Commission File Number 0-29014
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
TEARDROP GOLF COMPANY
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 51-105660
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1080 Lousons Road
Union, New Jersey 07083
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (908) 688-4445
Check whether issues (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No ___
Number of shares of Common Stock outstanding as of November 14, 1997:
3,242,500
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
<PAGE>
TEARDROP GOLF COMPANY
FORM 10-QSB INDEX
FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Balance Sheet 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Conditions 9-11
Part II. Other Information 11-14
Signature Page 15
2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
TEARDROP GOLF COMPANY
BALANCE SHEET
(Unaudited)
September 30, 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 866,165
Accounts receivable, less allowance for doubtful
accounts of $125,000 372,043
Inventories 355,179
Prepaid advertising 271,265
Other current assets 186,757
-----------
Total current assets $ 2,051,409
PROPERTY AND EQUIPMENT, less accumulated
depreciation 269,417
INTANGIBLE ASSETS, less accumulated amortization 26,658
OTHER ASSETS 11,486
-----------
$ 2,358,970
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligation under capital lease $ 20,340
Accounts payable and other current liabilities 661,736
-----------
Total current liabilities $ 682,076
NOTES PAYABLE, stockholder 412,250
OBLIGATION UNDER CAPITAL LEASE, less
current portion 46,682
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
authorized 1,000,000 shares, issued and
outstanding none
Common stock, $.01 par value, authorized
10,000,000 shares, issued and outstanding
2,242,500 shares 22,425
Capital in excess of par value 6,564,357
Accumulated deficit (5,368,820)
-----------
Total stockholders' equity 1,217,962
-----------
$ 2,358,970
===========
See accompanying notes to financial statements.
3
<PAGE>
TEARDROP GOLF COMPANY
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $ 1,010,790 $ 329,974 $ 2,415,271 $ 715,495
COST OF SALES 243,103 145,937 565,229 299,521
----------- ----------- ----------- -----------
GROSS PROFIT 767,687 184,037 1,850,042 415,974
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,701,905 471,390 4,975,383 667,759
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (934,218) (287,353) (3,125,341) (251,785)
INTEREST INCOME (EXPENSE) (2,063) (69,064) 38,475 (121,145)
----------- ----------- ----------- -----------
NET LOSS $ (936,281) $ (356,417) $(3,086,866) $ (372,930)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE $ (.42) $ (0.48) $ (1.42) $ (0.50)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,216,957 750,000 2,181,767 750,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
TEARDROP GOLF COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
------------------------
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,086,866) $ (372,930)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 48,074 26,368
Provision for doubtful accounts 74,512 3,795
Stock and stock options issued for services 130,509 125
Accrued interest on stockholders' notes 23,880 74,147
Changes in assets and liabilities:
Increase in accounts receivable (216,353) (192,540)
(Increase) decreased in inventories (248,398) 19,971
Increase in prepaid advertising (56,224)
Increase in other current assets (120,550) (59,834)
Increase in other non-current assets (11,488)
(Decrease) increase in accounts payable
and other current liabilities (15,980) 45,640
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (3,478,884) (455,258)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES, purchases
of property and equipment (146,999) (5,074)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (300,000)
Payments on obligations under capital lease (8,269) (12,582)
(Payments on) proceeds from stockholders notes (443,389) 461,125
Proceeds from issuance of common stock 734,713
----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (16,945) 448,543
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,642,828) (11,789)
CASH AND CASH EQUIVALENTS:
Beginning of period $ 4,508,993 15,868
----------- -----------
End of period $ 866,165 $ 4,079
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION, cash paid during the period for interest $ 19,338 $ 28,498
=========== ===========
See accompanying notes to financial statements.
5
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ACCOUNTING POLICIES:
The accounting policies followed by the Company are set forth in Note
1 of the Company's financial statements on Form 10-KSB for the year
ended December 31, 1996. These financial statements should be read in
conjuction with the financial statements and notes thereto, together
with management's discussion and analysis of financial condition and
results of operations contained in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1996. The results of operations
for the nine months ended September 30, 1997 are not necessarly
indicative of the results for the entire fiscal year ending December
31, 1997.
In the opinion of management, the accompanying financial statements
contain the necessary adjustments, all of which are of a normal and
recurring nature, to present fairly Teardrop Golf Company's financial
position at September 30, 1997 and the results of its operations for
the three and nine months ended September 30, 1997 and 1996 and its
cash flows for the nine months ended September 30, 1997 and 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 2 - INVENTORIES:
Inventories consist of the following at September 30, 1997:
Raw materials $294,874
Finished goods 60,305
--------
$355,179
========
NOTE 3 - STOCKHOLDERS' EQUITY
In January 1997, the Company's underwriters exercised their
over-allotment option to sell an additional 187,500 shares of common
stock at $4.50 per share (net proceeds of approximately $734,000).
Proceeds of approximately $422,000 were used to repay stockholder
notes, plus accrued interest, of which $351,000 was paid to the
Company's Chief Executive Officer (CEO) in repayment of amounts due to
him under the notes.
6
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - COMMITMENTS AND CONTINGENCIES:
In January 1996, the Company entered into an endorsement agreement
with a PGA touring professional for three years. The agreement
provides for payments of $70,000 and $98,000 during the years ending
December 31, 1997, and 1998, respectively. In addition, the agreement
provides for certain bonuses based on tournament performances and
sales in Australia and New Zealand, as defined. This agreement was
modified on January 17, 1997. The modified agreement provides for
guaranteed compensation of $50,000. In addition, the Company granted
options to acquire 1,000 shares of the Company's common stock for
$4.75 per share. These options vest immediately and expire five years
from the grant date.
The Company entered into a two year advertising agreement commencing
January 1, 1997, with a one year renewal option. The Company will be
obligated to pay an aggregate of approximately $770,000 for
advertising services, as defined in the agreement.
On November 18, 1996, the Company entered into a three year employment
agreement with its CEO commencing December 19, 1996. The agreement
provides for annual compensation of $175,000, with a one year renewal,
and performance bonuses, as defined. The agreement further provides
that the CEO may not engage in certain competitive activities, as
defined, for two years after termination of the employment agreement.
On November 18, 1996, the Company entered into an agreement for the
production of an infomercial. The agreement provides for a fee of
$132,500, to be paid in installments during the production of the
infomercial, and for royalties to be paid of 1% of net worldwide
television sales, as defined.
In December 1996, the Company entered into one year endorsement
agreements with nine touring golf professionals, which commenced
January 1, 1997. The agreements provide for base compensation, which
ranges between $8,000 and $75,000 per annum, and bonuses based upon
tournament performance. In conjunction with these agreements, the
Company granted options to acquire an aggregate of 11,200 shares of
the Company's common stock at $4.75 per share. These options vest
immediately and expire five years from the grant date.
In 1997, the Company entered into one and two year endorsement
agreements with ten touring golf professionals, which commenced
January 1, 1997. The agreements provide for base compensation, which
ranges between $12,000 and $60,000 per annum, and bonuses based upon
tournament performance. Certain of these bonuses are in the form of
additional stock option grants, as defined in the agreements, at an
exercise price based upon the market value of the common stock on the
date of the grant. In conjunction with these agreements, the Company
granted options to acquire an aggregate of 12,100 shares of the
Company's common stock at $4.75 per share. These options vest
immediately and expire five years from the grant date.
7
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - SUBSEQUENT EVENT:
On November 10, 1997, the Company consummated the acquisition of
substantially all of the assets of the Tommy Armour Golf Company, a
Delaware corporation, USI Canada Inc., an Ontario corporation, and
Tommy Armour Golf (Scotland) Ltd. for a purchase price of $24.5
million, subject to certain adjustments as of the time of closing. The
acquired assets and certain specified assumed liabilities were
transferred to a newly-formed, wholly owned subsidiary of the Company,
currently named "TearDrop Acquisition Corp."
The purchase price for the assets consisted of (i) $10,000,000 cash
(the "Cash Payment"), (ii) 100,000 shares of the Company's Series A
Cumulative convertible Preferred Stock (the "Series A Stock") having a
redemption value of $10,000,000 and having the rights set forth in the
Certificate of Designation for the Series A Stock, and (iii) 1,000,000
shares of the Company's common stock, par value $.01 per share.
The company obtained funds for the Cash Payment pursuant to a Loan and
Security Agreement (the "Loan Agreement") among the Company, TearDrop
Acquisition Corp. and CoreStates Bank, N.A. ("CoreStates"). Pursuant
to the Loan Agreement, CoreStates has provided an $18,000,000
revolving credit facility (the "Credit Facility") to the Company to
finance the asset acquisition and the Company's working capital and
general corporate expenditures. Funds extended pursuant to the Credit
Facility accrue interest at the prime rate minus 1/2% per annum.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following should be read in conjunction with the TearDrop Golf
Company's (the "Company") financial statements and the related notes thereto
included elsewhere herein.
Overview
The Company introduced its first product, the TearDrop putter, in 1993 and
commenced significant marketing and sales activities in 1994. Since the
introduction of the TearDrop putter, the Company has expanded its product line
to include 12 putters and four wedges. On November 10, 1997, the Company,
through its newly formed wholly owned subsidiary currently named Tommy Armour
Golf Company ("Tommy Armour"), acquired substantially all of the assets (the
"Acquisition") of Tommy Armour Golf Company, a Delaware corporation (currently
named TA Liquidation Corp.), and Tommy Armour Golf (Scotland) Ltd. and the golf
operations of USI Canada Inc., an Ontario corporation, (each a "Seller" and
collectively, the "Sellers"). Tommy Armour manufactures, markets and distributes
a full line of golf clubs, including irons, woods and wedges, as well as other
golf accessories. Tommy Armour has established a reputation and product brand
recognition as one of the leading golf club manufacturers in the world.
Recently, however, Tommy Armour has incurred losses as a result of a variety of
reasons, including competitive pressures and recent substantial expenditures
relating to a new product line that did not meet with the amount of consumer
acceptance that had been anticipated. Tommy Armour's operations, resources,
sales capabilities as well as its sales are substantially greater than those of
the Company. The Company believes that the integration of the operations of
Tommy Armour, located primarily in Chicago, Illinois, into the Company may
require some time and expense, and the Company may continue to incur losses as
it completes its transition. See "Item 5. Other Information." While management
of the Company believes that the Acquisition will significantly expand the
Company's product line and sales, it cannot predict the effect that the
consolidation will have on the market acceptance of the Company's golf clubs or
the market price of its securities.
The Company has not been profitable for the nine months ended September 30,
1997, and does not expect to be profitable for the year ended December 31, 1997.
In order to achieve profitability, the Company will be required to address
numerous issues, including, among others: (i) successfully integrating the
operations of Tommy Armour into those of the Company, (ii) increasing market
awareness of, and demand for, its existing products, (iii) effectively
introducing, over time, additional innovative golf clubs to the market, (iv)
accurately gauging demand for its products, (v) determining viable price points
for such products, (vi) maintaining and strengthening its supply channels, and
(vi) continuing to build efficient channels of distribution. There can be no
assurance that the Company will ever achieve profitability, or that if such
profitability is attained, that it can be maintained.
During the first nine months of 1997, the Company implemented a substantial
television and print advertising campaign, including the production and airing
of a television infomercial and a series of television commercials. The costs to
produce the infomercial and commercials and to show these on the air have been
substantial and the Company is continuing to incur these costs during the fourth
quarter of 1997 in order to increase consumer awareness of its products. With
the Acquisition, the Company intends to increase further its advertising and
promotional expenditures. Accordingly, the Company may continue to incur losses
as it continues its extensive advertising and promotions efforts.
The Company believes that an important element for introducing and
increasing awareness of its golf clubs is the building of a corp of touring
professional golfers that will endorse, use and win with the Company's clubs.
Accordingly as an integral part of its marketing strategy, the Company
continually seeks to obtain professional endorsements of its clubs. The Company
is currently negotiating agreements with professional golfers for the 1998
calendar year. In addition to cash consideration paid by the Company to
professionals for use of their names in connection with the marketing of the
Company's clubs and the use of the clubs by such professionals in tournament
play, bonus payments which could be substantial may be made by the Company based
upon tournament performance. The Company has granted stock options to its
endorsing professionals and intends to continue to do so as the future. With the
Acquisition, and the increased level of exposure that the Company intends to
seek, the Company may enter into increasingly more costly endorsement
agreements. The effect of a particular professional's endorsement on the
successful marketing of the Company's clubs, and the heightening of awareness of
the Company's name, may be directly related to the success of such professional
in tournament play. The Company, however, will be required to compensate a
professional whether or not he is successful. In order to succeed with its
marketing strategy, the Community believes it will be required to enter into
endorsement agreements with additional touring professional golfers who will be
successful in tournament play.
The market for high quality, premium priced golf clubs is highly
competitive and includes a number of well established companies that may have
greater brand name recognition and financial resources. The Company faces
competition on the basis of price, reputation and qualitative distinctions among
available products. The Company cannot predict the market acceptance of the
Company's golf clubs in relation to its competition.
9
<PAGE>
Results of Operations
The Company had sales of $1,010,790 during the quarter ended September 30,
1997 and $2,415,271 during the first nine months of 1997 compared to sales of
$329,974 during the quarter ended September 30, 1996 and $715,495 during the
first nine months of 1996, an increase of 306% and 337% respectively. The
increase is attributable to increased marketing and advertising, and improved
capabilities during 1997 of producing and delivering clubs.
Gross profit during the quarter ended September 30, 1997 was $767,687
(75.9% of sales) compared to $184,037 (55.8% of sales) during the quarter ended
September 30, 1996. For the first nine months of 1997, gross profit was
$1,850,042 (76.6% of sales) compared to $415,974 (58.1% of sales) for the first
nine months of 1996. The increase in the gross profit as a percentage of sales
is attributable to the increased capabilities during 1997 of producing and
delivering clubs as well as the increase in sales, which effectively spreads the
overhead burden over a larger sales base.
During the three months ended September 30, 1997, selling, general and
administrative expenses were $1,701,905 compared to $471,390 for the three
months ended September 30, 1996. For the nine months ended September 30, 1997,
selling, general and administrative expenses were $4,975,383 compared to
$667,759 for the nine months ended September 30, 1996. This increase is
attributable to substantial increases in marketing and advertising activities,
principally television advertising, including production costs and the airing of
a television infomercial; the hiring of additional marketing and sales
personnel; and moving expenses in connection with the move of the Company's
headquarters from Hilton Head, South Carolina to Union, New Jersey. The Company
plans a reduction in advertising expenditures in the fourth quarter of 1997 from
the levels sustained during the second and third quarters of 1997.
As a result of the costs and expenses, described above, relating to the
planned growth of the Company, the Company incurred a net loss of $936,281
during the quarter ended September 30, 1997 compared to a net loss of $356,417
for the quarter ended September 30, 1996 and a net loss of $3,086,866 for the
nine months ended September 30, 1997 compared to a net loss of $372,930 for the
nine months ended September 30, 1996.
Liquidity and Capital Resources
The Company had working capital of $1,369,333 at September 30, 1997. Since
the inception of the Company, its internally generated cash flow has not been
sufficient to finance operations. The funds which are currently being used to
support operations are generally the proceeds received from the Company's
initial public offering of its securities in December 1996. Prior to that time,
the Company had been substantially dependent upon loans from its current
stockholders in order to maintain its operations. The $400,000 of remaining debt
owed to a current stockholder will be payable upon the earlier of the date of
exercise of its outstanding Redeemable Common Stock Purchase Warrants (to the
extent proceeds are sufficient to make repayment) or December 19, 1999.
The Company has entered into an advertising agreement with the Golf Channel
which commenced January 1, 1997 and ends on December 31, 1998. The agreement
provides that the Company will pay $770,000 to the Golf Channel over the term of
the agreement for the broadcast of commercial advertising during, and
sponsorship of certain television programming produced by the Golf Channel. The
Company has incurred substantial expenses and undertaken substantial financial
commitments to commence its media campaign including the production of its
television infomercial, its television commercials and its print advertisements
and has purchased substantial advertising time during the next several months on
a variety of broadcast and cable television channels. The Company will depend
upon increased sales to satisfy these obligations and to recover these costs.
In August 1997, the Company entered into a five-year lease agreement which
terminates August 31, 2002 for approximately 20,000 square feet of office,
manufacturing, warehouse and distribution space in Union, New Jersey. The
aggregate minimum rental payments under the lease for the one year periods
ending August 31, 1998 and 1999 are $75,000. The Company conducts its corporate,
research and development, assembly, warehouse and distribution activities from
these facilities for its TEARDrop line of putters and Spin Master wedges.
In October 1997, the Company, through a wholly owned subsidiary, acquired
substantially all of the assets of Pro Golf Promotions, LLC relating to a
professional golf tour formerly known as "The PowerBilt Tour."
In November 1997, the Company, through a wholly owned subsidiary, acquired
the assets and assumed certain specified liabilities of the Tommy Armour Golf
Company. The Company obtained funds for the cash portion of the Acquisition
pursuant to an $18 million credit facility. Funds extended pursuant to the
credit facility accrue interest at the prime rate minus 1/2% or LIBOR plus 2%
per annum. The Company drew down $10 million under the credit facility to fund
the cash portion of the Acquisition. The Company intends to draw down additional
amounts to fund its working capital needs on an on-going basis, as the Company's
losses continue. See "Item 5. Other Information."
In connection with the Acquisition, the Company issued 100,000 shares of
Series A Cumulative Convertible Preferred Stock (the "Series A Preferred Stock")
having a redemption value of $10,000,000. The Series A Preferred Stock is
entitled to cumulative dividends at 6% per annum for the first year after
issuance, 7.5% per annum for the second year after issuance and 9% per annum
thereafter.
Seasonality
The purchasing decisions of most customers are typically made in the autumn
and the vast majority of sales are expected to occur during the first six months
of the year. In addition, quarterly results may vary from year to year due to
the timing of new product introductions, orders and sales, advertising
expenditures, promotional periods and shipments. Accordingly, comparisons of
quarterly information of the Company's results of operations may not be
indicative of the Company's overall annual performance.
Forward Looking Statements
When used in this and in future filings by the Company with the Securities
and Exchange Commission, in the Company's press releases and in oral statements
made with the approval of an authorized executive officer of the Company, the
words or phrases "will likely result,"
10
<PAGE>
"expects," "plans," "will continue," "is anticipated," "estimated," "project" or
"outlook" or similar expressions (including confirmations by an authorized
executive officer of the Company of any such expressions made by a third party
with respect to the Company) are intended to identify "forward-looking
statements." The Company wishes to caution readers not to place undue reliance
on any such forward-looking statements, each of which speak only as of the date
made. Such statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected. They include the risks of market acceptance
of or preference for the Company's golf clubs, competitive forces, the impact
of, and changes in, general economic factors in the golf club industry and other
factors discussed in the Company's filings with the Securities and Exchange
Commission. The Company has no obligation to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(c) Recent Sales of Unregistered Securities
The following table sets forth all sales of unregistered securities by the
Registrant since June 30, 1997.
<TABLE>
<CAPTION>
Nature of
Transaction and Aggregate
Date Purchasers Securities Sold Price per Share Offering Price
- ---- ---------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Sale of shares to a Millenium Holdings 50,000 shares of $.01 $500 plus services rendered
consultant to the Group Inc. Common Stock
Company, August 1997
Sale of shares pursuant Tommy Armour 1,000,000 shares $5.50 (2)
to asset acquisition, Golf Company (1) of Common Stock
November 1997
Sale of shares pursuant Tommy Armour 100,000 shares of $100 (2)
to asset acquisition, Golf Company (1) Preferred Stock
November 1997
</TABLE>
- ----------
(1) Currently known as TA Liquidation Corp.
(2) These shares were a portion of the consideration paid by the Company in
connection with the Acquisition. See "Item 5. Other Information."
The Company relied on Section 4(2) of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder for each issuance.
No underwriters were involved nor any commissions paid in connection with any of
the above transactions.
11
<PAGE>
(d) Use of Proceeds
(1) The Company's Registration Statement on Form SB-2 (File No.
333-14647) was declared effective by the Securities and
Exchange Commission on December 18, 1996.
(4)(vii) The amount of net offering proceeds to the Company used for
the following purposes:
Direct or indirect payments Direct or
to directors, officers, general indirect
partners of the issuer or their payments
associates; to persons owning to others
10% or more of any class of
equity securities of the issuer;
and to affiliates of the issuer
(a) Construction of Plant Building $ 0 $ 0
and facilities
(b) Purchase and installation of $ 0 $ 147,000
machinery and equipment
(c) Purchase of Real estate $ 0 $ 0
(d) Acquisition of other businesses $ 0 $ 0
(e) Repayment of indebtedness $391,616 $ 0
(f) Working capital $ 0 $1,349,000
(g) Temporary investments
Money Market Acct. $ 0 $ 835,000
(h) Other purposes
Marketing and Advertising $ 0 $2,150,000
Manufacturing Operations $ 0 $ 431,000
Research and Development $ 0 $ 46,000
Item 5. Other Information
On November 10, 1997, the Company consummated its acquisition of
substantially all of the assets and the assumption of certain specified
liabilities of the Sellers for a purchase price consisting of (i) $10 million in
cash (the "Cash Payment"), (ii) 100,000 shares of Series A Preferred Stock
having a redemption value of $10,000,000 and (iii) 1,000,000 shares of the
Company's common stock, par value $.01 per share (the Common Shares"), subject
to certain post closing adjustments.
12
<PAGE>
The Series A Preferred Stock is entitled to cumulative dividends at 6% per annum
for the first year after issuance, 7.5% per annum for the second year after
issuance and 9% per annum thereafter. In addition the Series A Preferred Stock
is convertible into shares of Common Stock at any time at the rate of $7.50 per
share. The acquired assets and certain specified assumed liabilities were
transferred to a newly-formed, wholly owned subsidiary of the Company, currently
named "Tommy Armour Golf Company." A copy of the Certificate of Designation for
the Series A Preferred Stock and the Asset Purchase Agreement (the "Acquisition
Agreement") dated October 31, 1997 by and among the Company, the Sellers and USI
American Holdings, Inc., a Delaware corporation and the sole stockholder of
Tommy Armour Golf Company (currently TA Liquidation Corp.), are attached hereto
as Exhibits 3.5 and 10.24, respectively, and incorporated herein by reference.
At the time of the acquisition, the Company elected John Raos, the
President and Chief Operating Officer of US Industries, Inc., to a position on
its Board of Directors. The Company intends to continue to use the acquired
assets in connection with the manufacturing, marketing and distributing of the
Armour(TM) line of golf clubs.
The Company obtained funds for the Cash Payment pursuant to a Loan and
Security Agreement (the "Loan Agreement") among the Company, TearDrop
Acquisition Corp. and CoreStates Bank, N.A. ("CoreStates"), a copy of which is
attached hereto as Exhibit 10.26 and incorporated herein by reference. Pursuant
to the Loan Agreement, CoreStates has provided an $18 million revolving credit
facility (the "Credit Facility") to the Company to finance the asset acquisition
and the Company's working capital and general corporate expenditures. The
Company drew down $10 million under the Credit Facility to fund the Cash
Payment. Funds extended pursuant to the Credit Facility accrue interest at the
prime rate minus 1/2% per annum or LIBOR plus 2% per annum. The Credit Facility
is collateralized by substantially all of the assets of the Company, including
the assets acquired in connection with the acquisition. The Loan Agreement
contains restrictions on certain of the Company's activities, including, but not
limited to, the payment of dividends, redemption of securities and the sale of
assets outside the ordinary course of the Company's business.
The Company also entered into a Registration Agreement (the "Registration
Agreement") pursuant to which the Company agreed to file a registration
statement on Form S-3 with the Securities and Exchange Commission registering
the sale of the shares of Common Stock, the Series A Preferred Stock and the
shares of the Company's common stock into which the Series A Shares are
convertible and use its best efforts to have the Registration Statement declared
effective no later than February 28, 1998. A copy of the Registration Agreement
is attached hereto as Exhibit 10.25 and is incorporated herein by reference.
The foregoing summary does not purport to be complete and is qualified in
its entirety by reference to the full text of the Acquisition Agreement, the
Registration Agreement, the Loan Agreement and the Certificate of Designation,
copies of which are attached hereto as Exhibits, 10.24, 10.25, 10.26 and 3.5,
respectively.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
3.5 Certificate of Designation of Series A Cumulative
Convertible Preferred Stock
10.24* Property Lease dated August 10, 1997 between the
Company and Dolo Realty Co.
10.25 Asset Purchase Agreement
10.26 Registration Agreement
10.27 Loan and Security Agreement
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Registrant during the
quarter ended September 30, 1997.
- ----------
* Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Post-Effective Amendment No. 1 to the Registration
Statement on Form SB-2 (File No.333-14647) and incorporated herein by
reference.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TEARDROP GOLF COMPANY
Dated: November 19, 1997 /s/ Rudy A. Slucker
----------------------------------------------
Rudy A. Slucker, President and Chief
Executive Officer (Principal Executive Officer)
Dated: November 19, 1997 /s/ Joseph Cioni
----------------------------------------------
Joseph Cioni, Vice President of Finance and
Chief Financial Officer (Principal Financial
and Accounting Officer)
CERTIFICATE OF POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS AND QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS THEREOF OF THE
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF TEARDROP GOLF COMPANY
--------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
--------------------------
I, Rudy A. Slucker, Chairman and Chief Executive Officer of TearDrop
Golf Company (the "Corporation"), a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, in accordance
with the provisions of Section 151 of the General Corporation Law of the State
of Delaware, DO HEREBY CERTIFY
That, pursuant to authority conferred upon the Board of Directors by
the Certificate of Incorporation of said Corporation, said Board of Directors at
a meeting duly called and held, adopted a resolution providing for the issuance
of 100,000 authorized shares of Series A Cumulative Convertible Preferred Stock
(the "Series A Stock"), which resolution is as follows:
WHEREAS, the Board of Directors of the Corporation (the "Board of
Directors") is authorized, within the limitations and restrictions stated in the
Certificate of Incorporation, as amended, to fix by resolution or resolutions
the designation of each series of preferred stock and the powers, preferences
and relative, participating, optional and other rights, if any, the
qualifications, limitations and restrictions thereof, including, without
limiting the generality of the foregoing, such provisions as may be desired
concerning voting, redemption, dividends, dissolution or the distribution of
assets, conversion or exchange, and such other subjects or matters as may be
fixed by resolution or resolutions of the Board of Directors under the General
Corporation Law of Delaware; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its
authority as aforesaid, and within the limitations and restrictions on that
authority as aforesaid, to authorize and fix the terms of a series of preferred
stock and the number of shares constituting such series;
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized such
series of preferred stock on the terms and with the provisions herein set forth:
I. Certain Definitions.
<PAGE>
As used herein, the following terms shall have the following
meanings (with terms defined in the singular having comparable meanings when
used in the plural and vice versa), unless the context otherwise requires:
"Applicable Percentage" means 6% until the first anniversary
of the Original Issue Date, 7.5% thereafter until the second anniversary of the
Original Issue Date, and 9% thereafter; provided, however, that if a
registration statement covering the issuance and resale of the Series A Stock
and the Conversion Shares has not been filed with the SEC and declared effective
within 270 days after the Original Issue Date, then effective as of such 270th
day the Applicable Percentage shall be 7% until the first anniversary of the
Original Issue Date, 8.5% thereafter until the second anniversary of the
Original Issue Date, and 10% thereafter; provided further, however, that at such
time as such registration statement is declared effective, the Applicable
Percentage shall at such time become 6% until the first anniversary of the
Original Issue Date, 7.5% thereafter until the second anniversary of the
Original Issue Date, and 9% thereafter.
"Asset Purchase Agreement" means the Asset Purchase Agreement
dated as of October 31, 1997, among the Corporation, the Buyer and the Sellers
(as defined therein).
"Board of Directors" has the meaning specified in the Preamble
hereof.
"Business Day" means a day other than a Saturday, Sunday,
national or New York State holiday or other day on which commercial banks in New
York City are authorized or required by law to close.
"Buyer" means TearDrop Acquisition Corp.
"Capital Stock" means any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate
stock of any kind or nature whatsoever.
"Certificate of Designations" means this Certificate of
Powers, Designations, Preferences and Relative, Participating, Optional or Other
Special Rights and Qualifications, Limitations and Restrictions thereof of the
Series A Cumulative Convertible Preferred Stock of the Corporation as amended
from time to time in accordance with Article VII hereof.
"Certificate of Incorporation" means the Certificate of
Incorporation of the Corporation as amended from time to time, including without
limitation the Certificate of Designations.
"Change of Control" means such time as (i) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act),
other than the initial Holders of the Series A Stock (or any of them), becomes
the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) of more than 35% of the voting power of the outstanding Capital Stock of
the Corporation having full voting power or substantially full voting power or
entitled to vote with the Common Stock in the election of directors; (ii) the
Corporation does not own capital stock of Buyer having a majority of the voting
power of the outstanding capital stock of Buyer having full voting power or
substantially full voting power or entitled to vote with the common stock of
Buyer in the election of directors; or (iii) a majority of the Directors of the
Corporation are not Continuing TGC
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<PAGE>
Directors. For purposes of clause (i) of this definition, Capital Stock will be
treated as "beneficially owned" only by (a) any person or group that has the
power to vote or direct the voting of such Capital Stock and (b) any person or
group that can acquire such power by taking action that does not require the
consent or approval of any stockholder or director not affiliated with such
person or group.
"Common Stock" means the Common Stock, par value $.01 per
share, of the Corporation and any other class of common stock hereafter
authorized by the Corporation from time to time.
"Constituent Entity" has the meaning specified in Article
VIII(A) hereof.
"Conversion Agent" has the meaning specified in Article
VIII(A) hereof.
"Conversion Price" has the meaning specified in Article
VIII(A) hereof.
"Conversion Shares" has the meaning specified in Article
VIII(A) hereof.
"Continuing TGC Directors" means, as of the date of
determination, each member of the Board of Directors, excluding USI Directors,
who (i) was a member of the Board of Directors on the Original Issue Date or
(ii) was nominated for election or elected to the Board of Directors with the
approval of a majority of Continuing TGC Directors who were members of the Board
of Directors at the time of such nomination or election.
"Corporation" has the meaning specified in the Preamble
hereof.
"Dividend Default" has the meaning specified in Article
VII(D)(i)(a) hereof.
"Dividend Payment Date" means each January 1, April 1, July 1
and October 1 of each year.
"Dividend Period" means the Initial Dividend Period and,
thereafter, each Quarterly Dividend Period.
"Dividend Record Date" means, with respect to any Dividend
Payment Date, the March 15, June 15, September 15 or December 15 immediately
preceding such Dividend Payment Date.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder" means a registered holder of shares of Series A
Stock.
"Initial Dividend Period" means the Dividend Period commencing
on and including the 121st day after the Original Issue Date and ending on and
including March 31, 1998.
"Issuance Date" has the meaning specified in Article VIII(A)
hereof.
3
<PAGE>
"Liquidation Preference" means the Original Liquidation
Preference, plus an amount equal to all accumulated and unpaid dividends on the
Series A Stock, whether or not declared. The Liquidation Preference of a share
of Series A Stock will increase by the amount of dividends that accumulate on
such share through a Dividend Payment Date as they so accumulate on a daily
basis and will decrease only to the extent such dividends are actually paid, all
as provided in Article IV hereof.
"Mandatory Redemption Date" means the fifth anniversary of the
Original Issue Date.
"Original Issue Date" means the date on which shares of Series
A Stock were first issued by the Corporation.
"Original Liquidation Preference" means $100 per share of
Series A Stock.
"Person" means any individual, general partnership, limited
partnership, corporation, trust, joint stock company, association, joint venture
or any other entity or organization, whether or not a legal entity, including a
government or political subdivision or an agency or instrumentality thereof.
"Quarterly Dividend Period" means the quarterly period
commencing on and including a Dividend Payment Date and ending on and including
the day immediately preceding the next subsequent Dividend Payment Date.
"Redemption Date" has the meaning specified in Article
VI(C)(i)(c) hereof.
"Redemption Default" has the meaning specified in Article
VII(D)(i)(b) hereof.
"Redemption Notice" has the meaning specified in Article
VI(C)(i) hereof.
"Redemption Price" has the meaning specified in Article
VI(A)(i) hereof.
"Restricted Dividend Event" has the meaning specified in
Article IV(E) hereof.
"Restricted Repurchase Payment" has the meaning specified in
Article IV(E) hereof.
"SEC" means the Securities and Exchange Commission.
"Series A Stock" has the meaning specified in the Preamble
hereof.
"Subsidiaries" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of capital stock or other equity interest entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers, trustees or similar offices thereof is at the time owned or
controlled directly or indirectly, by such Person or one or more of the other
Subsidiaries of such Person (or any combination thereof) and (ii) any
partnership (a) the sole general partner or the managing partner of which is
such Person or a Subsidiary of such Person or (b) the only general partners of
which are such Person or of one or more Subsidiaries of such Person (or any
combination thereof).
4
<PAGE>
"USI Directors" means each member of the Board of Directors
who was nominated by the Sellers (as defined in the Asset Purchase Agreement)
pursuant to their rights under the Asset Purchase Agreement or who was elected
pursuant to a Voting Rights Triggering Event.
"Voting Rights Triggering Event" has the meaning specified in
Article VII(D)(i) hereof.
II. Designation.
The series of preferred stock authorized hereunder shall be
designated as the "Series A Cumulative Convertible Preferred Stock". The number
of shares constituting such series shall be equal to 100,000. The par value of
the Series A Stock shall be $.01 per share of Series A Stock, and the Original
Liquidation Preference of the Series A Stock shall be $100 per share.
III. Ranking.
The Series A Stock shall rank, with respect to dividends and
with respect to distributions upon the liquidation, dissolution or winding-up of
the Corporation, senior to all classes or series of Common Stock, preferred
stock or other Capital Stock of the Corporation.
IV. Dividends.
(A) No dividends will accrue or be payable with respect to the
period of 120 days immediately following the Original Issue Date. Beginning on
the 121st day after the Original Issue Date, each Holder shall be entitled to
receive on each Dividend Payment Date that occurs thereafter, when, as and if
declared by the Board of Directors, out of funds legally available for the
payment of such dividends, dividends on each outstanding share of Series A Stock
held by such Holder, at a rate per annum equal to the Applicable Percentage of
the Liquidation Preference of such share of the Series A Stock on such Dividend
Payment Date, payable with respect to the preceding Dividend Period. Dividends
shall be paid in cash and shall be mandatorily payable on each Dividend Payment
Date out of funds legally available therefor. All dividends shall be cumulative
and shall be payable in arrears for each Dividend Period on each Dividend
Payment Date, commencing on March 31, 1998. Dividends with respect to a share of
Series A Stock shall only cumulate from the 121st day after the date of its
issuance, or, if later, the last Dividend Payment Date in respect of which
dividends on such share of Series A Stock were paid.
(B) Each dividend paid on the Series A Stock shall be payable
to Holders of record as their names shall appear in the security register
maintained by the Corporation on the Dividend Record Date for such dividend,
except that dividends in arrears for any past Dividend Payment Date may be
declared and paid at any time without reference to such regular Dividend Payment
Date to Holders of record on a later dividend record date determined by the
Board of Directors.
(C) Dividends shall cease to accumulate in respect of shares
of Series A Stock on the day of their redemption, unless the Corporation shall
fail to pay the relevant redemption price on the date fixed for redemption.
5
<PAGE>
(D) No dividends shall be declared by the Board of Directors
or paid or funds set apart for payment by the Corporation on the Series A Stock
for any period unless (i) full cumulative dividends have been or
contemporaneously are declared and paid on the Series A Stock for all Dividend
Periods terminating on or prior to the date of payment of such full cumulative
dividends on the Series A Stock or (ii) such dividends are applied to the
earliest Dividend Periods for which dividends have not yet been paid. Nothing in
this paragraph (D) shall be construed to limit the obligation of the Corporation
to pay dividends to the Holders pursuant to paragraph (A) above.
(E) So long as any shares of the Series A Stock are
outstanding, the Corporation shall not, directly or indirectly, (i) declare, pay
or set apart for payment any dividend or distribution (whether cash, securities,
assets, evidence of indebtedness or anything else) on any Common Stock (except
dividends on the Common Stock payable in shares of Common Stock) or on any other
class or series of Capital Stock of the Corporation (except dividends on such
other class or series payable in shares of such other class or series) (any of
the foregoing actions described in this clause (E)(i) being a "Restricted
Dividend Event") or (ii) make any payment (whether in the form of cash or other
assets) on account of, or set apart for payment money or other assets for a
sinking or other similar fund for, the purchase, redemption or other retirement
of, any Common Stock or shares of any other class or series of Capital Stock of
the Corporation or any warrants, rights, calls or options exercisable for or
convertible into any Common Stock or shares of any other class or series of
Capital Stock of the Corporation, and shall not permit any corporation or other
entity directly or indirectly controlled by the Corporation to purchase or
redeem any Common Stock or shares of any other class or series of Capital Stock
of the Corporation or any warrants, rights, calls or options exercisable for or
convertible into any Common Stock or shares of any other class or series of
Capital Stock of the Corporation (any of the foregoing actions described in this
clause (E)(ii) being a "Restricted Repurchase Payment"). The references in this
Article IV(E) or elsewhere in this Certificate of Designations to other classes
or series of Capital Stock of the Corporation shall not be construed to limit
the restrictions on issuance of other classes or series of Capital Stock of the
Corporation set forth in Article VII(B).
(F) Dividends payable on shares of the Series A Stock for any
period less than a year shall be computed on the basis of a 360-day year of
twelve 30-day months in the period for which payable. If any Dividend Payment
Date occurs on a day that is not a Business Day, any accumulated and unpaid
dividends otherwise payable on such Dividend Payment Date shall be paid on the
next succeeding Business Day.
V. Payment on Liquidation.
Upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, Holders will be entitled to receive out of the
assets of the Corporation available for distribution to the holders of its
Capital Stock, whether such assets are capital, surplus or earnings, an amount
in cash equal to the Liquidation Preference, before any payment shall be made or
any assets distributed to the holders of any Common Stock or any other class or
series of Capital Stock of the Corporation. If upon any voluntary or involuntary
liquidation, dissolution or winding-up of the affairs of the Corporation, the
assets of the Corporation are not sufficient to pay in full the payments payable
to the holders of outstanding shares of the Series A Stock, then such holders
shall share equally and ratably in any distribution of assets in proportion to
the full payments, determined as of the date of such voluntary or involuntary
liquidation, dissolution or winding-up, to which they are
6
<PAGE>
entitled by virtue of being Holders of Series A Stock.
VI. Redemption.
(A) Optional Redemption. (i) The Corporation may, at its
option, redeem (subject to contractual and other restrictions by which the
Corporation is bound with respect thereto and the legal availability of funds
therefor), at any time, in whole or in part, in the manner provided in Article
VI(C) hereof, any or all of the shares of the Series A Stock, at a redemption
price in cash equal to the Liquidation Preference thereof on the Redemption Date
(the "Redemption Price"). In the event of a redemption pursuant to this Article
VI(A)(i) of only a portion of the then outstanding shares of Series A Stock, the
Corporation shall effect such redemption pro rata according to the number of
shares held by each Holder of such Series A Stock.
(ii) In the event (a) the Corporation fails to effect
a redemption or make a redemption payment as provided in its Certificate of
Incorporation in respect of the Series A Stock, (b) the Corporation fails to
make a timely dividend payment in respect of the Series A Stock, (c) the
Corporation undergoes a Change in Control, (d) a Restricted Dividend Event
occurs or a Restricted Repurchase Payment is made, (e) the Corporation takes any
action requiring the approval of the Holders of the Series A Stock pursuant to
Article VII(B) or Article VII(C) without first obtaining the requisite approval
of such Holders in accordance with Article VII, (f) the Corporation fails to
observe any other covenant or agreement in its Certificate of Incorporation
regarding the Series A Stock, or (g) the Corporation fails to perform or observe
any term, provision, covenant or agreement or breaches any representation set
forth or made in the Asset Purchase Agreement (an "Event of Noncompliance"), and
such Event of Non-compliance is not cured by the Corporation within 30 days
after written notice thereof is given to the Corporation by any holder of Series
A Stock, a holder of Series A Stock may, at such holder's option, cause the
Corporation to redeem the shares of Series A Stock held by the Holder, in whole
or in part, at the Redemption Price; provided that it shall be a condition
precedent to the consummation of any transaction referred in Article VII(B)
that, in the event of an election by any Holder to redeem pursuant hereto in
connection with any such transaction, the Corporation shall have redeemed the
shares of Series A Stock held by such Holder and any such transaction shall be
void and without effect if such condition precedent is not satisfied.
