UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 1, 2005
BURKE MILLS, INC.
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(Exact name of registrant as specified in its charter)
North Carolina
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(State or other jurisdiction of incorporation or organization)
0-5680 56-0506342
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(Commission File No.) (I.R.S. Employer Identification No.)
191 Sterling Street, N.W., Valdese, North Carolina 28690
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(Address of principal executive offices) (Zip Code)
828 874-6341
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(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[__] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[__] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[__] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[__] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
SECTION 1 - REGISTRANT'S BUSINESS AND OPERATIONS
Item 1.01 - Entry into a Material Definitive Agreement
Burke Mills, Inc. (the "Company") has entered into an Accounts Receivable
Inventory Financing Agreement (the "Financing Agreement") with The CIT Group/
Commercial Services, Inc. ("CIT"). In addition, the Company signed a Letter of
Credit Agreement (the "LOC Agreement") with CIT. The effective date of the
Agreements was to have been December 1, 2005. However, due to difficulties
encountered by the Company in obtaining an Accord 28 form and other information
from its property and casualty insurance carrier, satisfactory to CIT, the
Company was informed by CIT that the Agreement was not signed by CIT until
Friday, December 9, 2005. The Company had been informed by CIT representatives
that none of the Agreements would be in effect until the proper documentation
had been received by CIT from the Company's insurance carrier, and receipt of
same did not occur until Friday, December 9, 2005.
Under the terms of the Financing Agreement, CIT may, in its sole discretion,
advance up to $5,000,000.00 to the Company as follows: (a) revolving credit
advances in the amounts up to 85 percent of the net amount of eligible accounts
receivable; (b) revolving credit advances in amounts up to 60 percent of the
value of eligible inventory. Advances against eligible inventory will not exceed
the lesser of $2,000,000.00 and the advances made by CIT against accounts
receivable. Further, CIT will not make advances against inventory until
receiving and being satisfied with (a) unqualified financial statements of the
Company as of the fiscal year ended December 31, 2005, (b) a business plan and
forecasted financial statements for the fiscal year 2006, (c) a satisfactory
examination of Burke's books and records, and no default having occurred.
With regard to the LOC Agreement, the Financing Agreement provides that CIT will
assist the Company in opening letters of credit or guarantee the payment and
performance of such letters of credit up to an aggregate face amount not
exceeding $500,000.00 at any one time outstanding.
The Company has granted to CIT a security interest in its accounts receivable;
monies, securities and other property held in transit to CIT; present and future
deposits held by CIT; all rights of the Company in future accounts receivable;
the Company's inventory; the Company's equipment (defined to be all machinery,
equipment, rolling stock, furnishings and fixtures and all additions,
substitutions or employments thereof); all proceeds and products of any defined
collateral; and other customary definitions of collateral related to accounts
receivable, inventory and equipment.
The Company is obligated to pay interest to CIT on the average of net balances
owed monthly at one percent above the prime rate announced by JPMorgan Chase
Bank in New York, NY. Interest is calculated on a 360 day year. In addition, the
Company paid CIT a facility fee of $25, 000.00 on November 17, 2005 and will pay
CIT $1,000.00 per month as a "collateral management fee."
SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS
Item 9.01 - Financial Statements and Exhibits
Exhibits are attached as follows:
Exhibit Table
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Exhibit No. Description
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10.1 Accounts Receivable and Financing Agreement
10.2 Letter of Credit Agreement
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Date: December 1, 2005 BURKE MILLS, INC.
By:/s/Thomas I Nail
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Thomas I. Nail
President and COO
Exhibit 10.1
December 1, 2005
Burke Mills, Inc.
191 Sterling St., NW
P.O. Box 190 Valdese, NC 25690
ACCOUNTS RECEIVABLE AND INVENTORY FINANCING AGREEMENT
Ladies and Gentlemen:
In consideration of our extending loans and other financial accommodations to
you on one or more occasions, in our sole discretion in each instance, the
following shall constitute the accounts receivable and inventory financing
agreement (the "Agreement") between us.
I. DEFINITIONS
1.1 All terms used herein and defined in the Uniform Commercial Code
shall have the meanings given therein unless otherwise defined herein.
1.2 "Accounts" shall mean and include all of your accounts created by or
arising from your sales of goods or rendition of services (including,
without limitation, all accounts arising from sales made or services
rendered under any of your tradenames or styles, or through any of your
divisions), instruments, documents, chattel paper (including electronic
chattel paper), general intangibles (including, without limitation, all
federal, state and local income tax refunds, payment intangibles and
all other rights to payment), and all forms of obligations owing to
you, whether secured or unsecured, all whether now existing or
hereafter created or arising, and whether or not specifically assigned
to us hereunder.
1.3 "Collateral" shall mean and include: (a) Accounts; (b) all of your
present and future monies, securities and other property now or
hereafter held or received by or in transit to us from or for your
account, whether for safekeeping, pledge, custody, transmission,
collection or otherwise; (c) all of your present and future deposits,
balances, sums and credits in our possession or control, and all of
your present and future claims against us; (d) all of your present and
future liens, security interests, rights, remedies, title and interest
in, to and in respect of all present and future Accounts and other
Collateral, including, without limitation: (i) rights and remedies
under or relating to guaranties, contracts of suretyship, letters of
credit, credit insurance, supporting obligations, letter of credit
rights or other types of credit enhancements, (ii) rights of stoppage
in transit, rescission, replevin, repossession, reclamation and other
rights and remedies of an unpaid vendor, lienor or secured party, (iii)
goods described in invoices, documents, contracts or instruments with
respect to, or otherwise representing or evidencing Accounts or other
Collateral, including, without limitation, returned, repossessed and
reclaimed goods, and (iv) deposits by and property of Customers or
other persons securing the Obligations of Customers; (e) all of your
right, title and interest in, to and in respect of any and all other
real or personal property in or upon which you have granted or may
hereafter grant a security interest or lien to us in this Agreement or
otherwise; (f) all of your books of account of every kind or nature,
purchase and sale agreements, invoices, ledger cards, computer
programs, bills of lading and other shipping evidence, statements,
correspondence, memoranda, credit files and other data (written,
electronic or otherwise) relating to the Collateral or any Customer,
together with the file cabinets or containers in which the foregoing
are stored ("Records"); (g) Letter of Credit Collateral; (h) Inventory;
(i) Equipment; and (j) all proceeds and products of the foregoing, in
any form, including, without limitation, insurance proceeds and any
claims against third parties for loss or damage to or destruction of
any or all of the foregoing.
1.4 "Customer" shall mean and include the account debtor with respect to
any of the Accounts and/or the prospective purchaser or user of goods,
services or both with respect to any contract or contract right, and/or
any party who enters into or proposes to enter into any contract or
other arrangement with you, pursuant to which you are to deliver any
personal property or perform any services.
1.5 "Eligible Accounts" shall mean such Accounts arising in the ordinary
course of your business and which we, in our sole discretion, deem to
be Eligible Accounts based on such considerations as we may from time
to time deem appropriate, including that it is evidenced by an invoice
or other documentation satisfactory to us. An Account shall not be
deemed eligible in any event unless such Account is subject to our
first priority perfected security interest and is not subject to any
other lien or security interest. In addition, no Account shall be an
Eligible Account if:
(a) it arises out of a sale made by you to your affiliate or to a
person controlled by you or your affiliate; or
(b) it is due or unpaid more than sixty (60) days after the original
invoice date; or
(c) more than fifty percent (50%) of the Accounts owed by such Customer
are not deemed to be Eligible Accounts hereunder; or
(d) any representation, warranty or covenant contained in this
Agreement with respect to such Account has, in our sole discretion,
been breached; or
(e) the Customer is also your creditor or supplier (unless prior to our
acceptance, a no-offset letter has been received by and is, in our sole
discretion, acceptable to us); or
(f) the Customer shall [a] apply for, suffer, or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its
property or call a meeting of its creditors, [b] admit in writing its
inability, or be generally unable, to pay its debts as they become due,
[c] cease or materially decrease operation of its present business, [d]
make a general assignment for the benefit of creditors, [e] commence a
voluntary case under any State or Federal bankruptcy or insolvency law
(as now or hereafter in effect), [f] be adjudicated a bankrupt or
insolvent, [g] file a petition seeking to take advantage of any other
law providing for the relief of debtors, [h[ acquiesce to, or fail to
have dismissed, any petition which is filed against it in an
involuntary case under any such bankruptcy or insolvency law, or [i]
take any action for the purpose of effecting any of the foregoing; or
(g) it arises out of a sale made by you to a Customer outside the
United States, unless the payment thereof is assured by a letter of
credit, guaranty or acceptance on terms acceptable to us in our sole
discretion; or
(h) it arises out of a sale made by you to a Customer on a
bill-and-hold, guaranteed sale, sale-and-return, sale on approval,
consignment or any other repurchase or return basis or is evidenced by
chattel paper; or
(i) we, in our sole discretion, determine that collection of such
Account is insecure or that payment of such Account may not be made by
reason of the Customer's financial inability to pay; or
(j) the Customer is the United States of America, any state, any other
governmental entity, or any department, agency or instrumentality of
any of them, unless you assign to us, in a manner acceptable to us,
your right to payment of such Account pursuant to the Assignment of
Claims Act of 1940, as amended, or any other applicable statute, rule,
regulation or the like; or
(k) the goods giving rise to such Account have not been shipped and
delivered to and accepted by the Customer or the services giving rise
to such Account have not been completely performed by you and accepted
by the Customer or the Account otherwise does not represent a final
sale or performance; or
(l) the Accounts from such Customer exceed a credit limit determined by
us, in our sole discretion, to the extent such Account exceeds such
limit; or
(m) the Customer has disputed liability, or the Customer has made any
claim with respect to any other Account due from such Customer to you,
or the Account otherwise is or may become subject to any set-off or
recoupment by the Customer, or the Account is contingent in any respect
or for any reason; or
(n) you have allowed or made any agreement with any Customer for any
deduction therefrom, except for discounts or allowances made in the
ordinary course of business for prompt payment, all of which discounts
or allowances are reflected in the calculation of the face value of
each respective invoice related thereto.
