LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is made as of this 28th day of September,
1998 by and between KARTS INTERNATIONAL INCORPORATED, a Nevada corporation
("Borrower") And KBK FINANCIAL, INC., a Delaware Corporation ("KBK") in
connection with the mutual covenants and agreements contained herein, the
parties hereto-agrees as follows:
1. Definitions. All, terms and phrases used herein which are defined in the
Uniform Commercial Code in the State of Louisiana, as amended from time to
time (the "UCC") shall have the meanings given them in the UCC unless
otherwise defined herein. The following definitions shall apply throughout
this Agreement:
"Affiliate" means with respect to any Person in question, any other Person
owned or controlled by, or which owns or controls or is under common
control or is otherwise affiliated with such Person in question. A Person
shall be deemed to control another Person if such Person possesses,
directly or indirectly, the power to direct or cause the direction or the
management and policies of such other Person, whether through the ownership
of voting securities, by contract or otherwise.
"A/R Borrowing Base" shall mean an amount equal to 65% of Eligible Accounts
until the end of the Clean Up Period and 80% of Eligible Accounts
thereafter.
"A/R Line of Credit" has the meaning given it in Section 2.
"A/R Line of Credit Amount" has the meaning given to it in Section 2.
"BTK" means Broster's Thunder Markets, Inc.
"Business Day" means any day other than Saturday, Sunday or any other day
on which KBK's office in New Orleans, Louisiana is closed.
"Clean Up Period" has the meaning given it in Section 2.
"Collateral" has the meaning given it in Section 4.
"Credit Facilities" has the meaning given it in Section 2.
"Debit Account: means Account No. 5002120582 that Borrower has with Deposit
Guaranty National Bank over which KBK has express written authority to
debit pursuant to this Agreement.
"Eligible Accounts" means, at the time of determination thereof, all
accounts of Obligors except the following: (i) commencing January 1, 1998,
any account which by its terms is payable more than thirty (30) days from
the invoice date; (ii) any account which has been outstanding for more than
ninety (90) days from the invoice date; (iii) to the extent that the
aggregate outstanding amount owed by any single account debtor exceeds the
Debtor Limit (which is $15,000.00 per account debtor unless otherwise
approved by KBK), any amount in excess of the Debtor Limit owed by such
account debtor; (iv) any account that is owed by an account debtor which is
an Affiliate of any Obligor or an officer or employee of any Obligor; (v)
any account that arises out of a sale made, goods shipped or services
performed outside or the United States or that is owed by an account debtor
located outside the United States unless such account debtor is subject to
the jurisdiction of the courts in the United States with respect to such
account; (iv) any account that is owed by an account debtor which is a
creditor or supplier of any Obligor; (vii) any account that is owed by an
account debtor which has asserted any defense or offset or which has
contested any liability with respect to such account; (viii) any account
owed by an account debtor if more than 20% (in dollar amount) of such
account debtor's accounts are outstanding for more than ninety (90) days
from the due date of the invoice; (ix) any account the account debtor of
which is the United States or any department, agency or instrumentality
thereof, unless the right to payment under such account is assigned to KBK
in full compliance with the Assignment of Claims Act of 1940, as amended
(31 U.S.C. 3727); (x) any account the account debtor of which is any state
or any department, agency or subdivision thereof unless the right to
payment under Such account is assigned to KBK in full compliance with such
state's laws pertaining to the assignment of claims, if any; (xi) any
account with respect to which any Obligor has furnished a payment and/or
performance bond and that portion of any account representing retainage;
(xii) any account owing by an account debtor for which there has been
instituted a proceeding in bankruptcy or a reorganization under the United
States Bankruptcy Code or other law, whether state or federal, now or
hereafter existing for the relief of debtors; (xiii) any account with
respect to which goods are placed on consignment or other terms by reason
of which payment by the account debtor may be conditioned; and (xiv) any
account (or portion of an account) which, KBK may designate from time to
time, in its sole and absolute discretion, for exclusion from Eligible
Accounts. The gross face amount payable pursuant to the invoice related to
an account shall be used for purposes of determining the amount of an
account.
"Eligible Inventory" means as of any date, the aggregate value of all
inventory of raw materials and finished goods (excluding work in progress
and packaging materials, supplies and any advertising costs capitalized
into inventory) then owned by USA or BTK and held for sale, lease or other
disposition in the ordinary course of its business, in which KBK has a
first priority lien, excluding (i) inventory which is damaged, defective,
obsolete or otherwise unsalable in the ordinary course of the business of
USA of BTK, (ii) inventory which has been returned or rejected, (iii)
inventory subject to any consignment arrangement between USA or BTK and any
other person or entity, (iv) Inventory which is in transit, (v) inventory
located outside the United States, (vi) all inventory of USA until all of
USA's inventory is tracked by a Tested Perpetual Inventory System, and
(vii) inventory which KBK in KBK's sole and absolute descretion deems
ineligible. For purposes of this definition, Eligible Inventory shall be
valued at the lower of cost (excluding the cost of labor) or market value.
Environmental Laws" means an and all federal, state and local laws,
regulations, rules, orders, licenses, agreements or other governmental
restrictions relating to the protection of human health or the environment
or to emissions, discharges or releases of pollutants or industrial, toxic
or hazardous substances into the environment, or otherwise relating to the
manufacture, processing, treatment, transport or handling of pollutants or
industrial, toxic or hazardous substances
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations
promulgated with respect thereto.
