-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mrmk3cow3cUzp1KK2CY/9GaE/53kRnZCCTGe3DM/o8eDToM6eo7sbRYBkPtvwZnr seoz8yidLQK+CQUItkS1TQ== 0000927025-99-000060.txt : 19990716 0000927025-99-000060.hdr.sgml : 19990716 ACCESSION NUMBER: 0000927025-99-000060 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990715 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAWLINGS SPORTING GOODS CO INC CENTRAL INDEX KEY: 0000921915 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 431674348 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24450 FILM NUMBER: 99665132 BUSINESS ADDRESS: STREET 1: 1859 INTERTECH DR CITY: FENTON STATE: MO ZIP: 63026 BUSINESS PHONE: 3143493500 MAIL ADDRESS: STREET 1: 1859 INTERTECH DR CITY: FENTON STATE: MO ZIP: 63026 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended May 31, 1999 Commission file number 0-24450 RAWLINGS SPORTING GOODS COMPANY, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 43-1674348 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 1859 Intertech Drive, Fenton, Missouri 63026 (Address of Principal Executive Offices) (Zip Code) (636) 349-3500 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Number of shares outstanding of the issuer's Common Stock, par value $0.01 per share, as of June 30, 1999: 7,874,180 shares. Part I. FINANCIAL INFORMATION Item 1. Financial Statements Rawlings Sporting Goods Company, Inc. and Subsidiaries Consolidated Statements of Income (Amounts in thousands, except per share data) (Unaudited) Quarter Ended Nine Months Ended May 31, May 31, 1999 1998 1999 1998 Net revenues. .......... $46,614 $46,204 $138,145 $140,129 Cost of goods sold...... 32,179 31,285 93,968 96,428 Aluminum bat recall (see Note 6) ......... 1,600 - 1,600 - Gross profit ......... 12,835 14,919 42,577 43,701 Selling, general and administrative expenses ............. 12,514 10,497 35,480 30,091 Unusual charges......... - 975 - 1,475 Operating income ..... 321 3,447 7,097 12,135 Interest expense, net .. 1,344 1,164 3,577 3,259 Other expense, net...... 52 33 119 104 Income (loss) before income taxes.......... (1,075) 2,250 3,401 8,772 Provision (benefit) for income taxes.......... (398) 843 1,258 3,289 Net income (loss)..... $ (677) $ 1,407 $ 2,143 $ 5,483 Net income (loss) per common share: Basic................. ($0.09) $0.18 $0.27 $0.71 Diluted............... ($0.09) $0.18 $0.27 $0.70 Shares used in computing per share amounts: Basic................. 7,870 7,792 7,839 7,770 Assumed exercise of stock options............... 16 66 28 36 Diluted............... 7,886 7,858 7,867 7,806 The accompanying notes are an integral part of these consolidated statements. Rawlings Sporting Goods Company, Inc. and Subsidiaries Consolidated Balance Sheets (Amounts in thousands, except share data) (Unaudited) May 31, August 31, 1999 1998 ASSETS Current Assets: Cash and cash equivalents...................... $ 1,815 $ 862 Accounts receivable, net of allowance of $2,469 and $2,043 respectively............... 44,565 40,352 Inventories.................................... 46,685 43,573 Prepaid expenses............................... 764 673 Deferred income taxes.......................... 4,946 4,946 Total current assets......................... 98,775 90,406 Property, plant and equipment, net............... 13,009 12,911 Other assets..................................... 634 568 Deferred income taxes............................ 18,157 20,321 Goodwill, net.................................... 8,166 8,326 Total assets................................. $ 138,741 $ 132,532 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt.............. $ 64 $ 61 Accounts payable............................... 11,376 9,047 Accrued liabilities............................ 13,735 12,547 Total current liabilities.................... 25,175 21,655 Long-term debt, less current maturities.......... 58,699 57,048 Other long-term liabilities...................... 7,366 9,577 Total liabilities............................ 91,240 88,280 Stockholders' equity: Preferred stock, none issued................... - - Common stock, 7,871,712 and 7,794,483 shares issued and outstanding, respectively................................. 79 78 Additional paid-in capital..................... 30,236 29,479 Stock subscription receivable.................. (1,421) (1,421) Cumulative translation adjustment.............. (1,233) (1,581) Retained earnings.............................. 19,840 17,697 Stockholders' equity........................... 47,501 44,252 Total liabilities and stockholders' equity....................................... $ 138,741 $ 132,532 The accompanying notes are an integral part of these consolidated balance sheets. Rawlings Sporting Goods Company, Inc. and Subsidiaries Consolidated Statements of Cash Flow (Amounts in thousands) (Unaudited) Nine Months Ended May 31, 1999 1998 Cash flows from operating activities: Net income ........................................ $ 2,143 $ 5,483 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization.................... 1,895 1,216 Deferred income taxes............................ 2,164 2,811 Changes in operating assets and liabilities: Accounts receivable, net......................... (4,213) (9,356) Inventories...................................... (3,112) (10,870) Prepaid expenses................................. (91) (8) Other assets..................................... (151) (113) Accounts payable................................. 2,329 1,104 Accrued liabilities and other ................... (694) (954) Net cash provided by (used in) operating activities ........................................ 270 (10,687) Cash flows from investing activities: Capital expenditures............................... (1,729) (2,523) Acquisition of business............................ - (14,098) Net cash used in investing activities................ (1,729) (16,621) Cash flows from financing activities: Borrowings of long-term debt....................... 41,750 99,950 Repayments of long-term debt....................... (40,096) (73,349) Issuance of common stock........................... 758 614 Issuance of warrants............................... - 1,271 Net cash provided by financing activities............ 2,412 28,486 Net increase in cash and cash equivalents............ 953 1,178 Cash and cash equivalents, beginning of period....... 862 732 Cash and cash equivalents, end of period............. $ 1,815 $ 1,910 The accompanying notes are an integral part of these consolidated statements. Rawlings Sporting Goods Company, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: Summary of Significant Accounting Policies. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission pertaining to interim financial information and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report for the year ended August 31, 1998. In the opinion of management, all adjustments consisting only of normal recurring adjustments considered necessary for a fair presentation of financial position and results of operations have been included therein. The results for the nine months ended May 31, 1999 are not necessarily indicative of the results that may be expected for a full fiscal year. Note 2: Inventories Inventories consisted of the following (in thousands): May 31, August 31, 1999 1998 Raw materials . . . . . . . . . . . . $ 9,905 $9,552 Work in process . . . . . . . . . . . 1,949 2,497 Finished goods. . . . . . . . . . . . 34,831 31,524 $46,685 $43,573 Note 3: Long Term Debt As of May 31, 1999 the Company was not in compliance with its debt covenants to maintain a ratio of average debt to adjusted EBITDA of 5.50 to 1.0 and the fixed charge ratio of 1.50 to 1.0. The bank group has waived these debt compliance requirements as of May 31, 1999 by entering into the third amendment of the credit facility. The Company and the bank group have also amended the loan agreement to convert the facility to an asset based lending program based on a percentage of accounts receivable, inventories and property, plant and equipment. The Company believes it will successfully negotiate a new long-term loan agreement and new covenants during the fourth quarter and accordingly it has classified the debt as long-term on the balance sheet as of May 31, 1999. Note 4: Reclassification Certain reclassifications have been made to the prior year financial statements to conform with the current year presentation. Note 5: Comprehensive Income In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income" which establishes standards for reporting and disclosure of comprehensive income and its components. Effective September 1, 1998, the Company adopted SFAS No. 130. For the three months ended May 31, 1999 the comprehensive loss was $518,000 and for the three months ended May 31, 1998, comprehensive income was $970,000. Comprehensive income for the nine months ended May 31, 1999 and 1998 was $2,491,000 and $4,769,000, respectively. Note 6: Aluminum Bat Recall In May 1999, the Company recorded a $1,600,000 provision to cover known and anticipated costs associated with the voluntary recall of its slow pitch softball aluminum bats. The bats were recalled to prevent injuries because of reported instances of the tops of the bat, which have a screwed in end weight, shearing off during use. The Company is not aware of any injuries resulting from their bats. The provision covers the anticipated costs associated with the return of the bats and the write-down of bats remaining in inventory. Slow pitch softball aluminum bats are not a major product line for the Company. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Statements made in this report that are not historical in nature, or that state the Company's or management's intentions, hopes, beliefs, expectations, or predictions of the future, for example, the intent of the Company to restructure operations and to finalize a multi-year business plan, are "forward-looking statements" under the Private Securities Litigation Reform Act of 1995, and involve risks and uncertainties. The words "should", "will be", "intended", "continue", "believe", "may", "expect", "hope", "anticipate", "goal", "forecast" and similar expressions are intended to identify such forward-looking statements. It is important to note that any such forward-looking statements are not guarantees of future performance, and the Company's actual results, financial condition or business could differ materially from those expressed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below under the caption "Cautionary Factors That May Affect Future Results or the Financial Condition of the Business", as well as those discussed elsewhere in the Company's reports filed with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results over time. RESULTS OF OPERATIONS Quarter Ended May 31, 1999 Compared with Quarter Ended May 31, 1998 Net revenues for the quarter ended May 31, 1999 were $46,614,000, which was .9 percent higher than net revenues of $46,204,000 for the same quarter last year. Increased net revenues in basketballs (up $788,000), apparel (up $689,000), baseball memorabilia (up $450,000), and baseballs (up $335,000) were offset by a decrease in net revenues of speed-sensing baseballs (down $1,755,000). The basketball net revenues increase for the quarter was due to shipments being later this year partly due to the NBA players' strike which lowered sales in the February 28, 1999 quarter. Increased apparel net revenues were the result of sales of the new line of outer garments. Increased net revenues of baseball memorabilia reflect a sell-off of closeout items. Sales of the speed-sensing baseball were higher in the May 31, 1998 quarter due to the initial introduction of this product compared to a relatively soft market for this product in the May 31, 1999 quarter. Gross margin in the quarter ended May 31, 1999 was 27.5 percent, 4.8 margin points lower than the comparable quarter last year. The May 31, 1999 quarter cost of sales included a $1,600,000 provision for a voluntary slow pitch softball aluminum bat recall for safety reasons. Excluding that provision, gross margin was 30.9 percent, 1.4 margin points lower than the comparable quarter last year. This decline in gross margins was due to lower net revenues of the higher margin speed-sensing baseballs and increased net revenues of the lower margin apparel category. Offsetting these declines was an increase in margins for professional baseballs and wood bats due to manufacturing efficiencies and increased sales of memorabilia wood bats, which have a higher gross margin. Selling, general and administrative (SG&A) expenses in the quarter ended May 31, 1999 were $12,514,000 (26.8 percent of net revenues) compared to SG&A expenses of $10,497,000 (22.7 percent of net revenues) in the comparable prior year quarter. Higher advertising and promotion, salaries and wages, professional fees and royalties accounted for the increase. The higher advertising costs were due primarily to increased media activity directed at the end consumer. The increase in SG&A expenses reflects the Company's investment in anticipation of increased net revenues which have not yet developed. The May 1998 quarter included an unusual charge of $975,000 related to environmental remediation activities with respect to the presence of wood pitch in the soils at the company's Dolgeville, New York facility. Interest expense for the quarter ended May 31, 1999 was $1,344,000 or 15.5 percent higher than interest expense of $1,164,000 in the comparable prior year quarter. Total debt at May 31, 1999 was $58,763,000, which was $511,000 lower than the total debt at May 31, 1998. The increase in interest expense was primarily due to higher interest rates and slightly higher average borrowings. Nine Months Ended May 31, 1999 Compared with Nine Months Ended May 31, 1998 Net revenues for the nine months ended May 31, 1999 were $138,145,000 or 1.4 percent lower than net revenues of $140,129,000 in the comparable nine month period last year. Net revenues declined in basketballs, footballs, and total baseball equipment. Partially offsetting was an increase in net revenues from apparel. Basketball net revenues were down $1,152,000 or 7.4 percent due to the continued overall soft condition of the basketball category. Total football net revenues were down $1,039,000 or 10.7 percent due primarily to lower net revenues of the protective equipment product line. Total baseball equipment net revenues were down $916,000 or 1.1 percent due to lower sales volume of baseball gloves, down $1,938,000 or 5.3 percent, speed-sensing baseballs down $929,000 or 32.2 percent and aluminum bats down $475,000 or 15.0 percent offset by an increase of $2,595,000 or 91.0 percent in wood bats. The increase in net revenues from wood bats reflects sales of Mark McGwire bats and the movement of the NCAA to wood bats from aluminum bats. Year-to-date net revenues from the apparel product line were up $1,671,000 or 11.1 percent due to higher sales of outer garments. Gross margin for the nine months ended May 31, 1999 was 30.8 percent, .4 margin points lower than the comparable period last year. The May 31, 1999 quarter cost of sales included a $1,600,000 provision for a voluntary slow pitch aluminum softball bat recall for safety reasons. Excluding that provision gross margin would have been 32.0 percent, an increase of .8 margin points over the prior year. The gross margin improvement is primarily a result of increased net revenues from higher margin memorabilia wood bats. Partially offsetting was memorabilia baseballs where sell-off of older items at reduced prices resulted in lower margins. SG&A expenses for the nine months ended May 31, 1999 were $35,480,000, or 17.9 percent, higher than SG&A expenses of $30,091,000 in the comparable prior year period. The increase is primarily related to increases in salaries and wages, advertising and promotion, royalties, depreciation and endorsement contracts. SG&A expenses were 25.7 percent of net revenues, up 4.2 points from the comparable period in the prior year. The increase in SG&A expenses reflects the Company's investment in anticipation of increased net revenues which have not yet developed. The comparable prior year period included an unusual charge of $975,000 related to environmental remediation activities with respect to the presence of wood pitch in the soils at the Company's Dolgeville, New York facility. Also included was an unusual charge of $500,000 related to changes in the Chief Executive Officer's position. Interest expense for the nine months ended May 31, 1999 was $3,577,000, or 9.8 percent, higher than interest expense of $3,259,000 in the comparable prior year period. Higher average borrowings as a result of higher working capital levels and increased interest rates in the May 1999 quarter were primarily responsible for the increase. Seasonality Net revenues of baseball equipment and team uniforms are highly seasonal. Customers generally place orders with the Company for baseball-related products beginning in August for shipment beginning in November (pre-season orders). These pre-season orders from customers generally represent approximately 50 percent to 65 percent of the customers' anticipated needs for the entire baseball season. The amount of these pre-season orders generally determines the Company's net revenues and profitability between November 1 and March 31. The Company then receives additional orders (fill-in orders) which depend upon customers' actual sales of products during the baseball season (sell-through). Fill-in orders are typically received by the Company between February and May. These orders generally represent approximately 35 percent to 50 percent of the Company's sales of baseball-related products during a particular season. Pre-season orders for certain baseball-related products from certain customers are not required to be paid until early spring. These extended terms increase the risk of collectibility of accounts receivable. An increasing number of customers are on automatic replenishment systems; therefore, more orders are received on a ship-at-once basis. This change has resulted in shipments to the customer closer to the time the products are actually sold. This trend has and may continue to have the effect of shifting the seasonality and quarterly results of the Company with higher inventory and debt levels required to meet orders for immediate delivery. The sell-through of baseball-related products also affects the amount of inventory held by customers at the end of the season which is carried over by the customer for sale in the next baseball season. Customers typically adjust their pre-season orders for the next baseball season to account for the level of inventory carried over from the preceding baseball season. Football equipment and team uniforms are both shipped by the Company and sold by retailers primarily in the period between March 1 and September 30. Hockey equipment and uniforms are shipped by the Company primarily in the period from May 1 to October 31. Basketballs and team uniforms generally are shipped and sold throughout the year. Because the Company's sales of baseball-related products exceed those of its other products, Rawlings' business is seasonal, with its highest net revenues and profitability recognized between November 1 and April 30. Year 2000 Readiness Disclosure Many software applications, hardware and equipment and chip systems identify dates using only the last two digits of the year. These products may be unable to distinguish between dates in the Year 2000 and dates in the Year 1900. That inability (referred to as the "Year 2000" issue), if not addressed, could cause applications, equipment or systems to fail or provide incorrect information after December 31, 1999, or when using dates after December 31, 1999. This in turn could have an adverse effect on the Company due to the Company's direct dependence on its own applications, equipment and systems and indirect dependence on those of other entities with which the Company must interact. The Company has initiated a comprehensive program to replace its computer systems and applications with a Year 2000 compliant enterprise-wide system. To date, all of the Company's mission critical processes have been successfully integrated to the new system and implementation of the new system is substantially complete. The Company has incurred capital expenditures, including hardware, software, outside consultants and other expenses, of approximately $2.9 million on its new enterprise-wide system and expects that full implementation of the system may require an additional $100,000 over the next year. In addition, the Company incurred approximately $300,000 in software selection and training costs that have been expensed since the beginning of fiscal 1997. The Company also faces Year 2000 problems relating to embedded computer chips which control equipment used within the business such as telephone equipment and a limited amount of machinery. The Company has completed assessments of equipment considered most susceptible to Year 2000 issues and repair or replacement has been arranged for equipment found to have Year 2000 problems. The process of assessing the remaining equipment remains ongoing. The Company has formally communicated with its major vendors and suppliers to determine the extent to which the Company may be vulnerable to those third parties' failure to remediate their own Year 2000 issues. The first phase, which included sending Year 2000 surveys and questionnaires to customers and vendors is complete and the response evaluation phase is currently in progress. The Company has not had sufficient response from vendors to provide an estimate of the potential impact of non-compliance on the part of such vendors. If a material disruption of the Company's business were to occur it could have a material adverse impact on the Company's results of operations, liquidity and financial condition. In an effort to reduce the risk of such impact, management is currently developing contingency plans which include, but are not limited to, evaluating alternative vendors who are Year 2000 compliant and evaluating inventory management plans. It is too early to determine to what extent, if any, these contingency plans will have to be implemented. Although the Company does not expect to be materially impacted by the external environment, such future events cannot be known with certainty. Furthermore, the Company's estimates of future costs and completion dates are based on presently available information and will be updated, as additional information becomes available. Readers are cautioned that forward-looking statements contained in this Year 2000 Readiness Disclosure section should be read in conjunction with the Company's cautionary notice regarding forward-looking statements located in the first paragraph of this Item 2. Liquidity and