1.6 "Eligible Inventory" shall mean such of your Inventory which we, in our
sole discretion, deem to be Eligible Inventory based on such
considerations as we may from time to time deem appropriate and,
without limiting the foregoing, less any a) work-in-process, b)
supplies, other than raw material, c) Inventory not present in the
United States of America, d) Inventory returned or rejected by your
customers other than goods that are undamaged and resalable in the
normal course of business, e) Inventory to be returned to your
suppliers, f) Inventory in transit to third parties (other than your
agents or warehouses), g) Inventory in possession of a warehouseman,
bailee or other third party, unless such warehouseman, bailee or third
party has executed a notice of security interest agreement (in form and
substance satisfactory to us) and we have taken all other action
required to perfect our security interest in such Inventory, and h)
less any reserves required by us in our reasonable discretion,
including for special order goods, discontinued, slow-moving and
obsolete Inventory, market value declines, bill and hold (deferred
shipment), consignment sales and shrinkage.
1.7 "Equipment" shall mean all present and hereafter acquired equipment (as
defined in the applicable Uniform Commercial Code) including, without
limitation, all machinery, equipment, rolling stock, furnishings and
fixtures, and all additions, substitutions and replacements thereof,
wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto and all
proceeds of any of the foregoing.
1.8 "Inventory" means all present and hereafter acquired merchandise,
inventory and goods, and all additions, substitutions and replacements
thereof, wherever located, together with all goods and materials used
or usable in manufacturing, processing, packaging or shipping same; in
all stages of production -- from raw materials through work-in-process
to finished goods -- and all proceeds of whatever sort and all
Inventory which is presently in existence and which is owned by you or
in which you have any ownership interest, which you may purchase or in
which you may acquire any ownership interest at any time and from time
to time in the future, whether such inventory is in transit or in your
or our constructive, actual or exclusive possession, or is held by
others for your account; and all inventory wherever located, including,
without limitation, all inventory which may be located on your premises
or upon the premises of any carriers, forwarding agents, truckers,
warehousemen, vendors, selling agents, finishers, converters,
processors, or other third persons who may have possession of the
Inventory; and all inventory and any portion thereof which may be
returned, rejected, reclaimed or repossessed by either of us from your
customers, as well as to all supplies, goods, incidentals, packaging
materials, and any other items which contribute to the finished goods
or products manufactured or processed by you, or to the sale, promotion
or shipment thereof.
1.9 "JPMorgan Rate" shall mean the per annum rate of interest publicly
announced by JPMorgan Chase Bank in New York, New York, from time to
time as its prime rate. (The prime rate is not intended to be the
lowest rate of interest charged by JPMorgan Chase Bank to its
borrowers.)
1.10 "Net Amount of Eligible Accounts" shall mean and include the gross
amount of Eligible Accounts less (a) returns, discounts, claims,
credits and allowances of any nature at any time issued, owing,
granted, outstanding, available or claimed with respect thereto, (b)
amounts thereof which are not paid by the subject Customer due to an
existing or alleged dispute, offset, recoupment or counter-claim, and
(c) any reserves which we, in our sole discretion, deem necessary or
desirable to maintain with respect thereto, including, without
limitation, reserves for any sales, excise or similar taxes included in
the amount thereof.
1.11 "Obligations" shall mean and include: (a) any and all of your
indebtedness, liabilities and obligations to us of every kind, nature
and description, direct or indirect, secured or unsecured, joint or
several, absolute or contingent, due or to become due, now existing or
hereafter arising, regardless of how they arise or were acquired or by
what agreement or instrument they may be evidenced or whether evidenced
by any agreement or instrument, including, but not limited to, all
amounts owing by you to us by reason of purchases made by you from
other entities factored or financed by us, (b) any and all of your
obligations to perform acts or refrain from taking any action, and (c)
any and all amounts of charges, commissions, interest, costs, expenses
and attorneys' fees chargeable in connection with all of the foregoing,
all of which indebtedness, liabilities, obligations and amounts,
whether or not matured and whether or not disputed, may be charged to
your account hereunder, without prior notice to you.
1.12 "Letter of Credit Collateral" shall mean all of the following, whether
now owned or hereafter acquired by you, wherever located, whether in
transit or not: (a) warehouse receipts, bills of lading, shipping
documents, documents of title, chattel paper and instruments, all
whether negotiable or not; (b) merchandise, inventory and goods which
relate to any of the foregoing or which are purchased from suppliers
located outside of the United States or its territories or which relate
to letters of credit opened through or with our assistance (whether for
purchases from domestic or foreign suppliers), and all additions
thereto, substitutions therefor and replacements thereof, in all
stages of manufacture, process or production--from raw materials
through work-in-process to finished goods, together with all goods and
materials used or usable in manufacturing, processing, packaging or
shipping same, all wherever located and whether in transit or not; and
(c) cash and non-cash proceeds of any and all of the foregoing, of
whatever sort and however arising.
II. GRANT OF SECURITY INTEREST
2.1 To secure the prompt payment, performance and observance in full of all
Obligations, you hereby pledge, transfer, set over and assign to us,
and grant to us a continuing general security interest in, a lien upon
and a right of set-off against, all of the Collateral. Records shall,
until delivered to or removed by us, be kept by you in trust for us and
without cost to us in appropriate containers in safe places on your
premises. Each confirmatory assignment schedule or other form of
assignment at any time executed by you shall be deemed to include the
foregoing pledge, transfer, assignment and grant whether or not same
appears therein.
2.2 You will, upon the creation of each Account, or at such intervals as we
may from time to time require, provide us with: (a) confirmatory
assignment schedules; (b) copies of all documents (whether maintained
in written or electronic form) evidencing the sale and delivery of
goods or the performance of services which created any Accounts,
including, but not limited to, contracts, orders, invoices, bills of
lading, warehouse receipts, delivery tickets and shipping receipts; and
(c) such further schedules and/or information as we may reasonably
request. The items to be provided under this paragraph are to be in
form satisfactory to us and executed and delivered to us from time to
time so that we can confirm and maintain records of the Collateral.
Your failure to give any of such items to us or to otherwise comply
with the provisions hereof shall not affect, terminate, modify,
diminish or otherwise limit our lien upon or security interest in the
Collateral, or your representations, warranties or covenants under this
Agreement.
2.3 The security interest in the Collateral, unless expressly limited by
the provisions hereof, shall extend and attach to:
(a) The entire Collateral which is presently in existence and which is
owned by you or in which you have any interest, and all Collateral
which you may purchase or in which you may acquire any interest at any
time and from time to time in the future, whether such Collateral is in
transit or in your or our constructive, actual or exclusive occupancy
or possession or otherwise, or is held by you or others for your
account, and whether your interest in such Collateral is as owner or
lessee or conditional vendee; and
(b) The entire Collateral wherever located, including without
limitation, all Collateral which may be located on your premises, or
upon the premises of any carriers, forwarding agents, truckers,
warehousemen, vendors, selling agents, finishers, converters,
processors, or to other third persons who may have possession of the
Collateral.