(B) Mandatory Redemption. On the Mandatory Redemption Date,
the Corporation shall redeem from any source of funds legally available
therefor, in the manner provided in Article VI(C) below, all of the shares of
the Series A Stock then outstanding at the Redemption Price. The Corporation
shall not enter into any agreement that would prohibit or restrict its ability
to (i) redeem the Series A Stock on the Mandatory Redemption Date, or (ii) pay
dividends in accordance with Article IV hereof, to the extent mandatorily
payable out of funds legally available therefor, except as contained in an
Agreement among the Corestates Bank, Tommy Armour Golf Company and the
Corporation dated November 7, 1997 relating to restrictions on the redemption of
Series A Stock and the payment of dividends on Series A Stock. In addition, the
Corporation shall not, directly or indirectly, and shall not permit any of its
Subsidiaries to, directly or indirectly, consummate any borrowing that would
result in the Corporation and its Subsidiaries having aggregate borrowings
(excluding trade debt) in excess of $20 million or any public or private
issuance or sale of debt or equity securities of Parent or any of its
Subsidiaries for cash or partially for cash (a "Transaction") unless the
Corporation shall apply (including causing its Subsidiaries to apply),
simultaneously with the receipt of the cash proceeds of the Transaction and in a
manner reasonably satisfactory to the
7
<PAGE>
Holders of a majority of the shares of Series A Stock then outstanding, 60% of
the net cash proceeds in excess of $20 million in the case of a borrowing
Transaction, and 60% of the net cash proceeds in the case of any other type of
Transaction, in each case after giving effect to the costs and expenses
associated with such Transaction, to the pro rata redemption, in the manner
provided in Article VI(C) below, of Series A Stock at the Redemption Price.
(C) Procedure for Redemption. (i) Not more than sixty (60) and
not less than thirty (30) days prior to the date fixed for any redemption of the
Series A Stock, written notice (the "Redemption Notice") shall be given by
first-class mail, postage prepaid, (1) in the case of a redemption pursuant to
Article VI(A)(i) or VI(B), by the Corporation to each Holder of record of shares
to be redeemed on the record date fixed for such redemption of the Series A
Stock at such Holder's address as the same appears on the security register
maintained by the Corporation, or (2) in the case of a redemption pursuant to
Article VI(A)(ii), by each redeeming Holder of Series A Stock to the Corporation
at its principal place of business; provided, however, that no failure by the
Corporation to give such notice nor any deficiency therein shall affect the
validity of the procedure for the redemption of any shares of Series A Stock to
be redeemed except as to the Holder or Holders to whom the Corporation has
failed to give such notice or except as to the Holder or Holders whose notice
was defective. The Redemption Notice shall state:
(a) whether the redemption is pursuant to Article
VI(A)(i) or (ii) or VI(B) hereof;
(b) the Redemption Price;
(c) the date fixed for redemption (the "Redemption
Date");
(d) that the Holder is to surrender to the
Corporation, at the place or places, which shall be designated in such
Redemption Notice, its certificates representing the shares of Series A Stock to
be redeemed;
(e) that dividends on the shares of the Series A
Stock to be redeemed shall cease to accumulate on the Redemption Date unless the
Corporation defaults in the payment of the Redemption Price;
(f) in the case of redemption pursuant to paragraph
(A)(i) above, whether all or less than all the outstanding shares of the Series
A Stock are to be redeemed and the total number of shares of such Series A Stock
being redeemed; and
(g) in the case of redemption pursuant to paragraph
(A) above, the number of shares of Series A Stock held by the Holder that are to
be redeemed by the Corporation.
(ii) On or before the Redemption Date, each Holder of
Series A Stock to be redeemed shall surrender the certificate or certificates
representing such shares of Series A Stock to the Corporation, in the manner and
at the place designated in the Redemption Notice, and on the Redemption Date the
full Redemption Price for such shares shall be payable in cash to the Person
whose name appears on such certificate or certificates as the owner thereof. In
the event that less than all of the shares represented by any such certificate
are redeemed, a new certificate shall be
8
<PAGE>
issued representing the unredeemed shares. For any Holder to whom a Redemption
Price in excess of $10,000 is payable, if such Holder notifies the Corporation
in writing prior to the Redemption Date that it elects to receive payment of the
Redemption Price by wire transfer of immediately available funds, then payment
shall be made in such manner to the account specified in such notice.
(iii) Unless the Corporation defaults in the payment
of the applicable redemption price, dividends on the Series A Stock called for
redemption shall cease to accumulate on the Redemption Date, and the Holders of
such shares shall cease to have any further rights with respect thereto on the
Redemption Date, other than the right to receive the Redemption Price.
(iv) If a Redemption Notice shall have been duly
given, and if, on or before the Redemption Date specified therein, all funds
necessary for such redemption shall have been irrevocably set aside by the
Corporation, separate and apart from its other funds, in trust for the pro rata
benefit of the Holders of the Series A Stock called for redemption so as to be
and continue to be available therefor in a manner reasonably satisfactory to the
Holders of a majority of the shares of Series A Stock called for redemption,
then, notwithstanding that any certificate for shares so called for redemption
shall not have been surrendered for cancellation, all shares so called for
redemption shall be deemed no longer outstanding, and all rights with respect to
such shares shall forthwith on such Redemption Date cease and terminate, except
only the right of the Holders thereof to receive the amount payable on
redemption thereof.
VII. Voting Rights.
(A) Holders, in their capacity as such, shall not be entitled
or permitted to vote, except as otherwise required under Delaware law and as set
forth below.
(B) Without the approval of Holders of a majority of the
shares of Series A Stock then outstanding, voting or consenting, as the case may
be, separately as a single class, given in person or by proxy, either in writing
or by resolution adopted at an annual or special meeting called for the purpose,
the Corporation will not after the Original Issue Date (i) create, authorize or
issue any Capital Stock that ranks senior to or on a parity with the Series A
Stock in any respect, including without limitation as to dividends or
distributions upon the liquidation, dissolution or winding-up of the
Corporation, or any warrants, rights, calls or options exercisable or
exchangeable for or convertible into, or any obligations evidencing the right to
purchase or acquire, any such Capital Stock, including, without limitation, in
connection with a merger, consolidation or other reorganization, (ii) create,
authorize or issue any Capital Stock that ranks junior to the Series A Stock, or
any warrants, rights, calls or options exercisable or exchangeable for or
convertible into, or any obligations evidencing the right to purchase or
acquire, any such Capital Stock, unless the terms of such Capital Stock include
the restrictions on the payment of dividends with respect to such Capital Stock
and on the redemption of such Capital Stock set forth in Article IV(E) hereof,
(iii) reclassify any outstanding Capital Stock of the Corporation into any
Capital Stock that ranks senior to or on a parity with the Series A Stock in any
respect, including without limitation as to dividends or distributions upon the
liquidation, dissolution or winding-up of the Corporation, or any warrants,
rights, calls or options exercisable or exchangeable for or convertible into, or
any obligations evidencing the right to purchase or acquire, any such Capital
Stock, or (iv) consolidate with or permit any of its Subsidiaries to consolidate
with any Person, or merge into or permit any of its Subsidiaries to merge into
any Person, or have any Person merged into it or into any of its Subsidiaries,
or
9
<PAGE>
acquire or permit any of its Subsidiaries to acquire the stock, business or
assets of any Person, or sell, lease, exchange or otherwise dispose of all or a
substantial portion of its assets in a transaction or series of transactions or
permit any of its Subsidiaries to sell, lease, exchange or otherwise dispose of
all or a substantial portion of its assets in a transaction or series of
transactions, or voluntarily liquidate, dissolve or wind-up its affairs or
permit any of its Subsidiaries to voluntarily liquidate, dissolve or wind-up its
affairs; provided, however, that no approval of the Holders of the Series A
Stock shall be required for a transaction covered by the foregoing clause (iv)
if such transaction is not material to the Corporation and its Subsidiaries,
taken as a whole.
(C) Without the approval of Holders of at least 90% of the
shares of Series A Stock then outstanding, voting or consenting, as the case may
be, separately as a single class, given in person or by proxy, either in writing
or by resolution adopted at an annual or special meeting called for the purpose,
the Corporation will not, directly or indirectly, amend, modify or repeal the
Certificate of Incorporation (including without limitation by filing any other
certificate of designation) so as to adversely affect in any manner, or take any
other action that may adversely affect in any manner, the specified
designations, rights, preferences, privileges or voting rights of the Series A
Stock. To the extent permitted by law, no such amendment shall require the
consent of the holders of Common Stock of the Corporation.
Notwithstanding the provisions of this Article VII(C), without
the consent of each Holder affected, an amendment or waiver may not:
(i) reduce the Liquidation Preference of or dividends
payable or accumulated on any share of Series A Stock;
(ii) reduce the Redemption Price of any share of
Series A Stock;
(iii) increase the Conversion Price of any share of
Series A Stock;
(iv) change the Mandatory Redemption Date;
(v) change the currency of dividends or payments upon
liquidation or redemption;
(vi) impair the right to institute suit for the
enforcement for any payment upon liquidation or redemption;
(vii) reduce the stated percentage of outstanding
shares of Series A Stock consent of whose Holders is necessary under any
provision of this Article VII; or
(viii) waive a default in payment upon liquidation or
redemption.
It shall not be necessary for the consent of the
Holders under this Article VII(C) to approve the particular form of any proposed
amendment, supplement or waiver, but it shall be sufficient if such consent
approves the substance thereof.
(D) (i) In the event that (a) dividends on the Series A Stock
are not paid
10
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when due for any Dividend Period (a "Dividend Default"), (b) the Corporation
shall fail to discharge any obligation to redeem the Series A Stock in whole or
in part (a "Redemption Default"), (c) a Restricted Dividend Event occurs or a
Restricted Repurchase Payment is made, (d) the Corporation takes any action
requiring the approval of the Holders of the Series A Stock pursuant to Article
VII(B) or Article VII(C) without first obtaining the requisite approval of such
Holders in accordance with Article VII, (e) the Corporation fails to observe any
other covenant or agreement in its Certificate of Incorporation regarding the
Series A Stock, or (f) the Corporation fails to perform or observe any term,
provision, covenant or agreement or breaches any representation set forth or
made in the Asset Purchase Agreement, and the Corporation does not cure such
occurrence within 30 days after written notice thereof is given to the
Corporation by any Holder, then the Holders of a majority of the shares of
Series A Stock then outstanding, voting or consenting, as the case may be,
separately as a single class, shall thereupon have the exclusive right to elect
a majority of the Board of Directors at any annual or special meeting of
stockholders or at a special meeting of Holders of Series A Stock called as
hereinafter provided. Each such event described in clauses (a) - (f) is a
"Voting Rights Triggering Event". The Holders of a majority of the shares of
Series A Stock then outstanding, voting or consenting, as the case may be,
separately as a single class, shall also have the exclusive right to remove any
director elected by the Holders of the Series A Stock following the occurrence
of a Voting Rights Triggering Event in accordance with the foregoing, or to fill
any vacancy that may exist in the office of any such director.
(ii) The right of the Holders of Series A Stock to
vote pursuant to Article VII(D)(i) to elect a majority of the Board of Directors
as aforesaid shall continue until such time as (a) in the event such right
arises due to a Dividend Default, all accumulated dividends that are in arrears
on the Series A Stock are paid in full, (b) in the event such right arises due
to a Redemption Default, the Corporation remedies any such failure, and (c) in
the event such right arises due to any other occurrence, the Corporation cures
such occurrence, at which time the special right of the Holders of Series A
Stock to vote for the election of a majority of the Board of Directors and the
term of office of the directors elected by the Holders of Series A Stock shall
terminate. At such time, each Director elected by the Holders of the Series A
Stock pursuant to Article VII(D)(i) upon the occurrence of a Voting Rights
Triggering Event shall resign from the Board of Directors. At any time after
voting power to elect a majority of the Board of Directors shall have become
vested and be continuing in the Holders of Series A Stock pursuant to Article
VII(D)(i) hereof, upon the written request of the Holders of record of at least
twenty percent (20%) of the shares of Series A Stock then outstanding addressed
to the Secretary of the Corporation, a proper officer of the corporation shall
call a special meeting of the Holders of Series A Stock, for the purpose of
electing the director(s) which such Holders are entitled to elect as herein
provided, removing any such director or filling any vacancy that may exist in
the office of any such director. If such meeting shall not be called by a proper
officer of the Corporation within 20 days after service of such written request
upon the Secretary of the Corporation, or within 20 days after mailing the same
within the United States by certified mail, addressed to the Secretary of the
Corporation at its principal executive offices, then the Holders of record of at
least twenty percent (20%) of the outstanding shares of Series A Stock may
designate in writing one of such Holders to call such meeting at the expense of
the Corporation. The Holders of record of a majority of the outstanding shares
of Series A Stock may at any time, without any requirement of service of a
written request upon the Corporation, designate in writing one of such Holders
to call such meeting at the expense of the Corporation. In either such event,
such meeting may be called by the Holder so designated, upon the notice required
for annual meetings of stockholders of the Corporation, and shall be held at the
place designated by such Holder in such
11
<PAGE>
notice. Any Holder of Series A Stock so designated shall have access to the list
of Holders of Series A Stock entitled to attend the meeting pursuant to the
provisions hereof. Notwithstanding anything to the contrary set forth herein,
any action to be taken at a meeting referred to herein, including without
limitation the initial election of directors by the Holders of the Series A
Stock upon the occurrence of a Voting Rights Triggering Event, removing any such
director or filling any vacancy that may exist in the office of any such
director, may be taken by a written consent of the Holders of a majority of the
shares of Series A Stock outstanding.
(iii) At any meeting held for the purpose of electing
directors at which the Holders of Series A Stock then outstanding shall have the
right, voting separately as a single class, to elect directors as aforesaid, the
presence in person or by proxy of the Holders of at least a majority of the
outstanding Series A Stock shall be required to constitute a quorum; provided
that the foregoing shall not be construed to require such action to be taken at
a meeting rather than by written consent.
(iv) Any vacancy occurring in the office of a
director elected by the Holders of Series A Stock shall be filled by the person
specified in writing by the departing director unless and until such vacancy
shall be filled as provided in the manner provided above.
(E) In any case in which the Holders of Series A Stock shall
otherwise be entitled to vote pursuant to Delaware law, each Holder of shares of
Series A Stock shall be entitled to such number of votes that would attach to
the number of shares of Common Stock that would have been issued had such shares
of Series A Stock been converted immediately prior to the record date in respect
of such vote.
(F) The Corporation shall not issue shares of Series A Stock
other than the 100,000 shares originally issued and shares issuable pursuant to
Section 2.3 of the Asset Purchase Agreement.
VIII. Conversion
(A) General Rights. Each share of Series A Stock shall be
convertible, at any time after the Original Issue Date, at the option of the
Holder thereof, into that number of fully paid and non-assessable shares of
Common Stock of the Corporation (computed, with respect to the aggregate number
of shares to be converted by each Holder, to the nearest 1/100th of a share)
obtained by dividing the Liquidation Preference of the shares of Series A Stock
surrendered for conversion by the Conversion Price (as defined below) then in
effect. Notwithstanding the foregoing, (i) a share of Series A Stock shall not
be convertible after a notice of redemption calling for a redemption date that
is within six months after the Original Issue Date is given to the holder of
such share by the Corporation pursuant to Article VI(A)(i) and in accordance
with the requirements of Article VI(C), and (ii) if a notice of redemption
calling for a redemption date that is after six months after the Original Issue
Date is given to the holder of such share by the Corporation pursuant to Article
VI(A)(i) and in accordance with the requirements of Article VI(C), then such
share shall be convertible only to and including but not after the close of
business on the Business Day preceding the date fixed irrevocably for such
redemption; provided, however, that if in either case a default by the
Corporation in the payment of the Redemption Price occurs on the date fixed for
such redemption, such right of conversion shall be reinstated until such
Redemption Price is paid.
12
<PAGE>
The conversion price shall initially be $7.50 (as adjusted
from time to time, the "Conversion Price").
In order to exercise the conversion privilege, a Holder shall
surrender the certificate(s) representing such shares, accompanied by transfer
instrument(s) reasonably satisfactory to the Corporation, at any of the offices
or agencies maintained for such purpose by the conversion agent designated by
the Corporation (the "Conversion Agent") and shall give written notice to the
Corporation that the Holder elects to convert such shares (the "Conversion
Notice"). The initial Conversion Agent shall be the Corporation. Such notice
shall also state the name(s), together with address(es), in which the
certificate(s) for shares of Common Stock shall be issued and the effective date
of such conversion, which shall be a date within 10 Business Days after the
mailing of such notice. As promptly as practicable after the surrender of such
shares of Series A Stock as aforesaid, the Corporation shall at the office of
such Conversion Agent, issue and deliver to such Holder, or on its written
order, to a Person designated by such Holder, certificate(s) representing the
number of full shares of Common Stock issuable upon the conversion of such
shares of Series A Stock in accordance with the provisions hereof ("Conversion
Shares"), and any fractional interest in respect of a share of Common Stock
arising upon such conversion shall be settled as provided for below. If the
conversion occurs before the Conversion Shares have been registered with the
SEC, then they shall bear an appropriate restrictive legend regarding the fact
that they have not been registered. Certificates will be issued representing the
balance of any remaining shares of Series A Stock in any case in which fewer
than all of the shares of Series A Stock represented by a certificate are
converted. Each conversion shall be deemed to have been effected immediately
prior to the close of business on the Business Day specified by the Holder in
the transfer instruments referred to above (provided that the shares of Series A
Stock shall have been surrendered to the Corporation as aforesaid), and the
Person(s) in whose name(s) any certificate(s) for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder(s) of
record of the Common Stock represented thereby at such time. In either
circumstance, such conversion shall be at the Conversion Price in effect on the
date specified in such transfer instruments. By way of clarification, the
Company may, during the six month period following the Original Issue Date,
provide a notice of redemption prior to the tenth Business Day following the
delivery of a Conversion Notice pursuant to Article VI (A)(i) and in accordance
with the requirements of Article VI(C), in which event the conversion of the
Series A Stock will not be deemed to have occurred; provided, however, that if
such redemption is not consummated and the Holder shall not have been paid the
Redemption Price in accordance with the provisions of Article VI the Holder
shall be entitled to exercise all of its rights and remedies hereunder including
the right to convert the Series A Stock under Article VIII.
The dividend payable on a share of Series A Stock on a
Dividend Payment Date shall be payable to the Holder of record of such share at
the close of business on the Dividend Record Date applicable thereto,
notwithstanding the conversion of such share after such Dividend Record Date and
prior to the opening of business on such Dividend Payment Date or the default by
the Corporation in the payment of the dividend due on such Dividend Payment
Date. Shares of Series A Stock surrendered for conversion during the period from
the close of business on any Dividend Record Date to the opening of business on
the Dividend Payment Date with respect to such dividend shall be accompanied by
payment in immediately available funds or other funds acceptable to the
Corporation of an amount equal to the dividend payable on such Dividend Payment
Date on the shares of Series A Stock being surrendered for conversion. Except as
provided in this paragraph, no payment or adjustment shall be made upon any
conversion on account of any dividends accrued on shares of
13
<PAGE>
Series A Stock surrendered for conversion or on account of any dividends on the
Common Stock issued upon conversion.
Any fractional interest in a share of Common Stock resulting
from conversion of any share(s) of Series A Stock may, at the option of the
Corporation, be paid in cash (computed to the next highest cent) based on the
last reported sale price of the Common Stock on the last trading day prior to
the date on which such share or shares of Series A Stock are converted in the
manner set forth above. If more than one certificate representing shares of
Series A Stock shall be surrendered for conversion at one time by the same
Holder, the number of shares issuable upon conversion thereof shall be computed
on the basis of the aggregate number of shares of Series A Stock represented by
such certificates which are to be converted.
The Conversion Price shall be adjusted from time to time as
follows:
(a) In case the Corporation shall pay or make a dividend or
other distribution on any class of Capital Stock of the Corporation in Common
Stock, the Conversion Price in effect at the opening of business on the day
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction the numerator of which shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination and the denominator of which shall be the sum of such
number of shares of Common Stock and the total number of shares of Common Stock
constituting such dividend or other distribution, such reduction to become
effective immediately after the opening of business on the day following the
date fixed for such determination. For the purposes of this subsection (a), the
number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Corporation. The Corporation will not pay any
dividend or make any distribution on shares of Common Stock held in the treasury
of the Corporation.
(b) In case the Corporation shall subdivide the outstanding
shares of Common Stock into a greater number of shares of Common Stock, or
combine the outstanding shares of Common Stock into a lesser number of shares,
or issue by reclassification of its shares of Common Stock any shares of the
Corporation, or in the case any other similar event occurs, the Conversion price
in effect immediately prior thereto shall be adjusted so that the holders of
Series A Stock thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock which such holder would have owned
or been entitled to receive after the happening of any of the events described
above if such shares of Series A Stock had been converted immediately prior to
the happening of such event on the day upon which such subdivision, combination
or reclassification, as the case may be, becomes effective. Such adjustment
shall become effective immediately after the opening of business on the day
following the day upon which such subdivision, combination, reclassification or
other similar event becomes effective.
(c) The Corporation shall be entitled, at its election, to
make such reductions in the Conversion Price, in addition to those required by
this Article VIII, as it in its discretion shall determine to be advisable in
order that any stock dividend, subdivision or combination of shares,
distribution of capital stock or rights or warrants to purchase stock or
securities, or distribution of evidences of indebtedness or assets (other than
cash dividends or distributions paid from earnings) or other event shall be a
tax free distribution for federal income tax purposes.
14
<PAGE>
(d) Whenever the Conversion Price is adjusted as herein
provided, the Corporation shall promptly mail a certificate of a firm of
independent public accountants setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment and the manner of computing the same, which certificate shall
constitute conclusive evidence, absent manifest error, of the correctness of
such adjustment. The certificate shall be mailed to each Holder, at its last
address as the same appears on the securities register maintained by the
Corporation, and to the Conversion Agent.
(e) In case of (i) any consolidation of the Corporation with,
or merger of the Corporation into, any other entity, (ii) any merger of another
entity into the Corporation (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock) or (iii) any sale or transfer of all or substantially all of the
assets of the Corporation, each Holder shall have the right thereafter to
convert such share only into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer by a
holder of the number of shares of Common Stock into which such share of Series A
Stock might have been converted immediately prior to such consolidation, merger,
sale or transfer, assuming such holder of Common Stock is not an entity with
which the Corporation consolidated or into which the Corporation merged or which
merged into the Corporation or to which such sale or transfer was made, as the
case may be (a "Constituent Entity"), or an affiliate of a Constituent Entity
and failed to exercise its rights of election, if any, as to the kind or amount
of securities, cash or other property receivable upon such consolidation,
merger, sale or transfer (provided that if the kind or amount of securities,
cash and other property receivable upon such consolidation, merger, sale or
transfer is not the same for each share of Common Stock held immediately prior
to such consolidation, merger, sale or transfer by other than a Constituent
Entity or an affiliate thereof and in respect of which such rights of election
shall not have been exercised (a "non-electing share"), then for the purpose of
this subsection (e) the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares). If necessary, appropriate
adjustment shall be made in the application of the provisions set forth herein
with respect to the rights and interests thereafter of the Holders, to the end
that the provisions set forth herein shall thereafter correspondingly be made
applicable, as nearly as they may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the conversion
of the shares. Any such adjustment shall be evidenced by a certificate of
independent public accountants and a notice of such adjustment filed and mailed
in the manner set forth in subsection (d) above and containing the information
set forth in such subsection (d), and any adjustment so certified shall for all
purposes hereof conclusively be deemed to be an appropriate adjustment, absent
manifest error. The above provisions shall similarly apply to successive
consolidations, mergers, sales or transfers.
In case:
(i) of any consolidation or merger to which the
Corporation is a party and for which approval of any stockholders of the
Corporation is required, or of the sale or transfer of all or substantially all
of the assets of the Corporation; or
(ii) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation;
15
<PAGE>
then the Corporation shall cause to be filed with any Conversion Agent and shall
cause to be mailed to each Holder at its last address as the same appears on the
securities register maintained by the Corporation, at least 15 days prior to the
applicable record or effective date hereinafter specified, a notice stating (A)
the date on which a record is to be taken for the purpose of such actions, or,
if the record is not to be taken, the date as of which the holders of Common
Stock of record are to be determined, or (B) the date on which such
consolidation, merger, share exchange, sale, transfer, dissolution, liquidation
or winding-up is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property deliverable
upon such consolidation, merger, share exchange, sale, transfer, dissolution,
liquidation or winding-up.
(f) The Corporation will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
shares of Common Stock on conversion of shares of Series A Stock pursuant
hereto; provided, however, that the Corporation shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issue or
delivery of shares of Common Stock in a name other than that of the Holder of
the shares of Series A Stock to be converted, and no such issue or delivery
shall be made unless and until the Person requesting such issue or delivery has
paid to the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(g) The Corporation covenants that it will cause all shares of
Common Stock which may be issued upon conversions of shares of Series A Stock to
be, upon issue, duly and validly issued, fully paid and non-assessable, free of
all liens and charges and not subject to any preemptive rights.
(h) The Corporation covenants that it will at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued shares of Common Stock, the full number of shares of
Common Stock deliverable upon the conversion of all outstanding shares of Series
A Stock not theretofore converted.
(i) The Conversion Price may also be reduced if the Board of
Directors determines that such reduction would be equitable in order to protect
the interests of Holders. Such reduction may be effective for such period as the
Board of Directors may determine.
IX. Transactions with Affiliates.
The Corporation shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, enter into any transaction (including
the purchase, sale, lease or exchange of any property or the rendering of any
service) or series of related transactions with any director, officer, employee
or other affiliate of the Corporation or of any of its Subsidiaries on terms
that are less favorable to the Corporation or such Subsidiary, as the case may
be, than those which could be obtained in arms' length dealings at the time of
such transaction from a Person that is not such an affiliate. For purposes of
the foregoing, if a majority of the outside directors of the Corporation (which
shall not include any present or past officer of the Corporation or of any
predecessor) determine that the terms of a transaction are as favorable as those
which could be obtained in arms' length dealings from a Person that is not an
affiliate, and cause such determination to be reflected in the corporate
records, there shall then be a presumption that such determination is true and
correct. The provisions of this
16
<PAGE>
Article IX shall not be applicable to (i) any grant of options to purchase
Common Stock of the Corporation at fair market value on the date of grant that
is approved by a majority of the outside directors of the Corporation (which
shall not include any present or past officer of the Corporation or of any
predecessor), provided that this clause may be used to exempt from the
applicability of this Article IX option grants with respect to no more than an
aggregate of 450,000 shares, 200,000 of which are pursuant to the Corporation's
existing stock option plan or (ii) any transaction between the Corporation and
any of its wholly owned subsidiaries or between wholly owned subsidiaries of the
Corporation.
X. Covenant to Report.
Whether or not the Corporation is subject to the reporting
requirements of Section 13 or Section 15(d) of the Exchange Act, the Corporation
will deliver for filing with the SEC, all information, documents and reports
specified in Section 13 and Section 15(d) of the Exchange Act.
XI. Mutilated or Missing Series A Stock Certificates.
If any of the Series A Stock certificates shall be mutilated,
lost, stolen or destroyed, the Corporation shall issue, in exchange and in
substitution for and upon cancellation of the mutilated Series A Stock
certificate, or in lieu of and substitution for the Series A Stock certificate
lost, stolen or destroyed, a new Series A Stock certificate of like tenor and
representing an equivalent amount of shares of Series A Stock, but only upon
receipt of evidence of such loss, theft or destruction of such Series A Stock
certificate and indemnity, if requested, reasonably satisfactory to the
Corporation.
XII. Reissuance; Preemptive Rights.
(A) Shares of Series A Stock that have been issued and
reacquired in any manner, including shares purchased, redeemed or surrendered
for conversion, may not be redesignated or reissued.
(B) No shares of Series A Stock shall have any rights of
preemption whatsoever as to any securities of the Corporation, or any warrants,
rights or options issued or granted with respect thereto, regardless of how such
securities or such warrants, rights or options may be designated, issued or
granted. XIII. Business Day.
If any payment or redemption shall be required by the terms
hereof to be made on a day that is not a Business Day, such payment or
redemption shall be made on the immediately succeeding Business Day.
XIV. Headings.
The headings contained herein are for convenience of reference
only and shall not affect the interpretation of any of the provisions hereof.
XV. Severability of Provisions.
If any right, preference or limitation of the Series A Stock
set forth in these
17
<PAGE>
resolutions and this Certificate of Designations (as this Certificate of
Designations may be amended from time to time) is invalid, unlawful or incapable
of being enforced by reason of any rule or law or public policy, all other
rights, preferences and limitations set forth in this Certificate of
Designations, as amended, which can be given effect without the invalid,
unlawful or unenforceable right, preference or limitation shall, nevertheless
remain in full force and effect, and no right, preference or limitation herein
set forth shall be deemed dependent upon any other such right, preference or
limitation unless so expressed herein.
XVI. Notice to the Corporation.
All notices and other communications required or permitted to
be given to the Corporation hereunder shall be made by first-class mail, postage
prepaid, to the Corporation at its principal executive offices (currently
located on the date of the adoption of these resolutions at the following
address: 1080 Louson Road, Union, NJ 07083, Attention: President). Minor
imperfections in any such notice shall not affect the validity thereof.
XVII. Miscellaneous.
All payments to Holders to be made "in cash" hereunder shall
be made in U.S.
dollars.
IN WITNESS WHEREOF, this Certificate has been signed on this
_____ day of November, 1997.
TEARDROP GOLF COMPANY
By:_________________________
Name:
Title:
Attest:
___________________________
Name:
Title:
18
ASSET PURCHASE AGREEMENT
BY AND AMONG
TOMMY ARMOUR GOLF COMPANY
USI CANADA INC.
TOMMY ARMOUR GOLF (SCOTLAND) LTD.
USI AMERICAN HOLDINGS, INC.
AND
TEARDROP ACQUISITION CORP.
AND
TEARDROP GOLF COMPANY
DATED
OCTOBER 31, 1997
<PAGE>
LIST OF SCHEDULES
Schedule 2.1 Purchase Price Allocation
Schedule 2.2 Accounting Principles
Schedule 4.4 Preliminary Balance Sheet
Schedule 4.5 Absence of Certain Liabilities and Changes
Schedule 4.7 Receivables
Schedule 4.9 Contracts
Schedule 4.10 Labor Matters
Schedule 4.11 Employee Benefit Plans and Benefit Arrangements, etc.
Schedule 4.12 Litigation; Compliance with Laws
Schedule 4.13 Real Property
Schedule 4.15 Proprietary Rights
Schedule 4.16 Environmental Matters
Schedule 4.17 Permits and Licenses
Schedule 4.18 Insurance
Schedule 4.19 Employees
Schedule 4.20 Certain Assets
Schedule 5.3 Capitalization
Schedule 5.4 Parent's Balance Sheet
Schedule 5.5 No Material Adverse Change
Schedule 6.2 Conduct of the Business Pending the Closing
Schedule 6.3 Pension Trusts
<PAGE>
Schedule 6.17 Callaway Non-Competition Obligations
Schedule 8.1 Bank Accounts
Exhibit A Certificate of Designation
-ii-
<PAGE>
TABLE OF CONTENTS
1. Sale and Purchase of Assets...............................................
1.1 Sale and Purchase of Assets......................................
1.2 Excluded Assets..................................................
1.3 Assignment of Contracts..........................................
1.4 Obtaining Permits and Licenses...................................
1.5 Certain Liabilities Assumed by Buyer.............................
2. Purchase Price............................................................
2.1 Purchase Price...................................................
2.2 Adjustment of Purchase Price.....................................
2.3 Payment of Purchase Price........................................
3. Closing...................................................................
3.1 Date of Closing .................................................
3.2 Termination......................................................
4. Representations and Warranties of Sellers.................................
4.1 Organization, Standing and Authority of Sellers..................
4.2 Authorization of Agreement.......................................
4.3 Consents of Third Parties........................................
4.4 Preliminary Balance Sheet........................................
4.5 Absence of Certain Liabilities and Changes.......................
4.6 Inventory........................................................
4.7 Receivables......................................................
4.8 Taxes............................................................
4.9 List of Material Contracts.......................................
4.10 Labor Matters....................................................
4.11 Employee Benefit Plans and Benefit Arrangements..................
4.12 Litigation; Compliance with Laws.................................
4.13 Real Property....................................................
4.14 Tangible Personal Property.......................................
4.15 Proprietary Rights...............................................
4.16 Environmental Matters............................................
4.17 Permits and Licenses.............................................
4.18 Insurance........................................................
4.19 Employees........................................................
4.20 Sufficiency of Assets............................................
4.21 Transactions with Affiliates.....................................
4.22 No Material Omissions............................................
<PAGE>
5. Representations and Warranties of Buyer...................................
5.1 Buyer's Organization.............................................
5.2 Authorization of Agreement.......................................
5.3 Capitalization
5.4 SEC Reports, Financial Statements, No Undisclosed Liabilities....
5.5 No Material Adverse Change.......................................
5.6 Consents of Third Parties........................................
5.7 Litigation.......................................................
5.8 Financing........................................................
5.9 Transactions With Affiliates.....................................
5.10 Section 203 of the DCGL Not Applicable...........................
5.11 No Material Omissions............................................
6. Further Agreements of the Parties.........................................
6.1 Access to Information............................................
6.2 Conduct of the Business Pending the Closing......................
6.3 Employee and Employee Benefit Matters............................
6.4 Registration of Stock............................................
6.5 Other Action.....................................................
6.6 Notices..........................................................
6.7 Expenses.........................................................
6.8 Publicity........................................................
6.9 Transfer Taxes...................................................
6.10 Supplement to Disclosures........................................
6.11 Preservation of Records..........................................
6.12 Certain Post-Closing Assistance by the Buyer.....................
6.13 No Amendments of Preferred Stock Provisions......................
6.14 Treasury Matters.................................................
6.15 Use of Trade Names and Trademarks................................
6.16 D&O Insurance....................................................
6.17 Callaway Non-Competition Obligations.............................
6.18 Board Seat.......................................................
6.19 Restrictions on Sale of Stock....................................
6.20 No Solicitation..................................................
6.21 Certain Financial Statements.....................................
6.22 Location of Assets...............................................
7. Conditions of Closing.....................................................
7.1 Conditions Precedent to Obligations of Buyer.....................
7.2 Conditions Precedent to Obligations of Sellers...................
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<PAGE>
8. Documents to be Delivered at the Closing..................................
8.1 Documents to be Delivered by Sellers.............................
8.2 Documents to be Delivered by Buyer...............................
9. Indemnification and Related Matters.......................................
9.1 Indemnification..................................................
9.2 Determination of Damages and Related Matters.....................
9.3 Time and Manner of Certain Claims................................
9.4 Defense of Claims by Third Parties...............................
9.5 Environmental Matters............................................
10. Miscellaneous.............................................................
10.1 Bulk Sales Compliance............................................
10.2 Finders..........................................................
10.3 Entire Agreement.................................................
10.4 Jurisdiction and Governing Law...................................
10.5 Schedules; Tables of Contents and Headings.......................
10.6 Notices..........................................................
10.7 Separability.....................................................
10.8 Waiver...........................................................
10.9 Binding Effect; Assignment.......................................
10.10 Joint and Several Liability......................................
10.11 Joint Agreement..................................................
10.12 Best Knowledge...................................................
10.13 Counterparts.....................................................
-v-
<PAGE>
ASSET PURCHASE AGREEMENT
The parties to this Asset Purchase Agreement dated October 31, 1997
(this "Agreement") are Tommy Armour Golf Company ("Tommy Armour"), a Delaware
Corporation; USI Canada Inc. ("USI Canada"), an Ontario corporation; and Tommy
Armour Golf (Scotland) Ltd. ("TAG Scotland"), a company incorporated with
limited liability under the laws of Scotland ("Sellers"); USI American Holdings,
Inc., a Delaware corporation ("Shareholder"); and TearDrop Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of Parent ("Buyer") and
TearDrop Golf Company, a Delaware corporation ("Parent").
Recitals
Buyer desires to purchase, and Parent desires Buyer to purchase, and
Sellers desire to sell, substantially all of Sellers' assets and properties
employed or held in connection with the business of manufacturing and selling
golf clubs, golf gloves and any golf products and accessories (collectively, the
"Business"). As part of such purchase and sale, Buyer is willing to assume
certain obligations and liabilities of the Business as expressly set forth
herein. Sellers are wholly-owned, indirect subsidiaries of Shareholder and, in
connection with such purchase and sale, Shareholder is willing to make certain
undertakings, as set forth herein.
It is therefore agreed as follows:
1. Sale and Purchase of Assets.
1.1 Sale and Purchase of Assets. Subject to the terms and conditions of
this Agreement, at the closing referred to in Section 3 (the "Closing"), Sellers
shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall
purchase, acquire and accept from Sellers, all of the Sellers' right, title and
interest in and to all of the assets used in the Business (other than the
Excluded Assets referred to in Section 1.2), tangible and intangible, with such
changes, deletions or additions thereto as may occur from the date hereof to the
Closing in the ordinary course of business and consistent with the terms and
conditions of this Agreement (the "Assets"), including, without limitation, the
following:
(a) the real property (including the land and buildings,
improvements and structures located thereon and all appurtenances and rights
belonging thereto) owned or leased by Sellers and used in the Business all as
described in Schedule 4.13 (the "Real Property"), together with any plans and
specifications, warranties, guaranties, licenses, permits and approvals (subject
to Section 1.4 hereof) and other rights and benefits relating to the ownership,
use, construction and operation thereof;
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(b) all the furnishings, furniture, office supplies, computers
and computer software, vehicles, tools, machinery and equipment and other fixed
assets owned by Sellers and used in the Business (the "Equipment");
(c) all accounts receivable of the Business, including but not
limited to all accounting records of Sellers, credit files, notes, guarantees
and collateral to the extent relating thereto;
(d) all quantities of inventory, wherever situated, including
but not limited to finished goods, raw materials and work-in-progress used in
the Business (the "Inventory");
(e) all Assumed Contracts (as defined in Section 1.5);
(f) prepaid expenses (including, wages, benefits and insurance
(other than the insurance referred to in Section 1.2(d));
(g) all files and documents to the extent relating to
customers and vendors of the Business, including but not limited to customer
lists, and other business and financial records, financial statements, work
papers, files, books, records and documents to the extent relating to the
Business or the Real Property;
(h) all patents, trademarks and trade names and applications
therefor, trade secrets, and technical information and know-how, which are owned
by Sellers and used in the Business, and all goodwill associated therewith;
(i) all bank accounts of the Business and all cash remaining
therein on the Closing Date; and
(j) all municipal, state and federal franchises,
authorizations, permits and licenses of the Business or related to the Real
Property.
1.2 Excluded Assets. The parties to this Agreement expressly understand
and agree that the Sellers are not selling, assigning, transferring or conveying
to Buyer the following assets, rights and properties which shall be specifically
excluded from the transactions contemplated by this Agreement (the "Excluded
Assets"):
(a) amounts owed to a Seller by or claims by a Seller against
third parties (excluding accounts receivable), including any right or claim to
insurance proceeds, refunds of any non-assigned deposits, tax refunds, or tax
abatements for which a Seller may have a claim with respect to the Assets or
Business conducted prior to the Determination Time, as defined in Section 3.1;
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(b) the name "U.S. Industries" or derivations thereof;
(c) minute books, stock ledger records and related records of
the Sellers;
(d) any insurance policies of any affiliate other than the
Sellers;
(e) any shares of capital stock;
(f) any assets of Sellers held in connection with or used in
the operation of Sellers' subsidiaries or affiliates which do not primarily
relate to the Business; provided that any such assets owned by Sellers and
located at the Real Property are not Excluded Assets; and
(g) the assets referred to in Schedule 4.20 and any other
assets of the Sellers specifically set forth in this Agreement as not being
transferred to Buyer.
(h) assets which have been assigned to or contractually agreed
to be transferred to Callaway Golf Company.
1.3 Assignment of Contracts.
(a) Contracts Assignable Without Consent. Subject to the
provisions of this Section 1.3, Sellers shall assign to Buyer, and Buyer shall
assume, as of the Determination Time, all of the rights and obligations of
Sellers under the Contracts.
(b) Non-assignability. To the extent that any Contract or any
claim, right or benefit arising thereunder or resulting therefrom is not capable
of being sold, assigned, transferred or conveyed without the approval, consent
or waiver of the other party thereto, or any third person (including a
government or governmental unit) then unless such approval, consent or waiver is
obtained, or if such sale, assignment, transfer or conveyance or attempted
assignment, transfer or conveyance would constitute a breach thereof or a
violation of any law, decree, order, regulation or other governmental edict (the
"Interests"), this Agreement shall not constitute a sale, assignment, transfer
or conveyance thereof, or an attempted assignment, transfer or conveyance
thereof. Sellers shall use all reasonable efforts, and Buyer shall reasonably
cooperate with Sellers, to obtain all necessary approvals, consents or waivers,
or to resolve any such impediments to transfer as necessary to convey to Buyer
each such Interest as soon as practicable; provided, however, that neither the
provisions of this Section 1.3(b) nor Section 1.3(c) shall obligate either
Sellers or Buyer to pay any consideration therefor except to obligate Seller to
pay for reasonable costs of obtaining consent, including but not limited to
filing fees and other ordinary administrative charges.
