<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 333-22679
ZARING NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 31-1506058
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11300 Cornell Park Drive, Suite 500, Cincinnati, Ohio 45242-1825
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
513-489-8849
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days.
YES X NO
----- -----
Number of common shares outstanding as of September 30, 1998: 4,734,388
Total Pages: 30
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ZARING NATIONAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets,
September 30, 1998, September 30, 1997 (unaudited), and
December 31, 1997 3
Consolidated Statements of Income (unaudited),
Three Months Ended September 30, 1998 and 1997 and 5
Nine Months Ended September 30, 1998 and 1997
Consolidated Statement of Shareholders' Equity,
Nine Months Ended September 30, 1998 (unaudited) 6
Consolidated Statements of Cash Flows,
Nine Months Ended September 30, 1998 and 1997 (unaudited) 7
Notes to Consolidated Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 14
PART II OTHER INFORMATION 30
SIGNATURES 31
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ZARING NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER
------------------------- 31,
1998 1997 1997
-------- -------- --------
<S> <C> <C> <C>
Cash and cash equivalents $ 7,364 $ 1,383 $ 4,160
Receivables:
Related parties 365 485 363
Other 494 403 476
Inventories:
Luxury site-built homes 36,450 40,060 42,405
Entry level site-built homes 3,769 - 1,547
Retail distribution manufactured homes 1,962 1,629 672
Model homes 20,444 13,069 16,890
Land, development costs and finished lots 47,897 47,790 46,907
Property and equipment, net 7,406 6,865 5,852
HomeMax Sales Villages, net 12,782 - 3,674
Investments in and advances to
unconsolidated joint ventures 639 567 622
Future tax benefit 2,258 675 1,058
Cash surrender value of life insurance and
other assets 5,924 6,778 5,161
Goodwill, net 2,274 - 2,356
-------- -------- --------
$150,028 $119,704 $132,143
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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ZARING NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
------------------------- ------------
1998 1997 1997
-------- -------- ---------
<S> <C> <C> <C>
Liabilities:
Revolving credit facilities $45,156 $33,200 $ 46,425
Floor plan financing facility 6,338 - -
Term notes payable 24,874 16,495 15,745
Notes payable to former shareholders 1,562 - 1,896
Accounts payable 11,818 9,864 8,453
Accrued liabilities 6,061 5,066 6,292
Customer deposits 2,967 2,949 2,178
Income taxes payable - 1,054 -
-------- -------- --------
Total liabilities 98,776 68,628 80,989
-------- -------- --------
Minority interest 1,512 - 424
-------- -------- --------
Commitments and contingencies
Shareholders' equity:
Preferred shared, no par value, 2,000,000 shares
authorized, none issued or outstanding
- - -
Common shares, no par value,
18,000,000 shares authorized, 4,734,388,
4,780,827, 4,780,788 issued and outstanding at
September 30, 1998, September 30, 1997, and
December 31, 1997, respectively. 25,099 25,146 25,146
Additional paid-in capital 5,325 5,678 5,678
Retained earnings 19,316 20,252 19,906
-------- -------- --------
Total shareholders' equity 49,740 51,076 50,730
-------- -------- --------
$150,028 $119,704 $132,143
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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ZARING NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- -------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues:
Luxury site-built homes $66,983 $55,153 $183,786 $150,717
Entry level site-built homes 3,328 - 6,995 -
Retail distribution manufactured homes 4,542 2,826 7,519 5,248
--------- --------- --------- ---------
Total net revenues 74,853 57,979 198,300 155,965
--------- --------- --------- ---------
Expenses:
Cost of luxury site-built homes 54,323 45,865 152,044 125,402
Cost of sales entry level
site-built homes 2,854 - 5,718 -
Cost of sales retail distribution
manufactured homes 3,837 2,464 6,469 4,321
Interest 1,468 1,045 4,055 2,386
Selling 4,766 3,692 14,613 10,331
General and administrative 6,748 3,563 16,986 9,754
--------- --------- --------- ---------
Total expenses 73,996 56,629 199,885 152,194
--------- --------- --------- ---------
Operating income (loss) 857 1,350 (1,585) 3,771
Other income (expense):
Income (loss) from unconsolidated
joint ventures 72 8 217 (32)
Other, net (45) 86 28 234
--------- --------- --------- ---------
Income (loss) before minority interest
and provision (credit) for income taxes 884 1,444 (1,340) 3,973
Minority interest in loss of subsidiary (21) - 162 -
--------- --------- --------- ---------
Income (loss) before provision (credit)
for income taxes 863 1,444 (1,178) 3,973
Provision (credit) for income taxes 300 558 (588) 1,575
--------- --------- --------- ---------
Net income (loss) $563 $886 $(590) $2,398
--------- --------- --------- ---------
Basic and diluted earnings (loss) per
common share $0.12 $0.18 $(0.12) $0.50
========= ========= ========= =========
Weighted average shares outstanding 4,752,978 4,780,970 4,764,988 4,780,970
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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ZARING NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SHARES COMMON ADDITIONAL RETAINED
ISSUED SHARES PAID-IN CAPITAL EARNINGS TOTAL
--------- ------- --------------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 4,780,788 $25,146 $5,678 $19,906 $50,730
Purchase and retirement
of common shares (46,400) (47) (353) -- (400)
Net loss -- -- -- (590) (590)
--------- ------- ------ ------- -------
BALANCE, September 30, 1998 4,734,388 $25,099 $5,325 $19.316 $49,740
========= ======= ====== ======= =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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ZARING NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1997
------- -------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $(590) $2,398
Adjustments to reconcile net income (loss) to cash provided by
(used in) operating activities--
Depreciation and amortization 2,766 1,124
(Income) loss from unconsolidated joint ventures (217) 34
Minority interest in loss of subsidiary (162) -
Change in assets and liabilities--
Future tax benefit (1,200) -
Receivables 130 (335)
Inventories (2,101) (18,896)
Cash surrender value of life insurance and other assets (1,744) (3,230)
Accounts payable 3,365 4,433
Accrued expenses (231) 1,382
Customer deposits 789 400
Income taxes payable - 947
------- -------
Net cash provided by (used in) operating activities 805 (11,743)
------- -------
Cash Flows from Investing Activities:
Additions to property and equipment (13,587) (5,246)
Proceeds from sale of property and equipment 1,222 -
Distributions received from unconsolidated joint ventures, net 200 485
------- -------
Net cash used for investing activities (12,165) (4,761)
------- -------
Cash Flows from Financing Activities:
Borrowings on notes payable 96,220 73,700
Repayments of notes payable (82,356) (58,250)
Purchase of common shares (400) (3)
Contributions received by majority shareholder 1,100 -
------- -------
Net cash provided by financing activities 14,564 15,447
------- -------
Increase (decrease) in cash and cash equivalents 3,204 (1,057)
Cash and cash equivalents, beginning of period 4,160 2,440
------- -------
Cash and cash equivalents, end of period $7,364 $1,383
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for-
Interest, net of amounts capitalized $3,880 $2,155
======= =======
Income taxes $608 $1,512
======= =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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ZARING NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(1) Basis of Presentation-
----------------------
Effective in May 1997, Zaring National Corporation (an Ohio corporation)
implemented the formation of a holding company structure which results in
the accompanying consolidated financial statements including the accounts
of Zaring National Corporation and subsidiaries (the Company), formerly
Zaring Homes, Inc. The formation of the holding company had no effect on
the carrying value of assets, liabilities or equity of the Company. The
subsidiaries of the Company include the following: Zaring Homes, Inc. and
its subsidiaries, Zaring Homes of Indiana, LLC and Zaring Homes Kentucky,
LLC; Zaring Holdings, Inc.; HomeMax, Inc. and its subsidiaries, HomeMax
North Carolina, Inc., HomeMax Tennessee, Inc., HomeMax South Carolina,
Inc., HomeMax Ohio, Inc., HomeMax Indiana, LLC and HomeMax Kentucky, LLC;
Hearthside Homes, LLC (formerly Zaring Acquisition Company of Indiana,
LLC); and Legacy Mortgage Corporation, dba Hearthside Home Mortgage.
During June 1998, First Cincinnati Leasing LLC (Leasing LLC) and First
Cincinnati Land LLC (Land LLC) were formed. Both Leasing LLC and Land LLC
are owned primarily by the principal shareholder of Zaring National
Corporation (see note 3), and are included in the consolidated financial
statements as of June 30, 1998.
The principal business of the Company's subsidiary, Zaring Homes, Inc.
(Zaring Homes) is the designing, constructing, marketing and selling of
luxury site built single-family homes, and the acquisition and
development of land for sale as residential building lots in the Midwest
and southeast United States. Zaring Homes began operations in Cincinnati,
Ohio in 1964 and commenced operations in Nashville, Tennessee in 1986. In
1994, operations commenced in Raleigh/Durham, North Carolina, and
Indianapolis, Indiana. In 1996, operations began in Louisville, Kentucky
and Charlotte, North Carolina.
In November 1996, the Company formed HomeMax, Inc. (HomeMax) for the
purpose of entering into the retail distribution of manufactured housing.
HomeMax, based in Raleigh, North Carolina, commenced operations in the
first quarter of 1997. During 1997, HomeMax acquired the assets of three
manufactured housing retailers for approximately $2.4 million in cash.
The acquisitions were recorded using the purchase method of accounting.
Accordingly, the Company made allocations of the purchase price based on
fair market values as of the date of purchase. The excess of the cost of
the acquired assets over their estimated fair value has been recorded as
goodwill.
Effective October 1, 1997, the Company, through its newly formed
subsidiary Hearthside Homes, LLC, acquired substantially all of the net
operating assets of Legacy, Inc., an Indianapolis-based builder of entry
level site built single-family homes for approximately $1.9 million in
cash and a note. The Company also acquired the stock of Legacy Mortgage
Corporation for approximately $138,000. Legacy Mortgage Corporation
originates, processes and sells mortgages to third party investors. The
acquisitions were recorded using the purchase method of accounting. In
1998, Hearthside expanded its operations into Nashville,
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Tennessee and Louisville, Kentucky.
The principal business of Leasing LLC is to enter into sale lease-back
transactions with Zaring Homes for model homes. The principal business of
Land LLC is to purchase undeveloped land inventory and execute land
option contracts with Zaring Homes, Inc. to repurchase the undeveloped
land.
All significant intercompany transactions and balances have been
eliminated in consolidation.
The accompanying consolidated financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission for interim financial information. Since such financial
statements do not include all the information and footnotes required by
generally accepted accounting principles for complete financial
statements, they should be read in conjunction with the consolidated
financial statements and related footnotes included in the Form 10-K for
the fiscal year ended December 31, 1997 filed with the Securities and
Exchange Commission. The financial statements are unaudited, but in the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the
Company's unaudited consolidated financial statements as of September 30,
1998 have been included. Operating results for the nine months ended
September 30, 1998, are not necessarily indicative of the results for the
entire year.
(2) Capitalized Interest-
---------------------
Interest is capitalized on land in the process of development,
construction of sales villages and residential housing construction costs
during the development and construction period. The following table
summarizes the activity with respect to capitalized interest:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
----------------------- ----------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Capitalized interest,
beginning of period $2,161 $1,354 $ 1,678 $1,074
Interest incurred 1,321 1,049 4,391 2,670
Interest expensed (1,468) (1,045) (4,055) (2,386)
------ ------ ------ ------
Capitalized interest,
end of period $2,014 $1,358 $2,014 $1,358
====== ====== ====== ======
</TABLE>
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(3) Notes Payable-
--------------
The Company has an unsecured $87.5 million syndicated credit facility
with PNC Bank acting as agent. This facility consists of a revolving
credit facility, providing for borrowings up to $72.5 million, depending
on the Company's borrowing base, as defined in the agreement, and a $15
million term loan. The revolving credit facility may be used for letters
of credit in an amount of up to $10 million. The revolving credit
facility bears interest at the options of (a) the greater of the prime
rate or the Federal Funds rate plus .5% or the (b) Euro-rate plus 1.25%
to 1.625%, depending on the Company's leverage ratio. The revolving
credit facility expires July 1, 1999. As of September 30, 1998, the
Company had outstanding balances of $32.2 million under the revolving
credit facility and $ 9.4 million in letters of credit.
In February 1998, the Company entered into three additional syndicated
credit facilities with NationsBank as agent. The new facilities consist
of:
- A $33.9 million manufactured housing floor plan financing facility
for inventory and display models with interest equal to the prime
rate or Euro-rate plus 2.35%. Retail inventory borrowings are subject
to repayment upon the earlier of sale, 10% at the end of nine months
following initial borrowing and the balance after nine months.
Borrowings for the cost of display models are subject to payments of
10% after twelve months, with the balance due no later than
twenty-four months after the date of the initial borrowing. As of
September 30, 1998, the Company had outstanding balances of $6.3
million under the floor plan facility.
- A $12 million sales village mortgage loan for sales village
development, interest at prime plus 2%, convertible into twenty-eight
separate fifteen year amortization loans in amounts ranging from
$250,000 to $500,000 per village, balloon payments due five years
after the initial borrowing for each village, secured by mortgages.
As of September 30, 1998, the Company had not utilized the mortgage
loan.
- A $15 million unsecured two-year revolving credit note expiring March
2000 for working capital needs of HomeMax, Inc. and subsidiaries with
interest equal to the prime rate or Euro-rate plus 1.75% and
guaranteed by Zaring Homes, Inc. As of September 30, 1998, the
Company had outstanding balances of $13.0 million under the revolving
credit note.
Term notes payable at September 30, 1998, include a $15.0 million term
loan ($7.5 million outstanding as of September 30, 1998), expiring April
1, 2001, which bears interest at (a) the greater of the prime rate or the
Federal Funds rate plus .5% or the (b) Euro-rate plus 1.375% to 1.75%,
depending on the Company's leverage ratio, and is payable in quarterly
installments of $750,000, and other term loans of $4.8 million which bear
interest at a fixed rate of 7.95% and are payable in 12 equal quarterly
installments beginning September, 1998.
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As of September 30, 1998, the Company also has $1.6 million of notes
including accrued interest, to former shareholders with interest rates of
6% to 8.5%, payable in equal annual installments and due December, 1998
through October, 2001.
The bank credit agreements include provisions which require, among
others, that the Company maintain certain levels of tangible net worth
and cash flow from operations as well as limiting the Company's dividends
and ratio of debt to equity. As of June 30, 1998 and September 30, 1998,
the Company did not meet certain covenant requirements. The bank has
waived the covenant requirements and no event of default exists.
On June 30, 1998, Leasing LLC (a limited liability company owned by Allen
G. Zaring III, President of Zaring National Corporation), purchased at
cost and subsequently leased-back $7.8 million of model homes
collectively from Zaring Homes. Leasing LLC will lease the model homes to
Zaring Homes on a triple net basis, wherein Zaring Homes is responsible
for taxes, insurance, maintenance and homeowner fees, if applicable.
Zaring Homes will pay rent equal to the sales price of the model home
times the prime interest rate (8.50% at September 30, 1998). To finance
the purchase of the model homes, on June 30, 1998, Leasing LLC entered
into a loan agreement with The Huntington National Bank whereby an amount
of up to $10.0 million can be borrowed until December 31, 1998 (the "draw
period"). As of September 30, 1998, the loan had an outstanding balance
of $6.9 million and bears interest at LIBOR plus 1.75%. Interest is
payable monthly. The principal balance is due (i) following lease
termination and as each model home is sold on the date of each sale in an
amount equal to the amount originally advanced for each model home; and
(ii) in three consecutive annual installment periods beginning on June
30, 1999. Each installment payment of principal shall be in an aggregate
amount equal to not less than one-fifth of the principal balance except
that the final installment payment shall be for the unpaid balance.
Accrued interest shall be payable on the same dates as installment
payments of the principal. The loan agreement contains provisions which
require, among others, that Leasing LLC maintain a specified level of
interest coverage and tangible net worth. The loan is guaranteed by Allen
G. Zaring III and is collateralized by first mortgage liens on the model
homes. As of September 30, 1998, Leasing LLC recorded a $150,000
receivable from Allen G. Zaring III representing his remaining member
capital contribution.
During the quarter ended September 30, 1998, Land LLC (a limited
liability company owned equally by Allen G. Zaring III and his sons,
Allen Zaring IV and Mark Zaring), purchased $4.2 million in undeveloped
land inventory from Zaring Homes and $1.5 million of undeveloped land
from unrelated third parties. Subsequently, Land LLC executed various
three year land option contracts with Zaring Homes to purchase the land
with monthly land option contract payments equal to Land LLC's carrying
cost (interest, real estate taxes, sewer and water). Zaring Homes'
purchase price of the land will equal Land LLC's original cost plus 15%.
To secure its performance of the option contract, Zaring Homes provided
an irrevocable letter of credit in the amount of $1.5 million in favor of
Land LLC which is drawable if the option is not exercised. To finance the
purchase of the land, Land LLC entered into a loan agreement with the
Provident Bank whereby an amount of up to $10.0 million can be borrowed.
As of September 30, 1998, the loan had an outstanding balance of $5.7
million and bears interest at LIBOR plus 2.25%. Interest is payable
monthly. The principal balance is
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due in July 2001. The loan is guaranteed by Allen G. Zaring III and his
sons and is collateralized by first mortgage liens on the land inventory.
(4) Earnings (Loss) Per Common Share-
---------------------------------
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings per Share" (SFAS 128). In accordance with SFAS 128,
basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share are computed similar to basic except the
denominator is increased to include the number of additional common
shares that would have been outstanding if the dilutive potential common
shares had been issued.
Options to purchase 318,784 and 245,903 shares of common stock at an
average exercise price of $10.07 and $10.45 per share were outstanding
during the periods ending September 30, 1998 and 1997, respectively, but
were not included in the computation of earnings per share since the
options' exercise prices were greater than the average market price of
the common shares.
Since there are no antidilutive securities, basic and diluted earnings
(loss) per share are identical thus a reconciliation of the numerator and
denominator is not necessary.
SFAS 128 requires the Company to restate reported earnings for all
periods presented. This accounting change had no effect on previously
reported earnings per share.
(5) Shareholders' Equity-
---------------------
The Company is authorized to issue up to 2,000,000 preferred shares of
which 1,000,000 are voting. No preferred shares have been issued.
(6) New Pronouncements-
-------------------
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130), which establishes
the standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. SFAS 130 is effective for financial
statements for annual periods beginning after December 15, 1997. The
Company adopted this statement in the first quarter of fiscal 1998 with
no impact on the Company's reported consolidated financial position,
results of operations or cash flow.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1
requires computer software costs incurred in the preliminary project
stage to be expensed and provides capitalization
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criteria for costs incurred subsequent to the preliminary project stage.
The Company adopted SOP 98-1 in the first quarter of fiscal 1998 with no
impact on the financial statements.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5). SOP 98-5 requires the cost of start-up
activities, such as pre-opening expenses, to be expensed as incurred.
Under the Company's current accounting policies, these pre-opening
expenses are deferred until the manufactured housing village has opened
and then amortized over a one-year period. The Company is required to
adopt the provisions of SOP 98-5 no later than the first quarter of
fiscal 1999. Included in the accompanying September 30, 1998 consolidated
balance sheet is approximately $221,000 of unamortized pre-opening
expenses which would have been expensed had SOP 98-5 already been
implemented.
(7) Reclassifications-
------------------
Certain amounts in the consolidated interim financial statements for 1997
have been reclassified to conform to the 1998 presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
SEPTEMBER 30, 1997
RESULTS OF OPERATIONS
- ---------------------
The Company's business and the homebuilding industry are subject to changes in
national and local economic conditions, as well as other factors, including
employment levels, availability of financing, interest rates, consumer
confidence and housing demand. The Company's results of operations for the
periods presented include luxury site-built homes, entry level site-built homes,
and retail distribution manufactured homes and reflect the cyclical nature of
the housing industry.
The Company reported consolidated net revenues of $74.9 million for the quarter
ended September 30, 1998, compared to $58.0 million for the same quarter in
1997. Net income for the third quarter of 1998 was $563,000 or $0.12 per share,
compared to net income of $ 886,000 or $ 0.18 per share for the third quarter of
1997.
For the nine months ended September 30, 1998, consolidated revenues were $198.3
million compared to $156.0 million for the nine months ended September 30, 1997.
Net loss for the nine months ended September 30, 1998 was ($590,000) or ($ 0.12)
per share, compared to net income of $2.4 million or $ 0.50 per share for the
nine months ended September 30, 1997.
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The following tables set forth, for the periods indicated, certain segment
information regarding the Company's operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ----------------------------
1998 1997 1998 1997
------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Zaring Homes, Inc.
Luxury Site-Built Homes
Revenues (1) $66,705 $55,153 $183,508 $150,717
Cost of sales 54,104 45,865 151,825 125,402
Interest 1,840 1,804 5,252 4,859
Selling, general and administrative 7,634 5,715 20,576 16,354
------- ------- -------- --------
Operating income 3,127 1,769 5,855 4,102
Other income (expense) (25) - (11) 13
------- ------- -------- --------
Pretax Luxury Site-Built Income 3,102 1,769 5,844 4,115
HomeMax, Inc.
Retail Distribution Manufactured Homes
Revenues (1) 4,542 2,826 7,519 5,248
Cost of sales 3,837 2,464 6,469 4,321
Interest 444 123 1,243 210
Selling, general and administrative 2,742 985 7,562 1,949
------- ------- -------- --------
Operating loss (2,481) (746) (7,755) (1,232)
Other income (expense) 13 (18) 30 10
Minority interest 60 - 243
------- ------- -------- --------
Pretax Retail Distribution Loss (2,408) (764) (7,482) (1,222)
Hearthside Homes, LLC
Entry Level Precision and Site-Built Homes
Revenues (1) 3,328 6,995
Cost of sales 2,854 5,718
Interest 97 218
Selling, general and administrative 371 1,330
------- --------
Operating income (loss) 6 (271)
Other income (expense) (17) 11
------- --------
Pretax Entry Level Site-Built Loss (11) (260)
Majority Shareholder LLC's
Revenues (1) 278 278
Cost of sales 219 219
Interest 201 201
Selling, general and administrative 26 26
------- --------
Operating loss (168) (168)
Other 249 249
Minority interest (81) (81)
------- --------
0 0
Interest income from subsidiaries, net 1,034 882 2,779 2,683
General and administrative (854) (443) (2,059) (1,603)
------- ------- -------- --------
Income (loss) before taxes 863 1,444 (1,178) 3,973
Provision (credit) for income taxes 300 558 (588) 1,575
------- ------- -------- --------
Net income (loss) $563 $886 $(590) $2,398
======= ======= ======== ========
</TABLE>
(1) Revenue from sale is recognized upon the closing of the sale.
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<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ------------------------
1998 1997 1998 1997
------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Luxury Site-Built Homes
Operating data:
Units
New Orders(1) 194 231 721 672
Closings(2) 250 226 712 616
Backlog(3) 249 319 249 319
Average revenue per closing $267 $241 $257 $241
Average value of new order sales $277 $244 $263 $242
Sales value of backlog $67,604 $77,511 $67,604 $77,511
Retail Distribution Manufactured Homes
Operating data:
Units
New Orders(1) 127 60 290 121
Closings(2) 82 61 142 136
Backlog(3)(4) 188 53 188 53
Average revenue per closing $55 $50 $53 $40
Average value of new order sales $58 $41 $56 $36
Sales value of backlog $11,189 $3,268 $11,189 $3,268
Entry Level Precision and Site-Built Homes
Operating data:
Units
New Orders(1) 33 - 83 -
Closings(2) 24 - 55 -
Backlog(3) 52 - 52 -
Average revenue per closing $127 - $124 -
Average value of new order sales $131 - $129 -
Sales value of backlog $6,928 - $6,928 -
</TABLE>
(1) New orders represent total new home orders received during the period, net
of cancellations.
(2) Revenue from a sale is recognized upon the closing of the sale.
(3) Backlog includes new orders which have not yet closed.
(4) In 1997, 68 contracts with a sales value of $4.4 million were acquired
through acquisition.
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ZARING HOMES, INC., LUXURY SITE-BUILT HOMES- Net revenues for the three months
ended September 30, 1998 increased 20.9% over the same period 1997. Zaring Homes
delivered 250 homes in the third quarter of 1998, compared to 226 homes in 1997,
a 10.6% increase. Net revenues for the nine months ended September 30, 1998
increased 21.8% over the same period in 1997. The Company delivered 712 homes
during the nine months ended September 30, 1998, compared to 616 homes in the
corresponding period in 1997, an 15.6% increase. These increases are
attributable to the continued strength of the luxury housing market and 1998
closings of 56 and 134 homes in the expansion cities of Charlotte and Louisville
for the three and nine months ended September 30, 1998, respectively, versus 23
and 36 home closings in Charlotte and Louisville in the nine months ended
September 30, 1997. The average selling price of a home was $277,000 and
$263,000 for the three and nine months ended September 30, 1998, respectively
representing a 13.5% and 8.7% increase from the corresponding period 1997.
Gross profit increased $3.3 million or 35.7% in the third quarter of 1998 as
compared to the third quarter of 1997. Gross profit as a percentage of revenue
increased 12.2% to 18.9% of revenues during the third quarter of 1998. The
increase in gross profit is attributable to, among other factors, the closing of
contracts with higher margins in an effort to increase margin percentages, and
decreased subcontractor and other production costs. The nine months ended
September 30, 1998 gross profit percentage was 17.3% as compared to 16.8% for
the corresponding period in 1997. The increase in gross profit percentage for
the nine month period ended September 30, 1998 was primarily the result of
closing higher margin contracts accepted in the second quarter of 1998. Interest
expense increased $36,000 and $393,000 in the three and nine months ended
September 30, 1998, respectively, compared to the same periods in 1997. This
increase is mainly attributable to a larger investment in model and market homes
and the number of units in process for the nine months ended September 30, 1998.
Model home and land inventory positions were minimized during the three months
ended September 30, 1998 through the sale-leaseback of $7.8 million in model
home inventory to First Cincinnati Leasing LLC and $4.2 million in land position
options with First Cincinnati Land LLC. The sale-leaseback and option
transactions contributed to the stabilization of interest expense during the
third quarter 1998 compared to the third quarter 1997.
As a percentage of revenue, selling expenses increased from 6.2% during the
three month period ended September 30, 1997 to 6.9% during the three month
period ended September 30, 1998. As a percentage of revenue, selling expenses
increased from 6.5% during the nine month period ended September 30, 1997 to
6.9% during the nine month period ended September 30, 1998. Selling expenses for
the three and nine month period ended September 30, 1998 increased $1.2 million
and $2.8 million, respectively, as compared to the corresponding periods in
1997. The overall selling expense increases occurred as a result of increased
sales staffing levels, design center expenses and sales commissions which are
directly related to closing revenues. As a percentage of revenue, general and
administrative expenses increased to 4.5% during the third quarter of 1998 from
4.2% during the third quarter of 1997 and was relatively
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consistent at 4.3% for the nine month period ended September 30, 1998 as
compared to 4.4% in 1997. General and administrative expenses increased
$672,000 or 29.1% in the third quarter of 1998, compared to the third quarter
of 1997 and $1.4 million or 21.2% in the nine months ended September 30, 1998,
compared to the nine months ended September 30, 1997. This increase was
primarily attributable to increased corporate staffing, additional office space
and related expenses. As a percentage of revenues, selling, and general and
administrative expenses were 11.4% and 10.4%, 11.2% and 10.9% for the three and
nine-month period ended September 30, 1998 and 1997, respectively.
As a result of the foregoing, Zaring Homes reported pretax income of $3.1
million or 4.7% of net revenues in the third quarter of 1998, an increase of
$1.3 million or 75.4% from the same period in 1997. For the nine month period
ended September 30, 1998, Zaring Homes reported pretax income of $5.8 million or
3.2% of revenues, an increase of $1.7 or 42.0% for the same period in 1997.
HOMEMAX, INC., RETAIL DISTRIBUTION MANUFACTURED HOMES- Net revenues for the
three months ended September 30, 1998 increased $1.7 million from $2.8 million
in the third quarter of 1997 to $4.5 million in the third quarter of 1998. Net
revenues for the nine months ended September 30, 1998 increased $2.3 million
from $5.2 million for the nine months ended September 30, 1997 to $7.5 million
for the nine months ended September 30, 1998. HomeMax closed 82 units in the
third quarter of 1998, an increase of 34.4% from the 61 units closed in the same
period of 1997. HomeMax closed 142 units for the nine month period ended
September 30, 1998, an increase of 4.4% from the 136 units closed in the same
period of 1997. The overall increase for the nine month period is attributed to
the fact that eight sales villages were open as of September 30, 1998 compared
to three sales villages open as of September 30, 1997. Sales of the new product
have been strong, as reflected in the backlog of 188 units as of September 30,
1998, compared to 53 units in 1997; however, the time from contract to close has
lengthened due mainly to land availability and receipt of customer financing
approvals. The total number of villages open at September 30, 1998 is eight and
it is anticipated that six additional villages will be operational by December
31, 1998.
Gross profit was $705,000 or 15.5% for the three months ended September 30, 1998
as compared to $362,000 or 12.8% for the same period in 1997, an increase of
94.8%. Gross profit was $1.0 million or 14.0% for the nine months ended
September 30, 1998 as compared to $927,000 or 17.7% for the same period in 1997,
an increase of 13.3%. This increase is due to an increase in the number of
villages open offset by the mix of units sold and production expenses which were
not able to be passed on to the consumer. Interest expense increased $321,000
and $1.0 million- in the three and nine months ended September 30, 1998,
respectively as compared to the corresponding periods in 1997. As a percentage
of revenues, interest expense increased from 4.3% in the third quarter of 1997
to 9.8% in the third quarter of 1998. In addition, as a percentage of revenues,
interest expense increased from 4.0% for the nine month period ended September
30, 1997 to 16.5% in the corresponding period in 1998. This increase is due to
the increase in the number of open HomeMax villages from three as of September
30, 1997 to eight in 1998. Each village necessitates a significant investment
which includes sales office units, model units and related furnishings. Also
contributing to the increase in interest expense
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is the increase in the number of units in backlog and the financing of the
infrastructure expansion for selling and administrative initiatives.
Selling, general and administrative expenses for HomeMax, including
infrastructure costs to leverage the expansion efforts, totaled $2.7 million and
$7.6 million for the three and nine months ended September 30, 1998,
respectively, compared to $985,000 and $1.9 million for the same periods in
1997. In the third quarter of 1997, HomeMax acquired the assets of one
manufactured housing retailer bringing the total number of villages operated to
three. In the third quarter of 1998, HomeMax operated three acquired
manufactured housing retailers and five Super Model Home Villages. Selling
expenses were $72,000 or 1.6% of revenues in the third quarter of 1998 compared
to $295,000, or 10% of revenues for the same period in 1997. Selling expenses
were $1.6 million or 20% of revenues for the nine month period ended September
30, 1998 compared to $461,000 or 8.7% of revenues for the same period in 1997.
The overall nine month increase is primarily due to start-up marketing and
advertising costs. General and administrative expenses were $2.7 million in the
third quarter of 1998 versus $690,000 for the same period in 1997, an increase
of $2.0 million. General and administrative expenses were $6.0 million for the
nine month period ended September 30, 1998 versus $1.5 million for the same
period in 1997, an increase of $4.5 million. The general and administrative
expense increases were due to the above mentioned expansion efforts.
As a result of the foregoing, HomeMax reported a pretax loss of $2.4 million in
the third quarter of 1998 compared to $764,000 in the third quarter of 1997. In
addition, HomeMax reported a pretax loss of $7.5 million for the nine months
ended September 30, 1998 compared to a pretax loss of $1.2 million for the
corresponding period in 1997.
Although the losses of HomeMax were expected, management, with Board approval,
has initiated efforts to consider a variety of alternatives to the pre-existing
growth strategies including the pursuit of joint venture opportunities with
other retailers, different growth strategies, or an outright sale of the entity,
all to enhance shareholder value.
HEARTHSIDE HOMES, LLC, ENTRY LEVEL PRECISION AND SITE-BUILT HOMES- Net revenues
for the three and nine months ended September 30, 1998 were $3.3 million and
$7.0 million, respectively. 24 and 55 homes were delivered in the three and nine
months ended September 30, 1998, respectively.
Gross profit was $474,000, or 14.2% and $1.3 million, or 18.2% for the three and
nine months ended September 30, 1998, respectively. Selling, general and
administrative expenses were $371,000, or 11.1% of revenues, and $1.3 million,
or 19.0% of revenues, for the three and nine months ended September 30, 1998,
respectively, reflecting Hearthside's expansion into the Nashville, Tennessee
and Louisville, Kentucky markets. Interest expense was $97,000 and $218,000 for
the three and nine months ended September 30, 1998, respectively. As a result of
the foregoing, Hearthside reported pretax losses of $11,000 and $260,000 for the
three and nine months ended September 30, 1998, respectively.
MAJORITY SHAREHOLDER LLCS - First Cincinnati Leasing and First Cincinnati Land
LLC are reported as "Majority Shareholder LLC". First Cincinnati Leasing closed
one
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<PAGE> 20
home during the three and nine months ended September 30, 1998 for $278,000.
Interest expense of $201,000 during the three and nine months ended September
30, 1998 represents interest incurred for model home and undeveloped land
holdings. Other income of $249,000 represents model home rental income of
$169,000 and land option income of $80,000 for the three and nine months ended
September 30, 1998.
OTHER OPERATING RESULTS- Interest income from subsidiaries represents the
allocation of interest cost to the subsidiaries. Corporate general and
administrative expenses were $854,000 and $2.0 million for the three and
nine-month period ended September 30, 1998, respectively, as compared to
$443,000 and $1.6 million for the three and nine month period ended September
30, 1997. The increase in Corporate general and administrative expenses is
attributed to the additional support being provided to the HomeMax, Inc. and
Hearthside, LLC expansion activities as well as the necessary support for
continued Zaring Homes, Inc. growth.
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<PAGE> 21
YEAR 2000 ISSUE
BACKGROUND - At midnight on December 31, 1999, unless the proper modifications
have been made, the program logic in many of the world's computer systems will
start to produce erroneous results because, among other things, the systems will
incorrectly read the date "01/01/00" as being January 1 of the year 1900 or
another incorrect date. In addition, certain systems may fail to detect that the
year 2000 is a leap year. Problems can also arise earlier than January 1, 2000,
as dates in the next millennium are entered into non-Year 2000 compliant
programs.
ZARING NATIONAL CORPORATION YEAR 2000 COMPLIANCE PROGRAM - During 1998, the
Company initiated a comprehensive corporate wide Year 2000 Compliance Program
(the "Compliance Program") to evaluate and address the impact of the Year 2000
issue on its entire operations. The compliance program covers all aspects of the
Company's business that may be affected by the Year 2000 issue. The issue is
segregated into three main categories of possible risk: internal systems,
supplier exposure, and environmental risk. All internal systems will be reviewed
for compliance with the issue. This includes all server, client, and
communication hardware; all related peripheral hardware, and all "embedded"
system hardware. Additionally, all of the application software that runs on the
internal system hardware will be reviewed for compliance. Supplier exposure is
also being considered in this review. Supplier exposure includes a review of any
products or services used directly by the Company throughout its value delivery
process. The supplier category also includes analysis of possible first and
second tier supplier work interruptions caused by the Year 2000 issue. The last
category of review is the environmental impact of the issue on operations,
including internal work interruptions caused by external events such as power
delivery and physical access. This Compliance Program encompasses the review of
all three categories of risk at Zaring Homes, Inc., Hearthside Homes LLC,
HomeMax, Inc. and all other Company subsidiary organizations.
YEAR 2000 COMPLIANCE PROGRAM PROCESS - The Company's process to achieve Year
2000 compliance involves four major steps: Inventory of assets and suppliers,
Risk Assessment, Action Plan development, and Testing.
Phase one of the processes involves inventorying all hardware, software and
suppliers that could entail risk to the Company because of date sensitivity. The
result of this is a list of all suppliers that could have a significant effect
on the business if their work was interrupted or if their products or services
are not Year 2000 compliant. The hardware and software inventory includes all
makes, models and versions of information systems. This information is then used
in Phase two of the process, risk assessment.
Phase two involves a risk assessment of individual systems and suppliers
resulting in a three-tier risk structure (high, medium, low) for the systems and
suppliers. This assessment involves a combination of several criteria: business
impact, likelihood of failure, and effort to remediate. The high and medium risk
items that are identified as non-compliant will be further addressed in phase
three of the project.
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Phase three entails the development of action plans to address systems or
suppliers that are deemed not compliant in the previous phases and that have a
significant impact on the Company's business. Each non-compliant system or
supplier will have a customized action contingency plan. These plans may include
remediation through wholesale replacement of non-compliant systems, upgrades of
systems, or identification of alternate sources of supply. Each action plan will
include the development of a contingency plan in the remote case that the
identified remediation is not completed in time. The Audit committee of the
Board of Directors will review these action plans and each plan will have its
own timeline and program for completion.
The final phase of this process will involve testing of all relevant systems to
verify that any possible remediation efforts were successful in making the
systems compliant with the Year 2000 issue.
TIME TO COMPLETE THE YEAR 2000 COMPLIANCE PROGRAM - As of September 30, 1998,
the Company is in Phase One of its Year 2000 Compliance Program, with the
exception of the implementation of the core management information system, which
is near completion of Phase 3. The timeline for completion of all four phases of
the program, in all operations of the Company, is July 1999. The Company believe
that this is a realistic time frame and that it permits sufficient time prior to
first "date events" to insure the Company has adequately addressed the issue.
ZARING NATIONAL'S CORE INFORMATION SYSTEM - Prior to the undertaking of the
Compliance Program, the Company realized that one of its core information
systems was not compliant and that there was a significant risk that the
software supplier could not develop an upgrade in sufficient time. For this
reason, and other operational benefits, the Company decided to replace this core
non-compliant system with a new and compliant product. This effort was formally
launched in January 1998 and is expected to be fully complete by December 31,
1998. At that time, the new Year 2000 compliant core accounting, purchasing,
payables and management information system will be installed in all of the
Company's relevant operations, and the non-compliant system will be
decommissioned. This project has met all major milestones to date and is within
the budgeted amount of $3.0 million. As of September 30, 1998, a total of $1.5
million of costs have been capitalized in association with this project in
accordance with the guidelines established in Statement of Position 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" issued in March 1998.
COST OF THE YEAR 2000 COMPLIANCE PROGRAM - At the present time, management
estimates that the costs associated with completing the comprehensive Year 2000
Compliance Program will be approximately $125,000. This estimate represents
external vendor consulting and excludes the expense associated with management's
oversight and review of the Year 2000 compliance program. In addition, this
estimate excludes any non-core information system hardware or software
remediation cost. However miscellaneous hardware and software remediation costs,
other than the core management information system discussed previously, are
anticipated to be immaterial to the overall Company's operations. All Year 2000
compliance program review costs are expensed as incurred. The Company intends to
finance the cost of the core management information system and Year 2000
compliance review through internal sources of funds.
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RISKS OF NON-COMPLIANCE AND CONTINGENCY PLANS - The transmission and
distribution by automation systems affecting the building of a home and the
internal management information systems affecting cash flow management are major
business applications which pose the greatest Year 2000 risks for the Company if
implementation of the Year 2000 Compliance Program is not successful. The
potential problems related to these systems are interruptions of service to
customers, interrupted revenue and cost data gathering, delays in the cash
payment function, and poor customer relations resulting from a delayed building
process. Although the Company intends to complete all Year 2000 remediation and
testing activities by the end of July 1999, and although the Company has
initiated Year 2000 communications with significant vendors and other parties
material to the Company's operations (and is diligently monitoring the progress
of such third parties in the Year 2000 compliance area), such third parties
nonetheless represent a significant risk that cannot be assessed with precision
or controlled with certainty. The Company's ability to meet the target date of
July 1999 in finalizing its Year 2000 Compliance Program is heavily dependent
upon the timely provision of necessary upgrades and modifications by the
Company's suppliers and contractors. In some instances, it is anticipated that
third party upgrades and modifications to hardware and software are not expected
to be available until second quarter 1999. In addition, the Company cannot
guarantee that third parties on whom it depends for essential services (such as
lumber, building materials, subcontractor labor, electric utilities, exchange
carriers, phone and fax systems, etc.) will convert their critical systems and
processes in a timely manner. Failure or delay by any of these parties could
significantly disrupt the Company's business. However, the Company has
established a supplier compliance program to work with key vendors to minimize
such risks. For these reasons, the Company intends to develop contingency plans
to address alternatives in the event that Year 2000 failures of automatic
systems and equipment occur, including contingencies for the potential failures
of key vendors to become Year 2000 compliant. A final contingency plan is
scheduled to be completed prior to July 1999.
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CAPITAL RESOURCES AND LIQUIDITY
Net cash generated by operating activities of $805,000 for the nine months ended
September 30, 1998 was primarily the result of $2.8 million in depreciation and
amortization, increases in accounts payable of $3.4 million and increases in
customer deposits of $789,000, offset by investments in inventories of $2.1
million and cash surrender value of life insurance and other assets of $1.7
million. Net cash generated by operating activities decreased from a $11.7
million use of cash during the nine months ended September 30, 1997 to cash
generated of $805,000 during the nine months ended September 30, 1998. This is a
result of a net loss for the nine months ended September 30, 1998 of ($590,000)
compared to net income of $2.4 million for the nine months ended September 30,
1997 and a decrease in the future tax benefit of $1.2 million offset by
increased depreciation and amortization and other non cash activities ($1.2
million), decreased investments in both site-built and manufactured housing
inventories ($16.8 million), net decreases in payables, accrued expenses,
customer deposits and income taxes payable ($3.3 million) and other changes in
operating assets and liabilities such as receivables, cash surrender value of
life insurance and other assets ($2.0 million). Net cash used for investing
activities of $12.2 million was primarily a result of investments in property
and equipment. For the nine months ended September 30, 1998 compared to the nine
months ended September 30, 1997, net cash used for investing activities
increased $7.4 million due to greater purchases of property and equipment,
particularly at the HomeMax subsidiary for sales village development. Net cash
provided by financing activities for the nine months ended September 30, 1998
was $14.6 million, a decrease of $883,000 from the same period in 1997 due to
net bank borrowings slowing to $13.9 million for the nine months ended September
30, 1998 as compared to $15.5 million in the corresponding period 1997. The
borrowing was primarily used to finance property and equipment purchases and
support working capital needs. HomeMax and Zaring National Corporation maintain
a $61 million stand-alone credit facility to fund Zaring National Corporation's
strategic plan. This is in addition to the $87.5 million credit facility already
in place for Zaring Homes and Hearthside Homes. As of June 30, 1998 and
September 30, 1998, the Company did not meet certain covenant requirements. The
bank has waived the covenant requirements and no event of default exists. The
ratio violations occurred principally due to the Company's inability to timely
convert financing of HomeMax sales village development initiatives (guaranteed
by Zaring Homes) to bank approved HomeMax, Inc. related long-term financing
loans. The Company has made and continues to have the ability to make timely
payments to the bank. It is anticipated that the Company will be able to comply
with the covenants at the appropriate measurement dates during the next 12
months. In addition, the Company purchased 46,400 shares of Common Stock for
$400,000.
On June 30, 1998, Allen G. Zaring III executed agreements to fund $20 million of
new long-term capital to Zaring National Corporation and its subsidiaries
through two new entities controlled by him: First Cincinnati Leasing, LLC
(Leasing LLC) and First Cincinnati Land, LLC (Land LLC). Leasing LLC purchased
at cost and subsequently leased-back $7.8 million of model homes from Zaring
Homes. Zaring Homes will pay rent equal to the sales price of the model home
times the prime interest rate (8.5% at September 30, 1998). To finance the
purchase of the model homes, on June 30, 1998, Leasing LLC entered into a loan
agreement whereby an amount of up to $10.0 million can be borrowed until
December 31, 1998. As of September 30, 1998, the loan had an outstanding balance
of $6.9 million and bears interest at LIBOR plus 1.75%.
During the quarter ended September 30, 1998, Land LLC, purchased $4.2 million in
undeveloped land inventory from Zaring Homes and $1.5 million of undeveloped
land from unrelated third parties. Land LLC executed a three year land option
contract with Zaring Homes to repurchase the land with monthly land option
contract
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payments equal to Land LLC's cost of carry (interest, real estate taxes, sewer
and water). Zaring Homes' purchase price of the land will equal Land LLC's
original cost plus 15%. To secure its performance of the option contract, Zaring
Homes provided an irrevocable letter of credit in the amount of $1.5 million in
favor of Land LLC. To finance the purchase of the land, Land LLC entered into a
loan agreement whereby an amount of up to $10.0 million can be borrowed. As of
September 30, 1998, the loan had an outstanding balance of $5.7 million and
bears interest at LIBOR plus 2.25%.
The Company believes its present cash balances, amounts available under existing
borrowing agreements and amounts generated from future operations will provide
adequate funds for its future plans.
PROVISIONS FOR WRITEDOWN TO NET REALIZABLE VALUE- The Company periodically
reviews the value of assets held by its reporting segments, including: land,
inventories, property and equipment, and intangibles and determines whether any
write-downs need to be recorded to reflect declines in value. The estimated net
realizable value of real estate inventories and property and equipment
represents management's estimate based on present plans and intentions, selling
prices in the ordinary course of business and anticipated economic and market
conditions. Accordingly, the realization of the value of the Company's real
estate inventories, property and equipment and certain intangibles is dependent
upon future events and conditions that may cause actual results to differ from
amounts presently estimated.
INFLATION- Housing demand, in general, is affected adversely by increases in
interest rates. If mortgage interest rates, material and labor costs increase
significantly, the Company's revenues, gross profit, and net income could be
adversely affected.
CAUTIONARY STATEMENTS ON FORWARD LOOKING INFORMATION
Certain statements contained in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section and in other Company
statements, reports and SEC filings that are not related to historical results
are forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements involve a number of risks and
uncertainties. Any forward-looking statements made by the Company herein and in
future reports and statements are not guarantees of future performance and
actual results may differ materially from those in forward-looking statements as
a result of various factors including, but not limited to, those referred to
below.
GENERAL REAL ESTATE, ECONOMIC AND OTHER CONDITIONS- The homebuilding and
manufactured housing industry is significantly affected by changes in national
and local economic and other conditions, including employment levels, changing
demographic considerations, availability of financing, interest rates, consumer
confidence and housing demand. In addition, homebuilders are subject to various
risks, many of them outside the control of the homebuilder, including
competitive overbuilding, availability and cost of building lots, availability
of materials and labor and adverse weather conditions which can cause delays in
construction schedules, cost overruns, changes in government regulation and
increases in real estate taxes and other local government fees.
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PRESENT AND FUTURE COMMUNITIES- The Company's communities will be built out over
time. Therefore, the medium- and long-term financial success of the Company will
be dependent on the Company's ability to develop and market its communities
successfully. Acquiring land and committing the financial and managerial
resources to develop a community on that land involve significant risks. Before
these communities generate any revenue, they require material expenditures for,
among other things, acquiring land, obtaining development approvals and
constructing project infrastructure (such as roads and utilities), recreation
centers, model homes and sales facilities. It generally takes several years for
communities to achieve cumulative positive cash flow. The Company's risk is
increased by its entries into markets where it does not have prior experience.
LONG-TERM NATURE OF PROJECTS; PERIOD-TO-PERIOD FLUCTUATIONS- The Company's
communities are long-term projects. Sales activity at the Company's communities
varies from period to period, and the ultimate success of any community cannot
necessarily be judged by results in any particular period or periods. A
community may generate significantly higher sales levels at inception (whether
because of local pent-up demand in the area or other reasons) than it does
during later periods over the life of the community. Revenues and earnings of
the Company will also be affected by period-to-period fluctuations in the mix of
product and home closings among the Company's communities.
THE COMPANY'S MARKETS- The Company's operations are concentrated in Cincinnati,
Ohio; Nashville, Tennessee; Raleigh, North Carolina; Indianapolis, Indiana;
Charlotte, North Carolina; and Louisville, Kentucky. Although these are stable,
established markets in which the Company has or intends to operate successfully,
there can be no assurance that the stability of these markets or the Company's
favorable results there will continue. Adverse general economic conditions in
these markets could have a material adverse impact on the operations of the
Company. The Company may also expand into new geographic markets which could
reduce the Company's dependence upon the health of its existing markets.
However, any new markets may prove to be less stable and may involve delays,
problems and expenses not typically found by the Company in the existing markets
with which it is familiar. Such delays, problems and expenses would be likely to
occur in any new market and may include, without limitation, the development of
relationships with local contractors and suppliers, land acquisition and
development, construction of new model homes, acquiring local office facilities
and hiring additional personnel.
COMPETITION- The homebuilding and manufactured home business is highly
competitive. The Company competes in each of its local market areas with
numerous national, regional and local homebuilders, some of which have greater
financial, marketing and sales resources than the Company. Builders of new
homes compete not only for home buyers, but also for desirable properties,
financing, raw materials and skilled laborers. The Company also competes with
the resale market for existing homes which provides certain attraction for home
buyers over building a new home. The Company attempts to meet this competition
from the home resale market by offering benefits which the resale market for
existing homes cannot provide, notably the latest design features, the
flexibility to select interior and exterior finishes and new home warranties.
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<PAGE> 27
GOVERNMENTAL REGULATION AND ENVIRONMENTAL CONSIDERATIONS- The housing industry
and the Company are subject to increasing local, state and Federal statutes,
ordinances, rules and regulations concerning zoning, resource protection
(preservation of woodlands and hillside areas), building design, construction
and similar matters, including local regulations which impose restrictive zoning
and density requirements in order to limit the number of residences that can
eventually be built within the boundaries of a particular location. Such
regulation affects construction activities, including construction materials
which must be used in certain aspects of building design, as well as sales
activities and other dealings with consumers. The Company must also obtain
licenses, permits and approvals from various governmental agencies for its
development activities, the granting of which are beyond the Company's control.
Furthermore, increasingly stringent requirements may be imposed on homebuilders
and developers in the future. Although the Company cannot predict the impact on
the Company of compliance with any such requirements, such requirements could
result in time consuming and expensive compliance programs.
The Company is also subject to a variety of local, state and Federal statutes,
ordinances, rules and regulations concerning the protection of health and the
environment. The particular environmental laws which apply to any given project
vary greatly according to the project site and the present and former uses of
the property. These environmental laws may result in delays, cause the Company
to incur substantial compliance costs, including substantial expenditures for
pollution and water quality control, and prohibit or severely restrict
development in certain environmentally sensitive regions or areas. The Company
endeavors in its land acquisition program to resolve, or at least significantly
reduce, environmental issues before it becomes obligated to purchase the land.
Although there can be no assurance that it will be successful in all cases, the
Company has a general practice of requiring an environmental audit and
resolution of environmental issues prior to purchasing land in an effort to
avoid major environmental issues in the Company's developments.
In addition, the Company has been and may in the future be subject to periodic
delays or may be precluded from developing certain projects due to building
moratoriums. These moratoriums generally relate to insufficient water supplies,
sewage facilities, delays in utility hook-ups, or inadequate road capacity
within the specific market area or subdivision. Although the Company's practice
of resolving such issues before committing to purchase property tends to reduce
the Company's exposure to financial risk as a result of such moratoriums, the
Company must utilize its resources in dealing with them.
FINANCING; LEVERAGE; INTEREST RATES- The homebuilding industry in general is
highly leveraged and usually subject to significant up-front expenditures for
land development costs. Although the Company generally limits the extent of its
borrowings, in periods of significant growth, the Company will require
significant additional capital resources, whether from issuances of equity or by
incurring additional indebtedness. If the Company is at any time not successful
in obtaining sufficient capital to fund its development and expansion
expenditures, some or all of its projects may be significantly delayed,
resulting in cost increases and adverse effects on the Company's results of
operations. No assurance can be given as to
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<PAGE> 28
the availability or cost of any future financing. In addition, the Company's
degree of leverage from time to time will affect its interest incurred and may
limit funds available for operations. As a result, the Company may be more
vulnerable to economic downturns, which could limit its ability to withstand
adverse changes or to capitalize on business opportunities. If the Company is at
any time unable to generate sufficient cash flow from operations to service its
debt, refinancing of all or a portion of that debt or obtaining additional
financing may be required to avoid defaults (including cross defaults). There
can be no assurance that such refinancing would be possible or that any
additional financing could be obtained, or obtained on terms that are favorable
or acceptable to the Company.
The Company's real estate operations are also dependent upon the availability
and cost of mortgage financing. The Company does not finance the purchase of
homes in its communities and does not contemplate doing so. However, the Company
does arrange mortgage financing with third-party lenders for the purchase of its
homes through a Cincinnati mortgage broker in which the Company owns a 50%
partnership interest. An increase in interest rates, which may result from
governmental policies and other factors outside the control of the Company, may
adversely affect the buying decisions of potential home buyers and their ability
to sell their existing homes.
CONSTRUCTION- The Company has from time to time experienced shortages of
materials or qualified tradespeople or volatile increases in the cost of certain
materials (particularly increases in the price of lumber and framing, which are
significant components of home constructions costs), resulting in longer than
normal construction periods and increased costs not reflected in the prices of
homes for which home sales contracts had been entered into up to one year in
advance of scheduled closing. Generally, the Company's home sale contracts do
not contain, or contain limited, provisions for price increases if the Company's
costs of construction increase.
NATURE RISKS- Communities are subject to significant seasonal precipitation
which can cause delays in construction and development and increase costs.
Additional information on factors which could affect the Company's financial
results may be included in the Company's most recently filed Annual Report or
Form 10-K, and subsequent reports, filed with the Securities and Exchange
Commission.
THE YEAR 2000 ISSUE - The estimated costs of, and timetable for, becoming Year
2000 compliant as well as the replacement and implementation of the core
management information system constitute "forward looking statements" as defined
in the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that such estimates are based on numerous assumptions by management, including
assumptions regarding the continued availability of certain technological and
other resources, the accuracy of representations made by third parties
concerning their compliance with Year 2000 issues, and other factors. Specific
factors that might cause such differences include, among others, the
availability and cost of personnel trained in this area, the ability to locate
and correct all affected computer code, the timing and success of remedial
efforts of third party suppliers and similar uncertainties. The estimated costs
of Year 2000
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<PAGE> 29
compliance also do not give effect to any future corporate acquisitions or
divestitures made by the Company or its subsidiaries.
Page 29
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PART II - OTHER INFORMATION
ITEM 1. LEGAL INFORMATION
-----------------
The Company is subject to various claims, lawsuits and administrative
proceedings arising in the ordinary course of business activities which seek
remedies or damages. The Company believes that any liability that may be
determined will not have a material effect on its financial position or results
of operation.
ITEM 2. NONE
ITEM 3. NONE
ITEM 4. NONE
ITEM 5. NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
---------------------------------
(a) Exhibits
10.16 Zaring National Corporation $15,000,000 Credit Agreement
10.17 HomeMax, Inc. $12,000,000 Credit Agreement
10.18 HomeMax, Inc. Group $33,920,000 Floor Plan Agreement
Exhibit 27, Financial Data Schedule
(b) The Company did not file a report on Form 8-K during the quarter
for which this report is filed.
