
Share of such proposed advance.
If and to the extent that a Lender does not settle with
Collateral Agent as required under clause (a), Borrower
agrees to repay to Collateral Agent forthwith on demand such
amount required to be paid by such Lender to Collateral
Agent, together with interest thereon, for each day from the
date such amount is made available to Borrower until the
date such amount is repaid to Collateral Agent, at the
interest rate applicable at such time for such Loans;
provided, that Borrower's obligation to repay such advance
to Collateral Agent shall not relieve Lender of its
liability to Collateral Agent for failure to settle as
provided in clause (a).
LETTERS OF CREDIT
Subject to the terms and conditions of this Agreement, and
the Other Agreements, during the Original Term or any
Renewal Term, Collateral Agent shall, absent the existence
of an Event of Default, from time to time cause the Issuing
Bank to issue, and Collateral Agent shall co-sign for, upon
Borrower's request, Letters of Credit; provided, that the
Letters of Credit shall be in form and substance acceptable
to Collateral Agent in its reasonable credit judgment and
that the aggregate undrawn face amount of all such Letters
of Credit shall at no time exceed Fifteen Million Dollars
($15,000,000); and provided further, that no Letter of
Credit shall have an expiry date (i) (x) with respect to
standby Letters of Credit, more than 365 days from the date
of issuance or (y) with respect to documentary Letters of
Credit, more than one hundred eighty (180) days from the
later of the date of issuance and the most recent amendment
of the expiry date, or as otherwise approved by Collateral
Agent, or (ii) beyond five (5) days prior to the expiration
of the Original Term or the Renewal Term, as the case may
be. Borrower's reimbursement obligation in respect of the
Letters of Credit shall automatically reduce, dollar for
dollar, the amount which Borrower may borrow based upon the
Aggregate Revolving Loan Commitment and the Borrowing Base.
Any payment made by Agents or Lenders to any Person on
account of any Letter of Credit shall constitute a Revolving
Loan hereunder. At no time shall the aggregate sum of
direct Revolving Loans by Agents and Lenders to Borrower
plus the contingent liability of Lenders under the
outstanding Letters of Credit be in excess of the Aggregate
Revolving Loan Commitment or the Borrowing Base. Agents,
Lenders and Borrower hereby agree that outstanding Letters
of Credit issued by the Issuing Bank on behalf of Borrower
prior to the date hereof shall constitute Letters of Credit
hereunder and shall be subject to the terms and conditions
hereof.
Borrower agrees to reimburse the Issuing Bank, on demand by
the Issuing Bank, for each payment made by the Issuing Bank
under or pursuant to any Letter of Credit and if not so
reimbursed each Lender shall without regard to any other
provision of this Agreement or any of the Other Agreements,
any defense that Borrower may have to its obligation to
reimburse the Issuing Bank in connection with such payment
or any defense any Lender may have in connection with such
payment or any defense any Lender may have in connection
with the participation described in subsection (c) below in
connection with any Letter of Credit, reimburse the Issuing
Bank for such Lender's Pro Rata Share of such payment, and
any payments so made by Lenders to Issuing Bank shall be
deemed to be Revolving Loans. Collateral Agent may provide
for the payment of any reimbursement obligations and any
interest accrued thereon by advancing the amount thereof to
the Issuing Bank on behalf of Borrower as a Revolving Loan.
Immediately upon the issuance of a Letter of Credit in
accordance with this Agreement, each Lender shall be deemed
to have irrevocably and unconditionally purchased and
received from the Issuing Bank, without recourse or
warranty, an undivided interest and participation therein to
the extent of such Lender's Pro Rata Share (including,
without limitation, all obligations of Borrower with respect
thereto). Borrower hereby indemnifies each Agent and each
Lender against any and all liability and expense it may
incur in connection with any Letter of Credit and agrees to
reimburse each Agent and each Lender for any payment made by
either Agent or any Lender to the Issuing Bank.
INTEREST, FEES AND CHARGES
Rates of Interest. Interest accrued on all Loans shall be
due on the earliest of: (i) (x) with respect to LIBOR Rate
Loans, the end of the applicable Interest Period and, if the
Interest Period is longer than three (3) months, three (3)
months following the first day of such Interest Period (for
the immediately preceding period), computed through the day
prior to the date of payment, and (y) with respect to Prime
Rate Loans, the first day of each month (for the immediately
preceding month), computed through the last calendar day
of the preceding month; (ii) the occurrence of an Event of
Default in consequence of which Requisite Lenders elect to
accelerate the maturity and payment of the Liabilities; or
(iii) termination of this Agreement pursuant to paragraph 11
hereof. At Borrower's election, except as otherwise provided
in paragraph 5(c) hereof, interest shall accrue on the
principal amount of the Revolving Loans made to Borrower
outstanding at the end of each day at (x) a fluctuating rate
per annum equal to the Prime Rate or (y) a fixed rate per
annum equal to two percent (2%) above the LIBOR Rate. The
rate of interest payable on Prime Rate Loans shall increase
or decrease by an amount equal to any increase or decrease
in the Prime Rate, effective as of the opening of business
on the day that any such change in the Prime Rate occurs.
Upon and after the occurrence of an Event of Default, and
during the continuation thereof, the principal amount of all
Loans shall bear interest on demand at a rate per annum
equal to the rate of interest then in effect under paragraph
4(a) plus two percent (2%).
Computation of Interest and Fees. Interest and collection
charges hereunder shall be calculated daily and shall be
computed on the actual number of days elapsed over a year
consisting of three hundred and sixty (360) days. For the
purpose of computing interest hereunder, all items of
payment received by Collateral Agent shall be deemed applied
by Collateral Agent on account of the Liabilities (subject
to final payment of such items) on the first (1st) Business
Day after receipt by Collateral Agent of good funds in
Collateral Agent's account located in Chicago, Illinois.
Maximum Interest. It is the intent of the parties that the
rate of interest and the other charges to Borrower under
this Agreement shall be lawful; therefore, if for any reason
the interest or other charges payable under this Agreement
are found by a court of competent jurisdiction, in a final
determination, to exceed the limit which Agents or Lenders
may lawfully charge Borrower, then the obligation to pay
interest and other charges shall automatically be reduced to
such limit and, if any amount in excess of such limit shall
have been paid, then such amount shall be refunded to
Borrower.
Letter of Credit Fees. Borrower shall remit to Collateral
Agent, for the benefit of Lenders, a Letter of Credit fee
equal to (i) one and three-quarters percent (1.75%) per
annum on the aggregate undrawn face amount of all
outstanding standby Letters of Credit issued for the account
of Borrower, which fee shall be payable monthly in arrears
on each day that interest on Loans is payable hereunder,
(ii) one-sixth of one percent (1/6%) on the face amount of
each documentary Letter of Credit, which fee shall be
payable in full at the time of any draw on each such
documentary Letter of Credit and (iii) in addition to the
fee described in clause (ii) above, with respect to any
documentary Letter of Credit which remains undrawn more than
forty-five (45) days after issuance, one percent (1%) per
annum accruing from the forty-fifth (45th) day after
issuance, payable monthly in arrears on each day that
interest on the Loans is payable hereunder. Borrower shall
also pay on demand the normal and customary administrative
charges for issuance, amendment, negotiation, renewal or
extension of any Letter of Credit imposed by the Issuing
Bank, and if not so paid each Lender shall, without regard
to any other provisions of this Agreement or any of the
Other Agreements, any defense that Borrower may have to its
obligations to pay the Issuing Bank in connection with the
participation described in paragraph 3(c) above with respect
to any Lender of Credit, pay the Issuing Bank for such
Lender's Pro Rata Share of such charges, and any payments so
made by Lenders to Issuing Bank shall be deemed to be
Revolving Loans. Each Lender (other than a Lender that is
the Issuing Bank) acknowledges and agrees that it shall not
be entitled to any of the charges of the Issuing Bank. Upon
the occurrence and during the continuance of an Event of
Default, all standby Letter of Credit fees shall be payable
on demand at a rate equal to three and three-quarters
percent (3.75%) per annum on the aggregate undrawn face
amount thereof and all documentary Letter of Credit fees
shall be payable on demand at a rate equal to two percent
(2%) per annum from the date of issuance of such documentary
Letters of Credit.
Closing Fee. Borrower shall pay to Collateral Agent, for
the benefit of Lenders a closing fee of Thirty-Five Thousand
Dollars ($35,000), which shall be fully earned,
nonrefundable and due on the Closing Date.
Unused Line Fee. Borrower shall pay to Collateral Agent,
for the benefit of Lenders at the end of each month, in
arrears, an Unused Line Fee equal to one-quarter of one
percent (0.25%) per annum on the daily average amount by
which the Aggregate Revolving Loan Commitment exceeds the
sum of (i) the outstanding principal balance of the
Revolving Loans and (ii) the outstanding Letter of
Credit Obligations. The Unused Line Fee shall accrue from
the Closing Date until the last day of the Original Term,
and if applicable, from the first day to the last day of
each Renewal Term.
Examination and Appraisal Fees. In addition to the costs
and expenses described in paragraph 14(n) hereof, Borrower
shall pay to Collateral Agent for its own account an
examination fee of Six Hundred Dollars ($600) per auditor
per day for each examination performed by or at Collateral
Agent's direction of Borrower's books and records and
Collateral and such other matters as Collateral Agent shall
deem appropriate in its commercially reasonable judgment,
each such fee to be paid upon the completion of each such
examination; provided, that prior to the occurrence of an
Event of Default all such fees payable in connection with
any examinations shall not exceed Fifteen Thousand Dollars
($15,000) during any Fiscal Year of Borrower.
Capital Adequacy Charge. If either Agent or any Lender
shall have determined that the adoption of any law, rule or
regulation regarding capital adequacy, or any change therein
or in the interpretation or application thereof, or
compliance by either Agent or any Lender with any request or
directive regarding capital adequacy (whether or not having
the force of law) from any central bank or governmental
authority enacted after the Closing Date, does or shall have
the effect of reducing the rate of return on such party's
capital as a consequence of its obligations hereunder to a
level below that which either Agent or such Lender could
have achieved but for such adoption, change or compliance
(taking into consideration such Agent's or Lender's policies
with respect to capital adequacy) by a material amount, then
from time to time, after submission by such Agent or such
Lender to Borrower of a written demand therefor ("Capital
Adequacy Demand") together with the certificate described
below, Borrower shall pay to such Agent or such Lender such
additional amount or amounts ("Capital Adequacy Charge") as
will compensate such Agent or such Lender for such
reduction, such Capital Adequacy Demand to be made with
reasonable promptness following such determination. A
certificate of such Agent or such Lender claiming
entitlement to payment as set forth above shall be
conclusive in the absence of manifest error. Such
certificate shall set forth the nature of the occurrence
giving rise to such reduction, the amount of the Capital
Adequacy Charge to be paid to such Agent or such Lender, and
the method by which such amount was determined. In
determining such amount, such Agent or such Lender may use
any reasonable averaging and attribution method, applied on
a non-discriminatory basis.
LOAN ADMINISTRATION
Loan Requests. A request for a Revolving Loan shall be made
or shall be deemed to be made, each in the following manner:
(i) Borrower shall give Collateral Agent same day notice,
no later than 11:30 a.m. (Chicago time) of such day, of its
intention to borrow a Prime Rate Loan, and at least three
(3) Business Days prior notice of its intention to borrow a
LIBOR Rate Loan, in which notice Borrower shall specify the
amount of the proposed borrowing and the proposed borrowing
date; provided, however, that no such request may be made at
a time when there exists a Default or an Event of Default;
and (ii) the coming due of any amount required to be paid
under this Agreement or any Note, whether on account of
interest or for any other Liability, shall be deemed
irrevocably to be a request for a Prime Rate Loan on the due
date thereof in the amount required to pay such interest or
other Liability. As an accommodation to Borrower,
Collateral Agent may permit telephone requests for Revolving
Loans and electronic transmittal of instructions,
authorizations, agreements or reports to Collateral Agent by
Borrower. Unless Borrower specifically directs Collateral
Agent in writing not to accept or act upon telephonic or
electronic communications from Borrower, Collateral Agent
shall have no liability to Borrower for any loss or damage
suffered by Borrower as a result of Collateral Agent 's
honoring of any requests, execution of any instructions,
authorizations or agreements or reliance on any reports
communicated to it telephonically or electronically and
purporting to have been sent to Collateral Agent by Borrower
and Collateral Agent shall have no duty to verify the origin
of any such communication or the authority of the Person
sending it. Each notice of borrowing shall be irrevocable
by and binding on Borrower, and if such notice requests the
borrowing of a LIBOR Rate Loan, such notice shall state the
Interest Period with respect thereto. Borrower, at its
option, may choose Prime Rate Loans or LIBOR Rate Loans;
provided, that any LIBOR Rate Loan shall be in a minimum
amount of One Million Dollars ($1,000,000) or an integral
multiple of Five Hundred Thousand Dollars ($500,000) in
excess thereof; and provided further, that the right of
Borrower to choose any LIBOR Rate Loan is subject to the
provisions of paragraph 5(c) hereof.
Disbursement. Borrower hereby irrevocably authorizes
Collateral Agent and Lenders to disburse the proceeds of
each Revolving Loan requested by Borrower, or deemed to be
requested by Borrower, as follows: (i) the proceeds of each
Revolving Loan requested under paragraph 5(a)(i) shall be
disbursed by Collateral Agent or Lenders in lawful money of
the United States of America in immediately available funds,
in the case of the initial borrowing, in accordance with the
terms of the written disbursement letter from Borrower, and
in the case of each subsequent borrowing, by wire transfer
to such bank account as may be agreed upon by Borrower and
Collateral Agent from time to time, or elsewhere if pursuant
to a written direction from Borrower; and (ii) the proceeds
of each Revolving Loan requested under paragraph 5(a)(ii)
shall be disbursed by Collateral Agent by way of direct
payment of the relevant interest or other Liability.
Notice of Continuation and Notice of Conversion
Subject to the provisions of subparagraph (iii) hereof,
Borrower may elect tomaintain any borrowing by it, or any
portion thereof, as a LIBOR Rate Loan by selecting a new
Interest Period for such borrowing, which new Interest
Period shall commence on the last day of the then existing
Interest Period. Each selection of a new Interest Period (a
"Continuation") shall be made on three (3) Business Days
prior notice, given by Borrower to Collateral Agent not
later than 11:30 a.m. (Chicago time) on the third Business
Day preceding the date of any proposed Continuation. If
Borrower elects to maintain more than one borrowing
consisting of LIBOR Rate Loans by combining such borrowings
into one borrowing and selecting a new Interest Period
pursuant to this clause, each of the borrowings so combined
shall consist of Loans having Interest Periods ending on the
same date. If Borrower shall fail to select a new Interest
Period for any borrowing by it consisting of LIBOR Rate
Loans in accordance with this clause, such LIBOR Rate Loans
will automatically convert into Prime Rate Loans.