III. ADVANCES AND INTEREST AND FEES
3.1 Subject to the terms and conditions of this Agreement, we may make
up to $5,000,000 (the "Maximum Credit Facility") available upon your
request therefore, as follows:
(a) we will make revolving credit advances to you, in our sole
discretion, in amounts of up to 85% of the Net Amount of Eligible
Accounts.
(b) we may make revolving credit advances to you, in our sole
discretion, in amounts of up to 60% of the value of your Eligible
Inventory calculated on the basis of the lower of cost or market, with
cost calculated on a first in-first out basis. In no event shall
advances against Eligible Inventory exceed the lesser of: (i)
$2,000,000, and (ii) the advances made under sub-paragraph (a) of this
section 3.1; provided, however, we will not make any advances to you,
in our sole discretion, based on Eligible Inventory as
collateral until all of the following events have occurred: (1) our
receipt of and satisfaction with your unqualified financial statements
as of the end of the fiscal year ending December 31, 2005, audited by a
firm of independent certified public accountants of recognized
standing, selected by you and acceptable to us, (2) our receipt of and
satisfaction with your business plan and your forecasted balance
sheets, profit and loss statements, and cash flow statements, all for
the fiscal year ending December 31, 2006, month by month, and all
prepared on a consistent basis with your historical financial
statements, together with appropriate supporting details and a
statement of underlying assumptions, (3) our conduct of and
satisfaction with at least one (1) Examination (as defined in paragraph
5.3 below), as more fully provided for in paragraph 5.3 below, and (4)
no Default (as defined in paragraph 6.1 below) has occurred and is
continuing at the time you have satisfied clauses (1) through (3)
immediately above.
(c) subject to your execution and delivery of a letter of credit
agreement, in form and substance satisfactory to us, we will, in our
sole discretion, assist you in establishing or opening letters of
credit for your account or guarantee the payment or performance of such
letters of credit up to an aggregate face amount not exceeding $500,000
at any one time outstanding. Credit extended under this sub-paragraph
will be deducted from credit available under sub-paragraphs (a) and (b)
above.
3.2 Without in any way circumscribing our rights under this Agreement, and
by way of illustration only and not by way of limitation, we may, in
the exercise of our sole discretion, at any time and from time to time,
hold any reserve we deem necessary as security for the payment and
performance of your Obligations, and/or change any advance rates or
entirely cease making advances (including, without limitation, any
overadvances). In no event shall the aggregate amount of all revolving
credit advances (including, without limitation, any overadvances) made
pursuant to paragraph 3.1(a) and (b) above, plus the aggregate face
amount of letters of credit issued or guaranteed pursuant to paragraph
3.1(c) above, from time to time outstanding, exceed the Maximum Credit
Facility; however, nothing contained herein shall be construed limit
our right, in our absolute and sole discretion, to advance or loan you
money in excess of the foregoing lending limitations or any other
lending limitations imposed by us or this Agreement.
3.3 All loans and advances (including, without limitation, any
overadvances) by us to you under this Agreement shall constitute
Obligations secured by our security interest in all of the Collateral
granted hereunder, and by all other security interests, liens, and
encumbrances heretofore, now or at any time or times hereafter granted
by you to us. All loans or advances (including, without limitation, any
overadvances) shall be charged to your account on our books, and shall
be payable on demand at our offices or at such other place as we may
from time to time designate.
3.4 Interest shall be payable by you (and charged to your account as of the
end of each month) on the average of the net balances owing by you to
us in your account at the close of each day during such month. The rate
of interest shall be one percent (1%) per annum in excess of the
JPMorgan Rate. Any change in the rate of interest hereunder due to a
change in the JPMorgan Rate shall take effect as of the first of the
month following such change in the JPMorgan Rate. Interest shall be
calculated based on a 360-day year. Interest shall be charged on all
advances (including, without limitation, any overadvances), all charges
hereunder, and any debit balance in your account. We shall be entitled
to charge your account at the rate provided for herein until all
Obligations have been paid and satisfied in full. In no event shall the
rate charged hereunder exceed the highest rate permissible under
applicable law; however, in the event that we receive or have received
interest hereunder in excess of the highest rate permissible under
applicable law, your sole remedy shall be to seek repayment of such
excess, and you hereby waive any and all other rights and remedies
which may be available to you under law or in equity.
3.5 A facility fee equal to the product of 0.50% times the amount of the
Maximum Credit Facility shall be due and payable by you as of the date
hereof and shall be charged to your account as of such date. Such
facility fee shall be deemed earned when due and shall not be subject
to rebate or proration for any reason.
3.6 In addition to any and all other fees or commissions we are entitled to
charge you under this Agreement, on the first business day of each
month, you shall pay to us a collateral management fee in the amount of
$1,000 to offset the expenses and costs to us in connection with record
keeping, periodic examinations, analyzing and evaluating the
collateral.
3.7 We shall render to you each month a statement of your account which
shall be deemed to be correct and accepted by and binding upon you, and
shall constitute an account stated between us except to the extent that
we receive a written statement of your specific exceptions within
thirty (30) days after such statement has been rendered to you.
IV. REPRESENTATIONS, WARRANTIES AND COVENANTS
You hereby make the following representations, warranties and covenants which
shall survive the execution and delivery of this Agreement, shall be deemed to
be incorporated by reference in each confirmatory assignment schedule or other
form of assignment submitted by you to us, and shall be deemed repeated and
confirmed with respect to each item of Collateral as it is created or otherwise
acquired:
4.1 Your legal name is exactly as set forth on the signature page of this
Agreement, you are a duly organized and validly existing corporation,
incorporated in the state of North Carolina, and are qualified to do
business in all states where required; there are no actions, suits or
other legal proceedings of any kind or nature pending against you which
involve the possibility of materially and adversely affecting your
business, assets, operations, condition or prospects, financial or
otherwise, or the Collateral, or your ability to perform this
Agreement; the execution, delivery and performance hereof are within
your corporate (or other business entity) powers, have been duly
authorized, and are not in contravention of any law or the terms of
your certificate of incorporation or bylaws (or other documents
establishing your legal status), or of any indenture, agreement or
undertaking to which you are a party or by which you or your properties
are bound; and the most recent financial statements provided to us by
you accurately state your financial condition and there has been no
material adverse change in your financial condition since the date of
such financial statements. You agree that you will promptly notify us
of any change in your: name, state of incorporation or registration,
location of your chief executive office, place(s) of business, and
legal or business structure. Further, you agree that you will promptly
notify us of any change in control of the ownership of your business
organization, and of significant law suits or proceedings against you.
4.2 With respect to each item of Collateral at the time our security
interest attaches thereto: (a) you shall be the sole owner, free and
clear of all liens, claims, security interests and encumbrances except
in our favor, and fully authorized to sell, transfer, pledge and grant
a security interest in, such item of Collateral; (b) each Account shall
be genuine, valid and legally enforceable, and represent an undisputed
bona fide indebtedness incurred by the Customer therein named, for a
fixed sum as set forth in the invoice relating thereto with respect to
an absolute sale and delivery of goods upon your stated terms or
services theretofore rendered by you as of the date each Account is
created; (c) no Account is or shall be subject to any offset,
recoupment, deduction, defense, dispute, claim, counterclaim, discount
or allowance except as may be stated in the copy of the invoice
delivered by you to us; (d) no agreement under which any deduction,
discount, credit or allowance of any kind may be granted or allowed
shall have been or shall thereafter be made by you with any Customer
except in keeping with your ordinary course of business which business
practices have been made known to us, and as indicated in writing to us
at or before the time such agreement is made; (e) all statements made
and all unpaid balances appearing in the invoices, documents and
agreements relating to each Account shall be true and correct in all
respects and what they purport to be; (f) none of the Accounts arise
from sales to consumers of goods to be used for personal, family or
household purposes; (g) all signatures and endorsements that appear
thereon shall be genuine and all signatories and endorsers shall have
full capacity to contract; and (h) none of the transactions underlying
or giving rise to any item of Collateral shall violate any applicable
state or federal laws or regulations, and all documents relating to
such item of Collateral shall be legally sufficient under such laws or
regulations and shall be legally enforceable in accordance with their
terms. You agree, at your own cost and expense, to keep the Collateral
in as good and substantial repair and condition as the same is now or
at the time the lien and security interest granted herein shall attach
thereto, reasonable wear and tear excepted, making any and all repairs
and replacements when and where necessary. You agree to safeguard,
protect and hold all Collateral for our account and make no disposition
thereof except, with respect to Inventory only, in the regular course
of your business as herein provided. You represent and warrant that
Inventory will be sold and shipped by you to your customers only in the
ordinary course of your business and then only on open account and on
terms not exceeding the terms currently being extended by you to your
customers, provided that all proceeds of all sales (including cash,
accounts receivable, checks, notes, instruments for the payment of
money and similar proceeds) are forthwith transferred, assigned,
endorsed, and turned over and delivered to us. The proceeds of the sale
of any Inventory (if collected by you) are to be turned over to us in
accordance with the provisions of this Agreement. Cash sales of
Inventory, or sales in which a lien upon or security interest in the
Inventory is retained by you shall only be made by you with our written
approval, and all proceeds of such sales shall not be commingled with
your other property, but shall be segregated, held by you in trust for
us as our exclusive property, and shall be delivered immediately by you
to us in the identical form received by you. Upon the sale, exchange,
or other disposition of the Collateral, as herein provided, the
security interest provided for herein shall, without break in
continuity and without further formality or act, continue in, and
attach to, all proceeds, including any instruments for the payment of
money, accounts receivable, contract rights, documents of title,
shipping documents, chattel paper and all other cash and non-cash
proceeds of such sale, exchange or disposition. As to any such sale,
exchange or other disposition, we shall have all of the rights of an
unpaid seller, including stopping in transit, replevin, rescission and
reclamation.
