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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1999 or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
Commission File Number 33-64325
REUNION INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 06-1439715
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
300 Weyman Plaza, Suite 340
Pittsburgh, Pennsylvania 15236
(Address, including zip code, of principal executive offices)
(412) 885-5501
(Telephone number, including area code)
62 Southfield Avenue
One Stamford Landing, Suite 208
Stamford, CT 06902
(Former address)
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -----------------------
<S> <C>
Common Stock, $.01 par value American Stock Exchange
Pacific Exchange, Inc.
</TABLE>
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Securities registered pursuant to Section 12(g) of the Act: (None)
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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
As of March 23, 2000, the registrant had 11,990,109 shares of Common Stock
issued and outstanding. As of March 23, 2000 the aggregate market value of the
voting stock held by non-affiliates of the registrant (computed by reference
to the average of the high and low sales prices on the American Stock
Exchange) was approximately $12,029,000.
Documents Incorporated by Reference
Part III, Items 10 through 13 are incorporated from the Registrant's
definitive proxy statement to be filed within 120 days after the close of
Reunion Industries' fiscal year.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
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REUNION INDUSTRIES, INC.
TABLE OF CONTENTS OF FORM 10-K
PART I
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Item No. Page
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1. BUSINESS....................................................... 1
General........................................................ 1
Chatwins Group Merger.......................................... 2
Plastic Products and Services.................................. 2
Agricultural Operations........................................ 5
Discontinued Operations........................................
Environmental Regulation....................................... 5
Employees...................................................... 6
2. PROPERTIES..................................................... 7
3. LEGAL PROCEEDINGS.............................................. 7
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 8
PART II
5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................... 8
6. SELECTED FINANCIAL DATA........................................ 10
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS......................................... 11
7.a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..... 16
8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....... 16
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.......................................... 16
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............. 17
11. EXECUTIVE COMPENSATION......................................... 17
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. 17
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 17
PART IV
14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON
FORM 8-K...................................................... 17
SIGNATURES..................................................... 18
</TABLE>
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FORWARD LOOKING STATEMENTS
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements speak only as of the
date of this Form 10-K, and Reunion Industries expressly disclaims any
obligation or undertaking to publicly release any updates or revisions to any
forward-looking statements contained herein. Although Reunion Industries
believes that its expectations are based on reasonable assumptions, it cannot
assure that the expectations contained in such forward-looking statements will
be achieved. Such statements involve risks, uncertainties and assumptions
which could cause actual results to differ materially from those contained in
such statements. Such factors include, but are not limited to, domestic and
international economic conditions which affect the volume of sales of business
and consumer goods by Reunion Industries' customers and, therefore, the volume
of sales of component parts produced by Reunion Industries; the cost and
availability of materials, labor and other goods and services used in Reunion
Industries' operations; actions of Reunion Industries' competitors and
industry trends, which affect the pricing of Reunion Industries' products; the
cost of interest on Reunion Industries' debt; and the effects on financial
position, results of operations and liquidity of the Chatwins Group merger.
PART I
ITEM 1. Business
General
Reunion Industries, Inc., a Delaware corporation ("Reunion Industries" or
the "Company"), is the successor by merger, effective April 19, 1996, of
Reunion Resources Company. Reunion Industries' executive offices are located
at 300 Weyman Plaza, Suite 340, Pittsburgh, Pennsylvania 15236 and its
telephone number is (412) 885-5501.
Reunion Industries, through its wholly owned subsidiary, Oneida Rostone
Corp. (doing business as ORCplastics), manufactures high volume, precision
plastic products and provides engineered plastics services. Reunion
Industries, through its subsidiary Juliana Vineyards ("Juliana") is also
engaged in wine grape agricultural operations in Napa County, California.
General information about each of Reunion Industries' principal businesses is
set forth below under the captions "Plastic Products and Services",
"Agricultural Operations" and "Discontinued Operations."
During the five year period ended December 31, 1999, Reunion Industries,
through its subsidiaries, was also engaged in exploring for, developing,
producing and selling crude oil and natural gas in the United States. In
November 1995, Reunion Industries' Board of Directors resolved to pursue the
sale of Reunion Industries' oil and gas assets and discontinue Reunion
Industries' oil and gas operations. On May 24, 1996, Reunion Industries
completed the sale of its wholly owned subsidiary, Reunion Energy Company
("Reunion Energy"), which included substantially all of Reunion Industries'
oil and gas assets.
Reunion Industries' original predecessor was organized in California in
1929. Reunion Industries' predecessor, Buttes Gas and Oil Co., and certain of
its subsidiaries emerged in December 1988 from a reorganization in bankruptcy
under Chapter 11 of the United States Bankruptcy Code. Effective June 29,
1993, Buttes Gas & Oil Co. completed a recapitalization that reduced the
number of outstanding shares of common stock by approximately 95% and then
merged into Reunion Resources, a Delaware corporation. Reunion Resources
merged into Reunion Industries effective April 19, 1996.
Reunion Industries' Certificate of Incorporation includes certain capital
stock transfer restrictions which are designed to prevent any person or group
of persons from becoming a 5% shareholder of Reunion Industries and to prevent
an increase in the percentage stock ownership of any existing person or group
of persons that constitutes a 5% shareholder by prohibiting and voiding any
transfer or agreement to transfer stock to the extent that it would cause the
transferee to hold such a prohibited ownership percentage. The transfer
restrictions are
1
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intended to help assure that Reunion Industries' substantial net operating
loss carryforwards will continue to be available to offset future taxable
income by decreasing the likelihood of an "ownership change" (measured over a
three year testing period) for federal income tax purposes. The transfer
restrictions do not apply to transfers approved by Reunion Industries' Board
of Directors if such approval is based on a determination that the proposed
transfer will not jeopardize the full utilization of Reunion Industries' net
operating loss carryforwards.
Chatwins Group Merger
On March 16, 2000, Reunion Industries completed a merger with Chatwins
Group, Inc., a Delaware corporation ("Chatwins Group"), which prior to the
merger owned approximately 37% of Reunion Industries' common stock (see Item
13 "Certain Relationships and Related Transactions"). The merger was approved
by Reunion Industries' board of directors in July 1999 and by its stockholders
in December 1999, subject to certain conditions, including the completion of a
refinancing that would retire certain debt and provide adequate working
capital after the merger. As described below under Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources--Factors Affecting Future Liquidity," Reunion
Industries entered into credit facilities with Bank of America and others
simultaneously with the merger.
To complete the merger, Reunion Industries issued 9,500,000 shares of common
stock to holders of Chatwins Group's common stock. Cash was paid in lieu of
issuing fractional shares. The 1,450,000 shares of Reunion Industries common
stock previously owned by Chatwins Group were retired in the merger. As a
result of the merger, the Chatwins Group stockholders own approximately 79% of
Reunion Industries' outstanding common stock. The merger agreement also
provides that up to an additional 500,000 shares of common stock will be
issued to the Chatwins Group stockholders if the former Chatwins Group
businesses achieve specified performance levels in 2000.
Plastic Products and Services
ORCplastics manufactures plastic products and provides engineered plastics
services through its three divisions. The domestic thermoplastics division
designs and produces injection molded parts and provides secondary services
such as hot stamping, welding, printing, painting and assembly of such
products and designs and builds custom molds at its tool shop in order to
produce component parts for specific customers. The Rostone division compounds
and molds thermoset polyester resins. Data Packaging Limited, which operates
in Ireland, manufactures high volume, precision plastic parts and provides
engineered plastics services.
Domestic Thermoplastics Division
Founded in 1964 as Oneida Molded Plastics, the domestic thermoplastics
division is a full-service plastic injection molder which manufactures high-
volume, precision plastic products and provides secondary services such as hot
stamping, welding, printing, painting and assembly of such products.
Products. The division's principal products consist of specially designed
and manufactured components for office equipment; business machines; computers
and peripherals; telecommunications, packaging and industrial equipment; and
recreational and consumer products.
Markets and Customers. The markets in which the domestic thermoplastics
division competes have sales in excess of $25 billion per year. These markets
are highly competitive. The principal competitors are international companies
with multi-plant operations based in the United States, Germany, France and
Japan, as well as approximately 3,800 independent companies located in the
United States engaged in the custom molding business. Most of these companies
are privately owned and have sales volumes ranging from $3 million to
$7 million per year. In addition, approximately one-half of the total
injection molding market is supplied by in-house molding shops. The domestic
thermoplastics division competes on the basis of customer service, product
quality and price.
2
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During 1999, sales to one customer, Xerox, were approximately 14% of the
domestic thermoplastics division's sales (8% of ORCplastics' consolidated
sales). The loss of this customer could have a material adverse effect on the
results of operations of the domestic thermoplastics division, but sales to
Xerox have declined as a percentage of the division's sales as the Company
diversifies its customer base. During 1998 and 1997, Xerox was responsible for
more than 20% of the division's net sales. In addition to Xerox, the division
has approximately 500 customers in the various industries described above.
ORCplastics continues to seek additional customers in the business machines,
consumer products and medical products industries. We believe that these new
customers provide future growth opportunities for the division.
Sales and Marketing. Sales of products are made through an internal sales
staff and a network of independent manufacturer's representatives working from
nine separate regional offices throughout the eastern United States. The
division generally pays commissions of between 2% and 5% percent of sales
based upon volume.
Manufacturing. The domestic thermoplastics division designs and manufactures
most of its products by injection molding to a customer's specifications. In
most cases, the division obtains a contract to produce a specified number of
custom designed products using custom built molds owned by the customer. The
customer either provides its own molds or has the division design and build or
obtain from a supplier the molds necessary to produce the products. The custom
molds produced by the division are manufactured at its tool shop, which is
located in Phoenix, New York. The division has three injection molding
facilities, which are located in Oneida and Phoenix, New York, and Siler City,
North Carolina.
The principal raw materials used by the domestic thermoplastics division are
thermoplastic polymers. These materials are available from a number of
suppliers. Prices for these materials are affected by changes in market
demand, and there can be no assurances that prices for these and other raw
materials will not increase in the future. The division's contracts with its
customers generally provide that such price increases can be passed through to
the customers.
The majority of the domestic thermoplastics division's engineering work is
related to meeting design requirements and specifications of its customers
that require customized products and developing greater production
efficiencies. To meet these objectives, the division has engineering personnel
at each of its manufacturing locations. The division's business is not
materially dependent on any patents, licenses or trademarks.
Rostone
Founded in 1927, the Rostone division manufactures precision thermoset
plastic molded parts and proprietary thermoset molding compounds.
Products. Rostone's principal products consist of specially designed and
manufactured components for original equipment manufacturers in the
electrical, transportation, appliance and office equipment industries. Rostone
is also a compounder of proprietary fiberglass reinforced materials used in a
number of customer applications.
Markets and Customers. Rostone competes in a market with a limited number of
privately owned competitors and in-house molders on the basis of product
specifications, customer service and price. During 1999, 1998 and 1997, one
customer, Cutler Hammer, was responsible for more than 20% of Rostone's sales.
Sales to Cutler Hammer were approximately 30% of Rostone's sales during 1999
(7% of ORCplastics' consolidated sales). The loss of this customer could have
a material adverse effect on Rostone's results of operations. Rostone
continues to seek new customers in the industries described above and in other
industries.
3
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Sales and Marketing. Sales of Rostone's products are made through an
internal sales staff and a network of independent representatives working from
ten separate offices throughout the central United States. Rostone generally
pays commissions of between 3% and 5% of sales based on volume.
Manufacturing. Rostone manufactures its thermoset products using customer-
owned custom-built molds to produce parts to customer specifications. These
molds are either provided by the customer or designed by Rostone and built by
Oneida's tooling facility or by another supplier. Rostone has one molding
facility, located in Lafayette, Indiana.
The principal raw materials used by Rostone are styrene, polyester resins,
fiberglass and commercial phenolics. These materials are available from a
number of suppliers. Prices and availability of these materials are affected
by changes in market demand, and there can be no assurances that prices for
these and other raw materials used by Rostone will not increase in the future.
When possible, if shortages occur, Rostone engineers new products to provide
its customers a cost-effective alternative to the material in short supply.
Research and development at Rostone is focused on the development of
proprietary thermoset materials under the trade name Rosite(R). Rostone
compounds a wide range of Rosite materials to satisfy its customers' various
needs. Rostone also provides services in meeting customers' design
requirements and specifications of their customized products. Other than
Rosite(R), Rostone's business is not materially dependent on any patents,
licenses or trademarks.
Data Packaging
Founded in 1981, Data Packaging is a full-service custom plastics injection
molder which manufactures high-volume, precision plastic products and provides
engineered plastics services.
Products. Data Packaging's principal products consist of specially designed
and manufactured components for office equipment, business machines, computer
and peripherals, and telecommunications equipment.
Markets and Customers. Data Packaging's markets are highly competitive.
Principal competitors are international companies with operations in Ireland
and Western Europe, and approximately five independent companies in Ireland.
Data Packaging competes on the basis of price, customer service and product
quality. One customer, Hewlett Packard, represented approximately 35% of Data
Packaging's sales during 1999 (7% of ORCplastics' consolidated sales). The
loss of this customer could have a material adverse effect on Data Packaging's
results of operations. Dell Computer represented more than 20% of Data
Packaging's net sales in 1998 but 14% in 1999. Data Packaging continues to
seek new customers in the office equipment and telecommunications industries
in Europe.
Sales and Marketing. Sales of Data Packaging's products are made by the
company's in-house sales force.
Manufacturing. Data Packaging designs and manufactures its products to a
customer's specifications using custom-built molds owned by the customer. The
customer either provides its own molds or has Data Packaging design and obtain
from a supplier the molds necessary to produce the products. All operations
are conducted from one facility in Mullingar, County Westmeath, Ireland.
The principal raw materials used by Data Packaging are thermoplastic
polymers. These materials are available from a number of suppliers. Prices for
these materials are affected by changes in market demand, and there can be no
assurances that prices for these and other raw materials used by Data
Packaging will not increase in the future. Data Packaging's contracts with its
customers generally provide that such price increases can be passed through to
the customers.
4
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The majority of Data Packaging's engineering work is related to meeting
design requirements and specifications of its customers that require
customized products and developing greater production efficiencies. Data
Packaging's business is not materially dependent on any patents, licenses or
trademarks.
Agricultural Operations
Juliana is engaged in wine grape vineyard development and the growing and
harvesting of wine grapes for the premium table wine market. Reunion
Industries' wine grape agricultural operations consist of approximately 3,300
acres, of which approximately 970 acres are suitable for wine grape production
and of which approximately 335 acres are currently in production. This
property is located within the official boundaries of the Napa Valley American
Viticultural Area, the premier grape growing region of North America. Reunion
Industries does not hold a significant position in the wine grape market.
Prices received on the sale of wine grapes may fluctuate widely, depending
upon supply, demand and other factors.
From October 1994 to September 1998, Juliana conducted its agricultural
operations through the Juliana Preserve, a joint venture organized as a
California general partnership. Juliana had a 71.7% interest in the net income
and net assets of the joint venture, but had a 50% voting interest in matters
concerning the operation, development and disposition of the joint venture
assets. In September 1998, Juliana purchased the interest of its joint venture
partner for approximately $5.9 million.
In August 1997, the Preserve sold approximately 520 acres, including
approximately 290 plantable acres, to a Napa Valley winery. In September 1998,
Juliana sold approximately 420 acres, including approximately 250 plantable
acres, to an Australian winery. Also during 1998, Juliana formed the Juliana
Mutual Water Company ("JMWC") to own and operate the water storage and
transmission system for the entire property originally owned by the Juliana
Preserve. Ownership of JMWC is generally in proportion to plantable acres as
specified in the JMWC bylaws. In August 1999, Juliana sold approximately 260
acres, including approximately 190 plantable acres, to a Napa Valley winery.
Juliana is attempting to sell substantially all of the remaining property, but
there can be no assurances that it will be able to do so.
Juliana has undertaken a limited wine grape development effort which
management believes will enhance the value of the property. Approximately 95
acres were planted in 1998. These new plantings should reach production in two
or three years. If the entire property is not sold, additional plantings may
be made in future years if additional funds can be obtained through financing
or from additional property sales. One parcel including approximately 65
plantable acres has been leased to a Napa Valley winery. Juliana also provides
vineyard development and farm management services to certain of the third
party owners and lessees of parcels in the Juliana Preserve.
Environmental Regulation
Various federal, state and local laws and regulations including, without
limitation, laws and regulations concerning the containment and disposal of
hazardous waste, oil field waste and other waste materials, the use of storage
tanks, the use of insecticides and fungicides and the use of underground
injection wells directly or indirectly affect Reunion Industries' operations.
In addition, environmental laws and regulations typically impose "strict
liability" upon Reunion Industries for certain environmental damages.
Accordingly, in some situations, Reunion Industries could be liable for clean
up costs even if the situation resulted from previous conduct of Reunion
Industries that was lawful at the time or from improper conduct of, or
conditions caused by, previous property owners, lessees or other persons not
associated with Reunion Industries or events outside the control of Reunion
Industries. Such clean up or costs associated with changes in environmental
laws and regulations could be substantial and could have a materially adverse
effect on Reunion Industries' consolidated financial position, results of
operations or cash flows.
ORCplastics' plastic products and service business routinely uses chemicals
and solvents, some of which are classified as hazardous substances. Juliana's
vineyard operations routinely use fungicides and insecticides,
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the handling, storage and use of which is regulated under the Federal
Insecticide, Fungicide and Rodenticide Act, as well as California laws and
regulations. Reunion Industries' former oil and gas business and related
activities routinely involved the handling of significant amounts of waste
materials some of which are classified as hazardous substances.
Except as described in the following paragraphs, Reunion Industries believes
it is currently in material compliance with existing environmental protection
laws and regulations and is not involved in any significant remediation
activities or administrative or judicial proceedings arising under federal,
state or local environmental protection laws and regulations. In addition to
management personnel who are responsible for monitoring environmental
compliance and arranging for remedial actions that may be required, Reunion
Industries has also employed outside consultants from time to time to advise
and assist Reunion Industries' environmental compliance efforts. Except as
described in the following paragraphs, Reunion Industries is not aware of any
conditions or circumstances relating to environmental matters that will
require significant capital expenditures by Reunion Industries or that would
result in material adverse effects on its businesses.
In February 1996, Rostone was informed by a contracted environmental
services consulting firm that soil and ground water contamination exists at
its Lafayette, Indiana site. Rostone has initiated a remediation plan under an
agreement with the Indiana Department of Environmental Management and expects
to substantially complete the remediation during 2001. Rostone has expended
approximately $0.3 million and has accrued an additional $0.1 million based on
current estimates of remediation costs. Certain of these costs were
recoverable from CGI Investment Corp., the seller of Rostone. (See Item 13--
"Certain Relationships and Related Transactions".)
In connection with the sale of Reunion Energy, Reunion Industries retained
certain oil and gas properties in Louisiana because of litigation concerning
environmental matters. Reunion Industries is in the process of environmental
remediation under a plan approved by the Louisiana Office of Conservation.
Reunion Industries has recorded an accrual for its proportionate share of the
remaining estimated costs to remediate the site based on plans and estimates
developed by the environmental consultants hired by Reunion Industries. During
1998 Reunion Industries increased this accrual by a charge of $1.2 million to
discontinued operations, based on revised estimates of the remaining
remediation costs. During 1999, Reunion Industries conducted remediation work
on the property. Reunion Industries paid $0.2 million of the total cost of
$0.3 million. At December 31, 1999, the balance accrued for these remediation
costs is approximately $1.3 million. A regulatory hearing was held in January
2000 to consider the adequacy of the remediation conducted to date. No
decision has been rendered to date, but Reunion Industries does not believe
that the cost of future remediation will exceed the amount accrued. Owners of
a portion of the property have objected to Reunion Industries' proposed
cleanup methodology and have filed suit to require additional procedures.
Reunion Industries is contesting this litigation, and believes its proposed
methodology is well within accepted industry practice for remediation efforts
of a similar nature. No accrual has been made for any costs of any alternative
cleanup methodology which might be imposed as a result of the litigation.
Employees
At December 31, 1999, Reunion Industries employed 794 full time employees,
of whom 784 were employed in the plastic products segment, six were employed
in agricultural operations and four were corporate personnel. Reunion
Industries also employs hourly employees in its agricultural operations, the
number of whom varies throughout the year.
In ORCplastics' Rostone division, approximately 164 employees are
represented by the International Brotherhood of Electrical Workers, AFL-CIO,
under a collective bargaining agreement which expires in February 2003.
Substantially all of Data Packaging's 130 hourly employees are represented
by the Services Industrial Profession and Technical Union. Data Packaging
participates in the Irish Business and Employers Confederation,
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which negotiates binding national agreements about employment policy, pay
increases and taxation with the government and trade unions. The current
agreement expires August 2000.
ITEM 2. Properties
Manufacturing Properties
Reunion Industries' properties used in the plastic products and services
segment are as follows:
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Lease
Square Expiration
Division Location Feet Land Acres Title Date Use
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<S> <C> <C> <C> <C> <C> <C>
Domestic Oneida, NY 84,000 3.5 Owned* -- Manufacturing and Administrative
Thermoplastics Phoenix, NY 28,000 -- Leased 1/31/05 Manufacturing
Phoenix, NY 20,000 2.0 Owned* -- Manufacturing
Siler City, NC 130,000 8.3 Owned* -- Manufacturing and Administrative
Rostone Lafayette, IN 168,000 20.0 Owned* -- Manufacturing and Administrative
Data Packaging Mullingar, Ireland 72,000 5.9 Owned -- Manufacturing and Administrative
</TABLE>
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* Subject to mortgages in connection with ORCplastics' credit facility with
The CIT Group/Business Credit, Inc. (see Note 8 of the Notes to the
Consolidated Financial Statements).
Reunion Industries believes that these facilities are suitable and adequate
for ORCplastics' use.
Other Properties
Reunion Industries owns the 3,300 acres on which it conducts its wine grape
agricultural operations and maintains an office facility on its vineyard
property. Reunion Industries is attempting to sell this property.
In connection with the sale of its oil and gas business, Reunion Industries
retained certain oil and gas properties in Louisiana because of litigation
concerning environmental matters. Reunion Industries intends to sell these
properties when the litigation is resolved.
Reunion Industries holds title to or recordable interests in federal and
state leases totaling approximately 55,000 acres near Moab, Utah, known as Ten
Mile Potash. Sylvanite, a potash mineral, is the principal mineral of interest
and occurrence in the Ten Mile Potash property. To date, Ten Mile Potash has
not yielded any significant revenues from mining operations or any other
significant revenues, and Reunion Industries is pursuing the sale or farmout
of these interests.
Reunion Industries subleases, from Stanwich Partners, Inc., a related party
(see Item 13 "Certain Relationships and Related Transactions"), approximately
1,500 square feet of office space in Stamford, Connecticut for its corporate
offices. Management believes the terms of this sublease are comparable to
those available from third parties.
ITEM 3. Legal Proceedings
Certain litigation in which Reunion Industries is involved is described
below.
The owners of a portion of the Reunion Industries property in Louisiana
currently being remediated for environmental contamination have objected to
Reunion Industries' proposed cleanup methodology and have filed suit to
require additional procedures. Reunion Industries is contesting the
litigation, and believes its proposed methodology is well within accepted
industry practice for remediation efforts of a similar nature.
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A suit was filed in December 1999 in the Court of Chancery of the State of
Delaware against Reunion Industries and its directors and Chatwins Group in
connection with the proposed merger. The lawsuit alleges breaches of fiduciary
duty by the defendants in setting the exchange ratio of the merger. The
defendants maintain that the exchange ratio fixed for the merger fairly
reflected the relative values of Reunion Industries and Chatwins Group when
the merger terms were agreed. The suit is in its early stages and no discovery
has begun. Reunion Industries intends to vigorously contest this lawsuit.
Reunion Industries and it subsidiaries are the defendants in other lawsuits
and administrative proceedings which have arisen in the ordinary course of
business. Reunion Industries believes that any material liability which can
result from any of such lawsuits or proceedings has been properly reserved for
in Reunion Industries' financial statements or is covered by indemnification
in favor of Reunion Industries or its subsidiaries, and that, therefore, the
outcome of these lawsuits or proceedings will not have a material adverse
effect on Reunion Industries' financial position, results of operations or
cash flows.
ITEM 4. Submission of Matters to a Vote of Security Holders
At a special meeting of Reunion Industries' stockholders held December 15,
1999, which also served as Reunion
Industries' 1999 annual meeting, stockholders holding a majority of the
shares of Common Stock outstanding as of the close of business on October 22,
1999 voted to approve the proposals included in Reunion Industries' proxy
statement as follows:
<TABLE>
<CAPTION>
For Withhold
Proposal 1: Election of Directors --- --------
<C> <S> <C> <C>
Thomas N. Amonett 3,422,305 331,208
Charles E. Bradley, Sr. 3,422,035 331,478
Thomas L. Cassidy 3,422,125 331,388
W. R. Clerihue 3,422,170 331,343
Franklin Myers 3,422,305 331,208
John G. Poole 3,422,155 331,358
</TABLE>
<TABLE>
<CAPTION>
Broker
For Against Abstentions Non-Votes
--- ------- ----------- ---------
<C> <S> <C> <C> <C> <C>
Proposal 2: Consideration and
approval of the Merger
Agreement with Chatwins
Group, Inc. 2,584,489 429,597 3,699 735,728
<CAPTION>
Broker
For Against Abstentions Non-Votes
--- ------- ----------- ---------
<C> <S> <C> <C> <C> <C>
Proposal 3: To consider and act upon
such other business as
may properly come before
the Meeting 3,317,806 322,245 113,421 --
</TABLE>
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PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Beginning March 23, 2000, Reunion Industries' Common Stock is traded on the
American Stock Exchange (RUN). Previously, Reunion Industries' Common Stock
was traded in the over-the-counter market and was listed on the NASDAQ Small-
Cap Market (RUNI). The stock was also listed on the Pacific Exchange (RUN).
As of March 23, 2000, there were approximately 1,335 holders of record of
Reunion Industries' Common Stock with an aggregate of 11,990,109 shares
outstanding.
The table below reflects the high and low sales prices on the NASDAQ Small-
Cap Market for the quarterly periods in the two years ended December 31, 1999.
The NASDAQ Small-Cap quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
Quarter Ended High Low
- ------------- ------ ------
<S> <C> <C>
1999
March 31........................................................ $5.250 $2.625
June 30......................................................... $4.875 $3.188
September 30.................................................... $3.500 $2.375
December 31..................................................... $2.625 $1.688
1998
March 31........................................................ $5.500 $4.750
June 30......................................................... $7.625 $5.000
September 30.................................................... $6.125 $2.875
December 31..................................................... $3.250 $2.406
</TABLE>
No cash dividends have been declared or paid during the past three years
with respect to the Common Stock. The Board of Directors currently follows a
policy of retaining any earnings for operations and for the expansion of the
business of the company. Cash dividends are also limited by the availability
of funds, including dividend preferences on preferred stock and limitations
contained in Reunion Industries' lending agreements (See Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources--Factors Affecting Future Liquidity").
Therefore, Reunion Industries anticipates that it will not pay any cash
dividends on its Common Stock in the foreseeable future.
9
<PAGE>
ITEM 6. Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1999(1) 1998(2) 1997(3) 1996(4) 1995(5)
------- -------- ------- ------- --------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Operations Data
Continuing Operations:
Operating Revenue............. $76,099 $ 97,318 $93,378 $60,305 $ 10,855
======= ======== ======= ======= ========
Operating Income (Loss)....... (476) 1,495 2,513 1,449 (3,016)
Interest Expense.............. (3,392) (3,221) (3,267) (2,402) (508)
Provision for Bargo Judgment
and Related Costs............ (1,646) (9,239) -- -- --
Bargo Settlement Claim........ 3,617 -- -- -- --
Equity in Writedown of Joint
Venture Development Costs.... -- -- (855) (1,290) --
Other Income (Expense)........ 635 (136) 714 425 (57)
Income Tax Benefit (Expense).. (226) 661 (86) (876) --
------- -------- ------- ------- --------
Loss From Continuing Operations. (1,488) (10,440) (981) (2,694) (3,581)
------- -------- ------- ------- --------
Discontinued Operations:
Agriculture................... -- -- 710 (710) --
Oil and Gas................... 339 (1,710) -- 1,122 (10,389)
------- -------- ------- ------- --------
Income (Loss) From Discontinued
Operations..................... 339 (1,710) 710 412 (10,389)
------- -------- ------- ------- --------
Extraordinary Items............. -- (233) -- -- --
------- -------- ------- ------- --------
Net Loss........................ $(1,149) $(12,383) $ (271) $(2,282) $(13,970)
======= ======== ======= ======= ========
Income (Loss) Per Share--Basic:
Continuing Operations......... $ (0.38) $ (2.69) $ (0.25) $ (.70) $ (.93)
Discontinued Operations....... 0.09 (.44) 0.18 0.11 (2.72)
Extraordinary Items........... -- (0.06) -- -- --
------- -------- ------- ------- --------
Net Loss...................... $ (0.29) $ (3.19) $ (0.07) $ (0.59) $ (3.65)
======= ======== ======= ======= ========
Loss Per Share--Diluted......... $ (0.29) $ (3.19) $ (0.07) $ (0.59) $ (3.65)
======= ======== ======= ======= ========
Balance Sheet Data
Total Assets.................... $66,311 $ 74,874 $72,059 $75,176 $ 51,935
Long-term Obligations........... $21,153 $ 17,237 $12,654 $15,575 $ 7,947
Stockholders' Equity............ $14,545 $ 16,239 $28,317 $28,944 $ 31,254
Weighted Average Common Shares
Outstanding.................... 3,924 3,881 3,855 3,855 3,832
Cash Dividends per Common Share. $ -0- $ -0- $ -0- $ -0- $ -0-
</TABLE>
- --------
(1) Operating income includes a $1.6 million charge for costs related to the
litigation with Bargo Energy Company and a $3.6 million gain from
settlement of this litigation. See Note 3 of the Notes to Consolidated
Financial Statements.
(2) Includes Juliana as a consolidated subsidiary subsequent to the September
1998 purchase of joint venture partner's interest. See Item 1 "Business--
Agricultural Operations." Operating income includes a $9.2 million charge
to record entry of the judgment and related costs in the Bargo
litigation. Net income includes a $1.2 million charge for increase in a
provision for environmental remediation and a $0.5 million charge for a
provision for tax settlement, included in "Discontinued Operations." See
Item 1 "Business-- Environmental Regulation" and Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Discontinued Operations."
(3) Operating income includes a $1.0 million charge for writedown of excess
equipment. Net income also includes a $0.9 million charge for equity in
the write-off of joint venture development costs and income of
10
<PAGE>
$0.7 million from reversal of the 1996 estimated loss on disposal of the
agricultural and real estate operations. See Note 6 of the Notes to the
Consolidated Financial Statements.
(4) Includes the results of operations of Rostone subsequent to its
acquisition on February 2, 1996. Includes the results of two plastics
businesses subsequent to their acquisitions on November 18, 1996.
Includes a $1.3 million impairment charge, a $0.7 million charge for the
estimated loss on disposal of the agricultural and real estate operations
and a $1.1 million net gain from the disposal of the oil and gas
operations.
(5) Includes the results of operations of Oneida Molded Plastics subsequent
to its acquisition on September 14, 1995. Includes a $7.0 million
impairment charge against Reunion Industries' oil and gas properties and
a $3.8 million charge for the expected loss on disposal of the oil and
gas operations.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Overview
Reunion Industries' principal operations are in the plastic products and
services industry through its wholly owned subsidiary Oneida Rostone Corp.
(doing business as ORCplastics). Reunion Industries is also engaged in wine
grape agricultural operations in Napa County, California through its wholly
owned subsidiary Juliana Vineyards.
Reunion Industries recognized a net loss of $1.1 million in 1999 compared to
a net loss of $12.4 million in 1998 and a net loss of $0.3 million in 1997.
The following discussion of Results of Continuing Operations describes Reunion
Industries' continuing operations in plastic products and services and wine
grape agriculture.
Results of Continuing Operations--1999 Compared to 1998
Plastic products and services. ORCplastics revenues and operating income
were $71.6 million and $1.2 million, respectively, for the year ended December
31, 1999, compared to revenues and operating income of $95.1 and $5.0 million,
respectively, for the year ended December 31, 1999.
The 25% decrease in revenues resulted from several factors, including
certain customers relocating manufacturing operations to Mexico and Asia,
reduced customer orders for continuing programs, end of product cycles and
delays in new program starts, which affected all ORCplastics facilities.
Management is considering opening or acquiring a molding facility in Mexico to
counter these trends, but there can be no assurance that Reunion Industries
can do so successfully. ORCplastics backlog totaled $12.4 million at December
31, 1999, compared to backlog of $16.7 million at December 31, 1998. Backlog
is also affected by customers' continuing movement to just-in-time ordering
and shorter delivery cycles.
Cost of sales totaled $60.8 million, or 84.9% of net sales, for the year
ended December 31, 1999 compared to $80.9 million, or 85.1% of net sales for
the year ended December 31, 1998. Gross profit was $10.8 million for the year
ended December 31, 1999 compared to $14.2 million in the prior year period.
The decrease in both cost of sales and gross profit resulted from the decrease
in revenues.
Selling, general and administrative expenses were $9.6 million in 1999,
compared to $9.2 million in 1998. The 1999 period included a $0.5 million
provision for supplemental retirement compensation and a $0.4 million
provision related to closing the Clayton, N.C. molding facility. Operating
income was $1.2 million, or 1.7% of net sales, in 1999 compared to $5.0
million, or 5.3% of net sales, in 1998, primarily because of the decrease in
revenues.
Agriculture. Juliana had an operating loss of $0.1 million on grape sales of
$2.4 million and custom farming and other revenues of $2.1 million in 1999
compared to an operating loss of $0.1 million on grape sales of $2.2 million
in 1998.
11
<PAGE>
Corporate General and Administrative Expense. Corporate general and
administrative expenses, consisting primarily of executive and administrative
salaries and benefits, professional fees and other public company costs,
totaled $1.6 million for the year ended December 31, 1999 and $2.1 million for
the year ended December 31, 1998. The 1999 amount includes $0.2 million of
expenses incurred in connection with the proposed sale of ORCplastics, which
was subsequently terminated. The 1999 and 1998 amounts include $0.2 million
and $0.6 million, respectively, of legal costs for Reunion Industries'
litigation with Bargo.
As a result of termination of a previous merger agreement with Chatwins
Group because of the inability to raise sufficient financing under then-
current market conditions, Reunion Industries recorded a charge of $1.4
million in 1998 to write off accumulated legal, investment banking and other
costs related to the merger.
Other Income and (Expense). Interest expense was $3.4 million in 1999
compared to $3.2 million in 1998. Reunion Industries recorded a charge of $9.2
million in 1998 to record entry of judgment in Reunion Industries' litigation
with Bargo. Reunion Industries also recorded a $1.6 million charge in 1999 for
interest and credit support fees relating to the bond posted in the appeal of
the Bargo litigation judgment, and recognized a gain of $3.6 million in 1999
as a result of the settlement of this litigation. See Note 3 of the Notes to
Consolidated Financial Statements.
Results of Continuing Operations--1998 Compared to 1997
Plastic products and services: ORCplastics revenues and operating income
were $95.1 million and $5.0 million, respectively, for the year ended December
31, 1998. This compares to 1997 revenues and operating income of $93.4 million
and $4.3 million, respectively.
The increase in revenues is attributable to a 34% increase in Data Packaging
sales as a result of new customer programs, offset by a 5% decrease in sales
at U.S. operations. Parts sales increased $0.7 million, or 0.6% to $89.0
million for the year ended December 31, 1998 compared to $88.5 million for the
prior year period. Tooling sales increased $1.2 million, or 24.5% to $6.1
million for 1998 compared to $4.9 million for 1997. Tooling revenues
associated with the production of customer tools are deferred until the tools
are completed and delivered to the customers. As a result, tooling sales
fluctuate depending on when projects are completed. The 34% increase in Data
Packaging sales resulted from two significant new projects, for which Reunion
Industries added production capacity. Although Reunion Industries continues to
seek new customers and projects, management does not expect that such sales
growth will recur. ORCplastics backlog totaled $16.7 million at December 31,
1998 compared to backlog of $21.9 million at December 31, 1997. Backlog is
down from 1997 as more major customers move to just-in-time ordering and
shorter delivery cycles and because of customer deferrals of new programs.
Cost of sales totaled $80.9 million, or 85.1% of net sales, for the year
ended December 31, 1998 compared to $78.9 million, or 84.5% of net sales, for
the year ended December 31, 1997. Gross margins were $14.2 million or 14.9% of
net sales, in 1998 compared to $14.5 million, or 15.5% of net sales in 1997.
During 1997, ORCplastics recorded a $1.0 million writedown of surplus
equipment to net realizable value. This writedown was made in conjunction with
the relocation of thermoplastic molding production from the Clayton, N.C.
facility to the Siler City, N.C. facility.
Selling, general and administrative expenses were $9.2 million in 1998, and
$9.2 million in 1997. Operating income was $5.0 million, or 5.3% of net sales
in 1998 compared to $4.3 million, or 4.6% of net sales in 1997.
Agriculture: Juliana had an operating loss of $0.1 million on revenues of
$2.2 million in 1998. Revenues and direct expenses from the 1998 harvest were
recognized in the fourth quarter, and these fourth quarter amounts are not
representative of a full year. Prior to October 1998, Reunion Industries
accounted for its wine grape agriculture operations on the equity method.
12
<PAGE>
Corporate General and Administrative Expense: Corporate general and
administrative expenses, consisting primarily of executive and administrative
salaries and benefits, professional fees and other public company costs,
totaled $2.1 million for the year ended December 31, 1998 compared to $1.8
million for the year ended December 31, 1997. The 1998 and 1997 amounts
included approximately $0.6 million and $0.4 million, respectively, in legal
costs for Reunion Industries' Bargo litigation.
As a result of termination of the 1998 Merger Agreement with Chatwins Group
because of the inability to raise sufficient financing under then current
market conditions, Reunion Industries recorded a charge of $1.4 million in
1998 to write off accumulated legal, investment banking and other costs
related to the merger.
Other Income and Expense: Interest expense was $3.2 million in 1998 compared
to $3.3 million for the prior year. Reunion Industries also recorded a charge
of $9.2 million during 1998 to record entry of the judgment in Reunion
Industries' litigation with Bargo, accrual of interest on the judgment and
letter of credit and guarantee fees related to obtaining a supersedeas bond to
appeal the judgment.
Reunion Industries participated in the wine grape agriculture industry
through its equity investment in the Juliana Preserve joint venture in 1997
and until September 1998. Reunion Industries recognized a loss of $0.4 million
in 1998 and income of $0.3 million in 1997 from its equity interest in the
Preserve's results of operations. In addition, Reunion Industries recorded a
charge of $0.9 million in 1997 for its equity in the write off of development
costs by the joint venture.
Income Tax Expense: In August 1998, Reunion Industries reached a settlement
with the IRS on its appeal of the denial of Reunion Industries' request for
refund of Alternative Minimum Tax paid in 1990 and 1991. As a result of the
settlement, Reunion Industries received refunds totaling $0.7 million
including interest. Because of the uncertainty over realization of the refund,
Reunion Industries had recorded an allowance of $0.8 million in 1996 for the
possible denial of the refund claim with a corresponding charge to income tax
expense. As a result of the settlement, Reunion Industries recorded an income
tax benefit of $0.7 million in 1998.
Discontinued Operations
Reunion Industries recognized income from discontinued operations of $0.3
million in 1999. Income from payments from an insurance company on claims
relating to the offshore drilling business discontinued in 1993 totaled $0.7
million, and Reunion Industries recorded a $0.4 million as a result of the
settlement of a California tax audit. Reunion Industries recorded a $1.2
million discontinued operations charge in 1998 to increase its accrual for
estimated environmental remediation costs relating to oil and gas properties
in Louisiana.
Liquidity and Capital Resources
Summary of 1999 Activities
Cash and cash equivalents totaled $2.5 million at December 31, 1999. During
the year ended December 31, 1999, cash increased $0.5 million, with $1.6
million used in operations, $0.5 million used in investing activities and $2.1
million provided by financing activities.
Investing Activities: Capital expenditures were $1.3 million and proceeds
from the sale of agricultural land were $1.8 million.
Financing Activities: Proceeds from new term loan borrowings totaled $13.5
million, consisting of Juliana's $7.5 million refinancing and the $6.0 million
borrowing under the ORCplastics credit facility to fund the Bargo litigation
settlement payment. Principal payments reduced long-term obligations by $9.2
million, including $5.7 million repaid from the proceeds of the Juliana
refinancing. Net short term borrowings were reduced $1.9million.
13
<PAGE>
Factors Affecting Future Liquidity
Prior to the Chatwins Group merger, corporate expenses, including salaries
and benefits, professional fees and other public company costs, were expected
to be approximately $1.5 million annually. In addition, approximately $0.5
million of the $1.4 million accrued for environmental remediation of the
Louisiana properties, described below under "Contingencies and Uncertainties,"
is expected to be expended during the next twelve months. The Company's source
of funds for these expenses, other than from additional borrowings, was from
cash balances and permitted payments by ORC and Juliana. The corporate cash
balance at December 31, 1999 was $0.2 million. Without additional financing,
management believed that the Company would not have sufficient resources to
meet its corporate expenses and legal and environmental costs as they became
due over the next twelve months.
ORCplastics closed a credit facility with The CIT Group/Business Credit,
Inc. ("CITBC") in October 1998. This credit facility limited payments to
Reunion by ORCplastics and Juliana. Management believed that ORC's cash flow
from operations, together with the CITBC credit facility and permitted levels
of capital and operating leases, would be sufficient for ORC's operating
requirements, including capital expenditures and debt service, over the next
twelve months. However, there were no assurances that ORCplastics would be
able to maintain the required levels of availability and be permitted to make
payments to Reunion. In any event, the maximum amount of such payments was not
expected to be sufficient for Reunion's corporate operating and debt service
requirements.
Juliana is continuing its efforts to sell the remaining vineyard property,
but there is no assurance that it will be able to do so at a reasonable price
or at all. If Juliana is unable to sell additional parcels, it may not have
been possible to fund its operating requirements over the next twelve months
without additional financing.
Refinancing
Senior Secured Credit Facilities. Simultaneously with the Chatwins Group
merger, Reunion Industries entered into senior secured credit facilities with
Bank of America and other lenders. These credit facilities consist of a $39.0
million revolving credit facility, a $25.8 million term loan A facility
amortizing in 84 monthly principal payments, a $5.0 million term loan B
facility amortizing in 36 monthly principal payments, and a $2.7 million
capital expenditures facility amortizing in 60 monthly principal payments.
These facilities have a three-year initial term and automatically renew for
additional one-year increments unless either party gives the other notice of
termination at least 60 days prior to the beginning of the next one-year term.
Reunion Industries paid closing fees to Bank of America of approximately $1.0
million.
Interest on loans outstanding under the Bank of America facilities, other
than term loan B, is payable monthly at variable rates tied to either Bank of
America's prime rate, as that term is defined in the financing agreements, or
LIBOR, at the option of Reunion Industries. The interest rate tied to the
prime rate is initially the prime rate plus 0.50% for the revolving credit
facility and the prime rate plus 0.75% for the term loan and capital
expenditures facilities. The interest rate tied to LIBOR is initially LIBOR
plus 2.75% for the revolving credit facility and LIBOR plus 3.00% for the term
loan and capital expenditure facilities. These interest rates will be subject
to quarterly adjustment after the first year based on the ratio of Reunion
Industries' total funded debt to earnings before interest, taxes, depreciation
and amortization. Interest on term loan B is payable monthly at a fixed rate
of 15%. Additional interest will accrue on term loan B to yield a total return
of 20%. The additional interest is payable when term loan B if fully repaid.
The Bank of America credit facilities are collateralized by a first priority
lien on substantially all of the current and after-acquired assets of Reunion
Industries including, without limitation, all accounts receivable, inventory,
property, plant and equipment, chattel paper, documents, instruments, deposit
accounts, contract rights and general intangibles.
The facilities require Reunion Industries to comply with financial covenants
and other covenants, including cash flow coverage and leverage tests. In
addition, the facilities contain various affirmative and negative
14
<PAGE>
covenants, including limitations on stockholder and related party
distributions. The facilities require Reunion Industries to pay the reasonable
expenses incurred by the lenders in connection with the facilities. Available
borrowings under the Bank of America revolving credit facility are based upon
a percentage of eligible receivables and raw materials, finished goods and
work in process inventories.
Proceeds from initial borrowings under the Bank of America credit facilities
were used to repay ORCplastics' credit facilities with CITBC (see Note 8), to
repay Chatwins Group's credit facilities with Bank of America, to repay
certain debt in the Kingway acquisition and to retire $25.0 million of
Chatwins Group's 13% senior notes. The Company had approximately $3.8 million
of borrowing availability after the initial borrowings. Management believes
that the Company's cash flow from operations, together with these credit
facilities, will be sufficient for the Company's operating requirements,
including capital expenditure and debt services, over the next twelve months.
13% Senior Notes. Reunion Industries assumed the obligations of Chatwins
Group under the indenture governing the remaining $25.0 million of 13% senior
notes. The Indenture provides that up to $2.5 million principal amount of the
13% senior notes is scheduled to be repaid in May 2001, $12.5 million is
scheduled to be repaid in May 2002 and the remaining balance is scheduled to
be repaid in May 2003. The Indenture governing the 13% senior notes also
includes covenants which restrict or prohibit: incurrence of indebtedness
outside its revolving credit facility unless interest coverage tests are met;
dividends, stock repurchases, loans, investments and retirements of junior
debt; liens and encumbrances on assets; transactions with affiliates; sales of
assets at less than fair value and for less than 75% cash consideration; and
mergers, consolidations and the sale of substantially all assets.
The indenture also requires that the company maintain EBITDA (as defined in
the indenture) of at least $7.2 million on a last twelve months basis at the
end of each fiscal quarter and that the company offer to repurchase some or
all of the 13% senior notes upon a change of control or the sale of a
significant amount of assets where the proceeds are not reinvested in other
manufacturing assets within 180 days of the sale.
Year 2000 Computer Compliance
The year 2000 issue refers to the potential for disruption to business
activities causes by system and processing failures of date-related
calculations, and is the result of computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failure
or miscalculation causing disruptions of operations, including among other
things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
To date, we have not experienced any material year 2000 issues.
Additionally, we have no reason to believe that any material third parties
with whom we deal have had any material year 2000 issues. However, we cannot
assure you that we will not experience any disruption due to year 2000 issues
in the future. We continue to monitor our systems and third parties for any
year 2000 problems.
We have incurred total costs of approximately $0.02 million in our
assessment and remediation of potential year 2000 issues. We do not expect
that we will have to incur any material costs relating to the year 2000 in the
future.
Contingencies and Uncertainties
In connection with the sale of Reunion Energy, Reunion Industries retained
certain oil and gas properties in Louisiana because of litigation concerning
environmental matters. Reunion Industries is in the process of environmental
remediation under a plan approved by the Louisiana Office of Conservation.
Reunion Industries has recorded an accrual for its proportionate share of the
remaining estimated costs to remediate the site based on plans and estimates
developed by the environmental consultants hired by Reunion Industries. During
1998 Reunion Industries increased this accrual by a charge of $1.2 million to
discontinued operations, based on revised
15
<PAGE>
estimates of the remaining remediation costs. During 1999, Reunion Industries
conducted remediation work on the property. Reunion Industries paid $0.2
million of the total cost of $0.3 million. At December 31, 1999, the balance
accrued for these remediation costs is approximately $1.3 million. A
regulatory hearing was held in January 2000 to consider the adequacy of the
remediation conducted to date. No decision has been rendered to date, but
Reunion Industries does not believe that the cost of future remediation will
exceed the amount accrued. Owners of a portion of the property have objected
to Reunion Industries' proposed cleanup methodology and have filed suit to
require additional procedures. Reunion Industries is contesting this
litigation, and believes its proposed methodology is well within accepted
industry practice for remediation efforts of a similar nature. No accrual has
been made for any costs of any alternative cleanup methodology which might be
imposed as a result of the litigation.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
In the operation of its business, Reunion Industries has market risk
exposures to foreign currency exchange rates, raw material prices and interest
rates. Each of these risks and Reunion Industries' strategies to manage the
exposure is discussed below.
Reunion Industries manufactures its products in the United States and
Ireland and sells products in those markets as well as in Europe.
International sales were 30% of Reunion Industries' sales in 1999, 28% in 1998
and 18% in 1997. Reunion Industries' operating results could be affected by
changes in foreign currency exchange rates or weak economic conditions in
Europe. Reunion Industries does not actively hedge its foreign currency risk
because the international operations are self-financed and the translation
exposure is not considered material to Reunion Industries' financial
condition, liquidity or results of operations.
The principal raw materials used by Reunion Industries are thermoplastic
polymers. These materials are available from a number of suppliers. Prices for
these materials are affected by changes in market demand, and there can be no
assurances that prices for these and other raw materials will not increase in
the future. Reunion Industries' contracts with its customer generally provide
that such price increases can be passed through to the customers.
Reunion Industries' operating results are subject to risk from interest rate
fluctuations on debt which carries variable interest rates. The variable rate
debt was approximately $19.4 million at December 31, 1999, which is
representative of balances outstanding during the year. A 0.25% change in
interest rates would affect results of operations by approximately $0.05
million.
ITEM 8. Consolidated Financial Statements and Supplementary Data
Reunion Industries' consolidated financial statements are set forth
beginning at Page F-1.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
16
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant*
ITEM 11. Executive Compensation*
ITEM 12. Security Ownership of Certain Beneficial Owners and Management*
ITEM 13. Certain Relationships and Related Transactions*
- --------
* Items 10, 11, 12 and 13 are incorporated by reference to the Registrant's
Definitive Proxy Statement to be filed with the commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934 within 120 days
after the close of the Registrant's fiscal year.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents included in this report:
The following consolidated financial statements and financial statement
schedules of Reunion Industries, Inc. and its subsidiaries are included in
Part II, Item 8:
1. Financial Statements (Pages F-1 through F-31)
Report of Independent Public Accountants
Consolidated Balance Sheets--December 31, 1999 and 1998
Consolidated Statements of Operations--Years Ended December 31, 1999,
1998 and 1997
Consolidated Statements of Cash Flows--Years Ended December 31, 1999,
1998 and 1997
Consolidated Statements of Shareholders' Equity--Years Ended December
31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules (Pages S-1 through S-5)
Schedule I --Condensed Financial Information of Registrant
Schedule II--Valuation and Qualifying Accounts and Reserves
Other schedules have been omitted because they are either not required,
not applicable, or the information required to be presented is included
in Reunion Industries' financial statements and related notes.
3. Exhibits
See pages E-1 to E-2 for a listing of exhibits filed with this report
or incorporated by reference herein.
(b) Current Reports on Form 8-K
During the last quarter of the year ended December 31, 1999, Reunion
Industries did not file any Current Reports on Form 8-K.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 27, 2000
Reunion Industries, Inc.
<TABLE>
<S> <C>
</TABLE>
By: /s/ Joseph C. Lawyer
...............................
Joseph C. Lawyer,
President and Chief Operating
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
/s/ Charles E. Bradley
............................. Director, Chairman and Chief March 27, 2000
Charles E. Bradley Executive Officer (Principal
Executive Officer)
/s/ Richard L. Evans
............................. Executive Vice President of March 27, 2000
Richard L. Evans Administration and Secretary
(Principal Accounting and
Financial Officer Prior to March
16, 2000 Merger with Chatwins
Group, Inc.)
/s/ John M. Froehlich
............................. Executive Vice President of March 27, 2000
John M. Froehlich Finance and Chief Financial
Officer (Principal
Accounting and Financial Officer
subsequent to March 16, 2000
Merger with Chatwins Group,
Inc.)
/s/ Thomas N. Amonett
............................. Director March 27, 2000
Thomas N. Amonett
/s/ Kimball J. Bradley
............................. Director and Executive
Kimball J. Bradley Vice President of Operations
March 27, 2000
/s/ Thomas L. Cassidy
............................. Director March 27, 2000
Thomas L. Cassidy
/s/ W. R. Clerihue
............................. Director March 27, 2000
W. R. Clerihue
/s/ Joseph C. Lawyer
............................. Director, President and
Joseph C. Lawyer Chief Operating Officer
March 27, 2000
/s/ Franklin Myers
............................. Director March 27, 2000
Franklin Myers
/s/ John G. Poole
.............................
John G. Poole Director March 27, 2000
18
<PAGE>
REUNION INDUSTRIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP............................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-5
Consolidated Statements of Cash Flows.................................... F-6
Consolidated Statements of Stockholders' Equity.......................... F-7
Notes to Consolidated Financial Statements............................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Reunion Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of stockholders'
equity present fairly, in all material respects, the financial position of
Reunion Industries, Inc. and its subsidiaries (the "Company") at December 31,
1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on the consolidated financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As is further discussed in Note 2 to the Consolidated Financial Statements,
the Company completed a merger with Chatwins Group on March 16, 2000.
PRICEWATERHOUSECOOPERS LLP
Stamford, Connecticut
March 16, 2000
F-2
<PAGE>
REUNION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents.................................... $ 2,455 $ 2,009
Accounts Receivable, Less Allowance for Doubtful Accounts of
$302 and $360, respectively................................. 8,988 12,389
Inventories.................................................. 6,034 7,104
Customer Tooling-in-process.................................. 289 897
Restricted Cash--Custom Farming Deposits..................... 599 --
Notes Receivable--Related Party.............................. 350 --
Other Current Assets......................................... 468 803
------- -------
Total Current Assets....................................... 19,183 23,202
------- -------
Property, Plant and Equipment--Net............................. 37,637 41,353
------- -------
Other Assets:
Goodwill, net of Accumulated Amortization of $2,865 and
$2,170, respectively........................................ 7,676 8,371
Debt Issuance Costs.......................................... 528 1,088
Assets Held for Sale......................................... 222 376
Other........................................................ 1,065 484
9,491 10,319
------- -------
$66,311 $74,874
======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
REUNION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-term Debt........................ $ 11,383 $ 11,155
Short Term Debt--Related Parties......................... -- 1,015
Accounts Payable......................................... 7,629 8,684
Advances From Customers.................................. 489 1,249
Unearned Income--Custom Farming.......................... 599 --
Accrued Bargo Judgment................................... -- 8,425
Accrued Salaries, Vacation and Benefits.................. 1,529 1,688
Accrued Environmental Costs.............................. 1,460 1,723
Other Current Liabilities................................ 1,735 2,180
-------- --------
Total Current Liabilities.............................. 24,824 36,119
Long-Term Debt............................................. 19,613 15,245
Long-Term Debt--Related Parties............................ 1,017 1,385
Other Liabilities.......................................... 3,075 3,279
-------- --------
Total Liabilities...................................... 48,529 56,028
-------- --------
Redeemable Preferred Stock of Consolidated Subsidiary...... 524 607
Minority Interests......................................... 2,713 2,000
Commitments and Contingencies (Note 15):
Stockholders' Equity:
Common Stock ($.01 par value; 20,000 authorized; 3,940
and 3,900 issued and outstanding, respectively)......... 39 39
Additional Paid-in Capital............................... 29,402 29,332
Retained Earnings (Since January 1, 1989)................ (14,110) (12,961)
Foreign Currency Translation Adjustments................. (786) (171)
-------- --------
Total Stockholders' Equity............................. 14,545 16,239
-------- --------
$ 66,311 $ 74,874
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
REUNION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
------- -------- -------
<S> <C> <C> <C>
Operating Revenue:
Plastic Products and Services.................... $71,575 $ 95,064 $93,378
Agriculture...................................... 4,524 2,254 --
------- -------- -------
76,099 97,318 93,378
------- -------- -------
Operating Costs and Expenses:
Plastic Products and Services--Cost of Sales..... 60,801 80,861 78,871
Agriculture--Cost of Sales....................... 4,142 2,227 --
Writedown of Excess Equipment.................... -- -- 958
Selling, General and Administrative.............. 11,632 11,373 11,036
Provision for Merger and Refinancing Costs....... -- 1,362 --
------- -------- -------
76,575 95,823 90,865
------- -------- -------
Operating Income (Loss)............................ (476) 1,495 2,513
------- -------- -------
Other Income and (Expense):
Interest Expense................................. (3,392) (3,221) (3,267)
Provision for Bargo Judgment and Related Costs... (1,646) (9,239) --
Bargo Settlement Gain............................ 3,617 -- --
Equity In Income (Loss) of The Juliana Preserve.. -- (388) 330
Equity In Writedown of The Juliana Preserve Real
Estate Development Costs........................ -- -- (855)
Other, Including Interest Income................. 635 252 384
------- -------- -------
(786) (12,596) (3,408)
------- -------- -------
Loss From Continuing Operations Before Income
Taxes............................................. (1,262) (11,101) (895)
Income Tax Benefit (Expense)..................... (226) 661 (86)
------- -------- -------
Loss From Continuing Operations.................... (1,488) (10,440) (981)
------- -------- -------
Income (Loss) From Discontinued Operations:
Disposal of Oil and Gas Operations............... 339 (1,710) --
Disposal of Agriculture Operations............... -- -- 710
------- -------- -------
339 (1,710) 710
------- -------- -------
Extraordinary item--loss on extinguishment of debt. -- (233) --
------- -------- -------
Net Loss........................................... (1,149) (12,383) (271)
Foreign Currency Translation Adjustment............ (615) 214 (356)
------- -------- -------
Comprehensive Loss................................. $(1,764) $(12,169) $ (627)
======= ======== =======
Earnings per share--Basic and Diluted:
Loss from Continuing Operations.................. $ (0.38) $ (2.69) (0.25)
Income (Loss) from Discontinued Operations....... 0.09 (0.44) 0.18
Extraordinary Item............................... -- (0.06) --
------- -------- -------
Net Loss......................................... $ (0.29) $ (3.19) $ (0.07)
======= ======== =======
Weighted Average Number of Common Shares
Outstanding:
Basic and Diluted................................ 3,924 3,881 3,855
======= ======== =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
REUNION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
------- -------- -------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss........................................... $(1,149) $(12,383) $ (271)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and Amortization.................. 4,079 3,634 3,062
Goodwill Amortization.......................... 695 689 706
Debt Issuance Costs Amortization............... 885 1,157 --
Bargo Judgment Provision....................... 400 8,425 --
Bargo Settlement Gain.......................... (3,617) -- --
Bargo Settlement Payment....................... (5,000) -- --
Provision for Environmental Remediation........ -- 1,200 --
Provision for Tax Audit Settlement............. 370 510 --
Tax audit settement payment.................... (973) -- --
Impairment of Assets........................... -- -- 958
(Gain) Loss on Disposal of Discontinued
Operations.................................... -- -- (710)
Equity In Income of Joint Venture, Before
Depreciation.................................. -- (22) (640)
Write Off Of Joint Venture Costs............... -- -- 855
------- -------- -------
(4,310) 3,210 3,960
Changes in Assets and Liabilities, net of effects
from acquisitions:
(Increase) Decrease in Accounts Receivable..... 3,401 (16) 113
(Increase) Decrease in Inventories............. 1,070 503 (310)
Increase (Decrease) in Accounts Payable........ (1,055) (718) 530
Other.......................................... (675) (604) (258)
------- -------- -------
Net Cash Provided by (Used in) Operating
Activities........................................ (1,569) 2,375 4,035
------- -------- -------
Cash Flows From Investing Activities:
Sale of Property, Plant and Equipment............ 1,764 2,560 --
Purchase of Joint Venture Interest............... -- (2,178) --
Capital Expenditures............................. (1,290) (3,113) (3,868)
Loans to Related Party........................... (350) -- --
Sale of Discontinued Operations.................. -- -- 2,220
Other............................................ (614) 512 141
------- -------- -------
Net Cash Used in Investing Activities.............. (490) (2,219) (1,527)
------- -------- -------
Cash Flows From Financing Activities:
Debt issuance costs.............................. (325) (1,901) --
Proceeds from Issuance of Debt................... 13,500 7,102 2,746
Repayments of Debt............................... (9,229) (10,208) (3,889)
Increase (Decrease) in Short Term Borrowings..... (1,909) 3,439 (702)
Proceeds From Issuance of Subsidiary Preferred
Stock........................................... -- 586 --
Proceeds of Capital Grants....................... -- 300 --
Proceeds From Exercise of Common Stock Options
and Warrants.................................... 70 90 --
Other............................................ 37 1 --
------- -------- -------
Net Cash Provided by (Used in) Financing
Activities........................................ 2,144 (591) (1,845)
------- -------- -------
Effect of Exchange Rate on Cash.................... 361 359 15
------- -------- -------
Increase (Decrease) in Cash and Cash Equivalents... 446 (76) 678
Cash and Cash Equivalents at Beginning of Period... 2,009 2,085 1,407
------- -------- -------
Cash and Cash Equivalents at End of Period......... $ 2,455 $ 2,009 $ 2,085
======= ======== =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
REUNION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1999 1998 1997
--------------- --------------- --------------
Shares Amounts Shares Amounts Shares Amounts
------ -------- ------ -------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Common Stock, Par Value $.01
per Share:
Beginning Balance.......... 3,900 $ 39 3,855 $ 38 3,855 $ 38
Exercise of Stock Options
and Warrants.............. 40 45 -- -- --
----- -------- ----- -------- ----- -------
Ending Balance............. 3,940 39 3,900 39 3,855 38
----- -------- ----- -------- ----- -------
Additional Paid-in Capital:
Beginning Balance.......... 29,332 29,242 29,242
Exercise of Stock Options
and Warrants.............. 70 90 --
-------- -------- -------
Ending Balance............. 29,402 29,332 29,242
-------- -------- -------
Retained Earnings:
Beginning Balance.......... (12,961) (578) (307)
Net Loss................... (1,149) (12,383) (271)
-------- -------- -------
Ending Balance............. (14,110) (12,961) (578)
-------- -------- -------
Foreign Currency Translation
Adjustments:
Beginning Balance.......... (171) (385) (29)
Current Year Adjustments... (615) (214) (356)
-------- -------- -------
Ending Balance............. (786) (171) (385)
-------- -------- -------
Total Stockholders' Equity... 3,940 $ 14,545 3,900 $ 16,239 3,855 $28,317
===== ======== ===== ======== ===== =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-7
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(amounts in thousands, except share amounts)
NOTE 1. Organization and Summary of Significant Accounting Policies
Organization and Businesses
Reunion Industries, Inc. ("Reunion Industries") is the successor, by merger
effective April 19, 1996, to Reunion Resources Company. As used herein, the
term "Company" refers to Reunion Industries, its predecessors and its
subsidiaries unless the context indicates otherwise. The Company, through its
wholly owned subsidiary, Oneida Rostone Corp. ("ORC"), manufactures high
volume, precision plastic products and provides engineered plastics services.
The Company through its wholly owned subsidiary, Juliana Vineyards
("Juliana"), is also engaged in wine grape agricultural operations in Napa
County, California. The Company was previously primarily engaged in oil and
gas production in the United States; this business was discontinued in 1995.
Information presented in the footnotes is based on continuing operations
unless the context indicates otherwise.
As described in Note 2, Reunion Industries completed a merger with Chatwins
Group, Inc. ("Chatwins Group") and a related refinancing subsequent to year
end.
Principles of Consolidation
The consolidated financial statements include the accounts of Reunion
Industries and its majority owned subsidiaries. All significant intercompany
transactions and accounts are eliminated in consolidation. As described in
Note 6, Juliana purchased the interest of its joint venture partner in the
Juliana Preserve in September 1998 and, accordingly, the agricultural
operations are included on a consolidated basis subsequent to that date. Prior
to September 1998, the Company accounted for the agricultural operations on
the equity method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant estimates with regard to these financial statements include
estimates of the recoverable value of goodwill, estimates of amounts payable
in connection with certain litigation and environmental remediation (see Note
15) and estimates of the recoverable value of assets held for sale (see Notes
6 and 7).
Revenue Recognition
Revenue is recognized as products are delivered and services are provided to
customers. Revenues and costs associated with the production of customer tools
are deferred until the tools are completed and delivered to the customer.
These revenue and cost deferrals are classified as Advances from Customers and
Customer Tooling-in-process, respectively, in the Consolidated Balance Sheets.
Revenues for wine grape sales are recognized when grapes are delivered to
customers.
Cash and Cash Equivalents
Cash equivalents include time deposits, certificates of deposit and all
highly liquid instruments with maturities when purchased of three months or
less.
F-8
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. Work-in-process and finished goods
include material costs, labor costs and manufacturing overhead.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost, including cost as
determined by the allocation of the purchase price in business acquisitions
accounted for using the purchase method. Expenditures for major renewals and
improvements are capitalized while expenditures for maintenance and repairs
not expected to extend the life of an asset are charged to expense when
incurred. Gains or losses are recognized when property and equipment is sold
or otherwise disposed of. Depreciation of property, plant and equipment is
provided on the straight-line method over their expected useful lives:
<TABLE>
<S> <C>
Plastic Products and Services:
Machinery and equipment.................................. 3 to 12 years
Buildings and improvements............................... 15 to 40 years
Land improvements........................................ 10 to 30 years
Agricultural Operations:
Land improvements........................................ 20 to 45 years
Equipment................................................ 5 to 45 years
</TABLE>
Goodwill
Goodwill recorded as a result of business acquisitions is being amortized
using the straight-line method over 15 years. The Company periodically
evaluates whether circumstances indicate that the remaining carrying value of
goodwill may not be recoverable, using estimates of future cash flows over the
estimated remaining life of the goodwill. If such evaluation indicates that
the value has been impaired, a loss would be recognized.
Long-Lived Assets and Impairment
The Company reviews long-lived assets for impairment whenever circumstances
indicate that the carrying amount of the asset may not be recoverable, and
recognizes an impairment loss when the future cash flows expected to be
generated by the asset are less than the carrying amount of the asset. Long-
lived assets held for sale, other than assets to be disposed of in connection
with disposal of a discontinued business segment, are reported at the lower of
carrying amount or fair value less cost to sell.
Grants
Capital grants have been received from the Irish Government Development
Agency towards the cost of new buildings and equipment. Capital grants for
purchased assets are recorded as deferred credits on the balance sheet and
amortized to income over the useful lives of the related assets. Capital
grants for leased assets reduce the net present value of lease payments
capitalized as leased machinery. Training and feasibility study grants are
credited against the related expenses (principally training and travel
expenses) as such costs are incurred.
Translation of Foreign Currencies
All amounts in the accompanying consolidated financial statements are
denominated in U.S. dollars. Assets and liabilities of foreign subsidiaries
whose local currency is the functional currency are translated at exchange
rates in effect at the balance sheet date. Revenues and expenses of these
subsidiaries are translated at average
F-9
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
exchange rates during the period. Translation gains and losses are not
included in results of operations, but are accumulated as a separate component
of stockholders' equity. Gains and losses from foreign currency transactions
are included in results of operations.
Environmental Policies
Environmental expenditures that relate to current operations are either
expensed or capitalized depending on the nature of the expenditure.
Expenditures relating to conditions caused by past operations that do not
contribute to current or future revenue generation are expensed. Liabilities
are recorded when environmental assessments and/or remediation actions are
probable, and the costs can be reasonably estimated (see Note 15).
Income Taxes
The Company provides deferred income taxes for all temporary differences
between financial and income tax reporting using the liability method.
Deferred taxes are determined based on the estimated future tax effect of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of enacted tax laws. A valuation allowance is
recorded for net deferred tax assets if it is more likely than not that such
assets will not be realized. The Company has significant net operating loss
and investment tax credit carryforwards for tax purposes, a portion of which
may expire unutilized (see Note 12).
Earnings Per Share
Basic earnings per share is computed based on the weighted average number of
common shares outstanding during the period. Diluted earnings per share gives
effect to all dilutive potential common shares outstanding during this period.
Potential common shares include shares issuable upon exercise of the Company's
stock options and warrants (see Note 11).
Potential common shares relating to options and warrants to purchase common
stock aggregating 210,000, 335,785 and 215,750, respectively, were not
included in the weighted average number of shares for the years ended December
31, 1999, 1998 and 1997 because their effect would have been anti-dilutive.
Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued the following
accounting pronouncement which the company will be required to adopt in future
periods:
FASB Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities" requires that derivative instruments such as options, forward
contracts and swaps be recorded as assets and liabilities at fair value and
provides guidance for recognition of changes in fair value depending on the
reason for holding the derivative. The Company does not presently have
significant transactions involving derivative instruments, but may do so in
the future. The Company is required to adopt Statement No. 133 for the first
quarter of 2001 and may adopt it earlier.
Supplemental Cash Flow Information
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest during the periods............. $3,172 $2,719 $3,093
Cash paid for income taxes during the periods......... 116 103 285
Supplemental disclosure of non-cash investing and
financing activities:
Assets acquired through capital leases................ 1,199 572 254
Debt issued for acquisition of joint venture
interests............................................ -- 3,700 --
</TABLE>
F-10
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
NOTE 2. Subsequent Events: Merger, Refinancing and Related Matters
Chatwins Group Merger
On March 16, 2000, Reunion Industries completed a merger with Chatwins
Group, which prior to the merger owned approximately 37% of the Company's
common stock (see Note 13). The merger was approved by the Company's Board of
Directors in July 1999 and by its stockholders in December 1999, subject to
certain conditions, including the completion of a refinancing that would
retire certain debt and provide adequate working capital after the merger. As
described below, the Company entered into credit facilities with Bank of
America and others simultaneously with the merger.
To complete the merger, Reunion Industries issued 9,500,000 shares of common
stock to holders of Chatwins Group's common stock. Cash was paid in lieu of
issuing fractional shares. The 1,450,000 shares of the Company's common stock
previously owned by Chatwins Group were retired in the merger. As a result of
the merger, the Chatwins Group stockholders own approximately 79% of the
Company's common stock. The merger agreement also provides that up to an
additional 500,000 shares of common stock will be issued to the Chatwins Group
stockholders if the former Chatwins Group businesses achieve specified
performance levels in 2000.
The merger will be accounted for as a purchase under APB Opinion No. 16
"Business Combinations" with Chatwins Group as the acquirer for purposes of
applying purchase accounting. Accordingly, the Chatwins Group assets and
liabilities will be accounted for at historical book values and the assets and
liabilities of Reunion Industries will be revalued at their fair value. The
excess of purchase price over fair value of assets acquired and liabilities
assumed (goodwill), if any, for the acquisition of the approximately 63% of
Reunion Industries common stock not previously owned by Chatwins Group will be
capitalized and amortized over 15 years.
Refinancing
Senior Secured Credit Facilities. Simultaneously with the merger, Reunion
Industries entered into senior secured credit facilities with Bank of America.
These credit facilities consist of a $39,000 revolving credit facility, a
$25,800 term loan A facility amortizing in 84 monthly principal payments, a
$5,000 term loan B facility amortizing in 36 monthly principal payments and a
$2,700 capital expenditures facility amortizing in 60 monthly principal
payments. These facilities have a three-year initial term and automatically
renew for additional one-year increments unless either party gives the other
notice of termination at least 60 days prior to the beginning of the next one-
year term. Reunion Industries paid closing fees to Bank of America of $994.
Interest on loans outstanding under the Bank of America facilities, other
than term loan B, is payable monthly at variable rates tied to either Bank of
America's prime rate, as that term is defined in the financing agreements, or
LIBOR, at the option of Reunion Industries. The interest rate tied to the
prime rate is initially the prime rate plus 0.50% for the revolving credit
facility and the prime rate plus 0.75% for the term loan and capital
expenditures facilities. The interest rate tied to LIBOR is initially LIBOR
plus 2.75% for the revolving credit facility and LIBOR plus 3.00% for the term
loan and capital expenditure facilities. These interest rates will be subject
to quarterly adjustment after the first year based on the ratio of Reunion
Industries' total funded debt to EBITDA as defined in the financing
agreements. Interest on term loan B is payable monthly at a fixed rate of 15%.
Additional interest will accrue on term loan B to yield a total return of 20%.
The additional interest is payable when term loan B if fully repaid.
The Bank of America credit facilities are collateralized by a first priority
lien on substantially all of the current and after-acquired assets of Reunion
including, without limitation, all accounts receivable, inventory, property,
plant and equipment, chattel paper, documents, instruments, deposit accounts,
contract rights and general intangibles.
F-11
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
The facilities require Reunion Industries to comply with financial covenants
and other covenants, including cash flow coverage and leverage tests. In
addition, the facilities contain various affirmative and negative covenants,
including limitations on stockholder and related party distributions. The
facilities require Reunion Industries to pay the reasonable expenses incurred
by the lenders in connection with the facilities. Available borrowings under
the Bank of America revolving credit facility are based upon a percentage of
eligible receivables and raw materials, finished goods and work in process
inventories.
Proceeds from initial borrowings under the Bank of America credit facilities
were used to repay ORC's credit facilities with CITBC (see Note 8), to repay
Chatwins Group's credit facilities with Bank of America, to repay certain debt
in the Kingway acquisition (described below) and to retire $25,000 of Chatwins
Group's 13% senior notes. The Company had approximately $3,800 of borrowing
availability after the initial borrowings.