"ERISA Affiliate" means with respect to any Person in question, any Person
that would be treated as a single employer with Borrower.
"ERISA Plan" means any pension benefit plan subject to Title IV of ERISA
maintained by Borrower or any ERISA Affiliate thereof with respect to which
Borrower or any ERISA Affiliate has a fixed or contingent liability.
"Event of Default: has the meaning given it in Section 13.
"GAAP" means those generally accepted accounting principles and practices
which arc recognized as such by the financial Accounting Standards Board
(or any generally recognized successor), consistently applied throughout
the period involved.
"Guarantors" means USA, BTK and ▇▇▇▇, L.L.C. (whether one or more).
"Indemnified Claims" means any and all claims, demands, actions, causes of
action, judgments, suits, liabilities, obligations, losses, damages and
consequential damages, penalties, fines, costs, fees, expenses and
disbursements (including without limitation, fees and expenses of attorneys
and other professional consultants and experts in connection with any
investigation or defense) of every kind or nature, known or unknown,
existing or hereafter arising, foreseeable or unforeseeable, which may be
imposed upon, threatened or asserted against or incurred or paid by any
Indemnified Person at any time and from time to time, because of or
resulting from, in connection with or in any way relating to or arising out
of any of the Credit Facilities, the Collateral or any other transaction,
act, omission, event or circumstance in any way connected with or
contemplatcd by this Agreement or the other Loan Documents or any action
taken or omitted by any such indemnified Person under or in connection with
any of the foregoing (including but not limited to any investigation,
litigation, proceeding, enforcement of KBK's rights or defense of KBK's
actions related to or arising out of this Agreement or the other Loan
Documents), whether or not any Indemnified Person is a party hereto.
"Indemnified Person" shall collectively mean KBK and its officers,
directors, shareholders, employees, attorneys, representatives, agents,
Affiliates, successors and assigns.
"INV Borrowing Base" means an amount equal to 50% of all Eligible Inventory
(subject to the provisions of the Inventory Maintenance Certificate and
Inventory Reports attached hereto); provided, however, any Eligible
Inventory which constitutes raw materials and is tracked by a Tested
Perpetual Inventory Systems will have a borrowing base equal to 65%.
"INV Line of Credit" has the meaning given it in Section 2.
"INV Line of Credit Amount" has the meaning given it in Section 2.
"Lien" means any mortgage, lien, pledge, assignment, adverse claim, charge,
security interest or other encumbrance,
"Loan Documents" means this Agreement, the Notes and all other documents,
agreements and instruments now or hereafter required by KBK to be executed
and delivered in connection herewith (including, without limitation, all
documents, agreements and instruments evidencing, securing, governing,
guaranteeing and/or pertaining to the Notes and the Credit Facilities).
"Net Profit" means net income after taxes (including extraordinary losses
and excluding extraordinary gains) as of the end of time period being
measured.
"Notes" has the meaning given it in Section 3.
"Obligors" means Borrower and Guarantors.
"Person" means a corporation, association, partnership, limited liability
company, organization, business, individual, governmental or political
subdivision thereof or governmental agency.
"Remittance Address" means the Borrower's current lockbox address until KBK
notifies Borrower of a new Remittance Address.
"Subordinated Debt" means indebtedness owing by Borrower to a creditor
other than KBK which has been subordinated and subject in right of payment
to the prior payment of all indebtedness and obligations now or hereafter
owing by Borrower to KBK, such subordination to be evidenced by a written
agreement between KBK and the subordinated creditor which is in form and
substance satisfactory to KBK.
"Tangible Net Worth" means, as of any date, the amount by which Borrower's
total assets exceeds its total liabilities, plus Subordinated Debt, less
any intangible assets (as defined by GAAP), less deferred charges.
"Termination Event" means (a) the occurrence with respect to any ERISA Plan
of (i) a reportable event described in Sections 4043(b)(5) of ERISA or (ii)
any other reportable event described in Section 4043 of ERISA other than a
reportable event not subject to the provision for 30-day notice to the
Pension Benefit Guaranty Corporation pursuant to a waiver by such
corporation under Section 4043(a) of ERISA, (b) the withdrawal of Borrower
or any Affiliate of Borrower from any ERISA Plan during a plan year in
which it was a "substantial employer" as defined in Section4001 (a)(2) of
ERISA, or (c) any event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any ERISA Plan.
"Tested Perpetual Inventory System" means a perpetual inventory system
which has been adequately tested to ensure that it works properly to the
satisfaction of KBK, in KBK's sole discretion.
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"USA" MEANS USA Industries, Inc.
2. Credit Facilities, Subject to the terms and conditions set forth in this
Agreement and the other Loan Documents, KBK hereby agrees to provide to
Borrower the following Credit Facility or Facilities (whether one or more,
the "Credit Facilities"):
(A) A/R Line of Credit. Subject to the terms and conditions set forth
herein, KBK agrees to provide to Borrower - a revolving line of credit
(the "A/R Line of Credit") during the period commencing on the date
hereof and continuing through the maturity date of the Note evidencing
the A/R Line of Credit from time to time. Borrower or may request
advances under the A/R Line of Credit from time to time; provided,
however, the total principal amount outstanding at any time under the
A/R Line of Credit shall not exceed the lesser of (i) an amount equal
to the A/R Borrowing Base, or (ii) $1,000,000.00 (the "A/R Line of
Credit Amount"). If at any time the aggregate principal amount
outstanding under the A/R Line of Credit shall exceed an amount equal
to the A/R Borrowing Base, Borrower agrees to immediately repay to KBK
such excess amount, plus all accrued but unpaid interest thereon.