Capital Resources Working capital increased $4,849,000 during the nine months ended May 31, 1999 primarily the result of the seasonal increase in accounts receivable and inventories partially offset by higher accounts payable and accrued liabilities. The current accounts receivable and inventory levels maintained by the Company are higher than what management believes is optimal. Management is continuing to evaluate its existing terms and dating programs in order to reduce the accounts receivable balance in the future. Inventory reduction programs and improved inventory management practices are also being initiated to reduce inventory levels and improve cash flow. Cash flows provided by operating activities for the nine months ended May 31, 1999 were $270,000 compared to the $10,687,000 used by operations in the comparable prior year period. This improvement is primarily the result of smaller increases in accounts receivable and inventory, partially offset by a larger increase in accounts payable. Capital expenditures were $1,729,000 for the nine months ended May 31, 1999 compared to $2,523,000 in the comparable prior year period. Investing activities during the nine months ended May 31, 1998 included $14,098,000 use of cash related to the acquisition of the Vic hockey business. The Company incurred additional net borrowings, primarily related to seasonal working capital needs, of $1,654,000 in the nine months ended May 31, 1999. This resulted in total debt as of May 31, 1999 of $58,763,000, which is $511,000, or .9 percent, lower than the total debt as of May 31, 1998. The decrease in total debt from last year is due primarily to lower working capital at May 31, 1999 compared to May 31, 1998. As of May 31, 1999 the Company was not in compliance with its debt covenants to maintain a ratio of average debt to adjusted EBITDA of 5.50 to 1.0 and the fixed charge ratio of 1.50 to 1.0. The bank group has waived these debt compliance requirements as of May 31, 1999 by entering into the third amendment of the credit facility. The Company and the bank group have also amended the loan agreement to convert the facility to an asset based lending program based on a percentage of accounts receivable, inventories and property, plant and equipment. The Company believes it will successfully negotiate a new long-term loan agreement and new covenants during the fourth quarter and accordingly it has classified the debt as long-term on the balance sheet as of May 31, 1999. Management believes that the amended loan agreement is sufficient to finance its existing and future operations. Cautionary Factors That May Affect Future Results or the Financial Condition of the Business. The factors that could cause the Company's actual results, financial condition or business to differ materially from any projections by the Company include, but are not limited to, quarterly fluctuations in results, ongoing customer changes in buying patterns, retail sell rates for the Company's products, demand and performance of the Company's new products which may result in more or less orders than those anticipated, seasonal demand volatility (discussed under Seasonality, above) and the impact of competitive products and pricing. In addition, other risks and uncertainties are detailed from time to time in the Company's SEC reports, including the report on Form 10-K for the year ended August 31, 1998. Item 3. Quantitative and Qualitative Disclosure about Market Risk The Company has no material sensitivity to changes in foreign currency exchange rates or changes in interest rates. Part II. OTHER INFORMATION Item 1. Legal Proceedings None. Item 2 Changes in Securities and Use of Proceeds None. Item 3. Defaults on Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Amendment No. 2 to Amended and Restated Credit Agreement by and between the Company and the First National Bank of Chicago, as agent and certain lenders named therein, dated as of February 28, 1999. 10.2 Amendment No. 3 to Amended and Restated Credit Agreement by and between the Company and the First National Bank of Chicago, as agent and certain lenders named therein, dated as of July 14, 1999. 10.3 Pledge and Security Agreement by and between the Company and the First National Bank of Chicago, as agent and certain lenders named therein, dated as of July 14, 1999. 10.4 Stock Pledge Agreement by and between the Company and the First National Bank of Chicago, as agent and certain lenders named therein, dated as of July 14, 1999. 10.5 Intellectual Property Assignment of Security Interest by and between the Company and the First National Bank of Chicago, as agent and certain lenders named therein, dated as of July 14, 1999. 27 Financial Data Schedule. (b) Reports on Form 8-K Form 8-K filed on April 30, 1999. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RAWLINGS SPORTING GOODS COMPANY, INC. Date: July 14, 1999 /s/ STEPHEN M. O'HARA Stephen M. O'Hara Chairman of the Board and Chief Executive Officer Date: July 14, 1999 /s/ REXFORD K. PETERSON Rexford K. Peterson Chief Financial Officer EX-10.1 2 AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT This Amendment No. 2 to Amended and Restated Credit Agreement (this "Amendment Agreement") is entered into as of February 28, 1999 by and among Rawlings Sporting Goods Company, Inc. (the "Borrower"), the undersigned lenders (the "Lenders") and The First National Bank of Chicago, as agent (the "Agent"). W I T N E S S E T H : WHEREAS, the Borrower, the Lenders and the Agent entered into that certain Amended and Restated Credit Agreement dated as of September 12, 1997 and amended as of May 31, 1998 (the "Credit Agreement"); and WHEREAS, the Borrower, the Lenders and the Agent have agreed to amend the Credit Agreement on the terms and conditions herein set forth. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. DEFINED TERMS. Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to such terms in the Credit Agreement, as amended hereby. 2. AMENDMENTS TO CREDIT AGREEMENT. 2.1 Article I of the Credit Agreement is hereby amended by (a) adding the following definitions in the proper alphabetical order: "Adjusted EBITDA" means (a) EBITDA, PLUS (b) charges taken by the Borrower in its 1998 Fiscal Year in connection with (i) inventory reserves in connection with aluminum baseball bats and (ii) certain environmental cleanup matters, PLUS (c) for the purposes of calculations with respect to its 1999 Fiscal Year, restructuring charges taken in the Borrower's 1999 Fiscal Year in an amount not to exceed $2,000,000, LESS any amount of the cash portion of such charges in excess of $500,000. "Applicable Base Rate Margin" means, subject to the last sentence of this definition, for any period, the applicable of the following percentages in effect with respect to such period as the Average Debt to Adjusted EBITDA Ratio of the Borrower shall fall within the indicated ranges: AVERAGE DEBT TO APPLICABLE BASE ADJUSTED EBITDA RATIO RATE MARGIN Greater than or Equal to 5.0:1.0 1.25% Greater than or Equal to 4.0:1.0 but Less than 5.0:1.0 1.00% Greater than or Equal to 3.0:1.0 but Less than 4.0:1.0 0.75% Greater than or Equal to 2.5:1.0 but Less than 3.0:1.0 0.50% Greater than or Equal to 2.0:1.0 but Less than 2.5:1.0 0.25% Less than 2.0:1.0 0% The Average Debt to Adjusted EBITDA Ratio shall be calculated by the Borrower as of the end of each Fiscal Quarter, commencing with the Fiscal Quarter ending February 28, 1999, and shall be reported to the Agent pursuant to a certificate executed by an Authorized Officer of the Borrower and delivered in connection with Section 6.1(d) hereof. The Applicable Base Rate Margin shall be adjusted, if necessary, beginning on the third Business Day after the delivery of such certificate; provided, that if such certificate, together with the financial statements (in the form required by Section 6.1(a) or (b)) to which such certificate relates, is not delivered to the Agent by the date on which the related financial statements are due to be delivered to the Agent pursuant to Section 6.1(a) or (b), as applicable, then the Applicable Base Rate Margin shall be equal to 1.25% until the next adjustment date. Until adjusted as provided above, the Applicable Base Rate Margin shall be equal to 1.25%. "Applicable Commitment Fee Percentage" means, subject to the last sentence of this definition, for any period, the applicable of the following percentages in effect with respect to such period as the Average Debt to Adjusted EBITDA Ratio of the Borrower shall fall within the indicated ranges: AVERAGE DEBT TO APPLICABLE COMMITMENT ADJUSTED EBITDA RATIO FEE PERCENTAGE Greater than or Equal to 4.0:1.0 0.50% Greater than or Equal to 3.0:1.0 but Less than 4.0:1.0 0.375% Greater than or Equal to 2.5:1.0 but Less than 3.0:1.0 0.35% Less than 2.5:1.0 0.30% The Average Debt to Adjusted EBITDA Ratio shall be calculated by the Borrower as of the end of each Fiscal Quarter, commencing with the Fiscal Quarter ending February 28, 1999, and shall be reported to the Agent pursuant to a certificate executed by an Authorized Officer of the Borrower and delivered in connection with Section 6.1(d) hereof. The Applicable Commitment Fee Percentage shall be adjusted, if necessary, beginning on the third Business Day after the delivery of such certificate; provided, that if such certificate, together with the financial statements (in the form required by Section 6.1(a) or (b)) to which such certificate relates, is not delivered to the Agent by the date on which the related financial statements are due to be delivered to the Agent pursuant to Section 6.1(a) or (b), as applicable, then the Applicable Commitment Fee Percentage shall be equal to 0.50% until the next adjustment date. Until adjusted as provided above, the Applicable Commitment Fee Percentage shall be equal to .50%. "Applicable Eurodollar Margin" means, subject to the last sentence of this definition, for any period, the applicable of the following percentages in effect with respect to such period as the Average Debt to Adjusted EBITDA Ratio of the Borrower shall fall within the indicated ranges: AVERAGE DEBT TO APPLICABLE ADJUSTED EBITDA RATIO EURODOLLAR MARGIN Greater than or Equal to 5.0:1.0 2.25% Greater than or Equal to 4.0:1.0 but Less than 5.0:1.0 2.00% Greater than or Equal to 3.0:1.0 but Less than 4.0:1.0 1.75% Greater than or Equal to 2.5:1.0 but Less than 3.0:1.0 1.50% Greater than or Equal to 2.0:1.0 but Less than 2.5:1.0 1.25% Less than 2.0:1.0 1.00% The Average Debt to Adjusted EBITDA Ratio shall be calculated by the Borrower as of the end of each Fiscal Quarter, commencing with the Fiscal Quarter ending February 28, 1999, and shall be reported to the Agent pursuant to a certificate executed by an Authorized Officer of the Borrower and delivered in connection with Section 6.1(d) hereof. The Applicable Eurodollar Margin shall be adjusted, if necessary, with respect to each Interest Period beginning on or after the third Business Day after the delivery of such certificate; provided, that if such certificate, together with the financial statements (in the form required by Section 6.1(a) or (b)) to which such certificate relates, is not delivered to the Agent by the date on which the related financial statements are due to be delivered to the Agent pursuant to Section 6.1(a) or (b), as applicable, then the Applicable Eurodollar Margin shall be equal to 2.25% until the next adjustment date. Until adjusted as provided above, the Applicable Eurodollar Margin shall be deemed equal to 2.25%. "Average Debt to Adjusted EBITDA Ratio" means, for any applicable computation period, the ratio of (a) (i) the sum of the consolidated Debt of the Borrower as at the end of each Fiscal Quarter in the period of four Fiscal Quarters ending on the date of determination, DIVIDED by (ii) four, to (b) Adjusted EBITDA. "Debt" of a Person means such Person's Indebtedness other than such person's (a) Rate Hedging Obligations and (b) Obligations for which such Person is then liable pursuant to or in respect of a Standby Letter of Credit and the face amount of any other Letter of Credit which is not a trade or commercial Letter of Credit. "Year-End Debt to Adjusted EBITDA Ratio" means, as of the end of each Fiscal Year, the ratio of (a) the Borrower's consolidated Debt as of the end of such Fiscal Year to (b) Adjusted EBITDA for the Fiscal Year then ended. (b) deleting the definition of "Applicable Margin" in its entirety, (c) amending the definitions of "Debt to Capitalization Ratio" and "Fixed Charges" by deleting each reference therein to "Indebtedness" and replacing it with a reference to "Debt" and (d) amending the definition of "Fixed Charge Coverage Ratio" by deleting the reference therein to "EBITDA" and replacing it with a reference to "Adjusted EBITDA". 2.3 Article II of the Credit Agreement is hereby amended by deleting the phrase "a commitment fee of thirty basis points (.30%) per annum" from Section 2.4(a) and inserting in lieu thereof the phrase "a per annum rate equal to the Applicable Commitment Fee Percentage". 2.4 Article VI of the Credit Agreement is hereby amended as follows: (a) Section 6.20 is hereby amended by deleting the reference to "$3,000,000" and replacing it with a reference to "$4,000,000". (b) Section 6.28 is hereby amended by (i) deleting Section 6.28.3 in its entirety and replacing it with the following: 6.28.3. FIXED CHARGE COVERAGE RATIO. As of the end of each Fiscal Quarter, maintain a Fixed Charge Coverage Ratio for the four Fiscal Quarters then ended of not less than (a) 1.50 to 1.0 as of the last day of the Fiscal Quarters ended February 28, 1999, May 31, 1999 and August 31, 1999 and (b) 1.75 to 1.0 as of the last day of each Fiscal Quarter thereafter. and (ii) adding Sections 6.28.4 and 6.28.5 as follows: 6.28.4. AVERAGE DEBT TO ADJUSTED EBITDA RATIO. Maintain an Average Debt to Adjusted EBITDA Ratio as of the end of each Fiscal Quarter of not greater than the following: PERIOD MAXIMUM RATIO Fiscal Year 1999 5.5:1.0 Fiscal Year 2000 5.0:1.0 Fiscal Year 2001 4.5:1.0 Fiscal Year 2002 4.0:1.0 6.28.5. YEAR-END DEBT TO ADJUSTED EBITDA RATIO. Maintain a Year-End Debt to Adjusted EBITDA Ratio as of the end of each Fiscal Year of not greater than the following: MEASUREMENT DATE MAXIMUM RATIO Fiscal Year End 1999 3.95:1.0 Fiscal Year End 2000 3.50:1.0 Fiscal Year End 2001 3.00:1.0 Fiscal Year End 2002 2.50:1.0 2.5 Exhibit C to the Credit Agreement is hereby amended and restated in its entirety in the form of the Exhibit C attached as Annex I hereto. 3. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. 3.1 The Borrower represents and warrants that the execution, delivery and performance by the Borrower of this Amendment Agreement have been duly authorized by all necessary corporate action and that this Amendment Agreement is a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as the enforcement thereof may be subject to (a) the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally and (b) general principles of equity (regardless of whether such enforcement is sought in a proceeding in equity or at law). 3.2 The Borrower hereby certifies that each of the representations and warranties contained in the Credit Agreement is true and correct in all material respects on and as of the date hereof as if made on the date hereof, except to the extent that any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall be true and correct on and as of such earlier date. 4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT. 4.1 Upon the effectiveness of this Amendment Agreement, each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import and each reference to the Credit Agreement in each Loan Document shall mean and be a reference to the Credit Agreement as amended hereby. 4.2 Except as specifically amended above, all of the terms, conditions and covenants of the Credit Agreement and the other Loan Documents shall remain unaltered and in full force and effect and shall be binding upon the Borrower in all respects and are hereby ratified and confirmed. 4.3 The execution, delivery and effectiveness of this Amendment Agreement shall not operate as a waiver of (a) any right, power or remedy of any Lender or the Agent under the Credit Agreement or any of the Loan Documents, or (b) any Default or Unmatured Default under the Credit Agreement. 5. COSTS AND EXPENSES. The Borrower agrees to pay on demand all reasonable fees and out-of-pocket expenses of counsel for the Agent in connection with the preparation, execution and delivery of this Amendment Agreement. 6. CHOICE OF LAW. THIS AMENDMENT AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 7. EXECUTION IN COUNTERPARTS; EFFECTIVENESS. This Amendment Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. This Amendment Agreement shall become effective as of the date first above written; provided, that (a) the Agent has received counterparts of this Amendment Agreement duly executed by the Borrower and the Required Lenders and (b) the Borrower has paid the Agent, on behalf of each Lender executing this Amendment and delivering it to the Agent by April 5, 1999, an amendment fee equal to .10% of such Lender's Commitment. 8. HEADINGS. Section headings in this Amendment Agreement are included herein for convenience of reference only and shall not constitute a part of this Amendment Agreement for any other purposes. [signature pages to follow] IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have executed this Amendment Agreement as of the date first above written. RAWLINGS SPORTING GOODS COMPANY, INC. By: /s/ Rexford K. Peterson Title: Interim Chief Financial Officer THE FIRST NATIONAL BANK OF CHICAGO, Individually and as Agent By: /s/ Stephen C. Price Title: First Vice President THE BANK OF NEW YORK By: /s/ David Shedd Title: Vice President COMERICA BANK By: /s/ Jeffrey E. Peck Title: Vice President MERCANTILE BANK NATIONAL ASSOCIATION By: /s/ Stephen M. Reese Title: Senior Vice President NATIONSBANK, N.A. By: /s/ Kent M. Schmelder Title: Senior Vice President EX-10.2 3 AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AGREEMENT This Amendment No. 3 to Amended and Restated Credit Agreement (this "Amendment Agreement") is entered into as of July 14, 1999 by and among Rawlings Sporting Goods Company, Inc. (the "Borrower"), the undersigned lenders (the "Lenders") and The First National Bank of Chicago, as agent (the "Agent"). W I T N E S S E T H : WHEREAS, the Borrower, the Lenders and the Agent entered into that certain Amended and Restated Credit Agreement dated as of September 12, 1997 and amended as of May 31, 1998 and February 28, 1999 (the "Credit Agreement"); and WHEREAS, a Default exists under Sections 6.28.3 and 6.28.4 for the Borrower's Fiscal Quarter ending May 31, 1999 (the "Subject Defaults"); and WHEREAS, the Borrower, the Lenders and the Agent have agreed to waive the Subject Defaults and amend the Credit Agreement on the terms and conditions herein set forth. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. DEFINED TERMS. Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to such terms in the Credit Agreement, as amended hereby. 2. AMENDMENTS TO CREDIT AGREEMENT. a. Article I of the Credit Agreement is hereby amended by adding the following definitions in the proper alphabetical order: "Borrower Intellectual Property Assignment" means that certain Intellectual Property Assignment of Security Interest, dated as of July 14, 1999, by and between Borrower and the Agent, as the same may be amended, supplemented or otherwise modified from time to time. "Borrower Mortgage" means, collectively, the mortgages, deeds of trust and similar instruments from time to time duly executed and delivered by the Borrower in favor of the Agent, on behalf of the Lenders, pledging real property of the Borrower, as the same may be amended, supplemented or otherwise modified from time to time. "Borrower Pledge Agreement" means that certain Pledge Agreement, dated as of July 14, 1999, duly executed and delivered by the Borrower pledging certain stock of its Subsidiaries to the Agent, on behalf of the Lenders, as the same may be amended, supplemented or otherwise modified from time to time. "Borrower Security Agreement" means that certain Pledge and Security Agreement, dated as of July 14, 1999, duly executed and delivered by the Borrower in favor of the Agent, on behalf of the Lenders, as the same may be amended, supplemented or otherwise modified from time to time. "Borrower Security Documents" means the Borrower Security Agreement, the Borrower Mortgage, the Borrower Pledge Agreement, the Borrower Intellectual Property Assignment and any other agreements, documents or instruments at any time securing or guaranteeing the Obligations. "Borrowing Base" means, at any time, an amount equal to the sum of (a) 80% of the book value of Borrower's accounts receivable, net of allowance, (b) 50% of the book value of Borrower's inventory, and (c) 30% of the book value of Borrower's net property, plant and equipment, in each case determined from a consolidated balance sheet of the Borrower prepared in accordance with Agreement Accounting Principles. "Subsidiary Security Documents" means, at any time, all agreements, documents and instruments from time to time duly executed and delivered to the Agent, on behalf of the Lenders, by Rawlings Canada, Incorporated securing or guaranteeing the Obligations. b. The definition of "Loan Documents" set forth in Article I of the Credit Agreement is hereby amended to insert ", Borrower Security Documents, Subsidiary Security Documents" immediately after the term "Reimbursement Agreements." 2.3 Section 2.1(a) of the Credit Agreement is hereby amended by adding at the end thereof the following: "Notwithstanding the foregoing or Section 2.20.1, no additional Advances under this Section 2.1(a) or Facility Letters of Credit under Section 2.20.1 shall be permitted after July 14, 1999 until the Lenders have received a borrowing base certificate in accordance with Section 6.1(m) for the month of June, 1999, and thereafter the aggregate principal balance of all Loans plus the aggregate Facility Letter of Credit Obligations outstanding at any time during any calendar month, after giving effect to any Advances or Facility Letters of Credit at the time requested by the Borrower under this Section 2.1(a) or Section 2.20.1, shall not be permitted to exceed the Borrowing Base as in effect at the end of the calendar month for which the most recent borrowing base certificate has been delivered to the Lenders pursuant to Section 6.1(m)." 2.4 Clause (iii) of Section 2.20.1 of the Credit Agreement is hereby amended by adding immediately after the phrase "Facility Letter of Credit Sublimit" appearing therein the phrase "or the limitations set forth in the last sentence of Section 2.1(a)". 