Subject to the provisions of subparagraph (iii) hereof,
Borrower may on three (3) Business Days prior notice given
to Collateral Agent convert the entire amount of or a
portion of all Loans of the same Type into Loans of another
Type (a "Conversion"); provided, that no Default or Event of
Default shall have occurred and be continuing; and provided
further, that any Conversion of any LIBOR Rate Loans into
Prime Rate Loans may only be made on the last day of the
Interest Period for such LIBOR Rate Loans, and upon
Conversion of any Prime Rate Loans into LIBOR Rate Loans,
Borrower shall pay accrued interest to the date of
Conversion on the principal amount converted on the first
day of the following month. Each such notice shall be given
not later than 11:30 a.m. (Chicago time) on the third
Business Day preceding the date of any proposed Conversion.
Each Conversion shall be in an aggregate amount of not less
than One Million Dollars ($1,000,000) or an integral
multiple of Five Hundred Thousand Dollars ($500,000) in
excess thereof. Borrower may elect to convert the entire
amount of or a portion of all Loans made to Borrower of the
same Type comprising more than one borrowing into Loans of
another Type by combining such borrowings into one borrowing
consisting of Loans of another Type; provided, however, that
if the borrowings so combined consist of LIBOR Rate Loans,
such LIBOR Rate Loans shall have Interest Periods ending on
the same date.
Notwithstanding anything contained in paragraph 5(a) hereof
or contained in subparagraphs (i) and (ii) above to the
contrary:
if Collateral Agent is unable to determine the LIBOR Rate
for LIBOR Rate Loans comprising any requested borrowing,
Continuation or Conversion, the right of Borrower to select
or maintain LIBOR Rate Loans for such borrowing or any
subsequent borrowing shall be suspended until Collateral
Agent shall notify Borrower that the circumstances causing
such suspension no longer exist, and each Loan comprising
such borrowing shall be automatically converted into a
Prime Rate Loan;
if at any time Collateral Agent or any Lender shall notify
Borrower that the LIBOR Rate for Loans comprising such
borrowing by Borrower will not adequately reflect the cost
to Collateral Agent or such Lender of making such Loans, the
right of Borrower to select, maintain, continue or convert
to LIBOR Rate Loans for such borrowing shall be suspended
until Collateral Agent or such Lender shall notify Borrower
that the circumstances causing such suspension no longer
exist, and each Loan comprising such borrowing shall be
automatically converted into a Prime Rate Loan;
there shall not be outstanding at any one time more than an
aggregate of five (5) LIBOR Rate Loans;
any LIBOR Rate Loans shall be in a minimum amount of One
Million Dollars ($1,000,000) or an integral multiple of Five
Hundred Thousand Dollars ($500,000) in excess thereof; and
To the extent the aggregate repayments of principal on
Revolving Loans received by Collateral Agent during the
pendency of an Interest Period applicable to a then
outstanding LIBOR Rate Loan exceed the aggregate unpaid
principal amount of all Prime Rate Loans outstanding during
such Interest Period, Collateral Agent shall, to the extent
of such excess, unless directed by Borrower to apply such
amounts to any LIBOR Rate Loans, credit to a special
suspense account the amount of such repayments received
during such Interest Period, and at the expiration of such
Interest Period, Collateral Agent shall apply all such
amounts credited to such account against the unpaid
principal balance of the LIBOR Rate Loans then outstanding.
Borrower shall not earn interest on any credit balance which
may be deemed to exist in favor of Borrower by virtue of
this subparagraph (E). In the event that Borrower directs
that any such repayments be applied to LIBOR Rate Loans,
Borrower shall pay the Breakage Costs (as defined in
subparagraph 5(c)(iv) below) in connection therewith.
Each notice of Continuation or Conversion shall be
irrevocable and binding on Borrower. If (A) any borrowing
of a Loan, Continuation, or Conversion specified to be
comprised of LIBOR Rate Loans does not occur on the date
specified in the related notice of borrowing, notice of
Continuation or notice of Conversion, or (B) any payment of
principal of, or Conversion or Continuation of, any LIBOR
Rate Loan is made other than on the last day of the Interest
Period for such Loan as a result of a payment, prepayment,
Conversion or Continuation of such Loan or acceleration of
the maturity of any of the Liabilities pursuant to paragraph
17 hereof, or for any other reason, then in any such case,
upon Collateral Agent's or any Lender's demand, Borrower
shall pay to Collateral Agent and Lenders and indemnify
Collateral Agent and Lenders from and against the following
(collectively "Breakage Costs"): (x) any loss, cost or
expense incurred by Collateral Agent and Lenders as a result
of any failure to fulfill, on or before the date for such
borrowing, Continuation or Conversion, the applicable
conditions set forth in paragraph 15 hereof, and
(y) any additional losses, costs or expenses which such
parties may reasonably incur as a result of such payment,
including, without limitation in each such case, any loss
(excluding loss of anticipated profits), cost or expense
incurred by reason of the liquidation or redeployment of
deposits or other funds acquired by Collateral Agent and
Lenders to fund the Loan to be made as part of such
borrowing, Continuation or Conversion.
SETTLEMENTS, DISTRIBUTIONS AND APPORTIONMENT OF PAYMENTS.
On a weekly basis (or more frequently if requested by
Collateral Agent (a "Settlement Date"), Collateral Agent
shall provide each Lender with a statement of the
outstanding balance of the Liabilities as of the end of the
business day immediately preceding the Settlement Date (the
"Pre-Settlement Determination Date") and the current balance
of the Loans funded by each Lender (whether made directly by
such Lender to Borrower or constituting a settlement by such
Lender of a previous Disproportionate Advance made by
Collateral Agent on behalf of such Lender to Borrower). If
such statement discloses that such Lender's current balance
of the Loans as of the Pre-Settlement Determination Date
exceeds such Lender's Pro Rata Share of the Liabilities
outstanding as of the Pre-Settlement Determination Date,
then Collateral Agent shall, on the Settlement Date,
transfer, by wire transfer, the net amount due to such
Lender in accordance with such Lender's instructions, and if
such statement discloses that such Lender's current balance
of the Loans as of the Pre-Settlement Determination Date is
less than such Lender's Pro Rata Share of the Liabilities
outstanding as of the Pre-Settlement Determination Date,
then such Lender shall, on the Settlement Date, transfer, by
wire transfer the net amount due to Collateral Agent in
accordance with Collateral Agent's instructions. In
addition, payments actually received by Collateral Agent
with respect to the following items shall be distributed by
Collateral Agent to Lenders as follows:
Within three (3) Business Days of receipt thereof by
Collateral Agent, payments to be applied to interest on the
Loans shall be paid to each Lender in proportion to its Pro
Rata Share, subject to any adjustments for any
Disproportionate Advances as provided in paragraph 2 of the
Agreement, so that Collateral Agent shall receive interest
on the Disproportionate Advances and each Lender shall only
receive interest on the amount of funds actually advanced by
such Lender;
Within three (3) Business Days of receipt thereof by
Collateral Agent, payments to be applied the Letter of
Credit fee set as provided in paragraph 4(d) hereof shall be
paid to each Lender in proportion to its Pro Rata Share;
and
Within three (3) Business Days of receipt thereof by
Collateral Agent, payments to be applied to the closing fee
set forth in paragraph 4(e) hereof shall be paid to each
Lender in proportion to its Pro Rata Share; and
Within three (3) Business Days of receipt thereof by
Collateral Agent, payments to be applied to the unused line
fee set forth in paragraph 4(f) hereof shall be paid to each
Lender in proportion to its Pro Rata Shares.
GRANT OF SECURITY INTEREST.
As security for the payment of all Loans now or in the
future made by Agents and Lenders to Borrower hereunder and
for the payment or other satisfaction of all other
Liabilities, Borrower hereby assigns to Collateral Agent,
for the benefit of Agents and Lenders, and grants to
Collateral Agent, for the benefit of Agents and Lenders, a
continuing security interest in the following property of
Borrower, whether now or hereafter owned, existing, acquired
or arising and wherever now or hereafter located (but
excluding keyman life insurance policies owned by Borrower
and described on Schedule 7 hereof): (a) all Accounts
(whether or not Eligible Accounts) and all Goods whose sale,
lease or other disposition by Borrower has given rise to
Accounts and have been returned to or repossessed or stopped
in transit by Borrower; (b) all Chattel Paper, Instruments,
Documents and General Intangibles (including, without
limitation, all patents, patent applications, trademarks,
trademark applications, tradenames, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer
lists, tax refund claims, claims against carriers and
shippers, guarantee claims, contracts rights, security
interests, security deposits and any rights to
indemnification); (c) all Inventory; (d) all Goods (other
than Inventory) including, without limitation, Equipment,
vehicles and fixtures; (e) all Investment Property; (f) the
real property located at 6500 West Cortland, Chicago,
Illinois; (g) all deposits and cash and any other property
of Borrower now or hereafter in the possession, custody
or control of either Agent or any Lender or any agent or any
parent, affiliate or subsidiary of either Agent or any
Lender or any participant with any Lender in the Loans for
any purpose (whether for safekeeping, deposit, collection,
custody, pledge, transmission or otherwise); and (h) all
additions and accessions to, substitutions for, and
replacements, products and proceeds of the foregoing
property, including, without limitation, proceeds of all
insurance policies insuring the foregoing property, and all
of Borrower's books and records relating to any of the
foregoing and to Borrower's business.
PRESERVATION OF COLLATERAL AND PERFECTION
OF SECURITY INTERESTS THEREIN.
Borrower shall, at Collateral Agent's request, at any time
and from time to time, execute and deliver to Collateral
Agent such financing statements, documents and other
agreements and instruments (and pay the cost of filing or
recording the same in all public offices deemed reasonably
necessary or desirable by Collateral Agent) and do such
other acts and things as Collateral Agent may deem necessary
or desirable in order to establish and maintain a valid,
attached and perfected security interest in the Collateral
in favor of Collateral Agent, for the benefit of Agents and
Lenders (free and clear of all other liens, claims and
rights of third parties whatsoever, whether voluntarily or
involuntarily created, except Permitted Liens) to secure
payment of the Liabilities, and in order to facilitate the
collection of the Collateral. Borrower irrevocably hereby
makes, constitutes and appoints Collateral Agent (and all
Persons designated by Collateral Agent for that purpose) as
Borrower's true and lawful attorney and agent-in-fact to
execute such financing statements, documents and other
agreements and instruments and do such other acts and things
as may be necessary to preserve and perfect Collateral
Agent's security interest in the Collateral. Borrower
further agrees that a carbon, photographic, photostatic or
other reproduction of this Agreement or of a financing
statement shall be sufficient as a financing statement.
POSSESSION OF COLLATERAL AND RELATED MATTERS.
Until an Event of Default has occurred, Borrower shall have
the right, except as otherwise provided in this Agreement, in the
ordinary course of Borrower's business, to (a) sell, lease or
furnish under contracts of service any of Borrower's Inventory
normally held by Borrower for any such purpose, and (b)
use and consume any raw materials, work in process or other
materials normally held by Borrower for such purpose; provided,
however, that a sale in the ordinary course of business shall not
include any transfer or sale in satisfaction, partial or
complete, of a debt owed by Borrower.
COLLECTIONS.
Borrower shall direct all of its Account Debtors to make all
payments on the Accounts directly to a post office box ("Lock
Box") with LaSalle National Bank, and in the name and under
exclusive control of, Collateral Agent. Borrower shall establish
an account ("Blocked Account") in Collateral Agent's name for the
benefit of Borrower with LaSalle National Bank, into which all
payments received in the Lock Box shall be deposited, and
into which Borrower will immediately deposit all payments made
for Inventory or services sold or rendered by Borrower and
received by Borrower in the identical form in which such payments
were made, whether by cash or check. If Borrower, any Affiliate
or Subsidiary of Borrower, or any shareholder, officer, director,
employee or agent of Borrower or any Affiliate or Subsidiary, or
any other Person acting for or in concert with Borrower shall
receive any monies, checks, notes, drafts or other payments
relating to or as proceeds of Accounts or other Collateral,
Borrower and each such Person shall receive all such items in
trust for, and as the sole and exclusive property of, Collateral
Agent and, immediately upon receipt thereof, shall remit the same
(or cause the same to be remitted) in kind to the Blocked
Account. Funds deposited in the Blocked Account shall be
transferred to Collateral Agent on a daily basis as such
funds are collected. Borrower agrees that all payments made
to the Blocked Account established by Borrower or otherwise
received by Collateral Agent, whether in respect of the Accounts
of Borrower or as proceeds of other Collateral of Borrower or
otherwise, will be applied on account of the Liabilities of
Borrower in accordance with the terms of this Agreement.
Borrower agrees to pay all fees, costs and expenses which
Borrower incurs in connection with opening and maintaining a Lock
Box and Blocked Account. All of such fees, costs and expenses
which remain unpaid by Borrower pursuant to any Lock Box or
Blocked Account Agreement with Borrower, to the extent same
shall have been paid by Collateral Agent hereunder, shall
constitute Revolving Loans hereunder, shall be payable to
Collateral Agent by Borrower upon demand, and, until paid, shall
bear interest at the highest rate then applicable to Revolving
Loans hereunder. All checks, drafts, instruments and other items
of payment or proceeds of Collateral delivered to Collateral
Agent in kind shall be endorsed by Borrower to Collateral Agent,
and, if that endorsement of any such item shall not be made for
any reason, Collateral Agent is hereby irrevocably authorized to
endorse the same on Borrower's behalf. For the purpose of this
paragraph, Borrower irrevocably hereby makes, constitutes and
appoints Collateral Agent (and all Persons designated by
Collateral Agent for that purpose) as Borrower's true and lawful
attorney and agent-in-fact (i) to endorse Borrower's name upon
said items of payment and/or proceeds of Collateral of Borrower
and upon any Chattel Paper, document, instrument, invoice or
similar document or agreement relating to any Account of Borrower
or goods pertaining thereto; (ii) to take control in any manner
of any item of payment or proceeds thereof; (iii) to have access
to any lock box or postal box into which any of Borrower's mail
is deposited; and (iv) open and process all mail addressed to
Borrower and deposited therein; provided, however, that
Collateral Agent shall not exercise any such powers
described in subparagraphs (i), (ii) (except for routine Lock Box
payments/proceeds) and (iv) unless and until an Event of Default
has occurred.