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(c) If Waivers or Consents Cannot be Obtained. To the extent
that any of the approvals, consents or waivers referred to in Section 1.3(b)
have not been obtained by Sellers as of the Closing, or until the impediments to
transfer referred to in Section 1.3(b) are resolved, Sellers shall, during the
remaining term of such Interests, use all reasonable efforts to (i) obtain the
consent of any such third party; (ii) cooperate with Buyer, and Buyer shall use
reasonable efforts to cooperate with Sellers, in any reasonable and lawful
arrangements designed to provide the benefits of and obligations under such
Interests to Buyer so long as Buyer fully cooperates with Sellers in such
arrangements, provided that Buyer shall promptly reimburse Sellers for all
payments pursuant to such Interests made by Sellers in connection therewith and
indemnify Sellers with respect thereto, it being understood that this
requirement of reimbursement shall not apply to the cost related to obtaining
the consents; and (iii) enforce, at the request of Buyer and at the expense and
for the account of Buyer, any rights of Sellers arising from such Interests
against such issuer thereof or the other party or parties thereto (including the
right to elect to terminate any such Interests in accordance with the terms
thereof upon the advice of Buyer provided that Buyer shall indemnify Sellers
with respect thereto).
1.4 Obtaining Permits and Licenses. Sellers will assign, transfer or
convey to Buyer at the Closing those permits and licenses which are held or used
by the Sellers in connection with the Business and the Real Property and can be
assigned without having to obtain the consent of any third party with respect
thereto which has not been then obtained; provided, however, that Sellers will
cooperate with Buyer in obtaining any third party consents necessary to the
assignment or transfer of any other permits or licenses used or held by Sellers
in connection with the Business and the Real Property which are so assignable or
transferable. Buyer shall assume, or reimburse Sellers for, all costs associated
with the assignment or transfer of permits and licenses. The failure of Sellers
to cancel any permits or licenses shall not affect the respective rights,
obligations, liabilities and indemnifications of Sellers by Buyer under this
Agreement.
1.5 Certain Liabilities Assumed by Buyer. Effective as of the Closing,
Buyer shall, without any further responsibility or liability of or recourse to
Sellers, or their directors, shareholders, affiliates, officers, employees,
agents, consultants, representatives, successors, transferees or assignees,
absolutely and irrevocably assume and shall be solely liable and responsible for
(a) all liabilities and obligations reflected on the Final Balance Sheet (as
defined in Section 2.2 below), (b) all obligations under Contracts (as defined
in Section 4.3) provided that Assumed Liabilities excludes any Contracts
required to be listed on Schedule 4.9 that is not listed either (i) thereon or
(ii) on Schedule 4.10, 4.11 4.13, 4.15 or 4.19 (the "Assumed Contracts"), (c)
all liabilities and obligations that Buyer is agreeing to assume pursuant to
Section 6.3, and (d) any and all product warranty claims that relate to products
of the Business sold or manufactured prior to the Closing. The matters
identified in the foregoing clauses (a) through (d) shall be referred to herein
collectively as the "Assumed Liabilities". Any other liabilities, claims or
obligations shall not be assumed by Buyer.
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2. Purchase Price.
2.1 Purchase Price.
(a) The purchase price for the Assets (the "Purchase Price")
shall consist of (i) Ten Million Dollars ($10,000,000) (the "Cash Purchase
Price"), plus the assumption by the Buyer of the Assumed Liabilities, subject to
post-closing adjustment pursuant to Section 2.2, (ii) One Hundred Thousand
(100,000) shares of duly authorized, validly issued, fully paid and
non-assessable preferred stock of the Parent having a redemption value of Ten
Million Dollars ($10,000,000) and having the rights set forth in Exhibit A to
this Agreement (the "Preferred Stock"), subject to post-closing adjustment
pursuant to Section 2.2, and (iii) One Million (1,000,000) duly authorized,
validly issued, fully paid and non-assessable shares of the Parent's common
stock, subject to increase as provided for in Section 2.1(b) (the "Common
Stock", and together with the Preferred Stock, the "Stock"). The Purchase Price
shall be payable as provided in Section 2.3.
(b) If the Average Price of the Parent's common stock quoted
on the Nasdaq SmallCap Market over the five trading days prior to the Closing
Date is less than $4.00 per share, Buyer shall provide to Sellers at the Closing
in addition to 1,000,000 shares set forth in (a)(iii) above, at Buyer's option
either cash and/or shares of Parent's common stock valued at the Average Price
of the Parent's common stock (the average price of the bid and asked for such
five day period is referred to herein as the "Average Price") to make Sellers
whole for the difference between $4.00 per share and the Average Price. If the
bid price of Parent's common stock exceeds $4.00 per share for any five
consecutive trading day period during the six month period following the
Closing, the additional cash and/or shares provided by Buyer to Sellers pursuant
to the preceding sentence shall be returned by Sellers to Buyer.
(c) The Purchase Price shall be allocated among the Assets and
the Sellers in accordance with Schedule 2.1, to which allocation Buyer and
Sellers agree to be bound. Buyer and Sellers agree to file all returns and
reports including, without limitation, all federal, state and local income and
franchise tax returns, on the basis of such allocation.
2.2 Adjustment of Purchase Price.
(a) The Purchase Price shall be adjusted as follows, and shall
be payable in accordance with Section 2.3:
(i) For purposes hereof, "Final Net Worth" shall mean
the Assets of the Business less the Liabilities of the Business, as reflected in
the Final Balance Sheet referred to in Section 2.2(b). "Target Net Worth" shall
mean $22,961,000.
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(ii) If the amount of the Final Net Worth in
accordance with this Section is less than the Target Net Worth, the Purchase
Price shall be decreased by an amount equal to the difference between the Final
Net Worth and the Target Net Worth.
(iii) If the amount of the Final Net Worth is greater
than the Target Net Worth, the Purchase Price shall be increased by an amount
equal to the difference between the Final Net Worth and the Target Net Worth.
(b) The Final Net Worth shall be determined as of the close of
business on the day immediately preceding the day of the Closing (the
"Determination Time") on the basis of the pro forma balance sheet of the
Business as of the Determination Time (the "Final Balance Sheet"). The Final
Balance Sheet shall be prepared by Sellers in accordance with generally accepted
accounting principles as supplemented by the principles set forth in Schedule
2.2 (the "Accounting Principles") and shall be reported upon by Price Waterhouse
LLP ("PW"); provided, however, that should PW be unable or unwilling to provide
the report described above, Sellers shall promptly engage another independent
public accounting firm of national reputation reasonably acceptable to Buyer
(the "Alternate Firm") to provide such report, or Buyer and Sellers may agree to
the amount of Final Net Worth and the amount of any required adjustment to the
Purchase Price as contemplated by this Section 2.2. PW or the Alternate Firm, as
the case may be, shall hereinafter be referred to as the "Auditor". Sellers
shall be responsible for the fees and expenses of the Auditor.
(c) Sellers shall engage the Auditor to examine the Final
Balance Sheet and shall use their best efforts to cause the Auditor to conclude
its report so as to enable Sellers to deliver to Buyer the Final Balance Sheet
within sixty (60) days after the Closing (or, in the event the Auditor is the
Alternate Firm, within sixty (60) days after the Alternate Firm is engaged),
together with a report of the Auditor thereon (i) setting forth the amount of
Final Net Worth reflected in the Final Balance Sheet, (ii) stating that (y) the
examination has been made in accordance with generally accepted auditing
standards, and (z) the Final Balance Sheet has been prepared in conformity with
the Accounting Principles, and (iii) setting forth the amount of any required
adjustment to the Purchase Price pursuant to this Section 2.2. Buyer and Sellers
shall take such actions as are necessary to cause the Auditor's audit of the
Final Balance Sheet to be performed expeditiously. During the period from the
Closing Date (as defined in Section 3.1) until the date of delivery of the Final
Balance Sheet, Buyer shall give Sellers, the Auditor and other appropriate
personnel such assistance and access to the assets and books and records of the
Sellers as each Seller and the Auditor shall reasonably request during normal
business hours in order to enable them to prepare and examine, respectively, the
Final Balance Sheet. Parent's regular independent accountants, or such other
independent accounting firm engaged by Buyer (which shall not be the Unrelated
Accounting Firm referred to below) ("Buyer's Auditor") shall, at Buyer's
expense, have the opportunity to observe the taking of the inventory of the
Sellers in connection with the preparation of the Final Balance Sheet, and to
examine the work papers, schedules and other documents prepared by Sellers in
connection with its preparation of the Final Balance Sheet.
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Sellers shall use their reasonable efforts to cause the Auditor to permit Buyer
and Buyer's Auditor to examine the Auditor's work papers used in connection with
its audit of the Final Balance Sheet.
(d) Within thirty (30) days following the delivery of the
Final Balance Sheet and the related report of the Auditor, Buyer shall deliver
to each Seller a notice of objection (an "Objection Notice") or a notice of
acceptance (an "Acceptance Notice") with respect to the Final Balance Sheet and
related auditor's report. Such Final Balance Sheet and related auditor's report
shall be final and binding on the parties if an Acceptance Notice is delivered
to each Seller or if no Objection Notice is delivered to each Seller within such
thirty (30) day period. If an Objection Notice is delivered within such thirty
(30) day period, except for the objections included in the Objection Notice,
such Final Balance Sheet and related audited report shall be final and binding
on the parties. Any Objection Notice shall specify in reasonable detail the
items on the Final Balance Sheet disputed and shall describe in reasonable
detail the basis for the objection and all material relevant information in the
possession of the objecting party which forms the basis thereof, as well as the
amount in dispute. If an Objection Notice is given, the parties shall consult
with each other with respect to the objection. If the parties are unable to
reach agreement within fifteen (15) days after an Objection Notice has been
given, any unresolved disputed items shall be promptly referred to Arthur
Andersen LLP, provided that such firm would not have a material conflict of
interest in so serving (the "Unrelated Accounting Firm"). If such firm is unable
or unwilling to serve in such capacity, the parties shall agree on another firm,
or, failing such agreement, a certified public accountant or firm of accountants
shall be designated to serve as the Unrelated Accounting Firm pursuant to the
Commercial Arbitration Rules of the American Arbitration Association. The
Unrelated Accounting Firm shall be directed to render a written report on the
unresolved disputed issues with respect to the Final Balance Sheet as promptly
as practicable and to resolve only those issues of dispute set forth in the
Objection Notice. The resolution of the dispute by the Unrelated Accounting Firm
shall be final and binding on the parties. The fees and expenses of the
Unrelated Accounting Firm shall be borne equally by Sellers and Buyer.
2.3 Payment of Purchase Price.
(a) Concurrently with the execution of this Agreement, Buyer
shall deliver 50,000 shares of Parent's common stock in the name of Tommy Armour
to Sellers as the "Down Payment". The Down Payment shall be non-refundable
except to the extent otherwise set forth in the next sentence. In the event the
Agreement is terminated (i) by Sellers for any reason other than (A) the
non-fulfillment of the conditions set forth in Section 7.2 or (B) pursuant to
Section 3.2(c) or (d) (as modified by the first paragraph of Section 3.2) or
(ii) by Buyer as a result of the non-fulfillment of any of the conditions set
forth in Section 7.1, Sellers shall promptly return the Down Payment to Buyer.
The certificates representing the shares constituting the Down Payment will
contain a legend to the effect that such shares are subject to return under the
circumstances described in this Section 2.3(a).
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(b) At the Closing Buyer shall pay to Sellers an amount equal
to the Cash Purchase Price by wire transfer of immediately available funds to an
account designated by Sellers and shall deliver certificates in forms reasonably
satisfactory to Sellers representing 950,000 shares of Common Stock of Parent
and representing the Preferred Stock and shall pay and/or deliver any additional
consideration payable or deliverable pursuant to Section 2.1(b).
(c) If Buyer delivers to Sellers the Acceptance Notice
referred to in Section 2.2(d) or fails to deliver an Objection Notice within the
thirty (30) day period required by Section 2.2(d), then (i) in the event the
Final Net Worth is less than the Target Net Worth, Sellers shall within two (2)
business days after the delivery of such Acceptance Notice or the expiration of
such thirty (30) day period, as the case may be, pay to Buyer the amount by
which the Target Net Worth exceeds the Final Net Worth, or (ii) in the event the
Final Net Worth exceeds the Target Net Worth, Buyer shall within two (2)
business days after the delivery of such Acceptance Notice or the expiration of
such thirty (30) day period, as the case may be, pay to Sellers the amount by
which the Final Net Worth is greater than the Target Net Worth. Alternatively,
if Buyer delivers to Sellers the Objection Notice referred to in Section 2.2(c),
within two (2) business days after such delivery, (y) Sellers shall pay to Buyer
the amount, if any, by which the undisputed portion of the Final Net Worth is
less than the Target Net Worth, or (z) Buyer shall pay to Sellers the amount, if
any, by which the undisputed portion of the Final Net Worth is greater than the
Target Net Worth. Within two (2) days after the resolution of any dispute by the
parties or the Unrelated Accounting Firm relating to the Objection Notice,
Sellers shall pay to Buyer, or Buyer shall pay to Sellers, as the case may be,
the amount of any further adjustment required. The payment pursuant to this
Section 2.3(c) shall be made in the manner prescribed in Section 2.3(d).
(d) Any payment(s) pursuant to Section 2.3(c) shall be made
(a) one-half by certified or bank cashier's check, or, at the recipient's
option, by wire transfer of immediately available funds and shall be accompanied
by payment of an amount determined by computing simple interest on the amount of
that payment at the rate of interest announced publicly by Bank of America in
San Francisco from time to time as its "reference rate" (on the basis of a
365-day year) from the Closing Date to the date of payment and (b) one-half in
Parent's preferred stock (of the same class and series as the Preferred Stock)
at the redemption value of $100.00 per share, measured at the redemption value
of $100.00 per share (together with any accrued but unpaid dividends as if
issued on the Closing Date if payable to Sellers and if payable to Buyer
increased by any dividends thereon paid to Sellers). If there is additional
preferred stock issued by Parent to Sellers, Buyer shall cause such preferred
stock to satisfy the representations and warranties contained in Section 5.3
hereof, to the extent applicable.
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3. Closing.
3.1 Date of Closing. The Closing shall take place at the offices of
Sellers' counsel (or at such other place as the parties may agree in writing) on
November 7, 1997 or such other date mutually designated by Sellers and Buyer, or
as extended under Section 3.2, but in no event later than five (5) business days
after the date when each of the conditions specified in Article 7 have been
fulfilled (or waived by the party entitled to waive that condition). The date on
which the Closing is held is referred to in this Agreement as the "Closing
Date". At the Closing, the parties shall execute and deliver the documents
referred to in Section 8.
3.2 Termination. This Agreement may be terminated at any time prior to
the Closing (notwithstanding the dates below of November 7, 1997, if the reason
the conditions under Section 3.2(c) have not been satisfied relate to Buyer's
not having obtained financing by such date, then the dates in Sections 3.2(b)
and (c) shall be extended to November 14, 1997):
(a) by mutual written agreement executed by Sellers and Buyer;
(b) by Buyer, if any of the conditions specified in Section
7.1 shall not have been satisfied or waived in writing by Buyer on or before
November 7, 1997;
(c) by Sellers, if any of the conditions specified in Section
7.2 shall not have been satisfied or waived in writing by Sellers on or before
November 7, 1997; or
(d) Without limiting the rights of Buyer or Sellers under
Sections 3.2(b) and 3.2(c), this Agreement may in any event be terminated by
Sellers or Buyer if the Closing shall not have occurred by November 14, 1997.
Upon such termination none of the parties shall have any liability or
further obligation arising out of this Agreement except for any liability
resulting from its breach of this Agreement prior to termination. If the breach
is by Buyer or Parent, Seller shall be entitled to retain the Down Payment and
to the extent that Seller's damages arising from the breach of this Agreement
are in excess of the value of the Down Payment as of the date of the receipt of
the Down Payment, Sellers shall be entitled to be reimbursed by Parent for such
damages in excess of the Down Payment. Buyer's obligations under Section 6.1
shall survive the termination of this Agreement. Anything to the contrary
notwithstanding in this Agreement, to the extent there is a breach of this
Agreement that does not constitute a willful breach and another party terminates
this Agreement by reason of such non-willful breach, then the terminating
party's damages, except for the Down Payment, shall be limited to all out of
pocket expenses arising out of the negotiation of this Agreement, including any
out-of-pocket expenses incurred by it respecting diligence performed by it or on
its behalf.
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4. Representations and Warranties of Sellers. Sellers and Shareholder
jointly and severally represent and warrant to Buyer that:
4.1 Organization, Standing and Authority of Sellers. Sellers and
Shareholder are corporations duly organized, validly existing and in good
standing under the laws of the jurisdiction of their incorporation and have full
corporate power and authority to enter into and perform this Agreement. Sellers
and Shareholder are qualified to do business and are in good standing in each
jurisdiction in which the nature of their business or the properties owned or
leased by them requires qualification, except where the failure to be so
qualified or in good standing would not have a Material Adverse Effect.
"Material Adverse Effect" means, with respect to Sellers, a material adverse
effect upon the businesses, operations, assets or financial condition of the
Business, taken as a whole; and, with respect to Parent, a material adverse
effect upon the business, operations, assets or financial condition of the
Parent, taken as a whole.
4.2 Authorization of Agreement. The execution, delivery and performance
of this Agreement and all documents relating thereto by Sellers and Shareholder
have been duly authorized by all necessary corporate action of Sellers and
Shareholder and this Agreement constitutes the valid and binding obligation of
Sellers and Shareholder enforceable against them in accordance with its terms,
except to the extent enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights in general and subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law). Sellers and Shareholder have the right, power and authority
to execute and deliver this Agreement and perform their respective obligations
hereunder.
4.3 Consents of Third Parties. Subject to receipt of the consents and
approvals referred to in Schedules 4.9, 4.13, 4.15 and 4.17, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby by Sellers will not (i) violate or conflict
with the certificates of incorporation, by-laws or other constitutive documents
of Sellers or Shareholder, (ii) conflict with, or result in the breach of, or
termination of, or constitute a default under (whether with notice or lapse of
time or both), or accelerate or permit the acceleration of the performance
required by, any contracts, agreements, leases, arrangements and/or commitments
of any kind which relate to the Business or the Real Property (the "Contracts"),
indenture, mortgage, lien, lease, agreement, commitment or other instrument, or
any order, judgment or decree, to which Sellers and Shareholder are a party or
by which Sellers or Shareholder or any of their properties are bound, (iii)
constitute a violation of any law, regulation, order, writ, judgment, injunction
or decree applicable to Sellers or Shareholder, or (iv) result in the creation
of any lien, charge or encumbrance upon the capital stock, properties or assets
of the Sellers or Shareholder, other than violations, conflicts, breaches,
terminations, accelerations and defaults specified in the foregoing clauses (ii)
through (iv) which could not reasonably be expected to have a material adverse
effect on Sellers' or Shareholder's ability
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to perform its obligations under this Agreement. No consent, approval or
authorization of any governmental authority is required on the part of Sellers
or Shareholder in connection with the execution, delivery and performance of
this Agreement, except for filings with the Pension Benefit Guaranty
Corporation, the Internal Revenue Service, the Department of Labor and any other
similar governmental entity with respect to the transfer of assets and
liabilities of Employee Benefit Plans pursuant to this Agreement.
4.4 Preliminary Balance Sheet. The unaudited pro forma balance sheet of
the Business, dated as of August 23, 1997 (the "Preliminary Balance Sheet"), set
forth in Schedule 4.4, presents fairly the pro forma financial condition of the
Business (including the Real Property) as at such date in accordance with the
Accounting Principles.
4.5 Absence of Certain Liabilities and Changes. Except to the extent
reflected or reserved for in the Preliminary Balance Sheet, there are no
liabilities or obligations material to the Business or the Assets that would
normally be shown on a balance sheet prepared in accordance with the Accounting
Principles except (i) liabilities or obligations incurred in the ordinary course
of business since the date of the Preliminary Balance Sheet, and (ii)
liabilities and obligations disclosed in the Schedules hereto and liabilities
and obligations not required to be so disclosed because of their failure to meet
the materiality thresholds set forth therein, and (iii) liabilities and
obligations which are being retained by Sellers or allocated to Buyer under the
terms of this Agreement. Since the date of the Preliminary Balance Sheet,
Sellers have operated the Business in the ordinary course and, except as set
forth on Schedule 4.5, or contemplated by Schedule 6.2, there has not been:
(a) any change in the business, financial condition or results
of operations of the Business that has had or could reasonably be expected to
have a Material Adverse Effect;
(b) any change in any of the Assets or any change in the
manner of conducting the Business that has had or could reasonably be expected
to have a Material Adverse Effect;
(c) any damage, destruction or loss not covered by insurance
that has had or could reasonably be expected to have a Material Adverse Effect;
(d) any material transaction made by Sellers relating to the
Assets or Business (including the acquisition or disposition of Assets or the
entering into or terminating any contract or transaction involving more than
$20,000) other than in the ordinary course of business consistent with past
practice or as otherwise permitted or contemplated by this Agreement;
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(e) any lien, security interest or other encumbrance ("Lien")
created or assumed by the Sellers on any of the Assets other than a Permitted
Lien (as such term is defined in Section 4.13);
(f) any grant of any severance or termination pay by the
Sellers to any executive officer or director of the Sellers or any increase in
compensation or benefits payable by the Sellers under existing employment
agreements or severance or termination pay policies to any of their employees
other than (x) in the ordinary course of business consistent with past
practices, including without limitation normal merit increases for salaried
employees, (y) increases or grants required by contracts disclosed herein or by
applicable law, or (z) increases, agreements and bonuses disclosed in Schedule
4.11;
(g) any adoption of, or increase in the payments to or
benefits under any employment, bonus or deferred compensation agreement entered
into between the Sellers and any of their directors, officers or other
employees, other than as disclosed in Schedule 4.11; or
(h) any capital expenditures by Sellers in connection with the
Business which in the aggregate are material;
(i) any agreement made by the Sellers to take any action that
would cause any representation or warranties in this Section 4.5 to be untrue or
incorrect.
4.6 Inventory. The Inventory is of a quality usable and fit for sale in
the ordinary course of business of the Sellers, except for obsolete items or
damaged or defective items below standard quality as to which a provision has
been made on the books of the Sellers in accordance with the Accounting
Principles. The value of all inventory items, including finished goods,
work-in-process and raw materials, has been recorded on the books of the Sellers
at the lower of cost (determined in accordance with the accounting inventory
valuation methods of the Sellers) or fair market value.
4.7 Receivables. All accounts receivable of the Sellers which either
are reflected on the Preliminary Balance Sheet, or were created subsequent to
the date of the Preliminary Balance Sheet, or otherwise on the books of the
Business have arisen from bona fide sales in the ordinary course of business.
Allowances in accordance with the Accounting Principles have been reflected in
the Preliminary Balance Sheet with respect to the receivables shown thereon,
and, with respect to receivables created subsequent to the date of the
Preliminary Balance Sheet, allowances have been set up on the books of the
Sellers in accordance with the Accounting Principles. Except as set forth in
Schedule 4.7, to the best knowledge of Sellers, (a) there are no material claims
which have been made in writing by any customer relating to the non-payment of
accounts receivables or (b) except for customary practices followed in the
industry relating to the return of products and except for the right to return
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damaged or otherwise defective products, there is no legal right of customers to
return products to Sellers.
4.8 Taxes. With respect to the operations of the Business and the
Assets prior to the Closing, Sellers have filed or will file on a timely basis
all tax returns, reports and declarations in connection with any foreign,
federal, state or local tax (including any payroll tax, employment tax, income
tax, franchise tax, gross receipt tax, license tax, capital gains tax, excise
tax, sales or use tax, withholding tax, or property tax) required to be filed,
and Sellers have paid or will pay all taxes due and payable in accordance with
such tax returns, reports and declarations or otherwise required to be paid. All
such returns, reports and declarations were correct and complete in all material
respects. There are no Liens on any of the Assets that arose or may arise in
connection with any failure (or alleged failure) to pay any tax. Sellers have
withheld and paid or collected and remitted all taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent, supplier, vendor, creditor, stockholder or other third party.
4.9 List of Material Contracts. Schedule 4.9 lists the following items
with respect to the Business: all commitments or agreements that involve an
expenditure by the Sellers of more than $20,000 for any one contract or series
of related contracts that are not cancellable without liability on less than 31
days notice provided that purchase orders are listed as of August 23, 1997 (and
all purchase orders entered into since such date have been entered into in the
ordinary course of business). Schedule 4.9 excludes, however, any items which
are to be included on Schedules 4.11, 4.13, 4.15, 4.18, 4.19 or 6.12. Except for
the Contracts listed on Schedule 4.9, 4.11, 4.13, 4.15, 4.18, 4.19 or 6.12,
there are no Contracts that the Business is obligated for outside the ordinary
course of business that in the aggregate obligate Sellers to expend more than
$100,000 pursuant to contracts that are not cancellable without liability.
Sellers have made available to Buyer complete and correct copies of all items
listed in Schedule 4.9 that are in writing, and the descriptions contained in
Schedule 4.9 of all items listed therein that are not in writing are materially
complete and correct. Except as disclosed in Schedule 4.9, the Sellers are not
in default under the terms of any item listed in Schedule 4.9, which default has
had a Material Adverse Effect. To the best knowledge of each Seller, each of the
contracts, arrangements, instruments or other agreements listed in Schedule 4.9
is valid and in full force and effect and no party has notified any Seller in
writing of its intention to cease to perform any material services required to
be performed by it or withhold any material payment required to be made by it
thereunder.
4.10 Labor Matters. Except as set forth on Schedule 4.10, during the
past two years, there has not been, to the Sellers' knowledge, (1) any strike,
slowdown, picketing or organized work stoppage against the Business, (2) any
proceeding against or affecting Sellers relating to the alleged violation of any
legal requirement pertaining to labor relations or employment matters of the
Business, including any charge or complaint filed by an employee or union with
the National Labor Relations Board, the Equal Employment Opportunity Commission,
or any comparable governmental body, (3) any material labor or employment
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dispute against or affecting the Business, (4) any application for certification
of a collective bargaining representative or other effort to organize employees
of the Business for the purpose of forming or joining a union, or (5) any
lockout of employees of the Business by Seller. The Business is not in violation
of any legal requirements relating to employment, workers' compensation, equal
employment opportunity, nondiscrimination, immigration, wages, hours, benefits,
collective bargaining, the payment of social security and similar taxes,
occupational safety and health, or plant closings, any of which has had a
Material Adverse Effect. There are no collective bargaining agreements to which
Sellers are a party or to which the Business is subject.
4.11 Employee Benefit Plans and Benefit Arrangements.
(a) Definitions.
(i) The term "Employees" shall mean all current
employees of the Sellers with respect to the Business, including employees on
approved leaves of absence (whether family leave, workers compensation, medical
leave or otherwise), and the term "Employee" shall mean any of the Employees.
(ii) The term "Employee Benefit Plans" shall mean
each and all "employee benefit plans" as defined in Section 3(3) of ERISA,
maintained or contributed to by the Sellers or any predecessor or in which the
Sellers or any predecessor participates or participated and which provides
benefits to Employees including (a) any "employee welfare benefit plans" as
defined in Section 3(1) of ERISA, including retiree medical and life insurance
plans ("Welfare Plans"), (1) which Sellers maintain, administer, contribute to
or are required to contribute to, or under which Sellers may incur liability and
(2) which covers any employee or former employee of Sellers; and (b) any
"employee pension benefit plan" (as defined in Section 3(2) of ERISA) (other
than a multiemployer plan as defined in Section 4001(a)(3) of ERISA) ("Pension
Plans") (1) which Sellers contributed to, or, within the five years prior to the
date of this transaction, maintained, administered, contributed to or were
required to contribute to, or under which Sellers may incur any liability and
(2) which covers any employee or former employee of Sellers; and
(iii) The term "Benefit Arrangements" shall mean any
life and health insurance, hospitalization, savings, bonus, deferred
compensation, incentive compensation, service award, company car, scholarship,
relocation, patent award, fringe benefit, contracts, collective bargaining
agreements, individual employment, consultancy, termination contracts or
severance contracts and other policies or practices of the Sellers providing
employee or executive compensation or benefits to Employees, other than Employee
Benefit Plans.
(iv) The term "Other Participants" shall mean former
employees of the Sellers who are not employees but who are currently eligible
for benefit entitlements
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under an Employee Benefit Plan or Benefit Arrangement. Schedule 4.11 contains an
accurate list of Other Participants, indicating their corresponding Employee
Benefit Plan or Benefit Arrangement participation.
(b) Schedule 4.11 lists all Employee Benefit Plans and all
material Benefit Arrangements. Such Schedule indicates whether any Welfare Plans
or Benefit Arrangements listed thereon are included in master contracts which
permit or provide for the participation of entities other than the Sellers (the
"Master Contracts"). Such Schedule also indicates whether any Pension Plans
listed thereon participate in trusts sponsored by entities other than the
Sellers for investment of plan assets (the "Master Trusts"). With respect to
each of the Employee Benefit Plans and Benefit Arrangements, Sellers have
delivered or made available to Buyer, as applicable, copies of any: (i) plans
and related trust documents and amendments thereto; (ii) the most recent summary
plan descriptions and the most recent annual report; (iii) the most recent
actuarial valuation; (iv) the most recent determination letter received from the
Internal Revenue Service; and (v) IRS Form 5500 filed in the most recent plan
year with respect to any Employee Benefit Plan, including all schedules thereto
and financial statements with attached opinions of independent accountants (if
any). No event has occurred for which, and there exists no condition or set of
circumstances under which, to the best of Sellers' knowledge, the Sellers or any
Pension Plan (as defined in Section 6.3(a)) could be subject to any material
liability under Section 502(a) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code.
(c) (i) Each Pension Plan intended to qualify under Section
401(a) of the Code has received a favorable determination letter from the
Internal Revenue Service with respect to such qualification, or has been
submitted to the Internal Revenue Service requesting such a favorable
determination; its related trust has been determined to be exempt from taxation
under Section 501(a) of the Code; and, to the best of Sellers' knowledge,
nothing has occurred since the date of such letter that would adversely effect
such qualification or exemption; (ii) no event has occurred that will subject
any Employee Benefit Plan to tax under Section 511 of the Code, and no
"prohibited transaction" (within the meaning of Section 4975 of the Code and
Sections 406 and 408 of ERISA) has occurred with respect to any such Employee
Benefit Plan; and (iii) there are no material actions or proceedings (other than
routine claims for benefits) pending or, to the best of Sellers' knowledge,
threatened, with respect to any such Employee Benefit Plan or Benefit
Arrangement or against the assets of any such Employee Benefit Plan and (iv) the
Sellers are in compliance in all material respects with the terms of each
Employee Benefit Plan and Benefit Arrangement and the operation of each Employee
Benefit Plan and Benefit Arrangement has not adversely affected the
qualification of each Employee Benefit Plan and Benefit Arrangement under the
Code; (v) all Employee Benefit Plans and Benefit Arrangements are in material
compliance with ERISA and the Code, the regulations and published authorities
thereunder, and all other laws applicable with respect to all such Employee
Benefit Plans and Benefit Arrangements; and (vi) all contributions (including
all
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employer contributions and employee salary reduction contributions) which are
due have been paid to each Employee Benefit Plan and Benefit Arrangement except
to the extent accrued for by Sellers.
(d) Neither Sellers nor any member of the controlled group (as
defined in Code Sections 414(b)-(c)) ("Controlled Group") maintains or has
maintained in the past five years any "multiemployer plans" (as defined in
Sections 4001(a)(3) and 3(37) of ERISA) to which the Sellers would be liable for
any payments or liabilities. Neither Sellers nor any member of the Controlled
Group has incurred any liability in connection with the termination of a Pension
Plan subject to Title IV of ERISA, the complete or partial withdrawal from
multiemployer plans subject to Title IV of ERISA, or the failure to make
contributions due under Section 412 of the Code or premiums due to the PBGC
under Title IV of ERISA, which liability will not have been satisfied as of the
Closing Date.
4.12 Litigation; Compliance with Laws.
(a) There are no judicial or administrative actions,
proceedings or investigations pending or, to the best of Sellers' knowledge,
threatened, that question the validity of this Agreement or any action taken or
to be taken by Sellers or Shareholder in connection with this Agreement. There
is no litigation, proceeding or governmental investigation pending or, to the
best of Sellers' knowledge, threatened, or any order, injunction or decree
outstanding, against the Sellers or Shareholder that, if adversely determined,
would have a Material Adverse Effect on the Sellers' or Shareholder's ability to
perform their obligations under this Agreement.
(b) The Business, the Assets and the Real Property are not in
violation of any applicable law, regulation, ordinance or any other applicable
requirement of any governmental body or court, which violation would have a
Material Adverse Effect, and to Sellers' knowledge no event has occurred or
circumstance exists that may constitute a violation of same that would have a
Material Adverse Effect. No written notice has been received by any Seller
alleging any such violation, which violation would have a Material Adverse
Effect.
(c) Except as disclosed in Schedule 4.12 or Schedule 4.10,
there are no judicial or administrative actions or proceedings with respect to
the Business or the Assets pending against Sellers or the Business or the Assets
or, to the best knowledge of Sellers, threatened against same, including without
limitation condemnation proceedings.
(d) Except as set forth in Schedule 4.12, Sellers are not
presently engaged in any legal action to recover money due to them (except for
ordinary course collection actions) or damages sustained by them in connection
with the Business or the Assets.
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4.13 Real Property.
(a) Schedule 4.13 sets forth all of the real property of the
Business owned in fee by the Sellers (the "Owned Property"). Except as set forth
on Schedule 4.13, the Sellers have good and marketable title to each parcel of
Owned Property free and clear of all Liens, and title thereto is insurable at
regular rates (except for a special $2,000 premium) by a reputable title
insurance company licensed to do business in the State of Illinois other than
(i) those reflected or reserved against in the Preliminary Balance Sheet; (ii)
those reflected in any title reports or title insurance policies with respect to
the Owned Property that are listed on Schedule 4.13, copies of which have been
previously provided to Buyer; (iii) imperfections of title, easements, pledges,
charges, restrictions and encumbrances, including, without limitation, survey
matters, landlord's liens, mechanics' liens, repairmen's liens and other similar
liens, if any, that do not materially detract from the value of the property
subject thereto or interfere with the manner in which it is currently being used
in the Business or impair the operations of the Business; and (iv) taxes and
general and special assessments not in default and payable without penalty or
interest (liens of the type referred to in clauses (i) through (iv) above being
hereinafter referred to as "Permitted Liens").
(b) Schedule 4.13 sets forth a list of all of the real
property leases in effect as of the date hereof with respect to the Business
under which the Sellers are a lessee (collectively, the "Leased Property").
Sellers have made available to Buyer true, correct and complete copies of all
such leases, including all amendments, modifications and renewals thereof. All
such leases are valid, binding and enforceable in accordance with their terms,
and are in full force and effect as of the date hereof and except as set forth
on Schedule 4.13, may be assigned to Buyer without consent pursuant to their
terms. There are no existing defaults by Sellers beyond any applicable grace
periods under such leases, and the Sellers have not received any notice of
default, except, in either case, for defaults (for which an applicable grace
period has not expired) which would not have a Material Adverse Effect.
4.14 Tangible Personal Property. All of the fixtures, machinery and
equipment reflected in the Preliminary Balance Sheet (the "Tangible Personal
Property") (a) to Seller's knowledge do not require repairs that would have a
Material Adverse Effect on the Business and (b) are in existence (except for
dispositions made in the ordinary course of business since the date of the
Preliminary Balance Sheet in the ordinary course of business and minor items not
substantial in character). Sellers have good title to, or hold by valid and
existing lease, all of the Assets, free and clear of all Liens, other than (i)
Permitted Liens and (ii) as reflected in any Contracts or Assumed Liabilities.
4.15 Proprietary Rights.
(a) Schedule 4.15 sets forth a list of all inventions which
are the subject of issued letters patent or an application therefor and all
trade and service marks which have
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been registered or for which an application for registration is pending, in each
case which are owned and used or licensed for use by the Sellers in the Business
(each a "Proprietary Right"), specifying as to each, as applicable: (i) the
nature of such Proprietary Right; (ii) the current owner of such Proprietary
Right; (iii) the jurisdictions by or in which such Proprietary Right has been
issued or registered or in which an application for such issuance or
registration has been filed, including the respective registration or
application numbers, if available; and (iv) material licenses, sublicenses and
other agreements to which the Sellers are a party and pursuant to which any
person is authorized to use such Proprietary Right.
(b) Except as set forth on Schedule 4.15, the Sellers (i) are
not a defendant in any claim, suit, action or proceeding which involves a claim
of infringement by the Business of any proprietary rights of other persons, and
(ii) do not have any knowledge of any adverse, potential claims affecting
ownership or unencumbered use of such Proprietary Rights. Except as disclosed on
Schedule 4.15, no Proprietary Right is subject to any outstanding order,
judgment, decree, stipulation or agreement restricting the use thereof by the
Sellers or restricting the licensing thereof by the Sellers to any person. Buyer
acknowledges that from time to time the products of the Business are sold and
services of the Business are rendered to customers whose purchase orders
sometimes contain agreements under which the Sellers may be required to defend,
indemnify and hold the customer harmless against any charge of patent, trademark
or copyright infringement and that the Uniform Commercial Code imposes a similar
obligation where the products were and are made to the specifications of the
customer. With the exception of the foregoing, and except as may be provided in
items disclosed on Schedule 4.9 or Schedule 4.15, the Sellers have not entered
into any special agreement to indemnify any other person against any charge of
infringement of any patent, trademark, service mark or copyright of the
Business.
4.16 Environmental Matters.
(a) For purposes of this Section 4.16 and where otherwise used
in this Agreement, the following terms shall have the indicated meanings:
"Environmental Law" means any and all prevailing and
applicable federal, state and local statutes, codes, rules, regulations,
permits, ordinances and orders of any governmental entity as of the Closing Date
relating to the storage, handling, disposal, treatment, investigation, Release,
potential Release, threatened Release, remediation or other regulation of
Hazardous Substances in any media, including but not limited to air,
groundwater, building interior, water or soil, including by way of example and
not limitation, CERCLA, ECRA, TSCA, and the Clean Water Act.
"Hazardous Substance" means any substance,
combination of substances, material, waste, gas or particulate matter which has
been determined to be a soil, water or air contaminant or which is regulated
under any prevailing and applicable Environmental Law, including, but not
limited to, any material or substance which is (i)
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defined in any Environmental Law as a 'hazardous waste', 'hazardous material',
'hazardous substance', 'extremely hazardous waste' or 'restricted hazardous
waste'; (ii) composed of petroleum; (iii) composed of material containing
asbestos in a friable form; or (iv) a polychlorinated biphenyl.
"Release" means any dumping, pouring, pumping,
emitting, leaching, spilling, disposal, spreading, leaking or discharging of any
Hazardous Substance into any media, whether soil, surface water, building
interior, groundwater, air or any combination of the foregoing.
(b) Except as set forth on Schedule 4.16:
(i) the Sellers have not received since January 1,
1992, any written notice from any governmental agency alleging or establishing
that the Business, Assets or Real Property is not in compliance with such
agency's requirements with respect to use by the Business, Assets or Real
Property, of any Hazardous Substance ("Citations") and (ii) there are no pending
or unresolved Citations against the Sellers;
(c) since January 1, 1992, Sellers have not received any
request for information, notice of claim, demand or notification that it is or
may be responsible for any threatened or actual Release of any Hazardous
Substance at any property currently or formerly owned or operated by Sellers;
(d) There has been no Release of any Hazardous Substance(s) by
the Business at any property currently owned or operated by the Sellers which is
not in compliance with applicable Environmental Law;
(e) There are no actual or potential claims for personal
injury or property damage arising out of Hazardous Substances Released by the
Business at, on, in or under any property currently or formerly owned or
operated by the Sellers; and
(f) the Business has obtained all environmental permits,
licenses and approvals and has filed all necessary notices regarding the
handling, storage, Release, processing or other use of Hazardous Substances
required by applicable Environmental Law and which are material to operation of
the business as currently conducted.
4.17 Permits and Licenses. The Sellers have all material permits,
licenses, franchises and other authorizations necessary for the conduct of the
Business, Assets and Real Property as currently conducted, all such permits,
licenses, franchises and authorizations, as listed on Schedule 4.17, are valid
and in full force and effect and the Business, Assets and Real Property are in
compliance with the terms and conditions of such permits except to the extent
that any such non-compliance, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect. All permits and
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licenses listed on Schedule 4.17 constitute all material permits and licenses
necessary to permit Sellers to lawfully conduct and operate the Business in the
manner currently conducted and operated and to own and use the Assets in the
manner Sellers currently own and use such Assets.
4.18 Insurance. The Sellers have listed on Schedule 4.18 all insurance
policies pursuant to which the Business and the Assets are insured as of the
date of this Agreement. Schedule 4.18 excludes, however, any insurance policies
related to Employee Benefit Plans or Benefit Arrangements. All of such policies
are in full force and effect. Except as set forth on Schedule 4.18 and except
for routine claims by employees, there are no material pending claims under such
insurance policies. Sellers have not to their knowledge failed to give any
material notice or present any material claim under any such policy or binder in
a due and timely fashion. Except for claims set forth in Schedule 4.18 and
except for routine claims by employees, there are no outstanding unpaid claims
under any such policy or binder. Sellers have not received a notice of
cancellation or non-renewal of any such policy or binder. There is no failure to
pay premiums thereon when due. To Seller's knowledge, there is no material
inaccuracy in any application for any such policy or binder or other similar
state of facts which would form the basis for termination of any such insurance.