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<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZARING NATIONAL CORPORATION
(Registrant)
Date: November 13, 1998 By: /s/ Allen G. Zaring III
-------------------------------
Allen G. Zaring III
Chairman of the Board, President and
Chief Executive Officer
Date: November 13, 1998 By: /s/Ronald G. Gratz
--------------------------
Ronald G. Gratz
Chief Financial Officer
Secretary and Treasurer
(Principal Financial and Accounting Officer)
Page 31
<PAGE> 1
Exhibit 10.16
ZARING NATIONAL CORPORATION
-----------------------------
$15,000,000
CREDIT AGREEMENT
dated as of February 23, 1998
------------------------------
NATIONSBANK, N.A.,
as Agent
<PAGE> 2
<TABLE>
<S> <C> <C>
SECTION 1 DEFINITIONS............................................................1
1.1 Defined Terms.......................................................1
1.2 Other Definitional Provisions......................................12
SECTION 2 AMOUNT AND TERMS OF COMMITMENTS.......................................13
2.1 Commitments........................................................13
2.2 Procedure for Borrowing............................................13
2.3 Use of Proceeds of Loans...........................................14
SECTION 3 PROVISIONS RELATING TO THE EXTENSIONS OF CREDIT;......................14
3.1 Repayment of Loans; Evidence of Indebtedness.......................14
3.2 Commitment Fee.....................................................15
3.3 Agent's Fees.......................................................15
3.4 Optional Prepayments...............................................15
3.5 Optional Termination or Reduction of Commitments...................15
3.6 Mandatory Reduction of Commitments and Prepayments.................16
3.7 Application of Prepayments.........................................16
3.8 Prepayment Premium.................................................16
3.9 Conversion and Continuation Options................................17
3.10 Minimum Amounts and Maximum Number of Tranches.....................18
3.11 Interest Rates and Payment Dates...................................18
3.12 Computation of Interest and Fees...................................18
3.13 Inability to Determine Interest Rate...............................19
3.14 Pro Rata Treatment and Payments....................................19
3.15 Illegality.........................................................20
3.16 Requirements of Law................................................21
3.17 Taxes..............................................................22
3.18 Indemnity..........................................................23
3.19 Change of Lending Office...........................................24
SECTION 4 REPRESENTATIONS AND WARRANTIES.........................................24
4.1 Financial Condition................................................24
4.2 No Change..........................................................25
4.3 Disclosure.........................................................25
4.4 Corporate Existence; Compliance with Law...........................25
4.5 Corporate Power, Authorization, Enforceable Obligations............25
4.6 No Legal Bar.......................................................26
4.7 No Material Litigation.............................................26
4.8 No Default.........................................................26
4.9 Ownership of Property; Liens.......................................26
4.10 Intellectual Property..............................................26
4.11 No Burdensome Restrictions.........................................26
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
4.12 Taxes..............................................................26
4.13 Federal Regulations................................................27
4.14 ERISA..............................................................27
4.15 Investment Company Act; Other Regulations..........................27
4.16 Subsidiaries.......................................................28
4.17 Environmental Matters..............................................28
4.18 Solvency...........................................................29
4.19 Note Pledge Agreement..............................................29
SECTION 5 CONDITIONS PRECEDENT..................................................29
5.1 Conditions to Initial Extensions of Credit.........................29
5.2 Conditions to Each Extension of Credit.............................31
SECTION 6 AFFIRMATIVE COVENANTS.................................................32
6.1 Financial Statements...............................................32
6.2 Certificates; Other Information....................................32
6.3 Payment of Excess Proceeds.........................................33
6.4 Payment of Obligations.............................................33
6.5 Conduct of Business and Maintenance of Existence...................34
6.6 Maintenance of Property; Insurance.................................34
6.7 Inspection of Property; Books and Records; Discussions.............34
6.8 Notices............................................................35
6.9 Environmental Laws.................................................35
6.10 Further Assurances; Additional Collateral..........................36
6.11 Additional Subsidiaries............................................36
SECTION 7 NEGATIVE COVENANTS....................................................36
7.1 Financial Condition Covenants......................................36
7.2 Limitation on Indebtedness and Preferred Stock.....................37
7.3 Limitation on Liens................................................37
7.4 Limitation on Guarantee Obligations................................38
7.5 Limitation on Fundamental Changes..................................38
7.6 Limitation on Sale of Assets.......................................38
7.7 Limitation on Dividends............................................38
7.8 Limitation on Investments, Loans and Advances......................39
7.9 Limitation on Transactions with Affiliates.........................39
7.10 Limitations on Sales and Leasebacks................................39
7.12 Limitation on Changes in Fiscal Year...............................39
7.13 Limitation on Lines of Business....................................40
SECTION 8 EVENTS OF DEFAULT.....................................................40
SECTION 9 THE AGENT.............................................................42
9.1 Appointment........................................................42
9.2 Delegation of Duties...............................................42
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
9.3 Exculpatory Provisions.............................................43
9.4 Reliance by Agent..................................................43
9.5 Notice of Default..................................................43
9.6 Non-Reliance on Agent and Other Lenders............................44
9.7 Indemnification....................................................44
9.8 Agent in its Individual Capacity...................................45
9.9 Successor Agent....................................................45
SECTION 10 MISCELLANEOUS.........................................................45
10.1 Amendments and Waivers.............................................45
10.2 Releases of Collateral Security and Guarantee Obligations..........46
10.3 Notices............................................................46
10.4 No Waiver; Cumulative Remedies.....................................47
10.5 Survival of Representations and Warranties.........................48
10.6 Payment of Expenses and Taxes......................................48
10.7 Termination........................................................48
10.8 Successors and Assigns; Participations and Assignments.............49
10.9 Adjustments; Set-off...............................................51
10.10 Counterparts.......................................................52
10.11 Severability.......................................................52
10.12 Integration........................................................52
10.13 Governing Law......................................................52
10.14 Submission To Jurisdiction; Waivers................................52
10.15 Acknowledgments....................................................53
10.16 Waivers of Jury Trial..............................................53
</TABLE>
-iii-
<PAGE> 5
SCHEDULES
- ---------
Schedule I Addresses for Notices
Schedule II Commitments and Commitment Percentages
Schedule III Subsidiaries
Schedule IV Indebtedness
Schedule V Liens
Schedule VI Guarantees
Schedule VII Existing Investments
EXHIBITS
- --------
Exhibit A Form of Note
Exhibit B-1 Form of HomeMax, Inc. Group
Exhibit B-2 Form of Zaring Homes, Inc. Guarantee
Exhibit C Form of Note Pledge Agreement
Exhibit D-1 Form of Notice of Borrowing (Drawings)
Exhibit D-2 Form of Notice of Borrowing (Continuations)
Exhibit D-3 Form of Notice of Borrowing (Conversions)
Exhibit E Form of Officer's Compliance Certificate
Exhibit F Form of Opinion of Frost & Jacobs, LLP.
Exhibit G Form of Assignment and Acceptance
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<PAGE> 6
CREDIT AGREEMENT, dated as of February 23, 1998, among:
(a) Zaring National Corporation, (the "BORROWER");
(b) the banks and other financial institutions from time to time parties
to this Agreement, (the "LENDERS"); and
(c) NATIONSBANK, N.A. as agent (in such capacity, the "AGENT") for the
Lenders hereunder.
WITNESSETH:
-----------
WHEREAS, the Borrower has requested that the Lenders make
available to it credit facilities of up to $15,000,000.00 in the aggregate upon
the terms, and subject to the conditions, set forth herein to provide financing
for the ongoing working capital and for the other general corporate purposes of
the Borrower's wholly-owned subsidiary, HomeMax, Inc.;
WHEREAS, the Agent and the Lenders are willing to provide such
financing to the Borrower only upon the terms and subject to the conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto hereby agree as follows:
SECTION 1 DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the greater of (i) the Prime Rate in effect on
such day and (ii) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1%. If for any reason the Agent shall have determined (which
determination shall be conclusive absent manifest error) that the Agent is
unable to ascertain the Federal Funds Effective Rate for any reason, including
the inability or failure of the Agent to obtain sufficient quotations in
accordance with the terms thereof, the ABR shall be determined without regard to
clause (ii) of the first sentence of this definition, until the circumstances
giving rise to such inability no longer exist. Any change in the ABR due to a
change in the Prime Rate or Federal Funds Effective Rate shall be effective on
the effective date of such change in the Prime Rate or Federal Funds Effective
Rate, respectively.
"ABR LOANS": Loans the rate of interest applicable to which is based upon
the ABR.
"ACQUIRED LAND PARCEL": any interests in real properties and improvements
thereon acquired by HomeMax or any of its Subsidiaries under the HM Facility.
-1-
<PAGE> 7
"AGENT": as defined in the preamble to this Agreement.
"AFFILIATE": as to any Person, any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with, such Person. For purposes of this definition,
"control" of a Person means the power, directly or indirectly, either to (a)
vote 5% or more of the securities having ordinary voting power for the election
of directors of such Person or (b) direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.
"AGGREGATE OUTSTANDING EXTENSIONS OF CREDIT": as to any Lender at any
time, an amount equal to the aggregate principal amount of all Loans made by
such Lender then outstanding.
"AGREEMENT": this Credit Agreement, as amended, supplemented or otherwise
modified from time to time.
"APPLICABLE MARGIN": for each Type of Loan outstanding, the rate per annum
set forth below:
ABR Eurodollar Rate
---- ---------------
125% 1.75%
"ASSIGNEE": as defined in subsection 10.8(c).
"AVAILABLE COMMITMENT": as to any Lender, at any time an amount equal to
the excess, if any, of (a) the lesser of (i) the Commitment of such Lender or
(ii) the amount of the HM Note then outstanding minus (b) the Aggregate
Outstanding Extensions of Credit of such Lender.
"BANK DEFAULT": means (i) the refusal (which has not been retracted) of a
Lender to make available an amount equal to its Lender's Commitment Percentage
of any borrowing or (ii) a Lender having notified the Agent and or the Borrower
that such Lender does not intend to comply with the obligations under subsection
2.1 in the case of either (i) or (ii) above including as a result of the
appointment of a receiver or conservator with respect to such Lender at the
direction or request of any regulatory agency or authority.
"BUSINESS": as defined in subsection 4.17(b).
"BUSINESS DAY": a day other than a Saturday, Sunday or other day on which
commercial banks in Charlotte, North Carolina are authorized or required by law
to close; PROVIDED that, with respect to matters relating to Eurodollar Loans,
the term "BUSINESS DAY" shall mean a day other than a Saturday, Sunday or other
day on which commercial banks in Charlotte, North Carolina or London, England,
are authorized or required by law to close.
"CAPITAL STOCK": any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation) and any
and all warrants or options to purchase any of the foregoing.
-2-
<PAGE> 8
"CASH EQUIVALENTS": (a) securities with maturities of one year or less
from the date of acquisition issued or fully guaranteed or insured by the United
States Government or any agency thereof, (b) certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date of
acquisition and overnight bank deposits of any Lender or of any commercial bank
having capital and surplus in excess of $100,000,000, (c) repurchase obligations
of any Lender or of any commercial bank or investment bank satisfying the
requirements of clause (b) of this definition, having a term of not more than
thirty (30) days with respect to securities issued or fully guaranteed or
insured by the United States Government or any agency thereof, (d) commercial
paper issued in the United States which is rated at least A-1 by S&P or P-1 by
Moody's, (e) securities with maturities of one (1) year or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States, by any political subdivision or taxing authority of any
such state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political subdivision,
taxing authority or foreign government are rated at least A by S&P or A by
Moody's, (f) securities with maturities of one year or less from the date of
acquisition backed by standby letters of credit issued by any Lender or any
commercial bank satisfying the requirements of clause (b) of this definition or
(g) shares of money market mutual or similar funds which invest substantially
exclusively in assets satisfying the requirements of clauses (a) through (f) of
this definition.
"CHANGE IN CONTROL": any transaction or group of transactions after
which (i) Allen G. Zaring, III (together with his executors, administrators or
heirs in the event of his death) shall directly or indirectly own less than
twenty-five percent (25%) of Borrower's issued and outstanding common stock, or
(ii) another Person has acquired beneficial ownership of Borrower's issued and
outstanding common stock in an amount greater than the amount owned directly or
indirectly in the aggregate by Allen G. Zaring, III (together with his
executors, administrators or heirs in the event of his death).
"CLOSING DATE": the date on which the conditions precedent set forth in
subsection 5.1 shall be satisfied.
"CODE": the Internal Revenue Code of 1986, as amended from time to
time.
"COLLATERAL": as defined in the Note Pledge Agreement.
"COMMITMENT": as to any Lender, the obligation of such Lender to make
Loans to the Borrower hereunder in an aggregate principal amount at any one time
outstanding not to exceed the amount set forth opposite such Lender's name on
SCHEDULE II; as the same may be reduced from time to time pursuant to
subsections 3.4, 3.5 and 3.6; as to all Lenders collectively, the "COMMITMENTS."
"COMMITMENT FEE": a fee of 0.25% of the average daily unused portion of
the Facility from the Closing Date until the Maturity Date.
"COMMITMENT PERCENTAGE": as to any Lender at any date, the percentage
which such Lender's Commitment then constitutes of the aggregate Commitments
(or, at any time after the Commitments shall have expired or terminated, the
percentage which the Aggregate Outstanding
-3-
<PAGE> 9
Extensions of Credit of such Lender then constitutes of the Aggregate
Outstanding Extensions of Credit of all Lenders).
"COMMITMENT PERIOD": the period from and including the date hereof to
but not including the Maturity Date or such earlier date on which the
Commitments shall terminate as provided herein.
"COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated,
which is under common control with the Borrower within the meaning of Section
4001 of ERISA or is part of a group which includes the Borrower and which is
treated as a single employer under Section 414 of the Code.
"CONSOLIDATED FIXED CHARGES": for any fiscal period, the sum (without
duplication) of the following determined on a consolidated basis: (a) the amount
of interest expense of the Borrower and its Subsidiaries both expensed and
capitalized for such period, (b) required cash amortization of Indebtedness for
such period and discount or premium related to any such Indebtedness for such
period, whether expensed or capitalized and (c) the aggregate amount of fixed
and contingent rentals payable by the Borrower and its Subsidiaries for such
period with respect to leases of real and personal property.
"CONSOLIDATED NET INCOME" or "CONSOLIDATED NET LOSS": for any fiscal
period, the amount which, in conformity with GAAP, would be set forth opposite
the caption "net income" (or any like caption) or "net loss" (or any like
caption), as the case may be, on a consolidated statement of earnings of the
Borrower and its Subsidiaries for such fiscal period.
"CONSOLIDATED NET WORTH": for any fiscal period, the sum of (a) Capital
Stock and additional paid-in capital plus (b) retained earnings (or minus
accumulated deficits) of the Borrower and its Subsidiaries determined on a
consolidated basis.
"CONSOLIDATED TANGIBLE NET WORTH": for any fiscal period, the sum of
(a) Consolidated Net Worth MINUS (b) any amounts which would be considered
intangible assets on a consolidated balance sheet of the Borrower and its
Subsidiaries (including without limitation, copyrights, patents, trademarks,
contract rights, development costs and goodwill).
"CONTRACTUAL OBLIGATION": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"DEBT": of any Person, at any date, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) the deferred purchase price
of property or services (other than current trade liabilities incurred in the
ordinary course of business and payable in accordance with customary practices),
(c) any other indebtedness of such Person which is evidenced by a note, bond,
debenture or similar instrument, and (d) all Debt of the types referred to in
clauses (a) through (c) above which is guaranteed directly or indirectly by such
Person.
-4-
<PAGE> 10
"DEFAULT": any of the events specified in Section 8, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, has been satisfied.
"DEFAULTING LENDER": any Lender with respect to which a Bank Default is
in effect.
"DOLLARS" and "$": dollars in lawful currency of the United States of
America.
"EBITDA": for any fiscal period for any Person, the Consolidated Net
Income or Consolidated Net Loss, as the case may be, for such fiscal period,
after excluding therefrom the amount of extraordinary gain and restoring thereto
(a) depreciation and amortization, (b) the amount of interest expense of such
Person, determined on a consolidated basis, for such period on the aggregate
principal amount of their consolidated Indebtedness and any fees (including
commitment and administrative fees) with respect to such Indebtedness, (c) the
amount of tax expense of such Person, determined on a consolidated basis for
such period and (d) the aggregate amount of fixed and contingent rentals payable
by the Borrower and its Subsidiaries, determined on a consolidated basis for
such period, with respect to leases of real and personal property.
"ENVIRONMENTAL LAWS": any and all foreign, Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees
or other Requirements of Law (including common law) regulating, relating to or
imposing liability or standards of conduct concerning pollution or protection of
the environment (including protection of human health from environmental
hazards), as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"EUROCURRENCY RESERVE REQUIREMENTS": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as
a decimal or fraction) of reserve requirements in effect on such day (including,
without limitation, basic, supplemental, marginal and emergency reserves under
any regulations of the Board of Governors of the Federal Reserve System or other
Governmental Authority having jurisdiction with respect thereto) dealing with
reserve requirements prescribed for eurocurrency funding (currently referred to
as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a
member bank of such System.
"EURODOLLAR BASE RATE": the rate per annum determined by the Agent to
be the average of the respective rates per annum posted by each of the principal
London office of banks posting rates as displayed on the Telerate screen, page
3750 or such other page as may replace such page on such service for the purpose
of displaying the London interbank offered rate of major banks for deposits in
US dollars at approximately 11:00 A.M. (London Time) two (2) Business Days prior
to the beginning of the relevant Interest Period, as specified in the Notice of
Borrowing (and rounded, if necessary, upward to the next whole multiple of 1/16
of 1%); PROVIDED that, to the extent an interest rate is not ascertainable
pursuant to the foregoing provisions of this definition, the "Eurodollar Base
Rate" shall be the interest rate per annum determined by the Agent to be the
average (rounded, if necessary, upward to the nearest whole multiple of 1/16th
of 1% per annum, if such average is not such a multiple) of the rates per annum
at which deposits in Dollars are offered for such relevant Interest Period to
major banks in the London interbank
-5-
<PAGE> 11
market in London, England by such other major banks in the London interbank
market in London, England at approximately 11:00 A.M. (London time) on the date
which is two (2) Business Days prior to the beginning of such Interest Period.
"EURODOLLAR LOANS": Loans the rate of interest applicable to which is
based upon the Eurodollar Rate.
"EURODOLLAR RATE": with respect to each day during each Interest Period
pertaining to a Eurodollar Loan, a rate per annum determined for such day in
accordance with the following formula (rounded, if necessary, upward to the
nearest whole multiple of 1/16th of 1%).
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"EVENT OF DEFAULT": any of the events specified in Section 8, PROVIDED
that any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
"FACILITY": as provided for in Section 2 hereof.
"FEDERAL FUNDS EFFECTIVE RATE": for any day, the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by it.
"FINANCING LEASE": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
"GAAP": generally accepted accounting principles in the United States
of America as in effect from time to time.
"GOVERNMENTAL AUTHORITY": any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"GUARANTEE": a HomeMax Guarantee, a Zaring Homes Guarantee and each
other guarantee from time to time made in favor of the Agent to secure all or
any part of the obligations of the Borrower hereunder as amended, supplemented
or otherwise modified from time to time; collectively, the "GUARANTEES".
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"GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING PERSON"),
any obligation of the guaranteeing person or another Person (including, without
limitation, any bank under any letter of credit) to induce the creation of which
the guaranteeing person has issued a reimbursement, counter indemnity or similar
obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "PRIMARY OBLIGATIONS")
of any other third Person (the "PRIMARY OBLIGOR") in any manner, whether
directly or indirectly, including, without limitation, any obligation of the
guaranteeing person incurred for the purpose of providing credit support,
whether or not contingent, including, without limiting the generality of the
foregoing, any agreement to indemnify or hold harmless any other Person, any
performance bond or other suretyship arrangement and any form of assurance
against loss, except endorsement of negotiable instruments or other instruments
for deposit or collection in the ordinary course of business.
"GUARANTOR": any Person delivering a Guarantee.
"HM FACILITY": the $12,000,000 credit facility described in the Credit
Agreement dated as of the date hereof (as amended, supplemented or otherwise
modified from time to time the "HM CREDIT AGREEMENT") by and among HomeMax,
Inc., as borrower, the Lenders from time to time party thereto and Nationsbank,
N.A. as agent for such lenders.
"HM NOTE": the promissory note evidencing an amount payable from
HomeMax to the Borrower, from time to time, with respect to any intercompany
loans made by the Borrower to HomeMax which use all or a portion of the proceeds
of this Facility, in form and substance satisfactory to the Agent as the same
may be amended, supplemented or otherwise modified from time to time.
"HOMEMAX" HomeMax, Inc., an Ohio corporation and a Subsidiary of the
Borrower.
"HOMEMAX GUARANTEE": each guarantee to be executed and delivered by
HomeMax and its Subsidiaries in the form of EXHIBIT B-1, as the same may be
amended, supplemented or otherwise modified from time to time.
"INDEBTEDNESS": of any Person, at any date, without duplication, (a)
all indebtedness of such Person for borrowed money, (b) the deferred purchase
price of property or services (other than current trade liabilities incurred in
the ordinary course of business and payable in accordance with customary
practices), (c) any other indebtedness of such Person which is evidenced by a
note, bond, debenture or similar instrument, (d) all obligations of such Person
under Financing Leases, (e) all obligations of such Person in respect of letters
of credit and acceptances and letters of credit issued or created for the
account of such Person (including without limitation all issued and outstanding
letters of credit), (f) all liabilities secured by any Lien on any property
owned by such Person even though such Person has not assumed or otherwise become
liable for the payment thereof, (g) all obligations of such Person in respect of
surety and appeal bonds, performance bonds and other obligations of a like
nature and (h) all Indebtedness of the types referred to in clauses (a) through
(g) above which is guaranteed directly or indirectly by such Person.
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"INSOLVENCY": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"INSOLVENT": pertaining to a condition of Insolvency.
"INTEREST PAYMENT DATE": (a) as to any ABR Loan, the last Business Day
of each calendar month, (b) as to any Eurodollar Loan having an Interest Period
of three months or less, the last day of such Interest Period and (c) as to any
Eurodollar Loan having an Interest Period of four months, the day which is three
months (or a whole multiple thereof) after the first day of such Interest Period
and the last day of such Interest Period.
"INTEREST PERIOD": with respect to any Eurodollar Loan: (a) initially,
the period commencing on the borrowing or conversion date, as the case may be,
with respect to such Eurodollar Loan and ending one, two, three or four months
thereafter, as selected by the Borrower in its notice of borrowing or notice of
conversion, as the case may be, given with respect thereto and (b) thereafter,
each period commencing on the last day of the next preceding Interest Period
applicable to such Eurodollar Loan and ending one, two, three or four months
thereafter, as selected by the Borrower in a Notice of Borrowing delivered to
the Lender by 10:00 A.M., Charlotte, North Carolina time, not less than three
(3) Business Days prior to the last day of the then current Interest Period with
respect thereto; PROVIDED that, all of the foregoing provisions relating to
Interest Periods are subject to the following:
(1) if any Interest Period pertaining to a Eurodollar Loan
would otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless the
result of such extension would be to carry such Interest Period into
another calendar month in which event such Interest Period shall end on
the immediately preceding Business Day;
(2) any Interest Period that would otherwise extend beyond the
Maturity Date shall end on the Maturity Date;
(3) any Interest Period pertaining to a Eurodollar Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day
of a calendar month; and
(4) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an
Interest Period for such Loan.
"LIEN": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any Financing Lease
having substantially the same economic effect as any of the foregoing).
"LOANS": as defined in subsection 2.1.
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"LOAN DOCUMENTS": this Agreement, the Notes, the Note Pledge Agreement,
the Guarantees and any other instruments, certificates, agreements or documents
delivered or contemplated to be delivered hereunder or thereunder or in
connection herewith or therewith, as the same may be amended, supplemented or
otherwise modified from time to time.
"LOAN PARTIES": the Borrower, HomeMax and its Subsidiaries and Zaring
Homes and with respect to Section 8, the Subsidiaries of Zaring Homes.
"MAJORITY LENDERS": at any time Lenders having Commitments (or if
Commitments have terminated, Aggregate Outstanding Extensions of Credit) which
aggregate more than 51% of the sum of the amount of the Commitments of the
Non-Defaulting Lenders (or Aggregate Outstanding Extensions of Credit of the
Non-Defaulting Lenders as the case may be) then in effect, provided that
Majority Lenders shall in no way consist of less than two (2) Lenders.
"MATERIAL ADVERSE AMOUNT": an amount payable by the Borrower and/or its
Subsidiaries in excess of $100,000 for remedial costs, non-routine compliance
costs, compensatory damages, punitive damages, fines, penalties or any
combination thereof.
"MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the
business, operations, property, financial condition or prospects of the Borrower
and its Subsidiaries taken as a whole, (b) the validity or enforceability of
this or any of the other Loan Documents or (c) the rights or remedies of the
Agent or the Lenders hereunder or under any of the other Loan Documents.
"MATERIALS OF ENVIRONMENTAL CONCERN": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as such
in or under any Environmental Law, including, without limitation, asbestos,
polychlorinated biphenyls and urea-formaldehyde insulation.
"MATURITY DATE": March 1, 2000.
"MOODY'S": Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"NON-DEFAULTING LENDER": any Lender other than a Defaulting Lender.
"NON-EXCLUDED TAXES": as defined in subsection 3.17(a).
"NOTE": as defined in subsection 3.1(e).
"NOTE PLEDGE AGREEMENT": the Note Pledge Agreement to be executed and
delivered by a duly authorized officer of the Borrower, substantially in the
form of Exhibit C, as the same may be amended, supplemented or otherwise
modified from time to time.
"NOTICE OF BORROWING": means (a) with respect to a request for a
borrowing hereunder, a request in the form of EXHIBIT D-1 hereto, (b) with
respect to a request for continuation of a
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Eurodollar Loan hereunder, a request in the form of EXHIBIT D-2 hereto, (c) with
respect to a request for conversion of or to a Eurodollar Loan hereunder, a
request in the form of EXHIBIT D-3 hereto, each as delivered to the Agent by a
Responsible Officer of the Borrower.
"PARTICIPANTS": as defined in subsection 10.8(b).
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA.
"PERSON": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other legal entity.
"PLAN": at a particular time, any employee benefit plan or other plan
established, maintained or contributed to by the Borrower or a Commonly
Controlled Entity that is covered by Title IV of ERISA.
"PRIME RATE": the rate of interest per annum publicly announced from
time to time by the Agent at its principal office as its prime rate on a
particular day in effect for domestic (United States) commercial loans; such
rate is not necessarily intended to be the lowest rate of interest charged by
the Lenders in connection with extensions of credit. Each change in the Prime
Rate shall be effective on the date such change is publicly announced.
"PROCEEDS": with respect to any Proceeds Event, the gross cash
consideration, and all cash proceeds (as and when received) of non-cash
consideration (including without limitation, any such cash proceeds in the
nature of principal and interest payments on account of promissory notes or
similar obligations), received by the Borrower or any other Loan Party in
connection with such Proceeds Event.
"PROCEEDS EVENT": (a) the issuance or sale of any equity securities by
the Borrower or any of the other Loan Parties to any Person, other than (i) the
issuance or sale of any equity securities to the Borrower by any of the other
Loan Parties, (ii) the issuance of Capital Stock upon the sale or exercise of
stock options, (iii) the issuance and sale of Capital Stock under employee stock
purchase plans, (iv) the issuance and sale of Capital Stock and/or stock options
under employee stock ownership and incentive plans and similar programs or
individual arrangements;
(b) the sale, transfer or other disposition by the Borrower or any of
the other Loan Parties of any real or personal, tangible or intangible, property
(other than inventory sold, transferred or otherwise disposed of in the ordinary
course of business) of the Borrower or such Loan Party to any Person (other than
to the Borrower or any of the other Loan Parties);
(c) the sale, transfer or other disposition by the Borrower or any of
its Subsidiaries of any Capital Stock of the Borrower or such Subsidiary to any
Person (other than to the Borrower or any of the other Loan Parties); and
(d) the whole or partial prepayment or payment by HomeMax or its
Subsidiaries to the Borrower with respect to the HM Note.
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"PROPERTIES": as defined in subsection 4.17(a).
"REGULATION G": Regulation G of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"REGULATION U": Regulation U of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"REORGANIZATION": with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241 of ERISA.
"REPORTABLE EVENT": any of the events set forth in Section 4043(c) of
ERISA, other than those events as to which the thirty (30) day notice period is
waived under subsections .22, .25, .27 or .28 of PBGC Reg. ss.4043.
"REQUIREMENT OF LAW": as to any Person, the Articles or Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"RESPONSIBLE OFFICER": the chief executive officer, the president, an
executive vice president, the chief financial officer or the treasurer of the
Borrower.
"RESTRICTED PAYMENTS": as defined in subsection 7.7.
"S&P": Standard and Poor's Ratings Group, a division of McGraw Hill
Companies Inc.
"SEC": means the United States Securities and Exchange Commission, or
any Governmental Authority succeeding to any of its principal functions.
"SECURED OBLIGATIONS": shall be the collective reference to the unpaid
principal of and interest on the Notes and all other obligations and liabilities
(including, without limitation, interest accruing at the then applicable rate
provided in this Agreement after the maturity of the Loans and interest accruing
at the then applicable rate provided in this Agreement after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization or
like proceeding, relating to the Borrower, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding), of the
Borrower to the Agent and the Lenders, whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred, which
may arise under, out of, or in connection with, this Agreement, the Notes and
the other Loan Documents or any other document made, delivered or given in
connection therewith, in each case whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all reasonable fees and disbursements of counsel
to the Agent or to the Lenders that are required to be paid by the Borrower
pursuant to the terms of this Agreement or any other Loan Document).
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"SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of ERISA,
but which is not a Multiemployer Plan.
"SUBSIDIARY": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having ordinary
voting power (other than stock or such other ownership interests having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors or other managers of such corporation, partnership or
other entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both,
by such Person. Unless otherwise qualified, all references to a "Subsidiary" or
to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries
of the Borrower.
"TRANCHE": the collective reference to Eurodollar Loans having then
current Interest Periods which began on the same date and end on the same later
date (whether or not such Loans shall originally have been made on the same
day).
"TRANSFEREE": as defined in subsection 10.8(f).
"TYPE": as to any Loan, as the context requires, its nature as (i) a
Eurodollar Loan or (ii) an ABR Loan.
"UNIFORM CUSTOMS": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No. 500,
as the same may be amended from time to time.
"ZARING HOMES": Zaring Homes, Inc., an Ohio corporation and a
wholly-owned Subsidiary of the Borrower.
"ZARING HOMES GUARANTEE": the guarantee to be executed and delivered by
Zaring Homes, substantially in the form of EXHIBIT B-2, as the same may be
amended, supplemented or otherwise modified from time to time.
"ZH FACILITY": the $87,500,000 credit facilities described in the
amended and restated credit agreement (as amended, supplemented or otherwise
modified from time to time, the "ZH CREDIT AGREEMENT") by and among Zaring
Homes, Inc., and Zaring Holdings, Inc. as borrowers, Hearthside Homes, LLC,
Zaring National Corporation, Zaring Homes of Indiana L.L.C. and Zaring Homes
Kentucky, LLC., as guarantors, the banks from time to time party thereto and PNC
Bank National Association, as agent for the banks and NationsBank, N.A. and The
First National Bank of Chicago, as co-agents.
1.2 OTHER DEFINITIONAL PROVISIONS
(a) Unless otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in any Notes or any
certificate or other document made or delivered pursuant hereto.
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(b) Unless otherwise specified herein, all accounting terms used herein
(and in any other Loan Document and any certificate or other document made or
delivered pursuant hereto or thereto) shall be interpreted, all accounting
determinations shall be made, and all financial statements required to be
delivered hereunder shall be prepared, in accordance with GAAP as in effect from
time to time.
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) In the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including" and the words
"to" and "until" each mean "to but excluding". Periods of days referred to in
this Agreement shall be counted in calendar days unless Business Days are
expressly prescribed. Any period determined hereunder by reference to a month or
months or year or years shall end on the day in the relevant calendar month in
the relevant year, if applicable, immediately preceding the date numerically
corresponding to the first day of such period, PROVIDED, that if such period
commences on the last day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month during which such period is
to end), such period shall, unless otherwise expressly required by the other
provisions of this Agreement, end on the last day of the calendar month.
(e) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2 AMOUNT AND TERMS OF COMMITMENTS
2.1 COMMITMENTS
(a) Subject to the terms and conditions hereof, each Lender severally
agrees to make loans ("LOANS") immediately available to the Borrower from time
to time during the Commitment Period in an aggregate principal amount at any one
time outstanding which does not exceed such Lender's Commitment PROVIDED, that
no additional loan will exceed the Available Commitment. During the Commitment
Period the Borrower may use the Commitments by borrowing, prepaying the Loans in
whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof.
(b) The Loans may from time to time be (i) Eurodollar Loans, (ii) ABR
Loans or (iii) a combination thereof, as determined by the Borrower and notified
to the Agent in accordance with subsections 2.2 and 3.9, PROVIDED that no Loan
shall be made as a Eurodollar Loan after the day that is one month prior to the
Maturity Date.
2.2 PROCEDURE FOR BORROWING. The Borrower may borrow under the
Commitments during the Commitment Period on any Business Day, PROVIDED that the
Borrower shall deliver to the Agent the Borrower's irrevocable Notice of
Borrowing which notice must be in writing or by telephone promptly confirmed in
writing prior to 11:00 A.M., Charlotte, North Carolina time,
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(a) three (3) Business Days prior to the requested borrowing date, if all or any
part of the requested Loans are to be initially Eurodollar Loans or (b) on the
day of the requested borrowing date, otherwise. Upon receipt of any such Notice
of Borrowing from the Borrower, the Agent shall promptly notify each Lender
thereof. Each Lender will make the amount of its pro rata share of each
borrowing available to the Agent for the account of the Borrower at the office
of the Agent specified in subsection 10.3 prior to 1:00 P.M., Charlotte, North
Carolina time on the borrowing date, in funds immediately available to the
Agent. Such borrowing will then be made available to the Borrower by the Agent
transferring to an account (which shall be maintained for such purpose by the
Agent) with the aggregate of the amounts made available to the Agent by the
Lenders and in like funds as received by the Agent.
2.3 USE OF PROCEEDS OF LOANS. The proceeds of the Loans shall be
utilized by the Borrower to provide financing for HomeMax for (a) working
capital and (b) other general corporate needs.
SECTION 3 PROVISIONS RELATING TO THE EXTENSIONS OF CREDIT;
FEES AND PAYMENTS
3.1 REPAYMENT OF LOANS; EVIDENCE OF INDEBTEDNESS
(a) The Borrower hereby unconditionally promises to pay to the Agent
for the account of each applicable Lender the then unpaid principal amount of
each Loan on the Maturity Date (or such earlier date on which the Loans become
due and payable pursuant to Section 8). The Borrower hereby further agrees to
pay interest on the unpaid principal amount of the Loans from time to time
outstanding from the date hereof until payment in full thereof at the rates per
annum, and on the dates, set forth in subsection 3.11.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing Indebtedness of the Borrower to the Lender
resulting from each loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(c) The Agent shall maintain the Register pursuant to subsection
10.8(d) and a subaccount therein for each Lender, in which shall be recorded (i)
the amount of each Loan made hereunder, the Type thereof and each Interest
Period applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to the Lenders hereunder
and (iii) the amount and date of any sum received by the Agent hereunder from
the Borrower.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to subsection 10.8(d) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; PROVIDED, HOWEVER, that the
failure of the Agent or any Lender to maintain the Register or any such account,
or any error therein, shall not in any manner affect the obligation of the
Borrower to repay (with applicable interest) the Loans made to such Borrower by
the Lenders in accordance with the terms of this Agreement.
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(e) The Borrower agrees that, upon request of any Lender through the
Agent, the Borrower will execute and deliver to such Lender a promissory note of
the Borrower evidencing the Loans of such Lender, substantially in the form of
EXHIBIT A with appropriate insertions as to date and principal amount (a
"NOTE").
3.2 COMMITMENT FEE
(a) The Borrower agrees to pay the Commitment Fee.
(b) Such Commitment Fee shall be calculated on the basis of a 365- or a
366-day year, as the case may be.
(c) Such Commitment Fee shall be payable quarterly, in arrears, on the
last Business Day of each December, March, June and September and the Maturity
Date or such earlier date as the Commitments shall terminate as provided herein,
commencing on the first of such dates to occur after the date hereof.
3.3 AGENT'S FEES. The Borrower agrees to pay to the Agent, for its own
account, such fees as may be agreed from time to time between the Borrower and
the Agent, when and as due.
3.4 OPTIONAL PREPAYMENTS. The Borrower may at any time and from time to
time prepay the Loans, in whole or in part, without premium or penalty, upon at
least three (3) Business Days' (or, in the case of prepayments of ABR Loans, one
(1) Business Day's) notice to the Agent (which notice must be received by the
Agent prior to 11:00 A.M., Charlotte, North Carolina time, on the date upon
which such notice is due and shall be irrevocable except in connection with
prepayments that are contingent on sales of assets to the extent of such
contingency), specifying the date and amount of prepayment and whether the
prepayment is of Eurodollar Loans, ABR Loans or a combination thereof, and, if
of a combination thereof, the amount allocable to each. Upon receipt of any such
notice the Agent shall promptly notify each Lender thereof. If any such notice
is given and not withdrawn prior to the date upon which payment is made, the
amount specified in such notice shall be due and payable on the date specified
therein, together with any amounts payable pursuant to subsection 3.18 and,
except in the case of prepayments of Loans that are ABR Loans, accrued interest
to such date on the amount prepaid. Partial prepayments, in the case of Loans
that are ABR Loans, shall be in an aggregate principal amount of $500,000, or a
whole multiple in excess thereof. Partial prepayments in the case of Loans that
are Eurodollar Loans shall be in an aggregate principal amount of $500,000 or a
whole multiple of in excess thereof.
3.5 OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. The Borrower
shall have the right, upon not less than three (3) Business Days' notice to the
Agent, to terminate the Commitments or, from time to time, to reduce the amount
of the Commitments; PROVIDED that (i) no such termination shall be permitted
with respect to the Commitments until after the termination of the HM Facility
pursuant to the terms and conditions of the HM Credit Agreement and (ii) no such
termination or reduction shall be permitted with respect to the Commitments (A)
to the extent that after giving effect thereto and to any repayments or
prepayments of the Loans made on the effective date thereof, the aggregate
principal amount of the Loans then outstanding
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would exceed the Commitments then in effect and (B) after the date that is three
(3) Business Days prior to the Commitment Termination Date. Any such reduction
shall be in an amount equal to $500,000 or a whole multiple in excess thereof
and shall reduce permanently the affected Commitments then in effect.
3.6 MANDATORY REDUCTION OF COMMITMENTS AND PREPAYMENTS
(a) If at any time the Aggregate Outstanding Extensions of credit
exceed the Available Commitment, the Borrower shall immediately repay the Loans,
such repayment to be in an aggregate amount equal to such excess.
(b) The Borrower shall, as promptly as is practicable (and, in any
event, within one (1) Business Day following the receipt thereof), repay the
Loans and permanently reduce the Commitments by the amount equal to the
aggregate amount of Proceeds received from any Proceeds Event; PROVIDED that no
reduction in the Commitments shall be required pursuant to this subsection
3.6(b) with respect to any Proceeds Event on account of the payment or
prepayment of the HM Note (as described in paragraph (d) of the definition of
Proceeds Event) and PROVIDED further that no such repayment and reduction shall
be due pursuant to this subsection 3.6(b) with respect to any Proceeds Event on
account of:
(i) the sale or other disposition of obsolete, inoperative,
surplus or worn out real or personal, tangible or intangible, property
(including without limitation, any property which is no longer used or
useful in the business of the Borrower or its Subsidiaries) in the
ordinary course of business and for fair market value; or
(ii) the sale, transfer or other disposition by the Borrower
or any other Loan Party of any real or personal, tangible or
intangible, property of the Borrower and or any other Loan Party, to
the extent that the Proceeds from such sale, transfer or other
disposition (in the aggregate with the Proceeds from all other sales,
transfers and other dispositions occurring during the fiscal year in
which such sale, transfer or other disposition occurred other than
those described in paragraph (i)) is less than $500,000.
3.7 APPLICATION OF PREPAYMENTS
(a) Any payments of the Loans and reductions of the Commitments made
pursuant to subsections 3.4, 3.5 or 3.6 shall be applied FIRST, to the
prepayment of ABR Loans and SECOND, to the prepayment of Eurodollar Loans.
(b) Any payments of the Loans and reductions of the Commitments made
pursuant to subsections 3.4, 3.5 or 3.6 shall not be applied to the prepayment
of the Loans of a Defaulting Lender at any time under the Facility when the
aggregate amount of Loans of any Non-Defaulting Lender exceeds such
Non-Defaulting Lender's Commitment Percentage of all Loans then outstanding.
3.8 PREPAYMENT PREMIUM
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(a) If, on or before the Maturity Date, the Borrower prepays any
portion of the Loans with the proceeds of a loan from a lender other than the
Lenders hereto under the terms of this Agreement, the Borrower shall pay to the
Lender, on or before the date of such prepayment, a prepayment premium of 1% on
any outstanding obligations so repaid.
(b) Anything contained herein to the contrary notwithstanding
(including without limitation paragraph (a) of this subsection 3.8), the
Borrower shall not be required to pay the foregoing prepayment premium if such
prepayment (as described in this subsection 3.8) is made because of increased
costs to the Borrower because of any of the events described in subsection 3.16;
PROVIDED that, prior to the date of such prepayment a Responsible Officer of the
Borrower shall provide the Agent with the reason for such prepayment in
reasonable form and detail.
3.9 CONVERSION AND CONTINUATION OPTIONS
(a) The Borrower may elect from time to time to convert Eurodollar
Loans to ABR Loans by delivering to the Agent an irrevocable Notice of Borrowing
by 11:00 A.M., Charlotte, North Carolina time, on the requested date of
conversion; PROVIDED that any such conversion of Eurodollar Loans may only be
made on the last day of an Interest Period with respect thereto. The Borrower
may elect from time to time to convert ABR Loans to Eurodollar Loans by
delivering to the Agent an irrevocable Notice of Borrowing by 11:00 A.M.,
Charlotte, North Carolina time, at least three (3) Business Days prior to the
requested conversion date. Any such Notice of Borrowing with respect to a
conversion to Eurodollar Loans shall specify the length of the initial Interest
Period or Interest Periods therefor. Upon receipt of any such Notice of
Borrowing the Agent shall promptly notify each Lender thereof. All or any part
of outstanding Eurodollar Loans and ABR Loans may be converted as provided
herein, PROVIDED that (i) no Loan may be converted into a Eurodollar Loan when
any Default or Event of Default has occurred and is continuing and the Agent has
or the Majority Lenders have determined that such a conversion is not
appropriate and (ii) no Loan may be converted into a Eurodollar Loan after the
date that is one month prior to the Maturity Date. Any ABR Loan not converted to
a Eurodollar Loan hereunder shall continue as an ABR Loan.
(b) Any Eurodollar Loans may be continued as Eurodollar Loans of the
same Type upon the expiration of the then current Interest Period with respect
thereto by the Borrower delivering to the Agent an irrevocable Notice of
Borrowing, in accordance with the applicable provisions of the term "Interest
Period" set forth in subsection 1.1, of the length of the next INTEREST PERIOD
to be applicable to such Loans, PROVIDED that:
(i) no Eurodollar Loan may be continued as such when any Event
of Default has occurred and is continuing and the Agent has or the
Majority Lenders have determined that such a continuation is not
appropriate;
(ii) no Loan may be continued as such after the date that is
one month prior to the Maturity Date;
and PROVIDED, FURTHER, that if the Borrower shall fail to give such notice or if
such continuation is not permitted such Loans shall be automatically converted
to ABR Loans on the last day of such
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then expiring Interest Period. Upon receipt of any such Notice of Borrowing the
Agent shall promptly notify each Lender thereof.
3.10 MINIMUM AMOUNTS AND MAXIMUM NUMBER OF TRANCHES
(a) All borrowings, conversions and continuations of Eurodollar Loans
hereunder and all selections of Interest Periods hereunder shall be in such
amounts and be made pursuant to such elections so that, after giving effect
thereto, the aggregate principal amount of the Eurodollar Loans comprising each
Tranche shall be equal to $500,000 or a whole multiple of $250,000 in excess
thereof. In no event shall there be more than six (6) Tranches of Eurodollar
Loans outstanding at any time.
(b) All borrowings and repayments of ABR Loans hereunder shall be in
such amounts so that, after giving effect thereto, the aggregate principal
amount of the ABR Loans shall be equal to $500,000 or a whole multiple of
$250,000 in excess thereof.
3.11 INTEREST RATES AND PAYMENT DATES
(a) Each Eurodollar Loan shall bear interest for each day during each
Interest Period with respect thereto at a rate per annum equal to the Eurodollar
Rate determined for such day plus the Applicable Margin in effect for such day.
(b) Each ABR Loan shall bear interest at a rate per annum equal to the
ABR plus the Applicable Margin in effect for such day.
(c) If all or a portion of (i) any principal of any Loan, (ii) any
interest payable thereon or (iii) any other amount payable hereunder shall not
be paid when due (whether at the stated maturity, by acceleration or otherwise),
the principal of the Loans and any such overdue interest or other amount shall
bear interest at a rate per annum which is (x) in the case of principal, the
rate that would otherwise be applicable thereto pursuant to the foregoing
provisions of this subsection 3.11 plus 2% or (y) in the case of any such
overdue interest or other amount, the rate described in paragraph (b) of this
subsection plus 2%, in each case from the date of such non-payment until such
overdue principal, interest or other amount is paid in full (as well after as
before judgment).
(d) Interest on each Loan shall be payable in arrears on each Interest
Payment Date and shall accrue from and including the date such Loan is made or
continued to be made but excluding the date of repayment thereof, PROVIDED that
interest accruing pursuant to paragraph (d) of this subsection shall be payable
from time to time on demand.
(e) Notwithstanding anything to the contrary contained herein, in no
event shall the Borrower be obligated to pay interest in excess of the maximum
amount which is chargeable under applicable law.
3.12 COMPUTATION OF INTEREST AND FEES
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(a) The Commitment Fee shall be calculated in accordance with
subsection 3.2. Interest whenever it is calculated on the basis of the ABR,
interest shall be calculated on the basis of a 365- (or 366, as the case may be)
day year for the actual days elapsed; and otherwise, interest shall be
calculated on the basis of a 360-day year for the actual days elapsed. The Agent
shall as soon as practicable notify the Borrower and the Lenders of each
determination of the Eurodollar Rate. Any change in the interest rate on a Loan
resulting from a change in the ABR or the Eurocurrency Reserve Requirements
shall become effective as of the opening of business on the day on which such
change becomes effective.
(b) Each determination of an interest rate by the Agent pursuant to any
provision of this Agreement shall be conclusive and binding on the Borrower and
the Lenders in the absence of manifest error. The Agent shall, at the request of
the Borrower, deliver to the Borrower a statement showing the quotations used by
the Agent in determining any interest rate pursuant to subsection 3.11(a).
3.13 INABILITY TO DETERMINE INTEREST RATE
(a) If prior to the first day of any Interest Period pertaining to
Eurodollar Loans:
(i) the Agent shall have determined (which determination shall
be conclusive and binding upon the Borrower in the absence of manifest
error) that, by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate for such Interest Period; or
(ii) the Agent shall have received notice from the Majority
Lenders that the Eurodollar Rate determined or to be determined for
such Interest Period will not adequately and fairly reflect the cost to
such Lenders (as conclusively certified by such Lenders) of making or
maintaining their affected Loans during such Interest Period;
The Agent shall give telecopy or telephonic notice thereof to the Borrower and
the Lenders as soon as possible thereafter. If such notice is given, (i) any
Eurodollar Loans requested to be made on the first day of such Interest Period
shall be made as ABR Loans, (ii) any Loans that were to have been converted on
the first day of such Interest Period to Eurodollar Loans shall be converted to
or continued as ABR Loans and (iii) any outstanding Eurodollar Loans shall be
converted, on the first day of such Interest Period, to ABR Loans. Until such
notice has been withdrawn by the Agent, no further Eurodollar Loans shall be
made or continued as such, nor shall the Borrower have the right to convert
Loans to Eurodollar Loans.
3.14 PRO RATA TREATMENT AND PAYMENTS
(a) Each borrowing by the Borrower from the Lenders hereunder, each
payment by the Borrower on account of any Commitment Fee hereunder and any
reduction of the Commitments of the Lenders shall be made pro rata according to
the respective relevant Commitment Percentages of the Lenders holding
obligations in respect of which such amounts were paid. Each payment (including
each prepayment) by the Borrower on account of principal of and
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<PAGE> 25
(subject to the provisions of subsections 3.4, 3.6, 3.7 and 3.8) interest on the
Loans shall be made pro rata according to the respective outstanding principal
amounts of such Loans then held by the Lenders. Except as otherwise set forth
herein, all payments (including prepayments) to be made by the Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without set off or counterclaim and shall be made prior to 2:00 P.M.,
Charlotte, North Carolina time, on the due date thereof to the Agent, for the
account of the applicable Lenders, at the Agent's office specified in subsection
10.3, in Dollars and in immediately available funds. The Agent shall distribute
such payments to the Lenders holding obligations on account of which such
amounts were paid promptly upon receipt in like funds as received. If any
payment hereunder becomes due and payable on a day other than a Business Day,
such payment shall be extended to the next succeeding Business Day, and, with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.
(b) All such payments shall be applied FIRST to accrued and unpaid fees
and expenses payable hereunder, SECOND to accrued and unpaid interest on the
applicable Loan and THIRD, in accordance with subsection 3.7(a), to reduce the
outstanding principal balance of such Loan.
(c) Unless the Agent shall have been notified in writing by any Lender
prior to a borrowing that such Lender will not make the amount that would
constitute its relevant Commitment Percentage of such borrowing available to the
Agent, the Agent may assume that such Lender is making such amount available to
the Agent, and the Agent may, in reliance upon such assumption, make available
to the Borrower a corresponding amount. If such amount is not made available to
the Agent by the required time on the borrowing date therefor, such Lender shall
pay to the Agent, on demand, such amount with interest thereon at a rate equal
to the daily average Federal Funds Effective Rate for the period until such
Lender makes such amount immediately available to the Agent. A certificate of
the Agent submitted to any Lender shall, to the extent permitted by applicable
law, be prima facie evidence of the amounts owing under this subsection 3.14. If
such Lender's relevant Commitment Percentage of such borrowing is not made
available to the Agent by such Lender within three (3) Business Days of such
borrowing date, the Agent shall also be entitled to recover such amount with
interest thereon at the rate per annum applicable to ABR Loans hereunder, on
demand, from the Borrower.
3.15 ILLEGALITY. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof, in each case after the Closing Date, shall make it unlawful
for any Lender to make or maintain Eurodollar Loans, as the case may be, as
contemplated by this Agreement, (a) the commitment of such Lender hereunder to
make Eurodollar Loans, continue Eurodollar Loans as such or convert ABR Loans to
Eurodollar Loans, as the case may be, shall forthwith be suspended to the extent
unlawful and (b) to the extent unlawful the Lenders' Loans then outstanding as
Eurodollar Loans, if any, shall be converted automatically to ABR Loans on the
respective last days of the then current Interest Periods with respect to such
Loans or within such earlier period as required by law. If any such conversion
of a Eurodollar Loan occurs on a day which is not the last day of the then
current Interest Period with respect thereto, the Borrower shall pay to such
Lender such amounts, if any, as may be required pursuant to subsection 3.18.
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<PAGE> 26
3.16 REQUIREMENTS OF LAW
(a) If the adoption of or any change in any applicable Requirement of
Law or in the interpretation or application thereof or compliance by any Lender
with any request or directive (whether or not having the force of law) from any
central bank or other Governmental Authority charged with the interpretation or
administration thereof made subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement, any Note, or any Eurodollar Loan made
by it, or change the basis of taxation of payments to such Lender in
respect thereof (except for Non-Excluded Taxes covered by subsection
3.17 and changes in the rate of net income taxes or franchise taxes
(imposed in lieu of net income taxes) of such Lender);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of such Lender which is not
otherwise included in the determination of the Eurodollar Rate
hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into
(with respect to Eurodollar Loans), continuing or maintaining Eurodollar Loans
or to reduce any amount receivable hereunder in respect thereof, then, in any
such case, the Borrower shall promptly pay such Lender such additional amount or
amounts as will compensate such Lender for such increased cost or reduced amount
receivable.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by any corporation
controlling such Lender with any request or directive regarding capital adequacy
(whether or not having the force of law, if compliance therewith is a customary
banking practice) from any Governmental Authority made subsequent to the date
hereof shall have the effect of reducing the rate of return on such Lender's or
such corporation's capital as a consequence of its obligations hereunder to a
level below that which such Lender or such corporation could have achieved but
for such adoption, change or compliance (taking into consideration such Lender's
or such corporation's policies with respect to capital adequacy) by an amount
deemed by such Lender to be material, then from time to time, the Borrower shall
pay to such Lender such additional amount or amounts as will compensate such
Lender for such reduction.
(c) If any Lender becomes entitled to claim any additional amounts
pursuant to this subsection 3.16, it shall promptly notify the Borrower (with a
copy to the Agent) of the event by reason of which it has become so entitled. A
certificate submitted by such Lender to the Borrower (with a copy to the Agent)
shall, to the extent permitted by applicable law, be prima
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<PAGE> 27
facie evidence of any additional amounts payable pursuant to this subsection
3.16 conclusive in the absence of manifest error. The agreements in this
subsection 3.16 shall survive the termination of this Agreement and the payment
of the Loans and all other amounts payable hereunder.
3.17 TAXES
(a) All payments made by the Borrower under this Agreement and any
Notes shall be made free and clear of, and without deduction or withholding for
or on account of, any present or future income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings, now or hereafter
imposed, levied, collected, withheld or assessed by any Governmental Authority,
excluding net income taxes and franchise taxes (imposed in lieu of net income
taxes) imposed on the Agent or any Lender as a result of a present or former
connection between the Agent or such Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely from
the Lenders having executed, delivered or performed its obligations or received
a payment under, or enforced, this Agreement or any Note). If any such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("NON-EXCLUDED TAXES") are required to be withheld from any amounts
payable to Agent or any Lender hereunder or under any Note, the amounts so
payable to the Agent or such Lender shall be increased to the extent necessary
to yield to the Agent or such Lender (after payment of all Non-Excluded Taxes)
interest or any such other amounts payable hereunder at the rates or in the
amounts specified in this Agreement. Whenever any Non-Excluded Taxes are payable
by the Borrower, as promptly as possible thereafter the Borrower shall send to
the Agent for its own account or for the account of such Lender, as the case may
be, a certified copy of an original official receipt received by the Borrower
showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes
when due to the appropriate taxing authority or fails to remit to the Agent the
required receipts or other required documentary evidence, the Borrower shall
indemnify the Agent and the Lenders for any incremental increased taxes,
interest or penalties that may become payable by the Agent or any Lender as a
result of any such failure. The agreements in this subsection 3.17 shall survive
the termination of this Agreement and the payment of the Loans and all other
amounts payable hereunder.
(b) Each Lender that is not incorporated under the laws of the United
States of America or a state thereof shall:
(i) deliver to the Borrower and the Agent (A) two duly
completed copies of the United States Internal Revenue Service Form
1001 or 4224, or successor applicable form, as the case may be, and (B)
an Internal Revenue Service Form W-8 or W-9, or successor applicable
form, as the case may be;
(ii) deliver to the Borrower and the Agent two further copies
of any such form or certification on or before the date that any such
form or certification expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower; and
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<PAGE> 28
(iii) obtain such extensions of time for filing and complete
such forms or certifications as may reasonably be requested by the
Borrower or the Agent;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower and the Agent.
Such Lender shall certify (i) in the case of a Form 1001 or 4224, that it is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes and (ii) in the case of
Form W-8 or W-9, that it is entitled to an exemption from United States backup
withholding tax. Each Person that shall become a Lender or a Participant
pursuant to subsection 10.8 shall, upon the effectiveness of the related
transfer, be required to provide all of the forms and statements required
pursuant to this subsection 3.17, provided that in the case of a Participant
such Participant shall furnish all such required forms and statements to the
Lender from which the related participation shall have been purchased.
(c) If any Lender shall receive a credit or refund from a taxing
authority with respect to, and actually resulting from, an amount of
Non-Excluded Taxes actually paid to or on behalf of such Lender by the Borrower
(a "TAX CREDIT"), such Lender shall promptly notify the Borrower of such Tax
Credit. If such Tax Credit is received by such Lender in the form of cash, such
Lender shall promptly pay to the Borrower the amount so received with respect to
the Tax Credit. If such Tax Credit is not received by such Lender in the form of
cash, such Lender shall pay the amount of such Tax Credit not later than the
time prescribed by applicable Law for filing the return (including extensions of
time) for such Lender's taxable period which includes the period in which such
Lender receives the economic benefit of such Tax Credit. In any event, the
amount of any Tax Credit payable by a Lender to the Borrower pursuant to this
clause (c) shall not exceed the actual amount of cash refunded to, or credits
received and usable (in accordance with the actual practices then in use by such
Lender) by, such Lender from a taxing authority. In determining the amount of
any Tax Credit, a Lender may use such apportionment and attribution rules as
such Lender customarily employs in allocating taxes among its various operations
and income sources and such determination shall be conclusive absent manifest
error. The Borrower further agrees promptly to return to a Lender the amount
paid to the Borrower with respect to a Tax Credit by such Lender if such Lender
is required to repay, or is determined to be ineligible for, a Tax Credit for
such amount. Notwithstanding anything to the contrary contained herein, the
Borrower hereby acknowledges and agrees that (i) neither the Agent nor any
Lender shall be obligated to provide the Borrower with details of the tax
position of the Agent or such Lender (as the case may be) and (ii) the Borrower
shall have no right to inspect any records (including tax returns) of the Agent
or such Lender (as the case may be).
3.18 INDEMNITY. The Borrower agrees to indemnify each Lender and to
hold each Lender harmless from any loss or expense which such Lender may sustain
or incur as a consequence of (a) failure by the Borrower to make a borrowing of,
conversion into or continuation of Eurodollar Loans after the Borrower has given
a notice requesting the same in accordance with the provisions of this
Agreement; (b) failure by the Borrower to make any prepayment after the
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Borrower has given a notice thereof in accordance with the provisions of this
Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which
is not the last day of an Interest Period with respect thereto. Such
indemnification may include an amount equal to the excess, if any, of (i) the
amount of interest which would have accrued on the amount so prepaid, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue, the Interest
Period that would have commenced on the date of such failure in each case at the
applicable rate of interest for such Loans provided for herein (excluding,
however, the Applicable Margin included therein, if any) over (ii) with respect
to Eurodollar Loans, the amount of interest (as reasonably determined by such
Lender) which would have accrued to such Lender on such amount by placing such
amount on deposit for a comparable period with leading banks in the interbank
eurodollar market. This covenant shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder.