Collateral Agent may, at any time and from time to time after the
occurrence of an Event of Default, whether before or after
notification to any Account Debtor and whether before or after
the maturity of any of the Liabilities, (i) enforce collection of
any of Borrower's Accounts or contract rights by suit or
otherwise; (ii) exercise all of Borrower's rights and remedies
with respect to proceedings brought to collect any Accounts;
(iii) surrender, release or exchange all or any part of any
Accounts of Borrower, or compromise or extend or renew for any
period (whether or not longer than the original period) any
indebtedness thereunder; (iv) sell or assign any Account of
Borrower upon such terms, for such amount and at such time or
times as Collateral Agent deems advisable; (v) prepare, file and
sign Borrower's name on any proof of claim in bankruptcy or other
similar document against any Account Debtor indebted on an
Account of Borrower; and (vi) do all other acts and things
which are necessary, in Collateral Agent's sole discretion, to
fulfill Borrower's obligations under this Agreement and to allow
Collateral Agent to collect the Accounts. In addition to any
other provision hereof, Collateral Agent may at any time on or
after the occurrence of an Event of Default, at Borrower's
expense, notify any parties obligated on any of the Accounts
of Borrower to make payment directly to Collateral Agent of any
amounts due or to become due thereunder.
For the purpose of determining Borrower's Borrowing Base
hereunder, Collateral Agent shall, upon receipt by Collateral
Agent at its office in Chicago, Illinois, of cash or other
immediately available funds from collections of items of payment
and proceeds of any Collateral, apply the whole or any part
of such collections or proceeds against the Liabilities in
such order as Collateral Agent shall determine in its sole
discretion.
In its sole credit judgment, without waiving or releasing
any obligation, liability or duty of Borrower under this
Agreement or the Other Agreements or any Event of Default, at any
time or times hereafter, Collateral Agent may (but shall not be
obligated to) pay, acquire or accept an assignment of any
security interest, lien, encumbrance or claim asserted by
any Person in, upon or against the Collateral. All sums paid by
Collateral Agent in respect thereof and all costs, fees and
expenses (including, without limitation, reasonable attorney fees
for both inside and outside counsel, all court costs and all
other charges relating thereto) incurred by Collateral Agent
shall constitute Revolving Loans, payable by Borrower to
Collateral Agent on demand and, until paid, shall bear interest
at the highest rate then applicable to Revolving Loans hereunder.
Immediately upon Borrower's receipt of any portion of the
Collateral evidenced by an agreement, Instrument or Document
including, without limitation, any Chattel Paper, Borrower shall
deliver the original thereof to Collateral Agent together with an
appropriate endorsement or other specific evidence of assignment
thereof to Collateral Agent (in form and substance acceptable to
Collateral Agent). If an endorsement or assignment of any
such items shall not be made for any reason, Collateral Agent is
hereby irrevocably authorized, as Borrower's attorney and
agent-in-fact, to endorse or assign the same on Borrower's
behalf.
SCHEDULES AND REPORTS.
Borrower shall furnish or cause to be furnished to Collateral
Agent and, except for the items in paragraph 11(a) below, to
Administrative Agent and Lenders, the following:
Daily Reports. Borrower shall provide Collateral Agent with
an executed daily loan report and certificate in Collateral
Agent's then current form on each day on which Borrower requests
a Revolving Loan, and in any event at least once each week, which
shall be accompanied by copies of Borrower's sales journal, cash
receipts journal and credit memo journal for the relevant period.
Such report shall reflect the activity of Borrower with respect
to Accounts for the immediately preceding week, and shall be in
a form and with such specificity as is satisfactory to Collateral
Agent and shall contain such additional information as Collateral
Agent may reasonably require concerning Accounts and Inventory
included, described or referred to in such report and any other
documents in connection therewith requested by Collateral Agent
including, without limitation, but only if specifically requested
by Collateral Agent, copies of all invoices prepared in
connection with such Accounts. Also, on a weekly basis, an
inventory summary report shall be provided.
Monthly Financial Statements. As soon as practicable and in
any event within thirty (30) days following the end of each
calendar month other than December, and within fifty (50) days
following the end of December:
(1) statements of income and statements of cash flow of Borrower
for each such month and for the period from beginning of the then
current Fiscal Year of Borrower to the end of such month, (2)
balance sheets of Borrower as of the end of such month, and
(3) with respect to such statements of income and balance
sheets, in comparative form, figures for the corresponding
periods in the preceding Fiscal Year of Borrower, all in
reasonable detail and certified by the chief financial officer of
Borrower that such statements fairly present the financial
condition of Borrower in accordance with GAAP, subject to changes
resulting from normal fiscal quarter-end and year-end
adjustments.
Monthly Reports. In addition to any other reports, as soon
as practicable and in any event: (i) within ten (10) days after
the end of each month, (a) a detailed trial balance of Borrower's
Accounts aged per invoice date, in form and substance reasonably
satisfactory to Collateral Agent including, without limitation,
the names and addresses of all Account Debtors of Borrower, and
(b) a summary and detail of accounts payable (such Accounts
and accounts payable divided into such time intervals as
Collateral Agent may require in its sole discretion), including a
listing of any held checks; and (2) within ten (10) days after
the end of each month, the general ledger inventory account
balance, a perpetual inventory report and Collateral Agent's
standard form of Inventory report then in effect or the form most
recently requested from Borrower by Collateral Agent, for
Borrower by each category of Inventory, together with a
description of the monthly change in each category of Inventory.
Quarterly Reports. As soon as practicable and in any event
within forty-five (45) days of the end of each fiscal quarter of
Borrower, copies of Borrower's 10-Q report filed with the
Securities Exchange Commission and a Certificate of the Chief
Financial Officer of Borrower showing that Borrower is in
compliance with all of its covenants hereof, including detailed
calculations of financial covenants or describing any deviation
therefrom.
Annual Financial Statements. As soon as practicable and in
any event within ninety (90) days after the end of each Fiscal
Year of Borrower: (i) statements of income of Borrower for such
Fiscal Year, and a balance sheet of Borrower as of the end of
such Fiscal Year, (ii) statements of cash flow of Borrower for
such Fiscal Year, such statements to be presented in accordance
with GAAP and certified by independent certified public
accountants of recognized national standing selected by Borrower
and satisfactory to Collateral Agent, whose opinion shall be
unqualified, in form and substance reasonably satisfactory to
Collateral Agent and (iii) copies of Borrower's Form 10-K
report filed with the Securities Exchange Commission. Commencing
with the Fiscal Year ending on or about December 31, 1997, such
financial statements shall set forth in comparative form,
corresponding figures for the period covered by the preceding
annual audit and as of the end of the preceding Fiscal Year of
Borrower.
Annual Projections. As soon as practicable and in any event
no less than thirty (30) days prior to the beginning of each
Fiscal Year of Borrower, projected balance sheets, statements of
income and cash flow for Borrower, for each of the twelve (12)
months during such Fiscal Year, which shall include the
assumptions used therein, together with appropriate supporting
details as reasonably requested by Agents and Lenders.
Accountant's Reports. As soon as practicable and in any
event within ten (10) days of delivery to Borrower, a copy of any
letter issued by Borrower's independent public accountants or
other management consultants with respect to Borrower's financial
or accounting systems or controls, including all so-called
"management letters".
Explanation of Budgets and Projections. In conjunction with
the delivery of the annual presentation of projections or budgets
referred to in paragraph 11(f) above, a letter signed by the
President or a Vice President of Borrower and by the Treasurer or
Chief Financial Officer of Borrower, describing, comparing and
analyzing, in reasonable detail, all changes and developments
between the anticipated financial results included in such
projections or budgets and the historical financial statements of
Borrower.
Other Information. With reasonable promptness, such other
business or financial data, reports, appraisals and projections
as Agents and Lenders may reasonably request.
Accompanying Certificates. All financial statements delivered to
Agents and Lenders pursuant to the requirements of this paragraph
(except where otherwise expressly indicated) shall be prepared in
accordance with GAAP as provided in this Agreement. Together
with each delivery of financial statements required by paragraphs
11(b), (d) and (e) above, Borrower shall deliver to Agents and
Lenders an officer's certificate in the form attached hereto
as Exhibit B, which with respect to the reports required by
paragraphs 11(b), (d) and (e) shall include a calculation of
financial covenants in the schedule attached to such officer's
certificate in form satisfactory to Collateral Agent.
TERMINATION.
This Agreement shall be in effect from the date hereof until
February 2, 2001 ("Original Term") and shall automatically renew
itself from year to year thereafter (each such one year renewal
being referred to herein as a "Renewal Term") unless (i) the due
date of the Liabilities is accelerated pursuant to paragraph 17
hereof; or (ii) Borrower elects or any Lender elects to terminate
this Agreement at the end of the Original Term or at the end of
any Renewal Term by giving the other parties written notice of
such election at least ninety (90) days prior to the end of the
Original Term or the then current Renewal Term, in which case
Borrower shall pay all of the Liabilities in full on the last day
of such term. If one or more of the events specified in
subparagraphs (i) or (ii) occurs, this Agreement shall terminate
on the date thereafter that the Liabilities are paid in full;
provided, however, that the security interests and liens created
under this Agreement and the Other Agreements shall survive such
termination until the date upon which payment and satisfaction in
full of the Liabilities shall have occurred. At such time as
Borrower has repaid all of the Liabilities and this Agreement has
terminated, (i) Borrower shall deliver to Agents and Lenders
a release, in form and substance reasonably satisfactory to each
such Agent and Lender, of all obligations and liabilities of such
Agent and such Lender and its officers, directors, employees,
agents, parents, subsidiaries and affiliates to Borrower, and if
Borrower is obtaining new financing from another lender, Borrower
shall deliver such lender's indemnification of Collateral Agent,
in form and substance satisfactory to Collateral Agent, for
checks which Collateral Agent has credited to Borrower's account,
but which subsequently are dishonored for any reason and (ii)
upon Borrower's request, Agents and Lenders shall deliver to
Borrower a release in form and substance reasonably satisfactory
to Borrower.
REPRESENTATIONS AND WARRANTIES.
Borrower hereby makes the following representations, warranties
and covenants:
the financial statements delivered or to be delivered by Borrower
to Agents and Lenders at or prior to the date of this Agreement
and at all times subsequent thereto accurately reflect the
financial condition of Borrower, and since the date of Borrower's
financial statements delivered to Agents and Lenders most
recently prior to the date of this Agreement, no event or
condition has occurred which has had, or is reasonably likely to
have, a Material Adverse Effect;
the office where Borrower keeps its books, records and accounts
(or copies thereof) concerning the Collateral, Borrower's
principal place of business and all of Borrower's other places of
business, locations of Collateral and post office boxes are as
set forth in Exhibit A; Borrower shall promptly (but in no
event less than ten (10) days prior thereto) advise Agents
in writing of the proposed opening of any new place of business,
the closing of any existing place of business, any change in the
location of Borrower's books, records and accounts (or copies
thereof) or the opening or closing of any post office box
of Borrower;
the Collateral (other than display booths for consumer
electronics shows, Inventory on consignment and tooling in the
possession of vendors), including without limitation the
Equipment (except any part thereof which prior to the date of
this Agreement Borrower shall have advised Collateral Agent in
writing consists of Collateral normally used in more than one
state) is and shall be kept, or, in the case of vehicles (other
than Borrower's special touring van), based, only at the
addresses set forth on the first page of this Agreement or
on Exhibit A, and at other locations within the continental
United States of which Collateral Agent has been advised by
Borrower in writing;
Borrower shall immediately give written notice to Collateral
Agent of any use of any such Goods in any state other than a
state in which Borrower has previously advised Collateral Agent
such Goods shall be used, and such Goods shall not, unless
Collateral Agent shall otherwise consent in writing, be used
outside of the continental United States;
no security agreement, financing statement or analogous
instrument exists or shall exist with respect to any of the
Collateral other than any security agreement, financing statement
or analogous instrument evidencing Permitted Liens;
each Account or item of Inventory which Borrower shall,
expressly or by implication, request Collateral Agent to classify
as an Eligible Account or as Eligible Inventory, respectively,
shall, as of the time when such request is made, conform in all
respects to the requirements of such classification as set forth
in the respective definitions of Eligible Account and Eligible
Inventory and as otherwise established by Collateral Agent
from time to time, and Borrower shall promptly notify Collateral
Agent in writing if any such Eligible Account or Eligible
Inventory shall subsequently become ineligible;
Borrower is and shall at all times during the Original Term
or any Renewal Term be the lawful owner of all Collateral now
purportedly owned or hereafter purportedly acquired by Borrower,
free from all liens, claims, security interests and encumbrances
whatsoever, whether voluntarily or involuntarily created and
whether or not perfected, other than the Permitted Liens;
Borrower has the right and power and is duly authorized and
empowered to enter into, execute and deliver this Agreement and
the Other Agreements and perform its obligations hereunder and
thereunder; Borrower's execution, delivery and performance of
this Agreement and the Other Agreements does not and shall not
conflict with the provisions of any statute, regulation,
ordinance or rule of law, or any agreement, contract or other
document which may now or hereafter be binding on Borrower, and
Borrower's execution, delivery and performance of this Agreement
and the Other Agreements shall not result in the imposition of
any lien or other encumbrance upon any of Borrower's property
under any existing indenture, mortgage, deed of trust, loan or
credit agreement or other agreement or instrument by which
Borrower or any of its property may be bound or affected;
except as otherwise disclosed on Schedule 13 (i), there are
no actions or proceedings which are pending or, to the best of
Borrower's knowledge, threatened against Borrower which are
reasonably likely to have a Material Adverse Effect and Borrower
shall, promptly upon becoming aware of any such pending or
threatened action or proceeding, give written notice thereof to
Agents and Lenders;
Borrower has obtained all licenses, authorizations,
approvals and permits, the lack of which would have a Material
Adverse Effect on the operation of its business, and Borrower is
and shall remain in compliance in all material respects with all
applicable federal, state, local and foreign statutes, orders,
regulations, rules and ordinances (including, without limitation,
statutes, orders, regulations, rules and ordinances relating to
taxes, employer and employee contributions and similar items,
securities, employee retirement and welfare benefits, employee
health and safety or environmental matters), the failure to
comply with which would have a Material Adverse Effect on its
business, property, assets, operations or condition, financial
or otherwise;
all written information now, heretofore or hereafter furnished by
Borrower to either Agent or any Lender is and shall be true and
correct in all material respects as of the date with respect to
which such information was or is furnished (except for financial
projections, which have been prepared in good faith based upon
reasonable assumptions);
Borrower is not conducting, permitting or suffering to be
conducted, nor shall it conduct, permit or suffer to be
conducted, any activities pursuant to or in connection with which
any of the Collateral is now, or will (while any Liabilities
remain outstanding) be owned by any Affiliate;
Borrower's name has been as set forth on the first page of
this Agreement since 1993 (prior to which the Borrower's name was
Dynascan Corporation) and Borrower uses no tradenames or division
names in the operation of its business, except as otherwise
disclosed in writing to Collateral Agent;
Borrower shall notify Collateral Agent in writing within ten
(10) days of the change of its name or the use of any tradenames
or division names not previously disclosed to Collateral Agent in
writing;
with respect to Borrower's Equipment: (i) Borrower has good
and indefeasible and merchantable title to and ownership of all
Equipment; (ii) Borrower shall keep and maintain the Equipment in
good operating condition and repair and shall make all necessary
replacements thereof and renewals thereto so that the value and
operating efficiency thereof shall at all times be preserved and
maintained, ordinary wear and tear excepted; (iii) Borrower
shall not permit any such items to become a fixture to real
estate (unless Collateral Agent has a first priority lien on such
real estate) or an accession to other personal property; (iv)
from time to time Borrower may sell, exchange or otherwise
dispose of obsolete, unused or worn out Equipment, but only
to the extent such proceeds are delivered to Collateral Agent to
be applied to the Liabilities hereof; and (v) Borrower,
immediately on demand by Collateral Agent, shall deliver to
Collateral Agent any and all evidence of ownership of, including,
without limitation, certificates of title and applications of
title to, any of the Equipment;
this Agreement and the Other Agreements to which Borrower is
a party are the legal, valid and binding obligations of Borrower
and are enforceable against Borrower in accordance with their
respective terms, except to the extent that such enforceability
may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the
rights of creditors generally;
Borrower is solvent, is able to pay its debts as they become
due and has capital sufficient to carry on its business, now owns
property having a value both at fair valuation and at present
fair saleable value greater than the amount required to pay its
debts, and will not be rendered insolvent by the execution and
delivery of this Agreement or any of the Other Agreements or by
completion of the transactions contemplated hereunder or
thereunder;
Borrower is not now obligated, whether directly or indirectly,
for any loans or other indebtedness for borrowed money other than
(i) the Liabilities; (ii) indebtedness disclosed on Schedule
13(q); (iii) unsecured indebtedness to trade creditors arising in
the ordinary course of Borrower's business and (iv) unsecured
indebtedness arising from the endorsement of drafts and other
instruments for collection, in the ordinary course of Borrower's
business.