2.5 Section 2.3 of the Credit Agreement is hereby amended by adding at the end thereof ", provided that on and after July 14, 1999, the Borrower shall not be permitted to incur Eurodollar Advances, to convert Floating Rate Advances into Eurodollar Advances or continue any then outstanding Eurodollar Advances beyond the Interest Periods then in effect. 2.6 Section 2.7(a) of the Credit Agreement is hereby amended by deleting the date "September 1, 1999" appearing therein and substituting in lieu thereof the date "July 14, 1999". 2.7 Section 2.20.6 is hereby amended by deleting the percentage ".50%" appearing therein and substituting in lieu thereof the percentage "1.00%." 2.8 Section 6.1(a) of the Credit Agreement is hereby amended to add at the end thereof the following: "In addition to the foregoing, not later than September 30 ,1999 the Borrower shall deliver to the Agent and the Lenders its unaudited balance sheet and related statements of income and cash flows for its Fiscal Year ended August 31, 1999, prepared in accordance with Agreement Accounting Principles on a consolidated and consolidating basis, and, notwithstanding Section 7.4 to the contrary, failure to deliver such statements by such date shall constitute an immediate Default without any requirement of notice to Borrower or passage of time after such date." 2.9 Section 6.1 of the Credit Agreement is hereby amended to add at the end thereof the following: "(m) As soon as practicable and in any event not later than 15 days after the end of each calendar month, commencing with the month of June, 1999, a certificate in the form of Exhibit A to Amendment No. 3 to the Agreement signed by the Borrower's chief financial officer setting forth the calculation of the Borrowing Base as of the end of such month and the Borrower's compliance with Section 6.32." 2.10 Article VI of the Credit Agreement shall be amended hereby by adding at the end thereof the following additional Sections: "6.31. BANK ACCOUNTS. The Borrower will not, nor permit its Subsidiaries to (i) permit remittances of accounts or other customer receivables to be made other than to lockboxes maintained with the Agent at its main office in Chicago, Illinois, or (ii) maintain any deposit accounts, cash or Investments with any Person or at any location other than with the Agent at its main office in Chicago, Illinois, provided that the Borrower may maintain deposit accounts with local banks in the ordinary course of business and consistent with past practice as long as the aggregate balance in all such accounts does not exceed at any time (x) $100,000 for accounts maintained in the United States, and (y) $750,000 for accounts maintained in Canada. 6.32 BORROWING BASE. On and after delivery of the first borrowing base certificate required by Section 6.1(m), the Borrower will not cause or permit the aggregate outstanding principal balance of the Loans plus the aggregate outstanding amount of all Facility Letter of Credit Obligations at any time to exceed the Borrowing Base as in effect at the end of the calendar month for which the most recent such certificate has been delivered to the Lenders pursuant to Section 6.1(m). 6.33 ADDITIONAL COLLATERAL. As soon as practicable and in any event not later than July 30, 1999, the Borrower shall have (i) pledged to the Agent, for the benefit of the Agent and Lenders, a first and prior lien and security interest in all right, title and interest of the Borrower in and to all real property owned by it, including, without limitation, its facilities located in Licking, Missouri; Dolgeville, New York; Tullahoma, Tennessee; and Springfield, Missouri, all in form and substance satisfactory to Agent, (ii) caused Rawlings Canada, Incorporated to guaranty the Obligations and to secure such guaranty granted (y) to the Agent, for the benefit of the Agent and Lenders, a first and prior mortgage and security interest in all real and personal property of Rawlings Canada, Incorporated located in the Province of Ontario and (z) to a financial institution acceptable to Agent, as trustee for the benefit of the Agent and the Lenders a first and prior moveable and immovable hypothec in all moveable and immovable property of Rawlings Canada, Incorporated located in the Province of Quebec, including, without limitation, its facilities in Daveluyville, Quebec, and (iii) in connection with the foregoing, delivered to the Agent such additional documents, instruments and agreements, including certified directors resolutions, title policies, surveys and counsel opinions, requested by Agent and as are customary in connection with obtaining and maintaining such security in all such property . 6.34 LANDLORD WAIVERS. The Borrower shall use its best efforts to deliver to the Agent for each location leased by the Borrower and at which the Borrower maintains inventory or equipment, an agreement with the landlord of such premises, in form and substance satisfactory to Agent, acknowledging Agent's Lien on Borrower's property, subordinating such landlord's rent claims to such Lien, and permitting Agent access to such premises after the occurrence of a Default for purposes of enforcing such Lien. 6.35 RAWLINGS MISSOURI. Borrower shall not permit Rawlings Sporting Goods Company of Missouri, a Missouri corporation, to engage in any business, own any property or incur or suffer to exist any Indebtedness." 2.11 Section 7.4 of the Credit Agreement shall be amended by inserting at the end thereof ", or the occurrence of any 'Default' as defined in any Loan Document other than this Agreement." 2.12 The first sentence of Section 9.7 of the Credit Agreement shall be amended by restating the same in full as follows: "The Borrower shall reimburse the Agent for any reasonable costs, internal charges and out-of-pocket expenses (including attorneys' fees and time charges of attorneys for the Agent, which attorneys may be employees of the Agent, and customary charges of the Agent's internal auditors) paid or incurred by the Agent in connection with the preparation, negotiation, execution, delivery, review, amendment, modification and administration (including any inspection of books and records pursuant to Section 6.9) of the Loan Documents." 3. WAIVER. Upon the effectiveness of this Amendment Agreement, the Agent and the Lenders hereby waive the Subject Defaults. Such waiver shall extend solely to the Subject Defaults and shall not be deemed a waiver of any subsequent breach of Sections 6.28.3 or 6.28.4 for financial reporting periods occurring after May 31, 1999. 4. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. a. The Borrower represents and warrants that the execution, delivery and performance by the Borrower of this Amendment Agreement have been duly authorized by all necessary corporate action and that this Amendment Agreement is a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as the enforcement thereof may be subject to (a) the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally and (b) general principles of equity (regardless of whether such enforcement is sought in a proceeding in equity or at law). b. The Borrower hereby certifies that, after giving effect to this Amendment Agreement, each of the representations and warranties contained in the Credit Agreement is true and correct in all material respects on and as of the date hereof as if made on the date hereof, except to the extent that any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall be true and correct on and as of such earlier date, and no Default or Unmatured Default exists and is continuing. 5. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT. a. Upon the effectiveness of this Amendment Agreement, each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import and each reference to the Credit Agreement in each Loan Document shall mean and be a reference to the Credit Agreement as amended hereby. b. Except as specifically amended above, all of the terms, conditions and covenants of the Credit Agreement and the other Loan Documents shall remain unaltered and in full force and effect and shall be binding upon the Borrower in all respects and are hereby ratified and confirmed. c. Except as expressly set forth herein, the execution, delivery and effectiveness of this Amendment Agreement shall not operate as a waiver of (a) any right, power or remedy of any Lender or the Agent under the Credit Agreement or any of the Loan Documents, or (b) any Default or Unmatured Default under the Credit Agreement. 6. COSTS AND EXPENSES. The Borrower agrees to pay on demand all reasonable fees and out-of-pocket expenses of counsel for the Agent in connection with the preparation, execution and delivery of this Amendment Agreement. 7. CHOICE OF LAW. THIS AMENDMENT AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 8. EXECUTION IN COUNTERPARTS; EFFECTIVENESS. This Amendment Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. This Amendment Agreement shall become effective as of the date first above written; provided, that Borrower shall have delivered to Agent, in form and substance satisfactory to Agent: (a) counterparts of this Amendment Agreement duly executed by the Borrower and the Lenders; (b) the Borrower Security Agreements (other than the Borrower Mortgage) in form and substance satisfactory to Agent, together with such UCC financing statements as may be requested by Agent and all stock certificates pledged under the Borrower Pledge Agreement with appropriate undated stock powers endorsed in blank; (c) certified copies of its Board of Directors resolutions authorizing this Amendment Agreement and the Borrower Security Documents; (d) a certificate of its chief financial officer stating that, after giving effect to the Amendment Agreement, no Default or Unmatured Default exists; (e) a written opinion of counsel to Borrower regarding the Amendment Agreement and Borrower Security Documents; and (f) the Borrower shall have paid all legal fees and expenses of the Agent invoiced to Borrower. 9. HEADINGS. Section headings in this Amendment Agreement are included herein for convenience of reference only and shall not constitute a part of this Amendment Agreement for any other purposes. [signature pages to follow] IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have executed this Amendment Agreement as of the date first above written. RAWLINGS SPORTING GOODS COMPANY, INC. By: /s/ Rexford K. Peterson Title: Chief Financial Officer THE FIRST NATIONAL BANK OF CHICAGO, Individually and as Agent By: /s/ Nathan Block Title: First Vice President THE BANK OF NEW YORK By: /s/ David Shedd Title: Vice President COMERICA BANK By: /s/ Jeffrey Peck Title: Vice President MERCANTILE BANK NATIONAL ASSOCIATION By: /s/ David Dains Title: Vice President NATIONSBANK, N.A. By: /s/ Keith Schmelder Title: Senior Vice President EX-10.3 4 PLEDGE AND SECURITY AGREEMENT This Pledge and Security Agreement is made as of July 14, 1999 by and between Rawlings Sporting Goods Company, Inc., a Delaware corporation (the "Borrower"), and THE FIRST NATIONAL BANK OF CHICAGO, as Agent (as hereinafter defined) for the Lenders (as hereinafter defined). R E C I T A L S: a. Pursuant to the Credit Agreement (as hereinafter defined) the Lenders have agreed to make certain loans and other financial accommodations to the Borrower; and b. As a condition to further extensions of credit under the Credit Agreement, the Agent and the Lenders have requested that the Borrower grant to the Agent, on behalf of the Agent and the Lenders, a security interest in the Collateral (as hereinafter defined); NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: i. DEFINITIONS. As used in this Pledge and Security Agreement: "Accounts" means presently existing and hereafter arising or acquired accounts receivable, notes, drafts, acceptances, choses in action and other forms of obligations and receivables relating in any way or arising from the sale of goods or the rendering of services by the Borrower or howsoever otherwise arising, including the right to payment of any interest or finance charges with respect thereto and all proceeds of insurance with respect thereto, together with all of the Borrower's rights as an unpaid vendor, all pledged assets and letters of credit, guaranty claims, liens and security interests held by or granted to the Borrower to secure payment of any Accounts and all books, customer lists, ledgers, records and files (whether written or stored electronically) relating to any of the foregoing. "Agent" means The First National Bank of Chicago, a national banking association, as agent for the Lenders pursuant to Section 10.1 of the Credit Agreement, and the successors and assigns thereof as agent for the Lenders. "Borrower" means Rawling's Sporting Goods Company, Inc., a Delaware corporation, and its successors. "Chattel Paper" means any writing or group of writings which evidences both a monetary obligation and a security interest in or a lease of specific goods. "Collateral" means all personal property, wherever located, in which the Borrower now has or hereafter acquires any right or interest, and the proceeds, insurance proceeds, unearned insurance premiums and products thereof and documents of title evidencing or issued with respect thereto, including, without limitation, all Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Instruments, Inventory, Investment Property, Pledged Deposits, Stock Rights, contract rights, insurance policies, cash, bank accounts, and special collateral accounts, and all books and records, customer lists, credit files, computer files, programs, printouts and other computer materials and records related to any of the foregoing. "Credit Agreement" means that certain Amended and Restated Credit Agreement dated as of September 12, 1997, among the Borrower, the Agent and the Lenders, as heretofore or hereafter amended, renewed, modified or supplemented from time to time. "Default" means any one or more of the events described in Section 5 hereof. "Default Rate" means the rate of interest which may be due and owing from time to time on any Loan and payable by the Company under the Credit Agreement pursuant to Section 2.11 of such agreement. "Documents" means all documents of title and goods evidenced thereby, including, without limitation, all bills of lading, dock warrants, dock receipts, warehouse receipts and orders for the delivery of goods, and also any other document which in the regular course of business or financing is treated as adequately evidencing that the person in possession of it is entitled to receive, hold and dispose of the document and the goods it covers. "Equipment" means all equipment, machinery, furniture and goods used or useable by the Borrower in its business and all other tangible personal property (other than Inventory), and all accessions and additions thereto, including, without limitation, all Fixtures. "Fixtures" means all equipment, machinery, furniture and goods of the Borrower which have been attached to real property in such a manner that their removal would cause damage to the realty and which have therefore taken on the character of real property, including, without limitation, all trade fixtures. "General Intangibles" means all intangible personal property including, without limitation, all general intangibles, contract rights, rights to receive payments of money, choses in action, judgments, tax refunds and tax refund claims, copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses, trade names, trade secrets, drawings or plans with respect to trade secrets, copyrights, licenses, franchises, leasehold interests in real or personal property, rights to receive rentals of real or personal property and guarantee claims. "Indemnitee" means any Person entitled to be indemnified by the Borrower pursuant to Section 8 hereof. "Instruments" means all negotiable instruments (as defined in Section 3104 of the Uniform Commercial Code), certificated and uncertificated securities and any replacements therefor and Stock Rights related thereto and other writings which evidence a right to the payment of money and which are not themselves security agreements or leases and are of a type which in the ordinary course of business are transferred by delivery with any necessary endorsement or assignment, including, without limitation, all checks, drafts, notes, bonds, debentures, government securities, certificates of deposit, letters of credit, preferred and common stock, options and warrants in which the Borrower now has or hereafter acquires any rights. "Inventory" means all inventory, raw materials, consumable supplies, work in process, finished goods, returned or repossessed goods, goods held for sale or lease or furnished or to be furnished under contracts of service and goods released to the Borrower or to third parties under trust receipts or similar documents. "Investment Property" means all investment property of the Borrower (as defined in Section 9-115 of the Uniform Commercial Code). "Lenders" means the financial institutions signatory to the Credit Agreement and their respective successors and assigns. "Lien" of a Person means any security interest, mortgage, pledge, hypothecation, lien, claim, charge, encumbrance, title retention agreement, or lessor's interest under a Capitalized Lease, in, of or on any property of such Person. "Obligations" means all "Obligations" as defined in the Credit Agreement. "Person" means an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or association or any other entity or a government or any department or agency or political subdivision thereof. "Pledged Deposits" means, collectively, the following and all proceeds thereof: (a) the cash collateral accounts referred to in Section 7.2 hereof, and (b) all time deposits of money, whether or not evidenced by certificates, which the Borrower may from time to time designate as pledged to the Agent, on behalf of the Lenders, as security for any Obligation, and all rights to receive interest on said deposits. "Receivables" means, collectively, the Accounts, Chattel Paper, Documents, General Intangibles, Pledged Deposits and Instruments. "Section" means a numbered section of this Security Agreement, unless another document is specifically referenced. "Security Agreement" means this Pledge and Security Agreement, as it may be amended, modified or supplemented from time to time. "Stock Rights" means any stock, any dividend or other distribution and any other right or property which the Borrower shall receive or shall become entitled to receive for any reason whatsoever with respect to, in substitution for or in exchange for any shares of stock constituting Collateral and any and all stock, any right to receive stock and any right to receive earnings, in which the Borrower now has or hereafter acquires any right, issued by an issuer of any or all such stock. "Uniform Commercial Code" means, unless a specific jurisdiction is referred to, the Uniform Commercial Code as in effect from time to time in the applicable jurisdiction. "Unmatured Default" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement. ii. GRANT OF SECURITY INTEREST. To secure the payment, performance and observance of the Obligations, the Borrower hereby pledges, grants, assigns and transfers to the Agent, for the benefit of the Agent and the ratable benefit of the Lenders, a continuing security interest in, a right of setoff against, and an assignment to the Agent of, the Collateral. iii. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Agent, on behalf of the Lenders, which representations and warranties shall survive the execution and delivery of this Security Agreement and any investigation by or on behalf of the Agent or any Lender, as follows: (1) CORPORATE EXISTENCE AND STANDING. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and is duly qualified and in good standing as a foreign corporation and is duly authorized to conduct its business in each jurisdiction in which its business is conducted or proposed to be conducted, except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect. (2) AUTHORIZATION AND VALIDITY. The Borrower has the requisite power and authority (corporate and otherwise) and legal right to execute and deliver this Security Agreement and to perform its obligations hereunder. The execution and delivery by the Borrower of this Security Agreement and the performance of its obligations hereunder have been duly authorized by proper corporate proceedings, and this Security Agreement constitutes the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms and creates a security interest which is enforceable against the Borrower in all now owned Collateral and in all hereafter acquired Collateral at the time the Borrower hereafter acquires such rights, in each such case except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and subject also to the availability of equitable remedies if equitable remedies are sought. (3) NO CONFLICT; GOVERNMENT CONSENT. Neither the execution and delivery by the Borrower of this Security Agreement, the creation and perfection of a security interest in the Collateral as contemplated hereby, nor compliance with the provisions hereof, will violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or the Borrower's articles of incorporation or by-laws or the provisions of any indenture, instrument or agreement to which the Borrower is a party or is subject, or by which it, or its property, is bound, or conflict with or constitute a default thereunder, or result in the creation or imposition of any Lien (except to the extent created by this Security Agreement) in, of or on the property of the Borrower pursuant to the terms of any such indenture, instrument or agreement. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either for the execution and delivery by the Borrower of this Security Agreement or for the performance by the Borrower of its obligations under this Security Agreement except for filings expressly contemplated hereby. (4) PRINCIPAL LOCATION. The Borrower's mailing address, and the location of its chief executive office and the books and records relating to the Receivables is disclosed in Exhibit A hereto. The Borrower has no other places of business and maintains no tangible Collateral except as separately set forth in Exhibit A hereto. None of said places of business are leased by the Borrower as lessee except those designated as such in Exhibit A hereto. (5) NO OTHER NAMES. Except as set forth in Exhibit B hereto, since July 1, 1994, the Borrower has not conducted business under any name except the name or trade name in which it has executed this Security Agreement. (6) NO DEFAULT. No Default or Unmatured Default exists. (7) FILING REQUIREMENTS. Except with respect to vehicles, none of the Equipment owned by the Borrower is covered by any certificate of title. None of the Collateral (other than the Collateral defined in the Intellectual Property Assignment of Security Interests as of the date hereof, between Borrower and Agent) is of a type in which security interests or liens may be filed under any federal statute. The legal description and street address of the property on which any Fixtures are located is set forth in Exhibit C hereto, together with the name and common address of the record owner of each such property. (8) NO FINANCING STATEMENTS. No financing statement describing all or any portion of the Collateral which has not lapsed or been terminated naming the Borrower as debtor has been filed in any jurisdiction except financing statements in respect of Liens permitted by Section 6.18 of the Credit Agreement. (9) NECESSARY FILINGS. All filings, registrations and recordings necessary or appropriate to create, preserve, protect and perfect the security interest granted by the Borrower to the Agent, on behalf of the Lenders, hereby in respect of the Collateral have been accomplished and the security interest granted to the Agent, on behalf of the Lenders, pursuant to this Security Agreement in and to the Collateral constitutes a perfected security interest, to the extent that a security interest may be obtained by filing, registration or recording, except for Pledged Deposits with other institutions not designated therein, superior and prior to the rights of all other Persons therein and subject to no other Liens (except Liens permitted by Section 6.18 of the Credit Agreement) and is entitled to all the rights, priorities and benefits afforded by the Uniform Commercial Code or other relevant law as enacted in any relevant jurisdiction which relates to perfected security interests. Without limiting in any way the Obligations of the Borrower set forth herein, if the Agent or any Lender shall notify the Borrower of any filing required to be made pursuant to this Section, the Borrower shall promptly, and in any event within ten (10) Business Days from such notice, make any such filing. (10) TITLE TO COLLATERAL. Except as set forth in the Credit Agreement, the Borrower has good and marketable title, free of all Liens other than those permitted by Section 6.18 of the Credit Agreement, to all of the properties and assets reflected in the most recent balance sheet of the Borrower delivered to Agent and Lenders pursuant to Section 6.1 of the Credit Agreement as being owned by it and to all of the properties and assets acquired by it after the date thereof, except for assets sold, transferred or otherwise disposed of in the ordinary course of business since the date of such balance sheet or as permitted by Section 6.13 of the Credit Agreement. (11) RECEIVABLES. The names of the obligors, amounts owing, due dates and other information with respect to the Receivables are and will be correctly stated in all material respects in all records of the Borrower relating thereto and in all invoices and reports with respect thereto furnished to the Agent by the Borrower from time to time. (12) INSURANCE. Schedule I lists as of the date hereof all insurance of any nature maintained for current occurrences of Borrower and its Subsidiaries, as well as a summary of such insurance. b. COVENANTS. From the date of this Security Agreement, and thereafter until this Security Agreement is terminated pursuant to Section 9.13: (1) INSPECTION. The Borrower will permit the Agent and the Lenders, by their representatives and agents, to inspect the Collateral, to examine and make copies of the records of the Borrower relating thereto, and to discuss the Collateral and the records of the Borrower with respect thereto with, and to be advised as to the same by, the Borrower's officers and employees and, in the case of any Receivable, with any person or entity which is or may be obligated thereon, all upon reasonable prior notice from the Agent and at such reasonable times and intervals as the Agent may determine, all at the Borrower's expense with the same rights to, and limited to, expense reimbursement as provided in accordance with Section [9.7] of the Credit Agreement or inspections permitted thereby. (2) TAXES. The Borrower will pay when due all taxes, assessments and governmental charges and levies upon the Collateral, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves under Agreement Accounting Principles have been established and to which no material risk of enforcement exists. (3) RECORDS AND REPORTS. The Borrower will maintain satisfactory and appropriate books and records with respect to the Collateral and furnish to the Agent, with sufficient copies for each of the Lenders, such reports relating to the Collateral as the Agent shall from time to time reasonably request. (4) NOTICE OF DEFAULT. The Borrower will give prompt notice in writing to the Agent and the Lenders of the occurrence of any Default or Unmatured Default and of any other development, financial or other, of which the Borrower has knowledge and which could reasonably be expected to have a Material Adverse Effect. (5) FINANCING STATEMENTS AND OTHER ACTIONS. The Borrower will promptly execute and deliver to the Agent all financing statements and other documents from time to time requested by the Agent or any Lender in order to perfect a security interest or to maintain a perfected security interest in the Collateral. (6) DISPOSITION OF COLLATERAL. The Borrower will not sell, lease or otherwise dispose of the Collateral except as permitted by the Credit Agreement. (7) LIENS. The Borrower will not create, incur, or suffer to exist any Lien upon the Collateral except the security interests created by this Security Agreement and Liens permitted pursuant to Section 6.18 of the Credit Agreement. (8) CHANGE IN LOCATION OR NAME. The Borrower will not (a) maintain a place of business, hold tangible Collateral or maintain records with respect to any Receivable at a location other than a location specified on Exhibit A hereto, or maintain Inventory and Equipment in the State of Tennessee with an aggregate net book value in excess of $2,000,000, (b) change its name, or (c) change its mailing address, unless the Borrower shall have given the Agent not less than thirty (30) days' prior written notice thereof, and the Agent shall have determined that after giving effect to any such change of name, address or location, and the making of any additional filings, registrations or recordings as the Agent shall determine necessary, the Agent, for the benefit of the Lenders, shall have a valid and continuing, first perfected security interest in the Collateral, except for Liens permitted pursuant to Section 6.18 of the Credit Agreement. (9) OTHER FINANCING STATEMENTS. The Borrower will not SIGN or authorize the signing on its behalf of any financing statement naming it as debtor covering all or any portion of the Collateral, except financing statements naming the Agent, on behalf of the Lenders, as secured party and those evidencing Liens permitted pursuant to Section 6.18 of the Credit Agreement and covering only property expressly permitted to be pledged in such transactions. (10) PROTECTION OF THE LENDERS' SECURITY. The Borrower will do nothing to impair the rights of the Agent or the Lenders in the Collateral. The Borrower will at all times keep the Collateral insured in favor of the Agent and the Lenders in compliance with the requirements of the Credit Agreement. The Borrower assumes all liability and responsibility in connection with the Collateral acquired by it, and the liability of the Borrower to pay its Obligations shall in no way be affected or diminished by reason of the fact that such Collateral may be lost, stolen, damaged or for any reason whatsoever unavailable to the Borrower. (11) TITLED EQUIPMENT, ETC. The Borrower will promptly notify the Agent in writing upon (a) acquiring any interest hereafter in Equipment covered by any certificate of title, (b) ACQUIRING any interest hereafter in Collateral that is of a type where a security interest or lien may be registered, recorded or filed under, or notice thereof given under, any federal statute or regulation and (c) acquiring any interest hereafter in any property that constitutes "Collateral" under the form of Intellectual Property Assignment attached as Exhibit D hereto. (12) INSTRUMENTS, CHATTEL PAPER, DOCUMENTS AND PLEDGED DEPOSITS. Promptly upon request of the Agent, the Borrower will deliver to the Agent (a) the originals of all Instruments, Documents, Chattel Paper and Pledged Deposits which are evidenced by certificates included in the Collateral endorsed in blank, marked with such legends and assigned as the Agent shall specify, and (b) hold in trust for the Agent, on behalf of the Lenders, upon receipt and immediately thereafter deliver to the Agent, on behalf of the Lenders, any Instrument or Document evidencing or constituting Collateral (except, prior to the occurrence of a Default, ordinary cash dividends paid with respect to the Instruments which are stock and the Stock Rights). (13) UNCERTIFICATED SECURITIES. The Borrower will permit the Agent and the Lenders from time to time to cause the appropriate issuers of uncertificated securities constituting Instruments to mark their books and records with the numbers and face amounts of all uncertificated securities constituting Instruments and all rollovers and replacements therefor to reflect the Lien of the Agent, on behalf of the Lenders, granted pursuant to this Security Agreement. (14) PLEDGED DEPOSITS. The Borrower will not withdraw all or any portion of any Pledged Deposit or fail to rollover said Pledged Deposit without the prior consent of the Agent. (15) FEDERAL CLAIMS. The Borrower will notify the Agent of any Collateral which, to its knowledge, constitutes a claim against the United States government or any instrumentality or agency thereof (except for claims against any state government, unless requested by the Agent), the assignment of which claim is restricted by federal law. Promptly upon the request of the Agent, the Borrower will take such steps as may be necessary to comply with any applicable federal assignment of claims laws. (16) MAINTENANCE OF RECORDS. The Borrower will keep and maintain at its own cost and expense satisfactory and appropriate records of each Receivable for at least two (2) years from the date on which such Receivable comes into existence, including, without limitation, records of all payments received, all credits granted thereon and all other documentation relating thereto, and the Borrower will make the same available to the Agent for inspection, at the Borrower's own cost and expense, at any and all reasonable times. Upon the occurrence and during the continuance of a Default, the Borrower shall, at its own cost and expense, upon request of the Agent deliver all tangible evidence of its Receivables (including, without limitation, all documents evidencing the Receivables) and such books and records to the Agent or to its representatives (copies of which evidence, books and records may be retained by the Agent) at any time upon its demand. At the request of the Agent, the Borrower shall legend, in form and manner reasonably satisfactory to the Agent, the Receivables and other books, records and documents of the Borrower evidencing or pertaining to the Receivables with an appropriate reference to the fact that the Receivables have been pledged to the Agent for the benefit of the Lenders and that the Agent has a security interest therein. The Borrower expressly agrees that, upon the occurrence and during the continuance of a Default, the Agent may transfer a full and complete copy of the Borrower's books, records, credit information, reports, memoranda and all other writings relating to the Receivables to and for the use by any Person that has acquired or is contemplating acquisition of an interest in the Receivables or the Agent's security interest therein without the consent of the Borrower. (17) CERTAIN AGREEMENTS ON RECEIVABLES. The Borrower will not make or agree to make any discount, credit, rebate or other reduction in the original amount owing on a Receivable or accept in satisfaction of a Receivable less than the original amount thereof other than, prior to the occurrence of a Default, in the ordinary course of business and in amounts which are not material to the Borrower. (18) COLLECTION OF RECEIVABLES. Except as otherwise provided in this Security Agreement, the Borrower will collect and enforce, at the Borrower's sole expense, all amounts due or hereafter due to the Borrower under the Receivables. (19) FURTHER ACTIONS. The Borrower will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to the Receivables and other property or rights covered by the security interest hereby granted, as the Agent may reasonably require. (20) DISCLOSURE OF COUNTERCLAIM ON RECEIVABLES. If any discount, credit or agreement to make a rebate or to otherwise reduce the amount owing on an individual Receivable in excess of $100,000 or a group of Receivables at any time aggregating in excess of $200,000 exists or if, to the knowledge of the Borrower, any dispute, setoff, claim, counterclaim or defense exists or has been asserted or threatened with respect to an individual Receivable in excess of $100,000 or a group of Receivables at any time aggregating in excess of $200,000 the Borrower will disclose such fact to the Agent in writing in connection with the inspection by the Agent or any Lender of any record of the Borrower relating to such Receivable and in connection with any invoice or report furnished by the Borrower to the Agent relating to such Receivable or a group of Receivables. (21) INSTRUMENTS. If any Receivable in excess of $350,000 becomes evidenced by an Instrument (other than a check payable to the order of the Borrower which is promptly cashed by the Borrower), the Borrower will within ten (10) days notify the Agent thereof, and upon request by the Agent promptly deliver such Instrument to the Agent appropriately endorsed to the order of the Agent as further security hereunder. (22) MAINTENANCE OF GOODS. The Borrower will do all things necessary to maintain, preserve, protect and keep the Inventory and the Equipment in good repair and working and saleable condition as shall be consistent with past practice. (23) INSURANCE. The Borrower will (a) maintain insurance on the Inventory and Equipment as required by Section 6.6 of the Credit Agreement, (b) maintain such other insurance on the Inventory and Equipment for the benefit of the Agent and the Lenders as the Agent shall from time to time request, and (c) furnish to the Agent, upon the request of the Agent, from time to time duplicates of all policies of insurance on the Inventory and Equipment and certificates with respect to such insurance. Without limiting the generality of the foregoing, Borrower shall deliver to Lender as soon as practicable after the date hereof but in any event not later than July 30, 1999 certified copies and endorsements to all of its and its Subsidiaries (a) "All Risk" and business interruption insurance policies, naming Agent, for the benefit of itself and Lenders, loss payee, and (b) general liability and other liability policies naming Agent, for the benefit of itself and Lenders, as an additional insured. All policies of insurance on real and personal property will contain an endorsement, in form and substance acceptable to Agent, showing loss payable to Agent, for the benefit of itself and Lenders (Form 438 BFU or equivalent) and extra expense and business interruption endorsements. Such endorsement, or an independent instrument furnished to Agent, will provide that the insurance companies will give Agent at least 30 days prior written notice before any such policy or policies of insurance shall be altered or canceled and that no act or default of Borrower or any other Person shall affect the right of Agent and Lenders to recover under such policy or policies of insurance in case of loss or damage. Borrower shall direct all present and future insurers under its "All Risk" policies of insurance to pay all proceeds payable thereunder directly to Agent. If any insurance proceeds are paid by check, draft or other instrument payable to any Borrower and Agent jointly, Agent may endorse such Borrower's name thereon and do such other things as Agent may deem advisable to reduce the same to cash. Agent reserves the right at any time, upon review of each Borrower's risk profile, to require additional forms and limits of insurance. Each Borrower shall, on each anniversary of the date hereof and from time to time at Agent's request, deliver to Agent a report by a reputable insurance broker, satisfactory to Agent, with respect to such Person's insurance policies. (24) TITLED VEHICLES. Upon request, the Borrower will give the Agent information as to ownership of any vehicle covered by a certificate of title. Promptly upon request of the Agent, the Borrower will deliver any such certificate of title to the Agent and/or will cause the lien of the Agent, on behalf of the Lenders, to be noted thereupon. v. DEFAULT. (1) The occurrence of any one or more of the following events shall constitute a Default: (a) Any representation or warranty made by or on behalf of the Borrower to the Agent or the Lenders under or in connection with this Security Agreement shall be false in any material respect as of the date on which made. (b) The breach by the Borrower of any of the terms or provisions of Section 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.12, 4.13, 4.14, 4.21, 7 or 8.1 hereof. (c) The breach by the Borrower (other than a breach which constitutes a Default under Section 5.1.1 or 5.1.2 hereof) of any of the terms or provisions of this Security Agreement which is not remedied within twenty (20) days after the giving of written notice by the Agent. (d) Any Collateral shall be transferred or otherwise disposed of, either voluntarily or involuntarily, in any manner not permitted by Section 4.6 or 9.7 hereof or shall be lost, stolen, damaged or destroyed. (e) The occurrence of any "Default" under, and as defined in, the Credit Agreement. (2) ACCELERATION AND REMEDIES. If any Default described in Section 7.6 or 7.7 of the Credit Agreement occurs, the Obligations shall immediately become due and payable without any election or action on the part of the Agent or any Lender. If any other Default occurs, the Obligations may be declared to be due and payable in accordance with the Credit Agreement, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives. (3) REMEDIES; OBTAINING THE COLLATERAL UPON DEFAULT. The Borrower agrees that, if any Default shall have occurred and be continuing, then and in every such case, subject to any mandatory requirements of applicable law then in effect, the Agent may: (i) personally, or by agents or attorneys, immediately take possession of the Collateral or any part thereof, from the Borrower or any other Person who then has possession of any part thereof with or without notice or process of law (unless the same shall be required by applicable law), and for that purpose may enter in an orderly and lawful manner upon the Borrower's premises where any of the Collateral is located and remove the same and use in connection with such removal any and all services, supplies, aids and other facilities of the Borrower; (ii) instruct the obligor or obligors on any contract, agreement, instrument or other obligation (including, without limitation, the Receivables) constituting the Collateral to make any payment required by the terms of such instrument or agreement directly to the Agent, on behalf of the Lenders; (iii) sell or otherwise liquidate, or direct the Borrower to sell or otherwise liquidate, any or all investments made in whole or in part with the Collateral or any part thereof, and take possession of the proceeds of any such sale or liquidation; (iv) with respect to Obligations which are contingent and cannot be accelerated by their nature, require the Borrower to deposit cash or other acceptable collateral in an amount sufficient to cover principal, interest and fees which will have accrued by the maturity date on said Obligations to be held as security for said Obligations in the special collateral account referred to in Section 7.2 hereof; and (v) take possession of the Collateral or any part thereof, by directing the Borrower in writing to deliver the same to the Agent, on behalf of the Lenders, at any reasonable place or places designated by the Agent, in which event the Borrower shall at its own expense: 1) forthwith cause the same to be moved to the place or places so designated by the Agent and there delivered to the Agent, on behalf of the Lenders; 2) store and keep any Collateral so delivered to the Agent, on behalf of the Lenders, at such place or places pending further action by the Agent; and 3) while the Collateral shall be so stored and kept, provide such guards and maintenance services as shall be necessary to protect the same and to preserve and maintain them in good condition; it being understood that the Borrower's obligation so to deliver the Collateral is of the essence of this Security Agreement and that, accordingly, upon application to a court of equity having jurisdiction, the Agent, on behalf of the Lenders, shall be entitled to a decree requiring specific performance by the Borrower of said obligation. (4) DISPOSITION OF THE COLLATERAL. (i) Any Collateral repossessed by the Agent, on behalf of the Lenders, under or pursuant to Section 5.3 hereof and any other Collateral whether or not so repossessed by the Agent, on behalf of the Lenders, upon the occurrence of a Default may be sold, leased or otherwise disposed of under one or more contracts or as an entirety and without the necessity of gathering at the place of sale the property to be sold, and in general in such manner, at such time or times, at such place or places and on such terms and for such prices as the Agent may, in compliance with any mandatory requirements of applicable law, determine to be commercially reasonable. Upon the occurrence and during the continuance of any Default, the Agent, on behalf of the Lenders, shall have the power to foreclose the Borrower's right of redemption in the Collateral by sale, lease or other disposition of the Collateral in accordance with the Uniform Commercial Code as enacted in each state where the Collateral is located. Any of the Collateral may be sold, leased or otherwise disposed of in the condition in which the same existed when taken by the Agent, on behalf of the Lenders, or after any overhaul or repair which the Agent shall determine to be commercially reasonable and the Agent shall be entitled to reimbursement for the payment of any costs or expenses of such overhaul or repair. Any such disposition which shall be a private sale or other private proceeding permitted by the requirements of applicable law shall be made after written notice to the Borrower specifying the time at which such disposition is to be made and the intended sale price or other consideration