4.3 You hereby warrant and represent that you are solvent; that this
security interest constitutes and shall at all times constitute a first
and only lien on the Collateral; and that you are, or will be at the
time additional Collateral is acquired by you, the absolute owner of
the Collateral with full right to pledge, sell, consign, transfer and
create a security interest therein, free and clear of any and all
claims or liens in favor of others. You agree to comply with the
requirements of all state and federal laws in order to grant to us a
valid and perfected first security interest in the Collateral. We are
hereby authorized by you to file from time to time any financing
statements, continuations or amendments covering the Collateral. You
hereby consent to and ratify any and all execution and/or filing of
financing statements heretofore and hereafter filed by us pursuant to
the foregoing authorization. You further agree to do whatever we may
reasonably request, from time to time, by way of: (a) filing notices of
liens, financing statements, amendments, renewals and continuations
thereof; (b) cooperating with our agents and employees; (c) keeping
Collateral records; (d) transferring proceeds of Collateral to our
possession; and (e) performing such further acts as we may reasonably
require in order to effect the purposes of this Agreement.
4.4 You shall not pledge, sell, assign, transfer, create or suffer to exist
any security interest in or other lien or encumbrance on any part of
the Collateral, or grant or suffer to exist any security interest in or
other lien or encumbrance on any of the Collateral or other assets to
anyone other than us without our prior written consent. You hereby
agree to defend the same against any and all persons whatsoever. You
represent, warrant and agree that the Equipment does not comprise a
part of your Inventory and that it is and will only be used by you in
your business and will not be held for sale or lease, or removed from
your premises, or otherwise disposed of by you without our prior
written approval.
4.5 Each Customer, guarantor or endorser is to the best of your knowledge
solvent and will continue to be fully able to pay all Accounts on which
it is obligated in full when due.
4.6 You shall maintain your books, records and accounts in accordance with
generally accepted accounting principles consistently applied. You
shall, at any time and from time to time, furnish to us such balance
sheets, earnings statements, financial statements and other reasonable
information regarding your business affairs and financial condition,
including, without limitation, schedules, agings and reports, as we may
request, and in any event you shall furnish us: (a) as soon as
possible, but not later than ninety (90) days after the close of each
of your fiscal years, your unqualified financial statements as of the
end of such year, audited by a firm of independent certified public
accountants of recognized standing, selected by you and acceptable to
us; (b) as soon as possible, but not later than thirty (30) days after
the end of each month hereafter, your unaudited interim financial
statements as of the end of such period and of the portion of your
fiscal year then elapsed, certified by your principal financial officer
upon our request as being prepared in accordance with generally
accepted accounting principles consistently applied and fairly
presenting the financial position and results of your operations for
such period; (c) not later than sixty (60) days prior to the end of
each of your fiscal years, your forecasted balance sheets, profit and
loss statements, and cash flow statements, all for the forthcoming
year, month by month, and all prepared on a consistent basis with your
historical financial statements, together with appropriate supporting
details and a statement of underlying assumptions; (d) on or before the
third (3rd) Business Day (as defined in paragraph 5.1 below) of each
week occurring hereafter and with such other frequency as we may
reasonably request, a completed borrowing base certificate with respect
to the Accounts, in such form as we determine, prepared as of the close
of business of the previous week; (e) on or before the fifteenth (15th)
Business Day of each calendar month occurring hereafter and with such
other frequency as we may request a completed borrowing base
certificate with respect to the Accounts and Inventory, in such form as
we determine, prepared as of the close of business of the previous
month; and (f) any other reports or information reasonably required by
us. . All such financial statements do or shall fairly present your
financial condition as of the dates thereof or the results of your
operations for the periods for which the same are furnished. All such
other information is or shall be, at the time the same is so furnished,
accurate and correct in all material respects and complete insofar as
completeness may be necessary to give us a true and accurate depiction
of the subject matter thereof. You further agree to: execute and
deliver to us, from time to time, solely for our convenience in
maintaining a record of the Inventory or other Collateral,
such consignments or written statements as we may reasonably require,
designating, identifying or describing the Inventory or other
Collateral pledged to us hereunder. Your failure, however, to promptly
give us such consignments, or other statements shall not affect,
diminish, modify or otherwise limit our security interest in the
Inventory or other Collateral.
4.7 You hereby irrevocably authorize and direct all accountants and
auditors employed by you at any time prior to or during the term of
this Agreement to exhibit and deliver to us copies of any of your
financial statements, trial balances or other accounting records of any
sort in their possession and to disclose to us any information they may
have concerning your financial condition and business operations.
4.8 You shall keep all your insurable properties and properties in which
you have an interest insured against the hazards of fire, flood,
sprinkler leakage, those hazards covered by extended coverage insurance
and such other hazards, and for such amounts, as is customary in the
case of companies engaged in businesses similar to yours. You shall pay
when due all premiums on any insurance policies for your properties or
assets, including the Collateral (and including any life insurance
policies assigned to us as Collateral), whether required to be
maintained by you under this Agreement, any supplement hereto, or
otherwise, and shall keep in force, without modification or amendment,
the assignment and endorsement to such policies so that any and all
rights we may have as assignee and secured party thereunder shall not
be adversely affected. All policies covering the Collateral are to be
made payable to us, in case of loss, under a standard non-contributory
"mortgagee", "lender" or "secured party" clause and are to contain such
other provisions as we may require to fully protect our interest in the
Collateral and to any payments to be made under such policies. All
original policies or true copies thereof are to be delivered to us,
premium prepaid, with the loss payable endorsement in our favor, and
shall provide for not less than thirty (30) days prior written notice
to us of the exercise of any right of cancellation. At your request, or
if you fail to maintain such insurance, we shall arrange for such
insurance, but at your expense and without any responsibility on our
part for: obtaining the insurance, the solvency of the insurance
companies, the adequacy of the coverage, or the collection of claims.
The insurance we purchase may not pay any claims made by you or against
you in connection with the Collateral. You are responsible for the
costs of this insurance, including interest and any other charges we
may impose in connection with the purchase of this insurance. The costs
of this insurance may be more than insurance you can buy on your own.
You may still obtain insurance of your own choosing, subject to the
terms and conditions of this paragraph on the Collateral. If you
provide us with proof that you have obtained adequate insurance on the
Collateral, we will cancel the insurance that we purchased and refund
or credit any unearned premiums to you. In the event that we purchase
such insurance, we will notify you of said purchase within thirty (30)
days after the date of such purchase. If, within thirty (30) days after
the date notice was sent to you, you provide us with proof that you had
adequate insurance on the Collateral as of the date we also purchased
insurance and that you continue to have the insurance that you
purchased yourself, we will cancel the insurance that we purchased
without charging you any costs, interest, or other charges in
connection with the insurance that we purchased. Unless we shall
otherwise agree with you in writing, we shall have the sole right, in
our name or yours, to file claims under any insurance policies, to
receive, receipt and give acquittance for any payments that may be
payable thereunder, and to execute any and all endorsements, receipts,
releases, assignments, reassignments or other documents that may be
necessary to effect the collection, compromise or settlement of any
claims under any such insurance policies.