3.19 CHANGE OF LENDING OFFICE. Each Lender agrees that if it makes any
demand for payment under subsection 3.16 or 3.17(a), or if any adoption or
change of the type described in subsection 3.15 shall occur with respect to it,
it will use reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions and so long as such efforts would not be
disadvantageous to it, as determined in its good faith discretion) to designate
a different lending office if the making of such a designation would reduce or
obviate the need for the Borrower to make payments under subsection 3.16 or
3.17(a), or would eliminate or reduce the effect of any adoption or change
described in subsection 3.15.
SECTION 4 REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Agreement and to make the
Loans, the Borrower hereby represents and warrants to the Agent and each Lender
that:
4.1 FINANCIAL CONDITION. The consolidated balance sheets of the
Borrower and its consolidated Subsidiaries as at September 30, 1997 and the
related consolidated statements of income and cash flows for the fiscal period
ended on such date, copies of which have heretofore been furnished to the Agent,
are complete and correct and present fairly in all material respects the
consolidated financial condition of the Borrower and its consolidated
Subsidiaries as at such date and the consolidated results of their operations
and their consolidated cash flows for the fiscal period then ended. All such
financial statements, including the related schedules and notes thereto, have
been prepared in accordance with GAAP applied consistently throughout the
periods involved (except as approved by such accountants or Responsible Officer,
as the case may be, and as disclosed therein). Neither the Borrower nor any of
its consolidated Subsidiaries had, at the date of the most recent balance sheet
referred to above, (a) any material Guarantee Obligation, except for Guarantee
Obligations in existence as of the date hereof and listed on Schedule VI, (b)
any contingent liability or liability for taxes or (c) any long-term lease or
unusual forward or long-term commitment, including, without limitation, any
interest rate or foreign currency swap or exchange transaction, which is not
reflected in the foregoing statements or in the notes thereto. Except to the
extent permitted under this Agreement or as disclosed to the Agent prior to the
date hereof, or as otherwise separately disclosed to the Agent in writing prior
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to the date hereof, there has been no sale, transfer or other disposition by the
Borrower or any of its consolidated Subsidiaries of any material part of its
business or property (including any capital stock of any other Person) material
in relation to the consolidated financial condition of the Borrower and its
consolidated Subsidiaries at September 30, 1997 during the period from September
30, 1997 to and including the date hereof.
4.2 NO CHANGE. Since September 30, 1997 there has been no development
or event which has had a Material Adverse Effect.
4.3 DISCLOSURE. No information, schedule, exhibit or report or other
document furnished by the Borrower or any of its Subsidiaries to the Agent or
any Lender in connection with the negotiation of this Agreement or any other
Loan Document (or pursuant to the terms hereof or thereof), as such information,
schedule, exhibit or report or other document has been amended, supplemented or
superseded by any other information, schedule, exhibit or report or other
document later delivered to the same parties receiving such information,
schedule, exhibit or report or other document, contained any material
misstatement of fact or omitted to state a material fact or any fact necessary
to make the statements contained therein, in light of the circumstances when
made, not materially misleading.
4.4 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of the Borrower and
its Subsidiaries (a) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, (b) has the corporate
power and authority, and the legal right, to own and operate its property, to
lease the property it operates as lessee and to conduct the business in which it
is currently engaged, (c) is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, except to the extent that all failures to be so qualified could
not, in the aggregate, reasonably be expected to have a Material Adverse Effect
and (d) is in compliance with all Requirements of Law except to the extent that
all failures to comply therewith could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.
4.5 CORPORATE POWER, AUTHORIZATION, ENFORCEABLE OBLIGATIONS. The
Borrower has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and to borrow
hereunder and has taken all necessary corporate action to authorize the
borrowings on the terms and conditions of this Agreement and any Notes and to
authorize the execution, delivery and performance of the Loan Documents to which
it is a party. No consent or authorization of, filing with, notice to or other
act by or in respect of, any Governmental Authority or any other Person is
required in connection with the borrowings hereunder or with the execution,
delivery, performance, validity or enforceability of the Loan Documents to which
the Borrower is a party. This Agreement has been, and each other Loan Document
to which it is a party will be, duly executed and delivered on behalf of the
Borrower. This Agreement constitutes, and each other Loan Document to which it
is a party when executed and delivered will constitute, a legal, valid and
binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to
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<PAGE> 31
or affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing.
4.6 NO LEGAL BAR. The execution, delivery and performance of the Loan
Documents to which the Borrower is a party, the borrowings hereunder and the use
of the proceeds thereof will not violate any Requirement of Law or Contractual
Obligation of the Borrower or of any of its Subsidiaries and will not result in,
or require, the creation or imposition of any Lien on any of its or their
respective properties or revenues pursuant to any such Requirement of Law or
Contractual Obligation.
4.7 NO MATERIAL LITIGATION No litigation, investigation or proceeding
of or before any arbitrator or Governmental Authority is pending or, to the
knowledge of the Borrower, threatened by or against the Borrower or any of its
Subsidiaries or against any of its or their respective properties or revenues
(a) with respect to any of the Loan Documents or any of the transactions
contemplated hereby or thereby, or (b) which could reasonably be expected to
have a Material Adverse Effect.
4.8 NO DEFAULT. Neither the Borrower nor any of its Subsidiaries is in
default under or with respect to any of its Contractual Obligations in any
respect which could reasonably be expected to have a Material Adverse Effect. No
Default or Event of Default has occurred and is continuing.
4.9 OWNERSHIP OF PROPERTY; LIENS. Each of the Borrower and its
Subsidiaries has good record and marketable title in fee simple to, or a valid
leasehold interest in, all its real property, and good title to, or a valid
leasehold interest in, all its other property, which is material to the
operations of the business of, the Borrower and its Subsidiaries, taken as a
whole and none of such property is subject to any Lien except as permitted by
subsection 7.3.
4.10 INTELLECTUAL PROPERTY. The Borrower and each of its Subsidiaries
owns, or is licensed to use, all trademarks, trade names, copyrights,
technology, know-how and processes necessary for the conduct of its business as
currently conducted, except for those for which the failure to own or license
could not reasonably be expected to have a Material Adverse Effect (the
"INTELLECTUAL PROPERTY"). No claim has been asserted and is pending by any
Person challenging or questioning the use of any such Intellectual Property or
the validity or effectiveness of any such Intellectual Property which could
reasonably be expected to have a Material Adverse Effect, nor does the Borrower
know of any valid basis for any such claim. To the best knowledge of the
Borrower, the use of such Intellectual Property by the Borrower and its
Subsidiaries does not infringe on the rights of any Person, except for such
claims and infringements that, in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
4.11 NO BURDENSOME RESTRICTIONS. No Requirement of Law applicable to
the Borrower or any of its Subsidiaries could reasonably be expected to have a
Material Adverse Effect.
4.12 TAXES. Each of the Borrower and its Subsidiaries has filed or
caused to be filed all material tax returns which, to the knowledge of the
Borrower, are required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it
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<PAGE> 32
or any of its property and all other taxes, fees or other charges imposed on it
or any of its property by any Governmental Authority (other than any the amount
or validity of which are currently being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity with GAAP have been
provided on the books of the Borrower or its Subsidiaries, as the case may be);
no tax Lien has been filed, other than Liens permitted by subsection 7.3, and,
to the knowledge of the Borrower, no claim is being asserted, with respect to
any such tax, fee or other charge.
4.13 FEDERAL REGULATIONS. No part of the proceeds of any Loans will be
used in any manner which would violate, or result in the violation of,
Regulation D, Regulation G or Regulation U of the Board of Governors of the
Federal Reserve System as now and from time to time hereafter in effect. If
requested by any Lender or the Agent, the Borrower will furnish to the Agent and
each Lender a statement to the foregoing effect in conformity with the
requirements of FR Form G-3 or FR Form U-1 referred to in said Regulation G or
Regulation U, as the case may be.
4.14 ERISA. Neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no Lien
in favor of the PBGC or a Plan has arisen, during such five-year period. The
present value of all accrued benefits under each Single Employer Plan (based on
those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits. Neither the Borrower nor any Commonly Controlled Entity has had a
complete or partial withdrawal from any Multiemployer Plan, and neither the
Borrower nor any Commonly Controlled Entity would become subject to any
liability under ERISA if the Borrower or any such Commonly Controlled Entity
were to withdraw completely from all Multiemployer Plans as of the valuation
date most closely preceding the date on which this representation is made or
deemed made. No such Multiemployer Plan is in Reorganization or Insolvent. The
present value (determined using actuarial and other assumptions which are
reasonable in respect of the benefits provided and the employees participating)
of the liability of the Borrower and each Commonly Controlled Entity for post
retirement benefits to be provided to their current and former employees under
Plans which are welfare benefit plans (as defined in Section 3(l) of ERISA) does
not, in the aggregate, exceed the assets under all such Plans allocable to such
benefits by an amount in excess of $100,000.
4.15 INVESTMENT COMPANY ACT; OTHER REGULATIONS. The Borrower is not an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. The
Borrower is not subject to regulation under any Federal or State statute or
regulation (other than Regulation X of the Board of Governors of the Federal
Reserve System) which limits its ability to incur Indebtedness under this
Agreement or other Loan Documents.
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<PAGE> 33
4.16 SUBSIDIARIES. SCHEDULE III hereto sets forth all of the
Subsidiaries of the Borrower at the date hereof, together with the ownership and
jurisdiction of incorporation of each.
4.17 ENVIRONMENTAL MATTERS
(a) The facilities and properties owned, leased or operated by the
Borrower or any of its Subsidiaries (the "PROPERTIES") do not contain, and have
not previously contained, any Materials of Environmental Concern in amounts or
concentrations which (i) constitute or constituted a violation of, or (ii) could
reasonably be expected to give rise to liability under, any Environmental Law
except insofar as such violation or liability or any aggregation thereof, is not
reasonably likely to result in the payment of a Material Adverse Amount;
(b) the Properties and all operations at the Properties are in
compliance in all respects with all applicable Environmental Laws, and there is
no contamination at or under (or, to the knowledge of the Borrower, about) the
Properties or violation of any Environmental Law with respect to the Properties
or the business operated by the Borrower or any of its Subsidiaries (the
"BUSINESS") except insofar as such violation or failure to be in compliance or
contamination, or any aggregation thereof, is not reasonably likely to result in
the payment of a Material Adverse Amount;
(c) neither the Borrower nor any of its Subsidiaries has received any
notice of violation, alleged violation, non-compliance, liability or potential
liability regarding compliance with Environmental Laws with regard to any of the
Properties or the Business, nor does the Borrower have knowledge that any such
notice will be received or is being threatened, except insofar as such notice or
threatened notice, or any aggregation thereof, does not involve a matter or
matters that is or are reasonably likely to result in the payment of a Material
Adverse Amount;
(d) Materials of Environmental Concern have not been transported or
disposed of from the Properties in violation of, or in a manner or to a location
which could reasonably be expected to give rise to liability under, any
Environmental Law, nor have any Materials of Environmental Concern been
generated, treated, stored or disposed of at, on or under any of the Properties
in violation of, or in a manner that could reasonably be expected to give rise
to liability under, any applicable Environmental Law, except insofar as any such
violation or liability referred to in this paragraph, or any aggregation
thereof, is not reasonably likely to result in the payment of a Material Adverse
Amount;
(i) no judicial proceeding or governmental or administrative
action is pending or, to the knowledge of the Borrower, threatened,
under any Environmental Law to which the Borrower, any of its
Subsidiaries is or will be named as a party with respect to the
Properties or the Business, nor are there any consent decrees or other
decrees, consent orders, administrative orders or other orders, or
other administrative or judicial requirements outstanding under any
Environmental Law which are binding upon Borrower or any of its
Subsidiaries with respect to the Properties or the Business, except
insofar as such proceeding, action, decree, order or other requirement,
or any aggregation thereof, is not reasonably likely to result in the
payment of a Material Adverse Amount; and
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<PAGE> 34
(ii) there has been no release or threat of release of
Materials of Environmental Concern at or from the Properties, or
arising from or related to the operations of the Borrower or any
Subsidiary in connection with the Properties or otherwise in connection
with the Business, in violation of or in amounts or in a manner that
could reasonably give rise to liability under Environmental Laws,
except insofar as any such violation or liability referred to in this
paragraph, or any aggregation thereof, is not reasonably likely to
result in a payment of a Material Adverse Amount.
4.18 SOLVENCY. The aggregate value of all of the tangible and
intangible assets of the Borrower and its Subsidiaries on a consolidated basis,
at a fair valuation, exceeds the total liabilities of the Borrower and its
Subsidiaries on a consolidated basis (including contingent, subordinated,
unmatured and unliquidated liabilities). The Borrower and its Subsidiaries have
the ability to pay their respective debts as they mature and do not have
unreasonably small capital with which to conduct their respective businesses.
For purposes of this subsection 4.18, the "fair valuation" of such assets is the
price at which the assets would change hands between a willing buyer and a
willing seller, both being adequately informed of the relevant facts, and
neither being under any compulsion to buy or to sell.
4.19 NOTE PLEDGE AGREEMENT
(a) The Note Pledge Agreement constitutes a legal, valid, binding and
enforceable obligation of each of the Loan Parties thereto, enforceable against
it in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles;
and
(b) Upon delivery to the Agent of the HM Note, the security interest
granted in the Collateral pursuant to the Note Pledge Agreement will constitute
a valid, perfected first priority security interest of such Collateral,
enforceable as such against all creditors of the assignor and any Persons
purporting to obtain such Collateral, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles.
4.20 GUARANTEES. The provisions of each Guarantee are effective to
create a legal, valid, binding and enforceable guarantee of the obligations
described therein, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles.
SECTION 5 CONDITIONS PRECEDENT
5.1 CONDITIONS TO INITIAL EXTENSIONS OF CREDIT. The agreement of each
Lender to make the initial extension of credit requested to be made by it is
subject to the satisfaction, immediately prior to or concurrently with the
making of such extension of credit on the Closing Date, of the following
conditions precedent:
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(a) LOAN DOCUMENTS. The Agent shall have received (i) this Agreement,
executed and delivered by a duly authorized officer of the Borrower, (ii) the
Notes (to the extent so requested by any Lender), executed and delivered by a
duly authorized officer of the Borrower, (iii) each HomeMax Guarantee, executed
and delivered by a duly authorized officer of the party thereto, (iv) the Zaring
Homes Guarantee, executed and delivered by a duly authorized officer of Zaring
Homes and (iv) the Note Pledge Agreement, executed and delivered by a duly
authorized representative of each party thereto.
(b) AGREEMENTS. The Agent shall have received true and correct copies,
certified as to authenticity by the Borrower, of such documents or instruments
as may be reasonably requested by the Agent.
(c) CLOSING CERTIFICATE OF BORROWER. The Agent shall have received a
certificate of the President or any Vice President and the Secretary or an
Assistant Secretary of the Borrower, dated the Closing Date, (i) attaching the
Charter and By-Laws of the Borrower, (ii) attaching the resolutions of the Board
of Directors of the Borrower with respect to the transactions contemplated
hereby, (iii) certifying that such resolutions have not been amended, modified,
revoked or rescinded as of the date of such certificate and (iv) certifying as
to the incumbency and signature of the officers of the Borrower executing any
Loan Document; such certificate (and the attachments thereto) shall be in form
and substance satisfactory to the Agent.
(d) CLOSING CERTIFICATE OF LOAN PARTIES. The Agent shall have received
a certificate of the President or any Vice President and the Secretary or an
Assistant Secretary of each Loan Party (other than the Borrower), dated the
Closing Date, (i) attaching the Charter and By-Laws of such Loan Party, (ii)
attaching the resolutions of the Board of Directors of such Loan Party with
respect to the transactions contemplated hereby to which it is a party, (iii)
certifying that the such resolutions have not been amended, modified, revoked or
rescinded as of the date of such certificate and (iv) certifying as to the
incumbency and signature of the officers of such Loan Party executing any Loan
Document; such certificate (and the attachments thereto) shall be in form and
substance satisfactory to the Agent.
(e) CORPORATE STRUCTURE. The Agent shall be satisfied with the
corporate and legal structure and capitalization of the Loan Parties, including
the terms and conditions of the charter, bylaws and each class of Capital Stock
of the Loan Parties and of each agreement or instrument relating to such
structure or capitalization.
(f) FEES. The Borrower shall have paid the accrued fees and expenses
owing hereunder or in connection herewith (including, without limitation,
accrued fees and disbursements of counsel to the Agent), to the extent that such
fees and expenses have been presented for payment a reasonable time prior to the
Closing Date.
(g) LEGAL OPINION. The Agent shall have received, with a counterpart
for each Lender, the executed legal opinion of Frost & Jacobs, LLP., counsel to
the Borrower and the other Loan parties, substantially in the form of EXHIBIT F.
Such legal opinion shall cover such other matters incident to the transactions
contemplated by this Agreement as the Agent may reasonably require.
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<PAGE> 36
(h) HM NOTE. The Agent shall have received, for the benefit of the
Lenders, the HM Note endorsed in blank.
(i) ACTIONS TO PERFECT LIENS. The Agent shall have received such duly
executed financing statements on form UCC-1 as may be necessary or, in the
reasonable opinion of the Agent, desirable to perfect the Liens created by the
Note Pledge Agreement.
(j) LIEN SEARCHES. The Agent shall have received the results of a
recent search by a Person reasonably satisfactory to the Agent, of the Uniform
Commercial Code, judgment and tax lien filings which may have been filed with
respect to personal property of the Borrower, and the results of such search
shall be reasonably satisfactory to the Agent.
(k) REVIEW OF OPERATIONS. The Agent shall have completed a review of
the operations of the Loan Parties (including, without limitation, an on-site
review of the financial statements, financial reporting and computer systems and
inventory, receivables, and equipment by the Agent), each in scope, and with
results, satisfactory to the Agent; without limiting the generality of the
foregoing, the Agent shall have been given such access to the management,
records, books of account, schedules, projections, contracts and properties of
each Loan Party as it shall have requested.
(l) INSURANCE. The Agent shall have received evidence in form and
substance satisfactory to the Agent of the existence of the insurance required
under subsection 6.6.
(m) BUSINESS PLAN AND PROJECTIONS. The Agent shall have received a
business plan with projections in scope and form satisfactory to the Agent.
(n) ZH FACILITY. The Agent shall have received evidence in form and
substance satisfactory to the Agent of the amendment of the ZH Credit Agreement
to the satisfaction of the Agent in its sole discretion.
(o) ADDITIONAL ITEMS. The Agent shall have received such other opinions
or documents as the Agent or the Majority Lenders through the Agent may
reasonably request.
5.2 CONDITIONS TO EACH EXTENSION OF CREDIT. The agreement of each
Lender to make any extension of credit requested to be made by it on any date
(including, without limitation, its initial extension of credit ) is subject to
the satisfaction of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by the Borrower and each other Loan Party in or pursuant to the
Loan Documents shall be true and correct in all material respects on and as of
such date as if made on and as of such date.
(b) NO DEFAULT. No Default or Event of Default shall have occurred and
be continuing on such date or after giving effect to the extensions of credit
requested to be made on such date.
(c) ADDITIONAL ITEMS. The Agent shall have received such other
approvals, opinions or documents as the Agent or the Majority Lenders through
the Agent may reasonably request.
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Each borrowing by the Borrower hereunder shall constitute a
representation and warranty by the Borrower as of the date thereof that the
applicable conditions contained in this subsection 5.2 have been satisfied.
SECTION 6 AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect or any amount is owing to any Lender or the Agent hereunder or under any
other Loan Document, the Borrower shall and (except in the case of delivery of
financial information and reports and notices) shall cause each of its
Subsidiaries to:
6.1 FINANCIAL STATEMENTS. Furnish to the Agent and to each Lender:
(a) as soon as available, but in any event within one hundred twenty
(120) days after the end of each fiscal year of the Borrower, a copy of the
consolidated balance sheet of the Borrower and its consolidated Subsidiaries as
at the end of such year and the related consolidated statements of income and
retained earnings and of cash flows for such year, setting forth in each case in
comparative form the figures for the previous year, reported on without a "going
concern" or like qualification or exception, or qualification arising out of the
scope of the audit, by independent certified public accountants of nationally
recognized standing;
(b) as soon as available, but in any event not later than forty-five
(45) days after the end of each fiscal quarter of the Borrower, the unaudited
consolidated balance sheets of the Borrower and its consolidated Subsidiaries as
at the end of such quarter and the related unaudited consolidated statements of
income and retained earnings and of cash flows of the Borrower and its
consolidated Subsidiaries for such quarter and the portion of the Borrower's
fiscal year through the end of such quarter, setting forth in each case in
comparative form the figures for the previous year, certified by a Responsible
Officer as being fairly stated in all material respects (subject to normal
year-end audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
6.2 CERTIFICATES; OTHER INFORMATION Furnish to the Agent and to each
Lender:
(a) concurrently with the delivery of the financial statements referred
to in subsection 6.1(a), a certificate of the independent certified public
accountants reporting on such financial statements stating whether in the course
of conducting its annual audit they became aware of any Default or Event of
Default pertaining to accounting matters and, if so, the nature of such Default
or Event of Default;
(b) concurrently with the delivery of the financial statements referred
to in subsections 6.1(a) and (b), a certificate of a Responsible Officer
substantially in the form of Exhibit E hereto (i) stating that, to the best of
such Officer's knowledge, during such period (A) no Subsidiary has
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been formed or acquired without complying with this Agreement and the
requirements of subsection 6.11 with respect thereto, (B) neither the Borrower
nor any of its Subsidiaries has changed its name, its principal place of
business, its chief executive office or the location of any material item of
tangible Collateral without complying with the requirements of this Agreement
with respect thereto, (C) no Acquired Land Parcel contains Materials of
Environmental Concern and (D) the Borrower has observed or performed all of its
covenants and other agreements, and satisfied every condition, contained in this
Agreement and the other Loan Documents to be observed, performed or satisfied by
it, and that such Officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate and (ii) setting forth the
computations used by the Borrower in determining (as of the end of such fiscal
period) compliance with the covenants contained in subsection 7.1;
(c) not later than one hundred twenty (120) days after the end of each
fiscal year of the Borrower, a copy of the projections by the Borrower of the
operating budget and cash flow budget of the Borrower and its Subsidiaries for
the succeeding fiscal year as adopted by the Board of Directors of the Borrower,
such projections to be accompanied by a certificate of a Responsible Officer to
the effect that such projections have been prepared on the basis of assumptions
believed by the Borrower to be reasonable;
(d) concurrently with the delivery of the accountants' certificates
referred to in subsection 6.2(a), any comment letter submitted by such
accountants to management as of that date;
(e) concurrently with the delivery of the projections referred to in
subsection 6.2(c), the consolidated financial plan and financial forecasts as
customarily prepared by the management of the Borrower for internal use;
(f) as soon as available, but in any event (i) not later than one
hundred twenty (120) days after the end of each fiscal year of the Borrower, a
copy of all financial statements and regular, periodical or special reports that
the Borrower may make to, or file with, the SEC on an annual basis and (ii) not
later than forty-five (45) days after the end of each fiscal quarter of the
Borrower, a copy of all financial statements and regular, periodical or special
reports that the Borrower may make to, or file with, the SEC on a quarterly
basis; and
(g) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
6.3 PAYMENT OF EXCESS PROCEEDS. Cause HomeMax to make a partial or
whole prepayment or payment of the intercompany indebtedness evidenced by the HM
Note equal to the aggregate amount of excess Proceeds of a Proceeds Event
remaining after such Proceeds have been applied to the HM Facility pursuant to
the terms and conditions of the HM Credit Agreement.
6.4 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at or
before maturity in accordance with customary terms or before they become
delinquent or in default, as the case may be, all of its material obligations of
whatever nature, except where the amount or validity thereof is then being
contested in good faith by appropriate proceedings and reserves in conformity
with
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GAAP with respect thereto have been provided on the books of the Borrower or its
Subsidiaries, as the case may be.
6.5 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Continue to
engage in business of the same general type as now conducted by it and preserve,
renew and keep in full force and effect its corporate existence and take all
reasonable action to maintain all rights, privileges and franchises necessary or
(in the reasonable judgment of the Borrower) desirable in the normal conduct of
its business except as otherwise permitted pursuant to subsection 7.13; comply
with all Contractual Obligations and Requirements of Law except to the extent
that failure to comply therewith could not, in the aggregate, be reasonably
expected to have a Material Adverse Effect.
6.6 MAINTENANCE OF PROPERTY; INSURANCE
(a) Keep all material property useful and necessary in its business in
good working order and condition; maintain with financially sound and reputable
insurance companies insurance policies insuring all its material property
against loss by fire, explosion, theft and such other casualties as may be
reasonably satisfactory to the Agent, such policies to be in at least such form
and amounts, and having coverage against at least such risks as are customarily
insured against in the same general area by companies of similar size, engaged
in the same or a similar business, as may be reasonably satisfactory to the
Agent with losses payable to the Borrower or the Agent, as their respective
interests may appear;
(b) Each insurance policy described in subsection 6.6(a) shall (i)
contain endorsements, in form satisfactory to each Lender, (ii) name the Agent,
as an insured party, (iii) provide that no cancellation, material reduction in
amount or material change in coverage thereof shall be effective until at least
thirty (30) days after receipt by the Agent of written notice thereof and (iv)
be reasonably satisfactory in all other respect to the Agent. In the event of
any termination or notice of non-payment by any insurer with respect to any
policy or any lapse in the coverage thereunder, the Borrower shall cause such
insurer to give prompt written notice to each Lender of the occurrence of such
termination, nonpayment or lapse.
(c) The Borrower shall deliver to the Agent a report of a reputable
insurance broker with respect to such insurance in each calendar year and such
supplemental reports with respect thereto as the Agent may from time to time
reasonably request.
6.7 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep proper
books of records and accounts in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; permit
representatives of the Agent or any Lender to visit and inspect any of its
properties and examine and make abstracts from any of its books and records at
any reasonable time (upon reasonable advance notice when no Default or Event of
Default has occurred and is continuing) and, with respect to the Agent, as often
as may reasonably be desired, or, with respect to any Lender other than the
Agent, not more than once per calendar year at the expense of such Lender (or if
an Event of Default has occurred and is continuing, at any reasonable time and
as often as may be desired, at the expense of the Borrower), and to discuss the
Business, operations, properties and financial and other condition of the
Borrower and its Subsidiaries with
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officers and employees of the Borrower and its Subsidiaries and with its
independent certified public accountants.
6.8 NOTICES. Promptly give notice to the Agent (who shall give prompt
notice thereof to the Lenders) of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries or (ii) litigation,
investigation or proceeding which may exist at any time between the Borrower or
any of its Subsidiaries and any Governmental Authority, which in either case, if
not cured or if adversely determined, as the case may be, could reasonably be
expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower or any of its
Subsidiaries in which the amount involved is $500,000 or more and not covered by
insurance or in which injunctive or similar relief is sought which could have a
Material Adverse Effect;
(d) the following events, as soon as possible and in any event within
thirty (30) days after the Borrower knows or has reason to know thereof: (i) the
occurrence or expected occurrence of any Reportable Event with respect to any
Plan that is an employee pension benefit plan (as defined in Section 3(2) of
ERISA), a failure to make any required contribution to a Plan, the creation of
any Lien in favor of the PBGC or a Plan that is an employee pension benefit plan
(as defined in Section 3(2) of ERISA) or any withdrawal from, or the
termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the
institution of proceedings or the taking of any other action by the PBGC or the
Borrower or any Commonly Controlled Entity or any Multiemployer Plan with
respect to the withdrawal from, or the terminating, Reorganization or Insolvency
of, any Plan that is an employee pension benefit plan (as defined in Section
3(2) of ERISA);
(e) the acquisition or creation of any Subsidiary which has Capital
Stock that is directly or indirectly owned by the Borrower or any Subsidiary;
(f) any Lien (other than any Liens permitted under this Agreement) or
other event that could reasonably be expected to have a Material Adverse Effect
on the aggregate value of the Collateral or on the security interest created by
this Agreement or any other Loan Document; and
each notice pursuant to this subsection 6.8 shall be accompanied by a statement
of a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Borrower proposes to take with respect
thereto.
6.9 ENVIRONMENTAL LAWS
(a) Comply with, and use reasonable efforts to ensure compliance by all
tenants and subtenants, if any, with, all applicable Environmental Laws and
obtain and comply
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with and maintain, and use reasonable efforts to ensure that all tenants and
subtenants obtain and comply with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws, except to the extent that failure to do so could not be reasonably
expected to have a Material Adverse Effect.
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws, except to the extent that failure to do so would not have a Material
Adverse Effect.
6.10 FURTHER ASSURANCES; ADDITIONAL COLLATERAL
(a) Upon the request of the Agent, promptly perform or cause to be
performed any and all acts and execute or cause to be executed any and all
documents (including, without limitation, financing statements and continuation
statements) (i) for filing under the provisions of the Uniform Commercial Code
or any Requirement of Law which are necessary or reasonably advisable to
maintain in favor of the Agent, for the benefit of the Lenders, Liens on the
Collateral that are duly perfected in accordance with all applicable
Requirements of Law.
(b) With respect to each intercompany loan made by the Borrower to
HomeMax, which uses the proceeds of the Facility, perform or cause to be
performed any other acts and execute or cause to be executed any and all
documents (including the amendment or other modification to the HM Note or the
Note Pledge Agreement) necessary or reasonably advisable to maintain the
assignment of Collateral to the Agent for the benefit of the Lenders.
(c) Upon the request of the Agent, promptly provide such documents and
legal opinions in respect of any aspect or consequence of the transactions
contemplated hereby as the Agent shall reasonably request.
6.11 ADDITIONAL SUBSIDIARIES. With respect to any Person that,
subsequent to the Closing Date, becomes a Subsidiary of HomeMax promptly (i)
cause such new Subsidiary to become a party to the HomeMax Guarantee pursuant to
documentation to be in form and substance satisfactory to the Agent and (ii) if
so requested by the Agent, deliver to the Agent legal opinions relating to due
authorization, execution, delivery of such Subsidiaries Guarantee by such new
Subsidiary and the enforceability against it of such Subsidiaries Guarantee,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Agent.
SECTION 7 NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect or any amount is owing to any Lender or the Agent hereunder or under any
other Loan Document, the Borrower shall not, and (except with respect to
subsection 7.1) shall not permit any of the other Loan Parties to, directly or
indirectly:
7.1 FINANCIAL CONDITION COVENANTS
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(a) DEBT TO NET WORTH. Permit, for any of the "Test Dates" set forth
below, the ratio of Debt of the Borrower and its Subsidiaries on such date to
Consolidated Tangible Net Worth on such date to be greater than the ratio set
forth opposite such "Test Date" below:
<TABLE>
<CAPTION>
Test Date Ratio
--------- -----
<S> <C> <C>
3/31/98 2.50 to 1.00
6/30/98 2.50 to 1.00
9/30/98 2.50 to 1.00
12/31/98 and thereafter 2.75 to 1.00
</TABLE>
(b) FIXED CHARGE COVERAGE. Permit, for each of the fiscal years ending
on December 31, 1998 and December 31, 1999, the ratio of (i) EBITDA for the
twelve month period ended on such day to (ii) the Consolidated Fixed Charges of
the Borrower and its Subsidiaries for such period, to be less than 1.30 to 1.00.
7.2 LIMITATION ON INDEBTEDNESS AND PREFERRED STOCK. Create, incur,
assume or suffer to exist any Indebtedness or preferred stock (other than
preferred stock which, by its terms, does not require the payment of any cash
dividends thereon or redemption/reimbursement obligations or impose any cash
penalties (other than accrual of dividends on unpaid dividends) for the failure
to declare cash dividends thereon), except:
(a) Indebtedness of the Borrower under this Agreement;
(b) Indebtedness of any Loan Party to the Borrower or any other Loan
Party which has executed a Guarantee;
(c) Indebtedness outstanding on the date hereof and listed on Schedule
IV and any refinancings, refundings, renewals or extensions thereof in an amount
not to exceed the then current principal amount thereof;
(d) additional Indebtedness not exceeding in aggregate principal amount
at any one time outstanding: $500,000; and
(e) Guarantee Obligations permitted pursuant to subsection 7.4; and
(f) any other additional Indebtedness, PROVIDED that the Majority
Lenders, in each Majority Lender's sole discretion, shall have given prior
written consent with respect to such additional Indebtedness.
7.3 LIMITATION ON LIENS. Create, incur, assume or suffer to exist any
Lien upon any of its property, inventory, assets or revenues, whether now owned
or hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, PROVIDED that adequate reserves with respect
thereto are maintained on the books of the Borrower or the other Loan Parties,
as the case may be, in conformity with GAAP;
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(b) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements; and
(c) Liens in existence on the date hereof listed on SCHEDULE V,
securing Indebtedness permitted by subsection 7.2(c), PROVIDED that no such Lien
is spread to cover any additional property after the date hereof and that the
amount of Indebtedness secured thereby is not increased.
7.4 LIMITATION ON GUARANTEE OBLIGATIONS. Create, incur, assume or
suffer to exist any Guarantee Obligation, except Guarantee Obligations in
existence on the date hereof and listed on SCHEDULE VI and any other Guarantee
Obligations, PROVIDED that the Majority Lenders, in each Majority Lender's sole
discretion, shall have given prior written consent with respect to such
additional Guarantee Obligations.
7.5 LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets, except:
(a) any Loan Party may be merged or consolidated with or into the
Borrower (PROVIDED that the Borrower shall be the continuing or surviving
corporation) or with or into any one or more Loan Parties wholly-owned by the
Borrower (PROVIDED that the wholly-owned Loan Party or Loan Parties shall be the
continuing or surviving corporation); and
(b) any Loan Party wholly owned by the Borrower may sell, lease,
transfer or otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to the Borrower or any other Loan Party wholly-owned
by the Borrower.
7.6 LIMITATION ON SALE OF ASSETS. Convey, sell, lease, assign, transfer
or otherwise dispose of any of its property, business or assets (including,
without limitation, receivables and leasehold interests), whether now owned or
hereafter acquired, to any Person other than the Borrower or any Loan Party
wholly owned by the Borrower, except the sale or other disposition of obsolete
or worn out property (including, without limitation, any property which is no
longer used or useful in the business of the Borrower and the other Loan
Parties) in the ordinary course of business.
7.7 LIMITATION ON DIVIDENDS. Declare or pay any dividend on, or make
any payment on account of, or set apart assets for a sinking or other analogous
fund for, the purchase, redemption, defeasance, retirement or other acquisition
of, any shares of any class of Capital Stock of the Borrower or any warrants or
options to purchase any such Stock, whether now or hereafter outstanding, or
make any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of the Borrower (such
declarations, payments, setting apart, purchases, redemptions, defeasances,
retirements, acquisitions and distributions being herein called "RESTRICTED
PAYMENTS").
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7.8 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any advance,
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of or any assets constituting a
business unit of, or make any other investment in, any Person, without the prior
written consent of the Majority Lenders except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) loans and advances to employees of the Borrower or its Subsidiaries
for travel, entertainment and relocation expenses;
(d) investments in existence on the date hereof which are described on
SCHEDULE VII hereof;
(e) the Borrower may make intercompany loans and advances to Loan
Parties wholly owned by the Borrower which have executed a HomeMax Guarantee;
and
(f) other advances, loans and extensions of credit in an aggregate
amount not to exceed $500,000.
7.9 LIMITATION ON TRANSACTIONS WITH AFFILIATES. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) otherwise permitted under this Agreement, (b) in the
ordinary course of the Borrower's or such Loan Party's business and (c) upon
fair and reasonable terms no less favorable to the Borrower or such Loan Party,
as the case may be, than it would obtain in a comparable arm's length
transaction with a Person which is not an Affiliate.
7.10 LIMITATIONS ON SALES AND LEASEBACKS. Enter into any arrangement
with any Person providing for the leasing by the Borrower or any Loan Party of
real or personal property which has been or is to be sold or transferred by the
Borrower or such Loan Party to such Person or to any other Person to whom funds
have been or are to be advanced by such Person on the security of such property
or rental obligations of the Borrower or such Loan Party.
7.11 LIMITATION ON CHANGES IN FISCAL YEAR. Permit the fiscal year of
the Borrower to end on a day other than December 31.
7.12 LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into with any Person
any agreement, other than this Agreement, purchase money mortgages, Financing
Leases and other similar fixed asset financings permitted by this Agreement (in
which cases, any prohibition or limitation shall only be effective against the
assets financed thereby), which prohibits or limits the ability of the Borrower
or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien
upon any of its property, assets or revenues, whether now owned or hereafter
acquired.
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7.13 LIMITATION ON LINES OF BUSINESS. Enter into any business, either
directly or through any Subsidiary, except for (a) the businesses and businesses
of a similar type in which the Borrower and its Subsidiaries are engaged on the
date hereof and Borrower and its Subsidiaries are engaged on the date of the
acquisition of such entities and (b) other activities relating thereto.
SECTION 8 EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan when due
in accordance with the terms hereof or any other Loan Document, or the Borrower
shall fail to pay any interest on any Loan, or any other amount payable
hereunder or any other Loan Document, within five (5) Business Days after any
such interest or other amount becomes due in accordance with the terms thereof
or hereof; or
(b) Any representation or warranty made or deemed made by the Borrower
or any other Loan Party herein or in any other Loan Document or which is
contained in any certificate, document or financial or other statement furnished
by it at any time under or in connection with this Agreement or any such other
Loan Document shall prove to have been incorrect in any material respect on or
as of the date made or deemed made; or
(c) The Borrower or any other Loan Party shall default in the
observance or performance of any agreement contained in Section 7 or any
negative covenant contained in any other Loan Document; or
(d) The Borrower or any other Loan Party shall default in the
observance or performance of any other agreement contained in this Agreement or
any other Loan Document (other than as provided in paragraphs (a) through (c) of
this Section 8), and such default shall continue unremedied for a period of
thirty (30) days; or
(e) The Borrower or any of the other Loan Parties shall (i) default in
any payment of principal of or interest of any Indebtedness (other than the
Loans) or in the payment of any Guarantee Obligation, beyond the period of
grace, (not to exceed sixty (60) days), if any, provided in the instrument or
agreement under which such Indebtedness or Guarantee Obligation was created; or
(ii) default in the observance or performance of any other agreement or
condition relating to any such Indebtedness or Guarantee Obligation or contained
in any instrument or agreement evidencing, securing or relating thereto, or any
other event shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Guarantee Obligation (or a
trustee or Agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause, with the giving of notice or the passage of time if
required, such Indebtedness to become due prior to its stated maturity or such
Guarantee Obligation to become payable; PROVIDED, HOWEVER, that no Default or
Event of Default shall exist under this paragraph unless the aggregate amount of
Indebtedness and/or Guarantee Obligations in respect of which any default or
other event or condition referred to in this paragraph shall have occurred shall
be equal to at least $500,000; or
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(f) An Event of Default shall have occurred and be continuing under,
and as defined in, the HM Facility or the ZH Facility; or
(g) (i) The Borrower or any other Loan Party shall commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian, conservator or other
similar official for it or for all or any substantial part of its assets, or the
Borrower or any Loan Party shall make a general assignment for the benefit of
its creditors; or (ii) there shall be commenced against the Borrower or any Loan
Party any case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or unbonded
for a period of thirty (30) days; or (iii) there shall be commenced against the
Borrower or any Loan Party any case, proceeding or other action seeking issuance
of a warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within thirty (30) days from the entry thereof, or (iv)
the Borrower or any Loan Party shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clause (i), (ii), or (iii) above; or (v) the Borrower or any Loan Party
shall generally not, or shall be unable to, or shall admit in writing its
inability to, pay its debts as they become due; or
(h) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
(ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan or any Lien in favor
of the PBGC or a Plan shall arise on the assets of the Borrower or any Commonly
Controlled Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan, which
Reportable Event or commencement of proceedings or appointment of a trustee is,
in the reasonable opinion of the Majority Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any Single
Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the
Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion
of the Majority Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or
(vi) any other adverse event or condition shall occur or exist with respect to a
Plan; and in each case in clauses (i) through (vi) above, such event or
condition, together with all other such events or conditions, if any, could
reasonably be expected to involve an aggregate amount of liability to the
Borrower or any Loan Party in excess of $500,000; or
(i) One or more judgments or decrees shall be entered against the
Borrower or any Loan Party involving in the aggregate a liability (not paid or
fully covered by insurance) of $500,000
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or more, and all such judgments or decrees shall not have been vacated,
discharged, stayed or bonded pending appeal within thirty (30) days from the
entry thereof; or
(j) (i) Any Guarantee shall cease, for any reason, to be in full force
and effect or any Guarantor shall so assert, (ii) the HM Note shall cease, for
any reason to be in full force and effect or any party thereto shall so assert
or (iii) the Note Pledge Agreement shall cease, for any reason, to be in full
force and effect or any officer of the Borrower shall so assert; or
(k) Any Change in Control shall occur;
then, and in any such event, (i) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (g) of this Section 8 with respect to the
Borrower, automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement shall immediately become due and payable, and (ii) if such
event is any other Event of Default, either or both of the following actions may
be taken: (A) with the consent of the Majority Lenders, the Agent may, or upon
the request of the Majority Lenders, the Agent shall, by notice to the Borrower
declare the Commitments to be terminated forthwith, whereupon the Commitments
shall immediately terminate; and (B) with the consent of the Majority Lenders,
the Agent may, or upon the request of the Majority Lenders, the Agent shall, by
notice to the Borrower, declare the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement to be due and payable
forthwith, whereupon the same shall immediately become due and payable. Except
as expressly provided above in this Section 8, presentment, demand, protest and
all other notices of any kind are hereby expressly waived.
SECTION 9 THE AGENT
9.1 APPOINTMENT. (a) Each Lender hereby irrevocably designates and
appoints NationsBank, N.A. as the Agent of such Lender under this Agreement and
the other Loan Documents, and each such Lender irrevocably authorizes the Agent,
in such capacity, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
9.2 DELEGATION ON DUTIES. The Agent may execute any of its duties under
this Agreement and the other Loan Documents by or through administrative agents
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any administrative agents or attorneys-in-fact
selected by it with reasonable care.
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9.3 EXCULPATORY PROVISIONS. Neither the Agent nor any of its officers,
directors, employees, administrative agents, attorneys-in-fact or Affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any other Loan
Document (except for its or such Person's own gross negligence or willful
misconduct) or (ii) responsible in any manner to any of the Lenders for any
recitals, statements, representations or warranties made by the Borrower or any
officer thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of the Borrower to perform its obligations hereunder or
thereunder. The Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower.
9.4 RELIANCE BY AGENT. The Agent shall be entitled to rely, and shall
be fully protected in relying, upon any Note, writing, resolution, notice,
consent, certificate, affidavit, letter, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrower), independent accountants and other experts
selected by the Agent. Without limiting the foregoing or the obligation of the
Borrower to confirm in writing any telephonic notice permitted to be given
hereunder, the Agent may prior to receipt of written confirmation act without
liability upon the basis of such telephonic notice, believed by the Agent in
good faith to be from a Responsible Officer or Borrower. The Agent may deem and
treat the payee of any Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with the Agent. The Agent shall be fully justified in failing or refusing
to take any action under this Agreement or any other Loan Document unless it
shall first receive such advice or concurrence of the Majority Lenders as it
deems appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement and the other Loan Documents in accordance with a request of the
Majority Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
the Loans.
9.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default hereunder unless
the Agent has received notice from a Lender or the Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". In the event that the Agent receives such a
notice, the Agent shall give notice thereof to the Lenders. The Agent shall take
such action with respect to such Default or Event of Default as shall be
reasonably directed by the Majority Lenders; PROVIDED that unless and until the
Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action,
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with respect to such Default or Event of Default as it shall deem advisable in
the best interests of the Lenders.
9.6 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, administrative agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it and that no act by the Agent hereinafter
taken, including any review of the affairs of the Borrower, shall be deemed to
constitute any representation or warranty by the Agent to any Lender. Each
Lender represents to the Agent that it has, independently and without reliance
upon the Agent or any other Lender, and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, operations, property, financial and other condition and
creditworthiness of the Borrower and made its own decision to make its Loans
hereunder and enter into this Agreement. Each Lender also represents that it
will, independently and without reliance upon the Agent or any other Lender, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, operations,
property, condition (financial or otherwise), prospects or creditworthiness of
the Borrower which may come into the possession of the Agent or any of its
officers, directors, employees, administrative agents, attorneys-in-fact or
Affiliates.
9.7 INDEMNIFICATION. The Lenders agree to indemnify the Agent in its
capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to their
respective Commitment Percentages in effect on the date on which indemnification
is sought (such Commitment Percentage to be determined as if there are not
Defaulting Lenders), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Loans) be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of, the Commitments, this Agreement, any of the other Loan Documents or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in connection with any of the foregoing; provided that no Lender shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from the Agent's gross negligence or willful misconduct. To the
extent that any Lender would be required to indemnify the Agent pursuant to this
subsection 9.7 but for the fact that it is a Defaulting Lender, such Defaulting
Lender shall not be entitled to receive any portion of any payment or other
distribution hereunder until each other Lender shall have been reimbursed for
the excess, if any, of the aggregate amount paid by such Lender under this
subsection 9.7 over the aggregate amount that such Lender would have been
obligated to pay
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had such first Lender not been a Defaulting Lender. The agreements in this
subsection 9.7 shall survive the payment of the Loans and all other amounts
payable hereunder.
9.8 AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and each of its
respective Affiliates may make loans to, accept deposits from and generally
engage in any kind of business with the Borrower as though the Agent were not
the Agent hereunder and under the other Loan Documents. With respect to its
Loans made or renewed by it and any Note issued to it, the Agent shall have the
same rights and powers under this Agreement and the other Loan Documents as any
Lender and may exercise the same as though it were not the Agent, and the terms
"Lender" and "Lenders" shall include the Agent in its respective individual
capacity.
9.9 SUCCESSOR AGENT. The Agent may resign as Agent upon ten (10) days'
notice to the Lenders and Borrower. If the Agent shall resign as Agent under
this Agreement and the other Loan Documents, then the Majority Lenders shall
appoint from among the Lenders a successor Agent for the Lenders, which
successor Agent (PROVIDED that it shall have been approved by the Borrower),
shall succeed to the rights, powers and duties of the Agent hereunder. Effective
upon such appointment and approval, the term "Agent" shall mean such successor
Agent, and the former Agent's rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent or any of the parties to this Agreement or any holders of the Loans. After
any retiring Agent's resignation as Agent, the provisions of this Section 9
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement and the other Loan Documents.
SECTION 10 MISCELLANEOUS
10.1 AMENDMENTS AND WAIVERS. Neither this Agreement nor any other Loan
Document, nor any terms hereof or thereof, may be amended, supplemented or
modified except in accordance with the provisions of this subsection 10.1. The
Majority Lenders may, or, with the written consent of the Majority Lenders, the
Agent may, from time to time, (a) enter into with the Borrower written
amendments, supplements or modifications hereto and to the other Loan Documents
for the purpose of adding any provisions to this Agreement or the other Loan
Documents or changing in any manner the rights of the Lenders or of the Borrower
hereunder or thereunder or (b) waive, on such terms and conditions as the
Majority Lenders or the Agent, as the case may be, may specify in such
instrument, any of the requirements of this Agreement or the other Loan
Documents or any Default or Event of Default and its consequences; PROVIDED,
HOWEVER, that no such waiver and no such amendment, supplement or modification
shall:
(i) reduce the amount or extend the scheduled date of maturity
of any Loan or of any installment thereof, or reduce the stated rate of
any interest or fee payable hereunder or extend the scheduled date of
any payment thereof or increase the amount or extend the expiration
date of any Lenders' Commitments, in each case without the consent of
each Non-Defaulting Lender directly affected thereby;
(ii) amend, modify or waive any provision of this subsection
10.1 or reduce the percentage specified in the definition of Majority
Lenders, or consent
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to the assignment or transfer by the Borrower of any of its rights and
obligations under this Agreement and the other Loan Documents, in each
case without the written consent of all the Non-Defaulting Lenders;
(iii) consent to the assignment or transfer by the Borrower of
any of its rights and obligations under this Agreement and the other
Loan Documents, in each case without the written consent of all the
Non-Defaulting Lenders;
(iv) take any action having the effect of releasing any of the
material collateral or material guarantee obligations provided for in
any Guarantee, the Note Pledge Agreement or the HM Note in each case
without the written consent of the Non-Defaulting Lenders;
(v) amend, modify or waive any provision of Section 10 without
the written consent of the then Agent.
Any such waiver and any such amendment, supplement or modification shall apply
equally to each of the Lenders (including Defaulting Lenders) and shall be
binding upon the Borrower, the Lenders (including Defaulting Lenders), the Agent
and all future holders of the Loans. In the case of any waiver, the Borrower,
the Lenders (including Defaulting Lenders) and the Agent shall be restored to
their former positions and rights hereunder and under the other Loan Documents,
and any Default or Event of Default waived shall be deemed to be cured and not
continuing; no such waiver shall extend to any subsequent or other Default or
Event of Default or impair any right consequent thereon.
10.2 RELEASES OF COLLATERAL SECURITY AND GUARANTEE OBLIGATIONS.
Notwithstanding anything to the contrary contained herein or in any Security
Document, upon request of the Borrower, the Agent shall (without any notice to
or vote or consent of any Lender) take any action which has the effect of
releasing any collateral security and/or guarantee obligations provided for in
any Loan Document to the extent necessary to permit the consummation of any
Proceeds Event or any asset dispositions permitted by subsection 7.6; PROVIDED
that (unless the Majority Lenders shall otherwise consent) the Proceeds of any
Proceeds Event are applied in the manner contemplated by subsection 3.6 (if so
required).
10.3 NOTICES. Unless otherwise expressly provided herein, all notices,
requests and demands to or upon the respective parties hereto to be effective
shall be in writing (including by facsimile transmission) and, unless otherwise
expressly provided herein, shall be deemed to have been duly given or made (a)
in the case of delivery by hand, when delivered, (b) in the case of delivery by
mail, three (3) days after being deposited in the mails, postage prepaid, or (c)
in the case of delivery by facsimile transmission, when sent and receipt has
been confirmed, addressed as follows in the case of the Borrower and the Agent,
and as set forth in SCHEDULE I in the case of the other parties hereto, or to
such other address as may be hereafter notified by the respective parties
hereto:
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The Borrower:
Zaring National Corporation
11300 Cornell Park Drive
Cincinnati, Ohio 45242
Attention: Ronald G. Gratz,
Vice President and Chief Financial Officer
Telecopy: (513) 247-2667
Phone: (513) 489-8849
WITH A COPY TO:
Frost & Jacobs, LLP.
2500 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
Telecopy: (513) 651-6981
Phone: (513) 651-6880
The Agent:
NationsBank, N.A.
6610 Rockledge Drive
6th Floor
Bethesda, Maryland 20817
Attention: Karen H. Morgan, Vice President
Telecopy: (301) 571-9049
Phone: (301) 571-9093
WITH A COPY TO:
Shaw Pittman Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
Attention: M. David Krohn, Esq.
Telecopy: (212) 603-6801
Phone: (212) 603-6824
PROVIDED that any notice, request or demand to or upon the Agent pursuant to
subsection 2.2, 3.4, 3.5 or 3.9 shall not be effective until received.
10.4 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising on the part of the Agent or any Lender, any right, remedy,
power or privilege hereunder or under the other Loan Documents shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise
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<PAGE> 53
thereof or the exercise of any other right, remedy, power or privilege. The
rights, remedies, powers and privileges herein provided are cumulative and not
exclusive of any rights, remedies, powers and privileges provided by law.
10.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans hereunder.
10.6 PAYMENT OF EXPENSES AND TAXES. The Borrower agrees (a) to pay or
reimburse the Agent for all of its reasonable out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of any
amendment, supplement or modification to, this Agreement and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including, without limitation, the reasonable fees and
disbursements of counsel to the Agent, (b) to pay or reimburse each Lender and
the Agent for all its costs and expenses incurred in connection with the
enforcement or preservation of any rights under this Agreement, the other Loan
Documents and any such other documents, including, without limitation, the
reasonable fees and disbursements of counsel to each Lender and of counsel to
the Agent, (c) to pay, indemnify, and hold each Lender and the Agent harmless
from, any and all recording and filing fees and any and all liabilities with
respect to, or resulting from any delay in paying, stamp, excise and other
taxes, if any, which may be payable or determined to be payable in connection
with the execution and delivery of, or consummation or administration of any of
the transactions contemplated by, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of, this Agreement, the other
Loan Documents and any such other documents, and (d) to pay, indemnify, and hold
each Lender and the Agent harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents or the use of the proceeds of the Loans and
any such other documents, including, without limitation, any of the foregoing
relating to the violation of, noncompliance with or liability under, any
Environmental Law applicable to the operations of the Borrower, any of its
Subsidiaries or any of the Properties (all the foregoing in this clause (d),
collectively, the "indemnified liabilities"), PROVIDED that the Borrower shall
have no obligation hereunder to the Agent or any Lender with respect to
indemnified liabilities to the extent arising from the gross negligence or
willful misconduct of the Agent or such Lender. The agreements in this
subsection 10.6 shall survive repayment of the Loans and all other amounts
payable hereunder.
10.7 TERMINATION. This Agreement shall terminate upon the termination
of all Commitments and the irrevocable repayment in full of the aggregate
outstanding principal amount of the Loans, accrued interest thereon, and all
fees and expenses and other amounts due and payable at such time under any of
the Loan documents; PROVIDED that all indemnities set forth herein including,
without limitation, in subsections 3.15, 3.16, 3.17, 3.18, 9.7 and 10.6 shall
survive such termination.
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<PAGE> 54
10.8 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS
(a) This Agreement shall be binding upon and inure to the benefit of
the Borrower, the Lenders, the Agent and their respective successors and
assigns, except that the Borrower may not assign or transfer any of its rights
or obligations under this Agreement without the prior written consent of each
Lender.
(b) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to one or more
banks or other financial institutions ("PARTICIPANTS") participating interests
in any Loan owing to such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Loan Documents PROVIDED,
that, in the case of any such sale to an additional bank or financial
institution, (x) the aggregate principal amount of the Loan (or prior to the
Closing Date, Commitment) being sold is not less than $5,000,000 (or such lesser
amount as may be agreed to by the Agent) and (y) the aggregate principal amount
of the Loan (or prior to the Closing Date, the Commitment) remaining with the
selling Lender is not less than $5,000,000 (or such lesser amount as may be
agreed to by the Agent). In the event of any such sale by a Lender of a
participating interest to a Participant, such Lender's obligations under this
Agreement shall remain unchanged, such Lender shall remain solely responsible
for the performance thereof, such Lender shall remain the holder of any such
Loan for all purposes under this Agreement and the other Loan Documents, and the
Borrower and the Agent shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement and the other Loan Documents. No Lender shall be entitled to create in
favor of any Participant, in the participation agreement pursuant to which such
Participant's participating interest shall be created or otherwise, any right to
vote on, consent to or approve any matter relating to this Agreement or any
other Loan Document except for those specified in clauses (i) and (ii) of the
proviso to subsection 10.1. The Borrower agrees that if amounts outstanding
under this Agreement are due or unpaid, or shall have been declared or shall
have become due and payable upon the occurrence of an Event of Default, each
Participant shall, to the maximum extent permitted by applicable law, be deemed
to have the right of setoff in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement, PROVIDED that, in purchasing such participating interest, such
Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as fully as if it were a Lender hereunder. The Borrower also
agrees that each Participant shall be entitled to the benefits of subsections
3.16, 3.17 and 3.18 with respect to its participation in the Commitments and the
Loans outstanding from time to time as if it was a Lender; PROVIDED that, in the
case of subsection 3.17, such Participant shall have complied with the
requirements of said subsection and PROVIDED, FURTHER, that no Participant shall
be entitled to receive any greater amount pursuant to any such subsection than
the Lenders would have been entitled to receive in respect of the amount of the
participation transferred by such Lender to such Participant had no such
transfer occurred.
(c) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time and from time to
time assign to any Lender or any affiliate thereof or, with the consent of the
Borrower and the Agent (which in each case shall not
-49-
<PAGE> 55
be unreasonably withheld), to an additional bank or financial
institution (an "ASSIGNEE") all or any part of its rights and obligations under
this Agreement and the other Loan Documents pursuant to an Assignment and
Acceptance, substantially in the form of EXHIBIT G, executed by such Assignee,
such assigning Lender (and, in the case of an Assignee that is not then a Lender
or an affiliate thereof, by the Borrower and the Agent) and delivered to the
Agent for its acceptance and recording, PROVIDED that, in the case of any such
assignment to an additional bank or financial institution, (x) the aggregate
principal amount of the Commitment being assigned is not less than $5,000,000
(or such lesser amount as may be agreed to by the Borrower and the Agent) and
(y) if such assignment is of less than all of the rights and obligations of the
assigning Lender, the aggregate principal amount of the Commitment remaining
with the assigning Lender is not less than $5,000,000 (or such lesser amount as
may be agreed to by the Borrower and the Agent). Upon such execution, delivery,
acceptance and recording (and the payment of the registration and processing fee
described in clause (e) below), from and after the effective date determined
pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be
a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender hereunder with a Commitment as set
forth therein, and (y) the assigning Lender thereunder shall, to the extent
provided in such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all or the remaining portion of the Lenders' rights and obligations under this
Agreement, such assigning Lender shall cease to be a party hereto).
Notwithstanding any provision of this paragraph (c) of this subsection, the
consent of the Borrower shall not be required for any assignment which occurs at
any time when any of the events described in subsection 8(g) shall have occurred
and be continuing.