13% Senior Notes. Reunion Industries assumed the obligations of Chatwins
Group under the indenture governing the remaining $24,975 of 13% senior notes.
The Indenture provides that up to $2,525 principal amount of the 13% senior
notes is scheduled to be repaid in May 2001, $12,500 is scheduled to be repaid
in May 2002 and the remaining balance is scheduled to be repaid in May 2003.
The Indenture governing the 13% senior notes also includes covenants which
restrict or prohibit: incurrence of indebtedness outside its revolving credit
facility unless interest coverage tests are met; dividends, stock repurchases,
loans, investments and retirements of junior debt; liens and encumbrances on
assets; transactions with affiliates; sales of assets at less than fair value
and for less than 75% cash consideration; and mergers, consolidations and the
sale of substantially all assets.
The indenture also requires that the company maintain EBITDA (as defined in
the indenture) of at least $7,200 on a last twelve months basis at the end of
each fiscal quarter and that the company offer to repurchase some or all of
the 13% senior notes upon a change of control or the sale of a significant
amount of assets where the proceeds are not reinvested in other manufacturing
assets within 180 days of the sale.
Kingway Acquisition
Simultaneously with the Chatwins Group merger and the refinancing, Reunion
Industries also acquired Kingway (a related party--see Note 13). Kingway
manufactures gravity flow storage racks and computer-assisted picking systems,
primarily for warehouse material handling applications. Reunion Industries
paid $100 for Kingway's common stock and issued 5,000 shares of Series B
Preferred Stock (See Note 10) to acquire Kingway. Reunion Industries also
repaid $7,296 of debt and assumed $2,998 of debt in the acquisition. Kingway's
revenues, operating income and net loss were $17,528, $2,704 and $145,
respectively, for 1999.
Since May 1998, Kingway has been operating in the facilities of Chatwins
Group's Auto-Lok division under a services agreement that provides that
Kingway would use Auto-Lok's surplus floor space, production workforce,
administrative organization and equipment in exchange for fees approximately
equal to Auto-Lok's costs. Subsequent to the merger and acquisition, Kingway
and Auto-Lok will be integrated into a single business unit.
Stockholder Lawsuit
In December 1999, a stockholder of Reunion Industries filed a purported
class-action lawsuit in Delaware Chancery Court alleging, among other things,
that Reunion Industries' public stockholders would be unfairly diluted in the
merger with Chatwins Group. The lawsuit sought to prevent completion of the
merger, and, the merger having been completed, seeks rescission of the merger
or awarding of damages. The lawsuit is in its early stages and discovery has
not begun. However, the Company intends to vigorously contest it.
F-12
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
NOTE 3. Litigation and Tax Audit Settlements
Bargo Energy Company Litigation
In June 1999, the Company and Bargo Energy Company reached agreement on the
terms of a settlement of their litigation concerning a November 1995 stock
purchase agreement for the sale of the Company's subsidiary, Reunion Energy
Company ("REC") to Bargo. In July 1998, the trial court had entered judgment
affirming a jury finding awarding Bargo $5,000 in punitive damages and
awarding approximately $3,000 in attorneys' fees and costs. The Company's
appeal was pending when the settlement was reached.
On July 15, 1999, the Company and Bargo signed the settlement agreement, the
Company paid Bargo $5,000 and the parties released all claims against each
other. As described in Note 8, the settlement payment was funded by a
temporary overadvance on ORC's revolving credit facility.
Through June 1999, the Company had recorded provisions totaling $8,825 for
the trial court judgment plus interest at 10% and $2,060 for credit support
and guarantee fees related to the bond filed by the Company to suspend
execution on the judgement while the Company appealed. As a result of the
settlement, the Company recognized a gain in June 1999 of $3,617, the amount
by which the recorded provisions exceeded the settlement amount plus remaining
credit support costs.
California Tax Audit
In June 1999, the Company reached agreement with the California Franchise
Tax Board to settle the assessment of additional taxes for 1991, 1992 and
1993. The settlement agreement is subject to final approval by the State of
California, which management expects will be received. Under the settlement
agreement, Reunion paid $973, including interest. The settlement payment was
funded from the proceeds of a sale of a portion of the Company's vineyard
property in California. The Company accrued $595 in prior years for this
obligation based on settlement discussions. As a result of the settlement, the
Company accrued an additional $370 in June 1999, with a corresponding charge
to discontinued operations.
ITEM 4. Inventories
Inventories at December 31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Raw materials................................................... $3,011 $3,308
Work-in process................................................. 1,199 962
Finished goods.................................................. 1,824 2,834
------ ------
Total......................................................... $6,034 $7,104
====== ======
</TABLE>
F-13
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
ITEM 5. Property, Plant and Equipment
Property, plant and equipment at December 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Plastic Products and Services:
Machinery and equipment................................... $20,352 $20,881
Buildings and improvements................................ 6,759 7,108
Land and improvements..................................... 543 559
------- -------
27,654 28,548
Accumulated depreciation.................................. (6,449) (5,139)
------- -------
Net..................................................... 21,205 23,409
------- -------
Agricultural Operations:
Land and improvements..................................... 18,437 19,243
Equipment................................................. 1,738 1,549
------- -------
20,175 20,792
Accumulated depreciation.................................. (3,743) (2,848)
------- -------
Net..................................................... 16,432 17,944
------- -------
Total property, plant and equipment, net.................... $37,637 $41,353
======= =======
</TABLE>
Machinery and equipment includes assets acquired under capital leases which
have a net book value of $1,240 at December 31, 1999.
NOTE 6. Agricultural Operations
Juliana's wine grape agricultural operations consist of approximately 3,300
acres, of which approximately 970 acres are suitable for wine grape production
and of which approximately 335 acres are currently in production. This
property is located in Napa County, California within the boundaries of the
Napa Valley American Viticultural Area.
From October 1994 to September 1998, Juliana conducted its agricultural
operations through the Juliana Preserve (the "Preserve"), a joint venture
organized as a California general partnership. Juliana had a 71.7% interest in
the net income and net assets of the joint venture, but had a 50% voting
interest in matters concerning the operation, development and disposition of
the joint venture assets. In September 1998, Juliana purchased the interest of
its joint venture partner for $5,878, including closing costs. The purchase
was funded from the proceeds of the sale of three parcels for $2,700 and by a
$3,700 4-month note to the joint venture partner.
In December 1996, the Company adopted a plan to sell the vineyard property
and classified the agricultural operations as discontinued operations. The
Company was unsuccessful in finding a buyer for the entire property in 1997
and, as a result, reclassified the agricultural operations to continuing
operations and reversed the $710 estimated loss on disposal recognized in
1996. The Company continued its efforts to sell the remaining vineyard
property.
In August 1997, the Preserve sold approximately 520 acres, including
approximately 290 plantable acres, to a Napa Valley winery. The proceeds were
used to repay joint venture debt. In September 1998, Juliana sold
approximately 420 acres, including approximately 250 plantable acres, to an
Australian winery. The proceeds were used for the acquisition of the joint
venture partner's interests.
F-14
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
Also during 1998, Juliana formed the Juliana Mutual Water Company ("JMWC")
to own and operate the water storage and transmission system for the entire
property originally owned by the Preserve. Ownership of JMWC is generally in
proportion to plantable acres as specified in the JMWC bylaws. Ownership
interests attributable to the other property owners are shown as minority
interests in the Consolidated Balance Sheets.
In August 1999, Juliana sold approximately 260 acres, including
approximately 190 plantable acres, to a Napa Valley winery for net proceeds of
$1.8 million. The proceeds were used to pay the California tax settlement and
to repay related party debt. Juliana is attempting to sell substantially all
of the remaining property, but there can be no assurances that it will be able
to do so.
NOTE 7. Assets Held For Sale
In connection with the sale of REC, the Company retained certain oil and gas
properties in Louisiana because of litigation concerning environmental
matters. As described in Note 15, the Company is in the process of
environmental remediation of these properties. The Company intends to sell
these properties when the litigation is resolved. The net carrying value was
$84 at December 31, 1999, which the Company believes is realizable from the
sale of these interests.
The Company holds title to or recordable interests in federal and state
leases totaling approximately 55,000 acres near Moab, Utah, known as Ten Mile
Potash. Sylvanite, a potash mineral, is the principal mineral of interest and
occurrence in the Ten Mile Potash property. Ten Mile Potash has not yielded
any significant revenues, and the Company is pursuing the sale or farmout of
these interests. The carrying value for these properties is $138, which the
Company believes is realizable from the sale of these interests.
NOTE 8. Debt
Debt at December 31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
CITBC Revolver.................................................. $ 8,044 $ 8,543
CITBC Term Loans................................................ 10,750 6,000
Other ORC Debt.................................................. 4,789 5,704
Juliana Debt.................................................... 7,413 6,092
Related Party Debt.............................................. 1,017 2,461
------- -------
Total Debt.................................................... $32,013 $28,800
======= =======
Current Portion of Long-Term Debt............................... $11,383 $11,155
Short-Term Debt-Related Parties................................. -- 1,015
Long-Term Debt.................................................. 19,613 15,245
Long-Term Debt--Related Parties................................. 1,017 1,385
------- -------
Total Debt.................................................... $32,013 $28,800
======= =======
</TABLE>
CITBC Credit Facility
On October 19, 1998, ORC closed a financing under a Loan and Security
Agreement with the CIT Group/Business Credit, Inc. ("CITBC"). The agreement
provides a six-year senior secured credit facility including revolving credit
loans of up to $10,200 and a term loan in the initial amount of $6,000 for ORC
(the "CITBC Credit Facility"). The proceeds were used to refinance ORC'S debt
with Congress Financial Corporation ("Congress") and to provide working
capital for ORC. The initial borrowing under the CITBC Credit Facility totaled
$15,196 of which $13,941 was used to repay the debt with Congress and $1,255
was paid for fees and other loan costs. CITBC received fees totaling $1,100.
F-15
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
Borrowings under the revolving credit loans are subject to a collateral
availability formula based on 85% of eligible accounts receivable and 60% of
eligible raw materials and finished goods inventories, as such terms are
defined in the agreement. At December 31, 1999, ORC had $19 of revolving
credit availability. The term loans are repayable in quarterly installments of
$375. Interest is payable monthly at 0.25% above the Chase Manhattan Bank Rate
for revolving loans (8.75% at December 31, 1999) and at 0.50% above the Chase
Manhattan Bank Rate for the term loan (9.00% at December 31, 1999). The Loan
Agreement also required the maintenance of certain minimum earnings, minimum
ratio of earnings to interest expense, and minimum ratio of earnings to fixed
charges; limits annual capital expenditures; and limits amounts payable to
Reunion by ORC and Juliana.
The CITBC Credit Facility was collateralized by liens on substantially all
of ORC's assets and by guarantees of (i) ORC's subsidiary DPL Acquisition
Corp., which indirectly owns 80.47% of Data Packaging Limited ("DPL"), (ii)
Reunion, and (iii) Charles E. Bradley, President, Chief Executive Officer and
a director of the Company. The Company's guarantee was secured by (i) a pledge
of the stock of ORC, (ii) a pledge of the stock of Juliana and (iii) a cash
deposit of $438. Mr. Bradley's guarantee is secured by a pledge by Stanwich
Financial Services Corp. (a related party--see Note 13) of $6,000 of Partially
Convertible Subordinated 9% Notes of Consumer Portfolio Services, Inc.
The CITBC Credit Facility also provided a letter of credit guarantee to
provide credit support for a supersedeas bond in the Bargo litigation. Since
October 1998, substantially all the amounts otherwise permitted to be paid by
ORC to Reunion have been used to fund letter of credit and guarantee fees
relating to the bond in the Bargo litigation.
The $5,000 million settlement payment to Bargo in July 1999 was funded by a
temporary overadvance on the revolver portion of the CITBC Credit Facility and
the letter of credit was released. In August 1999, the CITBC Credit Facility
was amended to increase term loan A to $8,250 and provide for a $3,000 term
loan B. This amended facility replaced the temporary overadvance and provides
additional working capital for ORC. The guarantee by Mr. Bradley and the
pledges of collateral by Reunion and SFSC were continued under this amendment.
Substantially all the amounts permitted to be paid by ORC to Reunion are
expected to be used to fund continuing guarantee fees on this loan facility.
As discussed in Note 2, the CITBC Credit Facility was repaid on March 16,
2000.
Other ORC Debt
Other ORC debt includes a $1,183 10% unsecured note issued in connection
with the acquisition of DPL, a $1,017 11% note payable in quarterly
installments subject to a subordination agreement with CITBC; $469 of
variable-rate term loans from DPL's bank, payable in monthly installments over
twenty years; a $1,277 tax qualified Irish business expansion loan bearing
interest at 1% and payable in 2002 and $843 of capital lease obligations,
economic development loans and small business loans, generally collateralized
by equipment or other assets of ORC and DPL and bearing interest at rates
ranging from 3.8% to 16.4% at December 31, 1999.
Juliana Debt
Long term debt consists of a mortgage note payable to an insurance company
with a balance of $7,413 at December 31, 1999, bearing interest at 7.15% and
collateralized by certain Juliana land parcels.
During 1999, $1,095 was borrowed under a $1,500 crop loan with a bank,
bearing interest at prime rate plus 1.25%. The loan, which was fully repaid in
December 1999, was collateralized by certain wine grape sales contracts.
F-16
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
Related Party Debt
Beginning in August 1998, the Company borrowed funds for corporate working
capital from SFSC. These borrowings bear interest at 15% and were due to
mature September 30, 1998. SFSC agreed to extend the maturity date to December
31, 1999. The balance at December 31, 1998 was $1,015. The Company fully
repaid this debt during 1999.
Mr. Bradley holds a note from ORC in the amount of $1,017 bearing interest
at 11% per annum and subordinated to CITBC indebtedness except that if certain
conditions are met, regularly scheduled payments of interest may be paid when
due (see Note 13).
ORC was indebted to CGI Investment Corp. (a related party, see Note 13)
pursuant to a $250 promissory note dated May 21, 1993 bearing interest at 15%.
The note was subordinated to the prior payment of CITBC indebtedness except
that if certain conditions were met, monthly interest payments would be paid.
The note was subject to offset rights by ORC for certain environmental costs
incurred (See Note 15). In December, 1999, ORC settled this debt and the
offset rights for a payment of $20 and recognized a gain of $95 from the
settlement.
In 1997 and 1998, ORC entered into capital leases for machinery and
equipment with CPS Leasing, a subsidiary of Consumer Portfolio Services, Inc.
(a related party--See Note 13). The leases were for terms of two to three
years, and were fully amortized during 1999. The Company believes that the
terms of these leases were comparable to those available from third parties.
Maturities
The aggregate amounts of debt maturities are as follows:
<TABLE>
<S> <C>
2000................................................................. $11,383
2001................................................................. 1,901
2002................................................................. 3,167
2003................................................................. 1,886
2004................................................................. 7,129
Thereafter........................................................... 6,547
-------
Total.............................................................. $32,013
=======
</TABLE>
NOTE 9. Employee Benefits
Pension Plans
The Company sponsors defined benefit pension plans for certain Oneida and
DPL employees.
Oneida Plan: ORC sponsors a defined benefit pension plan which covered
substantially all employees in Oneida's New York facilitiies. Benefits under
the pension plan are based on years of service and average compensation for
the five highest consecutive years. Annually, Oneida contributes the minimum
amount required by applicable regulations. Assets of the pension plan are
principally invested in fixed income and equity securities. Contributions are
intended to provide for benefits attributed to employees' service to-date and
for those benefits expected to be earned from future service.
Effective January 1, 1997, benefits for salaried employees except certain
executives were frozen under the Oneida plan. In conjunction with the freeze,
these employees are eligible to participate in the Company's merged
F-17
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
401(k) plan as described below. Oneida hourly employees continued to
participate in the Oneida pension plan. Effective June 15, 1999, all benefits
under the plan were frozen, and the remaining employees became eligible to
participate in the 401(k) plan. No additional benefits will be earned for
future service under the defined benefit plan. Oneida recognized a curtailment
gain of $63 in 1999.
The following table sets forth the change in benefit obligation for the
Oneida Plan for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Benefit obligation at beginning of year...................... $2,927 $2,263
Service cost............................................... 29 93
Interest cost.............................................. 200 168
Benefits paid.............................................. (84) (89)
Curtailment gain........................................... (63) --
Actuarial (gain) loss...................................... (433) 492
------ ------
Benefit obligation at end of year............................ $2,576 $2,927
====== ======
</TABLE>
The following table sets forth the components of net periodic benefit costs
for the Oneida Plan for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Service cost........................................... $ 29 $ 93 $ 156
Interest cost.......................................... 200 168 151
Curtailment gain....................................... (63) -- (217)
Expected return on plan assets......................... (196) (167) (124)
----- ----- -----
Net periodic benefit cost.............................. $ (30) $ (94) $ (34)
===== ===== =====
</TABLE>
DPL Plan: DPL sponsors a defined benefit pension plan for its salaried staff
employees. Benefits are based largely on years of service and salary over the
last three years of employment. A lump sum death benefit is also provided,
which is a multiple of salary. Hourly-paid employees are included for a modest
level of death benefit only. The cost of the plan is met entirely by
contributions paid by DPL. As recommended by its actuaries, DPL contributes a
level percentage of salary every year. These contributions are expected to
provide the benefits promised, allowing for future salary increases. The
assets of the plan consist entirely of units in a pooled fund operated by a
life assurance company.
The following table sets forth the change in benefit obligation cost for the
DPL Plan for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Benefit obligation at beginning of year.................... $743 $662 $593
Service cost............................................. 67 64 57
Interest cost............................................ 41 36 31
Actuarial (gain) loss.................................... (16) (19) (19)
---- ---- ----
Benefit obligation at end of year.......................... $835 $743 $662
==== ==== ====
</TABLE>
F-18
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
The following table sets forth the components of net periodic benefit costs
for the DPL Plan for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service cost............................................... $67 $ 64 $ 57
Interest cost.............................................. 41 36 31
Expected return on plan assets............................. (88) (85) (50)
---- ---- ----
Net periodic benefit cost.................................. $ 20 $ 15 $ 38
==== ==== ====
</TABLE>
The following table sets forth the changes in plan assets and the funded
status of the plans based on the most recent actuarial valuations, which were
December 31, 1999, and 1998:
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
Oneida Plan DPL Plan Oneida Plan DPL Plan
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Plan assets at fair value,
beginning of year............... $2,197 $1,087 $1,959 $ 799
Actual return on plan assets..... 202 (12) 242 167
Employer contribution............ 51 102 85 121
Benefits paid.................... (84) (64) (89) --
------ ------ ------ ------
Plan assets at fair value, end of
year............................ $2,366 $1,113 $2,197 $1,087
====== ====== ====== ======
Funded status of plans........... $ 210 $ (278) $ 730 $ (344)
Unrecognized net gain (loss)..... 235 353 (204) 395
------ ------ ------ ------
Accrued pension cost............. $ 445 $ 75 $ 526 $ 51
====== ====== ====== ======
</TABLE>
The following table sets forth the actuarial assumptions used to develop the
net periodic pension costs for the periods presented:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Discount Rate:
Oneida Plan.............................................. 7.75% 7.0% 7.5%
DPL Plan................................................. 7.0% 8.0% 8.0%
Expected rate of return on plan assets:
Oneida Plan.............................................. 9.0% 9.0% 9.0%
DPL Plan................................................. 8.0% 9.0% 9.0%
Assumed compensation rate increase:
Oneida Plan.............................................. none 4.0% 4.0%
DPL Plan................................................. 5.0% 6.0% 6.0%
</TABLE>
Deferred Compensation Plans
The Company sponsors qualified contributory 401(k) plans covering
substantially all domestic employees. Employees may elect to contribute up to
an annually determined maximum amount permitted by law, and the Company makes
matching contributions up to specified limits. The Company's contributions to
the plan in each of the three years ended December 31, 1999 were not material.
Postretirement Benefits Other Than Pensions
ORC provides health care benefits for certain of Rostone's salaried and
union retirees and their dependents under two separate but substantially
similar plans. Generally, employees are eligible to participate in the medical
F-19
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
benefit plans if, at the time of retirement, they have at least 10 years of
service and have attained 62 years of age. Rostone's medical benefit plans are
contributory via employee contributions, deductibles and co-payments and are
subject to certain annual, lifetime and benefit-specific maximum amounts.
The following table sets forth the change in the benefit obligation and the
funded status of the health care benefits for the years ended December 31,
1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Benefit obligation at beginning of year.............. $1,409 $1,621 $1,510
Service cost....................................... 50 43 52
Interest cost...................................... 101 94 109
Benefit payments................................... (62) (46) (50)
Amortization of gain............................... (130) (303) --
------ ------ ------
Benefit obligation at end of year.................... 1,368 1,409 1,621
Unrecognized net gain................................ 137 141 73
------ ------ ------
Postretirement benefit liability..................... $1,505 $1,550 $1,694
====== ====== ======
</TABLE>
The following table sets forth the components of net periodic benefit costs
for the health care benefits for the years ended December 31, 1999, 1998 and
1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ----- ----
<S> <C> <C> <C>
Service cost............................................... $ 50 $ 43 $ 52
Interest cost.............................................. 101 94 109
Recognized actuarial (gain) loss........................... -- (349) --
---- ----- ----
Net periodic benefit cost.................................. $151 $(212) $161
==== ===== ====
</TABLE>
Benefit costs were estimated assuming retiree health care costs would
initially increase at a 10.0% annual rate, decreasing gradually to 5.3% after
15 years. A 1.0% increase in the assumed health care cost trend rate would
have increased the APBO at December 31,1999 and postretirement benefit cost
for 1999 by $120 and $5, respectively. The discount rate used to estimate the
accumulated postretirement benefit obligation was 7.75% for 1999 and 6.5% for
1998 and 1997.
Health care benefits are funded as claims are paid. In 1999, 1998 and 1997,
Rostone's cash payments for such benefits were approximately $62, $46 and $50,
respectively.
Postemployment Benefits
Other than unemployment compensation benefits required by law, the Company
does not provide postemployment benefits to former or inactive employees.
NOTE 10. Stockholders' Equity
Authorized Capital
The Company's Certificate of Incorporation authorizes the issuance of
20,000,000 shares of common stock, par value $.01 per share, and 10,000,000
shares of "blank check" preferred stock, par value $.01 per share, and
F-20
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
includes certain capital stock transfer restrictions (the "Transfer
Restrictions") which are designed to prevent any person or group of persons
from becoming a 5% shareholder of the Company and to prevent an increase in
the percentage stock ownership of any existing person or group of persons that
constitutes a 5% shareholder by prohibiting and voiding any transfer or
agreement to transfer stock to the extent that it would cause the transferee
to hold such a prohibited ownership percentage. The Transfer Restrictions are
intended to help assure that the Company's substantial net operating loss
carryforwards will continue to be available to offset future taxable income by
decreasing the likelihood of an "ownership change" for federal income tax
purposes.
Preferred Stock
In December 1999, the Company's Board of Directors authorized two series of
preferred stock to be issued in connection with the Chatwins Group merger and
the Kingway acquisition. On March 16, 2000, the Company issued 9,033 shares of
Series A Preferred Stock in exchange for Chatwins Group's preferred stock and
5,000 shares of Series B Preferred Stock in exchange for Kingway's Preferred
Stock (see Note 2).
The Series A Preferred Stock has a redemption price of $9,033. Cumulative
dividends at 10% of the redemption price per annum are payable as and when
declared by the board of directors. Series A dividends are senior to dividends
on the Company's common stock but junior to dividends on Series B Preferred
Stock. Subject to Delaware law and restrictions in the Company's debt
agreements, Series A Preferred Stock may be redeemed at the Company's option
if no shares of Series B Preferred Stock are outstanding. The redemption
amount is the redemption price plus accumulated unpaid dividends.
The Series B Preferred Stock has a redemption price of $5,000. Cumulative
dividends at 15% of the redemption price per annum from November 2, 1997 are
payable as and when declared by the board of directors. The accumulated
dividends as of the date of the Kingway acquisition were $1,781. Series B
dividends are senior to dividends on the Company's common stock and to
dividends on Series A Preferred Stock. Subject to Delaware law and
restrictions in the Company's debt agreements, Series B Preferred Stock may be
redeemed at the Company's option. The redemption amount is the redemption
price plus accumulated unpaid dividends.
Dividends
No dividends have been declared or paid during the past three years with
respect to the common stock of the Company. Cash dividends are limited by the
availability of funds and by restrictions in the Company's debt agreements
(see Note 2).
NOTE 11. Stock Options and Warrants
At December 31, 1999, the Company has three stock option plans which are
described below. In implementing FASB Statement 123 "Accounting for Stock-
Based Compensation" in 1996, the Company elected to continue to apply the
provisions of APB Opinion 25 and related interpretations in accounting for its
plans. Stock option grants during the periods presented were all at exercise
prices equal to or above the current market price of the underlying security
and, accordingly, no compensation cost has been recognized for the Company's
stock option plans. At December 31, 1999, 869,000 shares of common stock were
reserved for issuance pursuant to these plans.
F-21
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant dates for awards under those plans
consistent with the method of FASB Statement 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts as
indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- ------
<S> <C> <C> <C> <C>
Net Loss................ As reported $(1,149) $(12,383) $ (271)
Pro forma $(1,199) $(12,667) $ (302)
Basic and Diluted
Net Loss per Share.... As reported $ (0.29) $ (3.19) $(0.07)
Pro forma $ (0.31) $ (3.26) $(0.08)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: dividend yield of 0 percent for all years; expected volatility of
25%, risk-free interest rates of 5.5% to 5.7% and expected lives of 5 and 10
years in 1998. There were no options granted during 1999 and 1997. Expected
volatility was estimated based on historical performance of the Company's
stock prices and is not necessarily an indication of future stock movements.
1992 Option Plan
Effective July 1, 1992, the Board of Directors of the Company approved the
adoption of the 1992 Nonqualified Stock Option Plan (the "1992 Option Plan").
The 1992 Option Plan, as amended, authorized the grant of options and sale of
250,000 shares of common stock of the Company to key employees, directors and
consultants. No option granted under the 1992 Option Plan may be exercised
prior to six months from its date of grant or remain exercisable after ten
years from the grant date.
1992 Warrants
In addition, during 1992 the Company's Board of Directors approved the
issuance of warrants to a director and to a consultant to the Board of
Directors to purchase an aggregate of 150,000 shares of the Company's common
stock at $1.562 per share. The warrants became exercisable for two years on
July 1, 1993. In June 1995, the expiration date of these warrants was extended
to June 30, 1999. Warrants to purchase 37,500 shares were exercised in 1998
and to purchase 37,500 shares were exercised in 1999. The remaining warrants
to purchase 75,000 shares expired unexercised.
1993 Option Plan
Effective September 28, 1993, the Board of Directors of the Company approved
the adoption of the 1993 Incentive Stock Option Plan (the "1993 Option Plan")
for the granting of options or awards covering up to 250,000 shares of the
Company's common stock to officers and other key employees. Under the terms of
the 1993 Option Plan, the Compensation Committee of the Board of Directors is
authorized to grant (i) stock options (nonqualified or incentive), (ii)
restricted stock awards, (iii) phantom stock options, (iv) stock bonuses and
(v) cash bonuses in connection with grants of restricted stock or stock
bonuses. In July 1996, the Company granted 50,000 incentive stock options to
Richard L. Evans, the Company's Executive Vice President, Chief Financial
Officer and Secretary and 5,000 incentive stock options to another officer,
all at an exercise price of $4.375 per share. The options were fully vested in
July 1998, and are exercisable until July 2001. In February 1998, the Company
granted 20,000 options at an exercise price of $5.0625 to Mr. Evans, and in
May 1998, the Company granted 75,000 options at an exercise price of $7.21875
to Mr. Bradley. The options vest in installments through February 2000 and are
exercisable until February 2003 for Mr. Evans and vest in installments through
January 2003 and are exercisable until May 2003 for Mr. Bradley.
F-22
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
1998 Option Plan
On August 4, 1998, the Company's stockholders ratified the adoption by the
Board of Directors, on June 1, 1998, of the 1998 Stock Option Plan (the "1998
Option Plan"). The Compensation Committee of the Board of Directors is
authorized to grant incentive options and nonqualified options covering up to
600,000 shares of the Company's common stock to officers and other key
employees. On February 13, 1998, the Board of Directors, on recommendation by
the Compensation Committee, had conditionally granted options to purchase
15,000 shares of the Company's common stock to each of the five non-employee
Directors (excluding Mr. Bradley), subject to adoption of the plan by the
Board and ratification by the stockholders. The options have an exercise price
of $5.0625, vested immediately and are exercisable until February 2008.
A summary of the status of the Company's stock options and warrants as of
December 31, 1999, 1998 and 1997 and changes during the years ending on those
dates is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ -----------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Fixed Options Shares Price Shares Price Shares Price
- ------------- ------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 335,785 $4.29 215,750 $2.47 215,750 $2.47
Granted................. -- $ -- 170,000 $6.01 -- $ --
Exercised............... (40,035) $1.74 (44,965) $2.04 -- $ --
Forfeited/Expired....... (85,750) $1.99 (5,000) $4.44 $ --
Outstanding at end of
year................... 210,000 $5.71 335,785 $4.29 215,750 $2.47
Options exercisable at
year-end............... 154,600 $5.29 258,585 $3.55 193,750 $2.24
Weighted-average fair
value of options
granted during the
year:
Exercise price equal to
market price on date of
grant.................. $ -- $2.37 $ --
Exercise price greater
than market price on
date of grant.......... $ -- $1.94 $ --
</TABLE>
The following table summarizes information about stock options and warrants
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Remaining Number Number
Contractual Outstanding Exercisable
Exercise Price Life at 12/31/99 at 12/31/99
-------------- ----------- ------------ -----------
<S> <C> <C> <C>
$ 4.44 1.5 yrs. 40,000 40,000
$ 5.0625 3 yrs. 20,000 12,000
$ 5.0625 8 yrs. 75,000 75,000
$7.21875 3.5 yrs. 75,000 27,600
------- -------
210,000 154,600
</TABLE>
F-23
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
NOTE 12. Taxes on Income
The components of the Company's income tax (benefit) expense are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1999 1998 1997
---- ----- ----
<S> <C> <C> <C>
Current
Federal...................................................... $ -- $(676) $ --
State........................................................ 64 15 86
Foreign...................................................... 162 -- --
---- ----- ----
226 (661) 86
Deferred..................................................... -- -- --
---- ----- ----
$226 $(661) $ 86
==== ===== ====
</TABLE>
The Company files a consolidated U.S. federal income tax return and its U.S.
subsidiaries file combined or separate company income tax returns in states in
which they conduct business.
In September 1995, the Company amended its 1991 and 1992 Federal tax returns
to request a refund of Alternative Minimum Tax ("AMT") previously paid. The
refund resulted from the carryback of a capital loss originating from the
sale, in 1993, of the Company's common stock owned by a subsidiary of the
Company. The Company recorded a receivable for this refund in 1993 when the
transaction occurred. The IRS audited this refund request and issued a formal
IRS agent's report denying the refund claim, and asserting an additional tax
deficiency for 1993. The Company appealed the case to the IRS appeals
division. Because of the uncertainty over realization of the refund, the
Company recorded allowance of $750 for the possible denial of the AMT refund
with a corresponding charge to income tax expense in 1996. In August 1998, the
Company reached a settlement with the IRS on its appeal. As a result of the
settlement, the Company received refunds totaling $676, including interest,
and recorded an income tax benefit of $676 in 1998.
As part of the settlement, the IRS also confirmed the amounts of the
Company's net operating loss carryforwards ("NOLs") as of December 1993. Based
on the amounts confirmed, the amounts of the Company's NOLs as of December 31,
1999 expire as follows:
<TABLE>
<S> <C>
2000............................................................. $ 87,300
2001............................................................. 27,900
2002............................................................. 22,000
2003............................................................. 4,100
2004............................................................. 53,100
2005-2009........................................................ 9,900
2010-2019........................................................ 20,600
--------
$224,900
</TABLE>
The Company's ability to use these NOL's to offset future taxable income
would be limited if an "ownership change" were to occur for federal income tax
purposes. As described in Note 10, the Transfer Restrictions are intended to
decrease the likelihood of such an ownership change occurring.
F-24
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
Significant components of the Company's deferred tax position at December
31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Excess tax depreciation and bases differences of assets... $ (1,196) $ (1,645)
Other..................................................... (172) (210)
-------- --------
Total deferred tax liabilities.......................... (2,088) (1,855)
-------- --------
Deferred tax assets:
NOL and ITC carryforwards................................. 77,224 89,121
Bases differences of assets and liabilities............... 1,670 1,673
Provision for Bargo judgment.............................. -- 2,865
Other..................................................... 2,387 2,498
-------- --------
Total deferred tax assets............................... 81,281 96,157
-------- --------
Net deferred tax assets..................................... 79,193 94,302
Valuation allowance......................................... (79,193) (94,302)
-------- --------
$ -0- $ -0-
======== ========
</TABLE>
The Company has continued to incur tax losses since emerging from bankruptcy
in 1988, and there can be no assurance that the Company will be able to
utilize the net operating and capital loss carryforwards in excess of those
required to offset temporary differences which will result in future taxable
income. Therefore, the Company has provided a valuation allowance for the net
deferred tax asset. This valuation allowance decreased $15,109 in 1999
(primarily due to expiration of NOL's) and increased $16,924 in 1998
(primarily due to adjustments of the NOL carryforwards in connection with the
IRS settlement).
NOTE 13. Related Party Transactions
Chatwins Group and Affiliates
At December 31, 1999 Chatwins Group owned 1,450,000 shares, or approximately
37%, of the Company's common stock. As discussed in Note 2, Chatwins Group and
the Company merged on March 16, 2000.
Charles E. Bradley, Sr., President, Chief Executive Officer and a director
of the Company, is the Chairman and a director of Chatwins Group and the
beneficial owner of approximately 57% of the outstanding common stock of
Chatwins Group. John G. Poole, a director of the Company, is a director of
Chatwins Group and Thomas L. Cassidy, a director of the Company, was a
director of Chatwins Group until June 1997.
ORC was indebted to CGI Investment Corp. ("CGII") pursuant to a $250
promissory note dated May 21, 1993. CGII is owned 51% by Stanwich Partners,
Inc. ("SPI") and 49% by Chatwins Group. Mr. Bradley, Mr. Poole and Mr. Evans
are officers, directors and/or stockholders of SPI. The note had an
outstanding balance of $477 (principal and accrued interest) on December 31,
1998, and was subordinated to the prior payment of indebtedness owing by ORC
to CITBC except that if certain conditions were met, regularly scheduled
monthly interest payments could be paid when due. ORC was also permitted to
recover certain environmental remediation costs relating to soil and ground
water contamination at Rostone's Lafayette, Indiana site by offset against
this note. In December, 1999 ORC and CGII agreed to settle this debt and the
offset rights for a net payment by ORC of $20.
F-25
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
To facilitate the closing of the CITBC Credit Facility, Mr. Bradley
guaranteed the obligations of ORC and Reunion Industries under the CITBC
Credit Facility, which was repaid on March 16, 2000. Mr. Bradley received a
credit support fee from the Company in an aggregate amount equal to 3% per
annum of the amount guaranteed, payable monthly. Mr. Bradley's rights to
payment of the monthly installments of the credit support fee were
subordinated to the prior payment of indebtedness owing by ORC to CITBC.
Mr. Bradley holds a note from ORC in the amount of $1,017 bearing interest
at 11% per annum that was subordinated to the prior payment of indebtedness
owing by ORC to CITBC and is now subordinated to indebtedness to Bank of
America except that if certain conditions are met, regularly scheduled
payments of interest may be paid when due.
In 1997 and 1998, ORC entered into leases for machinery and equipment with
CPS Leasing, a subsidiary of Consumer Portfolio Services, Inc. ("CPS"). Mr.
Bradley and Mr. Poole are directors and stockholders of CPS. The leases were
for terms of two to three years and were fully amortized in 1999. The Company
believes that the terms of these leases were comparable to those available
from third parties
The Company subleases from SPI approximately 1,500 square feet of office
space in Stamford, Connecticut for its corporate offices. The Company believes
that the terms of this sublease are comparable to those available from third
parties.
In May, 1997, the Company loaned $1,500 to SST Acquisition Corp., a company
in which Mr. Bradley and Mr. Poole are stockholders. The loan was repaid after
three days with interest at 9% plus a $15 transaction fee.
Beginning in February 1998, the Company entered into an arrangement for
flying services with Butler Air, Inc. ("Butler"). Mr. Bradley is a director of
Butler and the owner of 65% of Stanwich Aviation Company, Inc., of which
Butler is a wholly owned subsidiary. Butler provides charter flight services
for certain business travel by Company officers and employees at rates which
the Company believes are comparable to those available from third parties. The
Company paid a monthly minimum of $5, which was credited against services as
used. This arrangement was terminated in June 1999.
Beginning in August 1998, the Company borrowed funds for corporate working
capital from Stanwich Financial Service Corp. ("SFSC"). Mr. Bradley, Mr. Poole
and Mr. Evans are officers, directors and/or stockholders of SFSC. The debt
bears interest at 15% and was originally scheduled to mature September 30,
1998. SFSC agreed to extend the maturity to December 31, 1999 while the
Company looked for an alternative source of funds. This debt was fully repaid
in February and August 1999.
In August 1999, the Company loaned $310 to SFSC. The loan was scheduled to
be repaid in December 1999 with interest at 15%. In December 1999, the Company
agreed to extend the maturity to March 2000 and loaned an additional $40 to
SFSC, also with interest at 15% and maturing March 2000.
F-26
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
Under the arrangements described above, the consolidated financial
statements include the following amounts and balances:
<TABLE>
<CAPTION>
Year ended
December 31,
--------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest Income:
SFSC.................................................... $ 15 $ -- $ --
Rent Expense:
CPS Leasing............................................. 218 167 64
SPI..................................................... 32 32 32
Travel Expense:
Butler.................................................. 55 73 --
Interest Expense:
Mr. Bradley............................................. 112 112 112
CGII.................................................... 33 38 38
SFSC.................................................... 38 25 --
Guarantee fees: Mr. Bradley............................... 666 190 41
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-------------------
1999 1998
--------- ---------
<S> <C> <C>
Current assets:
SFSC: notes receivable.............................. $ 350 $ --
SFSC: interest receivable........................... 15 --
Current liabilities:
SFSC: short-term debt............................... -- 1,015
CGII: interest...................................... -- 109
SFSC: interest...................................... -- 25
Butler: travel...................................... -- 18
Mr. Bradley: fees................................... 123 123
Long term debt-related parties:
Mr. Bradley......................................... 1,017 1,017
CGII................................................ -- 368
<CAPTION>
As of December 31,
-------------------
1999 1998
--------- ---------
<S> <C> <C>
Future minimum rental commitments under noncancellable
operating leases: CPS Leasing........................ $779 $937
</TABLE>
ORC manufactures component parts for Stanwich Acquisition Corp. ("SAC,"
doing business as Kingway Material Handling Company). Mr. Bradley and Mr.
Evans are officers and directors of SAC and own 42.5% and 15%, respectively,
of SAC's common stock. Sales to SAC in 1999 and 1998 were $443 and, $209,
respectively, and were at margins equivalent to those earned on sales to third
party customers at comparable volumes. Receivables from SAC were $65 at
December 31, 1999.
The Company obtains its property, casualty and general liability insurance
coverage, as well as health care coverage for corporate and Juliana employees,
through a joint arrangement with Chatwins. The Company and Chatwins Group
share the costs in proportion to coverages.
F-27
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
NOTE 14. Segment Information
The Company operates in two business segments, which are identified based on
products and services.
The Company, through its wholly owned subsidiary ORC, manufactures high
volume, precision plastic products and provides engineered plastics services.
ORC's Oneida division and its DPL subsidiary design and produce injection
molded parts and provide secondary services such as hot stamping, welding,
printing, painting and assembly of such products. In addition, Oneida designs
and builds custom molds at its tool shops in order to produce component parts
for specific customers. ORC's Rostone division compounds and molds thermoset
polyester resins.
The Company, through its wholly owned subsidiary Juliana, is engaged in wine
grape vineyard development and the growing and harvesting of wine grapes for
the premium table wine market and provides custom farming services to certain
third parties that have acquired vineyard parcels from Juliana.
The following tables present information about the results of operations and
financial position of the Company's business segments:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
------- -------- -------
<S> <C> <C> <C>
Revenues
Plastic products and services................... $71,575 $ 95,064 $93,378
Agriculture..................................... 4,524 2,254 --
------- -------- -------
$76,099 $ 97,318 $93,378
======= ======== =======
United States................................... $54,354 $ 70,196 $77,031
International (principally Ireland)............. $21,745 27,122 16,347
------- -------- -------
$76,099 $ 97,318 $93,378
======= ======== =======
Income before interest, taxes, and amortization
(EBITDA)
Plastic products and service.................... $ 5,514 $ 9,034 $ 7,926
Agriculture..................................... 1,008 118 (219)
Corporate and other............................. 382 (12,706) (1,567)
------- -------- -------
$ 6,904 $ (3,554) $ 6,140
======= ======== =======
Depreciation and amortization
Plastic products and services................... $ 3,876 $ 3,775 $ 3,457
Agriculture..................................... 897 547 306
Corporate and other............................. 1 4 5
------- -------- -------
$ 4,774 $ 4,326 $ 3,768
======= ======== =======
Income before interest and taxes (EBIT)
Plastic products and services................... $ 1,638 $ 5,259 $ 4,469
Agriculture..................................... 111 (429) (525)
Corporate and other............................. 381 (12,710) (1,572)
------- -------- -------
2,130 (7,880) 2,372
Interest expense.................................. (3,392) (3,221) (3,267)
------- -------- -------
Loss from continuing operations before income
taxes............................................ $(1,262) $(11,101) $ (895)
======= ======== =======
Capital Expenditures
Plastic products and services................... $ 2,025 $ 3,113 $ 3,868
Agriculture..................................... 464 -- --
Corporate and other............................. -- -- --
======= ======== =======
$ 2,489 $ 3,113 $ 3,868
======= ======== =======
</TABLE>
F-28
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
As of December 31,
-------------------
1999 1998
--------- ---------
<S> <C> <C>
Total Assets
Plastic products and services...................... $ 45,836 $ 54,638
Agriculture........................................ 18,788 19,058
Corporate and other................................ 1,687 1,178
--------- ---------
$ 66,311 $ 74,874
========= =========
Property Plant and Equipment--Net
United States...................................... $ 31,233 $ 34,036
International (principally Ireland)................ 6,404 7,317
--------- ---------
$ 37,637 $ 41,353
========= =========
</TABLE>
ORC did not have sales to a single customer that represented more than 10%
of ORC's sales during 1999. Accounts receivable at December 31, 1999 include
no significant geographic concentrations of credit risk. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral.
NOTE 15. Commitments and Contingencies
Legal Proceedings
The Company and its subsidiaries are the defendants in a number of lawsuits
and administrative proceedings, which have arisen in the ordinary course of
business of the Company and its subsidiaries. The Company believes that any
material liability which can result from any of such lawsuits or proceedings
has been properly reserved for in the Company's consolidated financial
statements or is covered by indemnification in favor of the Company or its
subsidiaries, and therefore the outcome of these lawsuits or proceedings will
not have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.
Environmental Compliance
Various U.S. federal, state and local laws and regulations including,
without limitation, laws and regulations concerning the containment and
disposal of hazardous waste, oil field waste and other waste materials, the
use of storage tanks, the use of insecticides and fungicides and the use of
underground injection wells directly or indirectly affect the Company's
operations. In addition, environmental laws and regulations typically impose
"strict liability" upon the Company for certain environmental damages.
Accordingly, in some situations, the Company could be liable for clean up
costs even if the situation resulted from previous conduct of the Company that
was lawful at the time or from improper conduct of, or conditions caused by,
previous property owners, lessees or other persons not associated with the
Company or events outside the control of the Company. Such clean up costs or
costs associated with changes in environmental laws and regulations could be
substantial and could have a materially adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
The Company's plastic products and service business routinely uses chemicals
and solvents, some of which are classified as hazardous substances. The
Company's oil and gas business and related activities routinely involved the
handling of significant amounts of waste materials, some of which are
classified as hazardous substances. The Company's vineyard operations
routinely use fungicides and insecticides, the handling, storage and use of
which is regulated under the Federal Insecticide, Fungicide and Rodenticide
Act, as well as California laws and regulations.
F-29
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
Except as described in the following paragraphs, the Company believes it is
currently in material compliance with existing environmental protection laws
and regulations and is not involved in any significant remediation activities
or administrative or judicial proceedings arising under federal, state or
local environmental protection laws and regulations. In addition to management
personnel who are responsible for monitoring environmental compliance and
arranging for remedial actions that may be required, the Company has also
employed outside consultants from time to time to advise and assist the
Company's environmental compliance efforts. Except as described in the
following paragraphs, the Company has not recorded any accruals for
environmental costs.
In February 1996, Rostone was informed by a contracted environmental
services consulting firm that soil and ground water contamination exists at
its Lafayette, Indiana site. The Company has expended $262 and has accrued an
additional $133 based on current estimates of remediation costs.
In connection with the sale of REC, the Company retained certain oil and gas
properties in Louisiana because of litigation concerning environmental
matters. The Company is in the process of environmental remediation under a
plan approved by the Louisiana Office of Conservation. The Company has
recorded an accrual for its proportionate share of the remaining estimated
costs to remediate the site based on plans and estimates developed by the
environmental consultants hired by the Company. During 1998 the Company
increased this accrual by a charge of $1,200 to discontinued operations, based
on revised estimates of the remaining remediation costs. During 1999, the
Company conducted remediation work on the property. The Company paid $172 of
the total cost of $300. At December 31, 1999, the remaining balance accrued by
the Company for remediation costs was $1,326. A regulatory hearing was held in
January 2000 to consider the adequacy of the remediation conducted to date. No
decision has been rendered to date, but the Company does not believe that the
cost of future remediation will exceed the amount accrued. Owners of a portion
of the property have objected to the Company's cleanup methodology and have
filed suit to require additional procedures. The Company is contesting this
litigation, and believes its proposed methodology is well within accepted
industry practice for remediation efforts of a similar nature. No accrual has
been made for costs of any alternative cleanup methodology which might be
imposed as a result of the litigation.
Operating Leases
At December 31, 1999, the Company's minimum rental commitments under
noncancellable operating leases for buildings and equipment are as follows:
<TABLE>
<S> <C>
2000............................................................... $ 911
2001............................................................... 822
2002............................................................... 713
2003............................................................... 468
2004............................................................... 230
Thereafter......................................................... 185
------
Total............................................................ $3,329
======
</TABLE>
Total rental expenses were $921, $684 and $702 in 1999, 1998 and 1997,
respectively.
NOTE 16. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
F-30
<PAGE>
REUNION INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1999
Cash and cash equivalents, accounts receivable and accounts payable. The
carrying amounts approximate fair value because of the short maturities of
these instruments.
Long term debt. Approximately 61% of the Company's long term debt has
variable rates of interest and 36% bears interest at fixed rates approximating
current market rates. Accordingly, management estimates that the carrying
amounts approximate the fair value, approximately $30,996 at December 31, 1999
and $26,339 at December 31,1998.
Approximately 3% ($1,017) of the long term debt is related party debt for
which comparable instruments do not exist. Accordingly, it is not practicable
to estimate the fair value of this debt. This debt bears interest at 11% and
is subject to subordination to the Bank of America Senior Secured Credit
Facilities.
NOTE 17. Quarterly Results of Operations (Unaudited)
Results of operations by quarter for the years ended December 31, 1999 and
1998 are set forth in the following tables:
<TABLE>
<CAPTION>
1999 Quarter Ended
-----------------------------------
March 31 June 30 Sept 30 Dec 31
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating Revenue.......................... $19,976 $18,351 $19,440 $18,332
Less Operating Costs and Expenses.......... 20,118 19,330 18,779 18,348
------- ------- ------- -------
Operating Income (Loss).................. (142) (979) 661 (16)
------- ------- ------- -------
Income (Loss) from continuing operations... (1,687) 1,512 (84) (1,229)
Income (Loss) from discontinued operations. -- (370) 459 250
------- ------- ------- -------
Net Income (Loss).......................... $(1,687) $ 1,142 $ 375 $ (979)
======= ======= ======= =======
Net Income (Loss) Per Share--Basic and
Diluted................................... $ (0.43) $ 0.29 $ 0.10 $ (0.25)
======= ======= ======= =======
Significant items included in continuing
operations which might affect
comparability are as follows:
Provision for Bargo judgment and related
costs................................... (966) (680) -- --
Bargo settlement gain.................... -- 3,617 -- --
</TABLE>
<TABLE>
<CAPTION>
1998 Quarter Ended
-----------------------------------
March 31 June 30 Sept 30 Dec 31
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Operating Revenue......................... $26,368 $ 24,704 $22,957 $23,289
Less Operating Costs and Expenses......... 25,308 24,361 23,588 22,566
------- -------- ------- -------
Operating Income (Loss)................. 1,060 343 (631) 723
------- -------- ------- -------
Income (Loss) from continuing operations.. 274 (9,330) (962) (422)
Loss from discontinued operations......... -- (1,200) -- (510)
Extraordinary Item........................ -- -- -- (233)
------- -------- ------- -------
Net Income (Loss)......................... $ 274 $(10,530) $ (962) $(1,165)
======= ======== ======= =======
Net Income (Loss) Per Share--Basic and
Diluted.................................. $ 0.07 $ (2.72) $ (0.25) $ (0.30)
======= ======== ======= =======
Significant items included in continuing
operations which might affect
comparability are as follows:
Provision for Bargo judgment and related
costs.................................. -- (8,825) -- (414)
Provision for merger and refinancing
costs.................................. -- -- (1,362) --
</TABLE>
F-31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENTS SCHEDULES
To the Board of Directors
of Reunion Industries, Inc.
Our audit of the consolidated financial statements referred to in our report
dated March 16, 2000, appearing on page F-2 of this Form 10-K, also included
an audit of the Financial Statement Schedules listed in item 14(a)(2) of this
Form 10-K. In our opinion, these Financial Statement Schedules present fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICEWATERHOUSECOOPERS LLP
Stamford, Connecticut
March 16, 2000
S-1
<PAGE>
Schedule I - Condensed Financial Information of Registrant
REUNION INDUSTRIES, INC. (Registrant)
CONDENSED BALANCE SHEET INFORMATION
(In Thousands)
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
<S> <C> <C>
ASSETS
Current Assets
Cash......................................................... $ 211 $ 12
Note receivable--related party............................... 350 0
Other current assets......................................... 18 51
------- -------
Total current assets....................................... 579 63
Other Assets
Equipment--net............................................... 3 10
Investment in and advances to subsidiaries................... 14,339 26,058
Debt issuance costs.......................................... 0 357
Other assets................................................. 807 190
------- -------
$15,728 $26,678
======= =======
</TABLE>
<TABLE>
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short term debt--related parties.......................... $ 0 $ 1,015
Accounts payable.......................................... 993 319
Accrued Bargo judgment.................................... 0 8,425
Other current liabilities................................. 190 680
-------- --------
1,183 10,439
-------- --------
Shareholders' Equity
Common stock.............................................. 39 39
Additional paid-in capital................................ 29,402 29,332
Retained earnings (since January 1, 1989)................. (14,110) (12,961)
Cumulative translation adjustment......................... (786) (171)
-------- --------
14,545 16,239
-------- --------
$ 15,728 $ 26,678
======== ========
</TABLE>
S-2
<PAGE>
Schedule I - Condensed Financial Information of Registrant (continued)
REUNION INDUSTRIES, INC. (Registrant)
CONDENSED STATEMENT OF OPERATIONS INFORMATION
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
------- -------- -------
<S> <C> <C> <C>
Selling, general and administrative expense........ $(1,582) $ (2,088) $(1,776)
Provison for merger and refinancing costs.......... -- (1,362) --
Interest expense................................... (326) (25) --
Provision for Bargo judgment and related costs..... (1,646) (9,239) --
Bargo settlement gain.............................. 3,617 -- --
Intercompany interest income....................... 938 1,238 1,265
Intercompany management fees....................... 300 300 300
Equity in income (loss) of continuing operations
of consolidated subsidiaries...................... (2,635) 35 (923)
Other income (expense)--net........................ 56 40 239
------- -------- -------
Loss from continuing operations before taxes....... (1,278) (11,101) (895)
Income tax benefit (expense)....................... (210) 661 (86)
------- -------- -------
Loss from continuing operations.................... (1,488) (10,440) (981)
Income (loss) from discontinued operations......... 365 (510) --
Equity in income (loss) of discontinued operations
of consolidated subsidiaries...................... (26) (1,200) 710
Equity in income (loss) of extraordinary item
of consolidated subsidiaries...................... -- (233) --
------- -------- -------
NET LOSS........................................... $(1,149) $(12,383) $ (271)
======= ======== =======
</TABLE>
S-3
<PAGE>
Schedule I - Condensed Financial Information of Registrant (continued)
REUNION INDUSTRIES, INC. (Registrant)
CONDENSED STATEMENT OF CASH FLOWS INFORMATION
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998 1997
------- -------- ------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Loss.......................................... $(1,149) $(12,383) $ (271)
Adjustments:
Depreciation.................................... 1 1 3
Debt issuance costs amortization................ 682 539 --
Bargo judgment provision........................ 400 8,425 --
Bargo settlement gain........................... (3,617) -- --
Bargo settlement payment........................ (5,000) -- --
Provision for tax audit settlement.............. 370 510 --
Tax audit settlement payment.................... (973) -- --
Equity in (income) loss of consolidated
subsidiaries................................... 2,661 1,398 213
Changes in assets and liabilities:
Interest receivable--consolidated subsidiaries.. 145 (868) (868)
Payables........................................ 673 177 57
Accruals and other.............................. (46) 59 33
------- -------- ------
(5,853) (2,142) (833)
------- -------- ------
Cash flows from Investing Activities:
Dividends from consolidated subsidiaries.......... 560 560 564
Advances (to) from consolidated subsidiaries...... 7,727 (317) (821)
Deferred merger costs............................. (803) -- --
Loans to related parties.......................... (350) -- --
Collection of notes receivable.................... 189 76 2,226
Capital expenditures.............................. -- -- (3)
------- -------- ------
7,323 319 1,966
------- -------- ------
Cash flows from Financing Activities:
Debt issuance costs............................... (325) (896) --
Increase (decrease) in short term borrowings...... (1,015) 1,015 --
Proceeds from exercise of stock options and
warrants......................................... 69 91 --
------- -------- ------
(1,271) 210 0
------- -------- ------
Net Increase (Decrease) in Cash..................... 199 (1,613) 1,133
Cash at Beginning of Period......................... 12 1,625 492
------- -------- ------
Cash at End of Period............................... $ 211 $ 12 $1,625
======= ======== ======
</TABLE>
S-4
<PAGE>
REUNION INDUSTRIES, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Amounts in Thousands)
<TABLE>
<CAPTION>
Additions
-------------------
Balance
Beginning Charges to Balance
of Year Earnings Other Deductions(1) End of Year
--------- ---------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999:
Deducted from asset
accounts:
Allowance for
doubtful accounts-
trade receivables.. $ 360 $121 0 $(179) $ 302
Allowance for
doubtful accounts-
other.............. 348 0 0 0 348
Reserve for excess
and obsolete
inventory.......... 528 236 0 (386) 378
Deferred tax asset
valuation reserve.. 94,302 0 (15,109)(2) 0 79,193
------- ---- -------- ----- -------
Totals............ $95,538 $357 $(15,109) $(565) $80,221
======= ==== ======== ===== =======
Year ended December 31,
1998:
Deducted from asset
accounts:
Allowance for
doubtful accounts-
trade receivables.. $ 375 $ 86 $ 0 $(101) $ 360
Allowance for
doubtful accounts-
other.............. 335 13 0 0 348
Reserve for excess
and obsolete
inventory.......... 512 37 0 (21) 528
Deferred tax asset
valuation reserve.. 77,378 0 16,924(3) 0 94,302
------- ---- -------- ----- -------
Totals............ $78,600 $136 $ 16,924 $(122) $95,538
======= ==== ======== ===== =======
Year ended December 31,
1997:
Deducted from asset
accounts:
Allowance for
doubtful accounts-
trade receivables.. $ 434 $ 4 $ 0 $ (63) $ 375
Allowance for
doubtful accounts-
other.............. 317 18 0 0 335
Reserve for excess
and obsolete
inventory.......... 321 224 0 (33) 512
Deferred tax asset
valuation reserve.. 77,827 0 0 (449) 77,378
------- ---- -------- ----- -------
Totals............ $78,899 $246 $ 0 $(545) $78,600
======= ==== ======== ===== =======
</TABLE>
- --------
(1) Utilization of established reserves, net of recoveries
(2) Decrease for expiration of NOL's
(3) Increase for adjustment to NOL's resulting from IRS settlement
S-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
2.1 Merger Agreement by and between Reunion Resources Company and Reunion
Industries, Inc. Incorporated by reference to Exhibit 2.1 to
Registration Statement on Form S-4 (No. 33-64325).
2.2 Amended and Restated Merger Agreement, dated as of July 28, 1999,
between Reunion Industries, Inc. and Chatwins Group, Inc. Incorporated
by reference to Exhibit 2.2 to Registration Statement on Form S-4
(File No. 333-84321).
3.1 Certificate of Incorporation of Reunion Industries, Inc. Incorporated
by reference to Exhibit 3.1 to Registration Statement on Form S-4 (No.
33-64325).
3.2 Bylaws of Reunion Industries, Inc. Incorporated by reference to
Exhibit 3.2 to Registration Statement on Form S-4 (No. 33-64325).
3.3 Certificate of Designations for Series A Redeemable Preferred Stock.*
3.4 Certificate of Designations for Series B Redeemable Preferred Stock*
4.1 Specimen Stock Certificate evidencing the Common Stock, par value $.01
per share, of Reunion Industries, Inc. Incorporated by reference to
Exhibit 4.1 to Registration Statement on Form S-4 (Registration No.
33-64325).
4.2 Form of Certificate for Series A Redeemable Preferred Stock.*
4.3 Form of Certificate for Series B Redeemable Preferred Stock.*
10.1 Buttes Gas & Oil Co. 1992 Nonqualified Stock Option Plan. Incorporated
by reference to Exhibit 10.35 to the Company's Annual Report on Form
10-K for the year ended December 31, 1992 (File No. 001-07726).
10.2 Form of Stock Option Agreement for options issued pursuant to the 1992
Nonqualified Stock Option Plan. Incorporated by reference to Exhibit
10.36 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992 (File No. 001-07726).
10.3 Reunion Resources Company 1993 Incentive Stock Plan. Incorporated by
reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993 (File No.
001-07726).
10.4 Form of Stock Option Agreement for options issued pursuant to the 1993
Incentive Stock Plan. Incorporated by reference to Exhibit 10.35 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1993 (File No. 001-07726).
10.5 The 1998 Stock Option Plan of Reunion Industries, Inc. Incorporated by
reference to Exhibit 2.2 to Registration Statement on Form S-4 (No.
333-56153).
10.6 Form of Stock Option Agreement for options issued pursuant to the 1998
Stock Option Plan of Reunion Industries, Inc. Incorporated by
reference to Exhibit 10.7 to Reunion Industries' Annual Report on Form
10-K for the year ended December 31, 1998 (File No. 33-64325).
10.7 Loan and Security Agreement dated as of October 16, 1998 among Oneida
Rostone Corp., Reunion Industries, Inc. and DPL Acquisition Corp. and
The CIT Group/Business Credit, Inc. Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K dated October
19, 1998 (File No. 33-64325).
10.8 Amendment No. 1 to Loan and Security Agreement dated as of December
31, 1998 modifying original Loan and Security Agreement dated as of
October 16, 1998 among Oneida Rostone Corp., Reunion Industries, Inc.
and DPL Acquisition Corp. and The CIT Group/Business Credit, Inc.
Incorporated by reference to Exhibit 10.9 to Reunion Industries'
Annual Report on Form 10-K for the year ended December 31, 1998 (File
No. 33-64325).
10.9 Amendment No. 2 to Loan and Security Agreement dated as of July 14,
1999 modifying original Loan and Security Agreement dated as of
October 16, 1998 among Oneida Rostone Corp., Reunion Industries, Inc.
and DPL Acquisition Corp. and The CIT Group/Business Credit, Inc.
Incorporated by reference to Exhibit 10.9 to Registration Statement on
Form S-4 (File No. 333-84321).
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.10 Amendment No. 3 to Loan and Security Agreement dated as of August 31,
1999 modifying original Loan and Security Agreement dated as of
October 16, 1998 among Oneida Rostone Corp., Reunion Industries, Inc.
and DPL Acquisition Corp. and The CIT Group/Business Credit, Inc.
Incorporated by reference to Exhibit 10.10 to Registration Statement
on Form S-4 (File No. 333-84321).
10.11 Share Purchase Agreement dated October 17, 1996 between Allied Irish
Banks Holdings and Investments Limited and DPL Acquisition Corp.
Incorporated by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K dated October 17, 1996 (File No. 33-64325).
10.12 Stock Purchase Agreement dated as of October 17, 1996 among Frank J.
Guzikowski, DPL Acquisition Corp., Reunion Industries, Inc., Data
Packaging International, Inc. and DPL Holdings, Inc. Incorporated by
reference to Exhibit 2.2 to the Company's Current Report on Form 8-K
dated October 17, 1996 (File No. 33-64325).
10.13 Asset Purchase Agreement between Oneida Rostone Corp., Quality Molded
Products, Inc. and Don A. Owen, dated November 18, 1996. Incorporated
by reference to Exhibit 2.1 to the Company's Current Report on Form 8-
K dated November 18, 1996 (File No. 33-64325).
10.14 Asset Purchase Agreement, dated September 30, 1999, by and between
Chatwins Group, Inc. and Alabama Metal Industries Corporation
Incorporated by reference to Registration Statement on Form S-4 (File
No. 333-84321).
10.15 Amended and Restated Financing and Security Agreement by and among
Reunion Industries, Inc. as Borrower and Bank of America, National
Association, as Agent and Bank of America, National Association and
others as Formula Lenders and Bank of America, National Association
and others as Term Loan B Lenders dated as of March 16, 2000.*
10.16 Indenture, dated as of May 1, 1993, by and between Chatwins Group,
Inc. And The First National Bank of Boston, as trustee, Incorporated
by reference to Exhibit 4.4 to Chatwins Group, Inc.'s Registration
Statement on Form S-1 filed on July 30, 1993 (File No. 33-63274).
10.17 First Supplemental Indenture and Wavier of Covenants of Indenture
between The First National Bank of Boston, as trustee, and Chatwins
Group, Inc. Incorporated by reference to Exhibit 4.32 to Chatwins
Group, Inc.'s Current Report on Form 8-K dated June 30, 1995 and filed
with the Commission on July 3, 1995 (File No. 33-63274).
10.18 Second Supplemental Indenture between The First National Bank of
Boston, as trustee, and Chatwins Group, Inc. Incorporated by reference
to Exhibit 4.33 to Chatwins Group, Inc.'s Current Report on Form 8-K
dated June 30, 1995 and filed with the Commission July 3, 19995 (File
No. 33-63274).
10.19 Third Supplemental Indenture, dated as of May 28, 1999, between
Chatwins Group, Inc. and State Street Bank and Trust Company, as
successor Trustee to The First National Bank of Boston.*
10.20 Fourth Supplemental Indenture, dated as of March 8, 2000, between
Chatwins Group, Inc. and State Street Bank and Trust Company, as
successor Trustee to The First National Bank of Boston.*
10.21 Fifth Supplemental Indenture, dated as of March 16, 2000, between
Chatwins Group, Inc., Reunion Industries, Inc. and State Street Bank
and Trust Company, as successor Trustee to The First National Bank of
Boston.*
11.1 Computation of Earnings Per Share.*
21.1 List of subsidiaries and jurisdictions of organization.*
23.1 Consent of Independent Public Accountants--PricewaterhouseCoopers
LLP.*
27 Financial Data Schedule*
</TABLE>
- --------
* Filed herewith
E-2
<PAGE>
Exhibit 3.3
CERTIFICATE OF DESIGNATIONS
FOR SERIES A REDEEMABLE
PREFERRED STOCK
OF REUNION INDUSTRIES, INC.
---------------------------
Pursuant to Section 151 of the Delaware General Corporation Law (the
"DGCL"), Reunion Industries, Inc., a Delaware corporation (the "Corporation"),
---- -----------
certifies as follows:
FIRST: Under the authority outlined in Article 4 of the Certificate
of Incorporation of the Corporation, the Board of Directors of the Corporation
has authorized for issuance 10,000,000 shares of Preferred Stock.
SECOND: The following resolution was adopted by the Board of
Directors on December 15, 1999, and such resolution has not been modified and
is in full force and effect on the date hereof:
RESOLVED, that the Board of Directors hereby creates, from the
authorized, but unissued shares of Preferred Stock of the Corporation, 10,000
shares of Series A Redeemable Preferred Stock, par value $.01 per share ("Series
A Preferred"), and hereby fixes the respective powers, designations, preferences
or other special rights, and the qualifications, limitations or restrictions
thereof, of the shares of such series as follows:
Part A. Powers, Preferences and Special Rights of the Series A Preferred.
-----------------------------------------------------------------
1. Dividends.
---------
1A. General Obligation. When and as declared by the Corporation's
------------------
Board of Directors and to the extent permitted under the General Corporation Law
of Delaware, the Corporation shall pay preferential dividends in cash to the
holders of the Series A Preferred as provided in this Section 1. Dividends on
each share of the Series A Preferred (a "Share") shall accrue on a daily basis
-----
at the rate of 10% per annum of the Redemption Value thereof from and including
the date of issuance of such Share to and including the first to occur of (i)
the date on which the Redemption Value of such Share (plus all accrued and
unpaid dividends thereon) is paid to the holder thereof in connection with the
liquidation of the Corporation or the redemption of such Share by the
Corporation or (ii) the date on which such Share is otherwise acquired by the
Corporation. Such dividends shall accrue whether or not they have been declared
and whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends, and such dividends shall be
cumulative such that (except as expressly permitted by Section 3 below) all
accrued and unpaid dividends shall be fully paid or declared with funds
irrevocably set apart for payment before any dividends, distributions,
redemptions or other payments may be made with respect to any Junior Securities,
but after payment of dividends with respect to the Corporation's Series B
Redeemable Preferred Stock ("Series B Preferred"). The date on which the
------------------
Corporation initially issues any Share shall be deemed to be its "date of
-------
issuance" regardless of the number of times transfer of such Share is made on
- --------
the stock records maintained by or for the Corporation and regardless of the
number of certificates which may be issued to evidence such Share.
-1-
<PAGE>
1B. Dividend Reference Dates. To the extent not paid on March 31,
------------------------
June 30, September 30 and December 31 of each year, beginning March 31, 2000
(the "Dividend Reference Dates"), all dividends which have accrued on each Share
------------------------
outstanding during the three-month period (or other period in the case of the
initial Dividend Reference Date for such Share) ending upon each such Dividend
Reference Date shall be accumulated and shall remain accumulated dividends with
respect to such Share until paid.
1C. Distribution of Partial Dividend Payments. If at any time the
-----------------------------------------
Corporation pays less than the total amount of dividends then accrued with
respect to the Series A Preferred and any other shares of any other class or
series of Preferred Stock which rank on a parity with the Series A Preferred in
respect of the payment of dividends, such payment shall be distributed pro rata
among the holders thereof based upon the aggregate accrued but unpaid dividends
on the Shares and the other shares of Preferred Stock held by each such holder.
2. Liquidation. Upon any liquidation, dissolution or winding up of the
-----------
Corporation (whether voluntary or involuntary), each holder of Series A
Preferred shall be entitled to be paid, before any distribution or payment is
made upon any Junior Securities, an amount in cash equal to the aggregate
Redemption Value of all Shares held by such holder (plus all accrued and unpaid
dividends thereon), and the holders of Series A Preferred shall not be entitled
to any further payment. If upon any liquidation, dissolution or winding up of
the Corporation the Corporation's assets to be distributed among the holders of
the Series A Preferred and any shares of any other class or series of Preferred
Stock which rank on a parity with the Series A Preferred upon any such
liquidation, dissolution or winding up are insufficient to permit payment to
such holders of the aggregate amount which they are entitled to be paid under
this Section 2, then the entire assets available to be distributed to the
Corporation's stockholders shall be distributed pro rata among such holders of
Series A Preferred and such holders of any other shares of Preferred Stock which
rank on a parity with the Series A Preferred based upon the aggregate Redemption
Value (plus all accrued and unpaid dividends) of the Series A Preferred held by
each such holder and the aggregate liquidation value (plus all accrued and
unpaid dividends) of such other shares of Preferred Stock held by each such
holder. Not less than 20 days prior to the payment date stated therein, the
Corporation shall mail written notice of any such liquidation, dissolution or
winding up to each record holder of Series A Preferred, setting forth in
reasonable detail the amount of proceeds to be paid with respect to each Share
in connection with such liquidation, dissolution or winding up. Neither the
consolidation or merger of the Corporation into or with any other entity or
entities (whether or not the Corporation is the surviving entity), nor the sale
or transfer by the Corporation of all or any part of its assets, nor the
reduction of the capital stock of the Corporation nor any other form of
recapitalization or reorganization affecting the Corporation shall be deemed to
be a liquidation, dissolution or winding up of the Corporation within the
meaning of this Section 2.
3. Priority of Series A Preferred on Dividends and Redemptions. So long
-----------------------------------------------------------
as any Series A Preferred remains outstanding, without the prior written consent
of the holders of a majority of the outstanding shares of Series A Preferred,
the Corporation shall not, nor shall it permit any Subsidiary to, redeem,
purchase or otherwise acquire directly or indirectly any Junior Securities
(other than Series B Preferred), nor shall the Corporation directly or
indirectly pay or declare any dividend or make any distribution upon any Junior
Securities (other than dividends payable in shares of Common Stock issued upon
the outstanding shares of Common Stock).
-2-
<PAGE>
4. Redemptions.
-----------
4A. Optional Redemptions. The Corporation may, at any time and from
--------------------
time to time, redeem all or any portion of the Shares of Series A Preferred then
outstanding; provided, however, that no such redemption shall be made so long as
any shares of Series B Preferred are outstanding. Upon any such redemption, the
Corporation shall pay a price per Share equal to the Redemption Value thereof
(plus all accrued and unpaid dividends thereon).
4B. Redemption Payments. For each Share which is to be redeemed
-------------------
hereunder, the Corporation shall be obligated on the Redemption Date to pay to
the holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such Share) an amount in immediately
available funds equal to the Redemption Value of such Share (plus all accrued
and unpaid dividends thereon). If the funds of the Corporation legally
available for redemption of Shares on any Redemption Date are insufficient to
redeem the total number of Shares to be redeemed on such date plus the total
number of shares of any other class or series of Preferred Stock which rank on a
parity with the Series A Preferred in respect of such redemption, those funds
which are legally available shall be used to redeem the maximum possible number
of Shares pro rata among the holders of the Shares to be redeemed and the
holders of the other shares to be redeemed based upon the aggregate Redemption
Value of such Shares held by each such holder (plus all accrued and unpaid
dividends thereon) and the aggregate liquidation value of the other shares of
Preferred Stock held by each such other holder (plus all accrued and unpaid
dividends thereon). At any time thereafter when additional funds of the
Corporation are legally available for the redemption of Shares and such other
shares, such funds shall immediately be used to redeem the balance of the Shares
and such other shares as aforesaid which the Corporation has become obligated to
redeem on any Redemption Date but which it has not redeemed.
4C. Notice of Redemption. The Corporation shall mail written notice
--------------------
of each redemption of any Series A Preferred to each record holder thereof not
more than 30 nor less than ten days prior to the date on which such redemption
is intended to be made. In case fewer than the total number of Shares
represented by any certificate are redeemed, a new certificate representing the
number of unredeemed Shares shall be issued to the holder thereof without cost
to such holder within three business days after surrender of the certificate
representing the redeemed Shares.
4D. Determination of the Number of Each Holder's Shares to be
---------------------------------------------------------
Redeemed. The number of Shares of Series A Preferred to be redeemed from each
- --------
holder thereof in redemptions hereunder shall be the number of Shares determined
by multiplying the total number of Shares to be redeemed times a fraction, the
numerator of which shall be the aggregate Redemption Value of such Shares held
by such holder (plus all accrued and unpaid dividends thereon) and the
denominator of which shall be the total aggregate Redemption Value of all Shares
held by all such holders (plus all accrued and unpaid dividends thereon).
4E. Dividends After Redemption Date. No Share shall be entitled to
-------------------------------
any dividends accruing after the date on which the Redemption Value of such
Share (plus all accrued and unpaid dividends thereon) is paid to the holder of
such Share. On such date, all rights of the holder of such Share shall cease,
and such Share shall no longer be deemed to be issued and outstanding.
-3-
<PAGE>
4F. Redeemed or Otherwise Acquired Shares. Any Shares which are
-------------------------------------
redeemed or otherwise acquired by the Corporation shall be canceled and retired
and shall not be reissued, sold or transferred.
5. Voting and Conversion Rights. Except as otherwise provided by
----------------------------
applicable law, the Series A Preferred shall have no voting rights and will not
have any right of conversion into the common stock or any other securities of
the Corporation.