Subject to the terms and conditions set forth in this Agreement and in
the Note evidencing the A/R Line of Credit from time to time, Borrower
may borrow, repay and reborrow under the A/R Line of Credit. The sums
advanced under the A/R Line of Credit shall be used for working
capital purposes.
(b) INV Line of Credit. Subject to the terms and conditions set forth
herein, KBK agrees to provide to Borrower a revolving line of credit
(the "INV Line of Credit") during the period commencing on the date
hereof and continuing through the 10th day prior to the maturity
date of the Note evidencing the INV Line ine of Credit from time to
time. Borrower may request advances under the INV Line of Credit from
time to time, provided, however, the total principal amount
outstanding at any time under the INV Line of Credit shall not exceed
the lesser of (i) an amount equal to the INV Borrowing Base, or (ii)
$1,000,000.00 (the "INV Line of Credit Amount"). If at any time the
aggregate principal amount outstanding under the INV Line of Credit
shall exceed an amount equal to the INV Borrowing Base, Borrower
agrees to immediately repay to KBK such excess amount, plus all
accrued but unpaid interest thereon. Borrower understands and agrees
that for a period of at least 30 consecutive days (the "Clean Up
Period") during the period between January 1 and February 28 each
year, Borrower must repay all amounts outstanding under tire INV Line
of Credit. Borrower may request advances under the INV Line of Credit
no more often than once each calendar day. Subject to the terms and
conditions set forth in this Agreement and in the Note evidencing the
INV Line of Credit from time to time, Borrower may borrow, repay and
reborrow under the INV Line of Credit. The sums advanced under the INV
Line of Credit shall be used for working capital purposes.
3. Promissory Notes.
(a) Notes. Borrower agrees to execute, Contemporaneously herewith, a
promissory note payable to the order of KBK, in form and substance
acceptable to KBK in KBK's sole and absolute discretion, for each
Credit Facility provided hereunder to evidence the indebtedness owing
by Borrower to KBK under each such facility (whether one or more,
together with any renewals, extensions and increases thereof, the
"Notes").
(b) Rate and Payments. The principal of and interest on the Notes shall be
due and payable and may be prepaid in accordance with the terms and
conditions set forth in the Notes and in this Agreement. Interest on
the Notes shall accrue at the rate set forth therein; provided,
however, in the event Obligors, on a consolidated basis, achieve a Net
Profit of at least $200,000.00 as of the end of any fiscal year based
upon Obligor's annual audited financial statements, the Contract Rate
(as defined in the Notes) shall be reduced to the Base Rate plus one
and one-half percent (1.5%). Any such interest rate reduction will
become effective on the first day of the calendar month following (i)
delivery to KBK or Obligor's annual audited financial statements which
demonstrate the requisite Net Profit, and (ii) a notice letter from
Borrower requesting that the Contract Rate be adjusted. In the event
the Contract Rate in the Notes is ever decreased per this subsection,
to maintain such lower interest rate, Obligors MUST maintain a Net
Profit of at least $200,000.00 annually thereafter per their annual
audited financial statements. In the event a Net Profit of at least
$200,000.00 is not maintained or Borrower does not timely deliver the
annual audited financial statements to KBK in accordance with
Subsection 12(a), the Contract Rate of the Notes Shall be immediately
increased to the original Contract Rate.
4. Collateral. As security for the indebtedness evidenced by the Notes and any
and all other indebtedness or obligations owing from time to time by
Borrower to KBK under this Agreement, KBK shall receive a Lien in and to
the collateral described in the other Loan Documents (the "'Collateral").
5. Guarantors. As a condition precedent to KBK's obligation to provide the
Credit Facilities to Borrower, Borrower agrees to cause the Guarantors to
each execute and deliver to KBK contemporaneously herewith a guaranty
agreement, in form and substance acceptable to KBK in KBK's sole and
absolute discretion.
6. Fees.
(a) Commitment Fee. Borrower shall pay to KBK, concurrently with the
execution hereof, a commitment fee in the amount of one percent (1.0%)
of the A/R Line of Credit Amount, and one percent (1.0%) of the INV
Line of Credit Amount. Borrower hereby authorizes KBK, in KBK's sole
discretion, to collect any such commitment fees (i) by deducting such
fees from the first advance under the subject Credit Facilities, (ii)
by debiting the Debit Account, (iii) by applying that portion of any
up-front deposit delivered to KBK by Borrower which is in excess of
KBK's costs and expenses (including, without limitation, attorneys'
fees), or (iv) by using any combination of the foregoing. This
authorization does not affect Borrower's obligation to pay such sums
to KBK. Borrower and KBK acknowledge and agree that the commitment
fees are reasonable compensation to KBK for making the subject Credit
Facilities available to Borrower and for no other purpose and are
fully earned and non-refundable under any and all circumstances.