(d) The Agent, on behalf of the Borrower, shall maintain at the address
of the Agent referred to in subsection 10.3 a copy of each Assignment and
Acceptance delivered to it and a register (the "REGISTER") for the recordation
of the names and addresses of the Lenders and the Commitments of, and principal
amounts of the Loans owing to, each Lender from time to time. The entries in the
Register shall, to the extent permitted by applicable law be prima facie
evidence of the existence and amounts therein recorded. The Borrower, the Agent
and the Lenders may (and, in the case of any Loan or other obligation hereunder
not evidenced by a Note, shall) treat each Person whose name is recorded in the
Register as the owner of a Loan or other obligation hereunder as the owner
thereof for all purposes of this Agreement and the other Loan Documents,
notwithstanding any notice to the contrary. Any assignment of any Loan or other
obligation hereunder not evidenced by a Note shall be effective only upon
appropriate entries with respect thereto being made in the Register. The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof, by the Borrower and the Agent), together
with payment to the Agent of a registration and processing fee of $2,500, the
Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the
effective date determined pursuant thereto record the information contained
therein in the Register and give notice of such acceptance and recordation to
the Lenders and the
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<PAGE> 56
Borrower; PROVIDED that no such fee shall be payable with respect to any
assignment from an assigning Lender to an affiliate thereof.
(f) The Borrower authorizes each Lender to disclose to any Participant
or Assignee (each, a "TRANSFEREE") and any prospective Transferee any and all
financial information in such Lenders' possession concerning the Borrower and
its Affiliates which has been delivered to such Lender by or on behalf of the
Borrower pursuant to this Agreement or which has been delivered to such Lender
by or on behalf of the Borrower in connection with such Lenders' credit
evaluation of the Borrower and its Affiliates prior to becoming a party to this
Agreement.
(g) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this subsection 10.8 concerning assignments of Loans and
Notes relate only to absolute assignments and that such provisions do not
prohibit assignments creating security interests, including, without limitation,
any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve
Bank in accordance with applicable law.
10.9 ADJUSTMENTS; SET-OFF.
(a) If any Lender (a "BENEFITED LENDER") at any time shall receive any
payment of all or part of its Loans or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by set-off,
pursuant to events or proceedings of the nature referred to in subsection 8(g),
or otherwise), in a greater proportion than any such payment to or collateral
received by any other Lender, if any, in respect of such other Lenders' Loans or
interest thereon, such benefited Lender shall purchase for cash from the other
Lenders such portion of each such other Lenders' Loans, or shall provide such
other Lenders with the benefits of any such collateral, or the proceeds thereof,
as shall be necessary to cause such benefited Lender to share the excess payment
or benefits of such collateral or proceeds ratably with each of the Lenders, and
if after taking into account such sharing the benefited Lender continues to have
access to addition funds of or collateral granted by the Borrower for
application on account of its debt, then the benefited Lender shall use such
funds or collateral to reduce debt of the Borrower held by it and share such
payments and the benefits of such collateral with the other Lenders; PROVIDED,
HOWEVER, that if all or any portion of such excess payment or benefits is
thereafter recovered from such benefited Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest. The Borrower agrees that each Lender so
purchasing a portion of another Lenders' Loans may exercise all rights of
payment (including, without limitation, rights of set-off) with respect to such
portion as fully as if such Lender were the direct holder of such portion.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Borrower, any
such notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise) to
set-off and appropriate and apply against such amount any and all deposits
(general or special, time or demand, provisional or final), in any currency, and
any other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured
-51-
<PAGE> 57
or unmatured, at any time held or owing by such Lender or any branch, agency or
(to the extent permitted by applicable law) banking affiliate thereof to or for
the credit or the account of the Borrower. Each Lender agrees promptly to notify
the Borrower and the Agent or any Lender after any such set-off and application
made by such Lender, PROVIDED that the failure to give such notice shall not
affect the validity of the set-off and application.
10.10 COUNTERPARTS. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts (including
by facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Agreement signed by all the parties shall be lodged with the Borrower and the
Agent.
10.11 SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.12 INTEGRATION. This Agreement and the other Loan Documents
represent the agreement of the Borrower, the Agent and the Lenders with respect
to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Agent or any Lender relative to subject
matter hereof not expressly set forth or referred to herein or in the other Loan
Documents.
10.13 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF OHIO.
10.14 SUBMISSION TO JURISDICTION; WAIVERS. The Borrower hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which it
is a party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the Courts of the State of
Ohio, the courts of the United States of America for the Sixth Circuit, and
appellate courts from any thereof,
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding may
be effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail),
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<PAGE> 58
postage prepaid, to the Borrower at its address set forth in subsection 10.3 or
at such other address of which the Lenders shall have been notified pursuant
thereto;
(d) agrees that nothing herein shall affect the right to effect service
of process in any other manner permitted by law or shall limit the right to sue
in any other jurisdiction; and
(e) waives, except in the case of extreme bad faith (and otherwise to
the maximum extent not prohibited by law), any right it may have to claim or
recover in any legal action or proceeding referred to in this subsection 10.14
any special, exemplary, punitive or consequential damages.
10.15 ACKNOWLEDGEMENTS. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Agent nor any Lender has any fiduciary relationship
with or duty to the Borrower arising out of or in connection with this Agreement
or any of the other Loan Documents, and the relationship between Agent and
Lenders, on the one hand, and the Borrower, on the other hand, in connection
herewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among the
Borrower and the Lenders.
10.16 WAIVERS OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, THE BORROWER, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
ZARING NATIONAL CORPORATION,
as Borrower
By: /s/ Allen G. Zaring, III
----------------------------
Allen G. Zaring
President
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<PAGE> 59
NATIONSBANK, N.A.,
as Agent and Lender
By: /s/ Karen H. Morgan
------------------------
Karen H. Morgan
Vice President
STAR BANK, N.A.
as Lender
By: /s/ William J. Hronek
------------------------
William J. Hronek
Vice President
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<PAGE> 60
SCHEDULE I
LENDERS; ADDRESSES FOR NOTICES
1. NATIONSBANK, N.A.
6610 Rockledge Drive
6th Floor
Bethesda, MD 20817
Attention: Karen H. Morgan, Vice President
Telecopy: 301-571-9093
Phone: 301-571-9049
2. STAR BANK, N.A.
425 Walnut Street
ML 8160, 8th Floor
Cincinnati, OH 45201
Attention: William J. Hronek, Vice President
Telecopy: 513-632-2068
Phone: 513-632-4917
<PAGE> 61
SCHEDULE II
COMMITMENTS AND COMMITMENT PERCENTAGES
COMMITMENT
COMMITMENT
LENDER PERCENTAGE
NATIONSBANK, N.A. $7,500,000 50%
STAR BANK, N.A. $7,500,000 50%
<PAGE> 62
SCHEDULE III
ZARING NATIONAL CORPORATION
SUBSIDIARIES:
<TABLE>
<CAPTION>
NAME STATUS JURISDICTION OF INCORPORATION OWNERSHIP PERCENTAGE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Zaring Homes, Inc. Guarantor Ohio 100%
Zaring Holdings, Inc. N/A Ohio 100%
Hearthside Homes, LLC N/A Indiana 99%*
Legacy Mortgage Corporation N/A Indiana 100%
Centron Financial Services Corp. N/A North Carolina 100%
HomeMax, Inc. Guarantor Delaware 95%**
</TABLE>
* Remaining 1% ownership by Zaring Holdings, Inc.
** Remaining 5% ownership by the Founders
<PAGE> 63
SCHEDULE IV
ZARING NATIONAL CORPORATION
INDEBTEDNESS
LONG TERM INDEBTEDNESS
As Of February 23, 1998
<TABLE>
<CAPTION>
ENTITY ISSUE TYPE BANK ISSUE MATURITY
DATE DATE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Zaring National Corporation None
PNC Bank, National Association
Zaring Homes, Inc. Revolving Credit Notes (Agent) 02/19/1998 07/01/2000
Term Note PNC Bank, National Association 02/19/1998 04/01/2001
(Agent)
HomeMax, Inc. Promissory Note NationsBank, N.A. (Agent) 02/19/1998 02/28/2001
Promissory Note NationsBank, N.A. (Agent) 02/23/1998 02/23/2003
HomeMax Indiana, LLC Promissory Note Nations Bank N.A. (Agent) 02/19/1998 02/28/2001
HomeMax Kentucky, LLC Promissory Note NationsBank N.A. (Agent) 02/19/1998 02/28/2001
HomeMax Ohio, Inc. Promissory Note NationsBank N.A. (Agent) 02/19/1998 02/28/2001
HomeMax N. Carolina, Inc. Promissory Note NationsBank N.A. (Agent) 02/19/1998 02/28/2001
HomeMax S. Carolina, Inc. Promissory Note NationsBank N.A. (Agent) 02/19/1998 02/28/2001
HomeMax Tennessee, Inc. Promissory Note NationsBank N.A. (Agent) 02/19/1998 02/28/2001
<CAPTION>
ENTITY RATE AMOUNT
- -------------------------------------------------------------------------------
<S> <C> <C>
Zaring National Corporation
Zaring Homes, Inc. Euro-Rate or Base Rate $72,500,000
Euro-Rate or Base Rate $15,000,000
HomeMax, Inc. Eurodollar Rate or ABR $33,920,000
Greater of Prime Rate or $12,000,000
the Federal Funds
Effective Rate
HomeMax Indiana, LLC Eurodollar Rate or ABR $33,920,000
HomeMax Kentucky, LLC Eurodollar Rate or ABR $33,920,000
HomeMax Ohio, Inc. Eurodollar Rate or ABR $33,920,000
HomeMax N. Carolina, Inc. Eurodollar Rate or ABR $33,920,000
HomeMax S. Carolina, Inc. Eurodollar Rate or ABR $33,920,000
HomeMax Tennessee, Inc. Eurodollar Rate or ABR $33,920,000
</TABLE>
<PAGE> 64
SCHEDULE V
LIENS
ZARING NATIONAL CORPORATION:
N/A
ZARING HOMES, INC.:
N/A
HOMEMAX, INC.:
UCC-1 filings for furniture and computer equipment leased from CLG, Inc. and
Colonial Pacific Leasing Corporation*
THE LIENS DESCRIBED BELOW APPLY TO THE FOLLOWING ENTITIES:
HomeMax, Inc.
HomeMax Indiana, LLC
HomeMax Kentucky, LLC
HomeMax North Carolina, Inc.
HomeMax South Carolina, Inc.
HomeMax Ohio, Inc.
HomeMax Tennessee, Inc.
HM Properties, Inc.
HM Services, Inc.
UCC-1 filings for all inventory together with any and all accounts, chattel
paper, documents, equipment, general intangibles and all proceeds and products
of any and all of the foregoing.
Such liens are the result of security agreements delivered to NationsBank, N.A.,
as agent for itself and the other lenders (collectively "Lenders") under the
Floor Plan Agreement between HomeMax, Inc., HomeMax Indiana, LLC, HomeMax
Kentucky, LLC, HomeMax North Carolina, Inc., HomeMax South Carolina, Inc.,
HomeMax Ohio, Inc and HomeMax Tennessee, Inc. (collectively, "Borrowers") and
Lenders dated February 19, 1998.
* See attachment 1 to Schedule V
<PAGE> 65
Attachment 1 to Schedule V
<TABLE>
<CAPTION>
- ---------------------------------------------- ---------------------------------- -----------------------------
LESSOR NATURE OF LEASE ITEMS LEASED UCC FILING
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLG, Inc. 3001 Equipment Lease Misc. computer equipment Yes
Spring Forest Road Agreement dated 8/22/97 Modular Office Furniture
Raleigh, N.C. 27616 and Supplements
- ---------------------------------------------------------------------------------------------------------------
Colonial Pacific Leasing Company Master Equipment Lease Modular Office Furniture Yes
P.O. Box 120102 dated 9/22/97
Portland, Oregon 97281 and Addendums
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 66
SCHEDULE VI
GUARANTEES
ZARING NATIONAL ASSOCIATION HAS DELIVERED THE FOLLOWING GUARANTEES:
1) Guarantee of $87,500,000 loan dated February 19, 1998 to PNC Bank,
National Association as agent for itself and the other lenders
(collectively, "Lenders"), under the Amended and Restated Credit
Agreement between Zaring Homes, Inc., Zaring Holdings, Inc. and
Hearthside Homes, LLC (collectively, "Borrowers") and Lenders dated
February 19, 1998.
2) Guarantee of $12,000,000 loan dated February 23, 1998 to NationsBank,
N.A., as agent for itself and the other lenders (collectively,
"Lenders"), under the Credit Agreement between HomeMax, Inc. and
Lenders dated February 23, 1998.
ZARING HOMES, INC. HAS DELIVERED THE FOLLOWING GUARANTEE:
1) Guarantee of $87,500,000 loan dated February 19, 1998 to PNC Bank,
National Association, as agent for itself and the other lenders
(collectively, "Lenders"), under the ammended and Restated Credit
Agreement between Zaring Homes, Inc., Zaring holdings, Inc. and
Hearthside Homes, LLC (collectively "Borrowers") and Lenders dated
February 19, 1998.
EACH OF THE FOLLOWING ENTITIES HAS DELIVERED THE GUARANTEES DESCRIBED BELOW:
HomeMax, Inc.
HomeMax Indiana, LLC
HomeMax Kentucky, LLC
HomeMax North Carolina, Inc.
HomeMax South Carolina, Inc.
HomeMax Ohio, Inc.
HomeMax Tennessee, Inc.
HM Properties, Inc.
HM Services, Inc.
1) Guarantee of $33,920,000 loan dated February 19, 1998 delivered to
NationsBank, N.A., as agent for itself and the other lenders
(collectively, "Lenders"), under the Floor Plan Agreement between
HomeMax, Inc., HomeMax Indiana, LLC, HomeMax Kentucky, LLC, HomeMax
Ohio, Inc., HomeMax North Carolina, Inc., HomeMax South Carolina, Inc.
and HomeMax Tennessee, Inc. (collectively, "Borrowers") and Lenders
dated February 19, 1998.
2) Guarantee of $12,000,000 loan dated February 23, 1998 delivered to
NationsBank, as agent for itself and the other lenders (collectively,
"Lenders"), under the Credit Agreement between HomeMax, Inc. and
Lenders dated February 23, 1998.
<PAGE> 67
SCHEDULE VII
ZARING NATIONAL CORPORATION
EXISTING INVESTMENTS
--------------------
<TABLE>
<CAPTION>
Entity Investment
- ------ ----------
<S> <C>
Zaring National Corporation Subsidiaries
Zaring Homes, Inc. Subsidiaries
HomeMax, Inc. Subsidiaries
HomeMax Indiana, Inc. N/A
HomeMax Kentucky, LLC N/A
HomeMax Ohio, Inc. N/A
HomeMax North Carolina, Inc. N/A
HomeMax South Carolina, Inc. N/A
HomeMax Tennessee, Inc. N/A
HM Properties, Inc. N/A
HM Services, Inc. N/A
</TABLE>
<PAGE> 1
Exhibit 10.17
-----------------------------------------------------------------------------
HOMEMAX, INC.
-----------------------------------
$12,000,000
CREDIT AGREEMENT
dated as of February 23, 1998
-----------------------------------
NATIONSBANK, N.A.,
as Agent
------------------------------------------------------------------------------
<PAGE> 2
SCHEDULES
Schedule I Addresses for Notices
Schedule II Commitments and Commitment Percentages
Schedule III Subsidiaries
Schedule IV Indebtedness
Schedule V Liens
Schedule VI Guarantees
Schedule VII Existing Investments
Schedule VIII Acquired Land Parcels
EXHIBITS
Exhibit A Form of Note
Exhibit B Form of Parent Guarantee
Exhibit C Form of Subsidiaries Guarantee
Exhibit D Form of Joinder Agreement
Exhibit E Form of HM Services Subordination Agreement
Exhibit F Form of ZN Net Worth Agreement
Exhibit G Form of Opinion of Frost & Jacobs LLP
Exhibit H Officer's Certificate of Compliance
Exhibit I Form of Assignment and Acceptance
Exhibit J Form of Notice of Borrowing
Exhibit K Form of Mortgage
<PAGE> 3
<TABLE>
<S> <C>
SECTION 1. DEFINITIONS..................................................................1
1.1 Defined Terms................................................................1
1.2 Other Definitional Provisions...............................................11
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS.............................................12
2.1 Commitments.................................................................12
2.2 Procedure for Borrowing.....................................................13
2.3 Amortization of Loans.......................................................13
2.4 Use of Proceeds of Loans....................................................13
SECTION 3. PROVISIONS RELATING TO THE EXTENSIONS OF CREDIT; FEES AND PAYMENTS..........13
3.1 Repayment of Loans; Evidence of Indebtedness................................13
3.2 Agent's Fees................................................................14
3.3 Optional Prepayments........................................................14
3.4 Optional Termination or Reduction of Commitments............................14
3.5 Mandatory Reduction of Commitments and Prepayments..........................15
3.6 Application of Prepayments..................................................16
3.7 Prepayment Premium..........................................................17
3.8 Minimum Amounts and Maximum Number of Notes.................................17
3.9 Interest Rates and Payment Dates............................................17
3.10 Computation of Interest and Fees............................................17
3.11 Pro Rata Treatment and Payments.............................................18
SECTION 4. REPRESENTATIONS AND WARRANTIES..............................................19
4.1 Financial Condition.........................................................19
4.2 No Change...................................................................20
4.3 Disclosure..................................................................20
4.4 Corporate Existence; Compliance with Law....................................20
4.5 Corporate Power, Authorization, Enforceable Obligations.....................21
4.6 No Legal Bar................................................................21
4.7 No Material Litigation......................................................21
4.8 No Default..................................................................21
4.9 Ownership of Property; Liens................................................22
4.10 Intellectual Property.......................................................22
</TABLE>
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<TABLE>
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4.11 No Burdensome Restrictions..................................................22
4.12 Taxes.......................................................................22
4.13 Federal Regulations.........................................................23
4.14 ERISA.......................................................................23
4.15 Investment Company Act; Other Regulations...................................23
4.16 Subsidiaries................................................................24
4.17 Acquired Land Parcels.......................................................24
4.18 Environmental Matters.......................................................24
4.19 Solvency....................................................................25
4.20 Guarantees..................................................................25
4.21 Joinder Agreements..........................................................26
4.22 Mortgages...................................................................27
4.23 HM Services Subordination Agreement.........................................27
4.24 ZN Net Worth Agreement......................................................27
SECTION 5. CONDITIONS PRECEDENT........................................................27
5.1 Conditions to Initial Extensions of Credit..................................27
5.2 Conditions to Each Extension of Credit......................................29
SECTION 6. AFFIRMATIVE COVENANTS.......................................................32
6.1 Financial Statements........................................................32
6.2 Certificates; Other Information.............................................32
6.3 Payment of Obligations......................................................34
6.4 Conduct of Business and Maintenance of Existence............................34
6.5 Maintenance of Property; Insurance..........................................34
6.6 Inspection of Property; Books and Records; Discussions......................35
6.7 Notices.....................................................................35
6.8 Environmental Laws..........................................................36
6.9 Further Assurances; Additional Collateral...................................36
6.10 Additional Subsidiaries.....................................................37
SECTION 7. NEGATIVE COVENANTS..........................................................38
7.1 Financial Condition Covenant (Indebtedness to Net Worth)....................38
7.2 Limitation on Indebtedness and Preferred Stock..............................38
7.3 Limitation on Liens.........................................................39
</TABLE>
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<TABLE>
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7.4 Limitation on Guarantee Obligations.........................................39
7.5 Limitation on Fundamental Changes...........................................40
7.6 Limitation on Sale of Assets................................................40
7.7 Limitation on Dividends.....................................................40
7.8 Limitation on Investments, Loans and Advances...............................41
7.9 Limitation on Transactions with Affiliates..................................41
7.10 Limitation on Sales and Leasebacks..........................................42
7.11 Limitation on Changes in Fiscal Year........................................42
7.12 Limitation on Negative Pledge Clauses.......................................42
7.13 Limitation on Lines of Business.............................................42
SECTION 8. EVENTS OF DEFAULT...........................................................43
SECTION 9. THE AGENT...................................................................46
9.1 Appointment.................................................................46
9.2 Delegation of Duties........................................................47
9.3 Exculpatory Provisions......................................................47
9.4 Reliance by Agent...........................................................48
9.5 Notice of Default...........................................................48
9.6 Non-Reliance on Agent and Other Lenders.....................................49
9.7 Indemnification.............................................................49
9.8 Agent in its Individual Capacity............................................50
9.9 Successor Agent.............................................................50
SECTION 10. MISCELLANEOUS...............................................................50
10.1 Amendments and Waivers......................................................50
10.2 Releases of Collateral Security and Guarantee Obligations...................52
10.3 Notices.....................................................................52
10.4 No Waiver; Cumulative Remedies..............................................53
10.5 Survival of Representations and Warranties..................................53
10.6 Payment of Expenses and Taxes...............................................53
10.7 Termination.................................................................54
10.8 Successors and Assigns; Participations and Assignments......................54
10.9 Adjustments; Set-off........................................................57
10.10 Counterparts................................................................58
</TABLE>
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<TABLE>
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10.11 Severability................................................................58
10.12 Integration.................................................................58
10.13 GOVERNING LAW...............................................................58
10.14 Submission to Jurisdiction; Waivers.........................................59
10.15 Acknowledgments.............................................................59
10.16 WAIVERS OF JURY TRIAL.......................................................60
</TABLE>
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CREDIT AGREEMENT, dated as of February 23, 1998, among:
HOMEMAX, INC., (the "BORROWER");
the banks and other financial institutions from time to time
parties to this Agreement, (the "LENDERS"); and
NATIONSBANK, N.A. as agent (in such capacity, the "AGENT") for
the Lenders hereunder.
WITNESSETH:
WHEREAS, the Borrower has requested that the Lenders make available to
it credit facilities of up to $12,000,000.00 in the aggregate upon the terms,
and subject to the conditions, set forth herein to finance the acquisition and
development of commercial land parcels as permitted by this Agreement;
WHEREAS, the Agent and the Lenders are willing to provide such
financing to the Borrower only upon the terms and subject to the conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto hereby agree as follows:
SECTION I: DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the greater of (i) the Prime Rate in effect on
such day and (ii) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1%. If for any reason the Agent shall have determined (which
determination shall be conclusive absent manifest error) that the Agent is
unable to ascertain the Federal Funds Effective Rate for any reason, including
the inability or failure of the Agent to obtain sufficient quotations in
accordance with the terms thereof, the ABR shall be determined without regard to
clause (ii) of the first sentence of this definition, until the circumstances
giving rise to such inability no longer exist. Any change in the ABR due to a
change in the Prime Rate or Federal Funds Effective Rate shall be effective on
the effective date of such change in the Prime Rate or Federal Funds Effective
Rate, respectively.
"ACQUIRED LAND PARCEL": all of the interests in the real properties
acquired by the Borrower or a Subsidiary as designated on SCHEDULE VIII and any
interests in real property acquired by the Borrower or any Subsidiary of the
Borrower pursuant to any subsequent acquisition using the proceeds of this
Facility.
"AGENT": as defined in the preamble to this Agreement.
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<PAGE> 8
"AFFILIATE": as to any Person, any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with, such Person. For purposes of this definition,
"control" of a Person means the power, directly or indirectly, either to (a)
vote 5% or more of the securities having ordinary voting power for the election
of directors of such Person or (b) direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.
"AGGREGATE OUTSTANDING EXTENSIONS OF CREDIT": as to any Lender at any
time, an amount equal to the aggregate principal amount of all Loans made by
such Lender then outstanding.
"AGREEMENT": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
"ALTA SURVEY": as described in subsection 5.2(e).
"APPLICABLE MARGIN": for each Loan outstanding, the rate per annum of
1.50%.
"ASSIGNEE": as defined in subsection 10.8(c).
"AVAILABLE COMMITMENT": as to any Lender, an amount equal to the
excess, if any, of (a) the Commitment over (b) the Aggregate Outstanding
Extensions of Credit of such Lender.
"BANK DEFAULT": means (i) the refusal (which has not been retracted) of
a Lender to make available an amount equal to its Lender's Commitment Percentage
of any borrowing or (ii) a Lender having notified the Agent and or the Borrower
that such Lender does not intend to comply with the obligations under subsection
2.1 in the case of either (i) or (ii) above including as a result of the
appointment of a receiver or conservator with respect to such Lender at the
direction or request of any regulatory agency or authority.
"BORROWING DATE": for each Loan, the date of a requested borrowing
PROVIDED that if such date is not a Business Day then the next succeeding
Business Day.
"BUSINESS": as defined in subsection 4.18(b).
"BUSINESS DAY": a day other than a Saturday, Sunday or other day on
which commercial banks in Charlotte, North Carolina are authorized or required
by law to close; PROVIDED that, with respect to matters relating to Eurodollar
Loans, the term "BUSINESS DAY" shall mean a day other than a Saturday, Sunday or
other day on which commercial banks in Charlotte, North Carolina or London,
England, are authorized or required by law to close.
"CAPITAL STOCK": any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation) and any
and all warrants or options to purchase any of the foregoing.
"CASH EQUIVALENTS": (a) securities with maturities of one year or less
from the date of acquisition issued or fully guaranteed or insured by the United
States Government or any agency
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thereof, (b) certificates of deposit and eurodollar time deposits with
maturities of one year or less from the date of acquisition and overnight bank
deposits of any Lender or of any commercial bank having capital and surplus in
excess of $100,000,000, (c) repurchase obligations of any Lender or of any
commercial bank or investment bank satisfying the requirements of clause (b) of
this definition, having a term of not more than thirty (30) days with respect to
securities issued or fully guaranteed or insured by the United States Government
or any agency thereof, (d) commercial paper issued in the United States which is
rated at least A-1 by S&P or P-1 by Moody's, (e) securities with maturities of
one year or less from the date of acquisition issued or fully guaranteed by any
state, commonwealth or territory of the United States, by any political
subdivision or taxing authority of any such state, commonwealth or territory or
by any foreign government, the securities of which state, commonwealth,
territory, political subdivision, taxing authority or foreign government are
rated at least A by S&P or A by Moody's, (f) securities with maturities of one
year or less from the date of acquisition backed by standby letters of credit
issued by any Lender or any commercial bank satisfying the requirements of
clause (b) of this definition or (g) shares of money market mutual or similar
funds which invest substantially exclusively in assets satisfying the
requirements of clauses (a) through (f) of this definition.
"CHANGE IN CONTROL": any transaction or group of transactions after
which (A) (i) Allen G. Zaring, III (together with his executors, administrators
or heirs in the event of his death) shall directly or indirectly own less than
twenty-five percent (25%) of Zaring National's issued and outstanding common
stock, or (ii) another Person has acquired beneficial ownership of Zaring
National's issued and outstanding common stock in an amount greater than the
amount owned directly or indirectly in the aggregate by Allen G. Zaring, III
(together with his executors, administrators or heirs in the event of his death)
or (B) Zaring National Corporation shall cease to own ninety-five percent (95%)
of all classes of voting stock of the Borrower.
"CLOSING DATE": the date on which the conditions precedent set forth in
subsection 5.1 shall be satisfied.
"CODE": the Internal Revenue Code of 1986, as amended from time to
time.
"COLLATERAL": all Acquired Land Parcels and improvement thereon as more
fully described in the Security Documents.
"COMMITMENT": as to any Lender, the obligation of such Lender to make
Loans to the Borrower hereunder in an aggregate principal amount at any one time
outstanding not to exceed the amount set forth opposite such Lender's name on
SCHEDULE II, as the same may be reduced from time to time pursuant to
subsections 3.4 and 3.5; as to all Lenders collectively, the "COMMITMENTS."
"COMMITMENT PERCENTAGE": as to any Lender at any date, the percentage
which such Lender's Commitment then constitutes of the aggregate Commitments
(or, at any time after the Commitments shall have expired or terminated, the
percentage which the Aggregate Outstanding Extensions of Credit of such Lender
then constitutes of the Aggregate Outstanding Extensions of Credit of all
Lenders.).
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"COMMITMENT PERIOD": the period from and including the date hereof to
but not including the Commitment Termination Date or such earlier date on which
the Commitments shall terminate as provided herein.
"COMMITMENT TERMINATION DATE": the last Business Day of the calendar
month in the month that is twenty-four (24) months following the Closing Date.
"COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated,
which is under common control with the Borrower within the meaning of Section
4001 of ERISA or is part of a group which includes the Borrower and which is
treated as a single employer under Section 414 of the Code.
"CONSOLIDATED NET INCOME" or "CONSOLIDATED NET LOSS": for any fiscal
period, the amount which, in conformity with GAAP, would be set forth opposite
the caption "net income" (or any like caption) or "net loss" (or any like
caption, as the case may be, on a consolidated statement of earnings of the
Borrower and its Subsidiaries for such fiscal period.
"CONSOLIDATED NET WORTH": for any fiscal period, the sum of (a) Capital
Stock and additional paid-in capital plus (b) retained earnings (or minus
accumulated deficits) of the Borrower and its Subsidiaries determined on a
consolidated basis.
"CONSOLIDATED TANGIBLE NET WORTH": for any fiscal period, the sum of
(a) Consolidated Net Worth MINUS (b) any amounts which would be considered
intangible assets on a consolidated balance sheet of the Borrower and its
Subsidiaries at such date (including without limitation, copyrights, patents,
trademarks, contract rights, development costs and goodwill).
"CONTRACTUAL OBLIGATION": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"DEFAULT": any of the events specified in Section 8, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, has been satisfied.
"DEFAULTING LENDER": any Lender with respect to which a Bank Default is
in effect.
"DOLLARS" and "$": dollars in lawful currency of the United States of
America.
"EBITDA": for any fiscal period for any Person, the Consolidated Net
Income or Consolidated Net Loss, as the case may be, for such fiscal period,
after excluding therefrom the amount of extraordinary gain and restoring thereto
(a) depreciation and amortization, (b) the amount of interest expense of such
Person, determined on a consolidated basis, for such period on the aggregate
principal amount of their consolidated Indebtedness and any fees (including
commitment and administrative fees) with respect to such Indebtedness, (c) the
amount of tax expense of such Person, determined on a consolidated basis for
such period and (d) the aggregate amount of fixed and contingent rentals payable
by the Borrower and its Subsidiaries, determined on a consolidated basis for
such period, with respect to leases of real and personal property.
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"ENVIRONMENTAL LAWS": any and all foreign, Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees
or other Requirements of Law (including common law) regulating, relating to or
imposing liability or standards of conduct concerning pollution or protection of
the environment (including protection of human health from environmental
hazards), as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"EVENT OF DEFAULT": any of the events specified in Section 8, PROVIDED
that any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
"FACILITY": as provided for in Section 2 hereof.
"FEDERAL FUNDS EFFECTIVE RATE": for any day, the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by it.
"FINANCING LEASE": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
"FLOOR PLAN FACILITY": the $33,920,000 facility described in the floor
plan agreement dated as of February 19, 1998 (as amended, supplemented, or
otherwise modified from time to time, the "FLOOR PLAN AGREEMENT") by and among,
the Borrower and its Subsidiaries, the lenders from time to time party thereto
and NationsBank, N.A. Dealer Financial Services Division.
"GAAP": generally accepted accounting principles in the United States
of America as in effect from time to time.
"GOVERNMENTAL AUTHORITY": any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"GUARANTEE": the collective reference to the Subsidiaries Guarantee,
the Parent Guarantee and each other guarantee from time to time made in favor of
the Agent to secure all or any part of the obligations of the Borrower hereunder
as amended, supplemented or otherwise modified from time to time; collectively,
the "GUARANTEES."
"GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING PERSON"),
any obligation of the guaranteeing person or another Person (including, without
limitation, any bank under any letter of credit) to induce the creation of which
the guaranteeing person has issued a
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<PAGE> 12
reimbursement, counter indemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or
other obligations (the "PRIMARY OBLIGATIONS") of any other third Person (the
"PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including,
without limitation, any obligation of the guaranteeing person incurred for the
purpose of providing credit support, whether or not contingent, including,
without limiting the generality of the foregoing, any agreement to indemnify or
hold harmless any other Person, any performance bond or other suretyship
arrangement and any other form of assurance against loss, except endorsement of
negotiable instruments or other instruments for deposit or collection in the
ordinary course of business.
"GUARANTOR": any Person delivering a Guarantee.
"HM SERVICES SUBORDINATION AGREEMENT": the Subordination Agreement,
dated as of the date hereof, by and among HomeMax, Inc. and its Subsidiaries and
NationsBank, N.A., substantially in the form of EXHIBIT E, as the same may be
amended, modified or otherwise supplemented from time to time.
"INDEBTEDNESS": of any Person, at any date, without duplication, (a)
all indebtedness of such Person for borrowed money, (b) the deferred purchase
price of property or services (payable more than six months after the original
purchase date of such property or services), (c) any other indebtedness of such
Person which is evidenced by a note, bond, debenture or similar instrument, (d)
all obligations of such Person under Financing Leases, (e) all obligations of
such Person in respect of letters of credit and acceptances and letters of
credit issued or created for the account of such Person, (f) all liabilities
secured by any Lien on any property owned by such Person even though such Person
has not assumed or otherwise become liable for the payment thereof, and (g) all
Indebtedness of the types referred to in clauses (a) through (g) above which is
guaranteed directly or indirectly by such Person.
"INSOLVENCY": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"INSOLVENT": pertaining to a condition of Insolvency.
"INTEREST PAYMENT DATE": the last Business Day of each calendar month.
"JOINDER AGREEMENT": the joinder agreement to be executed and delivered
by each Person that subsequent to the Closing Date becomes a Subsidiary,
substantially in the form of EXHIBIT D, as the same may be amended, supplemented
or otherwise modified from time to time.
"LIEN": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), mechanic's lien or
materialman's lien, charge or other security interest or any preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any conditional sale or other
title retention agreement and any Financing Lease having substantially the same
economic effect as any of the foregoing).
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"LOANS": as defined in subsection 2.1.
"LOAN DOCUMENTS": this Agreement, the Notes, the Guarantees, the HM
Services Subordination Agreement and the Security Documents, and any other
instruments, certificates, agreements or documents delivered or contemplated to
be delivered hereunder or thereunder or in connection herewith or therewith, as
the same may be amended, supplemented or otherwise modified from time to time.
"LOAN PARTIES": the Borrower and any of its Subsidiaries and Zaring
National Corporation.
"M.A.I. APPRAISAL": as described in subsection 5.2(g).
"MAJORITY LENDERS": at any time Lenders having Commitments (or if
Commitments have terminated, Aggregate Outstanding Extensions of Credit) which
aggregate more than 51% of the sum of the amount of the Commitments of the
Non-Defaulting Lenders (or Aggregate Outstanding Extensions of Credit of the
Non-Defaulting Lenders as the case may be) then in effect, PROVIDED THAT
Majority Lenders shall in no way consist of less than two (2) Lenders.
"MATERIAL ADVERSE AMOUNT": an amount payable by the Borrower and/or its
Subsidiaries in excess of $100,000 for remedial costs, non-routine compliance
costs, compensatory damages, punitive damages, fines, penalties or any
combination thereof.
"MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the
business, operations, property, financial condition or prospects of the Borrower
and its Subsidiaries taken as a whole, (b) the validity or enforceability of
this or any of the other Loan Documents or (c) the rights or remedies of the
Agent or the Lenders hereunder or under any of the other Loan Documents.
"MATERIALS OF ENVIRONMENTAL CONCERN": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as such
in or under any Environmental Law, including, without limitation, asbestos,
polychlorinated biphenyls and urea-formaldehyde insulation.
"MATURITY DATE": for each Loan, the date that is five (5) years from
the Borrowing Date of such Loan, or if such date is not a Business Day then the
next succeeding Business Day.
"MOODY'S": Moody's Investors Service, Inc.
"MORTGAGE": each mortgage or deed of trust to be executed and delivered
by the Borrower or a Subsidiary, with respect to an Acquired Land Parcel,
substantially in the form of EXHIBIT K as the same may be amended, supplemented
or otherwise modified from time to time.
"MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"NOTE": as defined in subsection 3.1(e), collectively the "Notes".
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"NOTICE OF BORROWING": means with respect to a request for a borrowing
hereunder, a request in the form of EXHIBIT J hereto, delivered to the Agent by
a Responsible Officer of the Borrower.
"PARENT GUARANTEE": the Guarantee to be executed and delivered by
Zaring National Corporation, substantially in the form of EXHIBIT B, as the same
may be amended, supplemented or otherwise modified from time to time.
"PARTICIPANTS": as defined in subsection 10.8(b).
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA.
"PERSON": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other legal entity.
"PHASE I ENVIRONMENTAL ASSESSMENT": as described in subsection 5.2(f).
"PLAN": at a particular time, any employee benefit plan or other plan
established, maintained or contributed to by the Borrower or a Commonly
Controlled Entity that is covered by Title IV of ERISA.
"PRIME RATE": the rate of interest per annum publicly announced from
time to time by the Agent at its principal office as its prime rate on a
particular day in effect for domestic (United States) commercial loans; such
rate is not necessarily intended to be the lowest rate of interest charged by
the Lenders in connection with extensions of credit. Each change in the Prime
Rate shall be effective on the date such change is publicly announced.
"PRINCIPAL REPAYMENT DATE": for each Loan the date that is thirteen
(13) months from the applicable Borrowing Date PROVIDED that if such date is not
a Business Day then the next preceding Business Day.
"PROCEEDS": with respect to any Proceeds Event , (a) the gross cash
consideration, and all cash proceeds (as and when received) of non-cash
consideration (including, without limitation, any such cash proceeds in the
nature of principal and interest payments on account of promissory notes or
similar obligations), received by the Borrower and its Subsidiaries in
connection with such Proceeds Event which is required to be repaid at the time
or as a result of such Proceeds Event out of the proceeds thereof.
"PROCEEDS EVENT": (a) the incurrence by the Borrower or any of its
Subsidiaries of any Indebtedness (other than Indebtedness permitted pursuant to
clauses (a) through (g) of subsection 7.2);
(b) the issuance or sale of equity securities by the Borrower or any of
its Subsidiaries to any Person, other than (i) the issuance or sale of any
equity securities to the Borrower or any of its Subsidiaries, (ii) the issuance
of Capital Stock upon the sale or exercise of stock options, (iii)
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the issuance and sale of Capital Stock under employee stock purchase plans, (iv)
the issuance and sale of Capital Stock and/or stock options under employee stock
ownership and incentive plans and similar programs or individual arrangements;
(c) the sale, transfer or other disposition by the Borrower or any of its
Subsidiaries of any real or personal, tangible or intangible, property
(including, without limitation, any Capital Stock, but other than inventory
sold, transferred or otherwise disposed of in the ordinary course of business)
of the Borrower or such Subsidiary to any Person (other than to the Borrower or
any of its Subsidiaries); and
(d) the recovery by the Borrower of amounts owing to it under property
insurance policies.
"PROPERTIES": as defined in subsection 4.18(a).
"REGULATION G": Regulation G of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"REGULATION U": Regulation U of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"REORGANIZATION": with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241 of ERISA.
"REPORTABLE EVENT": any of the events set forth in Section 4043(c) of
ERISA, other than those events as to which the thirty (30) day notice period is
waived under subsections .22, .25, .27 or .28 of PBGC Reg. Sec.4043.
"REQUIREMENT OF LAW": as to any Person, the Articles or Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"RESPONSIBLE OFFICER": the chief executive officer, the president, any
vice president, the chief financial officer and the treasurer of the Borrower.
"RESTRICTED PAYMENTS": as defined in subsection 7.7.
"S&P": Standard and Poor's Ratings Group, a division of McGraw Hill
Companies Inc.
"SEC": means the United States Securities and Exchange Commission, or
any Governmental Authority succeeding to any of its principal functions.
"SECURED OBLIGATIONS": shall be the collective reference to the unpaid
principal of and interest on the Notes and all other obligations and liabilities
(including, without limitation, interest accruing at the then applicable rate
provided in this Agreement after the maturity of the Loans and interest accruing
at the then applicable rate provided in this Agreement after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization or
like
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proceeding, relating to the Borrower, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding), of the
Borrower to the Agent and the Lenders, whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred, which
may arise under, out of, or in connection with, this Agreement, the Notes and
the other Loan Documents or any other document made, delivered or given in
connection therewith, in each case whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all reasonable fees and disbursements of counsel
to the Agent or to the Lenders that are required to be paid by the Borrower
pursuant to the terms of this Agreement or any other Loan Document).
"SECURITY DOCUMENTS": the collective reference to the Joinder Agreement
and the Mortgages and all other security documents hereafter delivered to the
Lenders granting a Lien on any asset or assets of any Person to secure the
obligations and liabilities of the Borrower hereunder and under any of the other
Loan Documents or to secure any guarantee of any such obligations and
liabilities.
"SENIOR INDEBTEDNESS": Indebtedness of the Borrower or its Subsidiaries
MINUS Subordinated Indebtedness.
"SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of ERISA,
but which is not a Multiemployer Plan.
"SUBORDINATED INDEBTEDNESS": any Indebtedness for which the Borrower or
its Subsidiaries are liable that is subordinated to the obligations of the Loan
Parties hereunder on terms and pursuant to documentation containing other terms
(including interest, amortization, covenants and events of default) in form and
substance satisfactory to the Agent.
"SUBSIDIARIES GUARANTEE": each Guarantee to be executed and delivered
by one or more Subsidiaries, substantially in the form of EXHIBIT C, as the same
may be amended, supplemented or otherwise modified from time to time.
"SUBSIDIARY": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having ordinary
voting power (other than stock or such other ownership interests having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors or other managers of such corporation, partnership or
other entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both,
by such Person. Unless otherwise qualified, all references to a "Subsidiary" or
to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries
of the Borrower.
"TITLE INSURANCE": as described in subsection 5.2(d).
"TRANSFEREE": as defined in subsection 10.8(f).
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"UNIFORM CUSTOMS": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No. 500,
as the same may be amended from time to time.
"ZN NET WORTH AGREEMENT": the ZN Net Worth Maintenance Guarantee to be
executed and delivered by Zaring National, substantially in the form of EXHIBIT
F, as the same may be amended, supplemented or otherwise modified from time to
time.
"ZN FACILITY": the $15,000,000 credit facility described in the credit
agreement dated as of February 23, 1998, (as amended, supplemented, or otherwise
modified from time to time the "ZN CREDIT AGREEMENT") by and among Zaring
National Corporation, as borrower, the banks from time to time party thereto and
NationsBank, N.A., as agent for such banks.
OTHER DEFINITIONAL PROVISIONS
(a) Unless otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in any
Notes or any certificate or other document made or delivered
pursuant hereto.
(b) Unless otherwise specified herein, all accounting terms used
herein (and in any other Loan Document and any certificate or
other document made or delivered pursuant hereto or thereto)
shall be interpreted, all accounting determinations shall be
made, and all financial statements required to be delivered
hereunder shall be prepared, in accordance with GAAP as in
effect from time to time.
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of
this Agreement, and Section, subsection, Schedule and Exhibit
references are to this Agreement unless otherwise specified.
(d) In the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and
including" and the words "to" and "until" each mean "to but
excluding". Periods of days referred to in this Agreement
shall be counted in calendar days unless Business Days are
expressly prescribed. Any period determined hereunder by
reference to a month or months or year or years shall end on
the day in the relevant calendar month in the relevant year,
if applicable, immediately preceding the date numerically
corresponding to the first day of such period, PROVIDED, that
if such period commences on the last day of a calendar month
(or on a day for which there is no numerically corresponding
day in the calendar month during which such period is to end),
such period shall, unless otherwise expressly required by the
other provisions of this Agreement, end on the last day of the
calendar month.
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(e) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such
terms.
SECTION 2: AMOUNT AND TERMS OF COMMITMENTS
2.1 Commitments. Subject to the terms and conditions hereof, each
Lender severally agrees to make one or more loans
(individually, a "LOAN" and collectively, the "LOANS")
immediately available to the Borrower from time to time during
the Commitment Period in writing in an aggregate principal
amount at any one time outstanding which does not exceed the
Available Commitment. During the Commitment Period, the
Borrower may use the Commitments by borrowing, prepaying the
Loans, in whole or in part, and reborrowing, all in accordance
with the terms and conditions of this Section. Amounts
borrowed under this Section and repaid or prepaid after the
Commitment Termination Date may not be reborrowed.
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2.2 PROCEDURE FOR BORROWING. The Borrower shall deliver to the Agent
its irrevocable Notice of Borrowing (which notice must be in
writing or by telephone promptly confirmed in writing and must
be received by the Agent prior to 11:00 A.M., Charlotte, North
Carolina time one (1) Business Day prior to the requested
Borrowing Date) requesting that any such Lenders make a Loan
on the requested Borrowing Date and specifying the amount of
such loan. Upon receipt of any such Notice of Borrowing from
the Borrower, the Agent shall promptly notify each Lender
thereof. Each Lender will make the amount of its pro rata
share of each borrowing available to the Agent for the account
of the Borrower at the office of the Agent specified in
subsection 10.3 prior to 1:00 P.M., Charlotte, North Carolina
time on the Borrowing Date, in funds immediately available to
the Agent. Such borrowing will then be made available to the
Borrower by the Agent transferring to an account (which shall
be maintained for such purpose by the Agent) with the
aggregate of the amounts made available to the Agent by the
Lenders and in like funds as received by the Agent.
2.3 AMORTIZATION OF LOANS. The Borrower shall repay the outstanding
principal of each Loan commencing on the applicable Principal
Repayment Date in consecutive installments on the last date of
each month (or, if such date is not a Business Day, on the
immediately preceding Business Day), such installments to be
determined based on a fifteen (15) year straight line basis
with a balloon payment of any then-outstanding principal
amount of each Loan on the Maturity Date of such Loan.
2.4 USE OF PROCEEDS OF LOANS. The proceeds of the Loans shall be
utilized by the Borrower to finance the acquisition and
development of commercial land parcels to display various
types of manufactured housing models for sale.
SECTION 3: PROVISIONS RELATING TO THE EXTENSIONS OF CREDIT;
FEES AND PAYMENTS
3.1 REPAYMENT OF LOANS; EVIDENCE OF INDEBTEDNESS.
(a) The Borrower hereby unconditionally promises to pay to the Agent
for the account of each applicable Lender the principal amount
of the Loans on the dates and in the amounts set forth in
subsection 2.3 (or the then unpaid principal amount of any
such Loan, on the date that any Loan becomes due and payable
pursuant to Section 8). The Borrower hereby further agrees to
pay interest on the unpaid principal amount of each Loan from
time to time outstanding from the date hereof until payment in
full thereof at the rates per annum, and on the dates, set
forth in subsection 3.9.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing Indebtedness of the Borrower
to the Lender resulting
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from each loan of such Lender from time to time, including the
amounts of principal and interest payable and paid to such
Lender from time to time under this Agreement.
(c) The Agent shall maintain the Register pursuant to subsection
10.8(d) and a subaccount therein for each Lender, in which
shall be recorded (i) the amount of each Loan made hereunder,
(ii) the amount of any principal or interest due and payable
or to become due and payable from the Borrower to the Lenders
hereunder and (iii) the amount of any sum received by the
Agent hereunder from the Borrower.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to subsection 10.8(d) shall, to the extent
permitted by applicable law, be prima facie evidence of the
existence and amounts of the obligations of the Borrower
therein recorded; PROVIDED, HOWEVER, that the failure of the
Agent or any Lender to maintain the Register or any such
account, or any error therein shall not in any manner affect
the obligation of the Borrower to repay (with applicable
interest) the Loans made to such Borrower by the Lenders in
accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon request of any Lender through the
Agent, the Borrower will execute and deliver to such Lender,
as applicable, one or more promissory notes of the Borrower
evidencing each of the Loans of such Lender, substantially in
the form of EXHIBIT A with appropriate insertions as to date
and principal amount (a "NOTE").
3.2 AGENT'S FEES. The Borrower agrees to pay to the Agent, for its
own account, such fees as may be agreed from time to time
between the Borrower and the Agent, when and as due.
3.3 OPTIONAL PREPAYMENTS. The Borrower may at any time and from time
to time prepay the Loans, in whole or in part, without premium
or penalty, upon at least one (1) Business Day's notice to the
Agent (which notice must be received by the Agent prior to
11:00 A.M., Charlotte, North Carolina time, on the date upon
which such notice is due and shall be irrevocable except in
connection with prepayments that are contingent on sales of
assets to the extent of such contingency), specifying the date
and amount of prepayment. Upon receipt of any such notice the
Agent shall promptly notify each Lender thereof. If any such
notice is given and not withdrawn prior to the date upon which
payment is made, the amount specified in such notice shall be
due and payable on the date specified therein, together with
any accrued interest and fees to such date on the amount
prepaid.
3.4 OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. During the
Commitment Period, the Borrower shall have the right, upon not
less than three (3) Business Days' notice to the Agent, to
terminate the Commitments or,
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from time to time, to reduce the amount of the Commitments;
PROVIDED that no such termination or reduction shall be
permitted with respect to the Commitments (i) to the extent
that after giving effect thereto and to any repayments or
prepayments of the Loans made on the effective date thereof,
the aggregate principal amount of the Loans then outstanding
would exceed the Commitments then in effect and (ii) after the
date that is three (3) Business Days prior to the Commitment
Termination Date. Any such reduction shall be in an amount
equal to $500,000 or a whole multiple in excess thereof and
shall reduce permanently the affected Commitments then in
effect.
3.5 MANDATORY REDUCTION OF COMMITMENTS AND PREPAYMENTS.
(a) If at any time during the Commitment Period the Aggregate
Extensions of Credit of any Lender exceeds such Lender's
available Commitment, the Borrower shall immediately repay the
Loans, such repayment to be in an aggregate amount equal to
such excess.
(b) The Borrower shall, as promptly as is practicable (and, in any
event, within one (1) Business Day following the receipt
thereof), repay the Loans and permanently reduce the
Commitments by the amount equal to the aggregate amount of
Proceeds received from any Proceeds Event thereof; PROVIDED
that with respect to any Proceeds Event described in paragraph
(c) of such definition which includes the sale, transfer or
disposition by the Borrower of any of its Subsidiaries of any
Acquired Land Parcel, the Borrower shall repay the Loans and
reduce the Commitments by the amount equal to the greater of
(i) the aggregate amount of Proceeds received from such
Proceeds Event or (ii) the outstanding amount of the Loan
relating to such Acquired Land Parcel.
(c) Notwithstanding the foregoing, no such repayment and reduction
shall be due pursuant to subsection 3.5(b) with respect to any
Proceeds Event on account of:
(i) the sale or other disposition of obsolete, inoperative,
surplus or worn out real or personal, tangible or intangible,
property (including without limitation, any property which is
no longer used or useful in the business of the Borrower or
its Subsidiaries) in the ordinary course of business and for
fair market value; or
(ii) the sale, transfer or other disposition by the Borrower or
any of its Subsidiaries of any real or personal, tangible or
intangible, property of the Borrower and its Subsidiaries, to
the extent that the Proceeds from such sale, transfer or
other disposition (in the aggregate with the Proceeds from
all other sales, transfers and other dispositions occurring
during the fiscal
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<PAGE> 22
year in which such sale, transfer or other disposition
occurred other than those described in paragraph (i)) is
less than $500,000; or
(iii) the recovery by the Borrower of amounts owing to it under
property insurance policies except, to the extent that (1)
such recoveries exceed the reasonably estimated cost of
replacing the property on account of which such amounts
were paid to the Borrower and its Subsidiaries or (2) the
Borrower and its Subsidiaries are not diligently proceeding
with such replacement.
3.6 APPLICATION OF PREPAYMENTS.
(a) Any payments of the Loans and reductions of the Commitments
made pursuant to subsections 3.3, 3.4, or 3.5 shall be
applied to the prepayment of the Loans with such prepayment
being applied in inverse order of maturity to the then
outstanding installments thereof, PROVIDED that any
prepayment made pursuant to subsection 3.5(b) as a result of
any sale, transfer or disposition of any Acquired Land Parcel
shall be applied (i) FIRST to the Loan relating to such
Acquired Land Parcel, (ii) SECOND to any other outstanding
Loans hereunder as selected by the Agent in its sole
discretion and (iii) THIRD to the repayment of the
intercompany indebtedness evidenced by the HM Note (as
defined in the ZN Credit Agreement).
(b) Any payments of the Loans and reductions of the Commitments
made pursuant to subsections 3.3, 3.4, or 3.5 shall not be
applied to the prepayment of the Loans of a Defaulting Lender
at any time under the Facility when the aggregate amount of
Loans of any Non-Defaulting Lender exceeds such
Non-Defaulting Lender's Commitment Percentage of all Loans
then outstanding.
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<PAGE> 23
3.7 PREPAYMENT PREMIUM. If, on or before the Commitment Termination
Date, the Borrower prepays any portion of the Loans with the
proceeds of a loan from a lender other than the Lenders hereto
and under the terms of this Agreement, the Borrower shall pay to
the Agent for the benefit of the Lenders, on or before the date
of such prepayment, a prepayment premium of 1% on any
outstanding obligations so repaid.
3.8 MINIMUM AMOUNTS AND MAXIMUM NUMBER OF NOTES. All borrowings and
repayments of Loans hereunder shall be in such amounts so that,
after giving effect thereto, the aggregate principal amount of
the Loans comprising each Note shall be equal to $500,000 or a
whole multiple of $250,000 in excess thereof. In no event shall
there be more than twenty eight (28) Loans outstanding at any
time.
3.9 INTEREST RATES AND PAYMENT DATES.
(a) Each Loan shall bear interest at a rate per annum equal to
the ABR plus the Applicable Margin in effect for such day.
(b) If all or a portion of (i) any principal of any Loan, (ii)
any interest payable thereon or (iii) any other amount
payable hereunder shall not be paid when due (whether at
the stated maturity, by acceleration or otherwise), the
principal of the Loans and any such overdue interest, or
other amount shall bear interest at a rate per annum which
is the rate described in paragraph (a) of this subsection
plus 2%, in each case from the date of such non-payment
until such overdue principal, interest, or other amount is
paid in full (as well as after as before judgment).
(c) Interest on each Loan shall be payable in arrears on each
Interest Payment Date and shall accrue from and including
the Borrowing Date of such Loan but excluding the date of
repayment thereof, PROVIDED that interest accruing pursuant
to paragraph (c) of this subsection shall be payable from
time to time on demand.
(d) Notwithstanding anything to the contrary contained herein,
in no event shall the Borrower be obligated to pay interest
in excess of the maximum amount which is chargeable under
applicable law.
3.10 COMPUTATION OF INTEREST AND FEES.
(a) Any change in the interest rate on a Loan resulting from a
change in the ABR shall become effective as of the opening
of business on the day on which such change becomes
effective.
(b) Each determination of an interest rate by the Agent
pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower and
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the Lenders in the absence of manifest error. The Agent shall,
at the request of the Borrower, deliver to the Borrower a
statement showing the quotations used by the Agent in
determining any interest rate pursuant to subsection 3.9(a).
3.11 PRO RATA TREATMENT AND PAYMENTS.
(a) Each borrowing by the Borrower from the Lenders hereunder
and any reduction of the Commitments of the Lenders shall
be made pro rata according to the respective relevant
Commitment Percentages of the Lenders holding obligations
in respect of which such amounts were paid. Except as
provided in subsection 3.6(a), each payment (including each
prepayment) by the Borrower on account of principal of and
(subject to the provisions of subsections 3.3, 3.4, 3.5 and
3.6) interest on the Loans shall be made pro rata according
to the respective outstanding principal amounts of such
Loans then held by the Lenders. Except as otherwise set
forth herein, all payments (including prepayments) to be
made by the Borrower hereunder, whether on account of
principal, interest, fees or otherwise, shall be made
without set off or counterclaim and shall be made prior to
2:00 P.M., Charlotte, North Carolina time, on the due date
thereof to the Agent, for the account of the applicable
Lenders, at the Agent's office specified in subsection
10.3, in Dollars and in immediately available funds. The
Agent shall distribute such payments to the Lenders holding
obligations on account of which such amounts were paid
promptly upon receipt in like funds as received. If any
payment hereunder becomes due and payable on a day other
than a Business Day, such payment shall be extended to the
next succeeding Business Day, and, with respect to payments
of principal, interest thereon shall be payable at the then
applicable rate during such extension.
(b) All such payments shall be applied FIRST to accrued and
unpaid fees and expenses payable hereunder, SECOND, to
accrued and unpaid interest on the applicable Loan and
THIRD, in accordance with subsection 3.6(a), to reduce the
outstanding principal balance of such Loan.
(c) Unless the Agent shall have been notified in writing by any
Lender prior to a borrowing that such Lender will not make
the amount that would constitute its relevant Commitment
Percentage of such borrowing available to the Agent, the
Agent may assume that such Lender is making such amount
available to the Agent, and the Agent may, in reliance upon
such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available
to the Agent by the required time on the borrowing date
therefor, such Lender shall pay to the Agent, on demand,
such amount with interest thereon at a rate equal to the
daily average Federal Funds Effective Rate for the period
until such Lender
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<PAGE> 25
makes such amount immediately available to the Agent. A
certificate of the Agent submitted to any Lender shall, to
the extent permitted by applicable law, be prima facie
evidence of the amounts owing under this subsection 3.11.