therefor. Any such disposition which shall be a public sale permitted by such requirements of applicable law shall be made after written notice to the Borrower specifying the time and place of such sale and, in the absence of applicable requirements of law, shall be by public auction. To the extent permitted by any such requirement of law, the Agent, on behalf of the Lenders, may itself bid for and become the purchaser of the Collateral or any item thereof, offered for sale in accordance with this Section 5.4 without accountability to the Borrower. In the payment of the purchase price of the Collateral the purchaser shall be entitled to have credit on account of the purchase price thereof of amounts owing to such purchaser on account of any of the Obligations held by such purchaser and any such purchaser may deliver notes, claims for interest, or claims for other payment with respect to such Obligations in lieu of cash up to the amount which would, upon distribution of the net proceeds of such sale, be payable thereon. Such notes, if the amount payable hereunder shall be less than the amount due thereon, shall be returned to the holder thereof after being appropriately stamped to show partial payment. If, under mandatory requirements of applicable law, the Agent, on behalf of the Lenders, shall be required to make disposition of the Collateral within a period of time which does not permit the giving of notice to the Borrower as hereinabove specified, the Agent need give the Borrower only such notice of disposition as shall be reasonably practicable in view of such mandatory requirements of applicable law. (ii) No notification need be given to the Borrower if it has signed, after an Unmatured Default or Default, a statement renouncing or modifying any right to notification of sale or other intended disposition. In addition to the rights and remedies granted to it in this Security Agreement and in the Credit Agreement, the Agent, on behalf of the Lenders, shall have all the rights and remedies of a secured party under the Uniform Commercial Code of the state in which the Collateral is located. vi. WAIVERS, AMENDMENTS AND REMEDIES. No delay or omission of the Agent or any Lender to exercise any right or remedy granted under this Security Agreement shall impair such right or remedy or be construed to be a waiver of any Default or Unmatured Default or an acquiescence therein, and any single or partial exercise of any such right or remedy shall not preclude other or further exercise thereof or the exercise of any other right or remedy, and no waiver, amendment or other variation of the terms, conditions or provisions of this Security Agreement whatsoever shall be valid unless in writing signed by the Agent and the Required Lenders (if so required by the Credit Agreement), and then only to the extent specifically set forth in such writing; provided, however, that any amendment purporting to release all or substantially all of the Collateral shall be valid only if consented to by each of the Lenders. All rights and remedies contained in this Security Agreement or by law afforded shall be cumulative and all shall be available to the Agent and the Lenders until the Obligations have been paid in full. vii. PROCEEDS; COLLECTION OF RECEIVABLES. (1) COLLECTION OF RECEIVABLES. The Agent may at any time when a Default has occurred and is continuing in its sole discretion by giving the Borrower written notice, elect to require that the Receivables be paid directly to the Agent, on behalf of the Lenders. In such event, the Borrower shall, and shall permit the Agent to, promptly notify the account debtors or obligors under the Receivables of the Agent's and the Lenders' interest therein and direct such account debtors or obligors to make payment of all amounts then or thereafter due under the Receivables directly to the Agent. Upon receipt of any such notice from the Agent, the Borrower shall thereafter hold in trust for the Agent and the Lenders all amounts and proceeds received by it with respect to the Receivables and other Collateral and immediately and at all times thereafter deliver to the Agent, on behalf of the Lenders, all such amounts and proceeds in the same form as so received, whether by cash, check, draft or otherwise, with any necessary endorsements. The Agent shall hold and apply funds so received as provided by the terms of Sections 7.3 and 7.4 hereof. (2) SPECIAL COLLATERAL ACCOUNT. The Agent may require all cash proceeds of the Collateral received by the Agent, on behalf of the Lenders, to be deposited in a special interest bearing cash collateral account with the Agent and held there as security for the Obligations. Prior to a Default or Unmatured Default, the Borrower, upon advance written notice to the Agent, may direct investment of the collected balances in said cash collateral account with the Agent in investments permitted by Section 6.16 of the Credit Agreement; provided, however, upon the occurrence and during the continuance of a Default or Unmatured Default, the Borrower shall have no control whatsoever over said cash collateral account or the investment thereof. The Agent shall from time to time, in its sole discretion, either deposit the collected balances in said cash collateral account into the Borrower's general operating account with the Agent or apply the collected balances in said cash collateral account to the payment of the Obligations whether or not the Obligations shall then be due. (3) APPLICATION OF PROCEEDS. The proceeds of the Collateral shall be applied by the Agent to payment of the Obligations in the following order unless a court of competent jurisdiction shall otherwise direct: (i) FIRST, to payment of all reasonable costs and expenses of the Agent and the Lenders incurred in connection with the collection and enforcement of the Obligations or of the security interest granted to the Agent and the Lenders pursuant to this Security Agreement, including all costs and expenses of any sale pursuant to Sections 5.3 and 5.4 hereof, and of any judicial or private proceedings in which such sale may be made, and of all other expenses, liabilities and advances made or incurred by the Agent, the Lenders and the agents and attorneys of each of them, together with interest at the Default Rate on such costs, expenses and liabilities and on all advances made by the Agent or any Lender from the date any such cost, expense or liability is due, owing or unpaid or any such advance is made, in each case until paid in full; (ii) SECOND, to payment of that portion of the Obligations constituting accrued and unpaid interest and fees, together with interest owing thereon at the Default Rate from the date due, owing or unpaid until paid in full; (iii) THIRD, ratably to payment (i) of the principal of the Obligations, then due, owing or unpaid in respect of any Advances pursuant to the Credit Agreement or the Notes with interest on such unpaid principal at the Default Rate from and after the happening of any Default until paid in full, and (ii) any Rate Hedging Obligations due, owing or unpaid to the Lenders; (iv) FOURTH, to cash collateralize the undrawn portion of all Letters of Credit by deposit with the Agent an amount equal to 110% of the aggregate amount thereof; (v) FIFTH, to payment of any other Obligations due, owing or unpaid until paid in full including, without limitation, any Obligations incurred pursuant to Section 9.3 hereof; and (vi) SIXTH, the balance, if any, after all of the Obligations have been satisfied, shall be remitted to the Borrower or as required by law. (4) REMEDIES CUMULATIVE. Each and every right, power and remedy hereby specifically given to the Agent, for the benefit of the Lenders, shall be in addition to every other right, power and remedy specifically given under this Security Agreement, the Credit Agreement or any other Loan Document now or hereafter existing at law or in equity, or by statute and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time or simultaneously and as often and in such order as may be deemed expedient by the Agent. All such rights, powers and remedies shall be cumulative and the exercise or the beginning of exercise of one shall not be deemed a waiver of the right to exercise any of the others. No delay or omission of the Agent in the exercise of any such right, power or remedy and no renewal or extension of any of the Obligations shall impair any such right, power or remedy or shall be construed to be a waiver of any Default or an acquiescence therein. In the event that the Agent or any Lender shall bring any suit to enforce any of its rights hereunder and shall be entitled to judgment, then in such suit the Agent or such Lender may recover reasonable expenses, including attorneys' fees, which attorneys may be employees of the Agent, and the amounts thereof shall be included in such judgment. (5) DISCONTINUANCE OF PROCEEDINGS. In case the Agent or any Lender shall have instituted any proceeding to enforce any right, power or remedy under this Security Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Agent or such Lender, then and in every such case the Borrower and the Agent or such Lender shall be restored to their respective former positions and rights hereunder with respect to the Collateral, and all rights, remedies and powers of the Agent or such Lender shall continue as if no such proceeding had been instituted. viii. INDEMNITY. (1) INDEMNITY. (i) The Borrower agrees to indemnify the Agent, the Lenders and their respective successors, assigns, employees, agents and servants (each an "Indemnitee") as provided by Section 9.7 of the Credit Agreement as if such Section 9.7 were fully set forth herein. (ii) Without limiting the application of Section 8.1(a) hereof, the Borrower agrees to pay, or reimburse the Agent for any and all reasonable fees (including, without limitation, reasonable attorneys' fees, which attorneys may be employees of the Agent), costs and expenses of whatever kind or nature incurred in connection with the creation, preservation or protection of the Agent's security interest in the Collateral, including, without limitation, all fees and taxes in connection with the recording or filing of instruments and documents in public offices, payment or discharge of any taxes (excluding income, franchise taxes or other taxes levied on gross earnings, profits or the like) or Liens upon or in respect of the Collateral, premiums for insurance with respect to the Collateral (except to the extent that the Borrower has already paid any such premiums in compliance with the Credit Agreement) and all other reasonable fees, costs and expenses in connection with preparing, executing, delivering or administering this Security Agreement and in connection with protecting, maintaining or preserving the Collateral and the Agent's interest therein, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions, suits or proceedings arising out of or relating to the Collateral. (iii) Without limiting the application of Section 8.1(a) or (b) hereof, the Borrower agrees to pay, indemnify and hold each Indemnitee harmless from and against any losses, costs, damages and expenses which such Indemnitee may suffer, expend or incur as a consequence or growing out of any misrepresentation by the Borrower in this Security Agreement or the Credit Agreement or in any statement or writing contemplated by, made or delivered pursuant to or in connection with this Security Agreement or the Credit Agreement, except to the extent that any such loss arises out of the gross negligence or willful misconduct of such Indemnitee. (iv) If and to the extent that the Obligations of the Borrower under this Section are unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of such Obligations which is permissible under applicable law. (v) The Obligations of the Borrower contained in this Section 8.1 shall survive the termination of this Security Agreement and the discharge of the Borrower's other Obligations hereunder. (2) INDEMNITY OBLIGATION SECURED BY COLLATERAL; SURVIVAL. Any amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement shall constitute Obligations secured by the Collateral. The indemnity obligations of the Borrower contained in this Security Agreement shall continue in full force and effect notwithstanding the full payment of all amounts owing under the Credit Agreement and all of the other Obligations and notwithstanding the discharge thereof and the termination of this Security Agreement. ix. GENERAL PROVISIONS. (1) NOTICE OF DISPOSITION OF COLLATERAL. The Borrower hereby agrees that any notice of the time and place of any public sale or the time after which any private sale or other disposition of all or any part of the Collateral shall be deemed reasonable if sent to the Borrower, addressed as set forth in Section 10 hereof, at least ten (10) days prior to any such public sale or the time after which any such private sale or other disposition may be made. (2) Compromises and Collection of Collateral. The Borrower, the Agent and the Lenders recognize that setoffs, counterclaims, defenses and other claims may be asserted by obligors with respect to certain of the Receivables, that certain of the Receivables may be or become uncollectible in whole or in part and that the expense and probability of success in litigating a disputed Receivable may exceed the amount that reasonably may be expected to be recovered with respect to a Receivable. In view of the foregoing, the Borrower agrees that the Agent, on behalf of the Lenders, may at any time and from time to time, if a Default has occurred and is continuing, compromise with the obligor on any Receivable, accept in full payment of any Receivable such amount as the Agent in its sole discretion shall determine or abandon any Receivable, and any such action by the Agent shall be commercially reasonable so long as the Agent acts in good faith based on information known to it at the time it takes any such action. (3) SECURED PARTY PERFORMANCE OF BORROWER OBLIGATIONS. Without having any obligation to do so, upon either (a) notice to the Borrower or (b) the occurrence of an Unmatured Default or a Default, the Agent may perform or pay any obligation which the Borrower has agreed to perform or pay in this Security Agreement and the Borrower shall reimburse the Agent for any amounts paid by the Agent or such Lender pursuant to this Section 9.3. The Borrower's obligation to reimburse the Agent pursuant to the preceding sentence shall be an Obligation payable on demand. (4) AUTHORIZATION FOR SECURED PARTY TO TAKE CERTAIN ACTION. The Borrower irrevocably authorizes the Agent, at any time and from time to time, in the sole discretion of the Agent, and appoints the Agent as its attorney-in-fact to act on behalf of the Borrower, (a) to execute on behalf of the Borrower as debtor and to file financing statements necessary or desirable in the Agent's sole discretion to perfect and to maintain the perfection and priority of the Agent's security interest in the Collateral, on behalf of the Lenders, (b) to endorse and collect any cash proceeds of the Collateral, (c) to file a carbon, photographic or other reproduction of this Security Agreement or any financing statement with respect to the Collateral as a financing statement in such offices as the Agent in its sole discretion deems necessary or desirable to perfect and to maintain the perfection and priority of the Agent's and the Lenders' security interest in the Collateral, (d) to enforce payment of the Receivables in the name of the Agent, any Lender or the Borrower, and (e) to apply the proceeds of any Collateral received by the Agent to the Obligations as provided in Section 7 hereof. This appointment as attorney-in-fact is coupled with an interest and shall be irrevocable for so long as any Obligations are outstanding. (5) SPECIFIC PERFORMANCE OF CERTAIN COVENANTS. The Borrower acknowledges and agrees that a breach of any of the covenants contained in Sections 4.1, 4.5, 4.6, 4.12, 4.21, 5.3, 7 and 9.7 hereof will cause irreparable injury to the Agent and the Lenders and that the Agent and the Lenders have no adequate remedy at law in respect of such breaches and therefore agrees, without limiting the right of the Agent and the Lenders to seek and obtain specific performance of other obligations of the Borrower contained in this Security Agreement, that the covenants of the Borrower contained in the Sections referred to in this Section 9.5 shall be specifically enforceable against the Borrower. (6) USE AND POSSESSION OF CERTAIN PREMISES. Upon the occurrence of a Default or Unmatured Default, the Agent or any Lender shall be entitled to occupy and use any premises owned or leased by the Borrower where records relating to the Collateral are located until the Obligations are paid, without any obligation to pay the Borrower or any other Person for such use and occupancy. (7) DISPOSITIONS NOT AUTHORIZED. The Borrower is not authorized to sell or otherwise dispose of the Collateral except as permitted in the Credit Agreement and notwithstanding any course of dealing between the Borrower and the Agent or any Lender or other conduct of the Agent or any Lender, no authorization to sell or otherwise dispose of the Collateral (except as set forth in the Credit Agreement) shall be binding upon the Agent or any Lender unless such authorization is in writing signed as required by Section 6 hereof. (8) DEFINITION OF CERTAIN TERMS. Terms defined in the Illinois Uniform Commercial Code which are not otherwise defined in this Security Agreement are used in this Security Agreement as defined in the Illinois Uniform Commercial Code as in effect on the date hereof. (9) BENEFIT OF AGREEMENT. The terms and provisions of this Security Agreement shall be binding upon and inure to the benefit of the Borrower, the Agent and the Lenders and each such Person's successors and assigns, except that the Borrower shall not have the right to assign its rights under this Security Agreement or any interest herein without the prior written consent of the Agent. (10) SURVIVAL OF REPRESENTATIONS. All representations and warranties of the Borrower contained in this Security Agreement shall survive the execution and delivery of this Security Agreement. (11) TAXES AND EXPENSES. Any taxes (excluding income taxes, franchise taxes or other taxes levied on gross earnings, profits or the like) payable or ruled payable by any Federal or State authority in respect of this Security Agreement shall be paid by the Borrower, together with interest and penalties, if any. The Borrower shall reimburse the Agent for any and all reasonable outofpocket expenses and internal charges (including reasonable attorneys', auditors' and accountants' fees and reasonable time charges of attorneys, auditors and accountants who may be employees of the Agent or the Lenders) paid or incurred by the Agent in connection with the preparation, execution, delivery, administration, collection and enforcement of this Security Agreement and in the audit, analysis, administration, collection, preservation or sale of the Collateral (including the expenses and charges associated with any periodic or special audit of the Collateral). The Borrower shall reimburse the other Lenders for any and all reasonable outofpocket expenses and internal charges (including reasonable attorneys', auditors' and accountants' fees and reasonable time charges of attorneys, auditors and accountants who may be employees of the Agent or the Lenders) paid or incurred by any Lender in connection with the enforcement of this Security Agreement. (12) HEADINGS. The title of and section headings in this Security Agreement are for convenience of reference only, and shall not govern the interpretation of any of the terms and provisions of this Security Agreement. (13) TERMINATION. This Security Agreement and the Liens arising hereunder shall continue in effect (notwithstanding the fact that from time to time there may be no Obligations or commitments therefor outstanding) until the payment in full of the Obligations and the termination of the Credit Agreement in accordance with its terms and all commitments of the Lenders thereunder, at which time the security interests granted hereby shall terminate and any and all rights to the Collateral shall revert to the Borrower. Upon such termination, the Agent shall promptly return to the Borrower, at the Borrower's expense, such of the Collateral held by the Agent as shall not have been sold or otherwise applied pursuant to the terms hereof. The Agent will promptly execute and deliver to the Borrower such other documents as the Borrower shall reasonably request to evidence such termination. (14) ENTIRE AGREEMENT. This Security Agreement, the Credit Agreement and the other Loan Documents embody the entire agreement and understanding among the Borrower, the Agent and the Lenders relating to the Collateral and supersede all prior written and oral agreements and understandings among the Borrower, the Agent and the Lenders relating to the subject matter hereof. (15) CHOICE OF LAW. THIS SECURITY AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS, WITHOUT REGARD TO CONFLICT OF LAWS PROVISIONS, OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. (16) RELEASES. Upon termination of this Security Agreement in accordance with the provisions of Section 9.13 hereof, the Agent and the Lenders shall, at the Borrower's request and expense, execute such releases as the Borrower may reasonably request, in form and upon terms acceptable to the Agent and the Lenders in all respects. (17) WAIVERS. Except to the extent expressly otherwise provided herein or in any other Loan Document, the Borrower waives, to the extent permitted by applicable law, (a) any right to require either the Agent or any Lender to proceed against any other person, to exhaust its rights in any other collateral, or to pursue any other right which either the Agent or any Lender may have, and (b) with respect to the Obligations, presentment and demand for payment, protest, notice of protest and nonpayment, and notice of the intention to accelerate. (18) COUNTERPARTS. This Security Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Security Agreement by signing any such counterpart. This Security Agreement shall be effective when it has been executed by the Borrower and the Agent. (19) DISTRIBUTION OF REPORTS. The Borrower authorizes the Agent and each Lender, as the Agent or such Lender may elect in its sole discretion, to discuss with and furnish to any other Person having an interest in the Obligations (whether as a guarantor, pledgor of collateral, participant or otherwise) all financial statements, audit reports and other information pertaining to the Borrower or the Collateral whether such information was provided by the Borrower or prepared or obtained by the Agent or such Lender. Neither the Agent nor any Lender, nor any