6. Registration of Transfer. The Corporation shall keep at its principal
------------------------
office a register for the registration of Series A Preferred. Upon the
surrender of any certificate representing Series A Preferred at such place, the
Corporation shall, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
Shares represented by the surrendered certificate. Each such new certificate
shall be registered in such name and shall represent such number of Shares as is
requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate, and dividends
shall accrue on the Series A Preferred represented by such new certificate from
the date to which dividends have been fully paid on such Series A Preferred
represented by the surrendered certificate.
7. Replacement. Upon receipt of evidence reasonably satisfactory to the
-----------
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing Shares of Series A Preferred, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor or investment fund, its own agreement shall be
satisfactory) or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
Shares of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate, and dividends shall accrue on the Series A Preferred represented by
such new certificate from the date to which dividends have been fully paid on
such lost, stolen, destroyed or mutilated certificate.
8. Definitions.
-----------
"Common Stock" means the Corporation's Common Stock and any other
------------
capital stock of any class of the Corporation hereafter authorized which is not
limited to a fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon any liquidation, dissolution or winding up of the Corporation.
"Junior Securities" means any capital stock or other equity securities
-----------------
of the Corporation, except for the Series A Preferred and any shares of any
other class or series of Preferred Stock authorized pursuant to the Certificate
of Incorporation which rank senior to or on a parity with the Series A Preferred
with respect to the payment of dividends, redemptions or distributions upon
liquidation or otherwise (as the case may be). The Series B Preferred Stock
-4-
<PAGE>
shall rank senior to the Series A Preferred with respect to dividends and
redemptions, but shall rank junior to the Series A Preferred with respect to
payments in liquidation.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Stock" means the Series A Preferred, Series B Preferred and
---------------
any other class or series authorized and issued from time to time by the Board
of Directors pursuant to the authority granted to it pursuant to the Certificate
of Incorporation.
"Redemption Date" as to any Share means the applicable date specified
---------------
herein with respect to any redemption; provided that no such date shall be a
-------- ----
Redemption Date unless the Redemption Value of such Share (plus all declared and
unpaid dividends thereon) is actually paid in full on such date, and if not so
paid in full, the Redemption Date shall be the date on which such amount is
fully paid.
"Redemption Value" of any Share as of any particular date shall be
----------------
equal to $1,000.00.
"Subsidiary" means, with respect to any Person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of the limited liability
company, partnership, association or other business entity gains or losses or
shall be or control the managing general partner of such limited liability
company, partnership, association or other business entity.
9. Amendment and Waiver. No amendment, modification or waiver shall be
--------------------
binding or effective with respect to any provision of Sections 1 to 10 of this
Part A without the prior written consent of the holders of a majority of the
Series A Preferred outstanding at the time such action is taken; provided that
-------- ----
no change in the terms hereof may be accomplished by merger or consolidation of
the Corporation with another Person unless the Corporation has obtained the
prior written consent of the holders of a majority of the Series A Preferred
then outstanding.
* * * *
-5-
<PAGE>
IN WITNESS WHEREOF, this Certificate has been signed on March 13 ,
2000, and the signature of the undersigned shall constitute the affirmation and
acknowledgment of the undersigned, under penalties of perjury, that the
Certificate is the act and deed of the undersigned and that the facts stated in
the Certificate are true.
By: /s/ Charles E. Bradley, Sr.
---------------------------
Charles E. Bradley, Sr.
President
Attest: /s/ Richard L. Evans
--------------------
Richard L. Evans
Secretary
-6-
<PAGE>
Exhibit 3.4
CERTIFICATE OF DESIGNATIONS
FOR SERIES B REDEEMABLE
PREFERRED STOCK
OF REUNION INDUSTRIES, INC.
---------------------------
Pursuant to Section 151 of the Delaware General Corporation Law (the
"DGCL"), Reunion Industries, Inc., a Delaware corporation (the "Corporation"),
---- -----------
certifies as follows:
FIRST: Under the authority outlined in Article 4 of the Certificate
of Incorporation of the Corporation, the Board of Directors of the Corporation
has authorized for issuance 10,000,000 shares of Preferred Stock.
SECOND: The following resolution was adopted by the Board of
Directors on December 15, 1999, and such resolution has not been modified and
is in full force and effect on the date hereof:
RESOLVED, that the Board of Directors hereby creates, from the authorized,
but unissued shares of Preferred Stock of the Corporation, 5,000 shares of
Series B Redeemable Preferred Stock, par value $.01 per share ("Series B
Preferred"), and hereby fixes the respective powers, designations, preferences
or other special rights, and the qualifications, limitations or restrictions
thereof, of the shares of such series as follows:
Part A. Powers, Preferences and Special Rights of the Series B Preferred.
-----------------------------------------------------------------
1. Dividends.
---------
1A. General Obligation. When and as declared by the Corporation's
------------------
Board of Directors and to the extent permitted under the General Corporation Law
of Delaware, the Corporation shall pay preferential dividends in cash to the
holders of the Series B Preferred as provided in this Section 1. Dividends on
each share of the Series B Preferred (a "Share") shall accrue on a daily basis
-----
at the rate of 15% per annum of the Redemption Value thereof from and including
November 3, 1997 to and including the first to occur of (i) the date on which
the Redemption Value of such Share (plus all accrued and unpaid dividends
thereon) is paid to the holder thereof in connection with the liquidation of the
Corporation or the redemption of such Share by the Corporation or (ii) the date
on which such Share is otherwise acquired by the Corporation. Such dividends
shall accrue whether or not they have been declared and whether or not there are
profits, surplus or other funds of the Corporation legally available for the
payment of dividends, and such dividends shall be cumulative such that (except
as expressly permitted by Section 3 below) all accrued and unpaid dividends
shall be fully paid or declared with funds irrevocably set apart for payment
before any dividends, distributions, redemptions or other payments may be made
with respect to any Junior Securities.
1B. Dividend Reference Dates. To the extent not paid on March 31,
------------------------
June 30, September 30 and December 31 of each year, beginning March 31, 2000
(the "Dividend Reference Dates"), all dividends which have accrued on each Share
------------------------
outstanding during the three-month period (or other period in the case of the
initial Dividend Reference Date for such Share) ending upon each such Dividend
Reference Date shall be accumulated and shall remain accumulated dividends with
respect to such Share until paid.
<PAGE>
1C. Distribution of Partial Dividend Payments. If at any time the
-----------------------------------------
Corporation pays less than the total amount of dividends then accrued with
respect to the Series B Preferred and any other shares of any other class or
series of Preferred Stock which rank on a parity with the Series B Preferred in
respect of the payment of dividends, such payment shall be distributed pro rata
among the holders thereof based upon the aggregate accrued but unpaid dividends
on the Shares and the other shares of Preferred Stock held by each such holder.
2. Liquidation. Upon any liquidation, dissolution or winding up of the
-----------
Corporation (whether voluntary or involuntary), each holder of Series B
Preferred shall be entitled to be paid, before any distribution or payment is
made upon any Junior Securities, but after a distribution or payment with
respect to the Corporation's Series A Redeemable Preferred Stock ("Series A
Preferred") an amount in cash equal to the aggregate Redemption Value of all
Shares held by such holder (plus all accrued and unpaid dividends thereon), and
the holders of Series B Preferred shall not be entitled to any further payment.
If upon any liquidation, dissolution or winding up of the Corporation the
Corporation's assets to be distributed among the holders of the Series B
Preferred and any shares of any other class or series of Preferred Stock which
rank on a parity with the Series B Preferred upon any such liquidation,
dissolution or winding up are insufficient to permit payment to such holders of
the aggregate amount which they are entitled to be paid under this Section 2,
then the remaining assets available (after the distribution or payments with
respect to the Series A Preferred) to be distributed to the Corporation's
stockholders shall be distributed pro rata among such holders of Series B
Preferred and such holders of any other shares of Preferred Stock which rank on
a parity with the Series B Preferred based upon the aggregate Redemption Value
(plus all accrued and unpaid dividends) of the Series B Preferred held by each
such holder and the aggregate liquidation value (plus all accrued and unpaid
dividends) of such other shares of Preferred Stock held by each such holder.
Not less than 20 days prior to the payment date stated therein, the Corporation
shall mail written notice of any such liquidation, dissolution or winding up to
each record holder of Series B Preferred, setting forth in reasonable detail the
amount of proceeds to be paid with respect to each Share in connection with such
liquidation, dissolution or winding up. Neither the consolidation or merger of
the Corporation into or with any other entity or entities (whether or not the
Corporation is the surviving entity), nor the sale or transfer by the
Corporation of all or any part of its assets, nor the reduction of the capital
stock of the Corporation nor any other form of recapitalization or
reorganization affecting the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
2.
3. Priority of Series B Preferred on Dividends and Redemptions. So long
-----------------------------------------------------------
as any Series B Preferred remains outstanding, without the prior written consent
of the holders of a majority of the outstanding shares of Series B Preferred,
the Corporation shall not, nor shall it permit any Subsidiary to, redeem,
purchase or otherwise acquire directly or indirectly any Junior Securities, nor
shall the Corporation directly or indirectly pay or declare any dividend or make
any distribution upon any Junior Securities (other than dividends payable in
shares of Common Stock issued upon the outstanding shares of Common Stock).
-2-
<PAGE>
4. Redemptions.
-----------
4A. Optional Redemptions. The Corporation may, at any time and from
--------------------
time to time, redeem all or any portion of the Shares of Series B Preferred then
outstanding. Upon any such redemption, the Corporation shall pay a price per
Share equal to the Redemption Value thereof (plus all accrued and unpaid
dividends thereon).
4B. Redemption Payments. For each Share which is to be redeemed
-------------------
hereunder, the Corporation shall be obligated on the Redemption Date to pay to
the holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such Share) an amount in immediately
available funds equal to the Redemption Value of such Share (plus all accrued
and unpaid dividends thereon). If the funds of the Corporation legally
available for redemption of Shares on any Redemption Date are insufficient to
redeem the total number of Shares to be redeemed on such date plus the total
number of shares of any other class or series of Preferred Stock which rank on a
parity with the Series B Preferred in respect of such redemption, those funds
which are legally available shall be used to redeem the maximum possible number
of Shares pro rata among the holders of the Shares to be redeemed and the
holders of the other shares to be redeemed based upon the aggregate Redemption
Value of such Shares held by each such holder (plus all accrued and unpaid
dividends thereon) and the aggregate liquidation value of the other shares of
Preferred Stock held by each such other holder (plus all accrued and unpaid
dividends thereon). At any time thereafter when additional funds of the
Corporation are legally available for the redemption of Shares and such other
shares, such funds shall immediately be used to redeem the balance of the Shares
and such other shares as aforesaid which the Corporation has become obligated to
redeem on any Redemption Date but which it has not redeemed.
4C. Notice of Redemption. The Corporation shall mail written notice
--------------------
of each redemption of any Series B Preferred to each record holder thereof not
more than 30 nor less than ten days prior to the date on which such redemption
is intended to be made. In case fewer than the total number of Shares
represented by any certificate are redeemed, a new certificate representing the
number of unredeemed Shares shall be issued to the holder thereof without cost
to such holder within three business days after surrender of the certificate
representing the redeemed Shares.
4D. Determination of the Number of Each Holder's Shares to be
---------------------------------------------------------
Redeemed. The number of Shares of Series B Preferred to be redeemed from each
- --------
holder thereof in redemptions hereunder shall be the number of Shares determined
by multiplying the total number of Shares to be redeemed times a fraction, the
numerator of which shall be the aggregate Redemption Value of such Shares held
by such holder (plus all accrued and unpaid dividends thereon) and the
denominator of which shall be the total aggregate Redemption Value of all Shares
held by all such holders (plus all accrued and unpaid dividends thereon).
4E. Dividends After Redemption Date. No Share shall be entitled to
-------------------------------
any dividends accruing after the date on which the Redemption Value of such
Share (plus all accrued and unpaid dividends thereon) is paid to the holder of
such Share. On such date, all rights of the holder of such Share shall cease,
and such Share shall no longer be deemed to be issued and outstanding.
-3-
<PAGE>
4F. Redeemed or Otherwise Acquired Shares. Any Shares which are
-------------------------------------
redeemed or otherwise acquired by the Corporation shall be canceled and retired
and shall not be reissued, sold or transferred.
5. Voting and Conversion Rights. Except as otherwise provided by
----------------------------
applicable law, the Series B Preferred shall have no voting rights and will not
have any right of conversion into the common stock or any other securities of
the Corporation.
6. Registration of Transfer. The Corporation shall keep at its principal
------------------------
office a register for the registration of Series B Preferred. Upon the
surrender of any certificate representing Series B Preferred at such place, the
Corporation shall, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
Shares represented by the surrendered certificate. Each such new certificate
shall be registered in such name and shall represent such number of Shares as is
requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate, and dividends
shall accrue on the Series B Preferred represented by such new certificate from
the date to which dividends have been fully paid on such Series B Preferred
represented by the surrendered certificate.
7. Replacement. Upon receipt of evidence reasonably satisfactory to the
-----------
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing Shares of Series B Preferred, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor or investment fund, its own agreement shall be
satisfactory) or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
Shares of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate, and dividends shall accrue on the Series B Preferred represented by
such new certificate from the date to which dividends have been fully paid on
such lost, stolen, destroyed or mutilated certificate.
8. Definitions.
-----------
"Common Stock" means the Corporation's Common Stock and any other
------------
capital stock of any class of the Corporation hereafter authorized which is not
limited to a fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon any liquidation, dissolution or winding up of the Corporation.
"Junior Securities" means any capital stock or other equity securities
-----------------
of the Corporation, except for the Series B Preferred and any shares of any
other class or series of Preferred Stock authorized pursuant to the Certificate
of Incorporation which rank senior to or on a parity with the Series B Preferred
with respect to the payment of dividends, redemptions or distributions upon
liquidation or otherwise (as the case may be). The Series B Preferred Stock
shall rank senior to the Series A Preferred with respect to dividends and
redemptions, but shall rank junior to the Series A Preferred with respect to
payments in liquidation.
-4-
<PAGE>
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Stock" means the Series A Preferred, Series B Preferred and
---------------
any other class or series authorized and issued from time to time by the Board
of Directors pursuant to the authority granted to it pursuant to the Certificate
of Incorporation.
"Redemption Date" as to any Share means the applicable date specified
---------------
herein with respect to any redemption; provided that no such date shall be a
-------- ----
Redemption Date unless the Redemption Value of such Share (plus all declared and
unpaid dividends thereon) is actually paid in full on such date, and if not so
paid in full, the Redemption Date shall be the date on which such amount is
fully paid.
"Redemption Value" of any Share as of any particular date shall be
----------------
equal to $1,000.00.
"Subsidiary" means, with respect to any Person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of the limited liability
company, partnership, association or other business entity gains or losses or
shall be or control the managing general partner of such limited liability
company, partnership, association or other business entity.
9. Amendment and Waiver. No amendment, modification or waiver shall be
--------------------
binding or effective with respect to any provision of Sections 1 to 10 of this
Part A without the prior written consent of the holders of a majority of the
Series B Preferred outstanding at the time such action is taken; provided that
-------- ----
no change in the terms hereof may be accomplished by merger or consolidation of
the Corporation with another Person unless the Corporation has obtained the
prior written consent of the holders of a majority of the Series B Preferred
then outstanding.
* * * *
-5-
<PAGE>
IN WITNESS WHEREOF, this Certificate has been signed on March 13,
2000, and the signature of the undersigned shall constitute the affirmation and
acknowledgment of the undersigned, under penalties of perjury, that the
Certificate is the act and deed of the undersigned and that the facts stated in
the Certificate are true.
By: /s/ Charles E. Bradley, Sr.
---------------------------
Charles E. Bradley, Sr.
President
Attest: /s/ Richard L. Evans
--------------------
Richard L. Evans
Secretary
-6-
<PAGE>
EXHIBIT 4.2
SERIES A
Number Shares
1 PREFERRED STOCK
Incorporated under the Laws of the State of Delaware
Reunion Industries, Inc.
Common Stock 20,000,000 Shares - Par Value $.01 Per Share
Preferred Stock 10,000,000 Shares - Par Value $.01 Per Share
This Certifies that ____________________________________________ is the owner of
________________________________________________________________________________
fully paid and non-assessable Shares,
par value $.01 per share, of the PREFERRED STOCK of
Reunion Industries, Inc.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed.
The Corporation will furnish without charge to each stockholder who so
requests, a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Witness the seal of said Corporation and the signatures of its duly
authorized officers.
Dated ____________________________
__________________________________ _________________________________
Secretary Treasurer Vice-President President
<PAGE>
EXHIBIT 4.3
SERIES B
Number Shares
1 PREFERRED STOCK
Incorporated under the Laws of the State of Delaware
Reunion Industries, Inc.
Common Stock 20,000,000 Shares - Par Value $.01 Per Share
Preferred Stock 10,000,000 Shares - Par Value $.01 Per Share
This Certifies that ____________________________________________ is the owner of
________________________________________________________________________________
fully paid and non-assessable Shares,
par value $.01 per share, of the PREFERRED STOCK of
Reunion Industries, Inc.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed.
The Corporation will furnish without charge to each stockholder who so
requests, a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Witness the seal of said Corporation and the signatures of its duly
authorized officers.
Dated ____________________________
__________________________________ _________________________________
Secretary Treasurer Vice-President President
<PAGE>
EXHIBIT 10.15
AMENDED AND RESTATED
FINANCING AND SECURITY AGREEMENT
by and among
REUNION INDUSTRIES, INC.
as Borrower
and
BANK OF AMERICA, NATIONAL ASSOCIATION,
as Agent
and
BANK OF AMERICA, NATIONAL ASSOCIATION AND OTHERS
as Formula Lenders
and
BANK OF AMERICA, NATIONAL ASSOCIATION AND OTHERS
as Term Loan B Lenders
Dated as of: March 16, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS............................................................................. 1
Section 1.1 Certain Defined Terms............................................................ 1
Section 1.2 Accounting Terms and Other Definitional Provisions............................... 32
ARTICLE 2 THE CREDIT FACILITIES................................................................... 33
Section 2.1 The Revolving Credit Facility.................................................... 33
2.1.1 Revolving Credit Facility......................................................... 33
2.1.2 Procedure for Making Advances Under the Revolving Loan; Lender Protection Loans... 34
2.1.3 Borrowing Base.................................................................... 34
2.1.4 Borrowing Base Report............................................................. 35
2.1.5 Revolving Credit Notes............................................................ 36
2.1.6 Mandatory Prepayments of Revolving Loan........................................... 36
2.1.7 Optional Prepayments of Revolving Loan............................................ 36
2.1.8 The Collateral Account............................................................ 36
2.1.9 Revolving Loan Account............................................................ 37
2.1.10 Revolving Credit Unused Line Fee................................................. 38
2.1.11 Early Termination Fee............................................................ 38
2.1.12 Required Availability under the Revolving Credit Facility........................ 38
2.1.13 Right of Agent to Demand Payment and Terminate Revolving Credit Facility......... 38
Section 2.2 The Letter of Credit Facility.................................................... 39
2.2.1 Letters of Credit................................................................. 39
2.2.2 Terms of Letters of Credit........................................................ 39
2.2.3 Procedures for Letters of Credit.................................................. 40
2.2.4 Payments of Letters of Credit..................................................... 40
2.2.5 Participations.................................................................... 41
2.2.6 Recovery or Avoidance of Payments................................................. 42
2.2.7 Compensation for Letters of Credit................................................ 42
2.2.8 Indemnification; Exoneration; Power of Attorney................................... 43
2.2.9 Supporting Letter of Credit; Cash Collateral...................................... 44
2.2.10 Change in Law; Increased Cost.................................................... 45
Section 2.3 The Term Loan A Facility......................................................... 45
2.3.1 Term Loan A Commitments........................................................... 45
2.3.2 The Term Loan A Notes............................................................. 45
2.3.3 Scheduled Payments of Term Loan A................................................. 46
2.3.4 Optional Prepayments of Term Loan A............................................... 46
2.3.5 Mandatory Prepayments of Term Loan A.............................................. 46
Section 2.4 The Term Loan B Facility......................................................... 46
2.4.1 Term Loan B Commitments........................................................... 46
2.4.2 The Term Loan B Notes............................................................. 47
2.4.3 Scheduled Payments of Term Loan B................................................. 47
2.4.4 Optional Prepayments of Term Loan B............................................... 47
2.4.5 Mandatory Prepayments of Term Loan B.............................................. 47
Section 2.5 The Capital Expenditure Line Facility............................................ 48
2.5.1 Capital Expenditure Line Facility................................................. 48
2.5.2 Procedure for Making Advances Under the Capital Expenditure Line.................. 49
2.5.3 Capital Expenditure Line Notes.................................................... 49
2.5.4 Payments of Capital Expenditure Line.............................................. 50
2.5.5 Optional Prepayments of Capital Expenditure Line.................................. 50
</TABLE>
i
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<TABLE>
<S> <C>
2.5.6 Application of Capital Expenditure Line Partial Prepayments....................... 50
Section 2.6 Interest......................................................................... 50
2.6.1 Applicable Interest Rates......................................................... 50
2.6.2 Selection of Interest Rates....................................................... 51
2.6.3 Inability to Determine LIBOR Base Rate............................................ 52
2.6.4 Indemnity......................................................................... 53
2.6.5 Payment of Interest............................................................... 54
Section 2.7 General Financing Provisions..................................................... 55
2.7.1 Lender Authorizations............................................................. 55
2.7.2 Use of Proceeds of the Loans...................................................... 55
2.7.3 Closing Fees...................................................................... 55
2.7.4 Agency/Field Examination Fee...................................................... 55
2.7.5 Computation of Interest and Fees.................................................. 56
2.7.6 Payments.......................................................................... 56
2.7.7 Liens; Setoff..................................................................... 56
2.7.8 Requirements of Law............................................................... 57
2.7.9 Funds Transfer Services........................................................... 57
2.7.10 Mandatory Application of Net Proceeds............................................ 58
Section 2.8 Settlement Among Lenders......................................................... 59
2.8.1 Revolving Loan.................................................................... 59
2.8.2 Settlement Procedures as to Revolving Loan........................................ 59
2.8.3 Term Loan A....................................................................... 61
2.8.4 Term Loan B....................................................................... 61
2.8.5 Capital Expenditure Loan.......................................................... 61
2.8.6 Settlement of Other Obligations................................................... 62
2.8.7 Presumption of Payment............................................................ 62
2.8.8 Tax Withholding Clause............................................................ 63
Section 2.9 Amendment and Restatement........................................................ 64
ARTICLE 3 THE COLLATERAL.......................................................................... 64
Section 3.1 Debt and Obligations Secured..................................................... 64
Section 3.2 Grant of Liens................................................................... 64
Section 3.3 Collateral Disclosure List....................................................... 65
Section 3.4 Personal Property................................................................ 65
3.4.1 Securities, Instruments Chattel Paper, Promissory Notes, etc...................... 65
3.4.2 Intellectual Property............................................................. 65
Section 3.5 Record Searches.................................................................. 66
Section 3.6 Real Estate...................................................................... 66
Section 3.7 Costs............................................................................ 67
Section 3.8 Release.......................................................................... 67
Section 3.9 Inconsistent Provisions.......................................................... 67
ARTICLE 4 REPRESENTATIONS AND WARRANTIES.......................................................... 68
Section 4.1 Representations and Warranties................................................... 68
4.1.1 Subsidiaries...................................................................... 68
4.1.2 Good Standing..................................................................... 68
4.1.3 Power and Authority............................................................... 68
4.1.4 Binding Agreements................................................................ 68
4.1.5 No Conflicts...................................................................... 68
4.1.6 No Defaults, Violations........................................................... 69
4.1.7 Compliance with Laws.............................................................. 69
4.1.8 Margin Stock...................................................................... 69
4.1.9 Investment Company Act; Margin Securities......................................... 69
4.1.10 Litigation....................................................................... 69
</TABLE>
ii
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<S> <C>
4.1.11 Financial Condition of Borrower.................................................. 70
4.1.12 Proforma Financial Statements.................................................... 70
4.1.13 Full Disclosure.................................................................. 70
4.1.14 Solvency......................................................................... 71
4.1.15 Indebtedness for Borrowed Money.................................................. 71
4.1.16 Taxes............................................................................ 71
4.1.17 ERISA............................................................................ 71
4.1.18 Title to Properties.............................................................. 72
4.1.19 Patents, Trademarks, Etc......................................................... 72
4.1.20 Employee Relations............................................................... 72
4.1.21 Presence of Hazardous Materials or Hazardous Materials Contamination............. 72
4.1.22 Perfection and Priority of Collateral............................................ 73
4.1.23 Places of Business and Location of Collateral.................................... 73
4.1.24 Business Names and Addresses..................................................... 73
4.1.25 Equipment........................................................................ 73
4.1.26 Inventory........................................................................ 73
4.1.27 Accounts......................................................................... 73
4.1.28 Compliance with Eligibility Standards............................................ 74
4.1.29 Chatwins Merger.................................................................. 74
4.1.30 Oneida Merger.................................................................... 74
4.1.31 King-Way Merger.................................................................. 74
4.1.32 Year 2000 Compliance............................................................. 75
Section 4.2 Survival; Updates of Representations and Warranties.............................. 75
ARTICLE 5 CONDITIONS PRECEDENT.................................................................... 75
Section 5.1 Conditions to the Initial Advance and Initial Letter of Credit................... 75
5.1.1 Organizational Documents.......................................................... 75
5.1.2 Opinions of Counsel............................................................... 76
5.1.3 Consents, Licenses, Approvals, Etc................................................ 76
5.1.4 Notes............................................................................. 76
5.1.5 Financing Documents and Collateral................................................ 76
5.1.6 Other Financing Documents......................................................... 76
5.1.7 Other Documents, Etc.............................................................. 77
5.1.8 Payment of Fees................................................................... 77
5.1.9 Collateral Disclosure List........................................................ 77
5.1.10 Recordings and Filings........................................................... 77
5.1.11 Insurance Certificate............................................................ 77
5.1.12 Landlord's Waivers............................................................... 77
5.1.13 Bailee Acknowledgments........................................................... 77
5.1.14 Field Examination; Appraisals.................................................... 77
5.1.15 Environmental Reports............................................................ 78
5.1.16 Title Work....................................................................... 78
5.1.17 Surveys.......................................................................... 78
5.1.18 Proforma Balance Sheet and Projections........................................... 78
5.1.19 Material Adverse Change.......................................................... 78
5.1.20 Collateral Account, Lockbox, etc................................................. 78
5.1.21 Minimum Required Availability at Closing......................................... 78
5.1.22 Indenture........................................................................ 79
5.1.23 Mergers.......................................................................... 79
5.1.24 Completion of Schedules.......................................................... 79
Section 5.2 Conditions to all Extensions of Credit........................................... 79
5.2.1 Borrowing Base; Other Conditions.................................................. 79
5.2.2 Default........................................................................... 79
</TABLE>
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<TABLE>
<S> <C>
5.2.3 Representations and Warranties.................................................... 79
5.2.4 Legal Matters..................................................................... 80
5.2.5 Adverse Change.................................................................... 80
ARTICLE 6 COVENANTS OF THE BORROWER............................................................... 80
Section 6.1 Affirmative Covenants............................................................ 80
6.1.1 Financial Statements.............................................................. 80
6.1.2 Reports to SEC and to Stockholders................................................ 81
6.1.3 Recordkeeping, Rights of Inspection, Field Examination, Etc....................... 82
6.1.4 Legal Existence................................................................... 83
6.1.5 Compliance with Laws.............................................................. 83
6.1.6 Preservation of Properties........................................................ 83
6.1.7 Line of Business.................................................................. 83
6.1.8 Insurance......................................................................... 83
6.1.9 Taxes............................................................................. 84
6.1.10 ERISA............................................................................ 84
6.1.11 Notification of Events of Default and Adverse Developments....................... 84
6.1.12 Hazardous Materials; Contamination............................................... 85
6.1.13 Disclosure of Significant Transactions........................................... 86
6.1.14 Financial Covenants.............................................................. 86
6.1.15 Collection of Receivables........................................................ 87
6.1.16 Assignments of Receivables....................................................... 87
6.1.17 Government Accounts.............................................................. 87
6.1.18 Notice of Returned Goods, etc.................................................... 88
6.1.19 Inventory........................................................................ 88
6.1.20 Defense of Title and Further Assurances.......................................... 88
6.1.21 Equipment........................................................................ 89
6.1.22 Business Names; Locations........................................................ 89
6.1.23 Subsequent Opinion of Counsel as to Recording Requirements....................... 89
6.1.24 Use of Premises and Equipment.................................................... 89
6.1.25 Protection of Collateral......................................................... 90
6.1.26 Retention of Investment Banking Firm............................................. 90
Section 6.2 Negative Covenants............................................................... 90
6.2.1 Merger, Acquisition or Sale of Assets............................................. 90
6.2.2 Subsidiaries...................................................................... 90
6.2.3 Purchase or Redemption of Securities, Dividend Restrictions....................... 91
6.2.4 Indebtedness...................................................................... 92
6.2.5 Investments, Loans and Other Transactions......................................... 93
6.2.6 Stock of Subsidiaries............................................................. 94
6.2.7 Liens............................................................................. 94
6.2.8 Disposition of Assets............................................................. 94
6.2.9 Transactions with Affiliates...................................................... 94
6.2.10 Other Business................................................................... 95
6.2.11 ERISA Compliance................................................................. 95
6.2.12 Prohibition on Hazardous Materials............................................... 95
6.2.13 Method of Accounting; Fiscal Year................................................ 95
6.2.14 Compensation..................................................................... 95
6.2.15 Transfer of Collateral........................................................... 96
6.2.16 Sale and Leaseback............................................................... 96
6.2.17 Capital Expenditures............................................................. 96
6.2.18 Amendments to Indenture.......................................................... 96
ARTICLE 7 DEFAULT AND RIGHTS AND REMEDIES......................................................... 96
Section 7.1 Events of Default................................................................ 96
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
7.1.1 Failure to Pay.................................................................... 97
7.1.2 Breach of Representations and Warranties.......................................... 97
7.1.3 Failure to Comply with Certain Covenants.......................................... 97
7.1.4 Failure to Comply with Other Covenants............................................ 97
7.1.5 Default Under Other Financing Documents or Obligations............................ 97
7.1.6 Receiver; Bankruptcy.............................................................. 97
7.1.7 Involuntary Bankruptcy, etc....................................................... 98
7.1.8 Judgment.......................................................................... 98
7.1.9 Execution; Attachment............................................................. 98
7.1.10 Default Under Indenture.......................................................... 98
7.1.11 Default Under Other Borrowings................................................... 98
7.1.12 Challenge to Agreements.......................................................... 99
7.1.13 Material Adverse Change.......................................................... 99
7.1.14 Change in Control................................................................ 99
7.1.15 Liquidation, Termination, Dissolution, etc....................................... 99
7.1.16 Criminal Proceedings............................................................. 99
Section 7.2 Remedies......................................................................... 99
7.2.1 Acceleration...................................................................... 99
7.2.2 Further Advances.................................................................. 99
7.2.3 Uniform Commercial Code........................................................... 100
7.2.4 Specific Rights With Regard to Collateral......................................... 100
7.2.5 Application of Proceeds; Certain Intercreditor Provisions......................... 101
7.2.6 Performance by Agent.............................................................. 102
7.2.7 Other Remedies.................................................................... 103
ARTICLE 8 THE AGENT............................................................................... 103
Section 8.1 Appointment...................................................................... 103
Section 8.2 Nature of Duties................................................................. 103
8.2.1 In General........................................................................ 103
8.2.2 Express Authorization............................................................. 104
Section 8.3 Rights, Exculpation, Etc......................................................... 104
Section 8.4 Reliance......................................................................... 105
Section 8.5 Indemnification.................................................................. 105
Section 8.6 BANA Individually................................................................ 106
Section 8.7 Successor Agent.................................................................. 106
8.7.1 Affiliate Successor............................................................... 106
8.7.2 Resignation....................................................................... 106
8.7.3 Appointment of Successor.......................................................... 106
8.7.4 Successor Agent................................................................... 106
Section 8.8 Collateral Matters............................................................... 107
8.8.1 Release of Collateral............................................................. 107
8.8.2 Confirmation of Authority; Execution of Releases.................................. 107
8.8.3 Absence of Duty................................................................... 108
Section 8.9 Agency for Perfection............................................................ 108
Section 8.10 Exercise of Remedies............................................................ 108
Section 8.11 Consents........................................................................ 108
8.11.1 When Deemed to Have Been Given................................................... 108
8.11.2 Denial of Consent................................................................ 108
Section 8.12 Dissemination of Information.................................................... 109
Section 8.13 Discretionary Advances.......................................................... 109
ARTICLE 9 MISCELLANEOUS........................................................................... 109
Section 9.1 Notices.......................................................................... 109
Section 9.2 Amendments; Waivers.............................................................. 110
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
9.2.1 In General........................................................................ 110
9.2.2 Circumstances Where Consent of Certain Lenders is Required........................ 111
Section 9.3 Cumulative Remedies.............................................................. 112
Section 9.4 Severability..................................................................... 113
Section 9.5 Assignments by Lenders........................................................... 113
Section 9.6 Participations by Lenders........................................................ 114
Section 9.7 Successors and Assigns........................................................... 114
Section 9.8 Continuing Agreements............................................................ 114
Section 9.9 Enforcement Costs................................................................ 114
Section 9.10 Applicable Law; Jurisdiction.................................................... 115
9.10.1 Applicable Law................................................................... 115
9.10.2 Jurisdiction..................................................................... 115
9.10.3 Consent to Service of Process.................................................... 115
Section 9.11 Duplicate Originals and Counterparts............................................ 115
Section 9.12 Headings........................................................................ 116
Section 9.13 No Agency....................................................................... 116
Section 9.14 Date of Payment................................................................. 116
Section 9.15 Entire Agreement................................................................ 116
Section 9.16 Waiver of Trial by Jury......................................................... 116
Section 9.17 Liability of the Agent and the Lenders.......................................... 117
Section 9.18 Indemnification................................................................. 117
Section 9.19 Waiver of Consequential Damages................................................. 117
Section 9.20 Syndication..................................................................... 117
</TABLE>
vi
<PAGE>
EXHIBITS
Exhibit "A" -- FORM OF BORROWING BASE REPORT
Exhibit "B" -- FORM OF REVOLVING CREDIT NOTE
Exhibit "C-1" -- FORM OF TERM LOAN A NOTE
Exhibit "C-2" -- FORM OF TERM LOAN B NOTE
Exhibit "D-1" -- FORM OF CAPITAL EXPENDITURE LINE NOTE
Exhibit "D-2" -- FORM OF CAPEX LINE INSTALLMENT PAYMENT SCHEDULE
Exhibit "E" -- WIRE TRANSFER PROCEDURES
Exhibit "F" -- FORM OF COMPLIANCE CERTIFICATE
Exhibit "G-1" -- FORM OF BAILEE WAIVER
Exhibit "G-2" -- FORM OF LANDLORD WAIVER
Exhibit "H" -- COLLATERAL ASSIGNMENT OF LIFE INSURANCE
Exhibit "I" -- FORM OF LENDER'S LOSS PAYABLE ENDORSEMENT
Exhibit "J-1" -- MORTGAGE (SILER CITY, NORTH CAROLINA)
Exhibit "J-2" -- MORTGAGE (LAFAYETTE, INDIANA)
Exhibit "J-3" -- MORTGAGE (NEW YORK)
Exhibit "J-4" -- MORTGAGE (ALLIANCE, OHIO)
Exhibit "J-5" -- MORTGAGE (MCKEESPORT, PENNSYLVANIA)
Exhibit "J-6" -- MORTGAGE (CHICAGO, ILLINOIS)
Exhibit "J-7" -- MORTGAGE (MILWAUKEE, WISCONSIN)
Exhibit "J-8" -- MORTGAGE (MIAMI, OKLAHOMA)
Exhibit "K" -- PLEDGED POLICIES
Exhibit "L-1" -- PLEDGE AGREEMENT--CPS STOCK
Exhibit "L-2" -- PLEDGE AGREEMENT--CPS DEBT SECURITIES
Exhibit "L-3" -- PLEDGE AGREEMENT--SUBSIDIARY SECURITIES
Exhibit "M-1" -- BRADLEY SUBORDINATION AGREEMENT
Exhibit "M-2" -- STANWICH SUBORDINATION AGREEMENT
Exhibit "N" -- ESCROW LETTER
vii
<PAGE>
SCHEDULES
Schedule 1.1(n) -- Permitted Foreign Account Debtors
Schedule 4.1.15 -- Indebtedness for Borrowed Money
Schedule 4.1.20 -- Employee Relations
Schedule 4.1.23 -- Liens
Schedule 5.1.19 -- Financial Statements
Schedule 6.2.4 -- Indebtedness
Schedule 6.2.5 -- Investments
Schedule 6.2.8 -- Permitted Asset Dispositions
Schedule 6.2.9 -- Affiliate Transactions
Schedule 6.2.14 -- Compensation
viii
<PAGE>
AMENDED AND RESTATED
FINANCING AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT is made as
of this 16th day of March, 2000 by and between REUNION INDUSTRIES, INC., a
Delaware corporation ("Borrower"), BANK OF AMERICA, NATIONAL ASSOCIATION, a
national banking association ("BANA"), and each other financial institution that
is a party to this Agreement from time to time, whether by execution of this
Agreement or otherwise (collectively, the "Lenders" and individually, a "Lender"
(which terms shall include both Formula Lenders and Term Loan B Lenders)), and
BANK OF AMERICA, NATIONAL ASSOCIATION a national banking association, in its
capacity as both collateral and administrative agent for each of the Lenders
(the "Agent").
RECITALS
A. Chatwins Group, Inc., a Delaware corporation, and BANA (formerly
known as NationsBank, N.A.) entered into that certain Financing and Security
Agreement, dated as of October 30, 1998 (the "Original Financing Agreement").
B. Chatwins Group, Inc. entered into an Amended and Restated Merger
Agreement, dated as of July 28, 1999, with Reunion Industries, Inc., a Delaware
corporation, pursuant to which Chatwins Group, Inc. will on the Closing Date
merge with and into Reunion Industries, Inc., with Reunion Industries, Inc.
surviving.
C. Borrower, as survivor of the merger described in paragraph B
above, has applied to BANA to amend and restate the Original Financing Agreement
to, among other things, become a syndicated credit with facilities consisting of
(i) a revolving credit facility in the maximum principal amount of $39,000,000,
including the Letter of Credit Obligations (as defined below) which shall not
exceed $10,000,000 in the aggregate, (ii) a term loan A facility in the maximum
principal amount of $25,800,000, (iii) a term loan B facility in the maximum
principal amount of $5,000,000, and (iv) a capital expenditure line facility in
the maximum principal amount of $2,700,000, all to be used by the Borrower for
the Permitted Uses described in this Agreement.
D. The Lenders severally are willing to make those credit facilities
available to the Borrower upon the terms and subject to the conditions set forth
in this Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree that (a)
the Original Financing Agreement is hereby reaffirmed and all its terms and
conditions are ratified through and including the Closing Date and (b) from and
after the Closing Date, the Original Financing Agreement shall be, and the same
hereby is, amended and restated in its entirety to read as set forth herein:
ARTICLE 1 DEFINITIONS
Section 1.1 Certain Defined Terms.
As used in this Agreement, the terms defined in the Preamble and
Recitals hereto shall have the respective meanings specified therein, and the
following terms shall have the following meanings:
1
<PAGE>
"Account" individually and "Accounts" collectively mean all accounts
now owned or hereafter created or acquired by Borrower, including, without
limitation, all of the following now owned or hereafter created or acquired by
Borrower: (a) accounts receivable, contract rights, book debts, notes, drafts
and other obligations or indebtedness owing to Borrower arising from the sale,
lease or exchange of goods or other property and/or the performance of services;
(b) Borrower's rights in, to and under all purchase orders for goods, services
or other property; (c) Borrower's rights to any goods, services or other
property represented by any of the foregoing (including returned or repossessed
goods and unpaid sellers' rights of rescission, replevin, reclamation and rights
to stoppage in transit); (d) monies due to or to become due to Borrower under
all contracts for the sale, lease or exchange of goods or other property and/or
the performance of services, including the right to payment of any interest or
finance charges with respect thereto (whether or not yet earned by performance
on the part of Borrower); (e) uncertificated securities; and (f) letters of
credit securing or providing for payment of any of the foregoing.
"Account Debtor" means any Person who is obligated on a Receivable and
"Account Debtors" mean all Persons who are obligated on the Receivables.
"Affiliate" means, with respect to any designated Person, any other
Person, (i) directly or indirectly controlling, directly or indirectly
controlled by, or under direct or indirect common control with the Person
designated, (ii) directly or indirectly owning or holding five percent (5%) or
more of any equity interest in such designated Person, or (iii) five percent
(5%) or more of whose stock or other equity interest is directly or indirectly
owned or held by such designated Person. For purposes of this definition, the
term "control" (including with correlative meanings, the terms "controlling",
"controlled by" and "under common control with") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through ownership of voting securities or
other equity interests or by contract or otherwise.
"Agent's Obligations" means any and all Obligations payable solely to
and for the exclusive benefit of the Agent by the Borrower under the terms of
this Agreement and/or any other Financing Documents, including without
limitation the Closing Fee and the Agency Fee.
"Agreement" means this Amended and Restated Financing and Security
Agreement, as amended, restated, supplemented or otherwise modified from time to
time in writing in accordance with the provisions of Section 9.2 of this
Agreement.
"Amortization Reduction Event" means the first date as of which the
aggregate amounts applied to the Term Loan A under Sections 2.3.5 (Mandatory
Prepayments of Term Loan A.) and 2.7.10(b) (Mandatory Application of Net
Proceeds.) equals or exceeds $5,000,000.
"Applicable Interest Rate" means (i) the LIBOR Rate, or (ii)
the Base Rate.
"Applicable Base Rate Margin" means (i) from the Closing Date until
the first Applicable Margin Adjustment Date, for each Base Rate Revolving Loan,
a rate equal to 0.50% per annum, and for each Base Rate Term Loan and each Base
Rate Capital Expenditure Loan, a rate equal to 0.75% per annum and (ii)
thereafter, a per annum rate which shall adjust as of each Applicable Margin
Adjustment Date based on the ratio of Borrower's Funded Debt to EBITDA for the
Testing Period ending on the last day of the calendar quarter immediately
preceding such Applicable Margin Adjustment Date, as determined by the Agent, in
its sole discretion, from the monthly reports required by Section 6.1.1(c)
(Monthly Statements and Certificates) (or, with respect to Applicable March 31
Margin Adjustment Dates, the annual reports required by Section 6.1.1(a)), in
accordance with the following table:
2
<PAGE>
<TABLE>
<CAPTION>
Applicable Margin Applicable Margin Applicable
Funded Debt to EBITDA Ratio for Base Rate for Base Rate Margin for Base
Revolving Loans Capital Rate Term Loans
Expenditure Loans
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than or equal to 3.0 to 1.0 0.0% 0.0% 0.0%
- -----------------------------------------------------------------------------------------------------
Greater than 3.0 to 1.0 but less than or 0.0% 0.5% 0.5%
equal to 3.5 to 1.0
- -----------------------------------------------------------------------------------------------------
Greater than 3.5 to 1.0 but less than or 0.5% 0.5% 0.5%
equal to 4.0 to 1.0
- -----------------------------------------------------------------------------------------------------
Greater than 4.0 to 1.0 but less than or 0.5% 0.75% 0.75%
equal to 4.5 to 1.0
- -----------------------------------------------------------------------------------------------------
Greater than 4.5 to 1.0 0.75% 1.00% 1.00%
- -----------------------------------------------------------------------------------------------------
</TABLE>
"Applicable LIBOR Margin" (i) from the Closing Date through the first
Applicable Margin Adjustment Date, for each LIBOR Revolving Loan, a rate equal
to 2.75% per annum, and for each LIBOR Term Loan and each LIBOR Capital
Expenditure Loan, a rate equal to 3.00% per annum and (ii) thereafter, a per
annum rate which shall adjust as of each Applicable Margin Adjustment Date based
on the ratio of Borrower's Funded Debt to EBITDA for the Testing Period ending
on the last day of the calendar quarter immediately preceding such Applicable
Margin Adjustment Date, as determined by the Agent, in its sole discretion, from
the monthly reports required by Section 6.1.1(c) (Monthly Statements and
Certificates) (or, with respect to Applicable March 31 Margin Adjustment Dates,
the annual reports required by Section 6.1.1(a)), in accordance with the
following table:
<TABLE>
<CAPTION>
Applicable Margin Applicable Margin Applicable
Funded Debt to EBITDA Ratio for LIBOR for LIBOR Capital Margin for LIBOR
Revolving Loans Expenditure Loans Term Loans
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than or equal to 3.0 to 1.0 1.75% 2.0% 2.0%
- -----------------------------------------------------------------------------------------------------
Greater than 3.0 to 1.0 but less than or 2.0% 2.25% 2.25%
equal to 3.5 to 1.0
- -----------------------------------------------------------------------------------------------------
Greater than 3.5 to 1.0 but less than or 2.25% 2.50% 2.50%
equal to 4.0 to 1.0
- -----------------------------------------------------------------------------------------------------
Greater than 4.0 to 1.0 but less than or 2.50% 2.75% 2.75%
equal to 4.5 to 1.0
- -----------------------------------------------------------------------------------------------------
Greater than 4.5 to 1.0 2.75% 3.00% 3.00%
- -----------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
"Applicable Margin" means (i) with respect to Base Rate Loans, the
Applicable Base Rate Margin, and (ii) with respect to LIBOR Loans, the
Applicable LIBOR Margin.
"Applicable Margin Adjustment Date" means each March 31, June 30,
September 30, and December 31, commencing with March 31, 2001.
"Asset Disposition" means the disposition of any or all of the Assets
of the Borrower or any Subsidiary of the Borrower, whether by sale, lease,
transfer or other disposition (including any such disposition effected by way of
merger or consolidation) other than sales of Inventory in the ordinary course of
business.
"Assets" means at any date all assets that, in accordance with GAAP
consistently applied, should be classified as assets on a consolidated balance
sheet of the Borrower and its Subsidiaries.
"Bailee Waiver" means a bailee estoppel letter substantially in the
form attached hereto as Exhibit "G-1" and incorporated herein by reference.
"Bankruptcy Code" means the United States Bankruptcy Code, as
amended from time to time, and any successor Laws.
"Base Rate" means the sum of (i) the greater of (A) the Prime Rate,
and (B) the rate which is 0.5% in excess of the Federal Funds Rate plus (ii) the
Applicable Margin.
"Base Rate Capital Expenditure Loan" means an advance under the
Capital Expenditure Line during any period in which it bears interest based on
the Base Rate.
"Base Rate Loans" means, collectively, the Base Rate Revolving Loans,
the Base Rate Term Loans and the Base Rate Capital Expenditure Loans.
"Base Rate Revolving Loan" means a Revolving Loan during any period in
which it bears interest based on the Base Rate.
"Base Rate Term Loan" means any portion of the Term Loan A during any
period in which such portion bears interest based on the Base Rate.
"Borrower" means the "Borrower" described in the preamble of this
Agreement.
"Borrowing" or "Borrowings" means a borrowing hereunder consisting of
an advance under the Revolving Credit Facility, the Term Loan Facility or the
Capital Expenditure Line Facility.
"Borrowing Base" has the meaning described in Section 2.1.3 (Borrowing
Base).
4
<PAGE>
"Borrowing Base Deficiency" has the meaning described in Section 2.1.3
(Borrowing Base).
"Borrowing Base Report" has the meaning described in Section 2.1.4
(Borrowing Base Report).
"Bradley Subordination Agreement" means a Subordination Agreement
executed by Charles E. Bradley, Sr. with respect to all indebtedness owing from
the Borrower to Charles E. Bradley, substantially in the form attached hereto as
Exhibit "M-1" and incorporated herein by reference.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in Illinois are authorized or required to close.
"Capital Expenditure" means an expenditure (whether payable in cash or
other property or accrued as a liability) for Fixed or Capital Assets,
including, without limitation, the entering into of a Capital Lease.
"Capital Expenditure Line" has the meaning described in Section 2.5.1
(Capital Expenditure Line Facility).
"Capital Expenditure Line Commitment" and "Capital Expenditure Line
Commitments" have the meanings described in Section 2.5.1 (Capital Expenditure
Line Facility).
"Capital Expenditure Line Commitment Period" means the period of time
from the date on which the Borrower has repaid or prepaid $500,000 or more in
principal amount of the Term Loans to the Capital Expenditure Line Termination
Date.
"Capital Expenditure Line Committed Amount" has the meaning described
in Section 2.5.1 (Capital Expenditure Line Facility).
"Capital Expenditure Line Expiration Date" means the Revolving Credit
Expiration Date.
"Capital Expenditure Line Facility" means the facility established by
the Formula Lenders pursuant to Section 2.5 (Capital Expenditure Line Facility).
"Capital Expenditure Line Installment Payment Schedule" has the
meaning described in Section 2.5.4 (Payments of Capital Expenditure Line).
"Capital Expenditure Line Note" and "Capital Expenditure Line Notes"
have the meaning described in Section 2.5.3 (Capital Expenditure Line Notes).
"Capital Expenditure Line Notice" has the meaning described in Section
2.5.2.
"Capital Expenditure Line Optional Prepayment" and "Capital
Expenditure Line Optional Prepayments" have the meanings described in Section
2.5.5 (Capital Expenditure Line Optional Prepayment).
"Capital Expenditure Line Pro Rata Share" has the meaning described in
Section 2.5.1 (Capital Expenditure Line Facility).
"Capital Expenditure Line Termination Date" means the earlier of (a)
the Capital Expenditure Line Expiration Date, or (b) the Revolving Credit
Termination Date.
5
<PAGE>
"Capital Expenditure Loan" means an advance under the Capital
Expenditure Line.
"Capital Lease" means with respect to any Person any lease of real or
personal property, for which the related Lease Obligations have been or should
be, in accordance with GAAP consistently applied, capitalized on the balance
sheet of that Person.
"Cash Equivalents" means (a) securities with maturities of nine (9)
months or less from the date of acquisition issued or fully guaranteed or
insured by the United States Government or any agency thereof, (b) certificates
of deposit with maturities of nine (9) months or less from the date of
acquisition of, or money market accounts maintained with, the Agent or any
Lender, any Affiliate of the Agent or any Lender, or any other domestic
commercial bank having capital and surplus in excess of One Hundred Million
Dollars ($100,000,000.00) or such other domestic financial institutions or
domestic brokerage houses to the extent disclosed to, and approved by, the
Agent, (c) commercial paper of a domestic issuer rated at least either A-1 by
Standard & Poor's Corporation (or its successor) or P-1 by Moody's Investors
Service, Inc. (or its successor) with maturities of nine (9) months or less from
the date of acquisition, and (d) repurchase obligations with a term of not more
than seven (7) days for underlying securities of the types described in clause
(a) or deposits of the type described in clause (b) above entered into with a
bank meeting the qualifications described in clause (b) above.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Borrower to any Person other than the
Principals, (ii) the consummation of any transaction (including without
limitation any merger or consolidation) the result of which is that any Person,
other than the Principals, becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934,
as amended), directly or indirectly, of more than 35% of the voting stock of the
Borrower, (iii) the consummation of the first transaction (including without
limitation any merger or consolidation) the result of which is that any Person
becomes the "beneficial owner" (as defined above), directly or indirectly, of
more of the voting stock of the Borrower than is at the time "beneficially
owned" (as defined above) by the Principals, or (iv) the first day on which a
majority of the members of the board of directors of the Borrower are not
Continuing Directors. For purposes of this definition, any transfer of an
equity interest of an entity that was formed for the purpose of acquiring voting
stock of the Borrower will be deemed to be a transfer of such portion of such
voting stock as corresponds to the portion of the equity of such entity that has
been so transferred.
"Chatwins Merger Agreement" means that certain Amended and Restated
Merger Agreement, dated as of July 28, 1999, by and between Chatwins Group,
Inc., a Delaware corporation and Reunion Industries, Inc., with Reunion
Industries, Inc. being the surviving entity, together with any and all
amendments, modifications, and supplements thereto, or restatements thereof.
"Chatwins Merger Documents" means collectively, the Chatwins Merger
Agreement and any and all other agreements, documents or instruments,
previously, now or hereafter executed and delivered by the Reunion Industries,
Inc., Chatwins Group, Inc. or any other Person in connection with the Chatwins
Merger.
"Chatwins Merger" means the merger on the Closing Date of Chatwins
Group, Inc. with and into Reunion Industries, Inc., under the terms of the
Chatwins Merger Agreement.
6
<PAGE>
"Closing Date" means March 16, 2000, or such later Business Day on
which the Agent shall be satisfied that the conditions precedent set forth in
Section 5.1 (Conditions to the Initial Advance and Initial Letter of Credit.)
have been fulfilled.
"Closing Fee" has the meaning described in Section 2.7.3 (Closing
Fee).
"Collateral" has the meaning described in Section 3.2 (Grant of
Liens).
"Collateral Account" has the meaning described in Section 2.1.8 (The
Collateral Account).
"Collateral Assignment of Life Insurance" means, with respect to each
of the Pledged Policies, a Collateral Assignment of Life Insurance Policy
executed by the Borrower, substantially in the form attached hereto as Exhibit
"H", or such other form as is acceptable to the Agent, in its sole discretion,
and incorporated herein by reference.
"Collateral Disclosure List" has the meaning described in Section 3.3
(Collateral Disclosure List).
"Collection" means each check, draft, cash, money, instrument, item,
and other remittance in payment or on account of payment of the Accounts or
otherwise with respect to any Collateral, including, without limitation, cash
proceeds of any returned, rejected or repossessed goods, the sale or lease of
which gave rise to an Account, and other proceeds of Collateral; and
"Collections" means the collective reference to all of the foregoing.
"Commitment" means (a) with respect to each Formula Lender, each of
such Formula Lender's Formula Loan Commitments, and (b) with respect to each
Term Loan B Lender, such Lender's Term Loan B Commitment, and "Commitments"
means the collective reference to the Formula Loan Commitments and the Term Loan
B Commitments of all of the Lenders.
"Committed Amount" means with respect to each Lender, such Lender's
Revolving Credit Committed Amount, Term Loan A Committed Amount, Term Loan B
Committed Amount or Capital Expenditure Line Committed Amount, as the case may
be, and "Committed Amounts" means collectively the Total Revolving Credit
Committed Amount, Total Term Loan A Committed Amount, Total Term Loan B
Committed Amount and Capital Expenditure Line Committed Amount.
"Commonly Controlled Entity" means an entity, whether or not
incorporated, which is under common control with the Borrower within the meaning
of Section 414(b) or (c) of the Internal Revenue Code.
"Compliance Certificate" means a periodic Compliance Certificate
described in Section 6.1.1 (Financial Statements).
"Continuing Directors" means, as of any date of determination, any
member of the board of directors of the Borrower who (i) was a member of such
board of directors on the Closing Date, or (ii) was nominated for election or
elected to such board of directors by the Principals or with the approval of a
majority of the Continuing Directors of such board of directors at the time of
such nomination or election.
"Copyrights" means collectively all of the following:
7
<PAGE>
(a) all copyrights, rights and interests in copyrights, works
protectable by copyright, copyright registrations and copyright
applications now owned or hereafter created or acquired by Borrower;
(b) all renewals of any of the foregoing;
(c) all income, royalties, damages and payments now or hereafter due
and/or payable under any of the foregoing, including, without limitation,
damages or payments for past or future infringements of any of the
foregoing;
(d) the right to sue for past, present and future infringements of any
of the foregoing; and
(e) all rights corresponding to any of the foregoing throughout the
world.
"Copyright License" means any written agreement now or hereafter in
existence granting to the Borrower any right to use any Copyright, as may be
amended, modified or supplemented from time to time.
"Credit Facility" means with respect to each Lender, such Lender's Pro
Rata Share of the Revolving Credit Facility, the Term Loan A Facility, the Term
Loan B Facility, the Letter of Credit Facility or the Capital Expenditure Line
as the case may be, and "Credit Facilities" means collectively with respect to
each Lender, such Lender's Pro Rata Share of the Revolving Credit Facility, the
Term Loan A Facility, the Term Loan B Facility, the Letter of Credit Facility
and the Capital Expenditure Line and any and all other credit facilities now or
hereafter extended under or secured by this Agreement.
"Credit Support" has the meaning described in Section 2.2.1 (Letters
of Credit).
"Current Letter of Credit Obligations" shall have the meanings
described in Section 2.2.4 (Payments of Letters of Credit) of this Agreement.
"Default" means an event which, with the giving of notice or lapse of
time, or both, would constitute an Event of Default under the provisions of this
Agreement.
"Depository Account" means one or more depository accounts established
by the Borrower at such banks or other financial institutions as are acceptable
to the Agent or at a centrally located bank or financial institution.
"Documents" means all documents or other receipts covering, evidencing
or representing goods now owned or hereafter acquired by Borrower, including,
without limitation, all bills of lading, dock warrants, dock receipts, warehouse
receipts and orders for the delivery of goods, and 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.
"Domestic Subsidiary" means a Subsidiary organized under the laws of
any jurisdiction in the United States.
"Early Termination Fee" has the meaning described in Section 2.1.11
(Early Termination Fee).
"EBITDA" means as to the Borrower for any period of determination
thereof, and excluding any amounts related to Subsidiaries, the sum of (a)
income before equity income (or loss) from Affiliates, plus (b) interest expense
and income tax provisions for such period, plus (c) depreciation and
amortization of assets for such period.
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"Eligible Inventory" means the collective reference to all Inventory
of the Borrower held for sale in the ordinary course of business, valued at the
lowest of (i) the net purchase cost or net manufacturing cost or (ii) prevailing
market value, excluding, however, any Inventory which consists of:
(a) any Inventory located outside of the United States;
(b) any Inventory located outside of a jurisdiction in which the Agent
has perfected the Liens of the Agent and the Lenders under this Agreement
by filing in that jurisdiction, free and clear of all other Liens;
(c) any Inventory not in the actual possession of the Borrower, or any
Inventory which is in transit to or from the Borrower, except to the extent
provided in subsection (d) below;
(d) any Inventory in the possession of a bailee, warehouseman,
consignee or similar third party, except to the extent that such bailee,
warehouseman, consignee or similar third party has entered into an
agreement with the Agent in the form of Exhibit "G-1" in which such bailee,
warehouseman, consignee or similar third party consents and agrees to the
Agent's Lien on such Inventory and to such other terms and conditions as
may be reasonably required by the Agent;
(e) any Inventory located on premises leased or rented to the Borrower
or otherwise not owned by the Borrower, unless the Agent has received a
waiver and consent from the lessor, landlord and/or owner in the form of
Exhibit "G-2" hereto or otherwise, in form and substance reasonably
satisfactory to the Agent and from any mortgagee of such lessor, landlord
or owner to the extent required by the Agent;
(f) any Inventory the sale or other disposition of which has given
rise to a Receivable;
(g) any Inventory which fails to meet all standards and requirements
imposed by any Governmental Authority over such Inventory or its
production, storage, use or sale;
(h) work-in-process, displays, supplies, hot stamp leaf, processed
materials, packaging and promotional materials;
(i) any Inventory which the Agent determines, in the exercise of its
Good Faith discretion, is not in good condition or is defective,
unmerchantable, post-seasonal, slow moving, obsolete, or an unreconciled
variance to the Borrower's general ledger; or
(j) any Inventory which the Agent, in exercise of its Good Faith
discretion, has deemed to be ineligible because the Agent considers the
collateral value to the Agent and the Lenders to be impaired or its and
their ability to realize such value to be insecure.
In the event of any dispute under the foregoing criteria, as to whether
Inventory is, or has ceased to be, Eligible Inventory, the decision of the Agent
in the Good Faith exercise of its discretion shall control.
"Eligible Receivable" and "Eligible Receivables" mean, at any time of
determination thereof, the collective reference to the unpaid portion of each
Account (net of any returns, discounts, claims, credits, charges, accrued
rebates or other allowances, offsets, deductions, counterclaims, disputes or
other defenses and reduced by the aggregate amount of all
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reserves, limits and deductions provided for in this definition and elsewhere in
this Agreement) in United States Dollars by the Borrower, provided each Account
conforms and continues to conform to the following criteria to the satisfaction
of the Agent, in the exercise of its Good Faith discretion:
(a) the Account arose in the ordinary course of the Borrower's
business from a bona fide outright sale of Inventory by the Borrower or
from services performed by the Borrower and (i) (A) except with respect to
Permitted Bill and Hold Sales, such Inventory has been delivered to the
appropriate Account Debtors or their respective designees, (B) except with
respect to Permitted Bill and Hold Sales, the Borrower has in its
possession shipping receipts evidencing such shipment, and (C) no return,
rejection, or repossession has occurred or (ii) such services have been
completed (or, with respect to Accounts arising from contracts of the
Borrower that contemplate milestone payments, have been rendered to the
extent necessary under such contracts to create a valid and binding
unconditional obligation of the Account Debtor for payment of the portion
of the Account included in the computation of Eligible Accounts) in a
manner consistent with the agreement with the Account Debtor,
(b) the Account is a valid, legally enforceable obligation of the
Account Debtor and requires no further act on the part of any Person under
any circumstances to make the Account payable by the Account Debtor;
(c) the Account is based upon an enforceable order or contract,
written or oral, for Inventory shipped or for services performed, and the
same were shipped (except with respect to Permitted Bill and Hold Sales) or
performed in accordance with such order or contract;
(d) if the Account arises from the sale of Inventory, the Inventory
the sale of which gave rise to the Account has been shipped or delivered to
the Account Debtor on an absolute sale basis and not on a bill and hold
sale basis (except with respect to Permitted Bill and Hold Sales), a
consignment sale basis, a guaranteed sale basis, a sale or return basis, or
on the basis of any other similar understanding;
(e) if the Account arises from the performance of services, such
services have been fully rendered (or, with respect to Accounts arising
from contracts of the Borrower that contemplate milestone payments, have
been rendered to the extent necessary under such contracts to create a
valid and binding unconditional obligation of the Account Debtor for
payment of the portion of the Account included in the computation of
Eligible Accounts) and do not relate to any warranty claim or obligation;
(f) the Account is evidenced by an invoice or other documentation in
form acceptable to the Agent, dated no later than the date of shipment in
the case of the sale of goods (other than Permitted Bill and Hold Sales),
or dated promptly (but in no event later than the last day of the
Borrower's billing cycle during which the services were completed) after
completion of the performance of services, and containing only terms
normally offered by the Borrower;
(g) the amount shown on the books of the Borrower and on any invoice,
certificate, schedule or statement delivered to the Agent is owing to the
Borrower and no partial payment has been received unless reflected with
that delivery;
(h) the Account is not outstanding more than ninety (90) days from the
date of the invoice therefor or past due more than sixty (60) days after
its due date, which shall not be later than thirty (30) days after the
invoice date;
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(i) the Account is not owing by any Account Debtor for which fifty
percent (50%) or more of such Account Debtor's other Accounts due to the
Borrower are non-Eligible Receivables;
(j) the Account is not owing by an Account Debtor or a group of
affiliated Account Debtors to the Borrower whose then existing Accounts
owing to the Borrower individually exceed in aggregate face amount twenty
percent (20%) of the Borrower's total Eligible Receivables;
(k) the Account Debtor has not returned, rejected or refused to
retain, or otherwise notified the Borrower of any dispute concerning, or
claimed nonconformity of, any of the Inventory or services from the sale or
furnishing of which the Account arose;
(l) the Account is not subject to any present or contingent (and no
facts exist which are the basis for any future) offset, claim, deduction or
counterclaim, dispute or defense in law or equity on the part of such
Account Debtor, or any debit memo or claim for credits, allowances, or
adjustments by the Account Debtor because of returned, inferior, or damaged
Inventory or unsatisfactory services, or for any other reason including,
without limitation, those arising on account of a breach of any express or
implied representation or warranty, provided, however, that if such Account
otherwise meets the conditions for inclusion among the Eligible
Receivables, such Account, minus the amount of the offset, claim,
deduction, counterclaim, dispute or defense, may be included among the
Eligible Receivables;
(m) the Account Debtor is not a Subsidiary or Affiliate of the
Borrower or an employee, officer, director or shareholder of the Borrower
or any Subsidiary or Affiliate of the Borrower, provided, however, that
Eligible Receivables may include at any time up to $500,000 of Accounts
arising from sales by the CP Industries division of the Borrower to NPS
Acquisition Corp., in each case so long as such Accounts would otherwise
meet the conditions for inclusion among Eligible Receivables;
(n) the Account Debtor is not incorporated or primarily conducting
business in any jurisdiction outside of the United States of America or
Canada (other than, with respect to each of the Account Debtors set forth
in Schedule 1.1(n) attached hereto and made a part hereof, (i) up to
$500,000 each of the Accounts owing from Xerox and John Deere, and (ii) up
to $600,000 in aggregate of the Accounts owing from all of the remaining
Account Debtors set forth on Schedule 1.1(n); the foregoing sublimits and
the Account Debtors appearing on Schedule 1.1(n) are subject to the Agent's
continued approval based upon the Agent's reasonable credit judgment)
unless the Account Debtor's obligations with respect to such Account are
secured by a letter of credit, guaranty or banker's acceptance having terms
and from such issuers and confirmation banks as are acceptable to the Agent
in its sole and absolute discretion;
(o) the Account Debtor with respect to such Account is not insolvent
or the subject of any bankruptcy or insolvency proceedings of any kind;
(p) the Account Debtor is not a Governmental Authority, unless the
Borrower has complied with the Federal Assignment of Claims Act or any
comparable state statute or regulation;
(q) the Borrower is not indebted in any manner to the Account Debtor
(as creditor, lessor, supplier or otherwise), with the exception of
customary credits, warranty obligations, adjustments and/or discounts given
to an Account Debtor by the Borrower in the ordinary course of its
business, provided, however, that if such Account otherwise
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meets the conditions for inclusion among the Eligible Receivables, such
Account, minus the amount of such indebtedness, may be included among the
Eligible Receivables;
(r) the Account does not arise from services under or related to any
warranty obligation of the Borrower or out of service charges, finance
charges or other fees for the time value of money;
(s) the Account is not evidenced by chattel paper or an instrument of
any kind and is not secured by any letter of credit unless the original of
such chattel paper, instrument or letter of credit has been transferred,
assigned and/or pledged to the Agent, for the benefit of the Lenders and
the Agent, in a manner satisfactory to the Agent as security for the
Obligations;
(t) the title of the Borrower to the Account is absolute and is not
subject to any Lien (other than in favor of the Agent, for the benefit of
the Lenders and the Agent);
(u) the Borrower has the full and unqualified right and power to
assign and grant a security interest in, and Lien on, the Account to the
Agent, for the benefit of the Lenders and the Agent, as security and
collateral for the payment of the Obligations;
(v) the Account is subject to a Lien in favor of the Agent, for the
benefit of the Lenders and the Agent, which Lien is perfected as to the
Account by the filing of financing statements and which Lien upon such
filing constitutes a first priority security interest and Lien;
(w) the Inventory giving rise to the Account was not, at the time of
the sale thereof, subject to any Lien, except those in favor of the Agent,
for the benefit of the Lenders and the Agent,
(x) the Account Debtor is not located in Minnesota, unless the
Borrower shall have properly qualified to do business in Minnesota or shall
have filed a Notice of Business Activities Report with the Minnesota
Division of Taxation for the then current year, provided, however, that
Eligible Receivables may include at any time up to $100,000 of Accounts
arising from sales to Account Debtors located in Minnesota, so long as such
Accounts would otherwise meet the conditions for inclusion among Eligible
Receivables;
(y) the Account Debtor is not located in New Jersey, unless the
Borrower shall have properly qualified to do business in New Jersey or
shall have filed a Notice of Business Activities Report with the New Jersey
Division of Taxation for the then current year, provided, however, that
Eligible Receivables may include at any time up to $400,000 of Accounts
arising from sales to Account Debtors located in New Jersey, so long as
such Accounts would otherwise meet the conditions for inclusion among
Eligible Receivables;
(z) the Account Debtor is not located in any other jurisdiction which
requires that the Borrower, in order to sue any Person in such
jurisdiction's courts, either (i) qualify to do business in such
jurisdiction, or (ii) file a report with taxation division of such
jurisdiction for the then current year, unless the Borrower shall have
fulfilled either of such requirements for the then current year with
respect to such jurisdiction;
(aa) the Account does not represent tooling; and
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(bb) the Agent in the Good Faith exercise of its discretion has not
deemed the Account ineligible because of uncertainty as to the
creditworthiness of the Account Debtor or because the Agent considers the
collateral value of such Account to the Agent and the Lenders to be
impaired or its or their ability to realize such value to be insecure.
In the event of any dispute, under the foregoing criteria, as to whether an
account is, or has ceased to be, an Eligible Receivable, the decision of the
Agent in the Good Faith exercise of its discretion shall control.
"Enforcement Costs" means all reasonable out-of-pocket expenses,
charges, costs and fees whatsoever (including, without limitation, reasonable
attorney's fees and expenses) of any nature whatsoever paid or incurred by or on
behalf of the Agent and/or any Lender in connection with (a) any or all of the
Obligations, this Agreement and/or any of the other Financing Documents (but
excluding, so long as no Event of Default then exists, fees and expenses
incurred by the Lenders (including attorney's fees) in preparing, reviewing,
negotiating and finalizing the Financing Documents (including any amendments and
supplements thereto) from time to time), and (b) the creation, perfection,
collection, maintenance, preservation, defense, protection, realization upon,
disposition, sale or enforcement of all or any part of the Collateral, this
Agreement or any of the other Financing Documents, including, without
limitation, those costs and expenses more specifically enumerated in Section 3.7
(Costs) and/or Section 9.9 (Enforcement Costs).
"Environmental Compliance Reserve" means any reserves which the Agent
establishes from time to time in the Good Faith Exercise of its discretion for
amounts that are reasonably likely to be expended by the Borrower in order for
the Borrower and its operations and property (a) to comply with any notice from
a Governmental Authority asserting material non-compliance with Environmental
Laws, or (b) to correct any such material non-compliance identified in a report
delivered to the Agent or the Lenders in connection with the transactions
contemplated by this Agreement.
"Equipment" means all equipment, machinery, computers, chattels,
tools, parts, machine tools, furniture, furnishings, fixtures and supplies of
every nature, presently existing or hereafter acquired or created and wherever
located, whether or not the same shall be deemed to be affixed to real property,
together with all accessions, additions, fittings, accessories, special tools,
and improvements thereto and substitutions therefor and all parts and equipment
which may be attached to or which are necessary or beneficial for the operation,
use and/or disposition of such personal property, all licenses, warranties,
franchises and general intangibles related thereto or necessary or beneficial
for the operation, use and/or disposition of the same, together with all
Accounts, Chattel Paper, Instruments and other consideration received by the
Borrower on account of the sale, lease or other disposition of all or any part
of the foregoing, and together with all rights under or arising out of present
or future Documents and contracts relating to the foregoing and all proceeds
(cash and non-cash) of the foregoing.
"Equity" means, at any date as to the Borrower and its Subsidiaries,
the total of capital stock (except treasury stock and net of any note receivable
received upon the issuance of any shares of capital stock) and contributed
capital, as determined on a consolidated basis in accordance with GAAP
consistently applied, after eliminating all intercompany items.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurodollar Business Day" means any Business Day on which dealings in
United States Dollar deposits are carried out on the London interbank market and
on which commercial
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banks are open for domestic and international business (including dealings in
United States Dollar deposits) in London, England.
"Eurodollar Lending Office" means with respect to each Lender such
branch or office of such Lender or an Affiliate of such Lender designated by
such Lender, as applicable, from time to time as the branch or office at which
the LIBOR Loans are to be made or maintained.
"Event of Default" has the meaning described in ARTICLE 7.
"Excess Cash Flow" means, with respect to the Borrower, for any
period, an amount equal to EBITDA for such period minus the sum of (1)
principal, interest and other payments on Indebtedness for Borrowed Money, (2)
non-financed Capitalized Expenditures, and (3) cash income taxes paid for such
period.
"Federal Funds Rate" means for any day of determination, the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or, if such day is not a Business Day, by the Federal Reserve Bank for the
next preceding Business Day) by the Federal Reserve Bank of Chicago, Illinois,
or, if such rate is not so published for any day that is a Business Day, the
average of quotations for such day on such transactions received by the Agent
from three (3) Federal funds brokers of recognized standing selected by the
Agent.
"Fees" means the collective reference to each fee payable to the
Agent, for its own account or for the benefit of the Lenders, under the terms of
this Agreement or under the terms of any of the other Financing Documents,
including, without limitation, the Revolving Credit Unused Line Fees, the Letter
of Credit Fees, the Letter of Credit Fronting Fees, the Early Termination Fee,
the Closing Fee, and, the Agency Fee.
"Financial Institution" means any bank, finance company or other
Person or Governmental Authority which in the ordinary course of business makes
or purchases interests in commercial credit facilities.