If such Lender's relevant Commitment Percentage of such
borrowing is not made available to the Agent by such Lender
within three (3) Business Days of such borrowing date, the
Agent shall also be entitled to recover such amount with
interest thereon at the rate per annum applicable to Loans
hereunder, on demand, from the Borrower.
SECTION 4: REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Agreement and to make
the Loans, the Borrower hereby represents and warrants to the Agent
and each Lender that:
4.1 FINANCIAL CONDITION. The consolidated balance sheets of the
Borrower and its consolidated Subsidiaries as at September 30,
1997 and the related consolidated statements of income and
cash flows for the fiscal period ended on such date, copies of
which have heretofore been furnished to the Agent, are
complete and correct and present fairly in all material
respects the consolidated financial condition of the Borrower
and its consolidated Subsidiaries as at such date, and the
consolidated results of their operations and their
consolidated cash flows for the fiscal period then ended. All
such financial statements, including the related schedules and
notes thereto, have been prepared in accordance with GAAP
applied consistently throughout the periods involved (except
as approved by such accountants or Responsible Officer, as the
case may be, and as disclosed therein). Neither the Borrower
nor any of its consolidated Subsidiaries had, at the date of
the most recent balance sheet referred to above, any material
Guarantee Obligation, contingent liability or liability for
taxes, or any long-term lease or unusual forward or long-term
commitment, including, without limitation, any interest rate
or foreign currency swap or exchange transaction, which is not
reflected in the foregoing statements or in the notes thereto.
Except to the extent permitted under this Agreement or as
disclosed to the Agent prior to the date hereof, or as
otherwise separately disclosed to the Agent in writing prior
to the date hereof, there has been no sale, transfer or other
disposition by the Borrower or any of its consolidated
Subsidiaries of any material part of its business or property
(including any capital stock of any other Person) material in
relation to the consolidated financial condition of the
Borrower and its consolidated Subsidiaries at September 30,
1997 during the period from September 30, 1997 to and
including the date hereof.
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4.2 NO CHANGE. Since September 30, 1997, there has been no
development or event which has had a Material Adverse Effect.
4.3 DISCLOSURE. No information, schedule, exhibit or report or
other document furnished by the Borrower or any of its
Subsidiaries to the Agent or any Lender in connection with the
negotiation of this Agreement or any other Loan Document (or
pursuant to the terms hereof or thereof), as such information,
schedule, exhibit or report or other document has been
amended, supplemented or superseded by any other information,
schedule, exhibit or report or other document later delivered
to the same parties receiving such information, schedule,
exhibit or report or other document, contained any material
misstatement of fact or omitted to state a material fact or
any fact necessary to make the statements contained therein,
in light of the circumstances when made, not materially
misleading.
4.4 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of the Borrower
and its Subsidiaries (a) is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
organization, (b) has the corporate power and authority, and
the legal right, to own and operate its property, to lease the
property it operates as lessee and to conduct the business in
which it is currently engaged, (c) is duly qualified as a
foreign corporation and in good standing under the laws of
each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such
qualification, except to the extent that all failures to be so
qualified could not, in the aggregate, reasonably be expected
to have a Material Adverse Effect and (d) is in compliance
with all Requirements of Law except to the extent that all
failures to comply therewith could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.
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4.5 CORPORATE POWER, AUTHORIZATION, ENFORCEABLE OBLIGATIONS. The
Borrower has the corporate power and authority, and the legal
right, to make, deliver and perform the Loan Documents to
which it is a party and to borrow hereunder and has taken all
necessary corporate action to authorize the borrowings on the
terms and conditions of this Agreement and any Notes and to
authorize the execution, delivery and performance of the Loan
Documents to which it is a party. No consent or authorization
of, filing with, notice to or other act by or in respect of,
any Governmental Authority or any other Person is required in
connection with the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability
of the Loan Documents to which the Borrower is a party. This
Agreement has been, and each other Loan Document to which it
is a party will be, duly executed and delivered on behalf of
the Borrower. This Agreement constitutes, and each other Loan
Document to which it is a party when executed and delivered
will constitute, a legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with
its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of
good faith and fair dealing.
4.6 NO LEGAL BAR. The execution, delivery and performance of the
Loan Documents to which the Borrower is a party, the
borrowings hereunder and the use of the proceeds thereof will
not violate any Requirement of Law or Contractual Obligation
of the Borrower or of any of its Subsidiaries and will not
result in, or require, the creation or imposition of any Lien
on any of its or their respective properties or revenues
pursuant to any such Requirement of Law or Contractual
Obligation.
4.7 NO MATERIAL LITIGATION. No litigation, investigation or
proceeding of or before any arbitrator or Governmental
Authority is pending or, to the knowledge of the Borrower,
threatened by or against the Borrower or any of its
Subsidiaries or against any of its or their respective
properties or revenues (a) with respect to any of the Loan
Documents or any of the transactions contemplated hereby or
thereby, or (b) which could reasonably be expected to have a
Material Adverse Effect.
4.8 NO DEFAULT. Neither the Borrower nor any of its Subsidiaries
is in default under or with respect to any of its Contractual
Obligations in any respect which could reasonably be expected
to have a Material Adverse Effect. No Default or Event of
Default has occurred and is continuing.
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4.9 OWNERSHIP OF PROPERTY; LIENS. Each of the Borrower and its
Subsidiaries has good and marketable title in fee simple to,
or a valid leasehold interest in, all its real property, and
good title to, or a valid leasehold interest in, all its other
property, which is material to the operations of the business
of, the Borrower and its Subsidiaries, taken as a whole and
none of such property is subject to any Lien except as
permitted by subsection 7.3.
4.10 INTELLECTUAL PROPERTY. The Borrower and each of its
Subsidiaries owns, or is licensed to use, all trademarks,
trade names, copyrights, technology, know-how and processes
necessary for the conduct of its business as currently
conducted, except for those for which the failure to own or
license could not reasonably be expected to have a Material
Adverse Effect (the "INTELLECTUAL PROPERTY"). No claim has
been asserted and is pending by any Person challenging or
questioning the use of any such Intellectual Property or the
validity or effectiveness of any such Intellectual Property
which could reasonably be expected to have a Material Adverse
Effect, nor does the Borrower know of any valid basis for any
such claim. To the best knowledge of the Borrower, the use of
such Intellectual Property by the Borrower and its
Subsidiaries does not infringe on the rights of any Person,
except for such claims and infringements that, in the
aggregate, could not reasonably be expected to have a Material
Adverse Effect.
4.11 NO BURDENSOME RESTRICTIONS. No Requirement of Law applicable
to the Borrower or any of its Subsidiaries could reasonably be
expected to have a Material Adverse Effect.
4.12 TAXES. Each of the Borrower and its Subsidiaries has filed or
caused to be filed all material tax returns which, to the
knowledge of the Borrower, are required to be filed and has
paid all taxes shown to be due and payable on said returns or
on any assessments made against it or any of its property and
all other taxes, fees or other charges imposed on it or any of
its property by any Governmental Authority (other than any the
amount or validity of which are currently being contested in
good faith by appropriate proceedings and with respect to
which reserves in conformity with GAAP have been provided on
the books of the Borrower or its Subsidiaries, as the case may
be); no tax Lien has been filed, other than Liens permitted by
subsection 7.3, and, to the knowledge of the Borrower, no
claim is being asserted, with respect to any such tax, fee or
other charge.
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4.13 FEDERAL REGULATIONS. No part of the proceeds of any Loans
will be used in any manner which would violate, or result in
the violation of, Regulation D, Regulation G or Regulation U
of the Board of Governors of the Federal Reserve System as now
and from time to time hereafter in effect. If requested by any
Lender or the Agent, the Borrower will furnish to the Agent
and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form G-3 or FR Form U-1
referred to in said Regulation G or Regulation U, as the case
may be.
4.14 ERISA. Neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or
Section 302 of ERISA) has occurred during the five-year period
prior to the date on which this representation is made or
deemed made with respect to any Plan, and each Plan has
complied in all material respects with the applicable
provisions of ERISA and the Code. No termination of a Single
Employer Plan has occurred, and no Lien in favor of the PBGC
or a Plan has arisen, during such five-year period. The
present value of all accrued benefits under each Single
Employer Plan (based on those assumptions used to fund such
Plans) did not, as of the last annual valuation date prior to
the date on which this representation is made or deemed made,
exceed the value of the assets of such Plan allocable to such
accrued benefits. Neither the Borrower nor any Commonly
Controlled Entity has had a complete or partial withdrawal
from any Multiemployer Plan, and neither the Borrower nor any
Commonly Controlled Entity would become subject to any
liability under ERISA if the Borrower or any such Commonly
Controlled Entity were to withdraw completely from all
Multiemployer Plans as of the valuation date most closely
preceding the date on which this representation is made or
deemed made. No such Multiemployer Plan is in Reorganization
or Insolvent. The present value (determined using actuarial
and other assumptions which are reasonable in respect of the
benefits provided and the employees participating) of the
liability of the Borrower and each Commonly Controlled Entity
for post retirement benefits to be provided to their current
and former employees under Plans which are welfare benefit
plans (as defined in Section 3(l) of ERISA) does not, in the
aggregate, exceed the assets under all such Plans allocable to
such benefits by an amount in excess of $100,000.
4.15 INVESTMENT COMPANY ACT; OTHER REGULATIONS. The Borrower is
not an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment
Company Act of 1940, as amended. The Borrower is not subject
to regulation under any Federal or State statute or regulation
(other than Regulation X of the Board of Governors of the
Federal Reserve System) which limits its ability to incur
Indebtedness under this Agreement or other Loan Documents.
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4.16 SUBSIDIARIES, SCHEDULE III hereto (as amended, supplemented or
otherwise modified from time to time to reflect the creation
or acquisition of new Subsidiaries subsequent to the Closing
Date), sets forth all of the Subsidiaries of the Borrower at
the date hereof, together with the ownership and jurisdiction
of each.
4.17 ACQUIRED LAND PARCELS, SCHEDULE VIII hereto sets forth all
the Acquired Land Parcels as of the date hereof, together with
the ownership and location of each.
4.18 ENVIRONMENTAL MATTERS.
(a) The facilities and properties owned, leased or operated by
the Borrower or any of its Subsidiaries (the "PROPERTIES")
do not contain, and have not previously contained, any
Materials of Environmental Concern in amounts or
concentrations which (i) constitute or constituted a
violation of, or (ii) could reasonably be expected to give
rise to liability under, any Environmental Law except
insofar as such violation or liability or any aggregation
thereof, is not reasonably likely to result in the payment
of a Material Adverse Amount;
(b) the Properties and all operations at the Properties are in
compliance in all respects with all applicable
Environmental Laws, and there is no contamination at or
under (or, to the knowledge of the Borrower, about) the
Properties or violation of any Environmental Law with
respect to the Properties or the business operated by the
Borrower or any of its Subsidiaries (the "BUSINESS")
except insofar as such violation or failure to be in
compliance or contamination, or any aggregation thereof,
is not reasonably likely to result in the payment of a
Material Adverse Amount;
(c) neither the Borrower nor any of its Subsidiaries has
received any notice of violation, alleged violation,
non-compliance, liability or potential liability regarding
compliance with Environmental Laws with regard to any of
the Properties or the Business, nor does the Borrower have
knowledge that any such notice will be received or is
being threatened, except insofar as such notice or
threatened notice, or any aggregation thereof, does not
involve a matter or matters that is or are reasonably
likely to result in the payment of a Material Adverse
Amount;
(d) Materials of Environmental Concern have not been
transported or disposed of from the Properties in
violation of, or in a manner or to a location which could
reasonably be expected to give rise to liability under,
any Environmental Law, nor have any Materials of
Environmental Concern been generated, treated, stored or
disposed of at, on or under any of the Properties in
violation of, or in a manner that could reasonably be
expected to give rise to liability under, any applicable
Environmental Law,
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except insofar as any such violation or liability referred
to in this paragraph, or any aggregation thereof, is not
reasonably likely to result in the payment of a Material
Adverse Amount;
(e) no judicial proceeding or governmental or administrative
action is pending or, to the knowledge of the Borrower,
threatened, under any Environmental Law to which the
Borrower, any of its Subsidiaries is or will be named as a
party with respect to the Properties or the Business, nor
are there any consent decrees or other decrees, consent
orders, administrative orders or other orders, or other
administrative or judicial requirements outstanding under
any Environmental Law which are binding upon Borrower or
any of its Subsidiaries with respect to the Properties or
the Business, except insofar as such proceeding, action,
decree, order or other requirement, or any aggregation
thereof, is not reasonably likely to result in the payment
of a Material Adverse Amount; and
(f) there has been no release or threat of release of
Materials of Environmental Concern at or from the
Properties, or arising from or related to the operations
of the Borrower or any Subsidiary in connection with the
Properties or otherwise in connection with the Business,
in violation of or in amounts or in a manner that could
reasonably give rise to liability under Environmental
Laws, except insofar as any such violation or liability
referred to in this paragraph, or any aggregation thereof,
is not reasonably likely to result in a payment of a
Material Adverse Amount.
4.19 SOLVENCY. The aggregate value of all of the tangible and
intangible assets of the Borrower and its Subsidiaries on a
consolidated basis, at a fair valuation, exceeds the total
liabilities of the Borrower and its Subsidiaries on a
consolidated basis (including contingent, subordinated,
unmatured and unliquidated liabilities). The Borrower and its
Subsidiaries have the ability to pay their respective debts as
they mature and do not have unreasonably small capital with
which to conduct their respective businesses. For purposes of
this subsection 4.19, the "fair valuation" of such assets is
the price at which the assets would change hands between a
willing buyer and a willing seller, both being adequately
informed of the relevant facts, and neither being under any
compulsion to buy or to sell.
4.20 GUARANTEES. The provisions of each Guarantee are effective to
create a legal, valid, binding and enforceable guarantee of
the obligations described therein, except as enforceability
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable
principles.
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4.21 JOINDER AGREEMENTS. Each Joinder Agreement constitutes a
legal, valid and binding obligation of the Loan Party who is a
party thereto, enforceable against it in accordance with its
terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and
by general equitable principles.
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4.22 MORTGAGES.
(a) The provisions of each Mortgage are effective to create a
legal, valid and binding obligation of the Loan Party
party thereto, enforceable against such party in
accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable
principles.
(b) Upon recordation and filing by the Agent (and, after the
Closing Date, any additional recordation or filings
required to be made pursuant to the Loan Documents) each
Mortgage will constitute a valid, perfected first priority
mortgage lien on the real property (as described therein)
enforceable as such against all creditors of any Mortgagor
and any Persons purporting to purchase any such Collateral
from the Loan Party who is mortgagee with respect thereto.
4.23 HM SERVICES SUBORDINATION. The HM Services Subordination
Agreement constitutes a legal, valid, binding and enforceable
obligation of the third parties thereto, enforceable against
each such party in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general
equitable principles.
4.24 ZN NET WORTH AGREEMENT. The ZN Net Worth Agreement constitutes
a legal, valid, binding and enforceable obligation of Zaring
National, enforceable against it in accordance with its terms,
except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and
by general equitable principles.
SECTION 5: CONDITIONS PRECEDENT
5.1 CONDITIONS TO INITIAL EXTENSIONS OF CREDIT. The agreement of
each Lender to make the initial extension of credit requested
to be made by it is subject to the satisfaction, immediately
prior to or concurrently with the making of such extension of
credit on the Closing Date, of the following conditions
precedent:
(a) LOAN DOCUMENTS. The Agent shall have received (i) this
Agreement, executed and delivered by a duly authorized
officer of the Borrower, (ii) the Note (to the extent so
requested by any Lender), executed and delivered by a duly
authorized officer of the Borrower, (iii) each
Subsidiaries Guarantee, executed and delivered by a duly
authorized officer of the party thereto, (iv) each
Security Document executed and delivered by a duly
authorized
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officer of the party thereto, (v) the HM Services
Subordination Agreement, executed and delivered by a duly
authorized officer of each party thereto, and, (vi) the ZN
Net Worth Agreement, executed and delivered by a duly
authorized officer of the party thereto.
(b) AGREEMENTS. The Agent shall have received true and correct
copies, certified as to authenticity by the Borrower, of
such documents or instruments as may be reasonably
requested by the Agent.
(c) CLOSING CERTIFICATE OF BORROWER. The Agent shall have
received a certificate of the President or any Vice
President and the Secretary or an Assistant Secretary of
the Borrower, dated the Closing Date, (i) attaching the
Charter and By-Laws of the Borrower, (ii) attaching the
resolutions of the Board of Directors of the Borrower with
respect to the transactions contemplated hereby, (iii)
certifying that such resolutions have not been amended,
modified, revoked or rescinded as of the date of such
certificate and (iv) certifying as to the incumbency and
signature of the officers of the Borrower executing any
Loan Document; such certificate (and the attachments
thereto) shall be in form and substance satisfactory to
the Agent.
(d) CLOSING CERTIFICATE OF LOAN PARTIES. The Agent shall have
received a certificate of the President or any Vice
President and the Secretary or an Assistant Secretary of
each Loan Party (other than the Borrower), dated the
Closing Date, (i) attaching the Charter and By-Laws of
such Loan Party, (ii) attaching the resolutions of the
Board of Directors of such Loan Party with respect to the
transactions contemplated hereby to which it is a party,
(iii) certifying that the such resolutions have not been
amended, modified, revoked or rescinded as of the date of
such certificate and (iv) certifying as to the incumbency
and signature of the officers of such Loan Party executing
any Loan Document; such certificate (and the attachments
thereto) shall be in form and substance satisfactory to
the Agent.
(e) CORPORATE STRUCTURE. The Agent shall be satisfied with the
corporate and legal structure and capitalization of the
Loan Parties, including the terms and conditions of the
charter, bylaws and each class of Capital Stock of the
Loan Parties and of each agreement or instrument relating
to such structure or capitalization.
(f) FEES. The Borrower shall have paid the accrued fees and
expenses owing hereunder or in connection herewith
(including, without limitation, accrued fees and
disbursements of counsel to the Agent), to the extent that
such fees and expenses have been presented for payment a
reasonable time prior to the Closing Date.
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(g) LEGAL OPINION. The Agent shall have received, with a
counterpart for each Lender, the executed legal opinion of
Frost & Jacobs, LLP., counsel to the Borrower and the
other Loan Parties, substantially in the form of EXHIBIT
G. Such legal opinion shall cover such other matters
incident to the transactions contemplated by this
Agreement as the Agent may reasonably require.
(h) ACTIONS TO PERFECT LIENS. The Agent shall have received
such duly executed financing statements on form UCC-1 as
may be necessary or, in the reasonable opinion of the
Agent, desirable to perfect the Liens created by the
Security Documents.
(i) LIEN SEARCHES. The Agent shall have received the results
of a recent search by a Person reasonably satisfactory to
the Agent, of the Uniform Commercial Code, judgment and
tax lien filings which may have been filed with respect to
personal property of the Borrower, and the results of such
search shall be reasonably satisfactory to the Agent.
(j) REVIEW OF OPERATIONS. The Agent shall have completed a
review of the operations of the Loan Parties (including,
without limitation, an on-site review of the financial
statements, financial reporting and computer systems and
inventory, receivables, and equipment by the Agent), each
in scope, and with results, satisfactory to the Agent;
without limiting the generality of the foregoing, the
Agent shall have been given such access to the management,
records, books of account, schedules, projections,
contracts and properties of each Loan Party as it shall
have requested.
(k) INSURANCE. The Agent shall have received evidence in form
and substance satisfactory to the Agent of the existence
of the insurance required under subsection 6.5.
(l) BUSINESS PLAN AND PROJECTIONS. The Agent shall have
received a business plan with projections in scope and
form satisfactory to the Agent.
(m) ADDITIONAL ITEMS. The Agent shall have received such other
opinions or documents as the Agent or the Majority Lenders
through the Agent may reasonably request.
5.2 CONDITIONS TO EACH EXTENSION OF CREDIT. The agreement of each
Lender to make any extension of credit requested to be made by
it on any date (including, without limitation, its initial
extension of credit) is subject to the satisfaction of the
following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by the Borrower and
each other Loan Party in or pursuant to the
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Loan Documents shall be true and correct in all material
respects on and as of such date as if made on and as of
such date.
(b) NO DEFAULT. No Default or Event of Default shall have
occurred and be continuing on such date or after giving
effect to the extensions of credit requested to be made on
such date.
(c) LTV RATIO. The LTV Ratio of each Lender shall be no
greater than fifty percent (50%) after giving effect to
the extensions of credit requested to be made on such
date. "LTV RATIO" shall mean the ratio of (i) the
Commitment Percentage of such Lender with respect to such
Loan to (ii) the lesser of (A) the actual cost of the
Acquired Land Parcel or (B) the appraised value of the
Acquired Land Parcel, each as determined by the Agent in
its sole discretion.
(d) TITLE INSURANCE. The Agent shall have received a mortgagee
title insurance policy issued by a title insurer
satisfactory to the Agent in amounts satisfactory to the
Agent and assuring the Agent that the Mortgage is a valid
and enforceable first priority mortgage Lien on the
respective Acquired Land Parcel, free and clear of all
defects and encumbrances except Liens permitted pursuant
to subsection 7.3 ("TITLE INSURANCE"). Such Title
Insurance shall be in form and substance satisfactory to
the Agent and (i) shall include (to the extent available
in the respective jurisdiction of each Acquired Land
Parcel) endorsements for future advances under this
Agreement, the Notes and the Mortgages, and for such other
matters that the Agent in its discretion may request, (ii)
shall not include an exception for mechanic's liens, and
(iii) shall provide for affirmative insurance as the Agent
in its discretion may request.
(e) ALTA SURVEYS. The Agent shall have received an ALTA Survey
of the respective Acquired Land Parcel, showing all
improvements thereon, prepared in accordance with the
current standards for "Land Title Surveys" of the American
Title Association and the American Congress on Surveying
and Mapping, in form and substance satisfactory to the
Agent, dated a recent date, certified and acceptable to
the Agent.
(f) PHASE I ENVIRONMENTAL ASSESSMENT. If the aggregate
outstanding Loans of all the Lenders (including any such
Loans to be made on the requested Borrowing Date) made in
connection with any Acquired Land Parcel are equal to, or
greater than $100,000, the Agent shall have received a
Phase I Environmental Assessment to the respective
Acquired Land Parcel in form and substance satisfactory to
the Agent and dated a recent date acceptable to the Agent.
The Agent shall forward a copy thereof to each Lender.
(g) APPRAISAL. If the aggregate outstanding Loans of all of
the Lenders (including any such Loans to be made on the
requested Borrowing Date) made in
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connection with any Acquired Land Parcel are equal to, or
greater than $250,000, the Agent shall have received an
M.A.I. Appraisal to the respective Acquired Land Parcel in
form and substance satisfactory to the Agent and dated a
recent date acceptable to the Agent. The Agent shall
forward a copy thereof to each Lender.
(h) SUBDIVISION, ZONING, TAX PARCEL, ETC. The Agent shall have
received evidence acceptable to it with respect to any
Acquired Land Parcel that such property: (i) consists of
one or more separate subdivided parcels, (ii) is currently
zoned to permit its intended use, (iii) is a separate tax
map parcel, (iv) has access to a dedicated public street,
road or highway, (v) is not located in a flood plain or
flood prone area.
(i) INSURANCE. The Agent shall have received evidence in form
and substance satisfactory to the Agent of the existence
of the insurance required under subsection 6.5 for each
additional Acquired Land Parcel.
(j) ADDITIONAL ITEMS. The Agent shall have received such other
approvals, opinions or documents as the Agent or the
Majority Lenders through the Agent may reasonably request.
Each borrowing by the Borrower hereunder shall constitute a
representation and warranty by the Borrower as of the date thereof that the
applicable conditions contained in this subsection 5.2 have been satisfied.
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SECTION 6: AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments
remain in effect or any amount is owing to any Lender or the Agent
hereunder or under any other Loan Document, the Borrower shall and
(except in the case of delivery of financial information and reports
and notices) shall cause each of its Subsidiaries to:
6.1 FINANCIAL STATEMENTS. Furnish to the Agent and to each Lender:
(a) as soon as available, but in any event within one hundred
twenty (120) days after the end of each fiscal year of the
Borrower, a copy of the consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at the end
of such year and the related consolidated statements of
income and retained earnings and of cash flows for such
year, setting forth in each case in comparative form the
figures for the previous year, reported on without a
"going concern" or like qualification or exception, or
qualification arising out of the scope of the audit, by
independent certified public accountants of nationally
recognized standing.
(b) as soon as available, but in any event not later than
forty-five (45) days after the end of each fiscal quarter
of the Borrower, the unaudited consolidated balance sheets
of the Borrower and its consolidated Subsidiaries as at
the end of such quarter and the related unaudited
consolidated statements of income and retained earnings
and of cash flows of the Borrower and its consolidated
Subsidiaries for such quarter and the portion of the
Borrower's fiscal year through the end of such quarter,
setting forth in comparative form the figures for the
previous year, certified by a Responsible Officer as being
fairly stated in all material respects (subject to normal
year-end audit adjustments);
all such financial statements shall be complete and correct in
all material respects and shall be prepared in reasonable detail and in
accordance with GAAP applied consistently throughout the periods
reflected therein and with prior periods (except as approved by such
accountants or officer, as the case may be, and disclosed therein).
6.2 CERTIFICATES; OTHER INFORMATION. Furnish to the Agent and to
each Lender:
(a) concurrently with the delivery of the financial statements
referred to in subsection 6.1(a), a certificate of the
independent certified public accountants reporting on such
financial statements stating whether in the course of
conducting its annual audit they became aware of any
Default or Event of Default pertaining to accounting
matters and, if so, the nature of such Default or Event of
Default;
(b) concurrently with the delivery of the financial statements
referred to in subsections 6.1(a) and (b), a certificate
of a Responsible Officer
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substantially in the form of EXHIBIT H (i) stating that,
to the best of such Officer's knowledge, during such
period (A) no Subsidiary has been formed or acquired
without complying with this Agreement and the requirements
of subsection 6.10 with respect thereto, (B) neither the
Borrower nor any of its Subsidiaries has changed its name,
its principal place of business, its chief executive
office or the location of any material item of tangible
Collateral without complying with the requirements of this
Agreement and the Security Documents with respect thereto,
(C) no Acquired Land Parcel contains Materials of
Environmental Concern, and (D) the Borrower has observed
or performed all of its covenants and other agreements,
and satisfied every condition, contained in this Agreement
and the other Loan Documents to be observed, performed or
satisfied by it, and that such Officer has obtained no
knowledge of any Default or Event of Default except as
specified in such certificate and (ii) setting forth the
computations used by the Borrower in determining (as of
the end of such fiscal period) compliance with the
covenant contained in subsection 7.1;
(c) not later than one hundred twenty (120) days after the end
of each fiscal year of the Borrower, a copy of the
projections by the Borrower of the operating budget and
cash flow budget of the Borrower and its Subsidiaries for
the succeeding fiscal year as adopted by the Board of
Directors of the Borrower, such projections to be
accompanied by a certificate of a Responsible Officer to
the effect that such projections have been prepared on the
basis of assumptions believed by the Borrower to be
reasonable;
(d) concurrently with the delivery of the accountants'
certificates referred to in subsection 6.2(a), any comment
letter submitted by such accountants to management as of
that date;
(e) concurrently with the delivery of the projections referred
to in subsection 6.2(c), the consolidated financial plan
and financial forecasts as customarily prepared by the
management of the Borrower for internal use;
(f) as soon as available, but in any event (i) not later than
one hundred twenty (120) days after the end of each fiscal
year of the Borrower, a copy of all financial statements
and regular, periodical or special reports that the
Borrower may make to, or file with, the SEC on an annual
basis and (ii) not later than forty-five (45) days after
the end of each fiscal quarter of the Borrower, a copy of
all financial statements and regular, periodical or
special reports that the Borrower may make to, or file
with, the SEC on a quarterly basis; and
(g) promptly, such additional financial and other information
as any Lender may from time to time reasonably request.
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6.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at
or before maturity in accordance with customary terms or
before they become delinquent or in default, as the case may
be, all of its material obligations of whatever nature, except
where the amount or validity thereof is then being contested
in good faith by appropriate proceedings and reserves in
conformity with GAAP with respect thereto have been provided
on the books of the Borrower or its Subsidiaries, as the case
may be.
6.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Continue to
engage in business of the same general type as now conducted
by it and preserve, renew and keep in full force and effect
its corporate existence and take all reasonable action to
maintain all rights, privileges and franchises necessary (in
the reasonable judgment of the Borrower) desirable in the
normal conduct of its business except as otherwise permitted
pursuant to subsection 7.13; comply with all Contractual
Obligations and Requirements of Law except to the extent that
failure to comply therewith could not, in the aggregate, be
reasonably expected to have a Material Adverse Effect.
6.5 MAINTENANCE OF PROPERTY; INSURANCE.
(a) Keep all material property useful and necessary in its
business in good working order and condition; maintain
with financially sound and reputable insurance companies
insurance policies insuring all its material property
against loss by fire, explosion, theft and such other
casualties as may be reasonably satisfactory to the Agent
such policies to be in at least such form amounts and
having coverage against at least such risks as are
customarily insured against in the same general area by
companies engaged in the same or a similar business as may
be reasonably satisfactory to the Agent with losses
payable to the Borrower and the Agent, as their respective
interests may appear;
(b) Each insurance policy described in subsection 6.5(a) shall
(i) contain endorsements, in form satisfactory to each
Lender, (ii) name the Agent, as an insured party, (iii)
provide that no cancellation, material reduction in amount
or material change in coverage thereof shall be effective
until at least thirty (30) days after receipt by the Agent
of written notice thereof and (iv) be reasonably
satisfactory in all other respect to the Agent. In the
event of any termination or notice of non-payment by any
insurer with respect to any policy or any lapse in the
coverage thereunder, the Borrower shall cause such insurer
to give prompt written notice to each Lender of the
occurrence of such termination, nonpayment or lapse.
(c) The Borrower shall deliver to the Agent a report of a
reputable insurance broker with respect to such
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insurance in each calendar year and such supplemental
reports with respect thereto as the Agent may from time to
time reasonably request.
6.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep
proper books of records and accounts in which full, true and
correct entries in conformity with GAAP and all Requirements
of Law shall be made of all dealings and transactions in
relation to its business and activities; permit
representatives of the Agent or any Lender to visit and
inspect any of its properties and examine and make abstracts
from any of its books and records at any reasonable time (upon
reasonable advance notice when no Default or Event of Default
has occurred and is continuing) and, with respect to the
Agent, as often as may reasonably be desired or, with respect
to any Lender other than the Agent, not more than once per
calendar year at the expense of such Lender (or, if an Event
of Default has occurred and is continuing, at any reasonable
time and as often as may be desired at the expense of the
Borrower), and to discuss the Business, operations, properties
and financial and other condition of the Borrower and its
Subsidiaries with officers and employees of the Borrower and
its Subsidiaries and with its independent certified public
accountants.
6.7 NOTICES. Promptly after a Responsible Officer of Borrower
obtains knowledge thereof, give notice to the Agent (who shall
give prompt notice thereof to the Lenders) of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries or
(ii) litigation, investigation or proceeding which may
exist at any time between the Borrower or any of its
Subsidiaries and any Governmental Authority, which in
either case, if not cured or if adversely determined, as
the case may be, could reasonably be expected to have a
Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower or any
of its Subsidiaries in which the amount involved is
$100,000 or more and not covered by insurance or in which
injunctive or similar relief is sought which could have a
Material Adverse Effect;
(d) the following events, as soon as possible and in any event
within thirty (30) days after the Borrower knows or has
reason to know thereof: (i) the occurrence or expected
occurrence of any Reportable Event with respect to any
Plan that is an employee pension benefit plan (as defined
in Section 3(2) of ERISA), a failure to make any required
contribution to a Plan, the creation of any Lien in favor
of the PBGC or a Plan that is an employee pension benefit
plan (as defined in Section 3(2) of ERISA) or any
withdrawal from, or the termination, Reorganization or
Insolvency of, any
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Multiemployer Plan or (ii) the institution of proceedings
or the taking of any other action by the PBGC or the
Borrower or any Commonly Controlled Entity or any
Multiemployer Plan with respect to the withdrawal from, or
the terminating, Reorganization or Insolvency of, any Plan
that is an employee pension benefit plan (as defined in
Section 3(2) of ERISA);
(e) the acquisition or creation of any Subsidiary which has
Capital Stock that is directly or indirectly owned by the
Borrower or any Subsidiary;
(f) any Lien (other than any Liens permitted under this
Agreement) or any other event that could reasonably be
expected to have a Material Adverse Effect on the
aggregate value of the Collateral or on the security
interest created by this Agreement or any other Loan
Document; and
each notice pursuant to this subsection 6.7 shall be
accompanied by a statement of a Responsible Officer setting forth
details of the occurrence referred to therein and stating what
action the Borrower proposes to take with respect thereto.
6.8 ENVIRONMENTAL LAWS.
(a) Comply with, and use reasonable efforts to ensure
compliance by all tenants and subtenants, if any, with,
all applicable Environmental Laws and obtain and comply
with and maintain, and use reasonable efforts to ensure
that all tenants and subtenants obtain and comply with and
maintain, any and all licenses, approvals, notifications,
registrations or permits required by applicable
Environmental Laws, except to the extent that failure to
do so could not be reasonably expected to have a Material
Adverse Effect.
(b) Conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions
required under Environmental Laws and promptly comply in
all material respects with all lawful orders and
directives of all Governmental Authorities regarding
Environmental Laws, except to the extent that failure to
so conduct, complete or comply could not reasonably be
expected to have a Material Adverse Effect and except to
the extent that the same are being contested in good faith
by appropriate proceedings and the pendency of such
proceedings could not be reasonably expected to have a
Material Adverse Effect.
6.9 FURTHER ASSURANCES; ADDITIONAL COLLATERAL.
(a) Upon the request of the Agent, promptly perform or cause
to be performed any and all acts and execute or cause to
be executed any and all documents (including, without
limitation, financing statements and continuation
statements) (i) for filing under the provisions of the
Uniform Commercial Code or any other Requirement of Law
which are necessary or reasonably
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advisable to maintain in favor of the Agent, for the
benefit of the Lenders, Liens on the Collateral that are
duly perfected in accordance with all applicable
Requirements of Law, and (ii) for the continuation and
maintenance of Title Insurance which are necessary or
reasonably advisable to maintain such Title Insurance in
favor of the Agent, for the benefit of the Lenders.
(b) Upon request of the Agent, promptly provide such documents
and legal opinions in respect of any aspect or consequence
of the transactions contemplated hereby as the Agent shall
reasonably request.
6.10 ADDITIONAL SUBSIDIARIES.
(a) With respect to any Person that, subsequent to the Closing
Date, becomes a Subsidiary promptly (i) cause such new
Subsidiary to become a party to the Subsidiaries Guarantee
and HM Services Subordination Agreement pursuant to
documentation which is in form and substance satisfactory
to the Agent, execute and deliver such amendments to this
Agreement and the other Loan Documents as requested by the
Agent to reflect the existence of such new Subsidiary and
(iii) if so requested by the Agent, deliver to the Agent
legal opinions relating to the matters described in
clauses (i) and (ii) immediately preceding, which opinions
shall be in form and substance, and from counsel,
reasonably satisfactory to the Agent.
(b) With respect to any Person that, subsequent to the Closing
Date, becomes a Subsidiary, promptly cause such new
Subsidiary to (i) take all actions necessary or advisable
to cause the Lien created by the relevant Security
Document, if any, to be duly perfected in accordance with
all applicable Requirements of Law, including, without
limitation, the filing of recording requirements in such
jurisdictions as may be requested by the Agent and (ii)
deliver to the Agent legal opinions relating to the
matters described in clauses (i) and (ii) immediately
preceding, which opinions shall be in form and substance,
and from counsel, reasonably satisfactory to the Agent.
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SECTION 7: NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect or any amount is owing to any Lender or the Agent hereunder or under any
other Loan Document, the Borrower shall not, and (except with respect to
subsection 7.1) shall not permit any of its Subsidiaries to, directly or
indirectly:
7.1 FINANCIAL CONDITION COVENANT (INDEBTEDNESS TO NET WORTH). Permit
on the last day of the fiscal year ending December 31, 1998
and thereafter on the last day of any fiscal quarter of the
Borrower, the ratio of (i) Senior Indebtedness to (ii) the sum
of Consolidated Tangible Net Worth plus Subordinated
Indebtedness, to be greater than 3.00 to 1.00.
7.2 LIMITATION ON INDEBTEDNESS AND PREFERRED STOCK. Create, incur,
assume or suffer to exist any Indebtedness or preferred stock
(other than preferred stock which, by its terms, does not
require the payment of any cash dividends thereon or
redemption/reimbursement obligations or impose any cash
penalties (other than accrual of dividends on unpaid
dividends) for the failure to declare cash dividends thereon),
except:
(a) Indebtedness of the Borrower under this Agreement;
(b) current trade liabilities incurred in the ordinary course of
business;
(c) Indebtedness of any Subsidiary to the Borrower or any other
Subsidiary, which has executed the following: Subsidiaries
Guarantee, the HM Services Subordination Agreement and as
applicable, a Mortgage pursuant to subsection 6.10 of this
Agreement;
(d) Indebtedness outstanding on the date hereof and listed on SCHEDULE
V and any refinancings, refundings, renewals or extensions
thereof in an amount not to exceed the then current principal
amount thereof;
(e) Indebtedness of a corporation which becomes a Subsidiary after the
date hereof, PROVIDED that (i) such Indebtedness existed at
the time such corporation became a Subsidiary and was not
created in anticipation thereof and (ii) immediately after
giving effect to the acquisition of such corporation by the
Borrower no Default or Event of Default shall have occurred
and be continuing; and
(f) additional Indebtedness not exceeding in aggregate principal
amount at any one time outstanding $500,000; and
(g) Guarantee Obligations permitted pursuant to subsection 7.4.
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<PAGE> 45
7.3 LIMITATION ON LIENS. Create, incur, assume or suffer to exist
any Lien upon any of its property (including but not limited
to subordinate deeds of trusts or mortgages), assets or
revenues, whether now owned or hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, PROVIDED that adequate
reserves with respect thereto are maintained on the books of
the Borrower or its Subsidiaries, as the case may be, in
conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business
for sums which are not overdue for a period of more than
ninety (90) days or which are being contested in good faith by
appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation
and deposits securing liability to insurance carriers under
insurance or self-insurance arrangements;
(d) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business
which, in the aggregate, are not substantial in amount and
which do not in any case materially detract from the value of
the property subject thereto or materially interfere with the
ordinary conduct of the business of the Borrower or such
Subsidiary;
(e) Liens in existence on the date hereof listed on SCHEDULE VI,
securing Indebtedness permitted by subsection 7.2(d), PROVIDED
that no such Lien is spread to cover any additional property
after the date hereof and that the amount of Indebtedness
secured thereby is not increased; and
(f) Liens on the property or assets of a corporation which becomes a
Subsidiary after the date hereof securing Indebtedness
permitted by subsection 7.2(e), PROVIDED that (i) such Liens
existed at the time such corporation became a Subsidiary and
were not created in anticipation thereof, (ii) any such Lien
is not spread to cover any additional property or assets of
such corporation after the time such corporation becomes a
Subsidiary, and (iii) the amount of Indebtedness secured
thereby is not increased.
7.4 LIMITATION ON GUARANTEE OBLIGATIONS. Create, incur, assume or
suffer to exist any Guarantee Obligation, except:
(a) Guarantee Obligations in existence on the date hereof and listed
on SCHEDULE VII;
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(b) guarantees made by the Borrower of obligations of any of its
Subsidiaries, which obligations are otherwise permitted under
this Agreement; and
(c) guarantees made by Subsidiaries of the Borrower of obligations of
the Borrower or any of its other Subsidiaries, which
obligations are otherwise permitted under this Agreement.
7.5 LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), or
convey, sell, lease, assign, transfer or otherwise dispose of,
all or substantially all of its property, business or assets,
except:
(a) any Subsidiary of the Borrower may be merged or consolidated with
or into the Borrower (PROVIDED that the Borrower shall be the
continuing or surviving corporation) or with or into any one
or more wholly owned Subsidiaries of the Borrower (PROVIDED
that the wholly owned Subsidiary or Subsidiaries shall be the
continuing or surviving corporation);
(b) any wholly owned Subsidiary may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to the Borrower or any other wholly
owned Subsidiary of the Borrower; and
(c) any Subsidiary of the Borrower may enter into any transaction
permitted by subsection 7.5 or 7.6.
7.6 LIMITATION ON SALE OF ASSETS. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business
or assets (including, without limitation, receivables and
leasehold interests but, in the case of the Borrower,
excluding the sale of Capital Stock or other securities of the
Borrower), whether now owned or hereafter acquired, or, in the
case of any Subsidiary, issue or sell any shares of such
Subsidiary's Capital Stock to any Person other than the
Borrower or any wholly owned Subsidiary, except:
(a) the sale or other disposition of obsolete or worn out property
(including, without limitation, any property which is no
longer used or useful in the business of the Borrower and its
Subsidiaries) in the ordinary course of business and for fair
market value; and
(b) the sale or transfer of inventory (including, without limitation,
"out-of-date" and "less than first quality" inventory) in the
ordinary course of business.
7.7 LIMITATION ON DIVIDENDS. Declare or pay any dividend on, or make
any payment on account of, or set apart assets for a sinking
or other analogous fund for, the purchase, redemption,
defeasance, retirement or other
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acquisition of, any shares of any class of Capital Stock of
the Borrower or any warrants or options to purchase any such
Stock, whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or
indirectly, whether in cash or property or in obligations of
the Borrower or any Subsidiary (such declarations, payments,
setting apart, purchases, redemptions, defeasances,
retirements, acquisitions and distributions being herein
called "RESTRICTED PAYMENTS").
7.8 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any advance,
loan, extension of credit or capital contribution to, or
purchase any stock, bonds, notes, debentures or other
securities of or any assets constituting a business unit of,
or make any other investment in, any Person, except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) loans and advances to employees of the Borrower or its
Subsidiaries for travel, entertainment and relocation expenses
in the ordinary course of business;
(d) investments in existence on the date hereof which are described
on SCHEDULE VIII hereof;
(e) the Borrower may make intercompany loans and advances to its
wholly owned Subsidiaries which have executed the following:
Subsidiaries Guarantee, the HM Services Subordination
Agreement and as applicable, a Mortgage pursuant to subsection
6.10 of this Agreement; and
(f) other advances, loans and extensions of credit in an aggregate
amount not to exceed $500,000.
7.9 LIMITATION ON TRANSACTIONS WITH AFFILIATES. Enter into any
transaction, including, without limitation, any purchase,
sale, lease or exchange of property or the rendering of any
service, with any Affiliate unless such transaction is (a)
otherwise permitted under this Agreement, (b) in the ordinary
course of the Borrower's or such Subsidiary's business and (c)
upon fair and reasonable terms no less favorable to the
Borrower or such Subsidiary, as the case may be, than it would
obtain in a comparable arm's length transaction with a Person
which is not an Affiliate.
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7.10 LIMITATION ON SALES AND LEASEBACKS. Enter into any arrangement
with any Person providing for the leasing by the Borrower or
any Subsidiary of real or personal property which has been or
is to be sold or transferred by the Borrower or such
Subsidiary to such Person or to any other Person to whom funds
have been or are to be advanced by such Person on the security
of such property or rental obligations of the Borrower or such
Subsidiary.
7.11 LIMITATION ON CHANGES IN FISCAL YEAR. Permit the fiscal year of
the Borrower to end on a day other than December 31.
7.12 LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into with any Person
any agreement, other than this Agreement, purchase money
mortgages, Financing Leases and other similar fixed asset
financings permitted by this Agreement (in which cases, any
prohibition or limitation shall only be effective against the
assets financed thereby), which prohibits or limits the
ability of the Borrower or any of its Subsidiaries to create,
incur, assume or suffer to exist any Lien upon any of its
property, assets or revenues, whether now owned or hereafter
acquired.
7.13 LIMITATION ON LINES OF BUSINESS. Enter into any business, either
directly or through any Subsidiary, except for (a) the
businesses and businesses of a similar type in which the
Borrower and its Subsidiaries are engaged on the date hereof
and (b) other activities relating thereto.
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SECTION 8: EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan when due
in accordance with the terms hereof or any other Loan
Document, or the Borrower shall fail to pay any interest on
any Loan, or any other amount payable hereunder or any other
Loan Document, within five (5) Business Days after any such
interest or other amount becomes due in accordance with the
terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by the Borrower
or any other Loan Party herein or in any other Loan Document
or which is contained in any certificate, document or
financial or other statement furnished by it at any time under
or in connection with this Agreement or any such other Loan
Document shall prove to have been incorrect in any material
respect on or as of the date made or deemed made; or
(c) The Borrower or any other Loan Party shall default in the
observance or performance of any agreement contained in
Section 7 or any negative covenant contained in any other Loan
Document; or
(d) The Borrower or any other Loan Party shall default in the
observance or performance of any other agreement contained in
this Agreement or any other Loan Document (other than as
provided in paragraphs (a) through (c) of this Section 8), and
such default shall continue unremedied for a period of thirty
(30) days; or
(e) The Borrower or any other Loan Party shall (i) default in any
payment of principal of or interest of any Indebtedness (other
than the Loans) or in the payment of any Guarantee Obligation,
beyond the period of grace (not to exceed sixty (60) days), if
any, provided in the instrument or agreement under which such
Indebtedness or Guarantee Obligation was created; or (ii)
default in the observance or performance of any other
agreement or condition relating to any such Indebtedness or
Guarantee Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto, or any
other event shall occur or condition exist, the effect of
which default or other event or condition is to cause, or to
permit the holder or holders of such Indebtedness or
beneficiary or beneficiaries of such Guarantee Obligation (or
a trustee or Agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving of
notice or the passage of time if required, such Indebtedness
to become due prior to its stated maturity or such Guarantee
Obligation to become payable; PROVIDED, HOWEVER, that no
Default or Event of Default shall exist under this paragraph
unless the aggregate amount of Indebtedness and/or Guarantee
Obligations in respect of which any default or other event or
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condition referred to in this paragraph shall have occurred
shall be equal to at least $500,000; or
(f) An Event of Default shall have occurred and be continuing under,
and as defined in, the Floor Plan Facility; or
(g) (i) The Borrower or any other Loan Party shall commence any case,
proceeding or other action (A) under any existing or future
law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors,
seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with
respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its
assets, or the Borrower or any Subsidiary shall make a general
assignment for the benefit of its creditors; or (ii) there
shall be commenced against the Borrower or any Subsidiary any
case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order
for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of
thirty (30) days; or (iii) there shall be commenced against
the Borrower or any Subsidiary any case, proceeding or other
action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial
part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged,
or stayed or bonded pending appeal within thirty (30) days
from the entry thereof, or (iv) the Borrower or any Subsidiary
shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts
set forth in clause (i), (ii), or (iii) above; or (v) the
Borrower or any Subsidiary shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its
debts as they become due; or
(h) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency"
(as defined in Section 302 of ERISA), whether or not waived,
shall exist with respect to any Plan or any Lien in favor of
the PBGC or a Plan shall arise on the assets of the Borrower
or any Commonly Controlled Entity, (iii) a Reportable Event
shall occur with respect to, or proceedings shall commence to
have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Single Employer Plan, which
Reportable Event or commencement of proceedings or appointment
of a trustee is, in the reasonable opinion of the Majority
Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any
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Single Employer Plan shall terminate for purposes of Title IV
of ERISA, (v) the Borrower or any Commonly Controlled Entity
shall, or in the reasonable opinion of the Majority Lenders is
likely to, incur any liability in connection with a withdrawal
from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other adverse event or condition shall occur
or exist with respect to a Plan; and in each case in clauses
(i) through (vi) above, such event or condition, together with
all other such events or conditions, if any, could reasonably
be expected to involve an aggregate amount of liability to the
Borrower or any Subsidiary in excess of $500,000; or
(i) One or more judgments or decrees shall be entered against the
Borrower or any other Loan Party involving in the aggregate a
liability (not paid or fully covered by insurance) of $500,000
or more and all such judgments or decrees shall not have been
vacated, discharged, stayed or bonded pending appeal within
thirty (30) days from the entry thereof; or
(j) (i) any of the Security Documents shall cease, for any reason
(other than a partial or full release in accordance with the
terms thereof), to be in full force and effect or the Borrower
or any other Loan Party which is a party to any of the
Security Documents shall so assert, (ii) the Lien created by
any of the Security Documents shall cease to be enforceable
and of the same effect and priority purported to be created
thereby, (iii) any Guarantee shall cease, for any reason, to
be in full force and effect or any Guarantor shall so assert,
(iv) the HM Services Subordination Agreement shall cease, for
any reason, to be in full force and effect or the Creditor or
any Debtor shall so assert or (v) the ZN Net Worth Agreement
shall cease, for any reason, to be in full force and effect or
Zaring National Corporation shall so assert; or
(k) Any Change in Control shall occur;
then, and in any such event, (i) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (g) of this Section 8 with respect to the
Borrower, automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement shall immediately become due and payable, and (ii) if such
event is any other Event of Default, either or both of the following actions may
be taken: (A) with the consent of the Majority Lenders, the Agent may, or upon
the request of the Majority Lenders, the Agent shall, by notice to the Borrower
declare the Commitments to be terminated forthwith, whereupon the Commitments
shall immediately terminate; and (B) with the consent of the Majority Lenders,
the Agent may, or upon the request of the Majority Lenders, the Agent shall, by
notice to the Borrower, declare the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement to be due and payable
forthwith, whereupon the same shall immediately become due and payable. Except
as expressly provided above in this
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Section 8, presentment, demand, protest and all other notices of any kind are
hereby expressly waived.
SECTION 9: THE AGENT
9.1 APPOINTMENT. (a) Each Lender hereby irrevocably designates and
appoints NationsBank, N.A. as the Agent of such Lender under
this Agreement and the other Loan Documents, and each such
Lender irrevocably authorizes the Agent, in such capacity, to
take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such
powers and perform such duties as are expressly delegated to
the Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably
incidental thereto. Notwithstanding any provision to the
contrary elsewhere in this Agreement, the Agent shall not have
any duties or responsibilities, except those expressly set
forth herein, or any fiduciary relationship with any Lender,
and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement
or any other Loan Document or otherwise exist against the
Agent.
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9.2 DELEGATION OF DUTIES. The Agent may execute any of its duties
under this Agreement and the other Loan Documents by or
through administrative agents or attorneys-in-fact and shall
be entitled to advice of counsel concerning all matters
pertaining to such duties. The Agent shall not be responsible
for the negligence or misconduct of any administrative agents
or attorneys-in-fact selected by it with reasonable care.
9.3 EXCULPATORY PROVISIONS. Neither the Agent nor any of its officers,
directors, employees, administrative agents, attorneys-in-fact
or Affiliates shall be (i) liable for any action lawfully
taken or omitted to be taken by it or such Person under or in
connection with this Agreement or any other Loan Document
(except for its or such Person's own gross negligence or
willful misconduct) or (ii) responsible in any manner to any
of the Lenders for any recitals, statements, representations
or warranties made by the Borrower or any officer thereof
contained in this Agreement or any other Loan Document or in
any certificate, report, statement or other document referred
to or provided for in, or received by the Agent under or in
connection with, this Agreement or any other Loan Document or
for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other
Loan Document or for any failure of the Borrower to perform
its obligations hereunder or thereunder. The Agent shall not
be under any obligation to any Lender to ascertain or to
inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or
any other Loan Document, or to inspect the properties, books
or records of the Borrower.
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<PAGE> 54
9.4 RELIANCE BY AGENT. The Agent shall be entitled to rely, and shall
be fully protected in relying, upon any Note, writing,
resolution, notice, consent, certificate, affidavit, letter,
telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal
counsel (including, without limitation, counsel to the
Borrower), independent accountants and other experts selected
by the Agent. Without limiting the foregoing or the obligation
of the Borrower to confirm in writing any telephonic notice
permitted to be given hereunder, the Agent may prior to
receipt of written confirmation act without liability upon the
basis of such telephonic notice, believed by the Agent in good
faith to be from a Responsible Officer or Borrower. The Agent
may deem and treat the payee of any Note as the owner thereof
for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with the
Agent. The Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other
Loan Document unless it shall first receive such advice or
concurrence of the Majority Lenders as it deems appropriate or
it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any
such action. The Agent shall in all cases be fully protected
in acting, or in refraining from acting, under this Agreement
and the other Loan Documents in accordance with a request of
the Majority Lenders, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the
Lenders and all future holders of the Loans.
9.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender
or the Borrower referring to this Agreement, describing such
Default or Event of Default and stating that such notice is a
"notice of default". In the event that the Agent receives such
a notice, the Agent shall give notice thereof to the Lenders.
The Agent shall take such action with respect to such Default
or Event of Default as shall be reasonably directed by the
Majority Lenders; PROVIDED that unless and until the Agent
shall have received such directions, the Agent may (but shall
not be obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default
as it shall deem advisable in the best interests of the
Lenders.
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9.6 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender expressly
acknowledges that neither the Agent nor any of its officers,
directors, employees, administrative agents, attorneys-in-fact
or Affiliates has made any representations or warranties to it
and that no act by the Agent hereinafter taken, including any
review of the affairs of the Borrower, shall be deemed to
constitute any representation or warranty by the Agent to any
Lender. Each Lender represents to the Agent that it has,
independently and without reliance upon the Agent or any other
Lender, and based on such documents and information as it has
deemed appropriate, made its own appraisal of and
investigation into the business, operations, property,
financial and other condition and creditworthiness of the
Borrower and made its own decision to make its Loans hereunder
and enter into this Agreement. Each Lender also represents
that it will, independently and without reliance upon the
Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue
to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other
Loan Documents, and to make such investigation as it deems
necessary to inform itself as to the business, operations,
property, financial and other condition and creditworthiness
of the Borrower. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by
the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other
information concerning the business, operations, property,
condition (financial or otherwise), prospects or
creditworthiness of the Borrower which may come into the
possession of the Agent or any of its officers, directors,
employees, administrative agents, attorneys-in-fact or
Affiliates.
9.7 INDEMNIFICATION. The Lenders agree to indemnify the Agent in its
capacity as such (to the extent not reimbursed by the Borrower
and without limiting the obligation of the Borrower to do so),
ratably according to their respective Commitment Percentages
in effect on the date on which indemnification is sought (such
Commitment Percentages to be determined as if there are no
Defaulting Lenders), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever
which may at any time (including, without limitation, at any
time following the payment of the Loans) be imposed on,
incurred by or asserted against the Agent in any way relating
to or arising out of, the Commitments, this Agreement, any of
the other Loan Documents or any documents contemplated by or
referred to herein or therein or the transactions contemplated
hereby or thereby or any action taken or omitted by the Agent
under or in connection with any of the foregoing; PROVIDED
that no Lender shall be liable for the payment of any portion
of such liabilities, obligations, losses, damages, penalties,
actions, judgments,
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suits, costs, expenses or disbursements resulting solely from
the Agent's gross negligence or willful misconduct. To the
extent that any Lender would be required to indemnify the
Agent pursuant to this subsection 9.7 but for the fact that it
is a Defaulting Lender, such Defaulting Lender shall not be
entitled to receive any portion of any payment or other
distribution hereunder until each other Lender shall have been
reimbursed for the excess, if any, of the aggregate amount
paid by such Lender under this subsection 9.7 over the
aggregate amount that such Lender would have been obligated to
pay had such first Lender not been a Defaulting Lender. The
agreements in this subsection 9.7 shall survive the payment of
the Loans and all other amounts payable hereunder. The
agreements in this subsection 9.7 shall survive the payment of
the Loans and all other amounts payable hereunder.
9.8 AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and each of its
respective Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrower
as though the Agent were not the Agent hereunder and under the
other Loan Documents. With respect to its Loans made or
renewed by it and any Note issued to it, the Agent shall have
the same rights and powers under this Agreement and the other
Loan Documents as any Lender and may exercise the same as
though it were not the Agent, and the terms "Lender" and
"Lenders" shall include the Agent in its respective individual
capacity.
9.9 SUCCESSOR AGENT. The Agent may resign as Agent upon ten (10) days'
notice to the Lenders and Borrower. If the Agent shall resign
as Agent under this Agreement and the other Loan Documents,
then the Majority Lenders shall appoint from among the Lenders
a successor Agent for the Lenders, which successor Agent
(PROVIDED that it shall have been approved by the Borrower),
shall succeed to the rights, powers and duties of the Agent
hereunder. Effective upon such appointment and approval, the
term "Agent" shall mean such successor Agent, and the former
Agent's rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the
part of such former Agent or any of the parties to this
Agreement or any holders of the Loans. After any retiring
Agent's resignation as Agent, the provisions of this Section 9
shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Agent under this Agreement and
the other Loan Documents.