4.9 You shall also pay when due and discharge all taxes, assessments,
contributions and other charges upon or against you or your properties
or assets, including the Collateral. If any such premium, tax,
assessment, contribution or other charge remains unpaid after the date
fixed for the payment of same, or if any lien shall be claimed, we may
without notice to you pay such premium, tax, assessment, contribution,
charge or claim, and the amount thereof shall be payable on demand, and
until paid by you, shall be charged to your account and added to and
deemed part of the Obligations.
4.10 You shall be liable for any tax or penalty imposed upon any transaction
under this Agreement or giving rise to the Account or which we may be
required to withhold or pay for any reason; you agree to indemnify and
hold us harmless with respect thereto, and to repay to us on demand the
amount thereof, and until paid by you, such amount shall be charged to
your account and added to and deemed part of the Obligations. If any
Account includes a charge for any tax payable to any governmental
taxing authority, we are hereby authorized in our sole discretion to
pay the amount thereof to the proper taxing authority for your account
and to charge your account therefor. You shall notify us if any Account
includes any tax due to any such taxing authority and in the absence of
your notice, we shall have the right to retain the full proceeds of
such Account.
4.11 You shall comply with all laws, rules, regulations and orders of any
legislative, administrative or judicial body or official, applicable to
your properties and assets, including the Collateral, or to the
operation of your business.
4.12 You shall not assume, guarantee, endorse or otherwise become liable
upon the obligations of any person, firm, entity or corporation, except
by the endorsement of negotiable instruments for deposit or collection
or similar transactions in the ordinary course of business.
4.13 You shall not undergo any merger or consolidation into or with another
entity, or make any change in your controlling ownership, or enter into
or engage in any operation or activity materially different from that
presently being conducted by you.
4.14 You shall not make any distribution of any kind on, or purchase,
acquire, redeem or retire, any of you capital stock or equity interest,
of any class whatsoever, whether now or hereafter outstanding.
4.15 Your Records and chief executive office shall be kept at your address
as it appears on the first page of this Agreement. You shall give us
thirty (30) days' prior written notice of any change in your name,
tradenames or styles, or location(s).
4.16 You shall from time to time make such payments to us as we shall
request so that the aggregate balance in your loan account plus
outstanding letters of credit or letter of credit guaranties issued by
us on your behalf pursuant to sub-paragraph 3.1(c) shall not at any
time exceed the lesser of: (a) the Maximum Credit Facility, or (b) the
sum of: (i) the applicable percentage of the Net Amount of Eligible
Accounts, and (ii) the applicable percentage of the value of your
Eligible Inventory at such time.
V. CUSTODY, INSPECTION, COLLECTION AND HANDLING
OF COLLATERAL AND RECORDS
5.1 Until your authority to do so is curtailed or terminated (which we may
do at any time when we in our sole discretion may deem it to be in our
best interest to do so), you will, at your own cost and expense but on
our behalf and for our account, collect and otherwise enforce as our
property and in trust for us, all remittances and all amounts unpaid on
Accounts, and shall not commingle such collections with your own funds
or use the same for any purpose. You will open a lock box (the "Lock
Box") with us pursuant to a lockbox agreement with us in a form
acceptable to us in order to receive all payments from your Customers.
Payments received into the Lock Box will be immediately deposited into
our account. This Lock Box arrangement shall be maintained at your sole
cost and expense. As to all such collections, including all prepayments
by Customers, you shall receive in trust, and deliver to us in original
form, duly endorsed by you for deposit with us, and on the date of
receipt thereof, all checks, drafts, notes, money orders, acceptances,
cash and other evidences of indebtedness. All amounts received by us in
payment of Accounts will be credited to your account immediately upon
our receipt thereof, conditional upon final payment to us, but to allow
for the collection and clearance thereof we shall debit your account
monthly with the cost of two (2) Business Days for collection on all
such amounts computed at the rate set forth in paragraph 3.4 hereof.
Upon curtailment or termination of your authority, or at any other time
and without any cause or notice thereof to you, we shall have the right
to send notice(s) of our security interest to any Customers or any
other persons obligated on, holding or otherwise concerned with any of
the Collateral, and thereafter we shall have the sole right to collect
the Accounts and/or take possession of the Collateral and the Records.
Any and all of our collection expenses, including, but not limited to,
the reasonable fees and expenses of our attorneys (both internal and
external), the fees of our collection agencies, stationery and postage,
telephone and facsimile, secretarial and clerical expenses, and the
salaries of any collection persons utilized, shall be charged to your
account and added to the Obligations. (For purposes hereof, "Business
Day" shall mean a day on which banks are open for the general
transaction of business in Charlotte, North Carolina.) You are also to
advise us promptly, in sufficient detail, of any substantial change
relating to the type, quantity or quality of the Collateral, or any
event, which would have a material effect on the value of the
Collateral, or on the security interest granted to us herein.
5.2 You shall keep and maintain, at your cost and expense, books and
records pertaining to the Collateral in such detail, form and scope as
we shall from time to time require. You will mark your Records with
appropriate notations satisfactory to us, disclosing that such
Collateral has been pledged, assigned, and transferred to us and that
you have granted to us a security interest therein.
5.3 At all reasonable times, we shall have: full access to, and the right
to check, inspect, examine and make abstracts and copies from, your
Records and all other books, records, audits, correspondence and papers
relating to the Collateral; the right to confirm and verify all
Accounts; and the right to do whatever we may deem necessary to
preserve or protect our interests in the Obligations and the
Collateral, and in furtherance thereof, we may, without cost or expense
to us, use such of your personnel, supplies and space as may be
reasonably necessary. We or our agents may enter upon any of your
premises at any time and from time to time during business hours for
the purpose of inspecting the Collateral and any and all Records
pertaining thereto. At any time we may take possession of and remove or
require you to deliver any or all such Records. In order to cover any
costs and expenses we may incur in connection with performing any of
the aforementioned checks, verifications, inspections or examinations
(collectively, "Examinations"), we shall be entitled to charge your
account with a fee of $850.00 per person for each day or part thereof
in which such Examinations are conducted, plus any additional
out-of-pocket costs and expenses we incur as a result of conducting
such Examinations. Such Examination Fee shall be due and payable on the
first day of each month and shall be charged by us to your account as
of such first day of each month. Such Examination Fee shall be deemed
to be earned in full on the date when due and shall not be subject to
rebate or proration for any reason.
5.4 You shall, immediately upon obtaining knowledge thereof, notify us of
any reclamation, return or repossession of goods; any claim or dispute
asserted by any Customer or other obligor; any loss or destruction of,
or substantial damage to, any of the Collateral; and any other matter
affecting the value, enforceability or collectibility of any of the
Collateral. Except in the normal course of business and consistent with
your historical practices, you shall not, without our consent, settle,
compromise or adjust any Account (or extend the time for payment
thereof) or grant any additional discounts, allowances or credits
thereon.
5.5 You hereby constitute us and any of our agents or designees, as your
attorneys-in-fact, at your own cost and expense, to exercise at any
time all or any of the following powers, which being coupled with an
interest, shall be irrevocable until all Obligations have been paid in
full: to receive, take, endorse, assign, deliver, accept and deposit,
in our name or yours, any and all checks, notes, remittances, wire
transfers or other electronic forms of payment, drafts and other
documents and instruments and documents relating to the Collateral; to
receive, open and dispose of all mail addressed to you and to notify
postal authorities to change the address for delivery of mail to such
address as we may designate; to give Customers notice of our interest
in the Accounts and to request from Customers at any time, in your name
or ours or that of our designee, information concerning the Accounts;
to notify Customers to make payment directly to us; to execute in your
name and on your behalf any financing statements (including, without
limitation, any continuations thereof or amendments thereto); and to
take or bring, in your name or ours, all steps, actions or proceedings
deemed by us necessary or desirable to effect collection of the
Collateral or to preserve, protect or enforce our interest therein. We
and any of our agents or designees shall not be liable for any acts of
omission or commission, nor for any errors of judgment or mistakes of
fact or law.