Borrower does not own any margin securities, and none of the
proceeds of the Loans hereunder shall be used for the purpose of
purchasing or carrying any margin securities or for the purpose
of reducing or retiring any indebtedness which was originally
incurred to purchase any margin securities or for any other
purpose not permitted by Regulation G or Regulation U of the
Board of Governors of the Federal Reserve System as in effect
from time to time;
except as otherwise disclosed on Schedule 13(s), Borrower
has no Parents, Subsidiaries or divisions, nor is Borrower
engaged in any joint venture or partnership with any other
Person;
Borrower is duly organized and in good standing in its state
of organization and Borrower is duly qualified and in good
standing in all states where the nature and extent of the
business transacted by it or the ownership of its assets makes
such qualification necessary, except for such other states in
which the failure to so qualify would not have a Material Adverse
Effect;
Borrower is not in default under any material contract, lease or
commitment to which it is a party or by which it is bound, nor
does Borrower know of any dispute regarding any contract, lease
or commitment which is material to the continued financial
success and well-being of Borrower;
there are no controversies pending or threatened between Borrower
and any of its employees, other than employee grievances arising
in the ordinary course of business which are not, in the
aggregate, material to the continued financial success and
well-being of Borrower, and Borrower is in compliance in all
material respects with all federal and state laws respecting
employment and employment terms, conditions and practices
including, but not limited to, health and other Benefit Plans
specified on Schedule 13(v) attached hereto, except where the
failure to so comply would not have a Material Adverse Effect;
and
Borrower possesses, and shall continue to possess, adequate
licenses, patents, patent applications, copyrights, service
marks, trademarks, trademark applications, tradestyles and
tradenames to continue to conduct its business as heretofore
conducted by it.
Borrower represents, warrants and covenants to Agents and
Lenders that all representations, warranties and covenants of
Borrower contained in this Agreement (whether appearing in
paragraphs 13 or 14 hereof or elsewhere) shall be true at the
time of Borrower's execution of this Agreement, shall survive
the execution, delivery and acceptance hereof by the parties
hereto and the closing of the transactions described herein or
related hereto, shall remain true until the repayment in full of
all of the Liabilities and termination of this Agreement, and
shall be remade by Borrower at the time each Revolving Loan is
made and each Letter of Credit is issued pursuant to this
Agreement.
COVENANTS.
Until payment or satisfaction in full of all Liabilities and
termination of this Agreement, unless Borrower obtains the prior
written consent of the Requisite Lenders waiving or modifying any
of Borrower's covenants hereunder in any specific instance,
Borrower agrees as follows:
Borrower shall at all times keep accurate and complete books,
records and accounts with respect to all of Borrower's business
activities, in accordance with sound accounting practices and
generally accepted accounting principles consistently applied,
and shall keep such books, records and accounts, and any copies
thereof, only at the addresses indicated for such purpose on
Exhibit A;
Collateral Agent, or any Persons designated by it, shall have the
right, at any time, in the exercise of its commercially
reasonable credit judgment, to call at Borrower's places of
business at any reasonable times, and, without hindrance or
delay, to inspect the Collateral and to inspect, audit, check and
make extracts from Borrower's books, records, journals, orders,
receipts and any correspondence and other data relating to
Borrower's business, the Collateral or any transactions between
the parties hereto, and shall have the right to make such
verification concerning Borrower's business as Collateral
Agent may consider reasonable under the circumstances. Borrower
shall furnish to Collateral Agent such information relevant to
Agents' or Lenders' rights under this Agreement as either Agent
or any Lender shall at any time and from time to time reasonably
request. Any Lender may, at such Lender's expense, accompany
Collateral Agent in any such inspection. Borrower authorizes
Collateral Agent to discuss the affairs, finances and business of
Borrower with any officers or directors of Borrower or any
Affiliate, or with those employees of Borrower with whom
Collateral Agent has determined in its commercially reasonable
judgment to be necessary or desirable to converse, and to discuss
the financial condition of Borrower with Borrower's independent
public accountants. Any such discussions shall be without
liability to either Agent, any Lender or to such accountants.
Borrower shall pay to or reimburse Collateral Agent for all
reasonable fees, costs, and out-of-pocket expenses incurred by
Collateral Agent in the exercise of its rights hereunder (in
addition to the fees payable by Borrower pursuant to paragraph
4(g) hereof in connection with Collateral Agent's examination of
Borrower's books and records and Collateral) and all of such
costs, fees and expenses shall constitute Revolving Loans
hereunder, shall be payable on demand and, until paid, shall
bear interest at the highest rate then applicable to Loans
hereunder;
(i)Borrower shall: keep the Collateral properly housed and
shall keep the Collateral insured against such risks and in such
amounts as are customarily insured against by Persons engaged in
businesses similar to that of Borrower with such companies, in
such amounts and under policies in such form as shall be
reasonably satisfactory to Collateral Agent. Originals or
certified copies of such policies of insurance have been, or
within fifteen (15) days after the Closing Date, shall be,
delivered to Collateral Agent together with evidence of payment
of all premiums therefor, and shall contain an endorsement, in
form and substance acceptable to Collateral Agent, showing loss
under such insurance policies payable to Collateral Agent. Such
endorsement, or an independent instrument furnished to Collateral
Agent, shall provide that the insurance company shall give
Collateral Agent at least thirty (30) days written notice before
any such policy of insurance is altered or cancelled and that no
act, whether willful or negligent, or default of Borrower or any
other Person shall affect the right of Collateral Agent to
recover under such policy of insurance in case of loss or damage.
Borrower hereby directs all insurers under such policies of
insurance to pay all proceeds payable thereunder directly to
Collateral Agent. Borrower irrevocably, makes, constitutes and
appoints Collateral Agent (and all officers, employees or agents
designated by Collateral Agent) as Borrower's true and lawful
attorney (and agent-in-fact) for the purpose of making, settling
and adjusting claims under such policies of insurance, endorsing
the name of Borrower on any check, draft, instrument or other
item of payment for the proceeds of such policies of insurance
and making all determinations and decisions with respect to such
policies of insurance; provided, however, that Collateral Agent
shall exercise such rights only upon the occurrence of an Event
of Default;
Borrower shall maintain, at its expense, such public liability
and third party property damage insurance as is customary for
Persons engaged in businesses similar to that of Borrower with
such companies and in such amounts, with such deductibles and
under policies in such form as shall be reasonably satisfactory
to Collateral Agent and originals or certified copies of such
policies have been, or within fifteen (15) days after the Closing
Date, shall be, delivered to Collateral Agent together with
evidence of payment of all premiums therefor; each such policy
shall contain an endorsement showing Collateral Agent as
additional insured thereunder and providing that the insurance
company shall give Collateral Agent at least thirty (30) days
written notice before any such policy shall be altered or
cancelled; and
If Borrower at any time or times hereafter shall fail to
obtain or maintain any of the policies of insurance required
above or to pay any premium in whole or in part relating thereto,
then Collateral Agent, without waiving or releasing any
obligation or default by Borrower hereunder, may (but shall be
under no obligation to) obtain and maintain such policies of
insurance and pay such premiums and take such other actions with
respect thereto as Collateral Agent deems advisable. All sums
disbursed by Collateral Agent in connection with any such
actions, including, without limitation, court costs, expenses,
other charges relating thereto and reasonable attorneys' fees,
shall constitute Revolving Loans hereunder and, until paid, shall
bear interest at the highest rate then applicable to Revolving
Loans hereunder;
Borrower shall not use the Collateral, or any part thereof,
in any unlawful business or for any unlawful purpose or use or
maintain any of the Collateral in any manner that does or could
result in material damage to the environment or a violation of
any applicable environmental laws, rules or regulations;
Borrower shall keep the Collateral in good condition, repair
and order, ordinary wear and tear excepted; Borrower shall not
permit the Collateral, or any part thereof, to be levied upon
under execution, attachment, distraint or other legal process;
Borrower shall not sell, lease, grant a security interest in or
otherwise dispose of any of the Collateral except as expressly
permitted by this Agreement; and Borrower shall not secrete or
abandon any of the Collateral, or remove or permit removal of any
of the Collateral from any of the locations listed on Exhibit A
or in any written notice to Collateral Agent pursuant to
paragraph 13(c) hereof, except for the removal of Inventory sold
in the ordinary course of Borrower's business as permitted
herein;
all monies and other property obtained by Borrower from either
Agent or any Lender pursuant to this Agreement will be used
solely for business purposes of Borrower;
Borrower shall, at the request of Collateral Agent, indicate
on its records concerning the Collateral a notation, in form
satisfactory to Collateral Agent, of the security interest of
Collateral Agent hereunder, and Borrower shall not maintain
duplicates or copies of such records at any address other than
Borrower's principal place of business set forth on the first
page of this Agreement; provided, however, that Borrower, in the
ordinary course of its business, may furnish copies of such
records to its accountants, attorneys and other agents or
advisors as it may determine to be necessary or desirable, in the
exercise of its commercially reasonable judgment; Borrower shall
file all required tax returns and pay all of its taxes when due,
including, without limitation, taxes imposed by federal, state or
municipal agencies, and shall cause any liens for taxes to be
promptly released; provided, that Borrower shall have the right
to contest the payment of such taxes in good faith by appropriate
proceedings so long as (i) the amount so contested is shown on
Borrower's financial statements, (ii) the contesting of any such
payment does not give rise to a lien for taxes, (iii) upon the
occurrence of an Event of Default, Borrower keeps on deposit with
Collateral Agent (such deposit to be held without interest) an
amount of money which, in the reasonable credit judgment of
Collateral Agent, is sufficient to pay such taxes and any
interest or penalties that may accrue thereon, and (iv)
if Borrower fails to prosecute such contest with reasonable
diligence, Collateral Agent may apply the money so deposited in
payment of such taxes.