SECTION 10: MISCELLANEOUS
10.1 AMENDMENT AND WAIVERS. Neither this Agreement nor any other Loan
Document, nor any terms hereof or thereof, may be amended,
supplemented or modified except in accordance with the
provisions of this subsection 10.1. The Majority Lenders may,
or, with the written consent of
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the Majority Lenders, the Agent may, from time to time, (a)
enter into with the Borrower written amendments, supplements
or modifications hereto and to the other Loan Documents for
the purpose of adding any provisions to this Agreement or the
other Loan Documents or changing in any manner the rights of
the Lenders or of the Borrower hereunder or thereunder or (b)
waive, on such terms and conditions as the Majority Lenders or
the Agent, as the case may be, may specify in such instrument,
any of the requirements of this Agreement or the other Loan
Documents or any Default or Event of Default and its
consequences; PROVIDED, HOWEVER, that no such waiver and no
such amendment, supplement or modification shall:
(i) reduce the amount or extend the scheduled date of maturity of any
Loan or of any installment thereof, or reduce the stated rate
of any interest or fee payable hereunder or extend the
scheduled date of any payment thereof or increase the amount
or extend the expiration date of any Lenders' Commitments, in
each case without the consent of each Non-Defaulting Lender
directly affected thereby;
(ii) amend, modify or waive any provision of this subsection 10.1 or
reduce the percentage specified in the definition of Majority
Lenders, or consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this
Agreement and the other Loan Documents, in each case without
the written consent of all the Non-Defaulting Lenders;
(iii) consent to the assignment or transfer by the Borrower of any of
its rights and obligations under this Agreement and the other
Loan Documents, in each case without the written consent of
all the Non-Defaulting Lenders;
(iv) take any action having the effect of releasing any of the
material collateral or material guarantee obligations provided
for in any Guarantee or Security Document, in each case
without the written consent of the Non-Defaulting Lenders;
(v) amend, modify or waive any provision of Section 9 without the
written consent of the then Agent.
Any such waiver and any such amendment, supplement or modification shall apply
equally to each of the Lenders (including Defaulting Lenders) and shall be
binding upon the Borrower, the Lenders (including Defaulting Lenders), the Agent
and all future holders of the Loans. In the case of any waiver, the Borrower,
the Lenders (including Defaulting Lenders) and the Agent shall be restored to
their former positions and rights hereunder and under the other Loan Documents,
and any Default or Event of Default waived shall be deemed to be cured and not
continuing; no such waiver shall extend to any subsequent or other Default or
Event of Default or impair any right consequent thereon.
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10.2 RELEASES OF COLLATERAL SECURITY AND GUARANTEE OBLIGATIONS.
Notwithstanding anything to the contrary contained herein or
in any Loan Document, upon request of the Borrower, the Agent
shall (without any notice to or vote or consent of any Lender)
take any action which has the effect of releasing any
collateral security and/or guarantee obligations provided for
in any Loan Document to the extent necessary to permit the
consummation of any Proceeds Event or any asset dispositions
permitted by subsection 7.6; PROVIDED that (unless the
Majority Lenders shall otherwise consent) the Proceeds of any
Proceeds Event are applied in the manner contemplated by
subsection 3.5 (if so required).
10.3 NOTICES. Unless otherwise expressly provided herein, all notices,
requests and demands to or upon the respective parties hereto
to be effective shall be in writing (including by facsimile
transmission) and, unless otherwise expressly provided herein,
shall be deemed to have been duly given or made (a) in the
case of delivery by hand, when delivered, (b) in the case of
delivery by mail, three (3) days after being deposited in the
mails, postage prepaid, or (c) in the case of delivery by
facsimile transmission, when sent and receipt has been
confirmed, addressed as follows in the case of the Borrower
and the Agent, and as set forth in SCHEDULE I in the case of
the other parties hereto, or to such other address as may be
hereafter notified by the respective parties hereto:
The Borrower:
HomeMax, Inc.
11300 Cornell Park Drive
Cincinnati, Ohio 45242
Attention: Ronald G. Gratz, V.P. and C.F.O.
Telecopy: (513) 489-2667
Phone: (513) 489-8849
WITH A COPY TO:
Frost & Jacobs, LLP.
2500 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
Attention: Richard J. Erickson, Esq.
Telecopy: (513) 651-6981
Phone: (513) 651-6880
The Agent:
NationsBank, N.A.
6610 Rockledge Drive
6th Floor
Bethesda, Maryland 20817
Attention: Karen H. Morgan, Vice President
Telecopy: 301-571-9093
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<PAGE> 59
Phone: 301-571-9049
WITH A COPY TO:
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
Attention: M. David Krohn, Esq.
Telecopy: (212) 603-6801
Phone: (212) 603-6824
PROVIDED that any notice, request or demand to or upon the Agent pursuant to
subsection 2.2, 3.3, or 3.4 shall not be effective until received.
10.4 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising on the part of the Agent or any Lender,
any right, remedy, power or privilege hereunder or under the
other Loan Documents shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of
any rights, remedies, powers and privileges provided by law.
10.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made hereunder, in the other Loan Documents and
in any document, certificate or statement delivered pursuant
hereto or in connection herewith shall survive the execution
and delivery of this Agreement and the making of the Loans
hereunder.
10.6 PAYMENT OF EXPENSES AND TAXES. The Borrower agrees (a) to pay
or reimburse the Agent for all of its reasonable out-of-pocket
costs and expenses incurred in connection with the
development, preparation and execution of any amendment,
supplement or modification to, this Agreement and the other
Loan Documents and any other documents prepared in connection
herewith or therewith, and the consummation and administration
of the transactions contemplated hereby and thereby,
including, without limitation, the reasonable fees and
disbursements of counsel to the Agent, (b) to pay or reimburse
each Lender and the Agent for all its costs and expenses
incurred in connection with the enforcement or preservation of
any rights under this Agreement, the other Loan Documents and
any such other documents, including, without limitation, the
reasonable fees and disbursements of counsel to each Lender
and of counsel to the Agent, (c) to pay, indemnify, and hold
each Lender and the Agent harmless from, any and all recording
and filing fees and any and all liabilities with respect to,
or resulting from any delay in paying, stamp, excise and other
taxes, if any, which may be payable or determined to be
payable in connection with
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the execution and delivery of, or consummation or
administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or
consent under or in respect of, this Agreement, the other Loan
Documents and any such other documents, and (d) to pay,
indemnify, and hold each Lender and the Agent harmless from
and against any and all other liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever
with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, the other
Loan Documents or the use of the proceeds of the Loans and any
such other documents, including, without limitation, any of
the foregoing relating to the violation of, noncompliance with
or liability under, any Environmental Law applicable to the
operations of the Borrower, any of its Subsidiaries or any of
the Properties (all the foregoing in this clause (d),
collectively, the "indemnified liabilities"), PROVIDED that
the Borrower shall have no obligation hereunder to the Agent
or any Lender with respect to indemnified liabilities to the
extent arising from the gross negligence or willful misconduct
of the Agent or such Lender. The agreements in this subsection
10.6 shall survive repayment of the Loans and all other
amounts payable hereunder.
10.7 TERMINATION. This Agreement shall terminate upon the termination
of all Commitments and the irrevocable repayment in full of
the aggregate outstanding principal amount of the Loans,
accrued interest thereon, and all fees and expenses and other
amounts due and payable at such time under any of the Loan
documents; PROVIDED that all indemnities set forth herein
including, without limitation, in subsections 9.7 and 10.6
shall survive such termination.
10.8 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS.
(a) This Agreement shall be binding upon and inure to the benefit of
the Borrower, the Lenders, the Agent and their respective
successors and assigns, except that the Borrower may not
assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of each Lender.
(b) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time
sell to one or more banks or other financial institutions
("PARTICIPANTS") participating interests in any Loan owing to
such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Loan
Documents; PROVIDED that, in the case of any such sale to an
additional bank or financial institution, (x) the aggregate
principal amount of the Loan (or, prior to the Closing Date,
Commitment) being sold is not less
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<PAGE> 61
than $3,000,000 (or such lesser amount as may be agreed to by
the Agent) and (y) the aggregate principal amount of the Loan
(or, prior to the Closing Date, Commitment) remaining with the
selling Lender is not less than $3,000,000 (or such lesser
amount as may be agreed to by the Agent). In the event of any
such sale by a Lender of a participating interest to a
Participant, such Lender's obligations under this Agreement
shall remain unchanged, such Lender shall remain solely
responsible for the performance thereof, such Lender shall
remain the holder of any such Loan for all purposes under this
Agreement and the other Loan Documents, and the Borrower and
the Agent shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations
under this Agreement and the other Loan Documents. No Lender
shall be entitled to create in favor of any Participant, in
the participation agreement pursuant to which such
Participant's participating interest shall be created or
otherwise, any right to vote on, consent to or approve any
matter relating to this Agreement or any other Loan Document
except for those specified in clauses (i) and (ii) of the
proviso to subsection 10.1. The Borrower agrees that if
amounts outstanding under this Agreement are due or unpaid, or
shall have been declared or shall have become due and payable
upon the occurrence of an Event of Default, each Participant
shall, to the maximum extent permitted by applicable law, be
deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement
to the same extent as if the amount of its participating
interest were owing directly to it as a Lender under this
Agreement, PROVIDED that, in purchasing such participating
interest, such Participant shall be deemed to have agreed to
share with the Lenders the proceeds thereof as fully as if it
were a Lender hereunder.
(c) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time
and from time to time assign to any Lender or any affiliate
thereof or, with the consent of the Borrower and the Agent
(which in each case shall not be unreasonably withheld), to an
additional bank or financial institution (an "ASSIGNEE") all
or any part of its rights and obligations under this Agreement
and the other Loan Documents pursuant to an Assignment and
Acceptance, substantially in the form of EXHIBIT I, executed
by such Assignee, such assigning Lender (and, in the case of
an Assignee that is not then a Lender or an affiliate thereof,
by the Borrower and the Agent) and delivered to the Agent for
its acceptance and recording, PROVIDED that, in the case of
any such assignment to an additional bank or financial
institution, (x) the aggregate principal amount of the Loan
(or, prior to the Closing Date, Commitment) being assigned is
not less than $3,000,000 (or such lesser amount as may be
agreed to by the Borrower and the Agent) and (y) if such
assignment is of less than all of the rights and obligations
of the assigning Lender, the aggregate principal amount of the
Loan (or, prior to
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<PAGE> 62
the Closing Date, Commitment) remaining with the assigning
Lender is not less than $3,000,000 (or such lesser amount as
may be agreed to by the Borrower and the Agent). Upon such
execution, delivery, acceptance and recording (and the payment
of the registration and processing fee described in clause (e)
below), from and after the effective date determined pursuant
to such Assignment and Acceptance, (x) the Assignee thereunder
shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of
a Lender hereunder with a Commitment as set forth therein, and
(y) the assigning Lender thereunder shall, to the extent
provided in such Assignment and Acceptance, be released from
its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining
portion of the Lenders' rights and obligations under this
Agreement, such assigning Lender shall cease to be a party
hereto). Notwithstanding any provision of this paragraph (c)
of this subsection, the consent of the Borrower shall not be
required for any assignment which occurs at any time when any
of the events described in subsection 8(g) shall have occurred
and be continuing.
(d) The Agent, on behalf of the Borrower, shall maintain at the
address of the Agent referred to in subsection 10.3 a copy of
each Assignment and Acceptance delivered to it and a register
(the "REGISTER") for the recordation of the names and
addresses of the Lenders and the Commitments of, and principal
amounts of the Loans owing to, each Lender from time to time.
The entries in the Register shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and
amounts therein recorded. The Borrower, the Agent and the
Lenders may (and, in the case of any Loan or other obligation
hereunder not evidenced by a Note, shall) treat each Person
whose name is recorded in the Register as the owner of a Loan
or other obligation hereunder as the owner thereof for all
purposes of this Agreement and the other Loan Documents,
notwithstanding any notice to the contrary. Any assignment of
any Loan or other obligation hereunder not evidenced by a Note
shall be effective only upon appropriate entries with respect
thereto being made in the Register. The Register shall be
available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an
Assignee that is not then a Lender or an affiliate thereof, by
the Borrower and the Agent), together with payment to the
Agent of a registration and processing fee of $2,500, the
Agent shall (i) promptly accept such Assignment and Acceptance
and (ii) on the effective date determined pursuant thereto
record the information contained therein in the Register and
give notice of such
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acceptance and recordation to the Lenders and the Borrower;
PROVIDED that no such fee shall be payable with respect to any
assignment from an assigning Lender to an affiliate thereof.
(f) The Borrower authorizes each Lender to disclose to any Participant
or Assignee (each, a "TRANSFEREE") and any prospective
Transferee any and all financial information in such Lenders'
possession concerning the Borrower and its Affiliates which
has been delivered to such Lender by or on behalf of the
Borrower pursuant to this Agreement or which has been
delivered to such Lender by or on behalf of the Borrower in
connection with such Lenders' credit evaluation of the
Borrower and its Affiliates prior to becoming a party to this
Agreement.
(g) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this subsection 10.8 concerning
assignments of Loans and Notes relate only to absolute
assignments and that such provisions do not prohibit
assignments creating security interests, including, without
limitation, any pledge or assignment by a Lender of any Loan
or Note to any Federal Reserve Bank in accordance with
applicable law.
10.9 ADJUSTMENTS; SET-OFF. (a) If any Lender (a "BENEFITED LENDER")
at any time shall receive any payment of all or part of its
Loans, or interest thereon, or receive any collateral in
respect thereof (whether voluntarily or involuntarily, by
set-off, pursuant to events or proceedings of the nature
referred to in subsection 8(g), or otherwise), in a greater
proportion than any such payment to or collateral received by
any other Lender, if any, in respect of such other Lenders'
Loans, or interest thereon, such benefited Lender shall
purchase for cash from the other Lenders such portion of each
such other Lenders' Loans, or shall provide such other Lenders
with the benefits of any such collateral, or the proceeds
thereof, as shall be necessary to cause such benefited Lender
to share the excess payment or benefits of such collateral or
proceeds ratably with each of the Lenders, and if after taking
into account such sharing the benefited Lender continues to
have access to addition funds of or collateral granted by the
Borrower for application on account of its debt, then the
benefited Lender shall use such funds or collateral to reduce
debt of the Borrower held by it and share such payments and
the benefits of such collateral with the other Lenders;
PROVIDED, HOWEVER, that if all or any portion of such excess
payment or benefits is thereafter recovered from such
benefited Lender, such purchase shall be rescinded, and the
purchase price and benefits returned, to the extent of such
recovery, but without interest. The Borrower agrees that each
Lender so purchasing a portion of another Lenders' Loans or
may exercise all rights of payment (including, without
limitation, rights of set-off) with respect to such portion as
fully as if such Lender were the direct holder of such
portion.
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<PAGE> 64
(b) In addition to any rights and remedies of the
Lenders provided by law, each Lender shall have the right,
without prior notice to the Borrower, any such notice being
expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by
the Borrower hereunder (whether at the stated maturity, by
acceleration or otherwise) to set-off and appropriate and
apply against such amount any and all deposits (general or
special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in
any currency, in each case whether direct or indirect,
absolute or contingent, matured or unmatured, at any time held
or owing by such Lender or any branch, agency or (to the
extent permitted by applicable law) banking affiliate thereof
to or for the credit or the account of the Borrower. Each
Lender agrees promptly to notify the Borrower and the Agent or
any Lender after any such set-off and application made by such
Lender, PROVIDED that the failure to give such notice shall
not affect the validity of the set-off and application.
10.10 COUNTERPARTS. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate
counterparts (including by facsimile transmission), and all of
said counterparts taken together shall be deemed to constitute
one and the same instrument. A set of the copies of this
Agreement signed by all the parties shall be lodged with the
Borrower and the Agent.
10.11 SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
10.12 INTEGRATION. This Agreement and the other Loan Documents represent
the agreement of the Borrower, the Agent and the Lenders with
respect to the subject matter hereof, and there are no
promises, undertakings, representations or warranties by the
Agent or any Lender relative to subject matter hereof not
expressly set forth or referred to herein or in the other Loan
Documents.
10.13 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF OHIO.
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<PAGE> 65
10.14 SUBMISSION TO JURISDICTION; WAIVERS. The Borrower hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan
Documents to which it is a party, or for recognition and
enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the Courts of the State
of Ohio, the courts of the United States of America for the
Sixth Circuit, and appellate courts from any thereof,
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter
have to the venue of any such action or proceeding in any such
court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail),
postage prepaid, to the Borrower at its address set forth in
subsection 10.3 or at such other address of which the Lenders
shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction; and
(e) waives, except in the case of extreme bad faith (and otherwise to
the maximum extent not prohibited by law), any right it may
have to claim or recover in any legal action or proceeding
referred to in this subsection 10.14 any special, exemplary,
punitive or consequential damages.
10.15 ACKNOWLEDGEMENTS. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Agent nor any Lender has any fiduciary relationship
with or duty to the Borrower arising out of or in connection
with this Agreement or any of the other Loan Documents, and
the relationship between Agent and Lenders, on the one hand,
and the Borrower, on the other hand, in connection herewith is
solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated
hereby among the Borrower and the Lenders.
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<PAGE> 66
10.16 WAIVERS OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, THE BORROWER, THE AGENT AND THE LENDERS HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
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<PAGE> 67
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
HOMEMAX, INC.
as Borrower
By: /s/ Matthew S. Massarelli
----------------------------
Matthew S. Massarellli
Executive Vice President
NATIONSBANK, N.A.
as Agent and a Lender
By: /s/ Karen H. Morgan
----------------------------
Karen H. Morgan
Vice President
STAR BANK, N.A.
as a Lender
By: /s/ William J. Hronek
----------------------------
William J. Hronek
Vice President
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<PAGE> 68
SCHEDULE I
LENDERS; ADDRESSES FOR NOTICES
1. NATIONSBANK, N.A.
6610 Rockledge Drive
6th Floor
Bethesda, MD 20817
Attention: Karen H. Morgan, Vice President
Telecopy: 301-571-9093
Phone: 301-571-9049
2. STAR BANK, N.A.
425 Walnut Street
ML 8160, 8th Floor
Cincinnati, OH 45201
Attention: William J. Hronek, Vice President
Telecopy: 513-632-2068
Telephone: 513-632-4917
<PAGE> 69
SCHEDULE II
COMMITMENTS AND COMMITMENT PERCENTAGES
Lender Commitment Commitment
------ Percentage
----------
NATIONSBANK, N.A. $6,000,000 50%
STAR BANK, N.A. $6,000,000 50%
<PAGE> 70
SCHEDULE III
HOMEMAX, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
NAME STATUS JURISDICTION OF INCORPORATION OWNERSHIP PERCENTAGE
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HomeMax Indiana, LLC Guarantor Indiana 99%
HomeMax Kentucky, LLC Guarantor Kentucky 99%
HomeMax North Carolina, Inc. Guarantor North Carolina 100%
HomeMax South Carolina, Inc. Guarantor South Carolina 100%
HomeMax Tennessee, Inc. Guarantor Tennessee 100%
HM Properties, Inc. Guarantor Delaware 100%
HM Services, Inc. Guarantor Delaware 100%
</TABLE>
<PAGE> 71
SCHEDULE IV
INDEBTEDNESS
HOMEMAX, INC.
LONG TERM DEBT
As Of February 23, 1998
<TABLE>
<CAPTION>
ENTITY ISSUE TYPE BANK ISSUE MATURITY RATE AMOUNT
DATE DATE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
HomeMax, Inc. Promissory Note NationsBank, 02/19/1998 02/28/2001 Eurodollar Rate $33,920,000.00
N.A. Agent of ABR
HomeMax Promissory Note NationsBank, 02/19/1998 02/28/2001 Eurodollar Rate $33,920,000.00
Indiana, LLC N.A. Agent of ABR
HomeMax Promissory Note NationsBank, 02/19/1998 02/28/2001 Eurodollar Rate $33,920,000.00
Kentucky, LLC N.A. Agent of ABR
HomeMax Promissory Note NationsBank, 02/19/1998 02/28/2001 Eurodollar Rate $33,920,000.00
Ohio, Inc. N.A. Agent of ABR
HomeMax Promissory Note NationsBank, 02/19/1998 02/28/2001 Eurodollar Rate $33,920,000.00
North Carolina, Inc. N.A. Agent of ABR
HomeMax Promissory Note NationsBank, 02/19/1998 02/28/2001 Eurodollar Rate $33,920,000.00
South Carolina, Inc. N.A. Agent of ABR
HomeMax Promissory Note NationsBank, 02/19/1998 02/28/2001 Eurodollar Rate $33,920,000.00
Tennessee, Inc. N.A. Agent of ABR
</TABLE>
<PAGE> 72
SCHEDULE V
LIENS
HOMEMAX, INC.:
UCC-1 filings for furniture and computer equipment leased from CLG, Inc. and
Colonial Pacific Leasing Corporation.
THE LIENS DESCRIBED BELOW APPLY TO THE FOLLOWING ENTITIES:
HomeMax, Inc.
HomeMax Indiana, LLC
HomeMax Kentucky, LLC
HomeMax North Carolina, Inc.
HomeMax South Carolina, Inc.
HomeMax Ohio, Inc.
HomeMax Tennessee, Inc.
HM Properties, Inc.
HM Services, Inc.
UCC-1 filings for all inventory together with any and all accounts, chattel
paper, documents, equipment, general intangibles and all proceeds and products
of any and all of the foregoing.
Such liens are the result of security agreements delivered to NationsBank, N.A.,
as agent for itself and the other lenders (collectively, "Lenders") under the
Floor Plan Agreement between HomeMax, Inc., HomeMax Indiana, LLC, HomeMax
Kentucky, LLC, HomeMax North Carolina, Inc., HomeMax South Carolina, Inc.,
HomeMax Ohio, Inc. and HomeMax Tennessee, Inc. (collectively, "Borrowers") and
Lenders dated February 19, 1998.
See Attachment 1 to Schedule V
<PAGE> 73
ATTACHMENT 1 TO SCHEDULE V
<TABLE>
<CAPTION>
- -------------------------------------- ---------------------------- ----------------------------- -------------------
LESSOR NATURE OF LEASE ITEMS LEASED UCC FILING
- -------------------------------------- ---------------------------- ----------------------------- -------------------
<S> <C> <C> <C>
CLG Equipment Lease Agreement Misc. computer equipment Yes
Inc. dated 8/22/97 and Modular office furniture
3001 Spring Forest Road Raleigh, supplements
N.C. 27616
- -------------------------------------- ---------------------------- ----------------------------- -------------------
Colonial Pacific Leasing Company Master Equipment Lease Modular Office Equipment Yes
P.O. Box 120102 dated 9/22/97 and Addendums
Portland, Oregon 97281
- -------------------------------------- ---------------------------- ----------------------------- -------------------
</TABLE>
<PAGE> 74
SCHEDULE VI
HOMEMAX, INC.
GUARANTEES
----------
HomeMax,Inc. HomeMax Indiana, LLC
HomeMax Kentucky, LLC
HomeMax Ohio, Inc.
HomeMax North Carolina, Inc.
HomeMax South Carolina, Inc.
HomeMax Tennessee, Inc.
HM Properties, Inc.
HM Services, Inc.
EACH OF THE ENTITIES LISTED ABOVE HAS DELIVERED THE FOLLOWING GUARANTEES:
1) Guarantee of $33,920,000 loan dated February 19, 1998 delivered to
NationsBank, as agent for itself and the other lenders (collectively,
"Lenders"), under the Floor Plan Agreement between HomeMax, Inc., HomeMax
Indiana, LLC, HomeMax Kentucky, LLC, HomeMax Ohio, Inc., HomeMax North
Carolina, Inc., HomeMax South Carolina, Inc., and HomeMax Tennessee, Inc.
(collectively, "Borrowers") and Lenders dated February 19, 1998.
2) Guarantee of $15,000,000 loan dated February 23, 1998 delivered to
NationsBank, as agent for itself and the other lenders (collectively,
"Lenders"), under the Credit Agreement between Zaring National Corporation and
Lenders dated February 23, 1998.
<PAGE> 75
SCHEDULE VII
EXISTING INVESTMENTS
ENTITY INVESTMENT
- ------ ----------
HomeMax, Inc. Subsidiaries
HomeMax Indiana, LLC N/A
HomeMax Kentucky, LLC N/A
HomeMax North Carolina, Inc. N/A
HomeMax Ohio, Inc. N/A
HomeMax South Carolina, Inc. N/A
HomeMax Tennessee, Inc. N/A
<PAGE> 76
SCHEDULE VIII
ACQUIRED LAND PARCELS
none
-70-
<PAGE> 1
Exhibit 10.18
================================================================================
HOMEMAX, INC. GROUP
---------------------------
$33,920,000
FLOOR PLAN AGREEMENT
dated as of February 19, 1998
---------------------------
NATIONSBANK, N.A.,
as Agent
================================================================================
<PAGE> 2
SECTION 1. DEFINITIONS........................................................1
1.1 Defined Terms...................................................1
1.2 Other Definitional Provisions..................................13
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS...................................13
2.1 Commitments....................................................13
2.2 Procedure for Borrowing........................................14
2.3 Curtailment of Advances........................................14
2.4 Overline Commitment............................................14
2.5 Third Party Payments...........................................15
2.6 Use of Proceeds of Advances....................................16
SECTION 3. PROVISIONS RELATING TO THE EXTENSIONS OF CREDIT; FEES AND
PAYMENTS .........................................................16
3.1 Repayment of Advances; Evidence of Indebtedness................16
3.2 Facility Fee...................................................17
3.3 Agent's Fees...................................................17
3.4 Optional Prepayments...........................................17
3.5 Optional Termination or Reduction of Commitments...............17
3.6 Mandatory Reduction of Commitments and Prepayments.............17
3.7 Application of Prepayments.....................................18
3.8 Continuation Options...........................................19
3.9 Interest Rates and Payment Dates...............................19
3.10 Computation of Interest and Fees...............................20
3.11 Inability to Determine Interest Rate...........................20
3.12 Pro Rata Treatment and Payments................................20
3.13 Illegality.....................................................21
3.14 Requirements of Law............................................22
3.15 Taxes..........................................................23
3.16 Indemnity......................................................25
3.17 Change of Lending Office.......................................25
SECTION 4. REPRESENTATIONS AND WARRANTIES....................................26
4.1 Financial Condition............................................26
4.2 No Change......................................................26
-i-
<PAGE> 3
4.3 Disclosure.....................................................26
4.4 Corporate Existence; Compliance with Law.......................26
4.5 Corporate Power, Authorization, Enforceable Obligations........27
4.6 No Legal Bar...................................................27
4.7 No Material Litigation.........................................27
4.8 No Default.....................................................27
4.9 Ownership of Property; Liens...................................28
4.10 Title Documents................................................28
4.11 No Burdensome Restrictions.....................................28
4.12 Intellectual Property..........................................28
4.13 Taxes..........................................................28
4.14 Federal Regulations............................................28
4.15 ERISA..........................................................29
4.16 Investment Company Act; Other Regulations......................29
4.17 Subsidiaries...................................................29
4.l8 Environmental Matters..........................................29
4.19 Guarantees.....................................................31
4.20 Joinder Agreements.............................................31
4.21 Security Agreements............................................31
4.22 Solvency.......................................................31
4.23 HM Services Subordination Agreement............................31
4.24 ZN Letter Agreement............................................32
4.25 ZN Net Worth Maintenance Agreement.............................32
SECTION 5. CONDITIONS PRECEDENT..............................................32
5.1 Conditions to Initial Extensions of Credit.....................32
5.2 Conditions to Each Extension of Credit.........................34
SECTION 6. AFFIRMATIVE COVENANTS.............................................35
6.1 Financial Statements...........................................35
6.2 Certificates; Other Information................................36
6.3 Payment of Obligations.........................................37
6.4 Conduct of Business and Maintenance of Existence...............37
6.5 Maintenance of Property; Insurance.............................37
-ii-
<PAGE> 4
6.6 Title Documents................................................38
6.7 Inspection of Inventory........................................38
6.8 Inspection of Property; Books and Records; Discussions.........38
6.9 Notices........................................................38
6.10 Environmental Laws.............................................39
6.11 Further Assurances; Additional Collateral......................40
6.12 Additional Subsidiaries........................................40
SECTION 7. NEGATIVE COVENANTS................................................41
7.1 Financial Condition Covenant: Indebtedness to Net Worth........41
7.2 Limitation on Indebtedness and Preferred Stock.................41
7.3 Limitation on Liens............................................42
7.4 Limitation on Guarantee Obligations............................42
7.5 Limitation on Fundamental Changes..............................42
7.6 Limitation on Sale of Assets...................................43
7.7 Limitation on Dividends........................................43
7.8 Limitation on Investments, Loans and Advances..................43
7.9 Limitation on Transactions with Affiliates.....................44
7.10 Limitation on Sales and Leasebacks.............................44
7.11 Limitation on Changes in Fiscal Year...........................44
7.12 Limitation on Negative Pledge Clauses..........................44
7.13 Limitation on Lines of Business................................44
SECTION 8. EVENTS OF DEFAULT.................................................44
SECTION 9. THE AGENT.........................................................47
9.1 Appointment....................................................47
9.2 Delegation of Duties...........................................47
9.3 Exculpatory Provisions.........................................48
9.4 Reliance by Agent..............................................48
9.5 Notice of Default..............................................48
9.6 Non-Reliance on Agent and Other Lenders........................49
9.7 Indemnification................................................49
9.8 Agent in its Individual Capacity...............................50
9.9 Successor Agent................................................50
-iii-
<PAGE> 5
SECTION 10. MISCELLANEOUS.....................................................50
10.1 Amendments and Waivers.........................................50
10.2 Releases of Collateral Security and Guarantee Obligations......51
10.3 Notices........................................................52
10.4 No Waiver; Cumulative Remedies.................................53
10.5 Survival of Representations and Warranties.....................53
10.6 Payment of Expenses and Taxes..................................53
10.7 Termination....................................................54
10.8 Successors and Assigns; Participations and Assignments.........54
10.9 Adjustments; Set-off...........................................56
10.10 Joint and Several Liability....................................57
10.11 Maximum Amount of Joint and Several Liability..................57
10.12 Counterparts...................................................57
10.13 Severability...................................................58
10.14 Integration....................................................58
10.15 Governing Law..................................................58
10.16 Submission To Jurisdiction; Waivers............................58
10.17 Acknowledgments................................................59
10.18 Waivers of Jury Trial..........................................59
-iv-
<PAGE> 6
SCHEDULES
---------
Schedule I Addresses for Notices
Schedule II Commitments and Commitment Percentages
Schedule III Subsidiaries
Schedule IV Indebtedness
Schedule V U.C.C. Financing Statements
Schedule VI Liens
Schedule VII Guarantees
Schedule VIII Existing Investments
EXHIBITS
--------
Exhibit A Form of Note
Exhibit B Form of Borrowers Guarantee
Exhibit C Form of Subsidiaries Guarantee
Exhibit D Form of Borrowers Joinder Agreement
Exhibit E Form of Subsidiaries Joinder Agreement
Exhibit F Form of Borrowers Security Agreement
Exhibit G Form of Subsidiaries Security Agreement
Exhibit H Form of HM Services Subordination Agreement
Exhibit I Form of ZN Letter Agreement
Exhibit J Form of ZN Net Worth Agreement
Exhibit K Form of Notice of Borrowing
Exhibit L Form of Officer's Compliance Certificate
Exhibit M Form of Opinion of Frost & Jacobs, LLP.
Exhibit N Form of Assignment and Acceptance
- v -
<PAGE> 7
FLOOR PLAN AGREEMENT, dated as of February 19, 1998, among:
(a) HOMEMAX, INC., (the "PARENT BORROWER");
(b) HOMEMAX INDIANA, LLC, HOMEMAX KENTUCKY, LLC, HOMEMAX NORTH
CAROLINA, INC., HOMEMAX OHIO, INC., HOMEMAX SOUTH
CAROLINA, INC. AND HOMEMAX TENNESSEE, INC. (together
with any other Person that becomes a borrower
hereunder as provided herein, collectively, the
"SUBSIDIARY BORROWERS" and together with the Parent
Borrower, the "BORROWERS");
(c) the banks and other financial institutions from time to time
parties to this Agreement, (the "LENDERS"); and
(d) NATIONSBANK, N.A., as agent (in such capacity, the "AGENT")
for the Lenders hereunder.
WITNESSETH:
-----------
WHEREAS, the Borrowers have requested that the Lenders make available
to them credit facilities of up to $33,920,000.00 in the aggregate upon the
terms, and subject to the conditions, set forth herein to finance inventory
consisting of new or used manufactured housing units to be acquired for use as
show models or retail sale units as permitted by this Agreement;
WHEREAS, the Agent and the Lenders are willing to provide such
financing to the Borrowers only upon the terms and subject to the conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto hereby agree as follows:
SECTION 1: DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the greater of (i) the Prime Rate in effect on
such day and (ii) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1%. If for any reason the Agent shall have determined (which
determination shall be conclusive absent manifest error) that the Agent is
unable to ascertain the Federal Funds Effective Rate for any reason,
including the inability or failure of the Agent to obtain sufficient
quotations in accordance with the terms thereof, the ABR shall be determined
without regard to clause (ii) of the first sentence of this definition, until
the circumstances giving rise to such inability no longer exist. Any change
in the ABR due to a
<PAGE> 8
change in the Prime Rate or Federal Funds Effective Rate shall be effective
on the effective date of such change in the Prime Rate or Federal Funds
Effective Rate, respectively.
"ABR ADVANCES": Advances the rate of interest applicable to which is
based upon the ABR.
"ADVANCES": as defined in subsection 2.1.
"AFFILIATE": as to any Person, any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled
by, or is under common control with, such Person. For purposes of this
definition, "control" of a Person means the power, directly or indirectly,
either to (a) vote 5% or more of the securities having ordinary voting
power for the election of directors of such Person or (b) direct or cause
the direction of the management and policies of such Person, whether by
contract or otherwise.
"AGENT": as defined in the preamble to this Agreement.
"AGGREGATE OUTSTANDING EXTENSIONS OF CREDIT": as to any Lender at any
time, an amount equal to the aggregate principal amount of all Advances
made by such Lender then outstanding.
"AGREEMENT": this Floor Plan Agreement, as amended, supplemented or
otherwise modified from time to time.
"APPLICABLE MARGIN": for each Type of Advance outstanding, the rate
per annum set forth below:
ABR Eurodollar Rate
--- ---------------
.0% 2.35%
"ASSIGNEE": as defined in subsection 10.8(c).
"AVAILABLE COMMITMENT": as to any Lender, an amount equal to the
excess, if any, of (a) the Commitment over (b) the Aggregate Outstanding
Extensions of Credit of such Lender.
"BANK DEFAULT": means (i) the refusal (which has not been retracted)
of a Lender to make available an amount equal to its Lender's Commitment
Percentage of any Advance or (ii) a Lender having notified the Agent and or
the Borrowers that such Lender does not intend to comply with such Lender's
obligations under Section 2, in the case of either (i) or (ii) above
including as a result of the appointment of a receiver or conservator with
respect to such Lender at the direction or request of any regulatory agency
or authority.
"BORROWERS": as defined in the preamble to this Agreement.
"BORROWERS GUARANTEE": the Guarantee to be executed and delivered by
each of the Borrowers, substantially in the form of EXHIBIT B, as the same
may be amended, supplemented or otherwise modified from time to time.
-2-
<PAGE> 9
"BORROWERS JOINDER AGREEMENT": the Joinder Agreement to be executed
and delivered by each Person that subsequent to the Closing Date becomes a
Subsidiary Borrower, substantially in the form of EXHIBIT D, as the same
may be amended, supplemented or otherwise modified from time to time.
"BORROWERS SECURITY AGREEMENT": the Security Agreement to be executed
and delivered by each of the Borrowers, substantially in the form of
EXHIBIT F, as the same may be amended, supplemented or otherwise modified
from time to time.
"BORROWING DATE": for each Advance, the date of a requested borrowing
PROVIDED that if such date is not a Business Day then the next succeeding
Business Day.
"BUSINESS": as defined in subsection 4.18(b).
"BUSINESS DAY": a day other than a Saturday, Sunday or other day on
which commercial banks in Charlotte, North Carolina are authorized or
required by law to close; PROVIDED that, with respect to matters relating
to Eurodollar Advances, the term "BUSINESS DAY" shall mean a day other than
a Saturday, Sunday or other day on which commercial banks in Charlotte,
North Carolina or London, England, are authorized or required by law to
close.
"CAPITAL STOCK": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person (other than a
corporation) and any and all warrants or options to purchase any of the
foregoing.
"CASH EQUIVALENTS": (a) securities with maturities of one year or less
from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit
and eurodollar time deposits with maturities of one year or less from the
date of acquisition and overnight bank deposits of any Lender or of any
commercial bank having capital and surplus in excess of $100,000,000, (c)
repurchase obligations of any Lender or of any commercial bank or
investment bank satisfying the requirements of clause (b) of this
definition, having a term of not more than thirty (30) days with respect to
securities issued or fully guaranteed or insured by the United States
Government or any agency thereof, (d) commercial paper issued in the United
States which is rated at least A-1 by S&P or P-1 by Moody's, (e) securities
with maturities of one (1) year or less from the date of acquisition issued
or fully guaranteed by any state, commonwealth or territory of the United
States, by any political subdivision or taxing authority of any such state,
commonwealth or territory or by any foreign government, the securities of
which state, commonwealth, territory, political subdivision, taxing
authority or foreign government are rated at least A by S&P or A by
Moody's, (f) securities with maturities of one year or less from the date
of acquisition backed by standby letters of credit issued by any Lender or
any commercial bank satisfying the requirements of clause (b) of this
definition or (g) shares of money market mutual or similar funds which
invest substantially exclusively in assets satisfying the requirements of
clauses (a) through (f) of this definition.
CHANGE IN CONTROL": any transaction or group of transactions after
which (A)(i) Allen G. Zaring, III (together with his executors,
administrators or heirs in the event of his death) shall
-3-
<PAGE> 10
directly or indirectly own less than twenty-five percent (25%) of Zaring
National's issued and outstanding common stock, or (ii) another Person has
acquired beneficial ownership of Zaring National's issued and outstanding
common stock in an amount greater than the amount owned directly or
indirectly in the aggregate by Allen G. Zaring, III (together with his
executors, administrators or heirs in the event of his death) or (B) Zaring
National shall cease to own ninety-five percent (95%) of all classes of
stock of the Parent Borrower or (C) the Parent Borrower shall cease to own,
directly or indirectly, one hundred percent (100%) of all classes of stock
of the Subsidiary Borrowers.
"CLOSING DATE": the date on which the conditions precedent set forth
in subsection 5.1 shall be satisfied.
"CODE": the Internal Revenue Code of 1986, as amended from time to
time.
"COLLATERAL": as defined in the Borrowers Security Agreement.
"COMMITMENT": as to any Lender, the obligation of such Lender to make
Advances to the Borrowers hereunder in an aggregate principal amount at any
one time outstanding not to exceed the amount set forth opposite such
Lender's name on SCHEDULE II; as the same may be reduced from time to time
pursuant to subsections 3.4, 3.5 and 3.6; as to all Lenders collectively,
the "COMMITMENTS."
"COMMITMENT PERCENTAGE": as to any Lender at any date, the percentage
which such Lender's Commitment then constitutes of the aggregate
Commitments (or, at any time after the Commitments shall have expired or
terminated, the percentage which the Aggregate Outstanding Extensions of
Credit of such Lender then constitutes of the Aggregate Outstanding
Extensions of Credit of all Lenders).
"COMMITMENT PERIOD": the period from and including the date hereof to
but not including the Maturity Date or such earlier date on which the
Commitments shall terminate as provided herein.
"COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated,
which is under common control with any Borrower within the meaning of
Section 4001 of ERISA or is part of a group which includes any Borrower and
which is treated as a single employer under Section 414 of the Code.
"CONSOLIDATED NET WORTH": for any fiscal period, the sum of (a)
Capital Stock and additional paid-in capital plus (b) retained earnings (or
minus accumulated deficits) of the Parent Borrower and its Subsidiaries
determined on a consolidated basis.
"CONSOLIDATED TANGIBLE NET WORTH": for any fiscal period, the sum of
(a) Consolidated Net Worth MINUS (b) any amounts which would be considered
intangible assets on a consolidated balance sheet of the Parent Borrower
and its Subsidiaries (including without limitation, copyrights, patents,
trademarks, contract rights, development costs and goodwill) PLUS (c) all
Subordinated Indebtedness.
-4-
<PAGE> 11
"CONTRACTUAL OBLIGATION": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"CREDIT DOCUMENTS": this Agreement, the Notes, the Security Documents,
the Guarantees, and any other instruments, certificates, agreements or
documents delivered or contemplated to be delivered hereunder or thereunder
or in connection herewith or therewith, as the same may be amended,
supplemented or otherwise modified from time to time.
"CREDIT PARTIES": the Parent Borrower and any of its Subsidiaries.
"DEFAULT": any of the events specified in Section 8, whether or not
any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
"DEFAULTING LENDER": any Lender with respect to which a Bank Default
is in effect.
"DOLLARS" and "$": dollars in lawful currency of the United States of
America.
"ENVIRONMENTAL LAWS": any and all foreign, Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees or other Requirements of Law (including common law) regulating,
relating to or imposing liability or standards of conduct concerning
pollution or protection of the environment (including protection of human
health from environmental hazards), as now or may at any time hereafter be
in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"EURODOLLAR ADVANCES": Advances the rate of interest applicable to
which is based upon the Eurodollar Rate.
"EURODOLLAR RATE": with respect to each day during each Interest
Period pertaining to a Eurodollar Advance, the rate per annum determined
for such day by the Agent to be the average of the respective rates per
annum posted by each of the principal London office of banks posting rates
as displayed on the Telerate screen, page 3750 or such other page as may
replace such page on such service for the purpose of displaying the London
interbank offered rate of major banks for deposits in U.S. dollars, as
announced from time to time by the Agent at its principal office as the
eurodollar rate for such Interest Period in effect for its commercial loans
and advances. Each change in the Eurodollar Rate as determined by the Agent
shall be effective for the immediately succeeding Interest Period following
the date such change is announced.
"EVENT OF DEFAULT": any of the events specified in Section 8, PROVIDED
that any requirement for the giving of notice, the lapse of time, or both,
or any other condition, has been satisfied.
"FACILITY": as provided for in Section 2 hereof.
-5-
<PAGE> 12
"FACILITY FEE": a fee of 1/10 of one percent (1%) on the amount of
such Lender's Commitment on the Closing Date and on each date that is the
annual anniversary thereof until the Maturity Date.
"FEDERAL FUNDS EFFECTIVE RATE": for any day, the weighted average of
the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on
the next succeeding Business Day by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day,
the average of the quotations for the day of such transactions received by
the Agent from three Federal funds brokers of recognized standing selected
by it.
"FINANCING LEASE": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"GAAP": generally accepted accounting principles in the United States
of America as in effect from time to time.
"GOVERNMENTAL AUTHORITY": any nation or government, any state or other
political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GUARANTEE": the collective reference to the Borrowers Guarantee, the
Subsidiaries Guarantee and each other guarantee from time to time made in
favor of the Agent to secure all or any part of the obligations of any of
the Borrowers hereunder as amended, supplemented or otherwise modified from
time to time; collectively, the "GUARANTEES".
"GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING PERSON"),
any obligation of the guaranteeing person or another Person (including,
without limitation, any bank under any letter of credit) to induce the
creation of which the guaranteeing person has issued a reimbursement,
counter indemnity or similar obligation, in either case guaranteeing or in
effect guaranteeing any Indebtedness, leases, dividends or other
obligations (the "PRIMARY OBLIGATIONS") of any other third Person (the
"PRIMARY OBLIGOR") in any manner, whether directly or indirectly,
including, without limitation, any obligation of the guaranteeing person
incurred for the purpose of providing credit support, whether or not
contingent, including, without limiting the generality of the foregoing,
any agreement to indemnify or hold harmless any other Person, any
performance bond or other suretyship arrangement and any form of assurance
against loss, except endorsement of negotiable instruments or other
instruments for deposit or collection in the ordinary course of business.
"GUARANTOR": any Person delivering a Guarantee.
"HM FACILITY": the $12,000,000 credit facility described in the Credit
Agreement dated as of February 23, 1998 (as amended, supplemented or
otherwise modified from time to time the "HM CREDIT AGREEMENT") by and
among HomeMax, Inc., as borrower, the Lenders from time to time party to
thereto and NationsBank, N.A. as agent for such lenders.
-6-
<PAGE> 13
"HM SERVICES SUBORDINATION AGREEMENT": the Subordination Agreement,
dated as of the date hereof, by and among the Borrowers hereunder, HM
Services, Inc., and NationsBank, N.A., substantially in the form of EXHIBIT
H, as the same may be amended modified or supplemented from time to time.
"INDEBTEDNESS": of any Person, at any date, without duplication, (a)
all indebtedness of such Person for borrowed money, (b) the deferred
purchase price of property or services (payable more than six months after
the original purchase date of such property or services), (c) any other
indebtedness of such Person which is evidenced by a note, bond, debenture
or similar instrument, (d) all obligations of such Person under Financing
Leases, (e) all obligations of such Person in respect of letters of credit
and acceptances and letters of credit issued or created for the account of
such Person (including without limitation all issued and outstanding
Letters of Credit), (f) all liabilities secured by any Lien on any property
owned by such Person even though such Person has not assumed or otherwise
become liable for the payment thereof, and (g) all Indebtedness of the
types referred to in clauses (a) through (g) above which is guaranteed
directly or indirectly by such Person.
"INSOLVENCY": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"INSOLVENT": pertaining to a condition of Insolvency.
"INTEREST PAYMENT DATE": as to any Advance, the tenth (10th) day (or
if such day is not a Business Day, on the immediately preceding Business
Day) of the immediately following calendar month.
"INTEREST PERIOD": initially, the period commencing on the Borrowing
Date and ending on the last day of the same calendar month and each period
commencing on the last day of the next preceding Interest Period and ending
one month thereafter; PROVIDED that, the foregoing provisions relating to
Interest Periods are subject to the following:
(1) any Interest Period that would otherwise extend beyond the
Maturity Date shall end on the Maturity Date; and
(2) any Interest Period pertaining to an Advance that begins on the
last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall
end on the last Business Day of a calendar month.
"INVENTORY": all Show Models and Retail Units, including all parts and
accessories thereto, located in approved Operating Locations as more fully
described in the Borrowers Security Agreement.
"JOINDER AGREEMENTS": the collective reference to the Borrowers
Joinder Agreement and the Subsidiaries Joinder Agreement.
-7-
<PAGE> 14
"LIEN": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement
and any Financing Lease having substantially the same economic effect as
any of the foregoing).
"MAJORITY LENDERS": at any time Lenders having Commitments (or if
Commitments have terminated, Aggregate Outstanding Extensions of Credit)
which aggregate more than 51% of the sum of the amount of the Commitments
of the Non-Defaulting Lenders (or Aggregate Outstanding Extensions of
Credit of the Non-Defaulting Lenders as the case may be) then in effect,
PROVIDED that, if at any time, there are two or more Lenders hereunder, any
action required by Majority Lenders shall require the consent of not less
than two Lenders.
"MANUFACTURER'S INVOICE AMOUNT": the actual cost to a Borrower or its
Subsidiaries of each item of new Inventory as designated on a
manufacturer's invoice or bill of sale for such item of Inventory.
"MATERIAL ADVERSE AMOUNT": an amount payable by the Parent Borrower
and/or its Subsidiaries in excess of $100,000 for remedial costs,
non-routine compliance costs, compensatory damages, punitive damages,
fines, penalties or any combination thereof.
"MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the
business, operations, property, financial condition or prospects of the
Parent Borrower and its Subsidiaries taken as a whole, (b) the validity or
enforceability of this or any of the other Credit Documents or (c) the
rights or remedies of the Agent or the Lenders hereunder or under any of
the other Credit Documents.
"MATERIALS OF ENVIRONMENTAL CONCERN": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as
such in or under any Environmental Law, including, without limitation,
asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.
"MATURITY DATE": the last Business Day of the calendar month in the
month that is thirty-six (36) months following the Closing Date.
"MOODY'S": Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"NADA BOOK VALUE": the value as established by the most recent
National Edition of the N.A.D.A. Manufactured Housing Appraisal Guide based
on and limited to the following parameters: (i) manufacturer's name, (ii)
trade/model name, (iii) width and length, (iv) year and (v) location.
"NON-DEFAULTING LENDER": any Lender other than a Defaulting Lender.
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"NON-EXCLUDED TAXES": as defined in subsection 3.15(a).
"NOTE": as defined in subsection 3.1(e).
"NOTICE OF BORROWING": means with respect to a request for a borrowing
hereunder, a request in the form of EXHIBIT K hereto, as delivered to the
Agent by a Responsible Officer of a Borrower.
"OPERATING LOCATIONS": the sites as acquired from time to time by a
Borrower or its Subsidiaries, where Inventory is displayed in connection
with its sale by such Borrower or any of its Subsidiaries in the ordinary
course of business.
"OVERLINE:" as described in subsection 2.4(a).
"OVERLINE FACILITY": as described in subsection 2.4.
"OVERLINE ADVANCES": as defined in subsection 2.4(a).
"PARENT BORROWER": as defined in the preamble to this Agreement.
"PARTICIPANTS": as defined in subsection 10.8(b).
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA.
"PERSON": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other legal entity.
"PLAN": at a particular time, any employee benefit plan or other plan
established, maintained or contributed to by any Borrower or a Commonly
Controlled Entity that is covered by Title IV of ERISA.
"PRIME RATE": the rate of interest per annum announced from time to
time by the Agent at its principal office as its prime rate on a particular
day in effect for domestic (United States) commercial loans and advances;
such rate is not necessarily intended to be the lowest rate of interest
charged by the Lenders in connection with extensions of credit. Each change
in the Prime Rate shall be effective on the date such change is announced.
"PRINCIPAL PAYMENT DATE": as to any Advance, the tenth (10th) day (or
if such day is not a Business Day on the immediately preceding Business
Day) of the immediately following calendar month.
"PROCEEDS": with respect to any Proceeds Event, the gross cash
consideration, and all cash proceeds (as and when received) of non-cash
consideration (including, without limitation, any such cash proceeds in the
nature of principal and interest payments on account of promissory notes or
similar obligations), received by a Borrower and its Subsidiaries in
connection with such
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Proceeds Event which is required to be repaid at the time or as a result of
such Proceeds Event out of the proceeds thereof.
"PROCEEDS EVENT":
(a) the sale, transfer or other disposition by a Borrower or any of its
Subsidiaries of any Inventory (including, without limitation, any
Inventory sold, transferred or otherwise disposed of in the ordinary
course of business) of such Borrower or such Subsidiary to any Person
(other than to the Parent Borrower or any of its Subsidiary Borrowers);
(b) the recovery by a Borrower of amounts owing to it under insurance policies
with respect to any item of Inventory; and
(c) the receipt by the Parent Borrower or any of its Subsidiaries of a
reimbursement, refund or other recovery of amounts owing to the Parent
Borrower or such Subsidiary because of the receipt of damaged Inventory
from any Person (including any manufacturer) from whom any Credit Party
purchased or otherwise acquired Inventory.
"PROPERTIES": as defined in subsection 4.18(a).
"REGULATION G": Regulation G of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"REGULATION U": Regulation U of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"REORGANIZATION": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of Section
4241 of ERISA.
"REPORTABLE EVENT": any of the events set forth in Section 4043(c) of
ERISA, other than those events as to which the thirty (30) day notice
period is waived under subsections .22, .25, .27 or .28 of PBGC Reg.
sec. 4043.
"REQUIREMENT OF LAW": as to any Person, the Articles or Certificate of
Incorporation and By-Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"RESPONSIBLE OFFICER": the chief executive officer, the president, an
executive vice president, the chief financial officer or the treasurer of a
Borrower.
"RESTRICTED PAYMENTS": as defined in subsection 7.7.
"RETAIL UNITS": new or used manufactured housing units acquired by a
Borrower or its Subsidiaries from a manufacturer of such units or as a
result of a rescinded sales transaction as acquired from time to time by a
Borrower or its Subsidiaries.
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"RETAIL UNIT ADVANCE": any Advance made in connection with a Retail
Unit.
"S&P": Standard and Poor's Ratings Group, a division of McGraw Hill
Companies Inc.
"SEC": means the United States Securities and Exchange Commission, or
any Governmental Authority succeeding to any of its principal functions.
"SECURED OBLIGATIONS": shall be the collective reference to the unpaid
principal of and interest on the Notes and all other obligations and
liabilities (including, without limitation, interest accruing at the then
applicable rate provided in this Agreement after the maturity of the
Advances and interest accruing at the then applicable rate provided in this
Agreement after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating
to the Borrowers, on a joint and several basis, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding), of
the Borrowers, on a joint and several basis, to the Agent and the Lenders,
whether direct or indirect, absolute or contingent, due or to become due,
or now existing or hereafter incurred, which may arise under, out of, or in
connection with, this Agreement, the Notes and the other Credit Documents
or any other document made, delivered or given in connection therewith, in
each case whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise (including,
without limitation, all reasonable fees and disbursements of counsel to the
Agent or to the Lenders that are required jointly and severally to be paid
by the Borrowers pursuant to the terms of this Agreement or any other
Credit Document).
"SECURITY AGREEMENT": the collective reference to the Borrowers
Security Agreement, the Subsidiaries Security Agreement and each other
security agreement from time to time made in favor of the Agent to secure
all or part of the Secured Obligations as amended, supplemented or
otherwise modified from time to time.
"SECURITY DOCUMENTS": the collective reference to the Security
Agreements, the Joinder Agreements and all other security documents
hereafter delivered to the Lender granting a Lien on any asset or assets of
any Person to secure the obligations and liabilities of any Borrower
hereunder and under any of the other Credit Documents or to secure any
guarantee of any such obligations and liabilities.
"SHOW MODELS": new manufactured housing units maintained as permanent
displays and subsequently sold and replaced with new models as acquired
from time to time by a Borrower or its Subsidiaries.
"SHOW MODEL ADVANCE": any Advance made in connection with a Show
Model.
"SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"SUBORDINATED INDEBTEDNESS": any Indebtedness for any Borrower is
liable that is subordinated to the obligations of the Credit Parties
hereunder on terms pursuant to
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documentation containing terms other terms (including interest,
amortization, covenants and events of default) in form and substance
satisfactory to the Agent.
"SUBSIDIARIES GUARANTEE": each Guarantee to be executed and delivered
by one or more Subsidiaries (including without limitation HM Services, Inc.
and HomeMax Properties, Inc. but other than the Subsidiary Borrowers), each
substantially in the form of EXHIBIT C, as the same may be amended,
supplemented or otherwise modified from time to time.
"SUBSIDIARIES JOINDER AGREEMENT": the Joinder Agreement to be executed
and delivered by each Person that subsequent to the Closing Date becomes a
Subsidiary, substantially in the form of EXHIBIT E, as the same may be
amended, supplemented or otherwise modified from time to time PROVIDED that
if such Person also becomes a Subsidiary Borrower hereto then such Person
shall instead execute and deliver a Borrowers Joinder Agreement as provided
herein.
"SUBSIDIARIES SECURITY AGREEMENT": each Security Agreement to be
executed and delivered by a Subsidiary, substantially in the form of
EXHIBIT G, as the same may be amended, supplemented or otherwise modified
from time to time.
"SUBSIDIARY": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through
one or more intermediaries, or both, by such Person. Unless otherwise
qualified, all references to a "Subsidiary" or to "Subsidiaries" in this
Agreement shall refer to a Subsidiary or Subsidiaries of the Borrowers.
"TITLE DOCUMENTS": the collective reference to the manufacturers'
certificate of origin, manufacturer's statement of origin, certificates of
title or any and all other title documents for each item of Inventory.
"TRANSFEREE": as defined in subsection 10.8(f).
"TYPE": as to any Advance, as the context requires, its nature as a
Eurodollar Advance or an ABR Advance.
"UNIFORM CUSTOMS": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No.
500, as the same may be amended from time to time.
"ZARING NATIONAL": Zaring National Corporation, an Ohio corporation of
which the Parent Borrower is a ninety-five percent (95%) owned Subsidiary.
"ZN FACILITY": the $15,000,000 credit facility described in the credit
agreement dated as of February 23, 1998, (as amended, supplemented or
otherwise modified from time to time, the
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"ZN CREDIT AGREEMENT") by and among Zaring National Corporation, as
borrower, the banks from time to time party thereto and NationsBank, N.A.,
as agent for such banks.
"ZN LETTER AGREEMENT": the side letter agreement to be executed and
delivered by Zaring National substantially in the form of EXHIBIT I, as the
same may be amended, supplemented or otherwise modified from time to time.
"ZN NET WORTH AGREEMENT": the Net Worth Maintenance Agreement to be
executed and delivered by Zaring National, substantially in the form of
EXHIBIT J, as the same may be amended, supplemented or otherwise modified
from time to time.
1.2 OTHER DEFINITIONAL PROVISIONS:
(a) Unless otherwise specified therein, all terms defined in this Agreement
shall have the defined meanings when used in any Notes or any
certificate or other document made or delivered pursuant hereto.
(b) Unless otherwise specified herein, all accounting terms used herein (and in
any other Credit Document and any certificate or other document made or
delivered pursuant hereto or thereto) shall be interpreted, all
accounting determinations shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance
with GAAP as in effect from time to time.