"Financing Documents" means, at any time, collectively this Agreement,
the Notes, the Security Documents, the Letter of Credit Documents, the Escrow
Letter, the Bradley Subordination Agreement, the Stanwich Subordination
Agreement, the Post Closing Agreement and any other instrument, agreement or
document previously, simultaneously or hereafter executed and delivered by the
Borrower, any guarantor and/or any other Person, singly or jointly with another
Person or Persons, evidencing, securing, guarantying or in connection with this
Agreement, any Note, any of the Security Documents, any of the Credit
Facilities, and/or any of the Obligations.
"Fixed Charge Coverage Ratio" means, with respect to the Borrower for
the period of any determination thereof, the ratio of (a) EBITDA minus cash
income tax paid for such period, minus non-financed Capital Expenditures, to (b)
Fixed Charges.
"Fixed Charges" means for any period of determination, the scheduled
or required payments (including, without limitation, principal and interest) on
all Indebtedness for Borrowed Money of the Borrower.
"Fixed or Capital Assets" of a Person at any date means all assets
which would, in accordance with GAAP consistently applied, be classified on the
balance sheet of such Person as property, plant or equipment at such date.
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"Formula Lender" means each Lender with any Revolving Credit
Commitment, Letter of Credit Commitment, Term Loan A Commitment or Capital
Expenditure Line Commitment.
"Formula Loan Commitment" means with respect to each Formula Lender,
such Lender's Revolving Credit Commitment, Term Loan A Commitment, Letter of
Credit Commitment, and Capital Expenditure Line Commitment as the case may be,
and "Formula Loan Commitments" means the collective reference to the Revolving
Credit Commitments, Term Loan A Commitments, Letter of Credit Commitments, and
Capital Expenditure Line Commitments of all of the Formula Lenders.
"Formula Loan Pro Rata Share" means, at any time and as to any Formula
Lender, the percentage derived by dividing the unpaid principal amount of the
Revolving Loans, Term Loan A, Capital Expenditure Loans and Letter of Credit
Obligations owing to that Formula Lender by the aggregate unpaid principal
amount of all Revolving Loans, Term Loans A, Capital Expenditure Loans and
Letter of Credit Obligations then outstanding; or if no such Revolving Loans,
Term Loans A, Capital Expenditure Loans or Letter of Credit Obligations are
outstanding, by dividing the total amount of the sum of such Formula Lender's
Revolving Credit Commitment, Term Loan A Commitment, Letter of Credit Commitment
and Capital Expenditure Line Commitment by the total amount of the Revolving
Credit Commitments, Term Loan A Commitments, Letter of Credit Commitments and
Capital Expenditure Commitments of all of the Formula Lenders.
"Funded Debt" means as to the Borrower, as of any date of
determination, the aggregate of all Indebtedness for Borrowed Money of the
Borrower, whether secured or unsecured, having a final maturity (or which by the
terms thereof is renewable or extendible at the option of the obligor for a
period ending) more than a year after that date, including current maturities of
long-term Indebtedness for Borrowed Money (as determined in accordance with
GAAP).
"GAAP" means generally accepted accounting principles in the United
States of America in effect from time to time, or in the case of the calculation
of the financial covenants contained in Section 6.1.14 (Financial Covenants) and
with respect to the definitions used therein, "GAAP" means generally accepted
accounting principles in the United States of America in effect on the Closing
Date.
"General Intangibles" means all general intangibles, now owned or
hereafter acquired by Borrower, including, without limitation, all right, title
and interest of Borrower in and to: (i) all tax refunds and tax refund claims;
(ii) Intellectual Property (as hereinafter defined); (iii) all choses in action
and causes of action; and (iv) all trade secrets and other confidential
information relating to the business of Borrower including by way of
illustration and not limitation: systems and techniques for the analysis,
diagnosis and correction of malfunctions of products used by Borrower's
customers; the names and addresses of, and credit and other business information
concerning, Borrower's past, present or future customers; the prices which
Borrower obtains for its services or at which it sells merchandise; estimating
and cost procedures; profit margins; policies and procedures pertaining to the
manufacture, sale and design of equipment, components, devices and services
furnished by Borrower; and information concerning the manner of operation,
business plans, pledges, projections, and all other information of any kind or
character, whether or not reduced to writing, with respect to the conduct by
Borrower of its business not generally known by the public.
"Good Faith" has the meaning set forth in Section 1301.01(S) of the
Ohio Revised Code as in effect on the Closing Date.
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"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any department, agency or instrumentality thereof.
"Hanjung Escrow Agent" means the law firm of Malone, Larchuk &
Middleman, P.C.
"Hanjung Escrow Amount" means an amount equal to the lesser of (i)
Five Hundred Fifty-Three Thousand Dollars ($553,000), or (ii) the amount of cash
on deposit with the Hanjung Escrow Agent to which the Borrower is entitled as a
result of transactions with Hanjung, Ltd. and as to which the Escrow Agent has
acknowledged, in a writing upon which the Agent can rely, that the Escrow Agent
(A) is in possession of such cash, and (B) is authorized to deliver, and will in
fact deliver, such cash to the Borrower (or the Borrower's designee) upon the
Borrower's request therefor.
"Hanjung Escrow Letter" means the letter, dated as of the Closing
Date, from Chatwins Group, Inc. (prior to the Chatwins Merger) to the Hanjung
Escrow Agent, and the acknowledgement of the Hanjung Escrow Agent thereto, with
respect to certain cash being held by the Hanjung Escrow Agent for the account
of Chatwins Group, Inc. in the amount of $552,908.39, a copy of which letter is
attached hereto as Exhibit "N" and incorporated herein by reference.
"Hanna Real Property" means the real property and improvements thereon
of the Borrower located at 1765 North Elston Avenue, Chicago, Illinois.
"Hazardous Materials" means (a) any "hazardous waste" as defined by
the Resource Conservation and Recovery Act of 1976, as amended from time to
time, and regulations promulgated thereunder; (b) any "hazardous substance" as
defined by the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended from time to time, and regulations promulgated
thereunder; (c) any substance the presence of which on any property now or
hereafter owned, acquired or operated by the Borrower is prohibited by any Law
similar to those set forth in this definition; and (d) any other substance which
by Law requires special handling in the collection, storage, treatment or
disposal of a substance.
"Hazardous Materials Contamination" means the contamination (whether
presently existing or occurring after the date of this Agreement) by Hazardous
Materials of any property owned or operated by the Borrower or for which the
Borrower has responsibility, including, without limitation, improvements,
facilities, soil, ground water, air or other elements on, or of, any property
now or hereafter owned, acquired or operated by the Borrower, and any other
contamination by Hazardous Materials for which the Borrower is, or is claimed to
be, responsible.
"Immediate Family Member" means, with respect to any natural person,
such person's parents, spouse, children, grandchildren, siblings, nieces and
nephews.
"Inactive Subsidiary" means a Subsidiary of the Borrower that carries
on no business operations or other activities and has aggregate assets of
$100,000 or less.
"Indebtedness for Borrowed Money" of a Person means at any time the
sum at such time of (a) Liabilities of such Person for borrowed money or for the
deferred purchase price of property or services, (b) any obligations of such
Person in respect of letters of credit, banker's or other acceptances or similar
obligations issued or created for the account of such Person, (c)
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Lease Obligations of such Person with respect to Capital Leases, (d) all
liabilities secured by any Lien on any property owned by such Person, to the
extent attached to such Person's interest in such property, even though such
Person has not assumed or become personally liable for the payment thereof, (e)
obligations of third parties which are being guarantied or indemnified against
by such Person or which is secured by the property of such Person; and (f) any
obligations, liabilities or indebtedness, contingent or otherwise, under or in
connection with, each Interest Rate/Currency Protection Agreement and other
similar agreements and arrangements; but excluding trade and other accounts
payable in the ordinary course of business in accordance with customary trade
terms and which are not overdue (as determined in accordance with customary
trade practices).
"Indemnitee" has the meaning set forth in Section 9.18.
"Indenture" means the Indenture, dated as of May 1, 1993, by and
between the Borrower, as issuer, and The First National Bank of Boston, as
trustee, in connection with the issue of $50,000,000 13% Senior Notes due 2003
and 13% Senior Exchange Notes due 2003, as modified by (i) that certain First
Supplemental Indenture and Waiver of Covenants, dated as of June 20, 1995, (ii)
that certain Second Supplemental Indenture, dated as of June 20, 1995, (iii)
that certain Third Supplemental Indenture, dated as of May 28, 1999, (iv) that
certain Fourth Supplemental Indenture, dated as of March 8, 2000, and (v) that
certain Fifth Supplemental Indenture, dated as of March 16, 2000, as the same
now exists or may hereafter be amended, supplemented, renewed, restated or
replaced.
"Indenture Maximum Amount" means, as at any time, an amount equal to
the sum of (i) eighty percent (80%) of the book value of the Borrower's Accounts
at such time, plus (ii) seventy percent (70%) of the book value of the
Borrower's Inventory at such time, minus (iii) the aggregate amount of all net
cash proceeds applied to permanently reduce the Total Revolving Credit Committed
Amount outstanding under this Agreement pursuant to this Agreement or pursuant
to Section 4.10 of the Indenture.
"Inserts" means raw materials Inventory of the Borrower consisting of
metal inserts designed for screws and positioned in the dye just prior to adding
the mixed resin.
"Instruments and Chattel Paper" means instruments and chattel paper
and any replacements therefor 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, options and warrants in which the Borrower now has or
hereafter acquires any rights.
"Intellectual Property" shall mean collectively all of the following:
Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and
Trademark Licenses, and all other rights, title and interest in and to any other
intellectual property of any kind whatsoever.
"Interest Payment Date" means the dates provided for the payment of
interest on the Loans in Section 2.6.5 of this Agreement.
"Interest Period" means as to any LIBOR Loan, the period commencing on
and including the date such LIBOR Loan is made (or on the effective date of the
Borrower's election to convert any Base Rate Loan to a LIBOR Loan in accordance
with the provisions of this Agreement) and ending on and including the day which
numerically corresponds to such date thirty (30), sixty (60), ninety (90), one
hundred twenty (120), or one hundred eighty (180) days thereafter as selected by
the Borrower in accordance with the provisions of this Agreement, and
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thereafter, each period commencing on the last day of the then preceding
Interest Period for such LIBOR Loan and ending on and including the day which
numerically corresponds to such date thirty (30), sixty (60), ninety (90), one
hundred twenty (120), or one hundred eighty (180) days thereafter (or, if such
month has no numerically corresponding day, on the last Business Day of such
month) as selected by the Borrower in accordance with the provisions of this
Agreement, provided, however, that:
(a) the first day of any Interest Period shall be a Eurodollar
Business Day;
(b) if any Interest Period would end on a day that shall not be a
Eurodollar Business Day, such Interest Period shall be extended to the next
succeeding Eurodollar Business Day unless such next succeeding Eurodollar
Business Day would fall in the next calendar month, in which case, such
Interest Period shall end on the next preceding Eurodollar Business Day;
and
(c) no Interest Period for a particular Loan shall extend beyond the
respective Revolving Credit Expiration Date, the Capital Expenditure Line
Expiration Date, or the earliest scheduled maturity date of Term Loan A or
Term Loan B, as applicable.
"Interest Rate Election Notice" has the meaning described in Section
2.6.2(f).
"Interest Rate/Currency Protection Agreement" means, for any Person,
any interest rate swap, cap, floor or collar agreements, currency agreements,
currency spot, foreign exchange and forward contracts or similar arrangement
between such Person and one or more financial institutions providing for the
transfer or mitigation of interest or currency risks either generally or under
specific contingencies.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the Income Tax Regulations issued and proposed to
be issued thereunder.
"Inventory" means all inventory now owned or hereafter acquired by
Borrower, wherever located, including, without limitation, finished goods, raw
materials, work-in-process and other materials and supplies (including packaging
and shipping materials) used or consumed in the manufacture or production
thereof and goods which are returned to or repossessed by Borrower.
"Item of Payment" means each check, draft, cash, money, instrument,
item, and other remittance in payment or on account of payment of the
Receivables or otherwise with respect to any Collateral, including, without
limitation, cash proceeds of any returned, rejected or repossessed goods, the
sale or lease of which gave rise to a Receivable, and other proceeds of
Collateral; and "Items of Payment" means the collective reference to all of the
foregoing.
"King-Way Merger Agreement" means that certain Merger Agreement, dated
as of March 30, 1999, by and between Stanwich Acquisition Corp., a Delaware
corporation doing business as King-Way Material Handling Company, and Reunion
Industries, Inc., with Reunion Industries, Inc. being the surviving entity,
together with any and all amendments, modifications, and supplements thereto, or
restatements thereof.
"King-Way Merger Documents" means collectively, the King-Way Merger
Agreement and any and all other agreements, documents or instruments,
previously, now or hereafter executed and delivered by the Reunion Industries,
Inc., Stanwich Acquisition Corp., doing business as King-Way Material Handling
Company or any other Person in connection with the King-Way Merger.
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"King-Way Merger" means the merger on the Closing Date of Stanwich
Acquisition Corp., doing business as King-Way Material Handling Company with and
into Reunion Industries, Inc., under the terms of the King-Way Merger Agreement.
"Landlord Waiver" means a Landlord Estoppel Letter executed in favor
of the Agent substantially in the form attached hereto as Exhibit "G-2" and
incorporated herein by reference.
"Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs, or decrees of any Governmental Authority or agent thereof.
"Lease Obligations" of a Person means for any period the rental
commitments of such Person for such period under leases for real and/or personal
property (net of rent from subleases thereof, but including taxes which such
Person, as the lessee, is obligated to pay under the terms of said leases,
except to the extent that such taxes are payable by sublessees), including
rental commitments under Capital Leases.
"Lenders" has the meaning described in the Preamble to this Agreement.
"Letter of Credit" and "Letters of Credit" shall have the meanings
described in Section 2.2.1 (Letters of Credit) of this Agreement.
"Letter of Credit Agreement" means the collective reference to each
letter of credit application and agreement substantially in the form of the
Agent's then standard form of application for letter of credit or such other
form as may be approved by the Agent, executed and delivered by the Borrower in
connection with the issuance of a Letter of Credit, as the same may from time to
time be amended, restated, supplemented or modified; and "Letter of Credit
Agreements" means all of the foregoing in effect at any time and from time to
time.
"Letter of Credit Cash Collateral Account" shall have the meaning
described in Section 2.2.9 (Supporting Letter of Credit; Cash Collateral) of
this Agreement.
"Letter of Credit Commitment" means the agreements of a Formula Lender
to issue, cause to be issued or participate in Letters of Credit, all subject to
and in accordance with the provisions of this Agreement; and "Letter of Credit
Commitments" means the collective reference to the Letter of Credit Commitment
of each Formula Lender.
"Letter of Credit Documents" means any and all drafts under or
purporting to be under a Letter of Credit, any Letter of Credit Agreement, and
any other instrument, document or agreement executed and/or delivered by the
Borrower or any other Person under, pursuant to or in connection with a Letter
of Credit or any Letter of Credit Agreement.
"Letter of Credit Facility" means the facility established pursuant to
Section 2.2 (Letter of Credit Facility) of this Agreement.
"Letter of Credit Fee" and "Letter of Credit Fees" shall have the
meanings described in Section 2.2.7 (Compensation for Letters of Credit.) of
this Agreement.
"Letter of Credit Fronting Fee" and "Letter of Credit Fronting Fees"
shall have the meanings described in Section 2.2.7 (Compensation for Letters of
Credit.) of this Agreement.
"Letter of Credit Obligations" means the collective reference to all
Obligations of the Borrower with respect to the Letters of Credit and the Letter
of Credit Agreements.
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"Liabilities" means at any date all liabilities that in accordance
with GAAP consistently applied should be classified as liabilities on a
consolidated balance sheet of the Borrower and its Subsidiaries.
"LIBOR Base Rate" means for any Interest Period with respect to any
LIBOR Loan, the per annum interest rate (rounded upward, if necessary, to the
nearest next 1/100 of 1%) quoted to the Agent or an Affiliate of the Agent, on
an immediately available funds basis, at or about 11:00 a.m. (London time) on
the date that is two (2) Eurodollar Business Days prior to the first day of such
Interest Period, for the offering by leading banks in the London interbank
Eurodollar market of United States Dollar deposits with the Agent or such
Affiliate for a period comparable in time to the duration of such Interest
Period and in amounts comparable to the amount of such LIBOR Loan as to which
the LIBOR Base Rate is to be determined. If the Agent shall be unable or shall
otherwise fail to so obtain the LIBOR Base Rate, the LIBOR Base Rate shall be
the average of those rates quoted on the REUTERS SCREEN "LIBO" page for a period
comparable to the applicable Interest Period (rounded upward, if necessary, to
the nearest next 1/100 of 1%).
"LIBOR Capital Expenditure Loan" means an advance under the Capital
Expenditure Line during any period in which it bears interest based on the LIBOR
Rate.
"LIBOR Loans" means, collectively, the LIBOR Revolving Loans, the
LIBOR Term Loans and the LIBOR Capital Expenditure Loans.
"LIBOR Rate" means for any Interest Period with respect to any LIBOR
Loan, (i) the Applicable Margin, plus (ii) the per annum rate of interest
calculated pursuant to the following formula (rounded up to the nearest 1/100th
of 1%):
LIBOR Base Rate
------------------------
1.00 - Reserve Percentage
"LIBOR Revolving Loan" means an advance under the Revolving Credit
Facility during any period in which it bears interest based on the LIBOR Rate.
"LIBOR Term Loan" means any portion of a Term Loan A during any period
in which such portion bears interest based on the LIBOR Rate.
"Lien" means any mortgage, deed of trust, deed to secure debt, grant,
pledge, security interest, assignment, encumbrance, judgment, lien,
hypothecation, provision in any instrument or other document for confession of
judgment, cognovit or other similar right or remedy, claim or charge of any
kind, whether perfected or unperfected, avoidable or unavoidable, including,
without limitation, any conditional sale or other title retention agreement, any
lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction,
excluding the precautionary filing of any financing statement by any lessor in a
true lease transaction, by any bailor in a true bailment transaction or by any
consignor in a true consignment transaction under the Uniform Commercial Code of
any jurisdiction or the agreement to give any financing statement by any lessee
in a true lease transaction, by any bailee in a true bailment transaction or by
any consignee in a true consignment transaction.
"Loan" means each of the Revolving Loan, the Term Loans or the Capital
Expenditure Line as the case may be, and "Loans" means the collective reference
to the Revolving Loan, the Term Loans and the Capital Expenditure Line.
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"Loan Notice" has the meaning described in Section 2.1.2 (Procedure
for Making Advances).
"Lockbox" has the meaning described in Section 2.1.8 (The Collateral
Account).
"Majority Lenders" means, at any time of determination, one or more of
the Formula Lenders holding at least fifty-one percent (51%) of the Formula Loan
Commitments, or, if the Formula Loan Commitments have been terminated pursuant
to the terms of this Agreement, one or more Formula Lenders having at least
fifty-one percent (51%) of the Revolving Loans, Term Loan A and Capital
Expenditure Loans outstanding.
"Material Adverse Effect" means either in any case or in the
aggregate, a material adverse effect on (w) the business, condition, properties,
affairs or operations of the Borrower, (x) the right or ability of the Borrower
to carry on a substantial portion of its operations as now conducted or proposed
to be conducted, (y) the value of, or the ability of the Agent or any Lender to
realize upon, the Collateral, or (z) the rights of or benefits available to the
Agent or the Lenders under any of the Financing Documents.
"Mergers" means, collectively, each of the Chatwins Merger, the King-
Way Merger and the Oneida Merger.
"Merger Documents" means, collectively, the Chatwins Merger Documents,
the King-Way Merger Documents and the Oneida Merger Documents.
"Merger Parties" means the Borrower and each of Persons merged with
and into the Borrower in connection with of any of the Mergers.
"Mortgages" means, collectively, the (a) Deed of Trust (With Power of
Sale, Assignment of Rents and Security Agreement) with respect to the Borrower's
owned property located at 920 East Raleigh Street, Siler City, North Carolina,
(b) Open End Mortgage, Assignment of Rents, and Security Agreement with respect
to the Borrower's owned property located at 2450 Sagamore Parkway, Lafayette,
Indiana, (c) Open End Mortgage, Assignment of Rents, and Security Agreement with
respect to the Borrower's owned property located at 69 Chestnut Street, Phoenix,
New York and at South Warner Street, Oneida, New York, (d) Open End Mortgage,
Assignment of Rents, and Security Agreement with respect to the Borrower's owned
property located at 1049 Mahoning Avenue, Alliance, Ohio, (e) Open End Mortgage,
Assignment of Rents, and Security Agreement with respect to the Borrower's owned
property located at 2214 Walnut Street, McKeesport, Pennsylvania, (f) Open End
Mortgage, Assignment of Rents, and Security Agreement with respect to the
Borrower's owned property located at 1765 North Elston Avenue, Chicago,
Illinois, (g) Open End Mortgage, Assignment of Rents, and Security Agreement
with respect to the Borrower's owned property located at 2233-43 and 2301-03
West Mill Road, Milwaukee, Wisconsin, and (h) Open End Mortgage, Assignment of
Rents, and Security Agreement with respect to the Borrower's owned property
located at 505 30th Northwest Avenue, Miami, Oklahoma, and "Mortgage" means any
of them, as amended, supplemented or otherwise modified in writing from time to
time, a copy of each as in effect on the Closing Date is respectively attached
hereto as Exhibit "J-1", Exhibit "J-2", Exhibit "J-3", Exhibit "J-4", Exhibit
"J-5", Exhibit "J-6", Exhibit "J-7" and Exhibit "J-8", and is herein
incorporated by reference.
"Multiemployer Plan" means a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Outstandings" of any Formula Lender means, at any time, the sum
of (a) all amounts paid by such Formula Lender (other than pursuant to Section
8.5 (Indemnification)) to
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the Agent in respect to the Revolving Loan or otherwise under this Agreement,
minus (b) all amounts paid by the Agent to such Formula Lender which are
received by the Agent and which, pursuant to this Agreement, are paid over to
such Formula Lender for application in reduction of the outstanding principal
balance of the Revolving Loan.
"Net Proceeds" means gross proceeds (cash and non-cash) or other
consideration paid to, or received by the Borrower or any of its Subsidiaries
from any Asset Disposition, net of costs of sale including, without limitation,
(i) income taxes reasonably estimated to be actually payable as a result of such
Asset Disposition within one year of the date of receipt of such proceeds (but
only to the extent actually paid within such one-year period), (ii) transfer,
sales, use and other taxes payable in connection with such Asset Disposition,
(iii) payment of the outstanding principal amount of, premium or penalty, if
any, and interest on any Indebtedness for Borrowed Money (other than the
Obligations, except that portion of the Obligations consisting of repayments of
Revolving Loans which result from a reduction in the Borrowing Base as a result
of such Asset Disposition) that is secured by a Lien on the stock or assets in
question and that is required to be (and which is in fact) repaid under the
terms thereof as a result of such Asset Disposition, and (iv) severance
payments, employee costs, broker's commissions and reasonable fees and expenses
of counsel, accountants and other professional advisors in connection with such
Asset Disposition.
"Net Worth" means, as to the Borrower, its shareholders equity, as
applicable, (including, without limitation, preferred stock), determined in
accordance with GAAP.
"Non-Ratable Loan" means an advance under the Revolving Loan made by
BANA in accordance with the provisions of Section 2.8.2(c) (Non-Ratable Loans
and Payments).
"Note" means any Revolving Credit Note, any Term Note, or any Capital
Expenditure Line Note as the case may be, and "Notes" means collectively each
Revolving Credit Note, each Term Note, each Capital Expenditure Line Note and
any other promissory note which may from time to time evidence all or any
portion of the Obligations.
"Obligations" means all present and future indebtedness, duties,
obligations, and liabilities, whether now existing or contemplated or hereafter
arising, of the Borrower to the Lenders and/or the Agent under, arising pursuant
to, in connection with and/or on account of the provisions of this Agreement,
each Note, each Security Document, and/or any of the other Financing Documents,
the Loans, and/or any of the Credit Facilities including, without limitation,
the principal of, and interest on, each Note, late charges, the Fees,
Enforcement Costs, and prepayment fees, letter of credit fees or fees charged
with respect to any guaranty of any letter of credit, and also means all other
present and future indebtedness, liabilities and obligations, whether now
existing or contemplated or hereafter arising, of the Borrower to the Agent or
its Affiliates with respect to the Letters of Credit, the Interest Rate/Currency
Protection Agreements, deposit or other cash management or credit services of
any nature whatsoever, regardless, in any such case, of whether such debts,
obligations and liabilities be direct, indirect, primary, secondary, joint,
several, joint and several, fixed or contingent; and also means any and all
renewals, extensions, substitutions, amendments, restatements and rearrangements
of any such debts, obligations and liabilities.
"Oneida Merger Documents" means collectively, any and all agreements,
documents or instruments, previously, now or hereafter executed and delivered by
Reunion Industries, Inc., Oneida Rostone Corp. or any other Person in connection
with the Oneida Merger.
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"Oneida Merger" means the merger on the Closing Date of Oneida Rostone
Corp. with and into Reunion Industries, Inc., under the terms of the Oneida
Merger Documents.
"Outstanding Letter of Credit Obligations" has the meaning described
in Section 2.2.2 (Terms of Letters of Credit) of this Agreement.
"Patents" means collectively all of the following: (a) all United
States and foreign patents and patent applications now owned or hereafter
created or acquired by Debtor and the inventions and improvements described and
claimed therein, and all patentable inventions; (b) reissues, divisions,
continuations, renewals, extensions and continuations-in-part of any of the
foregoing; (c) all income, royalties, damages or payments now or hereafter due
and/or payable under any of the foregoing with respect to any of the foregoing,
including, without limitation, damages or payments for past or future
infringements of any of the foregoing; (d) the right to sue for past, present
and future infringements of any of the foregoing; and (e) all rights
corresponding to any of the foregoing throughout the world.
"Patent License" means any written agreement now or hereafter in
existence granting to the Borrower any right to use any invention on which a
Patent is in existence, as may be amended, modified or supplemented from time to
time.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Asset Dispositions" means each of the Asset Dispositions
described on Schedule 6.2.8 attached hereto, but only if and to the extent (a)
the Borrower receives fair value in connection with such Asset Disposition, and
(b) the Net Proceeds of each such Asset Disposition are remitted to the Agent
for the benefit of the Agent and the Lenders and applied to the Obligations in
accordance with Section 2.7.10.
"Permitted Bill and Hold Sales" means up to $1,000,000 at any one time
outstanding of sales of Inventory by the Borrower in the ordinary course of its
business with respect to which (a) the goods that are the subject matter of the
sale are located, pursuant to the Account Debtor's written instructions, on the
Borrower's premises, (b) the Borrower has received and maintains a copy of the
Account Debtor's written instruction to invoice the Account Debtor for such
sale, (c) title to the goods that are the subject matter of the sale has passed
to the Account Debtor, and (d) the goods that are the subject matter of the sale
are clearly identified as bill-and-hold inventory and segregated from Borrower's
Inventory.
"Permitted Indenture Refinancing" means Indebtedness incurred to
extend, refinance, refund or renew the Indebtedness for Borrowed Money under the
Indenture (the "Refinancing Debt"), provided that:
(i) the aggregate outstanding principal amount of the Refinancing
Debt shall not at any time exceed the amount of principal, accrued interest
and premium (including any prepayment penalties) under the Indenture;
(ii) the scheduled final maturity date of the Refinancing Debt is
not earlier than March 16, 2003;
(iv) the Refinancing Debt is unsecured;
(v) the Refinancing Debt bears interest at market rates
prevailing at its date of issuance and in any event at a rate that is no
higher than the rate charged under the Indenture;
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(vi) both at the time of and immediately after giving effect to
the incurrence of the Refinancing Debt and the retirement of the Indenture,
no Default or Event of Default shall have occurred and be continuing; and
(vii) the terms and conditions of the Refinancing Debt are no
more restrictive or adverse to Borrower or its Subsidiaries or the rights
of the Agent or any Lender under this Agreement and other Financing
Documents than those in the Indenture as in effect on the date hereof
(after giving effect to the amendment or waiver described in Section 5.1.22
of this Agreement) (including, without limitation, with respect to the
ability to incur indebtedness and grant Liens to secure indebtedness,
financial performance, and events of default).
"Permitted Liens" means (a) Liens for Taxes which are not delinquent
or which (i) are being diligently contested in good faith and by appropriate
proceedings and adequate reserves with respect thereto are maintained on the
books of the Borrower or its Subsidiaries, (ii) the Borrower has the financial
ability to pay, with all penalties and interest, at all times without materially
and adversely affecting the Borrower, and (iii) are not, and will not be with
appropriate filing, the giving of notice and/or the passage of time, entitled to
priority over any Lien of the Agent or any of the Lenders; (b) deposits or
pledges to secure obligations under workers' compensation, social security or
similar laws, or under unemployment insurance in the ordinary course of
business; (c) Liens securing the Obligations; (d) judgment Liens to the extent
the entry of such judgment does not constitute an Event of Default under the
terms of this Agreement or result in the sale or levy of, or execution on, any
of the Collateral; (e) statutory liens of landlords, carriers, warehousemen,
mechanics, materialmen and other similar liens imposed by law, which are
incurred in the ordinary course of business for sums not more than thirty (30)
days delinquent or which are being contested in good faith by appropriate
proceedings and for which reserves shall have been set aside on the Borrower's
books, all as determined by the Agent in the Good Faith exercise of its
discretion; (f) Liens against cash deposits to secure the performance of
tenders, statutory obligations, surety, customs bonds, bids, government
contracts, performance bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money); (g) deposits, made in the
ordinary course of business to secure liability to insurance carriers; (h)
Purchase Money Security Interests; provided that: the aggregate Liabilities
secured by any such Liens that may be incurred during any calendar year may not
exceed $2,500,000; (i) easements, rights-of-way, restrictions and other similar
encumbrances on real property incurred in the ordinary course of business which
are not substantial in amount and which do not in any case materially detract
from the value of the property subject thereto or interfere with the ordinary
conduct of the business of the Borrower and its Subsidiaries, (j) Liens
permitted by the Mortgages, and (k) such other Liens, if any, as are set forth
on Schedule 4.1.23 attached hereto and made a part hereof.
"Permitted Uses" means (a) with respect to the Term Loans and the
initial advance on the Revolving Loan, the redemption of up to $25,000,000 of
the Senior Notes, the payment of accrued interest on the Senior Notes, the
repayment and refinancing of certain existing indebtedness of the Borrower and
of the other Merger Parties in connection with the consummation of the Mergers,
the payment of up to $100,000 of cash purchase price in connection with the
King-Way Merger, and all transaction costs related to such redemption, payments,
repayment and refinancings and to the transactions contemplated by this
Agreement, (b) with respect to subsequent advances under the Revolving Loan,
general corporate purposes other than (i) except to the extent permitted in
Section 6.2.3, payments of principal on and repurchases or redemptions of the
Senior Notes and (ii) any other purposes that are prohibited under this
Agreement, and (c) with respect to the Capital Expenditure Line, the purchase of
Equipment or the repayment of any advances under the Revolving Loan used for the
purchase of Equipment.
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"Person" or "person" means any individual, sole proprietorship,
partnership, limited liability company, corporation (including, without
limitation, any corporation which elects subchapter S status under the Internal
Revenue Code of 1986, as amended), business trust, unincorporated association,
joint stock corporation, trust, joint venture or other entity or any government
or any agency or instrumentality or political subdivision thereof.
"Plan" means any pension plan which is covered by Title IV of ERISA
and in respect of which the Borrower or a Commonly Controlled Entity is an
"employer" as defined in Section 3 of ERISA.
"Pledge Agreements--CPS Stock" means, collectively, (a) the Pledge and
Security Agreement executed by Charles E. Bradley, Sr. in favor of the Agent for
the benefit of the Agent and the Lenders with respect to his stock in Consumer
Portfolio Services, Inc., (b) the Pledge and Security Agreement executed by
Stanwich Financial Services Corp., a Rhode Island corporation, in favor of the
Agent for the benefit of the Agent and the Lenders with respect to its stock in
Consumer Portfolio Services, Inc., and (c) the Pledge and Security Agreement
executed by Stanwich Partners, Inc., a Delaware corporation, in favor of the
Agent for the benefit of the Agent and the Lenders with respect to its stock in
Consumer Portfolio Services, Inc., each to be substantially in the form attached
hereto as Exhibit "L-1" and incorporated herein by reference.
"Pledge Agreement--CPS Debt Securities" means a Pledge and Security
Agreement executed by Stanwich Financial Services Corp. in favor of the Agent
for the benefit of the Agent and the Lenders with respect to a certain Consumer
Portfolio Services, Inc. Partially Convertible Subordinated 9% Note in original
principal amount of $5,000,000, dated June 12, 1997, of Consumer Portfolio
Services, Inc., substantially in the form attached hereto as Exhibit "L-2" and
incorporated herein by reference.
"Pledge Agreements--Subsidiary Securities" means, collectively, (a)
the Pledge and Security Agreement executed by the Borrower in favor of the Agent
for the benefit of the Agent and the Lenders with respect to its stock and/or
other equity interests each of DPL Acquisition Corp., a Delaware corporation,
and Juliana Vineyards, a California corporation, (b) the Pledge and Security
Agreement executed by DPL Acquisition Corp. in favor of the Agent for the
benefit of the Agent and the Lenders with respect to its stock and/or other
equity interests in RII Investment Corp., a Delaware corporation, and (c) the
Pledge and Security Agreement executed by RII Investment Corp. in favor of the
Agent for the benefit of the Agent and the Lenders with respect to its stock
and/or other equity interests in Data Packaging Holdings Limited, an Ireland
corporation, each such agreement to be substantially in the form attached hereto
as Exhibit "L-3" and incorporated herein by reference.
"Pledge Agreements" means each Pledge Agreement--CPS Stock, each
Pledge Agreement--CPS Debt Securities and each Pledge Agreement--Subsidiary
Securities.
"Pledged Policies" means those policies of insurance described on
Exhibit "K" attached hereto and by reference made a part hereof, together with
such additional or replacement policies as shall be approved by the Agent or the
Requisite Lenders from time to time in writing, provided that no policy shall be
considered a Pledged Policy unless and until the Agent for the benefit of itself
and the Lenders has received a Collateral Assignment of Life Insurance with
respect to such policy, granting to the Agent for the benefit of itself and the
Lenders the right to access the cash surrender value thereof and otherwise in
form and substance satisfactory to the Agent, in its sole discretion.
"Post Closing Agreement" means that certain Post Closing Agreement
dated the date hereof between the Borrower and the Agent as the same may from
time to time be amended, restated, supplemented or otherwise modified.
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"Post-Default Rate" means (a) with respect to the principal balance of
the Notes (other than the Term Loan B Notes), the respective Applicable Interest
Rates under the Notes from time to time plus two hundred (200) basis points per
annum, (b) with respect to the principal balance of the Term Loan B Notes,
seventeen percent (17%) per annum, and (c) with respect to all other
Obligations, the Applicable Interest Rates under the Revolving Credit Note from
time to time plus two hundred (200) basis points per annum.
"Prepayment" means a Revolving Loan Mandatory Prepayment, a Revolving
Loan Optional Prepayment, a Term Loan A Optional Prepayment, a Term Loan A
Mandatory Prepayment, a Term Loan B Optional Prepayment, a Term Loan B Mandatory
Prepayment, or a Capital Expenditure Line Optional Prepayment as the case may
be, and "Prepayments" mean collectively Revolving Loan Mandatory Prepayments,
Revolving Loan Optional Prepayments, Term Loan A Optional Prepayments, Term Loan
A Mandatory Prepayments, Term Loan B Optional Prepayments, Term Loan B Mandatory
Prepayments, and Capital Expenditure Optional Prepayments.
"Prime Rate" means the floating and fluctuating per annum prime
commercial lending rate of interest of the Agent, as established and publicly
declared by the Agent at any time or from time to time. The Prime Rate shall be
adjusted automatically, without notice, as of the effective date of any change
in such prime commercial lending rate. The Prime Rate does not necessarily
represent the lowest rate of interest charged by the Agent to its borrowers.
"Principals" means Charles E. Bradley, Sr., Kimball Bradley and John
G. Poole, or any trust or partnership established for estate planning purposes
of which Charles E. Bradley, Sr., Kimball Bradley or John G. Poole, or any
Immediate Family Member of Charles E. Bradley, Sr., Kimball Bradley or John G.
Poole is a beneficiary (and over which Charles E. Bradley, Sr., John G. Poole,
Kimball Bradley or Stanwich Partners, Inc. retains sole voting power and
control).
"Pro Rata Share" means (a) at any time and as to any Formula Lender,
the Formula Loan Pro Rata Share, and (b) at any time and as to any Term Loan B
Lender, the Term Loan B Pro Rata Share.
"Proforma Balance Sheet" has the meaning described in Section 4.1.12
(Proforma Financial Statements) below.
"Proforma Financial Projections" has the meaning described in Section
4.1.12 (Proforma Financial Statements) below.
"Purchase Money Security Interest" means the interest of a lessor
under a Capital Lease and also means a purchase money security interest,
attaching at the time of acquisition, in Equipment acquired after the date of
this Agreement; provided, however, that (i) the indebtedness secured by any such
security interest shall not exceed one hundred percent (100%) of the cost of the
Equipment covered, (ii) each such security interest shall attach only to the
Equipment so acquired for the purchase money for that Equipment, and (iii) the
acquisition to which any such security interest relates shall not result in a
Default or Event of Default under this Agreement.
"Receivable" means the Borrower's now owned and hereafter owned,
acquired or created Accounts, Chattel Paper, General Intangibles and
Instruments; and "Receivables" means all of the Borrower's now or hereafter
owned, acquired or created Accounts, Chattel Paper, General Intangibles and
Instruments, and all cash and non-cash proceeds and products thereof.
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<PAGE>
"Records" means all of Borrower's present and future books of account
of every kind or nature, purchase and sale agreements, invoices, ledger cards,
bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to any of the foregoing or any
account debtor, together with the tapes, disks, diskettes or other data and
software storage media and devices, file cabinets or containers in or on which
the foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person)
"Refinanced Indenture" means the indenture or financing agreement that
would replace the Indenture in connection with a Permitted Indenture
Refinancing.
"Reportable Event" means any of the events set forth in Section
4043(c) of ERISA or the regulations thereunder.
"Requisite Lenders" means, at any time of determination, one or more
of the Formula Lenders holding at least sixty-six and two-thirds percent (66-
2/3%) of the Formula Loan Commitments, or, if the Formula Loan Commitments have
been terminated pursuant to the terms of this Agreement, one or more Formula
Lenders having at least sixty-six and two-thirds percent (66-2/3%) of the
Revolving Credit Loans, Term Loan A, and Capital Expenditure Line Loans
outstanding at such time.
"Reserve Amount" shall mean an amount determined by Agent, in its sole
discretion, as a reserve against Collateral values and potential or anticipated
obligations of the Borrower, including, without limitation, (i) tax liabilities
and other obligations owing to governmental entities including all amounts
referred to in Section 6.1.9 hereof, (ii) litigation liabilities, (iii) the
anticipated costs and expenses relating to the liquidation of Collateral, (iv)
unpaid sales taxes, (vi) those reserve amounts as required to be held as
reserves under GAAP, (vii) liabilities and other obligations owing by the
Borrower to any lessor of real property leased by the Borrower or to any
warehouseman, (viii) the Environmental Compliance Reserve, and (ix) all other
reserves which the Agent deems necessary in the exercise of its reasonable
credit judgment to maintain with respect to the Borrower's account, including,
without limitation, reserves against Eligible Inventory for shrinkage and
valuation and reserves for any amounts which the Lender may be obligated to pay
in the future for the account of the Borrower.
"Reserve Percentage" means, at any time, the then current maximum rate
(expressed as a decimal) for which reserves (including any basic, supplemental,
marginal and emergency reserves) are required to be maintained by member banks
of the Federal Reserve System under Regulation D of the Board of Governors of
the Federal Reserve System against "Eurocurrency liabilities", as that term is
defined in Regulation D. The LIBOR Rate shall be adjusted automatically on and
as of the effective date of any change in the Reserve Percentage.
"Responsible Officer" means the Borrower's chief executive officer,
president or any vice president.
"Revolving Credit Availability" means, as at any time, an amount equal
to (a) the least of (i) the Revolving Credit Committed Amount, (ii) the then
Borrowing Base minus the Reserve Amount then in effect, or (iii) the Indenture
Maximum Amount, minus (b) the then aggregate outstanding principal balance of
the Revolving Loan, minus (c) the then current stated amount of all outstanding
Letters of Credit.
"Revolving Credit Commitment" means the agreement of a Formula Lender
relating to the making of the Revolving Loan and advances thereunder subject to
and in accordance with the provisions of this Agreement, and "Revolving Credit
Commitments" means the collective reference to the Revolving Credit Commitment
of each Formula Lender.
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<PAGE>
"Revolving Credit Commitment Period" means the period of time from the
Closing Date to the Business Day preceding the Revolving Credit Termination
Date.
"Revolving Credit Committed Amount" has the meaning described in
Section 2.1.1 (Revolving Credit Facility).
"Revolving Credit Expiration Date" means March 16, 2003, or any
anniversary thereof to the extent the provisions of the immediately succeeding
sentence shall have been complied with. Subject to continued credit approval by
the Agent and the Formula Lenders, the Revolving Credit Expiration Date shall be
extended beyond March 16, 2003, for successive one (1) year periods, unless any
of the Formula Lenders shall have notified the Borrower in writing or the
Borrower shall have notified the Agent in writing, by no later than January 16,
2003, or January 16 of the applicable succeeding calendar year, of its desire to
terminate this Agreement; provided, however, that in no event shall the
Revolving Credit Expiration Date be extended to a date beyond March 16, 2010.
"Revolving Credit Facility" means the facility established by the
Formula Lenders pursuant to Section 2.1 (Revolving Credit Facility) of this
Agreement.
"Revolving Credit Note" and "Revolving Credit Notes" have the meaning
described in Section 2.1.5 (Revolving Credit Note).
"Revolving Credit Pro Rata Share" has the meaning described in Section
2.1.1 (Revolving Credit Facility).
"Revolving Credit Termination Date" means the earlier of (a) the
Revolving Credit Expiration Date, or (b) the date on which the Revolving Credit
Commitments are terminated pursuant to Section 7.2 (Remedies) or otherwise.
"Revolving Credit Unused Line Fee" and "Revolving Credit Unused Line
Fees" have the meanings described in Section 2.1.10 (Revolving Credit Unused
Line Fee).
"Revolving Loan" has the meaning described in Section 2.1.1 (Revolving
Credit Facility).
"Revolving Loan Account" has the meaning described in Section 2.1.9
(Revolving Loan Account).
"Revolving Loan Mandatory Prepayment" and "Revolving Loan Mandatory
Prepayments" have the meanings described in Section 2.1.6 (Mandatory Prepayments
of Revolving Loan).
"Revolving Loan Optional Prepayment" and "Revolving Loan Optional
Prepayments" have the meanings described in Section 2.1.7 (Optional Prepayment
of Revolving Loan).
"Securities" means the collective reference to each and every
certificated or uncertificated security which constitutes a "security" or an
"investment security" under the provisions of Article 8 of the Uniform
Commercial Code and to each and every "investment property" under the provisions
of Article 9 of the Uniform Commercial Code (if that definition is included in
that Article), and all proceeds (cash and non-cash) of the foregoing.
"Security Documents" means collectively any assignment, pledge
agreement, security agreement, mortgage, deed of trust, deed to secure debt,
financing statement and any
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<PAGE>
similar instrument, document or agreement under or pursuant to which a Lien is
now or hereafter granted to, or for the benefit of, the Agent and/or the Lenders
on any real or personal property of any Person to secure all or any portion of
the Obligations, all as the same may from time to time be amended, restated,
supplemented or otherwise modified, including, without limitation, this
Agreement, the Collateral Assignments of Life Insurance, the Pledge Agreements,
the Landlord Waivers, the Bailee Waivers, and the Mortgages.
"Security Procedures" means the rules, policies and procedures adopted
and implemented by the Agent and its Affiliates at any time and from time to
time with respect to security procedures and measures relating to electronic
funds transfers, all as the same may be amended, restated, supplemented,
terminated, or otherwise modified at any time and from time to time by the Agent
in its sole and absolute discretion.
"Senior Notes" means the 13% Senior Notes due 2003 and the 13% Senior
Exchange Notes due 2003 issued pursuant to the Indenture in the aggregate
principal amount of Fifty Million Dollars ($50,000,000).
"Settlement Date" means each Business Day after the Closing Date
selected by the Agent in its sole discretion subject to and in accordance with
the provisions of Section 2.8.2 (Settlement Procedures as to Revolving Loan) as
of which a Settlement Report is delivered by the Agent and on which settlement
is to be made among the Formula Lenders in accordance with the provisions of
Section 2.8.2 (Settlement Procedures as to Revolving Loan).
"Settlement Report" means each report prepared by the Agent and
delivered to each Formula Lender and setting forth, among other things, as of
the Settlement Date indicated thereon and as of the next preceding Settlement
Date, the aggregate outstanding principal balance of the Revolving Loan, each
Formula Lender's Revolving Credit Pro Rata Share thereof, each Formula Lender's
Net Outstandings and all Non-Ratable Loans made, and all payments of principal,
interest and Fees received by the Agent from the Borrower during the period
beginning on such next preceding Settlement Date and ending on such Settlement
Date.
"State" means the State of Ohio.
"Stanwich Subordination Agreement" means a Subordination Agreement
executed by Stanwich Financial Services Corp. with respect to all indebtedness
owing from the Borrower to Stanwich Financial Services Corp., substantially in
the form attached hereto as Exhibit "M-2" and incorporated herein by reference.
"Subordinated Indebtedness" means all Indebtedness incurred at any
time by the Borrower, which is in amounts, subject to repayment terms, and
subordinated to the Obligations, as set forth in one, or more written
agreements, all in form and substance satisfactory to the Agent and the
Requisite Lenders.
"Subsidiary" means any corporation, limited liability company,
partnership, joint venture, unincorporated association or other entity, the
majority of the voting shares, units or ownership interests of which at the time
are owned directly by the Borrower and/or by one or more Subsidiaries of the
Borrower.
"Supporting Letter of Credit" has the meaning described in Section
2.2.9 (Supporting Letter of Credit; Cash Collateral).
"Taxes" means all taxes and assessments whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character
(including all penalties or interest thereon), which at any time may be
assessed, levied, confirmed or imposed by any Governmental
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<PAGE>
Authority on the Borrower or any of its properties or assets or any part thereof
or in respect of any of its or their franchises, businesses, income or profits.
"Term Loan" means any of Term Loan A or Term Loan B and "Term Loans"
means the collective reference to Term Loan A and Term Loan B.
"Term Loan A" has the meaning described in Section 2.3.1 (Term Loan A
Commitments).
"Term Loan A Commitment" and "Term Loan A Commitments" have the
meanings described in Section 2.3.1 (Term Loan A Commitments).
"Term Loan A Committed Amount" has the meaning described in Section
2.3.1 (Term Loan A Commitments).
"Term Loan A Facility" means the term loan facility established by the
Formula Lenders pursuant to Section 2.3 (Term Loan A Facility).
"Term Loan A Installment Payment Amount" means the following:
<TABLE>
<CAPTION>
Term Loan A Installment Payment Date Term Loan A Installment Payment Amount
<S> <C>
April 1, 2000, through February 1, 2007 $307,143.00
- ------------------------------------------------------------------------------------------------------
March 1, 2007 $307,131.00
- ------------------------------------------------------------------------------------------------------
</TABLE>
"Term Loan A Installment Payment Date" means the first day of each
calendar month commencing April 1, 2000.
"Term Loan A Maturity Date" means the earlier of March 1, 2007, or the
Revolving Credit Termination Date.
"Term Loan A Mandatory Prepayment" and "Term Loan A Mandatory
Prepayments" have the meanings described in Section 2.3.5 (Mandatory Prepayments
of Term Loan A).
"Term Loan A Note" and "Term Loan A Notes" have the meaning described
in Section 2.3.2 (The Term Loan A Notes).
"Term Loan A Optional Prepayment" and "Term Loan A Optional
Prepayments" have the meanings described in Section 2.3.4 (Optional Prepayments
of Term Loan A).
"Term Loan B" has the meaning described in Section 2.4.1 (Term Loan B
Commitments).
"Term Loan B Commitment" and "Term Loan B Commitments" have the
meanings described in Section 2.4.1 (Term Loan B Commitments).
"Term Loan B Committed Amount" has the meaning described in Section
2.4.1 (Term Loan B Commitments).
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<PAGE>
"Term Loan B Facility" means the term loan facility established by the
Term Loan B Lenders pursuant to Section 2.4 (Term Loan B Facility).
"Term Loan B Installment Payment Amount" means the following:
<TABLE>
<CAPTION>
Term Loan B Installment Payment Date Term Loan B Installment Payment Amount
<S> <C>
April 1, 2000, through February 1, 2003 $138,889.00
- ------------------------------------------------------------------------------------------------------
March 1, 2003 $138,885.00
- ------------------------------------------------------------------------------------------------------
</TABLE>
"Term Loan B Installment Payment Date" means the first day of each
calendar month commencing April 1, 2000.
"Term Loan B Lender" means each Lender with any Term Loan B
Commitment.
"Term Loan B Maturity Date" means the earlier of March 1, 2003, or the
Revolving Credit Termination Date.
"Term Loan B Mandatory Prepayment" and "Term Loan B Mandatory
Prepayments" have the meanings described in Section 2.4.5 (Mandatory Prepayments
of Term Loan B).
"Term Loan B Note" and "Term Loan B Notes" have the meaning described
in Section 2.4.2 (The Term Loan B Notes).
"Term Loan B Optional Prepayment" and "Term Loan B Optional
Prepayments" have the meanings described in Section 2.4.4 (Optional Prepayments
of Term Loan B).
"Term Loan B Pro Rata Share" means, at any time and as to any Term
Loan B Lender, the percentage derived by dividing the unpaid principal amount of
each Term Loan B owing to that Term Loan B Lender by the aggregate unpaid
principal amount of all Term Loan B then outstanding.
"Term Note" means a Term Loan A Note or a Term Loan B Note, and "Term
Notes" means the collective reference to all Term Loan A Notes and Term Loan B
Notes.
"Testing Period" means (a) with respect to any date of determination
occurring on the Borrower's June 30, 2000 fiscal quarter end, the period
commencing on April 1, 2000 and continuing through June 30, 2000, (b) with
respect to any date of determination occurring on the Borrower's September 30,
2000 fiscal quarter end, the period commencing on April 1, 2000 and continuing
through September 30, 2000, (c) with respect to any date of determination
occurring on the Borrower's December 31, 2000 fiscal year end, the period
commencing on April 1, 2000 and continuing through December 31, 2000, and (d)
from and after December 31, 2000, with respect to any date of determination, a
single period consisting of the four consecutive fiscal quarters of the Borrower
then last ended (whether or not such quarters are all within the same fiscal
year).
"Total Revolving Credit Committed Amount" has the meaning described in
Section 2.1.1 (Revolving Credit Facility).
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<PAGE>
"Total Term Loan A Committed Amount" has the meaning described in
Section 2.3.1 (Term Loan A Commitments).
"Total Term Loan B Committed Amount" has the meaning described in
Section 2.4.1 (Term Loan B Commitments).
"Trademarks" means collectively all of the following now owned or
hereafter created or acquired by the Borrower:
(a) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks,
logos, other business identifiers, prints and labels in which any of the
foregoing have appeared or appear, all registrations and recordings thereof,
and all applications in connection therewith including registrations,
recordings and applications in the United States Patent and Trademark Office
or in any similar office or agency of the United States, any State thereof
or any other country or any political subdivision thereof;
(b) all reissues, extensions or renewals thereof;
(c) all income, royalties, damages and payments now or hereafter due
and/or payable under any of the foregoing or with respect to any of the
foregoing including damages or payments for past or future infringements of
any of the foregoing;
(d) the right to sue for past, present and future infringements of any
of the foregoing;
(e) all rights corresponding to any of the foregoing throughout the
world; and
(f) all goodwill associated with and symbolized by any of the
foregoing.
"Trademark License" means any written agreement now or hereafter in
existence granting to the Borrower any right to use any Trademark, as may be
amended, modified or supplemented from time to time.
"Uniform Commercial Code" means, unless otherwise provided in this
Agreement, the Uniform Commercial Code as adopted by and in effect from time to
time in the State or in any other jurisdiction, as applicable.
"United States Dollar", "Dollar", "Dollars" and "$" means the lawful
money of the United States of America.
"Wholly Owned Subsidiary" means any Domestic Subsidiary, all the
shares of stock of all classes (or, with respect to non-corporate entities,
equity interests) of which (other than directors' qualifying shares) at the time
are owned directly or indirectly by the Borrower and/or by one or more Wholly
Owned Subsidiaries of the Borrower.
"Wire Transfer Procedures" means the rules, policies and procedures
adopted and implemented by the Agent and its Affiliates at any time and from
time to time with respect to electronic funds transfers to or on behalf of the
Borrower, including, without limitation, the Security Procedures, all as the
same may be amended, restated, supplemented, terminated or otherwise modified at
any time and from time to time by the Agent in its sole and absolute discretion.
Section 1.2 Accounting Terms and Other Definitional Provisions.
Unless otherwise defined herein, as used in this Agreement and in any
certificate, report or other document made or delivered pursuant hereto,
accounting terms not otherwise defined
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<PAGE>
herein, and accounting terms only partly defined herein, to the extent not
defined, shall have the respective meanings given to them under GAAP, as
consistently applied to the applicable Person. Unless otherwise defined herein,
all terms used herein which are defined by the Uniform Commercial Code shall
have the same meanings as assigned to them by the Uniform Commercial Code unless
and to the extent varied by this Agreement. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and article, section, subsection, schedule and exhibit references are
references to articles, sections or subsections of, or schedules or exhibits to,
as the case may be, this Agreement unless otherwise specified. As used herein,
the singular number shall include the plural, the plural the singular and the
use of the masculine, feminine or neuter gender shall include all genders, as
the context may require. Reference to any one or more of the Financing Documents
shall mean the same as the foregoing may from time to time be amended, restated,
substituted, extended, renewed, supplemented or otherwise modified.
ARTICLE 2 THE CREDIT FACILITIES
Section 2.1 The Revolving Credit Facility.
2.1.1 Revolving Credit Facility.
Subject to and upon the provisions of this Agreement, the Formula
Lenders collectively, but severally, establish a revolving credit facility in
favor of the Borrower. The aggregate of all advances under the Revolving Credit
Facility are sometimes referred to in this Agreement collectively as the
"Revolving Loan."
Each Formula Lender's commitment to make advances under the Revolving
Credit Facility to the Borrower is set forth opposite each Formula Lender's name
on Schedule 2.1.1 and is herein called such Formula Lender's "Revolving Credit
Committed Amount." The total of the Formula Lenders' Revolving Credit Committed
Amounts is $39,000,000 and is herein called the "Total Revolving Credit
Committed Amount". The proportionate share of the Total Revolving Credit
Committed Amount set forth opposite each Formula Lender's name on the signature
page is herein called such Formula Lender's "Revolving Credit Pro Rata Share."
The obligation of each Formula Lender to make advances under the Revolving
Credit Facility is several and is limited to its Revolving Credit Committed
Amount, and such obligation of each Formula Lender is herein called its
"Revolving Credit Commitment" and the Revolving Credit Commitment of each of the
Formula Lenders is collectively referred to as the "Revolving Credit
Commitments."
Neither the Agent, the Term Loan B Lenders, nor any of the Formula Lenders
shall be responsible for the Revolving Credit Commitment of any other Formula
Lender, nor will the failure of any Formula Lender to perform its obligations
under its Revolving Credit Commitment in any way relieve any other Formula
Lender from performing its obligations under its Revolving Credit Commitment.
During the Revolving Credit Commitment Period, the Borrower may request
advances under the Revolving Credit Facility in accordance with the provisions
of this Agreement; provided that after giving effect to the Borrower's request,
the outstanding principal balance of each Formula Lender's Pro Rata Share of the
Revolving Loan and the Letter of Credit Obligations would not exceed an amount
equal to the lesser of (i) such Formula Lender's Revolving Credit Committed
Amount, (ii) such Formula Lender's Pro Rata Share of the then most current
Borrowing Base minus such Formula Lender's Pro Rata Share of the Reserve Amount
then in effect, or (iii) such Formula Lender's Pro Rata Share of the Indenture
Maximum Amount.
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<PAGE>
2.1.2 Procedure for Making Advances Under the Revolving Loan; Lender
Protection Loans.
The Borrower may borrow, pay, prepay and reborrow under the Revolving
Credit Facility on any Business Day. Advances under the Revolving Loan shall be
deposited to a demand deposit account of the Borrower with the Agent or shall be
otherwise applied as directed by the Borrower, which direction the Agent may
require to be in writing. Not later than 12:00 noon (Chicago, Illinois Time) on
the date of the requested borrowing, the Borrower shall give the Agent oral or
written notice (a "Loan Notice") of the amount and (if requested by the Agent)
the purpose of the requested borrowing. Any oral Loan Notice shall be confirmed
in writing by the Borrower within three (3) Business Days after the making of
the requested advance under the Revolving Loan. Each Loan Notice shall be
irrevocable. Subject to Section 2.8, upon receipt of such Loan Notice, the Agent
shall promptly notify each Formula Lender of the amount of each advance to be
made by such Formula Lender on the requested borrowing date under such Formula
Lender's Revolving Credit Commitment.
Subject to Section 2.8, not later than 2:00 p.m. (Chicago, Illinois Time)
on each requested borrowing date for the making of advances under the Revolving
Loan, each Formula Lender shall, if it has received timely notice from the Agent
of the Borrower's request for such advances, make available to the Agent, in
funds immediately available to the Agent at the Agent's office as specified by
the Agent from time to time, such Formula Lender's Revolving Credit Pro Rata
Share of the advances to be made on such date.
In addition, the Borrower hereby irrevocably authorizes the Formula Lenders
at any time without further request from or notice to the Borrower, to make
advances under the Revolving Loan which the Agent, in the Good Faith exercise of
its reasonable discretion, deems necessary or appropriate to protect the rights
and benefits of the Agent and/or any or all of the Lenders under this Agreement,
including, without limitation, advances under the Revolving Loan to cover debit
balances in the Revolving Loan Account, principal of, and/or interest on, any
Loan, the Obligations (including any Letter of Credit Obligations), and/or
Enforcement Costs, prior to, on, or after the termination of other advances
under this Agreement, regardless of whether the outstanding principal amount of
the Revolving Loan which the Formula Lenders may advance hereunder exceeds the
Total Revolving Credit Committed Amount.
2.1.3 Borrowing Base.
As used in this Agreement, the term "Borrowing Base" means at any
time, an amount equal to the aggregate of:
(a) eighty-five percent (85%) of the amount of Eligible Receivables,
plus
(b) the lesser of (i) Fifteen Million Dollars ($15,000,000) or (ii)
the sum of (y) sixty percent (60%) of the amount of Eligible Inventory
consisting of finished goods and raw materials other than Inserts, plus (z)
the lesser of (A) Six Hundred Fifty Thousand Dollars ($650,000) or (B)
forty percent (40%) of the amount of Eligible Inventory consisting of
Inserts, plus
(c) the lesser of (i) One Million Four Hundred Thousand Dollars
($1,400,000) or (ii) one hundred percent (100%) of the cash surrender value
of the Pledged Policies, as determined by the Agent, in its Good Faith
discretion, plus
(d) an amount equal to (i) during the period commencing on the Closing
Date and continuing through the earlier to occur of (A) April 1, 2000, and
(B) the date on which the cash deposited with the Hanjung Escrow Agent is
received by the Agent for the
34
<PAGE>
benefit of itself and the Lenders, the Hanjung Escrow Amount, and (ii) at
all times thereafter, Zero Dollars.
The Borrowing Base shall be computed based on the Borrowing Base Report
most recently delivered to the Agent in conformity with this Agreement. In the
event the Borrower fails to furnish a Borrowing Base Report required by Section
2.1.4 (Borrowing Base Report) below, or in the event the Agent determines, in
its reasonable discretion, that a Borrowing Base Report is no longer accurate,
the Agent may direct the Formula Lenders to suspend the making of or limit
advances under the Revolving Credit Facility. The Borrowing Base shall be
subject to reduction by amounts credited to the Collateral Account since the
date of the most recent Borrowing Base Report and by the amount of any
Receivable or any Inventory which was included in the Borrowing Base but which
the Agent determines, in its reasonable discretion, fails to meet the respective
criteria applicable from time to time for Eligible Receivables or Eligible
Inventory.
If at any time the total of the aggregate principal amount of the Revolving
Loan plus the Outstanding Letter of Credit Obligations exceeds an amount equal
to the least of (i) the Borrowing Base minus the Reserve Amount (if then in
effect), (ii) the Indenture Maximum Amount, or (iii) the Revolving Credit
Committed Amount, a borrowing base deficiency ("Borrowing Base Deficiency")
shall exist. Each time a Borrowing Base Deficiency exists, the Borrower, at the
sole and absolute discretion of the Agent or the Majority Lenders exercised from
time to time, shall pay the Borrowing Base Deficiency ON DEMAND to the Agent,
for the benefit of itself and the Formula Lenders.
Without implying any limitation on the Agent's discretion with respect to
the Borrowing Base, the criteria for Eligible Receivables and for Eligible
Inventory contained in the respective definitions of Eligible Receivables and of
Eligible Inventory are in part based upon the business operations of the
Borrower existing on or about the Closing Date and upon information and records
furnished to the Agent by the Borrower. If at any time or from time to time
hereafter, the business operations of the Borrower change or such information
and records furnished to the Agent are incorrect or misleading, the Agent in its
Good Faith discretion may at any time and from time to time during the duration
of this Agreement change such criteria or add new criteria. The Agent may
communicate such changed or additional criteria to the Borrower from time to
time either orally or in writing.
2.1.4 Borrowing Base Report.
The Borrower shall furnish to the Agent no less frequently than weekly
and at such other times as may be requested by the Agent a report of the
Borrowing Base (each a "Borrowing Base Report"; collectively, the "Borrowing
Base Reports") in the form attached hereto as Exhibit "A" and made a part
hereof, appropriately completed and duly signed. Each Borrowing Base Report
shall be as of a date that is not more than five (5) Business Days before the
delivery date of such Borrowing Base Report and shall contain the amount and
payments on the Receivables, the value of Inventory, and the calculations of the
Borrowing Base and the Indenture Maximum Amount, all in such detail, and
accompanied by such supporting and other information, as the Agent may from time
to time reasonably request. Upon the Agent's request and upon the creation of
any Receivables, or at such intervals as the Agent may require, the Borrower
shall provide the Agent with such further schedules, documents and/or
information regarding the Receivables and the Inventory as the Agent may
reasonably require. The items to be provided under this Section 2.1.4 shall be
in form satisfactory to the Agent, and certified as true and correct by a
Responsible Officer of the Borrower, and delivered to the Agent from time to
time solely for the Agent's convenience in maintaining records of the
Collateral. The Borrower's failure to deliver any of such items to the Agent
shall not affect, terminate, modify, or otherwise limit the Liens of the Lenders
or the Agent in the Collateral.
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2.1.5 Revolving Credit Notes.
The obligation of the Borrower to pay each Formula Lender's Revolving
Credit Pro Rata Share of the Revolving Loan, with interest, shall be evidenced
by a series of promissory notes executed by the Borrower (as from time to time
extended, amended, restated, supplemented, replaced or otherwise modified,
individually, the "Revolving Credit Note", and collectively, the "Revolving
Credit Notes") substantially in the form of Exhibit "B" attached hereto and made
a part hereof, with appropriate insertions. Each Formula Lender's Revolving
Credit Note shall be dated as of the Closing Date, shall be payable to the order
of such Formula Lender at the times provided in such Revolving Credit Note, and
shall be in the principal amount of such Formula Lender's Revolving Credit
Committed Amount. The Borrower acknowledges and agrees that, if the outstanding
principal balance of the Revolving Loan outstanding from time to time exceeds
the aggregate face amount of the Revolving Credit Notes, the excess shall bear
interest at the rates provided from time to time for advances under the
Revolving Loan evidenced by the Revolving Credit Notes and shall be payable,
with accrued interest, ON DEMAND. The Revolving Credit Notes shall not operate
as a novation of any of the Obligations or nullify, discharge, or release any
such Obligations or the continuing contractual relationship of the parties
hereto in accordance with the provisions of this Agreement.
2.1.6 Mandatory Prepayments of Revolving Loan.
The Borrower shall make the mandatory prepayments (each a "Revolving
Loan Mandatory Prepayment" and collectively, the "Revolving Loan Mandatory
Prepayments") of the Revolving Loan at any time and from time to time in such
amounts requested by the Agent or the Majority Lenders pursuant to Section 2.1.3
(Borrowing Base) of this Agreement in order to cover any Borrowing Base
Deficiency and in order to cover any deficiency under Section 2.1.12 (Required
Availability under the Revolving Credit Facility).
2.1.7 Optional Prepayments of Revolving Loan.
The Borrower shall have the option at any time and from time to time
to prepay (each a "Revolving Loan Optional Prepayment" and collectively the
"Revolving Loan Optional Prepayments") the Revolving Loan, in whole or in part
without premium or penalty (other than any amounts due in respect thereof under
Section 2.1.11 and Section 2.6.4 hereof).
2.1.8 The Collateral Account.
The Borrower shall deposit, or cause to be deposited, all Items of
Payment to a bank account designated by the Agent and from which the Agent alone
has power of access and withdrawal (the "Collateral Account"). Each deposit
shall be made not later than the next Business Day after the date of receipt of
the Items of Payment. The Items of Payment shall be deposited in precisely the
form received, except for the endorsements of the Borrower where necessary to
permit the collection of any such Items of Payment, which endorsement the
Borrower hereby agrees to make. In the event the Borrower fails to do so, the
Borrower hereby authorizes the Agent to make the endorsement in the name of the
Borrower. Prior to such a deposit, the Borrower shall not commingle any Items
of Payment with the Borrower's other funds or property, but will hold them
separate and apart in trust and for the account of the Agent for the ratable
benefit of the Formula Lenders and the Agent.
In addition, the Borrower shall direct the mailing of all Items of Payment
from its Account Debtors that customarily mail Items of Payment to one or more
post-office boxes designated by the Agent, or to such other additional or
replacement post-office boxes pursuant to the request of the Agent from time to
time (collectively, the "Lockbox"). The Agent shall have unrestricted and
exclusive access to the Lockbox. If and to the extent any Account Debtors of
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the Borrower customarily send Items of Payment by wire transfer, the Borrower
will instruct such Account Debtors to direct such wire transfers to the
Collateral Account.
The Borrower hereby authorizes the Agent to inspect all Items of Payment,
endorse all Items of Payment in the name of the Borrower, and deposit such Items
of Payment in the Collateral Account. The Agent reserves the right, to provide
to the Collateral Account credit prior to final collection of an Item of Payment
and to disallow credit for any Item of Payment which to the Agent determines is
not collectible. In the event Items of Payment are returned to the Agent for
any reason whatsoever, the Agent may forward such Items of Payment a second
time. Any returned Items of Payment shall be charged back to the Collateral
Account, the Revolving Loan Account, or other account, as appropriate.
Except after the occurrence and during the continuance of an Event of
Default, as of the Business Day of receipt by the Agent, the Agent will apply
the whole or any part of the collected funds credited to the Collateral Account
first against the Revolving Loan and thereafter against any of the Obligations
then due, the order and method of such application to be in the sole discretion
of the Agent. Following the occurrence and during the continuance of an Event
of Default, as of the Business Day of receipt by the Agent, the Agent may apply
the whole or any part of the collected funds credited to the Collateral Account
against any of the Obligations (whether or not then due) in such order and
manner as shall be determined by the Agent in its sole discretion. In
consideration for the Agent's agreement to credit the Collateral Account as of
the Business Day on which the Agent receives Items of Payment and to reimburse
the Agent for the cost of delays in the collection and clearance of computing
interest on the Obligations, all Items of Payment shall be deemed received by
the Agent one (1) Business Day after the Agent's actual receipt thereof, which
amount the Agent may calculate on an average monthly basis. Any resulting
increase in the amount of interest payable by the Borrower shall be a part of
the Obligations owing to the Agent, shall be for the sole and exclusive benefit
of the Agent and shall not be shared with or payable to any of the Lenders.
2.1.9 Revolving Loan Account.
The Agent will establish and maintain a loan account on its books (the
"Revolving Loan Account") to which the Agent will (a) debit (i) the principal
amount of each advance under the Revolving Loan made by the Formula Lenders
hereunder as of the date made, (ii) the amount of any interest accrued on the
Revolving Loan as and when due, and (iii) any other amounts due and payable by
the Borrower to the Agent and/or Lenders from time to time under the provisions
of this Agreement in connection with the Revolving Loan and the other
Obligations, including, without limitation, Enforcement Costs, Fees, late
charges, and service, collection and audit fees and (b) credit all payments made
by the Borrower to the Agent on account of the Revolving Loan, subject to
Section 2.1.8, as of the date made including, without limitation, subject to
Section 2.1.8, funds credited to the Revolving Loan Account from the Collateral
Account. The Agent may debit the Revolving Loan Account for the amount of any
Item of Payment which is returned to the Agent unpaid. All credit entries to
the Revolving Loan Account are conditional and shall be readjusted as of the
date made if final and indefeasible payment is not received by the Agent in cash
or solvent credits. The Borrower hereby promises to pay to the order of the
Agent for the benefit of the Lenders, on the Revolving Credit Termination Date,
an amount equal to the excess, if any, of all debit entries over all credit
entries recorded in the Revolving Loan Accounts under the provisions of this
Agreement. Any and all periodic or other statements or reconciliations, and the
information contained in those statements or reconciliations, of the Revolving
Loan Account shall be final, binding and conclusive upon the Borrower in all
respects, absent manifest error, and shall constitute an account stated between
the Agent, the Lenders and the Borrower unless the Agent receives specific
written objection thereto from the Borrower and/or any Lender within thirty (30)
days after such statement or reconciliation shall have been sent by the Agent.
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2.1.10 Revolving Credit Unused Line Fee.
The Borrower shall pay to the Agent for the ratable benefit of the
Formula Lenders a monthly revolving credit facility fee (collectively, the
"Revolving Credit Unused Line Fees" and individually, a "Revolving Credit Unused
Line Fee") in an amount equal to one-half of one percent (0.5%) per annum of an
amount equal to (a) the average daily unused and undisbursed portion of the
Total Revolving Credit Committed Amount less (b) the average aggregate face
amount of all Letters of Credit outstanding during the period in question in
effect from time to time accruing during each calendar month, calculated in
arrears. The accrued and unpaid portion of the Revolving Credit Unused Line Fee
shall be paid by the Borrower to the Agent on the first day of each month,
commencing on the first such date following the date hereof, and on the
Revolving Credit Termination Date.
2.1.11 Early Termination Fee.
In the event of the termination by, or on behalf of, the Borrower, of
the Commitments (other than a termination of the Commitments in connection with
or as a result of the acceleration of the Obligations under Section 7.2,
(Remedies) unless such acceleration arises from or in connection with a bad
faith failure by the Borrower to act in accordance with its Obligations under
this Agreement or the other Financing Documents), or in the event of the payment
in full of the aggregate outstanding principal amount of the Loans, in each case
on or prior to the second anniversary of the Closing Date, the Borrower shall
pay to the Agent for the ratable benefit of the Lenders a fee (the "Early
Termination Fee") in the amount of (a) two percent (2.0%) of the aggregate
Committed Amounts of all Lenders if such termination occurs on or prior to the
first anniversary of the Closing Date, and (b) one percent (1.0%) of the
aggregate Committed Amounts of all Lenders if such termination occurs during the
period after the first anniversary of the Closing Date, but on or prior to the
second anniversary of the Closing Date. Payment of the Loans in whole or in
part by or on behalf of the Borrower, by court order or otherwise, following and
as a result of the institution of any bankruptcy proceeding by or against the
Borrower, shall be deemed to be a prepayment of the Loans subject to the Early
Termination Fee provided in this subsection.
2.1.12 Required Availability under the Revolving Credit Facility.
(a) On the Closing Date and at all times thereafter, the aggregate
outstanding principal amount of the Revolving Loan and the current stated
amounts of the Letters of Credit shall not exceed an amount equal to the least
of (A) the Borrowing Base minus the Reserve Amount, (B) the Indenture Maximum
Amount, or (C) the Total Revolving Credit Committed Amount, such amount to be
determined after application of the Permitted Uses of the Revolving Loan
required to be made on the Closing Date, the amount of the costs relating to the
closing of this Agreement (including, without limitation, applicable Fees,
recording costs, recording taxes, and the fees and expenses of the Borrower's
and the Agent's and each Lender's professionals).
(b) The Borrower shall make a Revolving Loan Mandatory Prepayment
pursuant to the provisions of Section 2.1.6 to the extent necessary to achieve
compliance with this Section.
2.1.13 Right of Agent to Demand Payment and Terminate Revolving Credit
Facility.