(b) Servicing Fee. Borrower agrees to pay KBK a servicing fee on the first
day of each calendar month during the term of the A/R Line of Credit
equal to l/12% of the A/R Line of Credit Amount. Borrower agrees to
pay KBK a servicing fee on the first day of each calendar month during
the term of the INV Line of Credit equal to 1/12% of the INV Line of
Credit Amount. If the first calendar month covers less than a full
month, the
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servicing fees shall be prorated for such month. Borrower hereby
authorizes KBK, in KBK's sole discretion, to collect such servicing
fees (i) by deducting such fee from the first advance, if any, under
the subject Credit Facility after such fee is due, (ii) by debiting
the Debit Account, or (iii) by using any combination of the foregoing.
This authorization does not affect Borrower's obligation to pay such
sums to KBK when due. Borrower and KBK acknowledge and agree that such
fees are reasonable compensation to KBK for making the Credit
Facilities available to Borrower and for no other purpose,
7. Representations and Warranties. Borrower hereby represents and warrants,
and upon each request for an advance under the Credit Facilities further
represents and warrants, to KBK as follows:
(a) Existence: Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the state of its
incorporation and is duly licensed, qualified to do business and
is in good standing in all other states in which such licensing,
qualification and good standing are necessary. Borrower has all
requisite power and authority (i) to own and operate its
properties, (ii) to carry on its business as now conducted and as
proposed to be conducted, and (iii) to execute and deliver this
Agreement and the other Loan Documents to which Borrower is a
party.
(b) Binding Obligations. The execution, delivery, and performance of
this Agreement and all of the other Loan Documents by Borrower
have been duly authorized by all necessary action by Borrower,
have been duly executed and delivered by Borrower and constitute
legal, valid and binding obligations of Borrower, enforceable in
accordance with their respective terms, except as limited by
bankruptcy, insolvency or similar laws of general application
relating to the enforcement of creditors' rights and except to
the extent specific remedies may generally be limited by
equitable principles.
(c) No Consent. The execution, delivery and performance of this
Agreement and the other Loan Documents, and the consummation of
the transactions contemplated hereby and thereby, do not (i)
conflict with, result in a violation of, or constitute a default
under (A) any provision of Borrower's articles or certificate of
incorporation or bylaws, (B) any law, governmental regulation,
court decree or order applicable to Borrower, or (C) any other
document or agreement to which Borrower is a party, or (ii)
require the consent, approval or authorization of any third
party.
(d) Financial Condition. Each financial statement of Borrower
supplied to KBK is true, correct and complete in all material
respects and fairly presents Borrower's financial condition in
all material respects as of the date of each such statement.
There has been no material adverse change in such financial
condition or results of operations of Borrower subsequent to the
date of the most recent financial statement supplied to KBK.
(e) Litigation. There are no actions, suits or proceedings, pending
or, to the knowledge of Borrower, threatened against or affecting
Borrower or the properties of Borrower, before any court or
governmental department, commission or board, which, if
determined adversely to Borrower, would have a material adverse
effect on the business, financial condition, properties,
operations or prospects of Borrower.
(f) Taxes, Governmental Charges. Borrower has filed all federal,
state and local tax reports and returns required by any law or
regulation to be filed by it and has either duly paid all taxes,
duties and charges indicated due on the basis of such returns and
reports, or made adequate provision for the payment thereof, and
the assessment of any material amount of additional taxes in
excess of those paid and reported is not reasonably expected.
There is no tax Lien notice against Borrower or its properties
presently on file.
(g) ERISA Compliance. Borrower is in compliance with ERISA concerning
Borrower's ▇▇▇▇ Plan, if any, or is not required to contribute to
any "Multi-employer plan" as defined in Section 401 Of ▇▇▇▇.
(h) Compliance with Laws. Borrower is conducting its business in
material compliance with all statutes, rules, regulations and/or
ordinances imposed by any governmental unit upon Borrower or upon
its businesses, operations and property (including, without
limitation, all Environmental Laws). Borrower has all permits and
licenses necessary for the operations of its business as
presently conducted and as proposed to be conducted.
(i) Tradenames. Borrower and Guarantors conduct business under no
trade or assumed name except ▇▇▇ L.L.C. conducts business under
the tradename Bird Promotions.
8. Conditions Precedent to Advances. KBK's obligation to make any advance
under this Agreement and the other Loan Documents shall be subject to the
conditions precedent that, as of the date of such advance and after giving
effect thereto (i) all representations and warranties made to KBK in this
Agreement and the other Loan Documents shall be true and correct, as or and
as if made on such date, (ii) no material adverse change in the financial
condition of Borrower or its business since the effective date of the most
recent financial statements furnished to KBK by Borrower shall have
occurred, (iii) no Event of Default shall have occurred and no event has
occurred and is continuing, or would result from the requested advance,
which with notice or lapse of time, or both, would constitute an Event of
Default (as hereinafter defined), (iv) KBK shall have received all Loan
Documents appropriately executed by Borrower and all other proper parties
and all such Loan Cocuments are in full force and effect, and (v) KBK shall
have received all fees and expenses owing to KBK under this Agreement and
the other Loan Documents.
9. Affirmative Covenants. Until (i) the Notes and all other obligations and
liabilities of Borrower under this Agreement and the other Loan Documents
are fully paid and satisfied, and (ii) KBK has no further commitment to
lend hereunder, Borrower agrees and covenants that it will, unless KBK
shall otherwise consent in writing (which consent may be withheld by KBK in
KBK's sole and absolute discretion):
(a) Accounts and Records. Maintain its books and records in accordance
with GAAP.