(c) The words "hereof," "herein" and "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement, and Section,
subsection, Schedule and Exhibit references are to this Agreement
unless otherwise specified.
(d) In the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including" and the
words "to" and "until" each mean "to but excluding". Periods of days
referred to in this Agreement shall be counted in calendar days unless
Business Days are expressly prescribed. Any period determined hereunder
by reference to a month or months or year or years shall end on the day
in the relevant calendar month in the relevant year, if applicable,
immediately preceding the date numerically corresponding to the first
day of such period, PROVIDED, that if such period commences on the last
day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month during which such period is to
end), such period shall, unless otherwise expressly required by the
other provisions of this Agreement, end on the last day of the calendar
month.
(e) The meanings given to terms defined herein shall be equally applicable to
both the singular and plural forms of such terms.
SECTION 2: AMOUNT AND TERMS OF COMMITMENTS
2.1 COMMITMENTS.
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(a) Subject to the terms and conditions hereof, each Lender, at the reasonable
discretion of the Agent severally agrees to make advances ("ADVANCES")
available to the Borrowers from time to time during the Commitment
Period in an aggregate principal amount at any one time outstanding
which does not exceed such Lender's Commitment (excluding Overline
Advances), PROVIDED, that no additional advance (other than Overline
Advances) will exceed the Available Commitment. During the Commitment
Period the Borrowers may use the Commitments by borrowing, prepaying
the Advances in whole or in part, and reborrowing, all in accordance
with the terms and conditions hereof.
(b) Except as provided in subsection 3.11 or subsection 3.13, the Advances will
be Eurodollar Advances, PROVIDED that no Advance shall be made after
the day that is one month prior to the Maturity Date.
(c) Anything to the contrary notwithstanding contained in this Agreement or any
other Credit Document, no Lender has any obligation to make any Advance
(including Overline Advances under subsection 2.4 or third party
payments under subsection 2.5) unless the Agent in its sole discretion
determines that such Advance shall be made. Accordingly, each Advance
is at the sole reasonable discretion of the Agent which has no
obligation to approve any such Advance.
2.2 PROCEDURE FOR BORROWING. A Borrower shall deliver to the Agent such
Borrower's Notice of Borrowing, specifying the amount of such Advance,
which notice must be in writing or by telephone promptly confirmed in
writing prior to 2:00 P.M., Charlotte, North Carolina time, on the
requested Borrowing Date. Upon receipt of any such Notice of Borrowing
from a Borrower, the Agent shall promptly notify each Lender thereof.
Each Lender will make the amount of its pro rata share of each
borrowing available to the Agent for the account of such Borrower at
the office of the Agent specified in subsection 10.3 prior to 3:00
P.M., Charlotte, North Carolina time on the Borrowing Date, in funds
immediately available to the Agent. Such borrowing will then be made
available to such Borrower by the Agent transferring to an account
(which shall be maintained for such purpose by the Agent) with the
aggregate of the amounts made available to the Agent by the Lenders and
in like funds as received by the Agent.
2.3 CURTAILMENT OF ADVANCES. Each Borrower shall make (a) a payment of ten
percent (10%) of the original outstanding principal of each Show Model
Advance on the Principal Payment Date of the date that is twelve (12)
months from the applicable Borrowing Date with a balloon payment of any
then-outstanding principal amount of such Show Model Advance on the
Principal Payment Date of the date that is twenty-four (24) months from
the applicable Borrowing Date and (b) a payment of ten percent (10%) of
the original outstanding principal of each Retail Unit Advance on the
Principal Payment Date of the date that is six (6) months from the
applicable Borrowing Date with a balloon payment of any
then-outstanding principal amount of such Retail Unit Advance on the
Principal Payment Date of the date that is nine (9) months from the
applicable Borrowing Date.
2.4 OVERLINE COMMITMENT.
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(a) If at any one time, (i) the aggregate principal amount of the Advances
outstanding exceeds the aggregate Commitment of the Lenders, or (ii)
any Advance exceeds the amount permitted with respect to such Advance
pursuant to subsection 2.6, the amount equal to such excess (the
"OVERLINE") shall be payable on demand. In the event that no such
demand is made, subject to the terms and conditions hereof, the Lenders
severally agree to make additional advances (the "OVERLINE ADVANCES")
to the Borrowers on a pro rata basis according to the respective
relevant Commitment Percentages of the Lenders for an aggregate amount
equal to such Overline.
(b) The Borrowers may use the Overline Advances during the time period
specified by the Agent, in its sole discretion, in a written notice to
the Borrowers on the date any such Overline Advance is made available
to the Borrowers.
(c) The Overline Advances shall be subject to each of the terms and provisions
of this Agreement and any other Credit Document and shall be secured by
all Collateral provided for herein or therein.
(d) Anything else to the contrary notwithstanding, the Agent shall be under no
obligation to permit any Overline at anytime.
2.5 THIRD PARTY PAYMENTS.
(a) Subject to the terms and conditions hereof, from time to time, at the
Agent's discretion, each Lender severally agrees to make Advances
(including Overline Advances) in the form of direct payments to any
Person (including any manufacturer) from whom any Credit Party
purchased or otherwise acquired an item of Inventory.
(b) Invoices submitted by any such Person (as described in paragraph (a) of
this subsection) shall be (i) considered the Borrowers' irrevocable
Notice of Borrowing with respect to any such Advance and (ii) together
with any drafts paid by the Lenders to such Person, evidence of the
Advances made by the Lenders under this Facility. Accordingly, the date
on which any such Advance is made by the Lenders to such Person shall
be the Borrowing Date for such Advance.
(c) Neither the Agent nor the Lenders shall have any obligation to inspect any
item of Inventory prior to making an Advance to any such Person (as
described in paragraph (a) of this subsection). If the Lenders have
made such an Advance with respect to an item of Inventory determined by
the Agent in its sole discretion to be damaged, the Borrowers shall
direct such Person to refund the respective Advance to the Agent for
ratable distribution to the Lenders.
(d) The Borrowers hereby, jointly and severally, authorize the Agent and the
Lenders to pay all such invoices and drafts upon presentation by any
such Person (as described in paragraph (a) of this subsection).
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2.6 USE OF PROCEEDS OF ADVANCES; Limitation on Advances. (a) The proceeds of
the Advances shall be utilized by the Borrowers exclusively to provide
financing for the acquisition of items of Inventory.
(b) Notwithstanding anything herein to the contrary, each and any such
Advance (i) made in connection with a new item of Inventory shall not
exceed the Manufacturer's Invoice Amount for such item and (ii) each and
any such Advance made in connection with a used item of Inventory shall not
exceed the NADA Book Value applicable to such item, PROVIDED that the Agent
in its sole discretion, based on its analysis of any item of Inventory may
dilute the value of such Inventory that shall be used to determine the
amount of the Advance that may be made with respect to such item of
Inventory.
SECTION 3: PROVISIONS RELATING TO THE EXTENSIONS OF CREDIT; FEES AND PAYMENTS
3.1: REPAYMENT OF ADVANCES; EVIDENCE OF INDEBTEDNESS.
(a) The Borrowers hereby unconditionally, jointly and severally, promise to pay
to the Agent for the account of each applicable Lender the principal
amount of each Advance on the dates and in the amounts set forth in
subsection 2.3 and any then unpaid principal amount of each Advance on
the Maturity Date (or such earlier date on which the Advances become
due and payable pursuant to Section 8). The Borrowers hereby, jointly
and severally, further agree to pay interest on the unpaid principal
amount of the Advances from time to time outstanding from the date
hereof until payment in full thereof at the rates per annum, and on the
dates, set forth in subsection 3.9.
(b) Each Lender shall maintain in accordance with its usual practice an account
or accounts evidencing Indebtedness of the Borrowers to the Lender
resulting from each Advance of such Lender from time to time, including
the amounts of principal and interest payable and paid to such Lender
from time to time under this Agreement.
(c) The Agent shall maintain the Register pursuant to subsection 10.8(d) and a
subaccount therein for each Lender, in which shall be recorded (i) the
amount of each Advance made hereunder, the Type thereof and each
Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the
Borrowers to the Lenders hereunder and (iii) the amount and date of any
sum received by the Agent hereunder from the Borrowers.
(d) The entries made in the Register and the accounts of each Lender maintained
pursuant to subsection 10.8(d) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of
the obligations of the Borrowers therein recorded; PROVIDED, HOWEVER,
that the failure of the Agent or any Lender to maintain the Register or
any such account, or any error therein, shall not in any manner affect
the joint and several obligation of the Borrowers to repay (with
applicable interest) the Advances made to such Borrowers by the Lenders
in accordance with the terms of this Agreement.
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(e) The Borrowers, jointly and severally, agree that, upon request of any
Lender through the Agent, the Borrowers will execute and deliver to
such Lender a promissory note of the Borrowers evidencing the Advances
of such Lender, substantially in the form of EXHIBIT A with appropriate
insertions as to date and principal amount (a "NOTE").
3.2 FACILITY FEE.
(a) The Borrowers, jointly and severally, agree to pay the Facility Fee.
(b) Such Facility Fee shall be calculated on the basis of a 365- or a 366-day
year, as the case may be.
(c) Such Facility Fee shall be payable annually, in advance, on the date that
is the anniversary of the Closing Date (or if such day is not a
Business Day on the next succeeding Business Day) until the Maturity
Date or such earlier date as the Commitments shall terminate as
provided herein, commencing on the first such anniversary to occur
after the date hereof.
3.3 AGENT'S FEES. The Borrowers, jointly and severally, agree to pay to the
Agent, for its own account, such fees as may be agreed from time to
time between the Borrowers and the Agent, when and as due.
3.4 OPTIONAL PREPAYMENTS. The Borrowers may at any time and from time to time
prepay the Advances, in whole or in part, without premium or penalty
(subject to the provisions of subsection 3.16), by providing notice to
the Agent (which notice must be received by the Agent prior to 2:00
P.M., Charlotte, North Carolina time, on the date on which such
prepayment is scheduled to be made) specifying the amount of such
prepayment. Upon receipt of such notice, the Agent shall promptly
notify each Lender thereof. Partial prepayments shall be in an
aggregate principal; amount of $500,000, or a whole multiple in excess
thereof.
3.5 OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. The Borrowers shall have
the right, upon not less than three (3) Business Days' notice to the
Agent, to terminate the Commitments or, from time to time, to reduce
the amount of the Commitments; PROVIDED that no such termination or
reduction shall be permitted with respect to the Commitments (i) to the
extent that after giving effect thereto and to any repayments or
prepayments of the Advances made on the effective date thereof, the
aggregate principal amount of the Advances then outstanding would
exceed the Commitments then in effect and (ii) after the date that is
three (3) Business Days prior to the Maturity Date. Any such reduction
shall be in an amount equal to $500,000 or a whole multiple in excess
thereof and shall reduce permanently the affected Commitments then in
effect.
3.6 MANDATORY REDUCTION OF COMMITMENTS AND PREPAYMENTS.
(a) If at any time during the Commitment Period the Aggregate Extensions of
Credit of any Lender exceeds such Lender's available Commitment (other
than under the Overline
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Facility pursuant to the terms and conditions of subsection 2.4), the
Borrowers, jointly and severally, shall immediately repay the Advances,
such repayment to be in an aggregate amount equal to such excess.
(b) If at any time during the Commitment Period, the Lenders shall make an
Advance under subsection 2.5 to a Person (including any manufacturer)
from whom any Credit Party purchased or otherwise acquired an item of
damaged Inventory and neither such Person nor any of the Borrowers
refunded or repaid such Advance promptly upon receipt of the Agent's
written request for such refund or repayment, the Borrowers shall
jointly and severally repay such Advance and permanently reduce the
Commitments by the amount equal to such Advance.
(c) The Borrowers shall, jointly and severally, repay the Advances by the
amount equal to the aggregate amount of Proceeds received from any
Proceeds Event thereof as promptly as is practicable PROVIDED that in
any event, (i) with respect to paragraph (a) of the definition of
Proceeds Event, such repayment and reduction shall be made (A) within
twenty-four (24) hours of the receipt of Proceeds from such Proceeds
Event or (B) within three (3) Business days of the sale, transfer or
other disposition that triggered such Proceeds Event (whichever of (A)
or (B) is the first to occur) and (ii) with respect to paragraphs (b)
and (c) of such definition, such repayment and reduction shall be made
within (1) Business Day following the receipt of the Proceeds from such
Proceeds Event; FURTHER PROVIDED that no such repayment and reduction
shall be due pursuant to this subsection 3.6(b) with respect to any
Proceeds Event on account of:
(i) the sale or other disposition of obsolete, inoperative,
surplus or worn out real or personal, tangible or
intangible, property (other than Inventory but including
without limitation, any property which is no longer used
or useful in the business of a Borrower or its
Subsidiaries) in the ordinary course of business and for
fair market value; or
(ii) the sale, transfer or other disposition by a Borrower or any
of its Subsidiaries of any real or personal, tangible or
intangible, property of a Borrower and its Subsidiaries
(other than Inventory), to the extent that the Proceeds
from such sale, transfer or other disposition (in the
aggregate with the Proceeds from all other sales,
transfers and other dispositions occurring during the
fiscal year in which such sale, transfer or other
disposition occurred other than those described in
paragraph (i)) is less than $500,000.
3.7 APPLICATION OF PREPAYMENTS.
(a) Any payments of the Advances and reductions of the Commitments made
pursuant to subsections 3.4, 3.5 or 3.6 shall be applied in inverse
order of Maturity to the then outstanding installments thereof, FURTHER
PROVIDED that, notwithstanding the foregoing,
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any prepayment made pursuant to subsection 3.6(b) as a result of any sale,
transfer or disposition of any Retail Unit or any Show Model shall be
applied (i) FIRST to the Advance relating to such Retail Unit or such Show
Model and (ii) SECOND to any other outstanding Advances hereunder as
selected by the Agent in its sole discretion.
(b) Any payments of the Advances and reductions of the Commitments made pursuant
to subsections 3.4, 3.5 or 3.6 shall not be applied to the prepayment
of the Advances of a Defaulting Lender at any time under the Facility
when the aggregate amount of Advances of any Non-Defaulting Lender
exceeds such Non-Defaulting Lender's Commitment Percentage of all
Advances then outstanding.
3.8 CONTINUATION OPTIONS. Any Advances may be continued as Eurodollar Advances
upon the expiration of the then current Interest Period with respect
thereto, PROVIDED that:
(a) no Eurodollar Advance may be continued as such when any Event of Default
has occurred and is continuing and the Agent has or the Majority
Lenders have determined that such a continuation is not appropriate;
and
(b) no Advance may be continued as such after the date that is one month prior
to the Maturity Date.
3.9 INTEREST RATES AND PAYMENT DATES.
(a) Each Advance shall bear interest for each day during each Interest Period
with respect thereto at a rate per annum equal to the Eurodollar Rate
determined for such day plus the Applicable Margin in effect for such
day.
(b) If the Advance is converted to an ABR Advance pursuant to subsection 3.11
or subsection 3.13, the ABR Advance shall bear interest at a rate per
annum equal to the ABR plus the Applicable Margin.
(c) If all or a portion of any principal of any Advance, any interest payable
thereon or any other amount payable hereunder shall not be paid when
due (whether at the stated maturity, by acceleration or otherwise), the
principal of the Advances and any such overdue interest or other amount
shall bear interest at the lesser rate of (i) eighteen percent (18%) or
(ii) the maximum rate of interest that may be lawfully charged with
respect to such principal, interest or other amount, in each case from
the date of such non-payment until such overdue principal, interest or
other amount is paid in full (as well after as before judgment).
(d) Interest on each Advance shall be payable in arrears on each Interest
Payment Date and shall accrue from and including the Borrowing Date but
excluding the date of repayment thereof, PROVIDED that interest
accruing pursuant to paragraph (d) of this subsection shall be payable
from time to time on demand.
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(e) Notwithstanding anything to the contrary contained herein, in no event
shall the Borrowers be obligated to pay interest in excess of the
maximum amount which is chargeable under applicable law.
3.10 COMPUTATION OF INTEREST AND FEES.
(a) The Facility Fee shall be calculated in accordance with subsection 3.2.
(b) Interest shall be calculated on the basis of a 360-day year for the actual
days elapsed. The Agent shall as soon as practicable notify the
Borrowers and the Lenders of each determination of the Eurodollar Rate.
Any change in the interest rate on an Advance resulting from a change
in the ABR or the Eurocurrency Reserve Requirements shall become
effective as of the opening of business on the day on which such change
becomes effective.
(c) Each determination of an interest rate by the Agent pursuant to any
provision of this Agreement shall be conclusive and binding on the
Borrowers and the Lenders in the absence of manifest error. The Agent
shall, at the request of the Borrowers, deliver to the Borrowers a
statement showing the quotations used by the Agent in determining any
interest rate pursuant to subsection 3.9(a).
3.11 INABILITY TO DETERMINE INTEREST RATE.
(a) If prior to the first day of any Interest Period:
(i) the Agent shall have determined (which determination shall be
conclusive and binding upon the Borrowers in the absence
of manifest error) that, by reason of circumstances
affecting the relevant market, adequate and reasonable
means do not exist for ascertaining the Eurodollar Rate
for such Interest Period; or
(ii) the Agent shall have received notice from the Majority
Lenders that the Eurodollar Rate determined or to be
determined for such Interest Period will not adequately
and fairly reflect the cost to such Lenders (as
conclusively certified by such Lenders) of making or
maintaining their affected Advances during such Interest
Period;
The Agent shall give telecopy or telephonic notice thereof to the Borrowers and
the Lenders as soon as possible thereafter. If such notice is given, (i) any
Advances requested to be made on the first day of such Interest Period shall be
made as ABR Advances, and (ii) any outstanding Advances shall be converted, on
the first day of such Interest Period, to ABR Advances. Until such notice has
been withdrawn by the Agent, no further Advances shall be made or continued as
Eurodollar Advances.
3.12 PRO RATA TREATMENT AND PAYMENTS.
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(a) Each borrowing by a Borrower from the Lenders hereunder, each payment by a
Borrower on account of any Facility Fee hereunder and any reduction of
the Commitments of the Lenders shall be made pro rata according to the
respective relevant Commitment Percentages of the Lenders holding
obligations in respect of which such amounts were paid. Each payment
(including each prepayment) by a Borrower on account of principal of
and (subject to the provisions of subsections 3.4, 3.6 and 3.7)
interest on the Advances shall be made pro rata according to the
respective outstanding principal amounts of such Advances then held by
the Lenders. Except as otherwise set forth herein, all payments
(including prepayments) to be made by the Borrowers hereunder, whether
on account of principal, interest, fees or otherwise, shall be made
without set off or counterclaim and shall be made prior to 2:00 P.M.,
Charlotte, North Carolina time, on the due date thereof to the Agent,
for the account of the applicable Lenders, at the Agent's office
specified in subsection 10.3, in Dollars and in immediately available
funds. The Agent shall distribute such payments to the Lenders holding
obligations on account of which such amounts were paid promptly upon
receipt in like funds as received. If any payment hereunder becomes due
and payable on a day other than a Business Day, such payment shall be
extended to the next succeeding Business Day, and, with respect to
payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.
(b) All such payments shall be applied FIRST to accrued and unpaid fees and
expenses payable hereunder, SECOND to accrued and unpaid interest on
the applicable Advance and THIRD, in accordance with subsection 3.7(a),
to reduce the outstanding principal balance of such Advance.
(c) Unless the Agent shall have been notified in writing by any Lender prior to
a borrowing that such Lender will not make the amount that would
constitute its relevant Commitment Percentage of such borrowing
available to the Agent, the Agent may assume that such Lender is making
such amount available to the Agent, and the Agent may, in reliance upon
such assumption, make available to the Borrowers a corresponding
amount. If such amount is not made available to the Agent by the
required time on the Borrowing Date therefor, such Lender shall pay to
the Agent, on demand, such amount with interest thereon at a rate equal
to the daily average Federal Funds Effective Rate for the period until
such Lender makes such amount immediately available to the Agent. A
certificate of the Agent submitted to any Lender shall, to the extent
permitted by applicable law, be prima facie evidence of any amounts
owing under this subsection 3.12. If such Lender's relevant Commitment
Percentage of such borrowing is not made available to the Agent by such
Lender within three (3) Business Days of such Borrowing Date, the Agent
shall also be entitled to recover such amount with interest thereon at
the rate per annum applicable to ABR Advances hereunder, on demand,
jointly and severally, from the Borrowers.
3.13 ILLEGALITY. Notwithstanding any other provision herein, if the adoption of
or any change in any Requirement of Law or in the interpretation or
application thereof, in each case after the Closing Date, shall make it
unlawful for any Lender to make or maintain Eurodollar Advances, as the
case may be, as contemplated by this Agreement, (a) the commitment of
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such Lender hereunder to make Eurodollar Advances or continue Eurodollar
Advances as such, as the case may be, shall forthwith be suspended to the
extent unlawful and (b) to the extent unlawful the Lenders' Advances then
outstanding shall be converted automatically to ABR Advances on the last
day of the current Interest Period with respect to such Advances or within
such earlier period as required by law. If any such conversion of a
Eurodollar Advance occurs on a day which is not the last day of the current
Interest Period, the Borrowers, on a joint and several basis, shall pay to
such Lender such amounts, if any, as may be required pursuant to subsection
3.16.
3.14 REQUIREMENTS OF LAW.
(a) If the adoption of or any change in any applicable Requirement of Law or in
the interpretation or application thereof or compliance by any Lender
with any request or directive (whether or not having the force of law)
from any central bank or other Governmental Authority charged with the
interpretation or administration thereof made subsequent to the date
hereof:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement, any Note, or any
Eurodollar Advance made by it, or change the basis of
taxation of payments to such Lender in respect thereof
(except for Non-Excluded Taxes covered by subsection 3.15
and changes in the rate of net income taxes or franchise
taxes (imposed in lieu of net income taxes) of such
Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory Advance or similar requirement
against assets held by, deposits or other liabilities in
or for the account of, advances, loans or other
extensions of credit by, or any other acquisition of
funds by, any office of such Lender which is not
otherwise included in the determination of the Eurodollar
Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such
Lender, by an amount which such Lender deems to be material, of making,
converting into (with respect to Eurodollar Advances), continuing or
maintaining Eurodollar Advances or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, the Borrowers,
jointly and severally, shall promptly pay such Lender such additional
amount or amounts as will compensate such Lender for such increased cost or
reduced amount receivable.
(b) If any Lender shall have determined that the adoption of or any change in
any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by any corporation
controlling such Lender with any request or directive regarding capital
adequacy (whether or not having the force of law, if compliance
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therewith is a customary banking practice) from any Governmental Authority
made subsequent to the date hereof shall have the effect of reducing the
rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which such
Lender or such corporation could have achieved but for such adoption,
change or compliance (taking into consideration such Lender's or such
corporation's policies with respect to capital adequacy) by an amount
deemed by such Lender to be material, then from time to time, the
Borrowers, jointly and severally, shall pay to such Lender such additional
amount or amounts as will compensate such Lender for such reduction.
(c) If any Lender becomes entitled to claim any additional amounts pursuant to
this subsection 3.14, it shall promptly notify the Borrowers (with a
copy to the Agent) of the event by reason of which it has become so
entitled. A certificate submitted by such Lender to the Borrowers (with
a copy to the Agent) shall, to the extent permitted by applicable law,
be prima facie evidence of any additional amounts payable pursuant to
this subsection 3.14. The agreements in this subsection 3.14 shall
survive the termination of this Agreement and the payment of the
Advances and all other amounts payable hereunder.
3.15 TAXES.
(a) All payments made by each of the Borrowers under this Agreement and any
Notes shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp
or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any Governmental Authority, excluding net income taxes and
franchise taxes (imposed in lieu of net income taxes) imposed on the
Agent or any Lender as a result of a present or former connection
between the Agent or such Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision
or taxing authority thereof or therein (other than any such connection
arising solely from the Lenders having executed, delivered or performed
its obligations or received a payment under, or enforced, this
Agreement or any Note). If any such non-excluded taxes, levies,
imposts, duties, charges, fees, deductions or withholdings
("NON-EXCLUDED TAXES") are required to be withheld from any amounts
payable to Agent or any Lender hereunder or under any Note, the amounts
so payable to the Agent or such Lender shall be increased to the extent
necessary to yield to the Agent or such Lender (after payment of all
Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement.
Whenever any Non-Excluded Taxes are payable by any Borrower, as
promptly as possible thereafter the Borrowers shall send to the Agent
for its own account or for the account of such Lender, as the case may
be, a certified copy of an original official receipt received by the
Borrowers showing payment thereof. If any Borrower fails to pay any
Non-Excluded Taxes when due to the appropriate taxing authority or
fails to remit to the Agent the required receipts or other required
documentary evidence, the Borrowers, jointly and severally, shall
indemnify the Agent and the Lenders for any incremental increased
taxes, interest or penalties that may become payable by the Agent or
any Lender as a result of any such failure. The
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agreements in this subsection 3.15 shall survive the termination of this
Agreement and the payment of the Advances and all other amounts payable
hereunder.
(b)Each Lender that is not incorporated under the laws of the United States of
America or a state thereof shall:
(i) deliver to the Borrowers and the Agent (A) two duly completed
copies of the United States Internal Revenue Service Form
1001 or 4224, or successor applicable form, as the case
may be, and (B) an Internal Revenue Service Form W-8 or
W-9, or successor applicable form, as the case may be;
(ii) deliver to the Borrowers and the Agent two further copies of
any such form or certification on or before the date that
any such form or certification expires or becomes
obsolete and after the occurrence of any event requiring
a change in the most recent form previously delivered by
it to the Borrowers; and
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by
the Borrowers or the Agent;
unless in any such case an event (including, without limitation, any change
in treaty, law or regulation) has occurred prior to the date on which any
such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Lender from duly completing and
delivering any such form with respect to it and such Lender so advises the
Borrowers and the Agent. Such Lender shall certify (i) in the case of a
Form 1001 or 4224, that it is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal
income taxes and (ii) in the case of Form W-8 or W-9, that it is entitled
to an exemption from United States backup withholding tax. Each Person that
shall become a Lender or a Participant pursuant to subsection 10.8 shall,
upon the effectiveness of the related transfer, be required to provide all
of the forms and statements required pursuant to this subsection 3.15,
provided that in the case of a Participant such Participant shall furnish
all such required forms and statements to the Lender from which the related
participation shall have been purchased.
(c) If any Lender shall receive a credit or refund from a taxing authority with
respect to, and actually resulting from, an amount of Non-Excluded
Taxes actually paid to or on behalf of such Lender by the Borrowers (a
"TAX CREDIT"), such Lender shall promptly notify the Borrowers of such
Tax Credit. If such Tax Credit is received by such Lender in the form
of cash, such Lender shall promptly pay to the Borrowers the amount so
received with respect to the Tax Credit. If such Tax Credit is not
received by such Lender in the form of cash, such Lender shall pay the
amount of such Tax Credit not later than the time prescribed by
applicable Law for filing the return (including extensions of time) for
such Lender's taxable period which includes the period in which such
Lender receives the economic benefit of such Tax Credit. In any event,
the amount of any Tax Credit payable
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by a Lender to the Borrowers pursuant to this clause (c) shall not exceed
the actual amount of cash refunded to, or credits received and usable (in
accordance with the actual practices then in use by such Lender) by, such
Lender from a taxing authority. In determining the amount of any Tax
Credit, a Lender may use such apportionment and attribution rules as such
Lender customarily employs in allocating taxes among its various operations
and income sources and such determination shall be conclusive absent
manifest error. The Borrowers, jointly and severally, further agree
promptly to return to a Lender an amount paid to any of the Borrowers with
respect to a Tax Credit by such Lender if such Lender is required to repay,
or is determined to be ineligible for, a Tax Credit for such amount.
Notwithstanding anything to the contrary contained herein, the Borrowers
hereby acknowledge and agree that (i) neither the Agent nor any Lender
shall be obligated to provide the Borrowers with details of the tax
position of the Agent or such Lender (as the case may be) and (ii) the
Borrowers shall have no right to inspect any records (including tax
returns) of the Agent or such Lender (as the case may be).
3.16 INDEMNITY. The Borrowers, jointly and severally, agree to indemnify each
Lender and to hold each Lender harmless from any loss or expense which such
Lender may sustain or incur as a consequence of (a) failure by a Borrower
to make a borrowing of, conversion into or continuation of Eurodollar
Advances after such Borrower has given a notice requesting the same in
accordance with the provisions of this Agreement; (b) failure by a Borrower
to make any prepayment after such Borrower has given a notice thereof in
accordance with the provisions of this Agreement or (c) the making of a
prepayment of Eurodollar Advances on a day which is not the last day of an
Interest Period with respect thereto. Such indemnification may include an
amount equal to the excess, if any, of (i) the amount of interest which
would have accrued on the amount so prepaid, or not so borrowed, converted
or continued, for the period from the date of such prepayment or of such
failure to borrow, convert or continue, the Interest Period that would have
commenced on the date of such failure in each case at the applicable rate
of interest for such Advances provided for herein (excluding, however, the
Applicable Margin included therein, if any) over (ii) with respect to
Eurodollar Advances, the amount of interest (as reasonably determined by
such Lender) which would have accrued to such Lender on such amount by
placing such amount on deposit for a comparable period with leading banks
in the interbank eurodollar market. This covenant shall survive the
termination of this Agreement and the payment of the Advances and all other
amounts payable hereunder.
3.17 CHANGE OF LENDING OFFICE. Each Lender agrees that if it makes any demand
for payment under subsection 3.14 or 3.15(a), or if any adoption or change
of the type described in subsection 3.13 shall occur with respect to it, it
will use reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions and so long as such efforts would not be
disadvantageous to it, as determined in its good faith discretion) to
designate a different lending office if the making of such a designation
would reduce or obviate the need for the Borrowers to make payments under
subsection 3.14 or 3.15(a), or would eliminate or reduce the effect of any
adoption or change described in subsection 3.13.
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SECTION 4: REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Agreement and to make the
Advances, the Borrowers hereby represent and warrant to the Agent and each
Lender that:
4.1 FINANCIAL CONDITION. The consolidated balance sheets of each Borrower and
its consolidated Subsidiaries as at September 30, 1997 and the related
consolidated statements of income and cash flows for the fiscal period
ended on such date, copies of which have heretofore been furnished to the
Agent, are complete and correct and present fairly in all material respects
the consolidated financial condition of such Borrower and its consolidated
Subsidiaries as at such date, and the consolidated results of their
operations and their consolidated cash flows for the fiscal period then
ended. All such financial statements, including the related schedules and
notes thereto, have been prepared in accordance with GAAP applied
consistently throughout the periods involved (except as approved by such
accountants or Responsible Officer, as the case may be, and as disclosed
therein). Except to the extent permitted under this Agreement or as
disclosed to the Agent prior to the date hereof, neither such Borrower nor
any of its consolidated Subsidiaries had, at the date of the most recent
balance sheet referred to above, any material Guarantee Obligation,
contingent liability or liability for taxes, or any long-term lease or
unusual forward or long-term commitment, including, without limitation, any
interest rate or foreign currency swap or exchange transaction, which is
not reflected in the foregoing statements or in the notes thereto. Except
to the extent permitted under this Agreement or as disclosed to the Agent
prior to the date hereof, or as otherwise separately disclosed to the Agent
in writing prior to the date hereof, there has been no sale, transfer or
other disposition by such Borrower or any of its consolidated Subsidiaries
of any material part of its business or property (including any capital
stock of any other Person) material in relation to the consolidated
financial condition of such Borrower and its consolidated Subsidiaries at
September 30, 1997 during the period from September 30, 1997 to and
including the date hereof.
4.2 NO CHANGE. Since September 30, 1997 there has been no development or event
which has had a Material Adverse Effect.
4.3 DISCLOSURE. No information, schedule, exhibit or report or other document
furnished by each Borrower or any of its Subsidiaries to the Agent or any
Lender in connection with the negotiation of this Agreement or any other
Credit Document (or pursuant to the terms hereof or thereof), as such
information, schedule, exhibit or report or other document has been
amended, supplemented or superseded by any other information, schedule,
exhibit or report or other document later delivered to the same parties
receiving such information, schedule, exhibit or report or other document,
contained any material misstatement of fact or omitted to state a material
fact or any fact necessary to make the statements contained therein, in
light of the circumstances when made, not materially misleading.
4.4 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of the Borrowers and its
Subsidiaries (a) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of
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its organization, (b) has the corporate power and authority, and the legal
right, to own and operate its property, to lease the property it operates
as lessee and to conduct the business in which it is currently engaged, (c)
is duly qualified as a foreign corporation and in good standing under the
laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification, except
to the extent that all failures to be so qualified could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect and (d)
is in compliance with all Requirements of Law except to the extent that all
failures to comply therewith could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.
4.5 CORPORATE POWER, AUTHORIZATION, ENFORCEABLE OBLIGATIONS. Each Borrower has
the corporate power and authority, and the legal right, to make, deliver
and perform the Credit Documents to which it is a party and to borrow
hereunder and has taken all necessary corporate action to authorize the
borrowings on the terms and conditions of this Agreement and any Notes and
to authorize the execution, delivery and performance of the Credit
Documents to which it is a party. No consent or authorization of, filing
with, notice to or other act by or in respect of, any Governmental
Authority or any other Person is required in connection with the borrowings
hereunder or with the execution, delivery, performance, validity or
enforceability of the Credit Documents to which such Borrower is a party.
This Agreement has been, and each other Credit Document to which it is a
party will be, duly executed and delivered on behalf of each Borrower. This
Agreement constitutes, and each other Credit Document to which it is a
party when executed and delivered will constitute, a legal, valid and
binding obligation of each Borrower enforceable against such Borrower in
accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at
law) and an implied covenant of good faith and fair dealing.
4.6 NO LEGAL BAR. The execution, delivery and performance of the Credit
Documents to which each Borrower is a party, the borrowings hereunder and
the use of the proceeds thereof will not violate any Requirement of Law or
Contractual Obligation of such Borrower or any of its Subsidiaries and will
not result in, or require, the creation or imposition of any Lien on any of
its or their respective properties or revenues pursuant to any such
Requirement of Law or Contractual Obligation.
4.7 NO MATERIAL LITIGATION. No litigation, investigation or proceeding of or
before any arbitrator or Governmental Authority is pending or, to the
knowledge of any Borrower, threatened by or against any Borrower or any of
its Subsidiaries or against any of its or their respective properties or
revenues (a) with respect to any of the Credit Documents or any of the
transactions contemplated hereby or thereby, or (b) which could reasonably
be expected to have a Material Adverse Effect.
4.8 NO DEFAULT. Neither any Borrower nor any of its Subsidiaries is in default
under or with respect to any of its Contractual Obligations in any respect
which could reasonably be
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expected to have a Material Adverse Effect. No Default or Event of Default
has occurred and is continuing.
4.9 OWNERSHIP OF PROPERTY; LIENS. Each of the Borrowers and its Subsidiaries
has good record and marketable title in fee simple to, or a valid leasehold
interest in, all its real property, and good title to, or a valid leasehold
interest in, all its other property, which is material to the operations of
the business of, such Borrower and its Subsidiaries, taken as a whole and
none of such property is subject to any Lien except as permitted by
subsection 7.3.
4.10 TITLE DOCUMENTS. Each of the Borrowers and its Subsidiaries has possession
of the applicable Title Documents to each item of Inventory owned by such
entity unless otherwise held by the Agent for the benefit of the Lenders
hereunder pursuant to the terms and conditions of the Credit Documents.
4.11 NO BURDENSOME RESTRICTIONS. No Requirements of Law applicable to any
Borrower or any of its Subsidiaries could reasonably be expected to have a
Material Adverse Effect.
4.12 INTELLECTUAL PROPERTY. Each of the Borrowers and each of its Subsidiaries
owns, or is licensed to use, all trademarks, trade names, copyrights,
technology, know-how and processes necessary for the conduct of its
business as currently conducted, except for those for which the failure to
own or license could not reasonably be expected to have a Material Adverse
Effect (the "INTELLECTUAL PROPERTY"). No claim has been asserted and is
pending by any Person challenging or questioning the use of any such
Intellectual Property or the validity or effectiveness of any such
Intellectual Property which could reasonably be expected to have a Material
Adverse Effect, nor does any Borrower know of any valid basis for any such
claim. To the best knowledge of each Borrower, the use of such Intellectual
Property by each Borrower and its Subsidiaries does not infringe on the
rights of any Person, except for such claims and infringements that, in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect.
4.13 TAXES. Each of the Borrowers and its Subsidiaries has filed or caused to be
filed all material tax returns which, to the knowledge of such Borrower,
are required to be filed and has paid all taxes shown to be due and payable
on said returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of
its property by any Governmental Authority (other than any the amount or
validity of which are currently being contested in good faith by
appropriate proceedings and with respect to which reserves in conformity
with GAAP have been provided on the books of each Borrower or its
Subsidiaries, as the case may be); no tax Lien has been filed, other than
Liens permitted by subsection 7.3, and, to the knowledge of each Borrower,
no claim is being asserted, with respect to any such tax, fee or other
charge.
4.14 FEDERAL REGULATIONS. No part of the proceeds of any Advances will be used
in any manner which would violate, or result in the violation of,
Regulation D, Regulation G or Regulation U of the Board of Governors of the
Federal Reserve System as now and from time to time hereafter in effect. If
requested by any Lender or the Agent, the Borrowers will furnish to the
Agent and each Lender a statement to the foregoing effect in
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conformity with the requirements of FR Form G-3 or FR Form U-1 referred to
in said Regulation G or Regulation U, as the case may be.
4.15 ERISA. Neither a Reportable Event nor an "accumulated funding deficiency"
(within the meaning of Section 412 of the Code or Section 302 of ERISA) has
occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each
Plan has complied in all material respects with the applicable provisions
of ERISA and the Code. No termination of a Single Employer Plan has
occurred, and no Lien in favor of the PBGC or a Plan has arisen, during
such five-year period. The present value of all accrued benefits under each
Single Employer Plan (based on those assumptions used to fund such Plans)
did not, as of the last annual valuation date prior to the date on which
this representation is made or deemed made, exceed the value of the assets
of such Plan allocable to such accrued benefits. No Borrower and no
Commonly Controlled Entity has had a complete or partial withdrawal from
any Multiemployer Plan, and no Borrower and no Commonly Controlled Entity
would become subject to any liability under ERISA if any Borrower or any
such Commonly Controlled Entity were to withdraw completely from all
Multiemployer Plans as of the valuation date most closely preceding the
date on which this representation is made or deemed made. No such
Multiemployer Plan is in Reorganization or Insolvent. The present value
(determined using actuarial and other assumptions which are reasonable in
respect of the benefits provided and the employees participating) of the
liability of the Borrowers and each Commonly Controlled Entity for post
retirement benefits to be provided to their current and former employees
under Plans which are welfare benefit plans (as defined in Section 3(l) of
ERISA) does not, in the aggregate, exceed the assets under all such Plans
allocable to such benefits by an amount in excess of $100,000.
4.16 INVESTMENT COMPANY ACT; OTHER REGULATIONS. No Borrower is an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended. None of the
Borrowers are subject to regulation under any Federal or State statute or
regulation (other than Regulation X of the Board of Governors of the
Federal Reserve System) which limits its ability to incur Indebtedness
under this Agreement or other Credit Documents.
4.17 SUBSIDIARIES. SCHEDULE III hereto sets forth all of the Subsidiaries of
each of the Borrowers at the date hereof, together with the ownership and
jurisdiction of incorporation of each.
4.18 ENVIRONMENTAL MATTERS.
(a) The facilities and properties owned, leased or operated by any Borrower or
any of its Subsidiaries (the "PROPERTIES") do not contain, and have not
previously contained, any Materials of Environmental Concern in amounts or
concentrations which (i) constitute or constituted a violation of, or (ii)
could reasonably be expected to give rise to liability under, any
Environmental Law except insofar as such violation or liability or any
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aggregation thereof, is not reasonably likely to result in the payment of a
Material Adverse Amount;
(b) the Properties and all operations at the Properties are in compliance in all
respects with all applicable Environmental Laws, and there is no
contamination at or under (or, to the knowledge of such Borrower, about)
the Properties or violation of any Environmental Law with respect to the
Properties or the business operated by any Borrower or any of its
Subsidiaries (the "BUSINESS") except insofar as such violation or failure
to be in compliance or contamination, or any aggregation thereof, is not
reasonably likely to result in the payment of a Material Adverse Amount;
(c) no Borrower and none of its Subsidiaries have received any notice of
violation, alleged violation, non-compliance, liability or potential
liability regarding compliance with Environmental Laws with regard to any
of the Properties or the Business, nor does any Borrower have knowledge
that any such notice will be received or is being threatened, except
insofar as such notice or threatened notice, or any aggregation thereof,
does not involve a matter or matters that is or are reasonably likely to
result in the payment of a Material Adverse Amount;
(d) Materials of Environmental Concern have not been transported or disposed of
from the Properties in violation of, or in a manner or to a location which
could reasonably be expected to give rise to liability under, any
Environmental Law, nor have any Materials of Environmental Concern been
generated, treated, stored or disposed of at, on or under any of the
Properties in violation of, or in a manner that could reasonably be
expected to give rise to liability under, any applicable Environmental Law,
except insofar as any such violation or liability referred to in this
paragraph, or any aggregation thereof, is not reasonably likely to result
in the payment of a Material Adverse Amount;
(e) no judicial proceeding or governmental or administrative action is pending
or, to the knowledge of any Borrower, threatened, under any Environmental
Law to which any Borrower, any of its Subsidiaries is or will be named as a
party with respect to the Properties or the Business, nor are there any
consent decrees or other decrees, consent orders, administrative orders or
other orders, or other administrative or judicial requirements outstanding
under any Environmental Law which are binding upon any Borrower or any of
its Subsidiaries with respect to the Properties or the Business, except
insofar as such proceeding, action, decree, order or other requirement, or
any aggregation thereof, is not reasonably likely to result in the payment
of a Material Adverse Amount; and
(f) there has been no release or threat of release of Materials of Environmental
Concern at or from the Properties, or arising from or related to the
operations of any Borrower or any Subsidiary in connection with the
Properties or otherwise in connection with the Business, in violation of or
in amounts or in a manner that could reasonably give rise to liability
under Environmental Laws, except insofar as any such violation or liability
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referred to in this paragraph, or any aggregation thereof, is not
reasonably likely to result in a payment of a Material Adverse Amount.
4.19 GUARANTEES. The provisions of each Guarantee are effective to create a
legal, valid, binding and enforceable guarantee of the obligations
described therein, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles.
4.20 JOINDER AGREEMENTS. Each Joinder Agreement constitutes a legal, valid and
binding obligation of the Credit Party who is a party thereto, enforceable
against it in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally and by
general equitable principles.
4.21 SECURITY AGREEMENTS.
(a) Each Security Agreement constitutes a legal, valid, binding and enforceable
obligation of the Credit Parties thereto, enforceable against it in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles; and
(b) Upon filing of the financing statements listed on SCHEDULE V hereto (and,
after the Closing Date, any additional filings required to be made pursuant
to the Credit Documents) will constitute a valid, first priority security
interest, enforceable as such against all creditors of any grantor and any
Persons purporting to purchase any such Collateral from the Credit Party
who is the grantor with respect thereto.
4.22 SOLVENCY. The aggregate value of all of the tangible and intangible assets
of each of the Borrowers and its Subsidiaries on a consolidated basis, at a
fair valuation, exceeds the total liabilities of such Borrower and its
Subsidiaries on a consolidated basis (including contingent, subordinated,
unmatured and unliquidated liabilities). Each Borrower and each of its
Subsidiaries have the ability to pay their respective debts as they mature
and do not have unreasonably small capital with which to conduct their
respective businesses. For purposes of this subsection 4.22, the "fair
valuation" of such assets is the price at which the assets would change
hands between a willing buyer and a willing seller, both being adequately
informed of the relevant facts, and neither being under any compulsion to
buy or to sell.
4.23 HM SERVICES SUBORDINATION AGREEMENT. The HM Services Subordination
Agreement constitutes a legal, valid, binding and enforceable obligation of
the third parties thereto, enforceable against each such party in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles.
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4.24 ZN LETTER AGREEMENT. The ZN Letter Agreement constitutes a legal, valid,
binding and enforceable obligation of the third parties thereto,
enforceable against each such party in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles.
4.25 ZN NET WORTH MAINTENANCE AGREEMENT. The ZN Net Worth Agreement constitutes
a legal, valid, binding and enforceable obligation of Zaring National,
enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles.
SECTION 5: CONDITIONS PRECEDENT
5.1 CONDITIONS TO INITIAL EXTENSIONS OF CREDIT. The agreement of each Lender to
make the initial extension of credit requested to be made by it is subject
to the satisfaction, immediately prior to or concurrently with the making
of such extension of credit on the Closing Date, of the following
conditions precedent:
(a) CREDIT DOCUMENTS. The Agent shall have received (i) this Agreement, executed
and delivered by a duly authorized officer of each of the Borrowers, (ii)
the Notes (to the extent so requested by any Lender), executed and
delivered by a duly authorized officer of each of the Borrowers, (iii) each
Security Agreement, executed and delivered by a duly authorized officer of
the party thereto, (iv) each Guarantee, executed and delivered by a duly
authorized representative of each party thereto, (v) the HM Services
Subordination Agreement, executed and delivered by a duly authorized
representative of each party thereto, (vi) the ZN Letter Agreement,
executed and delivered by a duly authorized officer of Zaring National and
(vii) the ZN Net Worth Agreement, executed and delivered by a duly
authorized officer of Zaring National.
(b) AGREEMENTS. The Agent shall have received true and correct copies, certified
as to authenticity by the Borrowers, of such documents or instruments as
may be reasonably requested by the Agent.
(c) CLOSING CERTIFICATE OF BORROWERS. The Agent shall have received a
certificate of the President or any Vice President and the Secretary or an
Assistant Secretary of each Borrower, dated the Closing Date, (i) attaching
the Charter and By-Laws of such Borrower, (ii) attaching the resolutions of
the Board of Directors of such Borrower with respect to the transactions
contemplated hereby, (iii) certifying that such resolutions have not been
amended, modified, revoked or rescinded as of the date of such certificate
and (iv) certifying as to the incumbency and signature of the officers of
such Borrower executing any Credit Document; such certificate (and the
attachments thereto) shall be in form and substance satisfactory to the
Agent.
(d) CLOSING CERTIFICATE OF CREDIT PARTIES. The Agent shall have received a
certificate of the President or any Vice President and the Secretary or an
Assistant Secretary of each Credit
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Party (other than the Borrowers), dated the Closing Date, (i) attaching the
Charter and By-Laws of such Credit Party, (ii) attaching the resolutions of
the Board of Directors of such Credit Party with respect to the
transactions contemplated hereby to which it is a party, (iii) certifying
that the such resolutions have not been amended, modified, revoked or
rescinded as of the date of such certificate and (iv) certifying as to the
incumbency and signature of the officers of such Credit Party executing any
Credit Document; such certificate (and the attachments thereto) shall be in
form and substance satisfactory to the Agent.
(e) CORPORATE STRUCTURE. The Agent shall be satisfied with the corporate and
legal structure and capitalization of the Credit Parties, including the
terms and conditions of the charter, bylaws and each class of Capital Stock
of the Credit Parties and of each agreement or instrument relating to such
structure or capitalization.
(f) FEES. The Borrowers shall have paid the accrued fees and expenses owing
hereunder or in connection herewith (including, without limitation, accrued
fees and disbursements of counsel to the Agent), to the extent that such
fees and expenses have been presented for payment a reasonable time prior
to the Closing Date.
(g) LEGAL OPINION. The Agent shall have received, with a counterpart for each
Lender, the executed legal opinion of Frost & Jacobs, LLP., counsel to the
Borrowers and the other Credit Parties, substantially in the form of
EXHIBIT M. Such legal opinion shall cover such other matters incident to
the transactions contemplated by this Agreement as the Agent may reasonably
require.
(h) ACTIONS TO PERFECT LIENS. The Agent shall have received such duly executed
financing statements on form UCC-1 as may be necessary or, in the
reasonable opinion of the Agent, desirable to perfect the Liens created by
the Security Agreements.
(i) LIEN SEARCHES. The Agent shall have received the results of a recent search
by a Person reasonably satisfactory to the Agent, of the Uniform Commercial
Code, judgment and tax lien filings which may have been filed with respect
to personal property of the Borrowers, and the results of such search shall
be reasonably satisfactory to the Agent.
(j) MINIMUM CAPITALIZATION. The Agent shall have received evidence in form and
substance satisfactory to the Agent that as of the Closing Date, the sum of
Consolidated Net Worth plus Subordinated Indebtedness equals an aggregate
amount not less than $10,000,000.
(k) REVIEW OF OPERATIONS. The Agent shall have completed a review of the
operations of the Credit Parties (including, without limitation, an on-site
review of the financial statements, financial reporting and computer
systems and inventory, receivables, and equipment by the Agent), each in
scope, and with results, satisfactory to the Agent; without limiting the
generality of the foregoing, the Agent shall have been given such access to
the management, records, books of account, schedules, projections,
contracts and properties of each Credit Party as it shall have requested.
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(l) INSURANCE. The Agent shall have received evidence in form and substance
satisfactory to the Agent of the existence of the insurance required under
subsection 6.5.
(m) BUSINESS PLAN AND PROJECTIONS. The Agent shall have received a business plan
with projections in scope and form satisfactory to the Agent.
(n) ADDITIONAL ITEMS. The Agent shall have received such other opinions or
documents as the Agent or the Majority Lenders through the Agent may
reasonably request.
5.2 CONDITIONS TO EACH EXTENSION OF CREDIT. The agreement of each Lender to
make any extension of credit requested to be made by it on any date
(including, without limitation, its initial extension of credit ) is
subject to the satisfaction of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties
made by each of the Borrowers and each other Credit Party in or pursuant to
the Credit Documents shall be true and correct in all material respects on
and as of such date as if made on and as of such date.
(b) NO DEFAULT. No Default or Event of Default shall have occurred and be
continuing on such date or after giving effect to the extensions of credit
requested to be made on such date.
(c) CREDIT LIMITS. The Lenders' Aggregate Outstanding Extensions of Credit after
giving effect to the extensions of credit requested to be made on such date
shall not exceed the aggregate amount of $640,000 for each Operating
Location, allocated as follows: (i) $540,000 for Show Units and (ii)
$100,000 for Retail Units.
(d) MANUFACTURER'S INVOICE AMOUNT. The Agent shall have received invoices or
bills of sale representing the Manufacturer's Invoice Amount of each item
of new Inventory to be acquired with the proceeds of the Advances to be
made on the requested Borrowing Date in form and substance satisfactory to
the Agent.
(e) NADA BOOK VALUE. The Agent shall have received evidence representing the
NADA Book Value of each item of used Inventory to be acquired with the
proceeds of the Advances to be made on the requested Borrowing Date in form
and substance satisfactory to the Agent.
(f) PRO FORMA FINANCIAL STATEMENTS. The Agent shall have received unaudited pro
forma financial statements reflecting the acquisition of each and every
Operating Location by each Borrower or its Subsidiaries as of the Closing
Date and thereafter in form and substance satisfactory to the Agent.
(g) WAIVERS. The Agent shall have received a waiver from any landlord, mortgagee
or owner to each Operating Location, executed and delivered by a duly
authorized officer of the parties thereto, in form and substance
satisfactory to the Agent.
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(h) INSURANCE. The Agent shall have received evidence in form and substance
satisfactory to the Agent of the existence of insurance required under
subsection 6.5 for each additional item of Inventory.
(i) ADDITIONAL ITEMS. The Agent shall have received such other approvals,
opinions or documents as the Agent or the Majority Lenders through the
Agent may reasonably request.
Each borrowing by each Borrower hereunder shall constitute a joint
and several representation and warranty by the Borrowers as of the date
thereof that the applicable conditions contained in this subsection 5.2
have been satisfied.
SECTION 6: AFFIRMATIVE COVENANTS
The Borrowers hereby agree that, so long as the Commitments remain
in effect or any amount is owing to any Lender or the Agent hereunder or
under any other Credit Document, the Borrowers shall and (except in the
case of delivery of financial information and reports and notices) shall
cause each of their Subsidiaries to:
6.1 FINANCIAL STATEMENTS. Furnish to the Agent:
(a) as soon as available, but in any event within one hundred twenty (120) days
after the end of each fiscal year of the Borrowers, a copy of the
consolidated and consolidating balance sheets of each Borrower and its
consolidated Subsidiaries as at the end of such year and the related
consolidated statements of income and retained earnings and of cash flows
for such year, setting forth in each case in comparative form the figures
for the previous year, reported on without a "going concern" or like
qualification or exception, or qualification arising out of the scope of
the audit, by independent certified public accountants of nationally
recognized standing; as soon as available, but in any event within one
hundred twenty (120) days after the end of each fiscal year of the
Borrowers, a copy of the unaudited consolidating balance sheets of each
Borrower and its consolidated Subsidiaries as at the end of such year as
customarily prepared by the Borrower for internal use;
(b) as soon as available, but in any event not later than twenty (20) days after
the end of each month, (i) the unaudited consolidated balance sheets of
each Borrower and its consolidated Subsidiaries as at the end of such month
and the related unaudited consolidated statements of income and retained
earnings and of cash flows of each Borrower and its consolidated
Subsidiaries for such month and the portion of each Borrower's fiscal year
through the end of such month, setting forth in each case in comparative
form the figures for the previous year, certified by a Responsible Officer
as being fairly stated in all material respects (subject to normal year-end
audit adjustments);
(c) as soon as available, but in any event not later than thirty (30) days after
the end of each month, the unaudited balance sheets with respect to each
Operating Location as at the end of such month and the related unaudited
consolidated statements of income and retained earnings and of cash flows
with respect to each Operating Location for such month and
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the portion of the respective Borrower's fiscal year through the end of
such month, setting forth in each case in comparative form the figures for
the previous year, certified by a Responsible Officer as being fairly
stated in all material respects (subject to normal year-end adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with
GAAP applied consistently throughout the periods reflected therein and with
prior periods (except as approved by such accountants or officer, as the
case may be, and disclosed therein).
6.2 CERTIFICATES; OTHER INFORMATION. Furnish to the Agent:
(a) concurrently with the delivery of the financial statements referred to in
subsection 6.1(a), a certificate of the independent certified public
accountants reporting on such financial statements stating whether in the
course of conducting its annual audit they became aware of any Default or
Event of Default pertaining to accounting matters and, if so, the nature of
such Default or Event of Default;
(b) as soon as available, but in any event not later than forty-five (45) days
after the end of each fiscal quarter of the Borrowers, a certificate of a
Responsible Officer of each Borrower substantially in the form of EXHIBIT L
hereto (i) stating that, to the best of such Officer's knowledge, during
such period (A) no Subsidiary has been formed or acquired without complying
with this Agreement and the requirements of subsection 6.12 with respect
thereto, (B) neither such Borrower nor any of its Subsidiaries has changed
its name, its principal place of business, its chief executive office or
the location of any material item of tangible Collateral without complying
with the requirements of this Agreement with respect thereto, and (C) such
Borrower has observed or performed all of its covenants and other
agreements, and satisfied every condition, contained in this Agreement and
the other Credit Documents to be observed, performed or satisfied by it,
and that such Officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate and (ii) setting forth the
computations used by such Borrower in determining (as of the end of such
fiscal period) compliance with the covenant contained in subsection 7.1;
(c) not later than one hundred twenty (120) days after the end of each fiscal
year of the Borrowers, a copy of the projections by each Borrower of the
operating budget and cash flow budget of such Borrower and its Subsidiaries
for the succeeding fiscal year as adopted by the Board of Directors of such
Borrower, such projections to be accompanied by a certificate of a
Responsible Officer to the effect that such projections have been prepared
on the basis of assumptions believed by such Borrower to be reasonable;
(d) concurrently with the delivery of the accountants' certificates referred to
in subsection 6.2(a), any comment letter submitted by such accountants to
management as of that date;
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(e) concurrently with the delivery of the projections referred to in subsection
6.2(c), the consolidated financial plan and financial forecasts as
customarily prepared by the management of each Borrower for internal use;
(f) as soon as available, but in any event (i) not later than one hundred twenty
(120) days after the end of each fiscal year of the Borrowers, a copy of
all financial statements and regular, periodical or special reports that
such Borrower may make to, or file with, the SEC on an annual basis and
(ii) not later than forty-five (45) days after the end of each fiscal
quarter of the Borrowers, a copy of all financial statements and regular,
periodical or special reports that each Borrower may make to, or file with,
the SEC on a quarterly basis; and
(g) promptly, such additional financial and other information as any Lender may
from time to time reasonably request.
6.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at or before
maturity in accordance with customary
6.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Continue to engage in
business of the same general type as now conducted by it and preserve,
renew and keep in full force and effect its corporate existence and take
all reasonable action to maintain all rights, privileges and franchises
necessary or (in the reasonable judgment of a Borrower) desirable in the
normal conduct of its business except as otherwise permitted pursuant to
subsection 7.13; comply with all Contractual Obligations and Requirements
of Law except to the extent that failure to comply therewith could not, in
the aggregate, be reasonably expected to have a Material Adverse Effect.