Notwithstanding any other provision of this Agreement, the Revolving
Credit Notes or any of the other Financing Documents, following and during the
continuance of an Event of Default, the Agent, on behalf of the Formula Lenders,
may at any time, in its sole and
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absolute discretion, and shall at the direction of the Requisite Lenders, demand
payment of the Revolving Loan in whole or in part and/or terminate, suspend or
limit the Revolving Credit Commitments. Upon termination of the Revolving Credit
Facility, the outstanding principal balance under the Revolving Loan, and any
accrued and unpaid interest thereon, shall be immediately due and payable, and
the Formula Lenders shall not make any further advances under the Revolving
Loan, unless all Formula Lenders elect to do so in the exercise of their sole
and absolute discretion.
Section 2.2 The Letter of Credit Facility.
2.2.1 Letters of Credit.
Subject to the terms and conditions of this Agreement, and in reliance
upon the representations and warranties of the Borrower herein set forth, the
Agent agrees (i) to issue or take reasonable steps to cause to be issued for the
account of the Borrower one or more commercial/documentary and standby letters
of credit (as the same may from time to time be amended, supplemented or
otherwise modified, each a "Letter of Credit" and collectively, the "Letters of
Credit") and (ii) to provide credit support or other enhancement to banks
acceptable to Agent, which issue Letters of Credit for the account of the
Borrower (any such credit support or enhancement being herein referred to as a
"Credit Support") in accordance with this Section 2.2 from time to time from the
Closing Date until the Business Day preceding the Revolving Credit Termination
Date. The Borrower will not be entitled to obtain a Letter of Credit unless (a)
the Borrower is then able to obtain a Revolving Loan from the Formula Lenders in
an amount not less than the proposed face amount of the Letter of Credit
requested by the Borrower, and (b) the sum of the then Outstanding Letter of
Credit Obligations (including the amount of the requested Letter of Credit) does
not exceed Ten Million Dollars ($10,000,000).
2.2.2 Terms of Letters of Credit.
The Agent shall not have any obligation to take steps to cause to be
issued any Letter of Credit or to provide Credit Support for any Letter of
Credit at any time if such Letter of Credit has an expiration date later than
thirty (30) days prior to the Revolving Credit Expiration Date or more than
twelve (12) months from the date of issuance. In addition to being subject to
the satisfaction of the applicable conditions precedent contained in ARTICLE 5
hereof, the obligation of the Agent to take reasonable steps to cause to be
issued any Letter of Credit or to provide Credit Support for any Letter of
Credit is subject to the following conditions precedent having been satisfied in
a manner satisfactory to the Agent:
(a) The Borrower shall have delivered to the proposed issuer of such
Letter of Credit, at such times and in such manner as such proposed issuer may
prescribe, an application in form and substance satisfactory to such proposed
issuer and the Agent for the issuance of the Letter of Credit and such other
documents as may be required pursuant to the terms thereof, and the form and
terms of the proposed Letter of Credit shall be satisfactory to the Agent and
such proposed issuer; and
(b) As of the date of issuance, no order of any court, arbitrator or
Governmental Authority shall purport by its terms to enjoin or restrain money
center banks generally from issuing letters of credit of the type and in the
amount of the proposed Letter of Credit, and no law, rule or regulation
applicable to money center banks generally and no request or directive (whether
or not having the force of law) from any Governmental Authority with
jurisdiction over money center banks generally shall prohibit, or request that
the proposed issuer of such Letter of Credit refrain from, the issuance of
letters of credit generally or the issuance of such Letters of Credit.
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The aggregate face amount of all Letters of Credit at any one time outstanding
and issued pursuant to the provisions of this Agreement, plus the amount of any
unpaid Letter of Credit Fees, unpaid Letter of Credit Fronting Fees and unpaid
issuer fees and charges accrued or scheduled to accrue thereon, and less the
aggregate amount of all drafts issued under or purporting to have been issued
under such Letters of Credit that have been paid by the Agent and for which the
Agent has been reimbursed by the Borrower in full in accordance with Section
2.2.4 (Payments of Letters of Credit) and the Letter of Credit Agreements, and
for which the Agent has no further obligation or commitment to restore all or
any portion of the amounts drawn and reimbursed, is herein called the
"Outstanding Letter of Credit Obligations".
2.2.3 Procedures for Letters of Credit.
(a) The Borrower shall give the Agent five (5) Business Days' prior
written notice of the Borrower's request for the issuance of a Letter of Credit.
Such notice shall be irrevocable and shall specify the original face amount of
the Letter of Credit requested, the effective date (which date shall be a
Business Day) of issuance of such requested Letter of Credit, whether such
Letter of Credit may be drawn in a single or in partial draws, the date on which
such requested Letter of Credit is to expire (which date shall be a Business
Day), the purpose for which such Letter of Credit is to be issued, and the
beneficiary of the requested Letter of Credit. The Borrower shall attach to such
notice the proposed form of the Letter of Credit.
(b) The Agent shall determine, as of the Business Day immediately
preceding the requested effective date of issuance of the Letter of Credit set
forth in the notice from the Borrower pursuant to Section 2.2.3(a) hereof,
whether the conditions set forth in the last sentence of Section 2.2.1 hereof
shall be satisfied. If such conditions shall be satisfied, the Agent shall issue
or take reasonable steps to cause to be issued the requested Letter of Credit on
such requested effective date of issuance.
(c) On each Settlement Date the Agent shall give notice to each
Formula Lender of the issuance of all Letters of Credit issued since the last
Settlement Date.
(d) The Agent shall not be obligated to cause any Letter of Credit to
be extended or amended unless the requirements of this Section 2.2.3 are met as
though a new Letter of Credit were being requested and issued. With respect to
any Letter of Credit which contains any "evergreen" or automatic renewal
provision, each Formula Lender shall be deemed to have consented to any such
extension or renewal unless any such Formula Lender shall have provided to the
Agent, not less than thirty (30) days prior to the last date on which the
applicable issuer can in accordance with the terms of the applicable Letter of
Credit decline to extend or renew such Letter of Credit, written notice that it
declines to consent to any such extension or renewal, provided, that if all of
the requirements of this Section 2.2 are met and no Default or Event of Default
exists, no Formula Lender shall decline to consent to any such extension or
renewal.
2.2.4 Payments of Letters of Credit.
(a) The Borrower agrees to reimburse the issuer for any draw under
any Letter of Credit and the Agent for the account of the Formula Lenders upon
any payment pursuant to any Credit Support immediately upon demand, and to pay
the issuer of the Letter of Credit the amount of all other obligations and other
amounts payable to such issuer under or in connection with any Letter of Credit
immediately when due, irrespective of any claim, setoff, defense or other right
which the Borrower may have at any time against such issuer or any other Person
(all of the foregoing being collectively referred to herein as the "Current
Letter of Credit Obligations").
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(b) In the event that the issuer of any Letter of Credit honors a
draw under such Letter of Credit or the Agent shall have made any payment
pursuant to any Credit Support and the Borrower shall not have repaid such
amount to the issuer of such Letter of Credit or the Agent, as applicable,
pursuant to Section 2.2.4(a), the Agent shall, upon receiving notice of such
failure, notify each Formula Lender of such failure, and each Formula Lender
shall unconditionally pay to the Agent, for the account of such issuer or the
Agent, as applicable, as and when provided hereinbelow, an amount equal to such
Formula Lender's Revolving Credit Pro Rata Share of the amount of such payment
in Dollars and in same day funds. If the Agent so notifies the Formula Lenders
prior to 12:00 noon (Chicago, Illinois Time) on any Business Day, each Formula
Lender shall make available to the Agent the amount of such payment, as provided
in the immediately preceding sentence, by 2:00 p.m. (Chicago, Illinois Time) on
such Business Day. Such amounts paid by the Formula Lenders to the Agent shall
constitute Borrowings under the Revolving Credit Facility which shall be deemed
to have been requested by the Borrower pursuant to Section 2.1 hereof.
The Letter of Credit Obligations shall continue to be effective, or be
reinstated, as the case may be, if at any time payment of all or any portion of
the Letter of Credit Obligations is rescinded or must otherwise be restored or
returned by the Agent or any of the Formula Lenders upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of any Person, or upon or
as a result of the appointment of a receiver, intervenor, or conservator of, or
trustee or similar officer for, any Person, or any substantial part of such
Person's property, all as though such payments had not been made.
2.2.5 Participations.
(a) Immediately upon issuance of any Letter of Credit in accordance
with Section 2.2.3, each Formula Lender shall be deemed to have irrevocably and
unconditionally purchased and received without recourse or warranty, an
undivided interest and participation in the Letter of Credit or the Credit
Support provided through the Agent to such issuer in connection with the
issuance of such Letter of Credit, equal to such Formula Lender's Revolving
Credit Pro Rata Share of the face amount of such Letter of Credit or the amount
of such Credit Support (including, without limitation, all obligations of the
Borrower with respect thereto, and any security therefor or guaranty pertaining
thereto).
(b) Whenever the Agent receives a payment from the Borrower on
account of reimbursement obligations in respect of a Letter of Credit or Credit
Support as to which the Agent has previously received for the account of the
issuer thereof payment from a Formula Lender pursuant to Section 2.2.4(b), the
Agent shall promptly pay to such Formula Lender such Formula Lender's Revolving
Credit Pro Rata Share of such payment from the Borrower in Dollars. Each such
payment shall be made by the Agent on the Business Day on which the Agent
receives immediately available funds paid to such Person pursuant to the
immediately preceding sentence, if received prior to 12:00 noon (Chicago,
Illinois Time) on such Business Day and otherwise on the next succeeding
Business Day.
(c) Upon the request of any Formula Lender, the Agent shall furnish
to such Formula Lender copies of any Letter of Credit, reimbursement agreements
executed in connection therewith, application for any Letter of Credit and
Credit Support or enhancement provided through the Agent in connection with the
issuance of any Letter of Credit, and such other documentation as may reasonably
be requested by such Formula Lender.
(d) The obligations of each Formula Lender to make payments to the
Agent with respect to any Letter of Credit or with respect to any Credit Support
provided through the Agent with respect to a letter of credit, and the
obligations of the Borrower to make payments to the Agent, for the account of
the Formula Lenders, shall be irrevocable, not subject to any
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qualification or exception whatsoever, including, without limitation, any of the
following circumstances:
(i) any lack of validity or enforceability of this Agreement or any
of the other Financing Documents;
(ii) the existence of any claim, setoff, defense or other right which
the Borrower may have at any time against a beneficiary named in a Letter
of Credit or any transferee of any Letter of Credit or letter of credit for
which Credit Support has been provided (or any Person for whom any such
transferee may be acting), any Formula Lender, the Agent, the issuer of
such Letter of Credit, or any other Person, whether in connection with this
Agreement, any Letter of Credit, the transactions contemplated herein or
any unrelated transactions (including any underlying transactions between
the Borrower or any other Person and the beneficiary named in any Letter of
Credit);
(iii) any draft, certificate or any other document presented under
the Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Financing Documents; or
(v) the occurrence of any Default or Event of Default.
2.2.6 Recovery or Avoidance of Payments.
In the event any payment by or on behalf of the Borrower received by
the Agent with respect to any Letter of Credit or Credit Support provided for
any letter of credit (or any guaranty by the Borrower or reimbursement
obligation of the Borrower relating thereto) and distributed by the Agent to the
Formula Lenders on account of their respective participations therein is
thereafter set aside, avoided or recovered from the Agent in connection with any
receivership, liquidation or bankruptcy proceeding, the Formula Lenders shall,
upon demand by the Agent, pay to the Agent their respective Pro Rata Shares of
such amount set aside, avoided or recovered, together with interest at the rate
required to be paid by the Agent upon the amount required to be repaid by it.
2.2.7 Compensation for Letters of Credit.
(a) The Borrower agrees to pay to the Agent with respect to each
Letter of Credit, for the ratable account of the Formula Lenders, a fee (the
"Letter of Credit Fee" and collectively the "Letter of Credit Fees") equal to
two percent (2.0%) per annum of the undrawn face amount of each Letter of Credit
issued for the Borrower's account at the Borrower's request, plus all out-of-
pocket costs, fees and expenses incurred by the Agent in connection with the
application for, issuance of, or amendment to any Letter of Credit; the Letter
of Credit Fee shall be payable monthly in arrears on the first day of each month
following any month in which a Letter of Credit was issued and/or in which a
Letter of Credit remains outstanding. The Letter of Credit Fee shall be computed
on the basis of a 360-day year for the actual number of days elapsed.
(b) In addition to the Letter of Credit Fees, with respect to each
Letter of Credit, the Borrower shall pay to the Agent, for the account of the
issuer of any Letter of Credit, an issuance fee of one-half of one percent
(0.5%) per annum of the stated amount of such Letter of Credit (the "Letter of
Credit Fronting Fee" and, collectively, the "Letter of Credit
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Fronting Fees"), together with such fees and other charges as are charged by the
Agent for letters of credit issued by it, including, without limitation, its
standard fees for issuing, administering, amending, renewing, paying and
canceling letters of credit and all other fees associated with issuing or
servicing letters of credit, as and when assessed. The Letter of Credit Fronting
Fee shall be payable monthly in arrears on the first day of each month following
any month in which a Letter of Credit was issued and/or in which a Letter of
Credit remains outstanding. The Letter of Credit Fronting Fee shall be computed
on the basis of a 360-day year for the actual number of days elapsed.
2.2.8 Indemnification; Exoneration; Power of Attorney.
(a) In addition to amounts payable as elsewhere provided in this
Section 2.2 the Borrower hereby agrees to protect, indemnify, pay and save the
Formula Lenders and the Agent harmless from and against any and all claims,
demands, liabilities, damages, losses, costs, charges and expenses (including
reasonable attorneys' fees) which any Formula Lender or the Agent may incur or
be subject to as a consequence, direct or indirect, of the issuance of any
Letter of Credit or the provision of any Credit Support or enhancement in
connection therewith. The agreement in this Section 2.2.8(a) shall survive
payment of all Obligations.
(b) As among the Borrower, the Formula Lenders, and the Agent, the
Borrower assumes all risks of the acts and omissions of, or misuse of any of the
Letters of Credit by, the respective beneficiaries of such Letters of Credit. In
furtherance and not in limitation of the foregoing, the Formula Lenders and the
Agent shall not be responsible for: (A) the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted by any Person in
connection with the application for and issuance of and presentation of drafts
with respect to any of the Letters of Credit or Credit Support, even if it
should prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (B) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any Letter of
Credit or letter of credit for which Credit Support has been provided or the
rights or benefits thereunder or proceeds thereof, in whole or in part, which
may prove to be invalid or ineffective for any reason; (C) the failure of the
beneficiary of any Letter of Credit or letter of credit for which Credit Support
has been provided to comply duly with conditions required in order to draw upon
such Letter of Credit or letter of credit for which Credit Support has been
provided; (D) errors, omissions, interruptions, or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether
or not they be in cipher; (E) errors in interpretation of technical terms; (F)
any loss or delay in the transmission or otherwise of any document required in
order make a drawing under any Letter of Credit or letter of credit for which
Credit Support has been provided or of the proceeds thereof; (G) the
misapplication by the beneficiary of any Letter of Credit or letter of credit
for which Credit Support has been provided of the proceeds of any drawing under
such Letter of Credit or letter of credit for which Credit Support has been
provided; or (H) any consequences arising from causes beyond the control of the
Formula Lenders or the Agent, including, without limitation, any act or
omission, whether rightful or wrongful, of any present or future de jure or de
facto Governmental Authority, unless any of the foregoing arises out of the
gross negligence or willful misconduct of the Agent or any Formula Lender as
determined by courts of competent jurisdiction after exhaustion of all appeals.
None of the foregoing shall affect, impair or prevent the vesting of any rights
or powers of the Agent or any Formula Lender under this Section 2.2.8.
(c) In furtherance and extension, and not in limitation, of the
specific provisions set forth above, any action taken or omitted by the Agent or
any Formula Lender under or in connection with any of the Letters of Credit or
any related certificates, if taken or omitted in the absence of gross negligence
or willful misconduct as determined by courts of competent jurisdiction after
exhaustion of all appeals, shall not put the Agent or any Lender
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under any resulting liability to the Borrower or relieve the Borrower of any of
its obligations hereunder to any such Person.
(d) In connection with all Inventory financed by Letters of Credit,
the Borrower hereby appoints the Agent, or the Agent's designee, as its
attorney, with full power and authority: (a) to sign and/or endorse the
Borrower's name upon any warehouse or other receipts; (b) to sign the Borrower's
name on bills of lading and other negotiable and non-negotiable documents; (c)
to clear Inventory through customs in the Agent's or the Borrower's name, and to
sign and deliver to customs officials powers of attorney in the Borrower's name
for such purpose; (d) to complete in the Borrower's or the Agent's name, any
order, sale, or transaction, obtain the necessary documents in connection
therewith, and collect the proceeds thereof; and (e) to do such other acts and
things as are necessary in order to enable the Agent to obtain possession of the
Inventory and to obtain payment of the Obligations. Neither the Agent nor its
designee, as the Borrower's attorney, will be liable for any acts or omissions,
nor for any error of judgment or mistakes of fact or law. This power, being
coupled with an interest, is irrevocable until all Obligations have been paid
and satisfied.
(e) The Borrower hereby authorizes and directs any issuer of a Letter
of Credit to name the Borrower as the "Account Party" therein and to deliver to
the Agent all instruments, documents and other writings and property received by
the issuer pursuant to the Letter of Credit, and to accept and rely upon the
Agent's instructions and agreements with respect to all matters arising in
connection with the Letter of Credit or the application therefor.
(f) In connection with all Inventory financed by Letters of Credit,
the Borrower will, at the Agent's request, instruct all suppliers, carriers,
forwarders, warehouses or others receiving or holding cash, checks, Inventory,
documents or instruments in which the Agent holds a security interest to deliver
them to the Agent and/or subject to the Agent's order, and if they shall come
into the Borrower's possession, to deliver them, upon request, to the Agent in
their original form. The Borrower shall also, at the Agent's request, designate
the Agent as the consignee on all bills of lading and other negotiable and non-
negotiable documents.
2.2.9 Supporting Letter of Credit; Cash Collateral.
If, notwithstanding the provisions of Section 2.2.2 and Article VII,
any Letter of Credit is outstanding upon the termination of this Agreement, then
upon such termination the Borrower shall deposit with the Agent, for the ratable
benefit of the Agent and the Formula Lenders, with respect to each Letter of
Credit then outstanding, as the Agent, in its discretion shall specify, either
(A) a standby letter of credit (a "Supporting Letter of Credit") in form and
substance satisfactory to the Agent, issued by an issuer satisfactory to the
Agent in an amount equal to the greatest amount for which such Letter of Credit
may be drawn plus any fees and expenses associated with such Letter of Credit,
under which Supporting Letter of Credit the Agent is entitled to draw amounts
necessary to reimburse the Agent and the Formula Lenders for payments made by
the Agent and the Formula Lenders under such Letter of Credit or under any
credit support or enhancement provided through the Agent with respect thereto
and any fees and expenses associated with such Letter of Credit, or (B) cash in
amounts necessary to reimburse the Agent and the Formula Lenders for payments
made by the Agent or the Formula Lenders under such Letter of Credit or under
any credit support or enhancement provided through the Agent with respect
thereto and any fees and expenses associated with such Letter of Credit. The
Agent shall deposit such cash into one or more non-interest bearing accounts
with and in the name of the Agent and over which Agent alone shall have
exclusive power of access and withdrawal (collectively, the "Letter of Credit
Cash Collateral Account"). Such Supporting Letter of Credit or deposit of cash
shall be held by the Agent, for the ratable benefit of the Agent and the Formula
Lenders, as security for, and to provide for the payment of, the aggregate
undrawn amount of such Letters of Credit remaining outstanding. The Borrower
hereby assigns,
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pledges, grants and sets over to the Agent for the benefit of the Lenders, a
first priority security interest in, and Lien on, all of such cash on deposit in
the Letter of Credit Cash Collateral Account and/or Supporting Letter of Credit,
together with any and all proceeds (cash and non-cash) and products thereof as
additional security for the Obligations.
2.2.10 Change in Law; Increased Cost.
If after the Closing Date any change in any law or regulation or in
the interpretation thereof by any court or other Governmental Authority charged
with the administration thereof shall either (a) impose, modify or deem
applicable any reserve, special deposit or similar requirement against Letters
of Credit issued hereunder, or (b) impose on the Agent or any of the Lenders any
other condition regarding this Agreement or any Letter of Credit, and the result
of any event referred to in clauses (a) or (b) above shall be to increase the
cost to the Agent of issuing, maintaining or extending the Letter of Credit or
the cost to any of the Formula Lenders of funding any obligation under or in
connection with the Letter of Credit, then, upon demand by the Agent, the
Borrower shall promptly pay to the Agent from time to time as specified by the
Agent, additional amounts which shall be sufficient to compensate the Agent and
the Formula Lenders for such increased cost, together with interest on each such
amount from the date demanded until payment in full thereof at a rate per annum
equal to the then highest current rate of interest on the Revolving Loan. A
certificate as to such increased cost incurred by the Agent and/or any of the
Formula Lenders, setting forth, at the Borrower's request, in reasonable detail
the calculation of such costs, submitted by the Agent to the Borrower, shall be
conclusive, absent manifest error.
Section 2.3 The Term Loan A Facility.
2.3.1 Term Loan A Commitments.
Subject to and upon the provisions of this Agreement, each Formula
Lender severally agrees to make a term loan (each a "Term Loan A") to the
Borrower on the Closing Date in the principal amount set forth opposite such
Formula Lender's name on the signature page (herein called such Formula Lender's
"Term Loan A Committed Amount"). The total of each Formula Lender's Term Loan A
Committed Amount is herein called the "Total Term Loan A Committed Amount",
which amount is Twenty-Five Million Eight Hundred Thousand Dollars
($25,800,000).
The obligation of each Formula Lender to make a Term Loan A is several
and is limited to its Term Loan A Committed Amount and such obligation of each
Formula Lender is herein called its "Term Loan A Commitment." The Term Loan A
Commitment of each of the Formula Lenders is collectively referred to as the
"Term Loan A Commitments".
Neither the Agent nor any Term Loan B Lender shall be responsible for
the Term Loan A Commitment of any Formula Lender; and similarly, none of the
Formula Lenders shall be responsible for the Term Loan A Commitment of any of
the other Formula Lenders; the failure, however, of any Formula Lender to
perform its Term Loan A Commitment shall not relieve any of the other Formula
Lenders from the performance of their respective Term Loan A Commitments.
2.3.2 The Term Loan A Notes.
The obligation of the Borrower to pay each Term Loan A with interest
shall be evidenced by a series of promissory notes (each as from time to time
extended, amended, restated, supplemented or otherwise modified, the "Term Loan
A Note" and collectively, the "Term Loan A Notes") substantially in the form of
Exhibit "C-1" attached hereto and made a
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part hereof with appropriate insertions. Each Term Loan A Note shall be dated as
of the Closing Date, shall be payable to the order of a Formula Lender at the
times provided in the Term Loan A Note, and shall be in the principal amounts of
such Formula Lender's Term Loan A Committed Amount, as applicable in accordance
with the provisions of Section 2.3.1 (Term Loan A Commitments).
2.3.3 Scheduled Payments of Term Loan A
(a) The Borrower shall make installment payments of principal of each
Term Loan A equal to the Term Loan A Installment Payment Amount on each Term
Loan A Installment Payment Date.
(b) If not sooner paid, the entire unpaid principal balance of any
Term Loan A shall be due and payable in full on Term Loan A Maturity Date.
2.3.4 Optional Prepayments of Term Loan A.
The Borrower may, without penalty or premium (other than any amounts
due in respect thereof under Sections 2.6.4 or 2.1.11 hereof) and at their
option, at any time and from time to time, prepay (each a "Term Loan A Optional
Prepayment" and collectively the "Term Loan A Optional Prepayments") each Term
Loan A, in whole or in part, upon two (2) Business Days prior written notice,
specifying the date and amount of prepayment. The amount to be so prepaid,
together with interest accrued thereon to date of prepayment if the amount is
intended as a prepayment of the Term Loans A in whole, shall be paid by the
Borrower to the Agent for the ratable benefit of the Formula Lenders on the date
specified for such prepayment. Partial Term Loan A Optional Prepayments shall
be in an amount not less $100,000 and shall be applied first to all accrued and
unpaid interest on the principal of the Term Loan A Notes, then against
principal under the Term Loan A Notes, in the inverse order of maturity.
2.3.5 Mandatory Prepayments of Term Loan A.
From and after the date that Term Loan B is paid in full, but only
until the date of an Amortization Reduction Event, the Borrower shall make
mandatory prepayments (each a "Term Loan A Mandatory Prepayment" and
collectively, the "Term Loan A Mandatory Prepayments") of the Term Loan A to the
Agent for the Formula Lenders in accordance with their respective Pro Rata
Shares annually in an amount equal to twenty-five percent (25%) of the
Borrower's Excess Cash Flow for such fiscal year, which shall be payable (with
respect to each such fiscal year) on April 1 of each year (or, if earlier, ten
(10) days after the date on which Borrower delivers the financial statements
required to be delivered under Section 6.1.1(a)) immediately following the
annual period of determination; provided that the Term Loan A Mandatory
Prepayment shall be applied to the Term Loan A in inverse order of maturity.
Section 2.4 The Term Loan B Facility.
2.4.1 Term Loan B Commitments.
Subject to and upon the provisions of this Agreement, each Term Loan B
Lender severally agrees to make a term loan (each a "Term Loan B") to the
Borrower on the Closing Date in the principal amount set forth opposite such
Term Loan B Lender's name on the signature page (herein called such Term Loan B
Lender's "Term Loan B Committed Amount"). The total of each Term Loan B
Lender's Term Loan B Committed Amount is herein called the "Total Term Loan B
Committed Amount", which amount is Five Million Dollars ($5,000,000).
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The obligation of each Term Loan B Lender to make a Term Loan B is
several and is limited to its Term Loan B Committed Amount and such obligation
of each Term Loan B Lender is herein called its "Term Loan B Commitment." The
Term Loan B Commitment of each of the Term Loan B Lenders is collectively
referred to as the "Term Loan B Commitments".
Neither the Agent nor any Formula Lender shall be responsible for the
Term Loan B Commitment of any Term Loan B Lender; and similarly, none of the
Term Loan B Lenders shall be responsible for the Term Loan B Commitment of any
of the other Term Loan B Lenders; the failure, however, of any Term Loan B
Lender to perform its Term Loan B Commitment shall not relieve any of the other
Lenders from the performance of their respective Commitments.
2.4.2 The Term Loan B Notes.
The obligation of the Borrower to pay each Term Loan B with interest
shall be evidenced by a series of promissory notes (each as from time to time
extended, amended, restated, supplemented or otherwise modified, the "Term Loan
B Note" and collectively, the "Term Loan B Notes") substantially in the form of
Exhibit "C-1" attached hereto and made a part hereof with appropriate
insertions. Each Term Loan B Note shall be dated as of the Closing Date, shall
be payable to the order of a Term Loan B Lender at the times provided in the
Term Loan B Note, and shall be in the principal amounts of such Term Loan B
Lender's Term Loan B Committed Amount, as applicable in accordance with the
provisions of Section 2.4.1 (Term Loan B Commitments).
2.4.3 Scheduled Payments of Term Loan B.
(a) The Borrower shall make installment payments of principal of each
Term Loan B equal to the Term Loan B Installment Payment Amount on each Term
Loan B Installment Payment Date.
(b) If not sooner paid, the entire unpaid principal balance of any
Term Loan B shall be due and payable in full on Term Loan B Maturity Date.
2.4.4 Optional Prepayments of Term Loan B.
The Borrower may, without penalty or premium (other than any amounts
due in respect thereof under Sections 2.6.4 or 2.1.11 hereof) and at their
option, at any time and from time to time, prepay (each a "Term Loan B Optional
Prepayment" and collectively the "Term Loan B Optional Prepayments") each Term
Loan B, in whole or in part, upon two (2) Business Days prior written notice,
specifying the date and amount of prepayment. The amount to be so prepaid,
together with interest accrued thereon to date of prepayment if the amount is
intended as a prepayment of the Term Loan B in whole, shall be paid by the
Borrower to the Agent for the ratable benefit of the Term Loan B Lenders on the
date specified for such prepayment. Partial Term Loan B Optional Prepayments
shall be in an amount not less $50,000 and shall be applied first to all accrued
and unpaid interest on the principal of the Term Loan B Notes, then against
principal under the Term Loan B Notes, in the inverse order of maturity.
2.4.5 Mandatory Prepayments of Term Loan B.
The Borrower shall make mandatory prepayments (each a "Term Loan B
Mandatory Prepayment" and collectively, the "Term Loan B Mandatory Prepayments")
of the Term Loan B to the Agent for the Term Loan B Lenders in accordance with
their respective Pro Rata Shares annually beginning for the fiscal year ending
December 31, 2000, in an amount
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equal to fifty percent (50%) of the Borrower's Excess Cash Flow for such fiscal
year, which shall be payable (with respect to each such fiscal year) on April 1
of each year (or, if earlier, ten (10) days after the date on which Borrower
delivers the financial statements required to be delivered under Section
6.1.1(a)) immediately following the annual period of determination; provided
that the Term Loan B Mandatory Prepayment shall be applied to the Term Loan B in
inverse order of maturity.
Section 2.5 The Capital Expenditure Line Facility.
2.5.1 Capital Expenditure Line Facility.
Subject to and upon the provisions of this Agreement, the Formula
Lenders collectively, but severally, establish a capital expenditure line
facility in favor of the Borrower. The aggregate of all advances under the
Capital Expenditure Line Facility are sometimes referred to in this Agreement
collectively as the "Capital Expenditure Line".
The amount set forth below each Formula Lender's signature to this
Agreement is herein called such Formula Lender's "Capital Expenditure Line
Committed Amount" and the total of each Formula Lender's Capital Expenditure
Line Committed Amount equals Two Million Seven Hundred Thousand Dollars
($2,700,000) and is herein called the "Total Capital Expenditure Line Committed
Amount". The proportionate share set forth below each Formula Lender's
signature to this Agreement is herein called such Formula Lender's "Capital
Expenditure Line Pro Rata Share."
The obligation of each Formula Lender to make an advance under the
Capital Expenditure Line is several and is limited to its Capital Expenditure
Line Committed Amount, and such obligation of each Formula Lender is herein
called its "Capital Expenditure Line Commitment". The Capital Expenditure Line
Commitment of each of the Formula Lenders are herein collectively referred to as
the "Capital Expenditure Line Commitments". Neither the Agent nor any Term Loan
B Lender shall be responsible for the Capital Expenditure Line Commitment of any
Formula Lender; and similarly, none of the Formula Lenders shall be responsible
for the Capital Expenditure Line Commitment of any of the other Formula Lenders;
the failure, however, of any Formula Lender to perform its Capital Expenditure
Line Commitment shall not relieve any of the other Formula Lenders from the
performance of their respective Capital Expenditure Line Commitments.
During the Capital Expenditure Line Commitment Period, the Borrower
may request advances under the Capital Expenditure Line Facility in accordance
with the provisions of this Agreement; provided that after giving effect to the
Borrower's request the following conditions must apply:
(a) the outstanding principal balance of each Formula Lender's
Capital Expenditure Line Pro Rata Share of the Capital Expenditure Line
would not exceed such Formula Lender's Capital Expenditure Line Committed
Amount; and
(b) the aggregate outstanding principal balance of the Capital
Expenditure Line would not exceed (i) prior to the delivery by the Borrower
to the Agent of certified copies of its resolutions authorizing the
borrowings under the Capital Expenditure Line up to the Total Capital
Expenditure Line Committed Amount, $2,500,000, and (ii) on the date of such
delivery and thereafter, the Total Capital Expenditure Line Committed
Amount.
Amounts repaid on the Capital Expenditure Line may not
be reborrowed.
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2.5.2 Procedure for Making Advances Under the Capital Expenditure Line.
The Borrower may borrow under the Capital Expenditure Line Facility on
any Business Day. The Borrower shall give the Agent written notice (a "Capital
Expenditure Line Notice") at least five (5) Business Days prior to the date on
which such Borrower desires an advance under the Capital Expenditure Line.
Each Capital Expenditure Line Notice shall be accompanied by (a) a contract of
sale, purchase order or invoice, in form and substance reasonably satisfactory
to the Agent, which accurately and completely describes the Equipment which is
the subject of the requested advance, the purchase price therefor, and expressly
identifying and excluding the costs of delivery, installation, taxes, and other
"soft" costs, and (b) evidence satisfactory to the Agent indicating that such
Equipment has been delivered to and accepted by the Borrower. Each Capital
Expenditure Line Notice shall also be accompanied by such other information,
certificates, confirmations, and other items as the Agent may require to
determine the value and the delivery of the subject Equipment and compliance
with the other terms of this Agreement. The amount to be advanced with respect
to a Capital Expenditure Line Notice shall not exceed the lesser of (a) the
amount requested by the Borrower or (b) eighty percent (80%) of the purchase
price of the subject Equipment less costs of delivery, installation, taxes and
any other "soft" costs. Upon receipt of any such Capital Expenditure Line
Notice, the Agent shall promptly notify each Formula Lender of the amount of
each advance to be made by such Formula Lender on the requested borrowing date
under such Formula Lender's Capital Expenditure Line Commitment. Each advance
under the Capital Expenditure Line shall be not less than Three Hundred Thousand
Dollars ($300,000). The maximum number of advances under the Capital Expenditure
Line shall be nine (9).
Not later than 12:00 p.m. (Chicago, Illinois Time) on each requested
borrowing date for the making of advances under the Capital Expenditure Line,
each Formula Lender shall, if it has received timely notice from the Agent of
the Borrower's request for such advances, make available to the Agent, in funds
immediately available to the Agent at the Agent's office set forth in Section
9.1 (Notices) such Formula Lender's Capital Expenditure Line Pro Rata Share of
the advances to be made on such date.
2.5.3 Capital Expenditure Line Notes.
The respective obligations of the Borrower to pay each Formula
Lender's Capital Expenditure Line Pro Rata Share of the Capital Expenditure
Line, with interest, shall be evidenced by a series of promissory notes (as from
time to time extended, amended, restated, supplemented or otherwise modified,
collectively the "Capital Expenditure Line Notes" and individually a "Capital
Expenditure Line Note") substantially in the form of Exhibit "D-1" attached
hereto and made a part hereof, with appropriate insertions including, without
limitation, for principal payments required by Section 2.5.4. Whenever the
Borrower obtains a Capital Expenditure Loan, each Formula Lender shall make an
appropriate entry on its Capital Expenditure Line Note or in a separate loan
account, or both, to evidence such Capital Expenditure Loan. Each such entry
shall be prima facie evidence of the data entered, but such entries shall not be
a condition to the Borrower's obligation to repay. The Borrower acknowledges
and agrees that, if the outstanding principal balance of the Capital Expenditure
Line outstanding from time to time exceeds the aggregate of all Formula Lenders'
Capital Expenditure Line Committed Amounts, then the excess shall bear interest
at the rates provided from time to time for the Capital Expenditure Line
evidenced by the Capital Expenditure Line Notes and shall be payable, with
accrued interest, ON DEMAND. The Capital Expenditure Line Notes shall not
operate as a novation of any of the Obligations or nullify, discharge, or
release any such Obligations or the continuing contractual relationship of the
parties hereto in accordance with the provisions of this Agreement.
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2.5.4 Payments of Capital Expenditure Line.
Each advance under the Capital Expenditure Line shall be repayable in
installment payments of principal monthly (on the first day of each month after
the date of such advance) in an amount equal to 1/60th of the amount of the
advance. At the time of each advance under the Capital Expenditure Line, the
Borrower shall furnish a "Capital Expenditure Line Installment Payment Schedule"
for each Formula Lender substantially in the form of Exhibit "D-2" attached
hereto and made a part hereof, with appropriate insertions, which shall set
forth aggregate installment payments due thereafter on all Capital Expenditure
Line advances. Notwithstanding any amortization schedule for the Capital
Expenditure Line, the unpaid principal sum of the Capital Expenditure Line,
together with interest accrued and unpaid thereon, together with interest
accrued and unpaid thereon, shall be due and payable in full on the Capital
Expenditure Line Termination Date. The Capital Expenditure Line Installment
Payment Schedules shall not operate as a novation of any of the Obligations or
nullify, discharge, or release any such Obligations or the continuing
contractual relationship of the parties hereto in accordance with the provisions
of this Agreement or the Capital Expenditure Line Note.
2.5.5 Optional Prepayments of Capital Expenditure Line
The Borrower may, at its option, at any time and from time to time
prepay (each a "Capital Expenditure Line Optional Prepayment" and collectively
the "Capital Expenditure Line Optional Prepayments") the Capital Expenditure
Line, in whole or in part without premium or penalty (other than any amounts due
in respect thereof under Sections 2.6.4 or 2.1.11 hereof). The amount to be so
prepaid, together with interest accrued thereon to date of prepayment if the
amount is intended as a prepayment of the Capital Expenditure Line in whole,
shall be paid by the Borrower to the Agent for the ratable (based upon each
Formula Lender's Capital Expenditure Line Pro Rata Share) benefit of the Formula
Lenders on the date specified for such prepayment.
2.5.6 Application of Capital Expenditure Line Partial Prepayments
Partial Capital Expenditure Line Optional Prepayments shall be in an
amount not less than the aggregate amount of the next principal installment
under the Capital Expenditure Line Notes and shall be applied first to all
accrued and unpaid interest on the principal of the Capital Expenditure Line
Note, and then pro rata to the balloon payment due at maturity and to the
principal installment payments, which proration for each payment shall be equal
to the amount to be prepaid times a fraction, the numerator of which is the
amount of the balloon or installment (as applicable) payment and the denominator
of which is the aggregate outstanding principal balance of the Capital
Expenditure Line immediately prior to the prepayment.
Section 2.6 Interest.
2.6.1 Applicable Interest Rates.
(a) Each Loan (other than Term Loan B) shall bear interest until
maturity (whether by acceleration, declaration, extension or otherwise) at
either the Base Rate or the LIBOR Rate, as selected and specified by the
Borrower in an Interest Rate Election Notice furnished to the Agent in
accordance with the provisions of Section 2.6.2(f), or as otherwise determined
in accordance with the provisions of this Section 2.6 and as may be adjusted
from time to time in accordance with the provisions of Section 2.6.3.
(b) Term Loan B shall bear interest until maturity (whether by
acceleration, declaration, extension or otherwise) at a fixed rate equal to
fifteen percent (15%) per annum.
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(c) In addition to interest payable under Section 2.6.1(b),
additional interest on Term Loan B ("Special Term Loan B Interest") shall accrue
and be owing by the Borrower. Such Special Term Loan B Interest shall equal the
amount by which, as of any date of determination, (A) twenty percent (20%) per
annum of the average daily principal balance of Term Loan B from the Closing
Date through such date of determination exceeds (B) the sum of (x) the aggregate
interest required to be paid on Term Loan B under Section 2.6.1(b) above from
the Closing Date through such date of determination, and (y) the amount of the
Closing Fee paid to the Agent for the ratable benefit of the Term Loan B Lenders
under Section 2.7.3(c). The accrued Special Term Loan B Interest shall be paid
by the Borrower upon maturity or payment in full of Term Loan B (whether by
acceleration, declaration, extension or otherwise). The Borrower shall have the
right at any time and from time to time to prepay all or any part of the
outstanding Special Term Loan B Interest, but only to the extent that the
Borrower specifically so directs the Agent in writing. The proceeds of any such
prepayment or payment of Special Term Loan B Interest shall be applied first to
all accrued and unpaid interest on Special Term Loan B Interest.
(d) Notwithstanding the foregoing, following the occurrence and
during the continuance of an Event of Default, at the option of the Agent, all
Loans and all other Obligations shall bear interest at the Post-Default Rate.
2.6.2 Selection of Interest Rates.
(a) The Borrower may select the initial Applicable Interest Rate or
Applicable Interest Rates to be charged on the Base Rate Loans and the LIBOR
Loans.
(b) From time to time after the date of this Agreement as provided in
this Section, by a proper and timely Interest Rate Election Notice furnished to
the Agent in accordance with the provisions of Section 2.6.2(f) the Borrower may
select an initial Applicable Interest Rate or Applicable Interest Rates for any
Base Rate Loan or LIBOR Loan or may convert the Applicable Interest Rate and,
when applicable, the Interest Period, for any existing Base Rate Loan or LIBOR
Loan to any other Applicable Interest Rate or, when applicable, any other
Interest Period.
(c) The Borrower's selection of an Applicable Interest Rate and/or an
Interest Period, its election to convert an Applicable Interest Rate and/or an
Interest Period to another Applicable Interest Rate or Interest Period, and any
other adjustments in an interest rate are subject to the following limitations:
(i) the Borrower shall not at any time select or change to an
Interest Period that extends beyond (A) the Revolving Credit Expiration
Date in the case of the Revolving Loan, (B) the earlier of (1) the last
scheduled principal installment payment date set forth in the Capital
Expenditure Line Installment Payment Schedules from time to time or (2) the
Capital Expenditure Line Expiration Date, in the case of the Capital
Expenditure Line, or (C) the earlier of (y) January 1, 2007, or (z) the
Revolving Credit Termination Date, in the case of the Term Loan A;
(ii) no change from the LIBOR Rate to the Base Rate shall become
effective on a day other than a Business Day and on a day which is the last
day of the then current Interest Period; no change of an Interest Period
shall become effective on a day other than the last day of the then current
Interest Period; and no change from the Base Rate to the LIBOR Rate shall
become effective on a day other than a day which is a Eurodollar Business
Day;
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(iii) any Applicable Interest Rate change for any Base Rate Loan or
LIBOR Loan to be effective on a date on which any principal payment on
account of such Base Rate Loan or LIBOR Loan is scheduled to be paid shall
be made only after such payment shall have been made;
(iv) no more than five (5) different LIBOR Rates may be outstanding
at any time and from time to time with respect to the Revolving Loan;
(v) the first day of each Interest Period shall be a Eurodollar
Business Day; and
(vi) if, as of the effective date of a selection, a Default or an
Event of Default exists, the Agent, in the exercise of its sole and
absolute discretion, may elect that no such selection, election or
adjustment shall be allowed.
(d) The minimum principal amount of a LIBOR Loan shall be One Million
Dollars ($1,000,000), and each such LIBOR Loan shall be an integral multiple of
Two Hundred Fifty Thousand Dollars ($250,000).
(e) If a request for an advance under the Loans is not accompanied by
an Interest Rate Election Notice or does not otherwise include a selection of an
Applicable Interest Rate and, if applicable, an Interest Period, or if, after
having made a selection of an Applicable Interest Rate and, if applicable, an
Interest Period, the Borrower fails or is not otherwise entitled under the
provisions of this Agreement to continue such Applicable Interest Rate or
Interest Period, the Borrower shall be deemed to have selected the Base Rate as
the Applicable Interest Rate until such time as the Borrower has selected a
different Applicable Interest Rate and specified an Interest Period in
accordance with, and subject to, the provisions of this Section.
(f) Neither the Agent nor the Lenders will be obligated to make
Loans, to convert the Applicable Interest Rate on Loans to another Interest
Rate, or to change Interest Periods, unless the Agent shall have received an
irrevocable written or telephonic notice (an "Interest Rate Election Notice")
from the Borrower specifying the following information:
(i) the amount to be borrowed or converted or continued;
(ii) a selection of the Base Rate or the LIBOR Rate;
(iii) the length of the Interest Period if the Applicable Interest
Rate selected is the LIBOR Rate; and
(iv) the requested date on which such election is to be effective.
Any telephonic notice must be confirmed in writing within three (3) Business
Days. Each Interest Rate Election Notice must be received by the Agent not
later than 12:00 noon (Chicago, Illinois Time) on the Business Day of any
requested borrowing or conversion in the case of a selection of the Base Rate
and not later than 12:00 noon (Chicago, Illinois Time) on the third (3rd)
Business Day before the effective date of any requested borrowing or conversion
or continuation in the case of a selection of the LIBOR Rate.
2.6.3 Inability to Determine LIBOR Base Rate.
(a) In the event that (i) the Agent shall have determined that, by
reason of circumstances affecting the London interbank eurodollar market,
adequate and reasonable
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means do not exist for ascertaining the LIBOR Base Rate for any requested
Interest Period with respect to a Loan the Borrower has requested to be made or
to be converted to a LIBOR Loan or (ii) any Formula Lender shall determine that
the LIBOR Base Rate for any requested Interest Period with respect to a Loan the
Borrower has requested to be made or to be converted to a LIBOR Loan does not
adequately and fairly reflect such cost to the Formula Lender of funding or
converting such Loan, the Agent shall give telephonic or written notice of such
determination to the Borrower at least one (1) day prior to the proposed date
for funding or converting such Loan. If such notice is given, any request for a
LIBOR Loan shall be made or converted to a Base Rate Loan. Until such notice has
been withdrawn by the Agent, the Borrower will not request that any Loan be made
or converted to a LIBOR Loan.
(b) If applicable Laws shall (i) make it unlawful for any Formula
Lender to fund through the purchase of Dollar deposits with respect to any
portion of a Loan that is based, or requested by the Borrower to be based, on
LIBOR or otherwise give effect to the Formula Lender's obligations as
contemplated under this Section with respect to the use of the LIBOR Rate, or
(ii) impose on any Formula Lender any costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of such Formula Lender which includes deposits by reference to which
the LIBOR Rate is determined as provided herein or a category of extensions of
credit or other assets of such Formula Lender which includes a LIBOR Rate, or
(iii) impose on any Formula Lender any restrictions on the amount of such a
category of liabilities or assets which such Formula Lender may hold, then, in
each such case, the Agent may, by notice thereof to the Borrower, terminate the
LIBOR option. Any portion of the Loans subject thereto shall immediately bear
interest thereafter at the Base Rate.
2.6.4 Indemnity.
The Borrower agrees to indemnify and reimburse the Agent and the
Formula Lenders and to hold the Agent and the Formula Lenders harmless from any
loss, cost (including administrative costs) or expense (including, without
limitation, any such loss or expense arising from the reemployment of funds
obtained by the Agent or any Formula Lender to maintain any LIBOR Loan or from
fees payable to terminate the deposits from which such funds were obtained)
which the Agent or any Formula Lender may sustain or incur as a consequence of
(a) a default by the Borrower in payment when due of the principal amount of or
interest on any LIBOR Loan, (b) the failure of the Borrower to make, or convert
the Applicable Interest Rate of, a Loan after the Borrower has given a Loan
Notice or an Interest Rate Election Notice, (c) the failure of the Borrower to
make any prepayment of a LIBOR Loan after the Borrower has given notice of such
intention to make such a prepayment, (d) the termination of the LIBOR option
pursuant to Section 2.6.3(b), and/or (e) the making by the Borrower of a
prepayment of a LIBOR Loan on a day which is not the last day of the Interest
Period for such LIBOR Loan. This agreement and covenant of the Borrower shall
survive termination or expiration of this Agreement and payment of the other
Obligations.
Contemporaneously with any prepayment of principal of a LIBOR Loan, a
prepayment fee shall be due and payable to the Formula Lenders in an amount
equal to the product of
(a) the amount so prepaid
multiplied by
(b) the difference (but not less than zero) of
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(i) the constant maturity 360-day interest yield (as of the
first day of the then effective Interest Period and expressed as a decimal)
for a United States Treasury bill, note, or bond (a "Treasury obligation")
selected by the Agent, in an aggregate amount comparable to the amount
prepaid, and having, as of the first day of the then effective Interest
Period, a remaining term approximately equal to the original Interest
Period,
minus
(ii) the 360-day interest yield (as of the Business Day
immediately preceding the prepayment date and expressed as a decimal) on
such Treasury obligation and having, as of the Business Day immediately
preceding the prepayment date, a remaining term until maturity
approximately equal to the unexpired portion of the Interest Period,
multiplied by
(c) the quotient of
(i) the number of calendar days in the unexpired portion of the
Interest Period,
divided by
(ii) 360.
The applicable yields on the Treasury obligations described above
shall be determined based upon the Federal Reserve statistical release H.15
published for the applicable determination dates set forth above. Any Treasury
obligation selected when the related Interest Period is one year or less shall
be United States Treasury Bills. The Formula Lenders shall not be obligated or
required to have actually reinvested the prepaid amount of the LIBOR Loan in any
such Treasury obligation as a condition precedent to the Borrower's being
obligated to pay a prepayment fee as outlined above. The Formula Lenders shall
not be obligated to accept any prepayment of principal unless it is accompanied
by the prepayment fee, if any, due in connection therewith as calculated
pursuant to the provisions of this paragraph. No prepayment fee payable in
connection herewith shall in any event or under any circumstances be deemed or
construed as a penalty.
2.6.5 Payment of Interest.
(a) Unpaid and accrued interest on Term Loan B (other than Special
Term Loan B Interest) and on any advance of the Loans which consists of a Base
Rate Loan shall be paid monthly, in arrears, on the first day of each calendar
month, commencing on April 1, 2000, and on the first day of each calendar month
thereafter, and at maturity (whether by acceleration, declaration, extension or
otherwise).
(b) Notwithstanding the foregoing, any and all unpaid and accrued
interest on any Base Rate Loan converted to a LIBOR Loan or prepaid shall be
paid immediately upon such conversion and/or prepayment, as appropriate.
(c) Unpaid and accrued interest on any LIBOR Loan shall be paid on
the last Business Day of each Interest Period for such LIBOR Loan (and, in
addition, for any Interest Period of one hundred twenty (120) or one hundred
eighty (180) days, on the first Business Day after the 89th day after the
commencement of the Interest Period) and at maturity
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(whether by acceleration, declaration, extension or otherwise); provided,
however, that any and all unpaid and accrued interest on any LIBOR Loan prepaid
prior to expiration of the then current Interest Period for such LIBOR Loan
shall be paid immediately upon prepayment.
(d) Special Term Loan B Interest shall be paid as outlined in Section
2.6.1(c).
Section 2.7 General Financing Provisions.
2.7.1 Lender Authorizations.
The Borrower hereby irrevocably authorizes the Agent and each of the
Lenders to make Loans to the Borrower, and hereby irrevocably authorizes the
Agent and each of the Formula Lenders to issue Letters of Credit for the account
of the Borrower, pursuant to the provisions of this Agreement upon the written,
oral or telephone request of any one (1) of the Persons who is from time to time
a Responsible Officer of the Borrower under the provisions of the most recent
"Certificate" of corporate resolutions and/or incumbency of the Borrower on file
with the Agent. Neither the Agent nor any of the Lenders assumes any
responsibility or liability for any errors, mistakes, and/or discrepancies in
the oral, telephonic, written or other transmissions of any instructions,
orders, requests and confirmations between the Agent and the Borrower or the
Agent and any of the Lenders in connection with the Credit Facilities, any Loan,
any Letter of Credit or any other transaction in connection with the provisions
of this Agreement.
2.7.2 Use of Proceeds of the Loans.
The proceeds of each Loan shall be used by the Borrower for Permitted
Uses, and for no other purposes except as may otherwise be agreed by the
Requisite Lenders in writing.
2.7.3 Closing Fees.
The Borrower shall pay, on or before the Closing Date, each of the
following fees (collectively, the "Closing Fees"):
(a) Syndication, Documentation and Agency Fee. On or before the
Closing Date, the Borrower shall pay to the Agent, for its sole account and
benefit, a syndication, documentation and agency fee in the amount of Three
Hundred Thirty-Seven Thousand Five Hundred Dollars ($337,500), which fee has
been fully earned and is non-refundable.
(b) Formula Lenders' Closing Fee. On or before the Closing Date, the
Borrower shall pay to the Agent, for the ratable benefit of the Formula Lenders,
a closing fee in the amount of Five Hundred Six Thousand Two Hundred Fifty
Dollars ($506,250), which fee has been fully earned and is non-refundable.
(c) Term Loan B Lenders' Closing Fee. On or before the Closing Date,
the Borrower shall pay to the Agent, for the ratable benefit of the Term Loan B
Lenders, a closing fee in the amount of One Hundred Fifty Thousand Dollars
($150,000), which fee has been fully earned and is non-refundable.
2.7.4 Agency/Field Examination Fee.
The Borrower shall pay to the Agent, for its sole account and benefit,
an annual fee in the amount of One Hundred Thousand Dollars ($100,000), payable
quarterly in arrears, which fee has been fully earned and is non-refundable and
shall be paid on the Closing
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Date. In addition, from and after the occurrence of an Event of Default, the
Borrower shall pay to the Agent, for its sole account and benefit, a fee in the
amount of $750 per day per auditor dispatched by Agent in connection with such
Event of Default, to cover expenses relating to field examinations performed by
such auditors, plus all out-of-pocket expenses of the Agent associated with
----
such Event of Default. All fees described in this Section 2.7.4 shall be
referred to herein as the "Agency Fee."
2.7.5 Computation of Interest and Fees.
All applicable Fees and interest shall be calculated on the basis of
a year of three hundred sixty (360) days for the actual number of days elapsed.
Any change in the interest rate on any of the Obligations resulting from a
change in the Base Rate shall become effective as of the opening of business on
the day on which such change in the Base Rate is announced.
2.7.6 Payments.
All payments of the Obligations, including, without limitation,
principal, interest, Prepayments, and Fees, shall be paid by the Borrower
without setoff or counterclaim to the Agent (except as otherwise provided
herein) at the Agent's office specified in Section 9.1 (unless the Agent
specifies a different address) in immediately available funds not later than
12:00 noon (Chicago, Illinois Time) on the due date of such payment. All
payments received by the Agent after such time shall be deemed to have been
received by the Agent for purposes of computing interest and Fees and otherwise
as of the next Business Day. Payments shall not be considered received by the
Agent until such payments are paid to the Agent in immediately available funds.
Unless otherwise provided in this Agreement or in the other Financing Documents,
prior to the occurrence of an Event of Default, all payments shall be applied as
follows: first to any Fees, second to any and all accrued and unpaid late
charges and Enforcement Costs, third to any and all accrued but unpaid interest
on the Agent's Obligations, fourth to the then unpaid balance of the Agent's
Obligations, fifth to any and all accrued and unpaid interest on the
Obligations, and then to the then unpaid principal balance of the other
Obligations. Following the occurrence of an Event of Default, subject to Section
7.2.5, all payments shall be applied to the Obligations in such order and manner
as shall be determined by the Agent in its sole and absolute discretion.
2.7.7 Liens; Setoff.
In addition to the Liens set forth in ARTICLE 3, the Borrower hereby
grants to the Agent and to each of the Lenders a continuing Lien as security for
all of the Obligations upon any and all monies, securities, and other property
of the Borrower and the proceeds thereof, now or hereafter held or received by
or in transit to, the Agent, any of the Lenders, and/or any Affiliate of the
Agent and/or any of the Lenders, from or for the Borrower, and also upon any and
all deposit accounts (general or special) and credits of the Borrower, if any,
with the Agent, any of the Lenders or any Affiliate of the Agent or any of the
Lenders, at any time existing, excluding any deposit accounts held by the
Borrower in its capacity as trustee. Without implying any limitation on any
other rights the Agent and/or any of the Lenders may have under the Financing
Documents or applicable Laws, during the continuance of an Event of Default, the
Agent is hereby authorized by the Borrower at any time and from time to time,
without notice to the Borrower, to set off, appropriate and apply any or all
items hereinabove referred to against all Obligations (including without
limitation the Agent's Obligations) then outstanding (whether or not then due),
all in such order and manner as shall be determined by the Agent in its sole and
absolute discretion.
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2.7.8 Requirements of Law.
In the event that any Lender shall have determined in Good Faith that
(a) the adoption after the Closing Date of any Laws regarding capital adequacy,
or (b) any change after the Closing Date therein or in the interpretation or
application thereof or (c) compliance by such Lender or any corporation
controlling such Lender with any request or directive regarding capital adequacy
(whether or not having the force of law) from any central bank or Governmental
Authority, does or shall have the effect of reducing the rate of return on the
capital of such Lender or any corporation controlling such Lender, as a
consequence of the obligations of such Lender hereunder to a level below that
which such Lender or any corporation controlling such Lender would have achieved
but for the adoption, change or compliance (taking into consideration the
policies of such Lender and the corporation controlling such Lender, with
respect to capital adequacy) by an amount reasonably deemed by such Lender to be
material, then from time to time, after submission by such Lender to the
Borrower of a written request therefor and a statement of the basis for such
determination setting forth in reasonable detail the calculation of such amount,
the Borrower shall pay to such Lender such additional amount or amounts in order
to compensate for such reduction.
2.7.9 Funds Transfer Services.
(a) The Borrower acknowledges that the Agent has made available to
the Borrower Wire Transfer Procedures, a copy of which is attached to this
Agreement as Exhibit "E" and which include a description of the Security
Procedures. The Borrower and the Agent agree that the Security Procedures are
commercially reasonable. The Borrower further acknowledges that the full scope
of the Security Procedures which the Agent or an Affiliate bank of the Agent
offers and strongly recommends for funds transfers is available only if the
Borrower communicates directly with the Agent or such Affiliate bank as
applicable in accordance with said procedures. If the Borrower attempts to
communicate by any other method or otherwise not in accordance with the Security
Procedures or other security procedures of which the Borrower has received
notice after the date hereof, the Agent or such Affiliate bank, as applicable,
shall not be required to execute such instructions, but if the Agent or such
Affiliate bank, as applicable, does so, the Borrower will be deemed to have
refused the Security Procedures that the Agent or such Affiliate bank as
applicable offers and strongly recommends, and the Borrower will be bound by any
funds transfer, whether or not authorized, which is issued in the Borrower's
name and accepted by the Agent or such Affiliate bank, as applicable, in Good
Faith. The Agent or such Affiliate bank, as applicable, may modify Wire Transfer
Procedures including, without limitation, the Security Procedures at such time
or times and in such manner as the Agent or such Affiliate bank, as applicable,
in its sole discretion, deems appropriate to meet prevailing standards of good
banking practice. By continuing to use the Agent's or such Affiliate bank's, as
applicable, wire transfer services after receipt of any modification of the Wire
Transfer Procedures including, without limitation, the Security Procedures, the
Borrower agrees that the Security Procedures, as modified, are likewise
commercially reasonable. The Borrower further agrees to establish and maintain
procedures to safeguard the Security Procedures and any information related
thereto. Neither the Agent nor any Affiliate of the Agent is responsible for
detecting any error in payment order sent by the Borrower to the Agent or any of
the Lenders.
(b) The Agent or such Affiliate bank, as applicable, will generally
use the Fedwire funds transfer system for domestic funds transfers, and the
funds transfer system operated by the Society for Worldwide International
Financial Telecommunication (SWIFT) for international funds transfers.
International funds transfers may also be initiated through the Clearing House
InterBank Payment System (CHIPs) or international cable. However, the Agent or
such Affiliate bank, as applicable, may use any means and routes that the Agent
or such Affiliate bank, as applicable, in its sole and absolute discretion, may
consider suitable for the transmission of funds under the circumstances. Each
payment order, or cancellation thereof,
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carried out through a funds transfer system or a clearinghouse will be governed
by all applicable funds transfer system rules and clearing house rules and
clearing arrangements, whether or not the Agent or such Affiliate bank, as
applicable, is a member of the system, clearinghouse or arrangement and the
Borrower acknowledges that the Agent's or such Affiliate bank's, as applicable,
right to reverse, adjust, stop payment or delay posting of an executed payment
order is subject to the laws, regulations, rules, circulars and agreements.
2.7.10 Mandatory Application of Net Proceeds.
(a) The Borrower shall apply all Net Proceeds promptly upon receipt
thereof to prepay the Obligations outstanding at the time of such receipt;
provided, however, that nothing in this Section 2.7.10 or in the definition of
"Net Proceeds" shall constitute authorization for the Borrower or any of the
Borrower's Subsidiaries to enter into any transaction that would generate Net
Proceeds.
(b) Subject to Section 7.2.5, Net Proceeds of Permitted Asset
Dispositions shall be applied as follows:
(i) if any portion of such Net Proceeds are attributable to
dispositions of Equipment or real property owned by the Borrower (other
than the Phoenix, New York real property), Net Proceeds shall be applied to
payments of the Term Loan A, in the inverse order of maturity, for the
ratable benefit of the Formula Lenders, in an amount equal to that
percentage of the then outstanding principal balance of Term Loan A that
equals the percentage supported on the Closing Date by such Equipment or
real property (as the case may be),
(ii) so long as any portion of Term Loan B is outstanding, (a)
seventy-five percent (75%) of any amount thereof remaining after the
application described in clause (b)(i) above shall be applied to the
outstanding principal amount, if any, of Term Loan B, in the inverse order
of maturity, for the ratable benefit of the Term Loan B Lenders, until Term
Loan B is paid in full, and (b) any amount thereof remaining after the
applications described in clauses (b)(i) and (b)(ii)(a) above shall be
applied to the outstanding principal of the Term Loan A, for the ratable
benefit of the Formula Lenders,
(iii) after Term Loan B is paid in full but only until the date
of an Amortization Reduction Event, (a) fifty percent (50%) of each amount
thereof remaining after the application described in clause (b)(i) above
shall be applied to the outstanding principal amount, if any, of Term Loan
A, in the inverse order of maturity, for the ratable benefit of the Formula
Lenders, (b) any amount thereof remaining after the applications described
in clauses (b)(i) and (b)(iii)(a) above shall be applied to the outstanding
principal of the Revolving Loans (but not to reduce any Formula Lender's
Revolving Credit Committed Amount), for the ratable benefit of the Formula
Lenders, and
(iv) from and after the date of an Amortization Reduction
Event, each amount thereof remaining after the application described in
clause (b)(i) above shall be applied to the outstanding principal of the
Revolving Loans (but not to reduce any Formula Lender's Revolving Credit
Committed Amount), for the ratable benefit of the Formula Lenders.
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Section 2.8 Settlement Among Lenders.
2.8.1 Revolving Loan.
It is agreed that each Formula Lender's Net Outstandings are intended
by the Formula Lenders to be equal at all times to such Formula Lender's
Revolving Credit Pro Rata Share of the aggregate outstanding principal amount of
the Revolving Loan outstanding. Notwithstanding such agreement, the several and
not joint obligation of each Formula Lender to fund the Revolving Loan made in
accordance with the terms of this Agreement ratably in accordance with such
Formula Lender's Revolving Credit Pro Rata Share and each Formula Lender's right
to receive its ratable share of principal payments on the Revolving Loan in
accordance with its Revolving Credit Pro Rata Share, the Lenders agree that in
order to facilitate the administration of this Agreement and the Financing
Documents that settlement among them may take place on a periodic basis in
accordance with the provisions of this Section 2.8.
2.8.2 Settlement Procedures as to Revolving Loan.
(a) In General. To the extent and in the manner hereinafter provided
in this Section 2.8.2, settlement among the Formula Lenders as to the Revolving
Loan may occur periodically on Settlement Dates determined from time to time by
the Agent, which may occur before or after the occurrence or during the
continuance of a Default or Event of Default and whether or not all of the
conditions set forth in Section 5.2 (Conditions to all Extensions of Credit)
have been met. As of the Closing Date, the Agent has determined that the
Settlement Dates shall occur on Wednesday of each week. On each Settlement Date
payments shall be made by or to BANA and the other Formula Lenders in the manner
provided in this Section 2.8.2 in accordance with the Settlement Report
delivered by the Agent pursuant to the provisions of Section 2.8.2(b) in respect
of such Settlement Date so that as of each Settlement Date, and after giving
effect to the transactions to take place on such Settlement Date, each Formula
Lender's Net Outstandings shall equal such Formula Lender's Revolving Credit Pro
Rata Share of the Revolving Loan outstanding.
(b) Selection of Settlement Dates. If the Agent elects, in its
discretion, but subject to the consent of BANA, to settle accounts among the
Formula Lenders with respect to principal amounts of the Revolving Loan less
frequently than each Business Day, then the Agent shall designate periodic
Settlement Dates which may occur on any Business Day after the Closing Date;
provided, however, that the Agent shall designate as a Settlement Date any
Business Day which is an Interest Payment Date; and provided further, that a
Settlement Date shall occur at least once during each seven-day period. The
Agent shall designate a Settlement Date by delivering to each Formula Lender a
Settlement Report not later than 12:00 noon (Chicago, Illinois Time) on the
proposed Settlement Date, which Settlement Report shall be with respect to the
period beginning on the next preceding Settlement Date and ending on such
designated Settlement Date.
(c) Non-Ratable Loans and Payments. Between Settlement Dates, the
Agent shall request and BANA may (but shall not be obligated to) advance to the
Borrower out of BANA's own funds, the entire principal amount of any advance
under the Revolving Loan requested or deemed requested pursuant to Section 2.1.2
(Procedure for Making Advances Under the Revolving Loan; Lender Protection
Loans) (any such advance under the Revolving Loan being referred to as a "Non-
Ratable Loan"). The making of each Non-Ratable Loan by BANA shall be deemed to
be a purchase by BANA of a one hundred percent (100%) participation in each
other Formula Lender's Revolving Credit Pro Rata Share of the amount of such
Non-Ratable Loan. All payments of principal, interest and any other amount with
respect to such Non-Ratable Loan shall be payable to and received by the Agent
for the account of BANA. On each Settlement Date, with notice to the Agent, each
other Formula Lender shall (without
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duplication with Section 2.8.1) pay to BANA, as the repurchase of such
participation, an amount equal to one hundred percent (100%) of such Formula
Lender's Revolving Credit Pro Rata Share of the principal amount of such Non-
Ratable Loan. Any payments or Net Proceeds received by the Agent between
Settlement Dates which in accordance with the terms of this Agreement are to be
applied to the reduction of the outstanding principal balance of Revolving Loan,
shall be paid over to and retained by BANA for such application, and such
payment to and retention by BANA shall be deemed, to the extent of each other
Formula Lender's Revolving Credit Pro Rata Share of such payment, to be a
purchase by each such other Formula Lender of a participation in the advance
under the Revolving Loan (including the repurchase of participations in Non-
Ratable Loans) made by BANA. Upon demand by another Formula Lender, with notice
thereof to the Agent, BANA shall pay to the Agent, for the account of such other
Formula Lender, as a repurchase of such participation, an amount equal to such
other Formula Lender's Revolving Credit Pro Rata Share of any such amounts
(after application thereof to the repurchase of any participations of BANA in
such other Formula Lender's Revolving Credit Pro Rata Share of any Non-Ratable
Loans) paid only to BANA by the Agent.
(d) Net Decrease in Outstandings. If on any Settlement Date the
increase, if any, in the dollar amount of any Formula Lender's Net Outstandings
which is required to comply with the first sentence of Section 2.8.1 (Revolving
Loan) is less than such Formula Lender's Revolving Credit Pro Rata Share of
amounts received by the Agent but paid only to BANA since the next preceding
Settlement Date, such Formula Lender and the Agent, in their respective records,
shall apply such Formula Lender's Revolving Credit Pro Rata Share of such
amounts to the increase in such Formula Lender's Net Outstandings, and BANA
shall pay to the Agent, for the account of such Formula Lender, the excess
allocable to such Formula Lender.
(e) Net Increase in Outstandings. If on any Settlement Date the
increase, if any, in the dollar amount of any Formula Lender's Net Outstandings
which is required to comply with the first sentence of Section 2.8.1 (Revolving
Loan) exceeds such Formula Lender's Revolving Credit Pro Rata Share of amounts
received by the Agent but paid only to BANA since the next preceding Settlement
Date, such Formula Lender and the Agent, in their respective records, shall
apply such Formula Lender's Revolving Credit Pro Rata Share of such amounts to
the increase in such Formula Lender's Net Outstandings, and such Formula Lender
shall pay to the Agent, for the account of BANA, any excess.
(f) No Change in Outstandings. If a Settlement Report indicates that
no advance under the Revolving Loan has been made during the period since the
next preceding Settlement Date, then such Formula Lender's Revolving Credit Pro
Rata Share of any amounts received by the Agent but paid only to BANA shall be
paid by BANA to the Agent, for the account of such Formula Lender. If a
Settlement Report indicates that the increase in the dollar amount of a Formula
Lender's Net Outstandings which is required to comply with the first sentence of
Section 2.8.1 (Revolving Loan) is exactly equal to such Formula Lender's
Revolving Credit Pro Rata Share of amounts received by the Agent but paid only
to BANA since the next preceding Settlement Date, such Formula Lender and the
Agent, in their respective records, shall apply such Formula Lender's Revolving
Credit Pro Rata Share of such amounts to the increase in such Formula Lender's
Net Outstandings.
(g) Return of Payments. If any amounts received by BANA in respect of
the Obligations are later required to be returned or repaid by BANA to the
Borrower or any other obligor or their respective representatives or successors
in interest, whether by court order, settlement or otherwise, in excess of the
BANA's Revolving Credit Pro Rata Share of all such amounts required to be
returned by all Formula Lenders, each other Formula Lender shall, upon demand by
BANA with notice to the Agent, pay to the Agent for the account of BANA, an
amount equal to the excess of such Formula Lender's Revolving Credit Pro Rata
Share of all
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such amounts required to be returned by all Formula Lenders over
the amount, if any, returned directly by such Formula Lender.
(h) Payments to Agent, Formula Lenders.
(i) Payment by any Formula Lender to the Agent shall be made
not later than 2:00 p.m. (Chicago, Illinois Time) on the Business Day
such payment is due, provided that if such payment is due on demand by
the Agent or another Formula Lender, such demand is made on the paying
Formula Lender not later than 10:00 a.m. (Chicago, Illinois Time) on
such Business Day. Payment by the Agent to any Formula Lender shall be
made by wire transfer, promptly following the Agent's receipt of funds
for the account of such Formula Lender and in the type of funds
received by the Agent, provided that if the Agent receives such funds
at or prior to 12:00 noon (Chicago, Illinois Time), the Agent shall
pay such funds to such Formula Lender by 2:00 p.m. (Chicago, Illinois
Time) on such Business Day. If a demand for payment is made after the
applicable time set forth above, the payment due shall be made by 2:00
p.m. (Chicago, Illinois Time) on the first Business Day following the
date of such demand.
(ii) If a Formula Lender shall, at any time, fail to make any
payment to the Agent required hereunder, the Agent may, but shall not
be required to, retain payments that would otherwise be made to such
Formula Lender hereunder and apply such payments to such Formula
Lender's defaulted obligations hereunder, at such time, and in such
order, as the Agent may elect in its sole discretion.
(iii) With respect to the payment of any funds under this
Section 2.8.2, whether from the Agent to a Formula Lender or from a
Formula Lender to the Agent, the party failing to make full payment
when due pursuant to the terms hereof shall, upon demand by the other
party, pay such amount together with interest on such amount at the
Federal Funds Rate.
2.8.3 Term Loan A.
The Agent shall pay to each Formula Lender on each Interest Payment
Date, each Term Loan A Installment Payment Date, and on the date of each
mandatory prepayment of Term Loan A, as the case may be, such Formula Lender's
ratable share of all payments received by the Agent in immediately available
funds on account of the Term Loan A, net of any amounts payable by such Formula
Lender to the Agent, by wire transfer of same day funds; the amount payable to
each Formula Lender shall be based on the principal amount of the Term Loan A
owing to such Formula Lender.
2.8.4 Term Loan B.
The Agent shall pay to each Term Loan B Lender on each Interest
Payment Date, each Term Loan B Installment Payment Date, and on the date of each
mandatory prepayment of Term Loan B, as the case may be, such Term Loan B
Lender's ratable share of all payments received by the Agent in immediately
available funds on account of the Term Loan B, net of any amounts payable by
such Term Loan B Lender to the Agent, by wire transfer of same day funds; the
amount payable to each Term Loan B Lender shall be based on the principal amount
of the Term Loan B owing to such Term Loan B Lender.
2.8.5 Capital Expenditure Loan.
The Agent shall pay to each Formula Lender on each Interest Payment
Date and date provided in the Capital Expenditure Line Notes or Capital
Expenditure Line Installment
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Payment Schedule, as the case may be, such Formula Lender's Capital Expenditure
Line Pro Rata Share of all payments received by the Agent in immediately
available funds on account of the Capital Expenditure Line, net of any amounts
payable by such Formula Lender to the Agent, by wire transfer of same day funds;
the amount payable to each Formula Lender shall be based on the principal amount
of the Capital Expenditure Line owing to such Formula Lender.
2.8.6 Settlement of Other Obligations.
All other amounts received by the Agent on account of, or applied by
the Agent to the payment of, any Obligation owed to the Lenders (including,
without limitation, Fees payable to the Lenders and proceeds from the sale of,
or other realization upon, all or any part of the Collateral following an Event
of Default) that are received by the Agent not later than 12:00 noon (Chicago,
Illinois Time) on a Business Day will be paid by the Agent to each Lender by
2:00 p.m. (Chicago, Illinois Time) on the same Business Day, and any such
amounts that are received by the Agent after 12:00 noon (Chicago, Illinois Time)
will be paid by the Agent to each Lender by 2:00 p.m. (Chicago, Illinois Time)
on the following Business Day. Unless otherwise stated herein, the Agent shall
distribute Fees payable to the Formula Lenders ratably to the Formula Lenders
based on each Formula Lender's Revolving Credit Pro Rata Share and shall
distribute Fees payable to the Term Loan B Lenders ratably to the Term Loan B
Lenders based on each Term Loan B Lender's Pro Rata Share. The Agent shall
distribute proceeds from the sale of, or other realization upon, all or any part
of the Collateral following an Event of Default to the Lenders in the manner
described in Section 7.2.5.