If Borrower fails to pay any such taxes and in the absence
of any such contest by Borrower, Collateral Agent may (but shall
be under no obligation to) advance and pay any sums required to
pay any such taxes and/or to secure the release of any lien
therefor, and any sums so advanced by Collateral Agent shall
constitute Revolving Loans hereunder, shall be payable by
Borrower to Collateral Agent on demand, and, until paid, shall
bear interest at the highest rate then applicable to Revolving
Loans hereunder;
Borrower shall not (i) incur, create, assume or suffer to
exist any indebtedness other than (A) indebtedness arising under
this Agreement, (B) unsecured indebtedness owing in the ordinary
course of business to trade suppliers, (C) indebtedness, not to
exceed the cash surrender value from time to time of the keyman
life insurance policies listed on Schedule 7 hereof, secured by a
lien on such keyman life insurance policies; and (D) any other
indebtedness described in paragraph 13(q)(ii) hereof; or (ii)
assume, guarantee or endorse, or otherwise become liable in
connection with, the obligations of any Person, except by
endorsement of instruments for deposit or collection or similar
transactions in the ordinary course of business;
Borrower shall not enter into any merger or consolidation, or
sell, lease or otherwise dispose of all or substantially all of
its assets;
Borrower shall not create any new Subsidiary or Affiliate or
issue any shares of, or warrants or other rights to receive or
purchase any shares of, any class of its stock, except in
connection with Borrower's stock option plans as in effect on the
date hereof or arising after the date hereof (but subject to
any limitations set forth in paragraph 14(j) hereof); Borrower
shall promptly notify Collateral Agent of the filing of any Rule
13-d filing with the Securities Exchange Commission in respect of
Borrower's stock; except as expressly permitted herein Borrower
shall not enter into any transaction outside the ordinary course
of Borrower's business;
Borrower shall not (i) declare or pay any dividend or other
distribution (whether in cash or in kind) on, purchase, redeem or
retire any shares of any class of its stock, or make any payment
on account of, or set apart assets for the repurchase,
redemption, defeasance or retirement of, any class of its stock;
provided, that Borrower may make dividends or other distributions
or purchase, redeem or retire any shares of any its stock up to
One Million Dollars ($1,000,000) during any fiscal year of
Borrower, not to exceed Two Million Dollars ($2,000,000) during
the term of this Agreement, so long as (x) no Event of Default is
then in existence or would be caused thereby, (y) after giving
effect to each such dividend, distribution, purchase, redemption
or retirement of shares Borrower has Excess Availability of at
least One Million Five Hundred Thousand Dollars ($1,500,000) and
(z) Borrower's average weekly Excess Availability for the three
(3) month period immediately preceding such dividend,
distribution, purchase, redemption or retirement exceeds One
Million Five Hundred Thousand Dollars ($1,500,000); or (ii) make
any optional payment or prepayment on or redemption (including
without limitation by making payments to a sinking fund or
analogous fund) or repurchase of any indebtedness for borrowed
money other than indebtedness pursuant to this Agreement;
Borrower shall not make any loans to, or investment in, any
Person, whether in cash, securities or other property of any
kind, other than (i) investments that are direct obligations of
the United States, (ii) ordinary trade credit, (iii) notes or
equity interests taken in restructuring or settlement of
obligations of Account Debtors, and (iv) investments in foreign
subsidiaries for operations, not to exceed Three Hundred Thousand
Dollars ($300,000);
Borrower shall not amend its organizational documents or
change its Fiscal Year;
Borrower shall maintain and keep in full force and effect
each of the financial covenants set forth below. The calculation
and determination of each such financial covenant, and all
accounting terms contained therein, shall be so calculated and
construed in accordance with GAAP, applied on a basis consistent
with the financial statements of Borrower delivered on or before
the Closing Date:
Consolidated Tangible Net Worth. Borrower and its Subsidiaries,
on a consolidated basis, shall maintain at all times a Tangible
Net Worth of not less than the greater of Eighteen Million
Dollars ($18,000,000) and ninety percent (90%) of Borrower's
Tangible Net Worth on December 31, 1997 after giving effect to
this Agreement, increased at the end of each fiscal year
thereafter by an amount equal to ninety percent (90%) of the
net income after taxes of Borrower and its Subsidiaries, on a
consolidated basis (but not decreased by any net loss), during
such fiscal year;
Consolidated Capital Expenditures. Borrower and its
Subsidiaries, on a consolidated basis, shall not make Capital
Expenditures in an aggregate amount of more than Two Million Six
Hundred Thousand Dollars ($2,600,000) during any Fiscal Year of
Borrower;
Borrower shall reimburse Collateral Agent for all costs and
expenses including, without limitation, legal expenses and
reasonable attorneys' fees (both in-house and outside counsel),
incurred by Collateral Agent in connection with the documentation
and consummation of this transaction and any amendments or
modifications of this Agreement or the Other Agreements or other
transactions between Borrower and Agents and Lenders, including,
without limitation, Uniform Commercial Code and other public
record searches, lien filings, Federal Express or similar express
or messenger delivery, appraisal costs, surveys, title insurance
and environmental audit or review costs (other than audits
conducted during December 1997), and in seeking to collect,
protect or enforce any rights in or to the Collateral.
Following the occurrence of an Event of Default, Borrower shall
reimburse each Agent and each Lender for all costs and expenses,
including without limitation legal expenses and reasonable
attorneys' fees, incurred by such Agent and/or Lender in seeking
to collect any Liabilities and to administer and enforce any of
such Agent's and/or Lenders rights under this Agreement.
Borrower shall also pay all normal service charges with respect
to accounts maintained by Collateral Agent for the benefit of
Borrower. All such costs, expenses and charges shall constitute
Revolving Loans hereunder, shall be payable by Borrower to
Collateral Agent on demand, and, until paid, shall bear interest
at the highest rate then applicable to Revolving Loans hereunder;
Borrower shall not (i) pay any management or consulting fees
to any employee, director or Affiliate (other than a Subsidiary),
or make any loan to any employee, director or Affiliate (other
than a Subsidiary) except travel advances made to employees in
the ordinary course of business and loans to employees not
exceeding Ten Thousand Dollars ($10,000) to any single Person
and Twenty-Five Thousand Dollars ($25,000) in the aggregate
outstanding for all Persons at any one time; provided, that no
Event of Default shall have occurred prior to, or would occur as
a result of, any such payment, or (ii) pay annual aggregate
compensation, whether as salary, bonus or otherwise, to all
directors or officers of Borrower which is unreasonable or on a
basis inconsistent with past practices;
Borrower shall not enter into or be a party to, or permit
any Subsidiary to enter into or be a party to, any transaction
with any Affiliate of Borrower except in the ordinary course of
business in a manner and to an extent consistent with past
practices of Borrower and necessary or desirable for the prudent
operation of its business, for fair consideration and on terms no
less favorable to Borrower or such Subsidiary as are available
from unaffiliated third parties;
Borrower shall promptly advise Agents and Lenders in writing
of any Material Adverse Effect or the occurrence of any Default
or Event of Default.
CONDITIONS PRECEDENT.
The obligation of Lenders to fund the initial Revolving Loan, and
cause Issuing Bank to issue the initial Letter of Credit, is
subject to the satisfaction or waiver on or before the Closing
Date of the following conditions precedent:
Collateral Agent shall have received each of the agreements,
opinions, reports, approvals, consents, certificates and other
documents set forth on the closing document list attached hereto
as Schedule 15(a)(i) (the "Closing Document List");
Since September 30, 1997, no event shall have occurred which
has had or could reasonably be expected to have a Material
Adverse Effect, as determined by either Agent or any Lender in
its sole discretion;
Collateral Agent shall have received payment in full of all
fees and expenses payable to it by Borrower on or before the
Closing Date;
Collateral Agent shall have determined that immediately after
giving effect to (A) the making of the initial Loans, if any,
requested to be made on the Closing Date, (B) the issuance of the
initial Letter of Credit, if any, requested to be made on the
Closing Date and (C) the payment or reimbursement by Borrower of
Collateral Agent for all closing costs and expenses incurred in
connection with the transactions contemplated hereby, on a pro
forma basis the Excess Availability of Borrower shall not be less
than One Million Five Hundred Thousand Dollars ($1,500,000);
Collateral Agent shall have received a certificate from
Borrower's chief executive officer or chief financial officer,
pursuant to which such officer shall certify that in calculating
the Excess Availability described in clause (iv) above,
Borrower's outstanding trade payables were (and are) current and
not past due in any material respect; and
The Obligors shall have executed and delivered to Collateral
Agent all documents which Collateral Agent determines are
reasonably necessary to consummate the transactions contemplated
hereby.
After the Closing Date, the obligation of each Agent and each
Lender to make any requested Revolving Loan or to cause the
Issuing Bank to issue any requested Letter of Credit is subject
to the satisfaction of the conditions precedent set forth below.
Each such request shall constitute a representation and warranty
that such conditions are satisfied:
All representations and warranties contained in this Agreement
and the Other Agreements shall be true and correct on and as of
the date of such request, as if then made, other than
representations and warranties that relate solely to an earlier
date;
No Default or Event of Default shall have occurred, or would
result from the making of the requested Revolving Loan or the
issuance of the requested Letter of Credit, which has not been
waived; and
Since September 30, 1997, no event has occurred which has
had or could reasonably be expected to have a Material Adverse
Effect.
DEFAULT.
The occurrence of any one or more of the following events shall
constitute an "Event of Default" hereunder:
the failure of any Obligor to pay when due, declared due, or
demanded by Collateral Agent at the request of the Requisite
Lenders, in accordance with the terms hereof, any of the
Liabilities;
the failure of any Obligor to perform, keep or observe any
of the covenants, conditions, promises, agreements or obligations
of such Obligor under this Agreement or any of the Other
Agreements, which failure remains uncured for more than five (5)
Business Days after the occurrence thereof;
the making or furnishing by any Obligor to either Agent or any
Lender of any representation, warranty, certificate, schedule,
report or other communication within or in connection with this
Agreement or the Other Agreements or in connection with any other
agreement between such Obligor and such Agent or Lender, which is
untrue or misleading in any material respect, or the failure of
any Obligor to perform, keep or observe any of the covenants,
conditions, promises, agreement of such Obligor under any other
agreement with any Person if such failure has or is reasonably
likely to have a Material Adverse Effect;
the creation (whether voluntary or involuntary) of, or any
attempt to create, any lien or other encumbrance upon any of the
Collateral, other than the Permitted Liens, or the making or any
attempt to make any levy, seizure or attachment thereof;
the commencement of any proceedings (i) in bankruptcy by or
against any Obligor, (ii) for the liquidation or reorganization
of any Obligor, (iii) alleging that such Obligor is insolvent or
unable to pay its debts as they mature, or (iv) for the
readjustment or arrangement of any Obligor's debts, whether under
the United States Bankruptcy Code or under any other law, whether
state or federal, now or hereafter existing for the relief of
debtors, or the commencement of any analogous statutory or
non-statutory proceedings involving any Obligor; provided,
however, that if such commencement of proceedings against such
Obligor is involuntary, such action shall not constitute an Event
of Default unless such proceedings are not dismissed within
thirty (30) days after the commencement of such proceedings;
the appointment of a receiver or trustee for any Obligor, for any
of the Collateral or for any substantial part of any Obligor's
assets or the institution of any proceedings for the dissolution,
or the full or partial liquidation, or the merger or
consolidation, of any Obligor which is a corporation or a
partnership; provided, however, that if such appointment or
commencement of proceedings against such Obligor is involuntary,
such action shall not constitute an Event of Default unless such
appointment is not revoked or such proceedings are not dismissed
within thirty (30) days after the commencement of such
proceedings;
the entry of any judgment or order in excess of Two Hundred
Fifty Thousand Dollars ($250,000) against any Obligor which
remains unsatisfied or undischarged and in effect for thirty (30)
days after such entry without a stay of enforcement or execution;
the occurrence of an event of default under, or the revocation or
termination of, any agreement, instrument or document executed
and delivered by any Person to Collateral Agent pursuant to which
such Person has guaranteed to Agents and Lenders the payment of
all or any of the Liabilities or has granted Collateral Agent a
security interest in or lien upon some or all of such Person's
real and/or personal property to secure the payment of all or any
of the Liabilities;
the occurrence of any payment default or any other breach or
event of default which remains uncured past any applicable grace
period, which breach or event of default would permit the
creditor thereunder to accelerate the indebtedness thereunder,
under any other agreement or instrument evidencing indebtedness
for borrowed money in excess of One Hundred Fifty Thousand
Dollars ($150,000) executed or delivered by Borrower or pursuant
to which agreement or instrument Borrower or its properties is or
may be bound;
a Change of Control shall have occurred; or
the occurrence of any event or condition which has or is
reasonably likely to have a Material Adverse Effect.
REMEDIES UPON AN EVENT OF DEFAULT.
Upon the occurrence of an Event of Default described in paragraph
16(e) hereof, all of the Liabilities shall immediately and
automatically become due and payable, without notice of any kind.
Upon the occurrence of any other Event of Default, all of the
Liabilities may, at the option of the Requisite Lenders, and
without demand, notice or legal process of any kind, be declared,
and immediately shall become, due and payable.
Upon the occurrence of an Event of Default, Collateral Agent may
exercise from time to time any rights and remedies available to
it under the Uniform Commercial Code and any other applicable law
in addition to, and not in lieu of, any rights and remedies
expressly granted in this Agreement or in any of the Other
Agreements and all of Collateral Agent's rights and remedies
shall be cumulative and non-exclusive to the extent permitted by
law. In particular, but not by way of limitation of the
foregoing, Collateral Agent may, without notice, demand or legal
process of any kind, take possession of any or all of the
Collateral (in addition to Collateral of which it already has
possession), wherever it may be found, and for that purpose may
pursue the same wherever it may be found, and may enter into any
of Borrower's premises where any of the Collateral may be, and
search for, take possession of, remove, keep and store any of the
Collateral until the same shall be sold or otherwise disposed of,
and Collateral Agent shall have the right to store the same at
any of Borrower's premises without cost to Collateral Agent. At
Collateral Agent's request, Borrower shall, at Borrower's
expense, assemble the Collateral and make it available to
Collateral Agent at one or more places to be designated by
Collateral Agent and reasonably convenient to Collateral Agent
and Borrower. Borrower recognizes that if Borrower fails to
perform, observe or discharge any of its Liabilities under this
Agreement or the Other Agreements, no remedy at law will provide
adequate relief to Agents and Lenders, and Borrower agrees that
Agents and Lenders shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of
proving actual damages. Any notification of intended disposition
of any of the Collateral required by law will be deemed
reasonably and properly given if given at least ten (10) calendar
days before such disposition. Any proceeds of any disposition by
Collateral Agent of any of the Collateral may be applied by
Collateral Agent to the payment of expenses in connection with
the Collateral including, without limitation, legal expenses and
reasonable attorneys' fees (both in-house and outside counsel)
and any balance of such proceeds may be applied by Collateral
Agent toward the payment of such of the Liabilities, and in such
order of application, as Collateral Agent may from time to time
elect.
AGENT.
Appointment of Agents. Each Lender hereby designates LBCI as
Collateral Agent and LaSalle as Administrative Agent to act as
herein specified. Each Lender hereby irrevocably authorizes
Agents to take such action on its behalf under the provisions of
this Agreement and the notes and any other instruments and
agreements referred to herein and to exercise such powers and to
perform such duties hereunder and thereunder as are specifically
delegated to or required of each Agent by the terms hereof and
thereof and such other powers as are reasonably incidental
thereto. Except as otherwise provided herein, Collateral Agent
shall hold all Collateral and all payments of principal,
interest, fees, charges and expenses received pursuant to this
Agreement or any of the Other Agreements for the benefit of
Lenders. Each Agent may perform any of its duties hereunder by or
through its agents or employees.
The provisions of this paragraph 18 are solely for the benefit of
Agents and Lenders, and neither Borrower nor any other Obligor
shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under
this Agreement, each Agent shall act solely as agent of Lenders
and does not assume and shall not be deemed to have assumed any
obligation toward or relationship of agency or trust with or for
any Obligor.
Nature of Duties of Agents. Neither Agent shall have duties or
responsibilities except those expressly set forth in this
Agreement. Neither Agent nor any of its respective officers,
directors, employees or agents shall be liable for any action
taken or omitted by it as such hereunder or in connection
herewith, unless caused by its or their gross negligence or
willful misconduct. The duties of each Agent shall be mechanical
and administrative in nature; neither Agent shall have by reason
of this Agreement a fiduciary relationship in respect of any
Lender; and nothing in this Agreement, expressed or implied, is
intended to or shall be so construed as to impose upon either
Agent any obligations in respect of this Agreement except as
expressly set forth herein.