(b) Right of Inspection. Permit KBK to visit its properties and
installations and to examine, audit and make and take away copies or
reproductions of Borrower's books and records, at all reasonable
times. Borrower agrees to pay all costs associated with any such
audits, at a rate equal to $500.00 per day, per person, plus
out-of-pocket expenses; provided, however, as long as no Event of
Default has occurred, Borrower's obligation for KBK's audits shall not
exceed $15,000.00 per calendar year.
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(c) Right to Additional Information. Furnish KBK with such additional
information and statements, lists of assets and liabilities, tax
returns, and other reports with respect to Borrower's financial
condition and business operations as KBK may request from time to
time.
(d) Compliance with Laws. Conduct its business in an orderly and efficient
manner consistent with good business practices, and perform and comply
with all statutes, rules, regulations and/or ordinances imposed by any
governmental unit upon Borrower, its businesses, operations and
properties (including without limitation, all Environmental Laws).
(e) Taxes. Pay and discharge when due all assessments, taxes, governmental
charges and levies, of every kind and nature , imposed upon Borrower
or its properties, income or profits, prior to the date on which
penalties would attach, and all lawful claims that, if unpaid, might
become a Lien upon any of Borrower's property, income or profits,
provided, however, Borrower will not be required to pay and discharge
any such assessment, tax, charge, levy or claim so long as (i) same
shall be contested in good faith by appropriate judicial,
administrative or other legal proceedings timely instituted, (ii)
Borrower shall have established adequate reserves with respect to such
contested assessment, tax, charge, levy or claim in accordance with
GAAP, and (iii) the perfection and priority of KBK's security interest
in the Collateral, or the value of the Collateral, is not impaired.
(f) Insurance. Maintain, with Financially sound and reputable insurers,
such insurance as deemed necessary or otherwise required by KBK,
including but not limited to, fire insurance, comprehensive property
damage, public liability, worker's compensation and business
interruption insurance.
(g) Notice of Material Change/Litigation. Borrower shall promptly notify
KBK in writing (i) of any material adverse change in Borrower's
financial condition or its businesses, and (ii) of any litigation or
claims against Borrower which could materially affect Borrower or its
business operations, financial condition or prospects.
(h) Corporate Existence. Maintain its corporate existence and good
standing in the state of its incorporation and its qualification and
good standing in all other states where required by applicable law.
(i) ERISA. Borrower shall promptly notify KBK in writing of the adoption
or amendment of any plan that results in the representations in
Subsection 7(g) no longer being true and correct.
(j) Additional Documentation. Execute and deliver, or cause to be executed
and delivered, any and all other agreements, instruments or documents
which KBK may reasonably request in order to give effect to the
transactions contemplated under this Agreement and the other Loan
Documents.
(k) Remittance Address, Application of Account Proceeds. The invoices
related to all of Borrower's accounts shall set forth the Remittance
Address as its sole address for payment, KBK shall have exclusive and
unrestricted access to the Remittance Address. KBK is irrevocably
authorized and empowered to apply any and all proceeds of collection
of accounts received by KBK (at KBK's option, without obligation to do
so) to the outstanding principal amount of, interest on, and other
amounts owing in connection with the Note evidencing the A/R Line of
Credit, this Agreement and the other Loan Documents (in any order
selected by KBK) within 3 Business Days after KBK receives and
deposits such proceeds. Borrower acknowledges and agrees (a) that all
proceeds of collection of Borrower's accounts by KBK will not be
segregated by KBK and may be commingled with KBK's other funds, and
(b) that KBK shall have no duty (fiduciary or otherwise) with respect
to the proceeds of collection of Borrower's accounts except as
specifically provided for in this Agreement and the other Loan
Documents. If KBK either elects not to apply the proceeds of such
collections to the amounts owing to KBK within such 3 Business Day
period or there are no amounts owing to KBK under or in connection
with the A/R Line of Credit, KBK shall retain possession of such
collections as additional Collateral; provided, however, that if no
Event of Default has occurred, KBK shall release such collections to
Borrower at the written request of Borrower after such 3 Business Day
period has elapsed.
(i) Perpetual Inventory System. USA and BTU must have a tested Perpetual
Inventory System in place covering all of their inventory on or before
January 3 1, 1999.
10. Negative Covenants, Until (i) the Notes and all other obligations and
liabilities of Borrower under this Agreement and the other Loan Documents
are fully paid and satisfied, and (ii) KBK has no further commitment to
lend hereunder, Borrower will not and Will cause Guarantors to not, without
the prior written consent of KBK (which consent may withhold in KBK's sole
and absolute discretion):
(a) Nature of Business. Make any material change in the nature of its
business as carried on as of the date hereof.
(b) Liquidations; Mergers; Consolidations; Acquisitions; Name Change
Liquidate, merge or consolidate with or into any other Person, convert
from one type of legal entity to another type of legal entity, form or
acquire any new subsidiary or acquire by purchase or otherwise all or
substantially all of the assets of any other Person, or change its
name or operate under any new trade or assumed names.
(c) Transactions with Affiliates. Enter into any transaction, including,
without limitation, the purchase, sale or exchange of property or the
rendering of any service, with any Affiliate of any Obligor, except in
the reasonable terms no less favorable to Obligor than would be
obtained in a comparable arm's-length transaction with a person or
entity not an Affiliate of any Obligor and in accordance with the
terms and provisions of the Loan Documents.