5.6 Nothing herein contained shall be construed to constitute you as our
agent for any purpose whatsoever. We shall not be responsible nor
liable for any shortage, discrepancy, damage, loss or destruction of
any Collateral wherever the same may be located and regardless of the
cause thereof. We shall not, under any circumstances or in any event
whatsoever, have any liability for an error or omission or delay of any
kind occurring in the settlement, collection or payment of any of the
Accounts or any instrument received in payment thereof or for any
damage resulting therefrom. We may, without notice to or consent from
you, sue upon or otherwise collect, extend the time of payment of, or
compromise or settle for cash, credit or otherwise upon any terms, any
of the Accounts or any securities, instruments or insurance applicable
thereto and release the obligor thereon, free of any claims or defenses
based upon suretyship law or the like. We are authorized and empowered
to accept the return of goods represented by any of the Accounts,
without notice to or consent by you, all without discharge or in any
way affecting your liability hereunder. We do not, by anything herein
or in any assignment or otherwise, assume any of your obligations under
any contract or agreement, and we shall not be responsible in any way
for the performance by you of any of the terms and conditions thereof.
5.7 We have the right at any time and from time to time to employ and have
present on any of your premises one or more custodians selected by us,
each of whom shall have the right to exercise any and all of our rights
hereunder. You hereby agree to cooperate with any such custodian and to
do whatever we may reasonably request by way of preserving and
protecting the Collateral. All expenses incurred by us by reason of the
employment of the custodian shall be payable on demand, and until paid
by you, shall be charged to your account and added to and deemed part
of the Obligations.
5.8 We shall be entitled to charge your account with, and add to and deem
part of the Obligations, all costs and expenses incurred by us in
connection with the preparation, execution, administration and
enforcement of this Agreement (and all related instruments and
documents), and all costs and expenses incurred by us in connection
with the protection, maintenance, disposition, preservation and
enforcement of the Obligations, the Collateral or the pledges, liens
and security interests granted to us hereunder. The foregoing costs and
expenses shall include, without limitation, all reasonable fees and
expenses of our attorneys (both internal and external), all search
fees, the cost of all public record filings, and wire transfer charges.
VI. EVENTS OF DEFAULT; ACCELERATION
6.1 All Obligations shall, at our option and notwithstanding any time or
credit allowed by any instrument evidencing or representing same, be
immediately due and payable without notice or demand upon the
occurrence of any one or more of the following events of default
("Default"): (a) default in the payment or performance, when due or
payable, of any of the Obligations including, without limitation, your
failure to pay to us any Obligation due on demand when such demand is
made; (b) default by any guarantor, endorser or other person liable on
the Obligations under any guarantee, endorsement, suretyship agreement
or other agreement of such person with, or in favor of us; (c) your
making any misrepresentation, orally or in writing, to us whether for
the purpose of obtaining credit or an extension of credit, or
otherwise; (d) your breach of any representation, warranty or covenant
contained in this Agreement or in any other agreement between us; (e)
any representation, warranty, or statement of fact made to us at any
time by you or on your behalf is false or misleading in any material
respect; (f) the discontinuance or suspension of the operation of your
present business; (g) your becoming insolvent, or your becoming unable
to meet your debts as they mature; (h) your calling any meeting of
creditors, or having a creditors' committee appointed; (i) the
commencement by or against you of any action, case or proceeding for
relief under any provision of the Federal bankruptcy laws or any other
applicable Federal or State bankruptcy, insolvency or other similar
law; (j) the rendition, issuance or filing of any injunction,
attachment, judgment or lien against you or any of your property, or
the appointment of a receiver, custodian or trustee of any kind for you
or any of your property; or (k) any change in your condition or affairs
(financial or otherwise) or that of any endorser, guarantor or other
person liable on the Obligations, that in our sole discretion impairs
our Collateral or increases our risk.
VII. RIGHTS AND REMEDIES AFTER DEFAULT
7.1 Upon the occurrence of any Default, and at any time thereafter if such
or any other Default shall then be continuing, we shall have the right
(in addition to any other rights we may have under this Agreement or
otherwise) without further notice to you: (a) to appropriate, set-off
and apply to the payment of any or all of the Obligations, any or all
Collateral, in such manner as we shall in our sole discretion
determine; (b) to enforce payment of the Obligations or any Collateral;
(c) to settle, compromise or release, in whole or in part, any amounts
owing on the Collateral; (d) to prosecute any action, suit or
proceeding with respect to the Collateral; (e) to extend the time of
payment of any and all Collateral, to make allowances and adjustments
with respect thereto and to issue credits in your or our name; and (f)
to sell, assign and deliver the Collateral (or any part thereof), at
public or private sale, for cash, upon credit or otherwise, at our sole
option and discretion, and we may bid or become purchaser at any such
sale, if public, free from any right of redemption which is hereby
expressly waived. You agree that the giving of five (5) days notice by
us to your address shown on the first page hereof (or such other
address of which we have received notice as provided herein),
designating the place and time of any public sale or of the time after
which any private sale or other intended disposition of the Collateral
is to be made, shall be deemed to be reasonable notice thereof and you
waive any other notice with respect thereto. The proceeds of any such
sale, lease or other disposition of the Inventory shall be applied
first, to the expenses of taking, holding, storing, processing,
preparing for sale, selling, and the like. The net cash proceeds
resulting from the exercise of any of the foregoing rights or remedies
shall be applied by us to the payment of the Obligations in such order
as we may elect, and you shall remain liable to us for any deficiency.
The enumeration of the foregoing rights is not intended to be
exhaustive and the exercise of any right shall not preclude the
exercise of any other rights, all of which shall be cumulative.
7.2 We shall have the right in our sole discretion to determine which
rights or remedies, and in which order any of the same, are to be
exercised, and we may at any time pursue, relinquish, subordinate,
modify or take any other action with respect thereto, without in any
way modifying or affecting any of them. We may, at all times, proceed
directly against you to enforce payment of the Obligations and shall
not be required to take any action of any kind to preserve, collect or
protect our or your rights in the Collateral.
7.3 The enumeration of the foregoing rights and remedies is not intended to
be exclusive, and such rights and remedies are in addition to, and not
by way of limitation of, any other rights or remedies we may have under
applicable law including the Uniform Commercial Code. The exercise of
any right or remedy shall not preclude the exercise of any other right
or remedy, all of which shall be cumulative and not alternative.
VIII. WAIVERS
8.1 You hereby waive notice of dishonor, demand, presentment, protest and
notice of protest with respect to any and all instruments included in
or evidencing any of the Obligations or the Collateral, notice of
acceptance hereof, notice of loans or advances made, credit extended,
Obligations incurred, Collateral received, delivered, or released, or
any other action taken in reliance hereon, and any and all other
demands and notices of any description, except such as are expressly
provided for herein.
8.2 No act, delay or omission on our part in exercising any right or remedy
shall operate as a waiver of such or any other right or remedy. No
single or partial waiver by us of any provision of this Agreement, or
breach or default hereunder, or of any right or remedy shall operate as
a waiver of such or any other provision, breach, default, right or
remedy on a future occasion.
IX. TERMINATION; APPLICABLE LAW AND WAIVER
OF JURY TRIAL; MISCELLANEOUS
9.1 Upon acceptance by us, this Agreement shall become effective as of the
date appearing on the first page hereof, and shall continue in full
force and effect until three (3) years from the date of such acceptance
(the "Initial Term"), and from year to year thereafter, unless sooner
terminated as herein provided. "Anniversary Date" means the date one
year from the date of acceptance of this Agreement and the same date in
each year thereafter. You may terminate this Agreement as of the end of
the Initial Term or as of any Anniversary Date occurring after the
Initial Term by giving us at least sixty (60) days' prior written
notice. You may terminate this Agreement during the Initial Term by
giving us at least sixty (60) days' prior written notice and paying to
us a certain fee, as applicable and as more fully described immediately
below. In the event that this Agreement is terminated by you prior to
the second Anniversary Date, we shall be entitled to a termination fee
for the loss of the bargain, and not as a penalty, equal to: (a) two
percent (2%) times the amount of the Maximum Credit Facility should you
terminate this Agreement on or prior to the first Anniversary Date; and
(b) one percent (1%) times the amount of the Maximum Credit Facility
should
should you terminate this Agreement after the first Anniversary Date
but on or prior to the second Anniversary Date. We may terminate this
Agreement at any time by giving you written notice stating a
termination date not less than sixty (60) days from the date such
notice is given, or immediately at any time without prior notice upon
the occurrence or during the continuance of a Default. Unless sooner
demanded, all of your Obligations shall become due and payable as of
any termination, and pending a final accounting, we may withhold any
balances in your account (unless supplied with an indemnity
satisfactory to us) to cover all of your Obligations.
9.2 Notwithstanding any termination of this Agreement, all of our rights,
liens and security interests hereunder shall continue in full force and
effect until all Obligations have been paid and satisfied in full.