2.8.7 Presumption of Payment.
(a) Unless the Agent shall have received notice from a Formula Lender
prior to 12:00 noon (Chicago, Illinois Time) on the date of the requested date
for the making of advances under the Revolving Loan that such Formula Lender
will not, subject to the provisions of Section 2.8.3 hereof, make available to
the Agent such Formula Lender's Revolving Credit Pro Rata Share of the advances
to be made on such date, the Agent may assume that such Formula Lender has made
such amount available to the Agent on such date in accordance with this Section
2.8, and the Agent, in its sole discretion may, in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount
on behalf of such Formula Lender.
(b) Subject to the provisions of Sections 2.8.2 and 2.8.3 hereof, if
and to the extent such Formula Lender shall not have so made available to the
Agent its Revolving Credit Pro Rata Share of the advances under the Revolving
Loan made on such date, and the Agent shall have so made available to the
Borrower a corresponding amount on behalf of such Formula Lender, such Formula
Lender shall, on demand, pay to the Agent such corresponding amount, together
with interest thereon, at the Federal Funds Rate, for each day from the date
such corresponding amount shall have been so available by the Agent to the
Borrower until the date such amount shall have been repaid to the Agent. Such
Formula Lender shall not be entitled to payment of any interest which accrues on
the amount made available by the Agent to the Borrower for the account of such
Formula Lender until such time as such Formula Lender reimburses the Agent for
such amount, together with interest thereon, as provided in this Section 2.8.7.
(c) A certificate of the Agent submitted to any Formula Lender with
respect to any amounts owing to the Agent by such Formula Lender under this
Section 2.8.7 shall be rebuttably presumptive evidence of such amounts, absent
manifest error. If such Formula Lender does not pay any amounts owing to the
Agent promptly upon the Agent's demand, the Agent shall promptly notify the
Borrower of such Formula Lender's failure to make payment, and the Borrower
shall immediately repay such amounts to the Agent, together with
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accrued interest thereon at the applicable rate on the Revolving Loan, all
without prejudice to the rights and remedies of the Agent against any defaulting
Formula Lender. Any and all amounts due and payable to the Agent by the Borrower
under this Section 2.8.7 constitute and shall be part of the Agent's
Obligations.
(d) Unless the Agent shall have otherwise received notice from the
Borrower prior to the date on which any payment is due to the Agent that the
Borrower will not make such payment in full, the Agent may assume that the
Borrower have made such payment in full to the Agent on such date and the Agent
in its sole discretion may, in reliance upon such assumption, cause to be
distributed to each Lender on such due date an amount equal to the amount then
due such Lender. If and to the extent the Borrower shall not have so made such
payment in full to the Agent and the Agent shall have distributed to any Lender
all or any portion of such amount, such Lender shall repay to the Agent on
demand the amount so distributed to such Lender, together with interest thereon
at the Federal Funds Rate, for each day from the date such amount is distributed
to such Lender until the date such Lender repays such amount to the Agent.
2.8.8 Tax Withholding Clause.
Each Lender or Assignee or participant of a Lender that is not
incorporated or organized under the Laws of the United States of America or a
state thereof agrees that it will deliver to the Borrower and the Agent two (2)
duly completed copies of the following: (a) Internal Revenue Service Form W-9,
4224 or 1001, or other applicable form prescribed by the Internal Revenue
Service, certifying that such Lender, Assignee or participant is entitled to
receive payments under this Agreement and the other Financing Documents without
deduction or withholding of any United States federal income taxes, or is
subject to such tax at a reduced rate under an applicable tax treaty, or (b)
Internal Revenue Service Form W-8 or other applicable form or a certificate of
such Lender, Assignee or participant indicating that no such exemption or
reduced rate is allowable with respect to such payments. Each Lender, Assignee
or participant required to deliver to the Borrower and the Agent a form or
certificate pursuant to the preceding sentence shall deliver such form or
certificate as follows: (i) each Lender which is a party hereto on the Closing
Date shall deliver such form or certificate at least five (5) Business Days
prior to the first date on which any interest or fees are payable by the
Borrower hereunder for the account of each Lender; (ii) each Assignee or
participant shall deliver such form or certificate at least five (5) Business
Days before the effective date of such assignment or participation (unless the
Agent in its sole discretion shall permit such Assignee or participant to
deliver such form or certificate less than five (5) Business Days before such
date in which case it shall be due on the date specified by the Agent). Each
Lender, Assignee or participant which so delivers a Form W-8, W-9, 4224 or 1001
further undertakes to deliver to the Borrower and the Agent two (2) additional
copies of such form (or a successor form) on or before the date that such form
expires or becomes obsolete or after the occurrence of any event requiring a
change in the most recent form so delivered by it, and such amendments thereto
or extensions or renewals thereof as may be reasonably requested by the Borrower
or the Agent, either certifying that such Lender, Assignee or participant is
entitled to receive payments under this Agreement and the other Financing
Documents without deduction or withholding of any United States federal income
taxes or is subject to such tax at a reduced rate under an applicable tax treaty
or stating that no such exemption or reduced rate is allowable. The Agent shall
be entitled to withhold United States federal income taxes at the full
withholding rate unless the Lender, Assignee or participant establishes an
exemption or that it is subject to a reduced rate as established pursuant to the
above provisions.
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Section 2.9 Amendment and Restatement.
This Agreement amends and restates the Original Financing Agreement.
As such, this Agreement represents in part a renewal of, and is issued in
substitution and exchange for, and not in satisfaction of, the loans and the
other obligations under the Original Financing Agreement. The loans and the
other obligations under the Original Financing Agreement are continuing
obligations of the Borrower to the Bank, and nothing herein shall be construed
to deem such loans or obligations paid, or to release or terminate any lien or
security interest given to secure such original Loans or obligations. Bank may
satisfy all or a portion of its obligation to make the Loans on the Closing Date
by converting the original loans into Loans under this Amended and Restated
Financing and Security Agreement, and payment in full of and the satisfaction of
all Obligations under this Amended and Restated Financing and Security Agreement
shall also be deemed to be payment in full and satisfaction of such original
loans.
ARTICLE 3 THE COLLATERAL
Section 3.1 Debt and Obligations Secured.
All property and Liens assigned, pledged or otherwise granted under or
in connection with this Agreement (including, without limitation, those under
Section 3.2 (Grant of Liens) below) or any of the Financing Documents shall
secure (a) the payment of all of the Obligations, including, without limitation,
any and all Letter of Credit Obligations and any and all Agent's Obligations,
and (b) the performance, compliance with and observance by the Borrower of the
provisions of this Agreement and all of the other Financing Documents or
otherwise under the Obligations. Subject to Section 7.2.5, the security interest
and Lien of each Lender and the Agent in such property shall rank equally in
priority with the interest of each other Lender.
Section 3.2 Grant of Liens.
The Borrower hereby assigns, pledges and grants to the Agent, for the
benefit of the Lenders and for the benefit of the Agent with respect to the
Agent's Obligations, and agrees that the Agent and the Lenders shall have a
perfected and continuing security interest in, Lien on, and a right of set-off
against the following property and interests in property, whether now owned or
hereafter acquired or existing, and wherever located (the "Collateral"): (a) all
of Borrower's rights, title and interest in and to its Accounts, Inventory,
Chattel Paper, Documents, Instruments, Equipment, Securities, and General
Intangibles, whether now owned or existing or hereafter acquired or arising, (b)
all returned, rejected or repossessed goods, the sale or lease of which shall
have given or shall give rise to an Account or Chattel Paper, (c) all insurance
policies relating to the foregoing, (d) all books and records in whatever media
(paper, electronic or otherwise) recorded or stored, with respect to the
foregoing and all equipment and general intangibles necessary or beneficial to
retain, access and/or process the information contained in those books and
records, and (e) all cash and non-cash proceeds and products of the foregoing.
The Borrower further agrees that the Agent, for the benefit of the Lenders and
for the benefit of the Agent with respect to the Agent's Obligations, shall have
in respect thereof all of the rights and remedies of a secured party under the
Uniform Commercial Code as well as those provided in this Agreement, under each
of the other Financing Documents and under applicable Laws.
The Agent, the Lenders and the Borrower agree that this ARTICLE 3 is
intended to grant and govern Liens on the assets of the Borrower. Any and all
references to Collateral included elsewhere in this Agreement (other than in
this ARTICLE 3) are intended to include and govern the Collateral of the
Borrower, whether the Liens on such Collateral arise under the provisions of
this Agreement or under any of the other Security Documents.
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Section 3.3 Collateral Disclosure List.
On or prior to the Closing Date, the Borrower shall deliver to the
Agent a list (the "Collateral Disclosure List") which shall contain such
information with respect to the Borrower's business and real and personal
property as the Agent may require and shall be certified by a Responsible
Officer of the Borrower, all in the form provided to the Borrower by the Agent.
Without implying any limitation on any other provision of this Agreement, the
Borrower shall furnish to the Agent an update of the information contained in
the Collateral Disclosure List at any time and from time to time as may be
necessary to make the information contained in the Collateral Disclosure List
complete and correct and at other times as may be requested by the Agent. Such
updates shall be deemed to be included in the definition of "Collateral
Disclosure List."
Section 3.4 Personal Property.
The Borrower acknowledges and agrees that it is the intention of the
parties to this Agreement that the Agent, for the benefit of the Lenders and the
Agent shall have a first priority, perfected Lien, in form and substance
satisfactory to the Agent and its counsel, on all of the Borrower's Collateral,
whether now owned or hereafter arising or acquired: In furtherance of the
foregoing:
3.4.1 Securities, Instruments Chattel Paper, Promissory Notes, etc.
(a) On the Closing Date and without implying any limitation on the
scope of Section 3.2 (Grant of Liens) above, the Borrower shall deliver to
Agent, for the benefit of the Lenders and the Agent, all originals of all of the
Collateral consisting of Securities, Instruments, Chattel Paper and Documents
(other than checks for deposit in the ordinary course) and, if the Agent so
requires, shall execute and deliver a separate pledge, assignment and security
agreement in form and content reasonably acceptable to the Agent, which pledge,
assignment and security agreement shall assign, pledge and grant a Lien to the
Agent, for the benefit of the Lenders and the Agent, on all of such Collateral.
(b) In the event that the Borrower shall acquire after the Closing
Date any Collateral consisting of Securities, Instruments, Chattel Paper or
Documents, (other than checks for deposit in the ordinary course) the Borrower
shall promptly so notify the Agent and deliver the originals of all of the
foregoing to the Agent promptly and in any event within ten (10) days of each
acquisition.
(c) All Collateral consisting of Securities, Instruments, Chattel
Paper and Documents (other than checks for deposit in the ordinary course) shall
be delivered to the Agent endorsed and/or assigned as required by the pledge,
assignment and security agreement and/or as the Agent may require and, if
applicable, shall be accompanied by blank irrevocable and unconditional stock or
bond powers.
3.4.2 Intellectual Property.
(a) On the Closing Date and without implying any limitation on the
scope of Section 3.2 (Grant of Liens) above, the Borrower shall execute and
deliver all Financing Documents and take all actions requested by the Agent in
order to perfect a first priority assignment of Patents, Copyrights, Trademarks,
customer lists or any other type or kind of intellectual property owned by the
Borrower on the Closing Date. In addition, the Borrower agrees to take those
actions consistent with this Agreement and the other Financing Documents to
perfect a collateral assignment of such property acquired by such Borrower after
the Closing Date.
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(b) The Borrower grants to the Agent the nonexclusive right and
license after and during the continuance of an Event of Default to use any and
all Intellectual Property of the Borrower for the purposes set forth in Section
7.2 (Remedies) and for the purpose of enabling the Agent to process and realize
on the Collateral and to permit any purchaser of any portion of the Collateral
through a foreclosure sale or any other exercise of the rights and remedies of
the Agent and/or any of the Lenders under this Agreement, under any of the
Financing Documents or under applicable Laws, to use, sell or otherwise dispose
of the Collateral. Such right and license is granted free of charge, without the
requirement that any monetary payment whatsoever be made to the Borrower or any
other Person by the Agent, any Lender or any purchaser or purchasers of the
Collateral. The Borrower hereby represents, warrants, covenants and agrees that
it presently has, and shall continue to have, the right, without the approval or
consent of others, to grant the license set forth in this Section.
Section 3.5 Record Searches.
As of the Closing Date and thereafter at the time any Financing
Document is executed and delivered by the Borrower pursuant to this Section, the
Agent shall have received, in form and substance satisfactory to the Agent, such
Lien or record searches with respect to the Borrower and/or any other Person, as
appropriate, and the property covered by such Financing Document showing that
the Lien of such Financing Document will be a perfected first priority Lien on
the property covered by such Financing Document subject only to Permitted Liens,
to the extent permitted under Section 3.4 (Personal Property.), or to such other
matters as the Requisite Lenders may approve.
Section 3.6 Real Estate.
The Borrower acknowledges and agrees that it is the intention of the
parties to this Agreement that the Agent, for the benefit of the Lenders and the
Agent, shall have a first priority, perfected Lien, in form and substance
reasonably satisfactory to the Agent and its counsel, on all of Borrower's real
property of any kind and nature whatsoever, whether now owned or hereafter
acquired, subject only to the Permitted Liens, if any.
With respect to each parcel of real property now owned by the Borrower, the
Borrower, as appropriate, shall on the Closing Date execute and deliver the
Mortgages. With respect to real property acquired by the Borrower on or after
the Closing Date, the Borrower shall, promptly after acquisition thereof, grant
a Lien covering such real property to the Agent, for the benefit of the Lenders
and the Agent, under the provisions of a mortgage, deed of trust, or other
document, as appropriate. Each Financing Document to be executed and delivered
pursuant hereto shall:
(a) be in form and substance reasonably satisfactory to the Agent;
(b) create a first priority Lien in such real property in favor of the
Agent, for the benefit of the Lenders and the Agent, subject only to Permitted
Liens, and such other matters as the Agent may approve;
(c) be accompanied by a current appraisal of the fair market value of
the subject real property prepared by appraisers satisfactory to the Agent;
(d) be accompanied by a current survey satisfactory in all respects to
the Agent of the subject real property, prepared by a registered land surveyor
or engineer satisfactory to the Agent;
(e) be accompanied by evidence satisfactory to the Agent and Lenders
regarding the current and past pollution control practices at such real property
in connection with
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the discharge, emission, handling, disposal or existence of Hazardous Materials,
which may include, at the reasonable request of the Agent or the Requisite
Lenders, an environmental audit of such real property prepared by a person or
firm reasonably acceptable to the Agent;
(f) be accompanied by a mortgagee's title insurance policy or marked-
up unconditional commitment or binder for such insurance in form and substance
satisfactory to the Agent and issued by a title insurance company satisfactory
to the Agent; and
(g) be accompanied by a signed opinion of counsel addressed to the
Agent and each of the Lenders, in form and substance reasonably satisfactory to
the Agent.
Section 3.7 Costs.
The Borrower agrees to pay, as part of the Enforcement Costs and to
the fullest extent permitted by applicable Laws, on demand all reasonable costs,
fees and expenses incurred by the Agent or any Lender in connection with the
taking, perfection, preservation, protection and/or release of a Lien on the
Collateral, including, without limitation:
(a) reasonable fees and expenses incurred by the Agent in
preparing, reviewing, negotiating and finalizing the Financing
Documents from time to time (including, without limitation, reasonable
attorneys' fees incurred in connection with preparing, reviewing,
negotiating, and finalizing any of the Financing Documents, including,
any amendments and supplements thereto);
(b) all filing and/or recording taxes or fees;
(c) all title insurance premiums and costs;
(d) all costs of Lien and record searches;
(e) reasonable attorneys' fees in connection with all legal
opinions required;
(f) appraisal and/or survey costs; and
(g) all related costs, fees and expenses.
Section 3.8 Release.
Upon the payment and performance of all Obligations of the Borrower
and all obligations and liabilities of each other Person, other than the Agent
and the Lenders, under this Agreement and all other Financing Documents, the
termination and/or expiration of all of the Commitments, all Letters of Credit,
and all Outstanding Letter of Credit Obligations, upon the Borrower's request
and at the Borrower's sole cost and expense, the Agent shall release and/or
terminate any Financing Document but only if and provided that there is no
commitment or obligation (whether or not conditional) of the Agent and/or any of
the Lenders to readvance amounts which would be secured thereby and/or no
commitment or obligation of the Agent to issue or cause to be issued any Letter
of Credit or return or restore any payment of any Current Letter of Credit
Obligations.
Section 3.9 Inconsistent Provisions.
In the event that the provisions of any Financing Document directly
conflict with any provision of this Agreement, the provisions of this Agreement
govern.
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ARTICLE 4 REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties.
The Borrower represents and warrants to the Agent and the Lenders, as
follows:
4.1.1 Subsidiaries.
The Borrower has the Subsidiaries listed on the Collateral Disclosure
List attached hereto and made a part hereof and no others. Each of the
Subsidiaries is a Wholly Owned Subsidiary except as shown on the Collateral
Disclosure List, which correctly indicates the nature and amount of the
Borrower's ownership interests therein.
4.1.2 Good Standing.
Each of the Borrower and its Subsidiaries, if any, (a) is a
corporation, duly organized, existing and in good standing under the laws of the
jurisdiction of its incorporation or formation, as applicable, (b) has the legal
power to own its property and to carry on its business as now being conducted,
and (c) is duly qualified to do business and is in good standing in each
jurisdiction in which the character of the properties owned by it therein or in
which the transaction of its business makes such qualification necessary, except
where such failure to qualify could not reasonably be expected to have a
Material Adverse Effect.
4.1.3 Power and Authority.
The Borrower has full legal power and authority to execute and deliver
this Agreement and the other Financing Documents and Merger Documents to which
it is a party, to make the borrowings and to request Letters of Credit under
this Agreement, and to incur and perform the Obligations whether under this
Agreement, the other Financing Documents or otherwise, all of which have been
duly authorized by all proper and necessary corporate action on the part of the
Borrower. No consent or approval of shareholders or any creditors of the
Borrower, and no consent, approval, filing or registration with or notice to any
Governmental Authority on the part of the Borrower, is required as a condition
to the execution, delivery, validity or enforceability of this Agreement, the
other Financing Documents, the performance by the Borrower of the Obligations,
except for consents, approvals, filings, registrations and notices that shall be
received, given or accomplished on or before the Closing Date and except for
filings necessary for perfection of Liens in favor of the Agent.
4.1.4 Binding Agreements.
This Agreement and each of the other Financing Documents and Merger
Documents executed and delivered by the Borrower have been properly executed and
delivered and constitute the valid and legally binding obligations of the
Borrower and are fully enforceable against the Borrower in accordance with their
respective terms, subject to bankruptcy, insolvency, reorganization, moratorium
and other laws of general applications affecting the rights and remedies of
creditors and secured parties, and general principles of equity regardless of
whether applied in a proceeding in equity or at law.
4.1.5 No Conflicts.
Neither the execution, delivery and performance of the terms of this
Agreement or of any of the other Financing Documents or Merger Documents
executed and delivered by the Borrower nor the consummation of the transactions
contemplated by this Agreement will conflict with, violate or be prevented by
(a) the Borrower's charter or bylaws,
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(b) any other existing mortgage, indenture, material contract or material
agreement binding on the Borrower or affecting its property, or (c) any Laws,
the conflict or violation of which could reasonably be expected to have a
Material Adverse Effect.
4.1.6 No Defaults, Violations.
(a) No Default or Event of Default has occurred and is continuing.
(b) The Borrower is not in default under or with respect to any
obligations under the Indenture.
(c) Neither the Borrower nor any of its Subsidiaries is in default
under or with respect to any obligation under any existing mortgage, indenture,
contract or agreement binding on it or affecting its property in any respect
(other than the defaults under the Indenture, as further described on Schedule
4.1.6(b)), which default could reasonably be expected to have a Material Adverse
Effect.
4.1.7 Compliance with Laws.
Neither the Borrower nor any of its Subsidiaries is in violation of
any applicable Laws (including, without limitation, any Laws relating to
employment practices, to environmental, occupational and health standards and
controls) or order, writ, injunction, decree or demand of any court, arbitrator,
or any Governmental Authority affecting Borrower or any of its Subsidiaries or
any of its or their respective properties, the violation of which, considered in
the aggregate, could reasonably be expected to have a Material Adverse Effect.
4.1.8 Margin Stock.
None of the proceeds of the Loans will be used, directly or
indirectly, by the Borrower or any Subsidiary for the purpose of purchasing or
carrying, or for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase or carry, any "margin stock" within the meaning
of Regulation U (12 CFR Part 221), of the Board of Governors of the Federal
Reserve System or for any other purpose which might make the transactions
contemplated in this Agreement a "purpose credit" within the meaning of said
Regulation U, or cause this Agreement to violate any other regulation of the
Board of Governors of the Federal Reserve System or the Securities Exchange Act
of 1934 or the Small Business Investment Act of 1958, as amended, or any rules
or regulations promulgated under any of such statutes.
4.1.9 Investment Company Act; Margin Securities.
Neither the Borrower nor any of its Subsidiaries is an investment
company within the meaning of the Investment Company Act of 1940, as amended,
nor is it, directly or indirectly, controlled by or acting on behalf of any
Person which is an investment company within the meaning of said Act. Neither
the Borrower nor any of its Subsidiaries is engaged principally, or as one of
its important activities, in the business of extending credit for the purpose of
purchasing or carrying "margin stock" within the meaning of Regulation U (12 CFR
Part 221), of the Board of Governors of the Federal Reserve System.
4.1.10 Litigation.
There are no proceedings, actions or investigations pending or, so far
as the Borrower knows, threatened before or by any court, arbitrator or any
Governmental
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Authority which, in any one case or in the aggregate, as determined by the Agent
in Good Faith, could reasonably be expected to have a Material Adverse Effect.
4.1.11 Financial Condition of Borrower.
(a) The interim financial statements delivered to the Agent by the
Borrower under Section 6.1.1(c) (Financial Statements) of this Agreement from
time to time, are in all material respects complete and correct and fairly
present the financial position of the Borrower and its Subsidiaries and the
results of their operations and transactions in their surplus accounts as of the
dates and for the periods referred to and have been prepared in accordance with
GAAP applied on a consistent basis throughout the period involved (subject to
normal year-end adjustments and the absence of footnotes). There are no material
liabilities, direct or indirect, fixed or contingent, of the Borrower or any of
its Subsidiaries as of the date of such financial statements which are not
reflected therein or in the notes thereto to the extent required by GAAP. There
has been no material adverse change in the financial condition or operations of
the Borrower and its Subsidiaries since the Closing Date and to the best of the
Borrower's knowledge (after due inquiry) no such material adverse change is
pending or threatened. Neither the Borrower nor any of its Subsidiaries has
guaranteed the obligations of, or made any investment in or advances to, any
Person, except as reflected in such financial statements.
(b) The audited annual financial statements of the Borrower delivered
to the Agent by the Borrower under Section 6.1.1(a) (Financial Statements) of
this Agreement from time to time, are in all material respects complete and
correct and fairly present the financial position of the Borrower and its
Subsidiaries and the results of their operations and transactions in their
surplus accounts as of the date and for the period referred to and have been
prepared in accordance with GAAP applied on a consistent basis throughout the
period involved. There are no material liabilities, direct or indirect, fixed or
contingent, of the Borrower or its Subsidiaries as of the date of such financial
statements which are not reflected therein or in the notes thereto to the extent
required by GAAP. Neither Borrower nor any of its Subsidiaries has guaranteed
the obligations of, or made any investment in or advances to, any Person, except
as reflected in such financial statements.
4.1.12 Proforma Financial Statements.
On or before the Closing Date, the Borrower has furnished to the Agent
a proforma consolidated balance sheet of the Borrower and its Subsidiaries as of
December 31, 1999 (the "Proforma Balance Sheet"), together with proforma
financial projections for the two (2) year period subsequent to the Closing Date
(the "Proforma Financial Projections"). The Proforma Balance Sheet is correct
and complete in all material respects, and fairly presents in all material
respects the proforma consolidated financial condition of the Borrower and its
Subsidiaries. The Proforma Financial Projections represent the Borrower's good
faith estimate of the future operations of the Borrower as of the date thereof
and are based on reasonable assumptions. The Proforma Financial Projections are
not a guaranty of future performance.
4.1.13 Full Disclosure.
The financial statements referred to in Section 4.1.11 (Financial
Condition of Borrower) of this Agreement, the Financing Documents (including,
without limitation, this Agreement), and the statements, reports or certificates
furnished by the Borrower in connection with the Financing Documents (a) do not
contain any untrue statement of a material fact and (b) when taken in their
entirety, do not omit any material fact necessary to make the statements
contained therein not misleading. There is no fact known to the Borrower which
the Borrower has not disclosed to the Agent prior to the date of this Agreement
with respect to the transactions
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contemplated by the Financing Documents which constitutes or could reasonably be
expected to have a Material Adverse Effect.
4.1.14 Solvency.
In each case after giving effect to the Indebtedness for Borrowed
Money represented by the Obligations outstanding and/or to be incurred and the
transactions contemplated by this Agreement, the Borrower is solvent, having
assets of a fair salable value which exceed the amount required to pay its debts
as they become absolute and matured (including contingent, subordinated,
unmatured and unliquidated Liabilities), and the Borrower is able to and
anticipates that it will be able to meet its debts as they mature and have
adequate capital to conduct the business in which it is or proposes to be
engaged.
4.1.15 Indebtedness for Borrowed Money.
Except for the Obligations, and except as set forth in Schedule 4.1.15
attached hereto and made a part of this Agreement or, following the Closing
Date, as otherwise permitted under Section 6.2.4 hereof, the Borrower has no
Indebtedness for Borrowed Money. The Agent has received photocopies of all
promissory notes evidencing any Indebtedness for Borrowed Money set forth in
Schedule 4.1.15, together with any and all subordination agreements, other
agreements, documents, or instruments securing, evidencing, guarantying or
otherwise executed and delivered in connection therewith.
4.1.16 Taxes.
The Borrower and its Subsidiaries have filed all returns, reports and
forms for Taxes which, to the knowledge of the Borrower, are required to have
been filed, and has paid all Taxes as shown on such returns or on any assessment
received by it, to the extent that such Taxes have become due, unless and to the
extent only that such Taxes, assessments and governmental charges are currently
contested in good faith and by appropriate proceedings by the Borrower, such
Taxes are not the subject of any Liens other than Permitted Liens, and adequate
reserves therefor have been established as required under GAAP. All tax
liabilities of the Borrower were as of the date of audited financial statements
referred to in Section 4.1.11 (Financial Condition of Borrower) above, and are
now, adequately provided for on the books of the Borrower and its Subsidiaries,
as appropriate. Except to the extent being contested diligently and in good
faith in accordance with the provisions of this Agreement, no tax liability has
been asserted by the Internal Revenue Service or any state or local authority
against the Borrower for Taxes that has not been paid or provided for.
4.1.17 ERISA.
With respect to any "pension plan" as defined in Section 3(2) of
ERISA, which plan is now or in the two years previous to the Closing Date has
been maintained or contributed to by the Borrower and/or to the Borrower's
knowledge by any commonly controlled entity: (a) no "accumulated funding
deficiency" as defined in Code (S) 412 or ERISA (S) 302 has occurred, whether or
not that accumulated funding deficiency has been waived; (b) no Reportable Event
has occurred which could reasonably be expected to have a Material Adverse
Effect; (c) no termination of any plan subject to Title IV of ERISA has occurred
which could reasonably be expected to have a Material Adverse Effect; (d)
neither the Borrower nor, to the Borrower's knowledge, any commonly controlled
entity (as defined under ERISA) has incurred a "complete withdrawal" within the
meaning of ERISA (S) 4203 from any Multiemployer Plan; (e) neither the Borrower
nor, to the Borrower's knowledge, any commonly controlled entity has incurred a
"partial withdrawal" within the meaning of ERISA (S) 4205 with respect to any
Multiemployer Plan; and (f) no Multiemployer Plan to which the Borrower or, to
the Borrower's
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knowledge, any commonly controlled entity has an obligation to contribute is in
"reorganization" within the meaning of ERISA (S) 4241, nor has notice been
received by the Borrower or any commonly controlled entity that such a
Multiemployer Plan will be placed in "reorganization".
4.1.18 Title to Properties.
The Borrower has good and marketable title to or good leasehold
interest in all of its properties, including, without limitation, the Collateral
and the properties and assets reflected in the Pro Forma Balance Sheet and the
balance sheets described in Section 4.1.11 (Financial Condition of Borrower)
above, subject to Permitted Liens.
4.1.19 Patents, Trademarks, Etc.
The Borrower and each of its Subsidiaries owns, possesses, or has the
right to use all necessary Patents, licenses, Trademarks, Copyrights, permits
and franchises to own their respective properties and to conduct their
respective businesses as now conducted, without known conflict with the rights
of any other Person. Any and all obligations to pay royalties or other charges
with respect to such properties and assets are properly reflected on the
financial statements furnished from time to time and described in Section 4.1.11
(Financial Condition of Borrower) above to the extent required by GAAP.
4.1.20 Employee Relations.
Except as disclosed on Schedule 4.1.20 attached hereto and made a part
of this Agreement, (a) neither the Borrower nor any Subsidiary thereof nor any
of the Borrower's or its Subsidiary's employees is subject to any collective
bargaining agreement, (b) no petition for certification or union election is
pending with respect to the employees of the Borrower or any Subsidiary and to
the Borrower's knowledge no union or collective bargaining unit has sought such
certification or recognition with respect to the employees of the Borrower or
any Subsidiary, (c) there are no strikes, slowdowns, work stoppages or
controversies pending or, to the best knowledge of the Borrower, threatened
between the Borrower or any Subsidiary and its employees, and (d) neither the
Borrower nor any Subsidiary is subject to an employment contract, severance
agreement, commission contract (other than contracts with sales
representatives), consulting agreement or bonus agreement. Hours worked and
payments made to the employees of the Borrower have not been in violation of the
Fair Labor Standards Act, or any other applicable Law dealing with such matters.
All payments due from the Borrower or any of its Subsidiaries or for which any
claim may be made against the Borrower or a Subsidiary, on account of wages and
employee and retiree health and welfare insurance and other benefits have been
paid or accrued as a liability on its books in accordance with applicable Laws.
The consummation of the transactions contemplated by the Financing Agreement or
any of the other Financing Documents, will not give rise to a right of
termination or right of renegotiation on the part of any union under any
collective bargaining agreement to which the Borrower or any of its Subsidiaries
is a party or by which it is bound.
4.1.21 Presence of Hazardous Materials or Hazardous Materials
Contamination.
To the best of the Borrower's knowledge, (a) no Hazardous Materials
are located on any real property owned, controlled or operated by the Borrower
or any of its Subsidiaries or for which the Borrower or any of its Subsidiaries
is, or is claimed to be, responsible, except for reasonable quantities of
necessary supplies for use by the Borrower or any of its Subsidiaries in the
ordinary course of its business and stored, used, managed after use and disposed
of in compliance with applicable Laws; and (b) no property owned, controlled or
operated by the Borrower or any of its Subsidiaries or for which the Borrower or
any of its
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Subsidiaries has, or is claimed to have, responsibility has ever been used as a
manufacturing or dump site for Hazardous Materials nor is affected by Hazardous
Materials Contamination at any other property.
4.1.22 Perfection and Priority of Collateral.
The Agent and the Lenders have, or upon execution and recording of
this Agreement and the Security Documents will have, and will continue to have
as security for the Obligations, a valid and perfected Lien on and security
interest in all Collateral, free of all other Liens, claims and rights of third
parties whatsoever except Permitted Liens.
4.1.23 Places of Business and Location of Collateral.
The information contained in the Collateral Disclosure List is
complete and correct. The Collateral Disclosure List completely and accurately
identifies the address of (a) the chief executive office of the Borrower, (b)
any and each other place of business of the Borrower, (c) the location of all
books and records pertaining to the Collateral, and (d) each location, other
than the foregoing, where any of the Collateral is located. The proper and only
places to file financing statements with respect to the Collateral within the
meaning of the Uniform Commercial Code are the filing offices for those
jurisdictions in which the Borrower maintains a place of business as identified
on the Collateral Disclosure List.
4.1.24 Business Names and Addresses.
Except as set forth in Collateral Disclosure List as in effect on the
Closing Date, in the five (5) years preceding the date hereof, the Borrower has
not changed its name, identity or corporate structure, has not conducted
business under any name other than its current name, and has not conducted its
business in any jurisdiction other than those disclosed on the Collateral
Disclosure List.
4.1.25 Equipment
No Equipment is held by the Borrower on a sale on approval basis.
4.1.26 Inventory.
As of the Closing Date, except to the extent from time to time
disclosed in Borrowing Base Reports provided to the Agent, the Inventory of the
Borrower is (a) of good and merchantable quality, free from defects, (b) not
stored with a bailee, warehouseman, carrier, or similar party, (c) not on
consignment, sale on approval, or sale or return, and (d) located at the places
of business set forth on the Collateral Disclosure List. No goods offered for
sale by the Borrower are consigned to or held on sale or return terms by the
Borrower. All Inventory manufactured or produced by the Borrower or any
Subsidiary has been and continues to be manufactured and produced in compliance
with all applicable requirements of Sections 6, 7 and 12 of the Fair Labor
Standards Act, as amended, and all regulations and orders of the United States
Department of Labor.
4.1.27 Accounts.
With respect to all of Borrower's Accounts, (a) they are genuine, and
in all respects what they purport to be, and are not evidenced by a judgment,
any Instruments and Chattel Paper (unless such judgment has been assigned and
such Instrument or Chattel Paper has been endorsed and delivered to the Agent
for the benefit of itself and the Lenders); (b) they represent bona fide
transactions completed in accordance with the terms and provisions
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contained in the invoices, purchase orders and other contracts relating thereto,
and the underlying transaction therefor is in accordance with all applicable
Laws; (c) the amounts shown on the Borrower's books and records, with respect
thereto are actually and absolutely owing to the Borrower and are not contingent
or subject to reduction for any reason other than regular discounts, credits or
adjustments in the ordinary course of its business; (d) no payments have been or
shall be made thereon except payments turned over to the Agent by the Borrower;
(e) to the best of the Borrower's knowledge (after due inquiry), all Account
Debtors thereon have the capacity to contract; and (f) the goods sold, leased or
transferred or the services furnished giving rise thereto are not subject to any
Liens except the security interest granted to the Agent and the Lenders by this
Agreement and Permitted Liens.
4.1.28 Compliance with Eligibility Standards.
Each Account of the Borrower and all Inventory included in the
calculation of the Borrowing Base does, as of the time of the most recent
Borrowing Base Report, meet and comply with all of the standards for Eligible
Receivables and Eligible Inventory. With respect to all Eligible Receivables set
forth in the most recent Borrowing Base Report (a) there are no facts, events or
occurrences known to the Borrower which in any way materially impair the
validity, collectability or enforceability thereof or tend to reduce the amount
payable thereunder; and (b) there are no proceedings or actions known to the
Borrower which are threatened or pending against any Account Debtor which could
reasonably be expected to result in any material adverse change in the Borrowing
Base.
4.1.29 Chatwins Merger
On or before the Closing Date, the Agent has received true and correct
photocopies of the Chatwins Merger Agreement and each of the Chatwins Merger
Documents, executed, delivered, and/or furnished on or before the Closing Date
in connection with the Chatwins Merger. Neither the Chatwins Merger Agreement
nor any of the Chatwins Merger Documents have been modified, changed,
supplemented, canceled, amended or otherwise altered or affected, except as
otherwise disclosed to the Agent in writing on or before the Closing Date or
except to the extent that Agent shall have given its prior written consent
thereto after the Closing Date. On the Closing Date, the Chatwins Merger will be
effected, closed and consummated pursuant to, and in accordance with, the terms
and conditions of the Chatwins Merger Agreement and in accordance with all
applicable Laws.
4.1.30 Oneida Merger
On or before the Closing Date, the Agent has received true and correct
photocopies of each of the Oneida Merger Documents, executed, delivered, and/or
furnished on or before the Closing Date in connection with the Oneida Merger.
None of the Oneida Merger Documents have been modified, changed, supplemented,
canceled, amended or otherwise altered or affected, except as otherwise
disclosed to the Agent in writing on or before the Closing Date or except to the
extent that Agent shall have given its prior written consent thereto after the
Closing Date. On the Closing Date, the Oneida Merger will be effected, closed
and consummated pursuant to, and in accordance with, the terms and conditions of
the Oneida Merger Documents and in accordance with all applicable Laws.
4.1.31 King-Way Merger
On or before the Closing Date, the Agent has received true and correct
photocopies of the King-Way Merger Agreement and each of the King-Way Merger
Documents, executed, delivered, and/or furnished on or before the Closing Date
in connection with the King-Way Merger. Neither the King-Way Merger Agreement
nor any of the King-Way Merger
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Documents have been modified, changed, supplemented, canceled, amended or
otherwise altered or affected, except as otherwise disclosed to the Agent in
writing on or before the Closing Date or except to the extent that Agent shall
have given its prior written consent thereto after the Closing Date. On the
Closing Date, the King-Way Merger will be effected, closed and consummated
pursuant to, and in accordance with, the terms and conditions of the King-Way
Merger Agreement and in accordance with all applicable Laws.
4.1.32 Year 2000 Compliance.
The Borrower has (i) initiated a review and assessment of all areas
within its and each of its Subsidiaries' business and operations (including
those affected by suppliers, vendors and customers) that could be adversely
affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by the Borrower or any of its Subsidiaries (or its suppliers,
vendors and customers) may be unable to recognize and perform properly date-
sensitive functions involving certain dates prior to and any date after December
31, 1999), (ii) developed a plan and timeline for addressing the Year 2000
Problem on a timely basis and (iii) to date, implemented that plan in accordance
with that timetable. Based on the foregoing, the Borrower believes that all
computer applications (including those of its suppliers, vendors and customers)
that are material to its or any of its Subsidiaries' business and operations are
reasonably expected on a timely basis to be able to perform properly date-
sensitive functions for all dates before and after January 1, 2000 (that is, be
"Year 2000 compliant").
Section 4.2 Survival; Updates of Representations and Warranties.
All representations and warranties contained in or made under or in
connection with this Agreement and the other Financing Documents shall survive
the Closing Date, the making of any advance under the Loans and extension of
credit made hereunder, and the incurring of any other Obligations and shall be
deemed to have been made at the time of each request for, and again at the time
the making of, each advance under the Loans or the issuance of each Letter of
Credit.
ARTICLE 5 CONDITIONS PRECEDENT
Section 5.1 Conditions to the Initial Advance and Initial Letter of Credit.
Except as set forth in the Post Closing Agreement, the making of the
initial advance under the Revolving Loans and the Term Loans, and the issuance
of any initial Letter of Credit, is subject to the fulfillment on or before the
Closing Date of the following conditions precedent in a manner satisfactory in
form and substance to the Agent and its counsel:
5.1.1 Organizational Documents.
The Agent shall have received from the Borrower:
(a) a certificate of good standing/legal existence certified by the
Secretary of State, or other appropriate Governmental Authority, of the state of
incorporation/formation of the Borrower;
(b) a certificate of qualification to do business for the Borrower
certified by the Secretary of State or other Governmental Authority of each
state in which the Borrower's business requires such qualification, except for
those states where the failure to so qualify could not reasonably be expected to
have Material Adverse Effect;
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(c) certificates dated as of the Closing Date by the Secretary or an
Assistant Secretary of the Borrower with respect to:
(i) true and complete copies of the Borrower's corporate
charter and bylaws, and all amendments thereto;
(ii) true and complete copies of the resolutions of its Board
of Directors authorizing (i) the execution, delivery and performance of the
Financing Documents to which it is a party, (ii) the borrowings by the
Borrower hereunder, and (iii) the granting of the Liens contemplated by
this Agreement and the Financing Documents to which it is a party; and
(iii) the incumbency, authority and signatures of the officers
of the Borrower authorized to sign this Agreement and the other Financing
Documents to which it is a party.
5.1.2 Opinions of Counsel.
The Agent shall have received (i) the favorable opinion of counsel for
the Borrower, (ii) the favorable opinion of each of Borrower's Pennsylvania,
North Carolina, Indiana, Wisconsin, Ohio, Oklahoma, Georgia, Illinois, Missouri,
Texas, West Virginia and Utah local counsels, and (iii) either the favorable
opinion, or the right to rely on a favorable opinion, of each counsel to any
party that is giving an opinion in connection with any of the Mergers. Each of
the foregoing opinions (or reliance documents) shall be addressed to the Agent
and each Lender in form satisfactory to the Agent and each Lender and each of
their respective counsel.
5.1.3 Consents, Licenses, Approvals, Etc.
The Agent shall have received, as certified by a Responsible Officer
of the Borrower, copies of all consents, licenses and approvals, required in
connection with the execution, delivery, performance, validity and
enforceability of the Financing Documents and such consents, licenses and
approvals shall be in full force and effect.
5.1.4 Notes.
The Agent shall have received for delivery to each of the Lenders the
Notes, each conforming to the requirements hereof and executed by a Responsible
Officer of the Borrower and attested, if required, by a duly authorized
representative of the Borrower.
5.1.5 Financing Documents and Collateral.
The Borrower shall have executed and delivered the Financing Documents
to be executed by it, and shall have delivered any Collateral consisting of
original Chattel Paper, Instruments, Securities, opinions, title insurance, and
other documents contemplated by ARTICLE 3 hereof.
5.1.6 Other Financing Documents.
In addition to the Financing Documents to be delivered by the
Borrower, the Agent shall have received the Financing Documents duly executed
and delivered by Persons other than the Borrower.
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5.1.7 Other Documents, Etc.
The Agent shall have received such other certificates, opinions,
documents and instruments confirmatory of or otherwise relating to the
transactions contemplated hereby as may have been reasonably requested by the
Agent.
5.1.8 Payment of Fees.
The Agent and the Lenders shall have received payment of any Fees due
on or before the Closing Date.
5.1.9 Collateral Disclosure List.
The Borrower shall have delivered the Collateral Disclosure List
required under the provisions of Section 3.3 (Collateral Disclosure List) hereof
duly executed by a Responsible Officer of the Borrower.
5.1.10 Recordings and Filings.
The Borrower shall have: (a) executed and delivered all Financing
Documents (including, without limitation, UCC-1 and UCC-3 statements) required
to be filed, registered or recorded in order to create, in favor of the Agent,
for the benefit of the Lenders and the Agent, a perfected Lien in the Collateral
in form and in sufficient number for filing, registration, and recording in each
office in each jurisdiction in which such filings, registrations and
recordations are required, and (b) delivered such evidence as the Agent may deem
satisfactory that all necessary filing fees and all recording and other similar
fees, and all Taxes and other expenses related to such filings, registrations
and recordings will be or have been paid in full.
5.1.11 Insurance Certificate.
The Agent shall have received an insurance certificate in accordance
with the provisions of Section 6.1.8 (Insurance) of this Agreement.
5.1.12 Landlord's Waivers.
The Agent shall have received a landlord's waiver from each landlord
of each and every business premise leased by the Borrower and on which any of
the Collateral is or may hereafter be located, which landlords' waivers must be
substantially in the form attached hereto as Exhibit "G-2" and otherwise
acceptable to the Agent and its counsel.
5.1.13 Bailee Acknowledgments.
The Agent shall have received an agreement acknowledging the Liens of
the Agent, for the benefit of the Lenders and the Agent, from each bailee,
warehouseman, consignee or similar third party which has possession of any of
the Collateral, which agreements must be substantially in the form attached
hereto as Exhibit "G-1" and otherwise acceptable to the Agent and its counsel.
5.1.14 Field Examination; Appraisals.
The Agent shall have completed a field examination of the Borrower's
business, operations and income, the results of which field examination shall be
in all respects acceptable to the Agent in its sole and absolute discretion and
shall include reference discussions
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with key customers and vendors. The Agent shall have received an appraisal of
the Borrower's machinery and equipment conducted by MEI Corporation, and an
appraisal for each parcel of real property owned by the Borrower conducted by
appraisers satisfactory to the Agent, which appraisals shall each be in such
form and content as may be required by the Agent.
5.1.15 Environmental Reports.
The Agent shall have received a phase I environmental site assessment
(together with such additional reports as the Agent shall require), conducted by
an environmental firm acceptable to Agent, for each parcel of real property
covered by the Mortgages, which assessments and reports shall be satisfactory to
the Agent.
5.1.16 Title Work.
The Agent shall have received a title policy in ALTA form and
otherwise satisfactory to the Agent, for each parcel of real property covered by
the Mortgages.
5.1.17 Surveys.
The Agent shall have received a survey for each parcel of real
property covered by the Mortgages, performed by a surveyor with qualifications
acceptable to the Agent, certified to the Agent, and complying with the minimum
detail requirements for land title surveys as adopted by the American Land Title
Association and Congress on Surveying and Mapping.
5.1.18 Proforma Balance Sheet and Projections.
The Agent shall have received and approved the Borrower's Proforma
Balance Sheet and Proforma Financial Projections, which Proforma Balance Sheet
and Proforma Financial Projections must be in form and content acceptable to the
Agent.
5.1.19 Material Adverse Change.
No material adverse change shall have occurred in the condition
(financial or otherwise), operations or business of the Borrower since the date
of the financial statements attached hereto as Schedule 5.1.19.
5.1.20 Collateral Account, Lockbox, etc.
The Borrower shall have established a Collateral Account, Lockbox,
controlled disbursement account and all other accounts required under this
Agreement.
5.1.21 Minimum Required Availability at Closing.
On the Closing Date, the aggregate outstanding principal amount of the
Revolving Loan and the current stated amount of the Letters of Credit shall not
exceed an amount equal to (i) the lesser of (A) the Borrowing Base minus the
Reserve Amount or (B) the Revolving Credit Committed Amount, minus (ii) Three
Million Five Hundred Thousand Dollars ($3,500,000), such amount to be determined
after application of the Permitted Uses of the Revolving Loan required to be
made on the Closing Date, the amount of the costs relating to the closing of
this Agreement (including, without limitation, applicable Fees, recording costs,
recording taxes, and the fees and expenses of the Borrower's and the Agent's
professionals).
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5.1.22 Indenture.
The Agent shall have received evidence satisfactory to the Agent, in
its sole discretion, that the Loans and other transactions contemplated hereby
(including without limitation the Mergers) will not violate the provisions of
the Indenture, including without limitation that certain Fifth Supplemental
Indenture, dated as of March 16, 2000, pursuant to which the holders of the
Senior Notes have (i) eliminated from the Indenture and any related documents
any prohibition or limitation on the Borrower's ability to pledge any of its
assets to the Agent for the benefit of the Agent and the Lenders as security for
the Obligations (including the Agent's Obligations, (ii) waived all defaults
existing as of the Closing Date under the Indenture and any related documents,
(iii) consented to the Chatwins Merger, and (iv) waived any requirement that the
Borrower offer to repurchase any more than $2,525,000 in principal amount of the
Senior Notes in June 2000, such waivers or amendments to be satisfactory in form
and substance to the Agent, in its sole discretion.
5.1.23 Mergers.
The Agent shall have received (a) evidence satisfactory to the Agent,
in its sole discretion, that each of the Mergers has been or will be on the
Closing Date consummated in accordance with all applicable Laws, and (b) copies
of all of the Merger Documents, certified as true, correct and complete by a
Responsible Officer of the Borrower.
5.1.24 Completion of Schedules.
The Agent shall have received and approved all Schedules to this
Agreement fully completed.
Section 5.2 Conditions to all Extensions of Credit.
The making of all advances under the Loans and the issuance of all
Letters of Credit is subject to the fulfillment of the following conditions
precedent in a manner satisfactory in form and substance to the Agent and its
counsel:
5.2.1 Borrowing Base; Other Conditions.
The Borrower shall have furnished all Borrowing Base Reports required
by Section 2.1.4 (Borrowing Base Report) of this Agreement, there shall exist no
Borrowing Base Deficiency, and as evidence thereof, the Borrower shall have
furnished to the Agent such reports, schedules, certificates, records and other
papers as may be reasonably requested by the Agent and the Borrower shall have
complied with the other terms and conditions for advances and Letters of Credit
contained in ARTICLE 2.
5.2.2 Default.
There shall exist no Event of Default or Default hereunder, and none
shall arise immediately before or immediately after the making of the advance or
issuance of the Letter of Credit requested.
5.2.3 Representations and Warranties.
The representations and warranties of the Borrower contained among the
provisions of this Agreement or in any report, statement, schedule, certificate,
financial statement or other document furnished in connection with this
Agreement or any of the other Financing Documents shall be true and with the
same effect as though such representations and warranties
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had been made at the time of the making of, and of the request for, each advance
under the Loans or the issuance of each Letter of Credit, except that the
representations and warranties which relate to financial statements which are
referred to in Section 4.1.11 (Financial Condition of Borrower) shall also be
deemed to cover financial statements furnished from time to time to the Agent
pursuant to Section 6.1.1 (Financial Statements) of this Agreement and except to
the extent such representations were made only as of a specific date.
5.2.4 Legal Matters.
All legal documents incident to each advance under the Loans and the
issuance of each Letter of Credit shall be satisfactory to counsel for the
Agent.
5.2.5 Adverse Change.
No change shall have occurred in the condition (financial or
otherwise), operations or business of the Borrower and its Subsidiaries since
the Closing Date which could reasonably be expected to constitute a Material
Adverse Effect.
ARTICLE 6 COVENANTS OF THE BORROWER
Section 6.1 Affirmative Covenants.
So long as any of the Obligations (or any of the Commitments therefor)
shall be outstanding hereunder, the Borrower agrees with the Agent and Lenders
as follows:
6.1.1 Financial Statements.
(a) Annual Statements and Certificates. The Borrower shall furnish to
the Agent and the Lenders as soon as available, but in no event more than ninety
(90) days after the close of each fiscal year of the Borrower, (i) a copy of the
annual financial statement in reasonable detail satisfactory to the Agent
relating to the Borrower and its Subsidiaries, prepared in accordance with GAAP
and examined and audited by independent certified public accountants of
nationally recognized standing, which financial statement shall include a
consolidated balance sheet of the Borrower and its Subsidiaries as of the end of
such fiscal year and consolidated statement of income, and consolidated
statements of cash flows and changes in shareholders equity of the Borrower and
its Subsidiaries for such fiscal year, (ii) an unaudited consolidating balance
sheet of the Borrower and its Subsidiaries as of the end of such fiscal year and
an unaudited consolidating statement of income for such fiscal year, and (iii) a
Compliance Certificate, in substantially the form attached to this Agreement as
Exhibit "F", containing a detailed computation of each financial covenant in
this Agreement which is applicable for the period reported, and a certification
that no change has occurred to the information contained in the Collateral
Disclosure List (except as set forth any schedule attached to the
certification), each prepared by a Responsible Officer of the Borrower in a
format acceptable to the Agent and (iii) a management letter in the form
prepared by the Borrower's independent certified public accountants.
(b) Annual Opinion of Accountant. The Borrower shall furnish to the
Agent and Lenders as soon as available, but in no event more than one hundred
twenty (120) days after the close of each fiscal year of the Borrower, a letter
or opinion of the accountant who examined and certified the annual financial
statement relating to the Borrower and its Subsidiaries stating whether anything
in such accountant's examination has revealed the occurrence of a Default or an
Event of Default hereunder relating to financial and accounting matters, and, if
so, stating the facts with respect thereto.
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(c) Monthly Statements and Certificates. The Borrower shall furnish to
the Agent and Lenders as soon as available, but in no event more than thirty
(30) days after the close of each fiscal month of the Borrower (or, with respect
to any fiscal month end that is also a (i) fiscal quarter end (but not a fiscal
year end), no more than forty-five (45) days after the close of such fiscal
quarter, and (ii) fiscal year end, no more than ninety (90) days after the close
of such fiscal year), consolidated and consolidating balance sheets and income
statements of the Borrower and its Subsidiaries as of the close of and for such
period, consolidated cash flows and changes in shareholders equity statements
for such period, and a Compliance Certificate, in substantially the form
attached to this Agreement as Exhibit "F", containing a detailed computation of
each financial covenant in this Agreement which is applicable for each month
which is the end of a fiscal quarter of the Borrower and a certification that no
change has occurred to the information contained in the Collateral Disclosure
List (except as set forth on any schedule attached to the certification), all as
prepared and certified by a Responsible Officer of the Borrower and accompanied
by a certificate of that officer stating whether any event has occurred which
constitutes a Default or an Event of Default hereunder, and, if so, stating the
facts with respect thereto.
(d) Monthly Reports. The Borrower shall furnish to the Agent and
Formula Lenders within twenty (20) days after the end of each fiscal month a
report containing the following information:
(i) a detailed aging schedule of all Receivables by Account
Debtor, in such detail, and accompanied by such supporting
information, as the Agent may from time to time request;
(ii) a detailed aging of all accounts payable by supplier, in
such detail, and accompanied by such supporting information, as the
Agent may from time to time request;
(iii) a listing of all Inventory by component, category and
location, in such detail, and accompanied by such supporting
information as the Agent may from time to time request; and
(iv) such other information as the Agent may reasonably
request.
(e) Annual Budget and Projections. The Borrower shall furnish to the
Agent and Lenders as soon as available, but in no event later than the thirtieth
(30th) day after the end of each fiscal year:
(i) a consolidated budget and pro forma financial statements
(including balance sheets, cash flow statements and income statements)
on a month-to-month basis for the following fiscal year, and
(ii) one (1) year projections.
(f) Additional Reports and Information. The Borrower shall furnish to
the Agent and Lenders promptly, such additional information, reports or
statements as the Agent may from time to time reasonably request.
6.1.2 Reports to SEC and to Stockholders.
The Borrower shall furnish to the Agent (and the Agent shall promptly
furnish same to the Lenders), promptly upon the filing or making thereof, at
least one (1) copy of
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all financial statements, reports, notices and proxy statements sent by the
Borrower to its stockholders of the type customarily sent to shareholders of a
public corporation, and of all regular and other reports filed by the Borrower
with any securities exchange or with the Securities and Exchange Commission.
6.1.3 Recordkeeping, Rights of Inspection, Field Examination, Etc.
(a) The Borrower shall, and shall cause each of its Domestic
Subsidiaries to, maintain (i) a standard system of accounting in accordance with
GAAP, and (ii) proper books of record and account in which full, true and
correct entries are made of all dealings and transactions in relation to its
properties, business and activities.
(b) The Borrower shall, and shall cause each of its Domestic
Subsidiaries to, permit authorized representatives of the Agent, accompanied by
authorized representatives of the other Lenders, to visit and inspect the
properties of the Borrower and such Domestic Subsidiaries, to review, audit,
check and inspect the Collateral at any time with or without notice (subject to
the provisions set forth below), to review, audit, check and inspect the
Borrower's other books of record at any time with or without notice (subject to
the provisions set forth below), and to make abstracts and photocopies thereof,
and to discuss the affairs, finances and accounts of the Borrower and its
Domestic Subsidiaries, with the officers, directors, employees and other
representatives of the Borrower and its Domestic Subsidiaries and their
respective accountants, all at such times during normal business hours and other
reasonable times and as often as the Agent may reasonably request. The Agent and
the Lenders shall give reasonable notice of visits and inspections; provided
however, that the Borrower acknowledges and agrees that (i) no notice need be
given if there exists an Event of Default or a Default or if information
provided by or at the direction of the Borrower regarding the Collateral or the
Borrower's financial condition has been intentionally misstated; and (ii) the
Borrower shall not prevent any visit or inspection if the Agent, any Lender or a
representative thereof advises (which advice may be oral) the Borrower that no
notice is required because the inspection is being made pursuant to Section
6.1.3(b) of this Agreement. For the purpose of the foregoing, the Agent and
Lenders shall have, and are hereby granted, a right of ingress and egress to the
places where the Collateral is located, and may proceed over and through any of
the Borrower's owned or leased property. The Agent intends to conduct field
examinations on a quarterly basis.
(c) The Borrower hereby irrevocably authorizes and directs all
accountants and auditors employed by the Borrower and/or any of its Subsidiaries
at any time prior to the repayment in full of the Obligations to discuss freely
with the Agent or any Lender any information they may have concerning the
financial status and business operations of the Borrower and/or any Subsidiaries
and to exhibit and deliver to the Agent and Lenders copies of the financial
statements, trial balances, management letters, or other accounting records of
any nature of the Borrower and/or any of its Subsidiaries in the accountant's or
auditor's possession, provided that the Borrower shall have the right to
participate in any meetings between the Agent and/or Lenders with the Borrower's
accountants or auditors. Further, the Borrower hereby authorizes all
Governmental Authorities to furnish to the Agent and Lenders copies of reports
or examinations relating to the Borrower and/or any of its Subsidiaries, whether
made by the Borrower or otherwise.
(d) Any and all reasonable out-of-pocket costs and expenses incurred
by, or on behalf of, the Agent in connection with the conduct of any of the
foregoing (including, but not limited to, those costs and expenses of the
Agent's agents, representatives, attorneys and accounting firms) shall be part
of the Enforcement Costs and shall be payable to the Agent upon demand. The
Borrower acknowledges and agrees that such expenses may include, but shall not
be limited to, any and all reasonable out-of-pocket costs and expenses of the
Agent's employees and agents in, and when, traveling to the Borrower's
facilities.
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6.1.4 Legal Existence.
The Borrower shall, subject to Section 6.2.1 (Merger, Acquisition or
Sale of Assets.), maintain, and cause each of its Domestic Subsidiaries (other
than Inactive Subsidiaries) to maintain, its legal existence in good standing in
the jurisdiction in which it is incorporated and in each other jurisdiction
where it is required to register or qualify to do business if the failure to do
so in such other jurisdiction could reasonably be expected to have a Material
Adverse Effect.
6.1.5 Compliance with Laws.
The Borrower shall comply, and cause each of its Subsidiaries to
comply, with all applicable Laws and observe the valid requirements of
Governmental Authorities, the noncompliance with or the nonobservance of which
could reasonably be expected to have a Material Adverse Effect.
6.1.6 Preservation of Properties.
The Borrower will, and will cause each of its Domestic Subsidiaries
(other than Inactive Subsidiaries) to, at all times (a) maintain, preserve,
protect and keep its properties, whether owned or leased, in good operating
condition, working order and repair (ordinary wear and tear excepted), and from
time to time will make all proper repairs, maintenance, replacements, additions
and improvements thereto needed to maintain such properties in good operating
condition, working order and repair, and (b) do or cause to be done all things
necessary to preserve and to keep in full force and effect its material
franchises, leases of real and personal property, trade names, patents,
trademarks and permits which are necessary for the continuance of its business.
6.1.7 Line of Business.
The Borrower will continue to engage substantially only in (i) the
business of manufacturing and marketing fabricated and machined industrial parts
and products, (ii) the business of manufacturing any high volume precision
plastic products and providing engineered plastics services, and (iii) business
reasonably related thereto.
6.1.8 Insurance.
The Borrower will, and will cause each of its Domestic Subsidiaries
(other than Inactive Subsidiaries) to, at all times maintain with "A" or better
rated insurance companies (as rated by Best to the extent such rating system is
in effect) such insurance as is required by applicable Laws and such other
insurance, in such amounts, of such types and against such risks, hazards,
liabilities, casualties and contingencies as are usually insured against in the
same geographic areas by business entities engaged in the same or similar
business. In the event an insurance company's rating at any time falls below
"A", the Borrower will replace the insurance company at the next policy renewal
date or within thirty (30) days after such rating falls below "A", whichever is
later. Without limiting the generality of the foregoing, the Borrower will, and
will cause each of its Domestic Subsidiaries (other than Inactive Subsidiaries)
to, keep adequately insured all of its property against loss or damage resulting
from fire or other risks insured against by extended coverage and maintain
public liability insurance against claims for personal injury, death or property
damage occurring upon, in or about any properties occupied or controlled by it,
or arising in any manner out of the businesses carried on by it, all in such
amounts not less than the Agent shall reasonably determine from time to time
based on the foregoing standard. The Borrower shall deliver to the Agent on the
Closing Date (and thereafter on each date there is a change in the insurance
coverage) (i) a certificate of a Responsible Officer
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of the Borrower containing a detailed list of the insurance then in effect,
stating the names of the insurance companies, the types, the amounts and rates
of the insurance, dates of the expiration thereof and the properties and risks
covered thereby, (ii) certificates of insurance on ACORD 27 form, naming the
Agent as certificate holder, additional insured, mortgagee and loss payee, and
(iii) a Standard Insurance Endorsement Lender's Loss Payable Clause in
substantially the form attached to this Agreement as Exhibit "I". Within thirty
(30) days after notice in writing from the Agent, the Borrower shall obtain such
additional insurance as the Agent or Requisite Lenders may reasonably request to
comply with the provisions of this Section 6.1.8.
6.1.9 Taxes.
Except to the extent that the validity or amount thereof is being
contested in good faith and by appropriate proceedings and the Borrower has
maintained adequate reserves with respect thereto in accordance with GAAP, the
Borrower will, and will cause each of its Subsidiaries, to pay and discharge all
Taxes prior to the date when any interest or penalty would accrue for the
nonpayment thereof. The Borrower shall furnish to the Agent at such times as the
Agent may require proof reasonably satisfactory to the Agent of the making of
payments or deposits required by applicable Laws including, without limitation,
payments or deposits with respect to amounts withheld by the Borrower from wages
and salaries of employees and amounts contributed by the Borrower on account of
federal and other income or wage taxes and amounts due under the Federal
Insurance Contributions Act, as amended.
6.1.10 ERISA.
The Borrower will, and will cause each of its Domestic Subsidiaries
and Affiliates to, comply with the funding requirements of ERISA with respect to
employee pension benefit plans for its respective employees. The Borrower will
not permit with respect to any employee benefit plan or plans covered by Title
IV of ERISA (a) any prohibited transaction or transactions under ERISA or the
Internal Revenue Code, which could reasonably be expected to result in a
Material Adverse Effect, or (b) any Reportable Event if, upon termination of the
plan or plans with respect to which one or more such Reportable Events shall
have occurred, there is or would be any liability of the Borrower and/or any of
its Subsidiaries and Affiliates to the PBGC, which could reasonably be expected
to result in a Material Adverse Effect. Upon the Agent's request, the Borrower
will promptly deliver to the Agent a copy of the most recent actuarial report,
financial statements and annual report completed with respect to any "defined
benefit plan", as defined in Section 3(35) of ERISA.
6.1.11 Notification of Events of Default and Adverse Developments.
The Borrower shall promptly notify the Agent and the Lenders upon
obtaining knowledge of the occurrence of:
(a) any Event of Default;
(b) any Default;
(c) any litigation instituted or threatened against the
Borrower or any of its Subsidiaries and of the entry of any judgment
or Lien (other than any Permitted Liens) against any of the assets or
properties of the Borrower or any Subsidiary where the claims against
the Borrower or any Subsidiary exceed Two Hundred Fifty Thousand
Dollars ($250,000) and are not covered by insurance;
(d) any event, development or circumstance whereby the
financial statements furnished hereunder fail in any material respect
to present fairly, in
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accordance with GAAP, the financial condition
and operational results of the Borrower or any Subsidiary;
(e) any judicial, administrative or arbitral proceeding pending
against the Borrower or any of its Subsidiaries and any judicial or
administrative proceeding known by the Borrower to be threatened
against the Borrower or any Subsidiary which, if adversely decided,
could reasonably be expected to have a Material Adverse Effect;
(f) the receipt by the Borrower or any Subsidiary of any
notice, claim or demand from any Governmental Authority which alleges
that the Borrower or any Subsidiary is in violation of any of the
terms of, or has failed to comply in any material respect with any
applicable Laws regulating its operation and business, including, but
not limited to, the Occupational Safety and Health Act and the
Environmental Protection Act, which could reasonably be expected to
have a Material Adverse Effect; and
(g) any other development in the business or affairs of the
Borrower or any of its Subsidiaries which could reasonably be expected
to have a Material Adverse Effect;
in each case describing in detail reasonably satisfactory to the Agent the
nature thereof and the action the Borrower proposes to take with respect
thereto.
6.1.12 Hazardous Materials; Contamination.
The Borrower agrees to:
(a) give notice to the Agent immediately upon acquiring
knowledge of the presence of any Hazardous Materials or any Hazardous
Materials Contamination on any property owned, operated or controlled by
the Borrower or for which the Borrower is, or is claimed to be, responsible
(provided that such notice shall not be required for Hazardous Materials
placed or stored on such property in accordance with applicable Laws in the
ordinary course of the Borrower's line of business described in Section
6.1.7 above), with a full description thereof;
(b) promptly comply in all material respects with any Laws
requiring the removal, treatment or disposal of Hazardous Materials or
Hazardous Materials Contamination and, if requested by the Agent or any
Lender, provide the Agent with satisfactory evidence of such compliance;
(c) provide the Agent, within ten (10) days after a demand by
the Agent, with a bond, letter of credit or similar financial assurance
evidencing to the Agent's satisfaction that the necessary funds are
available to pay the cost of removing, treating, and disposing of such
Hazardous Materials or Hazardous Materials Contamination and discharging
any Lien which may be established as a result thereof on any property
owned, operated or controlled by the Borrower or for which the Borrower is,
or is claimed to be, responsible; and
(d) as part of the Obligations, defend, indemnify and hold
harmless the Agent, each of the Lenders and each of their respective
directors, officers, agents, employees, trustees, successors and assigns
from any and all claims which may now or in the future (whether before or
after the termination of this Agreement) be asserted as a result of the
presence of any Hazardous Materials or any Hazardous Materials
Contamination on any property owned, operated or controlled by the Borrower
for which the Borrower is, or is claimed to be, responsible. The Borrower
acknowledges and agrees
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that this indemnification shall survive the termination of this Agreement
and the Commitments and the payment and performance of all of the other
Obligations.
6.1.13 Disclosure of Significant Transactions.
The Borrower shall deliver to the Agent a written notice describing in
reasonable detail each transaction by it involving the purchase, sale, lease, or
other acquisition or loss or casualty to or disposition of an interest in Fixed
or Capital Assets which exceeds Two Hundred Fifty Thousand Dollars ($250,000),
said notices to be delivered to the Agent within ten (10) days of the occurrence
of each such transaction.
6.1.14 Financial Covenants.
(a) Fixed Charge Coverage Ratio. The Borrower will maintain a Fixed
Charge Coverage Ratio, tested as of the last day of each of the Borrower's
fiscal quarters, for the Testing Period applicable to such date, of not less
than the amount set forth opposite such date below:
<TABLE>
<CAPTION>
Date Fixed Charge Coverage Ratio
- -------------------------------------------------------------------------------
<S> <C>
June 30, 2000 1.15 to 1
- -------------------------------------------------------------------------------
September 30, 2000 1.20 to 1
- -------------------------------------------------------------------------------
December 31, 2000 1.25 to 1
- -------------------------------------------------------------------------------
March 31, 2001, and each fiscal quarter end 1.25 to 1
thereafter
- --------------------------------------------------------------------------------
</TABLE>
(b) Funded Debt to EBITDA. The Borrower will maintain, tested as
the last day of each of the Borrower's fiscal quarters, for the Testing Period
applicable to such date, a ratio of (i) Funded Debt to (ii) EBITDA of not
greater than the amount set forth opposite such date below:
<TABLE>
<CAPTION>
Date Funded Debt to EBITDA Ratio
- -------------------------------------------------------------------------------
<S> <C>
December 31, 2000/1/ 3.75 to 1
- -------------------------------------------------------------------------------
March 31, 2001 3.75 to 1
- -------------------------------------------------------------------------------
June 30, 2001 3.50 to 1
- -------------------------------------------------------------------------------
September 30, 2001 3.25 to 1
- -------------------------------------------------------------------------------
- --------------------
/1/ For purposes of calculating the Borrower's Funded Debt to EBITDA Ratio for
this date, EBITDA for the applicable Testing Period will be annualized.
</TABLE>
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<TABLE>
<S> <C>
December 31, 2001, and each fiscal quarter 3.00 to 1
end thereafter
- -------------------------------------------------------------------------------
</TABLE>
6.1.15 Collection of Receivables.
Until such time that the Agent shall have notified the Borrower of the
revocation of such privilege following the occurrence of an Event of Default and
subject to the terms and provisions of Section 2.1.8 (The Collateral Account)
hereof, the Borrower and its Subsidiaries shall at their own expense have the
privilege for the account of, and in trust for, the Agent and the Lenders of
collecting their Receivables and receiving in respect thereto all Items of
Payment and shall otherwise completely service all of the Receivables including
(a) the billing, posting and maintaining of complete records applicable thereto,
(b) the taking of such action with respect to the Receivables, as the Borrower
and each of the Subsidiaries may deem advisable; and (c) the granting, in the
ordinary course of business, to any Account Debtors rebates, refunds or
adjustments, and may accept, in connection therewith, the return of goods, the
sale or lease of which shall have given rise to a Receivable and may take such
other actions relating to the settling of any Account Debtor's claim as may be
commercially reasonable. The Agent may, at its option, and shall, at the
direction of the Requisite Lenders, at any time or from time to time following
the occurrence and during the continuance of an Event of Default revoke the
collection privilege given in this Agreement to the Borrower and each of the
Subsidiaries by either giving notice of its assignment of, and Lien on the
Collateral to the Account Debtors or giving notice of such revocation to the
Borrower. The Agent shall not have any duty to, and the Borrower hereby
releases the Agent and the Lenders from all claims of loss or damage caused by
the delay or failure to collect or enforce any of the Receivables or to preserve
any rights against any other party with an interest in the Collateral.
6.1.16 Assignments of Receivables.
The Borrower will following the occurrence and during the continuance
of an Event of Default, upon request, execute and deliver to the Agent written
assignments, in form and content acceptable to the Agent, of specific
Receivables or groups of Receivables; provided, however, the Lien and/or
security interest granted to the Agent for the benefit of the Lenders and the
Agent, under this Agreement shall not be limited to in any way to or by the
inclusion or exclusion of Receivables within such assignments. Receivables so
assigned shall secure payment of the Obligations and are not sold to the Agent
and/or the Lenders whether or not any assignment thereof, which is separate from
this Agreement, is in form absolute. The Borrower agrees that neither any
assignment to the Agent or any Lender nor any other provision contained in this
Agreement or any of the other Financing Documents shall impose on the Agent or
any Lender any obligation or liability of the Borrower with respect to that
which is assigned, and the Borrower hereby agrees to indemnify the Agent and
each Lender and hold the Agent and each Lender harmless from any and all claims,
actions, suits, losses, damages, costs, expenses, fees, obligations and
liabilities which may be incurred by or imposed upon the Agent or any Lenders by
virtue of the assignment of and Lien on the Borrower's rights, title and
interest in, to, and under the Collateral.
6.1.17 Government Accounts.
The Borrower will promptly notify the Agent if any of the Receivables
arise out of contracts with the United States or with any other Governmental
Authority, and, as appropriate, execute any Instruments and take any steps
reasonably required by the Agent in order that all moneys due and to become due
under such contracts shall be assigned to the Agent,
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for the benefit of the Lenders and the Agent, and notice thereof given to the
Governmental Authority under the Federal Assignment of Claims Act or any other
applicable Laws.
6.1.18 Notice of Returned Goods, etc.
The Borrower will promptly notify, and will cause the Subsidiaries to
promptly notify, the Agent of the return, rejection or repossession of any goods
sold or delivered in respect of any Receivables, and of any claims made in
regard thereto to the extent that the aggregate purchase price of any such goods
in any given calendar month exceeds in the aggregate $350,000 for such month.
6.1.19 Inventory.
With respect to the Inventory, the Borrower will: (a) as soon as
possible upon demand by the Agent from time to time, prepare and deliver to the
Agent designations of Inventory specifying the Borrower's cost of Inventory and
such other matters and information relating to the Inventory as the Agent may
reasonably request; (b) keep correct and accurate records itemizing and
describing the kind, type, quality and quantity of Inventory, the Borrower's
cost therefor and the selling price thereof, all of which records shall be
available to the officers, employees and agents of the Agent upon demand in
accordance with the terms hereof for inspection and copying thereof; and (c) not
store Inventory having an aggregate value (determined at the lesser of cost or
market value) of any greater than Two Hundred Fifty Thousand Dollars ($250,000)
at any one time with a bailee, warehouseman or similar Person without the
Agent's prior written consent (unless such bailee, warehouseman or Person has
executed and delivered a Bailee Waiver in favor of the Agent and/or such other
instruments or documents as Agent may reasonably request), which consent shall
not be unreasonably withheld and may be conditioned on prior to storage (i) the
filing of appropriate financing statements in the jurisdiction in which such
warehouse or other facility is located, (ii) delivery by the bailee,
warehouseman or similar Person to the Agent of (A) warehouse receipts, in form
acceptable to the Agent, in the name of the Agent evidencing the storage of
Inventory and the interests of the Agent and the Lenders therein and (B) an
acknowledgment of receipt of notice of the Liens of the Agent and/or the Lenders
in the Borrower's Inventory, and (iii) other reasonable conditions.