(d) Sale of Assets. Sell, lease, transfer or otherwise dispose of all or
substantially all of its assets or properties, other than inventory
sold in the ordinary course of business and as necessary to replace
obsolete equipment.
(e) Liens. Create or incur any Lien on any of its assets, other than (i)
Liens securing indebtedness owing to KBK, (ii) pledges or deposits to
secure the payment of obligations under any worker's compensation laws
or
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similar laws, (iii) deposits to secure the payment of public or
statutory obligations, (iv) mechanic's, carriers', ▇▇▇▇▇▇▇'▇,
repairman's or other Liens arising by operation of law in the ordinary
course of business which secure obligations that are not overdue or
arc being contested in good faith and for which such entity has
established adequate reserves in accordance with generally accepted
accounting principles, (and for which KBK's security interest in the
Collateral is not impaired) and (v) Liens existing as of the date
hereof which have been disclosed to and approved by KBK in writing.
(f) Change in Management. Permit a change in the senior management.
(g) Loans. Make any loans to any person or entity.
11. Financial Covenants. Until (i) the Notes and all other obligations and
liabilities of Borrower under this Agreement and the other Loan Documents
are fully paid and satisfied, and (ii) KBK has no further commitment to
lend hereunder, Obligors, on a consolidated basis, will maintain the
following financial covenants;
(a) Current Ratio. At the end of each fiscal month, a ratio of (i) current
assets (excluding prepaid expenses), to (ii) current liabilities of
not less than 1.5 to 1.0.
(b) Debt/Tangible Net Worth Ratio. At the end of each fiscal month, a
ratio of total liabilities to Tangible Net Worth of less than 2.5 to
1.0.
(c) Tangible Net Worth. At the end of each fiscal month, its Tangible Net
Worth of not loss than $2,500,000.00.
Unless otherwise specified, all accounting and financial terms and
covenants set forth above are to be determined according to GAAP.
12. Reporting Requirements. Until (i) the Notes and all other obligations and
liabilities of Borrower under this Agreement and the other Loan Documents
are fully paid and satisfied, and (ii) KBK has no-further commitment to
lend hereunder, Borrower will and will cause the Guarantors, unless KBK
shall otherwise consent in writing, furnish to KBK:
(a) Financial Statements. The following financial statements: (i) within
120 days after the last day of each fiscal year of Borrower a
consolidated statement of income and a consolidated statement of cash
flows of Obligors for such fiscal year, and a consolidated balance
sheet of Obligors as of the last day of such fiscal year in each case
audited by an independent certified public accounting firm acceptable
to KBK, together with a copy of any report to management delivered to
Borrower by such accountants in connection therewith; and (ii) within
30 days after the last day of each fiscal month of Borrower, an
unaudited consolidated statement of income and statement of cash flows
of Obligors for such fiscal month, and an unaudited consolidated
balance sheet of Obligors as of the last day of such fiscal month.
Borrower represents and warrants that each such statement of income
and statement of cash flows will fairly present, in all material
respects, the results of operations and cash flows of Borrower for the
period set forth therein, and that each such balance sheet will fairly
present, in all material respects, the financial condition of Borrower
as of the date set forth therein, all in accordance with GAAP, (or,
with respect to unaudited financial statements, in the notes thereto
and subject to year-end review adjustments).
(b) Borrowing-Base Report. An A/R Borrowing Base Report, in the form
attached hereto as Schedule A, contemporaneously with each advance
requested under the A/R Line of Credit and within ten (10) Business
Days after the end of each month
(c) A/R Aging. An accounts receivable aging report in form and detail
satisfactory to KBK within ten (10) Business Days after each month.
(d) Inventory Maintenance Certificate. With each advance request under the
INV Line of Credit, with each advance request under the A/R Line of
Credit and within ten (10) Business Days after the end of each month,
(i) Borrower shall provide to KBK an Inventory Maintenace
Certificate, in the form attached hereto as Schedule 3, (ii) until
such time all of the inventory, of BTK is covered by a Tested
Perpetual inventory System, BTK shall provide to KBK an Inventory
Report in the form attached hereto as Schedule C, (iii) after all of
the inventory of BTK is covered by a Tested Perpetual Inventory
System, BTK shall provide to KBK an Inventory Report in the form
attached hereto as Schedule D, and (iv) after all of the inventory of
USA is covered by a Tested Perpetual Inventory System, USA shall
provide to KBK an Inventory Report in the form, attached hereto as
Schedule E.
(c) Inventory Listing. A list of inventory for USA and BTK by location and
type (to include the following: raw materials, work in Process and
finished goods) within ten (10) Business Days after the end of each
month, in form and detail satisfactory to KBK.
13. Events of Default Each of the following shall constitute an "Event of
Default" under this Agreement and the other Loan Documents:
(a) Failure to Pay Indebtednes. Borrower shall fail to pay as and when due
any part of the principal of, or interest on, the Notes or any other
indebtedness or Obligations now or hereafter owing to KBK by Borrower,
(b) Non-performance of Covenants. Any of the Obligors shall breach any
covenant or agreement made herein, any of tile other Loan Documents or
in any other agreement now or hereafter entered into between any of
the Obligors and KBK.
(c) False Representation. Any warranty or representationmade herein, or in
any of the other Loan Documents shall be false or misleading in any
material respect when made.
(d) Default Under Other Loan Documents. The occurrence of an event of
default under any of the other Loan Documents or any other agreement
now or hereafter entered into between any of the Obligors and KBK.