4.19 Employees. (a) Schedule 4.19 contains a complete and accurate list
of the following information for each employee of the Business: employee name;
job classification; current compensation paid or payable and any change in
compensation outside the ordinary course of business since August 31, 1997.
(b) Schedule 4.19 or Schedule 4.9 lists all employment
contracts with employees of the Business to which any Seller is a party or by
which any Seller is bound. All of these employment contracts are in full force
and effect, and no Seller nor to Sellers knowledge any other party is in
material default under them. There have been no claims of defaults and, to the
knowledge of Sellers, there are no facts or conditions which if continued, or on
notice, will result in a default under these employment contracts.
(c) Except as set forth on Schedule 4.19 and except as
contemplated by Section 6.17 no employee of the Business, the loss of whom would
have a Material Adverse Effect on the Business, is a party to, or is otherwise
bound by, any agreement or arrangement, including any confidentiality,
noncompetition or proprietary rights agreement, between such employee and any
other person that in any way does or will materially adversely affect (i) the
performance of his duties as an employee of Sellers, or (ii) the ability of
Sellers to conduct the Business. To Sellers' knowledge, except for the
individuals named in Section 6.20 hereof and except as set forth in Schedule
4.19, no officer or other key employee of Sellers intends to terminate his
employment with Sellers.
4.20 Sufficiency of Assets. Except as set forth in Schedule 4.20 with
respect to services provided to Sellers by one or more of its direct or indirect
parent companies, the
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Assets owned or leased by the Sellers and included in the Assets, or which
Sellers otherwise have the right to use (a) constitute all of the assets held
for use or used in connection with the Business as of the date hereof, and (b)
are adequate to conduct the Business as currently conducted and financed. Within
U.S. Industries, Inc. and its affiliates, no entity other than Sellers
manufactures or sells golf clubs or other golf products.
4.21 Transactions with Affiliates. Since January 1, 1997, Sellers have
not engaged in any material transactions with, or had any material contractual
relationships with, any affiliate of Sellers except for (a) any of same on
arms-length terms or (b) any referred to or otherwise described in Schedule 4.20
or designated as such on Schedule 4.9.
4.22 No Material Omissions. The representations, warranties and
statements made by Sellers and Shareholder in this Agreement and in the
Schedules and Exhibit attached hereto do not contain any untrue statement of a
material fact and, when taken together, do not omit any statement of a material
fact necessary to make such representations, warranties and statements, in light
of the circumstances under which they are made, not misleading.
5. Representations and Warranties of Buyer. Parent and Buyer jointly
and severally represent and warrant to each Seller as follows:
5.1 Buyer's Organization. Each of Parent and Buyer is a corporation
duly organized, validly existing and in good standing under the laws of Delaware
and each has the full corporate power and authority to enter into and to perform
this Agreement.
5.2 Authorization of Agreement. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by each of Parent and Buyer have been duly authorized by all necessary corporate
action of Parent and Buyer and this Agreement constitutes the valid and binding
obligation of Parent and Buyer enforceable against each of them in accordance
with its terms, except to the extent enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights in general and subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law). Without limiting the generality of the foregoing, no vote or
consent of the shareholders of Parent is required (under Delaware law, NASDAQ
rules, the Parent's articles of incorporation or by-laws or otherwise) for the
valid execution, delivery and performance of this Agreement, including, without
limitation, the issuance of the Stock to Sellers, the issuance of the Underlying
Shares (as defined in Section 5.3) to Sellers and the filing of the Certificate
of Designation with the Secretary of the State of Delaware.
5.3 Capitalization. The authorized capital stock of Parent consists of
11,000,000 shares, (i) 10,000,000 of which are designated as Common Stock, of
which, on the date hereof, there were 2,187,500 shares issued and outstanding
and 801,000 shares reserved for issuance with respect to Stock Options and
1,687,000 shares reserved for issuance for
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Warrants and related securities (the "Warrants") and (ii) 1,000,000 of which are
divisible into such classes and series, with such designations, voting rights
and other rights and preferences as the Board of Directors of Parent (the "Board
of Directors") may from time to time determine (consistent with Article 4 of
Parent's Articles of Incorporation), of which, on the date hereof, there are no
shares issued or outstanding, and, except for the Preferred Stock, no shares
have been designated by the Board of Directors as to classes or series. Parent
has not within the last twelve (12) months acquired, redeemed or repurchased any
shares of the capital stock of Parent. Each of the shares of Common Stock and
Preferred Stock, and common stock underlying the Preferred Stock (the
"Underlying Shares"), when issued to Sellers, will be duly authorized, validly
issued, fully paid and non-assessable and will not be subject to any preemptive
rights, and will be free and clear of any and all Liens (defined in Section
4.13) or other restrictions, of any kind or nature. All issued and outstanding
shares are duly authorized, validly issued, fully paid and nonassessable and
have no preemptive rights. Except for the Stock Options granted pursuant to the
stock option plan or otherwise or Warrants to acquire common stock of the Parent
of not more than 2,488,000 shares, in the amounts and at the prices set forth on
Schedule 5.3 hereto, there are not now, and at the Closing there will not be any
existing options, warrants, calls, subscriptions, preemptive rights or other
rights or other agreements or commitments whatsoever directly or indirectly
obligating Parent to issue, transfer, deliver or sell or cause to be issued,
transferred, delivered or sold any additional shares of capital stock of Parent
or any other equity interest of any kind or nature whatsoever (including,
without limitation, any interest evidencing any equity in Parent or convertible
into any equity of the Parent, or any of its subsidiaries, or to acquire, redeem
or repurchase any shares of capital stock of the Parent or any of its
subsidiaries, or obligating the Parent or any of its subsidiaries to grant,
extend or enter into any such agreement or commitment. After taking into
consideration the issued and outstanding shares of Common Stock, the 1,000,000
shares of Common Stock to be issued to Sellers and the shares issuable with
respect to the Stock Options and the Warrants, there are sufficient authorized
shares of the Common Stock of Parent to be issued to Sellers in connection with
the exercise of the conversion rights with respect to the Preferred Stock.
The Underlying Shares have been reserved for issuance.
5.4 SEC Reports, Financial Statements, No Undisclosed Liabilities.
(a) Parent has timely filed all forms, reports and documents
with the Securities and Exchange Commission ("SEC") required to be filed by it
since January 1, 1996 pursuant to the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder (the "Securities Act") and the
Exchange Act and the rules and regulations promulgated thereunder (the "Exchange
Act") (collectively, the "SEC Reports"), all of which have complied, at the time
filed, in all material respects with all applicable requirements of the
Securities Act and the Exchange Act, as applicable, and the rules and
regulations promulgated thereunder. None of such SEC Reports, at the time filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated
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therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) The balance sheets and the related statements of
operations, cash flows and shareholders' equity (including the notes thereto) of
Parent and its subsidiaries contained or incorporated by reference in the SEC
Reports comply in all material respects with applicable accounting requirements
and with the published rules and regulations of the SEC with respect thereto,
and present fairly the financial position and Stockholders equity of the Parent
and its subsidiaries as of their respective dates, and results of their
operations and their cash flows for the periods presented therein subject to the
exceptions stated therein, in conformity with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis, (i) except as
otherwise noted therein, (ii) subject in the case of unaudited financial
statements to normal year-end audit adjustments, (iii) except that the unaudited
financial statements may not contain all of the footnote disclosures required by
GAAP and (iv) except with respect to Form 10-Q as may otherwise be permitted by
Form 10-Q. The sales of Buyer for the twelve months (12) ending September 30,
1997 have been less than Five Million Dollars ($5,000,000).
(c) Except to the extent reflected or reserved against in the
Parent's consolidated balance sheet as of June 30, 1997 (the "Parent's Balance
Sheet"), neither Parent nor any of its subsidiaries had, as of the date of such
Parent Balance Sheet, any liabilities, debts or obligations (whether absolute,
accrued, contingent or otherwise) of any nature that would be required as of
such date to have been included on a balance sheet, or in the notes thereto,
prepared in accordance with GAAP. Except as disclosed in Schedule 5.5, since the
date of the Parent's Balance Sheet, neither Parent nor any of its subsidiaries
has incurred any liabilities, debts or obligations (whether absolute, accrued,
contingent or otherwise) of any nature that would be required to be included on
a balance sheet, or in the notes thereto, prepared in accordance with GAAP,
except for liabilities, debts or obligations incurred in the ordinary course of
business. Except as set forth in Schedule 5.4, there is, to the knowledge of
Parent, no contingent liabilities of Parent or its subsidiaries except as
disclosed in footnotes to Parent's Balance Sheet.
5.5 No Material Adverse Change. Since the date of the Parent Balance
Sheet, Parent has been operated in the ordinary course and, except as set forth
in Schedule 5.5 or contemplated by Schedule 5.4, there has not been (a) any
change in the business, financial condition, or results of operations of Parent
that has had or could reasonably be expected to have a Material Adverse Effect,
(b) any change in any of the assets or any change in the manner of conducting
the business of Parent that has had or could reasonably be expected to have a
Material Adverse Effect; (c) and there has not occurred any of the other matters
referred to in Sections 4.5(c) through Section 4.5(g), as such provisions apply
to Parent and its assets and business (rather than Sellers, the Assets and the
Business); or (d) any agreement made by Parent to take any action that will
cause any representation or warranty in this Section 5.5 or Section 5.4 as to
the absence of liabilities to be untrue or incorrect.
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5.6 Consents of Third Parties. The execution, delivery and performance
of this Agreement by each of Parent and Buyer will not (i) violate or conflict
with the certificate of incorporation, by-laws or other constitutional documents
of Parent or Buyer; (ii) conflict with, or result in the breach or termination
of, or constitute a default under (whether with notice or lapse of time or
both), or accelerate or permit the acceleration of the performance required by,
any indenture, mortgage, lien, lease, agreement, commitment or other instrument
or any order, judgment or decree, to which Parent or Buyer is a party or by
which Parent or Buyer or any property of either of them is bound; or (iii)
constitute a violation of any law, regulation, order, writ, judgment, injunction
or decree applicable to Parent or Buyer, other than violations, conflicts,
breaches, terminations, accelerations and defaults specified in the foregoing
clauses (ii) and (iii) which could not reasonably be expected to have a Material
Adverse Effect on Parent or Buyer's ability to perform its obligations under
this Agreement. No consent, approval or authorization of any governmental
authority is required on the part of Parent or Buyer in connection with the
execution, delivery and performance of this Agreement.
5.7 Litigation. There are no judicial or administrative actions,
proceedings or investigations pending or, to the best of Parent or Buyer's
knowledge, threatened, that question the validity of this Agreement or any
action taken or to be taken by Parent or Buyer in connection with this
Agreement. There is no litigation, proceeding or governmental investigation
pending or, to the best of Parent or Buyer's knowledge, threatened, or any
order, injunction or decree outstanding, against Parent or Buyer that, if
adversely determined, would have a Material Adverse Effect upon Parent or Buyer
or its ability to perform its obligations under this Agreement.
5.8 Financing. Buyer will at the Closing have all funds necessary to
pay the Purchase Price and related fees and expenses. Buyer will at the Closing
have the financial capacity to perform all of its other obligations under this
Agreement and the closing documents to be executed hereunder. Buyer, immediately
after the Closing, will be solvent, will be able to meet its obligations and
debts as they become due, the value of Buyer's assets at such time will exceed
Buyer's liabilities, and Buyer will have adequate capital for the conduct of its
business and the Business.
5.9 Transactions With Affiliates. Except as set forth in the Parent's
filings under the Exchange Act and except for the payment of salary and bonus in
the ordinary course of business, since January 1, 1996 neither Buyer nor Parent
has engaged in any transaction with, or has had any contractual relationship
with, any executive officer of Buyer or Parent or any other affiliate of Buyer
or Parent.
5.10 Section 203 of the DCGL Not Applicable. The Board of Directors of
the Parent has, prior to the execution of this Agreement, (i) approved the
execution, delivery and performance by the Parent of this Agreement including
the acquisition of Common Stock and Preferred Stock by Sellers, the execution,
delivery and performance of the Certificate of
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Designation in the form of Exhibit A (the "Certificate of Designation"), and the
other transactions contemplated by each of this Agreement and the Certificate of
Designation, and such approval was and is fully sufficient to render
inapplicable to (a) this Agreement, including the acquisition of Common Stock
and Preferred Stock by Sellers, (b) the Certificate of Designation relating to
the Preferred Stock and (c) the other transactions contemplated hereby and
thereby, the restrictions of Section 203 of the Delaware General Corporation Law
(the "DGCL") including Section 203(a). Other than Section 203 of the DGCL, (y)
no state takeover statute or similar statute or regulation of the State of
Delaware (and, to the knowledge of the Parent after due inquiry, of any other
state or jurisdiction) applies or purports to apply to this Agreement, the
Certificate of Designation or any of the other transactions contemplated hereby
or thereby and (z) no provision of the certificate of incorporation, by-laws or
other governing instruments of the Parent or any of its subsidiaries or the
terms of any rights plan or any document to which Parent is a party or by which
it is bound or subject would, directly or indirectly, restrict or impair the
ability of Sellers to vote, or otherwise to exercise the rights of a stockholder
with respect to Common Stock or Preferred Stock or any other securities of the
Parent that may be acquired by Seller or permit any stockholder to acquire
securities of the Parent on a basis not available to Sellers in the event that
Sellers were to acquire securities of the Parent (including the Stock).
5.11 No Material Omissions. The representations, warranties and
statements made by Parent and Buyer in this Agreement and in the Schedules and
Exhibit attached hereto do not contain any untrue statement of a material fact
and, when taken together, do not omit any statement of a material fact necessary
to make such representations, warranties and statements, in light of the
circumstances under which they are made, not misleading.
6. Further Agreements of the Parties.
6.1 Access to Information. Prior to the Closing, Buyer may make such
investigation of the business and properties of the Sellers as Buyer may desire,
and upon reasonable notice, Sellers shall give to Buyer and its counsel,
accountants and other representatives reasonable access, during normal business
hours throughout the period prior to the Closing, to the property, books,
commitments, agreements, records, files and personnel of the Sellers, and
Sellers shall furnish to Buyer during that period all copies of documents and
information concerning the Business as Buyer may reasonably request subject to
applicable law. Buyer shall hold, and shall cause its counsel, accountants and
other agents and representatives to hold, all such information and documents in
accordance with, and subject to the terms of, the confidentiality agreement
previously executed by Buyer with respect to this transaction. To the extent
reasonably requested by Sellers, Buyer shall provide Sellers with similar access
as is provided for above in this Section 6.1.
6.2 Conduct of the Business Pending the Closing. Until the Closing,
except as otherwise set forth in Schedule 6.2 or contemplated by this Agreement,
Sellers shall comply with the provisions set forth below with respect to the
Business:
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(a) The Sellers shall operate the Business in the ordinary
course and in the manner consistent with its prior practice;
(b) Except as provided for under the existing Employee Benefit
Plans and Benefit Arrangements, as defined below, the Sellers shall not (i)
grant or agree to grant any bonuses to any employee, (ii) grant any general
increase in the rates of salaries or compensation of its employees or any
specific increase to any employee except such as are in accordance with
regularly scheduled periodic increases, or (iii) provide for any new pension,
retirement or other employment benefits to any of its employees or any increase
in any existing benefits, except as required by applicable law or an existing
commitment;
(c) The Sellers shall not amend any of their certificates of
incorporation or by-laws which amendment would have an adverse effect on this
transaction, issue any shares of capital stock or enter into any merger or
consolidation agreement;
(d) The Sellers shall use reasonable efforts to maintain and
preserve the Business intact, to retain the present employees of the Business so
that they will be available to Buyer after the Closing except for the services
of the individuals named in Section 6.20 and as contemplated by Schedule 4.19
and to maintain their relationships with customers, suppliers and others in
connection with the Business so that those relationships will be preserved after
the Closing;
(e) The Sellers shall not sell, assign, voluntarily encumber,
grant a security interest in or license with respect to, or dispose of, any of
the material assets or properties, tangible or intangible, related to the
Business or incur any material liabilities related to the Business, except for
sales and dispositions made, or liabilities incurred, in the ordinary course of
business; and
(f) Sellers shall maintain in full force and effect all
insurance currently maintained by Sellers with respect to the Business and the
Assets.
6.3 Employee and Employee Benefit Matters.
(a) Employment of Employees at Closing. On the Closing Date
Buyer shall (i) offer to employ the Employees, on an at-will basis, at the same
compensation levels and on substantially the same other terms and conditions of
employment in effect as of the Determination Time; and (ii) except as provided
below in this Section 6.3(a) and in the last sentence of Section 6.3(b), assume
sponsorship of the Employee Benefit Plans and Benefit Arrangements except for
the USI Stock Option Plan. The preceding sentence shall not require that after
the Closing Date Buyer continue to employ such Employees, or continue to employ
such Employees at the same compensation levels or otherwise on substantially
similar terms and conditions of employment, in effect as of the Determination
Time provided that the foregoing shall not in any manner impair or otherwise
reduce the assumption of liability
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relating to COBRA and life insurance required to be made pursuant to the
preceding sentence. Notwithstanding clause (ii) above Buyer shall not be
required to assume or continue sponsorship of the Employee Benefit Plans which
provide life, health and medical benefits, including COBRA, if Buyer establishes
its own plans (the "Buyer's Plans") and Buyer's Plans assumes all liabilities
relating to COBRA and life insurance relating to the Employees and the Other
Participants and provides benefits which are substantially similar to the
benefits provided in such Employee Benefit Plans (provided that without in any
manner impairing or otherwise reducing the assumption of liabilities required to
be made pursuant to this sentence, this sentence shall not require Buyer to
provide after the Closing Date benefits which are substantially similar). With
respect to Employees, solely for the benefit of Sellers and not any Employees,
Buyer hereby agrees to indemnify Sellers from any and all termination or
severance liability (including, without limitation, any liability related to or
arising out of the Worker Adjustment and Retraining Notification Act, 29 U.S.C.
2101 et seq., the continuation coverage rules of Section 4980B of the Internal
Revenue Code and part 6 of Subtitle B of Title I of ERISA ("COBRA"), and any
similar state and local laws), and Buyer hereby agrees to indemnify Sellers from
any liabilities arising out of the Employee Benefit Plans and Benefit
Arrangements and COBRA in relation to the Other Participants after the
Determination Time. Sellers agree that with respect to COBRA, to the extent that
Sellers' insurance carrier will not permit the assumption of any Employee
Benefit Plan (which includes the continuation of insurance) by Buyer with
respect to COBRA claims respecting Employees and Other Participants and Buyer
cannot obtain insurance regarding such COBRA claims at reasonable premiums,
Buyer shall not be required to assume such Employee Benefit Plan provided that
Buyer shall reasonably cooperate with Sellers after the Closing to permit such
assumption to be made. To the best of Seller's knowledge all Employee Benefit
Plans and Arrangements can be amended on a prospective basis and terminated
prospectively without material liability except for liabilities existing on the
date of such termination or amendment.
(b) Transfer of Assets of the Pension Plans. Subject to the
last sentence of this Section 6.3(b), after the Closing Date, Sellers shall
cause the assets related to those Pension Plans held in trust and listed on
Schedule 6.3 to be transferred to a successor trust or trusts or other funding
medium established by Buyer (the "New Pension Trusts"), such New Pension Trusts
to remain in existence for a minimum period of two (2) years after the Closing
Date. Such transfer shall occur as soon as reasonably practicable following
receipt by Sellers of (i) notification from Buyer that the applicable New
Pension Trusts have been established, (ii) an opinion from counsel (or an
opinion from a bank trustee or trustee of a similar financial institution) to
Buyer that such New Pension Trusts meet the requirements of Section 401(a),
401(k), if applicable, and 501(a) of the Code, and (iii) a similar opinion from
counsel (or an opinion from a bank trustee or trustee of a similar institution)
to Sellers with respect to the Pensions Plans, and at least thirty (30) days
have elapsed after the filing of any required Form 5310 with respect to the
transfer of assets of the Pension Plans. Subject to Section 414(1) of the Code,
the amount of assets transferred from any trust in which a Pension Plan is
invested prior to the Closing Date shall be equal to the fair market value of
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the assets related to the Plan on the date of transfer. The assets to be
transferred pursuant to this Section 6.3 shall be in a form determined by the
Sellers in its reasonable discretion (subject to its fiduciary obligations
imposed by law); provided, that Sellers shall use their reasonable efforts to
utilize cash, unless, with respect to the Pension Plans that are defined
contribution plans, Buyer and Seller otherwise agree. Notwithstanding the
foregoing, with respect to the assets held in the fixed income fund of any
defined contribution Pension Plan, Sellers shall direct the trustee to spin off
cloned contracts from such guaranteed investment contracts and similar
investments as will produce a substantially equivalent rate of return as under
the fixed income fund, to the extent practicable. If no cloned contract can be
obtained within three (3) months of the Closing Date, the Sellers shall transfer
the aggregate then fair market value of the Pension Plans' investment in such
contract to the applicable New Pension Trusts in cash or in such other
marketable instruments as the Sellers and Buyer mutually agree. To the extent
the process of obtaining the cloned contract extends beyond the date the balance
of the assets of such Pension Plan are transferred, Sellers shall not charge any
administration expenses to the Buyer under Section 6.3(c) below. Buyer may elect
prior to the Closing (by giving at least two business days notice prior to the
Closing) to not assume sponsorship of either the Seller's defined benefit plan
and/or Seller's 401K Plan (the "Pension Plans"), in which case Sellers shall not
cause the transfer of assets contemplated by this Section 6.3(b) to be made and
any and all entries relating to the Pension Plans shall be deleted on the Final
Balance Sheet (including, without limitation, any liability relating to any
underfunding of any Pension Plan).
(c) Interim Administration of Pension Plans. Prior to the
transfer of the assets of the Pension Plans to the New Pension Trusts pursuant
to Section 6.3(b), Sellers shall continue the administration of the Plans. For
purposes of the preceding sentence, "administration of the Plans" shall include
all actions required in the ordinary course of administration or the proper
maintenance of the Pension Plans including, but not limited to, the payment of
all benefits or other distributions to participants required by the provisions
of such plans; provided, however, that "administration of the Plans" shall not
include any employer or sponsor contributions which are or may be required to be
made to such Plans. As consideration for Sellers' obligation to continue the
administration of such Plans, Buyer agrees for a one hundred twenty (120) day
period following the Closing Date to reimburse Seller, in accordance with past
practice and upon the delivery of proper invoices identifying the applicable
plan and services provided, for all out-of-pocket expenses incurred by Sellers
in administration of the plans including, but not limited to, the routine fees
charged by the Pensions Plans' trustees, actuaries or third-party
administrators. If the transfer to the New Pension Trusts has still not occurred
by the end of the one hundred twenty (120) day period referred to in the
preceding sentence, Buyer shall continue to reimburse Seller for the applicable
portion of all fees incurred by the Sellers in the administration of plans and,
if the transfer has not occurred because of the failure of Buyer to satisfy the
requirements of Section 6.3(b) above, the Buyer shall in addition pay the Seller
$200 for each business day after the date of the expiration of the one hundred
twenty (120) day period until the transfer
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to the New Pension Trusts has occurred, unless the transfer has not occurred
through the failure of Sellers to satisfy their responsibilities under Section
6.3(b) of this Agreement.
(d) Sellers and Buyer agree to provide each other with such
records and information as they may reasonably request in order to carry out
their respective obligations under this Section 6.3. During the period following
the Closing and prior to the transfer of assets of the Pension Plans to the New
Pension Trusts pursuant to Section 6.3(b), Sellers shall promptly forward to
Buyer any correspondence or written communications received with respect to any
Pension Plan. The parties shall cooperate in making any filings required in
connection with the matters contemplated by this Section 6.3.
6.4 Registration of Stock. Buyer agrees to prepare and file with the
Securities and Exchange Commission a registration statement respecting the
resale of the Common Stock, the Preferred Stock and the common stock issuable
upon conversion of the Preferred Stock as soon as practicable after the Closing,
all pursuant to the Registration Agreement (defined in Section 8.2 hereof).
6.5 Other Action. Each of the parties shall use its best efforts to
cause the fulfillment at the earliest practicable date but, in any event, prior
to the Closing Date, of all of the conditions to their respective obligations to
consummate the transactions under this Agreement.
6.6 Notices. Each party shall promptly notify the other party in
writing of, and furnish to such party any information that such party may
reasonably request with respect to, the occurrence of any event of the existence
of any state of facts known to such party that would (a) result in the party's
representations and warranties not being true if they were made at any time
prior to or as of the Closing Date, or (b) impair the party's ability to perform
its obligations under this Agreement.
6.7 Expenses. Except as otherwise specifically provided in this
Agreement, Buyer and Sellers shall bear their own respective expenses incurred
in connection with this Agreement and in connection with all obligations
required to be performed by each of them under this Agreement.
6.8 Publicity. Buyer and Sellers shall consult with each other before
issuing any press release concerning the transactions contemplated by this
Agreement and, except as may be required by applicable law or any listing
agreement with or regulation or rule of any stock exchange on which the
securities of the Parent or Sellers' parent are listed or traded, will not issue
a press release prior to such consultation. If Buyer or Sellers are so required
to issue a press release they shall use their best efforts to inform the other
party hereto prior to issuing it.
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6.9 Transfer Taxes. Any sales taxes, real property transfer taxes, or
recording fees payable as a result of the sale or transfer of the Assets or any
other action contemplated by this Agreement shall be paid one-half by the Buyer
and one-half by Sellers.
6.10 Supplement to Disclosures. For purposes of determining the
accuracy of the representations and warranties of Sellers contained in Article 4
and the fulfillment of the conditions precedent set forth in Section 7.1(a), the
Schedules delivered by Sellers shall be deemed to include only that information
contained therein on the date of this Agreement as the same may be amended or
supplemented by Sellers with Buyer's consent (which shall not be unreasonably
withheld) prior to the Closing Date.
6.11 Preservation of Records. Buyer agrees, at its own expense, that it
(a) shall preserve and keep the records of the Sellers for a period of seven (7)
years from the Closing, or for any longer periods as may be required by any
government agency or ongoing litigation, and (b) shall make such records
available to Sellers as may be reasonably required by Sellers. In the event
Buyer wishes to destroy such records after the time specified above, it shall
first give sixty (60) days' prior written notice to Sellers and Sellers shall
have the right at its option and expense, upon prior written notice given to
Buyer within that sixty (60) day period, to take possession of the records
within ninety (90) days after the date of Sellers' notice to Buyer.
6.12 Certain Post-Closing Assistance by the Buyer.
(a) Buyer agrees to cause the appropriate personnel, at no
cost or expense to Sellers, to prepare or assist Sellers in preparing, at
Sellers' election, all customary accounting, tax, employment, benefits-related
and similar reports for the Sellers for periods up to the Closing Date which are
reasonably requested by Sellers. Sellers shall provide reciprocal assistance to
Buyer.
(b) Buyer agrees to cause the appropriate personnel to assist
Sellers in the prosecution or defense of any claims and litigation (including
counterclaims and tax refund claims filed by the Sellers) for which Sellers have
indemnified Buyer hereunder or which Buyer has not assumed, provided that such
assistance does not unreasonably disrupt the ordinary business operations of the
Business. Such services shall be rendered by the Buyer to the Sellers at no cost
and expense to Sellers except that (i) Sellers shall reimburse the Buyer for any
reasonable out-of-pocket travel and similar expenses incurred by Buyer's
personnel in performing these functions, and (ii) Sellers shall pay all
reasonable outside counsel fees and other reasonable fees and expenses for
services performed by third parties in defending the interests of Sellers or the
interests of the Business for which Sellers have indemnified Buyer hereunder.
Buyer agrees promptly to pay to Sellers upon receipt any amount collected by
Buyer in connection with any action, suit or proceeding for which Sellers have
agreed to indemnify Buyer under Section 9.1(a). Sellers shall provide reciprocal
assistance to Buyer.
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6.13 No Amendments of Preferred Stock Provisions. Parent shall not
directly or indirectly amend, modify or otherwise alter its Articles of
Incorporation or the Certificate of Designation so as to directly or indirectly
amend, modify, otherwise alter or adversely affect any of the rights of the
holders of the Preferred Stock provided for in such Certificate of Designation
as of the Closing Date without the express prior written consent of the holders
of Preferred Stock in accordance with the Certificate of Designation, including,
without limitation, by filing any additional certificate of designation which
Parent would be empowered to file in the absence of this Section 6.14.
6.14 Treasury Matters.
(a) Sellers shall continue to cause the funding of the
Sellers' checks, in accordance with past practices, which are presented for
payment through the day prior to the Closing Date. Sellers shall have no
obligation to fund checks which are presented for payment on and after the
Closing Date, provided that there is an accrual on the Final Balance Sheet
therefor. Buyer shall assume all of the bank accounts of the Business on the
Closing Date and be prepared to fund the above-mentioned checks which are
presented for payment on and after the Closing Date. Amounts received in the
lockbox and depository accounts of the Business through the Determination Time
shall be retained by Sellers notwithstanding that, consistent with past
practices, such collections may not be credited to Sellers or their affiliates
until or after the Closing Date and shall constitute an Excluded Asset.
(b) Sellers are party to or financially supported by certain
letters of credit, bonding arrangements and/or guarantees, related to the
Business, in respect of which Sellers or their affiliates are subject to
continuing obligations (the "Credit Support Documents"). The parties shall use
their reasonable best efforts to terminate the Credit Support Documents as soon
as practicable after the Closing. Buyer shall cause the obligations which are
secured by the Credit Support Documents and which relate to Buyer's operation of
the Business after the Closing to be discharged in such a manner that Sellers
and their affiliates will not be required to make any payments under the Credit
Support Documents in relation thereto. Should any such payments be required and
paid, Buyer shall reimburse the party making payment upon demand. To the extent
Buyer makes any such reimbursement, Buyer will be subrogated to the rights of
Sellers in connection with such reimbursements. It is agreed that Buyer shall
not have any right to incur any new obligations secured or supported by the
Credit Support Documents after the Closing.
6.15 Use of Trade Names and Trademarks. On and after the Closing, Buyer
shall not have any right, title or interest in and to, nor shall Buyer use, the
name "U.S. Industries" or any derivation of such name, or any trade name, logo
or trademark containing or using such name. Promptly after the Closing, each
Seller whose name contains the words "Tommy Armour" shall change its name to a
name which does not include such words or any confusingly similar combination or
derivation of its present name and, from and after the
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Closing, Sellers shall have no further right to use such words as or in any
trade name, logo or trademark.
6.16 D&O Insurance. During the period in which Sellers are entitled to
have a nominee elected to Parent's Board pursuant to this Agreement Parent will
cause to be maintained Parent's current directors' and officers' insurance and
indemnification policy ("D&O Insurance") (or at Parent's option a replacement
policy having terms no less advantageous than Parent's current policy) so long
as the annual premium therefor would not be in excess of 150% of the last annual
premium paid prior to the date of this Agreement (the "Maximum Premium"). If the
annual premium would be in excess of the Maximum Premium or the existing D&O
Insurance expires, is terminated or is cancelled during such period, Parent will
use reasonable efforts to cause to be obtained as much D&O Insurance as can be
obtained for the remainder of such period for an annualized premium not in
excess of the Maximum Premium, on terms and conditions no less advantageous than
the existing D&O Insurance.
6.17 Callaway Non-Competition Obligations. Buyer and Parent represent
and warrant that their current conduct of their business would not violate the
non-competition obligations arising out of the contracts listed in Schedule 6.17
(the "Non-Competition Obligations") if they were as of the date hereof bound by
same. Buyer agrees that it will not engage in any activities that would breach
the Non-Competition Obligations or fail to take any actions that would breach
the Non-Competition Obligations. During any period that the ownership interest
in Parent by Seller and/or its affiliates causes the Non-Competition Obligations
to be applicable to the Parent, Parent agrees that it will not engage in any
activities that would result in a breach of the Non-Competition Obligations or
fail to take any actions that will breach the Non-Competition Obligations.
Without limiting the generality of the preceding provisions of this Section 6.17
or Section 9.2(f), each of Buyer and Parent acknowledges that the
Non-Competition Obligations are severable as provided for in the contracts
listed in Schedule 6.17 and agrees that the provisions thereof and this Section
6.17 may be enforced by specific performance.
6.18 Board Seat. So long as the Sellers or their affiliates
collectively own more than (a) 200,000 shares of Parent's Common Stock (as
adjusted for reverse stock splits, stock splits and similar matters), Parent
will cause a nominee of Sellers ("Nominee") to be elected to Parent's Board, and
(b) 400,000 shares of Parent's common stock (as adjusted for reverse stock
splits, stock splits and similar matters), Parent will, at Sellers' written
request permit an observer of Sellers to attend the meetings of the Board of
Directors of the Parent (provided that Parent shall not be liable for the
expenses of such observer in connection therewith). In case any Nominee is no
longer a director for any reason, including, without limitation, a resignation,
removal for cause or otherwise, Sellers shall have the right to designate a
replacement Nominee and Parent shall cause such Nominee to be elected to the
Parent's Board of Directors. No Nominee of Sellers shall be removed from
Parent's Board
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of Directors except for cause. The Parties agree to enter into other reasonable
arrangements after the signing hereof to implement the provisions contained in
this Section 6.18
6.19 Restrictions on Sale of Stock. Sellers agree that for the period
beginning on the Closing Date and ending 120 days thereafter, Sellers will not
directly or indirectly sell, hypothecate, pledge or otherwise transfer the
Stock.
6.20 Non-Solicitation. For a period of 2 years commencing on the
Closing Date, Sellers shall not directly or indirectly solicit the services of
any Employee other than Jim Craft or Dan Schaeffer.
6.21 Financial Statements. Sellers shall cooperate with Buyer in
connection with the preparation of audited financial statements of the Business
that are required to be included in Buyer's filing on Form 8-K under the
Exchange Act or any Registration Statement or post-effective amendment to a
Registration Statement, prior to the expiration of applicable time periods for
which such filings must be made. Seller shall use its reasonable best efforts to
cause all work that Price Waterhouse has done to date relating to the periods
prior to the Closing Date on Seller's behalf to be provided to Buyer for its and
its accountant's use at no cost to Buyer. Buyer and Sellers shall each be
responsible for one-half of any additional accounting fees incurred in
connection with the preparation of such audited financial statements.
6.22 Location of Assets. Prior to the closing Sellers shall generally
identify to Buyer where the Assets are located.
7. Conditions of Closing.
7.1 Conditions Precedent to Obligations of Buyer. The obligation of
Buyer to consummate the purchase under this Agreement is subject to the
fulfillment, prior to or at the Closing, of each of the following conditions
(any or all of which may be waived by Buyer):
(a) all representations and warranties of Sellers and
Shareholder contained in this Agreement shall have been true and correct in all
material respects when made, and shall be true and correct in all material
respects at and as of the time of the Closing with the same effect as though
made again at, and as of, that time;
(b) Sellers and Shareholder shall have performed and complied
with in all material respects all obligations and covenants required by this
Agreement to be performed or complied with by Sellers and Shareholder prior to
or at the Closing;
(c) Buyer shall have been furnished with the documents
referred to in Section 8.1;
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(d) the Assets shall have not been materially adversely
affected as a result of any fire, accident, storm or other casualty or labor or
civil disturbance or act of God or the public enemy;
(e) no provision of any applicable law or regulation shall
prohibit, and there shall not be in effect any injunction or restraining order
issued by a court of competent jurisdiction in any action or proceeding against
the consummation of the sale and purchase of the Assets pursuant to this
Agreement.
7.2 Conditions Precedent to Obligations of Sellers. The obligation of
Sellers to consummate the sale under this Agreement is subject to the
fulfillment, prior to or at the Closing, of each of the following conditions
(any or all of which may be waived by Sellers):
(a) all representations and warranties of Buyer and Parent
contained in this Agreement shall have been true and correct in all material
respects when made, and shall be true and correct in all material respects at
and as of the time of the Closing with the same effect as though made again at,
and as of, that time;
(b) Buyer and Parent shall have performed and complied with in
all material respects all obligations and covenants required by this Agreement
to be performed or complied with by Buyer and Parent prior to or at the Closing;
(c) Sellers shall have been furnished with the documents
referred to in Section 8.2;
(d) no provision of any applicable law or regulation shall
prohibit, and there shall not be in effect any injunction or restraining order
issued by a court of competent jurisdiction in any action or proceeding against
the consummation of the sale and purchase of the Assets pursuant to this
Agreement, including the purchase of the Stock.
8. Documents to be Delivered at the Closing.
8.1 Documents to be Delivered by Sellers. At the Closing, Sellers and
Shareholders shall deliver, or cause to be delivered, to Buyer the following:
(a) one or more executed deeds (in a mutually satisfactory
form), bills of sale, instruments of transfer of bank accounts listed in
Schedule 8.1, assignments of intellectual property, instruments of assignment or
certificates of title, dated the Closing Date, transferring to Buyer all of the
Sellers' right, title and interest in and to the Assets together with possession
of the Assets;
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(b) documents evidencing the assignment and assumption of the
assignable Contracts referred to in Section 1.3 and the assignment of any
assignable permits and licenses referred to in Section 1.4;
(c) a copy of resolutions of the board of directors of each
Seller and Shareholder authorizing the execution, delivery and performance of
this Agreement by each Seller and Shareholder and a certificate of the secretary
or assistant secretary of each Seller and Shareholder, dated the Closing Date,
that such resolutions were duly adopted and are in full force and effect;
(d) a certificate, dated the Closing Date, executed by an
officer of each Seller and Shareholder certifying to the fulfillment of the
conditions specified in Sections 7.1(a) and 7.1(b);
(e) a favorable opinion of the General Counsel or Associate
General Counsel to each Seller and Shareholder, subject to customary
qualifications and limitations, as to the due execution and delivery of this
Agreement and the documents delivered by each Seller and Shareholder at the
Closing and as to the matters set forth in Sections 4.1 and 4.2, and, to the
best of such counsel's knowledge, Sections 4.3 and 4.12;
(f) the affidavit of Sellers required by Section 1445(b)(2) of
the Code; and
(g) such documentation and instruments as are reasonably
requested by the title insurance company insuring Buyer's title to the Real
Property.
8.2 Documents to be Delivered by Buyer. At the Closing, Parent and
Buyer shall deliver, or cause to be delivered, to Sellers the following:
(a) payment and evidence of the wire transfer referred to in
Section 2.3(b);
(b) certificates evidencing the Common Stock and certificates
evidencing the Preferred Stock, in form reasonably acceptable to Sellers and
free and clear of all Liens and other restrictions of any kind or nature;
(c) evidence reasonably satisfactory to Sellers that the
Certificate of Designation of Parent substantially in the form of Exhibit A has
been executed, filed with the Secretary of State of Delaware and is in full
force and effect;
(d) the additional consideration, if any, payable or
deliverable pursuant to Section 2.1(b);
(e) evidence reasonably satisfactory to Sellers that there has
been compliance with Section 5.10 hereof;
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(f) if requested by Sellers, a Nominee of Sellers has been
elected to Parent's board of directors;
(g) the Registration Agreement in a form reasonably
satisfactory to Sellers (the "Registration Agreement");
(h) documents evidencing the assignment and assumption of the
assignable Contracts referred to in Section 1.3, the acceptance of assignable
permits and licenses in accordance with Section 1.4, and the assumption of the
Assumed Liabilities in accordance with Section 1.5, as required;
(i) a copy of resolutions of the boards of directors of Parent
and Buyer authorizing the execution, delivery and performance of this Agreement
by Parent and Buyer and a certificate of the secretary or assistant secretary,
dated the Closing Date, of Parent and Buyer that such resolutions were duly
adopted and are in full force and effect;
(j) a certificate, dated the Closing Date, executed by an
officer of Parent and Buyer certifying to the fulfillment of the conditions
specified in Sections 7.2(a) and 7.2(b) and 8.2(c); and
(k) a favorable opinion of counsel to Buyer and Parent,
subject to customary qualifications and limitations, as to the due execution and
delivery of this Agreement and the documents delivered by Buyer and Parent at
the Closing and as to the matters set forth in Sections 5.1, 5.2, the third
sentence of Section 5.3 and related matters and Section 5.10 and, to the best of
such counsel's knowledge, Sections 5.6 and 5.7.