Lack of Reliance on Agents. Independently and without reliance
upon either Agent, each Lender, to the extent it deems
appropriate, has made and shall continue to make (A) its own
independent investigation of the financial or other condition and
affairs of Agents, each Obligor and any other Lender in
connection with the taking or not taking of any action in
connection herewith and (B) its own appraisal of the
creditworthiness of each Agent, each Obligor and any other
Lender, and, except as expressly provided in this Agreement,
neither Agent shall have any duty or responsibility, either
initially or on a continuing basis, to provide any Lender with
any credit or other information with respect thereto, whether
coming into its possession before the making of the Loans or at
any time or times thereafter.
Neither Agent shall be responsible to any Lender for any
recitals, statements, information, representations or warranties
herein or in any document, certificate or other writing delivered
in connection herewith or for the execution, effectiveness,
genuineness, validity, enforceability, collectibility, priority
or sufficiency of this Agreement or any notes or the financial or
other condition of any Obligor. Neither Agent shall be required
to make any inquiry concerning either the performance or
observance of any of the terms, provisions or conditions of this
Agreement or the notes, or the financial condition of any
Obligor, or the existence or possible existence of any Default or
Event of Default, unless specifically requested to do so in
writing by any Lender.
Certain Rights of Agent. Each Agent shall have the right to
request instructions from the Requisite Lenders or all Lenders,
as applicable pursuant to paragraph 24 of this Agreement, by
notice to each Lender.
If either Agent shall request instructions from the Requisite
Lenders or all Lenders, as applicable, with respect to any act or
action (including the failure to act) in connection with this
Agreement, such Agent shall be entitled to refrain from such act
or taking such action unless and until such Agent shall have
received instructions from the Requisite Lenders or all Lenders,
as applicable, and such Agent shall not incur liability to any
Person by reason of so refraining. Without limiting the
foregoing, no Lender shall have any right of action whatsoever
against either Agent as a result of such Agent acting or
refraining from acting hereunder in accordance with the
instructions of the Requisite Lenders or all Lenders, as
applicable.
Reliance by Agents. Each Agent shall be entitled to rely, and
shall be fully protected in relying, upon any note, writing,
resolution, notice, statement, certificate, telex, teletype or
telecopier message, cablegram, radiogram, order or other
documentary, teletransmission or telephone message believed by
it to be genuine and correct and to have been signed, sent or
made by the proper person. Each Agent may consult with legal
counsel (including counsel for Borrower with respect to matters
concerning Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action
taken or omitted to be taken by it in good faith in accordance
with the advice of such counsel, accountants or experts.
Indemnification of Agents. To the extent an Agent is not
reimbursed and indemnified by Borrower, each Lender will
reimburse and indemnify such Agent, in proportion to its Pro Rata
Share, for and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs,
expenses (including counsel fees and disbursements) or
disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against such Agent in
performing its duties hereunder, in any way relating to or
arising out of this Agreement; provided, that no Lender shall be
liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from such Agent's gross negligence or
willful misconduct.
Agents in their Individual Capacities. With respect to the Loans
made by it pursuant hereto, each Agent shall have the same rights
and powers hereunder as any other Lender or holder of a note or
participation interest and may exercise the same as though it was
not performing the duties specified herein; and the terms
"Lenders," "Requisite Lenders" or any similar terms shall,
unless the context clearly otherwise indicates, include each
Agent in its individual capacity. Each Agent may accept deposits
from, lend money to, acquire equity interests in, and generally
engage in any kind of banking, trust, financial advisor or other
business with Borrower or any Affiliate of Borrower as if it were
not performing the duties specified herein, and may accept fees
and other consideration from Borrower for services in connection
with this Agreement and otherwise without having to account for
the same to Lenders, to the extent such activities are not in
contravention of the terms of this Agreement.
Holders of Notes. Each Agent may deem and treat the payee of any
promissory note as the owner thereof for all purposes hereof
unless and until a written notice of the assignment or transfer
thereof shall have been filed with Administrative Agent. Any
request, authority or consent of any Person who, at the time of
making such request or giving such authority or consent, is the
holder of any promissory note, shall be conclusive and binding on
any subsequent holder, transferee or assignee of such promissory
note or of any promissory note or notes issued in exchange
therefor.
Successor Agent.
Each Agent may, upon five (5) business days' notice to Lenders
and Borrower, resign at any time (effective upon the appointment
of a successor Agent pursuant to the provisions of this paragraph
(18)(i)) by giving written notice thereof to the other Agent,
Lenders and Borrower. Upon any such resignation, the Requisite
Lenders shall have the right, upon five (5) days' notice, to
appoint a successor Agent; provided, that if no Event of Default
is then existing, such appointment shall require the consent of
Borrower, which consent shall not be unreasonably withheld. If
no successor Agent shall have been so appointed by the Requisite
Lenders and accepted such
appointment,
within thirty (30) days after the retiring Agent's giving of
notice of
resignation, then, upon five (5) days' notice, the retiring
Agent may, on
behalf of Lenders, (and if no Event of Default is then
existing, with the
consent of Borrower, which consent shall not be unreasonably
withheld) appoint
a successor Agent, which shall be a bank or a trust company
or other financial
institution which maintains an office in the United States,
or a commercial
bank organized under the laws of the United States of
America or of any State
thereof, or any Affiliate of such bank or trust company or
other financial
institution which is engaged in the banking business, having
a combined
capital and surplus of at least Five Hundred Million Dollars
($500,000,000);
provided, that with respect to an Affiliate of a bank, trust
company or other
financial institution, such entity's combined capital and
surplus shall be
determined on a consolidated basis with such bank, trust
company or other
financial institution.
Upon the acceptance of any appointment as an Agent hereunder
by a successor
Agent, such successor Agent shall thereupon succeed to and
become vested with
all the rights, powers, privileges and duties of the
retiring Agent, and the
retiring Agent shall be discharged from its duties and
obligations under this
Agreement. After any retiring Agent's resignation hereunder
as Agent, the
provisions of this paragraph 18 shall inure to its benefit
as to any actions
taken or omitted to be taken by it while it was an Agent
under this Agreement.
Collateral Matters.
Each Lender authorizes and directs Collateral Agent to enter
into the Other
Agreements for the benefit of Lenders. Each Lender hereby
agrees that, except
as otherwise set forth herein, any action taken by the
Requisite Lenders in
accordance with the provisions of this Agreement or the
Other Agreements, and
the exercise by the Requisite Lenders of the powers set
forth herein or
therein, together with such other powers as are reasonably
incidental thereto,
shall be authorized and binding upon all Lenders.
Collateral Agent is hereby
authorized on behalf of all Lenders, without the necessity
of any notice to or
further consent from any Lender to take any action with
respect to any
Collateral or Other Agreements which may be necessary to
perfect and maintain
perfected the security interest in and liens upon the
Collateral granted
pursuant to the Other Agreements.
Collateral Agent will not, without the verbal consent of all
Lenders, which
consent shall (a) be confirmed promptly thereafter in
writing and (b) not be
unreasonably withheld or delayed, execute any release of
Collateral Agent's
security interest in any Collateral except for releases
relating to
dispositions of Collateral (x) permitted by this Agreement
and (y) in
connection with the repayment in full of all of the
Liabilities by Borrower
and the termination of all obligations of Agents and Lenders
under this
Agreement and the Other Agreements; provided, that
Collateral Agent shall not
be required to execute any such release on terms which, in
Collateral Agent's
opinion, would expose Collateral Agent to liability or
create any obligation
or entail any consequence other than the release of such
liens without
recourse or warranty. In the event of any sale or transfer
of any of the
Collateral, Collateral Agent shall be authorized to deduct
all of the expenses
reasonably incurred by Collateral Agent from the proceeds of
any such sale,
transfer or foreclosure.
Lenders hereby agree that the lien granted to Collateral
Agent in any property
sold or disposed of in accordance with the provisions of
paragraph 9 of the
Agreement shall be automatically released; provided, however
that Collateral
Agent's lien shall attach to and continue for the benefit of
Agents and
Lenders in the proceeds and products of such property
arising from any such
sale or disposition.
To the extent, pursuant to the provisions of this paragraph
18(j), Collateral
Agent's execution of a release is required to release its
lien upon any sale
and transfer of Collateral which is consented to in writing
by the Requisite
Lenders or all Lenders, as applicable, and upon at least
five (5) business
days' prior written request by Borrower, Collateral Agent
shall (and is hereby
irrevocably authorized by Lenders to) execute such documents
as may be
necessary to evidence the release of the liens granted to
Collateral Agent for
the benefit of Lenders herein or pursuant hereto upon the
Collateral that was
sold or transferred.
Neither Agent shall have any obligation whatsoever to
Lenders or to any other
Person to assure that the Collateral exists or is owned by
Borrower or any
other Obligor or is cared for, protected or insured or that
the liens granted
to Collateral Agent herein or pursuant hereto have been
properly or
sufficiently or lawfully created, perfected, protected or
enforced or are
entitled to any particular priority, or to exercise or to
continue exercising
at all or in any manner or under any duty of care,
disclosure or fidelity any
of the rights, authorities and powers granted or available
to Collateral Agent
in this paragraph 18 or in any of the Other Agreements, it
being understood
and agreed that in respect of the Collateral, or any act,
omission or event
related thereto, Collateral Agent may act in any manner it
may deem
appropriate, in its sole discretion, given Collateral
Agent's own interest in
the Collateral as one of Lenders and that Collateral Agent
shall have no duty
or liability whatsoever to Lenders, except for its gross
negligence or willful
misconduct.
Actions with Respect to Defaults. In addition to Collateral
Agent's right to
take actions on its own accord as permitted under this
Agreement, Collateral
Agent shall take such action with respect to an Event of
Default as shall be
directed by the Requisite Lenders or all Lenders, as
applicable pursuant to
paragraph 24 of this Agreement; provided, that until
Collateral Agent shall
have received such directions, Collateral Agent may (but
shall not be
obligated to) take such action, or refrain from taking such
action, with
respect to such Event of Default as it shall deem advisable
and in the best
interests of Lenders.
Delivery of Information. Neither Agent shall be required to
deliver to any
Lender originals or copies of any documents, instruments,
notices,
communications or other information received by such Agent
from Borrower or
any other Obligor, the Requisite Lenders, any Lender or any
other Person under
or in connection with this Agreement or any Other Agreement
except (i) as
specifically provided in this Agreement or any Other
Agreement and (ii) as
specifically requested from time to time in writing by any
Lender with respect
to a specific document, instrument, notice or other written
communication
received by and in the possession of either Agent at the
time of receipt of
such request and then only in accordance with such specific
request.
Demand. Collateral Agent shall make demand for repayment by
Borrower of all
Liabilities owing by Borrower hereunder, after the
occurrence of an Event of
Default, upon the written request of the Requisite Lenders.
Collateral Agent
shall make such demand in such manner as it deems
appropriate, in its sole
discretion, to effectuate the request of the Requisite
Lenders. Nothing
contained herein shall limit the discretion of Collateral
Agent to take
reserves, to deem certain Accounts and Inventory ineligible,
or to exercise
any other discretion granted to Collateral Agent in this
Agreement.
INDEMNIFICATION.
Borrower agrees to defend (with counsel reasonably
satisfactory to the
Indemnified Party (as defined below)), protect, indemnify
and hold harmless
each Agent, each Lender, each affiliate or subsidiary of
each Agent and each
Lender, and each of their respective officers, directors,
employees, attorneys
and agents (each an "Indemnified Party") from and against
any and all
liabilities, obligations, losses, damages, penalties,
actions, judgments,
suits, claims, costs, expenses and disbursements of any kind
or nature
(including, without limitation, the disbursements and the
reasonable fees of
counsel for each Indemnified Party in connection with any
investigative,
administrative or judicial proceeding, whether or not the
Indemnified Party
shall be designated a party thereto), which may be imposed
on, incurred by, or
asserted against, any Indemnified Party (whether direct,
indirect or
consequential and whether based on any federal, state or
local laws or
regulations including, without limitation, securities,
environmental and
commercial laws and regulations, under common law or in
equity, or based on
contract or otherwise) in any manner relating to or arising
out of this
Agreement or any Other Agreement, or any act, event or
transaction related or
attendant thereto, the making and the management of the
Loans or any Letters
of Credit or the use or intended use of the proceeds of the
Loans or any
Letters of Credit; provided, however, that Borrower shall
not have any
obligation hereunder to any Indemnified Party with respect
to matters caused
by or resulting from the willful misconduct or gross
negligence of such
Indemnified Party. To the extent that the undertaking to
indemnify set forth
in the preceding sentence may be unenforceable because it is
violative of any
law or public policy, Borrower shall satisfy such
undertaking to the maximum
extent permitted by applicable law. Any liability,
obligation, loss, damage,
penalty, cost or expense covered by this indemnity shall be
paid to each
Indemnified Party on demand, and, failing prompt payment,
shall, together with
interest thereon at the highest rate then applicable to
Revolving Loans
hereunder from the date incurred by each Indemnified Party
until paid by
Borrower, be added to the Liabilities of Borrower and be
secured by the
Collateral. The provisions of this paragraph 19 shall
survive the
satisfaction and payment of the other Liabilities and the
termination of this
Agreement.
NOTICES.
All written notices and other written communications with
respect to this
Agreement shall be sent by ordinary, certified or overnight
mail, by telecopy
or delivered in person, and (i) in the case of Collateral
Agent shall be sent
to it at 135 South LaSalle Street, Chicago, Illinois 60603,
Attention:
District Credit Manager (if by telecopy to (312) 904-7425),
(ii) in the case
of Administrative Agent and LaSalle shall be sent to it at
135 South LaSalle
Street. Chicago, Illinois 60603, Attention: Steven Marks (if
by telecopy to
(312) 904-6189), (iii) in the case of any Agent of Lender
other than LBCI and
LaSalle, shall be sent to it at the address identified on
the signature page
hereto or in an Assignment and Acceptance Agreement with
such Agent or Lender,
and (iv) in the case of Borrower shall be sent to Borrower
at its principal
place of business as set forth on the first page of this
Agreement (if by
telecopy to (773) 889-1678) or, in any case, to such other
address of which
any party has notified all other parties hereto in writing.
CHOICE OF GOVERNING LAW AND CONSTRUCTION.