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(c) Untrue Financial Report. Any report certificate, schedule, financial
statement, profit and loss statement or other statement furbished by
any Obligor, or by any other person on behalf of any Obligor, to KBK
is not true and correct in any material respect.
(f) Default to Third Party. The occurrence of any event which permits the
acceleration of the maturity of any indebtedness owing by any of the
Obligors to any third party under any agreement or undertaking.
(g) Bankruptcy. The filing of a voluntary or involuntary case by or
against any, of the Obligors under the United States Bankrupcy Code or
other present or future federal or state insolvency, bankruptcy or
similar laws, or the appointment of a receiver, trustee, conservator
or custodian for a substantial portion of the assets of any of the
Obligors.
(h) Insolvency. Any of the Obligors shall become insolvent make a transfer
in fraud of creditors or make an assignment for the benefit of
creditors.
(i) Involuntary Lien. The filing or commencement of any involuntary Lien,
garnishment, attachment or the like shall be issued against or with
respect to the Collateral.
(j) Material Adverse Change. A material adverse change shall have occurred
in the financial condition, business prospects or operations of any of
the Obligors.
(k) Tax Lien. Any of the Obligors shall have a federal or state tax Lien
filed against any of its properties.
(l) Execution on Collateral. The Collateral or any portion thereof is
taken on execution or other process of law.
(m) ERISA Plan. Either (i) any "accumulated funding deficiency" (as
defined in Section 412(a) of the Internal Revenue Code of 1986, as
amended) in excess of $25,000 exists with respect to any ERISA Plan of
Borrower or its ERISA Affiliate, or (ii) any Termination Event occurs
with respect to any ERISA Plan of Borrower or its ERISA Affiliate and
the then current value of such ERISA Plan's benefit liabilities
exceeds the then current value of such ERISA Plan's assets available
for the payment of such benefit liabilities by more than $25.000.
(n) Guarantor's Obligations. If any of the obligations of any Guarantor is
limited or terminated by operation of law or by such Guarantor, or any
such Guarantor becomes the subject of an insolvency proceeding.
(o) Judgment. The entry against any of the Obligors of a final and
nonappicalable judgment for the payment of money in excess of $25,000
(not covered by insurance satisfactory to KBK in KBK's sole:
discretion).
Nothing contained in this Loan Agreement shall be construed to limit the
events of default enumerated in any of the other Loan Documents and all
such events of default shall be cumulative.
14. Remedies. Upon the occurrence of any one or more of the foregoing Events of
Default, (a) the entire unpaid balance of principal of the Notes, together
with all accrued but unpaid interest thereon, and all other indebtedness
owing to KBK by Borrower at such time shall, at the option of KBK, become
immediately due and payable without further notice, demand, presentation,
notice of dishonor, notice of intent to accelerate, notice of acceleration,
protest or notice of protest of any kind, all of which are expressly waived
by Borrower, and (b) KBK may, at its option, cease further advances under
the Credit Facilities or under any of the Loan Documents, Provided however,
concurrently and automatically with the occurrence of an Event of Default
under Suhsections (g) or (h) in the Section entitled "Event of Default" (i)
further advances under the Credit Facilities and under lite Loan Documents
shall cease, and (ii) the Notes and all other indebtedness owing to KBK by
Borrower at such time shall, without any action by KBK, become immediately
due and payable, without further notice, demand, presentation, notice of
dishonor, notice of acceleration, notice of intent to accelerate, protest
or notice of protest of any kind, all of which are expressly waived by
Borrower. All rights and remedies of KBK set forth in this Agreement and in
any of the other Loan Documents are cumulative and may also be exercised by
KBK, at its option and in its sole discretion, upon the occurrence of an
Event of Default.
15. Indemnification. Borrower hereby indemnifies and agrees to hold harmless
and defend all Indemnified Persons from and against any and all Indemnified
Claims. THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH
INDEMNIFIED CLAIMS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN
PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN
WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY INDEMNIFIED
PERSON, but shall exclude any of the foregoing resulting from such
Indemnified Person's gross negligence or willful misconduct. If Borrower or
any third party ever alleges any gross negligence or willful misconduct by
any Indemnified Person, the indemnification provided for in this Section
shall nonetheless be paid upon demand, subject to later adjustment or
reimbursement, until such time as a court of competent jurisdiction enters
a final judgment as to the extent and affect of the alleged gross
negligence or willful misconduct. Upon notification and demand, Borrower
agrees to provide defense of any Indemnified Claim and to pay all costs and
expenses of Counsel selected by any Indemnified Person in respect thereof.
Any Indemnified Person against whom any Indemnified Claim may be asserted
reserves the right to settle or compromise any such Indemnified Claim as
such Indemnified Person may determine in its sole discretion, and the
obligations of such Indemnified Person, if any, pursuant to any such
settlement or compromise shall be deemed included within the Indemnified
Claims. Except as specifically provided in this Section, Borrower waives
all notices from any Indemnified Person. The Provisions of this Section
shall Survive the termination of this Agreement.
16. Rights Cumulative. All rights of KBK under the terms of this Agreement
shall be cumulative of, and in addition to, rights of KBK under any and all
other agreements between Borrower and KBK (including, but not limited to,
the other Loan Documents), and not in substitution or diminution of any
rights now or hereafter held by KBK under the terms of any other agreement.