9.3 This Agreement, together with any written and duly executed
supplement(s), contains the entire understanding between us with
respect to the subject matter hereof. Neither this Agreement nor any
portion or provision hereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any
course of dealing between us, or in any manner other than by an
agreement in writing, expressly referring hereto and signed by the
party to be charged. The section titles contained in this Agreement are
intended for convenience only and do not constitute and shall not be
interpreted as part of this Agreement. You, if two or more in number,
shall be jointly and severally bound hereunder.
9.4 Except as otherwise provided herein, all notices, requests and demands
hereunder shall be: (a) addressed to the party to be served at the
address shown on the first page hereof, or to such other address as
either party may designate by written notice to the other in accordance
with this provision; and (b) deemed to have been given or made: if by
hand, immediately upon delivery; if by telex or facsimile, immediately
upon sending; if by overnight delivery service, one day after dispatch;
and if by ordinary mail or registered/certified mail-return receipt
requested (with proper postage prepaid), three (3) days after mailing.
9.5 This Agreement shall be binding upon and inure to the benefit of each
of the parties hereto and their respective successors and assigns,
except that you may not assign or transfer any of your rights or
obligations under this Agreement without our prior written consent.
9.6 The parties hereto acknowledge that each party and its counsel have
reviewed this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of this Agreement or
any amendments or supplements thereto.
9.7 This Agreement shall be deemed to have been made in Charlotte, North
Carolina and shall be interpreted, and the rights and liabilities of
the parties hereto shall be determined, in accordance with the laws of
the State of North Carolina. As part of the consideration for new value
this day given, you hereby consent to the jurisdiction of any state or
federal court located within the State of North Carolina.
9.8 If any provision of this Agreement, including, without limitation, any
provision relating to charges constituting interest payable by you
under this Agreement, is contrary to, prohibited by, or deemed invalid
under applicable laws or regulations, such provision shall be
inapplicable and deemed omitted to the extent so contrary, prohibited
or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.
(1) TO THE EXTENT PERMITTED BY APPLICABLE LAW, WE HEREBY MUTUALLY WAIVE ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF
THIS AGREEMENT OR ANY OTHER AGREEMENTS OR TRANSACTIONS BETWEEN US.
If the foregoing is in accordance with your understanding, please so indicate by
signing and returning to us the original and one copy of this Agreement. After
being accepted below by one of our officers in North Carolina, we shall forward
a copy to you with signatures completed for your files.
Very truly yours,
THE CIT GROUP/COMMERCIAL SERVICES, INC.
By:/s/John Tinnell
----------------------------
Name: John Tinnell
----------------------------
Title: Vice President
----------------------------
Read and Agreed to:
BURKE MILLS, INC.
By: /s/Thomas I. Nail
- ---------------------
Name: Thomas I Nail
Title: President
Accepted at Charlotte, North Carolina
THE CIT GROUP/COMMERCIAL SERVICES, INC.
By:/s/T.D. Oelschlaeger
--------------------------
Name: T.D. Oelschlaeger
Title: Senior Vice President
Exhibit 10.2
T: 704 339-2200
CIT Commercial Services
301 South Tryon Street
Charlotte, NC 28202
December 1, 2005
Burke Mills, Inc.
191 Sterling Street N.W.
Valdese, North Carolina 28690
Re: LETTER OF CREDIT AGREEMENT
Ladies and Gentlemen:
From time to time, in order to assist you in establishing or opening Letters
of Credit with a bank or trust company (herein the "Bank") to cover the purchase
of goods and inventory, you may request us to join in the applications for such
Letters of Credit, and/or guarantee payment or performance of such Letters and
any drafts or acceptances thereunder, thereby lending our credit to you. These
arrangements shall be handled by us in accordance with that certain Accounts
Receivable and Inventory Financing Agreement, dated as even date herewith,
between you and us (as the same may be amended, modified, supplemented or
restated from time to time, the "Agreement") and subject to the terms and
conditions set forth below.
A. Our assistance in this matter shall at all times and in all respects be in
our sole discretion. The amount and extent of the Letters of Credit and the
terms and conditions thereof and of any drafts or acceptances thereunder,
shall in all respects be determined solely by us and shall be subject to
change, modification and revision by us, at any time and from time to time.
B. Any indebtedness, liability or obligation of any sort whatsoever, however
arising, whether present or future, fixed or contingent, secured or
unsecured, due or to become due, paid or incurred, arising or incurred in
connection with any Letters of Credit, guarantees, drafts or acceptances
thereunder or otherwise (herein the "Obligations") shall be incurred solely
as an accommodation to you and for your account. Obligations shall include,
without being limited to, all amounts due or which may become due under said
Letters of Credit, guarantees or any drafts or acceptances thereunder, all
amounts charged or chargeable to you or to us by the Bank, other financial
institution or correspondent bank which opens, issues or is involved with
such Letter of Credit, any other bank charges; fees and commissions; duties
and taxes; costs of insurance; all such other charges and expenses which may
pertain either directly or indirectly to such Letters of Credit, drafts,
acceptances, guarantees or to the goods or documents relating thereto, and
our charges as herein provided. We shall have the right, at any time and
without notice to you, to charge your account on our books with the amount
of any and all such Obligations. Any debit balance which may exist at any
time or from time to time in your account shall be repayable to us on demand
and shall incur interest at the rate provided in the Agreement. All
Obligations are to be repaid to us solely in United States currency.
C. As security for the prompt payment in full of all of your present and future
indebtedness or obligations whether under the Agreement, any other agreement
between us or otherwise, as well as to secure the payment in full of all
Obligations referred to herein, you hereby pledge and grant to us a
continuing general lien upon and security interest in the following
"Collateral", whether now owned or hereafter acquired by you, wherever
located, whether in transit or not: all presently owned and hereafter
acquired: (a) warehouse receipts, bills of lading, shipping documents,
documents of title, chattel paper and instruments, all whether negotiable
or not; (b) merchandise, inventory and goods which relate to any of the
foregoing or which are purchased from suppliers located outside of the
United States or its territories or which relate to letters of credit opened
through or with our assistance (whether for purchases from domestic or
foreign suppliers), and all additions thereto, substitutions therefor and
replacements thereof, in all stages of manufacture, process or production--
from raw materials through work-in-process to finished goods, together with
all goods and materials used or usable in manufacturing, processing,
packaging or shipping same, all wherever located and whether in transit or
not; and (c) cash and non-cash proceeds of any and all of the foregoing, of
whatever sort and however arising.
D. You warrant and represent that we have and shall have at all times a valid
and effective first and paramount lien on and security interest in all said
Collateral and that your title to said Collateral is unencumbered by any
other liens. You also warrant and represent that all sales of any goods or
inventory covered hereby shall be made by you in the ordinary course of
business and the accounts arising from such sales and proceeds thereof shall
be transferred and assigned to us pursuant to the Agreement; and you confirm
that our lien and security interest extends and attaches to those accounts
and proceeds. Further, you warrant and represent that all Letters of Credit
are being opened to cover actual purchases of goods and inventory solely for
your account, and said goods will not be sold or transferred, other than as
herein provided, without our specific prior written consent. You agree to
comply with the requirements of any and all laws in order to grant to us and
maintain in our favor, a valid first lien upon and security interest in the
Collateral and to do whatever we may request from time to time in order to
effect the purposes of this Agreement, including, but without limitation,
filing financing statements, keeping records and making reports on the
Collateral to us, advising us of the location of all Collateral, marking,
labeling and segregating such Collateral and obtaining any necessary
agreements or waivers with regard to the Collateral.
E. You unconditionally indemnify us and hold us harmless from any and all loss,
claim or liability arising from any transactions or occurrences relating to
Letters of Credit established or opened for your account, the Collateral
relating thereto and any drafts or acceptances thereunder, and all
Obligations hereunder, including any such loss or claim due to any action
taken by any Bank. You further agree to hold us harmless for any errors or
omission, whether caused by us, by the Bank or otherwise. Your unconditional
obligation to us hereunder shall not be modified or diminished for any
reason or in any manner whatsoever. You agree that any charges made to us
for your account by the Bank shall be conclusive on us and may be charged to
your account.