6.1.20 Defense of Title and Further Assurances.
At its expense, the Borrower will defend the title to the Collateral
(and any part thereof), and will promptly execute, acknowledge and deliver any
financing statement, renewal, affidavit, deed, assignment, continuation
statement, security agreement, certificate or other document which the Agent may
require in order to perfect, preserve, maintain, continue, protect and/or extend
the Lien or security interest granted to the Agent, for the benefit of the
Lenders and the Agent, under this Agreement, under any of the other Financing
Documents and the first priority of that Lien, subject only to the Permitted
Liens. The Borrower will from time to time do whatever the Agent may reasonably
require by way of obtaining, executing, delivering, and/or filing financing
statements, landlords' or mortgagees' waivers, notices of assignment and other
notices and amendments and renewals thereof and the Borrower will take any and
all steps and observe such formalities as the Agent may require, in order to
create and maintain a valid Lien upon, pledge of, or paramount security interest
in, the Collateral, subject to the Permitted Liens. The Borrower shall pay to
the Agent on demand all taxes, reasonable costs and expenses incurred by the
Agent in connection with the preparation, execution, recording and filing of any
such document or instrument. To the extent that the proceeds of any of the
Accounts or Receivables of the Borrower are expected to become subject to the
control of, or in the possession of, a party other than the Borrower or the
Agent, the Borrower shall cause all such parties to execute and deliver on the
Closing Date security documents, financing statements or other documents as
requested by the Agent and as may be necessary to evidence and/or perfect
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the security interest of the Agent, for the benefit of the Lenders and the
Agent, in those proceeds. The Borrower agrees that a copy of a fully executed
security agreement and/or financing statement shall be sufficient to satisfy for
all purposes the requirements of a financing statement as set forth in Article 9
of the applicable Uniform Commercial Code. The Borrower hereby irrevocably
appoints the Agent as the Borrower's attorney-in-fact, with power of
substitution, in the name of the Agent or in the name of the Borrower or
otherwise, for the use and benefit of the Agent for itself and the Lenders, but
at the cost and expense of the Borrower and without notice to the Borrower, to
execute and deliver any and all of the instruments and other documents and take
any action which the Agent may require to perfect, preserve, maintain, continue,
protect and/or extend the Lien or security interest granted to the Agent, for
the benefit of the Lenders and the Agent, under this Agreement, under any of the
other Financing Documents and the first priority of that Lien, subject only to
the Permitted Liens.
6.1.21 Equipment.
The Borrower shall hold no Equipment on a sale on approval basis. The
Borrower hereby declares its intent that, notwithstanding the means of
attachment, no goods of the Borrower hereafter attached to any realty shall be
deemed a fixture, which declaration shall be irrevocable, until all of the
Obligations have been paid in full and all of the Commitments and Letters of
Credit have been terminated or have expired.
6.1.22 Business Names; Locations.
The Borrower will notify and cause each of its Domestic Subsidiaries
(other than Inactive Subsidiaries) to notify the Agent (a) not less than thirty
(30) days prior to (i) any change in the name under which the Borrower or the
applicable Domestic Subsidiary (other than Inactive Subsidiaries) conducts its
business, or (ii) any change of the location of the chief executive office of
the Borrower or any Domestic Subsidiary (other than Inactive Subsidiaries), and
(b) within ten (10) days after the opening of any new place of business or the
closing of any existing place of business, and any change in the location of the
places where the Collateral, or any part thereof, or the books and records, or
any part thereof, are kept.
6.1.23 Subsequent Opinion of Counsel as to Recording Requirements.
In the event that the Borrower shall transfer its chief executive
office or the office where it keeps its records pertaining to the Collateral,
upon the Agent's reasonable request, the Borrower will provide to the Agent a
subsequent opinion of counsel as to the filing, recording and other requirements
with which the Borrower has complied to maintain the Lien and security interest
in favor of the Agent, for the benefit of the Lenders and the Agent, in the
Collateral.
6.1.24 Use of Premises and Equipment.
The Borrower agrees that until the Obligations are fully paid and all
of the Commitments and the Letters of Credit have been terminated or have
expired, the Agent (or its agents) (a) after the occurrence and during the
continuance of an Event of Default, may use the Borrower's owned or leased
lifts, hoists, trucks and other facilities or equipment for handling or removing
the Collateral; and (b) in connection with the Agent's right to inspect the
Collateral and exercise rights and remedies during an Event of Default, shall
have, and is hereby granted, a right of ingress and egress to the places where
the Collateral is located, and may proceed over and through the Borrower's owned
or leased property.
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6.1.25 Protection of Collateral.
The Borrower agrees that the Agent may at any time following the
occurrence and during the continuance of an Event of Default take such steps as
the Agent deems necessary to protect the interest of the Agent and the Lenders
in, and to preserve the Collateral, including, the hiring of such security
guards or the placing of other security protection measures as the Agent deems
appropriate, may employ and maintain at the Borrower's premises a custodian who
shall have full authority to do all acts necessary to protect the interests of
the Agent and the Lenders in the Collateral and may lease warehouse facilities
to which the Agent may move all or any part of the Collateral to the extent
commercially reasonable. At any time following the occurrence and during the
continuance of an Event of Default, the Borrower agrees to cooperate fully with
the Agent's efforts to preserve the Collateral and will take such actions to
preserve the Collateral as the Agent may direct. All of the Agent's expenses of
preserving the Collateral as contemplated under this Section 6.1.25, including
any expenses relating to the compensation and bonding of a custodian, shall part
of the Enforcement Costs.
6.1.26 Retention of Investment Banking Firm.
If the Borrower has not effected each of the Permitted Asset
Dispositions (other than the disposition by the Borrower of the Hanna Real
Property) by December 31, 2000, and any portion of the Term Loan B remains
outstanding on such date, the Borrower shall, upon the Agent's written request,
engage an investment banking firm acceptable to the Agent, in its reasonable
discretion, by no later than January 31, 2001, to assist the Borrower in
exploring strategies for effecting such Permitted Asset Dispositions.
Section 6.2 Negative Covenants.
So long as any of the Obligations or the Commitments or Letter of
Credit therefor shall be outstanding hereunder, the Borrower agrees with the
Agent and the Lenders that without the prior written consent of the Requisite
Lenders:
6.2.1 Merger, Acquisition or Sale of Assets.
Neither the Borrower nor any of its Domestic Subsidiaries (other than
Inactive Subsidiaries) will (a) alter or amend its capital structure, (b)
authorize any additional class of equity shares, (c) issue any stock or equity
of any class (except that the Borrower may issue common stock to holders of its
preferred stock in exchange for such preferred stock), (d) enter into any merger
or consolidation or amalgamation (other than (i) mergers of Subsidiaries with or
into other Subsidiaries and (ii) the Mergers), (e) windup or dissolve itself (or
suffer any liquidation or dissolution), (f) acquire all or substantially all of
the assets or any Person (other than (i) the acquisition by the Borrower or a
Subsidiary of the assets (but not the liabilities) of a Subsidiary, and (ii) in
connection with the Mergers), or (g) make any Asset Disposition (other than (i)
Asset Dispositions by Subsidiaries to the Borrower or to another Subsidiary, and
(ii) sales permitted by Section 6.2.8. Any consent of the Requisite Lenders to
the disposition of any assets not specifically permitted hereby may be
conditioned on a specified use of the proceeds of disposition.
6.2.2 Subsidiaries.
Neither the Borrower nor any of its Domestic Subsidiaries (other than
Inactive Subsidiaries) will create or, except as permitted by Section 6.2.1,
acquire any Subsidiaries other than the Subsidiaries identified on the
Collateral Disclosure List on the Closing Date (if any).
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6.2.3 Purchase or Redemption of Securities, Dividend Restrictions.
(a) The Borrower will not purchase, redeem or otherwise acquire any
shares of its capital stock, warrants or other securities now or hereafter
outstanding, declare or pay any dividends thereon, apply any of its property or
assets to the purchase, redemption or other retirement of, set apart any sum for
the payment of any dividends on, or for the purchase, redemption, or other
retirement of, make any distribution by reduction of capital or otherwise in
respect of, any shares of any class of capital stock of the Borrower, or any
warrants, permit any Subsidiary to purchase or acquire any shares of any class
of capital stock of, or warrants issued by, the Borrower, make any distribution
to stockholders or set aside any funds for any such purpose, provided, however,
that notwithstanding the foregoing, the Borrower may redeem shares of its
preferred stock by issuing shares of common stock therefor.
(b) The Borrower will not prepay, purchase or redeem any Indebtedness
for Borrowed Money other than:
(i) the Obligations,
(ii) subject to the terms of the Stanwich Subordination
Agreement, a principal payment in an amount not to exceed $325,000, on
or before June 30, 2000, to Stanwich Financial Services Corp. under
the promissory note that is the subject of the Stanwich Subordination
Agreement, but only so long as (A) the Juliana Vineyards Permitted
Asset Disposition has not, at the time of such payment, been effected,
(B) Stanwich Financial Services Corp. commits in writing to transfer,
and does in fact transfer, to the Borrower's Juliana Vineyards
Subsidiary, in satisfaction of certain obligations owed by Stanwich
Financial Services Corp. to Juliana Vineyards, an amount at least
equal to the amount of such payment to enable Juliana Vineyards to
obtain a crop loan, (C) no Event of Default exists or would, upon the
making of such payment, occur, and (D) after giving effect to such
payment, the Borrower has at least $1,000,000 of Revolving Credit
Availability,
(iii) so long as, in each case, (A) Term Loan B is paid in
full, (B) an Amortization Reduction Event has occurred, (C) no Event
of Default exists or would upon the making of any such payment occur,
(D) after giving effect to each such payment, the Borrower has at
least $3,500,000 of Revolving Credit Availability, and (E) the
aggregate amount of such payments under all of the instruments
described in clauses (w), (x), (y) and (z) below, during any fiscal
year of the Borrower, does not exceed an amount equal to fifty percent
(50%) of the Borrower's Excess Cash Flow for the immediately preceding
fiscal year of the Borrower, the Borrower may make payments or
prepayments of principal under any of (w) subject to the terms of the
Stanwich Subordination Agreement, the promissory note that is the
subject of the Stanwich Subordination Agreement, (x) subject to the
terms of the Bradley Subordination Agreement, the promissory note that
is the subject of the Bradley Subordination Agreement, (y) that
certain Replacement Subordinated Promissory Note in the original
principal amount of $1,017,112.50, executed by the Borrower in favor
of Allan C. Bir, dated as of February 2, 1996 (as in effect on the
date hereof, and without giving effect to any amendments thereto), and
(z) that certain Installment Promissory Note in the original principal
amount of $1,774,544, executed by DPL Acquisition Corp. in favor of
Frank J. Guzikowski, dated as of November 18, 1996 and amended as of
January 15, 1996, September 16, 1999, and March 7, 2000 (each as in
effect on the date hereof, and without giving effect to any amendments
thereto);
(iv) mandatory redemptions under the Indenture resulting from
Asset Sale Offers (as defined in the Indenture) required to be made
under the Indenture,
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but only so long as, at the time of such redemption, (A) Term Loan B
is paid in full and an Amortization Reduction Event has occurred, and
(B) no Event of Default exists or would, upon the making of any such
redemption, occur;
(v) either of the following: (A) the payment on May 1, 2001, of
up to $2,525,000 in principal amount of Senior Notes, but only so long
as, at the time of such payment, no Event of Default exists or would
thereupon occur, or (B) the purchase, prior to May 1, 2001, in the
open market of up to $2,525,000 in principal amount of Senior Notes,
but only if, at the time of such open market purchase, (I) Term Loan B
is paid in full, (II) an Amortization Reduction Event has occurred,
(III) no Event of Default exists or would upon the making of any such
purchase occur, and (IV) after giving effect to such purchase, the
Borrower has at least $3,500,000 of Revolving Credit Availability;
(vi) so long as, after giving effect to any such payment, no
Event of Default then exists or would thereupon (or, with respect to
financial covenants set forth in Section 6.1.14, upon the end of the
next Testing Period) occur, as determined by the Agent, in its sole
discretion, (a) on May 1, 2002, the sinking fund payment then due in
an amount of up to $12,500,000, and (b) on May 1, 2003, the sinking
fund payment then due in an amount of up to $12,500,000 minus any
amount actually paid in respect of the Senior Notes pursuant to clause
(v) above;
(vii) so long as no Event of Default then exists or would
thereupon occur, regularly scheduled payments of principal and
interest under those certain Orem City Utah Industrial Development
Bond Series A Bonds due May, 2001 in the principal amount of $680,000;
and
(viii) the Permitted Indenture Refinancing.
(c) The Borrower will not pay any interest on any of the Indebtedness
described in clauses (w), (x), (y) or (z) of Section 6.2.3(b)(iii) unless at the
time of making such interest payment, (i) no Event of Default exists or would
upon the making of such payment occur, and (ii) with respect to the Indebtedness
described in clauses (w) and (x) of such section, the payment is not prohibited
by the Stanwich Subordination Agreement or the Bradley Subordination Agreement,
as the case may be.
6.2.4 Indebtedness.
The Borrower will not create, incur, assume or suffer to exist any
Indebtedness for Borrowed Money or permit any Domestic Subsidiary to do so,
except:
(a) the Obligations;
(b) Indebtedness for Borrowed Money secured by Permitted Liens;
(c) Indebtedness of the Borrower existing on the date hereof
and either reflected on the financial statements furnished pursuant to
Section 4.1.11 (Financial Condition of the Borrower) or set forth in
Schedule 6.2.4 attached hereto and made a part hereof and extensions
or renewals thereof, so long as the principal amount thereof is not
increased;
(d) Subordinated Indebtedness;
(e) Secured Interest Rate/Currency Protection Agreements
between the Borrower and the Agent or an Affiliate of the Agent,
and/or (ii) unsecured Interest
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Rate/Currency Protection Agreements between the Borrower and any other
financial institution reasonably acceptable to the Agent, providing
for the transfer or mitigation of foreign exchange risks or interest
rate risks either generally or under specific contingencies, provided,
however, that the aggregate notional amount of Interest Rate/Currency
Protections shall not at any time exceed $20,000,000;
(f) additional unsecured Indebtedness for Borrowed Money in the
aggregate principal amount not to exceed at any time Two Hundred
Thousand Dollars ($200,000);
(g) Indebtedness for Borrowed Money outstanding under the
Indenture and the Senior Notes issued thereunder, and the Permitted
Indenture Refinancing; and
(h) Indebtedness of any Subsidiary of the Borrower to any other
Subsidiary of the Borrower.
6.2.5 Investments, Loans and Other Transactions.
The Borrower will not, and will not permit any of its Domestic
Subsidiaries to, (a) make, assume, acquire or continue to hold any investment in
any property or any Person, whether by stock purchase, capital contribution,
acquisition of indebtedness of such Person, acquisition of all or substantially
all the assets of any Person, or otherwise (including, without limitation,
investments in any joint venture or partnership), (b) guaranty or otherwise
become contingently liable for the Liabilities or obligations of any Person, or
(c) make any loans or advances, or otherwise extend credit to any Person,
except:
(i) any loan or advance to an officer or employee of the
Borrower or any Subsidiary in the ordinary course of business,
provided that the aggregate amount of all such advances by all of the
Borrower and its Subsidiaries (taken as a whole) outstanding at any
time shall not exceed Two Hundred Fifty Thousand Dollars ($250,000) in
the aggregate;
(ii) the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;
(iii) any investment in Cash Equivalents, which are pledged to
the Agent for the benefit of itself and the Lenders as collateral and
security for the Obligations;
(iv) trade credit extended to customers in the ordinary course
of business;
(v) investments made after the Closing Date in Subsidiaries
existing on the Closing Date consisting of loans or capital
contributions to such Subsidiaries in an aggregate amount not to
exceed Five Hundred Thousand Dollars $500,000;
(vi) to the extent permitted by the Indenture, other
investments in an aggregate amount not to exceed Two Hundred Fifty
Thousand Dollars ($250,000); and
(vii) those investments more particularly set forth on Schedule
6.2.5 attached hereto and made a part hereof.
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6.2.6 Stock of Subsidiaries
The Borrower will not sell or otherwise dispose of any shares of
capital stock of any Domestic Subsidiary (other than Inactive Subsidiaries) or
permit any Domestic Subsidiary to issue any additional shares of its capital
stock (other than Permitted Asset Dispositions) except to another Domestic
Subsidiary or pro rata to its stockholders.
6.2.7 Liens.
The Borrower agrees that it (a) will not create, incur, assume or
suffer to exist any Lien upon any of its properties or assets, whether now owned
or hereafter acquired, or permit any Domestic Subsidiary (other than Inactive
Subsidiaries) so to do, except for Liens securing the Obligations and Permitted
Liens, (b) will not agree to, assume or suffer to exist any provision in any
instrument or other document (other than the Financing Documents) for confession
of judgment, cognovit or other similar right or remedy, (c) will not allow or
suffer to exist any Liens, except permitted purchase money Liens, to be superior
to Liens securing the Obligations, (d) will not enter into any contracts for the
consignment of goods, will not execute or suffer the filing of any financing
statements (other than in favor of the Agent) or the posting of any signs giving
notice of consignments, and will not engage in the sale of goods belonging to
others, and (e) will not allow or suffer to exist the failure of any Lien
described in the Security Documents to attach to, and/or remain at all times
perfected on, any of the property described in the Security Documents.
6.2.8 Disposition of Assets.
The Borrower will not sell, discount, allow credits or allowances,
transfer, assign, extend the time for payment on, convey, lease, assign,
transfer or otherwise dispose of its Assets (including without limitation the
Collateral) other than the sale of past due accounts receivable in accordance
with its credit collection policies as in effect on the date hereof, except, (a)
prior to an Event of Default which is continuing, dispositions that are not
Asset Dispositions, provided that after the occurrence and during the
continuance of an Event of Default, the Borrower may continue to make
dispositions that are not Asset Dispositions until the Agent has notified the
Borrower otherwise (any such notice may be limited to certain assets or
categories of assets), (b) the sale of unnecessary or obsolete Equipment, (c)
sales of assets under the Services Agreement between the CP Industries division
of the Borrower and NPS Acquisition Corp. as in effect on the Closing Date or as
extended or renewed (with any amendments thereto that are approved by the
Requisite Lenders), and (d) Permitted Asset Dispositions, provided that the Net
Proceeds of any such Permitted Asset Dispositions shall be applied to the Loans
in accordance with Section 2.7.10(b).
6.2.9 Transactions with Affiliates
Except as disclosed on Schedule 6.2.9 attached hereto and made a part
hereof, and except as permitted by Section 6.2.14 (Compensation.), neither the
Borrower nor any of its Subsidiaries will enter into or participate in any
transaction with any Affiliate or, except in the ordinary course of business,
with the officers, directors, partners, employees and other representatives of
the Borrower and/or any Subsidiary and except for transactions in the ordinary
course of business and upon fair and reasonable terms which are no less
favorable than would be obtained in a comparable arms-length transaction with a
Person who is not an Affiliate.
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6.2.10 Other Business.
Neither the Borrower nor any of its Subsidiaries will engage directly
or indirectly in any business other than its line of business as of the Closing
Date and those permitted under Section 6.1.7.
6.2.11 ERISA Compliance.
Neither the Borrower nor any Commonly Controlled Entity shall: (a)
engage in or permit any non-exempt "prohibited transaction" (as defined in
Section 406 of ERISA); (b) cause any "accumulated funding deficiency" as defined
in ERISA and/or the Internal Revenue Code; (c) terminate any pension plan in a
manner which could result in the imposition of a lien on the property of the
Borrower pursuant to ERISA; (d) terminate or consent to the termination of any
Multiemployer Plan; or (e) incur a complete or partial withdrawal with respect
to any Multiemployer Plan, which with respect to any of the events set forth in
clauses (a) through (e) could reasonably be expected to cause a Material Adverse
Effect.
6.2.12 Prohibition on Hazardous Materials.
Neither the Borrower nor any of its Subsidiaries shall place,
manufacture or store or permit to be placed, manufactured or stored any
Hazardous Materials on any property owned, operated or controlled by the
Borrower or any of its Subsidiaries or for which the Borrower or any of its
Subsidiaries is responsible other than Hazardous Materials placed or stored on
such property in compliance with applicable Laws in the ordinary course of the
Borrower's or any of its Subsidiaries business.
6.2.13 Method of Accounting; Fiscal Year.
The Borrower agrees that:
(a) it shall not change the method of accounting employed in the
preparation of any financial statements furnished to the Agent and Lenders under
the provisions of Section 6.1.1 (Financial Statements) of this Agreement, unless
required to conform to GAAP and on the condition that the Borrower's accountants
shall furnish such information as the Agent and the Lenders may request to
reconcile the changes with the Borrower's prior financial statements.
(b) it will not change its fiscal year from a year ending on
December 31.
6.2.14 Compensation.
Except as disclosed on Schedule 6.2.14 and as permitted by Section
6.2.9, neither the Borrower nor any Subsidiary will pay any bonuses, fees,
compensation, commissions, salaries, drawing accounts, or other payments (cash
and non-cash), whether direct or indirect, to any stockholders or partners of
the Borrower or any Subsidiary, or any Affiliate of the Borrower or any
Subsidiary, other than reasonable compensation for actual services rendered by
stockholders or partners in their capacity as officers or employees, and except
for, (i) reasonable director's fees, (ii) reasonable and customary
indemnifications of officers, directors, partners, employees and consultants,
(iii) the reimbursement of reasonable travel and other out-of-pocket expenses
reasonably incurred by the Borrower's directors in the performance of their
duties, and (iv) a management fee payable by the Borrower to Stanwich Partners,
Inc. in the amount of up to $300,000 during any fiscal year of the Borrower, but
only if, at the time of making such payment and after giving effect thereto, no
Event of Default has occurred or is continuing.
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6.2.15 Transfer of Collateral.
Neither the Borrower nor any of its Subsidiaries will transfer, or
permit the transfer, to another location of any of the Collateral or the books
and records related to any of the Collateral unless the notice required by
Section 6.1.22 has been given and the Liens of the Agent have been perfected by
filing in that location.
6.2.16 Sale and Leaseback.
Neither the Borrower nor any of its Domestic Subsidiaries (other than
Inactive Subsidiaries) will directly or indirectly enter into any arrangement to
sell or transfer all or any substantial part of its fixed assets and thereupon
or within one (1) year thereafter rent or lease the assets so sold or
transferred, except in connection with the disposition by the Borrower of the
Hanna Real Property.
6.2.17 Capital Expenditures.
The Borrower will not make, directly or indirectly, Capital
Expenditures which in the aggregate exceed (a) during the fiscal year of the
Borrower ending December 31, 2000, Three Million Five Hundred Thousand Dollars
($3,500,000), (b) during the fiscal year of the Borrower ending December 31,
2001, (i) Four Million Five Hundred Thousand Dollars ($4,500,000), plus (ii)
Three Million Five Hundred Thousand Dollars ($3,500,000), minus (iii) the lesser
of (A) Three Million Five Hundred Thousand Dollars ($3,500,000) and (B) the
amount of Capital Expenditures actually incurred in the immediately preceding
fiscal year by the Borrower, and (c) during any fiscal year of the Borrower
thereafter, an amount equal to (i) Four Million Five Hundred Thousand Dollars
($4,500,000) plus (ii) Four Million Five Hundred Thousand Dollars ($4,500,000),
minus (iii) the lesser of (A) Four Million Five Hundred Thousand Dollars
($4,500,000) and (B) the amount of Capital Expenditures actually incurred in the
immediately preceding fiscal year by the Borrower.
6.2.18 Amendments to Indenture.
The Borrower shall not amend, supplement or otherwise modify the
Indenture or the Refinanced Indenture to do any of the following: (a) secure the
obligations thereunder, (b) accelerate the dates for any principal or interest
payments or redemptions or repurchases or mandatory offers to repurchase or
redeem, (c) increase the rate of interest payable thereunder, or (d) amend or
add any covenants or provisions the result of which is to make the Indenture
more restrictive or adverse to Borrower or its Subsidiaries or the rights of the
Agent and Lenders under this Agreement and other Financing Documents than those
in the Indenture on the Closing Date (after giving effect to the amendments and
waivers described in Section 5.1.22) and, with respect to the Refinanced
Indenture, the date it was issued (including in either case, without limitation,
the ability to incur indebtedness and grant Liens to secure indebtedness,
financial performance, and events of default).
ARTICLE 7 DEFAULT AND RIGHTS AND REMEDIES
Section 7.1 Events of Default.
The occurrence of any one or more of the following events shall constitute an
"Event of Default" under the provisions of this Agreement:
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7.1.1 Failure to Pay.
The failure of the Borrower to pay any of the Obligations as and when
due and payable in accordance with the provisions of this Agreement, the Notes
and/or any of the other Financing Documents.
7.1.2 Breach of Representations and Warranties.
Any representation or warranty made by the Borrower or any of its
Subsidiaries in this Agreement or in any report, statement, schedule,
certificate, financial statement or other document furnished in connection with
this Agreement, any of the other Financing Documents or the Merger Documents, or
the Obligations, shall prove to have been false or misleading when made or
deemed made.
7.1.3 Failure to Comply with Certain Covenants.
The failure of the Borrower to perform, observe or comply with any
covenant, condition or agreement contained in Sections 6.1.1 (Financial
Statements), 6.1.3 (Recordkeeping, Rights of Inspection, Field Examination,
Etc.), 6.1.8 (Insurance), 6.1.14 (Financial Covenants), 6.1.16 (Assignment of
Receivables), 6.1.19 (Inventory) (other than clause (c) thereof), 6.1.20
(Defense of Title and Further Assurances), 6.1.22 (Business Names; Locations),
6.1.24 (Use of Premises and Equipment), 6.1.25 (Protection of Collateral), or
Section 6.2 (Negative Covenants).
7.1.4 Failure to Comply with Other Covenants.
The failure of the Borrower to perform, observe or comply with any
covenant, condition or agreement contained in this Agreement other than those
referred to in Sections 7.1.1, 7.1.2 or 7.1.3 above, which failure shall remain
unremedied for a period of thirty (30) days after the Borrower discovers or
should have discovered such failure.
7.1.5 Default Under Other Financing Documents or Obligations.
A default shall occur under any of the other Financing Documents or
under any other Obligations, and such default is not cured within any applicable
grace period provided therein.
7.1.6 Receiver; Bankruptcy.
The Borrower or any Domestic Subsidiary (other than Inactive
Subsidiaries) of the Borrower shall (a) apply for or consent to the appointment
of a receiver, trustee or liquidator of itself or any of its property, (b) admit
in writing its inability to pay its debts as they mature, (c) make a general
assignment for the benefit of creditors, (d) be adjudicated a bankrupt or
insolvent, (e) file a voluntary petition in bankruptcy or a petition or an
answer seeking or consenting to reorganization or an arrangement with creditors
or to take advantage of any bankruptcy, reorganization, insolvency, readjustment
of debt, dissolution or liquidation law or statute, or an answer admitting the
material allegations of a petition filed against it in any proceeding under any
such law, or take corporate action for the purposes of effecting any of the
foregoing, or (f) by any act indicates its consent to, approval of or
acquiescence in any such proceeding or the appointment of any receiver of or
trustee for any material portion of its property, or suffer any such
receivership, trusteeship or proceeding to exist, or (g) by any act indicates
its consent to, approval of or acquiescence in any order, judgment or decree by
any court of competent jurisdiction or any Governmental Authority or any agency
thereof enjoining or otherwise prohibiting the operation of a material portion
of the
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Borrower's or any of its Domestic Subsidiary's (other than Inactive
Subsidiaries) business or the use or disposition of a material portion of the
Borrower's or any of its Domestic Subsidiary's assets.
7.1.7 Involuntary Bankruptcy, etc.
(a) An order for relief shall be entered in any involuntary case
brought against the Borrower or any Domestic Subsidiary (other than Inactive
Subsidiaries) of the Borrower under the Bankruptcy Code, or (b) any such case
shall be commenced against the Borrower or any Domestic Subsidiary (other than
Inactive Subsidiaries) of the Borrower and shall not be dismissed with sixty
(60) days after the commencement thereof, or (c) an order, judgment or decree
under any other Law is entered by any court of competent jurisdiction or by any
other Governmental Authority on the application of a Governmental Authority or
of a Person other than the Borrower or any Domestic Subsidiary (other than
Inactive Subsidiaries) of the Borrower (i) adjudicating the Borrower or any
Domestic Subsidiary (other than Inactive Subsidiaries) of the Borrower bankrupt
or insolvent, or (ii) appointing a receiver, trustee or liquidator of the
Borrower or any Domestic Subsidiary (other than Inactive Subsidiaries) of the
Borrower, or of a material portion of such Borrower's, Domestic Subsidiary's
assets, or (iii) enjoining, prohibiting or otherwise limiting the operation of a
material portion of the Borrower's or any Domestic Subsidiary's business (other
than Inactive Subsidiaries) or the use or disposition of a material portion of
the Borrower's or any Domestic Subsidiary's assets (other than Inactive
Subsidiaries).
7.1.8 Judgment.
Unless adequately insured in the reasonable opinion of the Agent, the
entry of a final judgment for the payment of money involving in the aggregate
more than Five Hundred Thousand Dollars ($500,000) against the Borrower or any
Domestic Subsidiary of the Borrower (other than an Inactive Subsidiary), and the
failure by the Borrower or such Domestic Subsidiary (other than an Inactive
Subsidiary) to discharge the same, or cause it to be discharged, within thirty
(30) days from the date of the order, decree or process under which or pursuant
to which such judgment was entered, or to secure a stay of execution pending
appeal of such judgment.
7.1.9 Execution; Attachment.
Any execution or attachment shall be levied against the Collateral,
or any part thereof, and such execution or attachment shall not be set aside,
discharged or stayed within thirty (30) days after the same shall have been
levied.
7.1.10 Default Under Indenture.
Any Event of Default (as defined in the Indenture or the Refinanced
Indenture) under the Indenture or the Senior Notes issued pursuant thereto, or,
in the event of a Permitted Indenture Refinancing, the Refinanced Indenture
shall have occurred and shall not have been waived or otherwise cured in
accordance with the requirements of the Indenture or the Refinanced Indenture,
as the case may be.
7.1.11 Default Under Other Borrowings.
Default shall be made with respect to any Indebtedness for Borrowed
Money of the Borrower or any Domestic Subsidiary of the Borrower (other than the
Loans and the Indebtedness for Borrowed Money under the Indenture) in excess of
One Million Dollars ($1,000,000) in the aggregate if the effect of such default
is to accelerate the maturity of such
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Indebtedness for Borrowed Money or to permit the holder or obligee thereof or
other party thereto to cause such Indebtedness for Borrowed Money to become due
prior to its stated maturity.
7.1.12 Challenge to Agreements.
The Borrower or any Subsidiary of the Borrower shall challenge the
validity and binding effect of any provision of any of the Financing Documents
or shall state its intention to make such a challenge of any of the Financing
Documents or any of the Financing Documents shall for any reason (except to the
extent permitted by its express terms) cease to be effective or to create a
valid and perfected first priority Lien (except for Permitted Liens) on, or
security interest in, any of the Collateral purported to be covered thereby.
7.1.13 Material Adverse Change.
An event which has a Material Adverse Effect has occurred.
7.1.14 Change in Control.
Any Change of Control shall occur.
7.1.15 Liquidation, Termination, Dissolution, etc..
The Borrower shall liquidate, dissolve or terminate its existence
without the prior written consent of the Requisite Lenders.
7.1.16 Criminal Proceedings.
There shall have been instituted against the Borrower any criminal
proceedings for which forfeiture of any asset is a potential penalty.
Section 7.2 Remedies.
Upon the occurrence and, thereafter, at any time during the
continuance of any Event of Default, the Agent may, in the exercise of its sole
and absolute discretion from time to time, and shall, at the direction of the
Requisite Lenders, at any time thereafter, exercise any one or more of the
following rights, powers or remedies:
7.2.1 Acceleration.
The Agent may, and shall, at the direction of the Requisite Lenders,
declare any or all of the Obligations to be immediately due and payable,
notwithstanding anything contained in this Agreement or in any of the other
Financing Documents to the contrary, without presentment, demand, protest,
notice of protest or of dishonor, or other notice of any kind, all of which the
Borrower hereby waives.
7.2.2 Further Advances.
The Agent may, and shall, at the direction of the Requisite Lenders,
from time to time without notice to the Borrower suspend, terminate or limit any
further advances, loans or other extensions of credit under the Commitment,
under this Agreement and/or under any of the other Financing Documents. Further,
upon the occurrence of an Event of Default specified in Sections 7.1.6
(Receiver; Bankruptcy) or 7.1.7 (Involuntary Bankruptcy, etc.) above, the
Revolving Credit Commitments, the Letter of Credit Commitments and any agreement
in any
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of the Financing Documents to provide additional credit and/or to issue Letters
of Credit shall immediately and automatically terminate and the unpaid principal
amount of the Notes (with accrued interest thereon) and all other Obligations
then outstanding, shall immediately become due and payable without further
action of any kind and without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived by the Borrower.
7.2.3 Uniform Commercial Code.
The Agent shall have all of the rights and remedies of a secured
party under the applicable Uniform Commercial Code and other applicable Laws.
Upon demand by the Agent, the Borrower shall assemble the Collateral and make it
available to the Agent, at a place designated by the Agent. The Agent or its
agents may without notice from time to time enter upon the Borrower's premises
to take possession of the Collateral, to remove it, to render it unusable, to
process it or otherwise prepare it for sale, or to sell or otherwise dispose of
it. At the Agent's direction, the Borrower shall cease to process, prepare for
sale, sell or otherwise dispose of the Collateral.
Any written notice of the sale, disposition or other intended action
by the Agent with respect to the Collateral which is sent by regular mail,
postage prepaid, to the Borrower at its respective address set forth in Section
9.1 of this Agreement, or such other address of the Borrower which may from time
to time be shown on the Agent's records, at least ten (10) days prior to such
sale, disposition or other action, shall constitute commercially reasonable
notice to the Borrower. The Agent may alternatively or additionally give such
notice in any other commercially reasonable manner. Nothing in this Agreement
shall require the Agent to give any notice not required by applicable Laws or
not required by the specific terms of this Agreement.
If any consent, approval, or authorization of any state, municipal or
other Governmental Authority or of any other Person or of any Person having any
interest therein, should be necessary to effectuate any sale or other
disposition of the Collateral, the Borrower agrees to execute all such
applications and other instruments, and to take all other action, as may be
required in connection with securing any such consent, approval or
authorization.
The Borrower recognizes that the Agent may be unable to effect a
public sale of all or a part of the Collateral consisting of Securities by
reason of certain prohibitions contained in the Securities Act of 1933, as
amended, and other applicable federal and state Laws. The Agent may, therefore,
take such steps as it may deem appropriate to comply with such Laws and may, for
example, at any sale of the Collateral consisting of Securities restrict the
prospective bidders or purchasers as to their number, nature of business and
investment intention, including, without limitation, a requirement that the
Persons making such purchases represent and agree to the satisfaction of the
Agent that they are purchasing such Securities for their account, for
investment, and not with a view to the distribution or resale of any thereof.
The Borrower covenants and agrees to do or cause to be done promptly all such
acts and things as the Agent may request from time to time and as may be
necessary to offer and/or sell the Securities or any part thereof in a manner
which is valid and binding and in conformance with all applicable Laws. Upon any
such sale or disposition, the Agent shall have the right to deliver, assign and
transfer to the purchaser thereof the Collateral consisting of Securities so
sold.
7.2.4 Specific Rights With Regard to Collateral.
In addition to all other rights and remedies provided hereunder or as
shall exist at law or in equity from time to time, the Agent may (but shall be
under no obligation to), without notice to the Borrower, and Borrower hereby
irrevocably appoints the Agent as its attorney-in-fact, with power of
substitution, in the name of the Agent and/or any or all of the
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Lenders and/or in the name of the Borrower or otherwise, for the use and benefit
of the Agent and the Lenders, but at the cost and expense of the Borrower and
without notice to the Borrower:
(a) request any Account Debtor obligated on any of the Accounts to
make payments thereon directly to the Agent, with the Agent taking control
of the cash and non-cash proceeds thereof;
(b) compromise, extend or renew any of the Collateral or deal with
the same as it may deem advisable;
(c) make exchanges, substitutions or surrenders of all or any part of
the Collateral;
(d) copy, transcribe, or remove from any place of business of the
Borrower or any of its Subsidiaries all books, records, ledger sheets,
correspondence, invoices and documents, relating to or evidencing any of
the Collateral or without cost or expense to the Agent or the Lenders, make
such use of the Borrower's or any Subsidiary's place(s) of business as may
be necessary to administer, control and collect the Collateral;
(e) repair, alter or supply goods if necessary to fulfill in whole or
in part the purchase order of any Account Debtor;
(f) demand, collect, receipt for and give renewals, extensions,
discharges and releases of any of the Collateral;
(g) institute and prosecute legal and equitable proceedings to
enforce collection of, or realize upon, any of the Collateral;
(h) settle, renew, extend, compromise, compound, exchange or adjust
claims in respect of any of the Collateral or any legal proceedings brought
in respect thereof;
(i) endorse or sign the name of the Borrower upon any items of
payment, certificates of title, instruments, securities, stock powers,
documents, documents of title, financing statements, assignments, notices
or other writing relating to or part of the Collateral and on any proof of
claim in bankruptcy against an Account Debtor;
(j) notify the Post Office authorities to change the address for the
delivery of mail to the Borrower to such address or Post Office Box as the
Agent may designate and receive and open all mail addressed to the
Borrower; and
(k) take any other action necessary or beneficial to realize upon or
dispose of the Collateral or to carry out the terms of this Agreement.
7.2.5 Application of Proceeds; Certain Intercreditor Provisions.
(a) Any proceeds of sale or other disposition of the Collateral under
any Financing Document and any distribution or payment in respect of any assets
of the Borrower and its Subsidiaries in connection with any proceeding described
in Section 7.1.6 or Section 7.1.7 of this Agreement will be applied by the Agent
as follows: (a) first, to the payment of any and all Obligations owing to the
Agent (other than Interest Rate/Currency Protection Agreements between the
Borrower and the Agent or an Affiliate of the Agent), (b) second, to any
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and all Administrative Costs and Enforcement Costs, (c) third, any balance of
such proceeds (up to the aggregate amount of Obligations owing to the Formula
Lenders) will be remitted to the Formula Lenders in like currency and funds
received ratably in accordance with the Formula Lenders' respective Pro Rata
Shares of such balance, for application by each Formula Lender to its
Obligations in such order and manner as such Formula Lender shall determine, in
its sole and absolute discretion, (d) fourth, any balance of such proceeds
remaining after such remission to the Formula Lenders will be remitted to the
Agent in like currency and funds received for application to the payment of
Interest Rate/Currency Protection Agreements between the Borrower and the Agent
or an Affiliate of the Agent, and (e) fifth, any balance of such proceeds
remaining after such remission to the Formula Lenders will be remitted to the
Term Loan B Lenders in like currency and funds received ratably in accordance
with the Term Loan B Lenders' respective Pro Rata Shares of such balance. Each
Term Loan B Lender shall apply any such proceeds received from the Agent to its
Obligations in such order and manner as such Term Loan B Lender shall determine
in its sole and absolute discretion. If the sale or other disposition of the
Collateral fails to fully satisfy the Obligations, the Borrower shall remain
liable to the Agent and the Lenders for any deficiency.
(b) Notwithstanding any other provision of this Agreement or any of
the Financing Documents, in the event of either (i) the failure of the Borrower
to pay the principal of and interest, fees and premium, if any, on any of the
Obligations owing to the Agent or any of the Formula Lenders when due or upon
the maturity thereof (including the maturity of individual installment principal
payments and mandatory prepayments due under this Agreement or the other
Financing Documents) or (ii) an acceleration of the maturity of the principal of
any of the Obligations owing to the Agent or any of the Formula Lenders in
accordance with the terms thereof (which acceleration has not been rescinded or
annulled), such Obligations owing to the Agent and the Formula Lenders shall
first be paid in full in cash or cash equivalents (or provision for such payment
in cash or cash equivalents shall be made in a manner satisfactory to the Agent
and the Formula Lenders) before any payment or distribution (in cash, properties
or securities, by set-off or otherwise) is made on account of or applied to the
Obligations owing to the Term Loan B Lenders. If any payment or distribution of
any kind or character, whether in cash, property or securities, shall be
received by any Term Loan B Lender in contravention of Section 7.2.5(a) or the
foregoing sentence, such payment or distribution shall be held in trust for the
benefit of, and shall be paid over or delivered and transferred to, the Agent
for application to the payment of the Obligations owing to the Agent and the
Formula Lenders, to the extent necessary to pay all such Obligations in full in
cash or cash equivalents. In the event of the failure of any Term Loan B Lender
to endorse or assign any such payment or distribution, the Agent is hereby
irrevocably authorized to endorse or assign the same.
7.2.6 Performance by Agent.
If the Borrower shall fail to pay the Obligations or otherwise fail
to perform, observe or comply with any of the conditions, covenants, terms,
stipulations or agreements contained in this Agreement or any of the other
Financing Documents, the Agent without notice to or demand upon the Borrower and
without waiving or releasing any of the Obligations or any Default or Event of
Default, may (but shall be under no obligation to) at any time thereafter make
such payment or perform such act for the account and at the expense of the
Borrower, and may enter upon the premises of the Borrower for that purpose and
take all such action thereon as the Agent may consider necessary or appropriate
for such purpose and the Borrower hereby irrevocably appoints the Agent as its
attorney-in-fact to do so, with power of substitution, in the name of the Agent,
in the name of any or all of the Lenders, or in the name of the Borrower or
otherwise, for the use and benefit of the Agent and the Lenders, but at the cost
and expense of the Borrower and without notice to the Borrower. All sums so paid
or advanced by the Agent together with interest thereon from the date of
payment, advance or incurring until paid in full at the Post-Default Rate and
all costs and expenses, shall be deemed part of the
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Enforcement Costs, shall be paid by the Borrower to the Agent on demand, and
shall constitute and become a part of the Agent's Obligations.
7.2.7 Other Remedies.
The Agent may from time to time proceed to protect or enforce the
rights of the Agent and/or any of the Lenders by an action or actions at law or
in equity or by any other appropriate proceeding, whether for the specific
performance of any of the covenants contained in this Agreement or in any of the
other Financing Documents, or for an injunction against the violation of any of
the terms of this Agreement or any of the other Financing Documents, or in aid
of the exercise or execution of any right, remedy or power granted in this
Agreement, the Financing Documents, and/or applicable Laws. The Agent and each
of the Lenders severally are authorized to offset and apply to all or any part
of the Obligations all moneys, credits and other property of any nature
whatsoever of the Borrower now or at any time hereafter in the possession of, in
transit to or from, under the control or custody of, or on deposit with, the
Agent, any of the Lenders or any Affiliate of the Agent or any of the Lenders.
ARTICLE 8 THE AGENT
Section 8.1 Appointment.
Each Lender hereby designates and appoints BANA as its agent under
this Agreement and the Financing Documents, and each Lender hereby irrevocably
authorizes the Agent to take such action or to refrain from taking such action
on its behalf under the provisions of this Agreement and the Financing Documents
and to exercise such powers as are set forth herein or therein, together with
such other powers as are reasonably incidental thereto. The Agent agrees to act
as such on the express conditions contained in this ARTICLE 8. The provisions of
this ARTICLE 8 are solely for the benefit of the Agent and the Lenders and
neither the Borrower nor any Person shall have any rights as a third party
beneficiary of any of the provisions hereof. In performing its functions and
duties under this Agreement, the Agent shall act solely as an administrative
representative of the Lenders and does not assume and shall not be deemed to
have assumed any obligation toward or relationship of agency or trust with or
for the Lenders, the Borrower or any Person. The Agent may perform any of its
duties hereunder, or under the Financing Documents, by or through its agents or
employees.
Section 8.2 Nature of Duties.
8.2.1 In General.
The Agent shall have no duties, obligations or responsibilities
except those expressly set forth in this Agreement or in the Financing
Documents. The duties of the Agent shall be mechanical and administrative in
nature. The Agent shall not have by reason of this Agreement a fiduciary
relationship in respect of any Lender. Each Lender shall make its own
independent investigation of the financial condition and affairs of the Borrower
in connection with the extension of credit hereunder and shall make its own
appraisal of the credit worthiness of the Borrower, and, except as expressly
provided herein, the Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Lender with any credit or
other information with respect thereto, whether coming into its possession
before the Closing Date or at any time or times thereafter. If the Agent seeks
the consent or approval of any of the Lenders to the taking or refraining from
taking of any action hereunder, then the Agent shall send notice thereof to each
Lender. The Agent shall promptly notify each Lender any time that the applicable
percentage of the Lenders have instructed the Agent to act or refrain from
acting pursuant hereto.
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8.2.2 Express Authorization.
The Agent is hereby expressly and irrevocably authorized by each of
the Lenders, as agent on behalf of itself and the other Lenders:
(a) to receive on behalf of each of the Lenders any payment or
collection on account of the Obligations and to distribute to each Lender its
Pro Rata Share of all such payments and collections so received as provided in
this Agreement;
(b) to receive all documents and items to be furnished to the Lenders
under the Financing Documents (nothing contained herein shall relieve the
Borrower of any obligation to deliver any item directly to the Lenders to the
extent expressly required by the provisions of this Agreement);
(c) to act or refrain from acting in this Agreement and in the other
Financing Documents with respect to those matters so designated for the Agent;
(d) to act as nominee for and on behalf of the Lenders in and under
this Agreement and the other Financing Documents;
(e) to arrange for the means whereby the funds of the Lenders are to
be made available to the Borrower;
(f) to distribute promptly to the Lenders, if required by the terms
of this Agreement, all written information, requests, notices, Loan Notices,
payments, Prepayments, documents and other items received from the Borrower or
other Person;
(g) to amend, modify, or waive any provisions of this Agreement or
the other Financing Documents on behalf of the Lenders subject to the
requirement that certain of the Lenders' consent be obtained in certain
instances as provided in Section 9.2 (Amendments; Waivers.);
(h) to deliver to the Borrower and other Persons, all requests,
demands, approvals, notices, and consents received from any of the Lenders;
(i) to exercise on behalf of each Lender all rights and remedies of
the Lenders upon the occurrence of any Event of Default and/or Default specified
in this Agreement and/or in any of the other Financing Documents or applicable
Laws;
(j) to execute any of the Security Documents and any other documents
on behalf of the Lenders as the secured party for the benefit of the Agent and
the Lenders; and
(k) to take such other actions as may be requested by the Lenders,
the Requisite Lenders or any Lender, as provided in this Agreement.
Section 8.3 Rights, Exculpation, Etc.
Neither the Agent nor any of its officers, directors, employees or
agents shall be liable to any Lender for any action taken or omitted by them
hereunder or under any of the Financing Documents, or in connection herewith or
therewith, except that the Agent shall be obligated on the terms set forth
herein for performance of its express obligations hereunder, and except that the
Agent shall be liable with respect to its own gross negligence or willful
misconduct. In the absence of gross negligence, the Agent shall not be liable
for any apportionment or distribution of payments made by it in good faith and
if any such apportionment or distribution is
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subsequently determined to have been made in error the sole recourse of any
Lender to whom payment was due but not made, shall be to recover from the other
Lenders any payment in excess of the amount to which they are determined to be
entitled (and such other Lenders hereby agree to return to such Lender any such
erroneous payments received by them). The Agent shall not be responsible to any
Lender for any recitals, statements, representations or warranties herein or for
the execution, effectiveness, genuineness, validity, enforceability,
collectible, or sufficiency of this Agreement or any of the Financing Documents
or the transactions contemplated thereby, or for the financial condition of any
Person. The Agent shall not be required to make any inquiry concerning either
the performance or observance of any of the terms, provisions or conditions of
this Agreement or any of the Financing Documents or the financial condition of
any Person, or the existence or possible existence of any Default or Event of
Default. The Agent may at any time request instructions from the Lenders with
respect to any actions or approvals which by the terms of this Agreement or of
any of the Financing Documents the Agent is permitted or required to take or to
grant, and the Agent shall be absolutely entitled to refrain from taking any
action or to withhold any approval and shall not be under any liability
whatsoever to any Person for refraining from any action or withholding any
approval under any of the Financing Documents until it shall have received such
instructions from the applicable percentage of the Lenders. Without limiting the
foregoing, no Lender shall have any right of action whatsoever against the Agent
as a result of the Agent acting or refraining from acting under this Agreement
or any of the other Financing Documents in accordance with the instructions of
the applicable percentage of the Lenders and notwithstanding the instructions of
the Lenders, the Agent shall have no obligation to take any action if it, in
good faith believes that such action exposes the Agent to any liability, unless
the Agent (in its sole determination) has been adequately indemnified by the
Lenders with respect thereto.
Section 8.4 Reliance.
The Agent shall be entitled to rely upon any written notices,
statements, certificates, orders or other documents or any telephone message or
other communication (including any writing, telex, telecopy or telegram)
believed by it in good faith to be genuine and correct and to have been signed,
sent or made by the proper Person, and with respect to all matters pertaining to
this Agreement or any of the Financing Documents and its duties hereunder or
thereunder, upon advice of counsel selected by it. The Agent may deem and treat
the original Lenders as the owners of the respective Notes for all purposes
until receipt by the Agent of a written notice of assignment, negotiation or
transfer of any interest therein by the Lenders in accordance with the terms of
this Agreement. Any interest, authority or consent of any holder of any of the
Notes shall be conclusive and binding on any subsequent holder, transferee, or
assignee of such Notes. The Agent shall be entitled to rely upon the advice of
legal counsel, independent accountants, and other experts selected by the Agent
in its sole discretion.
Section 8.5 Indemnification.
To the extent the Agent is not reimbursed and indemnified by the
Borrower, each Lender, severally, agrees to reimburse and indemnify the Agent
for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses, advances or disbursements
including, without limitation, Enforcement Costs, of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against the Agent
in any way relating to or arising out of this Agreement or any of the Financing
Documents or any action taken or omitted by the Agent under this Agreement or
any of the Financing Documents, in proportion to each Lender's Pro Rata Share,
all of the foregoing as they may arise, be asserted or be imposed from time to
time; provided, however, that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, advances or disbursements resulting from the Agent's gross
negligence or willful
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misconduct. The obligations of the Lenders under this Section 8.5 shall survive
the payment in full of the Obligations and the termination of this Agreement.
Section 8.6 BANA Individually.
With respect to its Commitments and the Loans made by it, and the
Notes issued to it, BANA shall have and may exercise the same rights and powers
hereunder and is subject to the same obligations and liabilities as and to the
extent set forth herein for any other Lender. The terms "the Lenders" or
"Requisite Lenders" or any similar terms shall, unless the context clearly
otherwise indicates, include BANA in its individual capacity as a Lender or one
of the Requisite Lenders. BANA and its Affiliates may lend money to, accept
deposits from and generally engage in any kind of banking, trust or other
business with the Borrower, any Affiliate of any Borrower, or any other Person
or any of their officers, directors and employees as if BANA were not acting as
the Agent pursuant hereto, and the Agent may each accept fees and other
consideration from the Borrower, any Affiliate of the Borrower or any of their
officers, directors and employees (in addition to arrangements fees heretofore
agreed to between the Borrower and the Agent as applicable) for services in
connection with this Agreement or otherwise without having to account for or
share the same with the Lenders.
Section 8.7 Successor Agent.
8.7.1 Affiliate Successor.
Notwithstanding any other provision of this Agreement, if BANA
assigns all of its Loans to an Affiliate of BANA, such Affiliate shall
automatically become the successor Agent hereunder upon the effective date of
such assignment.
8.7.2 Resignation.
The Agent may resign from the performance of all its functions and
duties hereunder at any time by giving at least thirty (30) Business Days' prior
written notice to the Borrower and the Lenders. Such resignation shall take
effect upon the acceptance by a successor Agent of appointment pursuant to
Section 8.7.3 (Appointment of Successor) or as otherwise provided below.
8.7.3 Appointment of Successor.
Upon any such notice of resignation pursuant to Section 8.7.2
(Resignation), the Requisite Lenders shall appoint a successor to the Agent,
which successor shall be, so long as no Default or Event of Default shall have
occurred and be continuing, subject to the consent of the Borrower, which
consent shall not be unreasonably withheld or delayed. If a successor to the
Agent shall not have been so appointed within said thirty (30) Business Day
period, the Agent retiring, with the consent of the Borrower (not to be
unreasonably withheld or delayed, and in any event not required if a Default or
Event of Default shall have occurred and is continuing), shall then appoint a
successor Agent who shall serve as the Agent until such time, as the Requisite
Lenders appoint a successor to the Agent as provided above.
8.7.4 Successor Agent.
Upon the acceptance of any appointment as the Agent under the
Financing Documents by a successor Agent, such successor to the Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the Agent retiring, and the Agent retiring shall be discharged
from its duties and obligations under the Financing Documents. After any Agent's
resignation as the Agent under the Financing Documents, the
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provisions of this Article 8 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was the Agent under the Financing
Documents.
Section 8.8 Collateral Matters.
8.8.1 Release of Collateral.
The Lenders hereby irrevocably authorize the Agent, at its option and
in its discretion, to release any Lien granted to or held by the Agent upon any
property covered by this Agreement or the Financing Documents:
(a) upon termination of the Commitments and payment and satisfaction
of all Obligations;
(b) constituting property being sold or disposed of if the Borrower
certifies to the Agent that the sale or disposition is made in compliance with
the provisions of this Agreement (and the Agent may rely in good faith
conclusively on any such certificate, without further inquiry);
(c) constituting property leased to the Borrower under a lease which
has expired or been terminated in a transaction permitted under this Agreement
or is about to expire and which has not been, and is not intended by the
Borrower to be, renewed or extended; or
(d) constituting property covered by Permitted Liens with lien
priority superior to those Liens in favor or for the benefit of the Lenders.
Additionally, the Agent shall upon Borrower's written request release
each of the Pledge Agreements--CPS Stock and the Pledge Agreement--CPS Debt
Securities if, at the time of such request, (i) Term Loan B is paid in full,
(ii) an Amortization Reduction Event has occurred, (iii) no Event of Default
then exists, and (iv) the Borrower has Revolving Credit Availability of at least
$3,500,000.
In addition to the foregoing, during any fiscal year of the Borrower,
so long as no Event of Default has occurred and is continuing, (x) the Agent may
release Collateral having a book value of not more than $1,000,000, (y) the
Agent, with the consent of Requisite Lenders, may release Collateral having a
book value of not more than 10% of the book value of all Collateral and (z) the
Agent, with the consent of all of the Lenders, may release any or all of the
Collateral.
8.8.2 Confirmation of Authority; Execution of Releases.
Without in any manner limiting the Agent's authority to act without
any specific or further authorization or consent by the Lenders as set forth in
Section 8.8.1 (Release of Collateral), each Lender agrees to confirm in writing,
upon request by the Borrower, the authority to release any property covered by
this Agreement or the Financing Documents conferred upon the Agent under Section
8.8.1 (Release of Collateral). So long as no Event of Default is then
continuing, upon receipt by the Agent of confirmation from the requisite
percentage of the Lenders, of its authority to release any particular item or
types of property covered by this Agreement or the Financing Documents, and upon
at least five (5) Business Days prior written request by the Borrower, the Agent
shall (and is hereby irrevocably authorized by the Lenders to) execute such
documents as may be necessary to evidence the release of the Liens granted to
the Agent for the benefit of the Lenders herein or pursuant hereto upon such
Collateral; provided, however, that (a) the Agent shall not be required to
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execute any such
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document on terms which, in the Agent's opinion, would expose the Agent to
liability or create any obligation or entail any consequence other than the
release of such Liens without recourse or warranty, and (b) such release shall
not in any manner discharge, affect or impair the Obligations or any Liens upon
(or obligations of any Person, in respect of), all interests retained by any
Person, including, without limitation, the proceeds of any sale, all of which
shall continue to constitute part of the property covered by this Agreement or
the Financing Documents.
8.8.3 Absence of Duty.
The Agent shall have no obligation whatsoever to any Lender, the
Borrower or any other Person to assure that the property covered by this
Agreement or the Financing Documents exists or is owned by the Borrower or is
cared for, protected or insured or has been encumbered or that the Liens granted
to the Agent for the benefit of the Lenders and the Agent herein or pursuant
hereto have been properly or sufficiently or lawfully created, perfected,
protected or enforced or are entitled to any particular priority, or to exercise
at all or in any particular manner or under any duty of care, disclosure or
fidelity, or to continue exercising, any of the rights, authorities and powers
granted or available to the Agent in this Section 8.8.3 or in any of the
Financing Documents, it being understood and agreed that in respect of the
property covered by this Agreement or the Financing Documents or any act,
omission or event related thereto, the Agent may act in any manner it may deem
appropriate, in its discretion, given the Agent's own interest in property
covered by this Agreement or the Financing Documents as one of the Lenders and
that the Agent shall have no duty or liability whatsoever to any of the other
the Lenders.
Section 8.9 Agency for Perfection.
Each Lender hereby appoints the Agent and each other Lender as agent
for the purpose of perfecting the Lenders' Liens in Collateral which, in
accordance with Article 9 of the Uniform Commercial Code in any applicable
jurisdiction or otherwise, can be perfected only by possession. Should any
Lender (other than the Agent) obtain possession of any such Collateral, such
Lender shall notify the Agent thereof, and, promptly upon the Agent's request
therefor, shall deliver such Collateral to the Agent or in accordance with the
Agent's instructions.
Section 8.10 Exercise of Remedies.
Each Lender agrees that it will not have any right individually to
enforce or seek to enforce this Agreement or any Financing Document or to
realize upon any collateral security for the Loans, it being understood and
agreed that such rights and remedies may be exercised only by the Agent.
Section 8.11 Consents.
8.11.1 When Deemed to Have Been Given.
In the event the Agent requests the consent of a Lender and does
not receive a written denial thereof, or a written notice from a Lender that due
course consideration of the request requires additional time, in each case,
within ten (10) Business Days after such Lender's receipt of such request, then
such Lender will be deemed to have given such consent.
8.11.2 Denial of Consent.
In the event the Agent requests the consent of a Lender, such
consent is necessary to approve the action in question and such consent is
denied, then BANA may, at its option, require such Lender to assign its interest
in the Loans and the Commitments to BANA
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for a price equal to the then outstanding principal amount thereof plus accrued
and unpaid interest, fees and costs and expenses due such Lender under the
Financing Documents, which principal, interest, fees and costs and expenses will
be paid on the date of such assignment. In the event that BANA elects to require
any Lender to assign its interest to BANA, BANA will so notify such Lender in
writing within thirty (30) days following such Lender's denial, and such Lender
will assign its interest to BANA no later than five (5) days following receipt
of such notice.
Section 8.12 Dissemination of Information.
The Agent will provide the Lenders with any information received by
the Agent from the Borrower which is required to be provided to the Agent or to
the Lenders hereunder; provided, however, that the Agent shall not be liable to
any one or more the Lenders for any failure to do so, except to the extent that
such failure is attributable to the Agent's gross negligence or willful
misconduct.
Section 8.13 Discretionary Advances.
The Agent may, in its sole discretion, make, for the account of the
Formula Lenders on a pro rata basis, advances under the Revolving Loan of up to
Two Million Five Hundred Thousand Dollars ($2,500,000) in excess of the
Borrowing Base (but not in excess of the limitation set forth in aggregate
Revolving Credit Commitments) for an aggregate period of not more than 30 days
in any twelve (12) month period without the prior written consent of the
Requisite Lenders.
ARTICLE 9 MISCELLANEOUS
Section 9.1 Notices.
All notices, requests and demands to or upon the parties to this
Agreement shall be in writing and shall be deemed to have been given or made
when delivered by hand on a Business Day, or three (3) days after the date when
deposited in the mail, postage prepaid by registered or certified mail, return
receipt requested, or when sent by overnight courier, on the Business Day next
following the day on which the notice is delivered to such overnight courier,
addressed as follows:
the Borrower: Reunion Industries, Inc.
300 Weyman Plaza
Suite 340
Pittsburgh, Pennsylvania 15236
Attention: Kimball J. Bradley
With copies to: Richards & O'Neil, LLP
885 Third Avenue
New York, New York 10022-4802
Attention: Ken Chin, Esq.
Agent: Bank of America, National Association
231 South LaSalle Street
16th Floor
Chicago, Illinois 60697
Attention: Account Manager
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Copy to: Calfee, Halter & Griswold LLP
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114
Attention: Thomas A. Cicarella, Esq.
Phone No. 216/622-8200
FAX No. 216/241-0816
Copy to: Bank of America, National Association
10124 Old Grove Road
San Diego, California 92131
Attention: Legal Department
Phone No. 619/549-7510
FAX No. 619/549-7518
Lenders: To each Lender at the address
specified on the signature pages hereto
or as otherwise specified in writing
by parties becoming Lenders after
the date hereof.
By written notice, each party to this Agreement may change the address to which
notice is given to that party, provided that such changed notice shall include a
street address to which notices may be delivered by overnight courier in the
ordinary course on any Business Day.
Section 9.2 Amendments; Waivers.
9.2.1 In General.
Except as otherwise set forth in any Section of this Agreement, this
Agreement and the other Financing Documents may not be amended, modified, or
changed in any respect except by an agreement in writing signed by the Agent,
the Requisite Lenders and the Borrower, and, to the extent provided in Section
9.2.2 (Circumstances Where Consent of Certain Lenders is Required), by an
agreement in writing signed by the Agent, all of the Lenders and the Borrower.
Except as otherwise set forth in any Section of this Agreement, no waiver of any
provision of this Agreement or of any of the other Financing Documents, nor
consent to any departure by the Borrower therefrom, shall in any event be
effective unless the same shall be in writing signed by the Requisite Lenders.
No course of dealing between the Borrower and the Agent and/or any of the
Lenders and no act or failure to act from time to time on the part of the Agent
and/or any of the Lenders shall constitute a waiver, amendment or modification
of any provision of this Agreement or any of the other Financing Documents or
any right or remedy under this Agreement, under any of the other Financing
Documents or under applicable Laws. Without implying any limitation on the
foregoing, and subject to the provisions of Section 9.2.2 (Circumstances Where
Consent of Certain Lenders is Required):
(a) Any waiver or consent shall be effective only in the specific
instance, for the terms and purpose for which given, subject to such conditions
as the Agent and Lenders may specify in any such instrument;
(b) No waiver of any Default or Event of Default shall extend to any
subsequent or other Default or Event of Default, or impair any right consequent
thereto;
(c) No notice to or demand on the Borrower in any case shall entitle
the Borrower to any other or further notice or demand in the same, similar or
other circumstance;
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(d) No failure or delay by the Lenders to insist upon the strict
performance of any term, condition, covenant or agreement of this Agreement or
of any of the other Financing Documents, or to exercise any right, power or
remedy consequent upon a breach thereof, shall constitute a waiver, amendment or
modification of any such term, condition, covenant or agreement or of any such
breach or preclude the Lenders from exercising any such right, power or remedy
at any time or times; and
(e) By accepting payment after the due date of any amount payable
under this Agreement or under any of the other Financing Documents, the Lenders
shall not be deemed to waive the right either to require prompt payment when due
of all other amounts payable under this Agreement or under any of the other
Financing Documents, or to declare a default for failure to effect such prompt
payment of any such other amount.
9.2.2 Circumstances Where Consent of Certain Lenders is Required.
(a) Notwithstanding anything to the contrary contained herein, no
amendment, modification, change or waiver shall be effective without the consent
of all of the Formula Lenders to:
(i) extend the maturity (or otherwise modify the amortization
schedule, or the schedule for mandatory prepayments) of the principal of,
or interest on, any Note or of any of the other Obligations;
(ii) reduce the principal amount of any Note (other than a Term
Loan B Note) or of any of the other Obligations (other than those
Obligations owing to a Term Loan B Lender), the rate of interest thereon or
the Fees due to the Formula Lenders, except as expressly permitted therein;
(iii) modify the definition of "Requisite Lenders" or "Majority
Lenders";
(iv) modify Section 7.2.5 (Application of Proceeds; Certain
Intercreditor Provisions.) or the terms of any Subordination Agreement; or
(v) modify the definition of "Borrowing Base," "Eligible
Inventory" or "Eligible Receivables."
(b) Notwithstanding anything to the contrary contained herein, no
amendment, modification, change or waiver shall be effective without the consent
of all of the Term Loan B Lenders to:
(i) extend the maturity of the principal of, or interest on,
any Term Loan B Note or of any of the other Obligations owing to Term
Loan B Lenders; or
(ii) reduce the principal amount of any Term Loan B Note or of
any of the other Obligations owing to a Term Loan B Lender, the rate
of interest thereon or the Fees due to the Term Loan B Lenders,
except as expressly permitted therein.
(c) Notwithstanding anything to the contrary contained herein, no
amendment, modification, change or waiver shall be effective without the consent
of all of the Lenders to:
(i) change the method of calculation utilized in connection
with the computation of interest and Fees;
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(ii) change the manner of application by the Agent of payments
made by the Borrower, or any other payments required hereunder or
under the other Financing Documents;
(iii) modify this Section, Section 8.8.1 (Release of
Collateral), or Section 8.12 (Dissemination of Information);
(iv) release or agree to subordinate any material portion of
any Collateral or Obligations under the Financing Documents (except
to the extent provided herein or therein); or
(v) modify any provision of this Agreement that specifies the
percentage of a Lender's Commitments required to amend, modify,
change or waive such provision.
Additionally, no change may be made to the amount of a Lender's
Commitment or to the Lender's percentage of all Commitments without the prior
written consent of that Lender.
Section 9.3 Cumulative Remedies.
The rights, powers and remedies provided in this Agreement and in the
other Financing Documents are cumulative, may be exercised concurrently or
separately, may be exercised from time to time and in such order as the Agent
and the Requisite Lenders shall determine, subject to the provisions of this
Agreement, and are in addition to, and not exclusive of, rights, powers and
remedies provided by existing or future applicable Laws. In order to entitle
the Agent to exercise any remedy reserved to it in this Agreement, it shall not
be necessary to give any notice, other than such notice as may be expressly
required in this Agreement. Without limiting the generality of the foregoing
and subject to the terms of this Agreement, the Agent may:
(a) proceed against the Borrower with or without proceeding against
any other Person (including, without limitation, any guarantor) who may be
liable (by endorsement, guaranty, indemnity or otherwise) for all or any part of
the Obligations;
(b) proceed against the Borrower with or without proceeding under any
of the other Financing Documents or against any Collateral or other collateral
and security for all or any part of the Obligations;
(c) without reducing or impairing the obligation of the Borrower and
without notice, release or compromise with any guarantor or other Person liable
(by endorsement, guaranty, indemnity or otherwise) for all or any part of the
Obligations under the Financing Documents or otherwise; and
(d) without reducing or impairing the obligations of the Borrower and
without notice thereof: (i) fail to perfect the Lien in any or all Collateral or
to release any or all the Collateral or to accept substitute Collateral, (ii)
approve the making of advances under the Revolving Loan under this Agreement,
(iii) waive any provision of this Agreement or the other Financing Documents,
(iv) exercise or fail to exercise rights of setoff or other rights, or (v)
accept partial payments or extend from time to time the maturity of all or any
part of the Obligations.
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Section 9.4 Severability.
In case one or more provisions, or part thereof, contained in this
Agreement or in the other Financing Documents shall be invalid, illegal or
unenforceable in any respect under any Law, then without need for any further
agreement, notice or action:
(a) the validity, legality and enforceability of the remaining
provisions shall remain effective and binding on the parties thereto and shall
not be affected or impaired thereby;
(b) the obligation to be fulfilled shall be reduced to the limit of
such validity;
(c) if such provision or part thereof pertains to repayment of the
Obligations, then, at the sole and absolute discretion of the Agent, all of the
Obligations of the Borrower to the Agent and the Lenders shall become
immediately due and payable; and
(d) if the affected provision or part thereof operates or would
prospectively operate to invalidate this Agreement in whole or in part, then
such provision or part thereof only shall be void, and the remainder of this
Agreement shall remain operative and in full force and effect.
Section 9.5 Assignments by Lenders.
Any Lender may, with the prior written consent of the Agent (which
consent shall not be unreasonably withheld), but without notice to or consent of
the Borrower, assign to any Person (each an "Assignee" and collectively, the
"Assignees") all or a portion of such Lender's Commitments; provided that, (i)
any Lender may, without the consent of the Agent, assign to any Affiliate of
such Lender all or a portion of such Lender's Commitments, and (ii) after giving
effect to any assignment, unless the assigning Lender has assigned all of its
Commitments, such Lender must continue to hold a Pro Rata Share of the
Commitments at least equal to (a) in the case of Formula Lenders, Five Million
Dollars ($5,000,000), and (b) in the case of Term Loan B Lenders, One Million
Dollars ($1,000,000). Any Lender which elects to make such an assignment shall
pay to the Agent, for the exclusive benefit of the Agent, an administrative fee
for processing each such assignment in the amount of Five Thousand Dollars
($5,000.00). Such Lender and its Assignee shall notify the Agent and the
Borrower in writing of the date on which the assignment is to be effective (the
"Adjustment Date"). On or before the Adjustment Date, the assigning Lender, the
Agent and the respective Assignee shall execute and deliver a written assignment
agreement in a form acceptable to the Agent, which shall constitute an amendment
to this Agreement to the extent necessary to reflect such assignment. Upon the
request of any assigning Lender following an assignment made in accordance with
this Section 9.5, the Borrower shall issue new Notes to the assigning Lender and
its Assignee reflecting such assignment, in exchange for the existing Notes held
by the assigning Lender.
In addition, notwithstanding the foregoing, any Lender may at any time
pledge all or any portion of such Lender's rights under this Agreement, any of
the Commitments or any of the Obligations to a Federal Reserve Bank.
Any Assignee or participant which is not incorporated under the Laws
of the United States of America or a state thereof shall deliver to the Borrower
and the Agent the form of certificate described in Section 2.8.8 (Tax
Withholding Clause) relating to Federal income tax withholding.
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Section 9.6 Participations by Lenders
Any Lender may at any time sell to one or more financial institutions
participating interests in any of such Lender's Obligations or Commitments;
provided, however, that (a) no such participation shall relieve such Lender from
its obligations under this Agreement or under any of the other Financing
Documents to which it is a party, (b) such Lender shall remain solely
responsible for the performance of its obligations under this Agreement and
under all of the other Financing Documents to which it is a party, and (c) the
Borrower, the Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Financing Documents.
Section 9.7 Successors and Assigns.
This Agreement and all other Financing Documents shall be binding
upon and inure to the benefit of the Borrower, the Agent and the Lenders and
their respective heirs, personal representatives, successors and permitted
assigns, except that the Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the Agent
and the Lenders.
Section 9.8 Continuing Agreements.
All covenants, agreements, representations and warranties made by the
Borrower in this Agreement, in any of the other Financing Documents, and in any
certificate delivered pursuant hereto or thereto shall survive the making by the
Lenders of the Loans, the issuance of Letters of Credit and the execution and
delivery of the Notes, shall be binding upon the Borrower regardless of how long
before or after the date hereof any of the Obligations were or are incurred, and
shall continue in full force and effect so long as any of the Obligations are
outstanding and unpaid. From time to time upon the Agent's reasonable request as
a condition of the release of any one or more of the Security Documents, the
Borrower and other Persons obligated with respect to the Obligations shall
provide the Agent with such acknowledgments and agreements as the Agent may
reasonably require to the effect that there exist no defenses, rights of setoff
or recoupment, claims, counterclaims, actions or causes of action of any kind or
nature whatsoever against the Agent, any or all of the Lenders, and/or any of
its or their agents and others, or to the extent there are, the same are waived
and released.
Section 9.9 Enforcement Costs.
The Borrower agrees to pay to the Agent, for the accounts of the Agent
and the Lenders (if applicable), on demand all Enforcement Costs, together with
interest thereon from the date of demand until paid in full at a per annum rate
of interest equal at all times to the Post-Default Rate. Enforcement Costs
shall be immediately due and payable on demand. Without implying any limitation
on the foregoing, the Borrower agrees, as part of the Enforcement Costs, to pay
upon demand any and all stamp and other Taxes and fees payable or determined to
be payable in connection with the execution and delivery of this Agreement and
the other Financing Documents and to save the Agent and the Lenders harmless
from and against any and all liabilities with respect to or resulting from any
delay in paying or omission to pay any Taxes or fees referred to in this
Section. The provisions of this Section shall survive the execution and
delivery of this Agreement, the repayment of the other Obligations and shall
survive the termination of this Agreement.
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Section 9.10 Applicable Law; Jurisdiction.
9.10.1 Applicable Law.
As a material inducement to the Agent and the Lenders to enter into
this Agreement, the Borrower, the Agent, and the Lenders acknowledge and agree
that the Financing Documents, including, this Agreement, shall be governed by
the Laws of the State, as if each of the Financing Documents and this Agreement
had each been executed, delivered, administered and performed solely within the
State even though for the convenience and at the request of the Borrower, one or
more of the Financing Documents may be executed elsewhere. The parties
acknowledge, however, that remedies under certain of the Financing Documents
which relate to property outside the State may be subject to the laws of the
state in which the property is located.