of such Person's employees, officers, directors or agents makes any representation or warranty regarding any audit reports or other analyses of the Borrower's condition which the Agent or such Lender may in its sole discretion prepare and elect to distribute, nor shall the Agent or any Lender, nor any such Person's employees, officers, directors or agents be liable to any person or entity receiving a copy of such reports or analyses for any inaccuracy or omission contained in or relating thereto. x. NOTICES. (1) SENDING NOTICES. Any notice required or permitted to be given under this Security Agreement shall be given in accordance with Section 13.1 of the Credit Agreement. (2) CHANGE IN ADDRESS FOR NOTICES. Each of the Borrower and the Agent may change the address for service of notice upon it by a notice in writing to the other party hereto. IN WITNESS WHEREOF, the Borrower has executed this Security Agreement as of the date first above written. RAWLING'S SPORTING GOODS COMPANY, INC. By:/s/ Rexford K. Peterson Title: Chief Financial Officer ACCEPTED AND AGREED TO: THE FIRST NATIONAL BANK OF CHICAGO, as Agent for the Lenders By:/s/ Nathan Block Title: First Vice President EX-10.4 5 STOCK PLEDGE AGREEMENT This Stock Pledge Agreement, dated as of July 14, 1999, is by and between Rawling's Sporting Goods Company, Inc., and THE FIRST NATIONAL BANK OF CHICAGO, as Agent. R E C I T A L S: 1. Pursuant to the Credit Agreement (as hereinafter defined) the Lenders have agreed to make certain loans and other financial accommodations to the Borrower (as hereinafter defined); and 2. As a condition to further extensions of credit under the Credit Agreement, the Agent and the Lenders have requested that the Borrower grant to the Agent, on behalf of the Agent and the Lenders, a security interest in the Collateral (as hereinafter defined); NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: a. DEFINITIONS. As used in this Pledge Agreement: "Agent" means The First National Bank of Chicago in its capacity as Agent for the Lenders and not in its individual capacity, and any successor Agent appointed pursuant to Article X of the Credit Agreement. "Borrower" means Rawling's Sporting Goods Company, Inc., a Delaware corporation, and its successors and assigns. "Collateral" means the Pledged Stock, the Stock Rights and all proceeds of the foregoing. "Credit Agreement" means that certain Amended and Restated Credit Agreement dated as September 12, 1997 among the Borrower, the Lenders and the Agent, heretofore and hereafter amended, supplemented, restated or otherwise modified from time to time. "Default" means an event described in Section 6.1. "Default Rate" means the rate of interest which may be due and owing from time to time on any Loan and payable to the Borrower under the Credit Agreement pursuant to Section 2.11 of such agreement. "Lien" means any security interest, mortgage, pledge, hypothecation, assignment, lien, claim, charge, encumbrance, title retention agreement, or lessor's interest, in, of or on the Collateral or any portion thereof. "Pledge Agreement" means this Stock Pledge Agreement, as it may be amended, supplemented, restated or otherwise modified from time to time. "Pledged Stock" means all of the outstanding shares of capital stock set forth on Schedule A hereto and any additional capital stock pledged pursuant to Section 5.1 hereof. "Section" means a numbered section of this Pledge Agreement, unless another document is specifically referenced. "Stock Rights" means any stock, any dividend or other distribution and any other right or property which the Borrower shall receive or shall become entitled to receive for any reason whatsoever with respect to, in substitution for or in exchange for any shares of Pledged Stock and any stock, any right to receive stock and any right to receive earnings, in which the Borrower now has or hereafter acquires any right, issued by an issuer of the Pledged Stock. "Unmatured Default" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to such terms in the Credit Agreement. b. PLEDGE AND SECURITY INTEREST. In order to secure the full and complete payment and performance by the Borrower of the Obligations when due, the Borrower hereby pledges and grants to the Agent for the benefit of the Agent and the Lenders, equally and ratably in proportion to the total Obligations owing at any time to the Agent and the Lenders, a first priority lien on, and security interest in, all of the Borrower's right, title and interest in and to the Collateral. c. DEPOSIT OF CERTIFICATES FOR PLEDGED STOCK. The certificates representing the Pledged Stock listed on Schedule A attached hereto shall be delivered to the Agent contemporaneously herewith together with appropriate undated stock powers duly executed in blank. Neither the Agent nor the Lenders shall be obligated to preserve or protect any rights with respect to the Pledged Stock or to receive or give any notice with respect thereto whether or not the Agent or any Lender are deemed to have knowledge of such matters. d. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Agent and the Lenders that: i. EXISTENCE AND STANDING. The Borrower is duly organized and is validly existing and in good standing under the laws of its jurisdiction of incorporation, and the Borrower has all requisite authority to conduct its business in each jurisdiction in which its business is conducted. ii. AUTHORIZATION, VALIDITY AND ENFORCEABILITY. The execution, delivery and performance by the Borrower of this Pledge Agreement has been duly authorized by proper corporate proceedings, and this Pledge Agreement constitutes a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, and creates a security interest which is enforceable against the Borrower in all now owned and hereafter acquired Collateral except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and subject also to the availability of equitable remedies if equitable remedies are sought. No consent or approval of any Governmental Authority which has not been obtained is required in connection with the execution, delivery and performance by the Borrower of this Pledge Agreement. iii. CONFLICTING LAWS AND CONTRACTS. Neither the execution and delivery by the Borrower of this Pledge Agreement, nor the creation and perfection of the security interest in the Collateral granted hereunder, nor compliance by the Borrower with the terms and provisions hereof will violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or the Borrower's articles of incorporation or bylaws, the provisions of any indenture, instrument or agreement to which the Borrower is a party or is subject, or by which it, or its property, is bound, or conflict with or constitute a default thereunder, or result in the creation or imposition of any Lien (except to the extent created by the Pledge Agreement) pursuant to the terms of any such indenture, instrument or agreement. iv. NO DEFAULT. No Default or Unmatured Default exists. v. PLEDGED STOCK. The Borrower is the direct and beneficial owner of each share of the Pledged Stock and the Pledged Stock represents the percentage (on a fully diluted basis) of the issued and outstanding capital stock of its issuer as set forth on Schedule A hereto. All of the shares of the Pledged Stock are duly authorized, validly issued, fully paid and nonassessable. The Borrower has good and marketable title to the Pledged Stock and has all requisite rights, power, and authority to execute, deliver and comply with the terms of this Pledge Agreement and to pledge and deliver the Collateral to the Agent pursuant hereto. The Pledged Stock is free and clear of all Liens, options, warrants, puts, calls, or other rights of third persons, and restrictions, other than (i) those liens arising under this Pledge Agreement and (ii) restrictions on transferability imposed by applicable state and Federal securities laws, rules and regulations. Assuming the Agent has possession of the Pledged Stock, the pledge, assignment and delivery of the Pledged Stock pursuant to this Pledge Agreement creates a valid, continuing, first perfected Lien on the Pledged Stock in favor of the Agent, for the benefit of the Agent and the Lenders, subject to no prior Lien of any other Person. e. COVENANTS. From the date hereof and continuing thereafter until this Pledge Agreement is terminated pursuant to Section 8.10, the Borrower covenants and agrees with the Agent and the Lenders as follows: i. PLEDGE OF ADDITIONAL STOCK. If the Borrower shall at any time acquire any additional shares of the capital stock of any class of the Pledged Stock, whether such acquisition shall be by purchase, exchange, reclassification, dividend, or otherwise, or acquire any new shares of capital stock of any newly formed or acquired Subsidiary (to the extent permitted by the Credit Agreement), the Borrower shall forthwith (and without the necessity for any request or demand by the Agent or any Lender) deliver the certificates representing such shares to the Agent, in the same manner as described in Section 3, provided, Borrower shall be obligated to pledge hereunder not more than 65% of each class of stock held by it in Rawlings de Costa Rica, S.A. The Borrower will hold in trust for the Agent and the Lenders upon receipt and immediately thereafter deliver to the Agent any other instrument evidencing or constituting Collateral (except, prior to the occurrence of an Unmatured Default or a Default, ordinary cash dividends, if any, paid with respect to the Pledged Stock and the Stock Rights and permitted by the Credit Agreement). ii. TITLE; SECURITY INTEREST AND LIEN. The Borrower (a) will preserve, warrant, and defend title to and ownership of the Pledged Stock and the Lien in the Collateral created hereby against the claims of all Persons whomsoever; (b) will not at any time assign, transfer, or otherwise dispose of its right, title and interest in and to any of the Collateral; (c) will not do or suffer any matter or thing whereby the Lien created by this Pledge Agreement in and to the Collateral might or could be impaired; and (d) will not at any time, directly or indirectly, create, assume, or suffer to exist any Lien, warrant, put, option, or other rights of third Persons and restrictions in and to the Collateral or any part thereof other than (i) those Liens arising under this Pledge Agreement and (ii) restrictions on transferability imposed by applicable state and Federal securities laws, rules and regulations. iii. FURTHER ASSURANCES. The Borrower, at its expense, shall from time to time execute and deliver to the Agent all such other assignments, certificates, supplemental documents and financing statements, and do all other acts or things as the Agent may reasonably request in order to more fully create, evidence, perfect, continue and preserve the priority of the Lien created hereby. iv. Pledged Stock. (1) CHANGES IN CAPITAL STRUCTURE OF ISSUERS. The Borrower will not (i) permit or suffer any issuer of Pledged Stock to dissolve, liquidate, retire any of its capital stock, reduce its capital or merge or consolidate with any other entity, except for a merger permitted by Section 6.12 of the Credit Agreement, or (ii) vote any of the Pledged Stock in favor of any of the foregoing. (2) ISSUANCE OF ADDITIONAL STOCK. The Borrower will not permit or suffer the issuer of any of the Pledged Stock to issue any stock, any right to receive stock or any right to receive earnings, except to the Borrower. (3) DISPOSITION OF COLLATERAL. The Borrower will not sell or otherwise dispose of all or any part of the Collateral. (4) REGISTRATION OF PLEDGED STOCK. After the occurrence of a Default, the Borrower will, to the extent permitted by applicable law, permit any registerable Collateral to be registered in the name of the Agent or its nominee at any time at the option of the Required Lenders. (5) EXERCISE OF RIGHTS IN PLEDGED STOCK. The Borrower will permit the Agent or its nominee at any time after the occurrence of a Default, without notice, to exercise all voting and corporate rights relating to the Collateral, including, without limitation, exchange, subscription or any other rights, privileges, or options pertaining to any shares of the Pledged Stock and the Stock Rights as if it were the absolute owner thereof. v. NOTICE OF DEFAULT. The Borrower will give prompt notice in writing to the Agent and the Lenders of the occurrence of any Default or Unmatured Default and of any other development, financial or otherwise, which might materially adversely affect the Collateral. f. RIGHTS OF BORROWER, AGENT AND THE LENDERS. i. DEFAULT; EXERCISE OF STOCKHOLDER RIGHTS. (a) Unless and until a Default shall occur and be continuing, the Borrower shall be entitled to receive all cash dividends or other distributions on the Pledged Stock except (i) distributions made in capital stock on the Pledged Stock resulting from stock dividends or on subdivision, combination, or reclassification of the outstanding capital stock of any corporation or as a result of any merger, consolidation, acquisition or other exchange of assets of any corporation; and (ii) all sums paid on any Pledged Stock upon liquidation or dissolution or reduction of capital, repurchase, retirement or redemption. All such sums, dividends, distributions, proceeds or property described in the immediately preceding clauses (i) and (ii) shall, if received by any Person other than the Agent, be held in trust for the benefit of the Agent and the Lenders and shall forthwith be delivered to the Agent for the benefit of the Agent and the Lenders (accompanied by proper instruments of assignment and/or stock powers executed by the Borrower in accordance with the Agent's instructions) to be held subject to the terms of this Pledge Agreement. Upon the occurrence of a Default, the Agent, for the benefit of the Agent and the Lenders, shall be entitled to receive all payments of whatever kind made upon or with respect to any Collateral and to hold such payments as Collateral or apply such payments pursuant to the terms of this Agreement and the Credit Agreement. The relative rights of the Agent and the Lenders to receive such payments shall be in proportion to the relative amounts of all Obligations owing to the Agent and the Lenders and the aggregate amount of all Obligations then outstanding. As used herein, the term "Default" shall mean the occurrence of any one or more of the following events: (i) Any representation or warranty made by or on behalf of the Borrower to the Agent or the Lenders under or in connection with this Pledge Agreement shall be false in any material respect as of the date on which made. (ii) The breach by the Borrower of any of the terms or provisions of Section 5.1, 5.3, 5.4.1, 5.4.2, 5.4.3, 5.4.5, 5.5 or 7(b). (iii) The breach by the Borrower (other than a breach which constitutes a Default under Section 6.1(a)(A) or 6.1(a)(B)) of any of the terms or provisions of this Pledge Agreement which is not remedied within 20 days after the giving of written notice by the Agent. (iv) The Agent shall not have a first perfected security interest in the Collateral, other than cash dividends and other distributions which the Borrower is entitled to retain pursuant to Section 6.1 hereof. (v) The occurrence of any "Default" under, and as defined in, the Credit Agreement. (b) Prior to the occurrence of a Default, the Borrower shall have the sole and exclusive right to vote and give consents with respect to all of the Collateral and to consent to, ratify, or waive notice of any and all meetings. Upon the occurrence of a Default, the Agent, shall have the exclusive right, but shall not be obligated, at the election of the Required Lenders (A) to vote and give consents with respect to the issuer of any Pledged Stock and to join in and become a party to any plan of recapitalization, reorganization, or readjustment (whether voluntary or involuntary) as shall seem desirable to the Agent, on behalf of the Lenders, to protect or further their interests in respect of the Collateral, (B) to deposit the Collateral under any such plan, and (C) to make any exchange, substitution, cancellation, or surrender of the Collateral required by any such plan and to take such action with respect to the Collateral as may be required by any such plan or for the accomplishment thereof, and no such disposition, exchange, substitution, cancellation, or surrender shall be deemed to constitute a release of the Collateral from the Lien of this Pledge Agreement. ii. RIGHT OF SALE AFTER DEFAULT. Upon the occurrence and during the continuance of a Default the Agent on behalf of the Lenders may exercise any or all of the rights and remedies provided (i) in this Pledge Agreement, (ii) to a secured party when a debtor is in default under a security agreement by the Illinois Uniform Commercial Code and (iii) by any other applicable law including, without limitation, any law governing the exercise of a bank's right of setoff or bankers' lien. Without limiting the generality of the foregoing, upon the occurrence and continuance of a Default, the Agent may sell, without recourse to judicial proceedings, with the right to bid for and buy, free from any right of redemption, the Collateral or any part thereof, upon ten days' notice (which notice is agreed to be reasonable notice for the purposes hereof) to the Borrower of the time and place of sale, for cash, upon credit or for future delivery, at the Lenders' option and in the Lenders' complete discretion: (a) At public sale, including a sale at any broker's board or exchange; (b) At private sale in any commercially reasonable manner which will not require the Collateral, or any part thereof, to be registered in accordance with the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder, or any other law or regulation. The Agent and the Lenders are also hereby authorized, but not obligated, to take such actions, give such notices, obtain such consents, and do such other things as they may deem required or appropriate in the event of sale or disposition of any of the Collateral. The Borrower understands that the Agent, on behalf of the Lenders, may in its discretion approach a restricted number of potential purchasers and that a sale under such circumstances may yield a lower price for the Collateral, or any portion thereof, than would otherwise be obtainable if the same were registered and sold in the open market. The Borrower agrees that (i) in the event the Agent shall so sell the Collateral, or any portion thereof, at such private sale or sales, the Agent and the Lenders shall have the right to rely upon the advice and opinion of any Person who regularly deals in or evaluates stock of the type constituting the Collateral as to the price obtainable in a commercially reasonable manner upon such a private sale thereof, and (ii) such reliance shall be conclusive evidence that the Agent and the Lenders handled such matter in a commercially reasonable manner. In the case of any sale by the Agent on behalf of the Lenders of the Collateral on credit or for future delivery, the Collateral sold may be retained by the Agent until the selling price is paid by the purchaser, but neither the Agent nor any Lender shall incur liability in case of failure of the purchaser to take up and pay for the Collateral so sold. In the event that the Agent and the Lenders reasonably determine that a private sale is not economically practical, and if in the opinion of the Agent and the Lenders it is necessary or advisable to have such securities registered under the provisions of such Act, or any similar law relating to the registration of securities, the Borrower agrees, at its own expense, to (i) execute and deliver all such instruments and documents, and do or cause to be done such other acts and things, as may be necessary or, in the opinion of the Agent, advisable to register such securities under the provisions of such Act or any applicable similar law relating to the registration of securities, and the Borrower will use its best efforts to cause the registration statement relating thereto to become effective and to remain effective for such period as the Agent shall request, and to make all amendments thereto and/or to the related prospectus which, in the opinion of the Agent, are necessary or desirable, all in conformity with the requirements of such Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (ii) use its best efforts to qualify such securities under state "blue sky" or securities laws, all as reasonably requested by the Agent; and (iii) at the request of the Agent, indemnify and hold harmless the Lenders, the Agent, any underwriters (and any Person controlling any of the foregoing), and their respective employees, officers, agents, attorneys, and accountants (collectively, the "Indemnified Parties") from and against any loss, liability, claim, damage, and expense (including, without limitation, fees of counsel incurred in connection therewith) under such Act or otherwise, insofar as such loss, liability, claim, damage, or expense arises out of or is based upon any untrue statement or alleged untrue statement of any material fact furnished by the Borrower contained in any registration statement under which such securities were registered under such Act or other securities laws, any preliminary prospectus or final prospectus contained therein, or arise out of or are based upon any omission or alleged omission by the Borrower to state therein a material fact required to be stated or necessary to make the statements therein not misleading, such indemnification to remain operative regardless of any investigation made by or on behalf of any Indemnified Party; provided, however, that the Borrower shall not be liable in any case to the extent that any such loss, liability, claim, damage, or expense arises out of or is based upon an untrue statement or alleged untrue statement or an omission or an alleged omission made in reliance upon and in conformity with written information furnished to the Borrower by an Indemnified Party specifically for use in such registration statement or preliminary or final prospectus. iii. APPLICATION OF PROCEEDS. The Agent shall apply the proceeds of the Collateral, including the proceeds of any sales or other disposition of the Collateral, or any part thereof, under Section 6, in the following order unless a court of competent jurisdiction shall otherwise direct: (a) FIRST, to payment of all reasonable costs and expenses of the Agent and the Lenders incurred in connection with the collection and enforcement of the Obligations or of the security interest granted to the Agent and the Lenders pursuant to this Pledge Agreement, including all costs and expenses of any sale pursuant hereto, and of any judicial or private proceedings in which such sale may be made, and of all other expenses, liabilities and advances made or incurred by the Agent, the Lenders and