F. We shall not be responsible for: The existence, character, quality,
quantity, condition, packing, value or delivery of the goods purporting
to be represented by any documents; any difference or variation in the
character, quality, quantity, condition, packing value or delivery of
the goods from that expressed in the documents; the validity, sufficiency
or genuineness of any documents or of any endorsements
thereon, even if such documents should in fact prove to be in any or all
respects invalid, insufficient, fraudulent or forged; the time, place,
manner or order in which shipment is made; partial or incomplete shipment,
or failure or omission to ship any or all of the goods referred to in the
Letters of Credit or documents; any deviation from instructions; delay,
default, or fraud by the shipper and/or anyone else in connection with the
Collateral or the shipping thereof; or any breach of contract between the
shipper or vendors and yourselves. Furthermore, without being limited by the
foregoing, we shall not be responsible for any act or omission with respect
to or in connection with any Collateral.
G. You agree that any action taken by us, if taken in good faith, or any action
taken by any Bank, under or in connection with the Letters of Credit, the
guarantees, the drafts or acceptances, or the Collateral, shall be binding
on you and shall not put us in any resulting liability to you. In
furtherance thereof, we shall have the full right and authority to clear
and resolve any questions of non-compliance of documents; to give any
instructions as to acceptance or rejection of any documents or goods; to
execute any and all steamship or airway guarantees (and applications
therefor), indemnities or delivery orders; to grant any extensions of the
maturity of, time of payment for, or time of presentation of, any drafts,
acceptances, or documents; and to agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or
conditions of any of the applications, Letters of Credit, drafts or
acceptances; all in our sole name, and the Bank shall be entitled to comply
with and honor any and all such documents or instruments executed by or
received solely from us, all without any notice to or any consent from you.
H. Without our express consent and endorsement in writing, you agree not to
clear and resolve any questions of non-compliance of documents; to give any
instructions as to acceptance or rejection of any documents or goods; to
execute any and all applications for steamship or airway guarantees,
indemnities or delivery orders; to grant any extensions of the maturity of,
time of payment for, or time of presentation of, any drafts, acceptances
or documents; or to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions
of any of the applications, Letters of Credit, drafts or acceptances.
I. You agree that any necessary import, export or other licenses or
certificates for the import or handling of the Collateral will have been
promptly procured; all foreign and domestic governmental laws and
regulations in regard to the shipment and importation of the Collateral, or
the financing thereof will have been promptly and fully complied with; and
any certificates in that regard that we may at any time request will be
promptly furnished. In this connection, you warrant and represent that all
shipments made under any such Letters of Credit are in accordance with the
governmental laws and regulations of the countries in which the shipments
originate and terminate, and are not prohibited by any such laws and
regulations. You assume all risk, liability and responsibility for, and
agree to pay and discharge, all present and future local, state, federal or
foreign taxes, duties, or levies. Any embargo, restrictions, laws, customs
or regulations of any country, state, city, or other political subdivision,
where the Collateral is or may be located, or wherein payments are to be
made, or wherein drafts may be drawn, negotiated, accepted, or paid, shall
be solely your risk, liability and responsibility.
J. Any rights, remedies, duties or obligations granted or undertaken by you to
any Bank in any application for Letters of Credit, or any standing agreement
relating to Letters of Credit or otherwise, shall be deemed to have been
granted to us and apply in all respects to us and shall be in addition to
any rights, remedies, duties or obligations contained herein.
K. You hereby agree that prior to your repayment of all indebtedness and
Obligations to us, we may be deemed to be the absolute owner of, with
unqualified rights to possession and disposition of, all Collateral, all of
which may be held by us as security as herein provided. Should possession
of any such Collateral be transferred to you, it shall continue to serve, as
security as herein provided, and any goods or inventory covered hereby may
be sold, transferred or disposed of only as herein above provided.
L. You agree to maintain insurance on the Collateral under such policies of
insurance, with such insurance companies, in such amounts and covering such
risks as are at all times satisfactory to us, but at your expense. All
policies covering the Collateral are to be made payable to us in case of
loss, under a standard non-contributory "mortgagee", "lender's" or "secured
party" clause and are to contain such other provisions as we may require to
fully protect our interests in the Collateral and to any payments to be made
under such policies, and all proceeds of such policies are hereby assigned
to us. All policies are to be delivered to us, premium prepaid; and shall
provide for not less than ten days prior written notice to us of the
exercise of any right of cancellation. We shall have the sole right, in our
own name or your name, to file claims under any such insurance policies and
to deal with and handle such claims and any payments thereunder in all
respects.
M. On breach by you of any of the terms or provisions of this agreement, the
Agreement or any other agreement or arrangement now or hereafter entered
into between us, or on the nonpayment when due of any Obligations or other
indebtedness owing to us by you, whether or not the Agreement shall
continue, or upon your general failure to pay your debts when due, or upon
your making a general assignment for the benefit of creditors or upon there
being filed by or against you a petition in bankruptcy or for the
appointment of a receiver or there is commenced under any bankruptcy or
insolvency law proceedings for your relief or for the composition,
extension, arrangement or adjustment of any of your obligations, or your
business is discontinued as a going concern, we shall have the right,
with or without notice to you, to foreclose the lien and security interest
created herein by any available judicial procedure, or to take possession of
the Collateral without judicial process, and to enter any premises where
the Collateral may be located for the purpose of taking possession of or
removing the Collateral. We shall have the right to sell, lease, or
otherwise dispose of all or any part of the Collateral, whether the goods
have arrived or are to arrive, in its then condition or after further
preparation or processing, in your name or in ours, or in the name of such
party as we may designate, either at public or private sale or at any
broker's board, in lots or in bulk, for cash or for credit, with or without
warranties or representations, and upon such other terms and conditions as
we in our sole discretion may deem advisable, and we shall have the right to
purchase at any such sale. You agree, at our request, to assemble the
Collateral and to make it available to us at places which we shall select,
whether at your premises or elsewhere, and to make available to us all of
your premises and facilities for the purpose of our taking possession of,
removing or putting the Collateral in saleable form. The proceeds of any
such sale, lease or other disposition of the Collateral shall be applied
first, to the expenses of retaking, holding, storing, processing and
preparing for sale, selling, and the like, and then to the satisfaction of
your Obligations or other indebtedness to us, application as to particular
Obligations or as to principal or interest to be in our absolute and sole
discretion. You shall be liable to us for, and shall pay to us on demand,
any deficiency which may remain after such sale, lease, or other
disposition, and we in turn agree to remit to you any surplus resulting
therefrom. We shall have all rights of a secured party under the Uniform
Commercial Code. The enumeration of the foregoing rights is not intended
to be exhaustive and the exercise of any right shall not preclude the
exercise of any other rights all of which shall be cumulative.
N. Any charges, fees, commissions, costs and expenses charged to us for your
account by any Bank in connection with or arising out of Letters of Credit
issued pursuant hereto or out of transactions relating thereto will be
charged to your account in full as received by us and when made by any such
Bank shall be conclusive on us. In addition to the amounts charged to your
account pursuant to the preceding sentence, for our services hereunder we
shall be entitled to our service fees which shall be computed and charged to
your account as set forth on the attached Schedule A - Letter of Credit Fee
Schedule.
This agreement, which is subject to modification only in writing, is
supplementary to and is to be considered as a part of, the Agreement. If the
foregoing is in accordance with your understanding, please so indicate by
signing and returning the enclosed copy of this letter.
Very truly yours,
THE CIT GROUP/COMMERCIAL SERVICES, INC.
By:/s/John Tinnell
----------------------------
Name: John Tinnell
----------------------------
Title: Vice President
-----------------------------
Read and Agreed to:
BURKE MILLS, INC.
By: /s/ Thomas I. Nail
- ----------------------
Name: Thomas I. Nail
Title: President
SCHEDULE A
IMPORT LETTER OF CREDIT FEE SCHEDULE
Transaction Fee
- ---------------- --------
Issuance greater of $70 and 1/4% of face amount
- --------
Plus: Processing Fee $70.00
Cable Fee $35.00
Amendments
- ----------
L/C Amount Increase 1/4% of the increased amount
Plus: Processing Fee
First five amendments $95.00
After fifth $125.00
L/Cs overdrawn $95.00
Guarantees $50.00
- ----------
Plus: Processing Fee $50.00
Discrepancies $50.00
- -------------
Cancellations $50.00
- -------------
Unutilized L/C Fee $100.00
- ------------------
Monthly Commissions greater of $100.00 or 3% per annum
- ------------------- charged monthly
Payments
- --------
Sight $20.00 plus the greater of $55.00 and
1/8% of draft amount
Time $30.00 plus the greater of $85.00 and
1 1/2% per annum on draft amount for
term
Payments made
in excess of five $95.00 in addition to above fee
Standby Letters of Credit 3% per annum
- -------------------------