9. Indemnification and Related Matters.
9.1 Indemnification.
(a) Subject to the provisions of this Article 9, Sellers and
Shareholder, jointly and severally agree to indemnify and hold Buyer and its
affiliates, predecessors, successors and assigns (and their respective officers,
directors, employees and agents) harmless from and against all actions, suits,
proceedings, claims, demands, assessments, judgments, damages, costs and
expenses, in excess of the aggregate of any reserves or accruals on the Final
Balance Sheet, including reasonable attorneys' fees arising or resulting from
the following (except to the extent same constitute Assumed Liabilities):
(i) a material breach of any representation or
warranty on the part of each Seller or the Shareholder under the terms of this
Agreement or any other document executed by Sellers pursuant hereto;
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(ii) non-fulfillment of any agreement on the part of
each Seller or Shareholder under the terms of this Agreement or any other
document executed by each Seller or Shareholder pursuant hereto;
(iii) Environmental Claims, to the extent and in the
manner set forth in Section 9.5; and
(iv) any claim, demand, action, suit or proceeding
with respect to the Business relating to the affairs of the Business prior to
the Closing Date (other than Environmental Claims), including, without
limitation, the pending litigation, threatened claims and charges listed on
Schedule 4.10 and Schedule 4.12.
(b) Subject to the provisions of this Article 9, Buyer and
Parent, jointly and severally, agree to indemnify and hold each Seller,
Shareholder and their respective affiliates, predecessors, successors and
assigns (and their respective officers, directors, employees and agents)
harmless from and against all actions, suits, proceedings, claims, demands,
assessments, judgments, damages, costs and expenses, including reasonable
attorneys' fees arising or resulting from the following:
(i) a material breach of any representation or
warranty on the part of Parent or Buyer under the terms of this Agreement or any
other document executed by Parent or Buyer pursuant hereto;
(ii) non-fulfillment of any agreement on the part of
Parent or Buyer under the terms of this Agreement or any other document executed
by Parent or Buyer pursuant hereto (for all purposes of this Agreement,
including, without limitation, this Section 9.1(b)(ii), and Section 9.2(d) all
of the provisions in the Certificate of Designation relating to the Preferred
Stock shall be deemed to be agreements on the part of Parent as fully as if each
such provision were set forth in full in this Agreement (the "Preferred Stock
Provisions"));
(iii) Environmental Claims, to the extent and in the
manner set forth in Section 9.5; and
(iv) any and all other actions, suits or proceedings
commenced or any other claims or demands asserted against any Seller after the
Closing Date with respect to the Business (excluding Environmental Claims)
except for those claims, demands, actions, suits and proceedings which are the
responsibility of the Sellers under Section 9.1.
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9.2 Determination of Damages and Related Matters.
(a) In calculating any amounts payable to Buyer or any other
indemnitee pursuant to Sections 9.1(a) or 9.5 or payable to Sellers or any other
indemnitee pursuant to Sections 9.1(b) or 9.5, (i) Sellers or Buyer, as the case
may be, shall receive credit for (y) any reduction in actual tax liability as a
result of the facts giving rise to the claim for indemnification, and (z) any
insurance recoveries, and (ii) no amount shall be included for Parent's, Buyer's
or Sellers', as the case may be, special or consequential damages.
(b) Buyer acknowledges and agrees that Buyer and its
representatives have had access to such of the information and documents and to
such of the real property, fixtures and tangible personal property of the
Business as Buyer and its representatives shall have requested to see and/or
review; that Buyer and its representatives have had a full opportunity to meet
with appropriate management and employees of each Seller to discuss the Business
and Assets, and that, in determining to acquire the Business and Assets, Buyer
has made its own investigation into, and based thereon Buyer has formed an
independent judgment concerning, the Business and the Assets. It is therefore
understood and agreed that, except as specifically set forth in this Agreement,
Buyer accepts the Business and the condition of the Assets "AS IS, WHERE IS"
without any representation, warranty or guaranty, express or implied, as to
merchantability, fitness for a particular purpose or otherwise as to the
condition, size, extent, quantity, type or value of such property. Buyer
represents and warrants to Sellers and Shareholder that Buyer and its officers,
directors and other affiliates have no knowledge of a breach of any of Sellers'
and Shareholder's representations and warranties set forth in Article 4 hereof.
To the extent that Buyer or its officers, directors or other affiliates have
knowledge of facts or circumstances constituting a breach of the representations
and warranties set forth in Article 4 at the time such representations and
warranties were made, Buyer shall have no right or remedy hereunder or otherwise
in respect to such breach or the facts and circumstances related thereto.
(c) Sellers acknowledges and agrees that Sellers and its
representatives have had access to such of the information and documents and
assets of Parent and with respect to the Stock as Sellers and its
representatives shall have requested to see and/or review; that Sellers and its
representatives have had a full opportunity to meet with appropriate management
and employees of Parent to discuss the business of the Parent, and that, in
determining to acquire the Stock, Sellers has made its own investigation into,
and based thereon Sellers has formed an independent judgment concerning, the
business of the Parent, and the Stock. It is therefore understood and agreed
that, except as specifically set forth in this Agreement, Sellers accepts the
Stock "AS IS, WHERE IS" without any representation, warranty or guaranty,
express or implied, as to the business of the Parent, or the value of such
Stock. Sellers represents and warrants to Buyer that Sellers and its officers,
directors and other affiliates have no knowledge of a breach of any of Buyer's
representations and warranties set forth in Article 5 hereof. To the extent that
Sellers or its officers, directors or other affiliates have knowledge of facts
or circumstances constituting a
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breach of the representations and warranties set forth in Article 5 at the time
such representations and warranties were made, Sellers shall have no right or
remedy hereunder or otherwise in respect to such breach or the facts and
circumstances related thereto.
(d) Sellers and Shareholder, on the one hand, and Buyer and
Parent, on the other hand, shall have no liability under this Article 9 for
breaches of representations and warranties under Articles 4 and 5 of this
Agreement respectively unless the aggregate amount of the damages and losses to
Buyer and Parent, on the one hand, and Sellers and Shareholder, on the other
hand, from all claims finally determined to arise under Articles 4 and 5
respectively exceed an amount equal to one percent of the Purchase Price and, in
such event, Sellers and Shareholder, on the one hand, and Buyer and Parent, on
the other hand, shall be required to pay only the amount by which such aggregate
amount of claims exceeds said amount in the aggregate; provided, further, that
in no event shall the amount of Sellers' and Shareholder's aggregate liability
under this Section 9 exceed ten million dollars ($10,000,000).
(e) From and after twelve months after the Closing Date,
except in respect of breach of covenants, the amount that Buyer may recover from
Sellers shall be limited to the amount that is actually recovered, if any, by
Sellers under its insurance policies (and such amount shall not be recoverable
to the extent Buyer can recover for same under its insurance policies) provided
that it is understood and agreed that Sellers shall have no responsibility to
the extent such insurance does not actually cover any such losses, including by
reason of any deductibles. Buyer shall promptly reimburse to Sellers, or at
Sellers request provide reasonable advances, with respect to actual
out-of-pocket expenses Sellers incur in connection with the attempted or actual
collection of such insurance proceeds pursuant to Buyer's request. For the
avoidance of doubt, the provisions of this Section 9.2(e) do not limit Buyer's
or Parent's rights to indemnity under this Agreement during the twelve month
period commencing on the Closing Date.
(f) The parties agree that the provisions set forth in this
Article 9 can be specifically enforced in a court of competent jurisdiction.
Apart from such right to specific enforcement, the indemnification provided for
in this Article 9 shall, from and after the Closing, be the sole remedy for any
of the matters referred to herein and the indemnification under Section 9.5
shall be the sole remedy for any Environmental Claims and for any breach of
representation or warranty relating to environmental matters.
9.3 Time and Manner of Certain Claims. Except as may otherwise be
expressly provided in this Agreement, the representations and warranties herein,
and the obligations hereunder to be performed prior to the Closing, shall
survive the Closing. Sellers and Buyer shall be liable for damages for
misrepresentations and breach of warranty set forth in Articles 4 or 5 of this
Agreement respectively and asserted under Section 9.1(a)(i) (including, without
limitation, pursuant to the certificates to be delivered pursuant to Section
8.1(d)) or Section 9.1(b)(i) (including without limitation pursuant to the
certificates to be delivered pursuant to
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Section 8.2(d)), respectively only to the extent that notice of a claim therefor
complying with the requirements of this Section is asserted by the other in
writing and delivered prior to the expiration of a period ending twelve (12)
months from the Closing Date; provided, however, that no claim may be made by
Buyer against Seller with respect to Sections 4.4, 4.5, 4.6 and 4.7 after the
resolution of the issues related to the payment to be made pursuant to Section
2.3(c) or the receipt of such payment. Notwithstanding the foregoing, the
agreements contained in this Agreement or any of the documents executed by Buyer
or Sellers pursuant to this Agreement, including the Preferred Stock Provisions,
to be performed after the Closing shall not be limited as to time. Any notice of
a claim shall state specifically the facts giving rise to the alleged basis for
the claim and, if known, the amount of the liability asserted against the other
party by reason of the claim.
9.4 Defense of Claims by Third Parties. If any claim is made against
Parent or Buyer, on the one hand, or Sellers and Shareholder, on the other hand,
that, if sustained, would give rise to a liability of the other under this
Agreement, Buyer, on the one hand, or Sellers and Shareholder, on the other
hand, as the case may be, shall promptly cause notice of the claim to be
delivered to the other and shall afford the other and its counsel, as the
other's sole expense, the opportunity to defend and/or settle the claim. If such
notice and opportunity are not given to the other, or if any claim is
compromised or settled without its prior written consent, no liability shall be
imposed upon the other by reason of such claim. The parties shall cooperate in
connection with any such claims.
9.5 Environmental Matters.
(a) This Section 9.5 governs the allocation between Sellers
and Buyer of all losses associated with Hazardous Substances, including, but not
limited to all losses associated with any breach of representation or warranty
set forth in Article 4.16 hereof, and all liabilities, obligations, claims,
damages, deficiencies and expenses, including, without limitation, reasonable
legal and expert fees and expenses and costs of investigation, analysis and
remediation (collectively, "Environmental Liability") which may result from a
claim or demand to take corrective action (an "Environmental Claim") arising
from or incurred in connection with (i) any violation or alleged violation of
any Environmental Law (as in effect and requiring compliance at the
Determination Time) with respect to the Business, whether or not such violation
or alleged violation is known or unknown (an "Event"), or (ii) any personal
injury or property damage resulting from any Release of or exposure to Hazardous
Substances manufactured, used, stored, sold, handled, spilled, discharged or
disposed of in the course of operating the Business (an "Exposure").
(b) Environmental Liability shall be allocated between Sellers
and Buyer as follows:
(i) If the Event or Exposure giving rise to the
Environmental Claim is attributable solely to a period before the Determination
Time, (A) if such Environmental
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Claim is asserted (meaning that any unaffiliated third party or any judicial,
governmental, or administrative authority has advised Sellers or the Buyer in
writing that an Environmental Claim is being asserted or investigated or that
proceedings in regard to such Environmental Claim have been commenced) ("Becomes
Pending") before the period terminating twelve months following the
Determination Time (the "Twelve Month Anniversary"), Sellers shall indemnify and
hold Buyer and Parent harmless to the extent of one hundred percent (100%) of
the related Environmental Liability, or (B) if such Environmental Claim Becomes
Pending after the Twelve Month Anniversary of the Determination Time, Buyer and
Parent shall indemnify and hold Sellers harmless to the extent of one hundred
percent (100%) of the related Environmental Liability; and
(ii) If the Event or Exposure giving rise to the
Environmental Claim is attributable to periods both before and after the
Determination Time and the Environmental Claim Becomes Pending before the Twelve
Month Anniversary of the Determination Time, the allocation of the related
Environmental Liability pursuant to this Section 9.5(b) shall be further
apportioned between Sellers and Buyer on a reasonable basis with respect to the
periods before and after the Determination Time, with any disputes regarding
such apportionment to be discussed by the parties in good faith and, if
unresolved, to be referred to arbitration in accordance with the rules then
existing of the American Arbitration Association, the decision of which
arbitrator on such issue shall be final and binding on the parties and the fees
and expenses of which arbitrator shall be shared equally by Buyer and the
Sellers.
(c) It is further agreed as follows:
(i) Buyer agrees that, except as explicitly required
by prevailing and applicable Environmental Law, it shall not, by voluntary or
discretionary action, or by the action of third parties over which it has
control either by contract or otherwise, accelerate the timing, or increase the
cost, of any obligations of Sellers under this Section 9.5. Sellers agree that,
except as required by prevailing and applicable Environmental Law, it shall not,
by voluntary or discretionary action, or by the action of third parties over
which it has control either by contract or otherwise, accelerate the timing, or
increase the cost, of any obligations of Buyer under this Section 9.5.
(ii) The parties agree to act in good faith in
undertaking work to remediate environmental matters that may give rise to a
claim for indemnification hereunder with a view to avoiding unnecessary or
excessive costs. The parties shall be entitled to rely upon the recommendations
of an independent environmental consultant in this regard.
(iii) Environmental Liability of Sellers shall be
limited to damages directly relating to rectifying the Environmental Claim to
the minimum extent required by applicable law in effect as of the Determination
Time. In no event shall Sellers be liable to Buyer for any liabilities or
damages arising from any interruption of the operation of the
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Business caused by or related to an Environmental Claim or for other special or
consequential damages.
(iv) The party having liability for at least 51% of
any Environmental Claim shall have the right to control and manage all
discussions with third parties, and all proceedings and activities regarding the
satisfaction and discharge of the claim.
(v) In the event Sellers are provided with notice of
an Environmental Claim, or are required, as a consequence of a claim by a third
party, including any governmental entity, against Sellers or Buyer, to enter the
Real Property, Buyer shall, at no cost to Sellers, allow Sellers and their
agents, contractors and consultants full access to and reasonable use of the
Real Property and their facilities, equipment and utilities. Further, Buyer
shall provide Sellers with documents within its possession, allow the conduct of
sampling programs, execute necessary documents and take actions reasonably
recommended by Sellers in order to mitigate or prevent the Release or further
Release of Hazardous Substances. Sellers and their agents, contractors and
consultants shall make reasonable commercial efforts to avoid interfering with
Buyer's operations at the Real Property during their conduct of remedial actions
or related response actions. Buyer shall also allow Sellers reasonable access to
the Real Property during the period set forth in Section 9.5(b), if, in Sellers'
reasonable determination, investigations are necessary to avoid any
Environmental Claim or potential Environmental Claim. In its conduct of any
investigation, cleanup, or other remedial actions, Sellers shall employ methods
satisfactory to the governmental entity with jurisdiction over such matters or
in accordance with prevailing and applicable industry standards.
(vi) For so long as Sellers' indemnification
contained in Section 9.5 shall be in effect, Buyer shall provide Sellers with
any information within its possession which reasonably suggests that an Event or
Exposure exists or may exist, for which Sellers may have an indemnification
obligation to Buyer.
(d) To the extent the provisions of this Section 9.5 conflict
with the provisions of Section 9.1, the provisions of this Section 9.5 shall
control.
10. Miscellaneous.
10.1 Bulk Sales Compliance. Buyer hereby waives compliance by Sellers
with the provisions of the Bulk Sales Law of any state which my be applicable to
this transaction. In consideration of such waiver, Sellers agree to defend and
indemnify Buyer against and hold it harmless from any and all loss, liability,
claims, damage or expense (including reasonable attorneys' fees) arising out of
or resulting from such noncompliance, provided that such loss, liability, claim,
damage or expense was not caused by Buyer's conduct of the Business or is not an
Assumed Liability.
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10.2 Finders. Buyer and Sellers respectively represent and warrant that
they have not employed or utilized the services of any broker or finder in
connection with this Agreement or the transactions contemplated by it. Sellers
shall indemnify and hold Buyer harmless from and against any and all claims for
brokers' commissions made by any party as a result of this Agreement and the
transaction contemplated hereunder to the extent that any such commission was
incurred, or alleged to have been incurred, by, through or under Sellers. Buyer
shall indemnify and hold Sellers harmless from and against any and all claims
for brokers' commissions made by any party as a result of this Agreement and
transactions contemplated hereunder to the extent that any such commission was
incurred, or alleged to have been incurred, by, through or under Buyer.
10.3 Entire Agreement. This Agreement (with its Schedules and Exhibits)
together with the existing confidentiality agreement between the parties
contains, and is intended as, a complete statement of all of the terms of the
arrangements between the parties with respect to the matters provided for,
supersedes any previous agreements and understandings between the parties with
respect to those matters (except as otherwise provided in Section 6.1), and
cannot be changed or terminated orally.
10.4 Jurisdiction and Governing Law. Sellers and Buyer each hereby
consent to personal jurisdiction in any action brought with respect to this
Agreement and the transactions contemplated hereunder in any federal or state
court within the State of Delaware and agree that service of process may be
accomplished pursuant to the provisions of Section 10.6 below This Agreement
shall be governed by and construed in accordance with the law of the State of
Delaware without giving effect to conflicts of law principles thereof.
10.5 Schedules; Tables of Contents and Headings. Any matter disclosed
on any Schedule to this Agreement shall be deemed to have been disclosed on all
other Schedules to this Agreement to the extent that it should have been
disclosed on such other Schedule. The table of contents and section headings of
this Agreement and titles given to Schedules to this Agreement are for reference
purposes only and are to be given no effect in the construction or
interpretation of this Agreement.
10.6 Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally
(including by confirmed legible telecopier transmission) or mailed by certified
mail, return receipt requested, to the parties at the following addresses (or to
such address as a party may have specified by notice given to the other party
pursuant to this provision):
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If to Sellers or Shareholder. c/o:
U.S. Industries, Inc.
101 Wood Avenue South
Iselin, New Jersey 08830
Attention: General Counsel
Telecopy No.: (732) 767-2208
If to Buyer, to:
TearDrop Acquisition Corp.
1080 Louson Road
Union, New Jersey 07083
Attention: Rudy Slucker, CEO
Telecopy No.: (908) 688-5444
With a copy to:
Crummy Del Deo Dolan Griffinger
& Vecchione
One Riverfront Plaza
Newark, New Jersey 07102
Attention: Jeffrey A. Baumel, Esq.
Telecopy No.: (973) 596-0545
10.7 Separability. In the event that any provision hereof would, under
applicable law, be invalid or enforceable in any respect, such provision shall
be construed by modifying or limiting it so as to be valid and enforceable to
the maximum extent compatible with, and permissible under, applicable law. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement
which shall remain in full force and effect.
10.8 Waiver. Any party may waive compliance by another with any of the
provisions of this Agreement. No waiver of any provision shall be construed as a
waiver of any other provision. Any waiver must be in writing.
10.9 Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns. Nothing in this Agreement shall create or be deemed to create
any third party beneficiary rights in any person or entity not a party to this
Agreement. No assignment of this Agreement or of any rights or obligation
hereunder may be made by any party (by operation of law or otherwise) without
the prior written consent of the other parties and any attempted assignment
without
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the required consent shall be void; provided, however, that no such consent
shall be required of Parent, Buyer or Sellers to assign part or all of its
rights under this Agreement to one or more of its subsidiaries or affiliates,
but no such assignment by Parent, Buyer or Sellers of its rights or obligations
hereunder shall relieve Parent, Buyer or Sellers of any of its obligations under
any of such Agreements to the other.
10.10 Joint and Several Liability. Notwithstanding that only in some
instances (and not in others) in this Agreement or in any other document the
liability of Sellers and Shareholder is stated to be joint and several
liability, all of the obligations of Sellers and/or Shareholder under this
Agreement or any document executed by any Seller and/or Shareholder pursuant
hereto shall be the joint and several obligations of Sellers and Shareholder.
Notwithstanding that only in some instances (and not in others) in this
Agreement or in any other document the liability of Buyer and Parent is stated
to be joint and several liability, all of the obligations of Buyer and/or Parent
under this Agreement or any document executed by Buyer and/or Parent pursuant
hereto shall be the joint and several obligations of Buyer and Parent.
10.11 Joint Agreement. The provisions of this Agreement and each
document delivered pursuant hereto shall be deemed to be the joint effort of
each of the parties hereto and shall not be construed more severely or strictly
against any one or more parties.
10.12 Best Knowledge. As used in this Agreement "to the best of each
Seller's knowledge" "to the knowledge of Sellers", or words of similar import
shall mean actual knowledge possessed by an executive officer of Seller and "to
the best of Buyer's knowledge", "to the best of Parent's knowledge" or "to
Buyer's knowledge" or words of similar import shall mean actual knowledge
possessed by an executive officer of Parent or Buyer.
10.13 Counterparts. This Agreement may be executed via fax and in
counterparts, each of which shall be an original, but which together shall
constitute one and the same Agreement.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties as of the date first set forth above.
TOMMY ARMOUR GOLF COMPANY
By:___________________________
Title:
USI CANADA INC.
By:___________________________
Title:
TOMMY ARMOUR GOLF (SCOTLAND) LTD.
By:________________________________
Title:
USI AMERICAN HOLDINGS, INC.
By:________________________________
Title:
TEARDROP ACQUISITION CORP.
By:________________________________
Title:
TEARDROP GOLF COMPANY
By:________________________________
Title:
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REGISTRATION AGREEMENT
AGREEMENT made as of October 31, 1997, between TEARDROP GOLF COMPANY (the
"Company") and TOMMY ARMOUR GOLF COMPANY ("Holder").
The Parties to this Agreement are Parties to an Asset Purchase Agreement of
even date herewith (the "Purchase Agreement"). In order to induce the Holder to
enter into the Purchase Agreement, the Company has executed this Agreement in
connection with the registration of securities issued by the Company under the
Purchase Agreement. The execution and delivery of this Agreement is a condition
to the Closing under the Purchase Agreement.
The parties have agreed as follows:
1. Registration Under Securities Act.
(a) Filing of Shelf Registration Statement. The Company shall cause to
be filed within 75 calendar days of the date hereof a shelf Registration
Statement registering the securities on a continuous basis on Form S-3 or
any successor thereto providing for the sale by the Holder of all of its
Registrable Securities and will use its best efforts to have such shelf
Registration Statement declared effective by the Commission within 120 days
from the date hereof, except that there shall be permitted an additional 30
days for the Company to have the Registration Statement declared effective
where the regulations of the Commission render the ability of the Company
to satisfy the 120 day requirement impracticable.
(b) Expenses. The Company shall pay all Registration Expenses in
connection with the registration pursuant to this Agreement.
2. Registration Procedures.
(a) If and whenever the Company is required to effect the registration
of the Registrable Securities under the Securities Act as provided in
Section 1, the Company shall, as expeditiously as possible:
(i) subject to Section 1, prepare and file with the Commission
the requisite registration statement to effect such registration
(including such audited financial statements as may be required by the
Securities Act or the rules and regulations promulgated thereunder)
and thereafter cause such registration statement to become and remain
effective, provided however, that before filing such registration
statement or any amendments thereto, the Company will furnish to the
Holder copies of all such documents proposed to be filed, which
documents will be subject to its review in accordance with Section
2(b);
<PAGE>
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all securities
covered by such registration statement until such time as all of such
Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the Holder set forth in such
registration statement;
(iii) furnish to the Holder (or underwriter, if any, of the
securities being sold by the Holder) such number of conformed copies
of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number
of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and
any other prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents as, the Holder (and each such underwriter, if any) may
reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities laws or blue sky laws of such
jurisdictions as the Holder (and any underwriter of the Registrable
Securities being sold) shall reasonably request, to keep such
registrations or qualifications in effect for so long as such
registration statement remains in effect, and take any other action
which may be necessary or advisable to enable the Holder (and
underwriter, if any) to consummate the disposition in such
jurisdictions of the Registrable Securities except that the Company
shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would
not but for the requirements of this subdivision (iv) be obligated to
be so qualified or to consent to general service of process in any
such jurisdiction;
(v) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the Holder to consummate the disposition of such
Registrable Securities;
(vi) furnish to the Holder a signed counterpart, addressed to the
Holder (and the underwriters, if any), of:
(A) an opinion of counsel for the Company, dated the
effective date of such registration statement (or, if such
registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement)
reasonably satisfactory in form and substance to the Holder, and
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<PAGE>
(B) in the event of an underwritten offering, a "comfort"
letter, dated the effective date of such registration statement
(and if such registration includes an underwritten public
offering, a letter dated the date of the closing under the
underwriting agreement), signed by the independent public
accountants who have certified the Company's financial statements
included in such registration statement, covering substantially
the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to the
date of such financial statements,
as are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered and in the case of the accountants' letter, such other
financial matters, and, in the case of the legal opinion, such other legal
matters, as the Holder may reasonably request;
(vii) notify the Holder (and the managing underwriter or
underwriters, if any) promptly and confirm such advice in writing
promptly thereafter:
(A) when the registration statement, the prospectus or any
prospectus supplement related thereto or post-effective amendment
to the registration statement has been filed, and, with respect
to the registration statement or any post-effective amendment
thereto, when the same has become effective:
(B) of any request by the Commission for amendments or
supplements to the registration statement or the prospectus or
for additional information;
(C) of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or the
initiation of any proceedings by any Person for that purpose;
(D) if at any time the representations and warranties of the
Company cease to be true and correct;
(E) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable
Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation or threat of any proceeding for
such purpose;
(viii) notify the Holder, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances
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<PAGE>
then existing, and at the request of the Holder promptly prepare and
furnish to the Holder (and each underwriter, if any) a reasonable
number of copies of a supplement to or an amendment of such prospectus
as may be necessary so that, as thereafter delivered to the purchasers
of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(ix) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the registration statement at
the earliest possible moment;
(x) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more
than eighteen months, beginning with the first day of the Company's
first full calendar month after the effective date of such
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158
thereunder, and will furnish to the Holder at least five business days
prior to the filing thereof a copy of any amendment or supplement to
such registration statement or prospectus and shall not file any
thereof to which the Holder shall have reasonably objected on the
grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or of
the rules or regulations thereunder;
(xi) make available for inspection by the Holder, any underwriter
participating in any disposition pursuant to the registration
statement and any attorney or accountant retained by the Holder or
such underwriter (each, an "Inspector"), all financial and other
records, pertinent corporate documents and properties of the Company
(the "Records"), and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
Inspector in connection with such registration in order to permit a
reasonable investigation within the meaning of Section 11 of the
Securities Act;
(xii) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of
such registration statement;
(xiii) enter into such agreements and take such other actions as
the Holder shall reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities;
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<PAGE>
(xiv) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange on
which any of the securities of the same class as the Registrable
Securities are then listed; and
(xv) use its best efforts to provide a CUSIP number for the
Registrable Securities, not later than the effective date of the
registration statement.
(b) The Company will not file any registration statement or amendment
hereto or any prospectus or any supplement thereto (including such
documents incorporated by reference and proposed to be filed after the
initial filing of the registration statement) to which the Holder (or the
underwriter or underwriters, if any) shall reasonably object. The Holder
agrees that, upon receipt of any notice from the Company of the occurrence
of any event of the kind described in subdivision (viii) of this Section,
the Holder will forthwith discontinue disposition of Registrable Securities
pursuant to the registration statement relating to such Registrable
Securities until the Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by subdivision (viii) of this Section.
3. Indemnification by the Company.
(a) General Rights.
(i) In the event of any registration of any securities of the
Company under the Securities Act, the Company will, and hereby does
agree to, indemnify and hold harmless in the case of any registration
statement of the Company, the Holder and any underwriter including the
respective directors, officers, agents and controlling persons (within
the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), if any, of each of the Holder and such underwriters
against any losses, claims, damages, liabilities or expense, joint or
several, to which the Holder (or any underwriter) or any such
director, officer, agent or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or based
upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which securities
were registered under the Securities Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the
Company will reimburse the Holder (or any underwriter) and each such
director, officer, agent and controlling person for any legal or any
other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability,
action or proceeding, provided that the Company shall not be liable in
such case to the extent that any such loss, claim, damage, liability
(or action or proceeding in respect thereof) or expense
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<PAGE>
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement exclusively in reliance upon and
in conformity with information furnished to the Company through an
instrument duly executed by the Holder, specifically stating that it
is for use in the preparation thereof. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on
behalf of the Holder (or underwriter, if any) or any such director,
officer, agent or controlling person and shall survive the transfer of
such securities by the Holder.
(ii) The Holder will, and hereby does agree to indemnify and hold
harmless the Company and the directors, officers, agents and
controlling persons, if any, of the Company against any losses,
claims, damages, liabilities or expense to which the Company and the
directors, officers, agents and controlling persons, if any, of the
Company may become subject under the Securities Act insofar as such
losses, claims, damages, liabilities or expense arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which the
Registrable Securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent (and only to the extent) that
such loss, claim, damage, liability or expense occurs in exclusive
reliance upon and in conformity with written information furnished by
such Holder expressly for use in connection with such registration;
provided that the Holder shall be liable under this paragraph for only
that amount of losses, claims, damages, liabilities or expense as does
not exceed the proceeds to such Holder as a result of the sale of
Registrable Securities pursuant to such registration. Such indemnity
shall remain in full force and effect regardless of any investigation
made by or on behalf of the Company or any such director, officer,
agent or controlling person.
(b) Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section, such
indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any indemnified
party to give notice as provided herein shall not relieve the indemnifying
party of its obligations under the preceding subdivisions of this Section,
except to the extent that the indemnifying party is actually prejudiced in
a material manner by such failure to give notice. In case any such action
is brought against an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying
party shall be entitled to participate in and to assume the defense
thereof, jointly with any other
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<PAGE>
indemnifying party similarly notified, to the extent that the indemnifying
party may wish, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party shall not be liable to such indemnified party for any legal or other
expenses subsequently incurred by the latter in connection with the defense
thereof other than reasonable costs of investigation. No indemnifying party
shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement of any such action which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability, or a
covenant not to sue, in respect to such claim or litigation. No indemnified
party shall consent to entry of any judgment or enter into any settlement
of any such action the defense of which has been assumed by an indemnifying
party without the consent of such indemnifying party.
(c) Other Indemnification. Indemnification similar to that specified
in the preceding subdivisions of this Section (with appropriate
modifications) shall be given by the Company and the Holder with respect to
any required registration or other qualification of securities under any
Federal or state law or regulation of any governmental authority, other
than the Securities Act.
(d) Indemnification Payments. The indemnification required by this
Section shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
(e) Contribution. If the indemnification provided for in the preceding
subdivisions of this Section is unavailable to an indemnified party in
respect of any loss, claim, damage, liability or expense referred to
therein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage, liability or
expense (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Holder or
underwriter, as the case may be, on the other from the distribution of the
Registrable Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company on the one hand and of
the Holder or underwriter, as the case may be, on the other in connection
with the statements or omissions which resulted in such loss, claim,
damage, liability or expense, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of
the Holder or underwriter, as the case may be, on the other shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission to state a material
fact relates to information supplied by the Company, by the Holder or by
the underwriter and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission, provided that the foregoing contribution agreement shall not
inure to the benefit of any indemnified
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<PAGE>
party if indemnification would be unavailable to such indemnified party by
reason of the provisions contained in the first sentence of subdivision (a)
of this Section and in no event shall the obligation of any indemnifying
party to contribute under this subdivision (e) exceed the amount that such
indemnifying party would have been obligated to pay by way of
indemnification if the indemnification provided for under subdivisions (a)
or (b) of this Section had been available under the circumstances.
Notwithstanding the provisions of this subdivision (e), neither the Holder
nor the underwriter shall be required to contribute any amount in excess of
the amount by which (i) in the case of the Holder, the net proceeds
received by the Holder from the sale of Registrable Securities or (ii) in
the case of an underwriter, the total price at which the Registrable
Securities purchased by it and distributed to the public were offered by
the public exceeds, in either such case, the amount of any damages that the
Holder or underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11 the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
4. Definitions.
(a) The term "Registrable Securities" means (i) the Common Stock
issued to Sellers pursuant to the Purchase Agreement, (ii) the common stock
issued or issuable upon conversion of the Preferred Stock originally issued
to Sellers pursuant to the Purchase Agreement and (iii) the Preferred Stock
and any securities issued or issuable with respect to the securities
referred to in clause (i), (ii) or (iii) or with respect to securities
which previously became Registrable Securities pursuant to this clause by
way of a stock dividend or stock split or in connection with a combination
of shares, recapitalization, merger, consolidation or other reorganization.
As to any particular Registrable Securities, once issued such securities
shall cease to be Registrable Securities when (a) a registration statement
with respect to the sale of such securities shall have become effective
under the Securities Act and such securities shall have been disposed of in
accordance with such registration statement, (b) such securities shall have
been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, (c) such securities shall have been
otherwise transferred, new certificates for such securities not bearing a
legend restricting further transfer shall have been delivered by the
Company and subsequent disposition of such securities shall not require
registration or qualification of such securities under the Securities Act
or any similar state law then in force, or (d) such securities shall have
ceased to be outstanding.
(b) The term "Registration Expenses" means all expenses incident to
the Company's performance of or compliance with this Agreement, including,
without limitation, all registration, filing and NASD fees, all stock
exchange listing fees, all fees and expenses of complying with securities
or blue sky laws, all word processing, duplicating and printing expenses,
messenger and delivery expenses, the fees and disbursements of counsel for
the Company and of its independent public accountants, including the
expenses of any special audits or "cold comfort" letters required by or
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<PAGE>
incident to such performance and compliance, premiums and other costs of
policies of insurance against liabilities arising out of the public
offering of the Registrable Securities being registered and any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of the Holder's
Registrable Securities pursuant to the shelf Registration Statement,
provided that, in any case where Registration Expenses are not to be borne
by the Company, such expenses shall not include salaries of the Company's
personnel or general overhead expenses of the Company, premiums or other
expenses relating to liability insurance required by underwriters of the
Company or other expenses for the preparation of financial statements or
other data normally prepared by the Company in the ordinary course of its
business or which the Company would have incurred in any event.
(c) For purposes of this Agreement, a Person will be deemed to be a
holder of Registrable Securities whenever such Person has the right to
acquire such Registrable Securities (by conversion or otherwise, but
disregarding any legal or other restrictions upon the exercise of such
right), whether or not such acquisition has actually been effected.
(d) Unless otherwise stated, other capitalized terms contained herein
have the meanings set forth in the Purchase Agreement.
5. Certain Rights of the Holder.
The Company will not file any registration statement under the Securities
Act, unless it shall first have given to the Holder, at least 30 days prior
written notice thereof. If any such registration statement refers to the Holder
by name or otherwise as the holder of any securities of the Company, then the
Holder shall have the right within such 30 day period to require (a) the
insertion therein of language, in form and substance satisfactory to the Holder
to the effect that the holding by the Holder of such securities does not
necessarily make the Holder a "controlling person" of the Company within the
meaning of the Securities Act and is not to be construed as a recommendation by
the Holder of the investment quality of the Company's debt or equity securities
covered thereby and that the Holder will assist in meeting any future financial
requirements of the Company or (b) in the event that such reference to the
Holder by name or otherwise is not required by the Securities Act or any rules
and regulations promulgated thereunder, the deletion of the reference to the
Holder. If the Holder does not respond within such 30 day period, the Company
may proceed with the filing.
6. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities which is inconsistent
with the rights granted to the holders of Registrable Securities in this
Agreement.
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<PAGE>
(b) Adjustments Affecting Registrable Securities. The Company will not
take any action, or permit any change to occur, with respect to its
securities which would adversely affect the ability of the Holders to
include Registrable Securities in a registration statement undertaken
pursuant to this Agreement or which would adversely affect the ability of
the Holder to sell such Registrable Securities in any such registration
(including, without limitation, effecting a stock split or a combination of
shares).
(c) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, if and only if the Company has obtained the written
consent of the Holder or, if such securities are held by more than one
holder and where such amendment would not adversely affect the rights of
any holder by written consent of a majority in interest of the Preferred
Stock.
(d) Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure
to the benefit of the respective successors and assigns of the parties
hereto whether so expressed or not. In addition, whether or not any express
assignment has been made, the provisions of this Agreement which are for
the benefit of purchasers or holders of Registrable Securities are also for
the benefit of, and enforceable by, any subsequent holder of Registrable
Securities.
(e) Jurisdiction and Governing Law. The Company and the Holder each
hereby consent to personal jurisdiction in any action brought with respect
to this Agreement and the transactions contemplated hereunder in any
federal or state court within the State of Delaware. This Agreement shall
be governed by and construed in accordance with the law of the State of
Delaware without giving effect to conflicts of law principles thereof.
(f) Construction. Section headings of this Agreement are for reference
purposes only and are to be given no effect in the construction or
interpretation of this Agreement.
(g) Severability. In the event that any provision hereof would, under
applicable law, be invalid or enforceable in any respect, such provision
shall be construed by modifying or limiting it so as to be valid and
enforceable to the maximum extent compatible with, and permissible under,
applicable law. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement which shall remain in full force and effect.
(h) Joint Agreement. The provisions of this Agreement and each
document delivered pursuant hereto shall be deemed to be the joint effort
of each of the parties
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<PAGE>
hereto and shall not be construed more severely or strictly against any one
or more parties.
(i) Notices. Except as otherwise provided in this Agreement, all
notices, requests and other communications shall be in writing and shall be
given to the Holder addressed to it in the manner set forth in the Stock
Purchase Agreement or at such other address as the Holder shall have
furnished to the Company in writing, and to the Company, to the attention
of its President, or at such other address, or to the attention of such
other officer, as the Company shall have furnished to the Holder. Each such
notice, request or other communication shall be effective (i) if given by
mail, 72 hours after such communication is deposited in the mails with
first class postage prepaid, addressed as aforesaid or (ii) if given by any
other means (including, without limitation, by air courier), when delivered
at the address specified above, provided that any such notice, request or
communication shall not be effective until received.
(j) Counterparts. This Agreement may be executed simultaneously in
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
(k) No Inconsistent Agreements. The Company has not entered into nor
will the Company on or after the date of this Agreement enter into any
agreement which is inconsistent with the rights granted to the Holder in
this Agreement or which otherwise conflicts with the provisions hereof. The
rights granted to the Holder hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the
Company's other issued and outstanding securities under any agreements. The
Company will not grant any registration rights under the Securities Act or
any state securities laws without the prior written consent of the Holder.
(l) Specific Performance. The parties hereto acknowledge that there
would be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition
to any other remedy to which it may be entitled at law or in equity, shall
be entitled to compel specific performance of the obligations of any other
party under this Agreement in accordance with the terms and conditions of
this Agreement in any court of the United States or any State thereof
having jurisdiction. Any remedy hereunder is subject to certain equitable
defenses and to the discretion of the court before which any proceedings
therefor may be brought.