the agents and attorneys of each of them, together with interest at the Default Rate on such costs, expenses and liabilities and on all advances made by the Agent or any Lender from the date any such cost, expense or liability is due, owing or unpaid or any such advance is made, in each case until paid in full; (b) (SECOND, for application in accordance with Section 7.3 of the Borrower Security Agreement; and (c) THIRD, the balance, if any, after all of the Obligations have been satisfied, shall be remitted to the Borrower. iv. GOVERNANCE. All rights and remedies available to the Agent or the Lenders with respect to the grant, foreclosure and enforcement of the security interest and lien granted hereby and with respect to any action permitted hereunder may be exercised solely by the Agent acting with the concurrence of the Required Lenders. g. WAIVERS, AMENDMENTS AND REMEDIES. No delay or omission of the Agent to exercise any right or remedy granted under this Pledge Agreement shall impair such right or remedy or be construed to be a waiver of any Default or an acquiescence therein, and any single or partial exercise of any such right or remedy shall not preclude other or further exercise thereof or the exercise of any other right or remedy, and no waiver, amendment or other variation of the terms, conditions or provisions of this Pledge Agreement whatsoever shall be valid unless in writing signed by the Agent with the concurrence of the Required Lenders, and then only to the extent in such writing specifically set forth; provided, however, that any amendment purporting to release all or any portion of the Collateral shall be valid only if signed by the Agent with the concurrence of all of the Lenders. All rights and remedies contained in this Pledge Agreement or by law afforded shall be cumulative and all shall be available to the Agent and the Lenders until the Obligations have been paid in full. h. GENERAL PROVISIONS. i. INDEMNITY. The Borrower hereby agrees to assume liability for, and does hereby agree to indemnify and keep harmless the Agent and the Lenders, and their respective successors, assigns, agents and employees, from and against any and all liabilities, damages, penalties, suits, costs and expenses of any kind and nature, imposed on, incurred by or asserted against the Agent or the Lenders, or their respective successors, assigns, agents and employees, in any way relating to or arising out of any action taken or failure to act by the Borrower under or in respect of this Pledge Agreement, provided that no such Person shall be entitled to indemnification for liabilities, damages, penalties, suits, costs and expenses caused by its or their own gross negligence or willful misconduct. ii. SECURED PARTY PERFORMANCE OF BORROWER OBLIGATIONS. Without having any obligation to do so, if a Default has occurred and is continuing the Agent may perform or pay any obligation which the Borrower has agreed to perform or pay in this Pledge Agreement and the Borrower shall reimburse the Agent for any amounts paid by the Agent pursuant to this Section 8.2. The Borrower's obligation to reimburse the Agent pursuant to the preceding sentence shall constitute an Obligation payable on demand. iii. AUTHORIZATION FOR SECURED PARTY TO TAKE CERTAIN ACTION. The Borrower irrevocably authorizes the Agent at any time and from time to time in the sole discretion of the Agent and appoints the Agent as its attorney in fact to act on behalf of the Borrower (i) to execute on behalf of the Borrower as debtor and to file financing statements necessary or desirable in the Agent's sole discretion to perfect and to maintain the perfection and priority of the Agent's security interest in the Collateral, (ii) to indorse and collect any cash proceeds of the Collateral, (iii) to file a carbon, photographic or other reproduction of this Pledge Agreement or any financing statement with respect to the Collateral as a financing statement in such offices as the Agent in its sole discretion deems necessary or desirable to perfect and to maintain the perfection and priority of the Agent's and the Lenders' security interest in the Collateral, and (iv) to apply the proceeds of any Collateral received by the Agent to the Obligations as provided in Section 6.3 if a Default has occurred and is continuing. iv. SPECIFIC PERFORMANCE OF CERTAIN COVENANTS. The Borrower acknowledges and agrees that a breach of any of the covenants contained in Sections 5.1 and 5.3 will cause irreparable injury to the Agent and the Lenders, that the Agent and Lenders have no adequate remedy at law in respect of such breaches and therefore agrees, without limiting the right of the Agent or the Lenders to seek and obtain specific performance of other obligations of the Borrower contained in this Pledge Agreement, that the covenants of the Borrower contained in the Sections referred to in this Section 8.4 shall be specifically enforceable against the Borrower. v. DEFINITION OF CERTAIN TERMS. Terms defined in the Illinois Uniform Commercial Code which are not otherwise defined in this Pledge Agreement are used in this Pledge Agreement as defined in the Illinois Commercial Code as in effect on the date hereof. vi. BENEFIT OF AGREEMENT. The terms and provisions of this Pledge Agreement shall be binding upon and inure to the benefit of the Borrower, the Agent and the Lenders and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights under this Pledge Agreement or any interest herein, without the prior written consent of the Agent. vii. SURVIVAL OF REPRESENTATIONS. All representations and warranties of the Borrower contained in this Pledge Agreement shall survive the execution and delivery of this Pledge Agreement. viii. TAXES AND EXPENSES. Any taxes (including income taxes other than taxes on the overall net income of the Lenders) payable or ruled payable by Federal or State authority in respect of this Pledge Agreement shall be paid by the Borrower, together with interest and penalties, if any. The Borrower shall reimburse the Agent for any and all outofpocket expenses and internal charges (including reasonable attorneys' fees and reasonable time charges of attorneys and paralegals who may be employees of the Agent) paid or incurred by the Agent in connection with the preparation, execution, delivery, administration, collection and enforcement of this Pledge Agreement or in the collection, preservation or sale of the Collateral. ix. HEADINGS. The title of and section headings in this Pledge Agreement are for convenience of reference only, and shall not govern the interpretation of any of the terms and provisions of this Pledge Agreement. x. TERMINATION. This Pledge Agreement and the Liens arising hereunder shall (i) become effective as of the date hereof upon the execution hereof and (ii) continue in effect (notwithstanding the fact that from time to time there may be no Obligations outstanding) until no Obligations or commitments of the Agent or the Lenders which could give rise to any Obligations shall be outstanding. Such delivery shall be without warranty of, or recourse to, the Agent. xi. RELEASES; PARTIAL RELEASES. Any cash dividends received by the Borrower in accordance with the terms of Section 6.1(a) shall be deemed released from the Lien of this Pledge Agreement and shall be held by the Borrower (or any transferee of Borrower) free and clear of the Lien created by this Pledge Agreement. Upon termination of this Pledge Agreement in accordance with the provisions of Section 8.10, the Agent shall, at the Borrower's request and expense, execute such release as the Borrower may reasonably request, in form and upon terms acceptable to the Agent in all respects, and shall deliver all certificates representing the Pledged Stock and other property held in respect thereof hereunder which is in the Agent's possession, together with all stock powers or other instruments of transfer reasonably required to effect delivery to the Borrower. xii. ENTIRE AGREEMENT. This Pledge Agreement embodies the entire agreement and understanding among the Borrower, the Lenders and the Agent relating to the Collateral and supersedes all prior agreements and understandings among the Borrower, the Lenders and the Agent relating to the Collateral. xiii. CHOICE OF LAW. THIS PLEDGE AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. xiv. WAIVERS. Except to the extent expressly otherwise provided herein or in any Loan Document, the Borrower waives, to the extent permitted by applicable law, (i) any right to require the Agent or any Lender to proceed against any other Person, to exhaust their rights in any other collateral, or to pursue any other right which the Agent or any Lender may have, (ii) with respect to the Obligations, presentment and demand for payment, protest, notice of protest and nonpayment, and notice of the intention to accelerate, and (iii) all rights of marshalling in respect of any and all of the Collateral. xv. AGENT APPOINTED ATTORNEY-IN-FACT. The Borrower hereby irrevocably appoints the Agent as Borrower's attorney-in-fact, with full authority in the place and stead of the Borrower and in the name of the Borrower or otherwise, from time to time in the Agent's discretion reasonably exercised, to take any action and to execute any instrument that the Agent deems reasonably necessary or advisable to receive, endorse and collect all instruments made payable to the Borrower representing any dividend, interest payment or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same, when and to the extent permitted by this Pledge Agreement. xvi. SEVERABILITY. The provisions of this Pledge Agreement are severable and if any clause or provision hereof shall be held invalid or unenforceable in whole or in part, then such invalidity or unenforceability shall attach only to such clause or provision, or part thereof, and shall not in any manner affect such clause or provision in any other jurisdiction or any other clause or provision in this Pledge Agreement or any jurisdiction. i. NOTICES. i. SENDING NOTICES. Any notice required or permitted to be given under this Agreement may be, and shall be deemed, given and sent in accordance with the provisions of Section 13.1 of the Credit Agreement when deposited in the United States mail, postage prepaid, or by telegraph or telex when delivered to the appropriate office for transmission, charges prepaid, addressed to the Borrower and the Agent at the addresses set forth in the Credit Agreement. ii. CHANGE IN ADDRESS FOR NOTICES. Each of the Borrower and the Agent may change the address for service of notice upon it by a notice in writing to the other party. iii. COUNTERPARTS. This Pledge Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Pledge Agreement by signing any such counterpart. This Pledge Agreement shall be effective when it has been executed by the Borrower and the Agent. j. THE AGENT. The First National Bank of Chicago has been appointed Agent hereunder pursuant to Article X of the Credit Agreement, and the Agent has agreed to act (and any successor Agent shall act) as such only upon the express conditions contained in such Article X. Any successor Agent appointed pursuant to Article X of the Credit Agreement shall be entitled to all the rights, interests and benefits of the Agent hereunder. IN WITNESS WHEREOF, the undersigned have executed this Stock Pledge Agreement as of the date first above written. RAWLING'S SPORTING GOODS COMPANY, INC. By: /s/ Rexford K. Peterson Name: Rexford K. Peterson Title: Chief Financial Officer THE FIRST NATIONAL BANK OF CHICAGO, as Agent By: /s/ Nathan Block Name: Nathan Block Title: First Vice President STATE OF ) ) SS: COUNTY OF ) The foregoing Stock Pledge Agreement was executed and acknowledged before me this _____ day of _________, ____ by _______________, personally known to me to be the ________________ of ____________________, a ____________________, corporation, on behalf of such corporation. NOTARY PUBLIC My Commission Expires: (SEAL) EX-10.5 6 INTELLECTUAL PROPERTY ASSIGNMENT OF SECURITY INTEREST This Intellectual Property Assignment of Security Interest (this "Assignment") is dated as of July 14, 1999 by and between Rawling's Sporting Goods Company, Inc. (the "Assignor"), and THE FIRST NATIONAL BANK OF CHICAGO, as agent (the "Agent") for the Lenders (as hereinafter defined). R E C I T A L S: 1. Pursuant to that certain Amended and Restated Credit Agreement dated as of September 12, 1997 among the Assignor, the financial institutions signatory thereto (the "Lenders"), and the Agent (as heretofore and hereafter restated, amended or modified, the "Credit Agreement"), the Lenders have agreed to make certain loans and other financial accommodations to the Assignor; and 2. As a condition to further extensions of credit under the Credit Agreement the Lenders have required that the Assignor grant to the Agent, on behalf of the Lenders and at the Agent's request, a security interest in certain of the Assignor's assets; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: a. DEFINITIONS AND EFFECT. i. GENERAL TERMS. As used in this Assignment: "Assignment" means this Intellectual Property Assignment of Security Interest, as it may be amended, modified or restated from time to time. "Collateral" has the meaning ascribed to it by Section 2 hereof. "Copyrights" has the meaning ascribed to it by Section 2(a) hereof. "Default" means an event described in Section 5 hereof. "Default Rate" means the rate of interest which may be due and owing from time to time on any Loan and payable by the Assignor under the Credit Agreement pursuant to Section 2.11 of such agreement. "Licenses" has the meaning ascribed to it by Section 2(c) hereof. "Lien" means any security interest, mortgage, pledge, hypothecation, lien, claim, charge, encumbrance, title retention agreement, or lessor's interest, in or on the Collateral or any portion thereof. "Obligations" means all "Obligations" as defined in the Credit Agreement. "Patents" has the meaning ascribed to it by Section 2(d) hereof. "Related Documents" means, collectively, all documents and things in the Assignor's possession related to the production and sale by the Assignor, or any Affiliate, Subsidiary, licensee or subcontractor thereof, of products or services sold by or under the authority of the Assignor in connection with the Patents, Trademarks, Copyrights or Licenses including, without limitation, all product and service specification documents and production and quality control manuals used in the manufacture of products or provision of services sold under or in connection with the Trademarks. "Section" means a numbered section of this Assignment, unless another document is specifically referenced. "Trademarks" has the meaning ascribed to it by Section 2(b) hereof. "Unmatured Default" means an event which but for the lapse of requisite time or the giving of requisite notice, or both, would constitute a Default. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement. b. GRANT OF SECURITY INTEREST. The Assignor hereby sells, assigns, transfers and sets over to the Agent, for the benefit of itself and the Lenders, and grants to the Agent, for the benefit of itself and the Lenders, a security interest in all of the Assignor's right, title and interest in and to all of its now owned or existing and hereafter acquired or arising property described as follows (collectively, the "Collateral") to secure payment of the Obligations: (a) all United States and foreign copyrights, including, without limitation, the copyright registrations listed on Exhibit A hereto, and applications therefor and renewals thereof and all income, royalties, damages and payments now and hereafter due and/or payable under and with respect to all United States and foreign copyrights including, without limitation, damages and payments for past and future infringements thereof (all of the foregoing are sometimes hereinafter individually and/or collectively referred to as the "Copyrights"); (b) all United States and foreign trademarks, tradenames, service marks, trademark and service mark registrations and renewals, and trademark and service mark applications, including, without limitation, the U.S. trademark and service mark applications and registrations listed on Exhibit B hereto, as well as any renewals thereof and the trademarks and service marks covered thereby, and all income, royalties, damages and payments now and hereafter due and/or payable under and with respect to all trademarks, tradenames and service marks including, without limitation, damages and payments for past and future infringements thereof against third parties (all of the foregoing are sometimes hereinafter individually and/or collectively referred to as the "Trademarks"); (c) all license agreements in which the Assignor is or becomes licensed (or grants or permits, whether now or in the future a license) to use a copyright, trademark, service mark, tradename, patent or the related knowhow including, without limitation, the license agreements listed on Exhibit C hereto (the "Licenses"); (d) all United States and foreign patents and patent applications, whether in the United States or any foreign jurisdiction, and the inventions and improvements described and claimed therein and trade secrets and know-how related thereto, including, without limitation, the patents and patent applications listed on Exhibit D hereto, and the re-issues, divisions, renewals, extensions and continuations-in-part thereof and all income, royalties, damages and payments now and hereafter due and/or payable thereunder and with respect thereto, including, without limitation, damages and payments for past and future infringements thereof, the right to sue for past, present and future infringements thereof and all rights corresponding thereto throughout the world (all of the foregoing being sometimes hereinafter individually and/or collectively referred to as the "Patents"); (e) the goodwill of the Assignor's business connected with the use of and symbolized by the Trademarks; (f) the Related Documents; and (g) all products and proceeds, including, without limitation, insurance proceeds, of any of the foregoing. c. REPRESENTATIONS AND WARRANTIES. The Assignor represents and warrants to the Agent and the Lenders that: i. EXISTENCE AND STANDING. The Assignor is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and the Assignor has all requisite authority to conduct its business and is qualified to do business in each jurisdiction in which its business is conducted except those jurisdictions in which the failure to so qualify could not reasonably be expected to have a Material Adverse Effect. ii. AUTHORIZATION, VALIDITY AND ENFORCEABILITY. The execution, delivery and performance by the Assignor of this Assignment have been duly authorized by proper corporate proceedings, and this Assignment constitutes a legal, valid and binding obligation of the Assignor and creates a security interest which is enforceable against the Assignor in all now owned and hereafter acquired Collateral except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting enforcement of creditors' rights generally and subject also to the availability of equitable remedies if equitable remedies are sought. iii. CONFLICTING LAWS AND CONTRACTS. Neither the execution and delivery by the Assignor of this Assignment, the creation and perfection of the security interest in the Collateral granted hereunder, nor compliance with the terms and provisions hereof, will violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Assignor or the Assignor's articles of incorporation or bylaws, the provisions of any indenture, instrument or agreement to which the Assignor is a party or is subject, or by which it, or its property, is bound, or conflict therewith or constitute a default thereunder, or result in the creation or imposition of any Lien (except to the extent created by this Assignment) pursuant to the terms of any such indenture, instrument or agreement. iv. PRINCIPAL LOCATION. As of the date hereof, the Assignor's mailing address, and the location of its chief executive office and the books and records relating to the Collateral are disclosed in Exhibit E hereto. v. NO OTHER NAMES. Except as set forth in Exhibit F hereto, since July 1, 1994, the Assignor has not conducted business under any name except the names in which it has executed this Assignment or as otherwise disclosed pursuant to the Loan Documents. vi. NO DEFAULT. No Default or Unmatured Default exists. vii. NO FINANCING STATEMENTS. Upon the making of the filings and recordings specified in clauses (a) and (b) of Section 3.8 below, the Agent will have a first priority perfected security interest in the Collateral. No financing statement or similar document describing all or any portion of the Collateral which has not lapsed or been terminated naming the Assignor as debtor or assignor has been filed in any jurisdiction or office, including, without limitation, the United States Patent and Trademark Office or the United States Copyright Office except financing statements or similar documents permitted by Section 6.18 of the Credit Agreement. viii. SECURITY INTEREST. This Assignment creates a valid security interest in and collateral assignment of the Collateral, enforceable against the Assignor and all third parties, securing payment of the Obligations, which security interest will be perfected, with respect to rights in the United States, upon (a) the recording of this Assignment in the Office of the Commissioner of Patents and Trademarks and the United States Copyright Office, and (b) the filing of Uniform Commercial Code financing statements with the Secretary of State of Missouri. ix. REGISTRATIONS. To the knowledge of Assignor's officers, the Assignor has duly and properly applied for registration of the Copyrights, Trademarks and Patents listed in Exhibits A, B and D hereto as indicated thereon, respectively, in the United States Patent and Trademark Office or the Copyright Office, as applicable. x. LITIGATION. There has been no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of the Assignor's officers, threatened against or affecting the Assignor or its Subsidiaries challenging the Assignor's right, title and interest in the Collateral or alleging that the Assignor's use of any Collateral violates the rights of any Person which could reasonably be expected to have a Material Adverse Effect. To the knowledge of Assignor's officers, the Assignor's use of the Collateral does not infringe upon the rights of any third party. xi. COMPLETE LISTING. The Copyright, Trademark, and Patent applications and registrations and the Licenses set forth on the Schedules hereto constitute, as of the date hereof, all such applications, registrations and Licenses of the Assignor and Assignor has good and marketable title to all such property, free and clear of all Liens other than those in