6.5 MAINTENANCE OF PROPERTY; INSURANCE.
(a) Keep all material property useful and necessary in its business, including
Inventory, in good working order and condition; maintain with financially
sound and reputable insurance companies insurance policies insuring all its
material property against loss by fire, explosion, theft and such other
casualties as may be reasonably satisfactory to the Agent such policies to
be in at least such form amounts and having coverage against at least such
risks as are customarily insured against in the same general area by
companies of similar size engaged in the same or a similar business as may
be reasonably satisfactory to the Agent with losses payable to the
Borrowers and the Agent as their respective interests may appear, PROVIDED
that the aggregate amount of insurance with respect to Inventory shall be
no less than the aggregate Commitment of the Lenders;
(b) Each insurance policy described in subsection 6.5(a) shall (i) contain
endorsements, in form satisfactory to each Lender, (ii) name the Agent, as
an insured party, (iii) provide that no cancellation, material reduction in
amount or material change in coverage thereof shall be effective until at
least thirty (30) days after receipt by the Agent of written notice thereof
and (iv) be reasonably satisfactory in all other respect to the Agent. In
the event of any termination or notice of non-payment by any insurer with
respect to any policy or any
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lapse in the coverage thereunder, the Borrowers shall cause such insurer to
give prompt written notice to each Lender of the occurrence of such
termination, nonpayment or lapse.
(c) The Borrowers shall deliver to the Agent a report of a reputable insurance
broker with respect to such insurance in each calendar year and such
supplemental reports with respect thereto as the Agent may from time to
time reasonably request.
6.6 TITLE DOCUMENTS. Keep possession of Title Documents with respect to each
item of Inventory owned by each Borrower or any of its Subsidiaries and at
the Agent's request provide either the original Title Documents or copies
of such Title Documents to the Agent.
6.7 INSPECTION OF INVENTORY. Permit representatives of the Agent or the
representatives of any Lender who accompany the representatives of the
Agent to visit any Operating Location and inspect the Inventory located
thereon at any reasonable time (upon reasonable advance notice when no
Default or Event of Default has occurred and is continuing), approximately
every thirty (30) days from the date of the first such visit PROVIDED that
such visits may occur more or less frequently as the Agent in its
discretion may reasonably desire (including without limitation, when an
Event of Default has occurred and is continuing).
6.8 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep proper books
of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities;
permit representatives of the Agent or any Lender to visit and inspect any
of its properties and examine and make abstracts from any of its books and
records at any reasonable time (upon reasonable advance notice when no
Default or Event of Default has occurred and is continuing) and, with
respect to the Agent, as often as may reasonably be desired, or, with
respect to any Lender other than the Agent, not more than once per calendar
year at the expense of such Lender (or if an Event of Default has occurred
and is continuing, at any reasonable time and as often as may be desired,
at the expense of the Borrowers), and to discuss the Business, operations,
properties and financial and other condition of each Borrower and its
Subsidiaries with officers and employees of each Borrower and its
Subsidiaries and with its independent certified public accountants.
6.9 NOTICES. Promptly give notice to the Agent (who shall give prompt notice
thereof to the Lenders) of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual Obligation of any
Borrower or any of its Subsidiaries or (ii) litigation, investigation or
proceeding which may exist at any time between any Borrower or any of its
Subsidiaries and any Governmental Authority, which in either case, if not
cured or if adversely determined, as the case may be, could reasonably be
expected to have a Material Adverse Effect;
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(c) any litigation or proceeding affecting any Borrower or any of its
Subsidiaries in which the amount involved is $500,000 or more and not
covered by insurance or in which injunctive or similar relief is sought
which could have a Material Adverse Effect;
(d) the following events, as soon as possible and in any event within thirty
(30) days after any Borrower knows or has reason to know thereof: (i) the
occurrence or expected occurrence of any Reportable Event with respect to
any Plan that is an employee pension benefit plan (as defined in Section
3(2) of ERISA), a failure to make any required contribution to a Plan, the
creation of any Lien in favor of the PBGC or a Plan that is an employee
pension benefit plan (as defined in Section 3(2) of ERISA) or any
withdrawal from, or the termination, Reorganization or Insolvency of, any
Multiemployer Plan or (ii) the institution of proceedings or the taking of
any other action by the PBGC or any Borrower or any Commonly Controlled
Entity or any Multiemployer Plan with respect to the withdrawal from, or
the terminating, Reorganization or Insolvency of, any Plan that is an
employee pension benefit plan (as defined in Section 3(2) of ERISA);
(e) the acquisition or creation of any Subsidiary which has Capital Stock that
is directly or indirectly owned by a Borrower or any of its Subsidiaries;
(f) any Lien (other than any Liens permitted under this Agreement) or other
event that could reasonably be expected to have a Material Adverse Effect
on the aggregate value of the Collateral or on the security interest
created by this Agreement or any other Credit Document; and
each notice pursuant to this subsection 6.9 shall be accompanied by a
statement of a Responsible Officer setting forth details of the occurrence
referred to therein and stating what action the Borrowers propose to take
with respect thereto.
6.10 ENVIRONMENTAL LAWS.
(a) Comply with, and use reasonable efforts to ensure compliance by all tenants
and subtenants, if any, with, all applicable Environmental Laws and obtain
and comply with and maintain, and use reasonable efforts to ensure that all
tenants and subtenants obtain and comply with and maintain, any and all
licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws, except to the extent that failure to do so
could not be reasonably expected to have a Material Adverse Effect.
(b) Conduct and complete all investigations, studies, sampling and testing, and
all remedial, removal and other actions required under Environmental Laws
and promptly comply in all material respects with all lawful orders and
directives of all Governmental Authorities regarding Environmental Laws,
except to the extent that failure to so conduct, complete or comply could
not reasonably be expected to have a Material Adverse Effect and except to
the extent that the same are being contested in good faith by appropriate
proceedings and the pendency of such proceedings could not reasonably be
expected to have a Material Adverse Effect.
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6.11 FURTHER ASSURANCES; ADDITIONAL COLLATERAL.
(a) The Agent shall have received the results of a search to be performed within
thirty (30) days of the Closing Date by a Person reasonably satisfactory to
the Agent, of the Uniform Commercial Code lien filings showing the filing
of UCC-1 financing statements in favor of the Agent for the benefit of the
Lenders and confirming the first priority position of liens of the Agent in
the Collateral under this Agreement and the other Credit Documents.
(b) Upon the request of the Agent, promptly perform or cause to be performed any
and all acts and execute or cause to be executed any and all documents
(including, without limitation, financing statements and continuation
statements) for filing under the provisions of the Uniform Commercial Code
or any Requirement of Law which are necessary or reasonably advisable to
maintain in favor of the Agent, for the benefit of the Lenders, Liens on
the Collateral that are duly perfected in accordance with all applicable
Requirements of Law.
(c) Upon request of the Agent, promptly provide such documents and legal
opinions in respect of any aspect or consequence of the transactions
contemplated hereby as the Agent shall reasonably request.
6.12 ADDITIONAL SUBSIDIARIES. (a) With respect to any Subsidiary (including,
without limitation, a Subsidiary Borrower) created or acquired after the
Closing Date by any Borrower, promptly (i) cause such new Subsidiary to
become a party to the relevant Security Agreement and the relevant
Guarantee and the HM Services Subordination Agreement pursuant to
documentation which is in form and substance satisfactory to the Agent,
(ii) execute and deliver such amendments to this Agreement and the other
Loan Documents requested by the Agent to reflect the existence of such new
Subsidiary and (iii) if so requested by the Agent, deliver to the Agent
legal opinions relating to the matters described in clauses (i) and (ii)
immediately preceding, which opinions shall be in form and substance, and
from counsel, reasonably satisfactory to the Agent.
(b) With respect to any Person that, subsequent to the Closing Date,
becomes a Subsidiary (including a Subsidiary Borrower), promptly cause such
new Subsidiary to (i) take all actions necessary or advisable to cause the
Lien created by the relevant Security Document, to be duly perfected in
accordance with all applicable Requirements of Law, including, without
limitation, the filing of recording requirements in such jurisdictions as
may be requested by the Agent and (ii) deliver to the Agent legal opinions.
(c) With respect to any Subsidiary created or acquired after the
Closing Date by any Borrower, the Borrowers may from time to time, with the
prior written consent of the Agent (which shall not be unreasonably
withheld) (i) designate such Subsidiary as a Subsidiary Borrower hereunder,
(ii) cause such additional Subsidiary Borrower to promptly become a party
to this Agreement pursuant to the documentation which is in form and
substance reasonably satisfactory to the Agent, (iii) execute and deliver
such amendments to this Agreement or other Loan Documents requested by the
agent to reflect the existence of such additional Subsidiary Borrower, (iv)
execute and deliver the Notes evidencing the Advances of each Lender to the
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additional Subsidiary Borrower, (v) execute and deliver such other
approvals, certificates or documents requested by the Agent in its
reasonable discretion, in form and substance reasonably satisfactory to the
Agent and (vi) if so requested by the Agent, deliver to the Agent legal
opinions relating to the matters described in clauses (i), (ii), (iii),
(iv) and (v) immediately preceding, which opinions shall be in form and
substance, and from counsel, reasonably satisfactory to the Agent.
SECTION 7: NEGATIVE COVENANTS
The Borrowers hereby agree that, so long as the Commitments remain in
effect or any amount is owing to any Lender or the Agent hereunder or under
any other Credit Document, the Borrowers shall not, and (except with
respect to subsection 7.1) shall not permit any of the other Credit Parties
to, directly or indirectly:
7.1 FINANCIAL CONDITION COVENANT: INDEBTEDNESS TO NET WORTH. Permit on the last
day of any fiscal quarter of the Parent Borrower, the ratio of
Indebtedness of the Parent Borrower and its Subsidiaries on a
consolidated basis on such date to Consolidated Tangible Net Worth on
such date to be greater than 3.00 to 1.00.
7.2 LIMITATION ON INDEBTEDNESS AND PREFERRED STOCK. Create, incur, assume or
suffer to exist any Indebtedness or preferred stock (other than
preferred stock which, by its terms, does not require the payment of
any cash dividends thereon or redemption/reimbursement obligations or
impose any cash penalties (other than accrual of dividends on unpaid
dividends) for the failure to declare cash dividends thereon), except:
(a) Indebtedness of the Borrowers under this Agreement;
(b) current trade liabilities incurred in the ordinary course of business;
(c) Indebtedness of any Credit Party to the Borrowers or any other Credit Party
which has executed a Subsidiaries Guarantee and a Subsidiaries Security
Agreement;
(d) Indebtedness outstanding on the date hereof and listed on SCHEDULE IV and
any refinancings, refundings, renewals or extensions thereof in an
amount not to exceed the then current principal amount thereof;
(e) Indebtedness of a corporation which becomes a Subsidiary after the date
hereof PROVIDED that (i) such Indebtedness existed at the time such
corporation became a Subsidiary and was not created in anticipation
thereof and (ii) immediately after giving effect to the acquisition of
such corporation by any Borrower no Default or Event of Default shall
have occurred and be continuing;
(f) additional Indebtedness not exceeding in aggregate principal amount at any
one time outstanding: $500,000; and
(g) Guarantee Obligations permitted pursuant to subsection 7.4.
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7.3 LIMITATION ON LIENS. Create, incur, assume or suffer to exist any Lien
upon any of its property, inventory, assets or revenues, whether now
owned or hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good faith by
appropriate proceedings, PROVIDED that adequate reserves with respect
thereto are maintained on the books of such Borrower or its
Subsidiaries, as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialsmen's, repairmen's or other
like Liens arising in the ordinary course of business for sums which
are not overdue for a period of more than ninety (90) days or which are
being contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation, unemployment
insurance and other social security legislation and deposits securing
liability to insurance carriers under insurance or self-insurance
arrangements;
(d) Liens in existence on the date hereof listed on SCHEDULE VI, securing
Indebtedness permitted by subsection 7.2(d), PROVIDED that no such Lien
is spread to cover any additional property after the date hereof and
that the amount of Indebtedness secured thereby is not increased; and
(e) Liens on the property or assets of a corporation which becomes a Subsidiary
after the date hereof securing Indebtedness permitted by subsection
7.2(e), PROVIDED that (i) such Liens existed at the time such
corporation became a Subsidiary and were not created in anticipation
thereof, (ii) any such Lien is not spread to cover any additional
property or assets of such corporation after the time such corporation
becomes a Subsidiary, and (iii) the amount of Indebtedness secured
thereby is not increased.
7.4 LIMITATION ON GUARANTEE OBLIGATIONS. Create, incur, assume or suffer to
exist any Guarantee Obligation, except:
(a) Guarantee Obligations in existence on the date hereof and listed on
SCHEDULE VII;
(b) guarantees made by a Borrower of obligations of any of its Subsidiaries,
which obligations are otherwise permitted under this Agreement; and
(c) guarantees made by Subsidiaries of any Borrower of obligations of any
Borrower or any of its Subsidiaries, which obligations are otherwise
permitted under this Agreement.
7.5 LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger, consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property,
business or assets, except:
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(a) any Subsidiary of any Borrower may be merged or consolidated with or into
any Borrower (PROVIDED that such Borrower shall be the continuing or
surviving corporation) or with or into any one or more Subsidiaries
wholly owned by any Borrower (PROVIDED that the wholly owned Subsidiary
or Subsidiaries shall be the continuing or surviving corporation);
(b) any wholly owned Subsidiary by of any Borrower may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to any Borrower or any other wholly owned
Subsidiary of any Borrower; and
(c) any Subsidiary of any Borrower may enter into any transaction permitted by
this subsection 7.5 or subsection 7.6.
7.6 LIMITATION ON SALE OF ASSETS.Convey, sell, lease, assign, transfer or
otherwise dispose of any of its property, business or assets
(including, without limitation, receivables and leasehold interests),
whether now owned or hereafter acquired, to any Person other than any
Borrower or any wholly owned Subsidiary, except:
(a) the sale or other disposition of obsolete or worn out property (including,
without limitation, any property which is no longer used or useful in
the business of a Borrower and its Subsidiaries) in the ordinary course
of business; and
(b) the sale or transfer of inventory (including, without limitation,
"out-of-date" and "less than first quality" inventory) in the ordinary
course of business.
7.7 LIMITATION ON DIVIDENDS. Declare or pay any dividend on, or make any
payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or
other acquisition of, any shares of any class of Capital Stock of any
Borrower or any warrants or options to purchase any such Stock, whether
now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or
in obligations of the Borrower or any Subsidiary (such declarations,
payments, setting apart, purchases, redemptions, defeasances,
retirements, acquisitions and distributions being herein called
"RESTRICTED PAYMENTS").
7.8 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any advance, loan,
extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of or any assets
constituting a business unit of, or make any other investment in, any
Person, except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) loans and advances to employees of a Borrower or its Subsidiaries for
travel, entertainment and relocation expenses in the ordinary course of
business;
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(d) investments in existence on the date hereof which are described on
SCHEDULE VIII hereof;
(e) the Borrowers may make intercompany loans and advances to wholly owned
Subsidiaries which have executed a Subsidiaries Guarantee and
Subsidiaries Security Agreement; and
(f) other advances, loans and extensions of credit in an aggregate amount not
to exceed $500,000.
7.9 LIMITATION ON TRANSACTIONS WITH AFFILIATES. Enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange of
property or the rendering of any service, with any Affiliate unless
such transaction is (a) otherwise permitted under this Agreement, (b)
in the ordinary course of such Borrower's or such Subsidiary's business
and (c) upon fair and reasonable terms no less favorable to such
Borrower or such Subsidiary, as the case may be, than it would obtain
in a comparable arm's length transaction with a Person which is not an
Affiliate.
7.10 LIMITATION ON SALES AND LEASEBACKS. Enter into any arrangement with any
Person providing for the leasing by any Borrower or any Subsidiary of
real or personal property which has been or is to be sold or
transferred by such Borrower or such Subsidiary to such Person or to
any other Person to whom funds have been or are to be advanced by such
Person on the security of such property or rental obligations of such
Borrower or such Subsidiary.
7.11 LIMITATION ON CHANGES IN FISCAL YEAR. Permit the fiscal year of any of the
Borrowers to end on a day other than December 31.
7.12 LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into with any Person any
agreement, other than this Agreement, purchase money mortgages,
Financing Leases and other similar fixed asset financings permitted by
this Agreement (in which cases, any prohibition or limitation shall
only be effective against the assets financed thereby), which prohibits
or limits the ability of each of the Borrowers or any of its
Subsidiaries to create, incur, assume or suffer to exist any Lien upon
any of its property, assets or revenues, whether now owned or hereafter
acquired.
7.13 LIMITATION ON LINES OF BUSINESS. Enter into any business, either directly
or through any Subsidiary, except for (a) the businesses and businesses
of a similar type in which any Borrower and any Subsidiaries are
engaged on the date hereof and (b) other activities relating thereto.
SECTION 8: EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) Any Borrower shall fail to pay any principal of any Advance when due in
accordance with the terms hereof or any other Credit Document, or any
Borrower shall fail to pay any interest on any Advance, or any other
amount payable hereunder or any other Credit
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Document, within five (5) Business Days after any such interest or
other amount becomes due in accordance with the terms thereof or
hereof; or
(b) Any representation or warranty made or deemed made by any Borrower or any
other Credit Party herein or in any other Credit Document or which is
contained in any certificate, document or financial or other statement
furnished by it at any time under or in connection with this Agreement
or any such other Credit Document shall prove to have been incorrect in
any material respect on or as of the date made or deemed made; or
(c) Any Borrower or any other Credit Party shall default in the observance or
performance of any agreement contained in Section 7 or any negative
covenant contained in any other Credit Document; or
(d) Any Borrower or any other Credit Party shall default in the observance or
performance of any other agreement contained in this Agreement or any
other Credit Document (other than as provided in paragraphs (a) through
(c) of this Section 8), and such default shall continue unremedied for
a period of thirty (30) days from the earlier of the date on which (i)
the Agent provides notice to the Borrowers thereof or (ii) a
Responsible Officer of any Borrower has knowledge of such default; or
(e) Any Borrower or any of the other Credit Parties shall (i) default in any
payment of principal of or interest of any Indebtedness (other than the
Advances) or in the payment of any Guarantee Obligation, beyond the
period of grace, (not to exceed sixty (60) days), if any, provided in
the instrument or agreement under which such Indebtedness or Guarantee
Obligation was created; or (ii) default in the observance or
performance of any other agreement or condition relating to any such
Indebtedness or Guarantee Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or holders of
such Indebtedness or beneficiary or beneficiaries of such Guarantee
Obligation (or a trustee or Agent on behalf of such holder or holders
or beneficiary or beneficiaries) to cause, with the giving of notice or
the passage of time if required, such Indebtedness to become due prior
to its stated maturity or such Guarantee Obligation to become payable;
PROVIDED, HOWEVER, that no Default or Event of Default shall exist
under this paragraph unless the aggregate amount of Indebtedness and/or
Guarantee Obligations in respect of which any default or other event or
condition referred to in this paragraph shall have occurred shall be
equal to at least $500,000; or
(f) An Event of Default shall have occurred and be continuing under, and as
defined in, the HM Facility or the ZN Facility regardless of whether or
not such facility has terminated; or
(g) Any Borrower or any other Credit Party shall commence any case, proceeding
or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation,
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dissolution, composition or other relief with respect to it or its
debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any
substantial part of its assets, or any Borrower or any Subsidiary shall
make a general assignment for the benefit of its creditors; or (ii)
there shall be commenced against any Borrower or any Subsidiary any
case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of thirty (30) days; or (iii) there shall be
commenced against any Borrower or any Subsidiary any case, proceeding
or other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its
assets which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending
appeal within thirty (30) days from the entry thereof, or (iv) any
Borrower or any Subsidiary shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the
acts set forth in clause (i), (ii), or (iii) above; or (v) any Borrower
or any Subsidiary shall generally not, or shall be unable to, or shall
admit in writing its inability to, pay its debts as they become due; or
(h) (i) Any Person shall engage in any "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
(ii) any "accumulated funding deficiency" (as defined in Section 302 of
ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of
any Borrower or any Commonly Controlled Entity, (iii) a Reportable
Event shall occur with respect to, or proceedings shall commence to
have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Single Employer Plan, which Reportable
Event or commencement of proceedings or appointment of a trustee is, in
the reasonable opinion of the Majority Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any
Single Employer Plan shall terminate for purposes of Title IV of ERISA,
(v) any Borrower or any Commonly Controlled Entity shall, or in the
reasonable opinion of the Majority Lenders is likely to, incur any
liability in connection with a withdrawal from, or the Insolvency or
Reorganization of, a Multiemployer Plan or (vi) any other adverse event
or condition shall occur or exist with respect to a Plan; and in each
case in clauses (i) through (vi) above, such event or condition,
together with all other such events or conditions, if any, could
reasonably be expected to involve an aggregate amount of liability to
any Borrower or any Subsidiary in excess of $500,000; or
(i) One or more judgments or decrees shall be entered against any Borrower or
any Credit Party involving in the aggregate a liability (not paid or
fully covered by insurance) of $500,000 or more, and all such judgments
or decrees shall not have been vacated, discharged, stayed or bonded
pending appeal within thirty (30) days from the entry thereof; or
(j) (i) any of the Security Documents shall cease, for any reason (other than a
partial or full release in accordance with the terms hereof or
thereof), to be in full force and effect or any Borrower or any other
Credit Party which is a party to the Security Documents shall
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so assert, (ii) the Lien created by any of the Security Documents shall
cease to be enforceable and of the same effect and priority purported to be
created thereby, (iii) any Guarantee shall cease, for any reason, to be in
full force and effect or any Guarantor shall so assert, (iv) the HM
Services Subordination Agreement shall cease, for any reason, to be in
force and effect or any party thereto shall so assert, (v) the ZN Letter
Agreement shall cease, for any reason, to be in full force and effect or
any party thereto shall so assert or (vi) the ZN Net Worth Agreement shall
cease, for any reason, to be in full force and effect or any party thereto
shall so assert;
(k) Any Change in Control shall occur;
then, and in any such event, (i) if such event is an Event of Default
specified in clause (i) or (ii) of paragraph (g) of this Section 8 with
respect to the Borrowers, automatically the Commitments shall immediately
terminate and the Advances hereunder (with accrued interest thereon) and
all other amounts owing under this Agreement shall immediately become due
and payable, and (ii) if such event is any other Event of Default, either
or both of the following actions may be taken: (A) with the consent of the
Majority Lenders, the Agent may, or upon the request of the Majority
Lenders, the Agent shall, by notice to the Borrowers declare the
Commitments to be terminated forthwith, whereupon the Commitments shall
immediately terminate; and (B) with the consent of the Majority Lenders,
the Agent may, or upon the request of the Majority Lenders, the Agent
shall, by notice to the Borrowers, declare the Advances hereunder (with
accrued interest thereon) and all other amounts owing under this Agreement
to be due and payable forthwith, whereupon the same shall immediately
become due and payable. Except as expressly provided above in this Section
8, presentment, demand, protest and all other notices of any kind are
hereby expressly waived.
SECTION 9: THE AGENT
9.1 APPOINTMENT. (a) Each Lender hereby irrevocably designates and appoints
NationsBank, N.A., as the Agent of such Lender under this Agreement and
the other Credit Documents, and each such Lender irrevocably authorizes
the Agent, in such capacity, to take such action on its behalf under
the provisions of this Agreement and the other Credit Documents and to
exercise such powers and perform such duties as are expressly delegated
to the Agent by the terms of this Agreement and the other Credit
Documents, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in
this Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any
fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or any other Credit Document or otherwise
exist against the Agent.
9.2 DELEGATION OF DUTIES. The Agent may execute any of its duties under this
Agreement and the other Credit Documents by or through administrative
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The
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Agent shall not be responsible for the negligence or misconduct of any
administrative agents or attorneys-in-fact selected by it with reasonable
care.
9.3 EXCULPATORY PROVISIONS. Neither the Agent nor any of its officers,
directors, employees, administrative agents, attorneys-in-fact or
Affiliates shall be (i) liable for any action lawfully taken or omitted
to be taken by it or such Person under or in connection with this
Agreement or any other Credit Document (except for its or such Person's
own gross negligence or willful misconduct) or (ii) responsible in any
manner to any of the Lenders for any recitals, statements,
representations or warranties made by any Borrowers or any officer
thereof contained in this Agreement or any other Credit Document or in
any certificate, report, statement or other document referred to or
provided for in, or received by the Agent under or in connection with,
this Agreement or any other Credit Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Credit Document or for any failure of any
Borrower to perform its obligations hereunder or thereunder. The Agent
shall not be under any obligation to any Lender to ascertain or to
inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Credit
Document, or to inspect the properties, books or records of the
Borrowers.
9.4 RELIANCE BY AGENT. The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any Note, writing, resolution, notice,
consent, certificate, affidavit, letter, telecopy, telex or teletype
message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by
the proper Person or Persons and upon advice and statements of legal
counsel (including, without limitation, counsel to any Borrower),
independent accountants and other experts selected by the Agent.
Without limiting the foregoing or the obligation of the Borrowers to
confirm in writing any telephonic notice permitted to be given
hereunder, the Agent may prior to receipt of written confirmation act
without liability upon the basis of such telephonic notice, believed by
the Agent in good faith to be from a Responsible Officer of any
Borrower or Subsidiary. The Agent may deem and treat the payee of any
Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with
the Agent. The Agent shall be fully justified in failing or refusing to
take any action under this Agreement or any other Credit Document
unless it shall first receive such advice or concurrence of the
Majority Lenders as it deems appropriate or it shall first be
indemnified to its satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of taking
or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this
Agreement and the other Credit Documents in accordance with a request
of the Majority Lenders, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Lenders
and all future holders of the Advances.
9.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder
unless the Agent has received notice from a Lender or a Borrower
referring to this Agreement, describing such Default
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or Event of Default and stating that such notice is a "notice of
default". In the event that the Agent receives such a notice, the Agent
shall give notice thereof to the Lenders. The Agent shall take such
action with respect to such Default or Event of Default as shall be
reasonably directed by the Majority Lenders; PROVIDED that unless and
until the Agent shall have received such directions, the Agent may (but
shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default as it
shall deem advisable in the best interests of the Lenders.
9.6 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender expressly acknowledges
that neither the Agent nor any of its officers, directors, employees,
administrative agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it and that no act by the Agent
hereinafter taken, including any review of the affairs of the
Borrowers, shall be deemed to constitute any representation or warranty
by the Agent to any Lender. Each Lender represents to the Agent that it
has, independently and without reliance upon the Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the
business, operations, property, financial and other condition and
creditworthiness of the Borrowers and made its own decision to make its
Advances hereunder and enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon the
Agent or any other Lender, and based on such documents and information
as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking
action under this Agreement and the other Credit Documents, and to make
such investigation as it deems necessary to inform itself as to the
business, operations, property, financial and other condition and
creditworthiness of the Borrowers. Except for notices, reports and
other documents expressly required to be furnished to the Lenders by
the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of the
Borrowers which may come into the possession of the Agent or any of its
officers, directors, employees, administrative agents,
attorneys-in-fact or Affiliates.
9.7 INDEMNIFICATION. The Lenders agree to indemnify the Agent in its capacity
as such (to the extent not reimbursed by the Borrowers and without
limiting the joint and several obligation of the Borrowers to do so),
ratably according to their respective Commitment Percentages in effect
on the date on which indemnification is sought (such Commitment
Percentage to be determined as if there are not Defaulting Lenders),
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Advances) be
imposed on, incurred by or asserted against the Agent in any way
relating to or arising out of, the Commitments, this Agreement, any of
the other Credit Documents or any documents contemplated by or referred
to herein or therein or the transactions contemplated hereby or thereby
or any action taken or omitted by the Agent under or in connection with
any of the foregoing; PROVIDED that no Lender shall be liable for the
payment of any portion of
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such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely
from the Agent's gross negligence or willful misconduct. To the extent
that any Lender would be required to indemnify the Agent pursuant to
this subsection 9.7 but for the fact that it is a Defaulting Lender,
such Defaulting Lender shall not be entitled to receive any portion of
any payment or other distribution hereunder until each other Lender
shall have been reimbursed for the excess, if any, of the aggregate
amount paid by such Lender under this subsection 9.7 over the aggregate
amount that such Lender would have been obligated to pay had such first
Lender not been a Defaulting Lender. The agreements in this subsection
9.7 shall survive the payment of the Advances and all other amounts
payable hereunder.
9.8 AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and each of its respective
Affiliates may make Advances to, accept deposits from and generally
engage in any kind of business with the Borrowers as though the Agent
were not the Agent hereunder and under the other Credit Documents. With
respect to its Advances made or renewed by it and any Note issued to
it, the Agent shall have the same rights and powers under this
Agreement and the other Credit Documents as any Lender and may exercise
the same as though it were not the Agent, and the terms "Lender" and
"Lenders" shall include the Agent in its respective individual
capacity.
9.9 SUCCESSOR AGENT. The Agent may resign as Agent upon ten (10) days' notice
to the Lenders and Borrowers. If the Agent shall resign as Agent under
this Agreement and the other Credit Documents, then the Majority
Lenders shall appoint from among the Lenders a successor Agent for the
Lenders, which successor Agent (PROVIDED that it shall have been
approved by the Borrowers), shall succeed to the rights, powers and
duties of the Agent hereunder. Effective upon such appointment and
approval, the term "Agent" shall mean such successor Agent, and the
former Agent's rights, powers and duties as Agent shall be terminated,
without any other or further act or deed on the part of such former
Agent or any of the parties to this Agreement or any holders of the
Advances. After any retiring Agent's resignation as Agent, the
provisions of this Section 9 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under
this Agreement and the other Credit Documents.
SECTION 10: MISCELLANEOUS
10.1 AMENDMENTS AND WAIVERS. Neither this Agreement nor any other Credit
Document, nor any terms hereof or thereof, may be amended, supplemented
or modified except in accordance with the provisions of this subsection
10.1. The Majority Lenders may, or, with the written consent of the
Majority Lenders, the Agent may, from time to time, (a) enter into with
the Borrowers written amendments, supplements or modifications hereto
and to the other Credit Documents for the purpose of adding any
provisions to this Agreement or the other Credit Documents or changing
in any manner the rights of the Lenders or of the Borrowers hereunder
or thereunder or (b) waive, on such terms and conditions as the
Majority Lenders or the Agent, as the case may be, may specify in such
instrument, any of the requirements of this Agreement or the other
Credit Documents or
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<PAGE> 57
any Default or Event of Default and its consequences; PROVIDED,
HOWEVER, that no such waiver and no such amendment, supplement or
modification shall:
(i) reduce the amount or extend the scheduled date of maturity
of any Advance or of any installment thereof, or reduce
the stated rate of any interest or fee payable hereunder
or extend the scheduled date of any payment thereof or
increase the amount or extend the expiration date of any
Lenders' Commitments, in each case without the consent of
each Non-Defaulting Lender directly affected thereby;
(ii) amend, modify or waive any provision of this subsection 10.1
or reduce the percentage specified in the definition of
Majority Lenders, or consent to the assignment or
transfer by any Borrower of any rights and obligations
under this Agreement and the other Credit Documents, in
each case without the written consent of all the
Non-Defaulting Lenders;
(iii) consent to the assignment or transfer by any Borrower of
any rights and obligations under this Agreement and the
other Credit Documents, in each case without the written
consent of all the Non-Defaulting Lenders;
(iv) take any action having the effect of releasing any of the
material collateral or material guarantee obligations
provided for in any Guarantee, or any Security Document
in each case without the written consent of the
Non-Defaulting Lenders;
(v) amend, modify or waive any provision of Section 10 without
the written consent of the then Agent.
Any such waiver and any such amendment, supplement or modification
shall apply equally to each of the Lenders (including Defaulting
Lenders) and shall be binding upon each Borrower, the Lenders
(including Defaulting Lenders) , the Agent and all future holders of
the Advances. In the case of any waiver, the Borrowers, the Lenders
(including Defaulting Lenders) and the Agent shall be restored to their
former positions and rights hereunder and under the other Credit
Documents, and any Default or Event of Default waived shall be deemed
to be cured and not continuing; no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right
consequent thereon.
10.2 RELEASES OF COLLATERAL SECURITY AND GUARANTEE OBLIGATIONS. Notwithstanding
anything to the contrary contained herein or in any Security Document,
upon request of the Borrowers, the Agent shall (without any notice to
or vote or consent of any Lender) take any action which has the effect
of releasing any collateral security and/or guarantee obligations
provided for in any Credit Document to the extent necessary to permit
the consummation of any Proceeds Event or any asset dispositions
permitted by subsection 7.6; PROVIDED
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that (unless the Majority Lenders shall otherwise consent) the Proceeds
of any Proceeds Event are applied in the manner contemplated by
subsection 3.6 (if so required).
10.3 NOTICES. Unless otherwise expressly provided herein, all notices, requests
and demands to or upon the respective parties hereto to be effective
shall be in writing (including by facsimile transmission) and, unless
otherwise expressly provided herein, shall be deemed to have been duly
given or made (a) in the case of delivery by hand, when delivered, (b)
in the case of delivery by mail, three (3) days after being deposited
in the mails, postage prepaid, or (c) in the case of delivery by
facsimile transmission, when sent and receipt has been confirmed,
addressed as follows in the case of the Borrowers and the Agent, and as
set forth in SCHEDULE I in the case of the other parties hereto, or to
such other address as may be hereafter notified by the respective
parties hereto:
The Borrowers:
HomeMax, Inc.
11300 Cornell Park Drive
Cincinnati, Ohio 45242
Attention: Ronald G. Gratz,
Vice President and Chief Financial Officer
Telecopy: (513) 489-2667
Phone: (513) 489-8849
with a copy to:
---------------
Frost & Jacobs, LLP.
2500 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
Attention: Richard J. Erickson, Esq.
Telecopy: (513) 651-6981
Phone: (513) 651-6880
The Agent:
NationsBank, N.A.,
4161 Piedmont Parkway
Greensboro, North Carolina 27410
Attention: Cindy Williamson-Kohler, Vice President
Telecopy: (910) 805-2748
Phone: (910) 805-2040
with a copy to:
---------------
Shaw Pittman Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
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<PAGE> 59
Attention: M. David Krohn, Esq.
Telecopy: (212) 603-6801
Phone: (212) 603-6824
PROVIDED that any notice, request or demand to or upon the Agent pursuant
to subsection 2.2, 3.4 or 3.5 shall not be effective until received.
10.4 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in
exercising on the part of the Agent or any Lender, any right, remedy,
power or privilege hereunder or under the other Credit Documents shall
operate as a waiver thereof; nor shall any single or partial exercise
of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges herein
provided are cumulative and not exclusive of any rights, remedies,
powers and privileges provided by law.
10.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made hereunder, in the other Credit Documents and in any
document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the execution and delivery of this
Agreement and the making of the Advances hereunder.
10.6 PAYMENT OF EXPENSES AND TAXES. The Borrowers, jointly and severally, agree
(a) to pay or reimburse the Agent for all of its reasonable
out-of-pocket costs and expenses incurred in connection with the
development, preparation and execution of any amendment, supplement or
modification to, this Agreement and the other Credit Documents and any
other documents prepared in connection herewith or therewith, and the
consummation and administration of the transactions contemplated hereby
and thereby, including, without limitation, the reasonable fees and
disbursements of counsel to the Agent, (b) to pay or reimburse each
Lender and the Agent for all its costs and expenses incurred in
connection with the enforcement or preservation of any rights under
this Agreement, the other Credit Documents and any such other
documents, including, without limitation, the reasonable fees and
disbursements of counsel to each Lender and of counsel to the Agent,
(c) to pay, indemnify, and hold each Lender and the Agent harmless
from, any and all recording and filing fees and any and all liabilities
with respect to, or resulting from any delay in paying, stamp, excise
and other taxes, if any, which may be payable or determined to be
payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions contemplated
by, or any amendment, supplement or modification of, or any waiver or
consent under or in respect of, this Agreement, the other Credit
Documents and any such other documents, and (d) to pay, indemnify, and
hold each Lender and the Agent harmless from and against any and all
other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, the other Credit
Documents or the use of the proceeds of the Advances and any such other
documents, including, without limitation, any of the foregoing relating
to the violation of, noncompliance with or liability under, any
Environmental Law applicable to the
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<PAGE> 60
operations of any Borrower, any of its Subsidiaries or any of the
Properties (all the foregoing in this clause (d), collectively, the
"indemnified liabilities"), PROVIDED that the Borrowers shall have no
obligation hereunder to the Agent or any Lender with respect to
indemnified liabilities to the extent arising from the gross negligence
or willful misconduct of the Agent or such Lender. The agreements in
this subsection 10.6 shall survive repayment of the Advances and all
other amounts payable hereunder.
10.7 TERMINATION. This Agreement shall terminate upon the termination of all
Commitments and the irrevocable repayment in full of the aggregate
outstanding principal amount of the Advances, accrued interest thereon,
and all fees and expenses and other amounts due and payable at such
time under any of the Credit documents; provided that all indemnities
set forth herein including, without limitation, in subsections 3.13,
3.14, 3.15, 3.16, 9.7 and 10.6 shall survive such termination.
10.8 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS.
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrowers, the Lenders, the Agent and their respective successors and
assigns, except that no Borrower may assign or transfer any of its
rights or obligations under this Agreement without the prior written
consent of each Lender.
(b) Any Lender may, in the ordinary course of its commercial banking business
and in accordance with applicable law, at any time sell to one or more
banks or other financial institutions ("PARTICIPANTS") participating
interests in any Advance owing to such Lender, any Commitment of such
Lender or any other interest of such Lender hereunder and under the
other Credit Documents. In the event of any such sale by a Lender of a
participating interest to a Participant, such Lender's obligations
under this Agreement shall remain unchanged, such Lender shall remain
solely responsible for the performance thereof, such Lender shall
remain the holder of any such Advance for all purposes under this
Agreement and the other Credit Documents, and the Borrowers and the
Agent shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this
Agreement and the other Credit Documents. No Lender shall be entitled
to create in favor of any Participant, in the participation agreement
pursuant to which such Participant's participating interest shall be
created or otherwise, any right to vote on, consent to or approve any
matter relating to this Agreement or any other Credit Document except
for those specified in clauses (a) and (b) of the proviso to subsection
10.1. The Borrowers agree that if amounts outstanding under this
Agreement are due or unpaid, or shall have been declared or shall have
become due and payable upon the occurrence of an Event of Default, each
Participant shall, to the maximum extent permitted by applicable law,
be deemed to have the right of setoff in respect of its participating
interest in amounts owing under this Agreement to the same extent as if
the amount of its participating interest were owing directly to it as a
Lender under this Agreement, PROVIDED that, in purchasing such
participating interest, such Participant shall be deemed to have agreed
to share with the Lenders the proceeds thereof as fully as if it were a
Lender hereunder. The Borrowers also agree that each Participant shall
be entitled
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<PAGE> 61
to the benefits of subsections 3.14, 3.15 and 3.16 with respect to its
participation in the Commitments and the Advances outstanding from time
to time as if it was a Lender; PROVIDED that, in the case of subsection
3.15, such Participant shall have complied with the requirements of
said subsection and PROVIDED, FURTHER, that no Participant shall be
entitled to receive any greater amount pursuant to any such subsection
than the Lenders would have been entitled to receive in respect of the
amount of the participation transferred by such Lender to such
Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its commercial banking business
and in accordance with applicable law, at any time and from time to
time assign to any Lender or any affiliate thereof or, with the consent
of the Borrowers and the Agent (which in each case shall not be
unreasonably withheld), to an additional bank or financial institution
(an "ASSIGNEE") all or any part of its rights and obligations under
this Agreement and the other Credit Documents pursuant to an Assignment
and Acceptance, substantially in the form of EXHIBIT N, executed by
such Assignee, such assigning Lender (and, in the case of an Assignee
that is not then a Lender or an affiliate thereof, by the Borrowers and
the Agent) and delivered to the Agent for its acceptance and recording,
PROVIDED that, in the case of any such assignment to an additional bank
or financial institution, (x) the aggregate principal amount of the
Advance (or, prior to the Closing Date, Commitment) being assigned is
not less than $3,000,000 (or such lesser amount as may be agreed to by
the Borrowers and the Agent) and (y) if such assignment is of less than
all of the rights and obligations of the assigning Lender, the
aggregate principal amount of the Advance (or, prior to the Closing
Date, Commitment) remaining with the assigning Lender is not less than
$3,000,000 (or such lesser amount as may be agreed to by the Borrowers
and the Agent). Upon such execution, delivery, acceptance and recording
(and the payment of the registration and processing fee described in
clause (e) below), from and after the effective date determined
pursuant to such Assignment and Acceptance, (x) the Assignee thereunder
shall be a party hereto and, to the extent provided in such Assignment
and Acceptance, have the rights and obligations of a Lender hereunder
with a Commitment as set forth therein, and (y) the assigning Lender
thereunder shall, to the extent provided in such Assignment and
Acceptance, be released from its obligations under this Agreement (and,
in the case of an Assignment and Acceptance covering all or the
remaining portion of the Lenders' rights and obligations under this
Agreement, such assigning Lender shall cease to be a party hereto).
Notwithstanding any provision of this paragraph (c) of this subsection,
the consent of the Borrowers shall not be required for any assignment
which occurs at any time when any of the events described in subsection
8(g) shall have occurred and be continuing.
(d) The Agent, on behalf of the Borrowers, shall maintain at the address of the
Agent referred to in subsection 10.3 a copy of each Assignment and
Acceptance delivered to it and a register (the "REGISTER") for the
recordation of the names and addresses of the Lenders and the
Commitments of, and principal amounts of the Advances owing to, each
Lender from time to time. The entries in the Register shall, to the
extent permitted by applicable law, be prima facie evidence of the
existence and amounts of the obligations therein recorded. The
Borrowers, the Agent and the Lenders may (and, in the case of any
Advance or other
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<PAGE> 62
obligation hereunder not evidenced by a Note, shall) treat each Person
whose name is recorded in the Register as the owner of an Advance or
other obligation hereunder as the owner thereof for all purposes of
this Agreement and the other Credit Documents, notwithstanding any
notice to the contrary. Any assignment of any Advance or other
obligation hereunder not evidenced by a Note shall be effective only
upon appropriate entries with respect thereto being made in the
Register. The Register shall be available for inspection by any
Borrower or any Lender at any reasonable time and from time to time
upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an assigning
Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof, by the Borrowers and the Agent),
together with payment to the Agent of a registration and processing fee
of $2,500, the Agent shall (i) promptly accept such Assignment and
Acceptance and (ii) on the effective date determined pursuant thereto
record the information contained therein in the Register and give
notice of such acceptance and recordation to the Lenders and the
Borrowers; PROVIDED that no such fee shall be payable with respect to
any assignment from an assigning Lender to an affiliate thereof.
(f) The Borrowers authorize each Lender to disclose to any Participant or
Assignee (each, a "TRANSFEREE") and any prospective Transferee any and
all financial information in such Lenders' possession concerning any
Borrower and any Affiliate of a Borrower which has been delivered to
such Lender by or on behalf of such Borrower pursuant to this Agreement
or which has been delivered to such Lender by or on behalf of the
Borrowers in connection with such Lenders' credit evaluation of any
such Borrower and its Affiliates prior to becoming a party to this
Agreement.
(g) For avoidance of doubt, the parties to this Agreement acknowledge that the
provisions of this subsection 10.8 concerning assignments of Advances
and Notes relate only to absolute assignments and that such provisions
do not prohibit assignments creating security interests, including,
without limitation, any pledge or assignment by a Lender of any Advance
or Note to any Federal Reserve Bank in accordance with applicable law.
10.9 ADJUSTMENTS; SET-OFF.
(a) If any Lender (a "BENEFITED LENDER") at any time shall receive any payment
of all or part of its Advances or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by
set-off, pursuant to events or proceedings of the nature referred to in
subsection 8(g), or otherwise), in a greater proportion than any such
payment to or collateral received by any other Lender, if any, in
respect of such other Lenders' Advances or interest thereon, such
benefited Lender shall purchase for cash from the other Lenders such
portion of each such other Lenders' Advances, or shall provide such
other Lenders with the benefits of any such collateral, or the proceeds
thereof, as shall be necessary to cause such benefited Lender to share
the excess payment or benefits of such collateral or proceeds ratably
with each of the Lenders, and if after taking into account such sharing
the benefited Lender continues to have access to addition funds of
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<PAGE> 63
or collateral granted by any Borrower for application on account of its
debt, then the benefited Lender shall use such funds or collateral to
reduce debt of any Borrower held by it and share such payments and the
benefits of such collateral with the other Lenders; PROVIDED, HOWEVER,
that if all or any portion of such excess payment or benefits is
thereafter recovered from such benefited Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent
of such recovery, but without interest. The Borrowers, jointly and
severally, agree that each Lender so purchasing a portion of another
Lenders' Advances may exercise all rights of payment (including,
without limitation, rights of set-off) with respect to such portion as
fully as if such Lender were the direct holder of such portion.
(b) In addition to any rights and remedies of the Lenders provided by law, each
Lender shall have the right, without prior notice to any Borrower, any
such notice being expressly waived by each Borrower to the extent
permitted by applicable law, upon any amount becoming due and payable
by any Borrower hereunder (whether at the stated maturity, by
acceleration or otherwise) to set-off and appropriate and apply against
such amount any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time
held or owing by such Lender or any branch, agency or (to the extent
permitted by applicable law) banking affiliate thereof to or for the
credit or the account of any Borrower. Each Lender agrees promptly to
notify the Borrowers and the Agent or any Lender after any such set-off
and application made by such Lender, PROVIDED that the failure to give
such notice shall not affect the validity of the set-off and
application.
10.10 JOINT AND SEVERAL LIABILITY. WHETHER OR NOT EXPRESSLY STATED HEREIN OR IN
ANY OTHER CREDIT DOCUMENT, ALL OBLIGATIONS OF THE BORROWERS (OR OF ANY
BORROWER) HEREUNDER AND UNDER EACH OTHER CREDIT DOCUMENT (WHETHER IN
CONNECTION WITH ADVANCES OR OTHER OBLIGATIONS) ARE JOINT AND SEVERAL
OBLIGATIONS OF ALL BORROWERS.
10.11 MAXIMUM AMOUNT OF JOINT AND SEVERAL LIABILITY. To the extent that
applicable Law otherwise would render the full amount of the joint and
several obligations of any Subsidiary Borrower hereunder and under the
other Credit Documents invalid or unenforceable, such Subsidiary
Borrower's obligations hereunder and under the Credit Documents shall
be limited to the maximum amount which does not result in such
invalidity or unenforceability, PROVIDED, HOWEVER, that each Borrower's
obligations hereunder and under the other Credit Documents shall be
presumptively valid and enforceable to their fullest extend in
accordance with the terms hereof or thereof, as if this subsection
10.11 were not a part of this Agreement.
10.12 COUNTERPARTS. This Agreement may be executed by one or more of the parties
to this Agreement on any number of separate counterparts (including by
facsimile transmission), and all of said counterparts taken together
shall be deemed to constitute one and the same
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<PAGE> 64
instrument. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Borrowers and the Agent.
10.13 SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
10.14 INTEGRATION. This Agreement and the other Credit Documents represent the
agreement of the Borrowers, the Agent and the Lenders with respect to
the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Agent or any Lender relative to
subject matter hereof not expressly set forth or referred to herein or
in the other Credit Documents.
10.15 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NORTH CAROLINA.
10.16 SUBMISSION TO JURISDICTION; WAIVERS. Each Borrower hereby irrevocably and
unconditionally:
(a) submits for itself and its property in any legal action or proceeding
relating to this Agreement and the other Credit Documents to which it
is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the
Courts of the State of North Carolina, the courts of the United States
of America for the 4th Circuit, and appellate courts from any thereof,
(b) consent that any such action or proceeding may be brought in such courts and
waive any objection that it may now or hereafter have to the venue of
any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agree not to plead
or claim the same;
(c) agree that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to a Borrower
at its address set forth in subsection 10.3 or at such other address of
which the Lenders shall have been notified pursuant thereto;
(d) agree that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction; and
(e) waive, except in the case of extreme bad faith (and otherwise to the maximum
extent not prohibited by law), any right it may have to claim or
recover in any legal action or proceeding referred to in this
subsection 10.16 any special, exemplary, punitive or consequential
damages.
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<PAGE> 65
10.17 ACKNOWLEDGMENTS. The Borrowers hereby acknowledge that:
(a) each Borrower has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Credit Documents;
(b) neither the Agent nor any Lender has any fiduciary relationship with or
duty to any of the Borrowers arising out of or in connection with this
Agreement or any of the other Credit Documents, and the relationship
between Agent and Lenders, on the one hand, and the Borrowers, on the
other hand, in connection herewith is solely that of debtors and
creditors; and
(c) no joint venture is created hereby or by the other Credit Documents or
otherwise exists by virtue of the transactions contemplated hereby
among the Borrowers and the Lenders.
10.18 WAIVERS OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW,
THE BORROWERS, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
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<PAGE> 66
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
NATIONSBANK, N.A.,
AS AGENT AND LENDER
By: /s/ Cindy Williamson-Kohler
---------------------------------------
Cindy Williamson-Kohler
Vice President
HOMEMAX, INC.
By: /s/ Matthew S. Massarelli
--------------------------------------
Matthew S. Massarelli
Executive Vice President
HOMEMAX NORTH CAROLINA, INC.
HOMEMAX OHIO, INC.
HOMEMAX SOUTH CAROLINA, INC.
HOMEMAX TENNESSEE, INC.
By: /s/ Matthew S. Massarelli
--------------------------------------
Matthew S. Massarelli
President
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<PAGE> 67
HOMEMAX INDIANA, LLC
By: HOMEMAX, INC.
By: /s/ Matthew S. Massarelli
--------------------------------------
Matthew S. Massarelli
Executive Vice President
By: HOMEMAX NORTH CAROLINA, INC.
By: /s/ Matthew S. Massarelli
--------------------------------------
Matthew S. Massarelli
President
HOMEMAX KENTUCKY, LLC
By: HOMEMAX, INC.
By: /s/Matthew S. Massarelli
--------------------------------------
Matthew S. Massarelli
Executive Vice President
By: HOMEMAX NORTH CAROLINA, INC.
By: /s/ Matthew S. Massarelli
--------------------------------------
Matthew S. Massarelli
Executive Vice President
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<PAGE> 68
SCHEDULE I
----------
LENDERS; ADDRESSES FOR NOTICES
------------------------------
1. NATIONSBANK, N.A.,
4161 Piedmont Parkway
Greensboro, North Carolina 27410
Attention: Cindy Williamson-Kohler, Vice President
Telecopy: 910-805-2748
Phone: 910-805-2040
<PAGE> 69
SCHEDULE II
-----------
COMMITMENTS AND COMMITMENT PERCENTAGES
--------------------------------------
Lender Commitment Commitment Percentage
------ ---------- ---------------------
NATIONSBANK, N.A. $33,920,000 100%
<PAGE> 70
<TABLE>
<CAPTION>
SCHEDULE III
------------
HOMEMAX, INC. GROUP
SUBSIDIARIES:
-------------------
NAME STATUS JURISDICTION OF INCORPORATION OWNERSHIP PERCENTAGE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HomeMax Indiana, LLC Subsidiary Borrower Indiana 99%*
HomeMax Kentucky LLC Subsidiary Borrower Kentucky 99%*
HomeMax North Carolina, Inc. Subsidiary Borrower North Carolina 100%
HomeMax Ohio, Inc. Subsidiary Borrower Ohio 100%
HomeMax South Carolina, Inc. Subsidiary Borrower South Carolina 100%
HomeMax Tennessee, Inc. Subsidiary Borrower Tennessee 100%
HM Services, Inc. Guarantor Delaware 100%
HM Properties, Inc. Guarantor Delaware 100%
<FN>
* Remaining 1% ownership by HomeMax North Carolina, Inc.
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
SCHEDULE IV
-----------
HOMEMAX, INC. GROUP
INDEBTEDNESS
------------
LONG TERM INDEBTEDNESS
As Of February 19, 1998
ENTITY ISSUE TYPE BANK ISSUE MATURITY RATE AMOUNT
DATE DATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
HomeMax, Inc. 2/23/98 2/23/2003 Greater of $12,000,000
Promissory Note Prime Rate or the
NationsBank, N.A. Federal
Funds Effective Rate
(Agent)
HomeMax, Inc.
HomeMax Indiana, LLC
HomeMax Kentucky LLC
HomeMax North Carolina, Inc.
HomeMax Ohio, Inc.
HomeMax South Carolina, Inc.
HomeMax Tennessee, Inc.
</TABLE>
<PAGE> 72
SCHEDULE V
----------
HOMEMAX, INC. GROUP
U.C.C. Financing Statements
---------------------------
HomeMax, Inc.
1- Indiana Secretary of State
1- Kentucky Secretary of State
1- North Carolina Secretary of State
1- Ohio Secretary of State
1- Hamilton County, OH Recorder
1- South Carolina Secretary of State
1- Tennessee Secretary of State
HomeMax Indiana, LLC
1- Indiana Secretary of State
HomeMax Kentucky, LLC
1- Kentucky Secretary of State
HomeMax North Carolina, Inc.
1- North Carolina Secretary of State
1- Davie County, NC Recorder
1- Forsyth County, NC Recorder
1- Person County, NC Recorder
1- Wake County, NC Recorder
HomeMax Ohio, Inc.
1- Ohio Secretary of State
1- Hamilton County, OH Recorder
HomeMax South Carolina, Inc.
1- South Carolina Secretary of State
HomeMax Tennessee, Inc.
1- Tennessee Secretary of State
<PAGE> 73
HM Services, Inc.
1- Ohio Secretary of State
1- North Carolina Secretary of State
HM Properties (None)
<PAGE> 74
<TABLE>
<CAPTION>
SCHEDULE VI
-----------
HOMEMAX, INC. GROUP
LIENS
-----
<S> <C>
HomeMax, Inc. UCC-1 filings for furniture and computer
equipment leased from CLG, Inc. and
Colonial Pacific Leasing Corporation*
HomeMax Indiana, LLC N/A
HomeMax Kentucky LLC N/A
HomeMax North Carolina, Inc. N/A
HomeMax Ohio, Inc. N/A
HomeMax South Carolina, Inc. N/A
HomeMax Tennessee, Inc. N/A
HM Properties, Inc. N/A
HM Services, Inc. N/A
*See Attachment 1 to Schedule VI
</TABLE>
<PAGE> 75
<TABLE>
<CAPTION>
Attachment 1 to Schedule VI
---------------------------
LESSOR NATURE OF LEASE ITEMS LEASED UCC FILING
<S> <C> <C> <C>
CLG Inc. Equipment Lease Agreement Misc. computer equipment Yes
3001 Spring Forest Road dated 8/22/97 Modular Office Furniture
Raleigh, NC 27616 and Supplements
Colonial Pacific Leasing Company Master Equipment Lease Modular Office Furniture Yes
P.O. Box 120102 dated 9/22/97
Portland, OR 97281 and Addendums
</TABLE>
<PAGE> 76
SCHEDULE VII
------------
HOMEMAX, INC. GROUP
GUARANTEES
----------
HomeMax, Inc.
HomeMax Indiana, LLC
HomeMax Kentucky, LLC
HomeMax North Carolina, Inc.
HomeMax Ohio, Inc.
HomeMax South Carolina, Inc.
HomeMax Tennessee, Inc.
EACH OF THE ENTITIES LISTED ABOVE HAS DELIVERED THE FOLLOWING
GUARANTEES:
(1) Guarantee of $15,000,000 loan dated February 23, 1998 delivered
to NationsBank, as agent for itself and the other lenders (collectively,
"Lenders"), under the Credit Agreement between Zaring National Corporation and
Lenders dated February 23, 1998.
(2) Guarantee of $12,000,000 loan dated February 23, 1998 delivered
to NationsBank, as agent for itself and the other lenders (collectively,
"Lenders"), under the Credit Agreement between HomeMax, Inc. and Lenders dated
February 23, 1998.
<PAGE> 77
SCHEDULE VIII
-------------
<TABLE>
<CAPTION>
HOMEMAX, INC. GROUP
EXISTING INVESTMENTS
--------------------
Entity Investment
- ------ ----------
<S> <C>
HomeMax, Inc. Subsidiaries
HomeMax Indiana, LLC N/A
HomeMax Kentucky, LLC N/A
HomeMax North Carolina, Inc. N/A
HomeMax Ohio, Inc. N/A
HomeMax South Carolina, Inc. N/A
HomeMax Tennessee, Inc. N/A
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ZARING
NATIONAL CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 7,364
<SECURITIES> 0
<RECEIVABLES> 859
<ALLOWANCES> 0
<INVENTORY> 110,522
<CURRENT-ASSETS> 0
<PP&E> 25,752
<DEPRECIATION> (5,564)
<TOTAL-ASSETS> 150,028
<CURRENT-LIABILITIES> 0
<BONDS> 45,146
0
0
<COMMON> 25,099
<OTHER-SE> 24,371
<TOTAL-LIABILITY-AND-EQUITY> 150,028
<SALES> 198,300
<TOTAL-REVENUES> 198,300
<CGS> 164,231
<TOTAL-COSTS> 195,830
<OTHER-EXPENSES> 31,599
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,055
<INCOME-PRETAX> (1,178)
<INCOME-TAX> (588)
<INCOME-CONTINUING> (590)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (590)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