(m) Entire Agreement. This Agreement embodies the entire agreement
between the parties and understanding between the Company and the Holder
relating to the subject matter hereof and supersedes all prior agreements
and understandings relating to such subject matter.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
TEARDROP GOLF COMPANY
By:________________________________
Title:_____________________________
TOMMY ARMOUR GOLF COMPANY
By:________________________________
Title:_____________________________
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LOAN AND SECURITY AGREEMENT
Dated as of Novemeber 10, 1997
Among
TEARDROP GOLF COMPANY
and
TEARDROP ACQUISITION CORP.,
Borrowers
and
CORESTATES BANK, N.A.,
Lender
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS............................................ 1
SECTION 1.1 Certain Defined Terms................................... 1
SECTION 1.2 Accounting Terms........................................ 11
ARTICLE II
THE REVOLVING CREDIT........................................................ 11
SECTION 2.1 The Revolving Credit.................................... 11
SECTION 2.2 Place and Manner of Payments............................ 13
SECTION 2.3 Computation of Interest................................. 14
SECTION 2.4 Interest................................................ 14
SECTION 2.5 Late Charges; Default Rate.............................. 14
SECTION 2.6 Payment on Non-Business Days............................ 15
SECTION 2.7 Reimbursement to Lender for Increased
Costs Due to Capital Adequacy
Requirements............................................ 15
SECTION 2.8 Illegality.............................................. 16
SECTION 2.9 Prepayment.............................................. 16
SECTION 2.10 Letter of Credit Cash Collateral
Account................................................. 17
SECTION 2.11 Letters of Credit....................................... 18
SECTION 2.12 Special Provisions for LIBOR Tranches................... 22
SECTION 2.13 Ineligible LIBOR Interest Periods....................... 23
SECTION 2.14 Availability of Rate Quotations......................... 23
ARTICLE III
COLLATERAL.................................................................. 23
SECTION 3.1 Security Interests...................................... 23
SECTION 3.2 Further Security........................................ 24
SECTION 3.3 Financing Statements; Certificates of
Title................................................... 24
SECTION 3.4 Landlord's Waiver....................................... 24
SECTION 3.5 Places of Business; Location of
Collateral.............................................. 24
SECTION 3.6 Lender's Rights With Respect to
Accounts, Chattel Paper, Instruments and
General Intangibles..................................... 25
SECTION 3.7 The Cash Collateral Account............................. 25
SECTION 3.8 Accounts................................................ 26
SECTION 3.9 Chattel Paper, Letters of Credit and
Instruments............................................. 27
SECTION 3.10 Equipment and Inventory................................. 27
SECTION 3.11 Condition of Inventory.................................. 28
SECTION 3.12 Expenses of Lender...................................... 28
SECTION 3.13 Notices................................................. 28
SECTION 3.14 Insurance; Discharge of Taxes, etc...................... 28
SECTION 3.15 Waiver and Release by Borrower.......................... 28
SECTION 3.16 Access to Inventory..................................... 28
<PAGE>
SECTION 3.17 Records and Reports..................................... 29
SECTION 3.18 Further Assurances...................................... 29
SECTION 3.19 Application of Proceeds of Collateral................... 30
SECTION 3.20 Continuing Collateral................................... 30
ARTICLE IV
CONDITIONS OF LENDING....................................................... 30
SECTION 4.1 Conditions Precedent to Lender's
Obligations............................................. 30
SECTION 4.2 Additional Conditions Precedent. ...................... 33
SECTION 4.3 Conditions to Issuance of Letters of
Credit.................................................. 34
ARTICLE V
REPRESENTATIONS AND WARRANTIES.............................................. 34
SECTION 5.1 Existence............................................... 34
SECTION 5.2 Authorization........................................... 35
SECTION 5.3 Validity of Documents................................... 35
SECTION 5.4 Financial Information................................... 35
SECTION 5.5 Litigation.............................................. 35
SECTION 5.6 Contingent Liabilities.................................. 36
SECTION 5.7 Taxes................................................... 36
SECTION 5.8 Encumbrances............................................ 36
SECTION 5.9 Consents................................................ 36
SECTION 5.10 ERISA................................................... 36
SECTION 5.11 Subsidiaries and Affiliates; Fictitious
Name.................................................... 37
SECTION 5.12 Licenses, Permits, etc.................................. 37
SECTION 5.13 Compliance with Laws Generally.......................... 38
SECTION 5.14 Environmental Matters................................... 38
SECTION 5.15 Patents, etc............................................ 38
SECTION 5.16 Debt and Credit Arrangements............................ 38
SECTION 5.17 Regulation U, Etc....................................... 38
SECTION 5.18 Labor Matters........................................... 39
SECTION 5.19 Outstanding Judgments or Orders......................... 39
SECTION 5.20 No Defaults on Other Agreements......................... 39
SECTION 5.21 Full Disclosure......................................... 39
ARTICLE VI
COVENANTS................................................................... 39
SECTION 6.1 Use of Proceeds......................................... 39
SECTION 6.2 Financial Information................................... 39
SECTION 6.3 Insurance............................................... 41
SECTION 6.4 Encumbrances............................................ 41
SECTION 6.5 Minimum Tangible Net Worth.............................. 41
SECTION 6.6 Leverage Ratio.......................................... 41
SECTION 6.7 Fiscal Year............................................. 41
SECTION 6.8 Taxes................................................... 41
SECTION 6.9 Guarantees, etc......................................... 42
SECTION 6.10 Loans and Investments................................... 42
SECTION 6.11 Compliance with Laws.................................... 42
SECTION 6.12 Environmental Matters................................... 42
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SECTION 6.13 Maintenance of Property................................. 43
SECTION 6.14 Inspection by Lender.................................... 43
SECTION 6.15 Limitations on Borrowing................................ 44
SECTION 6.16 Reports................................................. 44
SECTION 6.17 ERISA................................................... 45
SECTION 6.18 Mergers, etc............................................ 47
SECTION 6.19 Ownership of Interests, Etc............................. 47
SECTION 6.20 Nature of Business...................................... 48
SECTION 6.21 Disposal of Assets...................................... 48
SECTION 6.22 Patents, etc............................................ 48
SECTION 6.23 Indemnification......................................... 48
SECTION 6.24 RICO.................................................... 48
SECTION 6.25 Licenses, Permits....................................... 48
SECTION 6.26 Capital Expenditures.................................... 48
SECTION 6.27 Primary Operating Accounts; Cash
Management Services..................................... 49
ARTICLE VII
DEFAULT..................................................................... 49
SECTION 7.1 Events of Default....................................... 49
SECTION 7.2 Remedies................................................ 51
ARTICLE VIII
ADDITIONAL PROVISIONS....................................................... 52
SECTION 8.1 No Waiver, Cumulative Remedies.......................... 52
SECTION 8.2 Notices................................................. 52
SECTION 8.3 Set-off................................................. 53
SECTION 8.4 Costs and Expenses...................................... 53
SECTION 8.5 Governing Law........................................... 53
SECTION 8.6 Survival of Agreements and
Representations; JURY WAIVER; Consent to
Jurisdiction............................................ 53
SECTION 8.7 Binding Effect; Assignment.............................. 54
SECTION 8.8 Headings................................................ 54
SECTION 8.9 Time of the Essence..................................... 54
SECTION 8.10 Sole Discretion of Lender............................... 54
SECTION 8.11 Amendments.............................................. 54
SECTION 8.12 Usury................................................... 55
SECTION 8.13 Participations.......................................... 55
SECTION 8.14 Entire Agreement........................................ 55
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SCHEDULE OF EXHIBITS
Exhibit Subject
- ------- -------
1.1 Prior Letters of Credit
2.1(B) Borrowing Base Certificate
2.1(D) Form of Note
2.11 Letter of Credit Application
3.5 List of Locations of Collateral and Chief
Executive Offices
5.5 Litigation
5.8 Encumbrances
5.10 List of ERISA Plans
5.11 Subsidiaries and Affiliates
5.15 Patents
5.16 Debt and Credit Arrangements
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LOAN AND SECURITY AGREEMENT dated as of this 10th day of November,
1997, among TEARDROP GOLF COMPANY, a Delaware corporation ("TearDrop"), TEARDROP
ACQUISITION CORP., a Delaware corporation ("TAC"; TearDrop and TAC shall be
referred to individually herein as a "Borrower" and collectively as "Borrowers")
and CORESTATES BANK, N.A., a national banking association ("Lender").
BACKGROUND
Borrowers have requested that Lender provide a revolving credit
facility (the "Revolving Credit") in the amount of Eighteen Million Dollars
($18,000,000.00) to Borrowers to finance the Acquisition (as such term is
defined herein) and for working capital and general corporate purposes. Lender
has agreed to provide the Revolving Credit on the terms and conditions herein
contained.
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Account" has the meaning given to such term in the New Jersey Uniform
Commercial Code as in effect on the date hereof.
"Acquired Assets" means the tangible and intangible assets
of Tommy Armour Golf Company, USI Canada, Inc. and Tommy Armour
Golf (Scotland) Ltd. to be acquired pursuant to the Acquisition
Agreement.
"Acquisition" means the acquisition of the Acquired Assets
pursuant to the Acquisition Agreement.
"Acquisition Agreement" means that certain Asset Purchase Agreement
dated October 31, 1997 among Tommy Armour Golf Company, USI Canada, Inc., Tommy
Armour Golf (Scotland) Ltd., USI American Holdings, Inc. and Borrowers.
"Acquisition Documents" means the Acquisition Agreement and all
documents executed and delivered in connection therewith.
"Adjusted LIBOR" means LIBOR plus 2%.
<PAGE>
"Adjusted Prime Rate" means the Prime Rate minus 1/2%. The Adjusted
Prime Rate shall change simultaneously with each change in the Prime Rate.
"Advance" has the meaning given to such term in Section 2.1
hereof.
"Affiliate" of a Person means (A) any other Person which directly or
indirectly controls, or is controlled by, or is under common control with, such
Person, (B) any director or officer (or, in the case of a Person which is not a
corporation, any individual having analogous powers) of such Person or of a
Person who is an Affiliate of such Person, and (C) any individual related to
such Person or Affiliate by consanguinity or adoption within the third degree.
For purposes of the preceding sentence, "control" of a Person means (1) the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by contract or otherwise and (2) in any case
shall include direct or indirect ownership (beneficially or of record) of, or
direct or indirect power to vote, 35% or more of the outstanding shares of any
class of capital stock of such Person (or in the case of a Person that is not a
corporation, 35% or more of any class of equity interest).
"Agreement" means this Loan and Security Agreement, as amended,
modified, extended or restated from time to time.
"Books and Records" has the meaning given to such term in
Section 3.1 hereof.
"Borrower" and "Borrowers" have the meanings given to such terms in the
introductory paragraph hereof.
"Borrowing Base" at any time means the sum of (A) 65% of Borrowers'
Qualified Accounts at such time, plus (B) 65% of Borrowers' Qualified Inventory
at such time.
"Business Day" means a day other than a Saturday, Sunday, or other day
on which banks are authorized or required to close under the laws of New Jersey
or under Federal law.
"Capital Asset" means any property or asset (real, personal or mixed,
tangible or intangible) which is of a kind subject to an allowance for
depreciation or amortization under GAAP.
"Capital Expenditures" means any expenditures made or cost incurred by
a Borrower, whether paid or due and owing, for the acquisition, purchase,
alteration or improvement of any Capital Asset and shall include, without
limitation, all capital expenditures within the meaning of Section 263 of the
Code and the regulations promulgated thereunder.
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"Cash Collateral Account" has the meaning given to such term in Section
3.7 hereof.
"Cash Equivalents" means at any date: (A) demand deposits, time
deposits or certificates of deposit at Lender or at any commercial bank
organized under the laws of the United States of America or any state thereof,
having combined capital and surplus of not less than $500,000,000.00,; (B)
obligations backed by the full faith and credit of the United States of America
or an agency thereof maturing not in excess of one year from the date of
acquisition; and (C) commercial paper which is rated A-1 (or better) by Standard
& Poor's Corporation or P-1 (or better) by Moody's Investor Services, Inc.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act, as amended from time to time.
"Certificate of Designation" means the Certificate of Powers,
Designations, Preferences and Relative, Participating, Optional or other Special
Rights and Qualifications, Limitations and Restrictions thereof of the Series A
Convertible Preferred Stock of TearDrop Golf Company filed by TearDrop with the
Secretary of State of Delaware on November 10, 1997.
"Chattel Paper" has the meaning given to such term in the New Jersey
Uniform Commercial Code as in effect on the date hereof.
"Closing Date" means the date on which all of the conditions precedent
set forth in Article IV are satisfied.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means all property of Borrowers which serves as collateral
for any of the Liabilities under Article III hereof, or otherwise.
"Consents" has the meaning given to such term in Section 4.1
hereof.
"Consolidated" refers to the consolidation of the accounts of Borrowers
in accordance with GAAP, including principles of consolidation.
"Consolidating" refers to the separate entity reporting and
consolidation of the accounts of Borrowers in accordance with GAAP.
"Controlled Group" means all trades or businesses which are under
common control (as defined in ss.4001(b)(1) of ERISA) with a Borrower.
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"Contingent Liabilities" means all liabilities that would, in
accordance with GAAP, be classified as contingent liabilities of a Borrower.
"Credit Limit" at any time means the lesser of (A) the Borrowing Base,
or (B) Eighteen Million Dollars ($18,000,000.00).
"Credit Obligation" means any obligation for the payment of borrowed
money or the installment purchase price of property or on account of a lease of
property which, in accordance with GAAP, is capitalized, and shall also mean any
obligation under a guaranty or suretyship agreement covering obligations of such
type.
"Debt" means the sum of (A) the outstanding principal amount of the
Revolving Credit, plus (B) the outstanding principal amount of any other long
term indebtedness (including without limitation, and any other Credit Obligation
outstanding at any one time) in each case including, without limitation, current
maturities of such Debt.
"Default" means the occurrence or non-occurrence of an event which but
for the giving of notice, the passage of time or both would constitute an Event
of Default.
"Default Rate" has the meaning given to such term in Section
2.5 hereof.
"Defined Benefit Pension Plan" means an employee benefit pension plan
(other than a Multiemployer Plan) covered by Title IV of ERISA as provided in
Section 4021 of ERISA.
"Defined Contribution Plan" means an individual account plan as defined
in ss.3(34) of ERISA.
"Delinquent Purchaser" means a Purchaser more than 50% of whose
aggregate Account indebtedness to a Borrower is due for more than 60 days past
the due date set forth on the invoice for such Account, provided that the
invoice due date for such Account must be 90 days or less from the issue date of
such invoice.
"Document" has the meaning given to such term in the New Jersey Uniform
Commercial Code as in effect on the date hereof.
"Effective Date" means, for a LIBOR Tranche, the date a Borrower
designates as the date on which a LIBOR Interest Period is to commence pursuant
to Sections 2.1 or 2.4 hereof.
"Employee Benefit Plan" has the meaning given to such term
in ss.3(3) of ERISA.
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"Environmental Law" means any federal, state, or local statute, law,
ordinance, regulation, rule, standard, permit or requirement, including but not
limited to those statutes, ordinances, laws, regulations, rules, standards,
permits and requirements promulgated under the laws of the United States of
America or any other nation, concerning or relating to the generation,
treatment, storage, transportation, disposal and release into the environment,
cleanup and remediation of any "hazardous substance" as that term is defined in
Section 101(14) of CERCLA.
"Equipment" has the meaning given to such term in the New Jersey
Uniform Commercial Code as in effect on the date hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurocurrency Reserve Requirement" means, for any LIBOR Tranche for any
LIBOR Interest Period relating thereto, the daily average of the stated maximum
rate (expressed as a decimal) at which reserves (including any marginal,
supplemental, or emergency reserves) are required to be maintained during such
LIBOR Interest Period under Regulation D by a member bank of the Federal Reserve
System against "Eurocurrency liabilities" (as such term is used in Regulation D)
but without benefit of or credit for proration, exemptions, or offsets that
might otherwise be available to such member bank from time to time under
Regulation D. Without limiting the effect of the foregoing, the Eurocurrency
Reserve Requirement shall reflect any other reserves required to be maintained
by such member bank against (A) any category of liabilities which includes
deposits by reference to which the LIBOR for LIBOR Tranches is to be determined
or (B) any category of extension of credit or other assets that include LIBOR
Tranches.
"Event of Default" has the meaning given to such term in
Section 7.1 hereof.
"Fixtures" has the meaning given to such term in the New Jersey Uniform
Commercial Code as in effect on the date hereof.
"GAAP" means generally accepted accounting principles,
applied in a consistent manner.
"General Intangible" has the meaning given to such term in the New
Jersey Uniform Commercial Code as in effect on the date hereof.
"Instrument" has the meaning given to such term in the New Jersey
Uniform Commercial Code as in effect on the date hereof.
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"Intangible Property Assignments" has the meaning given to such term in
Section 3.2 hereof.
"Interest Rate" means Adjusted LIBOR, the Adjusted Prime
Rate or the Default Rate, as appropriate.
"International Account" means an Account which arises out of a
transaction between a Borrower and a Purchaser who meets at least one of the
following criteria: (A) the Purchaser is not any state, local or Federal
government or governmental agency; or (B) the Account arises out of transactions
between a Borrower and (1) a non-United States government, governmental agency
or government-controlled business, (2) a Person who is not subject to the
jurisdiction of the court system of the United States and a state of the United
States, or (3) a Person who does not maintain net assets in the United States at
least five times as great as the aggregate of all Accounts arising from
transactions between such Borrower and such Person.
"Inventory" has the meaning given to such term in the New Jersey
Uniform Commercial Code as in effect on the date hereof.
"Landlord's Waiver" has the meaning given to such term in
Section 3.4 hereof.
"Lender" has the meaning given to such term in the
introductory paragraph hereof.
"Letter of Credit" means any Letter of Credit issued by Lender pursuant
to Section 2.11 and the Prior Letters of Credit.
"Letter of Credit Cash Collateral Account" has the meaning given to
such term in Section 2.10 hereof.
"Letter of Credit Liability" means, at any date of determination, the
sum of (A) the maximum aggregate amount which is or at any time thereafter may
become available for drawing under all Letters of Credit then outstanding plus
(B) the aggregate amount of all drawings under Letters of Credit which have not
theretofore been reimbursed by Borrowers. For purposes hereof, Letters of Credit
on which a draw has not been received shall be deemed outstanding for a period
of 30 Business Days after the expiration date thereof.
"Letter of Credit Sublimit" means Two Million Dollars
($2,000,000.00).
"Leverage Ratio" means the ratio of (A) Total Debt to (B)
Tangible Net Worth and Subordinated Debt.
"Liabilities" has the meaning given to such term in Section
3.1 hereof.
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"LIBOR" means, for each LIBOR Tranche, the rate per annum (rounded
upwards, if necessary, to the nearest 1/16th of 1%) determined by Lender
according to the following formula:
R = X
-----
1-Y
where R = LIBOR
X = London Interbank Offered Rate for such LIBOR
Tranche for the applicable LIBOR Interest Period
Y = Eurocurrency Reserve Requirement for such LIBOR
Tranche for the applicable LIBOR Interest Period
"LIBOR Interest Period" for a LIBOR Tranche means a period of time,
beginning on an Effective Date, of 30 days, 60 days or 90 days, in length
selected by a Borrower by telephone or in writing (and if by telephone,
confirmed by such Borrower the same day by facsimile), during which the Interest
Rate for such LIBOR Tranche is Adjusted LIBOR. If a LIBOR Interest Period would
otherwise end on a day that is not a Business Day, such LIBOR Interest Period
shall be extended to the next Business Day, unless such Business Day would fall
in the next calendar month, in which event such LIBOR Interest Period shall end
on the immediately preceding Business Day.
"LIBOR Tranche" means any portion of the Revolving Credit to which
Adjusted LIBOR applies having the same LIBOR Interest Period.
"Loan Documents" means this Agreement, the Note, the Intangible
Property Assignments, the UCC financing statements and all other documents
executed and delivered by Borrowers in connection with the Revolving Credit.
"London Business Day" means any Business Day on which commercial banks
are open for international business (including dealing in Dollar deposits) in
London, England, and Philadelphia, Pennsylvania.
"London Interbank Offered Rate" applicable to any elected LIBOR
Interest Period for a LIBOR Tranche means the rate per annum (rounded upwards,
if necessary, to the nearest 1/16th of 1%) quoted by the principal London branch
of Lender two London Business Days prior to the first day of such LIBOR Interest
Period for the offering from leading banks in the London interbank market of
Dollar deposits in immediately available funds for a period, and in an amount,
comparable to the LIBOR Interest Period and principal amount of the LIBOR
Tranche which shall be made by Lender and/or be outstanding during such LIBOR
Interest Period.
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"Multiemployer Plan" has the meaning given to such term in ss.3(37) of
ERISA and regulations issued thereunder.
"Note" has the meaning given to such term in Section 2.1
hereof.
"Operating Account" has the meaning given to such term in
Section 2.1 hereof.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Encumbrances" means the liens, encumbrances and other title
objections described in Section 6.4.
"Person" means an individual, corporation, partnership,
trust or any other entity.
"Plan" means an Employee Benefit Plan or other plan maintained for
employees of a Borrower or any member of its Controlled Group and covered by
ERISA.
"Prime Rate" means the rate of interest which Lender announces from
time to time to be its "prime rate" (which rate is not necessarily the lowest
rate of interest which Lender charges any of its customers, but rather an index
rate used by Lender to price many of its loans).
"Prime Rate Tranche" means any portion of the Revolving Credit to which
the Adjusted Prime Rate applies.
"Prior Letters of Credit" means those Letters of Credit listed on
Exhibit 1.1 attached hereto issued by Lender prior to the date of this
Agreement.
"Proceeds" has the meaning given to such term in the New Jersey Uniform
Commercial Code as in effect on the date hereof.
"Prohibited Transaction" has the meaning given to such term in ss.406
of ERISA or regulations issued thereunder.
"Purchaser" means a buyer of goods from a Borrower or a customer for
whom services have been rendered or materials furnished by a Borrower.
"Qualified Account" means any Account of a Borrower created in an arm's
length transaction in the ordinary course of such Borrower's business which
meets all the following specifications at the time of determination of Qualified
Accounts: (A) the Account is lawfully owned by such Borrower free and clear of
all liens, security interests or prior assignments except as set forth in
subsection (B) hereof, and such Borrower has the right of assignment thereof and
the power to grant a security interest
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therein; (B) the Account is subject to a first priority security interest in
favor of Lender; (C) the Account is valid and enforceable, representing the
undisputed indebtedness of a Purchaser to such Borrower; (D) the Account is not
subject to any defense, setoff, counterclaim, credit, allowance or adjustment;
(E) the Purchaser has accepted the goods, the sale of which to such Purchaser
has given rise to the Account; and no part of such goods have been returned,
rejected, lost or damaged; (F) if the Account arises from the sale of goods by
such Borrower, such sale was an absolute sale and not on consignment or on
approval or on a sale-or-return basis nor subject to any other guaranty,
repurchase or return agreements, and such goods have been shipped to the
Purchaser; (G) if the Account arises from the performance of services, such
services have actually been performed; (H) no notice of the death, bankruptcy,
receivership, reorganization, or insolvency of the Purchaser owing such Account
has been received by Lender or such Borrower; (I) the Purchaser is not a
Subsidiary or Affiliate of Borrowers; (J) the invoice due date for such Account
is 90 days or less from the issue date of such invoice; (K) the Account is less
than 60 days past the due date set forth on the invoice for such Account; (L)
the original invoice creating such Account was delivered on the date the
underlying goods or services were provided or within 15 days after such date;
(M) the credit-worthiness of the Purchaser is reasonably acceptable to Lender;
(N) the Account is not an International Account, unless such Account is a
Qualified International Account, in which case, the Account shall not be deemed
an International Account; (O) the Purchaser for such Account has not submitted a
medium of payment therefor which has been returned uncollected for any reason;
(P) the Purchaser for such Account is not otherwise in default pursuant to the
terms underlying the agreement creating such Account; (Q) such Account is not a
contra Account; (R) such Account is not owed by a Delinquent Purchaser or any
Subsidiary or Affiliate of a Delinquent Purchaser; and (S) such Account is
otherwise reasonably acceptable to Lender. Any Account or portion of an Account
that does not comply with the limitations set forth in the preceding sentence
shall not constitute a Qualified Account, provided however that, to the extent a
portion of such Account does comply with the limitations set forth in the
preceding sentence such portion shall be counted as a Qualified Account, but
only to the extent that it does so comply.
"Qualified International Account" means: an International Account of a
Borrower either (A) secured by a letter of credit in the amount of the
International Account issued by a bank acceptable to Lender, (B) insured under a
foreign credit insurance policy acceptable to Lender with respect to such
International Account in favor of such Borrower or (C) otherwise acceptable to
Lender in its sole discretion, provided however that no International Account
will be a Qualified International Account unless Lender has informed Borrowers
in writing that such
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International Account will be accepted by Lender as a Qualified International
Account hereunder.
"Qualified Inventory" means any item of Inventory of a Borrower meeting
all the following specifications: (A) (1) it is lawfully owned by such Borrower,
(2) is in the possession of such Borrower at a location specified on Exhibit 3.5
attached hereto, (3) to the extent such location is not owned by such Borrower,
Lender has received a Landlord's Waiver or warehouseman's waiver or consent with
respect to such location, (4) except as set forth in subsection (B) below, is
subject to no mortgage, pledge, security interest, lien, or other encumbrances
of any kind, and (5) such Borrower has the power to grant a security interest
therein; (B) it is subject to a first priority perfected security interest in
favor of Lender (provided however that, with respect to the initial Advance
only, Lender shall have a first priority security interest which will become a
first priority perfected security interest upon the filing of UCC-1 financing
statements delivered to Lender on or before the Closing Date); (C) it is insured
as required by Section 3.13 hereof pursuant to policies in full compliance with
the requirements of such Section; (D) it is in good condition and repair; (E) it
constitutes readily saleable finished goods, work-in-process or raw materials,
excluding the packaging portion of raw materials; (F) it is not slow-moving,
consignment or damaged inventory in the reasonable determination of Lender; and
(G) it is otherwise acceptable to Lender in its reasonable discretion.
"Reimbursement Date" has the meaning given to such term in
Section 2.11 hereof.
"Reorganization" has the meaning given such term in ss.4241 of
ERISA.
"Reportable Event" has the meaning given to such term in ss.4043(b) of
ERISA or regulations issued thereunder.
"Revolving Credit" has the meaning given to such term in the
Background section hereof.
"Security" has the meaning given to such term in the New Jersey Uniform
Commercial Code as in effect on the date hereof.
"Subordinated Debt" means all indebtedness for borrowed money of a
Borrower now or hereafter owed which indebtedness is subordinated to the
Liabilities.
"Subsidiary" of a Person (identified for purposes of this definition as
"Z") means any Person, 50% or more of the voting capital stock (or other
ownership interests) of which is owned, directly or indirectly, by Z.
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"TAC" has the meaning given to such term in the introductory
paragraph hereof.
"Tangible Assets" means all assets of Borrowers on a Consolidated basis
that would, in accordance with GAAP, be classified as tangible assets of
Borrowers on a Consolidated basis less any amount due from Subsidiaries or
Affiliates not otherwise eliminated by such consolidation.
"Tangible Net Worth" means the amount by which Tangible
Assets exceed Total Liabilities.
"TearDrop" has the meaning given to such term in the
introductory paragraph hereof.
"Termination Date" means the earlier of (A) the date on which Lender's
obligations to make Advances terminates pursuant to any provision of this
Agreement, or (B) November 10, 1999.
"Total Debt" means Total Liabilities minus Subordinated
Debt.
"Total Liabilities" means the sum of (A) all liabilities of Borrowers
on a Consolidated basis that would, in accordance with GAAP, be classified as
liabilities of Borrowers on a Consolidated basis plus (B) all obligations of
Borrowers on a Consolidated basis with respect to Contingent Liabilities not
otherwise classified as liabilities pursuant to (A), above, including without
limitation, the Letter of Credit Liability.
"Withdrawal Liability" has the meaning given such term in
ss.4201 of ERISA.
SECTION 1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed, and all financial data submitted pursuant to this
Agreement shall be prepared, in accordance with GAAP.
ARTICLE II
THE REVOLVING CREDIT
SECTION 2.1 The Revolving Credit. (A) Subject to the terms and conditions
hereinafter provided, Lender shall (1) advance to Borrowers such sums as a
Borrower may request (each such advance, an "Advance") and (2) issue Letters of
Credit for the account of Borrowers in accordance with Section 2.11 hereof, from
time to time during the period from the date hereof through but not including
the Termination Date, in an aggregate principal amount not to exceed the Credit
Limit. It is agreed by Borrowers that Advances shall be used for working capital
and general corporate
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<PAGE>
purposes, provided however that, all or a portion of the initial Advance may be
used to finance the Acquisition. The total Advances outstanding plus the Letter
of Credit Liability shall not at any time exceed the Credit Limit. If the
aggregate amount of the Advances outstanding at any time plus the Letter of
Credit Liability exceeds the Credit Limit, Borrowers shall repay immediately the
amount of the excess. Borrowers may borrow, repay and reborrow under the
Revolving Credit until the Termination Date subject to the terms and conditions
of this Agreement.
(B) Any requests for Advances which shall earn interest at the Adjusted
Prime Rate shall be submitted to Lender in writing or by facsimile copy by 2:00
p.m. of the Business Day of the requested Advance signed by an officer of
Borrowers accompanied by a completed and signed Borrowing Base certificate in
the form of Exhibit 2.1(B) attached hereto and made a part hereof. Any requests
for Advances which shall earn interest at Adjusted LIBOR shall be submitted to
Lender in writing or by facsimile copy by 11:00 a.m. three London Business Days
prior to the date of the requested Advance signed by an officer of Borrowers
accompanied by a completed and signed Borrowing Base certificate in the form of
Exhibit 2.1(B) attached hereto and made a part hereof. Such request shall set
forth the date and amount of the requested Advance (which, if a LIBOR Tranche,
shall be in the minimum amount of $250,000.00) and, if a LIBOR Tranche is
requested, the length of the proposed LIBOR Interest Period. Each request for an
Advance shall constitute a representation that, at the time thereof and giving
effect to the Advance requested thereby: (1) no Event of Default or Default has
occurred hereunder; (2) the representations and warranties contained herein are
expressly reaffirmed and are correct as of the date of such request; and (3) the
sum of the outstanding Advances plus the requested Advance plus the Letter of
Credit Liability will not exceed the Credit Limit. Lender shall make any Advance
to which Borrowers are entitled by depositing the amount thereof into an
operating account which Borrowers shall maintain with Lender (the "Operating
Account") prior to the Termination Date. Borrowers shall hold Lender harmless
from any liability for any loss resulting from Lender's reliance on any writing
or facsimile copy purportedly made by an officer of Borrowers, provided that
Lender has acted in good faith in doing so. Lender's books and records shall be
deemed conclusive evidence of whether or not a request was made and the terms
thereof. If Borrowers submit a request for an Advance by facsimile copy,
Borrowers shall deliver to Lender the original request (along with the Borrowing
Base certificate to be submitted therewith) to Lender no later than five (5)
Business Days after submission of the facsimile copy.
(C) Borrowers shall pay interest on the principal amount of the
Revolving Credit outstanding from time to time at the rates and at the times set
forth in Section 2.4 hereof. On the
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Termination Date, Borrowers shall repay in full the aggregate principal amount
of all Advances outstanding under the Revolving Credit, any drawings under
Letters of Credit which have not been previously reimbursed by Borrowers, all
accrued but unpaid interest thereon and any other amount owing in connection
therewith. On the Termination Date, if there remain any unexpired Letters of
Credit on such date, Borrowers shall deposit into the Letter of Credit Cash
Collateral Account an amount equal to such Letter of Credit Liability, as
determined by Lender.
(D) The joint and several obligation of Borrowers to repay the Advances
outstanding under the Revolving Credit shall be evidenced by a promissory note,
dated the date of this Agreement, payable to the order of Lender, in the
principal amount of Eighteen Million Dollars ($18,000,000.00), and otherwise
substantially in the form of Exhibit 2.1(D) attached hereto (the "Note").
SECTION 2.2 Place and Manner of Payments. All payments by Borrowers on account
of principal, interest or any other sums due under any of the Loan Documents,
shall be made without setoff or counterclaim to Lender at Lender's office
located at its address specified in Section 8.2 hereof at or before 2:00 p.m.
New Jersey time on the date due, in lawful money of the United States of America
and in immediately available funds. Borrowers covenant and agree to maintain the
Operating Account and the Cash Collateral Account with Lender at all times
during which the Revolving Credit remains outstanding. Borrowers agree to keep
in the Cash Collateral Account and the Operating Account an amount sufficient to
make any and all payments of principal and interest on the Revolving Credit and
any other amounts which become owing hereunder, as such payments become due.
Borrowers hereby authorize Lender to charge the Cash Collateral Account and/or
the Operating Account in order to satisfy Borrowers' payment obligations
hereunder, commencing with any and all payments due from and after November 30,
1997. Lender shall charge the Cash Collateral Account and the Operating Account
in order to satisfy Borrowers' payment obligations hereunder. Lender's failure
to so charge the Cash Collateral Account and/or the Operating Account in order
to satisfy Borrowers' payment obligations hereunder shall not relieve Borrowers
of their joint and several obligations to maintain a sufficient balance in the
Cash Collateral Account and/or the Operating Account to satisfy a payment
obligation on the date such payment becomes due, and Borrowers shall continue to
be obligated to make such payment. If the Cash Collateral Account and the
Operating Account contain insufficient funds to make any payment when due and
payable to Lender hereunder, and such payment is not made by Borrowers in some
other manner on the date such payment becomes due, such failure shall constitute
an Event of Default hereunder. All payments received by Lender from Borrowers
shall be applied in the following order: (A) to the payment of fees and other
costs
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and expenses then due and owing from Borrowers, (B) to the payment of accrued
and unpaid interest then due, (C) to the payment of any principal then due and
owing under the Revolving Credit, (D) to the payment of any amounts outstanding
under the Revolving Credit, and (E) to the Letter of Credit Cash Collateral
Account.
SECTION 2.3 Computation of Interest. Interest on the amounts outstanding under
the Revolving Credit shall be computed on the basis of a year of 360 days for
the actual number of days elapsed.
SECTION 2.4 Interest. Borrowers shall pay interest on Advances outstanding under
the Revolving Credit as follows:
(A) Prime Rate Tranches. Borrowers shall pay interest in arrears on the
unpaid principal amount of each Prime Rate Tranche at an annual rate equal to
the Adjusted Prime Rate, from the date on which such Prime Rate Tranche is
disbursed until such principal amount has been repaid in full, or converted to a
LIBOR Tranche, (1) monthly on the last day of each month commencing with the
last day of the first month following the Closing Date and (2) on the
Termination Date.
(B) LIBOR Tranches. Borrowers shall pay interest in arrears on the
unpaid principal amount of each LIBOR Tranche at the Adjusted LIBOR Rate (1) on
the last day of each LIBOR Interest Period and (2) on the Termination Date.
(C) Conversions to LIBOR Tranches. By notifying Lender at least three
London Business Days prior to an Effective Date and subject to the limitations
set fort herein, Borrowers may convert into a LIBOR Tranche any Prime Rate
Tranche in an aggregate principal amount of Two Hundred Fifty Thousand Dollars
($250,000.00). At the end of the applicable LIBOR Interest Period, the LIBOR
Tranche will convert back to a Prime Rate Tranche unless Borrowers notify Lender
at least three London Business Days before the end of the existing LIBOR
Interest Period that Borrowers are electing to continue the LIBOR Tranche as a
LIBOR Tranche and is selecting a new LIBOR Interest Period.
(D) Restrictions With Respect to LIBOR Tranches. There shall be no more
than 5 LIBOR Tranches at any one time.
SECTION 2.5 Late Charges; Default Rate. (A) In the event that Borrowers fail to
make any payment required hereunder or under any of the other Loan Documents
within ten (10) days of the date such payment is due, Borrowers shall pay to
Lender an amount equal to four percent (4%) of such late payment as a late
charge to defer Lender's costs of collecting such late payments. Borrowers
authorize Lender to charge the Cash Collateral Account, the Operating Account
and/or any other account maintained by
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Borrowers with Lender for any late charge not otherwise paid by Borrowers.
(B) After the occurrence of any Event of Default the Interest Rate then
in effect on the Revolving Credit immediately shall be increased to the Adjusted
Prime Rate otherwise payable hereunder plus four percent (4%) (such rate, the
"Default Rate").
SECTION 2.6 Payment on Non-Business Days. Whenever any payment to be made
hereunder or under the Note or Loan Documents shall be stated to be due on a day
that is not a Business Day, such payment shall be made on the next succeeding
Business Day, and, except as otherwise specifically provided herein, such
extension of time shall in such case be included in the computation of payment
of interest hereunder or under the Note, as the case may be.
SECTION 2.7 Reimbursement to Lender for Increased Costs Due to Capital Adequacy
Requirements. If any law or regulation or the interpretation thereof by any
court or administrative or governmental authority charged with the
administration thereof, or compliance by Lender with any request or directive
(whether or not having the force of law) of any such authority, applicable from
time to time now or after the date hereof to banks in general, shall (A) impose,
modify, deem applicable or result in the application of any capital maintenance,
capital ratio or similar requirements against loan commitments or other
facilities made by Lender and the result thereof shall be to impose upon Lender
a fee or a requirement to increase any capital requirement applicable as a
result of the making or maintenance of the Revolving Credit (which imposition of
or increase in capital requirements may be determined by Lender's reasonable
allocation of the aggregate of such capital impositions or increases), or (B)
subject Lender to any tax, duty or other charge with respect to the Revolving
Credit, the Note, or its obligation to advance the Revolving Credit, or change
the basis of taxation of payments to Lender of the principal of or interest on
the Revolving Credit or any other amounts due under this Agreement in respect of
the Revolving Credit or its obligation to advance the Revolving Credit (except
for changes in the rate of tax on the overall net income of Lender imposed by
any jurisdiction in which Lender is obligated to pay taxes) to Borrowers, then,
upon demand by Lender, Borrowers shall immediately pay to Lender from time to
time as specified by Lender, such additional amounts or fees which shall be
sufficient to compensate Lender for such impositions of or increases in capital
requirements or taxes from the date of such change, together with interest on
each such amount from the date demanded until payment in full thereof at the
Default Rate with respect to amounts or fees not paid when due. Upon the
occurrence of any event referred to above, a certificate setting forth in
reasonable detail the amounts necessary to compensate Lender as a result of an
imposition of or
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increase in capital requirements or taxes submitted by Lender to Borrowers shall
be conclusive, absent manifest error or bad faith, as to the amount thereof. For
purposes of the application of this Section 2.7, and in calculating the amount
necessary to compensate Lender for any imposition of or increase in capital
requirements or taxes hereunder, Lender shall determine the applicability of
this provision and calculate the amount payable to it hereunder in a manner
consistent with the manner in which it shall apply and calculate similar
compensation payable to it by other borrowers having provisions in their credit
agreements comparable to this Section 2.7.
SECTION 2.8 Illegality. Notwithstanding any other provision in this Agreement,
if the adoption of any applicable law, rule, or regulation, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or compliance by Lender (or its
lending office) with any request or directive (whether or not having the force
of law) of any such authority, central bank, or comparable agency shall make it
unlawful or impossible for Lender (or its lending office) to maintain the
Revolving Credit, then upon notice to Borrowers by Lender, the Revolving Credit
shall terminate.
SECTION 2.9 Prepayment. (A) Borrower may prepay the Prime Rate Tranche in whole
or in part at any time and from time to time without premium or penalty.
(B) Borrowers agree not to prepay any LIBOR Tranche prior to the
expiration of its LIBOR Interest Period unless otherwise expressly required
hereunder or after acceleration by Lender pursuant to Section 7.2. In the event
that Borrowers prepay any LIBOR Tranche prior to the expiration of its LIBOR
Interest Period, whether in violation of the previous sentence, or with the
consent of Lender, or in compliance with the express requirement of this
Agreement, or otherwise, Borrowers shall pay to Lender, upon the request of
Lender, such amount or amounts as shall be sufficient (in the reasonable opinion
of Lender) to compensate it for any loss, cost or expense which Lender
determines is attributable to:
(1) any payment, prepayment, conversion or renewal of a LIBOR
Tranche made by Lender on a date other than the last day of
the applicable LIBOR Interest Period for such LIBOR Tranche
(whether by reason of acceleration or otherwise); or
(2) any failure by Borrowers to borrow, convert into or renew
a LIBOR Tranche to be made, converted into or renewed by
Lender on the date specified therefor pursuant to Borrowers'
prior election.
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Without limiting the foregoing, such compensation shall include an
amount equal to the excess, if any, of: (a) the amount of interest which
otherwise would have accrued on the principal amount so paid, prepaid, converted
or renewed or not borrowed, converted or renewed for the period from and
including the date of the event described in clauses (1) or (2) above to, but
excluding, the last day of the then current LIBOR Interest Period for such LIBOR
Tranche which would have commenced on the date specified therefor in the
relevant notice), at the applicable rate of interest for such LIBOR Tranche
provided for herein; over (b) the amount of interest (as reasonably determined
by Lender) Lender would have bid to New York dealers of London interbank dollar
deposits for amounts comparable to such principal amount prepaid and maturities
comparable to the remainder of such LIBOR Interest Period. A determination of
Lender as to the amounts payable pursuant to this Section shall be conclusive
absent manifest error or bad faith.
SECTION 2.10 Letter of Credit Cash Collateral Account. Cash collateral delivered
to Lender pursuant to Sections 2.1 or 2.11 hereof shall be maintained in a
deposit account of Borrowers to be established with Lender at the time such cash
collateral is first created, over which Lender shall have sole control (the
"Letter of Credit Cash Collateral Account"); provided that, so long as no
Default or Event of Default has occurred and is continuing hereunder, Borrowers
shall have the right to request, and Lender shall withdraw from the Letter of
Credit Cash Collateral Account, the amount by which the balance in such account
exceeds the Letter of Credit Liability which amount shall be deposited by Lender
into the Operating Account. Borrowers hereby grant, bargain, convey and set over
to Lender a security interest in and lien upon the Letter of Credit Cash
Collateral Account and all cash and any other assets at any time hereafter
contained therein as security for the payment and performance of all of
Borrowers' obligations now or hereafter incurred hereunder, under the Note or
otherwise in connection herewith. Borrowers shall take such action and execute
and deliver such documents, including financing statements, as Lender may
determine necessary or desirable to further the security interest hereby
created. After the occurrence of an Event of Default and acceleration of the
Revolving Credit as set forth in Section 7.2 hereof, or if Borrowers shall have
failed to pay all amounts which have come due on or prior to such applicable due
date, Lender shall apply all funds held in the Letter of Credit Cash Collateral
Account in the manner provided in Section 2.2. On the Termination Date, all
monies in the Letter of Credit Cash Collateral Account in excess of the amount
required to repay Loans, the Letter of Credit Liability, and any other amount
then owing hereunder shall be returned to Borrowers.
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SECTION 2.11 Letters of Credit.
(A) Letters of Credit. In addition to a Borrower requesting that Lender
make Advances pursuant to Section 2.1, a Borrower may request, in accordance
with the provisions of this Section, that on and after the date on which all of
the conditions set forth in Section 4.1 are satisfied through but not including
the Termination Date, Lender issue and Lender shall issue, subject to the terms
and conditions hereof, Letters of Credit for the account of such Borrower in an
aggregate amount up to the Letter of Credit Sublimit; provided, that (1) in no
event shall any Letter of Credit have an expiration date later than the
Termination Date, (2) in no event shall any Letter of Credit have an expiration
date later than one (1) year after its issue date, and (3) no Borrower shall
request any Letter of Credit if, after giving effect to such issuance, the
Letter of Credit Liability would exceed the Letter of Credit Sublimit. The
issuance of any Letter of Credit in accordance with the provisions of this
Section shall require the satisfaction of each condition set forth in Sections
4.2 and 4.3.