9.10.2 Jurisdiction.
THE BORROWER, THE AGENT AND THE LENDERS IRREVOCABLY SUBMIT TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE STATE OVER ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE
OTHER FINANCING DOCUMENTS. THE BORROWER IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. FINAL JUDGMENT IN ANY SUCH
SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT SHALL BE CONCLUSIVE AND
BINDING UPON THE BORROWER AND MAY BE ENFORCED IN ANY COURT IN WHICH THE BORROWER
IS SUBJECT TO JURISDICTION, BY A SUIT UPON SUCH JUDGMENT, PROVIDED THAT SERVICE
OF PROCESS IS EFFECTED UPON THE BORROWER IN ONE OF THE MANNERS SPECIFIED IN THIS
SECTION OR AS OTHERWISE PERMITTED BY APPLICABLE LAWS.
9.10.3 Consent to Service of Process
The Borrower hereby consents to process being served in any suit,
action or proceeding of the nature referred to in this Section by (i) the
mailing of a copy thereof by registered or certified mail, postage prepaid,
return receipt requested, to the Borrower at the Borrower's address designated
in or pursuant to Section 9.1 hereof. The Borrower irrevocably agrees that such
service (i) shall be deemed in every respect effective service of process upon
the Borrower in any such suit, action or proceeding, and (ii) shall, to the
fullest extent permitted by law, be taken and held to be valid personal service
upon the Borrower. Nothing in this Section shall affect the right of the Agent
to serve process in any manner otherwise permitted by law or limit the right of
the Agent otherwise to bring proceedings against the Borrower in the courts of
any jurisdiction or jurisdictions.
Section 9.11 Duplicate Originals and Counterparts.
This Agreement may be executed in any number of duplicate originals or
counterparts, each of such duplicate originals or counterparts shall be deemed
to be an original and all taken together shall constitute but one and the same
instrument.
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Section 9.12 Headings.
The headings in this Agreement are included herein for convenience
only, shall not constitute a part of this Agreement for any other purpose, and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
Section 9.13 No Agency.
Nothing herein contained shall be construed to constitute the Borrower
as the agent of the Agent or any of the Lenders for any purpose whatsoever or to
permit the Borrower to pledge any of the credit of the Agent or any of the
Lenders. Neither the Agent nor any of the Lenders shall be responsible or
liable for any shortage, discrepancy, damage, loss or destruction of any part of
the Collateral wherever the same may be located and regardless of the cause
thereof other than through the Agent's or any Lender's gross negligence or
willful misconduct (as determined by a court of competent jurisdiction after
exhaustion of all appeals). Neither the Agent nor any of the Lenders shall, by
anything herein or in any of the Financing Documents or otherwise, assume the
Borrower's obligations under any contract or agreement assigned to the Agent
and/or the Lenders, and neither the Agent nor any of the Lenders shall be
responsible in any way for the performance by the Borrower of any of the terms
and conditions thereof.
Section 9.14 Date of Payment.
Should the principal of or interest on the Notes become due and
payable on other than a Business Day, the maturity thereof shall be extended to
the next succeeding Business Day and in the case of principal, interest shall be
payable thereon at the rate per annum specified in the Notes during such
extension.
Section 9.15 Entire Agreement.
This Agreement and the other Financing Documents are intended by the
Agent, the Lenders and the Borrower to be a complete, exclusive and final
expression of the agreements contained herein. Neither the Agent, the Lenders
nor the Borrower shall hereafter have any rights under any prior agreements
pertaining to the matters addressed by this Agreement but shall look solely to
this Agreement for definition and determination of all of their respective
rights, liabilities and responsibilities under this Agreement.
Section 9.16 Waiver of Trial by Jury.
THE BORROWER, THE AGENT AND THE LENDERS HEREBY JOINTLY AND SEVERALLY
WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE BORROWER AND THE
AGENT AND/OR ANY OR ALL OF THE LENDERS MAY BE PARTIES, ARISING OUT OF OR IN ANY
WAY PERTAINING TO (A) THIS AGREEMENT, (B) ANY OF THE FINANCING DOCUMENTS, OR (C)
THE COLLATERAL.
This waiver is knowingly, willingly and voluntarily made by the
Borrower, the Agent and the Lenders, and the Borrower, the Agent and the
Lenders hereby represent that no representations of fact or opinion have been
made by any individual to induce this waiver of trial by jury or to in any way
modify or nullify its effect. The Borrower, the Agent and the Lenders further
represent that they have been represented in the signing of this Agreement and
in the making of this waiver by independent legal counsel, selected of their own
free will, and that they have had the opportunity to discuss this waiver with
counsel.
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Section 9.17 Liability of the Agent and the Lenders.
The Borrower hereby agrees that neither the Agent nor any of the
Lenders shall be chargeable for any negligence, mistake, act or omission of any
accountant, examiner, agency or attorney employed by the Agent and/or any of the
Lenders in making examinations, or investigations, or otherwise in perfecting,
maintaining, or protecting or realizing upon any lien or security interest or
any other interest in the Collateral or other security for the Obligations.
By inspecting the Collateral or any other properties of the Borrower
or by accepting or approving anything required to be observed, performed or
fulfilled by the Borrower or to be given to the Agent and/or any of the Lenders
pursuant to this Agreement or any of the other Financing Documents, neither the
Agent nor any of the Lenders shall be deemed to have warranted or represented
the condition, sufficiency, legality, effectiveness or legal effect of the same,
and such acceptance or approval shall not constitute any warranty or
representation with respect thereto by the Agent and/or the Lenders.
Section 9.18 Indemnification.
The Borrower agrees to reimburse and indemnify the Agent, each issuer
of a Letter of Credit and each Lender, and each of their respective Affiliates,
directors, officers, employees, agents and advisors for and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, advances or disbursements including, without limitation,
Enforcement Costs, of any kind or nature whatsoever which may be imposed on,
incurred by, or asserted against any such Person (each such Person being called
an "Indemnitee") in any way relating to or arising out of this Agreement or any
of the Financing Documents or any action taken or omitted by any Indemnitee
under this Agreement or any of the Financing Documents, all of the foregoing as
they may arise, be asserted or be imposed from time to time; provided, however,
that the Borrower shall not be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses, advances or disbursements resulting from any such Indemnitee's gross
negligence or willful misconduct. The obligations of the Borrower under this
Section 9.18 shall survive the payment in full of the Obligations and the
termination of this Agreement.
Section 9.19 Waiver of Consequential Damages.
To the extent permitted by applicable law, neither the Borrower nor
any of its Subsidiaries may assert, and each of them hereby waives, any claim
against any Indemnitee, on any theory of liability, for special, indirect,
consequential or punitive damages (as opposed to direct or actual damages)
arising out of, in connection with, or as a result of, this Agreement or any
Financing Document or the use of the proceeds of any Loan or Letter of Credit.
Section 9.20 Syndication.
In the event that the Credit Facilities (other than the Term Loan B
Facility) cannot be successfully syndicated under the terms set forth in this
Agreement and in the other Financing Documents (a successful syndication being
one in which Bank of America, National Association is able to achieve its
targeted hold of $35,000,000 and hold not more than 48% of the dollar amount of
the Total Formula Loan Commitments), the Borrower agrees that the Agent and the
Formula Lenders shall be entitled, subject to Section 9.2 and in consultation
with the Borrower, to change the pricing, structure and other terms of the
Credit Facilities (but not the total amount thereof) if the Agent determines
such changes are necessary to ensure a successful syndication, provided that (a)
the total amount of the Credit Facilities remains unchanged and (b) that such
changes will not cause the Borrower to violate the Indenture and any amendments,
waivers or consents thereunder.
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WITNESS: REUNION INDUSTRIES, INC.
- ----------------------
- ----------------------
By:
------------------------------------
Its:
-----------------------------------
S-1
<PAGE>
STATE OF OHIO )
) ss:
COUNTY OF CUYAHOGA )
The foregoing instrument was acknowledged before me this ____ day of March,
2000, by ____________________ of Reunion Industries, Inc., a Delaware
corporation, on behalf of the company.
_____________________________
Notary Public
THE SIGNATURES OF THE AGENT AND THE LENDERS FOLLOW
--------------------------------------------------
S-2
<PAGE>
WITNESS: BANK OF AMERICA, NATIONAL ASSOCIATION,
as Agent
- ------------------------
- ------------------------ By:
-----------------------------------
Its:
----------------------------------
S-3
<PAGE>
WITNESS: BANK OF AMERICA, NATIONAL ASSOCIATION,
as a Lender
- -------------------------
- ------------------------- By:
-----------------------------------
Its:
----------------------------------
BANK OF AMERICA, NATIONAL ASSOCIATION
-------------------------------------------------------------------
Credit Facility Committed Amount Pro Rata Share
-------------------------------------------------------------------
Revolving Credit Facility $24,570,000 63%
-------------------------------------------------------------------
Term Loan A $16,254,000 63%
-------------------------------------------------------------------
Term Loan B $ 2,500,000 50%
-------------------------------------------------------------------
Capital Expenditure Line $ 1,701,000 63%
-------------------------------------------------------------------
Address: Bank of America, National Association
231 South LaSalle Street
16th Floor
Chicago, Illinois 60697
Attention: Account Manager
S-4
<PAGE>
WITNESS: CONGRESS FINANCIAL CORPORATION,
as a Lender
- -------------------------
- ------------------------- By:
-------------------------------
Its:
------------------------------
--------------------------------------------------------------------
Credit Facility Committed Amount Pro Rata Share
--------------------------------------------------------------------
Revolving Credit Facility $14,430,000 37%
--------------------------------------------------------------------
Term Loan A $ 9,546,000 37%
--------------------------------------------------------------------
Capital Expenditure Line $ 999,000 37%
--------------------------------------------------------------------
Address: Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Attention: Mark Fagnani, Vice President
S-5
<PAGE>
WITNESS: CONTRARIAN FUNDS, LLC,
as a Lender
- --------------------------
- -------------------------- By: CONTRARIAN CAPITAL ADVISORS,
LLC, as manager
By:
---------------------------------
Its:
--------------------------------
---------------------------------------------------------------
Credit Facility Committed Amount Pro Rata Share
---------------------------------------------------------------
Term Loan B $1,778,500 35.57%
---------------------------------------------------------------
Address: Contrarian Funds, LLC
411 West Putnam Avenue
Suite 225
Greenwich, Connecticut 06830
Attention: David E. Jackson, Managing Member
S-6
<PAGE>
WITNESS: CONTRARIAN CAPITAL ADVISORS, LLC,
as agent for certain entities, as a Lender
- -----------------------
- ----------------------- By:
----------------------------------
Its:
---------------------------------
----------------------------------------------------------------
Credit Facility Committed Amount Pro Rata Share
----------------------------------------------------------------
Term Loan B $721,500 14.43%
----------------------------------------------------------------
Address: Contrarian Capital Advisors, LLC
411 West Putnam Avenue
Suite 225
Greenwich, Connecticut 06830
Attention: David E. Jackson, Managing Member
S-7
<PAGE>
Exhibit 10.19
THIRD SUPPLEMENTAL INDENTURE
THIRD SUPPLEMENTAL INDENTURE, dated as of May 28, 1999 (the "Third
Supplemental Indenture") to the Indenture, dated as of May 1, 1993, between
Chatwins Group, Inc., a Delaware corporation (the "Company") and State Street
Bank and Trust Company, a Massachusetts trust company, as successor trustee to
The First National Bank of Boston (the "Trustee"), as amended by the First
Supplemental Indenture and Waiver of Covenants, dated as of June 20, 1995
between the Company and the Trustee and the Second Supplemental Indenture, dated
as of June 20, 1995, between the Company and the Trustee (as amended, the
"Indenture").
The Company and the Trustee, pursuant to Section 9.01(1) of the
Indenture, agree as follows for the benefit of the other party and for the equal
and ratable benefit of the holders of the Company's Securities:
1. Capitalized terms used herein but not otherwise defined shall
have the respective meanings set forth in the Indenture.
2. Anything in the Indenture to the contrary notwithstanding, the
Indenture is amended as necessary to provide for the following:
(a) Holders may elect to have their Securities purchased by the
Company pursuant to a Purchase Offer by tendering Securities pursuant to the
Purchase Offer until 5:00 p.m. Eastern Daylight Time on June 1, 1999 or June 1,
2000, as applicable.
(b) The purchase price for Securities tendered by Holders and accepted
for purchase by the Company pursuant to the Purchase Offer will be 100 percent
(100%) of the principal amount thereof plus accrued and unpaid interest, if any,
to but excluding the date such purchase price is paid by the Company to the
Trustee or Paying Agent in accordance with paragraph (c) below (the "Purchase
Price").
(c) By 12:30 p.m. on June 7, 1999 or June 6, 2000, as applicable, the
Company shall deposit with the Trustee or with the Paying Agent money in funds
immediately available equal to the Purchase Price for the Purchased Securities
tendered by Holders and accepted for purchase by the Company pursuant to the
Purchase Offer.
(d) The Company may accept in its discretion withdrawals of elections
to accept the Purchase Offer made by Holders after the time specified in Section
3.09(6) of the Indenture and paragraph (ix) of the Company's May 12, 1999 Notice
of Purchase Offer.
3. To give effect to the foregoing, Section 3.09 of the Indenture is
hereby amended and restated in its entirety as follows.
<PAGE>
Section 3.09 Purchase Offer.
--------------
The Company shall make an offer to Securityholders to purchase (the
"Purchase Offer") on June 1 in each of the years 1999 and 2000 (each date, a
"Purchase Date") 50% of the originally issued principal amount of the Securities
at a purchase price (the "Purchase Price") in cash in an amount equal to 100% of
the aggregate outstanding principal amount thereof, plus accrued and unpaid
interest, if any, to but excluding June 7, 1999 or June 6, 2000,
respectively (the "Funding Date").
Except as otherwise provided in this Section 3.09, the Purchase Offer
shall be conducted in the manner set forth in Sections 3.02, 3.05 and 3.10
hereof. The Purchase Offer shall begin on May 12, 1999 or 2000, as applicable
and end at 5:00 p.m. Eastern Daylight Time on the Purchase Date and no longer,
except to the extent that a longer period is required by applicable law .
Holders may tender Securities pursuant to the Purchase Offer any time between
May 12, 1999 or 2000, as applicable, and the applicable Purchase Date. On the
applicable Purchase Date, the Company shall accept for purchase the principal
amount required to be purchased pursuant to this Section 3.09 (the "Purchase
Offer Amount") of Securities tendered or, if less than the Purchase Offer Amount
has been tendered, all Securities tendered pursuant to the Purchase Offer.
The Company shall send, by first class mail, a notice to each of the
Holders, with a copy to the Trustee, between March 2 and May 12 of the
applicable year. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Securities pursuant to the Purchase
Offer. The notice, which shall govern the terms of the Purchase Offer, shall
state:
(1) that the Purchase Offer is being made pursuant to Section 3.09;
(2) the Purchase Offer Amount, the formula for calculating the
Purchase Price and the Purchase Date;
(3) that any Security not tendered or accepted for payment will
continue to accrue interest;
(4) that any Security accepted for payment pursuant to the Purchase
Offer shall cease to accrue interest on and after the Funding Date, unless the
Company defaults in making payment on the Funding Date as herein provided;
(5) that Holders electing to have a Security purchased pursuant to any
Purchase Offer will be required to surrender the Security, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Security
completed, to the Company, the Depositary, or a Paying Agent at the address
specified in the notice on or before the Purchase Date;
-2-
<PAGE>
(6) that Holders will be entitled to withdraw their election if the
Company, the Depositary or Paying Agent, as the case may be, receives, not later
than 5 p.m. Eastern Daylight Time on the Purchase Date (or such later date as
shall be acceptable to the Company in its sole discretion), a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Security the Holder delivered for purchase and a
statement that such Holder is withdrawing his election to have the Security
purchased;
(7) that, if the aggregate principal amount of Securities surrendered
by the Holders, exceeds the Purchase Offer Amount, the Company shall select the
Securities to be purchased on a pro rata basis, or by lot or by such method that
complies with applicable legal requirements and the requirements of any exchange
on which the Securities are listed that the Trustee considers fair and
appropriate (with such adjustments as may be deemed appropriate by the Company
so that only Securities in denominations of $1,000, or integral multiples
thereof, shall be purchased); and
(8) that Holders whose Securities were purchased only in part will be
issued new Securities equal in principal amount to the unpurchased portion of
the Securities surrendered.
On the Purchase Date, the Company shall, to the extent lawful, accept
for payment, the Purchase Offer Amount of Securities or portions thereof
tendered pursuant to the Purchase Offer, or if less than the Purchase Offer
Amount has been tendered, all Securities or portions thereof tendered, and
deliver to the Trustee on the day following the Purchase Date an Officers'
Certificate stating that such Securities or portions thereof were accepted for
payment by the Company in accordance with the terms of this Section 3.09. By
12:30 p.m. Eastern Daylight Time on Funding Date, the Company shall deposit with
the Trustee or with the Paying Agent money in funds immediately available equal
to the Purchase Price of the Securities being purchased. The Trustee or Paying
Agent, as the case may be, shall promptly deliver to each tendering Holder an
amount equal to the Purchase Price of the Security tendered by such Holder and
accepted by the Company for purchase, and the Company shall promptly issue a new
Security, and the Trustee shall authenticate and mail or deliver such new
Security to such Holder equal in principal amount to any unpurchased portion of
the Security surrendered. Any Security not so accepted shall be promptly mailed
or delivered by the Company to the Trustee for delivery by the Trustee to the
Holder thereof.
The Company shall comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that the Company is required to offer
to purchase Securities pursuant to this Section 3.09.
3. This Third Supplemental Indenture shall be an integrated part of
the Indenture (as amended and modified by the First Supplemental Indenture and
Waiver of Covenants and the Second Supplemental Indenture). Except as amended
by this Third Supplemental Indenture, the Indenture (as amended by the First
Supplemental Indenture
-3-
<PAGE>
and Waiver of Covenants and the Second Supplemental Indenture) shall remain in
full force and effect.
4. This Third Supplemental Indenture may be executed in any number of
counterparts, each which when so executed and delivered shall be deemed an
original, but all of which counterparts together shall constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental
Indenture to be duly executed, all as of the date first written above.
CHATWINS GROUP, INC.
/s/Joseph C. Lawyer
--------------------
Joseph C. Lawyer
President
STATE STREET BANK AND
TRUST COMPANY, as succesor Trustee
By: /s/Jacqueline Bonhomme
-----------------------
Name: Jacqueline Bonhomme
Title: Assistant Vice President
-4-
<PAGE>
Exhibit 10.20
FOURTH SUPPLEMENTAL INDENTURE
FOURTH SUPPLEMENTAL INDENTURE, dated as of March 8, 2000 (the "Fourth
Supplemental Indenture") to the Indenture, dated as of May 1, 1993, between
Chatwins Group, Inc., a Delaware corporation (the "Company") and State Street
Bank and Trust Company, a Massachusetts trust company, as successor trustee to
The First National Bank of Boston (the "Trustee"), as amended by the First
Supplemental Indenture and Waiver of Covenants, dated as of June 20, 1995
between the Company and the Trustee, the Second Supplemental Indenture, dated as
of June 20, 1995, between the Company and the Trustee and Third Supplemental
Indenture, dated as of May 28, 1999, between the Company and the Trustee (as
amended, the "Indenture").
The Company and the Trustee, pursuant to Section 9.01(5) of the
Indenture, agree as follows for the benefit of the other party and for the equal
and ratable benefit of the holders of the Company's Securities:
1. Capitalized terms used herein but not otherwise defined shall
have the respective meanings set forth in the Indenture.
2. In connection with a proposed merger between the Company and
Reunion Industries, Inc. ("Reunion"), a new credit facility for the combined
entity the proceeds of which will be used to refinance certain indebtedness of
the Company and Reunion and to finance the Purchase Offer (as defined), and
certain related transactions, the Company solicited consents to waivers and
amendments of certain provisions of the Indenture from Securityholders of record
on November 19, 1999 pursuant to a Consent Solicitation and Purchase Offer,
dated February 1, 2000 (the "Consent Solicitation"). In the Consent Solicitation
the Company also made an offer to purchase $25 million principal amount of
Securities (the "Purchase Offer") from Securityholders who consented to all the
waivers and amendments under the Indenture. The Purchase Offer is conditioned on
receipt of the consents requested by the Consent Solicitation (the "Consents").
The Company has received sufficient Consents to permit the Purchase Offer to be
consummated. However, more than 90 days have passed since the record date used
for the Consent Solicitation which is specified by Section 9.04(b) of the
Indenture as the maximum period for the effectiveness of the Consents.
3. To permit the Consents to remain effective and the Purchase Offer
to be consummated, the provision of Section 9.04(b) of the Indenture
("Revocation and Effect of Consents") that specifies that no Consent shall be
valid or effective for more than 90 days after the applicable record date is
waived and amended as necessary to permit consummation of the Purchase Offer but
only if it is consummated by April 10, 2000.
4. This Fourth Supplemental Indenture shall be an integrated part of
the Indenture (as amended and modified by the First Supplemental Indenture and
Waiver of Covenants, the Second Supplemental Indenture and the Third
Supplemental Indenture). Except as amended by this Fourth Supplemental
Indenture, the Indenture (as amended by the First Supplemental Indenture and
Waiver of Covenants, the Second
<PAGE>
Supplemental Indenture and the Third Supplemental Indenture) shall remain in
full force and effect.
5. This Fourth Supplemental Indenture may be executed in any number
of counterparts, each which when so executed and delivered shall be deemed an
original, but all of which counterparts together shall constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Supplemental Indenture to be duly executed, all as of the date first written
above.
CHATWINS GROUP, INC.
/s/Joseph C. Lawyer
--------------------
Joseph C. Lawyer
President
STATE STREET BANK AND
TRUST COMPANY, as successor Trustee
By: /s/Jacqueline Bonhomme
----------------------
Name: Jacqueline Bonhomme
Title: Assistant Vice President
-2-
<PAGE>
Exhibit 10.21
FIFTH SUPPLEMENTAL INDENTURE
AND WAIVER OF COVENANTS
FIFTH SUPPLEMENTAL INDENTURE AND WAIVER OF COVENANTS, dated as of
March 16, 2000 (the "Fifth Supplemental Indenture") to the Indenture, dated as
of May 1, 1993, between Chatwins Group, Inc., a Delaware corporation (the
"Company"), Reunion Industries, Inc., a Delaware corporation ("Reunion"), and
State Street Bank and Trust Company, a Massachusetts trust company, as successor
trustee to The First National Bank of Boston (the "Trustee"), as amended by the
First Supplemental Indenture and Waiver of Covenants, dated as of June 20, 1995
between the Company and the Trustee, the Second Supplemental Indenture, dated as
of June 20, 1995, between the Company and the Trustee, the Third Supplemental
Indenture, dated as of May 28, 1999, between the Company and the Trustee, and
the Fourth Supplemental Indenture, dated as of March 8, 2000, between the
Company and the Trustee (as amended, the "Indenture"). Capitalized terms used
herein but not otherwise defined shall have the respective meanings set forth in
the Indenture or in the Amended Consent Solicitation and Notice of Offer to
Purchase Senior Notes of the Company, dated February 1, 2000, attached hereto as
Schedule I (the "Consent Solicitation").
The Company and the Trustee, pursuant to Sections 9.02 and 5.01 of the
Indenture, agree as follows for the benefit of the other party and for the equal
and ratable benefit of the holders of the Company's Securities:
1. Assumption of Indenture Obligations. The Company has entered into an
-----------------------------------
Amended and Restated Merger Agreement with Reunion, dated as of July 28, 1999
(the "Amended and Restated Merger Agreement"), pursuant to which the Company is
merging with and into Reunion (the "Merger"), with Reunion being the surviving
corporation ("New Reunion"). In connection with the Merger, New Reunion does
hereby assume, succeed to and agree to be bound by all of the obligations of the
Company under the Indenture, the Purchase Agreement, the Exchange and
Registration Rights Agreement and the Securities Pledge Agreement.
2. Amendment of Indenture. Section 4.09(iii) of the Indenture is hereby
----------------------
amended by deleting the phrase "2.5 to 1.0 thereafter" and inserting in its
place the phrase "2.0 to 1.0 thereafter."
3. Waiver of Outstanding Defaults. The Investment Default and the Pledge
------------------------------
Default under the Indenture, and the consequences thereof, are waived as to all
Securities and all Securityholders as may be necessary to permit Chatwins and
Reunion to proceed with the Merger and for all other purposes under the
Indenture.
4. Waivers of Indenture Covenants. In connection with the transactions
------------------------------
set forth in the Consent Solicitation, the following Indenture provisions, and
the consequences thereof, are waived as to all Securities and all
Securityholders:
<PAGE>
(a) the provisions of Section 5.01(4)(B) (Debt Test Covenant of
"When Company May Merge") as may be necessary to permit Chatwins and Reunion to
consummate the Merger;
(b) the provisions of Section 4.12 of the Indenture ("Limitation on
Liens") as may be necessary to permit New Reunion to enter into and consummate
the New Credit Facility;
(c) Section 4.09 of the Indenture ("Limitation on Incurrence of
Indebtedness") as may be necessary to enter into and consummate the Term Loan
Facility on the effective date of Merger and to make additional term loan
borrowings thereunder from time to time thereafter, but limited always to a
maximum aggregate principal amount of $33 million outstanding at any time under
the Term Loan Facility; and
(d) the provisions of Section 4.09 of the Indenture ("Limitation on
Incurrence of Indebtedness") as may be necessary to permit New Reunion to
consummate the Kingway Acquisition.
5. No Defaults. In connection with the outstanding Default and covenant
-----------
waivers set forth in Sections 3 and 4 above, the parties hereby acknowledge that
any Defaults have ceased to exist, and any Event of Default arising therefrom
shall be deemed to have been cured for every purpose of the Indenture; but no
such waiver shall extend to any subsequent or other Default or impair any right
consequent to such other or subsequent Default, except, however, such subsequent
Defaults as would otherwise arise upon subsequent reborrowings under the Term
Loan Facility so long as the aggregate principal amount outstanding thereunder
at any time does not exceed $33 million, all of which subsequent Defaults, if
any, are hereby waived.
6. Waiver of June Purchase Offer. The Holders of $47,450,000 principal
-----------------------------
amount of outstanding Securities set forth in Column B of Schedule 2 hereto (the
"Consenting Securities") have waived their right to receive, accept and elect to
participate in and tender Securities pursuant to the Purchase Offer due to be
made by the Company on June 1, 2000 (the "June Purchase Offer") pursuant to
Section 3.09 of the Indenture (the "June Purchase Offer Waiver").
7. Effect of June Purchase Offer Waiver. Pursuant to Section 9.04(c) of
------------------------------------
the Indenture, the June Purchase Offer Waiver shall bind each Securityholder of
a Consenting Security and every subsequent Securityholder of a Consenting
Security or a portion thereof if notice of the June Purchase Offer Waiver is
reflected on a Security that evidences the same debt or a portion thereof as the
consenting Securityholder's Security. To ensure that the June Purchase Offer
Waiver under Section 3.09 of the Indenture binds every subsequent Securityholder
of the Consenting Securities or a portion thereof, the Company has taken the
steps necessary to make a notation of the June Purchase Offer Waiver on the
Consenting Securities.
8. No Defaults. In connection with the covenant waiver set forth in
-----------
Section 6 above, the parties hereby acknowledge that any Default or any Event of
Default which might otherwise arise as a result of the failure to extend the
June Purchase Offer to
2
<PAGE>
the holders of Consenting Securities or portions thereof shall be deemed to have
been cured for every purpose of the Indenture; but no such waiver shall extend
to any subsequent or other Default or impair any right consequent to such other
or subsequent Default.
9. Effect of Fifth Supplemental Indenture. This Fifth Supplemental
--------------------------------------
Indenture shall be an integrated part of the Indenture (as amended and modified
by the First Supplemental Indenture and Wavier of Covenants, the Second
Supplemental Indenture, the Third Supplemental Indenture and the Fourth
Supplemental Indenture). Except as amended by this Fifth Supplemental Indenture,
the Indenture (as so amended) shall remain in full force and effect.
10. Counterparts. This Fifth Supplemental Indenture may be executed in
------------
any number of counterparts, each which when so executed and delivered shall be
deemed an original, but all of which counterparts together shall constitute but
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Supplemental
Indenture to be duly executed, all as of the date first written above.
CHATWINS GROUP, INC.
/s/Joseph C. Lawyer
--------------------
Name: Joseph C. Lawyer
Title: President
REUNION INDUSTRIES, INC.
/s/Richards L. Evans
---------------------
Name: Richard L. Evans
Title: Executive Vice President, Chief
Financial Officer and Secretary
STATE STREET BANK AND
TRUST COMPANY, as successor Trustee
By: /s/Jacqueline Bonhomme
----------------------
Name: Jacqueline Bonhomme
Title: Assistant Vice President
3
<PAGE>
SCHEDULE I
----------
M E M O R A N D U M
-------------------
TO: HOLDERS OF SENIOR NOTES
FROM: Chatwins Group, Inc.
DATE: February 1, 2000
RE: Amended Consent Solicitation and Notice of Offer To Purchase
Senior Notes (the "Amended Consent Solicitation and Purchase
Offer"), and Termination and Rescission of November 19 and 24,
1999 Consent Solicitation and Purchase Offer (the "Original
Consent Solicitation and Purchase Offer")
----------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ISSUER: Chatwins Group, Inc. ("Chatwins")
SECURITIES: 13% Senior Notes of Chatwins due 2003 (the "Securities") issued
under the Indenture, dated as of May 1, 1993, between Chatwins
and State Street Bank and Trust Company, as successor Trustee
to First National Bank of Boston, as amended (the "Indenture").
SUMMARY:/1/ . The Original Consent Solicitation and Purchase Offer is
rescinded due to inability to complete the New Credit Facility
as defined therein
. Chatwins hereby makes an Amended Consent Solicitation and
Purchase Offer to:
. Obtain the same amendments and waivers of the Indenture
covenants and defaults solicited in November, 1999
. Obtain a new waiver of Chatwins' obligation to make a
Purchase Offer as to $25 million principal amount of
Securities on June 1, 2000
. Offer to purchase at par from Securityholders consenting to
all such amendments and waivers up to $25 million principal
amount of Securities (the "Amended Purchase Offer")
</TABLE>
- ------------------
/1/ This summary is qualified by the other more specific provisions of this
document.
4
<PAGE>
<TABLE>
<S> <C>
. To consent to such amendments and waivers and to accept the
Amended Purchase Offer:
. Complete the form attached as Exhibit A and fax it to
Chatwins by 5:00 p.m. Eastern Standard Time on February
10, 2000.
. Ensure that you have tendered your Securities to DTC by
February 10, 2000 in the principal amount of Securities as
to which you validly accept the Amended Purchase Offer.
BACKGROUND: By notices dated November 19 and 24, 1999, Chatwins made an
offer to purchase $25 million principal amount of Securities at
one hundred percent (100%) of par (the "Original Purchase
Offer") from those Securityholders of record on November 19,
1999 who consented and agreed to certain amendments and waivers
under the Indenture (the "Original Consent Solicitation and
Purchase Offer"). A copy of the Original Consent Solicitation
and Purchase Offer is attached as Exhibit B. Capitalized terms
used but not defined herein shall have the meanings ascribed to
them in Exhibit B.
Chatwins solicited these amendments and waivers under the
Indenture to allow Chatwins and Reunion Industries, Inc.
("Reunion") to proceed with (i) a proposed merger, whereby
Chatwins will merge with and into Reunion ("New Reunion") and
New Reunion will succeed to Chatwins' obligations under the
Indenture and (ii) certain related transactions. Only those
Securityholders who consented and agreed to all the requested
---
amendments and waivers were to be entitled to have their
Securities purchased in the Original Purchase Offer.
The Original Consent Solicitation and Purchase Offer was
conditioned upon (i) Chatwins receiving all the requested
---
amendments and waivers from a majority of the outstanding
principal amount of Securities, (ii) the Original Purchase
Offer being accepted as to at least $25 million principal
amount of the Securities, and (iii) New Reunion consummating
the financing necessary to consummate the Original Purchase
Offer. If more than $25 million of Securities were tendered in
the Original Purchase Offer, the tendered Securities were to be
purchased pro rata.
As of December 3, 1999, Chatwins received consents to all
requested amendments and waivers from $49,335,000 principal
amount of Securities. That same principal amount of Securities
held by consenting Securityholders properly accepted the
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Original Purchase Offer.
REASON FOR TERMINATION The Original Consent Solicitation and Purchase Offer
AND RESCISSION OF contemplated that New Reunion would enter into a new credit
ORIGINAL CONSENT facility (the "New Credit Facility") with certain lenders. $25
SOLICITATION AND million of the proceeds of the New Credit Facility was to be
PURCHASE OFFER: used to consummate the Original Repurchase Offer. The lenders
negotiating the New Credit Facility have now indicated that
they will not consummate the New Credit Facility unless
Securityholders waive the obligation of New Reunion (as
Chatwins' successor following the Merger) under Section 3.09 of
the Indenture to make a Purchase Offer to purchase $25 million
principal amount of the Securities on June 1, 2000.
TERMINATION AND The third condition of the Original Purchase Offer (New Reunion
RESCISSION OF ORIGINAL being able to consummate the New Credit Facility) having
CONSENT SOLICITATION failed, the Original Purchase Offer is terminated and
AND PURCHASE OFFER: rescinded, the agreements and waivers received by Chatwins from
Securityholders in connection therewith are void and
ineffective, all as contemplated by the terms of the Original
Consent Solicitation and Purchase Offer and the Trustee has
cancelled the tender of your Securities in connection therewith.
AMENDED CONSENT Chatwins hereby makes a new offer to purchase $25 million
SOLICITATION AND principal amount of its Securities at one hundred percent
PURCHASE OFFER: (100%) of par (the "Amended Purchase Offer"). In connection
with the Amended Purchase Offer, Chatwins is soliciting
consents to certain amendments and waivers under its Indenture.
The Amended Purchase Offer is being made to only those
Securityholders of record on November 19, 1999 who agree and
consent to all the amendments and waivers of the Indenture
---
covenants and Defaults solicited hereby and is conditioned upon
(i) Chatwins receiving consents to the amendments and waivers
solicited hereby from Securityholders in respect of the
outstanding principal amount of Securities that will be
sufficient to permit it to consummate the Merger, the New
Credit Facility and the related transactions without violating
any provisions of the Indenture, (ii) the Amended Purchase
Offer being accepted as to at least $25 million principal
amount of the Securities, and (iii) New Reunion consummating
the New Credit Facility (the New Credit Facility subject to an
acceptable waiver of the June 1, 2000 purchase offer being
hereinafter referred to as the "Revised New Credit Facility")
which is required to provide the funds needed to consummate the
Amended Purchase Offer. If more than $25 million of Securities
are tendered in the Amended Purchase
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Offer, the tendered Securities are to be purchased pro rata. If
the Amended Purchase Offer is not consummated, then none of the
amendments and waivers solicited hereby shall become effective.
November 19, 1999 (at 5:00 p.m. Eastern Standard Time) has been
fixed by Chatwins as the record date for determining the
Securityholders entitled to participate in the Amended Purchase
Offer and to agree and consent to the amendments and waivers
requested herein. The Securities are represented by a Global
Security deposited with The Depository Trust Company ("DTC")
and registered in the name of DTC's nominee, Cede & Co. In
accordance with DTC's usual procedures, an Omnibus Consent is
being delivered to Chatwins under which Cede & Co.'s rights to
consent in respect of the Securities have been assigned to the
DTC Participants who are the holders on the record date of the
Securities through their accounts at DTC or their assignees
(the "Participants").
DESCRIPTION OF Pursuant to Section 3.08 of the Indenture Chatwins is obligated
NEW WAIVER: to make a mandatory redemption of $12.5 million principal
amount of Securities on May 1, 2000.
Pursuant to Section 3.09 of the Indenture Chatwins is obligated
to offer to purchase $25 million principal amount of the
Securities on June 1, 2000.
If the Merger and the Revised New Credit Facility and the
Amended Purchase Offer are consummated, New Reunion will credit
against these obligations as permitted by Section 3.10 of the
Indenture the $25 million principal amount of Securities it
will acquire in the Amended Purchase Offer as follows:
. $12.5 million against the Section 3.08 May 1, 2000
mandatory redemption obligation, and
. $12.5 million against the Section 3.09 June 1, 2000
purchase offer obligation.
Accordingly, New Reunion will remain obligated to offer to
purchase $12.5 million principal amount of Securities on June
1, 2000 pursuant to Section 3.09 of the Indenture.
As noted above, New Reunion's prospective lenders will not
consummate the Revised New Credit Facility unless
Securityholders waive this remaining $12.5 million repurchase
offer obligation under Section 3.09 of the Indenture. Thus, in
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
order to proceed with the Amended Purchase Offer and consummate
the Merger and other transactions described above, Chatwins is
requesting that the Securityholders waive their rights to
require Chatwins to make the balance of the Section 3.09 June
1, 2000 purchase offer remaining after crediting $12.5 million
of the $25 million principal amount of Securities it acquires
pursuant to the Amended Purchase Offer as noted above.
INDENTURE Section 6.06(6) of the Indenture provides that if Chatwins
REQUIREMENTS fails to fulfill its repurchase obligations arising under
FOR NEW WAIVER: Section 3.09, such failure shall constitute a Default by reason
of the failure by the Company to pay principal and,
notwithstanding any other provision of the Indenture, the right
of any Securityholder to receive payment of such principal may
not be impaired or affected without the consent of such
Securityholder.
Similarly, although Section 9.02 of the Indenture provides that
the Indenture may be amended and any existing Default or Event
of Default or compliance with any provision or consequences of
the foregoing may be waived with the written consent of
Securityholders holding a majority of the aggregate principal
amount of the Securities then outstanding, no such amendment,
supplement or waiver may be made without the consent of the
Securityholder if it would alter the redemption or repurchase
provisions of such Security.
EFFECT OF Pursuant to Section 9.04(c) of the Indenture, after the waiver
NEW WAIVER: of compliance with the Section 3.09 June 1, 2000 repurchase
obligation becomes effective it will bind every Securityholder
of a Security who has consented to it and it shall also bind
every subsequent Securityholder of such Security (or of a
portion of a Security that evidences the same debt as the
consenting Securityholder's Security) if notice of such waiver
is reflected on the Securities that evidence the same debt as
the consenting Securityholder's Security.
ACTION REQUESTED: If you wish to accept the Amended Purchase Offer by consenting
and agreeing to all the amendments and waivers of the Indenture
covenants and defaults solicited hereby, please (i) indicate
your acceptance, consent and agreement in the space provided on
the form attached hereto as Exhibit A; (ii) return the properly
executed form to Chatwins via facsimile at (412) 885-5512
(Attention: Russell S. Carolus), (iii) send the executed
original form to Chatwins via overnight courier addressed as
follows: Chatwins Group, Inc., 300 Weyman Plaza, Suite 340,
Pittsburgh, PA, 15236, Attention: Russell S.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Carolus; and (iv) tender your Securities to be acquired under
the Amended Purchase Offer through the DTC ATOP System.
To ensure that you will be entitled to have your Securities
purchased pursuant to the Amended Purchase Offer, your properly
executed acceptance must be received by Chatwins no later than
February 10, 2000 at 5:00 p.m. Eastern Standard Time and you
must have tendered your Securities through the DTC ATOP System
no later than February 10, 2000.
If you do not have independent authority to consent and agree
in respect of the Securities you hold as a Participant at DTC
you should distribute a copy of this document to your customers
or affiliates and obtain from them whatever authorization you
require in respect of such consent and agreement.
WITHDRAWAL Securityholders will have the right to withdraw their tender of
RIGHTS: Securities pursuant to the Amended Purchase Offer only until
the amount of Securities tendered pursuant to the Amended
Purchase Offer equals $25 million. Chatwins will notify
Securityholders when their withdrawal rights have terminated.
ADDITIONAL INFORMATION: See the Original Consent Solicitation and Purchase Offer
(attached as Exhibit B). Copies of the other materials
previously distributed therewith will be recirculated upon
request - Contact: Russell Carolus, Chatwins Group, Inc., 300
Weyman Plaza, Suite 340, Pittsburgh, Pennsylvania 15236,
Telephone: (412) 885-5506; Facsimile: (412) 885-5512.
</TABLE>
9
<PAGE>
Exhibit A
---------
AMENDED CONSENT SOLICITATION AND PURCHASE OFFER FORM
11. The undersigned does hereby represent that it is a Participant with
DTC -- namely, that it maintains an account with The Depository Trust Company,
New York, NY ("DTC").
12. The undersigned does hereby represent that it had $_________ principal
amount of Securities credited to its account with DTC on November 19, 1999.
13. The undersigned does hereby represent that as of November 19, 1999 it
had the full right to consent and agree, or has received all necessary
authorizations to consent and agree, on behalf of $__________ principal amount
of Securities in respect of the amendments and waivers of the Indenture
covenants and Defaults as more fully described herein.
14. On behalf of $_________ principal amount (the "Consenting
Securities") of the total $_________ principal amount of Securities credited to
its account with DTC on November 19, 1999, and on behalf of all subsequent
holders of the Consenting Securities, the undersigned does hereby:
(a) Agree and consent to all the amendments and waivers of the
---
Indenture covenants and defaults solicited in the Original Consent
Solicitation and Purchase Offer as set forth in Exhibit B hereto;
and
(b) Waive its right to receive, accept and elect to participate in and
tender Consenting Securities pursuant to the Purchase Offer due to
be made by Chatwins on June 1, 2000 pursuant to Section 3.09 of
the Indenture.
15. The undersigned does hereby accept the Amended Purchase Offer on
behalf of $______________ principal amount of the $______________ principal
amount of Consenting Securities for which it has consented to all the amendments
---
and waivers as stated herein and which were credited to its account with DTC on
November 19, 1999.
16. THE UNDERSIGNED ACKNOWLEDGES THAT (I) THIS AMENDED CONSENT
SOLICITATION AND PURCHASE OFFER SUPERCEDES THE ORIGINAL CONSENT SOLICITATION AND
PURCHASE OFFER, (II) ONLY SECURITYHOLDERS THAT TIMELY CONSENT TO ALL THE
AMENDMENTS AND WAIVERS REQUESTED BY THIS NOTICE WILL BE PERMITTED TO PARTICIPATE
IN THE AMENDED PURCHASE OFFER AND TO SELL SECURITIES TO CHATWINS PURSUANT
THERETO AND (III) THIS AMENDED PURCHASE OFFER WILL ONLY BE CONSUMMATED IF NEW
REUNION CONSUMMATES THE REVISED NEW CREDIT FACILITY.
Signature
Date:
---------------------------------
Print Name:
---------------------------
Taxpayer ID Number:
-------------------
<PAGE>
Exhibit B-1
-----------
TO: HOLDERS OF SENIOR NOTES
FROM: Chatwins Group, Inc.
DATE: November 19, 1999
RE: Chatwins Group Inc. - Notice of Offer to
Purchase Senior Notes and Consent Solicitation
----------------------------------------------
I. SUMMARY
Capitalized terms used herein but not otherwise defined herein shall
have the respective meanings ascribed to them in the Indenture, dated as of May
1, 1993, between Chatwins Group, Inc. ("Chatwins") and State Street Bank and
Trust Company, as successor Trustee to The First National Bank of Boston (the
"Trustee"), as amended (the "Indenture").
Chatwins hereby offers to purchase $25 million principal amount of its
13% Senior Notes due 2003 (the "Securities") at ninety-eight percent (98%) of
par (the "Purchase Offer"). In connection with the Purchase Offer, Chatwins is
soliciting consents to certain amendments and waivers under its Indenture. The
Purchase Offer is being made to only those Securityholders of record on November
19, 1999 who agree and consent to all amendments and waivers of the Indenture
---
covenants and Defaults solicited hereby and is conditioned upon (i) Chatwins
receiving consents to all the amendments and waivers solicited hereby from
---
Securityholders in respect of a majority of the outstanding principal amount of
Securities which will be sufficient for the amendments and waivers to become
effective under the Indenture), (ii) the Purchase Offer being accepted as to at
least $25 million principal amount of the Securities, and (iii) New Reunion (as
defined below) consummating the New Credit Facility (as defined in Section II(5)
below) which is required to consummate the Purchase Offer. If the Purchase
Offer is not consummated, then none of the amendments and waivers solicited
hereby shall become effective.
November 19, 1999 (at 5:00 p.m. Eastern Standard Time) has been fixed
by Chatwins as the record date for determining the Securityholders entitled to
participate in the Purchase Offer and to agree and consent to the amendments and
waivers requested herein. The Securities are represented by a Global Security
deposited with The Depository Trust Company ("DTC") and registered in the name
of DTC's nominee, Cede & Co. In accordance with DTC's usual procedures, an
Omnibus Consent is being delivered to Chatwins under which Cede & Co.'s rights
to consent in respect of the Securities have been assigned to the DTC
Participants who are the holders on the record date of the Securities through
their accounts at DTC or their assignees (the "Participants").
To ensure that you will be entitled to have your Securities purchased
pursuant to the Purchase Offer in consideration of your consent to all the
---
amendments and waivers of the Indenture covenants and Defaults solicited hereby,
<PAGE>
your properly executed acceptance must be received by Chatwins no later than
December 3, 1999 at 5:00 p.m. Eastern Standard Time.
Chatwins has entered into an Amended and Restated Merger Agreement
with Reunion Industries, Inc., a Delaware corporation ("Reunion"), dated as of
July 28, 1999 (the "Amended and Restated Merger Agreement"), pursuant to which
Chatwins will merge with and into Reunion (the "Merger"), with Reunion being the
surviving corporation ("New Reunion").
In connection with the Merger, New Reunion intends to enter into the
following transactions:
(i) Upon the Merger, New Reunion will succeed to and agree to be
bound by the Indenture;
(ii) New Reunion will enter into the New Credit Facility (as defined
in Section II(5) below) the proceeds of which will be used,
among other things, to finance the Purchase Offer and the
Kingway Acquisition (as defined below) and to refinance certain
of the debt of Chatwins and Reunion. The New Credit Facility
will be secured by a first priority lien on substantially all of
New Reunion's assets which will include substantially all of
Chatwins' assets;
(iii) New Reunion will acquire Kingway Material Handling Company
("Kingway"), which is currently owned by certain officers and
directors of Chatwins and Reunion (the "Kingway Acquisition");
and
(iv) New Reunion will assume certain indebtedness of Kingway in
connection with the Kingway Acquisition.
In order to proceed with the Purchase Offer, and consummate the Merger
and the other transactions described above, Chatwins is requesting that the
Securityholders consent to the following:
(i) A waiver of the Debt Test (as defined below) condition of the
"When Company May Merge" covenant (Section 5.01(4)(B) of the
Indenture);
(ii) A waiver of two existing Defaults under the Indenture (as more
fully described below) which is required for the Merger;
(iii) A waiver of the "Limitation on Liens" covenant (Section 4.12 of
the Indenture) and a waiver of the "Limitation on Incurrence of
Indebtedness" covenant (Section 4.09 of the Indenture) which are
required for the New Credit Facility;
2
<PAGE>
(iv) A waiver of the "Limitation on Incurrence of Indebtedness"
covenant (Section 4.09 of the Indenture) which is required to
assume the Assumed Affiliate Indebtedness (as defined in Section
II(6) below) in the Kingway Acquisition; and
(v) The amendment of the "Limitation on Incurrence of Indebtedness"
covenant (Section 4.09 of the Indenture) to reduce the
Consolidated Interest Coverage Ratio, which under the Indenture
is calculated on a pro forma basis for the debt to be incurred
for the preceding four full quarters (the "Debt Test"), from 2.5
to 1.0 to 2.0 to 1.0.
II. DISCUSSION
1. PURCHASE OFFER
--------------
The Purchase Offer is hereby made by Chatwins to Securityholders of
record on November 19, 1999 that consent to all the amendments and waivers
---
described herein subject to the following three conditions:
(i) Chatwins must receive consents to all the amendments and
---
waivers of the Indenture covenants and Defaults described herein
from a majority of the outstanding principal amount of
Securities which is required for the amendments and waivers to
become effective;
(ii) the Purchase Offer must be accepted as to at least $25 million
in principal amount of the Securities; and
(iii) New Reunion must have consummated the New Credit Facility which
is required to consummate the Purchase Offer.
If these conditions are met and more than $25 million principal amount
of Securities consent to the amendments and waivers and accept the Purchase
Offer, Chatwins will purchase the tendered Securities pro rata.
The Purchase Offer will begin on the date hereof and will terminate on
the latest of (i) December 3, 1999, (ii) the date Chatwins receives consents
from a majority of the outstanding principal amount of Securities to all the
amendments and waivers of the Indenture covenants and Defaults described herein
and (iii) the date on which Chatwins notifies Securityholders that the Purchase
Offer is terminated because New Reunion will not be able to consummate the New
Credit Facility. Please see the instructions beginning on page 10 below on how
to accept the Purchase Offer and indicate your consent to the amendments and
waivers described herein.
If Chatwins obtains the requisite consents to the amendments and
waivers described herein and New Reunion is unable to consummate the New Credit
Facility necessary to consummate the Purchase Offer, the consents received by
Chatwins will become void and the amendments and waivers will not become
effective under the Indenture.
3
<PAGE>
If the conditions to the Merger are satisfied or waived and the Merger
is consummated, upon the Merger New Reunion will assume the obligations of the
Indenture as contemplated by Section 5.01 of the Indenture.
2. INDENTURE PROVISIONS REGARDING WAIVERS UNDER THE INDENTURE
----------------------------------------------------------
Pursuant to Section 9.02 of the Indenture, the Indenture may be
amended and any existing Default or Event of Default or compliance with any
provision or consequences of the foregoing may be waived with the written
consent of Securityholders holding a majority of aggregate principal amount of
the Securities then outstanding. Pursuant to Section 9.04(a) of the Indenture,
an amendment or waiver becomes effective upon receipt by the Trustee of (i) an
Officer's Certificate from Chatwins certifying that Securityholders have
consented to such amendment or waiver in respect of the requisite principal
amount and (ii) evidence that the amendment or waiver has been approved by
Securityholders in respect of the requisite principal amount of Securities.
Pursuant to Section 9.04(c) of the Indenture, after an amendment or waiver
becomes effective it will bind every Securityholder and shall also bind every
subsequent Securityholder if notice of such amendment or waiver is reflected on
the Securities that evidence the same debt as the consenting Securityholder's
Securities.
In addition, pursuant to Section 6.04 of the Indenture,
Securityholders holding at least a majority in aggregate principal amount of the
Securities then outstanding may, by providing notice to the Trustee, waive as to
all Securityholders any past or existing Default except for a continuing Default
in the payment of principal and certain other continuing payment Defaults
enumerated in Section 6.04 of the Indenture. Upon any such waiver, the Defaults
shall cease to exist, and any Event of Default arising therefrom shall be deemed
to have been cured for every purpose of the Indenture.
3. MERGER WITH REUNION
-------------------
Pursuant to the Amended and Restated Merger Agreement, from and after
the Merger New Reunion will possess all of the assets, rights, privileges,
powers and franchises of Chatwins and be subject to all of the liabilities,
restrictions, disabilities and duties of Chatwins including those arising under
the Indenture.
The Merger will be consummated on the earliest practicable date after
all of the conditions thereto have been waived or satisfied, including the
approval of the Amended and Restated Merger Agreement by Reunion's stockholders.
The Amended and Restated Merger Agreement has been approved by the requisite
vote of Chatwins' Board of Directors and shareholders and by Reunion's Board of
Directors. Chatwins and Reunion anticipate that the Closing Date for the Merger
will be December 17, 1999, although there can be no assurances that the Merger
will be consummated by that time or at all. The Merger will become effective
immediately upon the filing of a Certificate of Merger in accordance with the
Delaware General Corporation Law (the "Effective Time").
At the Effective Time, the shares of common stock of Chatwins issued
and outstanding and held by the stockholders of Chatwins on the Closing Date
will be automatically converted into the right to receive shares of common stock
of Reunion
4
<PAGE>
("Reunion Common Stock"), plus cash in lieu of any fractional share interests.
The aggregate number of shares of Reunion Common Stock that will be issued to
Chatwins' stockholders in connection with the Merger will be 9,500,000 shares
plus up to an additional 500,000 shares if certain Chatwins business units
achieve specified performance goals in 2000. Said 9,500,000 shares will
represent 79.2% of the voting power of New Reunion.
A copy of the Reunion Proxy Statement/Prospectus in respect of the
Merger is enclosed herein for your reference. The Reunion Proxy
Statement/Prospectus contains extensive disclosures about Chatwins and Reunion
and the transactions described herein and Chatwins urges Securityholders to read
the Reunion Proxy Statement/Prospectus carefully to obtain a more complete
description of the terms of the Merger and the other transactions described
herein.
Pursuant to Section 5.01 of the Indenture, Chatwins may merge with or
into any Person if, at the time and giving effect thereto:
(1) the Person surviving such merger is a corporation organized and
existing under the laws of the United States;
(2) the Person surviving such merger assumes by supplemental
indenture, subject to approval by the Trustee, all the obligations
of Chatwins under the Securities and the Indenture and assumes the
obligations of Chatwins under the Purchase Agreement, the Exchange
and Registration Rights Agreement and the Securities Pledge
Agreement;
(3) immediately prior to and after giving effect to such merger, no
Default or Event of Default under the Indenture shall have
occurred and be continuing; and
(4) the Person surviving such merger (A) shall have a Consolidated Net
Worth immediately after the merger, but prior to any purchase
accounting adjustments resulting from the merger, not less than
the Consolidated Net Worth of Chatwins immediately prior to the
merger; and (B) shall satisfy the Debt Test under Section 4.09 of
the Indenture.
New Reunion will satisfy the requirements of paragraphs (1), (2) and
(4)(A) of Section 5.01 of the Indenture.
Chatwins and New Reunion are unable to satisfy the requirements of
paragraph (3) of Section 5.01 of the Indenture because of the continuing
Defaults under the Indenture, more fully described below. Upon the consent of a
majority of outstanding principal amount of Securities to waive these two
Defaults as requested herein, no Default or Event of Default will be continuing
immediately prior to or after giving effect to the Merger and Chatwins and
Reunion will be entitled to proceed with the Merger under Section 5.01 of the
Indenture.
5
<PAGE>
Chatwins and New Reunion are unable to satisfy the requirements of
paragraph (4)(B) of Section 5.01 of the Indenture because New Reunion will not
be able to satisfy the Debt Test upon consummation of the Merger. Therefore,
Section 5.01(4)(B) must be waived before Chatwins and Reunion can proceed with
the Merger.
4. EXISTING DEFAULTS
-----------------
Chatwins previously notified the Trustee and the Securityholders on
June 5, 1998 of two continuing Defaults under the Indenture. In May of 1998,
Chatwins executed a joint venture agreement pursuant to which it contributed
$100,000 to Suzhou Grating Co., Ltd., a fiberglass reinforced plastic grating
manufacturer located in China (the "Investment"). The Investment is not one of
the Investments specifically permitted by Section 4.16(vii) of the Indenture
and, therefore, it constitutes a Default pursuant to Section 6.01(4) of the
Indenture (the "Investment Default").
Also in May of 1998, Charles E. Bradley, Sr., the Chairman of the
Board of Directors of Chatwins, transferred all of his shares of the common
stock of Chatwins (the "Bradley Shares") to the Charles E. Bradley Family
Limited Partnership (the "FLP"), of which Mr. Bradley is the general partner.
The FLP executed a Counterpart of the Securities Pledge Agreement, dated as of
May 1, 1993, as amended (the "Pledge Agreement"), made by Mr. Bradley, John G.
Poole and Chatwins, in favor of the Trustee, as Collateral Agent for and
representative of the Securityholders. The FLP retains title to the Bradley
Shares but has granted voting control of the Bradley Shares to Stanwich
Partners, Inc., a Delaware corporation, which in turn has granted voting control
over the Bradley Shares to John G. Poole. Upon the Merger, the voting control
of the Bradley Shares will become vested in Kimball Bradley, the son of Charles
E. Bradley Sr. Kimball Bradley is Senior Vice President of Chatwins and will
become Executive Vice President of Operations of New Reunion following the
Merger. Because Charles E. Bradley Sr. no longer has sole voting power over the
Shares, a breach of Section 7(a) of the Pledge Agreement occurred, is continuing
and will continue after the Merger. A breach of the Pledge Agreement
constitutes a Default under Section 6.01(4) of the Indenture (the "Pledge
Default").
A Default under Section 6.01(4) of the Indenture will become an "Event
of Default" only if the Trustee or Securityholders holding at least 25% of the
principal amount of the Securities then outstanding notify Chatwins and the
Trustee of the Default and Chatwins does not cure the Default within 30 days of
such notice. As of the date hereof, Chatwins has not received such notice from
the Trustee or the Securityholders regarding either the Investment Default or
the Pledge Default.
Because the Merger would be prohibited under Section 5.01(3) of the
Indenture if there were a continuing Default or Event of Default immediately
prior to or after giving effect to the Merger, the Investment Default and the
Pledge Default must be waived before Chatwins and Reunion can proceed with the
Merger.
6
<PAGE>
5. THE NEW CREDIT FACILITY
-----------------------
As stated above, upon the Merger, New Reunion will assume the
obligations of the Indenture as required by Section 5.01 thereof. In order to
consummate the Purchase Offer and the Kingway Acquisition and to refinance
certain indebtedness of Chatwins, Reunion and Kingway, Bank of America,
Chatwins' lender under its existing $40 million Revolving Credit Facility
secured by Chatwins' accounts receivable and inventory, has agreed to enter into
a new credit facility (the "New Credit Facility") with New Reunion. The New
Credit Facility will have two components: (i) a $42 million revolving credit
facility that upon the Merger will become the Revolving Credit Facility as
defined in the Indenture; and (ii) a term loan facility consisting of one or
more term loans of up to a maximum aggregate principal amount of $33 million at
any time outstanding (including Hedging Obligations with respect thereto in a
notional amount not exceeding $20 million) that may be borrowed at various times
during the life of the New Credit Facility (the "Term Loan Facility"). A
condition of the New Credit Facility is that the entire New Credit Facility be
secured by a first priority lien on substantially all of the existing and
subsequently acquired assets of New Reunion including the fixed assets of
Reunion, Chatwins and Kingway (the "Blanket Lien").
The Blanket Lien is prohibited by Section 4.12 of the Indenture which
states that Chatwins (and New Reunion) will not create any Lien (other than
Permitted Liens) upon any of its assets unless the Securities are equally and
ratably secured by such assets. Because (i) the Blanket Lien is not a Permitted
Lien to the extent it extends to assets other than accounts receivable and
inventory and (ii) the Securities will not be equally and ratably secured by the
Blanket Lien, Section 4.12 of the Indenture must be waived before New Reunion
can proceed with the New Credit Facility.
In addition, the Term Loan Facility is prohibited by Section 4.09 of
the Indenture which states that Chatwins (and New Reunion) may not incur any
Indebtedness (other than Permitted Indebtedness) unless it satisfies the Debt
Test. Because the Term Loan Facility is not Permitted Indebtedness and New
Reunion will not be able to satisfy the Debt Test when the first borrowings are
made under the Term Loan Facility upon the effective date of the Merger, Section
4.09 must be waived before New Reunion can proceed with the New Credit Facility.
Because New Reunion will require the liquidity to be provided by subsequent
borrowings under the Term Loan Facility and it is not certain that New Reunion
will satisfy the Debt Test when such borrowings are required, Section 4.09 must
also be waived for all such subsequent borrowings but limited always to a
maximum aggregate principal amount of $33 million outstanding under the Term
Loan Facility at any time.
6. KINGWAY ACQUISITION
-------------------
New Reunion proposes to acquire Kingway. Kingway is currently owned
by certain officers and directors of Chatwins and Reunion. In the Kingway
Acquisition, New Reunion proposes to: (i) issue shares of New Reunion's
preferred stock in exchange for shares of Kingway preferred stock which were
issued by Kingway to Stanwich Financial Services Corp. ("Stanwich Financial")
when Kingway was initially capitalized by
7
<PAGE>
the current owners of Kingway upon their original acquisition of Kingway; (ii)
assume approximately $4.0 million of Kingway indebtedness owing to Stanwich
Financial which was incurred or replaced indebtedness that was incurred in
connection with the original acquisition of Kingway by the current owners of
Kingway (the "Assumed Affiliate Indebtedness"); and (iii) use the proceeds of
the New Credit Facility to either buy the assets of Kingway for up to $7.0
million or buy the common stock of Kingway for $100,000, repay $6.2 million of
Kingway indebtedness owing to third parties and repay $700,000 of Kingway
indebtedness owing to Stanwich Financial.
According to Section 1.01 of the Indenture, the current owners of
Kingway and Stanwich Financial may be deemed to be "Affiliates" of New Reunion.
Pursuant to Section 4.11 of the Indenture, New Reunion would be prohibited from
entering into a transaction with Affiliates of New Reunion unless (a) the
transaction is fair to New Reunion and on terms that are no less favorable to
New Reunion than would be available in a comparable transaction with an
unrelated third party; and (b) (i) if the transaction involves aggregate
payments in excess of $300,000, the Board of Directors of New Reunion adopts a
unanimous resolution certifying that such transaction complies with clause (a)
above, and (ii) if the transaction involves aggregate payments equal to or
greater than $3 million, New Reunion receives a written opinion of a nationally
recognized investment bank that such transaction is fair to New Reunion from a
financial point of view.
Management of Chatwins and Reunion believe that the terms of the
Kingway Acquisition are not less favorable to Chatwins and New Reunion than
terms that would likely be negotiated with an unaffiliated third party in a
similar transaction. Because the Kingway Acquisition involves aggregate
payments exceeding $300,000, before consummating the Kingway Acquisition New
Reunion will obtain a unanimous resolution from the Board of Directors of New
Reunion certifying that the terms of the Kingway Acquisition are not less
favorable to New Reunion than terms it would likely negotiate with an
unaffiliated third party in a similar transaction. Because the Kingway
Acquisition involves aggregate payments exceeding $3 million, before
consummating the Kingway Acquisition, New Reunion will obtain an opinion from a
qualifying investment bank that the transaction is fair to New Reunion from a
financial point of view.
In addition, New Reunion cannot assume the Assumed Affiliate
Indebtedness in the Kingway Acquisition unless it satisfies the Debt Test
pursuant to Section 4.09 of the Indenture. New Reunion will not satisfy the
Debt Test upon assumption of the Assumed Affiliate Indebtedness. Therefore,
Section 4.09 of the Indenture must be waived before New Reunion can proceed with
the Kingway Acquisition.
7. AMENDMENT OF DEBT TEST
----------------------
As noted above, pursuant to Section 4.09 of the Indenture, Chatwins
cannot create, incur, assume, guarantee or otherwise become directly or
indirectly liable for payment of any Indebtedness, other than Permitted
Indebtedness, unless it satisfies the Debt Test. Pursuant to the Indenture, the
Debt Test (i.e., the Consolidated Interest Coverage Ratio) has increased over
time as follows: (i) the Consolidated Interest Coverage
8
<PAGE>
Ratio was originally 2.0 to 1.0 for the period from the date of original
issuance of the Securities through April 30, 1996, (ii) the Consolidated
Interest Coverage Ratio increased to 2.25 to 1.0 for the period May 1, 1996
through April 30, 1999 and (iii) the Consolidated Interest Coverage Ratio
increased to 2.50 to 1.0 thereafter. Chatwins desires to reduce the Consolidated
Interest Coverage Ratio to the original ratio of 2.0 to 1.0.
Therefore, Chatwins is requesting that Section 4.09 of the Indenture
be amended so that the Consolidated Interest Coverage Ratio is permanently
reduced to 2.0 to 1.0.
ACTION REQUESTED
- ----------------
If you wish to accept the Purchase Offer by consenting and agreeing to
the amendments and waivers of the Indenture covenants and Defaults as more fully
described above, please indicate your acceptance, consent and agreement in the
space provided on one of the separately enclosed pink copies of pages 11-12
hereof. Then return the pink page to Chatwins via facsimile at (412) 885-5512
(Attention: Russell S. Carolus) and send the executed original to Chatwins via
overnight courier addressed as follows: Chatwins Group, Inc., 300 Weyman Plaza,
Suite 340, Pittsburgh, PA, 15236, Attention: Russell S. Carolus.
If you do not have independent authority to consent and agree in
respect of the Securities you hold as a Participant at DTC you should distribute
a copy of this document to your customers or affiliates and obtain from them
whatever authorization you require in respect of such consent and agreement.
If all the conditions precedent to the Purchase Offer as described
above are satisfied or waived, Chatwins will coordinate with the Trustee on
behalf of Securityholders that have timely consented to all the requested
---
amendments and waivers regarding the procedures to consummate the Purchase
Offer.
ONLY SECURITYHOLDERS THAT CONSENT TO ALL THE AMENDMENTS AND WAIVERS
---
REQUESTED HEREBY BY DECEMBER 3, 1999 AT 5:00 P.M. EASTERN STANDARD TIME WILL
ENSURE THAT THEY ARE ENTITLED TO PARTICIPATE IN THE PURCHASE OFFER AND TO SELL
SECURITIES TO CHATWINS PURSUANT THERETO.
FURTHER INFORMATION
- -------------------
If you have any questions regarding this Notice, please contact
Russell S. Carolus, Vice President of Chatwins or John M. Froehlich, Chief
Financial Officer of Chatwins at (412) 885-5501.
# # #
This Notice contains certain forward-looking statements made pursuant to the
U.S. Private Securities Litigation Reform Act of 1995. In particular,
statements with regard to Chatwins', Reunion's and New Reunion's intentions with
respect to consummation of the Purchase Offer, the New Credit Facility, the
Kingway Acquisition and the Merger are forward looking in nature. By their
nature forward looking statements involve risks and
9
<PAGE>
uncertainties that could cause actual results to differ materially from those
expressed or implied by the forward looking statements. Information and factors
that could cause actual results to differ materially in addition to those
discussed in this Notice and Reunion's Proxy Statement/Prospectus enclosed
herewith are included in the periodic reports of Chatwins and Reunion on file
with the U.S. Securities and Exchange Commission. The forward looking statements
included in this Notice represent Chatwins' best judgment as of the date hereof
based in part on preliminary information and discussions with third parties and
certain assumptions which management believes to be reasonable. Chatwins
disclaims any obligation to update these forward-looking statements.
# # #
10
<PAGE>
Exhibit B-2
-----------
TO: HOLDERS OF SENIOR NOTES
FROM: Chatwins Group, Inc.
DATE: November 24, 1999
RE: Amendment of November 19, 1999 Consent Solicitation and
Offer To Purchase Senior Notes
------------------------------
ISSUER: Chatwins Group, Inc. ("Chatwins")
SECURITIES: 13% Senior Notes of Chatwins due 2003 (the "Securities") issued
under the Indenture, dated as of May 1, 1993, between Chatwins and
State Street Bank and Trust Company, as successor Trustee to First
National Bank of Boston, as amended (the "Indenture").
AMENDMENT
OF PURCHASE
OFFER: By notice dated November 19, 1999 Chatwins announced its
conditional offer to purchase $25 million principal amount of
Securities at ninety-eight percent (98%) of par (the "Purchase
Offer") from those Securityholders of record on November 19, 1999
who consent and agree to the amendments and waivers under the
Indenture that were described in and solicited pursuant to the
November 19, 1999 notice. CHATWINS HEREBY AMENDS THE PURCHASE
OFFER TO BE AN OFFER TO PURCHASE AT PAR. All other terms and
provisions of the Purchase Offer and the consent solicitation as
stated in the November 19, 1999 notice remain in effect without
change and all references therein to the "Purchase Offer" shall
mean the Purchase Offer as amended hereby.
Accordingly, as was previously the case, only those
Securityholders who consent and agree to all the requested
---
amendments and waivers will be entitled to have their Securities
purchased in the Purchase Offer.
The Purchase Offer remains conditioned upon (i) Chatwins receiving
all the requested amendments and waivers from a majority of the
---
outstanding principal amount of Securities, (ii) the Purchase
Offer being accepted as to at least $25 million principal amount
of the Securities, and (iii) New Reunion (as defined in the
November 19 notice) consummating the financing necessary to
consummate the Purchase Offer. If more than $25 million of
Securities are tendered in the Purchase Offer, the tendered
Securities will be purchased pro rata.
ACTION
REQUESTED: As stated in the November 19, 1999 notice, the Purchase Offer
can be closed by Chatwins as early as December 3, 1999. To ensure
that you
11
<PAGE>
will be entitled to have your Securities purchased pursuant to
the Purchase Offer in consideration of your consent to all the
---
amendments and waivers of the Indenture covenants and defaults
solicited by the November 19, 1999 notice, your properly executed
consent and agreement to the requested amendments and waivers and
acceptance of the Purchase Offer (attached as pages 10-11 of the
November 19 notice) must be received by Chatwins no later than
December 3, 1999 at 5:00 p.m. Eastern Standard Time.
ADDITIONAL
INFORMATION: See the November 19, 1999 Notice of Offer To Purchase Senior Notes
and Consent Solicitation previously distributed.
12
<PAGE>
Exhibit 11.1
REUNION INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income (loss) from continuing operations $(1,488) $(10,440) $(981)
Income (loss) from discontinued operations 339 (1,710) 710
Extraordinary item 0 (233) 0
---------- ---------- ---------
Net income (loss) $(1,149) $(12,383) $(271)
========== ========== =========
Weighted average common shares outstanding 3,924 3,881 3,855
Net additional shares outstanding assuming
all stock options exercised using the
treasury stock method (a) 0 0 0
---------- ---------- ---------
Weighted average common shares outstanding-diluted 3,924 3,881 3,855
========== ========== =========
Net income (loss) per common share-basic:
Income (loss) from continuing operations $(0.38) $(2.69) $(0.25)
Income (loss) from discontinued operations 0.09 (0.44) 0.18
Extraordinary Item 0.00 (0.06) 0.00
---------- ---------- ---------
Net income (loss) $(0.29) $(3.19) $(0.07)
========== ========== =========
Net income (loss) per common share-diluted:
Income (loss) from continuing operations $(0.38) $(2.69) $(0.25)
Income (loss) from discontinued operations 0.09 (0.44) 0.18
Extraordinary item 0.00 (0.06) 0.00
---------- ---------- ---------
Net income (loss) $(0.29) $(3.19) $(0.07)
========== ========== =========
</TABLE>
(a) The 1999, 1998 and 1997 computations of diluted weighted average shares
outstanding exclude anti-dilutive shares.
<PAGE>
Exhibit 21.1
REUNION INDUSTRIES, INC.
SUBSIDIARIES AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
Company Incorporated Parent
------- ------------ ------
<S> <C> <C> <C>
1 Reunion Industries, Inc. Delaware
2 Oneida Rostone Corp. New York 1
3 DPL Acquisition Corp. Delaware 2
4 Data Packaging Holdings Limited Ireland 3 (95.5%)
5 Data Packaging Limited Ireland 4
6* Data Packaging Limited Bermuda 4
7 Juliana Vineyards California 1
8 Juliana Preserve Operating Company California 7
9 Juliana Mutual Water Company California 7 (90.0%)
10 Buttes Drilling-C Company Texas 1
11 Reunion Titan, Inc. Texas 10
12 Reunion Potash Company Delaware 1
Inactive Companies
------------------
13 Buttes Farms California 1
14 Buttes Resources Canada, Ltd. Delaware 1
15 Northern Enterprises, Ltd. Nevada 1
16 Ocean Phoenix Transport, Inc. District of Columbia 1
17 Reunion Sub I, Inc. Delaware 1
18 Reunion Sub II, Inc. Delaware 1
19 Reunion Sub III, Inc. Delaware 1
20 Asie-Dolphin Drilling SDN BHD Malaysia 10 (49%)
21 Buttes Gas & Oil do Brasil, Ltda. Brazil 1 (49%)
22* Dolphin Titan (Malaysia) SDN BHD Malaysia 10
23 Dolphin Titan do Brazil Servicos de
Perfuracoes, Ltd. Brazil 10
24 Monaco Corporation British Virgin Is. 10
25 Ocean Phoenix Holdings, N. V. Netherlands Antilles 1
26 Progress Drilling International, Inc. Panama 10
27 Progress Perfuracoes do Brasil, Ltd. Brazil 26
</TABLE>
* In process of being liquidated
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-77566) and
the incorporation by reference in the Registration Statement on Form S-8 (No.
33-77232) of Reunion Industries, Inc. of our report dated March 16, 2000
appearing on page F-2 of this Form 10-K. We also consent to the incorporation by
reference of our report on the Financial Statement Schedules, which appears on
page S-1 of this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Stamford, Connecticut
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,455
<SECURITIES> 0
<RECEIVABLES> 9,290
<ALLOWANCES> 302
<INVENTORY> 6,034
<CURRENT-ASSETS> 19,183
<PP&E> 47,829
<DEPRECIATION> 10,192
<TOTAL-ASSETS> 66,311
<CURRENT-LIABILITIES> 24,824
<BONDS> 20,630
0
0
<COMMON> 39
<OTHER-SE> 14,506
<TOTAL-LIABILITY-AND-EQUITY> 66,311
<SALES> 76,099
<TOTAL-REVENUES> 76,099
<CGS> 64,943
<TOTAL-COSTS> 64,943
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 121
<INTEREST-EXPENSE> 3,392
<INCOME-PRETAX> (1,262)
<INCOME-TAX> 226
<INCOME-CONTINUING> (1,488)
<DISCONTINUED> 339
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,149)
<EPS-BASIC> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