This Agreement and the Other Agreements are submitted by
Borrower to each
Agent and each Lender for such Agent's and such Lender's
acceptance or
rejection at Collateral Agent's principal place of business
as an offer by
Borrower to borrow monies from Agents and Lenders now and
from time to time
hereafter, and shall not be binding upon Agents and Lenders
or become
effective until accepted by Agents and Lenders, in writing,
at said place of
business. If so accepted by Agents and Lenders, this
Agreement and the Other
Agreements shall be deemed to have been made at said place
of business. THIS
AGREEMENT AND THE OTHER AGREEMENTS SHALL BE GOVERNED AND
CONTROLLED BY THE
INTERNAL LAWS OF THE STATE OF ILLINOIS AS TO INTERPRETATION,
ENFORCEMENT,
VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER RESPECTS,
INCLUDING, WITHOUT
LIMITATION, THE LEGALITY OF THE INTEREST RATE AND OTHER
CHARGES, BUT EXCLUDING
PERFECTION OF THE SECURITY INTERESTS IN THE COLLATERAL,
WHICH SHALL BE
GOVERNED AND CONTROLLED BY THE LAWS OF THE RELEVANT
JURISDICTION. If any
provision of this Agreement shall be held to be prohibited
by or invalid under
applicable law, such provision shall be ineffective only to
the extent of such
prohibition or invalidity, without invalidating the
remainder of such
provision or remaining provisions of this Agreement.
FORUM SELECTION AND SERVICE OF PROCESS.
To induce Agents and Lenders to accept this Agreement,
Borrower irrevocably
agrees that, subject to Collateral Agent's sole and absolute
election, ALL
ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT,
ARISING OUT OF OR FROM
OR RELATED TO THIS AGREEMENT, THE OTHER AGREEMENTS OR THE
COLLATERAL SHALL BE
LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO,
STATE OF
ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY
LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN SAID CITY AND
STATE. BORROWER
HEREBY WAIVES PERSONAL SERVICE OF PROCESS AND AGREES THAT
ALL SUCH SERVICE OF
PROCESS MAY BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED
TO THE ADDRESS
SET FORTH FOR NOTICES IN PARAGRAPH 20 HEREOF AND SERVICE SO
MADE SHALL BE
DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
BORROWER HEREBY WAIVES
ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY
LITIGATION
BROUGHT AGAINST BORROWER BY EITHER AGENT OR ANY LENDER IN
ACCORDANCE WITH THIS
PARAGRAPH.
ASSIGNABILITY.
Borrower shall not have the right to assign this Agreement
or any interest
therein except with the prior written consent of Agents and
all Lenders.
Any Lender may make, carry or transfer Loans at, to or for
the account of, any
of its branch offices or the office of an Affiliate of such
Lender except to
the extent such transfer would result in increased costs to
Borrower.
Each Lender may, with the consent of each Agent, which
consent shall not be
unreasonably withheld, but without the consent of any other
Lender nor
Borrower, assign to one or more banks or other financial
institutions all or a
portion of its rights and obligations under this Agreement;
provided, that (i)
for each such assignment, the parties thereto shall execute
and deliver to
Administrative Agent, for its acceptance and recording in
the Register (as
defined below), an Assignment and Acceptance in the form
attached hereto as
Exhibit D, and a processing and recordation fee of Two
Thousand Five Hundred
Dollars ($2,500) to be paid by the assignee, and (ii) no
such assignment shall
be for less than Five Million Dollars ($5,000,000). Upon
such execution and
delivery of the Assignment and Acceptance to Administrative
Agent, from and
after the date specified as the effective date in the
Assignment and
Acceptance (the "Acceptance Date"), (x) the assignee
thereunder shall be a
party hereto, and, to the extent that rights and obligations
hereunder have
been assigned to it pursuant to such Assignment and
Acceptance, such assignee
shall have the rights and obligations of a Lender hereunder
and (y) the
assignor thereunder shall, to the extent that rights and
obligations hereunder
have been assigned by it pursuant to such Assignment and
Acceptance,
relinquish its rights (other than any rights it may have
pursuant to paragraph
19 of the Agreement which will survive) and be released from
its obligations
under this Agreement (and, in the case of an Assignment and
Acceptance
covering all or the remaining portion of an assigning
Lender's rights and
obligations under this Agreement, such Lender shall cease to
be a party
hereto).
By executing and delivering an Assignment and Acceptance,
the assignee
thereunder confirms and agrees as follows: (i) other than as
provided in such
Assignment and Acceptance, the assigning Lender makes no
representation or
warranty and assumes no responsibility with respect to any
statements,
warranties or representations made in or in connection with
this Agreement or
the execution, legality, validity, enforceability,
genuineness, sufficiency or
value of this Agreement or any of the Other Agreements, (ii)
such assigning
Lender makes no representation or warranty and assumes no
responsibility with
respect to the financial condition of Borrower or any other
Obligor or the
performance or observance by Borrower or any other Obligor
of its obligations
under this Agreement, (iii) such assignee confirms that it
has received a copy
of this Agreement, together with copies of the financial
statements referred
to in paragraph 11 of the Agreement and such other documents
and information
as it has deemed appropriate to make its own credit analysis
and decision to
enter into such Assignment and Acceptance, (iv) such
assignee will,
independently and without reliance upon either Agent, such
assigning Lender or
any other Lender and based on such documents and information
as it shall deem
appropriate at the time, continue to make its own credit
decisions in taking
or not taking action under this Agreement, (v) such assignee
appoints and
authorizes Agents to take such action as agent on its behalf
and to exercise
such powers under this Agreement as are delegated to Agents
by the terms
hereof, together with such powers as are reasonably
incidental thereto and
(vi) such assignee agrees that it will perform in accordance
with their terms
all of the obligations which by the terms of this Agreement
are required to be
performed by it as a Lender.
Administrative Agent shall, maintain at its address referred
to in paragraph
20 of the Agreement a copy of each Assignment and Acceptance
delivered to and
accepted by it and a register for the recordation of the
names and addresses
of Lenders and the Revolving Loan Commitments and Maximum
Loan Amounts of, and
principal amount of the Loans owing to, each Lender from
time to time (the
"Register"). The entries in the Register shall be
conclusive and binding for
all purposes, absent manifest error, and Borrower, Agents
and Lenders may
treat each Person whose name is recorded in the Register as
a Lender hereunder
for all purposes of this Agreement. The Register and copies
of each
Assignment and Acceptance shall be available for inspection
by Borrower,
Collateral Agent or any Lender at any reasonable time and
from time to time
upon reasonable prior notice.
Upon its receipt of an Assignment and Acceptance executed by
an assigning
Lender, Administrative Agent shall, if such Assignment and
Acceptance has been
completed and is in substantially the form of Exhibit D
hereto, (i) accept
such Assignment and Acceptance, (ii) record the information
contained therein
in the Register, (iii) give notice thereof to Collateral
Agent on the date of
receipt and (iv) give prompt notice thereof to Borrower.
Within five (5)
Business Days after its receipt of such notice, Borrower
shall execute and
deliver to Administrative Agent in exchange for the
surrendered promissory
note or notes, a new promissory note or notes to the order
of the assignee in
an amount equal to the maximum amount of Loans such assignee
may at any time
make under the terms of this Agreement and, if the assigning
Lender has
retained a portion of the Loans, a new promissory note or
notes to the order
of the assigning Lender in an amount equal to the maximum
amount of Loans such
assigning Lender may at any time make under the terms of
this Agreement. Such
new promissory note or notes shall re-evidence the
indebtedness outstanding
under the old promissory note or notes and shall be in the
aggregate principal
amount of such surrendered promissory note or notes, shall
be dated of even
date herewith and shall otherwise be in substantially the
form of the
promissory note or notes subject to such assignment.
Each Lender may sell participations (without the consent of
either Agent,
Borrower or any other Lender) to one or more parties, in or
to all or a
portion of its rights and obligations under this Agreement
(including, without
limitation, all or a portion of its Maximum Loan Amount or
the Loans owing to
it); provided, that (i) such Lender's obligations under this
Agreement
(including, without limitation, its Maximum Loan Amount
hereunder) shall
remain unchanged, (ii) such Lender shall remain solely
responsible to the
other parties hereto for the performance of such
obligations, (iii) Borrower,
Agents, and the other Lenders shall continue to deal solely
and directly with
such Lender in connection with such Lender's rights and
obligations under this
Agreement and (iv) such Lender shall not transfer, grant,
assign or sell any
participation under which the participant shall have rights
to approve any
amendment or waiver of this Agreement except to the extent
such amendment or
waiver would (A) extend the final maturity date or the date
for the payment of
any installment of fees or principal or interest of any
Loans in which such
participant is participating, (B) reduce the amount of any
installment of
principal of the Loans in which such participant is
participating, (C) reduce
the interest rate applicable to the Loans in which such
participant is
participating, or (D) reduce any fees payable hereunder.
Each Lender agrees that, without the prior written consent
of Borrower and
Agents, it will not make any assignment hereunder in any
manner or under any
circumstances that would require registration or
qualification of, or filings
in respect of, any Loan or other Liabilities under the
securities laws of the
United States of America or of any jurisdiction.
In connection with the efforts of any Lender to assign its
rights or
obligations or to participate interests, such Lender may
disclose any
information in its possession regarding Borrower.
AMENDMENTS, ETC.
No amendment or waiver of any provision of this Agreement or
any of the Other
Agreements, nor consent to any departure by any Obligor
therefrom, shall in
any event be effective unless the same shall be in writing
and signed by the
Requisite Lenders, or if Lenders shall not be parties
thereto, by the parties
thereto and consented to by the Requisite Lenders, and each
such amendment,
waiver or consent shall be effective only in the specific
instance and for the
specific purpose for which given; provided, that no
amendment, waiver or
consent shall, unless in writing and signed by all Lenders,
do any of the
following: (i) increase the Revolving Loan Commitments or
Maximum Loan Amounts
of Lenders or subject Lenders to any additional obligations
to extend credit
to Borrower, (ii) reduce the principal of, or interest on,
the Loans (other
than as expressly permitted herein) or any fees hereunder,
(iii) postpone any
date fixed for any payment in respect of principal of, or
interest on, the
Loan or any fees hereunder, (iv) change the Pro Rata Shares
of Lenders, or any
minimum requirement necessary for Lenders or the Requisite
Lenders to take any
action hereunder, (v) amend or waive this paragraph 24, or
change the
definition of the Requisite Lenders, or (vi) except in
connection with the
financing, refinancing, sale or other disposition of any
asset of Borrower
permitted under this Agreement, release or subordinate any
liens in favor of
Collateral Agent, for the benefit of Agents and Lenders, on
any of the
Collateral and provided further, that no amendment, waiver
or consent
affecting the rights or duties of either Agent under this
Agreement or any
Other Agreement shall in any event be effective, unless in
writing and signed
by such Agent in addition to Lenders required hereinabove to
take such action.
Notwithstanding any of the foregoing to the contrary, the
consent of Borrower
shall not be required for any amendment, modification or
waiver of the
provisions of paragraph 24 of this Agreement.
NONLIABILITY OF AGENT AND LENDERS.
The relationship between Borrower and Lenders and Agents
shall be solely that
of borrower and lender. Neither Agent nor any Lender shall
have any fiduciary
responsibilities to Borrower. Neither Agent nor any Lender
undertakes any
responsibility to Borrower to review or inform Borrower of
any matter in
connection with any phase of Borrower's business or
operations.
HEADINGS OF SUBDIVISIONS.
The headings of subdivisions in this Agreement are for
convenience of
reference only, and shall not govern the interpretation of
any of the
provisions of this Agreement.
POWER OF ATTORNEY.
Borrower acknowledges and agrees that its appointment of
Collateral Agent as
its attorney and agent-in-fact for the purposes specified in
this Agreement is
an appointment coupled with an interest and shall be
irrevocable until all of
the Liabilities are paid in full and this Agreement is
terminated.
WAIVER OF JURY TRIAL; OTHER WAIVERS;
CONFIDENTIALITY.
EACH AGENT, EACH LENDER AND BORROWER HEREBY WAIVE ALL RIGHTS
TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR
INDIRECTLY TO THIS
AGREEMENT, ANY OF THE OTHER AGREEMENTS, THE LIABILITIES, THE
COLLATERAL, ANY
ALLEGED TORTIOUS CONDUCT OF BORROWER, ANY AGENT OR ANY
LENDER OR WHICH, IN ANY
WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE
RELATIONSHIP
BETWEEN BORROWER, EACH AGENT AND EACH LENDER. IN NO EVENT
SHALL ANY AGENT OR
ANY LENDER BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR
CONSEQUENTIAL
DAMAGES.
BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF
ANY KIND PRIOR TO
THE EXERCISE BY COLLATERAL AGENT OF ITS RIGHTS TO REPOSSESS
THE COLLATERAL OF
BORROWER WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR
LEVY UPON SUCH
COLLATERAL WITHOUT PRIOR NOTICE OR HEARING.
Borrower hereby waives demand, presentment, protest and
notice of nonpayment,
and further waives the benefit of all valuation, appraisal
and exemption laws.
Agents' and Lenders' failure, at any time or times
hereafter, to require
strict performance by Borrower of any provision of this
Agreement or any of
the Other Agreements shall not waive, affect or diminish any
right of Agents
and Lenders thereafter to demand strict compliance and
performance therewith.
Any suspension or waiver by either Agent or Lenders of an
Event of Default
under this Agreement or any default under any of the Other
Agreements shall
not suspend, waive or affect any other Event of Default
under this Agreement
or any other default under any of the Other Agreements,
whether the same is
prior or subsequent thereto and whether of the same or of a
different kind or
character. No delay on the part of either Agent or Lenders
in the exercise of
any right or remedy under this Agreement or any Other
Agreement shall preclude
other or further exercise thereof or the exercise of any
right or remedy.
None of the undertakings, agreements, warranties, covenants
and
representations of Borrower contained in this Agreement or
any of the Other
Agreements and no Event of Default under this Agreement or
default under any
of the Other Agreements shall be deemed to have been
suspended or waived by
either Agent or Lenders unless such suspension or waiver is
in writing, signed
by a duly authorized officers of Agents and Lenders (or such
lesser number of
Agents and Lenders as required under this Agreement) and
directed to Borrower
specifying such suspension or waiver.