(B) Notice of Issuance or Amendment. Whenever a Borrower desires the
issuance of a Letter of Credit or the amendment of a Letter of Credit, it shall
deliver to Lender a written notice no later than 11:00 A.M. at least two (2)
Business Days, or in each case such shorter period as may be agreed to by Lender
in any particular instance, in advance of the proposed date of issuance. That
notice shall specify (1) the proposed date of issuance (which shall be a
Business Day), (2) the face amount of the Letter of Credit, (3) the expiration
date of the Letter of Credit, (4) the purpose of the Letter of Credit and (5)
the name and address of the beneficiary. On the proposed date of issuance of any
Letter of Credit, Lender shall determine to the best of its knowledge whether
the proposed Letter of Credit, when added to the then outstanding Letter of
Credit Liability, would be within the Letter of Credit Sublimit and, when added
to the then outstanding Letter of Credit Liability and Advances, would be within
the Credit Limit. Unless both such criteria are satisfied, Lender shall not
issue or cause to be issued the requested Letter of Credit. Borrowers shall hold
Lender harmless for any miscalculations or other errors in making such
determinations. In the event that, upon issuance of such proposed Letter of
Credit, (a) the Letter of Credit Sublimit is exceeded, Borrowers shall
immediately establish with Lender, if not already so established, and deposit
into the Letter of Credit Cash Collateral Account the amount of such excess; and
(b) the Credit Limit is exceeded, Borrowers shall immediately repay to Lender
the amount of such excess first for application against the Advances, together
with accrued interest thereon and then for deposit into the Letter of Credit
Cash Collateral Account. Prior to the date of issuance, Borrowers shall deliver
to Lender an executed application for such Letter of Credit in the form
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customarily required by Lender for the issuance of letters of credit (the
current version of such form is attached hereto as Exhibit 2.11), and specify a
precise description of the documents and the verbatim text of any certificate to
be presented by the beneficiary which, if presented by the beneficiary prior to
the expiration date of the Letter of Credit, would require Lender to make
payment under the Letter of Credit; provided, that Lender may require reasonable
changes in any such documents and certificates; and provided, further, that no
Letter of Credit shall require payment against a conforming draft to be made
hereunder on the same Business Day that such draft is presented if such
presentation is made after 11:00 A.M. on such Business Day. In determining
whether to pay under any Letter of Credit, Lender shall be responsible only to
determine that the documents and certificates required to be delivered under the
Letter of Credit have been delivered and that they comply on their face with the
requirements of that Letter of Credit.
(C) Payment of Amounts Drawn Under Letters of Credit. In the event of
any request for drawing under any Letter of Credit by the beneficiary thereof,
Lender shall notify Borrowers and Borrowers shall reimburse Lender on the day on
which such drawing is honored in an amount in same day funds equal to the amount
of such drawing; provided that (1) if sufficient funds are then in the Letter of
Credit Cash Collateral Account to reimburse Lender in full for the amount of
such drawing, Lender shall reimburse itself by debiting such amount necessary to
reimburse Lender from the Letter of Credit Cash Collateral Account, (2) if the
funds then in the Letter of Credit Cash Collateral Account are insufficient to
reimburse Lender in full for the amount of such drawing, Lender shall debit the
Letter of Credit Cash Collateral Account in the amount thereof and the
unreimbursed balance of such drawing shall be reimbursed in accordance with
clause (3) below, and (3) if there are no funds (or insufficient funds) then in
the Letter of Credit Cash Collateral Account then unless Borrowers shall have
notified Lender prior to 11:00 A.M. on the date of such drawing that Borrowers
intend to reimburse Lender for the amount of such drawing with funds other than
the proceeds of the Advances, Borrowers shall be deemed to have given notice to
Lender requesting it to make an Advance in accordance with Section 2.1 on the
day on which such drawing is honored (the "Reimbursement Date") in an aggregate
amount equal to the amount of such drawing less the amount, if any, remitted to
Lender pursuant to clause (2) above.
(D) Compensation. Borrowers agree to pay the following amounts to
Lender:
(1) with respect to each Letter of Credit issued by Lender, a
fee in the amount of 1% of the face amount of such Letter of Credit;
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(2) with respect to drawings made under any Letter of Credit,
interest, payable on demand, on the amount paid by Lender in respect of each
such drawing from the date of the drawing to the date such amount is reimbursed
by Borrowers (including any such reimbursement out of the proceeds of Advances
or out of the Letter of Credit Cash Collateral Account) at a rate equal to the
Adjusted Prime Rate for the period from the date of such drawing to and
including the first Business Day after the date of such drawing and thereafter
at a rate which is at all times equal to the Default Rate; and
(3) with respect to the issuance, amendment, transfer,
administration, cancellation or conversion of each Letter of Credit and each
drawing made thereunder, processing charges in accordance with Lender's standard
schedule for such charges in effect at the time of such issuance, amendment,
transfer, administration, cancellation or drawing, as the case may be, or as
otherwise agreed to by Lender.
(E) Obligations Absolute. The joint and several obligation of Borrowers
to reimburse Lender for drawings made under the Letters of Credit issued by it
shall be unconditional and irrevocable and shall be paid strictly in accordance
with the terms of this Agreement under all circumstances including, without
limitation, the following circumstances:
(1) any lack of validity or enforceability of any
Letter of Credit;
(2) the existence of any claim, set-off, defense or other
right which a Borrower may have at any time against a beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom any such
transferee may be acting), Lender, any Affiliate of Lender, or any other Person,
whether in connection with this Agreement, the transactions contemplated herein
or any unrelated transaction (including any underlying transaction between such
Borrower and the beneficiary for which the Letter of Credit was procured);
(3) any draft, demand, certificate or any other document
presented under any 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;
(4) payment by Lender under any Letter of Credit against
presentation of a demand, draft or certificate or other document which does not
comply with the terms of such Letter of Credit; provided, that such payment does
not constitute willful misconduct or gross negligence on the part of Lender;
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(5) any breach of this Agreement or any document delivered in
connection herewith by any party hereto or thereto; and
(6) the fact that an Event of Default or an event which, but
for the giving of notice, the passage of time or both, would constitute an Event
of Default shall have occurred and be continuing.
(F) Indemnification; Nature of Lender's Duties. In addition to amounts
payable as elsewhere provided in this Section 2.11, each Borrower hereby agrees
to protect, indemnify and save Lender harmless from and against any and all
claims, demands, liabilities, damages, losses, costs, charges and expenses
(including reasonable attorneys' fees and allocated costs of internal counsel)
which Lender may incur or be subject to as a consequence, direct or indirect, to
the extent not caused by the gross negligence, bad faith or willful misconduct
of Lender, its directors, officers, employees, agents or attorneys, of (1) the
issuance of any Letter of Credit, or (2) the failure of Lender to honor a
drawing under any Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto government or
governmental authority. Without limiting the foregoing, Lender shall not have
any obligation to ascertain whether the stated purpose of any requested Letter
of Credit is permitted by this Agreement and shall not be liable for any
Borrower's use of a Letter of Credit issued pursuant to the terms hereof in
violation of Borrowers' covenants contained herein.
As among each Borrower on one hand and Lender on the other hand, each
Borrower assumes all risks of the acts and omissions of, or misuse of the
Letters of Credit issued by Lender by the respective beneficiaries of such
Letters of Credit. In furtherance and not in limitation of the foregoing, Lender
shall not be responsible for: (a) the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in connection
with the application for and issuance of such Letters of Credit, even if it
should in fact 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
such Letter of Credit 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) failure of the beneficiary of any such Letter of Credit to comply
fully with conditions required in order to draw upon such Letter of Credit,
unless (i) such failure is material and substantive, and (ii) Lender's payment
on such Letter of Credit constitutes gross negligence or willful misconduct; (d)
errors, omissions, interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether
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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 to make a drawing under any such Letter of Credit or of the proceeds
thereof; (g) the misapplication by the beneficiary of any such Letter of Credit;
or (h) any consequences arising from causes beyond the control of Lender. None
of the above shall affect, impair, or prevent the vesting of any of Lender's
rights or powers hereunder.
In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by Lender under or
in connection with the Letters of Credit issued by it or the related
certificates, if (i) taken or omitted in good faith and (ii) substantially in
accordance with the terms thereof, shall not put Lender under any resulting
liability to Borrowers.
SECTION 2.12 Special Provisions for LIBOR Tranches.
(A) Unavailability of Funds and Indeterminate Interest Rates. If on or
before the date Lender is to make any LIBOR Tranche or on or before any
Effective Date (1) Lender determines in good faith that it is unable to obtain
funds at LIBOR for the elected LIBOR Interest Period for any reason, including,
but not limited to the unavailability of funds at such rate, any change in
existing law, any new law, the length of such LIBOR Interest Period, or
otherwise or (2) Lender determines in good faith that no adequate means exists
to determine LIBOR for such LIBOR Interest Period, then, at Lender's option,
Borrowers shall be deemed to have requested an Advance at the Adjusted Prime
Rate or shall be required to elect a LIBOR Interest Period of a length for which
Lender may obtain funds at the rate the adjustment of which determines LIBOR.
(B) Changes Affecting Ability to Maintain Funds. If, during any LIBOR
Interest Period, any change in existing law, any new law, or any other factor
beyond the control of Lender prevents Lender in its good faith determination
from maintaining funds at the rate the adjustment of which determines LIBOR for
such LIBOR Interest Period and requires Lender to cease so maintaining funds
actually so maintained prior to termination of such LIBOR Interest Period, then
on the date of such required cessation, Borrowers shall be required to specify a
different Interest Rate for such LIBOR Interest Period or, in the alternative,
to elect an Interest Period of a length for which Lender may maintain funds at
the rate the adjustment of which determines LIBOR. In addition, within five days
after Lender notifies Borrowers of such required conversion, Borrowers shall
reimburse Lender for any loss or expense Lender has certified in writing to
Borrowers that Lender has incurred as a result of any such required cessation.
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SECTION 2.13 Ineligible LIBOR Interest Periods. If, on any date Lender is to
make a LIBOR Tranche or on any Effective Date, the period of time from such date
or such Effective Date to the Termination Date or final repayment date is less
than a LIBOR Interest Period which Borrowers could otherwise elect, Borrowers
will elect a LIBOR Tranche whose LIBOR Interest Period will end on or before the
Termination Date or the final repayment date, as necessary. If an appropriate
LIBOR Interest Period is not available, then the Advance shall be made at the
Adjusted Prime Rate.
SECTION 2.14 Availability of Rate Quotations. Notwithstanding anything herein to
the contrary, if Lender reasonably determines (which determination shall be
conclusive) that quotations of interest rates for the relevant deposits referred
to in the definition used to calculate LIBOR are not being provided in the
relevant amounts or for the relevant maturities for purposes of determining the
rate of interest on a LIBOR Tranche as provided in this Agreement, then Lender
shall forthwith give notice thereof to Borrowers. From and after the date on
which such notice is given, (A) the obligation of Lender to make LIBOR Tranches
shall be suspended; and (B) Borrowers shall repay in full the then outstanding
principal amount of each LIBOR Tranche, together with accrued interest thereon,
on the last day of the then current Interest Period applicable to such LIBOR
Tranche by remitting sufficient funds to Lender or by conversion to a Prime Rate
Tranche.
ARTICLE III
COLLATERAL
SECTION 3.1 Security Interests. As security for the performance of this
Agreement, and/or any of the other Loan Documents, the payment of principal and
interest under the Revolving Credit and the payment of all other liabilities of
each Borrower to Lender, whether absolute or contingent, matured or unmatured,
direct or indirect, sole, joint, several, or joint and several, similar or
dissimilar, related or unrelated to the Loan Documents, due or to become due or
heretofore or hereafter contracted or acquired, including without limitation,
obligations of any Borrower as surety under any guaranty or suretyship agreement
given or to be given by such Borrower to Lender for the debt of others (the
"Liabilities"), each Borrower hereby grants, pledges, and assigns to Lender a
security interest in all assets of such Borrower now owned or hereafter acquired
including, without limitation, all of the following, (A) Accounts (including but
not limited to Qualified Accounts), (B) Chattel Paper, (C) Equipment (whether or
not constituting Fixtures), (D) Documents, (E) Instruments, (F) General
Intangibles (including, but not limited to, any and all interests in trademarks,
service marks,
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patents, licenses, permits, and copyrights), (G) Inventory (including but not
limited to Qualified Inventory) of such Borrower, (H) all books, records, tapes,
information, data, stored material, computer media, passwords, access codes
arising or related to such Borrower's business, now existing or hereafter
acquired (collectively, "Books and Records"), (I) the Operating Account, the
Cash Collateral Account, the Letter of Credit Cash Collateral Account and any
other account maintained by such Borrower with Lender and all cash held therein,
and (J) all Proceeds and products of the foregoing, including insurance thereon,
now owned or hereafter acquired by such Borrower.
SECTION 3.2 Further Security. As further security for payment of the
Liabilities, Borrowers shall execute and deliver to Lender agreements in form
and substance satisfactory to Lender in which Borrowers assign to Lender any and
all patents, patent applications, trademarks, tradenames, trademark,
servicemarks and trademark, servicemark or tradename applications in the event
Borrowers have registered patents or trademarks or applied for registration of
patents or trademarks (the "Intangible Property Assignments").
SECTION 3.3 Financing Statements; Certificates of Title. (A) Each Borrower will
join with Lender in executing such financing statements and continuation
statements (in form reasonably satisfactory to Lender) under the Uniform
Commercial Code as Lender may specify, and will pay the cost of filing the same
in such public offices as Lender shall designate. Each Borrower shall have noted
on the Certificate of Title of any Collateral the liens created hereby and shall
deliver to Lender the originals of each such Certificate of Title. Each Borrower
agrees to take whatever action Lender reasonably requests to perfect and to
continue perfection of Lender's security interest in the Collateral.
SECTION 3.4 Landlord's Waiver. Each Borrower shall cause the owners of the
locations identified on Exhibit 3.5 to execute and deliver to Lender an
instrument (in form satisfactory to Lender) by which each such owner waives its
right to distrain on any of the Collateral, and by which such owner grants to
Lender the right (but not the obligation) to cure any default by such Borrower
under the applicable lease (the "Landlord's Waiver").
SECTION 3.5 Places of Business; Location of Collateral. (A) Each Borrower
represents that the properties listed on part A of Exhibit 3.5 attached hereto
serves as such Borrower's chief place of business, chief executive office, and
the place where it keeps its Books and Records, and that all of the Equipment or
Inventory serving as Collateral hereunder are kept at the locations listed on
part B of Exhibit 3.5 attached hereto.
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(B) Each Borrower will notify Lender prior to (1) any change in the
location of the chief place of business or chief executive office of such
Borrower, (2) any change in the place where such Borrower keeps its Equipment
and/or Inventory or its Books and Records, (3) the establishment of any new or
the discontinuance of any existing place of business, and (4) the establishment
of any new or the discontinuance of any location where Inventory, Equipment or
Books and Records are kept.
(C) No Borrower will permit its Equipment to be removed from its
current location or any of its Inventory serving as Collateral to be so removed
without Lender's prior consent, except for sales of Inventory in the ordinary
course of such Borrower's business and the replacement of Equipment or disposal
of obsolete Equipment.
SECTION 3.6 Lender's Rights With Respect to Accounts, Chattel Paper, Instruments
and General Intangibles. With respect to any Account, Chattel Paper, Instrument
and General Intangible that is Collateral hereunder, Lender shall have the right
at any time and from time to time, with notice to Borrowers (which may be oral
or written), to: (A) endorse in the name of a Borrower all proceeds of the
Accounts, Chattel Paper, Instruments and General Intangibles payable to such
Borrower that come to Lender which will then be deposited into the Cash
Collateral Account; (B) upon the occurrence and during the continuance of a
Default or an Event of Default, notify Purchasers under a Borrower's Accounts,
Chattel Paper, Instruments and General Intangibles that such Accounts, Chattel
Paper, Instruments and General Intangibles have been assigned to Lender, (C)
upon the occurrence and during the continuance of a Default or an Event of
Default, forward invoices to Purchasers directing them to make payments to
Lender, collect all Accounts, Chattel Paper, Instruments and General Intangibles
of a Borrower in Lender's or such Borrower's name, and take control of any cash
or non-cash proceeds of a Borrower's Accounts, Chattel Paper, any Instruments
and General Intangibles which will then be deposited into the Cash Collateral
Account; (D) upon the occurrence and during the continuance of a Default or an
Event of Default, compromise, extend, or renew any Account, Chattel Paper,
Instrument or General Intangible of a Borrower or deal with such Borrower's
Accounts, Chattel Paper, Instruments and General Intangibles as Lender may deem
advisable; (E) make exchanges, substitutions, or surrenders of Collateral; and
(F) upon the occurrence and during the continuance of a Default or an Event of
Default, take control of any cash or non-cash proceeds of any Collateral which
cash proceeds will be deposited into the Cash Collateral Account.
SECTION 3.7 The Cash Collateral Account. (A) Borrowers hereby agree to establish
a restricted access account which will be under the exclusive control of Lender
(the "Cash Collateral Account") into which Borrowers shall deposit all payments
of any
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of its Accounts, Instruments, Chattel Paper and General Intangibles to be made;
provided that, so long as no Default or Event of Default has occurred and is
continuing hereunder and there are no Advances outstanding hereunder, Borrowers
shall have the right to request, and Lender shall withdraw from the Cash
Collateral Account, any balance in such account which balance shall be deposited
into the Operating Account. Borrowers hereby grant, bargain, convey and set over
to Lender a security interest in and lien upon such Cash Collateral Account and
any other account established by a Borrower with Lender or any affiliate
thereof, and all cash and any other assets at any time hereafter contained
therein. For purposes of determining whether a requested Advance may be made in
accordance with Section 2.1 hereof only, the total outstanding principal under
the Revolving Credit shall be reduced each Business Day by an amount equal to
any and all amounts deposited into the Cash Collateral Account, provided however
that, if any checks deposited into the Cash Collateral Account are returned
unpaid or otherwise dishonored and as a result of such dishonor the total
outstanding principal including the amount of any such dishonored check exceeds
the Credit Limit, Borrowers shall repay immediately the amount of the excess.
Amounts deposited into the Cash Collateral Account shall be applied to amounts
outstanding hereunder in accordance with Section 2.2 hereof each Business Day.
Borrowers shall pay Lender interest at the Adjusted Prime Rate on the average
daily uncollected funds deposited into the Cash Collateral Account. Such
interest on the average daily uncollected funds shall be due at the end of each
month.
SECTION 3.8 Accounts. With respect to any Borrower's Account (A) such Borrower
represents that: (1) such Account is not evidenced by a judgment, an Instrument
or Chattel Paper or secured by a letter of credit (except (a) such judgment as
has been assigned to Lender, (b) such Instrument or Chattel Paper as has been
endorsed and delivered to Lender and (c) such letter of credit as has been
assigned and delivered to Lender) and represents a bona fide completed
transaction; (2) the amount shown on such Borrower's Books and Records and on
any list, invoice or statement furnished to Lender is owing to such Borrower;
(3) the title of such Borrower to the Account and, except as against the
Purchaser, to any goods represented thereby is absolute; (4) the Account has not
been transferred to any other person, and, at the time such Account is created,
no person except such Borrower has any claim thereto or, with the sole exception
of the Purchaser therefor, to the goods represented thereby; (5) no partial
payment against any Account has been made by anyone; and (6) no set-off or
counter-claim to such Account exists, and no agreement has been made with any
person under which any deduction or discount may be claimed.
(B) Each Borrower will immediately notify Lender if any Account arises
out of contracts with the United States or any
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department, agency or instrumentality thereof, furnish Lender with copies of
each such contract and execute any instruments and take any steps reasonably
required by Lender in order that all moneys due and to become due under any such
contract shall be assigned to Lender and notice given under the Federal
Assignment of Claims Act.
(C) Each Borrower will (1) inform Lender of the rejection of any goods
represented by any Account of such Borrower, any material delay in delivery or
performance by such Borrower or claims made in regard to any Account by
providing Lender with notice of any credits given to any Purchaser on the next
Borrowing Base certificate delivered to Lender; (2) make no change in the
payment terms of any Account of such Borrower without notifying Lender of the
change in writing; (3) furnish Lender upon Lender's request with all information
received by such Borrower affecting the financial standing of any Purchaser; (4)
if requested by Lender, mark such Borrower's records concerning each of its
Accounts in a manner satisfactory to Lender so as to show that each Account has
been assigned to Lender; (5) if requested by Lender, furnish Lender with
satisfactory evidence of the shipment and receipt of any goods and the
performance of any services represented by any Accounts; and (6) furnish Lender
with such other information as Lender may from time to time reasonably request.
SECTION 3.9 Chattel Paper, Letters of Credit and Instruments. Each Borrower
represents and warrants to Lender that it has delivered to Lender and covenants
that it will deliver to Lender promptly on receipt all originals of (A) letters
of credit securing its Accounts, (B) Chattel Paper, and/or (C) Instruments now
in its possession or hereafter acquired, each properly assigned and/or endorsed
over to Lender, which letters of credit, Chattel Paper and Instruments shall be
held by Lender as security hereunder. Each Borrower shall remain solely
responsible for the observance and performance of all of its covenants and
obligations under all Chattel Paper and Instruments, and Lender shall not be
required to observe or perform any such covenants or obligations.
SECTION 3.10 Equipment and Inventory. Each Borrower represents, warrants and
agrees that (A) such Borrower is the absolute owner of its Inventory and
Equipment, subject only to the security interests created hereby and Permitted
Encumbrances; (B) such Borrower will not dispose of any of its Equipment
excluding obsolete Equipment or permit any of its Equipment to become a fixture
or an accession to other goods; and (C) such Borrower will sell its Inventory
only in the ordinary course of business; and (D) if any Inventory is or becomes
represented by a Document, Lender may require that such Document be in such form
as to permit Lender or anyone to whom Lender may negotiate the
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same to obtain delivery to it of the Inventory represented thereby.
SECTION 3.11 Condition of Inventory. Each Borrower will immediately notify
Lender of any event of deterioration, loss or depreciation of value of any
substantial portion of its Inventory and the amount of such deterioration, loss
or depreciation.
SECTION 3.12 Expenses of Lender. Borrowers will reimburse Lender on demand for
all expenses (including the reasonable fees and expenses of legal counsel for
Lender) in connection with the enforcement of Lender's rights to take possession
of the Collateral and the proceeds thereof and to hold, collect, render in
compliance with applicable environmental laws and regulations, prepare for sale,
sell and dispose of the Collateral.
SECTION 3.13 Notices. If notice of sale, disposition or other intended action by
Lender with respect to the Collateral is required by the Uniform Commercial Code
or other applicable law, any notice thereof sent to Borrowers at the address
specified in Section 8.2 hereof or such other address of Borrower as may from
time to time be shown on the records of Lender at least ten days prior to such
action, shall constitute reasonable notice to Borrowers.
SECTION 3.14 Insurance; Discharge of Taxes, etc. Lender shall have the right at
any time and from time to time, with or without notice to Borrowers, to (A)
obtain insurance covering any of the Collateral if a Borrower fails to do so,
(B) discharge taxes, liens, security interests or other encumbrances at any time
levied or placed on any of the Collateral and (C) pay for the maintenance and
preservation of any of the Collateral. Borrowers will reimburse Lender, on
demand, with interest at the Default Rate for any payment Lender makes, or any
expense Lender incurs under this authorization. Each Borrower assigns to Lender
all right to receive the proceeds of insurance covering the Collateral, directs
any insurer to pay all such proceeds directly to Lender and authorizes Lender to
endorse in the name of such Borrower any draft for such proceeds.
SECTION 3.15 Waiver and Release by Borrower. Each Borrower (A) waives protest of
all commercial paper at any time held by Lender on which such Borrower is in any
way liable, notice of nonpayment at maturity of any and all Accounts of such
Borrower and, except where required hereby or by law, notice of action taken by
Lender, and (B) releases Lender from all claims for loss or damage caused by any
failure to collect any Account or by any act or omission on the part of Lender
or its officers, agents and employees, except gross negligence and willful
misconduct.
SECTION 3.16 Access to Inventory. Each Borrower shall permit Lender's
representatives to have access to its Inventory from
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time to time, as requested by Lender, for purposes of audit, examination,
inspection, and appraisal thereof and verification of such Borrower's records
pertaining thereto. Except after the occurrence of a Default or an Event of
Default, Lender shall give a Borrower at least 24 hours telephone notice before
exercising the rights granted in the preceding sentence and such audit,
examination, inspection, appraisal or verification shall be conducted, to the
extent taking place on such Borrower's premises, during normal business hours.
Upon demand by Lender, each Borrower shall assemble its Inventory which
constitutes Collateral hereunder and make it available to Lender at such
Borrower's place of business. At the request of Lender, after the occurrence of
an Event of Default, each Borrower shall provide warehousing space in its own
premises to Lender for the purpose of taking Inventory into the custody of
Lender without removal thereof from such premises and will erect such structures
and post such signs as Lender may require in order to place such Inventory under
the exclusive control of Lender. Each Borrower shall conduct an annual inventory
count and shall provide Lender with five (5) days notice prior to any such
inventory count.
SECTION 3.17 Records and Reports. Each Borrower shall keep accurate and complete
records of its Accounts (and the collection thereof), General Intangibles,
Chattel Paper, Instruments, Documents and Inventory and furnish Lender such
information about its Accounts, General Intangibles, Chattel Paper, Instruments,
Documents, and Inventory as Lender may reasonably request. Lender shall have the
right to conduct periodic examinations and verifications of each Borrower's
Books and Records, which examination may include, without limitation,
verifications of Accounts by contacting Purchasers. Each Borrower agrees to make
its Books and Records available to Lender at such Borrower's principal place of
business for purposes of such examination. Provided there does not exist a
Default or an Event of Default, Lender agrees to give a Borrower at least 24
hours notice of such examination (which notice need not be in writing) and to
conduct such examination during normal business hours. Borrowers shall reimburse
Lender for the costs and expenses (whether internal or external) of any such
examination which, prior to the occurrence of an Event of Default hereunder,
shall not exceed $7,500.00 in the aggregate per annum.
SECTION 3.18 Further Assurances. From time to time each Borrower will execute
and deliver to Lender such additional instruments as Lender may reasonably
request to effectuate the purposes of this Agreement and to assure to Lender, as
secured party, a security interest in the Collateral. Each Borrower hereby
irrevocably appoints Lender as such Borrower's attorney-in-fact (A) to take any
action Lender deems necessary to perfect or maintain perfection of any security
interest granted to Lender herein or in connection herewith, including the
execution of any document on such Borrower's behalf, and (B) to take any other
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action to effectuate the rights granted in this Article III, which power of
attorney is coupled with an interest and irrevocable until all of the
Liabilities are paid in full. Until all of the Liabilities are paid in full,
Lender may, at any time and from time to time, send to any Purchaser a
verification form, make such calls or otherwise contact Purchasers of a Borrower
as are necessary or desirable, in Lender's sole discretion, to verify Accounts,
Instruments, Chattel Paper and/or General Intangibles that are Collateral and
the balance due.
SECTION 3.19 Application of Proceeds of Collateral. All proceeds of Collateral
shall be applied (A) to the costs of preservation and, after the occurrence of
an Event of Default, liquidation of such Collateral and Lender's exercise of its
rights under Articles III and VII hereof, then (B) to any unpaid fees due
hereunder, then (C) to any unpaid interest due hereunder or under the Note, then
(D) to the principal payable hereunder or under the Note, then (E) to all other
Liabilities.
SECTION 3.20 Continuing Collateral. Lender shall be under no obligation to
proceed first against any part of the Collateral before proceeding against any
other part of the Collateral. It is expressly agreed that all of the Collateral
stands as equal security for all Liabilities and Lender shall have the right to
proceed against or sell any and/or all of the Collateral in any order, or
simultaneously, as it, in its sole discretion, shall determine.
ARTICLE IV
CONDITIONS OF LENDING
SECTION 4.1 Conditions Precedent to Lender's Obligations. The obligations of
Lender hereunder are subject to the conditions precedent that, on or before the
day the initial Advance under the Revolving Credit is to be made or the initial
Letter of Credit is to be issued, Lender shall have received all of the
following, in form and substance satisfactory to Lender:
(A) a copy, certified in writing by a Secretary or Assistant Secretary
of each Borrower, of (1) resolutions of the Board of Directors of such Borrower
evidencing approval of the Loan Documents and the Acquisition Documents by such
Borrower and the matters contemplated thereby, (2) each document evidencing
other necessary action and governmental approvals, if any, with respect to the
Loan Documents and Acquisition Documents, and (3) such Borrower's charter
documents and by-laws;
(B) a favorable opinion of independent counsel for Borrowers on such
matters and in form and substance acceptable to Lender;
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(C) a written certificate by the Secretary or an Assistant Secretary of
each Borrower as to the names and signatures of the officers of such Borrower
authorized to sign the Loan Documents to which such Borrower is a party and the
other documents or certificates of such Borrower to be executed and delivered
pursuant thereto and to request Advances or the issuance of Letters of Credit;
(D) recent certificates, issued by the Secretary of State of the State
of Delaware, stating that each Borrower is a corporation duly incorporated and
in good standing under the laws of Delaware;
(E) recent certificates, issued by the Secretaries of State of each
state in which each Borrower does business, stating that such Borrower is in
good standing as a foreign corporation under the laws of such state;
(F) the Note duly executed by each Borrower;
(G) the UCC financing statements required by Lender duly executed by a
Borrower;
(H) copies of all real property leases under which a Borrower is lessee
or lessor;
(I) the Landlord's Waivers required by Section 3.4 hereof;
(J) the Intangible Assignments duly executed by Borrowers, acknowledged
and in form suitable for recording;
(K) a copy of each and every authorization, permit, consent and
approval of and other action by, and notice to and filing with (collectively,
"Consents"), every governmental authority and regulatory body which is required
to be obtained or made by each Borrower for the due execution, delivery and
performance of this Agreement and the other Loan Documents and the Acquisition
Documents, or a certificate of an officer of each Borrower and such supporting
evidence as Lender may request that no such Consents are required;
(L) the financial information required by Section 5.4 hereof relating
to Borrowers;
(M) a certificate of insurance confirming that each Borrower has
procured insurance policies covering worker's compensation, public liability and
completed operations, protecting such Borrower against any liability for loss or
damage to persons or property in any way occurring during the progress of the
work or in any way arising from the work, whether under the Worker's
Compensation Law or otherwise, and whether injury shall be to employees or to
persons other than employees. Lender
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shall be named an additional insured on the liability insurance policy, and the
aforesaid certificate shall confirm Lender's status as an additional insured and
contain the agreement of the insurer to give not less than thirty (30) days
notice to Lender prior to cancellation of such policies or material change in
the coverage thereof;
(N) an original all-risk hazard insurance policy or policies on a full
replacement cost basis (with no co-insurance) (including flood insurance, if
applicable) for the full insurable value of all Collateral with a standard
lender loss payee clause in favor of the Lender, in an amount or amounts and
with a company or companies reasonably satisfactory to Lender, and which
contains the agreement of the insurer to give not less than thirty (30) days
notice to Lender prior to cancellation of such policies or material change in
the coverage thereof;
(O) evidence of liability, errors and omissions, and product liability
insurance in amounts as are customary in each Borrower's industry and are
reasonably acceptable to Lender, with a company or companies reasonably
satisfactory to Lender, with a long form endorsement in favor of Lender, and
which contains the agreement of the insurer to give not less than thirty (30)
days notice to Lender prior to cancellation of such policies or material change
in the coverage thereof;
(P) a lien search prepared by a search company acceptable to Lender
showing no perfected liens against any of the assets of Borrowers or the
Acquired Assets;
(Q) a lien search prepared by a search company acceptable to Lender
showing no perfected liens against any of the trademarks or patents of
Borrowers, including without limitation, the trademarks and patents that are
part of the Acquired Assets;
(R) such evidence as Lender may reasonably require that each Borrower
and its business and the transactions contemplated hereby are in full compliance
with all federal, state and local environmental laws, ordinances, rules and
regulations;
(S) evidence that Borrowers have paid or has made arrangements
satisfactory to Lender to pay all fees, costs and expenses incurred in
connection with the transactions contemplated hereby including, without
limitation, audit fees, lien search fees, filing fees and the fees and expenses
of Lender's counsel;
(T) results satisfactory to Lender of (1) an examination of the
Collateral and Books and Records conducted by Lender; (2) inquiries conducted by
Lender of Borrowers' trade and bank creditors and Purchasers; and (3) any other
due diligence conducted by Lender with respect to Borrowers;
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(U) each other document required by Article III hereof as to the
Collateral and any other documents or condition which Lender may reasonably
request;
(V) an executed Borrowing Base certificate in the form attached hereto
as Exhibit 2.1(B);
(W) documents necessary to open the Operating Account and
the Cash Collateral Account;
(X) a letter from Borrowers' certified public accountants addressed to
Lender acknowledging and agreeing that Lender may rely on financial statements
required under Section 6.2(A)(1) in administering the Revolving Credit;
(Y) originals of all of each Borrower's Instruments, Chattel Paper and
letters of credit (drawn on a bank other than Lender), if any, supporting any
Account, each properly endorsed and/or assigned to Lender; and
(Z) copies of the executed Acquisition Documents, certified as true,
complete and correct by an officer of Borrowers;
(AA) evidence that all of the conditions precedent set forth in the
Acquisition Documents (excluding payment of the purchase price thereunder) have
been satisfied or waived;
(AB) such other documents as Lender may require.
SECTION 4.2 Additional Conditions Precedent. The obligations of Lender hereunder
are subject to the further conditions precedent that:
(A) the representations and warranties contained in this Agreement and
in the other Loan Documents shall be correct and accurate on and as of the date
of each Advance or issuance as though made on and as of such date;
(B) no Default or Event of Default shall have occurred and be
continuing or will result from the making of any Advance or issuance of any
Letter of Credit;
(C) there shall have occurred no material adverse change in the
financial condition, assets, nature of the assets, operations or prospects of a
Borrower; and
(D) there shall be no litigation pending or, to the best of any
Borrower's knowledge, threatened which may have a material adverse effect on the
financial condition, assets, operations or prospects of a Borrower.
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SECTION 4.3 Conditions to Issuance of Letters of Credit. The obligation of
Lender to issue any Letter of Credit hereunder is subject to the prior or
concurrent satisfaction of all of the following conditions:
(A) On or before the date of issuance of the Letter of Credit, each of
the conditions set forth in Section 4.1 shall have been satisfied or waived;
(B) On or before the date of issuance of each Letter of Credit, Lender
in respect of such Letter of Credit shall have received in accordance with the
provisions of Section 2.11, a notice requesting the issuance of such Letter of
Credit, an executed application for such Letter of Credit in the form
customarily required by Lender for the issuance of letters of credit, all other
information specified in Section 2.11, and such other documents as Lender may
reasonably require in connection with the issuance of such Letter of Credit;
(C) On the date of issuance of each Letter of Credit, all conditions
precedent described in Section 4.2 shall be satisfied to the same extent as
though the issuance of such Letter of Credit were the making of an Advance, and
each request by a Borrower to Lender to issue a Letter of Credit shall
constitute a representation by Borrowers that at the time thereof (1) all
conditions precedent described in Section 4.2 have been satisfied and (2) the
sum of the proposed Letter of Credit plus the Letter of Credit Liability plus
the Advances then outstanding would not exceed the Credit Limit; and
(D) On or before the date of issuance of such Letter of Credit,
Borrowers shall have paid the fees therefor required under Section 2.11.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
In addition to all other representations and warranties set forth in
this Agreement (including, without limitation, those in Article III hereof),
each Borrower represents and warrants as follows:
SECTION 5.1 Existence. Each Borrower is a corporation, duly formed, validly
existing, and in good standing under the laws of the State of Delaware. Each
Borrower has all requisite power and authority to conduct its business and to
own its properties and is duly qualified as a foreign corporation in good
standing in all other jurisdictions in which its failure so to qualify could
have a material adverse effect on its financial condition or business.
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SECTION 5.2 Authorization. The execution, delivery, and performance by each
Borrower of each Loan Document to which it is a party has been duly authorized
by all necessary corporate action, and does not and will not violate any
provision of law or of the certificate of incorporation or by-laws of such
Borrower or result in a breach of or constitute a default under any agreement,
indenture, or instrument to which such Borrower is a party or by which such
Borrower, or any of its properties, may be bound or affected.
SECTION 5.3 Validity of Documents. Each Loan Document when duly executed and
delivered will constitute the valid and legally binding obligation of each
Borrower, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, or other similar laws
affecting the enforcement of creditors' rights generally.
SECTION 5.4 Financial Information. The financial information and statements of
Borrowers, including without limitation annual financial statements of TearDrop
since its inception, previously delivered to Lender (excluding projections
delivered to Lender), are complete and correct and accurately reflect the
financial positions of such Borrower as of the dates and for the periods
indicated, in accordance with GAAP (subject with respect to quarterly or interim
statements to year-end adjustments and the absence of footnotes); provided
however that, with respect to financial information related to the Acquired
Assets, Borrowers are relying on the representations and warranties made in the
Acquisition Agreement. Since the date of such statements or as disclosed in the
Acquisition Agreement, there has been no material adverse change in such
financial position. Borrowers hereby represent and warrant that projections
delivered to Lender in connection herewith prior to the Closing Date (A) were
based on reasonable estimates and assumptions made by Borrowers in good faith,
(B) are the projections used in the financial planning of Borrowers, and (C) no
fact is known to Borrowers that has not been disclosed in writing to Lender that
would result in a material change in any such projections or in any estimates or
assumptions reflected therein.
SECTION 5.5 Litigation. Except as disclosed on Exhibit 5.5 attached hereto,
there are no actions, suits, or proceedings pending or, to the knowledge of
Borrowers, threatened, against a Borrower or any of its properties before any
court or governmental department, commission, board, bureau, agency, or
instrumentality (domestic or foreign) that, if determined adversely to such
entity, would have a material adverse effect on the financial condition or
operations of such Borrower or which relate to its entering into the Loan
Documents, or the consummation of the transactions contemplated thereby.
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SECTION 5.6 Contingent Liabilities. There are no suretyship agreements,
guarantees, or other Contingent Liabilities of a Borrower that are not included
on the financial statements mentioned in Section 5.4 hereof or otherwise
disclosed in this Agreement other than suretyship agreements and guarantees
given to Lender.
SECTION 5.7 Taxes. Each Borrower has filed all tax returns and reports required
to be filed before the date hereof and has paid all taxes, assessments, and
charges imposed upon it or its property, or that it is required to withhold and
pay over, to the extent that they were required to be paid before the date
hereof.
SECTION 5.8 Encumbrances. Except as disclosed on Exhibit 5.8 attached hereto,
the property and assets of each Borrower are not subject to any mortgage,
pledge, security, interest, lien, or other encumbrance except for Permitted
Encumbrances.
SECTION 5.9 Consents. No authorization, consent, approval, license, exemption by
or filing or registration with any court or governmental department, commission,
board (including the Board of Governors of the Federal Reserve System), bureau,
agency, or instrumentality, domestic or foreign, or other Person is or will be
necessary for the valid execution, delivery, or performance by Borrowers of the
Loan Documents.
SECTION 5.10 ERISA. Each Borrower and other members of its Controlled Group
maintain only those Defined Benefit Pension Plans and Defined Contribution Plans
listed on Exhibit 5.10 attached hereto. No Borrower is obligated to contribute
to any Multiemployer Plans and no Borrower has any Withdrawal Liability with
respect to any Multiemployer Plan of which such Borrower or any member of its
Controlled Group had previously been a member. Other than the underfunding
represented on the Final Balance Sheet (as such term is defined in the
Acquisition Agreement), all such Defined Benefit Pension Plans and Defined
Contribution Plans, as of the date hereof, meet the minimum funding standards of
Section 302 of ERISA and Section 412 of the Code without regard to any funding
waiver and no Prohibited Transaction has occurred with respect to any such plan.