favor of the Agent and the Lenders or permitted under Section 6.18 of the Credit Agreement. d. COVENANTS. From the date of this Assignment, and thereafter until this Assignment is terminated: i. INSPECTION. The Assignor will permit the Agent, by representatives and agents, to examine and make copies of the records of the Assignor relating to the Collateral, and to discuss the Collateral and the records of the Assignor with respect thereto with, and to be advised as to the same by, the Assignor's officers and employees at such reasonable times and intervals as the Agent may designate. ii. TAXES. The Assignor will pay when due all taxes, assessments and governmental charges and levies upon the Collateral to the extent permitted pursuant to clauses (a) and (b) of Section 6.5 of the Credit Agreement. iii. RECORDS AND REPORTS. The Assignor will maintain complete and accurate books and records with respect to the Collateral, and furnish to the Agent, with sufficient copies for each of the Lenders, such reports relating to the Collateral as the Agent shall from time to time reasonably request. iv. NOTICE OF DEFAULT. The Assignor will give prompt notice in writing to the Agent and the Lenders of the occurrence of any Default or Unmatured Default and of any other development, financial or other, which would have a Material Adverse Effect. v. FINANCING STATEMENTS AND OTHER ACTIONS. The Assignor will execute and deliver to the Agent all financing statements and other documents from time to time requested by the Agent or any Lender in order to maintain and/or perfect a first perfected security interest in the Collateral. vi. DISPOSITION OF COLLATERAL. Except for non-exclusive licensing agreements or as permitted under the Credit Agreement, the Assignor will not sell, lease or otherwise dispose of the Collateral without the prior consent of Agent, which consent shall not be unreasonably withheld. vii. LIENS. The Assignor will not create, incur or suffer to exist any Lien upon the Collateral except the security interest created by this Assignment and as otherwise permitted by Section 6.18 of the Credit Agreement. viii. OTHER FINANCING STATEMENTS. The Assignor will not sign or authorize the signing on its behalf of any financing statement naming it as debtor covering all or any portion of the Collateral, except financing statements naming the Agent, on behalf of the Lenders, as secured parties. ix. PRESERVATION OF VALUE. The Assignor agrees to protect and preserve the value and integrity of all material Trademarks, Patents, Copyrights and Licenses and, to that end, shall maintain the quality of any and all of its products or services bearing the trademarks or service marks included in such Trademarks, Patents, Copyrights or Licenses consistent with the quality of such products and services of such marks as of the date of this Assignment. x. COLLATERAL ROYALTIES; TERM. The Assignor hereby agrees that any use by the Agent, on behalf of the Lenders, of any Patents, Copyrights, Trademarks and Licenses as described above shall be worldwide, to the extent possessed by the Assignor, and without any liability for royalties or other related charges from the Agent or any Lender to the Assignor. The term of the assignments and grants of security interests granted herein shall extend until the expiration of each of the respective Copyrights, Trademarks, Patents and Licenses assigned or pledged hereunder, or until the Obligations have been indefeasibly paid in full, no commitment by the Agent or any Lender exists that could give rise to any Obligations and the Credit Agreement and this Assignment have been terminated, whichever first occurs. xi. ANNUAL REPORT. The Assignor shall provide the Agent upon request, and in any event within 15 days after the end of each calendar quarter, with a list of all new applications for United States and foreign copyright registrations, patents and trademark registrations, which new applications shall be subject to the terms and conditions of this Assignment. The Assignor hereby authorizes the Agent to modify this Assignment by amending the Exhibits hereto to include any such new Trademarks, Patents, Copyrights or Licenses and to re-record this Assignment from time to time as the Agent sees fit. xii. DUTIES OF ASSIGNOR. The Assignor shall have the duty (a) to prosecute diligently any application to register any material Patents, Trademarks and Copyrights pending as of the date hereof or thereafter until all Obligations have been indefeasibly paid in full, (b) to make application on unpatented but patentable material inventions and on material Trademarks and Copyrights, as the Borrower may determine, in its sole discretion, to be appropriate, and (c) to preserve and maintain all rights in all applications to register material Patents, Trademarks and Copyrights. Any expenses incurred in connection with such applications shall be borne by the Assignor. The Assignor shall not abandon any filed application to register material Patents, Trademarks and Copyrights without the prior written consent of the Agent. xiii. DELIVERY OF CERTIFICATES. Upon the request of the Agent, the Assignor shall deliver to the Agent copies of all existing and future official Certificates of Registration for the Patents, Trademarks and Copyrights. xiv. NOTICE OF PROCEEDINGS. The Assignor shall promptly notify the Agent and the Lenders of the institution of, and any adverse determination in, any proceeding in the United States Patent and Trademark Office or any agency of any state or any court regarding the Assignor's right, title and interest in any material Patent, Trademark or Copyright or the Assignor's right to register any material Patent, Trademark or Copyright. e. DEFAULT. i. The occurrence of any one or more of the following events shall constitute a Default: (1) Any representation or warranty made or deemed made by or on behalf of the Assignor to the Agent or the Lenders under or in connection with this Assignment shall be false in any material respect as of the date on which made or deemed made. (2) The breach by the Assignor of any of the terms or provisions of Section 4.4, 4.5, 4.6, 4.7, 4.8, 4.9 or 8.5 hereof. (3) The breach by the Assignor (other than a breach which constitutes a Default under Section 5.1.1 or 5.1.2 hereof) of any of the terms or provisions of this Assignment which is not remedied within twenty (20) days after the giving of written notice by the Agent. (4) The occurrence of any "Default" under and as defined in the Credit Agreement. ii. ACCELERATION AND REMEDIES. If any Default described in the Credit Agreement occurs with respect to the Assignor, the obligations of the Lenders to make Loans thereunder and the right of the Lenders to declare the Obligations to be due and payable shall be determined in accordance with the Credit Agreement. iii. ASSIGNOR'S OBLIGATIONS UPON DEFAULT. Upon the request of the Agent after a Default occurs and is continuing, the Assignor will: (1) ASSEMBLY OF COLLATERAL. Assemble and make available to the Agent the Collateral and all records relating thereto at the main office of the Assignor or at such other place or places reasonably specified by the Agent. (2) SECURED PARTY ACCESS. Permit the Agent, by the Agent's representatives and agents, to enter and remain on any premises where all or any part of the books and records relating thereto, or both, are located, to take possession of all or any part of the Collateral or such books and records and to remove all or any part of the Collateral or such books and records. f. WAIVERS, AMENDMENTS AND REMEDIES. i. REMEDIES. In the event that any Default has occurred and is continuing, the Agent, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon the Assignor or any other person (all and each of which demands, advertisements and/or notices are hereby expressly waived), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, assign, give option or options to purchase, contract to sell or otherwise dispose of and deliver said Collateral, or any part thereof, in one or more portions at public or private sale or sales or dispositions, at any exchange, broker's board or at any of the Agent's offices or elsewhere upon such terms and conditions as the Agent may deem advisable and at such prices as the Agent may deem best, for any combination of cash or on credit or for future delivery without assumption of any credit risk, with the right to the Agent or any Lender upon any such sale or sales or dispositions, public or private, to purchase the whole or any part of said Collateral so sold, free of any right or equity of redemption in the Assignor, which right or equity is hereby expressly waived and released. ii. WAIVERS AND AMENDMENTS. No delay or omission of the Agent or any Lender to exercise any right or remedy granted under this Assignment shall impair such right or remedy or be construed to be a waiver of any Unmatured Default or Default or an acquiescence therein, and any single or partial exercise of any such right or remedy shall not preclude other or further exercise thereof or the exercise of any other right or remedy, and no waiver, amendment or other variation of the terms, conditions or provisions of this Assignment whatsoever shall be valid unless in writing signed by the Agent and the Required Lenders (if so required by the Credit Agreement), and then only to the extent specifically set forth in such writing; provided, however, that any amendment purporting to release all or substantially all of the Collateral shall be valid only if signed by the Agent and all of the Lenders. All rights and remedies contained in this Assignment or by law afforded shall be cumulative and all shall be available to the Agent and the Lenders until the Obligations have been indefeasibly paid in full. g. PROCEEDS. i. SPECIAL COLLATERAL ACCOUNT. After a Default has occurred and is continuing, all cash proceeds of the Collateral received by the Agent shall be deposited in a special cash collateral account with the Agent and held there as security for the Obligations. ii. APPLICATION OF PROCEEDS. The proceeds of the Collateral received by Agent pursuant to Section 7.1 shall be applied by the Agent to payment of the Obligations in the following order unless a court of competent jurisdiction shall otherwise direct: (a) FIRST, to payment of all reasonable costs and expenses of the Agent and the Lenders incurred in connection with the collection and enforcement of the Obligations or of the security interest granted to the Agent and the Lenders pursuant to this Assignment, including all costs and expenses of any sale pursuant hereto, and of any judicial or private proceedings in which such sale may be made, and of all other expenses, liabilities and advances made or incurred by the Agent, the Lenders and the agents and attorneys of each of them, together with interest at the Default Rate on such costs, expenses and liabilities and on all advances made by the Agent or any Lender from the date any such cost, expense or liability is due, owing or unpaid or any such advance is made, in each case until paid in full; (b) SECOND, for application of in accordance with Section 7.3 to the Borrower Security Agreement; and (c) THIRD, the balance, if any, after all of the Obligations have been satisfied, shall be remitted to the Assignor or as required by law. h. GENERAL PROVISIONS. i. NOTICE OF DISPOSITION OF COLLATERAL. The Assignor hereby waives notice of the time and place of any public sale or the time after which any private sale or other disposition of all or any part of the Collateral may be made. To the extent such notice may not be waived under applicable law, any notice made shall be deemed reasonable if sent to the Assignor, addressed as set forth in Section 10 hereof, at least ten (10) days prior to any such public sale or the time after which any such private sale or other disposition may be made. ii. AGENT PERFORMANCE OF ASSIGNOR OBLIGATIONS. Without having any obligation to do so, upon either (a) notice to the Assignor or (b) the occurrence of an Unmatured Default or a Default, the Agent may perform or pay any obligation which the Assignor has agreed to perform or pay in this Assignment and the Assignor shall reimburse the Agent for any amounts paid by the Agent pursuant to this Section 8.2. The Assignor's obligation to reimburse the Agent pursuant to the preceding sentence shall be an Obligation payable on demand. iii. AUTHORIZATION FOR AGENT TO TAKE CERTAIN ACTION. The Assignor irrevocably authorizes the Agent at any time and from time to time, in the sole discretion of the Agent, upon either (a) notice to the Assignor or (b) the occurrence of an Unmatured Default or a Default: (i) to execute on behalf of the Assignor as debtor and to file financing statements and other documents with the United States Patent and Trademark Office or Copyright Office or otherwise which are necessary or desirable in the Agent's sole discretion to perfect and to maintain the perfection and priority of the Agent's and Lenders' security interest in the Collateral; (ii) to endorse and collect any cash proceeds of the Collateral; or (iii) to file a carbon, photographic or other reproduction of this Assignment or any financing statement with respect to the Collateral as a financing statement in such offices as the Agent in its sole discretion deems necessary or desirable to perfect and to maintain the perfection and priority of the Agent's and the Lenders' security interest in the Collateral. At any time and from time to time after the Obligations have been declared or become due and payable in accordance with the Credit Agreement, the Assignor authorizes the Agent to apply the proceeds of any Collateral received by the Agent to the Obligations as provided in Section 7 hereof. iv. SPECIFIC PERFORMANCE OF CERTAIN COVENANTS. The Assignor acknowledges and agrees that a breach of any of the covenants contained in Sections 4.1, 4.5, 4.6, 4.13, 5.3 and 8.5 hereof will cause irreparable injury to the Agent and the Lenders and that the Agent and the Lenders have no adequate remedy at law in respect of such breaches and therefore agree, without limiting the right of the Agent or the Lenders to seek and obtain specific performance of other obligations of the Assignor contained in this Assignment, that the covenants of the Assignor contained in the Sections referred to in this Section 8.4 shall be specifically enforceable against the Assignor. v. DISPOSITIONS NOT AUTHORIZED. Except as provided for by the Credit Agreement, the Assignor is not authorized to sell or otherwise dispose of the Collateral and notwithstanding any course of dealing between the Assignor and the Agent or other conduct of the Agent, no authorization to sell or otherwise dispose of the Collateral shall be binding upon the Agent or the Lenders unless such authorization is in writing signed by the Agent with the consent of the Required Lenders or all Lenders, as required by the Credit Agreement. vi. DEFINITION OF CERTAIN TERMS. Terms defined in the Illinois Uniform Commercial Code which are not otherwise defined in this Assignment are used in this Assignment as defined in the Illinois Uniform Commercial Code as in effect on the date hereof. vii. BENEFIT OF AGREEMENT. The terms and provisions of this Assignment shall be binding upon and inure to the benefit of the Assignor, the Agent and the Lenders and their respective successors and assigns, except that the Assignor shall not have the right to assign its rights or obligations under this Assignment or any interest herein, without the prior written consent of the Agent and the Lenders. viii. SURVIVAL OF REPRESENTATIONS. All representations and warranties of the Assignor contained in this Assignment shall survive the execution and delivery of this Assignment. ix. TAXES AND EXPENSES. Any taxes (including, without limitation, any sales, gross receipts, general corporation, personal property, privilege or license taxes, but not including any federal or other taxes imposed upon the Agent or any Lender, with respect to its gross or net income or profits arising out of this Assignment) payable or ruled payable by any Federal or State authority in respect of this Assignment shall be paid by the Assignor, together with interest and penalties, if any. The Assignor shall reimburse (a) the Agent for any and all reasonable outofpocket expenses and internal charges (including reasonable attorneys', auditors' and accountants' fees and reasonable time charges of attorneys, paralegals, auditors and accountants who may be employees of the Agent) paid or incurred by the Agent in connection with the preparation, execution, delivery, administration, collection and enforcement of this Assignment and in the audit, analysis, administration, collection, preservation or sale of the Collateral (including the expenses and charges associated with any periodic or special audit of the Collateral), and (b) the Agent and each Lender for any and all reasonable outofpocket expenses and internal charges (including reasonable attorneys', auditors' and accountants' fees and reasonable time charges of attorneys, paralegals, auditors and accountants who may be employees of the Agent or such Lender) paid or incurred by the Agent or such Lender in connection with the collection and enforcement of this Assignment. x. HEADINGS. The title of and section headings in this Assignment are for convenience of reference only, and shall not govern the interpretation of any of the terms and provisions of this Assignment. xi. TERMINATION. This Assignment and the Liens arising hereunder shall continue in effect (notwithstanding the fact that from time to time there may be no Obligations or commitments therefor outstanding) until the payment in full of the Obligations and the termination of the Credit Agreement in accordance with its terms and all commitments of the Lenders thereunder, at which time the security interests granted hereby shall terminate and any and all rights to the Collateral shall revert to the Assignor. Upon such termination, the Agent shall promptly return to the Assignor, at the Assignor's expense, such of the Collateral held by the Agent as shall not have been sold or otherwise applied pursuant to the terms hereof. The Agent will promptly execute and deliver to the Assignor such other documents as the Assignor shall reasonably request to evidence such termination. xii. ENTIRE AGREEMENT. This Assignment, the Credit Agreement and the other Loan Documents embody the entire agreement and understanding between the Assignor and the Agent relating to the Collateral and supersede all prior agreements and understandings between the Assignor and the Agent relating to the Collateral. xiii. INDEMNITY. The Assignor hereby agrees to assume liability for, and does hereby agree to indemnify and keep harmless the Agent and each Lender, its successors, assigns, agents and employees, from and against any and all liabilities, damages, penalties, suits, costs, and expenses of any kind and nature, imposed on, incurred by or asserted against the Agent or any Lender, or its successors, assigns, agents and employees, in any way relating to or arising out of this Assignment, or the manufacture, purchase, acceptance, rejection, ownership, delivery, lease, possession, use, operation, condition, sale, return or other disposition of any Collateral (other than liability resulting from the gross negligence or wilful misconduct of the Agent or any such Lender). xiv. RELEASES. Upon termination of this Assignment in accordance with the provisions of Section 8.11 hereof, the Agent and the Lenders shall, at the Assignor's request and expense, execute such releases as the Assignor may reasonably request, in form and upon terms acceptable to the Agent and the Lenders in all respects. xv. WAIVERS. Except to the extent expressly otherwise provided herein or in any other Loan Document, the Assignor waives, to the extent permitted by applicable law, (a) any right to require either the Agent or any Lender to proceed against any other person, to exhaust its rights in any other collateral, or to pursue any other right which either the Agent or any Lender may have, and (b) with respect to the Obligations, presentment and demand for payment, protest, notice of protest and nonpayment, and notice of the intention to accelerate. xvi. COUNTERPARTS. This Assignment may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Assignment by signing any such counterpart. This Assignment shall be effective when it has been executed by the Assignor and the Agent. xvii. CHOICE OF LAW. THIS ASSIGNMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS, WITHOUT REGARD TO CONFLICT OF LAWS PROVISIONS, OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. xviii. MARSHALLING. Neither the Agent nor any Lender shall be under any obligation to marshall any assets in favor of the Assignor or any other party or against or in payment of any or all of the Obligations. i. THE AGENT. The First National Bank of Chicago has been appointed as Agent for the Lenders hereunder pursuant to Article X of the Credit Agreement, and the Agent has agreed to act (and any successor Agent shall act) as such hereunder only on the express conditions contained in such Article X. Any successor Agent appointed pursuant to Article X of the Credit Agreement shall be entitled to all the rights, interests and benefits of the Agent hereunder. j. NOTICES. i. SENDING NOTICES. Any notice required or permitted to be given under this Assignment shall be given in accordance with Section 13.1 of the Credit Agreement. ii. CHANGE IN ADDRESS FOR NOTICES. The Assignor and the Agent or any Lender may change the address for service of notice upon it by a notice in writing to the other. IN WITNESS WHEREOF, the undersigned have caused this Assignment to be executed by their duly authorized representatives as of the date first set forth above. RAWLING'S SPORTING GOODS COMPANY, INC. By:/s/Rexford K. Peterson Its:Chief Financial Officer THE FIRST NATIONAL BANK OF CHICAGO, as Agent By:/s/Nathan Block Its:First Vice President STATE OF ) ) SS: COUNTY OF ) The foregoing Intellectual Property Assignment of Security Interest was executed and acknowledged before me this _____ day of _________, ____ by _______________, personally known to me to be the ________________ of _____________ , a ___________________, corporation, on behalf of such corporation. NOTARY PUBLIC My Commission Expires: (SEAL) EX-27 7
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF RAWLINGS SPORTING GOODS COMPANY, INC. CONTAINED IN ITS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MAY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS AUG-31-1999 MAY-31-1999 1,815 0 47,034 2,469 46,685 98,775 28,363 15,354 138,741 25,175 66,065 0 0 79 47,422 138,741 138,145 138,145 95,568 95,568 35,480 0 3,577 3,401 1,258 2,143 0 0 0 2,143 .27 .27
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