Borrower has furnished and will furnish to Agents and
Lenders certain
information concerning Borrower which Borrower has advised
is non-public,
proprietary or confidential in nature ("Confidential
Information"). Each
Agent and each Lender confirms to Borrower that it is such
Agent's and such
Lender's policy and practice to maintain in confidence all
Confidential
Information which is provided to it under agreements
providing for the
extension of credit and which is identified to it as such,
and that it will
protect the confidentiality of Confidential Information
submitted to it with
respect to Borrower under this Agreement, commensurate with
its efforts to
maintain the confidentiality of its own Confidential
Information, provided,
however, that (i) nothing contained herein shall prevent any
Agent or any
Lender from disclosing Confidential Information (A) to its
Affiliates and
their respective directors, officers, and employees and to
any legal counsel,
auditors, appraisers, consultants or other persons retained
by it or its
Affiliates as professional advisors, on the condition that
such information
not be further disclosed except in compliance with this
paragraph 28(e); (B)
under color of legal authority, including, without
limitation, to any
regulatory authority having jurisdiction over it or its
operations or to, or
under the authority of, any court deemed by it to be of
competent
jurisdiction; (C) to either Agent, any other Lender or any
other actual or
potential assignee of or participant in a Lender's rights
and obligations
under this Agreement to the extent such actual potential
assignee or
participant has agreed to maintain such information in
confidence on the basis
set forth in this paragraph 28(e); and (D) as necessary in
connection with the
exercise of its remedies under this Agreement or any of the
Other Agreements;
(ii) the terms of this paragraph 28(e) shall be inapplicable
to any
information furnished to it which is in possession prior to
the delivery to it
of such information by Borrower or any other authorized
Person, or otherwise
has been obtained by it on a non-confidential basis, or
which was or becomes
available to the public or otherwise part of the public
domain (other than as
a result of such Agent's or such Lender's failure or any
prospective
participant's or assignee's failure to abide hereby), or
which was not non-public, proprietary or confidential when
Borrower or any other authorized
Person delivered it to either Agent or any Lender; and (iii)
the determination
by such Agent or such Lender as to the application of any of
the circumstances
described in the foregoing clauses (i) and (ii) will be
conclusive and binding
if made in good faith.
Notwithstanding subparagraph (e) above, Borrower consents to
each Agent
publishing a tombstone or similar advertising material
relating to the
financing transaction contemplated by this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of
the 3rd day of February, 1998.
LASALLE BUSINESS CREDIT, INC., as Collateral Agent and a
Lender
By
Its
By
Its
Revolving Loan Commitment: $17,500,000
Maximum Loan Amount: $17,500,000
LASALLE NATIONAL BANK, as Administrative Agent and a Lender
By
Its
Revolving Loan Commitment: $17,500,000
Maximum Loan Amount: $17,500,000
ATTEST:
By
Its
COBRA ELECTRONICS CORPORATION
By
Its
EXHIBIT A - BUSINESS AND COLLATERAL LOCATIONS
Attached to and made a part of that certain Loan and
Security Agreement of
even date herewith among COBRA ELECTRONICS CORPORATION,
LASALLE BUSINESS
CREDIT, INC. as Collateral Agent and a Lender, LASALLE
NATIONAL BANK, as
Administrative Agent and a Lender, and all other Lenders
from time to time a
party to such Loan and Security Agreement.
Borrower's business locations (please indicate which
location is the principal
place of business and at which locations originals and all
copies of
Borrower's books, records and accounts are kept):
6500 West Cortland Street
Chicago, Illinois 60707
(principal place of business; location of books, records
and accounts)
Other locations of Collateral owned by Borrower (including,
without
limitation, warehouse locations, processing locations,
consignment locations)
and all post office boxes of Borrower. Please indicate the
relationship of
such location to Borrower (i.e., public warehouse,
processor, etc.).
Autotronics International Corporation
(Warehouse)
11632 Chairman Drive
Dallas, Texas 75243
Shine Electronics Company, Inc. (Warehouse)
11-22 45th Road
Long Island City, New York 11101
V & A Electronics (Warehouse)
7855 Gross Point Road
Unit A-3
Skokie, Illinois 60077
Yupiteru U.S.A., Inc. (Warehouse)
235-1 N. Freeport Drive
Nogales, Arizona 85621
SS Electronics (Warehouse)
3415 W. Peterson Ave.
Chicago, Illinois 60659
EXHIBIT B
Officer's Certificate
This Certificate is submitted pursuant to paragraph 11(j) of
the Loan and
Security Agreement dated February 3, 1998 ("Loan Agreement")
among LaSalle
Business Credit, Inc., for itself ("LBCI") and as Collateral
Agent
("Collateral Agent"), LaSalle National Bank for itself
("LaSalle") and as
Administrative Agent, all other Lenders from time to time a
party to the Loan
Agreement and Cobra Electronics Corporation ("Borrower").
The undersigned hereby certifies to Agents and Lenders that
as of this
February 3, 1998:
The undersigned is the __________________________ of
Borrower.
There exits no event or circumstance which is or which with
the passage of
time, the giving of notice, or both would constitute an
Event of Default, as
that term is defined in the Loan Agreement, or , if such an
event or
circumstance exists, a writing attached hereto specifies the
nature thereof,
the period of existence thereof and the action that Borrower
has taken or
proposes to take with respect thereto.
No material adverse change in the condition, financial or
otherwise, business,
property, or results of operations of Borrower has occurred
since [Date of
last Officer's Certificate], or, if such a change has
occurred, a writing
attached hereto specifies the nature thereof and the action
that Borrower has
taken or proposes to take with respect thereto.
All insurance premiums due as of such date have been paid.
All taxes due as of such date have been paid or, for those
taxes which have
not been paid, a writing attached hereto describes the
nature and amount of
such taxes, and sets forth Borrower's rationale for not
paying such taxes and
the action that Borrower has taken or proposes to take with
respect thereto.
To the best of the undersigned's knowledge, after
appropriate inquiry, except
as previously disclosed to Agents and Lenders in writing, no
litigation,
investigation or proceeding, or injunction writ or
restraining order is
pending or threatened against Borrower which is reasonably
likely to have a
Material Adverse Effect or, if any litigation, investigation
or proceeding, or
injunction, writ or restraining order is pending or
threatened against
Borrower which is reasonably likely to have a Material
Adverse Effect, a
writing attached hereto specifies the nature thereof and the
action that
Borrower has taken or proposes to take with respect thereto.
Borrower is in compliance with the representations,
warranties and covenants
in the Loan Agreement, or, if Borrower is not in compliance
with any
representations, warranties or covenants in the Loan
Agreement, a writing
attached hereto specifies the nature thereof, the period of
existence thereof
and the action that Borrower has taken or proposes to take
with respect
thereto.
Attached hereto is a true and correct calculation of the
financial covenants
contained in paragraph 15(m) of the Loan Agreement.
COBRA ELECTRONICS CORPORATION
By
Its
Title
[SEAL]
EXHIBIT D
ASSIGNMENT AND ACCEPTANCE
This Assignment and Acceptance (the "Assignment and
Acceptance") is executed
as of February 3, 1998 between
_________________________________________
("Assignor") and _________________________________
("Assignee").
W I T N E S S E T H
WHEREAS, Assignor is party to a Loan and Security Agreement
dated as of
February 3, 1998 (the "Loan Agreement") among Cobra
Electronics Corporation,
LaSalle Business Credit, Inc., for itself and as collateral
agent ("Collateral
Agent") for all "Lenders" (as defined in the Loan
Agreement), LaSalle National
Bank, for itself and as administrative agent
("Administrative Agent") for all
Lenders and all such Lenders;
WHEREAS, Assignor has agreed to assign a portion of its
loans and other
financial accommodations to Borrower pursuant to the Loan
Agreement to
Assignee;
NOW, THEREFORE, in consideration of the mutual agreements
herein contained,
the parties hereto agree as follows:
Defined Terms
Capitalized terms not otherwise defined herein shall have
the meanings
ascribed to such terms in the Loan Agreement.
Assignment and Assumption
Assignor hereby assigns to Assignee, without recourse,
representation or
warranty (other than as expressly provided herein), and
Assignee hereby
assumes, all of Assignor's right, title and interest arising
under the Loan
Agreement and the Other Agreements with respect to a portion
of the
outstanding Loans to Borrower equal to Assignee's Pro Rata
Share (as set forth
under Assignee's signature hereto) of the outstanding Loans
to Borrower;
provided, that Assignee's obligations to Assignor, Borrower,
Collateral Agent,
Administrative Agent and any Lender are strictly limited to
those obligations
under the Loan Agreement unless otherwise explicitly
provided for herein.
Upon the Assignment Effective Date (as defined below),
Assignee's Maximum Loan
Amount and Assignee's Revolving Loan Commitment shall be as
set forth below
Assignee's signature hereto. After giving effect to the
assignment hereunder,
Assignor's remaining Maximum Loan Amount and Revolving Loan
Commitment shall
be as set forth below Assignor's signature hereto.
Payments on Assignment Effective Date
In consideration of the assignment by Assignor to Assignee
pursuant to this
Assignment and Acceptance, Assignee agrees to pay to
Assignor on or prior to
the Assignment Effective Date an amount specified by
Assignor in writing on or
prior to the Assignment Effective Date which represents
Assignee's Pro Rata
Share of the Loans to Borrower and outstanding on the
Assignment Effective
Date.
Effectiveness
This Assignment and Acceptance shall become effective upon
the full execution
and delivery of this Assignment and Acceptance (the
"Assignment Effective
Date").
Representations and Warranties
Each of Assignor and Assignee represents and warrants to the
other party as
follows:
it has full power and authority, and has taken all action
necessary, to
execute and deliver this Assignment and Acceptance and to
fulfill its
obligations under, and to consummate the transactions
contemplated by, this
Assignment and Acceptance;
the making and performance by it of this Assignment and
Acceptance and all
documents required to be executed and delivered by it
hereunder do not and
will not violate any law or regulation of the jurisdiction
of its
incorporation or any other law or regulation applicable to
it;
this Assignment and Acceptance has been duly executed and
delivered by it and
constitutes its legal, valid and binding obligation,
enforceable in accordance
with its terms, except as limited by applicable bankruptcy,
reorganization,
insolvency or similar laws affecting the enforcement of
creditors' rights
generally and by general equity principles; and
all approvals, authorizations, or other actions by, or
filing with, any
governmental authority necessary for the validity or
enforceability of its
obligations under this Assignment and Acceptance have been
obtained.
Assignor represents and warrants to Assignee that Assignee's
Revolving Loan
Commitment and the outstanding Loans being assigned
hereunder are not subject
to any liens or security interests created by or known to
Assignor.
Miscellaneous
Assignor shall not be responsible to Assignee for the
execution (by any party
other than Assignor), effectiveness, genuineness, validity,
enforceability,
collectibility or sufficiency of the Loan Agreement, the
Loan Agreement, the
Other Agreements or any of the agreements, documents or
instruments executed
and/or delivered in connection therewith (collectively, the
"Loan Documents")
or for any representations, warranties, recitals or
statements made therein or
in any written or oral statement or in any financial or
other statements,
instruments, reports, certificates or any other documents
made or furnished or
made available by Assignor to Assignee or by or on behalf of
the Borrower or
any other person obligated under the Loan Documents
(collectively, the "Credit
Parties") to Assignor or Assignee in connection with the
Loan Documents and
the transactions contemplated thereby. Except as otherwise
set forth in the
Loan Agreement, Assignor shall not be required to ascertain
or inquire as to
the performance or observance of any of the terms,
conditions, provisions,
covenants or agreements contained in any of the Loan
Documents or as to the
use of the proceeds of the Loans or as to the existence or
possible existence
of any default (matured or unmatured) under the Loan
Documents.
Assignee represents and warrants that it has made its own
independent
investigation of the financial condition and affairs of the
Credit Parties in
connection with the making of the Loans and the assignment
by Assignor to
Assignee hereunder and has made and shall continue to make
its own appraisal
of the creditworthiness of the Credit Parties. Assignor
shall have no duty or
responsibility (except as expressly provided in the Loan
Agreement) either
initially or on a continuing basis to make any such
investigation or any such
appraisal on behalf of Assignee or to provide Assignee with
any credit or
other information with respect thereto, whether coming into
its possession
before the making of the Loans or at any time or times
thereafter and shall
further have no responsibility with respect to the accuracy
of, or the
completeness of, any information provided to Assignee,
whether by Assignor or
by or on behalf of Credit Party.
Assignee (x) agrees that it will perform all of the
obligations which by the
terms of the Loan Agreement are required to be performed by
it as a Lender and
(y) represents that it is either (i) a corporation organized
under the laws of
the United States or a state thereof or (ii) entitled to
complete exemption
from United States withholding tax imposed on or with
respect to any payments
to be made to it pursuant to the Loan Agreement.
ANY DISPUTE BETWEEN ASSIGNOR AND ASSIGNEE ARISING OUT OF,
CONNECTED WITH,
RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN
CONNECTION WITH THIS ASSIGNMENT AND ACCEPTANCE AND WHETHER
ARISING IN
CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN
ACCORDANCE WITH THE
INTERNAL LAWS AND NOT THE CONFLICTS OF LAW PROVISIONS OF THE
STATE OF
ILLINOIS.
No term or provision of this Assignment and Acceptance may
be changed, waived,
discharged or terminated orally, but only by an instrument
in writing signed
by the parties to this Assignment and Acceptance.
This Assignment and Acceptance may be executed in one or
more counterparts,
each of which shall be an original but all of which, taken
together, shall
constitute one and the same instrument.
All payments hereunder or in connection herewith shall be
made in U.S. dollars
and in immediately available funds, payable to the account
of Assignor at its
office as designated in the Loan Agreement.
This Assignment and Acceptance shall be binding upon and
inure to the benefit
of the parties hereto and their respective successors and
assigns. Neither of
the parties hereto may assign or transfer any of its rights
or obligations
under this Assignment and Acceptance without the prior
consent of the other
party. The preceding sentence shall not limit the right of
Assignee to assign
all or part of its Revolving Loan Commitment and any
outstanding Loans
assigned under this Assignment and Acceptance in the manner
contemplated by
the Loan Agreement.
All representations and warranties made herein and
indemnities provided for
herein shall survive the consummation of the transactions
contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment and
Acceptance as the date first above written.
(ASSIGNOR)
By
Title
Maximum Loan Amount: $________
Revolving Loan Commitment $________
(ASSIGNEE)
By
Its
Maximum Loan Amount: $________
Revolving Loan Commitment $________
Acknowledged and Agreed to this ____ day of __________,
199__.
LASALLE NATIONAL BANK,
as Administrative Agent
By
Its
LASALLE BUSINESS CREDIT, INC.,
as Collateral Agent
By
Its