Other than the underfunding represented on the Final Balance Sheet, no Defined
Benefit Pension Plan sponsored by a Borrower or any member of its Controlled
Group has any amount of "unfunded benefit liabilities" (as such term is defined
in 4001(a)(18) of ERISA). No trust was established in connection with any such
Defined Benefit Pension Plan pursuant to ss.4049 of ERISA (as in effect on
December 17, 1987) and no liability (whether or not such liability is being
litigated) has been asserted against a Borrower or any Controlled Group member
in connection with any such Defined Benefit Pension Plan by the PBGC or by a
trustee appointed pursuant to ss.4042(b) or (c) of ERISA, and no lien has been
attached and, to the best of each Borrower's knowledge, no person has threatened
to attach
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a lien on any property of a Borrower or any Controlled Group member as a result
of any failure to comply with the Code or ERISA. Each such Defined Benefit
Pension Plan and Defined Contribution Plan, as most recently amended, including,
without limitation, amendments to any trust agreement, group annuity, or
insurance contracts, or other governing instrument, is the subject of a
favorable determination letter by the Internal Revenue Service with respect to
its qualification under ss.401(a) of the Code or an application for such
determination within the applicable remedial amendment period has been filed
and, to the best of each Borrower's knowledge, such plans are in material
compliance, both in form and in operation, with the requirements of the Code and
ERISA. All Plans maintained by a Borrower or any member of its Controlled Group
are in material compliance in all respects (A) in operation with the
requirements of the Code and the regulations thereunder and ERISA, and (B) in
form with those requirements of the Code and the regulations thereunder and
ERISA which must be met on the date hereof. There is not now, and has not been,
any violation of the Code or the regulations thereunder or ERISA that creates a
material liability with respect to the filing of applicable reports, documents,
and notices regarding the Plans of a Borrower or any member of its Controlled
Group with the Secretary of Labor, the Secretary of the Treasury, the PBGC or
any other governmental entity or the furnishing of such documents to the
participants or beneficiaries of the Plans. Except to the extent accrued by
Sellers (as such term is defined in the Acquisition Agreement) on the Final
Balance Sheet pursuant to the Acquisition Agreement and except for the
assumption of termination and severance liability pursuant to Section 6.3(a) of
the Acquisition Agreement, no Borrower nor any member of its Controlled Group
has any unfunded liabilities of unfunded and uninsured "employee welfare benefit
plans" (as defined in ss.3(1) of ERISA). There is not now, and has not been, any
violation of the "continuation coverage requirements" of "group health plans" of
former ss.162(k) of the Code and the regulations thereunder (as in effect for
tax years beginning on or before December 31, 1988) and of ss.4980B of the Code
and the regulations thereunder (as in effect for tax years beginning on or after
January 1, 1989) and Part 6 of Subtitle B of Title I of ERISA that creates a
material liability with respect to any Employee Benefit Plan of a Borrower or of
any member of its Controlled Group to which such continuation coverage
requirements apply.
SECTION 5.11 Subsidiaries and Affiliates; Fictitious Name. No Borrower has any
Subsidiaries or Affiliates other than as listed on Exhibit 5.11 attached hereto
and does not trade under any fictitious names.
SECTION 5.12 Licenses, Permits, etc. Each Borrower is in possession of and
operating in compliance with all material franchises, grants, authorizations,
licenses, permits, easements, consents, certificates and orders required for the
conduct of its
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business as now conducted, and all of them are valid and in full force and
effect.
SECTION 5.13 Compliance with Laws Generally. Each Borrower is in material
compliance with all laws, rules, regulations, and orders of all federal, state,
and governmental agencies and courts which are applicable to it, to the conduct
of its business, or to the ownership and use of its properties.
SECTION 5.14 Environmental Matters. To the extent necessary for the conduct of
its business, each Borrower is in possession of and in compliance with all
required permits relating to the discharge or release of liquids, gases or
solids into the air, water, and soil. No Borrower refines, processes, generates,
stores, recycles, transports, disposes of, or releases into the environment any
"hazardous substance" as that term is defined in Section 101(14) of CERCLA or
any hazardous or toxic substances as those terms are used in any state or local
environmental statute or regulation except in compliance with all Environmental
Laws. No Borrower has received notice from any governmental agency that it is a
potentially responsible party in any proceeding under CERCLA or any similar
state or local environmental statute or regulation, received any notice of
violation, citation, complaint, request for information, order, directive,
compliance schedule, notice of any claim, proceeding, or litigation from any
party concerning such Borrower's compliance with any Environmental Law.
SECTION 5.15 Patents, etc. Each Borrower possesses all patents, trademarks,
copyrights, tradenames, trade secrets, and other intellectual property rights,
or licenses therefor, that are required to conduct its business without, to the
best of any Borrower's knowledge, conflict with the rights or claimed rights of
others, except as disclosed on Exhibit 5.15.
SECTION 5.16 Debt and Credit Arrangements. Except as set forth on Exhibit 5.16,
no Borrower has any debt and is not a party to any credit agreement, guaranty,
capital lease or other investments, agreements and arrangements presently in
effect providing for or relating to extensions of credit in respect of which
such Borrower is in any manner directly or contingently obligated, except to the
extent such Borrower is obligated to pay for goods and services obtained or
acquired in the ordinary course of business under customary trade terms.
SECTION 5.17 Regulation U, Etc. The Revolving Credit will not constitute a
violation of Regulation G, T, U or X of the Board of Governors of the Federal
Reserve System. No part of the proceeds of the Revolving Credit will be used for
any purposes which violate or are inconsistent with the provisions of any of
such regulations.
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SECTION 5.18 Labor Matters. There are no existing, or to the knowledge of
Borrowers, threatened, or contemplated, strikes, slowdowns, picketing or work
stoppages by any employees against a Borrower, any lockouts by a Borrower of any
of its employees or any labor trouble or other occurrence, event or condition of
a similar character.
SECTION 5.19 Outstanding Judgments or Orders. Each Borrower has satisfied all
judgments against it to the extent outstanding and not stayed pending appeal for
more than thirty (30) days, and no Borrower is in default with respect to any
judgment, writ, injunction, decree, rule or regulation of any court, arbitrator
or commission, board bureau, agency or instrumentality, domestic or foreign,
pertaining to it.
SECTION 5.20 No Defaults on Other Agreements. No Borrower is in default in the
performance, observance or fulfillment of any of the material obligations,
covenants or conditions contained in any agreement or instrument to which it is
a party which has not been waived in writing or cured which would have a
material adverse effect on a Borrower or any Loan Document.
SECTION 5.21 Full Disclosure. No representation or warranty by a Borrower in
this Agreement and no information in any statement, certificate, schedule or
other document furnished or to be furnished to Lender pursuant hereto, or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make the statements contained herein or therein not
misleading. Except as disclosed in this Agreement and the Exhibits attached
hereto, there is no fact known to Borrowers which has not been disclosed to
Lender in writing which materially adversely affects a Borrower.
ARTICLE VI
COVENANTS
In addition to all other covenants set forth in this Agreement, each
Borrower covenants that so long as any of the Liabilities shall remain unpaid
unless Lender shall otherwise consent in writing:
SECTION 6.1 Use of Proceeds. The proceeds of the Revolving Credit will be used
as set forth in Article II hereof.
SECTION 6.2 Financial Information. (A) In addition to the reports which
Borrowers are obligated to deliver pursuant to Article III hereof, Borrowers
will furnish to Lender:
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(1) as soon as available, and in any event within ninety (90)
days after the close of each fiscal year of Borrowers, a Consolidated and
Consolidating balance sheet of Borrower as of the close of each such fiscal year
together with related statements of operations, retained earnings and changes in
financial position for such fiscal year, audited and unqualifiedly certified by
Rothstein Kass or such other independent certified public accountants acceptable
to Lender);
(2) as soon as available, and in any event no later than
forty-five (45) days after the end of each fiscal quarter, a copy of TearDrop's
Form 10Q;
(3) as soon as available, and in any event no later than the
fifteenth day of each month, (a) an aging report of each Borrower's accounts
payable, (b) an aging report of the Accounts of each Borrower showing the names
of Purchasers, the amounts owed by them respectively, and the invoice dates for
each such Account, (c) a monthly reconciliation report reconciling the last two
monthly Accounts aging reports provided to Lender, and (d) a monthly inventory
report, all of which shall be in form and detail reasonably satisfactory to
Lender;
(4) as soon as available, and in any event by Monday of each
week, a completed Borrowing Base certificate in the form attached hereto as
Exhibit 2.1(B), provided that Lender in its sole discretion shall have the right
at any time to increase the frequency of Borrowers' delivery of Borrowing Base
certificates;
(5) as soon as available a copy of any document (other than
Form 10Q) filed by TearDrop with the Securities and Exchange Commission;
(6) promptly upon the request of Lender, a list containing the
name, address and telephone number of all current Purchasers; and
(7) promptly upon the request of Lender, any other information
reasonably requested by Lender.
(B) All data will be prepared according to GAAP.
(C) Each statement required to be delivered in accordance with Section
6.2(A)(1) and (2) above shall be accompanied by a certificate of the chief
executive officer or chief financial officer of Borrowers that such officer has
reviewed the operations of Borrowers for that fiscal period and that no Event of
Default or Default has occurred, or, if any such Event of Default or Default has
occurred, a written statement setting forth the details of each such Event of
Default or Default, stating whether or not the same is continuing and, if so,
the action that Borrowers propose to take with respect thereto.
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SECTION 6.3 Insurance. In addition to the requirements of Article III hereof,
each Borrower will at all times carry insurance, in form and amount reasonably
satisfactory to Lender, and underwritten by financially sound and reputable
insurers reasonably satisfactory to Lender, against fire (with extended coverage
and, if required by the location of any of such Borrower's premises on a flood
plain, flood coverage), liability, errors and omissions, product liability and
all other hazards specified by Lender and will furnish to Lender a copy of all
such insurance policies which shall insure the interest of Lender in accordance
with a standard lender's loss payable clause as to all non-liability policies.
All insurance policies will name the Lender as an additional insured and contain
provisions (A) that with respect to Lender, the insurance policies may be
cancelled only for nonpayment of premiums by a Borrower after not less than 30
days notice of intent to cancel provided to Lender and (B) that the insured will
make payment to Lender under any such policy notwithstanding any defense which
such insurer may have against any of the other insureds on such policy.
SECTION 6.4 Encumbrances. No Borrower will create, incur, assume, or suffer to
exist any mortgage, pledge, lien, or other encumbrance of any kind upon, or any
security interest in, any of its property or assets (including, but not limited
to, the Collateral), whether now owned or hereafter acquired, except for the
following (collectively, "Permitted Encumbrances"): (A) liens for taxes not yet
delinquent; (B) statutory inchoate liens in connection with workmen's
compensation, unemployment insurance, or other social security obligations; (C)
mechanic's, workman's, materialman's, landlord's, carrier's, or other similar
liens arising in the ordinary course of business with respect to obligations
that are not due; (D) liens listed on Exhibit 5.8 attached hereto; and (E) liens
in favor of Lender. No Borrower will agree with any Person to restrict its
ability to grant mortgages, pledges, liens, or other encumbrances upon, or
security interests in, any of its property or assets.
SECTION 6.5 Minimum Tangible Net Worth. Borrowers shall maintain a Tangible Net
Worth at all times of not less than $10,000,000.00.
SECTION 6.6 Leverage Ratio. Borrowers shall maintain a Leverage Ratio at all
times of not greater than 3.0:1.0.
SECTION 6.7 Fiscal Year. Each Borrower shall at all times maintain its fiscal
year ending on December 31, unless otherwise required by government regulation.
SECTION 6.8 Taxes. Each Borrower shall pay when due all taxes, assessments, and
charges imposed upon it or its properties or which it is required to withhold or
pay over.
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SECTION 6.9 Guarantees, etc. No Borrower shall become liable on the obligation
of another Person or otherwise incur any consensual Contingent Liability except
by endorsement of negotiable instruments for deposit or collection in the usual
course of business and except for guarantees or suretyship agreements given to
Lender.
SECTION 6.10 Loans and Investments. No Borrower shall make any loans or
investments (including without limitation loans to officers or loans to or
investments in Affiliates or Subsidiaries) except for (A) investments in (1)
Cash Equivalents, (2) direct obligations of, or obligations fully guaranteed by,
the United States of America, and (3) obligations of Lender, and (B) investments
in or loans to the other Borrower.
SECTION 6.11 Compliance with Laws. Each Borrower shall comply in all material
respects with all laws and regulations applicable to it in the operation of its
business.
SECTION 6.12 Environmental Matters. (A) To the extent necessary for the conduct
of its business, each Borrower will obtain and comply with all permits,
licenses, registrations, and approvals required by Environmental Laws relating
to the discharge or release of liquids, gases or solids into the environment. To
the extent that such are applicable to the conduct of its business, each
Borrower will comply with all laws, rules, regulations and governmental orders
and directives relating to the generation, treatment, storage, transportation,
disposal and release into the environment and cleanup of any hazardous or toxic
waste or substance which is subject to the provisions of CERCLA, or any similar
state or local environmental statute or regulation at all premises owned or
operated by such Borrower. Each Borrower will comply with all laws, rules,
regulations, and governmental orders and directives relating to the cleanup of
hazardous or toxic substances at all premises owned or operated by it.
(B) Each Borrower will promptly notify Lender if it receives (1) any
notice from any governmental agency that it is a potentially responsible party
in any proceeding under CERCLA or any similar state or local environmental
statute or regulation, (2) any notice of any claim, proceeding, litigation,
order, directive, citation, or request for information concerning environmental
conditions, or notice of any alleged violation of any environmental statute,
ordinance, regulation, or permit condition against such Borrower or related to
any location owned, used or occupied by such Borrower at any time, or (3) any
written notice or information concerning any potentially materially adverse
environmental condition, including, but not limited to, any spilling, leaking,
discharge, release, or threat of release of any hazardous or toxic waste or
substance above regulatory
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limits at any location owned, used or occupied by such Borrower at any time.
(C) Each Borrower shall comply with any notice or directive from any
other governmental authority, whether state, federal, or local, regarding the
removal or discharge of any hazardous substance on any of its properties within
such period as may be required therein unless the same is being contested by
such Borrower in good faith and, upon request of Lender shall provide a bond or
title insurance endorsement reasonably satisfactory to Lender insuring Lender's
continued lien on the Collateral affected by such notice or directive.
(D) Each Borrower hereby indemnifies and agrees to defend and hold
harmless Lender, its parent corporation, subsidiaries, successors, assigns,
officers, directors, shareholders, employees, agents and counsel from and
against any and all claims, actions, causes of action, liabilities, penalties,
fines, damages, judgments, losses, suits, expenses, legal or administrative
proceedings, interest, costs and expenses (including court costs and reasonable
attorneys', consultants' and experts' fees) arising out of or in any way
relating to (1) the presence of any substance which is or becomes regulated
under any Environmental Law whether now or hereafter enacted, on, about, beneath
or arising from any property used or occupied by a Borrower; (2) the failure of
a Borrower to comply with any Environmental Law; (3) a Borrower's breach of any
of the representations and warranties or covenants contained herein; (4) any
notice of violation, citation, complaint, request for information, order,
directive, compliance schedule, notice of claim, consent decree, action,
litigation or proceeding brought or instituted by any governmental authority or
any third party under or in connection with any Environmental Law or based on
the presence of any substances described in (1) above against a Borrower or
related to any location owned, used or occupied by a Borrower at any time; and
(5) the imposition or recording of a lien against any property of or occupied by
a Borrower pursuant to any Environmental Law, unless due solely to the gross
negligence or willful misconduct of Lender. IT IS INTENDED THAT THE INDEMNITY
PROVIDED IN THIS SECTION SHALL SURVIVE THE REPAYMENT OF THE LIABILITIES.
SECTION 6.13 Maintenance of Property. Each Borrower will maintain all of its
property (subject to ordinary wear and tear) in good condition and repair.
SECTION 6.14 Inspection by Lender. Each Borrower will permit representatives of
Lender to inspect, examine and/or audit the Collateral, any of its other
property and/or its Books and Records and to make extracts therefrom at
Borrowers' expense and at all reasonable times, provided however that except
after the occurrence of a Default or an Event of Default, Lender shall give
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a Borrower at least 24 hours telephone notice before exercising the rights
granted in the preceding clause and such audit, examination or inspection shall
be conducted, to the extent taking place on a Borrower's premises, during normal
business hours.
SECTION 6.15 Limitations on Borrowing. No Borrower will incur or otherwise
permit to exist any obligation for the payment of borrowed money, whether as
borrower or guarantor, except debt owed to Lender in connection herewith, trade
debt incurred by such Borrower in the ordinary course of business and the Debt
set forth on Exhibit 5.16.
SECTION 6.16 Reports. Borrowers will furnish the following to Lender:
(A) as soon as possible and in any event within 5 days after a Borrower
becomes aware of the occurrence of any Default or Event of Default a written
statement of Borrowers signed by the chief executive officer or chief financial
officer of Borrowers setting forth details of such Default or Event of Default,
stating whether or not the same is continuing and, if so, the action proposed to
be taken with respect thereto;
(B) immediately after receiving knowledge thereof, notice in writing of
all actions, suits, or proceedings before any court or governmental department,
commission, board, bureau, agency, or instrumentality, domestic or foreign,
affecting a Borrower;
(C) as soon as possible and in any event within 5 days after a Borrower
becomes aware of the occurrence of a significant material adverse change in the
business, properties, operations, or condition (financial or otherwise) of a
Borrower, a written statement of Borrowers signed by the chief executive or
chief financial officer of Borrower setting forth details of such significant
material adverse change and the action proposed to be taken with respect
thereto;
(D) immediately after receiving knowledge thereof, notice in writing of
any strike, walkout, boycott or other labor dispute involving a Borrower;
(E) if requested by Lender, furnish to Lender copies, with such
duplicate copies as Lender may request, of any invoice applicable to a
Borrower's Accounts; and
(F) such other information respecting the business properties,
operations, and condition (financial or otherwise) of a Borrower as Lender may
at any time and from time to time reasonably request.
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SECTION 6.17 ERISA. (A) Each Borrower and all members of its Controlled Group
will comply in all material respects with the provisions of ERISA and the Code
with respect to any Defined Benefit Pension Plan and Defined Contribution Plan
including the timely filing of required annual reports and the payment of PBGC
premiums.
(B) Each Borrower will furnish to Lender, promptly after the filing
thereof with the United States Secretary of Labor and the PBGC, copies of each
annual or other report with respect to each Defined Benefit Pension Plan and
Defined Contribution Plan maintained by such Borrower or any member of its
Controlled
Group.
(C) Each Borrower will cause to be made all contributions required to
amortize any accumulated funding deficiency (as defined in ss.412(a) of the Code
and the regulations thereunder and ss.302(a) of ERISA), unless waived, with
respect to any pension plan (as defined in ss.3(2) of ERISA), other than a
Multiemployer Plan, which is subject to Part 3 of the Subtitle B of Title I of
ERISA or Section 412 of the Code and the regulations thereunder and which is
maintained by such Borrower or any member of its Controlled Group.
(D) As soon as possible (and in any event within 10 days) after a
Borrower knows (1) that any Reportable Event has occurred with respect to any
Defined Benefit Pension Plan maintained by a Borrower or any member of its
Controlled Group, (2) that any Defined Benefit Pension Plan maintained by a
Borrower or any member of its Controlled Group is to be terminated in a distress
termination (within the meaning of 4041(c) of ERISA), (3) that the PBGC has
instituted or will institute proceedings under Title IV of ERISA to terminate
any Defined Benefit Pension Plan maintained by a Borrower or any member of its
Controlled Group, (4) that a Borrower has incurred Withdrawal Liability from a
Multiemployer Plan maintained by a Borrower or any member of its Controlled
Group, or (5) that any Multiemployer Plan to which a Borrower or any member of
its Controlled Group has made contributions is in Reorganization, Borrowers will
furnish a statement to Lender setting forth the details as to such Reportable
Event, distress termination, termination proceedings, Withdrawal Liability, or
Reorganization, and the action that Borrowers propose to take with respect
thereto, together with a copy of any notice of such Reportable Event or distress
termination given to the PBGC, or a copy of any notice of termination
proceedings, Withdrawal Liability, or Reorganization received by a Borrower or
any member of its Controlled Group.
(E) Borrowers will furnish to Lender as soon as possible (and in any
event within 10 days) after receipt thereof a copy of any notice that a Borrower
or any member of its Controlled Group receives from the PBGC or the Internal
Revenue Service or from
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the sponsor of any Multiemployer Plan that sets forth or proposes any action to
be taken or determination made by the PBGC or the Internal Revenue Service with
respect to any Defined Benefit Pension Plan, Defined Contribution Plan or
Multiemployer Plan.
(F) Borrowers will promptly notify Lender of any taxes, penalties,
interest charges and other financial obligation that have been assessed or
imposed or threatened to be assessed or imposed against a Borrower or any member
of its Controlled Group by the Internal Revenue Service, the PBGC or any other
governmental entity with respect to any Plan or Multiemployer Plan.
(G) Borrowers will promptly notify Lender of the adoption of any
Defined Benefit Pension Plan or Defined Contribution Plan or any obligation to
contribute to any Multiemployer Plan by a Borrower or any member of its
Controlled Group.
(H) No Borrower will become obligated to contribute to, or permit any
other member of the Controlled Group to contribute to, any Multiemployer Plan.
No Borrower will permit (1) with respect to any Employee Benefit Plan, any
Prohibited Transaction or Prohibited Transactions under ERISA or the Code
resulting in liability of such Borrower or any of its Controlled Group members
in excess of $25,000 in the aggregate or (2) with respect to any Defined Benefit
Pension Plan, any Reportable Event under ERISA, if upon termination of the Plan
or Plans with respect to which one or more such Reportable Events has occurred
there is or would be any liability of such Borrower or any of its Controlled
Group members to the PBGC in excess of $25,000 in the aggregate. No Borrower
will voluntarily take or fail to take any action which would result in any
Withdrawal Liability becoming due.
(I) No Borrower will fail to make required minimum contributions, or
permit any other Controlled Group member to fail to make required minimum
contributions with respect to a Defined Benefit Pension Plan, resulting in a
lien (as provided in ss.302(f) of ERISA) against such Borrower or any of its
Controlled Group members.
(J) No Borrower will permit the adoption of a plan amendment which
results in significant underfunding (as defined in ss.307 of ERISA) of a Defined
Benefit Pension Plan which requires such Borrower or any of its Controlled Group
members to provide security.
(K) Except to the extent accrued by Sellers on the Final Balance Sheet
pursuant to the Acquisition Agreement and except for the assumption of
termination and severance liability pursuant to Section 6.3(a) of the
Acquisition Agreement, no Borrower will permit the unfunded liabilities of
unfunded and uninsured "employee welfare benefit plans" (as defined in ss.3(1)
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of ERISA) of such Borrower and of any members of its Controlled Group to exceed,
in the aggregate $10,000.
(L) No Borrower will acquire or permit the acquisition by any of its
Controlled Group members, of any trade or business which has incurred an
unfunded benefit liability (as defined in ss.4001 of ERISA) under any Defined
Benefit Pension Plan prior to such acquisition or acquire or permit the
acquisition, by such Borrower or any of its Controlled Group members, of any
trade or business which has incurred either directly or indirectly an unfunded
benefit liability under any Defined Benefit Pension Plan.
SECTION 6.18 Mergers, etc. No Borrower will directly or indirectly without the
prior written consent of Lender, (A) merge or consolidate with any other Person,
(B) except for the sale of Inventory in the ordinary course of business, sell or
lease or otherwise transfer all or any substantial part of its assets to any
Person, (C) acquire whether through purchase or exchange of equity or assets or
otherwise, all or any substantial part of the assets of any other Person or any
equity interest in any other Person, or (D) create any Subsidiary, excluding
Subsidiaries listed on Exhibit 5.11.
SECTION 6.19 Ownership of Interests, Etc.. (A) Rudy Slucker shall at all times
own 10% of the voting stock of TearDrop.
(B) TearDrop will not make or declare any dividend or distribution of
any kind or redeem any of its stock, provided however that so long as (1) no
Event of Default under Sections 6.5 or 6.6 hereof has occurred and is continuing
or would result from the declaration or making of such dividend, distribution or
redemption, (2) such dividend payment or redemption payment is permitted to be
made pursuant to the Agreement dated as of the date hereof among Borrowers,
Lender and Tommy Armour Golf Company, and (3) TearDrop gives Lender 20 days
written notice prior to making any such payment, TearDrop shall be permitted to
declare and make such dividend, distribution or redemption.
(C) TearDrop will not, without the prior written consent of Lender,
permit or effect (1) any change in the capitalization or capital structure of
TearDrop, including the issuance of any new, additional or different type or
class of stock, (2) any modification, reduction or retirement of any existing
class or type of stock, excluding the warrants outstanding on the date hereof
and the preferred stock issued pursuant to the Certificate of Designation, (3)
the alteration or modification of the voting rights of any stock, or (4) the
amendment or modification of the Certificate of Designation.
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SECTION 6.20 Nature of Business. No Borrower will make any material change in
the nature of its business as conducted on the date hereof.
SECTION 6.21 Disposal of Assets. Except for the sale of Inventory in the
ordinary course of business, replacement of Equipment and the disposaL of
obsolete Equipment, no Borrower will dispose of any assets.
SECTION 6.22 Patents, etc. Each Borrower will maintain all of its material
patents, trademarks, copyrights, trade secrets and other intellectual property
rights, and licenses therefor, if any, in full force and effect.
SECTION 6.23 Indemnification. Each Borrower hereby indemnifies and agrees to
protect, defend, and hold harmless Lender and its directors, officers,
employees, agents, attorneys and shareholders from and against any and all
losses, damages, expenses or liabilities of any kind or nature and from any
suits, claims, or demands, including all reasonable counsel fees incurred in
investigating, evaluating, or defending such claims, suffered by any of them and
caused by, relating to, arising out of, resulting from, or in any way connected
with this Agreement, the Note, any other Loan Document and any transaction
contemplated herein or therein including, but not limited to, claims based upon
any act or omission by Lender in connection with this Agreement, the Note or any
Loan Document and any transaction contemplated herein or therein to the extent
not caused by the gross negligence, bad faith or willful misconduct of Lender or
its directors, officers, employees, agents or attorneys. If a Borrower shall
have knowledge of any claim or liability hereby indemnified against, it shall
promptly give written notice to Lender. THIS COVENANT SHALL SURVIVE THE PAYMENT
OF THE INDEBTEDNESS CREATED BY THIS AGREEMENT, THE NOTE OR THE LOAN DOCUMENTS.
SECTION 6.24 RICO. No Borrower shall engage in any conduct or fail to take any
action which will, or would, under the facts and circumstances relative thereto,
violate the Racketeer Influenced and Corrupt Organization Act as amended by the
Comprehensive Act of 1984, 18 U.S.C. ss.ss.1961-68.
SECTION 6.25 Licenses, Permits. Each Borrower will maintain the validity, force
and effect of, and operate in material compliance with, all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates and orders
required for the conduct of its business.
SECTION 6.26 Capital Expenditures. Borrowers will not make or become obligated
to make Capital Expenditures in excess of $1,500,000.00 in the aggregate during
the fiscal year ending December 31, 1998, and during each fiscal year
thereafter,
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$1,500,000.00 plus, to the extent a positive number, the lesser of (A)
$250,000.00, or (B) (1) $1,500,000.00 minus (2) the actual amount of capital
expenditures made during the immediately preceding fiscal year.
SECTION 6.27 Primary Operating Accounts; Cash Management Services. While any of
the Liabilities remain outstanding or Lender has any obligation to make Advance
under the Revolving Credit, each Borrower shall keep its primary operating
accounts at Lender and shall use the cash management services of Lender.
ARTICLE VII
DEFAULT
SECTION 7.1 Events of Default. Each of the following shall, at the option of the
Lender, be an event of default ("Event of Default"):
(A) If Borrowers shall fail to pay when due any interest, principal,
any fee, or any other Liabilities;
(B) If Borrowers shall request an Advance which, if made, would result
in the outstanding principal amount of Advances to be in excess of the Credit
Limit, or if the outstanding principal amount of Advances under the Revolving
Credit shall exceed the Credit Limit at any time and such excess is not
immediately paid by Borrowers as required hereunder;
(C) If any representation or warranty made by a Borrower in any Loan
Document or in any certificate, agreement, instrument, statement, or report
contemplated by or made or delivered pursuant to or in connection with any
thereof, or if any information furnished to Lender pertaining to the Revolving
Credit shall prove to have been incorrect or false in any material respect when
made or reaffirmed;
(D) If a Borrower shall fail to pay any Credit Obligation owing by it,
or any interest or premium thereon, when due, whether owed to Lender or any
other Person and whether such Credit Obligation shall become due by scheduled
maturity, by required prepayment, by acceleration, by demand, or otherwise, or
shall fail to perform any term, covenant, or agreement on its part to be
performed under any agreement or instrument evidencing or securing or relating
to any such Credit Obligation when required to be performed, if the effect of
such failure is to accelerate, or to permit the holder or holders of such Credit
Obligation to accelerate, the maturity of such Credit Obligation, whether or not
such failure to perform shall be waived by the holder or holders of such Credit
Obligation, unless such waiver has the effect of terminating the right of such
holder or holders
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to accelerate the maturity of such Credit Obligation as a result of such
failure;
(E) If any Borrower shall be adjudicated bankrupt or insolvent, or
admit in writing its inability to pay its debts as they mature, or make an
assignment for the benefit of its creditors; or if any Borrower shall apply for
or consent to the appointment of any receiver, trustee, or similar officer for
it or for all or any substantial part of its property; or any such receiver,
trustee, or similar officer shall be appointed without the application or
consent of a Borrower and shall continue undischarged for a period of 60 days;
or if any Borrower shall institute (by petition, application, answer, consent,
or otherwise) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation, or similar proceeding relating
to it under the laws of any jurisdiction; or if such proceeding shall be
instituted (by petition, application, or otherwise) against any Borrower and an
order for relief shall be entered in such proceeding or such proceeding shall
remain undismissed for a period of 60 days; or if any judgment, writ, warrant of
attachment or execution or similar process shall be issued or levied against
property of any Borrower for all or a portion of the property which represents a
substantial portion of the property of such Borrower, and such judgment, writ,
or similar process shall not be released, vacated, or fully bonded within 30
days after its issue or levy;
(F) If (1) any Reportable Event, or any failure of compliance required
by Section 6.17 hereof that Lender reasonably determines in good faith creates a
reasonable possibility of the termination of any Defined Benefit Pension Plan of
any Borrower or of the appointment by the appropriate United States District
Court of a trustee to administer any such Plan of any Borrower, shall have
occurred and be continuing 30 days, or (2) any such plan shall be terminated, or
(3) the plan administrator of any such Plan shall file with the PBGC a notice of
intention to terminate such Defined Benefit Pension Plan, or (4) the PBGC shall
institute proceedings to terminate any such Defined Benefit Pension Plan or to
appoint a trustee to administer any such Defined Benefit Pension Plan and such
proceedings shall remain undismissed or unstayed for 30 days and if, in any of
the cases described in the foregoing clauses (1) to (4), Lender further
determines that the amount of the unfunded guaranteed benefits (within the
meaning of Title IV of ERISA) resulting upon termination of such Defined Benefit
Pension Plan would have a material adverse effect on the business, properties,
operation, or condition (financial or otherwise) of a Borrower if a lien against
the assets of such Borrower were to result under ERISA;
(G) If an event of default (as therein defined) shall occur under any
other Loan Document;
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(H) If any Borrower shall fail to comply with any of the following
Sections -- 6.1, 6.3, 6.5, 6.6, 6.9, 6.10, 6.15, 6.18, 6.19, 6.20, 6.21, 6.24,
6.26, or 6.27;
(I) If any Borrower shall fail to observe and perform each and every
one of the terms, covenants, promises and agreements on its part to be observed
and performed under this Agreement not set forth elsewhere in this Section and
such failure is not fully cured within 15 days of the earlier of (1) the date a
Borrower becomes aware of such failure or (2) the receipt of notice of such
failure from Lender;
(J) If there occurs a material adverse change to the financial
condition, assets, nature of the assets, operations or prospects of a Borrower;
(K) Any execution shall have been levied against any part of the
Collateral and shall continue unstayed and in effect for a period of ten (10)
days;
(L) The dissolution, termination or liquidation of a Borrower;
(M) If the security interests granted to Lender hereunder and the other
Loan Documents no longer constitute a first lien on any part of the Collateral;
or
(N) If any "Voting Right Triggering Event" (as such term is defined in
the Certificate of Designation) or any event occurs under Section VII(D)(i)(e)
or (f) occurs, and such occurrence is not cured within 15 days after it
occurred.
SECTION 7.2 Remedies. If any Event of Default other than those described in
Section 7.1(E) shall occur and be continuing, then upon notice from Lender to
Borrowers, and if any Event of Default described in Section 7.1(E) shall occur
then automatically:
(A) the Revolving Credit and the obligation of Lender to make Advances
or the issue Letters of Credit hereunder shall terminate;
(B) the Revolving Credit shall be due and payable immediately without
presentment, demand, protest, or further action of any kind, all of which are
hereby waived;
(C) Lender may exercise all of the rights and remedies of a secured
party under the Uniform Commercial Code or any other applicable law with respect
to the Collateral;
(D) with respect to any Equipment and Inventory of Borrowers serving as
Collateral hereunder, Lender may require
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each Borrower to assemble its Equipment and Inventory and make it available to
Lender at a place designated by Lender which is reasonably convenient to it and
to such Borrower;
(E) Lender may exercise its rights under any Loan Document (including
this Agreement);
(F) Lender shall have and is hereby granted a right of set-off, a lien
upon and a security interest in all property of each Borrower now or at any time
hereafter in Lender's possession in any capacity whatsoever, including, without
limitation, any balance or share of any deposit, trust or agency account, as
security for all liabilities of Borrowers to Lender;
(G) Lender may exercise its rights with respect to the Operating
Account, the Cash Collateral Account an the Letter of Credit Cash Collateral
Account and apply the proceeds of such accounts against the Liabilities in such
order as Lender shall elect; and
(H) Lender may exercise any other rights and remedies available to
Lender whether available at law, in equity, or otherwise.
ARTICLE VIII
ADDITIONAL PROVISIONS
SECTION 8.1 No Waiver, Cumulative Remedies. No failure or delay on the part of
Lender in exercising any right, power, or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right,
power, or remedy preclude any other or further exercise thereof or the exercise
of any other right, power, or remedy hereunder. No waiver of any provision
hereof shall be effective unless the same shall be in writing and signed by
Lender. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 8.2 Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be given to each party hereto
by overnight delivery service at its address specified below or at such other
address as shall be designated by such party in a notice to each other party
complying with the terms of this Section 8.2:
If to Borrowers:
TearDrop Golf Company
1080 Lousons Road
Union, New Jersey 07083
Attention: Mr. Rudy Slucker
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If to Lender:
CoreStates Bank, N.A.
370 Scotch Road, CN-1
Pennington, NJ 08534-0001
Attention: John Rooney
All notices, requests, demands and other communications provided for hereunder
shall be effective when delivered or received at the aforesaid addresses.
SECTION 8.3 Set-off. Lender shall have a right of set-off against, a lien upon,
and a security interest in all property of a Borrower now or at any time in the
possession of Lender in any capacity whatever, including, but not limited to
such Borrower's interest in any deposit account, as security for the
Liabilities, including without limitation, the obligations of such Borrower
under the Loan Documents and to reimburse Lender for any returned checks.
SECTION 8.4 Costs and Expenses. Borrowers agree to pay on demand (A) all
reasonable costs and expenses of Lender in connection with the preparation,
execution, delivery and administration of the Loan Documents and in connection
with any request for an amendment, modification, or waiver of any of the
provisions of any thereof (including the reasonable fees and out-of-pocket
expenses of counsel with respect thereto); (B) all filing, recording, and
similar fees and charges; (C) all costs and expenses, if any, of Lender in
connection with the enforcement of any Loan Document (including the reasonable
fees and out-of-pocket expenses of legal counsel with respect thereto) after the
occurrence of a Default or an Event of Default; and (D) all costs and expenses,
if any, of Lender in connection with the enforcement of Lender's right to take
possession of the Collateral after the occurrence of a Default or an Event of
Default and the proceeds thereof and to hold, collect, prepare for sale, render
in compliance with federal, state or local environmental statutes, ordinances,
regulations, orders, directives, and permits, sell and dispose of the Collateral
(including the reasonable fees and out-of-pocket expenses of legal counsel with
respect thereto).
SECTION 8.5 Governing Law. This Agreement and the other Loan Documents shall be
governed in all respects by the law of the State of New Jersey, the jurisdiction
in which the Loan Documents have been executed and delivered, and for all
purposes shall be construed in accordance with such law.
SECTION 8.6 Survival of Agreements and Representations; JURY WAIVER; Consent to
Jurisdiction. All agreements, representations and warranties made herein shall
survive the delivery of this Agreement and the Note. Any and all judicial
proceedings brought
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by Lender against a Borrower with respect to this Agreement may be brought in:
(A) any court of competent jurisdiction in the State of New Jersey; and (B) any
Federal district court having subject matter jurisdiction and being located in
the State of New Jersey. AFTER CONSULTATION WITH COUNSEL, AND WITH KNOWLEDGE OF
THE CONSEQUENCES, EACH BORROWER AND LENDER HEREBY WAIVE ALL RIGHTS TO DEMAND A
JURY TRIAL AND AGREE THAT ALL SUITS WILL BE HEARD BY JUDGE ONLY. Each Borrower
hereby accepts, for itself and its properties, the non-exclusive jurisdiction of
the aforesaid courts and agrees to be bound by any judgments rendered by such
courts in connection with this Agreement. No Borrower will move to transfer any
such proceeding to any different court. Any such process may be mailed by
registered or certified mail to Borrowers at the address referred to in Section
8.2 hereof. Each Borrower agrees that service by mail will constitute sufficient
notice. Service will be considered complete upon delivery. Nothing herein limits
the right of Lender to bring proceedings against a Borrower in the courts of any
other jurisdiction.
SECTION 8.7 Binding Effect; Assignment. The Loan Documents shall be binding upon
and inure to the benefit of each Borrower, Lender, and their respective
successors and assigns, except that no Borrower shall have the right to assign
or delegate its respective rights or obligations under any of such documents.
SECTION 8.8 Headings. Article, Section and subsection headings used in this
Agreement are for convenience only and shall not affect the construction of this
Agreement.
SECTION 8.9 Time of the Essence. Whether or not elsewhere herein expressly
stated, all dates and times for performance herein set forth shall be of the
essence of this Agreement.
SECTION 8.10 Sole Discretion of Lender. It is understood and agreed that, except
as expressly provided otherwise in this Agreement, Lender shall have, with
respect to all matters herein which must be approved by or be acceptable or
satisfactory to Lender or which may be determined by or consented to by Lender,
including, but not limited to, any conditions, provisions, agreements,
contracts, documents, surveys, reports, legal opinions, and title requirements,
the sole and absolute discretion to determine the acceptability thereof to
Lender.
SECTION 8.11 Amendments. Any of the provisions of this Agreement may be waived,
modified or amended only by written agreement or agreements entered into by
Borrowers and Lender, except that no such waiver, modification or amendment
shall extend to or affect any obligation not expressly waived, modified or
amended, or impair any right of Lender related to such obligation.
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<PAGE>
SECTION 8.12 Usury. Nothing herein contained or in the Note, or any other Loan
Document nor any transaction related thereto shall be construed or shall so
operate either presently or prospectively to require Borrowers (A) to pay
interest at a rate greater than is now lawful in such case to contract for, but
shall require payment of interest only to the extent of such lawful rate, or (B)
to make any payment or do any act contrary to law, but if any provision herein
or therein contained shall otherwise so operate to invalidate this Agreement,
the Note, or any other Loan Document, in whole or in part, then such provision
only shall be held for naught as though not herein or therein contained and the
remainder of this Agreement, the Note, and the other Loan Documents shall remain
operative and in full force and effect. Any interest paid in excess of the
lawful rate shall be refunded to Borrowers. Such refund shall be made by
application of the excessive amount of interest paid against any sums
outstanding under this Agreement and shall be applied in such order as Lender
may determine. If the excessive amount of interest paid exceeds the sums
outstanding hereunder, the portion exceeding the said sums outstanding shall be
refunded in cash by Lender. Any such crediting or refund shall not cure or waive
any default by Borrowers hereunder or under the Note or any other Loan Document.
Borrowers agree, however, that in determining whether or not any interest
payable exceeds the highest rate permitted by law, any non-principal payment
(except payments specifically stated in this Agreement to be "interest"),
including without limitation prepayment premiums, shall be deemed, to the extent
permitted by law, to be an expense, fee, premium or penalty rather than
interest.
SECTION 8.13 Participations. Each Borrower acknowledges and agrees that Lender
may sell a participation interest or participating interests in the Revolving
Credit. After such sale and provided Lender shall notify Borrowers thereof,
Borrowers shall, at the option of Lender, have a direct obligation to the
purchaser under such sale to the extent of the participation interest purchased.
Borrower acknowledges that Lender may share with any participant or prospective
participant, any and all information obtained by Lender in connection with the
Revolving Credit, including without limitation information delivered to Lender
by Borrower, and Borrower consents thereto. Borrowers agree to cooperate with
Lender in connection with any reasonable request made by Lender with respect to
any such sale or prospective sale.
SECTION 8.14 Entire Agreement. This Agreement, the Exhibits attached hereto and
the Loan Documents constitute the entire understanding among the parties with
respect to the subject matter hereof, and supersedes any and all contemporaneous
and prior agreements between the parties hereto with respect to the subject
matter hereof.
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<PAGE>
SECTION 8.15 No Joint Venture. The parties expressly agree that the relationship
of Lender to each Borrower is that of lender only, and Lender is not a partner
or co-venturer of any Borrower.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have caused this Agreement to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
TEARDROP GOLF COMPANY
By:/s/ R. Slucker
----------------------------
Name:
Title:
TEARDROP ACQUISITION CORP.
By:/s/ R. Slucker
----------------------------
Name:
Title:
CORESTATES BANK, N.A.
By:/s/ John D. Rooney
----------------------------
Name: John Rooney
Title:
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