17. Waiver and Agreement. Neither the failure nor any delay on the part of KBK
to exercise any right, power or privilege herein or under any of the other
Loan Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. No waiver of any provision in this Loan Agreement or in any of
the other Loan Documents and no departure by Borrower therefrom shall be
effective unless the same shall be in writing and signed
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by KBK, and then shall be effective only in the specific instance and for
the purpose for which given and to the extent specified in such writing. No
modification or amendment to this Loan Agreement or to any of the other
Loan Documents shall be valid or effective unless the same is signed by the
party against whom it is sought to be enforced.
18. Benefits. This Agreement shall be binding upon and inure to the benefit of
KBK and Borrower, and their respective successors and assigns; provided,
however, that Borrower may not, without the prior written consent of KBK,
assign any rights powers, duties or obligations under this Agreement or any
of the other Loan Documents.
19. Notices. All notices, requests, demands or other communications required or
permitted to be given pursuant to this Agreement shall be in writing and
given by (i) personal delivery, (ii) expedited delivery service with proof
of delivery, (iii) United States mail, postage prepaid, registered or
certified mail, return receipt requested, or (iv) telecopy (with receipt
thereof confirmed by telecopier) sent to the intended addressee at the
address set forth on the signature page hereof and shall be deemed to have
been received either, in the case of personal delivery, as of the time of
personal delivery, in the case of expedited delivery service, as of the
date of first attempted delivery at the address and in the manner provided
herein, in the case of mail, upon deposit in a depository receptacle under
the care and custody of the United States Postal Service, or in the case of
telecopy, upon receipt. Either party shall have the right to change its
address for notice hereunder to any other location within the continental
United States by notice to the other party of such new address at least
thirty (30) days prior to the effective date of such new address.
20. Governing Law; Venue; Submission to Jurisdiction. THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF LOUISIANA WITHOUT GIVING EFFECT TO THE PRINCIPLES
OF CONFLICTS OF LAWS THEREOF, EXCEPT TO THE EXTENT PERFECTION AND THE
EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST GRANTED
HEREUNDER OR THEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF LOUISIANA.
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ARE PERFORMABLE BY THE PARTIES
IN ORLEANS PARISH, LOUISIANA. BORROWER AND KBK EACH AGREE THAT ORLEANS
PARISH, LOUISIANA, SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION OF ANY
DISPUTE OR CLAIM ARISING UNDER OR RELATING TO THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS, AND THAT SUCH PARISH IS A CONVENIENT FORUM IN WHICH To
DECIDE ANY SUCH DISPUTE OR CLAIM. BORROWER AND KBK EACH CONSENT TO THE
PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN ORLEANS
PARISH, LOUISIANA FOR THE LITIGATION OF ANY SUCH DISPUTE OR CLAIM. BORROWER
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
21. Waiver of Jury Trial. BORROWER AND KBK EACH HEREBY IRREVOCABLY WAIVES, TO
THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME
ARISING OUT OF UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH.
22. Invalid Provisions. If any provision of this Agreement or any of the other
Loan Documents is held to be illegal, invalid or unenforceable under
present or future laws, such provision shall be fully severable and the
remaining provisions of this Agreement or any of the other Loan Documents
shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance.
23. Expenses. Borrower shall pay all costs and expenses (including, without
limitation, reasonable attorneys' fees) in connection with (i) the
preparation of the Loan Documents, (ii) any action required in the course
of administration of the indebtedness and obligations evidenced by the Loan
Documents, and (iii) any action in the enforcement of KBK's rights upon the
occurrence of Event of Default.
24. Participation of the Credit Facilities. Borrower agrees that KBK may, at
its option, sell interests in any of the Credit Facilities and its rights
under (his Agreement and the other Loan Documents and, in connection with
each such sale, KBK may disclose any, financial and other information
available to KBK concerning Borrower to each prospective purchaser and
assignee.
25. Conflicts. In the event any term or provision hereof is inconsistent with
or conflicts with any provision of the other Loan Documents, the terms and
provisions contained in this Agreement shall be controlling.
26. Counterparts. This Agreement may be separately executed in any number of
counterparts, each of which shall be an original, but all of which, taken
together, shall be deemed to constitute one and the same instrument.
Delivery of an executed counterpart of this Agreement by telecopy shall be
equally as effective as delivery of a manually executed counterpart of this
Agreement. Any Party delivering an executed counterpart of this Agreement
by telecopy also shall deliver a manually executed counterpart of this
Agreement but the failure to deliver a manually executed counterpart shall
not affect the validity, enforceability, and binding effect of this
Agreement.
27. ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO
THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE
TRANSACTIONS CONTEMPLATED HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. THIS AGREEMENT ALSO
AMENDS AND SUPERSEDES ANY OF THE TERMS OF ANY PRIOR WRITTEN AGREEMENTS WITH
RESPECT TO THE MATTERS SET FORTH IN THIS AGREEMENT.
EXECUTED as of the date first above written.
BORROWER: KBK FINANCIAL, INC.
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KARTS INTERNATIONAL INCORPORATED By: ______________________________
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Name: ▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: C.E.O Title: Vice President & General Counsel
Borrower's Address: KBK's Address:
▇.▇. ▇▇▇ ▇▇▇ ▇▇▇ ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
70456 Attn: Legal Department
telecopy No. (▇▇▇) ▇▇▇-▇▇▇▇ Telecopy No. (▇▇▇) ▇▇▇-▇▇▇▇
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